SECURITIES AND EXCHANGE COMMISSION 

17 CFR Parts 230, 232, 239, and 274 

[Release Nos. 33-8998; IC-28584; File No. S7-28-07] 

RIN 3235-AJ44 

ENHANCED DISCLOSURE AND NEW PROSPECTUS DELIVERY OPTION 

FOR REGISTERED OPEN-END MANAGEMENT INVESTMENT COMPANIES 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange Commission is adopting amendments to the 

form used by mutual funds to register under the Investment Company Act of 1940 and to 

offer their securities under the Securities Act of 1933 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 Commission is also adopting rule amendments that permit a person to 

satisfy its mutual fund prospectus delivery obligations under Section 5(b)(2) of the 

Securities Act 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. Finally, the Commission is adopting additional amendments that are intended 

to result in the disclosure of more useful information to investors who purchase shares of 

exchange-traded funds on national securities exchanges. 
DATES: Effective date: March 31, 2009. 

Compliance Date: See Part III.D. of this release for information on compliance dates. 

FOR FURTHER INFORMATION CONTACT: Kieran G. Brown, Senior Counsel; 

Sanjay Lamba, Senior Counsel; Devin F. Sullivan, Attorney; or Mark T. Uyeda, Assistant 

Director, Office of Disclosure Regulation, at (202) 551-6784, or, with respect to 

exchange-traded funds, Adam B. Glazer, Senior Counsel, Office of Regulatory Policy, at 

(202) 551-6792, Division of Investment Management, Securities and Exchange 

Commission, 100 F Street, NE., Washington, DC 20549-5720. 

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 

(“Commission”) is adopting amendments to rules 159A,1 482,2 485,3 497,4 and 4985 

under the Securities Act of 1933 (“Securities Act”) and rules 3046 and 4017 of Regulation 

S-T.8 The Commission is also adopting amendments to Form N-1A,9 the form used by 

open-end management investment companies to register under the Investment Company 

Act of 1940 (“Investment Company Act”) and to offer securities under the Securities Act; 

1 17 CFR 230.159A. 

2 17 CFR 230.482. 

3 17 CFR 230.485. 

4 17 CFR 230.497. 

5 17 CFR 230.498. 

6 17 CFR 232.304. 

7 17 CFR 232.401. 

8 17 CFR 232.10 et seq. 

9 17 CFR 239.15A and 274.11A. 

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Form N-4,10 the form used by insurance company separate accounts organized as unit 

investment trusts and offering variable annuity contracts to register under the Investment 

Company Act and to offer securities under the Securities Act; and Form N-14,11 the form 

used by registered management investment companies and business development 

companies to register under the Securities Act securities to be issued in business 

combinations. 

10 17 CFR 239.17b and 274.11c. 

11 17 CFR 239.23. 

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Table of Contents 

I. EXECUTIVE SUMMARY .................................................................................... 7

II. BACKGROUND .................................................................................................... 8

III. DISCUSSION....................................................................................................... 15

A. Amendments to Form N-1A ..................................................................... 15

1. General Instructions to Form N-1A .............................................. 17

2. Exchange Ticker Symbols ............................................................ 26

3. Information Required in Summary Section .................................. 27

a. Elimination of Proposed Portfolio Holdings 

Requirement...................................................................... 27

b. Order of Information......................................................... 30

c. Investment Objectives and Goals...................................... 32

d. Fee Table........................................................................... 32

e. Investments, Risks, and Performance ............................... 43

f. Management...................................................................... 45

g. Purchase and Sale of Fund Shares .................................... 47

h. Tax Information ................................................................ 47

i. Financial Intermediary Compensation.............................. 48

4. Exchange-Traded Funds ............................................................... 51

a. Purchasing and Redeeming Shares ................................... 52

b. Total Return ...................................................................... 54

c. Premium/Discount Information ........................................ 56

5. Conforming and Technical Amendments to Form N-1A ............. 59

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B. New Delivery Option for Mutual Funds................................................... 60

1. Use of Summary Prospectus and Satisfaction of Statutory 

Prospectus Delivery Requirements............................................... 60

2. Content of Summary Prospectus................................................... 70

a. General.............................................................................. 71

b. Cover Page or Beginning of Summary Prospectus........... 74

c. Updating Requirements .................................................... 77

3. Provision of Statutory Prospectus, SAI, and 

Shareholder Reports...................................................................... 81

a. Documents Required to be Provided on the Internet........ 82

b. Formatting Requirements for Information 

Provided on the Internet.................................................... 84

c. Technological Requirements for Online Information....... 86

d. Ability to Retain Documents ............................................ 91

e. Safe Harbor for Temporary Noncompliance .................... 92

f. Requirement to Send Documents...................................... 93

4. Incorporation by Reference........................................................... 95

a. Permissible Incorporation by Reference........................... 95

b. Effect of Incorporation by Reference ............................. 106

5. Filing Requirements for the Summary Prospectus ..................... 110

C. Technical and Conforming Amendments ............................................... 113

D. Compliance Date..................................................................................... 114

IV. PAPERWORK REDUCTION ACT................................................................... 115

V. COST/BENEFIT ANALYSIS............................................................................ 126

VI. CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION, 

AND CAPITAL FORMATION ......................................................................... 143

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VII. FINAL REGULATORY FLEXIBILITY ANALYSIS ...................................... 145

VIII. STATUTORY AUTHORITY ............................................................................ 152

TEXT OF FINAL RULE AND FORM AMENDMENTS............................................. 152 

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I. EXECUTIVE SUMMARY 

Today, the Commission is adopting an improved mutual fund disclosure 

framework that it originally proposed in November 2007.12 This improved disclosure 

framework is intended to provide investors with information that is easier to use and 

more readily accessible, while retaining the comprehensive quality of the information that 

is available today. The foundation of the improved disclosure framework is the provision 

to all investors of streamlined and user-friendly information that is key to an investment 

decision. 

To implement the new disclosure framework, we are adopting amendments to 

Form N-1A that will require every prospectus to include a summary section at the front 

of the prospectus, consisting of key information about the fund, including investment 

objectives and strategies, risks, costs, and performance. We are also adopting a new 

option for satisfying prospectus delivery obligations with respect to mutual fund 

securities under the Securities Act. Under the option, key information will be sent or 

given to investors in the form of a summary prospectus (“Summary Prospectus”), and the 

statutory prospectus will be provided on an Internet Web site.13 Funds that select this 

option will also be required to send the statutory prospectus to the investor upon request. 

In addition, the Commission is adopting amendments to Form N-1A relating to 

exchange-traded funds (“ETFs”) that we proposed in a separate release in March 2008.14 

12 Investment Company Act Release No. 28064 (Nov. 21, 2007) [72 FR 67790 (Nov. 30, 

2007)] (“Proposing Release”). 

13 A “statutory prospectus” is a prospectus that meets the requirements of Section 10(a) of 

the Securities Act [15 U.S.C. 77j(a)]. 

14 See Investment Company Act Release No. 28193 (Mar. 11, 2008) [73 FR 14618 (Mar. 

18, 2008)] (“ETF Proposing Release”). 

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These amendments are intended to result in the disclosure of more useful information to 

investors who purchase shares of exchange-traded funds on national securities exchanges. 

II. BACKGROUND 

Millions of individual Americans invest in shares of open-end management 

investment companies (“mutual funds”),15 relying on mutual funds for their retirement, 

their children’s education, and their other basic financial needs.16 These investors face a 

difficult task in choosing among the more than 8,000 available mutual funds.17 Fund 

prospectuses, which have been criticized by investor advocates, representatives of the 

fund industry, and others as being too long and complicated, often prove difficult for 

investors to use efficiently in comparing their many choices.18 Current Commission rules 

15 An open-end management investment company is an investment company, other than a 

unit investment trust or face-amount certificate company, that offers for sale or has 

outstanding any redeemable security of which it is the issuer. See Sections 4 and 5(a)(1) 

of the Investment Company Act [15 U.S.C. 80a-4 and 80a-5(a)(1)]. 

16 Investment Company Institute, 2008 Investment Company Fact Book, at 70 (2008) 

(“2008 ICI Fact Book”), available at http://www.ici.org/pdf/2008_factbook.pdf (88 

million individual investors own mutual funds). 

17 Id. at 16 (in 2007, there were 8,752 mutual funds). 

18 See, e.g., Don Phillips, Managing Director, Morningstar, Inc., Transcript of U.S. 

Securities and Exchange Commission Interactive Data Roundtable, at 26 (June 12, 2006), 

available at http://www.sec.gov/spotlight/xbrl/xbrlofficialtranscript0606.pdf (“June 12 

Roundtable Transcript”) (stating that current prospectus is “bombarding investors with 

way more information than they can handle and that they can intelligently assimilate”). 

A Webcast archive of the June 12 Interactive Data Roundtable is available at 

http://www.connectlive.com/events/secxbrl/. See also Investment Company Institute, 

Understanding Preferences for Mutual Fund Information, at 8 (Aug. 2006), available at 

http://ici.org/pdf/rpt_06_inv_prefs_summary.pdf (“ICI Investor Preferences Study”) 

(noting that sixty percent of recent fund investors describe mutual fund prospectuses as 

very or somewhat difficult to understand, and two-thirds say prospectuses contain too 

much information); Associated Press Online, Experts: Investors Face Excess Information 

(May 25, 2005) (“There is broad agreement . . . that prospectuses have too much 

information . . . to be useful.” (quoting Mercer Bullard, President, Fund Democracy, 

Inc.)); Thomas P. Lemke and Gerald T. Lins, The “Gift” of Disclosure: A Suggested 

Approach for Managed Investments, The Investment Lawyer, at 19 (Jan. 2001) (stating 

that the fund prospectus “typically contains more information than the average investor 

needs”). 

8
19 

require mutual fund prospectuses to contain key information about investment objectives, 

risks, and expenses that, while important to investors, can be difficult for investors to 

extract. Prospectuses are often long, both because they contain a wealth of detailed 

information, which our rules require, and because prospectuses for multiple funds are 

often combined in a single document. Too frequently, the language of prospectuses is 

complex and legalistic, and the presentation formats make little use of graphic design 

techniques that would contribute to readability. 

Numerous commentators have suggested that investment information that is key 

to an investment decision should be provided in a streamlined document with other more 

detailed information provided elsewhere.19 Furthermore, recent investor surveys indicate 

that investors prefer to receive information in concise, user-friendly formats.20 

See, e.g., Charles A. Jaffe, Improving Disclosure of Funds Can Be Done, The Fort Worth 

Star-Telegram (May 7, 2006) (“Bring back the profile prospectus, and make its use 

mandatory. . . . A two page-summary of [the] key points [in the profile] – at the front of 

the prospectus – would give investors the bare minimum of what they should know out of 

the paperwork.”); Experts: Investors Face Excess Information, supra note 18 (stating “a 

possible middle ground in the disclosure debate is to rely more heavily on so-called 

profile documents which provide a two-page synopsis of a fund” (attributing statement to 

Mercer Bullard, President, Fund Democracy, Inc.)); Mutual Funds: A Review of the 

Regulatory Landscape, Hearing Before the Subcomm. on Capital Markets, Insurance and 

Government Sponsored Enterprises of the Comm. on Financial Services, U.S. House of 

Representatives, 109th Cong. (May 10, 2005), at 24 (“To my mind, a new and enhanced 

mutual fund prospectus should have two core components. It should be short, addressing 

only the most important factors about which typical fund investors care in making 

investment decisions, and it should be supplemented by additional information available 

electronically, specifically through the Internet, unless an investor chooses to receive 

additional information through other means.” (Testimony of Barry P. Barbash, then 

Partner, Shearman & Sterling LLP)); Thomas P. Lemke and Gerald T. Lins, The “Gift” 

of Disclosure: A Suggested Approach for Managed Investments, supra note 18, at 19 

(information that is important to investors includes goals and investment policies, risks, 

costs, performance, and the identity and background of the manager). 

In addition, a mutual fund task force organized by the National Association of Securities 

Dealers, Inc. (“NASD”) supported the use of a “profile plus” document, on the Internet, 

that would include, among other things, basic information about a fund’s investment 

strategies, risks, and total costs, with hyperlinks to additional information in the 

prospectus. See NASD Mutual Fund Task Force, Report of the Mutual Fund Task Force: 

Mutual Fund Distribution (Mar. 2005), available at 

9
Similar opinions were voiced at a roundtable held by the Commission in June 

2006, at which representatives from investor groups, the mutual fund industry, analysts, 

and others discussed how the Commission could change the mutual fund disclosure 

framework so that investors would be provided with better information. Significant 

discussion at the roundtable concerned the importance of providing mutual fund investors 

with access to key fund data in a shorter, more easily understandable format.21 The 

participants focused on the importance of providing mutual fund investors with shorter 

disclosure documents, containing key information, with more detailed disclosure 

documents available to investors and others who choose to review additional 

information.22 There was consensus among the roundtable participants that the key 

information that investors need to make an investment decision includes information 

http://www.finra.org/web/groups/rules_regs/documents/rules_regs/p013690.pdf (“NASD 

Mutual Fund Task Force Report”). The name of NASD has been changed to the 

Financial Industry Regulatory Authority, Inc. (“FINRA”). 

20 See ICI Investor Preferences Study, supra note 18, at 29 (“Nearly nine in 10 recent fund 

investors say they prefer a summary of the information they want to know before buying 

fund shares, either alone or along with a detailed document . . . . Just 13 percent prefer to 

receive only a detailed document.”); Barbara Roper and Stephen Brobeck, Consumer 

Federation of America, Mutual Fund Purchase Practices, at 13-14 (June 2006), available 

at http://www.consumerfed.org/pdfs/mutual_fund_survey_report.pdf (survey respondents 

more likely to consult a fund summary document rather than a prospectus or other written 

materials). 

21 See, e.g., Henry H. Hopkins, Vice President and Chief Legal Counsel, T. Rowe Price 

Group, Inc., June 12 Roundtable Transcript, supra note 18, at 31 (“[S]hareholders prefer 

receiving a concise summary of fund information before buying.”). 

22 See, e.g., Don Phillips, Managing Director, Morningstar, Inc., id. at 27 (stating that 

mutual fund investors need two different documents, including a simplified print 

document and a tagged electronic document); Paul Schott Stevens, President and Chief 

Executive Officer, Investment Company Institute, id. at 72-73 (urging the Commission to 

consider permitting mutual funds to “deliver a clear concise disclosure document . . . 

much like the profile prospectus” with a statement that additional disclosure is available 

on the funds’ Web site or upon request in paper). 

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about a mutual fund’s investment objectives and strategies, risks, costs, and 

performance.23 

The roundtable participants also discussed the potential benefits of increased 

Internet availability of fund disclosure documents, which include, among other things, 

facilitating comparisons among funds and replacing “one-size-fits-all” disclosure with 

disclosure that each investor can tailor to his or her own needs.

24 In recent years, access 

to the Internet has greatly expanded,25 and significant strides have been made in the speed 

23 See, e.g., Barbara Roper, Director of Investor Protection, Consumer Federation of 

America, id. at 20 (noting that there is “agreement to the point of near unanimity about 

the basic factors that investors should consider when selecting a mutual fund. These 

closely track the content of the original fund profile with highest priority given to 

investment objectives and strategies, risks, costs, and past performance particularly as it 

relates to the volatility of past returns.”). See also Paul G. Haaga, Jr., Executive Vice 

President, Capital Research and Management Company, id. at 90 (stating that the 

Commission should “specify some minimum amounts of information” to provide 

investors with “something along the lines of the [fund] profile”); Henry H. Hopkins, Vice 

President and Chief Legal Counsel, T. Rowe Price Group, Inc., id. at 31 (“The profile is 

an excellent well organized disclosure document whose content requirements were 

substantiated by SEC-sponsored focus groups and an industry pilot program.”). 

24 See, e.g., Paul Schott Stevens, President and Chief Executive Officer, Investment 

Company Institute, id. at 70-71 (stating that the Internet can serve as “far more than a 

stand-in for paper documents . . . . It can . . . put investors in control when it comes to 

information about their investments.”); Don Phillips, Managing Director, Morningstar, 

Inc., id. at 49 (discussing “the ability to use the Internet as a tool for comparative 

shopping”). 

25 Recent surveys show that Internet use among adults is at an all time high with 

approximately three quarters of Americans having access to the Internet. See A 

Typology of Information and Technology Users, Pew Internet & American Life Project, 

at 2 (May 2007), available at http://www.pewinternet.org/pdfs/PIP_ICT_Typology.pdf; 

Internet Penetration and Impact, Pew Internet & American Life Project, at 3 (Apr. 2006), 

available at http://www.pewinternet.org/pdfs/PIP_Internet_Impact.pdf. Further, while 

some have noted a “digital divide” for certain groups, see, e.g., Susannah Fox, Digital 

Divisions, Pew Internet & American Life Project, at 1 (Oct. 5, 2005) (noting that certain 

groups lag behind in Internet usage, including Americans age 65 and older, AfricanAmericans, and those with less education), others have noted that this divide may be 

diminishing for those groups. See, e.g., Mutual Fund Shareholders’ Use of the Internet, 

2006, Investment Company Institute, Research Fundamentals, at 7 (Oct. 2006), available 

at http://www.ici.org/stats/res/fm-v15n6.pdf (“Recent increases in Internet access among 

older shareholders . . . have narrowed the generational gap considerably. Today, 

shareholders age 65 or older are more than twice as likely to have Internet access than in 

2000.”); Michel Marriott, Blacks Turn to Internet Highway, And Digital Divide Starts to 

11
and quality of Internet connections.26 The Commission has already harnessed the power 

of these technological advances to provide better access to information in a number of 

areas. Recently, for example, we created a program that permits issuers, on a voluntary 

basis, to submit to the Commission financial information and, in the case of mutual 

funds, key prospectus information, in an interactive data format that facilitates automated 

retrieval, analysis, and comparison of the information.27 More recently, we proposed 

rules that would require mutual funds to provide the risk/return summary section of their 

prospectuses, and companies to provide their financial statements, to the Commission in 

interactive data format.28 In addition, we recently adopted rules that provide all 

shareholders with the ability to choose whether to receive proxy materials in paper or via 

the Internet.

29 

As suggested by the participants at the June 2006 roundtable, advances in 

technology also offer a promising means to address the length and complexity of mutual 

Close, THE NEW YORK TIMES (Mar. 31, 2006), available at: 

http://www.nytimes.com/2006/03/31/us/31divide.html?ex=1301461200&en=6fd4e942aa 

aa04ad&ei=5088 (“African-Americans are steadily gaining access to and ease with the 

Internet, signaling a remarkable closing of the ‘digital divide’ that many experts had 

worried would be a crippling disadvantage in achieving success.”). 

26 See John B. Horrigan, Home Broadband Adoption 2007, Pew Internet & American Life 

Project, at 1 (June 2007), available at 

http://www.pewinternet.org/pdfs/PIP_Broadband%202007.pdf (47% of all adult 

Americans had a broadband connection at home as of early 2007). 

27 See Investment Company Act Release No. 27884 (July 11, 2007) [72 FR 39290 (July 17, 

2007)] (adopting rule amendments to enable mutual funds voluntarily to submit 

supplemental tagged information contained in the risk/return summary section of their 

prospectuses); Securities Act Release No. 8529 (Feb. 3, 2005) [70 FR 6556 (Feb. 8, 

2005)] (adopting rule amendments to enable registrants voluntarily to submit 

supplemental tagged financial information). 

28 Investment Company Act Release No. 28298 (June 10, 2008) [73 FR 35442 (June 23, 

2008)]; Securities Act Release No. 8924 (May 30, 2008) [73 FR 32794 (June 10, 2008)]. 

29 Exchange Act Release No. 56135 (July 26, 2007) [72 FR 42222 (Aug. 1, 2007)]. 

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fund prospectuses by streamlining the key information that is provided to investors, 

ensuring that access to the full wealth of information about a fund is immediately and 

easily accessible, and providing the means to present all information about a fund online 

in an interactive format that facilitates comparisons of key information, such as expenses, 

across different funds and different share classes of the same fund.30 Technology has the 

potential to replace the current one-size-fits-all mutual fund prospectus with an approach 

that allows investors, their financial intermediaries, third-party analysts, and others to 

tailor the wealth of available information to their particular needs and circumstances. 

In November 2007, the Commission proposed an improved mutual fund 

disclosure framework that was intended to address the concerns that have been raised 

about mutual fund prospectuses and to make use of technological advances to enhance 

the provision of information to mutual fund investors. The Commission received 

approximately 155 comment submissions.31 The commenters generally supported the 

proposals, with some commenters suggesting specific changes to the proposals. 

Commission staff also arranged for investor focus group testing of the proposed 

Summary Prospectus.32 Today, the Commission is adopting the proposed amendments 

30 A mutual fund may issue more than one class of shares that represent interests in the 

same portfolio of securities with each class, among other things, having a different 

arrangement for shareholder services or the distribution of securities, or both. See rule 

18f-3 under the Investment Company Act [17 CFR 270.18f-3]. 

31 In response to the ETF Proposing Release, the Commission received seven comment 

submissions that addressed the proposed ETF amendments to Form N-1A. 

32 The Commission engaged a consultant to conduct focus group interviews and a telephone 

survey concerning investors’ views and opinions about various disclosure documents 

filed by companies, including mutual funds. During this process, investors participating 

in focus groups were asked questions about a hypothetical Summary Prospectus. 

Investors participating in the telephone survey were asked questions relating to several 

disclosure documents, including mutual fund prospectuses. We have placed in the 

comment file (available at http://www.sec.gov/comments/s7-28-07/s72807.shtml) for the 

proposed rule the following documents from the investor testing that relate to mutual 

13
with modifications to respond to the focus group testing and to address commenters’ 

recommendations. 

We are adopting amendments to Form N-1A that will require every prospectus to 

include a summary section at the front of the prospectus, consisting of key information 

about the fund, including investment objectives and strategies, risks, costs, and 

performance. This key information is required to be presented in plain English in a 

standardized order. Our intent is that this information will be presented succinctly, in 

three or four pages, at the front of the prospectus. 

We are also adopting a new option for satisfying prospectus delivery obligations 

with respect to mutual fund securities under the Securities Act. Under the option, key 

information will be sent or given to investors in the form of a Summary Prospectus, and 

the statutory prospectus will be provided on an Internet Web site. Upon an investor’s 

request, funds will also be required to send the statutory prospectus to the investor. Our 

intent in providing this option is that funds take full advantage of the Internet’s search 

and retrieval capabilities in order to enhance the provision of information to mutual fund 

investors. 

The disclosure framework that we are adopting has the potential to revolutionize 

the provision of information to the millions of investors who rely on mutual funds for 

their most basic financial needs. It is intended to help investors who are overwhelmed by 

the choices among thousands of available funds described in lengthy and legalistic 

fund prospectuses and the proposed Summary Prospectus: (1) the consultant’s report 

concerning focus group testing of the hypothetical Summary Prospectus and related 

disclosures (“Focus Group Report”); (2) transcripts of focus groups relating to the 

hypothetical Summary Prospectus and related disclosures (“Focus Group Transcripts”); 

(3) disclosure examples used in these focus groups; and (4) an excerpt from the 

consultant’s report concerning the telephone survey of individual investors (“Telephone 

Survey Report”). 

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documents to access readily key information that is important to an informed investment 

decision. At the same time, by harnessing the power of technology to deliver information 

in better, more useable formats, the disclosure framework can help those investors, their 

intermediaries, third-party analysts, the financial press, and others to locate and compare 

facts and data from the wealth of more detailed disclosures that are available. 

III. DISCUSSION 

A. Amendments to Form N-1A 

The Commission is adopting, with modifications to address commenters’ 

suggestions, amendments to Form N-1A that will require the statutory prospectus of 

every mutual fund to include a summary section at the front of the prospectus consisting 

of key information presented in plain English in a standardized order.33 Commenters and 

investors participating in focus groups arranged by Commission staff generally supported 

the proposed summary presentation and agreed that it will address investors’ preferences 

for concise, user-friendly information.34 The summary section will provide investors 

with key information about the fund that investors can use to evaluate and compare the 

fund. This summary will be located in a standardized, easily accessible place and will be 

available to all investors, regardless of whether the fund uses a Summary Prospectus and 

whether the investor is reviewing the prospectus in a paper or electronic format. 

33 The Commission is also adopting amendments to Form N-1A relating to exchange-traded 

funds. See discussion infra Part III.A.4. 

34 See, e.g., Letter of AARP (Feb. 28, 2008) (“AARP Letter”); Letter of Capital Research 

and Management Company (Feb. 28, 2008) (“Capital Research Letter”); Letter of Fund 

Democracy, Consumer Federation of America, and Consumer Action (Feb. 28, 2008) 

(“Fund Democracy et al. Letter”); Letter of Investment Company Institute (Feb. 28, 

2008) (“ICI Letter”); Letter of Mutual Fund Directors Forum (Feb. 28, 2008) (“MFDF 

Letter”); Letter of Morningstar, Inc. (Feb. 27, 2008) (“Morningstar Letter”); Focus Group 

Report, supra note 32, at 5. 

15
As in our proposal, the information required in the summary section of the 

prospectus will be the same as that required in the new Summary Prospectus, and it is key 

information that is important to an investment decision. We believe, and commenters 

generally agreed,35 that the key information that is important to an investment decision is 

the same, whether an investor is reviewing the summary section of a statutory prospectus 

or a short-form disclosure document. For that reason, we are requiring the same 

information in the summary section of the statutory prospectus and in the Summary 

Prospectus. In each case, our intent is that funds prepare a concise summary (on the 

order of three or four pages) that will provide key information. 

In addition, with the exception of some information that is common to multiple 

funds, we are requiring, as proposed, that the summary section be presented separately 

for each fund covered by a multiple fund prospectus and that the information for multiple 

funds not be integrated.36 This requirement is intended to assist investors in finding 

important information regarding the particular fund in which they are interested. 

