Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-end Management Investment Companies

A Small Entity Compliance Guide¹

Introduction

On January 13, 2009, the Securities and Exchange Commission ("SEC") issued amendments to Form N-1A, the registration form used by mutual funds, in order to enhance the disclosures that are provided to mutual fund investors. The amendments require key information to appear in plain English in a standardized order at the front of the mutual fund statutory prospectus. The SEC also issued amendments to rule 498 that permit mutual funds to satisfy their prospectus delivery obligations under the Federal securities laws by sending or giving the key information directly to investors in the form of a "Summary Prospectus" and providing the statutory prospectus on an Internet Web site. Upon an investor's request, mutual funds are also required to send the statutory prospectus to the investor. These amendments are intended to improve mutual fund disclosure by providing investors with key information in plain English in a clear and concise format, while enhancing the means of delivering more detailed information to investors.

Is a mutual fund required to comply with the form and rule amendments?

Every mutual fund will be required to include a summary section at the front of its statutory prospectus. However, the use of a Summary Prospectus to satisfy prospectus delivery obligations is not required.

What information is required in the summary section of a statutory prospectus?

The summary section of a statutory prospectus must consist of the following key information presented in the following order:

• The mutual fund's investment objectives or goals.

• A fee table and example that disclose the costs of investing in the mutual fund and the fund's portfolio turnover rate.

• The mutual fund's principal investment strategies and risks, including a bar chart and table illustrating the variability of returns and showing the fund's past performance.

• The name of each investment adviser and sub-adviser of the mutual fund, followed by the name, title, and length of service of the fund's portfolio managers.

• Brief disclosure of purchase and sale and tax information.

• Information regarding compensation of financial intermediaries.

The summary information must be presented at the front of the statutory prospectus and must be written in plain English. This information should not be preceded with any information other than the cover page or table of contents.

What information is required in the Summary Prospectus?

If a mutual fund relies on rule 498 to use a Summary Prospectus in meeting its statutory prospectus delivery obligations, the information contained in the Summary Prospectus generally must be the same as the information contained in the summary section of the fund's statutory prospectus.

Are there page limits or other formatting requirements?

There is no page limit to the Summary Prospectus or summary section of the prospectus. However, the intent of the amendments is that mutual funds prepare a concise summary of key information, on the order of three or four pages.

Are multiple fund or multiple class summaries permitted?

• A summary section must be presented separately for each fund covered by a multiple fund prospectus, and the information for multiple funds may not be integrated. However, a multiple fund prospectus will be permitted to integrate information about purchase and sale of fund shares, taxes, and financial intermediary compensation if it is identical for all funds covered in the prospectus.

• A Summary Prospectus may cover only one fund.

• A summary section or Summary Prospectus may describe multiple classes of a single fund.

What documents are required to be posted on the Internet by a mutual fund using a Summary Prospectus to satisfy its prospectus delivery obligations?

A mutual fund may satisfy its prospectus delivery obligations under the Federal securities laws by sending or giving a Summary Prospectus and posting the statutory prospectus and other information on the Internet. Specifically, the fund's current Summary Prospectus, statutory prospectus, statement of additional information ("SAI"), and most recent annual and semi-annual reports to shareholders are required to be accessible, free of charge, at a Web site address specified on the cover page or at the beginning of the Summary Prospectus.

What are the formatting requirements for materials posted on the Internet?

• Presentation of Information: Information posted on the Internet should be presented in a format that is convenient for both reading online and printing on paper.

• Linking within the Statutory Prospectus and SAI: The online versions of the statutory prospectus and SAI must permit users to move directly back and forth (i.e., by a single mouse click) between each section heading in a table of contents of the document and the section of the document referenced in that section heading. The linked table of contents may be outside the document, e.g., in a separate frame or panel of the computer screen.

