UNITED STATES SECURITIES AND EXCHANGE COMMISSION DIVISION OF INVESTMENT MANAGEMENT WASHINGTON, D.C. 20549 May 19, 1998 Craig S. Tyle, Esq. General Counsel Investment Company Institute 1401 H Street, N.W. Washington, DC 20005-2148 Dear Mr. Tyle: Since the adoption of amended Form N-1A and rule 498 on March 13, 1998,[1] the Division of Investment Management has received many questions from mutual funds and their counsel regarding the Form and the rule. We are in the process of compiling a list of frequently asked questions and the answers that we have provided to these questions. We plan to make the list available in the near future and will send you a copy that we would ask that you share with your members. We believe, however, the immediate dissemination of answers to some of these questions may be helpful to registrants as they prepare to file new registration statements and fund profiles. The following is a discussion of these questions and answers. Rule 485(a) Filing We have been asked whether a post-effective amendment to a registration statement that has been updated to comply with the requirements of Form N-1A, as amended, should be filed under paragraph (a) or (b) of rule 485. As explained below, funds should file these post-effective amendments under rule 485(a). The amendments to Form N-1A require registration statement disclosure that is, in some cases, revised, and in other cases, such as the information required by Item 2 of the risk/return summary, completely new. When a post- effective amendment to a registration statement is filed to make non-material changes, or when an amendment is filed to update or change certain specified routine items, rule 485(b) provides for automatic effectiveness of the post-effective amendment. Amendments that make other changes to disclosure must be filed under rule 485(a). Because post-effective amendments filed to comply with the requirements of amended Form N-1A will likely involve substantial changes to disclosure that do not fall within the scope of rule 485(b), funds should file these amendments under rule 485(a). We recognize that the Commission will receive substantially more post-effective amendments filed under rule 485(a), particularly in 1999. Consequently, we encourage registrants to request selective review of their filings when appropriate.[2] Preparation of a Profile Before the Amended Prospectus Noting that the profile includes a risk/return summary that is substantially the same as the risk/return summary in a fund's prospectus, some registrants have asked whether a fund must revise its prospectus to comply with amended Form N-1A before filing a profile with the Commission. Although a fund must have an effective registration statement and a current prospectus under section 10(a) of the Securities Act before it may use a profile, there is no requirement that a fund first update its registration statement to comply with the requirements of amended Form N-1A. As a practical matter, we anticipate, however, that funds would prepare revised prospectuses and profiles concurrently because the profile will summarize information that is required by amended Form N-1A to be in a fund's prospectus. Filing and Use of the Profile Some funds have asked whether they may file a profile with the Commission before June 1, 1998, the effective date of rule 498, so that they may use a profile shortly after the rule becomes effective. We are in the process of making changes to the Commission's EDGAR system to accommodate the filing of the profile. We anticipate that new form types will not be available until June 1, 1998. Thus, the Commission will not accept profile filings before that date. In determining when a registrant will be able to first use a profile, funds should note that rule 497(k)(1) provides, generally, that a fund may not distribute a new form of profile to any person unless it has been on file with the Commission for 30 days. A fund may not be able to use the profile after 30 days, however, when a new profile is filed in connection with an initial registration statement, a post-effective amendment that adds a series of a fund to a registration statement, or when the profile reflects changes to a prospectus included in a post-effective amendment filed to update a registration statement under rule 485. In these cases, the profile may be used on the later of 30 days after it is filed or the date that the registration statement or post-effective amendment becomes effective. **FOOTNOTES** [1]: Investment Company Act Release No. IC-23064 (Mar. 13, 1998) (63 FR 13916) ("Form N-1A Adopting Release"); Investment Company Act Release No. IC-23065 (Mar. 13, 1998) (63 FR 13968). [2]: See Investment Company Act Release No. IC-13768 (Feb. 15, 1984) (49 FR 6708). ==========================================START OF PAGE 2====== Three-day Requirement Instruction 3 to Item 1(b)(1) of Form N-1A, as amended, requires a fund that receives a request for the Statement of Additional Information ("SAI"), the annual report, or the semi-annual report, to send the requested document within three business days of receipt of the request. An instruction to rule 498(c)(1)(v) contains a similar requirement and also requires a fund to send the prospectus upon request within three business days. We have been asked whether a fund must begin to comply with these requirements on June 1, 1998. A fund must begin to comply with the three business day requirement at the time its registration statement under amended Form N-1A becomes effective or when it begins to use a profile. The Form N-1A Adopting Release noted that the Commission's Office of Compliance Inspections and Examinations will examine fund compliance with the three business day requirement. We have been asked what a fund would need to show the staff to establish compliance with this requirement. A fund should show that it maintains policies and procedures, internally and with financial intermediaries through which shares of the fund may be purchased or sold, that assure that the fund honors requests for the prospectus, SAI, and annual/semi-annual reports within the three business day period. The fund also should be able to demonstrate that its policies and procedures in fact result in the timely distribution of documents subject to the three business day requirement. 4 to 6 Month Undertaking Item 32(b) of current Form N-1A requires that a new fund undertake to file a post-effective amendment containing updated financial statements within 4 to 6 months of the effective date of its registration statement ("4 to 6 month undertaking"). Newly organized funds filing a registration statement on current Form N-1A before December 1, 1998, and funds with pending or effective registration statements that have made a 4 to 6 month undertaking have asked whether they must comply with this requirement. The funds base their request on the Commission's decision to omit the requirement from amended Form N-1A. In the Form N-1A Adopting Release, the Commission stated that the costs associated with the 4 to 6 month update are not outweighed by the benefits that the information may provide to some investors. The Commission also noted that an investor interested in financial information about a fund's initial operations can obtain the information by requesting the fund's most recent shareholder report, which is generally available 6 to 8 months after the fund commences operations and begins selling shares to investors. For these reasons, the Commission decided that amended Form N-1A should not require the filing of updated financial statements for a new fund. We would not object if any newly organized investment company or series filing a registration statement on Form N- 1A before December 1, 1998 omits the 4 to 6 month undertaking. In addition, we would not object if an investment company or series with a pending or effective registration statement that includes a 4 to 6 month undertaking does not file the update. Our determination not to object under these circumstances is premised upon the fund providing an investor with an annual or semi-annual report upon request. * * * We hope that this information will be helpful to registrants. If you have any questions, please contact Markian Melnyk, Deputy Chief of the Office of Disclosure Regulation at (202) 942-0592. Thank you for communicating these positions to your membership. Sincerely, Barry D. Miller Associate Director