Multiple fund prospectuses contribute substantially to prospectus length and complexity, 

which act as barriers to understanding. We have concluded that requiring a selfcontained summary section for each fund will significantly aid investors’ ability to use 

multiple fund prospectuses effectively. 

The Commission is committed to encouraging statutory prospectuses that are 

simpler, clearer, and more useful to investors. The prospectus summary section is 

35 See, e.g., Letter of Bo Li (Feb. 28, 2008) (“Bo Li Letter”); Letter of Data Communiqué, 

Inc. (Feb. 27, 2008) (“Data Communiqué Letter”); Letter of Firehouse Communications 

LLC (Feb. 29, 2008) (“Firehouse Letter”); Letter of L. A. Schnase (Feb. 26, 2008) 

(“Schnase Letter”). But see Letter of Kathleen K. Clarke (Mar. 4, 2008) (“Clarke 

Letter”). 

36 General Instruction C.3.(c)(ii) of Form N-1A. 

16
intended to provide investors with streamlined disclosure of key mutual fund information 

at the front of the statutory prospectus, in a standardized order that facilitates 

comparisons across funds. We are adopting the following amendments to Form N-1A in 

order to implement the summary section. 

1. General Instructions to Form N-1A 

We are adopting, substantially as proposed, amendments to the General 

Instructions to Form N-1A to address the new summary section of the statutory 

prospectus. These amendments address plain English and organizational requirements. 

Plain English 

We are amending, as proposed, the General Instructions to state that the summary 

section of the prospectus must be provided in plain English under rule 421(d) under the 

Securities Act.37 Rule 421(d) requires an issuer to use plain English principles in the 

organization, language, and design of the front and back cover pages, the summary, and 

the risk factors sections of its prospectus.38 The amended instruction will serve as a 

reminder that the new prospectus summary section is subject to rule 421(d). The use of 

plain English principles in the new summary section will further our goal of encouraging 

funds to create useable summaries at the front of their prospectuses. The prospectus, in 

37 General Instruction B.4.(c) of Form N-1A; rule 421(d) [17 CFR 230.421(d)]. 

Commenters generally supported the use of plain English in the summary section. See, 

e.g., AARP Letter, supra note 34; Letter of CFA Institute (Feb. 28, 2008) (“CFA Institute 

Letter”); Letter of Committee on Federal Regulation of Securities of the American Bar 

Association’s Section of Business Law (Mar. 17, 2008) (“ABA Letter”); Letter of 

Investment Company Institute and Securities Industry and Financial Markets Association 

(Feb. 28, 2008) (“ICI and SIFMA Letter”). 

38 Rule 421(d) lists the following plain English principles: (1) short sentences; (2) definite, 

concrete, everyday words; (3) active voice; (4) tabular presentation or bullet lists for 

complex material, wherever possible; (5) no legal jargon or highly technical business 

terms; and (6) no multiple negatives. 

17
its entirety, also will remain subject to the requirement that the information be presented 

in a clear, concise, and understandable manner.39 

Organizational Requirements 

We are also adopting amendments to the organizational requirements of the 

General Instructions, with one modification to address commenters’ suggestions. The 

amendments will require mutual funds to disclose the summary information in numerical 

order at the front of the prospectus and not to precede this information with any 

information other than the cover page or table of contents.40 Commenters generally 

supported standardizing the order and content of the summary section, agreeing that a 

standardized summary section will enhance investor understanding and the ability to 

compare funds.41 Information included in the summary section need not be repeated 

elsewhere in the prospectus. While a fund may continue to include information in the 

prospectus that is not required, a fund may not include any such additional information in 

the summary section of the prospectus.42 

39 Pursuant to rule 421(b) [17 CFR 230.421(b)], the following standards must be used when 

preparing prospectuses: (1) present information in clear, concise sections, paragraphs, 

and sentences; (2) use descriptive headings and subheadings; (3) avoid frequent reliance 

on glossaries or defined terms as the primary means of explaining information in the 

prospectus; and (4) avoid legal and highly technical business terminology. We note that 

these standards provide funds with flexibility, for example, in determining whether or not 

to use headings in a question-and-answer format. 

40 General Instruction C.3.(a) to Form N-1A. 

41 See, e.g., Letter of Evergreen Investments (Feb. 28, 2008) (“Evergreen Letter”); Letter of 

Financial Services Institute (Feb. 28, 2008) (“Financial Services Institute Letter”). 

42 General Instruction C.3.(b) of Form N-1A. See, e.g., CFA Institute Letter, supra note 37; 

Letter of Great-West Retirement Services (Feb. 28, 2008) (“Great-West Letter”); ICI 

Letter, supra note 34; Letter of The Vanguard Group, Inc. (Feb. 28, 2008) (“Vanguard 

Letter”) (supporting prohibition on including information in the summary section that is 

not required). 

18
As noted above, we are, with one exception, requiring as proposed that a multiple 

fund prospectus present the summary information for each fund sequentially and not 

integrate the information for more than one fund.43 That is, a multiple fund prospectus 

will be required to present all of the summary information for a particular fund together, 

followed by all of the summary information for each additional fund. For example, a 

multiple fund prospectus will not be permitted to present the investment objectives for 

several funds followed by the fee tables for several funds. A multiple fund prospectus 

will also be required to identify clearly the name of the particular fund at the beginning of 

the summary information for that fund. 

Many commenters agreed that multiple fund prospectuses should present the 

summary information for each fund separately.44 Some commenters stated that requiring 

a separate summary for each fund will better achieve the Commission’s goal of keeping 

summaries short which should help facilitate comparisons across funds.45 Commenters 

also stated that multiple fund prospectuses often confuse investors and make reviewing 

key information for a single fund more difficult.46 

43 General Instruction C.3.(c)(ii) of Form N-1A. See supra note 36 and accompanying text. 

44 See, e.g., CFA Institute Letter, supra note 37; Letter of Coalition of Mutual Fund 

Investors (Feb. 13, 2008) (“CMFI Letter”); Fund Democracy et al. Letter, supra note 34; 

Evergreen Letter, supra note 41; MFDF Letter, supra note 34; Letter of the National 

Association of Personal Financial Advisors (Feb. 28, 2008) (“NAPFA Letter”); Letter of 

Oppenheimer Funds (Feb. 28, 2008) (“Oppenheimer Letter”). 

45 See, e.g., Fund Democracy et al. Letter, supra note 34; Data Communiqué Letter, supra 

note 35. See also ICI Letter, supra note 34 (stating that some of its members believe that 

requiring a separate summary for each fund will better facilitate the Commission’s goals 

of keeping documents short and facilitating comparisons across funds). 

46 See, e.g., Data Communiqué Letter, supra note 35; CMFI Letter, supra note 44; 

Oppenheimer Letter, supra note 44. 

19
A number of commenters, however, expressed reservations about the 

Commission’s proposal to prohibit multiple fund summary sections, requesting that the 

Commission permit integrated summaries for multiple funds in at least some 

circumstances.47 Some commenters suggested that integrated summary information 

would allow investors to better compare all funds within a fund family, or at least certain 

categories of funds within a fund family.48 Categories of funds cited included 

international funds, asset allocation funds, and U.S. Treasury Funds.49 In addition, some 

commenters argued that prohibiting multiple fund summaries would lead to unnecessary 

duplication of information and longer statutory prospectuses.50 

A number of investors in our focus groups expressed the view that multiple fund 

presentations of mutual fund information could be helpful in facilitating useful 

comparisons among funds.51 Some of these investors stated that multiple fund 

47 See, e.g., Letter of AIM Investments (Feb. 27, 2008) (“AIM Letter”) (favoring integrated 

summaries for target date, asset allocation or lifestyle funds, and variable annuity funds); 

Capital Research Letter, supra note 34 (favoring integrated summaries for target date and 

variable annuity funds). 

48 See, e.g., AIM Letter, supra note 47; Letter of American Century Investments (Feb. 28, 

2008) (“American Century Letter”); Clarke Letter, supra note 35; ICI Letter, supra note 

34; Letter of Putnam Investments (Feb. 28, 2008) (“Putnam Letter”); Letter of Russell 

Investments (Feb. 28, 2008) (“Russell Letter”). 

49 See, e.g., Letter of T. Rowe Price Associates, Inc. (Feb. 28, 2008) (“T. Rowe Letter”) 

(favoring integrated summaries for certain categories of funds and citing focus group 

research conducted by T. Rowe Price concerning integrated versus single-fund 

summaries). 

50 See, e.g., AIM Letter, supra note 47; American Century Letter, supra note 48; Letter of 

Dechert LLP (Mar. 3, 2008) (“Dechert Letter”); Putnam Letter, supra note 48; Russell 

Letter, supra note 48. See also ICI Letter, supra note 34 (members split, with some 

noting that an integrated summary may be more useful to investors in certain 

circumstances, in particular for groups of funds an investor may wish to compare, and 

others believing that a separate document for each fund would better accomplish goals of 

keeping the document short and facilitating comparisons across funds). 

51 See Focus Group Report, supra note 32, at 9. 

20
presentations could be used as a screening tool to determine which funds to research in 

more detail.52 Some investors in our focus groups, however, indicated that combining too 

many funds within a single summary can result in confusing complexity.53 The investors 

in our focus groups did not express a consensus on a specific limit on the number of 

funds or page length that would be appropriate in multiple fund presentations. 

While we believe that multiple fund presentations can, in limited circumstances, 

be useful in helping investors to compare funds, we have determined that prohibiting 

multiple fund summary sections is more consistent with the goal of achieving concise, 

readable summaries for investors. The requirement that summary information be 

separately presented for each fund in a multiple fund prospectus is intended to address the 

problem of lengthy and complex multiple fund prospectuses in the least intrusive manner 

possible. Multiple fund prospectuses contribute substantially to prospectus length and 

complexity, which act as barriers to investor understanding. We have concluded that 

permitting information for multiple funds to be integrated in the summary section would 

undermine our goal of providing mutual fund investors with concise and readable key 

information. 

We note, however, that our rules do not restrict in any way the use of multiple 

fund presentations in advertising and sales materials, whether those materials are 

provided along with the Summary Prospectus or separately.54 Funds have complete 

flexibility to prepare and present comparative information to investors regarding any 

52 See Focus Group Transcripts, supra note 32, at 20. 

53 Id. at 19 (“I thought there were too many in the [multiple fund prospectus]. It just really 

makes your head spin when you have to read all that.”), 22, 46. 

54 See rule 482 under the Securities Act [17 CFR 230.482] and rule 34b-1 under the 

Investment Company Act [17 CFR 270.34b-1] (investment company advertising rules). 

21
grouping of multiple funds that they believe is useful, and also to provide automated tools 

on their Web sites permitting investors to choose which funds to compare. As a result, 

we do not believe that the prohibition on multiple fund summaries in the statutory 

prospectus will impair in any significant manner funds’ ability to provide useful, 

comparative information to investors. 

We are adopting one exception to the requirement that multiple fund prospectuses 

not integrate the summary information for more than one fund in order to eliminate 

duplicative information and reduce prospectus length. Two commenters recommended 

that the Commission permit summary information that is identical for multiple funds to 

be presented once, at the end of all the individual summaries within a multiple fund 

statutory prospectus.55 We agree with these commenters that permitting integration of 

information that is likely to be uniform for multiple funds will further our goal of concise, 

user-friendly summary sections. Therefore, a multiple fund prospectus will be permitted 

to integrate the information required by any of new Item 6 (purchase and sale of fund 

shares), Item 7 (tax information), and Item 8 (financial intermediary compensation) if it is 

identical for all funds covered in the prospectus.56 This information is often uniform 

across multiple funds unlike, for example, information about investment objectives, costs, 

performance, or portfolio managers. If the information required by any of Items 6 

through 8 is integrated, the integrated information will be required to immediately follow 

the separate individual fund summaries containing the other non-integrated information. 

In addition, a statement containing the following information will be required in each 

55 See Capital Research Letter, supra note 34; ICI Letter, supra note 34. 

56 General Instruction C.3.(c)(iii) of Form N-1A. This exception will not be available to 

Summary Prospectuses delivered pursuant to new rule 498 because a Summary 

Prospectus may describe only one fund. See discussion infra Part III.B.2.a. 

22 
individual fund summary section in the location where the information that is integrated, 

and presented later, would have appeared. 

“For important information about [purchase and sale of fund shares,] [tax 

information,] and [financial intermediary compensation], please turn to [identify 

section heading and page number of prospectus].” 

As proposed, the instructions will permit a fund with multiple share classes, each 

with its own cost structure, to present the summary information separately for each class, 

to integrate the information for multiple classes, or to use another presentation that is 

consistent with disclosing the summary information in a standard order at the beginning 

of the prospectus.57 Commenters generally supported, or did not express a view with 

respect to, allowing multiple class summary sections; and some commenters noted that 

such sections would assist investors in choosing the class most appropriate for their 

circumstances.58 We are not requiring the integration of information for multiple classes 

of a fund, which two commenters argued was important to facilitate cost comparisons.59 

We are retaining flexibility in this area because we believe that whether a multiple class 

presentation is helpful or overwhelming depends on the particular circumstances. We 

note, however, that our ongoing interactive data initiative is intended, among other 

things, to facilitate cost comparisons by investors across multiple classes of a single fund, 

as well as across different funds.60 

57 General Instruction C.3.(c)(ii) of Form N-1A. 

58 See, e.g., Clarke Letter, supra note 35; Data Communiqué Letter, supra note 35; GreatWest Letter, supra note 42; Oppenheimer Letter, supra note 44. 

59 See, e.g., Fund Democracy et al. Letter, supra note 34; Letter of Brock Hastie (Jan. 8, 

2008) (“Hastie Letter”). 

60 See supra note 28 and accompanying text. 

23
Page Limits 

As proposed, we are not imposing page limits on the summary section. We 

emphasize, however, that it is our intent that funds prepare a concise summary (on the 

order of three or four pages) that will provide key information. Commenters differed 

regarding whether the Commission should impose page limits on the summary. 

Several commenters supported page limits. One commenter expressed concern 

that, in the absence of a page limit, the summary section would tend to expand over time, 

which would undermine its usefulness.61 Another commenter noted that, absent page 

limits, lengths of summary sections would vary widely, hindering investors’ ability to 

compare funds.62 

While we share these commenters’ concerns, especially with respect to the 

possibility of summary sections getting longer over time, we believe that these concerns 

are outweighed by the concerns of other commenters that page limits could constrain 

appropriate disclosure and lead funds to omit material information.63 We also agree with 

a commenter who noted that the prohibition of multiple fund summary sections should 

help to limit their length.64 

61 See Letter of Independent Directors Council (Feb. 15, 2008) (“IDC Letter”). 

62 See Firehouse Letter, supra note 35. See also Letter of Jeffrey C. Keil (Jan. 9, 2008) 

(“Keil Letter”) (suggesting that summaries might garner more investor attention if limited 

to two or three pages). 

63 See, e.g., Letter of Janus Capital Group (Feb. 28, 2008) (“Janus Letter”); CMFI Letter, 

supra note 44. 

64 See Data Communiqué Letter, supra note 35. 

24
Elimination of Separate Purchase and Redemption Document 

As proposed, we are eliminating the provisions of Form N-1A that permit a fund 

to omit detailed information about purchase and redemption procedures from the 

prospectus and to provide this information in a separate document that is incorporated 

into and delivered with the prospectus, as well as a similar provision in the requirements 

for the statement of additional information (“SAI”).65 We have concluded that this option 

is unnecessary in light of the new Summary Prospectus which could be used, at a fund’s 

option, along with any additional sales materials, including a document describing 

purchase and redemption procedures.66 The elimination of these provisions does not 

otherwise alter the information about purchase and redemption procedures that must 

appear in the fund’s prospectus and SAI, and this information will continue to be required 

in those documents. 

Variable Contract and Retirement Plan Funds 

Finally, we are modifying the proposal to permit funds that are used as investment 

options for retirement plans and variable insurance contracts to modify or omit certain 

information required in the new summary section. This modification addresses 

commenters’ concerns that certain information is not relevant to those funds.67 

Specifically, we are amending the General Instructions to Form N-1A to permit funds 

that are used as investment options for retirement plans and variable insurance contracts 

65 Instruction 6 to current Item 1(b) of Form N-1A; current Item 6(g) of Form N-1A; 

Instruction to current Item 18(a) of Form N-1A. 

66 See discussion infra Part III.B.1. Most commenters did not address this proposed change. 

But see Clarke Letter, supra note 35 (supporting change); Schnase Letter, supra note 35 

(opposing change). 

67 See Letter of EQ Advisors Trust/AXA Premier VIP Trust (Feb. 28, 2008) (“EQ/AXA 

Letter”); Letter of Committee of Annuity Insurers (Feb. 28, 2008) (“CAI Letter”). 

25
to modify or omit the information required by new summary section Item 6 (purchase and 

sale of fund shares).68 Existing Form N-1A permits funds that are used as investment 

options for retirement plans and variable insurance contracts to modify or omit certain 

information regarding the purchase and sale of fund shares that is not relevant in these 

contexts. 69 The amendment we are making extends the same treatment to the purchase 

and sale information in the new summary section. 

2. Exchange Ticker Symbols 

We requested comment on whether we should require or permit a fund to include 

its ticker symbol in the summary, or on the front or back cover page of the statutory 

prospectus or SAI or elsewhere. Many commenters suggested that the Commission 

should require or permit funds to disclose their exchange ticker symbols.70 We agree 

with these commenters that requiring exchange ticker symbols to be included in fund 

disclosure documents would make it easier for investors to find information about 

particular funds and share classes of funds. Accordingly, we are requiring that a fund 

include its exchange ticker symbol on the cover pages of the statutory prospectus and 

SAI.71 Specifically, a fund will be required to disclose the exchange ticker symbol of the 

68 General Instruction C.3.(d)(i) of Form N-1A. 

69 General Instruction C.3.(d)(i) of existing Form N-1A. We note that Item 7 of the 

summary section, which requires tax information that may not be relevant in the context 

of retirement plans and variable insurance contracts, expressly states that the disclosures 

are only required to be made, as applicable. 

70 See, e.g., CMFI Letter, supra note 44; Data Communiqué Letter, supra note 35; Firehouse 

Letter, supra note 35; Hastie Letter, supra note 59; Letter of William E. Kent (Dec. 26, 

2007) (“Kent Letter”); NAPFA Letter, supra note 44; Letter of Art Ticknor (Feb. 6, 2008) 

(“Ticknor Letter”). 

71 Item 1(a)(2) of Form N-1A; Item 14(a)(2) of Form N-1A. Exchange ticker symbols will 

also be required on the cover page, or at the beginning of, the Summary Prospectus. 

Rule 498(b)(1)(ii). 

26
fund’s shares or, if the prospectus or SAI relate to one or more classes of the fund’s 

shares, adjacent to each such class, the exchange ticker symbol of that class. 

3. Information Required in Summary Section 

We are adopting the required content of the summary section substantially as 

proposed, except that, having considered commenters’ concerns and the views of 

investors expressed in focus groups, we have determined not to require disclosure of a 

fund’s portfolio holdings. The summary section of a mutual fund statutory prospectus 

will consist of the following information: (1) investment objectives; (2) costs; 

(3) principal investment strategies, risks, and performance; (4) investment advisers and 

portfolio managers; (5) brief purchase and sale and tax information; and (6) financial 

intermediary compensation. These items will appear in the same order that we proposed. 

We have modified the requirements for some items to address comments and views 

expressed in the focus groups. 

a. Elimination of Proposed Portfolio Holdings Requirement 

The Commission has determined not to require the summary section to include 

the list of the fund’s 10 largest holdings which we proposed.72 As proposed, the top 10 

holdings list would have been updated in the statutory prospectus on an annual basis and 

in the Summary Prospectus on a quarterly basis.73 

72 Proposed Item 5 of Form N-1A. 

73 Section 10(a)(3) of the Securities Act [15 U.S.C. 77j(a)(3)] generally requires that when a 

prospectus is used more than nine months after the effective date of the registration 

statement, the information in the prospectus must be as of a date not more than sixteen 

months prior to such use. The effect of this provision is to require mutual funds to update 

their prospectuses annually to reflect current cost, performance, and other financial 

information. See proposed rule 498(b)(2)(iii) (proposed Summary Prospectus quarterly 

updating requirement). 

27
Commenters were split regarding whether the top 10 portfolio holdings should be 

required in the summary section. We are persuaded by the commenters who pointed out 

the limited utility of the proposed top 10 holdings list.74 Commenters expressed the view 

that top 10 holdings information may mislead investors because the top 10 holdings may 

not accurately represent a fund’s overall holdings

75 and because the top 10 holdings 

information may become stale.76 Commenters also pointed out that portfolio holdings 

information is already widely available through other sources, such as shareholder reports 

and other Commission filings,77 as well as fund Web sites and sales materials.78 

74 See, e.g., AIM Letter, supra note 47; Letter of Cornell Securities Law Clinic (Feb. 28, 

2008) (“Cornell Law Clinic Letter”); Evergreen Letter, supra note 41; Letter of Foreside 

Compliance Services, LLC (Feb. 28, 2008) (“Foreside Letter”); Oppenheimer Letter, 

supra note 44; Russell Letter, supra note 48. 

Other commenters supported including the top 10 portfolio holdings in the summary 

section. See, e.g., CMFI Letter, supra note 44; Data Communiqué Letter, supra note 35; 

Firehouse Letter, supra note 35; Letter of Jill Gross (Feb. 28, 2008); Letter of Richard K. 

Hopkins (Feb. 15, 2008) (“Hopkins Letter”); Letter of Richard McCormick (Feb. 11, 

2008) (“McCormick Letter”); Letter of William Mahavier (Feb. 10, 2008) (“Mahavier 

Letter”); Letter of Dan Meador (Feb. 12, 2008); NAPFA Letter, supra note 44; Letter of 

Bruce R. Bent (Feb. 28, 2008) (“Bent Letter”). 

75 See, e.g., Dechert Letter, supra note 50 (top 10 holdings information could mislead 

investors of a diversified fund where top 10 holdings represent a relatively small 

percentage of the fund’s holdings); ICI Letter, supra note 34 (noting that a fund’s top 10 

holdings may be misleading for funds in a master-feeder structure, funds of funds, fixed 

income funds, index funds, money market funds, exchange-traded funds, and new funds); 

Letter of New York City Bar (Feb. 25, 2008) (“NYC Bar Letter”) (arguing that for 

certain types of funds, such as money market funds, fixed income funds, and index funds, 

top 10 holdings information may be misleading); Letter of Leslie L. Ogg (Feb. 1, 2008) 

(“Ogg Letter”) (noting that top 10 holdings information can be misleading for multimanager funds, funds of funds, long-short funds, and funds using derivative instruments). 

76 See, e.g., AIM Letter, supra note 47; CAI Letter, supra note 67; Capital Research Letter, 

supra note 34; Clarke Letter, supra note 35; Dechert Letter, supra note 50; ICI Letter, 

supra note 34; IDC Letter, supra note 61; Janus Letter, supra note 63; NYC Bar Letter, 

supra note 75; Oppenheimer Letter, supra note 44; Russell Letter, supra note 48. 

77 Form N-CSR [17 CFR 249.331; 17 CFR 274.128] (form used by investment companies 

semi-annually to file certified shareholder reports); Form N-Q [17 CFR 249.332; 17 CFR 

274.130] (form used by investment companies to file schedule of portfolio holdings for 

first and third quarters). 

28
We continue to believe that information concerning a fund’s portfolio holdings 

may provide investors with a greater understanding of a fund’s stated investment 

objectives and strategies and may assist investors in making more informed asset 

allocation decisions. In light of the limited utility of top 10 holdings information, 

however, and the widespread availability of portfolio holdings information from other 

sources, we have determined not to require this information in the summary section. 

Some commenters and investors in our focus groups suggested that we instead require 

disclosure about the current allocation of a fund’s portfolio by asset type, such as a pie 

chart that would graphically display this information.79 We have determined not to 

require this information because we have concluded that it is subject to the same concerns 

about staleness as top 10 holdings information and because of the widespread availability 

of portfolio holdings information from other sources. Nonetheless, where a fund’s asset 

allocation strategy is a principal investment strategy of the fund, the fund should clearly 

disclose this strategy, 80 and we would encourage the use of graphical representations as a 

potentially helpful communications tool. 

In reaching our determination with respect to portfolio holdings information, we 

carefully considered the views of investors expressed in our focus groups. Many 

investors in the focus groups expressed significant interest in portfolio holdings 

information.81 At the same time, like the commenters, a number of the investors 

78 See, e.g., AIM Letter, supra note 47; EQ/AXA Letter, supra note 67; Evergreen Letter, 

supra note 41; Russell Letter, supra note 48; T. Rowe Letter, supra note 49. 

79 See, e.g., Cornell Law Clinic Letter, supra note 74; Oppenheimer Letter, supra note 44; 

Focus Group Report, supra note 32, at 6. 

80 Items 4(a) and 9 of Form N-1A (requiring disclosure of principal investment strategies). 

81 Focus Group Report, supra note 32, at 7; Focus Group Transcripts, supra note 32, at 12. 

29
participating in our focus groups pointed out that top 10 portfolio holdings information 

changes frequently and can quickly become outdated, and some participants 

acknowledged that the top 10 holdings information can sometimes account for a 

relatively small portion of a fund’s holdings.82 We concluded that investors’ interest in 

this information is outweighed by its potential to mislead and confuse in the context of 

the summary section of a prospectus. Because this information is widely available 

through other sources, we are persuaded that investors’ interest in this information can be 

satisfied through these other sources. 

b. Order of Information 

We are adopting the order of the information required in the summary section, as 

proposed. This includes moving the fee table forward from its current location, which 

follows information about investment strategies, risks, and past performance. We 

continue to believe that the change to the location of the fee table will enhance the 

prominence of this information, which is important to address continuing concerns about 

investor understanding of mutual fund costs.83 Several commenters agreed that 

relocation of the fee table will place fee information in a more prominent location and 

encourage investors to give greater attention to costs and cost comparisons.84 While 

82 Focus Group Report, supra note 32, at 7; Focus Group Transcripts, supra note 32, at 13­

14, 78. 