• Linking Between Documents: The online version of the Summary Prospectus must permit users to move directly back and forth between either:

  • each section of the Summary Prospectus and any section of the statutory prospectus and SAI that provides additional detail concerning that section of the Summary Prospectus; or

  • links located at both the beginning and end of the Summary Prospectus, or that remain continuously visible to persons accessing the Summary Prospectus, and tables of contents of both the statutory prospectus and the SAI (that satisfy the "Linking within the Statutory Prospectus and SAI" requirement described above).

• Ability to Retain Documents: The Web site must permit users to permanently retain, free of charge, an electronic version of the Summary Prospectus, statutory prospectus, SAI, and shareholder reports.

• Safe Harbor: There may be circumstances when, due to events beyond a mutual fund's control, such as natural disasters or system outages or other technological issues, a fund is temporarily not in compliance with the Internet posting requirements. For that reason, a safe harbor provision provides temporary relief from these requirements under certain conditions.

What are the obligations to deliver other documents in connection with the Summary Prospectus?

Rule 498 requires a fund to send, upon request, the statutory prospectus, SAI, and most recent annual and semi-annual shareholder report in paper or by e-mail within three business days at no cost to the requestor.

Can sales and other materials accompany the Summary Prospectus?

• Yes, provided that the Summary Prospectus is:

  • given "greater prominence" than sales and other accompanying materials (for example, the Summary Prospectus should be placed on top of accompanying sales materials); and

  • not bound together with any materials.

• However, a Summary Prospectus for a fund that is available as an investment option in a variable annuity or variable life insurance contract may be bound together with the statutory prospectus for the contract and Summary Prospectuses and statutory prospectuses for other investment options available under the contract.

• A Summary Prospectus need not be given "greater prominence" than other Summary Prospectuses or statutory prospectuses that accompany the Summary Prospectus.

Can information be incorporated by reference into the Summary Prospectus?

• Yes, additional information from the following can be incorporated by reference into a fund's Summary Prospectus:

  • statutory prospectus,

  • SAI, and

  • information from a fund's annual and semi-annual shareholder reports.

• A fund cannot incorporate by reference information from shareholder reports into the Summary Prospectus, unless that information has also been incorporated by reference into the statutory prospectus.

• Information may be incorporated by reference into the Summary Prospectus only by reference to the specific document that contains the information. The Summary Prospectus legend must specify the type of document (e.g., statutory prospectus) from which the information is incorporated and the date of the document. If a fund incorporates by reference part of a document, the Summary Prospectus legend must clearly identify the part by page, paragraph, caption or otherwise.

• A fund cannot incorporate by reference information from any other source or any information required to be disclosed in the Summary Prospectus.

What are the filing requirements for the Summary Prospectus?

A Summary Prospectus is required to be filed with the SEC through its Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") system no later than the date that it is first used. A Summary Prospectus that is filed on EDGAR will be publicly available; however, a fund may not rely on this availability to satisfy the requirements to post the document online.

What are the compliance dates for the amendments?

The effective date of the amendments is March 31, 2009.

All initial registration statements on Form N-1A, and all post-effective amendments that are either annual updates to effective registration statements, or that add a new series, filed on or after January 1, 2010, must comply with the amendments to Form N-1A.

The final compliance date for filing amendments to effective registration statements to comply with the new Form N-1A requirements is January 1, 2011.

A mutual fund may not rely on a Summary Prospectus and rule 498 to satisfy its prospectus delivery obligations until the fund's statutory prospectus includes a summary section that complies with the amendments to Form N-1A.

Other Resources

The adopting release for the amendments can be found on the SEC's Web site at http://www.sec.gov/rules/final/2009/33-8998.pdf.

Form N-1A and rule 498 can be accessed through the "Investment Management" section of the SEC's website at http://www.sec.gov/divisions/investment.shtml.

Contacting the SEC

The SEC's Division of Investment Management is happy to assist small companies with questions regarding mutual fund disclosure. You can contact the Division's Office of Disclosure Regulation at (202) 551-6784.

¹ This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a "small entity compliance guide" under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.

http://www.sec.gov/rules/final/2009/33-8998-secg.htm