Newly adopted rules will require open-end investment companies and certain insurance company managed separate accounts to include additional disclosure in their respective registration statements regarding market timing, fair valuation and portfolio holdings disclosure. These registrants will be required to make these disclosures in any initial registration statements or any post-effective amendments filed with the Commission on or after December 5, 2004.

Market Timing Disclosure

The new disclosure rules will require funds to disclose in their prospectuses the risks to funds and their shareholders caused by frequent purchases or redemptions of fund shares. These rules also will require disclosure of whether each fund's board of directors has adopted policies and procedures for dealing with such frequent trading. If a fund's board of directors has not adopted such policies and procedures, disclosure will need to be included in the fund's prospectus explaining why the board has determined that such policies and procedures are unnecessary. Specifically, in disclosing the policies and procedures, each fund will need to address whether the fund:

• discourages frequent trading;
• accommodates frequent trading; or
• has any policies or procedures for deterring frequent trading.

If the fund has policies and procedures for deterring frequent trading, the fund will need to describe these policies and procedures with specificity, including:

• any restrictions on the number of purchases or redemptions;
• any fees;
• any holding periods;
• any restrictions on the specific means by which a trading request is communicated/delivered; and
• any rights that the fund has to reject or impose conditions on accounts that have a history of frequent trading.

If the fund has any arrangements to permit frequent trading, a full description of these arrangements must be made in the fund's statement of additional information, as well as a cross-reference to this discussion in the fund's prospectus. In the fund's description of any such arrangements, the fund must disclose the identity of the persons permitted to engage in frequent trading and any compensation received in connection with these arrangements. The Commission emphasized that any such arrangements must be made consistent with the anti-fraud provisions of the federal securities laws and any fiduciary duties of the fund or its adviser.

Fair Value Pricing Disclosure

The new disclosure rules will require funds to disclose in their prospectuses the circumstances under which they will use fair value pricing and the effects of the use of fair value pricing. This new disclosure must provide specific information regarding the circumstances under which funds will use fair value pricing. However, the new disclosure rules do not require disclosure of specific methodologies or formulas that funds use to fair value their securities.

Disclosure Of Portfolio Holdings

Policies and Procedures Regarding Disclosure of Portfolio Holdings

As stated above, the new disclosure rules will require funds to describe in their statements of additional information their policies and procedures relating to disclosure of their portfolio holdings and any ongoing arrangements to disclose their portfolio holdings. In addition, registrants must also alert investors, through their prospectuses, to the disclosure of such policies and procedures in their respective statements of additional information. In adopting these disclosure rules, the Commission emphasized that investment companies or investment advisers may only disclose portfolio holdings consistent with the anti-fraud provisions of the federal securities laws and only for legitimate business purposes.

The description of a fund's policies and procedures relating to disclosure of portfolio holdings must include:

• how the procedures apply to different persons or entities;
• any restrictions on the use of the portfolio holdings information and any procedures to monitor the use of the information;
• the frequency with which the information is disclosed and any lag time between the date of the holdings and the disclosure to persons or entities;
• any policies regarding compensation received for disclosing such information;
• the persons who may authorize disclosure of portfolio holdings;
• any procedure to ensure that disclosure of portfolio holdings is in the best interest of fund shareholders, including any procedures to address conflicts of interest between fund shareholders and certain of the fund's service providers; and
• the manner in which the board of directors of the investment company oversees such policies and procedures.

Ongoing Arrangements to Make Portfolio Holdings Information Available

An investment company also must describe any ongoing arrangements to make available its portfolio holdings information. Such description must include:

• the identity of the persons who receive such information;
• any consideration received (including an agreement to keep assets in a particular fund);
• any restrictions on the use of the information, including any requirements to keep the information confidential and any procedures to monitor the use of the information;
• the frequency with which the information is disclosed and any lag time between the date of the holdings and the disclosure to persons or entities; and
• the persons who may authorize disclosure of portfolio holdings.

There are two exceptions to the requirement to disclose ongoing arrangements. First, a fund does not need to disclose ongoing arrangements if, no later than the time that the information is disclosed to a third person, the fund makes a required public filing with the SEC containing the same information. Second, a fund does not need to disclose ongoing arrangements if the information that is to be disclosed to a third party is also available on the fund's website, and investors have been alerted to this fact by disclosure in the fund's current prospectus.

Implementation

As stated above, funds must comply with these new disclosure rules in any initial registration statement or post-effective amendment filed with the Commission on or after December 5, 2004. It is important to note that the Commission stated that a fund should file its first registration statement with this new disclosure under Rule 485(a) of the Securities Act of 1933 because such disclosures will involve material changes to the registration statement. Accordingly, the 60-day review period of such filings should be considered as part of any implementation schedule.