83 See Barbara Roper, Director of Investor Protection, Consumer Federation of America, 

June 12 Roundtable Transcript, supra note 18, at 21; James J. Choi, David Laibson, & 

Brigitte C. Madrian, National Bureau of Economic Research, Why Does the Law of One 

Price Fail? An Experiment on Index Mutual Funds, at 6 (May 2006), available at 

http://www.nber.org/papers/w12261.pdf.; Focus Group Transcripts, supra note 32, at 6 

(“[The hypothetical summary prospectus] shows the fee right up there, what they charge, 

so that would appeal to me.”). 

84 See, e.g., Letter of Roy J. Biegel (Feb. 14, 2008) (“Biegel Letter”); CFA Institute Letter, 

supra note 37; Foreside Letter, supra note 74; Letter of Fund Democracy and Consumer 

30
several commenters suggested alternative orders for the information in the summary 

section, there was no consensus by commenters regarding any alternative.85 

A number of commenters, largely from the fund industry, opposed relocating the 

fee table. These commenters argued that moving the fee table forward inappropriately 

overemphasizes costs over other more important information and that the fee table should 

not come between investment objectives and principal investment strategies and risks.86 

Some of these commenters argued that the fee table should not be moved forward, 

because it is important for investors to first and foremost understand a fund and its risks, 

and that a fund’s objectives, strategies, and risks provide necessary context for fees. 

Some commenters also argued that moving the fee table forward is unnecessary because 

the short length of the summary section will make the fee table sufficiently prominent. 

We are not persuaded by these commenters. We continue to believe, along with a 

number of commenters, that placement of the fee table in a more prominent location will 

encourage investors to give greater attention to costs. The fee table and example are 

designed to help investors understand the costs of investing in a fund and compare those 

costs with the costs of other funds. Placing the fee table and example at the front of the 

Federation of America (Apr. 17, 2008); NAPFA Letter, supra note 44; Letter of Charles 

Sikorovsky (Feb. 29, 2008) (“Sikorovsky Letter”). See also Focus Group Transcripts, 

supra note 32, at 10 (investors expressed view that fund costs are important); Letter of 

Investment Company Institute (Mar. 14, 2008) (“ICI Survey”) (finding that 95% of 

respondents believed that fees are important). 

85 See, e.g., Letter of Ward C. Bourn (Feb. 27, 2008); Capital Research Letter, supra note 

34; Evergreen Letter, supra note 41; Financial Services Institute Letter, supra note 41; 

Vanguard Letter, supra note 42. 

86 See, e.g., AIM Letter, supra note 47; Evergreen Letter, supra note 41; Letter of Fidelity 

Investments (Feb. 28, 2008) (“Fidelity Letter”); ICI Letter, supra note 34; Oppenheimer 

Letter, supra note 44; Russell Letter, supra note 48; T. Rowe Letter, supra note 49. 

31
summary section reflects the importance of costs to an investment decision.87 Moving 

the fee table forward also eliminates the possibility that the fee table could be obscured 

by other information.88 

c. Investment Objectives and Goals 

We are adopting, as proposed, the requirement that the summary section begin 

with disclosure of a fund’s investment objectives or goals, which commenters generally 

supported.89 As proposed, a fund also will be permitted to identify its type or category 

(e.g., that it is a money market fund or balanced fund).90 

d. Fee Table 

We are adopting, with modifications to address commenters’ concerns and views 

expressed by investors in the focus groups, the fee table and example. The fee table and 

example disclose the costs of investing and immediately follow the fund’s investment 

objectives.91 

Breakpoint Discounts 

We are requiring, substantially as proposed, that mutual funds that offer discounts 

on front-end sales charges for volume purchases (so-called “breakpoint discounts”) 

87 For example, a 1% increase in annual fees reduces an investor’s return by approximately 

18% over 20 years. 

88 See Sikorovsky Letter, supra note 84 (stating that if an investment manager can in any 

way “hide” fees from an investor, the document has failed to fulfill its function). 

89 See, e.g., AARP Letter, supra note 34; Firehouse Letter, supra note 35; ICI and SIFMA 

Letter, supra note 37; Letter of Christine A. Nelson (Feb. 12, 2008); Schnase Letter, 

supra note 35. See also ICI Survey, supra note 84 (providing survey results that found 

investment objectives was one of the most important pieces of information to investors). 

90 Item 2 of Form N-1A. 

91 Item 3 of Form N-1A. 

32
include brief narrative disclosure alerting investors to the availability of those discounts.92 

Commenters generally supported the disclosure about breakpoint discounts, although 

many commenters, as well as focus group investors, provided suggestions for revising the 

narrative proposed.93 We are modifying the proposal in two ways to address these 

comments. 

First, we are adding to the required narrative a description of where investors can 

find additional information regarding breakpoint discounts.94 Specifically, the narrative 

will be required to state that further information is available from the investor’s financial 

professional, as well as identify the section heading and page number of the fund’s 

prospectus and SAI where more information can be found. This information is intended 

to address the views of both commenters and investors in the focus groups that it would 

be helpful for more detailed information about breakpoint discounts to be readily 

available to investors.95 

Second, we are clarifying the instruction that the dollar level at which investors 

may qualify for breakpoint discounts that is required to be disclosed in the new item is 

the minimum level of investment required to qualify for a discount as disclosed in the 

92 Item 3 of Form N-1A; Instruction 1(b) to Item 3 of Form N-1A. 

93 See, e.g., AIM Letter, supra note 47; CFA Institute Letter, supra note 37; Fund 

Democracy et al. Letter, supra note 34; Letter of Manuela A. De Leon (Feb. 7, 2008); ICI 

Letter, supra note 34; Keil Letter, supra note 62; NAPFA Letter, supra note 44; 

Oppenheimer Letter, supra note 44; Russell Letter, supra note 48; Focus Group Report, 

supra note 32, at 8. 

94 Item 3 of Form N-1A. 

95 See, e.g., CMFI Letter, supra note 44 (summary should indicate where additional 

information about breakpoint discounts is available); NAPFA Letter, supra note 44 

(same); Focus Group Transcripts, supra note 32, at 17 (participant observes that “I’ll go 

to the long-form and look that up and then make my decision.”). 

33
table required by current Item 7(a)(1) of Form N-1A.96 This change makes clear that the 

required dollar threshold to be disclosed is the same as disclosure that is already required 

in Form N-1A. This change, together with the added narrative about additional 

information, addresses commenters’ concerns that the breakpoints disclosure does not 

capture the complexity and variety of policies regarding breakpoint discounts.97 

Parenthetical to “Annual Fund Operating Expenses” 

We are adopting, substantially as proposed, revisions to the heading “Annual 

Fund Operating Expenses” in the fee table. Specifically, we are revising the parenthetical 

following the heading to read “expenses that you pay each year as a percentage of the 

value of your investment” in place of “expenses that are deducted from Fund assets.”98 

In recent years, we have taken significant steps to address concerns that investors do not 

understand that they pay costs every year when they invest in mutual funds, including 

requiring disclosure of these costs in shareholder reports.99 Our revision further 

addresses those concerns by making clear that the expenses in question are paid by 

investors as a percentage of the value of their investments in the fund. 

96 Instruction 1(b) to Item 3 of Form N-1A. Item 7 of Form N-1A is being renumbered as 

Item 12 in this rulemaking. 

97 See, e.g., AIM Letter, supra note 47; ICI Letter, supra note 34; Russell Letter, supra note 

48; Letter of Securities Industry and Financial Markets Association (Feb. 28, 2008) 

(“SIFMA Letter”). 

98 Item 3 of Form N-1A. 

99 Item 27(d)(1) of Form N-1A; Investment Company Act Release No. 26372 (Feb. 27, 

2004) [69 FR 11244 (Mar. 9, 2004)] (adopting disclosure of costs in shareholder reports). 

See also General Accounting Office Report on Mutual Fund Fees: Additional Disclosure 

Could Encourage Price Competition, at 66-81 (June 2000), available at 

http://www.gao.gov/archive/2000/gg00126.pdf (discussing lack of investor awareness of 

the fees they pay and investor focus on mutual fund sales charges rather than recurring 

fees). 

34
Many commenters supported the Commission’s proposed revision.100 We have 

deleted the word “ongoing” from the beginning of the parenthetical language to address 

commenters’ concerns that this term incorrectly suggests that fund operating expenses are 

the same each year.101 We are not modifying the parenthetical to address the views of 

some industry commenters that the statement incorrectly implies that shareholders 

directly pay fund expenses, when in fact expenses are paid out of fund assets.102 The 

purpose of the revision is to make clear to investors that they, in fact, bear these 

expenses, and the proposed language conveys this fact. Our conclusion is supported by 

commenters representing investor groups.103 

Portfolio Turnover Rate 

We are adopting, with two modifications, the requirement that funds, other than 

money market funds, include brief disclosure regarding portfolio turnover immediately 

following the fee table example.104 A fund will be required to disclose its portfolio 

turnover rate for the most recent fiscal year as a percentage of the average value of its 

portfolio. This numerical disclosure will be accompanied by a brief explanation of the 

effect of portfolio turnover on transaction costs and fund performance. Some concerns 

100 See, e.g., CFA Institute Letter, supra note 37; Clarke Letter, supra note 35; Fund 

Democracy et al. Letter, supra note 34. 

101 See, e.g., CFA Institute Letter, supra note 37; Clarke Letter, supra note 35; Fund 

Democracy et al. Letter, supra note 34; Evergreen Letter, supra note 41; Letter of 

Fenimore Asset Management (Feb. 28, 2008); Fidelity Letter, supra note 86; MFDF 

Letter, supra note 34; Oppenheimer Letter, supra note 44; T. Rowe Letter, supra note 49. 

102 See, e.g., Evergreen Letter, supra note 41; ICI Letter, supra note 34; Oppenheimer Letter, 

supra note 44; Putnam Letter, supra note 48; Russell Letter, supra note 48; T. Rowe 

Letter, supra note 49. 

103 See Fund Democracy et al. Letter, supra note 34. 

104 Instruction 5 to Item 3 of Form N-1A. 

35
have been expressed in recent years regarding the degree to which investors understand 

the effect of portfolio turnover, and the resulting transaction costs, on fund expenses and 

performance.105 The requirement to provide brief portfolio turnover disclosure in the 

summary section of the prospectus is intended to address these concerns, and the 

proposed disclosure received support from a significant number of commenters.106 

Because we believe that it is important to address investors’ lack of understanding of the 

effect of portfolio turnover and transaction costs on fund expenses and performance, we 

disagree with commenters opposing the disclosure of portfolio turnover rate on the 

grounds that such information is too complicated or unnecessary for the summary 

section.107 

We are modifying the proposed required explanation of the effect of portfolio 

turnover to require that the explanation also address the adverse tax consequences that 

may result from a higher portfolio turnover rate when fund shares are held in a taxable 

account. We agree with commenters who suggested that adverse tax consequences, as 

105 See Investment Company Act Release No. 26313 (Dec. 18, 2003) [68 FR 74820 (Dec. 

24, 2003)] (request for comment regarding ways to improve disclosure of transaction 

costs); Report of the Mutual Fund Task Force on Soft Dollars and Portfolio Transaction 

Costs (Nov. 11, 2004), available at 

http://www.finra.org/web/groups/rules_regs/documents/rules_regs/p012356.pdf. 

106 See, e.g., Biegel Letter, supra note 84; CFA Institute Letter, supra note 37; CMFI Letter, 

supra note 44; Fund Democracy et al. Letter, supra note 34; IDC Letter, supra note 61; 

Mahavier Letter, supra note 74; NAPFA Letter, supra note 44; Schnase Letter, supra note 

35; Vanguard Letter, supra note 42. See also ICI Letter, supra note 34 (stating that it 

does not oppose the disclosure). 

107 See, e.g., American Century Letter, supra note 48; Capital Research Letter, supra note 

34; Clarke Letter, supra note 35; Evergreen Letter, supra note 41; Foreside Letter, supra 

note 74; McCormick Letter, supra note 74; Oppenheimer Letter, supra note 44; Russell 

Letter, supra note 48. 

36
well as higher transaction costs, should be expressly addressed by the explanation.108 We 

are also making a technical revision to the final sentence of the proposed required 

explanation.109 

We have determined not to adopt two significant suggestions that were made by 

commenters: first, that we require the impact of transaction costs to be reflected in a 

fund’s expense ratio in the fee table and, second, that we require disclosure of portfolio 

turnover rates over a period greater than one year. While we believe that both of these 

suggestions have considerable merit, we have concluded that it is not feasible to 

implement either at the present time as discussed further below. 

Several commenters expressed the view that the Commission should require that 

transaction costs be reflected in a fund’s expense ratio in the fee table and that this 

disclosure would be more meaningful to investors than the rate of portfolio turnover.110 

The comments on this rulemaking, however, do not provide an adequate basis for 

prescribing a specific and accurate methodology for reflecting transaction costs in a 

fund’s expense ratio.111 We do agree with the commenters that portfolio turnover rate is 

108 See Fund Democracy et al. Letter, supra note 34; Letter from Representative Donald A. 

Manzullo (Feb. 26, 2008) (“Manzullo Letter”). 

109 Item 3 of Form N-1A. We are deleting the reference to portfolio turnover rate as a 

percentage of the average value of the fund’s “whole” portfolio in the explanation to 

reflect the fact that the rate is calculated without reference to securities whose maturities 

at the time of acquisition are one year or less. See Instruction 4(d)(ii) to current Item 8(a) 

of Form N-1A (describing how to calculate portfolio turnover rate; current Item 8 is 

being renumbered as Item 13). 

110 See, e.g., Fund Democracy et al. Letter, supra note 34; Letter from Representative 

George Miller, Senator Edward M. Kennedy, Representative Robert E. Andrews, Senator 

Tom Harkin, and Senator Herb Kohl (Mar. 13, 2008) (“Miller Letter”). 

111 In addition, in 2003 the Commission issued a concept release that sought public comment 

on a number of issues related to the disclosure of mutual fund transaction costs. See 

Investment Company Act Release No. 26313, supra note 105, 68 FR at 74820. While 

37
an imperfect measure of portfolio transaction costs. While a higher portfolio turnover 

rate tends to result in higher transaction costs and a lower portfolio turnover rate tends to 

result in lower transaction costs, there is not necessarily a direct correlation between 

portfolio turnover rate and portfolio transaction costs. Nonetheless, in the absence of a 

basis for prescribing a better measure, we believe that portfolio turnover rate, though 

imperfect, is an appropriate indicator of transaction costs for purposes of the summary 

section. 

A number of commenters argued that disclosing a portfolio turnover rate over a 

one-year period would not yield a representative portfolio turnover rate because portfolio 

turnover rates vary significantly over time depending on a variety of factors, including 

the need to meet redemption requests, unexpected cash inflows due to sharp swings in 

markets, or the occurrence of a significant event not likely to repeat in future years, such 

as a fund merger or a new portfolio manager restructuring the fund’s holdings.112 These 

commenters suggested that the Commission address this concern by, for example, 

requiring funds to disclose year-by-year turnover rates for a longer period (e.g., 5-10 

years) or an average turnover rate over a longer period of time (e.g., five years).113 We 

believe that requiring year-by-year turnover rates for multiple years in the summary 

section would not further our goal of providing concise, user-friendly disclosure, 

particularly in light of the fact that there is not necessarily a direct correlation between 

most commenters who responded to the concept release felt that there should be greater 

transparency of mutual fund transaction costs, there was a wide range of opinions on 

what should be disclosed. 

112 See, e.g., CMFI Letter, supra note 44; Firehouse Letter, supra note 35; IDC Letter, supra 

note 61. 

113 See, e.g., CMFI Letter, supra note 44; Mahavier Letter, supra note 74. 

38 
portfolio turnover and transaction costs. We note that portfolio turnover rates for each of 

the past five years are already required elsewhere in the prospectus.114 We do not believe 

that there is a sufficient basis in the comments to require disclosure of an average 

turnover rate over a longer period of time (e.g., five years). Doing so would require us to 

address a number of questions that have not been subject to adequate comment in this 

rulemaking, including devising a calculation methodology and addressing questions of 

comparability across funds that have been in existence for different periods of time. 

Expense Reimbursement and Fee Waiver Arrangements 

Finally, we are adopting, with modifications to address commenters’ 

recommendations, the proposed amendments to the requirement that a fund disclose in its 

fee table gross operating expenses that do not reflect the effect of expense reimbursement 

or fee waiver arrangements, which result in reduced expenses being paid by the fund.115 

The adopted amendments will permit a fund to place two additional captions directly 

below the “Total Annual Fund Operating Expenses” caption in cases where there are 

expense reimbursement or fee waiver arrangements that will reduce any fund operating 

expenses for no less than one year from the effective date of the fund’s registration 

statement.116 We have eliminated the proposed requirement that the reimbursement or 

114 Item 13(a) of Form N-1A. 

115 Instruction 3(d)(i) and 6(a) to Item 3 of Form N-1A. In an expense reimbursement 

arrangement, the adviser reimburses the fund for expenses incurred. Under a fee waiver 

arrangement, the adviser agrees to waive a portion of its fees in order to limit fund 

expenses. 

116 Instruction 3(e) to Item 3 of Form N-1A. A fund may not include the additional captions 

if the expense reimbursement or fee waiver arrangement may be terminated without 

agreement of the fund’s board of directors (e.g., unilaterally by the fund’s investment 

adviser) during the one-year period. If a fee waiver or expense reimbursement 

arrangement, in fact, terminates less than a year after the effective date of a fund’s 

registration statement, the fund generally would be required to supplement or “sticker” its 

39
waiver arrangement has reduced operating expenses in the past, as suggested by two 

commenters, because this is irrelevant to the impact that the arrangements will have in 

the future. 117 The purpose of the permitted line items is to show investors how the 

arrangements will affect expenses in the future and not how they have affected expenses 

in the past.118 

One caption will show the amount of the expense reimbursement or fee waiver, 

and a second caption will show the fund’s net expenses after subtracting the fee 

reimbursement or expense waiver from the total fund operating expenses. Funds that 

disclose these arrangements will also be required to disclose the period for which the 

expense reimbursement or fee waiver arrangement is expected to continue, including the 

expected termination date, and briefly describe who can terminate the arrangement and 

under what circumstances. We are adding an express requirement that the expected 

termination date of the arrangement be disclosed in order to address a commenter’s 

concern that investors should be informed in cases where the commitment on a fee 

waiver becomes shorter than one year.119 

prospectus to reflect the termination. The “sticker” would be filed with the Commission 

in accordance with rule 497 under the Securities Act. 

117 Instruction 3(e) to Item 3. We are also making a similar change in the instructions to the 

fee table example. Instruction 4(a) to Item 3. See, e.g., Dechert Letter, supra note 50; 

Evergreen Letter, supra note 41. 

118 Because expense reimbursement and fee waiver arrangements of new funds will be 

disclosed in the same manner as existing funds as a result of the elimination of the 

proposed requirement described in the text, we are eliminating current Instruction 5(b) 

(renumbered as Instruction 6(b) in the Proposing Release) to Item 3 of Form N-1A, 

which pertains to new funds, rather than adopting the proposed revision to the 

Instruction. 

119 See, e.g., Fund Democracy et al. Letter, supra note 34. 

40
In computing the fee table example, a fund will be permitted to reflect any 

expense reimbursement or fee waiver arrangements that will reduce any operating 

expenses for no less than one year from the effective date of the fund’s registration 

statement.120 This adjustment may be reflected only in the periods for which the expense 

reimbursement or fee waiver arrangement is expected to continue. For example, if such 

an arrangement were expected to continue for one year, then, in the computation of 10­

year expenses in the fee table example, the arrangement could only be reflected in the 

first of the 10 years.121 

Commenters made several suggestions with respect to cost disclosure that we 

have determined not to implement at this time. First, a number of commenters suggested 

that the fee table in the summary section should simply disclose the total fees and 

expenses and should omit certain line item breakdowns of expenses that are currently 

required in the statutory prospectus.122 Commenters argued that a more abbreviated 

presentation, such as a fund’s total expense ratio, is preferable because they argued that 

120 Instruction 4(a) to Item 3 of Form N-1A. We have modified this instruction from the 

proposal to eliminate the requirement that the arrangement has reduced fund operating 

expenses during the most recently completed calendar year. This modification is 

consistent with the modification that is described at notes 117 and 118 and the 

accompanying text. 

We are also adopting, as proposed, a technical amendment to the instructions to the 

expense example to eliminate language permitting funds to reflect the impact of the 

amortization of initial organization expenses in the expense example numbers. Id. This 

language is unnecessary because initial organization expenses must be expensed as 

incurred and may no longer be capitalized. See American Institute of Certified Public 

Accountants, Statement of Position 98-5, Reporting on the Costs of Start-Up Activities 

(Apr. 3, 1998). 

121 A fund may not reflect the arrangement in any period during which the arrangement may 

be terminated without agreement of the fund’s board of directors (e.g., unilaterally by the 

fund’s investment adviser). 

122 See, e.g., Capital Research Letter, supra note 34; Evergreen Letter, supra note 41; Fund 

Democracy et al. Letter, supra note 34. 

41
the current breakdown of fees is not crucial information to an investor’s investment 

decision.123 We believe that this idea deserves further consideration, and we will 

consider it for possible future rulemaking. 

Second, some commenters suggested that we consider alternative terms to 

describe sales loads or rule 12b-1 fees124 because the terms are not easily understood by 

most investors.125 We have concluded that it is more appropriate to consider these 

changes in the context of a full reconsideration of sales charges and rule 12b-1 rather than 

in the current rulemaking.126 

Finally, some commenters suggested that the fee table require some form of 

comparison of the fund’s fees to a relevant benchmark based on the fees of similar 

funds.127 The Commission shares the commenters’ view that the ability to compare fees 

across mutual funds is extremely important to investors. To facilitate this comparison, 

we have designed the summary section to provide investors with key information in a 

standardized order. We also note that the Commission’s ongoing interactive data 

initiative is intended to provide investors and other users with the tools necessary to 

123 See Fund Democracy et al. Letter, supra note 34. 

124 “Rule 12b-1 fees” or “12b-1 fees” are fees paid out of fund assets pursuant to a 

distribution plan adopted under rule 12b-1 under the Investment Company Act [17 CFR 

270.12b-1]. 

125 See, e.g., Miller Letter, supra note 110; CFA Institute Letter, supra note 37; Manzullo 

Letter, supra note 108; Letter of Investor Rights Clinic at Pace University School of Law 

(Feb. 28, 2008) (“Pace Letter”). 

126 The Commission last year hosted a roundtable that brought together representatives from 

mutual funds, financial services companies, and investor advocacy groups to discuss 

issues relating to rule 12b-1. See Commission Roundtable on Rule 12b-1 (Jun. 19, 2007) 

available at http://www.sec.gov/spotlight/rule12b-1.htm. Following the roundtable, we 

sought public comment on these topics and have received almost 1,500 comment letters. 

127 See, e.g., AARP Letter, supra note 34; Fund Democracy et al. Letter, supra note 34; 

Letter of Gary M. Keenan (Feb. 14, 2008). 

42
facilitate comparisons of fee information. The Commission recently proposed rules that 

would, if adopted, require mutual funds to file the information in their fee tables in an 

interactive data format that would facilitate automated analysis of the information and 

comparison to other funds.128 The interactive data format would allow users of fee table 

information to download cost and performance information directly into spreadsheets and 

analyze it using commercial off-the-shelf software. 

e. Investments, Risks, and Performance 

Following the fee table and example, we are requiring, substantially as proposed, 

that a fund disclose its principal investment strategies and risks.129 This includes the 

current bar chart and table illustrating the variability of returns and showing the fund’s 

past performance. 

We are modifying the narrative that is required to accompany the bar chart and 

performance table in one respect to address the views expressed by both focus group 

investors and commenters. A fund that makes updated performance information 

available on a Web site or at a toll-free (or collect) telephone number will be required to 

include a statement explaining this and providing the Web site address and/or telephone 

number.130 A number of investors in focus groups expressed the view that the 

availability of updated performance information, particularly at a Web site, would be 

128 See Investment Company Act Release No. 28298, supra note 28, 73 FR at 35442. 

129 Item 4 of Form N-1A. To conform to other changes we are adopting to Form N-1A, the 

Instructions to Item 4 contain technical revisions that (1) amend cross-references to other 

Items in Form N-1A; and (2) eliminate language related to the presentation of 

performance information for more than one fund, given the requirement that information 

for each fund be presented separately. Instructions 2(e) and 3 to Item 4(b)(2) of Form 

N-1A. 

130 Item 4(b)(2)(i) of Form N-1A. 

43
helpful.131 In addition, many industry commenters noted that funds routinely make 

updated performance information available to investors either by Internet Web site or by 

telephone and suggested that the summary section direct investors to this information.132 

Particularly in light of our determination not to require quarterly updating of the 

Summary Prospectus, which is discussed below,133 we believe that it will be helpful to 

investors for the summary section to indicate where updated performance information 

may be found. 

We are not modifying the required bar chart and performance table to add 

additional comparative information as suggested by several commenters.134 Currently, 

funds are required to include an appropriate broad-based securities market index in the 

performance table.135 We have determined not to require additional comparative 

performance information at this time because we are concerned that it would tend to 

undermine our goal of a concise, user-friendly summary of key information by 

contributing to the length and complexity of the summary section. Further, as with cost 

131 See Focus Group Report, supra note 32, at 11; see, e.g., Focus Group Transcripts, supra 

note 32, at 49, 78. 

132 See, e.g., AIM Letter, supra note 47; American Century Letter, supra note 48; Capital 

Research Letter, supra note 34; Fidelity Letter, supra note 86; ICI Letter, supra note 34; 

Janus Letter, supra note 63; Oppenheimer Letter, supra note 44; Putnam Letter, supra 

note 48; Russell Letter, supra note 48; T. Rowe Letter, supra note 49. 

