Summary ProspectusFebruary 16, 2009
The Securities and Exchange Commission (the "Commission") has adopted amendments to the rules and forms used by mutual funds to register and to offer their securities. This memorandum will discuss two key components of the amendments. First, the amendments require funds to provide a summary of key information at the beginning of their statutory prospectus. Second, the amendments provide funds the option to satisfy their statutory prospectus delivery obligations by delivering a "Summary Prospectus" and directing investors to information available on the internet. These new amendments take effect as of March 31, 2009 and funds may elect to comply any time after the effective date. Any new fund or series or any annual update filed on or after January 1, 2010 must comply with the amendments. In addition, any post-effective amendment to existing registration statements filed to comply with the amendments must be filed under Rule 485(a) of the Securities Act of 1933, as amended (the "Securities Act").
Summary Section at Front of Statutory Prospectus
The Commission has amended Form N-1A to require that every fund prospectus contain a summary section, presented in plain English, at the beginning of its statutory prospectus. This section will consist of specified key information and appear in a prescribed order.
Summary information must be presented separately for each fund covered by a multiple fund prospectus; however, information for multiple share classes of the same fund may be integrated. In addition, if certain specified information is identical for all funds covered by a multiple fund prospectus, that information may be integrated.
The summary section must contain the following information in the order listed. Information included in the summary section need not be repeated elsewhere in the prospectus, but no additional information may be included in the summary section.
- Investment objectives/goals - the summary section must begin with the fund's investment objectives or goals, exactly as required in the fund's current risk/return summary;
- Costs (fee table) - similar disclosure to the current fee table and example is required, with some modifications, e.g., funds, other than money market funds, must disclose their portfolio turnover rate for the most recent fiscal year and include an explanatory note (this disclosure must come immediately after the fee table example);
- Investments, risks, and performance - requires generally the same disclosure as currently required in the risk/return summary;
- Management - requires the name of each investment adviser and sub-adviser followed by the name, title and length of service of the fund's portfolio manager(s);
- Purchase and sale of fund shares - funds must state their minimum initial and subsequent investment requirements, that the shares are redeemable, and the procedure for redemption;
- Tax information - funds must include disclosures about the tax categories of their distributions; and
- Financial intermediary compensation - funds must include disclosures about financial intermediary compensation; funds must also include a statement, if applicable, identifying the existence of compensation arrangements with selling broker-dealers or other financial intermediaries and to alert investors to potential conflicts of interest.
New Delivery Option for Mutual Funds
The Commission has adopted amendments that replace Rule 498 of the Securities Act of 1933, the voluntary fund profile rule, with a revised Rule 498 that permits a fund to satisfy its prospectus delivery obligations by providing a Summary Prospectus to investors and making additional information available on the Internet and in paper upon request.
Under the revised Rule 498, any obligation of a fund to deliver a statutory prospectus is met if: (1) the Summary Prospectus is provided no later than the time of the carrying or delivery of the fund security; (2) the Summary Prospectus that is provided satisfies the rule requirements with respect to content; (3) the Summary Prospectus is not bound together with other materials, with an exception for variable insurance contracts; and (4) the conditions requiring additional information to be made available on the Internet are satisfied.
Communications relating to an offering will not be deemed to be a statutory prospectus if the Summary Prospectus has been delivered prior to or at the same time as the communication and the conditions relating to availability of additional information on the Internet have been satisfied. If a Summary Prospectus is used to satisfy a fund's delivery obligations, it must be given "greater prominence" than any other materials with which it is sent. The Commission has stated that "greater prominence" can be achieved by placing the Summary Prospectus on top of a group of other documents with which it is sent.
The "Summary Prospectus" Content
The Summary Prospectus must contain the same information as is required to be presented in the
summary section of the statutory prospectus in the same order. The Summary Prospectus may not omit any required, or add any additional, information. Also, like the summary section of the statutory prospectus, a fund must provide a separate Summary Prospectus for each fund in a multiple fund prospectus, but may describe multiple share classes.
The cover page or beginning of the Summary Prospectus must include:
- the fund's name and relevant share classes;
- the exchange ticker symbol of the fund's securities (the ticker symbol is now also required to be included on the cover page of a statutory prospectus and the statement of additional information ("SAI"));
- a statement identifying the document as a Summary Prospectus;
- the approximate date of first use of the Summary Prospectus; and
- a prescribed legend informing the investor of the advisability of reviewing the statutory prospectus and providing an Internet address, toll free (or collect) telephone number, and email address that investors can use to obtain the statutory prospectus.
Updating the Summary Prospectus
The fund is not required to update certain information in the Summary Prospectus, as was proposed, but if the fund does make performance information available online, then it must include a statement explaining this and providing investors with the applicable website address and/or telephone number.
Providing the Statutory Prospectus, SAI and Shareholder Reports
The Summary Prospectus, the statutory prospectus, the SAI, and the fund's most recent shareholder reports must be accessible, free of charge, on the Internet at the address specified on the cover page of the Summary Prospectus. The Summary Prospectus must be made available for at least 90 days after the security to which it relates is delivered.
If an investor requests either a paper copy or an electronic copy of a fund's statutory prospectus, SAI, and most recent shareholder reports, the fund must send such document within three business days of the request. A request for electronic copies can be met by sending a direct link to the document provided that: (i) a current version of the document remains accessible through that link for six months from the time the e-mail is sent and the e-mail explains how long the link will be active; and (ii) the investor can download or save the document.
Formatting and Technological Requirements
The rule sets forth the following requirements regarding the information made available on the Internet:
- "human-readable" - the adoption of the "human-readable" requirement provides that information made available online must be presented in human-readable text, rather than in machine-readable software code;
- linked between documents - the Summary Prospectus must be linked to the statutory prospectus and the SAI so that a person may either: (i) go back and forth between each section of the Summary Prospectus and any section of the statutory prospectus or SAI that provides additional information or (ii) go back and forth between links appearing at both the beginning and end of the Summary Prospectus, or links that remain continuously visible, and the table of contents of both the statutory prospectus and the SAI;
- linked within documents - each section heading of a table of contents must be linked to the relevant section within that document; and
- permanently retainable - a person accessing information online must be able to retain, free of charge, an electronic version of each document made available and in a format that permits the person to go back and forth between the table of contents and relevant sections of that document.
Safe Harbor for Events Beyond a Fund's Control
The Commission has recognized that occasionally a fund may be out of compliance with these requirements for reasons beyond the fund's control, for example, due to a system outage or other technological issue or natural disaster. The rule, therefore, creates a safe harbor which states that the conditions regarding Internet availability of the required materials will be deemed to be met, even if they are unavailable for a time in the manner required, provided that the fund: (i) has reasonable procedures in place to ensure that materials are available in the required manner and (ii) takes prompt action to ensure that the materials become available as soon as practicable after the fund knows or should have known that the materials were not available.
Incorporation by Reference
Subject to certain conditions, the rule permits a Summary Prospectus to incorporate by reference all of the information contained in the fund's statutory prospectus and SAI, as well as any information from the fund's shareholder reports that the fund has incorporated by reference into its statutory prospectus. A fund cannot incorporate by reference any information that is required to be in the Summary Prospectus.
The rule requires that each Summary Prospectus be filed with the Commission on EDGAR no later than the date that it is first used. The Summary Prospectus must be filed as part of the registration statement, but will not be deemed part of the registration statement for purposes of Section 11 of the Securities Act which imposes liability for any false or misleading statement contained in a registration statement.
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We hope this information is useful to you. If you have any questions, please do not hesitate to contact us.
Godfrey & Kahn Investment Management Practice Group
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