133 See discussion infra Part III.B.2.c. 

134 See, e.g., Letter of Scott Hastings (Feb. 11, 2008) (suggesting comparative disclosure of 

the portfolio manager’s stated benchmark); Morningstar Letter, supra note 34 (same). 

135 Current Item 2(c)(2)(iii) of Form N-1A; Instruction 5 to current Item 22(b)(7) of Form 

N-1A. A fund is also permitted to include information for one or more other indexes. 

Instruction 6 to current Item 22(b)(7) of Form N-1A. If an additional index is included, a 

fund is required to disclose information about the additional index in the narrative 

explanation accompanying the bar chart and table (e.g., by stating that the information 

shows how the fund’s performance compares with the returns of an index of funds with 

similar investment objectives). 

44
information,136 we believe that it is preferable for investors and other users of the 

prospectus to be given the flexibility to make a variety of performance benchmark 

comparisons. Our ongoing interactive data initiative is intended to provide the tools 

necessary to facilitate dynamic comparisons of this type, and we note that the information 

in the bar chart and performance table is covered by our recently proposed rules that 

would, if adopted, require mutual funds to file information in an interactive data 

format.

137 

f. Management 

We are adopting, as proposed, the requirement that the summary section include 

the name of each investment adviser and sub-adviser of the fund, followed by the name, 

title, and length of service of the fund’s portfolio managers.138 A fund will not be 

required to identify a sub-adviser whose sole responsibility is limited to day-to-day 

management of cash instruments unless the fund is a money market fund or other fund 

with a principal investment strategy of regularly holding cash instruments.139 Also, a 

fund having three or more sub-advisers, each of which manages a portion of the fund’s 

portfolio, will not be required to identify each sub-adviser, except that the fund will be 

required to identify any sub-adviser that is (or is reasonably expected to be) responsible 

for the management of a significant portion of the fund’s net assets. For this purpose, a 

136 See supra note 127 and accompanying text. 

137 See Investment Company Act Release No. 28298, supra note 28, 73 FR at 35442. 

138 Item 5 of Form N-1A. Additional disclosures regarding investment advisers and 

portfolio managers that are currently required in the prospectus will continue to be 

required, but not in the summary section. Item 10(a) of Form N-1A. 

139 Instruction 1 to Item 5(a) of Form N-1A. A fund will continue to be required to provide 

the name, address, and experience of all sub-advisers elsewhere in the prospectus. Item 

10(a)(1)(i) of Form N-1A. 

45
significant portion of a fund’s net assets generally will be deemed to be 30% or more of 

the fund’s net assets.140 The portfolio managers required to be listed will be the same 

ones with respect to which information is currently required in the prospectus.141 

Several commenters opposed requiring funds to disclose portfolio managers.

142 

Two of these commenters argued that the identity and length of service of portfolio 

managers do not rise to the level of importance necessary to warrant inclusion in the 

summary.143 However, the Commission continues to believe, along with other 

commenters,

144 that investors in a fund should be provided basic information about the 

individuals who significantly affect the fund’s investment operations. 

Some commenters noted that funds are often managed by teams and that 

disclosing the individuals making up such teams would make the summary section too 

long and would not add substantive disclosure.145 We note that, as is currently the case, 

disclosure will be required only with respect to the members of a management team who 

are jointly and primarily responsible for the day-to-day management of the fund’s 

140 Instruction 2 to Item 5(a) of Form N-1A. 

141 Item 10(a)(2) of Form N-1A. 

142 See, e.g., Capital Research Letter, supra note 34; ICI Letter, supra note 34; Vanguard 

Letter, supra note 42. 

143 See ICI Letter, supra note 34; Russell Letter, supra note 48. 

144 See, e.g., AARP Letter, supra note 34; Evergreen Letter, supra note 41; Financial 

Services Institute Letter, supra note 41. See also Focus Group Transcripts, supra note 32, 

at 11; id. at 30-31 (importance of fund managers); ICI Survey, supra note 84, at 8 (61% 

of respondents believed that the name of the portfolio manager was very important or 

somewhat important). 

145 See, e.g., Capital Research Letter, supra note 34; Clarke Letter, supra note 35; Ogg 

Letter, supra note 75. 

46
portfolio.146 We agree with other commenters that investors have the same interest in the 

identity of the individuals who are primarily responsible for management, regardless of 

whether a fund is managed by an individual portfolio manager or a team.

147 

g. Purchase and Sale of Fund Shares 

We are adopting, with modifications to address exchange-traded funds,148 the 

proposed requirement that the summary section disclose the fund’s minimum initial or 

subsequent investment requirements and the fact that the fund’s shares are redeemable, 

and identify the procedures for redeeming shares (e.g., on any business day by written 

request, telephone, or wire transfer).149 Commenters generally did not express a view 

with respect to this requirement.150 

h. Tax Information 

We are adopting, as proposed, the requirements for tax information in the 

summary section. A fund will be required to state, as applicable, that it intends to make 

distributions that may be taxed as ordinary income or capital gains or that the fund 

146 Instruction 2 to Item 5(b) of Form N-1A. In addition, if more than five persons are 

jointly and primarily responsible for the day-to-day management of a fund’s portfolio, the 

fund need only provide the required information for the five persons with the most 

significant responsibility. 

147 See Evergreen Letter, supra note 41; Keil Letter, supra note 62. 

148 See discussion infra Part III.A.4. We are also making a technical amendment to current 

Item 6(b) of Form N-1A (which is being renumbered as Item 11(b)) to remove the 

requirement to disclose a fund’s minimum initial or subsequent investment requirements 

because we have added this requirement to Item 6(a) of the summary section. 

149 Item 6 of Form N-1A. We are modifying the proposal to permit funds that are used as 

investment options for retirement plans and variable insurance contracts to modify or 

omit this information. See supra note 68 and accompanying text. 

150 Three commenters supported the proposal. See Letter of Alison W. Beirlein (Feb. 26, 

2008); Foreside Letter, supra note 74; Schnase Letter, supra note 35. Three commenters 

opposed the proposal. See Bent Letter, supra note 74; Clarke Letter, supra note 35; Letter 

of MFS Investment Management (Feb. 28, 2008) (“MFS Letter”). 

47
intends to distribute tax-exempt income. A fund that holds itself out as investing in 

securities generating tax-exempt income will be required to provide, as applicable, a 

general statement to the effect that a portion of the fund’s distributions may be subject to 

federal income tax.151 Commenters generally expressed no views on these 

requirements.152 

i. Financial Intermediary Compensation 

The Commission is adopting the proposed requirement that the summary section 

of the prospectus conclude with disclosure regarding financial intermediary 

compensation. Commenters generally supported this requirement,153 and we are 

modifying the requirement in two ways to address views expressed during investor focus 

groups and the concerns of commenters. Specifically, we are requiring the following 

statement, which could be modified provided that the modified statement contains 

comparable information:154 

“Payments to Broker-Dealers and Other Financial Intermediaries 

If you purchase the Fund through a broker-dealer or other financial intermediary 

(such as a bank), the Fund and its related companies may pay the intermediary for 

the sale of Fund shares and related services. These payments may create a 

conflict of interest by influencing the broker-dealer or other intermediary and 

151 Item 7 of Form N-1A. 

152 One commenter opposed mandating the tax information. See Clarke Letter, supra note 

35. 

153 See, e.g., Data Communiqué Letter, supra note 35; Firehouse Letter, supra note 35; Fund 

Democracy et al. Letter, supra note 34; ICI Letter, supra note 34; Keil Letter, supra note 

62; NAPFA Letter, supra note 44; Schnase Letter, supra note 35; SIFMA Letter, supra 

note 97; Letter of USAA Investment Management Company (Feb. 28, 2008) (“USAA 

Letter”); Vanguard Letter, supra note 42; Letter of Wachovia Securities, LLC (Aug. 29, 

2008). But see Letter of Capital Research and Management Company (Aug. 29, 2008) 

(opposing the financial intermediary disclosure requirement). 

154 Item 8 of Form N-1A. 

48
your salesperson to recommend the Fund over another investment. Ask your 

salesperson or visit your financial intermediary’s Web site for more information.” 

This disclosure will be new to fund prospectuses and is intended to identify the existence 

of compensation arrangements with selling broker-dealers or other financial 

intermediaries, alert investors to the potential conflicts of interest arising from these 

arrangements, and direct investors to their salesperson or the financial intermediary’s 

Web site for further information. It is intended to address, in part, concerns that mutual 

fund investors lack adequate information about certain distribution-related costs that 

create conflicts for broker-dealers and their associated persons.155 

We have added a provision permitting a fund to omit the financial intermediary 

disclosure if neither the fund nor any of its related companies pay financial intermediaries 

for the sale of fund shares or related services.156 This addresses the concerns of a number 

of commenters who expressed the view that the Commission should not require the 

narrative disclosure from funds to which the disclosure does not apply.157 According to 

155 The Commission has recognized these concerns in a separate initiative in which the 

Commission proposed to require, among other things, disclosure of mutual fund 

distribution-related costs and conflicts of interest by selling broker-dealers and other 

financial intermediaries at the point of sale. Securities Act Release No. 8544 (Feb. 28, 

2005) [70 FR 10521 (Mar. 4, 2005)]; Securities Act Release No. 8358 (Jan. 29, 2004) [69 

FR 6438 (Feb. 10, 2004)]. One commenter to that proposal recommended use of a shortform “profile plus” disclosure document that would include, among other things, basic 

information about such potential conflicts of interest. See Letter of NASD (Mar. 31, 

2005) available at http://www.sec.gov/rules/proposed/s70604/nasd033005.pdf. We 

intend to consider additional steps to enhance investor access to information prior to 

making an investment decision. See infra notes 200 and 201 and accompanying text. 

156 Item 8 of Form N-1A. 

157 See, e.g., CAI Letter, supra note 67; ICI Letter, supra note 34; Oppenheimer Letter, supra 

note 44; T. Rowe Letter, supra note 49; USAA Letter, supra note 153; Vanguard Letter, 

supra note 42. We note that Item 8 permits a fund to modify the narrative statement 

provided that the modified statement contains comparable information. For example, a 

fund that is offered as an underlying investment option for a variable annuity contract 

could modify the narrative statement to reflect payments made to the sponsoring 

insurance company for distribution and other services. 

49
one commenter, such funds include, for example, no-load funds and funds sold directly to 

investors.158 

We have also modified the proposed statement to clarify that payments to a 

broker-dealer or other financial intermediary may create a conflict of interest by 

influencing the broker-dealer or other intermediary to recommend a fund over another 

investment. This modification, made in response to investor comments from our focus 

groups, is intended to increase awareness of potential conflicts of interest.159 We are, 

therefore, revising the narrative to expressly notify investors that a conflict of interest 

may exist with respect to the broker-dealer’s recommendation. 

We have determined not to add a requirement that the disclosure include 

standardized language enumerating the types of compensation that may be provided to 

financial intermediaries, as suggested by one commenter.160 Rather, we are adopting a 

statement that will alert investors generally to the payment of compensation and the 

potential conflicts arising from that payment. An investor could then obtain further detail 

from his or her salesperson or the intermediary’s Web site. As discussed further below, 

we intend to consider additional steps in the future that would further enhance investors’ 

158 See ICI Letter, supra note 34. We note, however, that no-load funds and directly-sold 

funds will be required to include the narrative disclosure in certain circumstances. For 

example, the disclosure will be required if a no-load fund pays servicing fees to a fund 

supermarket. 

159 See Focus Group Report, supra note 32, at 8 (stating that participants felt that new 

investors may not be aware of the potential conflict of interest); Focus Group Transcripts, 

supra note 32, at 16, 41. 

160 See NAPFA Letter, supra note 44 (requesting standardized language describing possible 

forms of compensation, such as surrender fees, payment for shelf space, commissions 

paid for fund transactions, principal mark-ups and mark-downs, fees derived from bidask spreads, and payments for marketing support and/or education of registered 

representatives). 

50
access to information about broker and intermediary compensation and conflicts of 

interest. 

4. Exchange-Traded Funds 

In March of this year, the Commission proposed several amendments to Form 

N-1A to accommodate the use of the form by ETFs.161 Most ETFs are organized and 

registered as open-end funds. Unlike traditional mutual funds, however, they sell and 

redeem individual shares (“ETF shares”) only in large aggregations called “creation 

units” to certain financial institutions. ETFs register offerings and sales of ETF shares 

under the Securities Act and list their shares for trading under the Securities Exchange 

Act of 1934 (“Exchange Act”).162 As with any listed security, investors trade ETF shares 

at market prices. 

The proposed amendments for ETF prospectuses were designed to meet the needs 

of investors (including retail investors) who purchase ETF shares in secondary market 

transactions rather than financial institutions that purchase creation units directly from the 

ETF. The proposed amendments for ETF prospectuses also addressed the need to modify 

the summary section of ETF prospectuses to include the amended ETF disclosures. 

Today, we are adopting the proposed amendments for ETF prospectuses with changes to 

161 See ETF Proposing Release, supra note 14, 73 FR at 14618. 

162 For a description of how ETFs operate, see id. at 14620-21. ETFs currently operate 

pursuant to exemptive orders granted by the Commission. The final amendments define 

an ETF as a fund or class of a fund, the shares of which are traded on a national securities 

exchange, and that has formed and operates pursuant to an exemptive order granted by 

the Commission or in reliance on an exemptive rule adopted by the Commission. 

General Instruction A of Form N-1A. The final ETF definition in Form N-1A eliminates 

from the proposed definition the cross-reference to proposed rule 6c-11, which, if 

adopted, would codify many of the exemptive orders granted to ETFs. See ETF 

Proposing Release, supra note 14, 73 FR at 14621-30. We have made this technical 

change to the ETF definition because the Commission has not adopted proposed rule 6c11. 

51
respond to issues raised by commenters on the summary prospectus proposing release 

and the ETF proposing release.163 

a. Purchasing and Redeeming Shares 

We are amending Form N-1A to eliminate the requirement that ETF prospectuses 

disclose information on how to buy and redeem shares directly from the ETF because it is 

not relevant to investors who are secondary market purchasers of ETF shares.164 We 

proposed to require ETF prospectuses to state the number of shares contained in a 

creation unit (i.e., the aggregate number of shares an ETF will issue or that is necessary 

to redeem from the ETF), that individual shares can only be bought and sold on the 

secondary market through a broker-dealer, and that shareholders may pay more than net 

asset value (“NAV”) when they buy ETF shares and receive less than NAV when they 

sell shares because shares are bought and sold at current market prices.165 We also 

proposed to amend the fee table disclosure in Form N-1A to exclude fees and expenses 

for purchases or redemptions of creation units and instead to modify the narrative 

explanation preceding the example in the fee table to state that investors in ETF shares 

may pay brokerage commissions that are not reflected in the example.166 Commenters 

163 The amendments we proposed in the ETF Proposing Release incorporated most of the 

comments from Barclays Global Fund Advisors (“BGFA”) in response to the Proposing 

Release. See Letter of BGFA (Feb. 28, 2008) (“BGFA Letter”). BGFA also requested 

guidance on how disclosure requirements in future exemptive orders will be integrated 

into the summary section of the prospectus. We are unable to provide guidance in this 

release because we do not know what additional disclosure requirements, if any, would 

be required for ETFs that form and operate pursuant to future exemptive orders. 

Additional disclosure requirements, if any, will be included in those exemptive orders. 

164 Item 6(c)(ii) of Form N-1A. 

165 See proposed Item 6(h)(3) and (4) of current Form N-1A; proposed Instruction 3 to Item 

6(h) of current Form N-1A. 

166 Proposed Instruction 1(e)(i) to current Item 3 of Form N-1A. One commenter to the ETF 

Proposing Release requested that we require ETFs to include spread costs in the fee table. 

52
who addressed the proposed amendments generally supported this approach.167 We are 

adopting the amendments largely as proposed, with minor changes to conform to the final 

amendments to the summary section.168 ETFs still will be required to include disclosure 

on how creation units are offered to the public in the SAI.169 

Consistent with our proposal, the alternative disclosures in Items 3 and 6 of Form 

N-1A will not be available to ETFs with creation units of less than 25,000 shares.170 

Although only certain financial institutions purchase and redeem creation units directly 

from an ETF, individual or retail investors may be more likely to transact in creation 

units through one of these financial institutions if the creation unit size is less than 25,000 

See Letter of BGFA (May 16, 2008) (File No. S7-07-08) (“BGFA Letter on ETF 

Proposing Release”). This information is required to be disclosed pursuant to rule 

11Ac1-5(b) of the Exchange Act [17 CFR 240.11Ac1-5(b)] and is publicly available to 

investors and the market, which considers the effect of spreads. We did not follow the 

commenter’s suggestion because we believe that disclosure regarding additional spreads 

in an ETF prospectus, particularly in the summary section, would not be meaningful to 

most investors and may be confusing. 

167 See, e.g., BGFA Letter on ETF Proposing Release, supra note 166, Letter of Investment 

Company Institute (May 19, 2008) (File No. S7-07-08) (“ICI Letter on ETF Proposing 

Release”). 

168 Item 6(c)(i) of Form N-1A; Instruction 1(e)(i) to Item 3 of Form N-1A. Item 6(c)(i)(B) 

requires disclosure that ETF shares may trade at a price greater than NAV (premium) or 

less than NAV (discount). The final amendments, like the proposed amendments, also 

will require each ETF to identify the exchange ticker symbol(s) and principal U.S. 

market(s) on which the shares are traded. Item 1(a)(2) of Form N-1A; rule 498(b)(1)(ii) 

17 CFR 230.498(b)(1)(ii). We also are adopting a conforming amendment to the expense 

example in ETF annual and semi-annual reports. Instruction 1(e)(i) to Item 27(d) of 

Form N-1A. 

169 Item 23(a) of Form N-1A. Consistent with our proposal, we are not amending this 

disclosure to include information on creation unit redemption, which Item 11 requires 

and which we are eliminating for ETFs. See Item 11(g) of Form N-1A. 

170 Instruction (1)(e)(ii) to Item 3 of Form N-1A; Item 6(c)(ii) of Form N-1A. We also are 

adopting a conforming amendment to the expense example in ETF annual and semiannual reports. Instruction 1(e)(ii) to Item 27(d) of Form N-1A. 

53
shares.171 Because there is greater potential for retail investors to transact (indirectly) in 

creation units as they decrease in size, we are requiring any ETF that sells and redeems 

its shares in creation units of 25,000 or less to include in its prospectus information on 

how to purchase and redeem creation units and the costs associated with those 

transactions.172 

b. Total Return 

At the suggestion of commenters, we are not adopting our proposal that ETFs 

include disclosure of market price returns in addition to returns based on NAV.173 Like 

any other fund that files Form N-1A, an ETF must disclose returns based on NAV.174 All 

171 ETFs directly sell and redeem creation units only to investors (“authorized participants”), 

usually brokerage houses, with which the ETF has a contractual agreement. See, e.g., 

Investment Company Act Release No. 27963 (Aug. 31, 2007) [72 FR 51475 (Sept. 7, 

2007)]. The authorized participant may act as a principal in the transaction or as agent 

for another, typically an institutional investor. 

172 We have not, as one commenter to the ETF Proposing Release suggested, used a dollar 

value of a creation unit as the threshold for disclosure. See ICI Letter on ETF Proposing 

Release, supra note 167. We do not want to establish a threshold that may change (and as 

a consequence require amended disclosure) as a result of fluctuations in portfolio value 

rather than direct action by the ETF. We also disagree with one commenter who opined 

that the proposed threshold would create a de facto minimum of 25,000 shares for 

creation units and suggested that the threshold for exemptions from disclosure be set at 

1,000 shares. See Letter of James J. Angel (May 16, 2008) (File No. S7-07-08). Other 

commenters, including ETF sponsors, explained they supported the proposed exemption 

from disclosure on the purchase and redemption of creation units because the information 

would confuse retail investors rather than because the disclosures were particularly costly 

or burdensome. See BGFA Letter on ETF Proposing Release, supra note 166; ICI Letter 

on ETF Proposing Release, supra note 167; Letter of Xshares Advisors LLC (May 20, 

2008) (File No. S7-07-08) (“Xshares Letter”). Thus, it seems unlikely that an exemption 

from these disclosures would outweigh the other factors an ETF considers in determining 

the appropriate size of a creation unit, and we have not reduced the threshold for the 

exemption. See ICI Letter on ETF Proposing Release, supra note 167 (“[T]he 

appropriate size of a creation unit may vary depending on a number of factors, such as 

the type and availability of component securities, the expected uses of the product, and 

the likely Authorized Participants.”). 

173 See ETF Proposing Release, supra note 14, 73 FR at 14623 n. 163 and preceding, 

accompanying, and following text. 

174 See Item 13(a) of Form N-1A. 

54
commenters who addressed this proposal opposed it.175 They disagreed that these returns 

would be more relevant to an investor’s experience in the ETF than returns based on 

NAV because market price (which we proposed to define as closing price) is not tied to 

an investor’s particular purchase price.176 One commenter suggested that while NAV 

also does not represent any single investor’s experience, it provides a better metric of 

performance than market price.177 After consideration of these comments, we agree with 

these commenters that market price returns would not more closely represent the 

experience of any particular investor and may confuse investors, particularly when 

disclosed next to NAV returns.178 We therefore are not requiring ETFs to disclose 

market price returns in Form N-1A.179 

We also are not adopting our proposal that would have required an index-based 

ETF to compare its performance to its underlying index rather than a benchmark index.180 

Commenters on the ETF proposing release stated that we should not change the 

disclosure requirement for index-based ETFs without changing the requirement for all 

175 See ICI Letter on ETF Proposing Release, supra note 167; BGFA Letter on ETF 

Proposing Release, supra note 166; Xshares Letter, supra note 171. 

176 See ICI Letter on ETF Proposing Release, supra note 167; Xshares Letter, supra note 

172. 

177 ICI Letter on ETF Proposing Release, supra note 167 (“[NAV] provides a consistent 

metric calculated as of the same time each day in accordance with the fund’s valuation 

policies and procedures, and is not subject to the influence of outlier bids or offers.”). 

178 See id.; BGFA Letter on ETF Proposing Release, supra note 166. 

179 Similarly, we are not adopting our proposed conforming amendments to the total return 

information in ETF annual reports. See ETF Proposing Release, supra note 14, 73 FR at 

14633 nn. 171-172 and accompanying text. 

180 See ETF Proposing Release, supra note 14, 73 FR 14633 at nn. 173-174. 

55
index funds.181 We agree that the proposed change should be considered with respect to 

all index funds, not just index-based ETFs, and therefore, we are not adopting this 

amendment but may consider future rulemaking.182 

c. Premium/Discount Information 

We are adopting, as proposed, the amendments to the form to require each ETF to 

disclose to investors information about the extent and frequency with which market 

prices of fund shares have tracked the fund’s NAV.183 Each ETF will be required to 

disclose in its prospectus the number of trading days during the most recently completed 

calendar year and quarters since that year on which the market price of the ETF shares 

was greater than the fund’s NAV and the number of days it was less than the fund’s NAV 

(premium/discount information).184 This disclosure is designed to alert investors to the 

181 See, e.g., ICI Letter on ETF Proposing Release, supra note 167; Xshares Letter, supra 

note 171. 

182 We also are not, as one commenter suggested, eliminating the required disclosure 

concerning portfolio turnover information for index-based ETFs. See BGFA Letter, 

supra note 166. Although most ETFs may sell and redeem their creation units in kind 

(i.e., for a basket of assets), they still engage in portfolio transactions in order to conform 

the portfolio to changes in the index. We believe that information regarding portfolio 

turnover also may be relevant to an investor who is comparing an investment in an indexbased ETF to an investment in an open-end index fund. 

183 Item 11(g)(2) of Form N-1A. See ETF Proposing Release, supra note 14, 73 FR at 14632 

nn. 166-169 and accompanying and following text. ETFs currently are required to 

disclose on their Internet Web sites the prior business day’s last determined NAV, the 

market closing price of the fund’s shares or the midpoint of the bid-ask spread at the time 

of the calculation of NAV (“bid-ask price”), and the premium/discount of that price to 

NAV. See, e.g., WisdomTree Investments, Inc. et al., Investment Company Act Release 

Nos. 27324 (May 18, 2006) [71 FR 29995 (May 24, 2006)] (notice) and 27391 (June 12, 

2006) (order); PowerShares Exchange Traded Fund Trust et al., Investment Company 

Act Release Nos. 25961 (Mar. 4, 2003) [68 FR 11598 (Mar. 11, 2003)] (notice) and 

25985 (Mar. 28, 2003) (order). 

184 Consistent with our proposal, the final amendments require ETFs to present premiums or 

discounts as a percentage of NAV. Instruction 2 to Item 11(g)(2) of Form N-1A. See 

ETF Proposing Release, supra note 14, 73 FR at 14632 nn. 166-169 and accompanying 

and following text. ETFs also will have to explain that shareholders may pay more than 

NAV when purchasing shares and receive less than NAV when selling, because shares 

56
relationship between NAV and the market price of the ETF’s shares, and that investors 

may purchase or sell ETF shares at prices that do not correspond to NAV. In addition, 

this disclosure will provide historical information regarding the frequency of these 

deviations. 

Commenters on the ETF proposing release were divided as to whether this 

specific premium/discount information would be useful to investors, although all who 

commented suggested the information need only be provided on the ETF’s Web site.185 

Based on these comments, it appears that specific premium/discount information may not 

be generally useful to all ETF investors. For that reason, an ETF may omit the disclosure 

of specific premium/discount information in its prospectus or annual report if the fund 

provides the information on its Internet Web site and discloses in the prospectus or 

annual report an Internet address where investors can locate the information.186 Because 

are bought and sold at market prices. Instruction 3 to Item 11(g)(2) of Form N-1A. 

Consistent with the proposal, the final amendments require ETFs to include a table with 

premium/discount information in their annual reports for the five recently completed 

fiscal years. Item 27(b)(7)(iv) of Form N-1A. We are including instructions similar to 

those in Item 11 to assist funds in meeting this disclosure obligation. Instructions to Item 

27(b)(7)(iv) of Form N-1A. 

185 See Xshares Letter, supra note 172 (“[W]e believe that the disclosure of 

[premium/discount] information is useful to investors and support this requirement.”); 

Letter of NYSE Arca (May 28, 2008) (File No. S7-07-08) (asserting generally that 

disclosure of premium/discount information required on the Web site, together with other 

available index or portfolio information provides necessary information to investors to 

assess ETF pricing against the underlying index or portfolio). But see BGFA Letter on 

ETF Proposing Release, supra note 166 (“[T]he concept of premium/discount may not be 

an instructive way of thinking about ETF share prices in the secondary market ... 

BGFA’s Internet website experience suggests investors do not value this information 

highly.”); ICI Letter on ETF Proposing Release, supra note 167 (premium/discount 

information is not particularly useful and investors do not regularly seek it). 

186 Item 11(g)(2) of Form N-1A; Item 27(b)(7)(iv) of Form N-1A. Although the time period 

required in the disclosure is different in the prospectus and annual report, ETFs will be 

able to omit both disclosures by providing on their Internet Web sites only the 

premium/discount information required by Item 11(g)(2) (the most recently completed 

fiscal year and quarters since that year). Id. In order to rely on the exemptive orders that 

permit them to operate, ETFs also must disclose on their Web sites each day the premium 

57
ETFs may choose to provide this disclosure on their Web sites instead of in their 

prospectuses, we have added a requirement that the prospectus disclose that ETF shares 

may trade at a premium or discount.187 This approach is designed to require disclosure of 

the information, but avoid duplicative disclosures that may result in additional regulatory 

burdens. Commenters who addressed the issue strongly supported permitting ETFs to 

include historical premium/discount information on their Web sites instead of in their 

prospectuses and annual reports.188 Our amendments allow ETFs to choose the most 

cost-effective method of providing this disclosure to their investors. 

For purposes of calculating premium/discount information, we are adopting, with 

a modification, the proposed definition of “market price.”189 Commenters objected to our 

proposed definition of market price as the closing price because of stale pricing 

concerns.190 These commenters suggested that ETFs instead be permitted to use the midand discount of the market closing price or the bid/ask price against the NAV as a 

percentage of NAV. See supra note 183. Investors in ETFs that choose not to disclose 

the required premium/discount information in their prospectuses or annual reports would 

be able to review historic and daily premium/discount information on the ETF’s Web 

site. 

187 Item 6(c)(i)(B) of Form N-1A. 

188 See, e.g., BGFA Letter on ETF Proposing Release, supra note 166 (“Duplicative 

disclosure strikes us as unnecessary and burdensome .... Because data in a prospectus 

speaks of the prospectus date and therefore does not include the most recent information, 

we believe Internet Web site disclosure is preferable to prospectus disclosure. 

Accordingly, we believe that it would be sufficient to reference the availability of the 

information on the Internet Web site in a prospectus.”). 

189 General Instruction A of Form N-1A. See ETF Proposing Release, supra note 14, 73 FR 

at 14632 nn. 164-165 and accompanying text for a discussion of the proposed definition 

of “market price.” 

190 See, e.g., Letter of Chapman and Cutler LLP (May 19, 2008) (File No. S7-07-08) 

(“Chapman Letter”); ICI Letter on ETF Proposing Release, supra note 167 (noting that 

the closing price may be less accurate because the last trade occurred at a much earlier 

time than the NAV calculation). 

58
point between the highest bid and the lowest offer at the time the fund’s NAV is 

calculated.191 To address these concerns, the final amendments define the term “market 

price” to mean the closing price on the principal market on which ETF shares trade or 

within the range between the highest offer and the lowest bid if that price more accurately 

reflects the current market value of the fund’s shares at the time the Fund calculates its 

NAV.192 

5. Conforming and Technical Amendments to Form N-1A 

The foregoing amendments to Form N-1A require adding new items to the form 

and revising and renumbering certain existing items. We are adopting conforming 

191 See, e.g., Chapman Letter, supra note 190; ICI Letter on ETF Proposing Release, supra 

note 167. See also, e.g., Claymore Exchange-Traded Fund Trust, Investment Company 

Act Release No. 27469 (Aug. 28, 2006) [71 FR 51869 (Aug. 31, 2006)] (exemptive order 

permitting ETF to operate in which ETF has used the mid-point price, rather than the 

closing price, in circumstances when closing price may be less accurate because the last 

trade occurred at a much earlier point in the day than NAV calculation). One commenter 

also noted that the principal trading market for an ETF may shift during the trading day 

and, therefore, that the rule should use the market price on the various principal U.S. 

markets on which the ETF shares trade during a regular trading session. See Chapman 

Letter, supra note 190. We have not incorporated this suggestion in our amendments. 

We note that rules of the national securities exchanges use the term “principal market.” 

See, e.g., NYSE Arca Rule 6.1(b)(27) (in its rule that applies to options trading on the 

exchange, defining “primary market” in respect of an underlying stock or ETF share to 

mean “the principal market in which the underlying stock or [ETF share] is traded.”). 

We have included the term “trading” to be clear that the term does not refer to the 

principal listing market. In addition, expanding the rule to various principal trading 

markets may be confusing and could create the potential that funds will seek the market 

that provides the best bid/offer. 

192 Definition of “Market Price” in General Instruction A of Form N-1A (“Market Price” 

refers to the last reported sale price at which ETF shares trade on the principal U.S. 

market on which the fund’s shares are traded during a regular trading session or, if it 

more accurately reflects the current market value of the fund’s shares at the time the fund 

uses to calculate its NAV, a price within the range of the highest bid and lowest offer on 

the principal U.S. market on which the fund’s shares are traded during a regular trading 

session.”). See Codification of Financial Reporting Policies, Section 404.03.b.ii, 

“Valuation of Securities—Securities Listed or Traded on a National Securities 

Exchange,” reprinted in SEC Accounting Rules (CCH) ¶ 38,221, at 38.424-25. See also 

Fair Value Measurements, Statement of Financial Accounting Standards No. 157, § 24 

(Fin. Accounting Standards Bd. 2006). 

59
amendments to Form N-1A, consistent with these revisions and renumbering, in order to 

update the table of contents and the various references to Form N-1A items contained 

within the form. We are also adopting technical amendments to Form N-1A to update the 

Commission’s telephone number and address.193 

B. New Delivery Option for Mutual Funds 

1. Use of Summary Prospectus and Satisfaction of Statutory Prospectus 

Delivery Requirements 

The Commission is adopting, with modifications to address commenters’ 

concerns, the proposal to replace rule 498194 with a new rule that permits the obligation 

under the Securities Act to deliver a statutory prospectus with respect to mutual fund 

securities to be satisfied by sending or giving a Summary Prospectus and providing the 

statutory prospectus online. In addition, the new rule will require a fund to send the 

statutory prospectus in paper or by e-mail upon request. The Summary Prospectus is 

required to contain the key information that is included in the new summary section of 

the statutory prospectus in the same order that is required in the statutory prospectus. 

The new rule is intended to create a disclosure regime that is tailored to the 

unique needs of mutual fund investors in a manner that provides ready access to the 

information that investors need, want, and choose to review in connection with a mutual 

fund purchase decision. The rule provides for a layered approach to disclosure in which 

key information is sent or given to the investor and more detailed information is provided 

193 Cover page to Form N-1A; Item 1(b)(3) of Form N-1A. 

194 As adopted in 1998, rule 498 permits mutual funds to offer investors a disclosure 

document called a “profile,” which summarizes key information about the fund. An 

investor deciding to purchase fund shares based on the information in a profile is required 

to receive the fund’s statutory prospectus with the security or confirmation of purchase. 

Investment Company Act Release No. 23065 (Mar. 13, 1998) [63 FR 13968 (Mar. 23, 

1998)]. The amendments we are adopting today result in the elimination of the profile. 

60
online and, upon request, is sent in paper or by e-mail. This is intended to provide 

investors with better ability to choose the amount and type of information to review, as 

well as the format in which to review it (online or paper). In addition, the provision of a 

Summary Prospectus containing key information about the fund, coupled with online 

provision of more detailed information, should aid investors in comparing funds.195 In 

short, we believe that the new rule will result in funds providing investors with more 

useable information than they receive today in a format that investors are more likely to 

use and understand. Under the new rule, an investor could choose to receive the statutory 

prospectus in the same paper format that would be provided under our prior rules. 

The new rule provides that any obligation under Section 5(b)(2) of the Securities 

Act196 to have a statutory prospectus precede or accompany the carrying or delivery of a 

mutual fund security in an offering registered on Form N-1A is satisfied if (1) a Summary 

Prospectus is sent or given no later than the time of the carrying or delivery of the fund 

security;197 (2) the Summary Prospectus is not bound together with any materials, except 

195 A recent survey indicated that 90% of investors surveyed had access to the Internet. See 

Telephone Survey Report, supra note 32, at 115. It also indicated over half (56%) rely on 

the Internet to some extent (ranging from “a little” to “completely”) in making 

investment decisions. Id. at 116. The survey report further indicated that 53% of 

respondents who own mutual funds accessed investment information via the Internet. Id. 

at 6. 

196 15 U.S.C. 77e(b)(2). 

197 A fund could rely upon existing Commission guidance, which typically requires 

affirmative consent from individual investors, to send or give a Summary Prospectus by 

electronic means. See Securities Act Release No. 7233 (Oct. 6, 1995) [60 FR 53458 

(Oct. 13, 1995)]; Securities Act Release No. 7856 (Apr. 28, 2000) [65 FR 25843 (May 4, 

2000)]. If, prior to the effective date of this rule, an investor had consented in accordance 

with existing Commission guidance to receive future versions of one or more funds’ 

statutory prospectuses by electronic means, we would not object if a fund or financial 

intermediary relies on that consent to send or give the Summary Prospectuses of those 

funds by electronic means to that investor, provided that the consent is not otherwise 

revoked. 

61
as described below; (3) the Summary Prospectus that is sent or given satisfies the rule’s 

requirements at the time of the carrying or delivery of the fund security; and (4) the 

conditions set forth in the rule, which require a fund to provide the Summary Prospectus, 

statutory prospectus, and other information on the Internet in the manner specified in the 

rule, are satisfied.198 As discussed in more detail below, we have changed the proposed 

condition that the Summary Prospectus be given “greater prominence” than 

accompanying materials into a requirement of the rule, rather than a condition to 

satisfaction of delivery obligations under Section 5(b)(2) of the Securities Act. We have 

also clarified that any particular Summary Prospectus is not required to be given “greater 

prominence” than any other Summary Prospectuses or statutory prospectuses. As 

adopted, we are also permitting the Summary Prospectuses and statutory prospectuses of 

multiple underlying funds of a variable insurance contract to be bound with each other 

and with the statutory prospectus for the contract. 

Section 5(b)(2) of the Securities Act makes it unlawful to deliver a security for 

purposes of sale or for delivery after sale “unless accompanied or preceded” by a 

statutory prospectus. Under the rule, delivery of the statutory prospectus for purposes of 

Section 5(b)(2) is accomplished by sending or giving a Summary Prospectus and by 

providing the statutory prospectus and other required information online. Failure to 

comply with the rule’s requirements for sending or giving a Summary Prospectus and 

providing the statutory prospectus and other information online would mean that the rule 

could not be relied on to meet the Section 5(b)(2) prospectus delivery obligation. Absent 

Rule 498(c). 

62

198 
satisfaction of the Section 5(b)(2) obligation by other available means,199 a Section 

5(b)(2) violation would result. The rule also requires a fund to send the statutory 

prospectus upon request. This requirement is not a condition to reliance on the rule, and 

failure to send the requested statutory prospectus will result in a violation of the rule (as 

opposed to a violation of Section 5(b)(2)). 

Section 5(b)(2) does not require delivery of the statutory prospectus prior to 

delivery of the security or confirmation of the transaction. As a result, mutual fund 

investors too often receive the statutory prospectus after the purchase transaction when 

the investment decision is complete. The rules we are adopting will, in practice, require 

any fund that is relying on the Summary Prospectus to meet its obligations under Section 

5(b)(2) to post both its Summary Prospectus and statutory prospectus on the Internet at all 

times. This will result in significantly enhanced access by investors to information about 

the fund prior to the time of making an investment decision. Several commenters 

observed that it would be helpful if investors could review a Summary Prospectus prior to 

making an investment decision.200 We intend to consider additional steps in the future 

that would further enhance investors’ access to the Summary Prospectus, other 

199 These include paper delivery of a statutory prospectus or electronic delivery of a statutory 

prospectus in reliance upon existing Commission guidance. See supra note 197 for 

existing Commission guidance on electronic delivery. We note that it would be 

permissible to satisfy Section 5(b)(2) obligations by relying on rule 498 to send or give a 

Summary Prospectus to some investors, while providing a statutory prospectus to others. 

For example, it would be permissible to rely on rule 498 to send or give the Summary 

Prospectus to existing investors who purchase additional shares while providing the 

statutory prospectus to new investors. It would also be permissible for a life insurance 

company to satisfy Section 5(b)(2) obligations with respect to a variable insurance 

contract by relying on rule 498 to send or give a Summary Prospectus with respect to 

some underlying funds, while providing a statutory prospectus with respect to other 

underlying funds, for example, where some underlying funds maintain a Summary 

Prospectus while others do not. 

200 See, e.g., AARP Letter, supra note 34; Fund Democracy et al. Letter, supra note 34. 

63
information about the fund, and enhanced information about broker and intermediary 

compensation and conflicts of interest before the investment decision. For example, we 

continue to consider appropriate disclosures at the point of sale by financial 

intermediaries, including whether there should be an obligation to direct investors to the 

online availability of the Summary Prospectus and offer investors a copy of the Summary 

Prospectus.201 

The rule we are adopting also provides that a communication relating to an 

offering registered on Form N-1A that is sent or given after the effective date of a mutual 

fund’s registration statement (other than a prospectus permitted or required under Section 

10 of the Securities Act) shall not be deemed a prospectus under Section 2(a)(10) of the 

Securities Act if (1) it is proved that prior to or at the same time with the communication 

a Summary Prospectus was sent or given to the person to whom the communication was 

made; (2) the Summary Prospectus is not bound together with any materials, except as 

described below; (3) the Summary Prospectus that was sent or given satisfies the rule’s 

requirements at the time of the communication; and (4) the conditions set forth in the 

rule, which require a fund to provide the Summary Prospectus, statutory prospectus, and 

other information on the Internet in the manner specified in the rule, are satisfied.202 This 

provision is similar to Section 2(a)(10)(a) of the Securities Act, which provides that a 

communication sent or given after the effective date of the registration statement (other 

than a prospectus permitted under subsection (b) of Section 10) shall not be deemed a 

201 See supra note 155. To the extent that we conclude that such an obligation on the part of 

financial intermediaries is appropriate, we would also consider similar obligations in the 

case of funds that are sold directly to investors. 

202 Rule 498(d). This provision is limited to a mutual fund Summary Prospectus that 

satisfies the terms of the proposed rule and does not apply in the case of any issuer other 

than a mutual fund. 

64
prospectus if it is proved that prior to or at the same time with the communication a 

written prospectus meeting the requirements for a statutory prospectus at the time of the 

communication was sent or given to the person to whom the communication was 

made.203 Pursuant to this provision, communications that would otherwise be considered 

“prospectuses” subject to the liability provisions of Section 12(a)(2) of the Securities Act 

are not deemed prospectuses and are not subject to Section 12(a)(2) if they are preceded 

or accompanied by the statutory prospectus.204 Similarly, under the new rule, 

communications that are preceded or accompanied by a Summary Prospectus are not 

deemed to be prospectuses and are not subject to Section 12(a)(2) if all the conditions of 

the rule are met. These communications remain subject to the general antifraud 

provisions of the federal securities laws.205 

Commenters generally supported the proposal, noting that investors will be more 

likely to read and understand the Summary Prospectus than the statutory prospectus and 

that use of the Summary Prospectus will help investors to focus on what is most 

important in making investment decisions with respect to a particular fund.206 One 

commenter noted that its own research has shown that most investors do not find the 

statutory prospectus to be a particularly useful document and do not rely heavily on it in 

203 15 U.S.C. 77b(a)(10)(a). 

204 15 U.S.C. 77l(a)(2). Section 12(a)(2) of the Securities Act imposes liability for 

materially false or misleading statements in a prospectus or oral communication, subject 

to a reasonable care defense. 

205 See, e.g., Section 17(a) of the Securities Act [15 U.S.C. 77q(a)]; Section 10(b) of the 

Exchange Act [15 U.S.C. 78j(b)]; Section 34(b) of the Investment Company Act [15 

U.S.C. 80a-33(b)]. 

206 See, e.g., AARP Letter, supra note 34; CMFI Letter, supra note 44; Fund Democracy et 

al. Letter, supra note 34; ICI Letter, supra note 34; MFDF Letter, supra note 34. 

65
making a fund selection. The commenter agreed that it makes little sense to continue to 

require delivery of a document to all investors that most say they do not value.207 A 

second commenter noted that the proposal “reflects the strikingly broad consensus that 

investors would be best served by simplified, streamlined disclosure of essential fund 

information” and is supported by research conducted by the Commission and others.208 

Similarly, investors in our focus groups generally expressed favorable views of the 

Summary Prospectus, noting its usefulness as a screening tool to identify funds that they 

might wish to research further.209 Commenters also approved of the proposal’s use of the 

power of the Internet and advances in technology to deliver information to investors.210 

Two commenters argued that use of the Summary Prospectus should be 

mandatory, including one who noted that inconsistent use of the Summary Prospectus 

could create confusion and would make comparison of funds more difficult for 

investors.

211 We have determined not to mandate use of the Summary Prospectus at this 

time. We believe that further public comment on this important step is necessary, and we 

intend to review the use of the Summary Prospectus by investors in funds that voluntarily 

207 See Fund Democracy et al. Letter, supra note 34. 

208 See ICI Letter, supra note 34. 

209 Focus Group Report, supra note 32, at 5-6 (quoting participants as stating “I think it cuts 

to the important factors of performance, cost, objectives. I like it;” “It’s a two-minute 

read. If I want more information, I can ask for it;” “I think that this [short-form 

prospectus] you’d read and if you’re interested and then you’ve got questions and you 

want to go more in-depth and go to the long one;” “I think both [the long and short-form 

prospectuses] have their place. I think it would be foolish to give up the long-form for 

(the short[-]form) and I think it would be foolish not to have the short-form and insist on 

a long-form. They both have their place.”). 

210 See, e.g., AARP Letter, supra note 34; CMFI Letter, supra note 44; ICI Letter, supra note 

34; Oppenheimer Letter, supra note 44. 

211 See Letter of Kevin Possin and Ann Lavine (Feb. 7, 2008); Vanguard Letter, supra note 

42. 

66
adopt the Summary Prospectus and reconsider whether the Summary Prospectus should 

be mandated in the future. 

As noted above, we are modifying the rule’s conditions in three respects to 

address the concerns of commenters. First, we have eliminated the condition that the 

Summary Prospectus be given greater prominence than any accompanying materials212 

and instead made it a rule requirement.213 Second, we have modified this requirement to 

clarify that a Summary Prospectus need not be given “greater prominence” than other 

Summary Prospectuses or statutory prospectuses that accompany the Summary 

Prospectus. Third, we have revised the condition that would have prohibited the 

Summary Prospectus from being bound together with any other materials214 to permit a 

Summary Prospectus for a fund that is available as an investment option in a variable 

annuity or variable life insurance contract to be bound together with the statutory 

prospectus for the contract and Summary Prospectuses and statutory prospectuses for 

other investment options available under the contract.215 

We have made the “greater prominence” standard a rule requirement instead of a 

condition to satisfaction of Section 5(b)(2) obligations.216 While we continue to believe 

that the “greater prominence” requirement is important to prevent the Summary 

Prospectus from being obscured by accompanying sales and other materials and to 

212 Proposed rule 498(c)(1) and (d)(1). 

213 Rule 498(f)(2). 

214 Proposed rule 498(c)(1) and (d)(1). 

215 Rule 498(c)(2) and (d)(2). 

216 Rule 498(f)(2). 

67
highlight for investors the concise, balanced presentation of the Summary Prospectus,217 

we are persuaded by commenters that the consequences of failure to meet the condition – 

a Section 5 violation – is not needed to achieve our goal.218 Therefore, we are adopting 

commenters’ suggestion that satisfaction of the “greater prominence” standard be a rule 

requirement.219 As adopted, the “greater prominence” requirement is not a condition to 

reliance on the rule to satisfy a fund’s or intermediary’s delivery obligations under 

Section 5(b)(2) of the Securities Act or the provision that a communication shall not be 

deemed a prospectus under Section 2(a)(10) of the Securities Act. A person that 

complies with the conditions to the rule will not violate Section 5(b)(2) if the “greater 

prominence” standard is not satisfied. This failure will, however, constitute a violation of 

the Commission’s rules. Generally, we believe that the “greater prominence” 

requirement would be satisfied if the placement of the Summary Prospectus is more 

prominent than accompanying materials, e.g., the Summary Prospectus is on top of a 

group of paper documents that are provided together.220 

We are adopting the condition that prohibits a Summary Prospectus from being 

bound together with any other materials. Although commenters were split on the 

proposed binding prohibition, with some supporting the requirement and others opposed 

217 See, e.g., Pace Letter, supra note 125 (expressing support for the “greater prominence” 

requirement). 

218 See, e.g., ABA Letter, supra note 37; ICI Letter, supra note 34; NYC Bar Letter, supra 

note 75. 

219 See, e.g., ABA Letter, supra note 37; ICI Letter, supra note 34; Oppenheimer Letter, 

supra note 44. 

220 In response to a commenter’s concerns, we are making a technical change to the “greater 

prominence” requirement to clarify that any particular Summary Prospectus need not be 

given “greater prominence” than any other Summary Prospectuses or statutory 

prospectuses that accompany the Summary Prospectus. See ICI Letter, supra note 34. 

68
or seeking modifications,221 we continue to believe that it is important to prevent the 

Summary Prospectus from being obscured by accompanying sales and other materials 

and to highlight for investors the concise, balanced presentation of the Summary 

Prospectus. We are, however, persuaded that it is appropriate to permit binding the 

statutory prospectus of a variable insurance contract with the Summary Prospectuses and 

statutory prospectuses of its underlying funds.222 This will permit satisfaction of 

prospectus delivery requirements for both a variable insurance contract and its underlying 

funds in one consolidated package and does not involve any risk of the prospectuses 

being obscured by sales or other materials. Specifically, under rule 498, 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 in the contract, provided that: (i) all of the funds to which the Summary 

Prospectuses and statutory prospectuses that are bound together relate are available to the 

person to whom such documents are sent or given; and (ii) a table of contents identifying 

each Summary Prospectus and statutory prospectus that is bound together, and the page 

221 See, e.g., Pace Letter, supra note 125 (supporting binding prohibition); T. Rowe Letter, 

supra note 49 (supporting a binding prohibition instead of a “greater prominence” 

requirement); ICI Letter, supra note 34 (arguing that rule should prohibit Summary 

Prospectuses from being bound together with sales materials, or alternatively that there 

be certain specific carve-outs to permit binding of funds’ privacy notices and to permit 

the binding together of Summary Prospectuses for certain similar types of funds); Letter 

of Charles Schwab & Co., Inc., and Charles Schwab Investment Management, Inc. (Feb. 

28, 2008) (“Schwab Letter”) (requesting carve-out to permit binding of funds’ privacy 

policies); Data Communiqué Letter, supra note 35 (opposing binding prohibition); 

Dechert Letter, supra note 50 (opposing binding prohibition); Schnase Letter, supra note 

35 (opposing binding prohibition). 

222 See, e.g., CAI Letter, supra note 67; Dechert Letter, supra note 50; EQ/AXA Letter, supra 

note 67; Fidelity Letter, supra note 86; ICI Letter, supra note 34; Vanguard Letter, supra 

note 42. 

69
number on which it is found, is included at the beginning or immediately following a 

cover page of the bound materials. These conditions are intended to ensure that investors 

are not inundated with prospectuses that are not relevant to the contract they are 

considering and to ensure that investors can readily locate the particular prospectuses in 

which they are interested. 

2. Content of Summary Prospectus 

Rule 498 sets forth the content requirements that a Summary Prospectus must 

satisfy.

223 A Summary Prospectus meeting the requirements of the rule will be deemed to 

be a prospectus that is authorized under Section 10(b) of the Securities Act and Section 

24(g) of the Investment Company Act for the purposes of Section 5(b)(1) of the 

Securities Act.224 A Summary Prospectus meeting these content requirements could be 

used to offer securities of the fund pursuant to Section 5(b)(1) even if the other conditions 

of the rule were not satisfied. The failure to satisfy these other conditions will, however, 

preclude the use of the Summary Prospectus for the other purposes described in rule 498, 

including for purposes of satisfying, in part, a fund’s obligation under Section 5(b)(2) to 

deliver a statutory prospectus. In these circumstances, the Section 5(b)(2) obligation to 

deliver a fund’s statutory prospectus will have to be met by means other than the new rule 

or a Section 5(b)(2) violation will result. 

223 Rule 498(b). Rule 498(a) defines terms used in the rule. 

224 Rule 498(b). Section 10(b) of the Securities Act [15 U.S.C. 77j(b)] authorizes the 

Commission to adopt rules permitting the use of a prospectus for the purposes of Section 

5(b)(1) [15 U.S.C. 77e(b)(1)] that summarizes information contained in the statutory 

prospectus. Section 24(g) of the Investment Company Act [15 U.S.C. 80a-24(g)] 

authorizes the Commission to permit the use of a prospectus under Section 10(b) of the 

Securities Act to include information the substance of which is not included in the 

statutory prospectus. 

70
a. General 

We are adopting, with one clarification, the requirement that the Summary 

Prospectus include the same information as required in the summary section of the 

statutory prospectus in the same order required in the statutory prospectus.225 This key 

information about investment objectives, costs, and risks forms the body of the Summary 

Prospectus. 

We are adopting a new requirement to clarify that if a fund relies on rule 498 to 

meet its statutory prospectus delivery obligations, the information contained in the 

Summary Prospectus must be the same as the information contained in the summary 

section of the fund’s statutory prospectus, except as expressly permitted by rule 498.226 

That is, a fund may not provide different, such as more or less expansive, information in 

its Summary Prospectus than it provides in its statutory prospectus. If, pursuant to rule 

497, a mutual fund files a “sticker” to its statutory prospectus that changes any 

information in the summary section, the Summary Prospectus should either be 

“stickered” or amended to reflect the information in the statutory prospectus “sticker.” 

This new requirement is intended to clarify our intent in adopting the same content 

requirements for the Summary Prospectus and the summary section of the statutory 

prospectus. 

225 Rule 498(b)(2) (Summary Prospectus to include information required or permitted by 

Items 2 through 8 of Form N-1A). We are adopting, as proposed, the provision that 

permits a fund to omit from the Summary Prospectus an explanation of the reasons for 

any change in the securities market index used for comparison purposes in the 

performance presentation. Rule 498(b)(2). Cf. Instruction 2(c) to Item 4(b)(2) of Form 

N-1A (requiring this explanation in summary section of statutory prospectus). 

226 Rule 498(f)(4). Rule 498(b)(2) expressly permits a Summary Prospectus to omit certain 

information relating to a change in the securities market index used for comparison 

purposes. See supra note 225. 

71
The Summary Prospectus will not be permitted to omit any of the required 

information or to include additional information except as described below. A document 

that omits information required in a Summary Prospectus or includes additional 

information not permitted by the rule will not be a Summary Prospectus under the rule 

and may not be used under the rule for any purpose, including meeting the obligation to 

deliver a fund’s statutory prospectus.227 We are adopting these requirements, as 

proposed, because we believe that uniformity of content in Summary Prospectuses will 

provide better comparability, which will help investors to make a more informed 

investment decision, a conclusion which was supported by a number of commenters.228 

While some commenters argued that the rule should provide funds with flexibility to 

customize the content of the Summary Prospectus,

229 we are not persuaded because 

customization would significantly impair investors’ ability to compare information across 

funds. We note that, provided the content and order requirements of the rule are met, 

227 A Summary Prospectus that omits certain information required by the rule or includes 

additional information not permitted by the rule could be deemed to be a prospectus 

under Section 10(b) of the Securities Act for purposes of Section 5(b)(1) of the Securities 

Act pursuant to rule 482 under the Securities Act [17 CFR 230.482] if the conditions of 

that rule are met. 

228 See, e.g., Letter of Brown & Associates LLC and Self Audit, Inc. (Feb. 27, 2008) (“Self 

Audit Letter”); CMFI Letter, supra note 44; Data Communiqué Letter, supra note 35; 

Evergreen Letter, supra note 41; Firehouse Letter, supra note 35; Great-West Letter, 

supra note 42; ICI Letter, supra note 34; Keil Letter, supra note 62; Letter of NewRiver, 

Inc. (Feb. 28, 2008) (“NewRiver Letter”); Oppenheimer Letter, supra note 44; Pace 

Letter, supra note 125; Schnase Letter, supra note 35. 

229 See, e.g., Clarke Letter, supra note 35; Hastie Letter, supra note 59; Letter of Stephen A. 

Keen (Feb. 28, 2008); Ogg Letter, supra note 75. 

72
funds have almost complete flexibility with respect to design issues, including layout, 

graphics, and color.230 

We are adopting, as proposed, the requirement that a Summary Prospectus 

describe only one fund, but may describe multiple classes of a single fund.231 This 

requirement is similar to the requirements for the summary section of the statutory 

prospectus.232 Like those requirements, it is intended to result in a presentation of key 

fund information that is concise and easy to read. 

One commenter suggested that the Commission permit funds to satisfy their 

obligation to deliver a statutory prospectus to their existing shareholders by delivering a 

document directing shareholders’ attention to material changes that have occurred during 

the covered period.233 The commenter argued that such an approach would focus 

230 See, e.g., AARP Letter, supra note 34 (Commission “should set broad parameters for 

compliance with the required substance, format and presentation of the summary 

prospectus, but also allow funds to use their creativity in designing a form that is truly 

investor friendly.”); Data Communiqué Letter, supra note 35 (favoring similar content, 

but stating that the Commission should allow for layout and graphical differences). 

Summary Prospectuses are subject to the font size and legibility requirements for 

prospectuses that are set forth in rule 420 under the Securities Act [17 CFR 230.420]. 

Rule 420 generally requires, among other things, that printed prospectuses be in roman 

type at least as large and as legible as 10-point modern type. 

231 Rule 498(b)(4). 

232 See discussion supra introductory text to Part III.A. and “Organizational Requirements” 

in Part III.A.1. 

233 See Fund Democracy et al. Letter, supra note 34. Section 10(a)(3) of the Securities Act 

[15 U.S.C. 77j(a)(3)] generally requires that when a prospectus is used more than nine 

months after the effective date of the registration statement, the information in the 

prospectus must be as of a date not more than sixteen months prior to such use. The 

effect of this provision is to require mutual funds to update their statutory prospectuses 

annually to reflect current cost, performance, and other financial information. Many 

funds deliver updated statutory prospectuses annually to their existing shareholders in 

order to meet their prospectus delivery obligations with respect to additional purchases by 

those shareholders. 

73
shareholders’ attention on the factors that are most likely to affect their continuing 

evaluation of the fund and impose lower costs than delivery of the Summary Prospectus. 

We are not adopting this suggestion at this time. We are concerned that creation of an 

additional document to be used only for existing shareholders could impose significant 

costs on funds and their shareholders. Moreover, as noted earlier, we recently proposed 

to require mutual funds to submit in interactive data format information contained in the 

risk/return summary section of their statutory prospectuses.234 We are continuing to 

consider that proposal and believe that, if adopted, this requirement would help investors, 

intermediaries, and others to readily identify any changes in this information. 

b. Cover Page or Beginning of Summary Prospectus 

We are adopting, as proposed, the requirements for the cover page or beginning of 

the Summary Prospectus, with the addition of a requirement to include the exchange 

ticker symbols of the fund’s securities.235 The Summary Prospectus will be required to 

include the following information on the cover page or at the beginning of the Summary 

Prospectus: 

• the fund’s name and the share classes to which the Summary Prospectus 

relates; 

• the exchange ticker symbol of the fund’s securities or, if the Summary 

Prospectus relates to one or more classes of the fund’s securities, adjacent to 

each such class, the exchange ticker symbol of such class of the fund’s 

securities; 

• a statement identifying the document as a “Summary Prospectus”; and 

234 Investment Company Act Release No. 28298, supra note 28, 73 FR at 35443. 

235 This requirement is discussed in Part III.A.2. 

74
• the approximate date of the Summary Prospectus’s first use. 

In addition, the cover page or beginning of the Summary Prospectus is required to 

include the following legend: 

“Before you invest, you may want to review the Fund’s prospectus, which 

contains more information about the Fund and its risks. You can find the Fund’s 

prospectus and other information about the Fund online at [__________]. You 

can also get this information at no cost by calling [_____________] or by sending 

an e-mail request to [__________].”236 

In addition, the legend may include a statement to the effect that the Summary Prospectus 

is intended for use in connection with a defined contribution plan that meets the 

requirements for qualification under Section 401(k) of the Internal Revenue Code, a 

tax-deferred arrangement under Section 403(b) or 457 of the Internal Revenue Code, or a 

variable contract as defined in Section 817(d) of the Internal Revenue Code and is not 

intended for use by other investors.237 

The legend is required to provide an Internet address, toll free (or collect) 

telephone number, and e-mail address that investors can use to obtain the statutory 

prospectus and other information.238 The legend is also permitted to indicate that the 

statutory prospectus and other information are available from a financial intermediary 

(such as a broker-dealer or bank) through which shares of the fund may be purchased or 

sold.239 The Internet address at which the statutory prospectus and other information are 

available is not permitted to be the address of the Commission’s Electronic Data 

236 Rule 498(b)(1). 

237 Rule 498(b)(1)(v)(B). 

238 Rule 498(b)(1)(v)(A). 

239 The Web site and other contact information provided may be the Web site and contact 

information of a financial intermediary. 

75
Gathering, Analysis, and Retrieval System (“EDGAR”).240 The address is required to be 

specific enough to lead investors directly to the statutory prospectus and other required 

information, rather than to the home page or other section of the Web site on which the 

materials are posted.241 The Web site could be a central site with prominent links to each 

required document.242 

We are not modifying the proposal in response to commenters who suggested that 

the legend provide more guidance regarding the types of information available,243 

because we believe that investors will be less likely to read a longer legend describing 

multiple documents and that the legend, as adopted, is sufficient to alert investors to the 

existence and location of additional information about the fund. Moreover, as discussed 

below in Part III.B.4.a., a Summary Prospectus that incorporates information by reference 

is required to include more specific disclosure identifying the documents from which the 

240 Cf. rule 14a-16(b)(3) under the Exchange Act [17 CFR 240.14a-16(b)(3)] (similar 

requirement in rules relating to Internet availability of proxy materials). 

241 For a description of the information required to be available at the Web site and a 

discussion of the manner in which such information must be available, see the discussion 

in Part III.B.3. below. 

242 One commenter suggested removing the word “prominent” from the phrase “a central site 

with prominent links” because it calls into question whether a fund complex could have 

one Web page with numerous links or a drop-down menu allowing users to navigate to 

disclosure documents for each of the funds. See ICI Letter, supra note 34. We have 

decided to retain the prominence requirement because we believe that it is important to 

effective delivery that investors be able to easily find the links to the particular 

documents in which they are interested. Cf. Exchange Act Release No. 55146 (Jan. 22, 

2007) [72 FR 4148, 4153-54 n. 79 (Jan. 29, 2007)] (use of central site with prominent 

links in electronic delivery of proxy materials). We note, however, that there is no 

requirement that the links be more prominent than other information. In addition, the 

requirement for prominent links to the relevant documents could be satisfied by a central 

site that lists each fund in alphabetical order with, in table format, links to each fund’s 

Summary Prospectus, statutory prospectus, SAI, and annual and semi-annual shareholder 

report or similar means, such as a drop-down menu allowing users to easily navigate the 

documents for each of the funds. 

243 See, e.g., CMFI Letter, supra note 44; Foreside Letter, supra note 74; MFS Letter, supra 

note 150. 

76
information is incorporated. We also are not modifying the proposal in response to a 

commenter who suggested that the legend make clearer that the Summary Prospectus is 

only a part of the full statutory prospectus.244 We believe that the combination of the 

legend and the requirement to identify the Summary Prospectus as a “Summary 

Prospectus” will provide clear notice to investors that more information is contained in 

the statutory prospectus. 

c. Updating Requirements 

We are not adopting the proposed requirement that performance information in 

the Summary Prospectus be updated quarterly and related provisions of the proposed 

rule.245 We are persuaded by commenters who expressed concerns about potential 

investor confusion, focus on short-term performance, and the costs and operational 

difficulties associated with implementing quarterly updating.246 As adopted, the rule will 

244 See, e.g., Schnase Letter, supra note 35 (state that investors may want to review the 

fund’s “full prospectus” or “complete prospectus” to adequately distinguish it from the 

Summary Prospectus). 

245 Proposed rule 498(b)(2)(ii) (quarterly updating requirement); proposed rule 498(e) 

(provisions related to quarterly updating requirement). The proposal also would have 

required quarterly updating of a fund’s top 10 portfolio holdings. Proposed rule 

498(b)(2)(iii). As discussed above, we have determined not to require inclusion of a 

fund’s top 10 portfolio holdings in the summary section of the statutory prospectus or in 

the Summary Prospectus. See discussion supra Part III.A.3.a. 

246 See, e.g., AIM Letter, supra note 47; American Century Letter, supra note 48; CAI Letter, 

supra note 67; Capital Research Letter, supra note 34; Clarke Letter, supra note 35; 

Dechert Letter, supra note 50; EQ/AXA Letter, supra note 67; Evergreen Letter, supra 

note 41; Fidelity Letter, supra note 86; Financial Services Institute Letter, supra note 41; 

Letter of Financial Services Roundtable (Feb. 28, 2008) (“Financial Services Roundtable 

Letter”); Firehouse Letter, supra note 35; Letter of Fluent Technologies (Mar. 14, 2008) 

(“Fluent Letter”); Foreside Letter, supra note 74; Great-West Letter, supra note 42; ICI 

Letter, supra note 34; IDC Letter, supra note 61; MFS Letter, supra note 150; NYC Bar 

Letter, supra note 75; Oppenheimer Letter, supra note 44; Putnam Letter, supra note 48; 

Letter of RiverSource Funds (Feb. 25, 2008) (“RiverSource Letter”); Russell Letter, 

supra note 48; Schwab Letter, supra note 221; SIFMA Letter, supra note 97; Letter of 

Stradley Ronon Stevens & Young, LLP (Feb. 28, 2008) (“Stradley Letter”); T. Rowe 

Letter, supra note 49; USAA Letter, supra note 153; Vanguard Letter, supra note 42. 

77
require a fund that makes updated performance information available on a Web site or at 

a toll-free (or collect) telephone number to include a statement explaining this and 

providing the Web site address and/or telephone number.247 

Some commenters noted that investors may be confused if different information is 

contained in the summary section of the statutory prospectus (which the proposal did not 

require to be updated on a quarterly basis) and the Summary Prospectus.248 A number of 

commenters also expressed concern that the proposed quarterly updating requirement 

signals a troubling shift toward focusing on short-term performance information, rather 

than encouraging investors to consider long-term performance.249 Commenters also 

noted that updated performance information is already widely available on the Internet 

and from other sources.250 Many commenters suggested as an alternative that the 

Commission require annual updating of the Summary Prospectus, with prominent 

disclosure in the document describing how investors can access updated performance 

information (i.e., through a Web site address or toll-free telephone number).251 Investors 

247 Item 4(b)(2)(i) of Form N-1A. This requirement is discussed more fully in Part III.A.3.e. 

248 See, e.g., Capital Research Letter, supra note 34; Dechert Letter, supra note 50; ICI 

Letter, supra note 34; NYC Bar Letter, supra note 75; Oppenheimer Letter, supra note 44; 

Russell Letter, supra note 48; SIFMA Letter, supra note 97; Stradley Letter, supra note 

246; T. Rowe Letter, supra note 49. 

249 See, e.g., AIM Letter, supra note 47; American Century Letter, supra note 48; Capital 

Research Letter, supra note 34; Dechert Letter, supra note 50; Fluent Letter, supra note 

246; ICI Letter, supra note 34; Oppenheimer Letter, supra note 44; Russell Letter, supra 

note 48. 

250 See, e.g., ICI Letter, supra note 34, Vanguard Letter, supra note 42. 

251 See, e.g., AIM Letter, supra note 47; American Century Letter, supra note 48; Capital 

Research Letter, supra note 34; Clarke Letter, supra note 35; Fidelity Letter, supra note 

86; Financial Services Institute Letter, supra note 41; Firehouse Letter, supra note 35; 

Financial Services Roundtable Letter, supra note 246; IDC Letter, supra note 61; Janus 

Letter, supra note 63; MFS Letter, supra note 150; Oppenheimer Letter, supra note 44; 

78
participating in our focus groups also indicated that they would be willing to obtain 

updated fund information online.252 

In addition, many commenters from the fund industry also stated that the costs 

and operational difficulties associated with implementing the quarterly updating 

requirement would discourage funds from using the Summary Prospectus.253 The 

commenters noted that updating of Summary Prospectuses would likely require an 

entirely new process that would be more complex than the one used for existing quarterly 

fund fact sheets. Moreover, these commenters noted that a quarterly updating 

requirement would essentially require them to move to an “on demand” printing model 

for distribution of Summary Prospectuses, which would entail changes in business 

practices, new or amended vendor contracts, and, for a few fund families, significant 

initial outlays that could substantially delay implementation of the Summary 

Putnam Letter, supra note 48; Russell Letter, supra note 48; Schwab Letter, supra note 

221; T. Rowe Letter, supra note 49. 

252 See Focus Group Report, supra note 32, at 11; Focus Group Transcripts, supra note 32, at 

25-26; id. at 49 (“I get my information from the Web anyway. So, what the prospectus 

says is less important in terms of recent performance. Because there’s no way that they 

can tell me what’s been going on that recently.”); id. at 78 (“You can go to the library and 

be on the Web and it doesn’t cost you anything, except 15 minutes.”); id. (“And if it says, 

‘This is not necessarily the latest, current, go to this Web site and you’ll get the full 

comparison,’ that would be acceptable . . . .”). 

253 See, e.g., AIM Letter, supra note 47; American Century Letter, supra note 48; Capital 

Research Letter, supra note 34; Clarke Letter, supra note 35; Dechert Letter, supra note 

50; EQ/AXA Letter, supra note 67; Evergreen Letter, supra note 41; Financial Services 

Roundtable Letter, supra note 246; Fluent Letter, supra note 246; Great-West Letter, 

supra note 42; ICI Letter, supra note 34; IDC Letter, supra note 61; MFS Letter, supra 

note 150; Oppenheimer Letter, supra note 44; RiverSource Letter, supra note 246; Russell 

Letter, supra note 48; Letter of Saturna Capital Corporation (Jan. 14, 2008); Schwab 

Letter, supra note 221; T. Rowe Letter, supra note 49. The Investment Company 

Institute, a national association of United States investment companies, conducted a 

survey of its member firms and noted that up to 70 percent of funds would face 

substantial cost and operational burdens in complying with a quarterly updating 

requirement and that these burdens would likely lead funds to elect not to use the 

Summary Prospectus. ICI Letter, supra note 34. 

79
Prospectus.254 Financial intermediaries similarly expressed concern about “the ability of 

even large intermediaries to maintain and track a hard copy inventory of prospectuses 

which change multiple times per year.”255 Some commenters also noted that updated 

performance information is already widely available from other sources.256 

On the other hand, a small number of commenters supported the proposed 

quarterly updating requirement.257 One such commenter argued that quarterly updating 

would enhance the public’s perception of the Summary Prospectus and the information 

provided. The commenter noted that funds presently provide such updated information 

in their sales materials; that displaying annually updated performance information in the 

statutory prospectus and quarterly updated information in the Summary Prospectus would 

not necessarily confuse investors; and that although funds post updated information 

online throughout the year, investors without access to the Internet would be greatly 

disadvantaged if the Commission did not require quarterly updating of the paper 

Summary Prospectus.258 

We have determined not to require quarterly updating of performance information 

in the Summary Prospectus because we are persuaded that this requirement could confuse 

investors and would discourage funds from using the Summary Prospectus and thereby 

undermine our goal of encouraging concise, user-friendly disclosure to investors. We 

254 See, e.g., ICI Letter, supra note 34. 

255 See, e.g., SIFMA Letter, supra note 97. 

256 See, e.g., ICI Letter, supra note 34, Vanguard Letter, supra note 42. 

257 See, e.g., CMFI Letter, supra note 44; Data Communiqué Letter, supra note 35; Keil 

Letter, supra note 62; NAPFA Letter, supra note 44. 

258 See Data Communiqué Letter, supra note 35. 

80
have concluded that the benefits to be derived from quarterly updating do not outweigh 

this significant disincentive to use of the Summary Prospectus because updated 

performance information is widely available in fund sales materials, on fund Web sites, 

and from third-party sources. As noted above, investors in our focus groups indicated 

that they would be willing to obtain updated information online. As a result, we are 

requiring a fund that makes updated performance information available on a Web site or 

at a toll-free (or collect) telephone number to include a statement explaining this and 

providing the Web site address and/or telephone number.259 This approach will eliminate 

any potential investor confusion that could arise as a result of a fund’s Summary 

Prospectus containing more updated information than the fund’s statutory prospectus. 

3. Provision of Statutory Prospectus, SAI, and Shareholder Reports 

We are adopting, with certain modifications to address the concerns of 

commenters, the requirement that, in addition to sending or giving a Summary 

Prospectus, a person relying on rule 498 to meet its statutory prospectus delivery 

obligations must provide the statutory prospectus on the Internet, together with other 

information, in the manner specified by the rule.260 We are also adopting, as proposed, 

the requirement to send the statutory prospectus to any investor requesting a copy. We 

believe that requiring the statutory prospectus to be provided in two ways, by posting on 

an Internet Web site and by sending the information directly to any investor requesting a 

copy, maximizes both the accessibility and usability of the information, as indicated by 

the preference of commenters and investors participating in our focus groups for access 

259 Item 4(b)(2)(i) of Form N-1A. This requirement is discussed more fully in Part III.A.3.e. 

260 Rule 498(c)(4), (d)(4), and (e). 

81
to both online and paper resources.261 Sending the information directly to an investor is 

not, however, a condition of reliance on the rule. 

a. Documents Required to be Provided on the Internet 

Under the rule, the statutory prospectus and other information are required to be 

provided through the Internet as follows. The fund’s current Summary Prospectus, 

statutory prospectus, SAI, and most recent annual and semi-annual reports to 

shareholders are required to be accessible, free of charge, at the Web site address 

specified on the cover page or at the beginning of the Summary Prospectus.262 These 

documents are required to be accessible on or before the time that the Summary 

Prospectus is sent or given and current versions of the documents are required to remain 

on the Web site through the date that is at least 90 days after (i) in the case of reliance on 

the rule to satisfy the obligation to have a statutory prospectus precede or accompany the 

carrying or delivery of a mutual fund security, the date that the mutual fund security is 

carried or delivered, or (ii) in the case of reliance on the rule to deem a communication 

with respect to a mutual fund security not to be a prospectus under Section 2(a)(10) of the 

Securities Act, the date that the communication is sent or given.263 This requirement is 

261 See AARP Letter, supra note 34 (supporting the proposal and noting that “timely access 

to hard copy, print disclosure must remain an option that is easy to exercise for investors 

choosing to do so”); Miller Letter, supra note 110 (“ensure a simple process for obtaining 

mutual fund information in paper format in order to maximize accessibility”); Focus 

Group Report, supra note 32, at 12 (noting that some participants preferred to read 

lengthy documents on the computer screen, while others indicated that they prefer paper 

documents); Focus Group Transcripts, supra note 32, at 28 (“not everybody has [a] 

computer, so there has to be alternatives”); id. at 50 and 78 (quoting most investors as 

preferring to receive fund information online but also quoting some investors who prefer 

to obtain at least some fund information on paper). 

262 The cost to access the Internet itself (e.g., monthly subscription to an Internet service 

provider) and related costs, such as the cost of printer ink, are not considered costs for 

purposes of determining whether information is accessible, free of charge. 

263 Rule 498(e)(1). 

82
designed to ensure continuous access to the information from the time the Summary 

Prospectus is sent or given until at least 90 days after the date of delivery of a security or 

communication in reliance on rule 498. 

A number of commenters expressed concern regarding the meaning of the term 

“current” and asked whether funds would be required to maintain stale information 

online.264 In response to these commenters’ concerns, we note that the “current” standard 

does not require a fund to maintain online an outdated version of a document that was 

current at the time the Summary Prospectus was sent or given, but that has subsequently 

been updated. Rather, the “current” standard requires a fund to maintain updated 

versions of the required documents online. 

Several commenters argued that a person relying on the rule should not be 

required to provide the fund’s SAI on the Web site.265 We have not adopted this 

suggestion. As discussed above, the rule provides for a layered approach to disclosure in 

which key information is sent or given to the investor and more detailed information is 

provided online and, upon request, is sent in paper or by e-mail. The approach of rule 

498 is two-fold, both to encourage funds to provide a concise, user-friendly Summary 

Prospectus to investors and to enhance investor access to more detailed information. 

Requiring the SAI to be provided online furthers the latter goal.266 

264 See, e.g., AIM Letter, supra note 47; ICI Letter, supra note 34. 

265 See, e.g., Fidelity Letter, supra note 86; USAA Letter, supra note 153. 

266 See, e.g., CMFI Letter, supra note 44 (noting that the proposal to require that the SAI be 

made available through a Web site “will make it much easier for investors to review this 

document and become more knowledgeable about fund operations and management”). 

83
b. Formatting Requirements for Information Provided on the Internet 

We are adopting, with modifications to reflect commenters’ concerns, the 

proposed formatting requirements for the information that is required to be provided 

online. The proposed rule would have required, as a condition to reliance on the rule to 

satisfy a person’s delivery obligations under Section 5(b)(2) of the Securities Act and the 

provision that a communication shall not be deemed a prospectus under Section 2(a)(10) 

of the Securities Act, that the information on the Internet be presented in a format that is 

convenient for both reading online and printing on paper.267 In lieu of this condition, we 

are adopting a condition requiring that the information on the Internet be presented in a 

format that is human-readable and capable of being printed on paper in human-readable 

format.

268 We are also adopting a requirement that the information be in a format that is 

convenient for both reading online and printing on paper, but this requirement is not a 

condition to reliance on the rule to satisfy a person’s delivery obligations under Section 

5(b)(2) of the Securities Act or the provision that a communication shall not be deemed a 

prospectus under Section 2(a)(10) of the Securities Act. A person that complies with the 

conditions to the rule will not violate Section 5(b)(2) if the “convenient for both reading 

online and printing on paper” standard is not satisfied, but this failure will constitute a 

violation of the Commission’s rules.269 

267 Proposed rule 498(f)(2)(i). Cf. Rule 14a-16(c) under the Exchange Act [17 CFR 

240.14a-16(c)] (requiring materials to be presented in a format convenient for both 

reading online and printing in paper when delivering proxy materials electronically). 

268 Rule 498(e)(2)(i). 

269 Rule 498(f)(3) and (5). This is similar to the “greater prominence” requirement discussed 

in Part III.B.1. above. 

84
The condition that we are adopting, that information on the Internet be presented 

in a format that is human-readable and capable of being printed on paper in 

human-readable format, is a more objective standard than the proposed “convenient” 

condition. Commenters expressed concern about applying the proposed standard as a 

condition to satisfying Section 5 obligations.270 The adopted condition simply makes 

clear that posted information must be presented in human-readable text, rather than 

machine-readable software code, when accessed through an Internet browser and that it 

must be printable in human-readable text. This condition does not impose any further 

requirements relating to user-friendliness of the presentation. 

We are, however, retaining the standard that posted information be “convenient 

for both reading online and printing on paper” as a rule requirement. This implements 

the suggestion of commenters who criticized the “convenient” standard as a condition 

and suggested that it could, instead, be made a rule requirement.271 This standard was 

designed to ensure that the information provided over the Internet is user-friendly, both 

online and when printed. It imposes on the online information a standard of usability that 

is comparable to the readability of a paper document. While we continue to believe that 

this standard is important to the enhanced disclosure framework we are adopting, we are 

persuaded by commenters that the consequence of failure to meet a condition – a Section 

5 violation – is not needed to achieve our goal. 

We are not, at this time, specifying that any particular format, such as HTML or 

PDF, would constitute a convenient format for both reading online and printing on 

270 See, e.g., ABA Letter, supra note 37; ICI Letter, supra note 34; NYC Bar Letter, supra 

note 75. 

271 See, e.g., ABA Letter, supra note 37; ICI Letter, supra note 34. 

85
paper.272 We are concerned that the Commission’s endorsement of any particular format 

could result in the use of that format to the exclusion of other formats that are in 

existence today or that may be developed in the future and that are more user-friendly. 

Moreover, whether a particular format is convenient for reading online and printing 

depends on a number of factors and must be decided on a case-by-case basis. These 

factors include the manner in which the online version renders charts, tables, and other 

graphics; the extent to which the fund utilizes search and other capabilities of the Internet 

to enhance investors’ access to information and provides access to any software 

necessary to view the online version; and the time required to download the online 

materials.

273 

c. Technological Requirements for Online Information 

We are adopting the proposed requirements for linking within the statutory 

prospectus and SAI and for linking between the Summary Prospectus, on the one hand, 

and the statutory prospectus and SAI, on the other. These requirements are intended to 

result in online information that is in a better and more useable format than the same 

information when provided in paper. The requirements were generally supported by 

commenters in concept, although, as discussed below, many expressed concern regarding 

272 See, e.g., ABA Letter, supra note 37 (arguing that the adopting release should state that a 

PDF format would constitute a “convenient” format for purposes of rule 498). 

273 See Investment Company Act Release No. 27671 (Jan. 22, 2007) [72 FR 4148, 4154 

(Jan. 29, 2007)]; Exchange Act Release No. 56135, supra note 29, 72 FR at 42224 n. 35 

(guidance concerning “convenient for both reading online and printing on paper” 

standard in context of electronic delivery of proxies). 

86
specific requirements under the proposal.274 We are making several modifications to the 

requirements to address technical considerations raised by commenters.275 

Linking within the Statutory Prospectus and SAI 

We are adopting a requirement that persons accessing the statutory prospectus or 

SAI online be able to move directly back and forth between each section heading in a 

table of contents of the document and the section of the document referenced in that 

section heading. In the case of the statutory prospectus, the linked table of contents must 

be either the table of contents required by rule 481(c)276 or a table of contents that 

contains the same section headings as the required table of contents.277 This requirement 

allows an investor or other user to move directly between a table of contents of the 

prospectus or SAI and the related sections of that document, by a single mouse click and 

without the need to flip through multiple pages of a paper document. 

This requirement includes two modifications from the proposed requirement. 

First, we are clarifying that the linked table of contents may be outside the document, 

e.g., in a separate frame or panel of the computer screen and need not be the table of 

contents that is contained within the document itself, as long as the linked table of 

contents for the statutory prospectus conforms to the table of contents that is required by 

274 See, e.g., CMFI Letter, supra note 44; Data Communiqué Letter, supra note 35; ICI 

Letter, supra note 34; MFDF Letter, supra note 34. 

275 We are not adopting the suggestion of one commenter that the Commission delay, or not 

apply, linking requirements with respect to funds that are offered through variable 

insurance contracts. See CAI Letter, supra note 67. While we recognize that there may 

be operational challenges associated with the offering of multiple funds from several fund 

families through a variable insurance contract, the linking requirements are an essential 

condition to permitting a person to satisfy its prospectus delivery obligations by sending 

or giving a Summary Prospectus. 

276 17 CFR 230.481(c). 

277 Rule 498(e)(2)(ii). 

87
our rules to be contained within the document itself. This modification is intended to 

provide flexibility to use linking technologies other than hyperlinking within the 

document itself. Permitted technologies would include, for example, the use of 

“bookmarks” that replicate the document’s table of contents, but are displayed in a 

separate panel from the document itself.278 We have accomplished this clarification by 

modifying the language of the proposed requirement279 to refer to “a table of contents of” 

the relevant document rather than “the table of contents in” the relevant document and by 

requiring that, in the case of the statutory prospectus, the linked table of contents either 

be the table of contents required by rule 481(c) or contain the same section headings as 

the table of contents required by that rule. Second, we are revising the rule language to 

clarify that the links must permit movement directly back and forth between each section 

heading in a table of contents and the particular section of the document referenced in 

that section heading.280 

Linking Between Documents 

We are also adopting a requirement for funds to comply with one of two options: 

that persons accessing the Summary Prospectus be able to move directly back and forth 

between either (i) 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 (ii) links located at both the beginning and end of the Summary 

278 See, e.g., ICI Letter, supra note 34 (arguing that proposal should be revised to permit the 

use of bookmarks); Oppenheimer Letter, supra note 44 (same). 

279 Proposed rule 498(f)(2)(ii). 

280 See Oppenheimer Letter, supra note 44 (noting that the proposal could be read to require 

a viewer to be able to move from each section heading in the table of contents to each and 

every section of the document referenced in the table). 

88
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 meet 

the linking requirements described in the preceding section.281 This requirement allows 

an investor to move back and forth between related sections of the Summary Prospectus, 

on the one hand, and the statutory prospectus and SAI, on the other, either directly 

through a single mouse click or indirectly by means of a table of contents of the 

prospectus or SAI, in which case two mouse clicks would be required. 

We are adopting, as proposed, the first option, which permits movement between 

related sections of the Summary Prospectus, on the one hand, and the statutory 

prospectus and SAI, on the other, directly through a single mouse click.282 Although a 

number of commenters suggested that this option is unlikely to be used as a result of the 

number of links that would be required to be maintained,283 we believe that the option 

should remain available because the ability to single-click between related sections has 

the potential to result in an extremely user-friendly presentation. 

We are, however, modifying the second proposed option, which involves linking 

between the Summary Prospectus and tables of contents of the statutory prospectus and 

SAI, in order to reduce the number of links that would be required.284 As proposed, this 

281 Rule 498(e)(2)(iii). It is our intention that the ability to move between multiple windows 

that remain open simultaneously constitutes “back and forth” movement under this 

provision. 

282 Rule 498(e)(2)(iii)(A); proposed rule 498(f)(2)(iii)(A). 

283 See, e.g., AIM Letter, supra note 47; Capital Research Letter, supra note 34; ICI Letter, 

supra note 34; Janus Letter, supra note 63; MFS Letter, supra note 150; Oppenheimer 

Letter, supra note 44; T. Rowe Letter, supra note 49. 

284 We are also making a technical modification to the rule to clarify that a linked table of 

contents must meet the requirements described in the preceding section, i.e., it must 

permit direct movement between each section heading in the table of contents and the 

section of the document referenced in that section heading and, in the case of the 

89 
option would have required links between each section of the Summary Prospectus and 

tables of contents in the statutory prospectus and SAI. This would potentially have 

required two links in each section of the Summary Prospectus (one for the statutory 

prospectus and one for the SAI). As adopted, this option will require either links located 

at both the beginning and end of the Summary Prospectus, or links that remain 

continuously visible to persons accessing the Summary Prospectus, perhaps in a separate 

panel or frame.285 The number of links will be reduced, but their placement, either at the 

beginning and end of the Summary Prospectus or continuously visible, will ensure that 

they are prominent and readily accessible to investors. This modification responds to 

commenters’ concerns that multiple links within the Summary Prospectus could result in 

a cluttered presentation, create mistaken expectations that the Summary Prospectus links 

would lead directly to related information rather than to tables of contents of the statutory 

prospectus and SAI, and would be expensive to maintain.286 

Interactive Data 

Some commenters urged the Commission to make greater use of technology to 

permit investors to access the specific information they need and to facilitate automated 

comparisons of data across multiple funds.287 The Commission agrees with these 

commenters that technology holds great promise for enabling mutual fund investors to 

statutory prospectus, it must be the table of contents required by rule 481(c) or contain 

the same section headings as that table of contents. See rule 498(e)(2)(iii)(B) (requiring 

linked table of contents to meet requirements of paragraph (e)(2)(ii) of rule 498). 

285 Rule 498(e)(2)(iii)(B). 

286 See, e.g., Financial Services Roundtable Letter, supra note 246; ICI Letter, supra note 34; 

Janus Letter, supra note 63; MFS Letter, supra note 150; Oppenheimer Letter, supra note 

44; Self Audit Letter, supra note 228. 

287 See, e.g., Fund Democracy et al. Letter, supra note 34; Letter of Dominic Jones (Feb. 27, 

2008) (“Jones Letter”). 

90
make better use of existing information to understand and compare funds. To that end, 

we note that the Commission has already proposed to require a significant portion of the 

information that is contained in the summary section of the statutory prospectus and the 

Summary Prospectus to be filed in interactive data format, which is intended to facilitate 

automated analysis and comparison of this information.288 Accordingly, while we are 

taking a number of steps in the current rulemaking to make greater use of technology, we 

are considering additional steps, along the lines suggested by the commenters, in the 

context of the pending interactive data rulemaking. In addition, we recently undertook an 

initiative to fundamentally reexamine how we can make greater use of technology to 

deliver information to investors more effectively.289 

d. Ability to Retain Documents 

We are adopting the proposed requirement that persons accessing the Web site 

must be able to permanently retain, through downloading or otherwise, free of charge, an 

electronic version of the Summary Prospectus, statutory prospectus, SAI, and shareholder 

reports in a format that, like the online version, (i) is human-readable and capable of 

being printed on paper in human-readable format; and (ii) permits persons accessing the 

downloaded statutory prospectus or SAI to move directly back and forth between each 

section heading in a table of contents of that document and the section of the document 

referenced in that section heading.290 The permanently retained document is not required 

288 See Investment Company Act Release No. 28298, supra note 28, 73 FR at 35449. 

289 See SEC Announces ‘21st Century Disclosure’ Initiative to Fundamentally Rethink the 

Way Companies Report and Investors Acquire Information, Securities and Exchange 

Commission Press Release, June 24, 2008, available at 

http://www.sec.gov/news/press/2008/2008-119.htm. 

290 Rule 498(e)(3). This requirement is identical to our proposal, except that the standards of 

clauses (i) and (ii) have been modified to reflect the parallel modifications that we made 

with respect to requirements for the online version. See discussion supra Part III.B.3.b. 

91
to be in a format that allows an investor to move back and forth between the Summary 

Prospectus and the statutory prospectus and SAI because of technical difficulties 

associated with maintaining links between multiple downloaded documents. 

Commenters generally expressed support for this proposal.291 Two commenters 

suggested that rule 498 expressly provide that once a user saves a document, a fund is not 

responsible for maintaining the links that it contains to other documents and that failure 

to maintain a link will not provide a basis for liability.292 We have determined that such a 

provision is unnecessary because we are not requiring downloaded documents to retain 

any links to other documents. In addition, as described above in Part III.B.3.c., we have 

revised the requirements for online linking between documents to permit the links to be 

external to the documents, in which case they would not even appear in the online 

versions of the documents. 

e. Safe Harbor for Temporary Noncompliance 

As discussed above, compliance with all of the conditions in rule 498 regarding 

Internet posting (other than the convenient for reading and printing standard) is required 

in order to meet prospectus delivery obligations under Section 5(b)(2) of the Securities 

Act. Failure to comply with any of these conditions will be a violation of Section 5(b)(2) 

unless the fund’s statutory prospectus is delivered by means other than reliance on the 

and c. Persons accessing the materials must also be able to permanently retain, free of 

charge, an electronic version of the materials in a format, or formats, that are convenient 

for both reading online and printing on paper. This is a rule requirement and not a 

condition to satisfy a person’s statutory prospectus delivery obligations under Section 5. 

Rule 498(f)(3)(ii). See discussion supra Part III.B.3.b. 

291 See, e.g., Data Communiqué Letter, supra note 35; ICI Letter, supra note 34; Jones 

Letter, supra note 287; Schnase Letter, supra note 35; T. Rowe Letter, supra note 49. 

292 See ICI Letter, supra note 34; T. Rowe Letter, supra note 49. 

92
rule. The Commission recognizes, however, that there may be times when, due to events 

beyond a fund’s control, such as system outages or other technological issues, natural 

disasters, acts of terrorism, or pandemic illnesses, a fund is temporarily not in compliance 

with the Internet posting requirements of the rule. For that reason, we are adopting the 

proposed safe harbor provision stating that the conditions regarding Internet availability 

of a fund’s Summary Prospectus, statutory prospectus, SAI, and shareholder reports will 

be deemed to be met, notwithstanding the fact that those materials are not available for a 

time in the manner required, provided that the fund has reasonable procedures in place to 

ensure that those materials are available in the required manner. In addition, a fund is 

required to take prompt action to ensure that those materials become available in the 

manner required, as soon as practicable following the earlier of the time at which the fund 

knows or reasonably should have known that the documents are not available in the 

manner required.293 The safe harbor, by its terms, is expressly applicable to the format, 

linking, and permanent retention conditions of the rule, in addition to the conditions 

requiring that the documents be available online.294 

f. Requirement to Send Documents 

We are adopting the proposed requirement that a fund (or financial intermediary 

through which shares of the fund may be purchased or sold) send, at no cost to the 

requestor and by U.S. first class mail or other reasonably prompt means, a paper copy of 

the fund’s statutory prospectus, SAI, and most recent annual and semi-annual shareholder 

293 Rule 498(e)(4). This safe harbor is not available to a fund that repeatedly fails to comply 

with the rule’s Internet posting requirements or that is not in compliance with the 

requirements over a prolonged period. 

294 Rule 498(e)(4) (safe harbor applies to conditions set forth in paragraphs (e)(1), (2), and 

(3) of rule 498). 

93
report to any person requesting such a copy within three business days after receiving a 

request for a paper copy. We are also adopting, with one modification, the proposed 

requirement that a fund (or financial intermediary through which shares of the fund may 

be purchased or sold) send, at no cost to the requestor and by e-mail, an electronic copy 

of the fund’s statutory prospectus, SAI, and most recent annual and semi-annual 

shareholder report to any person requesting such a copy within three business days after 

receiving a request for an electronic copy.295 These requirements are intended to ensure 

that every investor in a fund taking advantage of the new prospectus delivery framework 

is permitted to choose whether to review a fund’s information on the Internet or whether 

to receive that information directly, either in paper or through an e-mail. As a result of 

these requirements, each investor will have prompt access to the required information in 

the form that he or she prefers. 

We are modifying the proposal, as suggested by one commenter,296 to clarify that 

the requirement to send an electronic copy of a document by e-mail may be satisfied by 

sending a direct link to the document on the Internet, provided that a current version of 

the document is directly accessible through the link from the time that the e-mail is sent 

through the date that is six months after the date that the e-mail is sent and the e-mail 

explains both how long the link will remain useable and that, if the recipient desires to 

retain a copy of the document, he or she should access and save the document.297 We 

believe that six months is a reasonable period of time to require the documents to be 

295 Rule 498(f)(1). 

296 See ICI Letter, supra note 34. 

297 Rule 498(f)(1). We intend that “current” means the updated version of a document, not 

an outdated version that was current at the time the e-mail was sent. This is similar to the 

meaning of “current” discussed above in Part III.B.3.a. 

94
available and will provide sufficient time for an investor who has requested a copy to 

access and, if desired, download the information. We also note that an investor may at 

any time request to receive a paper copy of the documents. 

As in the proposal, the requirement that a fund send a paper or electronic copy of 

the statutory prospectus, SAI, and most recent annual and semi-annual shareholder 

reports to a person requesting such a copy is not a condition to reliance on the rule to 

satisfy a fund’s delivery obligations under Section 5(b)(2) of the Securities Act or the 

provision that a communication shall not be deemed a prospectus under Section 2(a)(10) 

of the Securities Act. A person that complies with all other aspects of rule 498 will not 

violate Section 5(b)(2) of the Securities Act if the fund (or financial intermediary) fails to 

send the required paper or electronic copy of the statutory prospectus, SAI, and most 

recent shareholder reports. This failure will, however, constitute a violation of the 

Commission’s rules.298 

4. Incorporation by Reference 

a. Permissible Incorporation by Reference 

We are adopting, with modifications, the proposal to permit a fund to incorporate 

by reference into the Summary Prospectus information contained in its statutory 

prospectus, SAI, and shareholder reports.299 The proposal would have permitted a fund 

to incorporate by reference information from the fund’s most recent report to 

shareholders. As adopted, rule 498 permits a fund to incorporate by reference any 

information from the fund’s reports to shareholders that the fund has incorporated by 

reference into its statutory prospectus. This modification addresses commenters’ 

298 Rule 498(f)(5). 

299 Rule 498(b)(3). 

95
concerns that the proposal was overbroad300 by limiting incorporation from shareholder 

reports to information that has been incorporated into the fund’s statutory prospectus and, 

as a result, is subject to liability under Section 11 of the Securities Act.301 The 

modification also addresses other commenters’ concerns that funds be permitted to 

incorporate by reference information from both the most recent annual shareholder report 

and most recent semi-annual shareholder report302 and will permit the Summary 

Prospectus to incorporate from shareholder reports precisely the same information that 

the statutory prospectus may incorporate today. Incorporation by reference is subject to 

the conditions described below. 

A fund may not incorporate by reference into a Summary Prospectus information 

from any source other than those described above.303 In addition, a fund may not 

incorporate by reference into the Summary Prospectus any of the information described 

above that is required to be included in the Summary Prospectus.304 Information may be 

incorporated by reference into the Summary Prospectus only by reference to the specific 

document that contains the information, and not by reference to another document that 

incorporates the information by reference.305 Thus, if a fund’s statutory prospectus 

incorporates the fund’s SAI by reference, the fund’s Summary Prospectus could not 

300 See Fund Democracy et al. Letter, supra note 34 (arguing there is no basis to extend 

incorporation by reference to annual report); Letter of Prof. Joseph A. Franco (Feb. 28, 

2008) (incorporation by reference should be limited to the statutory prospectus). 

301 15 U.S.C. 77k. 

302 See ICI Letter, supra note 34. 

303 Rule 498(b)(3)(i) and (ii). 

304 Rule 498(b)(3)(ii)(B). 

305 Rule 498(b)(3)(ii)(C). 

96
incorporate information in the SAI simply by referencing the statutory prospectus but 

would be required to reference the SAI directly.306 

Incorporation by reference of information from a fund’s statutory prospectus, 

SAI, and shareholder reports is permitted only if the fund satisfies the conditions 

described above in Part III.B.3., which prescribe the means by which the incorporated 

information is provided to investors.307 In addition, if a fund incorporates information by 

reference, 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 a part of a document, the Summary 

Prospectus legend must clearly identify the part by page, paragraph, caption, or 

otherwise.308 These document identification requirements have been modified from the 

proposal, which would have required that the legend clearly identify documents that are 

incorporated by reference, including the date of the documents, in order to make the 

306 Cf. Item 10(d) of Regulation S-K [17 CFR 229.10(d)] (“Except where a registrant or 

issuer is expressly required to incorporate a document or documents by reference . . . 

reference may not be made to any document which incorporates another document by 

reference if the pertinent portion of the document containing the information or financial 

statements to be incorporated by reference includes an incorporation by reference to 

another document.”). General Instruction D.2. of Form N-1A makes Item 10(d) of 

Regulation S-K applicable to incorporation by reference into a fund’s statutory 

prospectus. 

307 Rule 498(b)(3)(ii)(A) and (e). We note that the safe harbor described in Part III.B.3.e. 

stating that, under certain circumstances, the conditions regarding Internet availability of 

a fund’s Summary Prospectus, statutory prospectus, SAI, and shareholder reports will be 

deemed to be met, notwithstanding the fact that those materials are not available for a 

time in the manner required, also applies to permit incorporation by reference in those 

circumstances. Rule 498(e)(4). 

308 Rule 498(b)(1)(v)(B). This requirement is similar to the requirements of rule 411(d) 

under the Securities Act [17 CFR 230.411(d)], which requires that information 

incorporated by reference “be clearly identified in the reference by page, paragraph, 

caption or otherwise.” 

97
requirements more precise.309 The legend is also required to explain that any information 

that is incorporated from the SAI or shareholder reports may be obtained, free of charge, 

in the same manner as the statutory prospectus.310 

A fund that fails to comply with any of the above conditions may not incorporate 

information by reference into its Summary Prospectus. A fund that provides the 

incorporated information to investors by complying with all of the conditions, including 

the conditions for providing the incorporated information through the Internet, is not also 

required to send or give the incorporated information together with the Summary 

Prospectus.311 

A significant number of commenters expressed support for the Commission’s 

proposal to permit incorporation by reference of information from other fund documents 

into the Summary Prospectus.312 Commenters stated that, by permitting incorporation by 

reference, the proposal significantly addresses liability issues that resulted in funds’ 

unwillingness to use the fund profile and will encourage wider use of the Summary 

Prospectus.313 

309 See, e.g., ICI Letter, supra note 34; NYC Bar Letter, supra note 75. 

310 Rule 498(b)(1)(v)(B) and (b)(3)(ii)(A). 

311 Rule 498(b)(3)(i). Cf. General Instruction D.1.(b) of Form N-1A (permitting a fund to 

incorporate by reference any or all of the SAI into the statutory prospectus without 

delivering the SAI with the prospectus). 

312 See, e.g., ABA Letter, supra note 37; CFA Institute Letter, supra note 37; Letter of 

Citigroup Global Markets Inc. (Feb. 26, 2008) (“Citigroup Letter”); Dechert Letter, supra 

note 50; ICI Letter, supra note 34; MFDF Letter, supra note 34; NYC Bar Letter, supra 

note 75; Oppenheimer Letter, supra note 44; Schnase Letter, supra note 35; SIFMA 

Letter, supra note 97; T. Rowe Letter, supra note 49. 

313 See, e.g., ABA Letter, supra note 37; Citigroup Letter, supra note 312; ICI Letter, supra 

note 34; MFDF Letter, supra note 34; SIFMA Letter, supra note 97. See also AARP 

Letter, supra note 34 (“Various explanations have emerged as to why the fund profile did 

not take hold, including the rapid development of the Internet as a resource for mutual 

98
A joint comment letter from three consumer and investor groups, however, stated 

that the Commission did not adequately address serious questions accompanying 

incorporation by reference in the proposing release.314 These commenters argued, first, 

that the Commission did not adequately explain any purpose for permitting incorporation 

by reference other than the limitation of funds’ liability. Second, the commenters argued 

that the Commission’s proposal would relieve issuers of legal responsibility for 

misleading disclosure under Sections 12(a)(2) and 17(a)(2) of the Securities Act and that 

the proposing release had not discussed whether the benefits of having a Summary 

Prospectus that satisfies prospectus delivery obligations is worth the cost of relieving 

funds of this legal responsibility or whether such a tradeoff is appropriate. 

With respect to the commenters’ first concern, our purpose in permitting 

incorporation by reference into the Summary Prospectus is to further our goal of creating 

an improved mutual fund disclosure framework for the benefit of investors. We have 

concluded, and the comments and recent investor research support our conclusion, that 

investors will benefit greatly from receiving a shorter document, such as the Summary 

Prospectus. We have also concluded, based on both the comments and our experience 

with the fund profile that, to a significant extent, investors will not realize these benefits 

unless we permit incorporation by reference because many funds are unlikely to use the 

fund investors and liability concerns related to the profile. The proposal under 

consideration today addresses both issues, and as such, paves the way for more 

widespread use of the summary documents.”). 

See Fund Democracy et al. Letter, supra note 34. Another commenter opposed 

incorporation by reference into the Summary Prospectus, but noted that if incorporation 

by reference is permitted, the incorporated documents should be available on the Internet, 

linked with other documents, downloadable in printable form with retained links, and 

distributed upon request, similar to our proposal. See Data Communiqué Letter, supra 

note 35. 

99

314 
315 

Summary Prospectus if incorporation by reference is prohibited. With respect to the 

commenters’ second concern, we do not agree that permitting incorporation by reference 

will relieve funds of legal responsibility for misleading disclosure. Therefore, we believe 

that it is appropriate to permit incorporation by reference in order to realize for investors 

the considerable benefits that the Summary Prospectus will afford. We discuss our 

analysis more fully below. 

Incorporation by Reference is Necessary to Improve Disclosure Framework 

We have concluded that investors will benefit greatly from receiving the 

Summary Prospectus containing key information that they will be more likely to read and 

understand than the statutory prospectus, with the ability to access more detailed 

information either immediately in a user-friendly format online or, within a matter of 

days, in paper. Nearly all of the commenters, including those who opposed incorporation 

by reference, agreed with this conclusion.315 This conclusion is also supported by our 

See AARP Letter, supra note 34 (stating that it is AARP’s view that the Commission’s 

initiative provides a real opportunity to deliver practical disclosure that consumers can 

use to make informed mutual fund purchase decisions); CMFI Letter, supra note 44 

(stating that the new disclosure regime would help investors focus on what is most 

important in making investment decisions with respect to any particular fund and that the 

Summary Prospectus is much more likely to be reviewed by investors); Data 

Communiqué Letter, supra note 35 (acknowledging the improvements that will result 

from improved access and ease of comparability of relevant information in a concise 

format); Fund Democracy et al. Letter, supra note 34 (supporting Summary Prospectus 

proposal overall and agreeing that “a short form alternative to a lengthy statutory 

prospectus can both improve the quality and usefulness of fund disclosure and reduce 

fund expenses”); ICI Survey, supra note 84 (stating that respondents to a survey it 

conducted overwhelmingly agreed that the Summary Prospectus is about the right length, 

makes it easier to compare funds, contains enough information (as long as more detailed 

information is available online or upon request), and is a document that they would be 

more likely to use than the current long-form prospectus); Letter of William D. 

McAllister (Nov. 27, 2007) (stating that current disclosure statements are definitely 

unreadable for the average citizen investor and that the simplification proposed is needed 

and appreciated); Letter of Kyle N. Orlowski (March 10, 2008) (stating that the proposal 

would make an “apples to apples” comparison between funds much easier). 

100
recent telephone survey of investors, which found that many mutual fund investors do not 

read statutory prospectuses because they are long, complicated, and hard to understand.

316 

The views expressed by investors in our focus groups also support our conclusion 

that investors will derive significant benefits from the Summary Prospectus, coupled with 

ready access to more detailed information in whatever format they choose, paper or 

electronic.317 By using multiple means to provide information and by using technology 

to provide information in a layered format that permits users to move from key 

information to more detailed information, the new rule is intended to facilitate each 

investor’s ability to effectively choose to review the particular information in which he or 

she is interested. Each investor in a fund taking advantage of the new prospectus delivery 

regime can choose the particular means of receiving information that he or she prefers 

because all of the information is required to be sent promptly to any requesting investor 

in paper or electronically. Thus, the Summary Prospectus disclosure framework will 

permit each and every investor to choose both the information he or she wants to review 

and the format in which he or she wants to review it. 

316 See Telephone Survey Report, supra note 32, at 56, 58 (finding that nearly two-thirds of 

investors rarely (28%), very rarely (15%), or never (21%) read mutual fund statutory 

prospectuses that they receive, and that of those two-thirds, over half said that the reason 

they do not read them was because statutory prospectuses are too complicated or hard to 

understand (37%) or because statutory prospectuses are too long and wordy (19%)). 

317 See Focus Group Report, supra note 32, at 5-6 (noting that participants made numerous 

negative comments about the length of the long-form prospectus and that many 

participants liked the short-form prospectus and thought that it could be used as a 

screening tool to identify mutual funds in which they might be sufficiently interested to 

do some additional review); Focus Group Transcripts, supra note 32, at 63 (“It’s a 

two-minute read. If I want more information, I can ask for it.”); id. at 38 (“I think both 

[the long-form prospectus and short-form prospectus] have their place. I think it would 

be foolish to give up the long-form for ‘this’ and I think it would be foolish not to have 

the short-form and insist on a long-form. They both have their place.”). 

101
We also believe that significantly more funds and intermediaries will utilize the 

Summary Prospectus if we permit funds to incorporate by reference information from the 

funds’ statutory prospectus, SAI, and shareholder reports. Numerous commenters stated 

that, by permitting incorporation by reference, the proposal significantly addresses 

liability issues that resulted in funds’ unwillingness to use the fund profile and will 

encourage wider use of the Summary Prospectus.318 Our own experience with the fund 

profile over the past 10 years confirms that very few funds have adopted it.319 We 

believe that one of the principal reasons for the profile’s low adoption rate is concern 

about potential liability for omitting facts from the profile that are contained in the 

statutory prospectus or SAI.320 While we acknowledge that an additional contributing 

factor was the requirement that funds using the profile also provide a statutory prospectus 

with the confirmation,321 we do not believe that elimination of this requirement alone, 

without permitting incorporation by reference, would result in widespread use of the 

Summary Prospectus by funds. 

318 See letters cited supra note 313. 

319 Profiles were filed for less than 200 funds during calendar year 2007. During 2007, there 

were almost 9,000 mutual funds in existence. See 2008 ICI Fact Book, supra note 16, at 

15. 

320 See letters cited supra note 313. See also Tom Leswing, Profile Prospectus Rule 

Expected Soon, IGNITES (Mar. 28, 2007) (panelists at the ICI Mutual Funds and 

Investment Management Conference expressed concern about liability for using a shortform prospectus and noted that concern about liability was the main reason that few funds 

use the profile); NASD Mutual Fund Task Force Report, supra note 19, at 5 (“To date, 

few mutual funds have used the fund profile in the retail market. One concern that has 

been voiced about the fund profile is that it could expose funds to unforeseen liability. 

For example, by summarizing disclosure that appeared in the full prospectus, some fear 

that the fund profile could be deemed to have omitted material information.”). 

321 See Fund Democracy et al. Letter, supra note 34. 

102
Thus, permitting incorporation by reference into the Summary Prospectus is 

essential to accomplishing the Commission’s important goal of encouraging use of a 

disclosure document that provides key information that investors are more likely to read 

and understand than the statutory prospectus. Commenters and investor testing 

consistently affirm the importance of the goal and of the Summary Prospectus in 

achieving the goal. Commenters on the current proposal, and our experience with the 

profile, confirm that we cannot accomplish the goal without permitting incorporation by 

reference. 

Investor Protection 

We have also concluded that permitting incorporation by reference will not 

relieve funds of any legal responsibility for misleading disclosure under Sections 12(a)(2) 

and 17(a)(2) of the Securities Act.322 As a result, we have concluded that it is appropriate 

to permit incorporation by reference in order to realize for investors the considerable 

benefits that the Summary Prospectus will afford. 

The Summary Prospectus, together with information incorporated therein by 

reference, is subject to liability under Sections 12(a)(2) and 17(a)(2) of the Securities Act, 

and nothing in rule 498 removes, or diminishes, that liability. Under Section 12(a)(2) of 

the Securities Act, sellers have liability to purchasers for offers or sales by means of a 

prospectus or oral communication that includes an untrue statement of material fact or 

omits to state a material fact that makes the statements made, based on the circumstances 

under which they were made, not misleading. Section 17(a)(2) of the Securities Act is a 

general antifraud provision which makes it unlawful for any person in the offer and sale 

We also note that rule 498 does not reduce, or otherwise affect, liability under Section 11 

of the Securities Act. This is discussed in Part III.B.5. 

103

322 
of a security to obtain money or property by means of any untrue statement of a material 

fact or any omission to state a material fact necessary in order to make the statements 

made, in light of the circumstances under which they were made, not misleading. 

We are permitting incorporation by reference of the statutory prospectus, SAI, 

and information from the shareholder reports that is incorporated into the statutory 

prospectus in order to reflect, as a legal matter, the practical reality that, under the 

conditions of rule 498, the information incorporated into the Summary Prospectus will be 

provided at the same time as the Summary Prospectus though by different means.323 

Funds and other sellers will be liable under Sections 12(a)(2) and 17(a)(2) for 

information incorporated by reference into the statutory prospectus. Investors who 

choose to review the statutory prospectus, SAI, and shareholder reports in paper will have 

the same ability to do so that they do today. In addition, rule 498 requires that all 

information contained in the Summary Prospectus, statutory prospectus, SAI, and 

shareholder reports be immediately available to investors online in a user-friendly 

format.

324 By using multiple means to provide this information and using technology to 

provide information in a layered format, the new rule is intended to facilitate investors’ 

ability to easily access and review the particular information in which they are interested. 

Indeed, each investor in a fund taking advantage of the new prospectus delivery regime 

can choose the particular means of receiving information because all of the information is 

323 Thus, rule 498(b)(3)(iii) expressly provides that incorporated information is, for purposes 

of rule 159 (and therefore for purposes of Sections 12(a)(2) and 17(a)(2) of the Securities 

Act), conveyed not later than the time the Summary Prospectus is received. See 

discussion infra Part III.B.4.b. 

324 The provisions that we are adopting requiring linking within and between documents and 

that the documents be in a format that is convenient for both reading online and printing 

on paper are intended to contribute to a user-friendly online presentation. Rule 

498(e)(2)(ii), (e)(2)(iii), and (f)(3). 

104
required to be promptly sent to any requesting investor in paper or electronically. The 

Summary Prospectus disclosure regime enhances the accessibility of the information that 

is available to investors and increases their options for how to receive the information; it 

does not take away any information or any option for the method by which information is 

received. 

Our determination to permit incorporation by reference of information into the 

Summary Prospectus is different from the determination we made with respect to the 

profile and is made in light of technological advances that have occurred during the 

intervening years. When the Commission adopted the profile more than 10 years ago, it 

did not permit incorporation by reference of the statutory prospectus into the profile and 

stated its belief that allowing this incorporation would be inconsistent with the purpose of 

the profile and not in the public interest.325 The Commission noted that the profile was 

designed to provide summary information about a fund in a self-contained format and 

that permitting incorporation by reference of the statutory prospectus would be 

inconsistent with the profile being a self-contained document.326 

By contrast, the Summary Prospectus is not a self-contained document, but rather 

one element in a layered disclosure regime that is intended to provide investors with 

better, more useable access to the information in the statutory prospectus, SAI, and 

shareholder reports than they have today. The expansion in Internet access and the 

strides in the speed and quality of Internet connections since the profile rule was adopted 

325 Investment Company Act Release No. 23065, supra note 194, 63 FR at 13971. 

326 Id. 

105
in 1998 have made this possible.327 As a result of these considerations and for the other 

reasons discussed above, we believe that it is consistent with the purpose of the Summary 

Prospectus and in the public interest to permit incorporation by reference of information 

from the statutory prospectus, SAI, and shareholder reports into the Summary Prospectus, 

subject to the conditions to incorporation by reference contained in rule 498. 

b. Effect of Incorporation by Reference 

We are adopting, as proposed, the provision of rule 498 stating that, for purposes 

of rule 159 under the Securities Act,328 information is conveyed to a person not later than 

the time that a Summary Prospectus is received by the person if the information is 

incorporated by reference into the Summary Prospectus in accordance with rule 498. 

This provision addresses the question of when information that is incorporated into the 

Summary Prospectus under rule 498 is conveyed for purposes of Sections 12(a)(2) and 

327 See, e.g., AARP Letter, supra note 34 (noting that “the growth of the Internet as an 

information source has dramatically improved investors’ access to mutual fund 

information”); CFA Institute Letter, supra note 37 (“In a time of electronic accessibility, 

this approach is in keeping with movement taken by the SEC through other proposals to 

streamline the process and reduce expenses to investment companies, while preserving 

investor protections.”). In 1998, one study indicated that over one-third of Americans 

over the age of 16 used the Internet. Associated Press Online, One-Third of Americans 

Use Internet (Aug. 25, 1998). As noted above, our recent telephone survey indicates that 

90% of investors have Internet access. Telephone Survey Report, supra note 32, at 115. 

See also 2008 ICI Fact Book, supra note 16, at 80-81 (noting that more than nine in 10 

U.S. households owning mutual funds have Internet access, up from two-thirds in 2000; 

69 percent of mutual fund shareholders age 65 or older have Internet access, up from 30 

percent in 2000; and about eight in 10 mutual fund shareholders with Internet access go 

online for financial purposes, such as to check their bank or investment accounts, obtain 

investment information, or buy or sell investments). Moreover, very few American 

homes had broadband connections in 1998. See Robert J. Samuelson, Broadband’s 

Faded Promise, THE WASHINGTON POST, at A35 (Dec. 12, 2001) (noting that almost no 

American homes had broadband in 1998). In contrast, as of early 2007, nearly half of all 

adult Americans had a broadband connection at home. See supra note 26. See also Jesse 

Noyes, Broadband signals death of dial-up, THE BOSTON HERALD, at 028 (Aug. 7, 2005) 

(noting that dial-up speeds have remained constant at 56K since 1998 and cannot go 

higher, while broadband speeds have grown from 1 megabyte per second to 100 

megabytes a second in the past six years). 

328 17 CFR 230.159. 

106
17(a)(2) of the Securities Act. Commenters who addressed this provision generally 

supported the position that all information that is properly incorporated by reference into 

the Summary Prospectus is conveyed to an investor for purposes of these sections.329 

As we have previously stated, we interpret Section 12(a)(2) and Section 17(a)(2) 

to mean that, for purposes of assessing whether at the time of sale (including a contract of 

sale) a prospectus or oral communication or statement includes or represents a material 

misstatement or omits to state a material fact necessary in order to make the prospectus, 

oral communication, or statement, in light of the circumstances under which it was made, 

not misleading, information conveyed to the investor only after the time of sale 

(including a contract of sale) should not be taken into account.330 In furtherance of this 

interpretation, we adopted rule 159 under Sections 12(a)(2) and 17(a)(2). Consistent with 

our interpretation, rule 159 provides that, for purposes of Sections 12(a)(2) and 17(a)(2) 

only, and without affecting any other rights under those sections, for purposes of 

determining at the time of sale (including the time of the contract of sale) whether a 

prospectus, oral statement, or a statement331 includes an untrue statement of material fact 

or omits to state a material fact necessary in order to make the statements, in light of the 

329 See, e.g., ABA Letter, supra note 37; Dechert Letter, supra note 50; ICI Letter, supra note 

34; Schnase Letter, supra note 35; T. Rowe Letter, supra note 49. As discussed more 

fully in Part III.B.4.a., several commenters disagreed with the Commission’s 

determination to permit incorporation by reference. 

330 See Securities Act Release No. 8591 (Jul. 19, 2005) [70 FR 44722, 44766 (Aug. 3, 

2005)]. 

331 These include a prospectus or oral statement in the case of Section 12(a)(2), or a 

statement to which Section 17(a)(2) is applicable. 

107
circumstances under which they were made, not misleading,332 any information conveyed 

to the purchaser only after the time of sale will not be taken into account. 

Rule 498 provides that, for purposes of rule 159 (and therefore for purposes of 

Sections 12(a)(2) and 17(a)(2)), information is conveyed to a person not later than the 

time that a Summary Prospectus is received by the person if the information is 

incorporated by reference into the Summary Prospectus in accordance with the rule.333 

For purposes of Sections 12(a)(2) and 17(a)(2), whether or not information has been 

conveyed to an investor at or prior to the time of the contract of sale is a facts and 

circumstances determination.334 We have designed the requirements of rule 498 

specifically so that the facts and circumstances surrounding receipt by a person of the 

Summary Prospectus will, in fact, result in the effective conveyance to that person of any 

information that is incorporated by reference into the Summary Prospectus in compliance 

with the conditions of the rule. For that reason, rule 498 expressly states that, for 

purposes of rule 159, information incorporated into a Summary Prospectus is conveyed 

not later than the time that the Summary Prospectus is received.335 The relevant facts and 

circumstances required by rule 498 include actual receipt of the Summary Prospectus; 

332 Or, in the case of Section 17(a)(2), any omission to state a material fact necessary in 

order to make the statements made, in light of the circumstances under which they were 

made, not misleading. 

333 Rule 498(b)(3)(iii). 

334 See Securities Act Release No. 8591, supra note 330, 70 FR at 44766. Such information 

could include information in the issuer’s registration statement and prospectuses for the 

offering in question, the issuer’s Exchange Act reports incorporated by reference therein, 

or information otherwise disseminated by means reasonably designed to convey such 

information to investors. Such information also could include information directly 

communicated to investors. 

108
incorporation by reference of the information into the Summary Prospectus and clear 

disclosure of how the incorporated information may be obtained free of charge; and 

continuous Internet availability of the incorporated information in formats that permit 

permanent retention, are human-readable and capable of being printed on paper in 

human-readable format, and meet the document linking requirements of the rule.336 

We are not adopting the suggestion of two commenters that rule 498 state that 

information is conveyed to a person not later than the time that the Summary Prospectus 

is conveyed to the person, rather than received by the person.337 We are unable to 

conclude that, in all circumstances, information incorporated into a Summary Prospectus 

has been conveyed to an investor before the investor has received the Summary 

Prospectus. 

Rule 498 addresses one particular set of facts and circumstances under rule 159 

and does not address any other situations. For purposes of Sections 12(a)(2) and 

17(a)(2), whether or not information has been conveyed to an investor at or prior to the 

time of the contract of sale remains a facts and circumstances determination. Rule 498 

does not address any facts and circumstances relating to operating companies or any 

other issuers that are not mutual funds, nor does it address any information other than 

335 Whether or not any or all of the incorporated information was conveyed to an investor 

prior to the time that the Summary Prospectus was received will be a facts and 

circumstances determination. 

336 Cf. Investment Company Act Release No. 13436 (Aug. 12, 1983) [48 FR 37928, 37930 

(Aug. 22, 1983)] (discussing incorporation by reference of the SAI into the statutory 

prospectus); see also White v. Melton, 757 F. Supp. 267, 272 (S.D.N.Y. 1991) 

(addressing effect of incorporation by reference of the SAI into the statutory prospectus). 

337 See ICI Letter, supra note 34; Schnase Letter, supra note 35. 

109
information incorporated by reference into a mutual fund Summary Prospectus in 

accordance with the new rule. 

The Commission believes that a person that provides investors with a mutual fund 

Summary Prospectus in good faith compliance with rule 498 will be able to rely on 

Section 19(a) of the Securities Act338 against a claim that the Summary Prospectus did 

not include information that is disclosed in the fund’s statutory prospectus, whether or not 

the fund incorporates the statutory prospectus by reference into the Summary 

Prospectus.339 Section 19(a) protects a defendant from liability for actions taken in good 

faith in conformity with any rule of the Commission.340 

5. Filing Requirements for the Summary Prospectus 

We are requiring each Summary Prospectus to be filed with the Commission on 

EDGAR no later than the date that it is first used, rather than, as proposed, the fifth 

business day after the date that it is first used.341 We agree with commenters who 

suggested that the Summary Prospectus should be filed with the Commission and be 

available on the Commission’s Web site earlier than the fifth business day after it is first 

used.342 In addition, we do not believe that the proposed five-day lag between first use of 

338 15 U.S.C. 77s(a). 

339 Cf. Investment Company Act Release No. 23065, supra note 194, 63 FR at 13972 

(similar Commission statement in context of profile). 

340 See also Section 38(c) of the Investment Company Act [15 U.S.C. 80a-37(c)] (similar 

provision under Investment Company Act). 

341 Rule 497(k). As proposed, we are deleting the reference to the profile from rule 497(a) 

[17 CFR 230.497(a)]. 

342 See Bo Li Letter, supra note 35; NewRiver Letter, supra note 228. Two commenters 

supported the Commission’s proposal to require each Summary Prospectus to be filed 

with the Commission no later than the fifth business day after first use. See ICI Letter, 

supra note 34; Schnase Letter, supra note 35. 

110
a Summary Prospectus and filing is necessary, given that we are requiring that the 

Summary Prospectus be updated only once a year, at the same time that a fund files its 

updated statutory prospectus. 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 discussed in Part III.B.3. above. 

Section 10(b) of the Securities Act provides that a prospectus permitted under that 

section shall, unless provided otherwise by Commission rule, be filed as part of the 

registration statement but shall not be deemed part of the registration statement for the 

purposes of Section 11 of the Securities Act.343 In accordance with Section 10(b), a 

Summary Prospectus will be filed as part of the registration statement, but will not be 

deemed a part of the registration statement for purposes of Section 11 of the Securities 

Act. 

A joint comment letter from three consumer and investor groups expressed 

concerns that the Summary Prospectus would not be subject to Section 11 liability, 

suggesting that this would result in a diminution of funds’ liability under that section.344 

We emphasize that the registration statement of a fund that uses the Summary Prospectus 

will remain subject to liability under Section 11, as is the case today. All of the 

information that may be included in, or incorporated by reference into, a fund’s Summary 

Prospectus is also required to be included in the fund’s registration statement. Thus, as 

described more fully in the following paragraph, all information included in, or 

343 15 U.S.C. 77j(b) and 77k. 

344 See Fund Democracy et al. Letter, supra note 34. Under Section 11 of the Securities Act 

[15 U.S.C. 77k], purchasers of an issuer’s securities have private rights of action for 

untrue statements of material facts or omissions of material facts required to be included 

in the registration statement or necessary to make the statements in the registration 

statement not misleading. 

111
incorporated by reference into, the Summary Prospectus will be subject to liability under 

Section 11 of the Securities Act. 

As described in Part III.B.2.a., we are adopting a new requirement to clarify that 

the information contained in a Summary Prospectus that is used to satisfy prospectus 

delivery obligations must be the same as the information contained in the summary 

section of the fund’s statutory prospectus. This information is, and will remain, subject 

to Section 11 liability because the fund’s prospectus, in its entirety, is subject to Section 

11 liability. In addition, information may be incorporated by reference into a Summary 

Prospectus only if it is contained in the fund’s statutory prospectus, SAI, or has been 

incorporated into the statutory prospectus from the shareholder reports. That is, 

information that may be incorporated by reference into the Summary Prospectus is 

already a part of the fund’s registration statement and, as a result, is subject in its entirety 

to liability under Section 11. Thus, while Section 10(b) of the Securities Act prescribes 

that the Summary Prospectus will not itself be deemed a part of the registration statement 

for purposes of Section 11, all of the information in the Summary Prospectus will be 

subject to liability under Section 11, either because the information is the same as 

information contained in the statutory prospectus or because the information is 

incorporated by reference from the registration statement. 

We also note that a Summary Prospectus is subject to the stop order and other 

administrative provisions of Section 8 of the Securities Act.345 This is in addition to the 

15 U.S.C. 77h; H.R. Rep. 1542, 83d Cong., 2d Sess., 1954 U.S.C.C.A.N. 2973, 2982 

(1954) (noting that the Commission’s authority to suspend the use of a defective 

summary prospectus under Section 10(b) “is intended to supplement the stop-order 

powers of the Commission under [S]ection 8”). 

112

345 
Commission’s power under Section 10(b) of the Securities Act to prevent or suspend the 

use of the Summary Prospectus, regardless of whether or not it has been filed.346 

C. Technical and Conforming Amendments 

We are adopting the following conforming amendments to rule 482 under the 

Securities Act, the investment company advertising rule, to reflect the Summary 

Prospectus and the elimination of the voluntary profile. 

• The scope section of rule 482 is revised to clarify that the rule does not apply 

to a Summary Prospectus or to a communication that, pursuant to rule 498, is 

not deemed a “prospectus” under section 2(a)(10) of the Securities Act.347 

• For funds using the Summary Prospectus, the legend required in a rule 482 

advertisement regarding the availability of the statutory prospectus will be 

required to include references to the Summary Prospectus.348 

• The provision addressing the use of rule 482 advertisements together with a 

profile that includes an application to purchase shares is deleted as 

349 unnecessary.

We are also adopting amendments to various cross-references to Form N-1A in 

our rules and forms to reflect changes that we are adopting to Form N-1A. These include 

cross-references in rule 485 under the Securities Act, rules 304 and 401 of Regulation 

S-T, Form N-4 under the Securities Act and the Investment Company Act, and Form 

346 15 U.S.C. 77j(b). 

347 Rule 482(a). 

348 Rule 482(b)(1). 

349 Rule 482(c). 

113
N-14 under the Securities Act. We are also revising rule 159A under the Securities Act 

to refer to a Summary Prospectus rather than a profile. 

D. Compliance Date 

As discussed in the proposing release, the Commission is providing for a 

transition period after the effective date of the amendments to Form N-1A that gives 

funds sufficient time to update their prospectuses or to prepare new registration 

statements under the revised Form N-1A requirements. 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 annual updates to effective registration statements on this form, 

filed on or after January 1, 2010, must comply with the amendments to Form N-1A. All 

post-effective amendments that add a new series, filed on or after January 1, 2010, must 

comply with the amendments with respect to the new series. The final compliance date 

for filing amendments to effective registration statements to comply with the new Form 

N-1A requirements is January 1, 2011. Based on the comments, we believe that this will 

provide adequate time for funds to compile and review the information that must be 

disclosed.350 A fund may, at its option, prepare documents in accordance with the 

requirements of Form N-1A, as amended, at any time after the effective date of the 

amendments. A person may not rely on rule 498 to satisfy its obligations to deliver a 

mutual fund’s statutory prospectus unless the fund is also in compliance with the 

amendments to Form N-1A. 

A number of commenters expressed the view that a one-year transition period was 

needed to make the required disclosure changes and implement the business process 

changes associated with use of the Summary Prospectus. See e.g., ICI Letter, supra note 

34; Janus Letter, supra note 63; Oppenheimer Letter, supra note 44. 

114

350 
Post-effective amendments to existing registration statements filed to comply with 

the amendments to Form N-1A should be filed under Securities Act rule 485(a).351 

However, in appropriate circumstances, we will consider requests by existing funds to 

file these post-effective amendments pursuant to Securities Act rule 485(b)(1)(vii).352 

Appropriate circumstances may include, for example, situations where a fund complex 

has previously filed under rule 485(a) post-effective amendments for a number of funds 

that implement the new requirements, and the staff determines not to review additional 

such filings by the fund complex in light of the staff’s experience with the previously 

filed amendments. 

IV. PAPERWORK REDUCTION ACT 

Certain provisions of the amendments contain “collection of information” 

requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).353 

The titles for the collections of information are: (1) “Form N-1A under the Investment 

Company Act of 1940 and Securities Act of 1933, Registration Statement of Open-End 

Management Investment Companies” (OMB Control No. 3235-0307) and (2) “Summary 

Prospectus for Open-End Management Investment Companies” (OMB Control No. 3235­

351 A post-effective amendment filed under rule 485(a) [17 CFR 230.485(a)] generally 

becomes effective either 60 days or 75 days after filing, unless the effective date is 

accelerated by the Commission. A post-effective amendment filed under rule 485(b) may 

become effective immediately upon filing. A post-effective amendment may be filed 

under rule 485(b) if it is filed for one or more specified purposes, including to make nonmaterial changes to the registration statement. A post-effective amendment filed for any 

purpose not specified in rule 485(b) generally must be filed pursuant to rule 485(a). 

352 Under rule 485(b)(1)(vii), the Commission may approve the filing of a post-effective 

amendment to a registration statement under rule 485(b) for a purpose other than those 

specifically enumerated in the rule. The Commission’s staff has been delegated the 

authority to approve registrants’ requests under rule 485(b)(1)(vii). 17 CFR 

200.30-5(b-3)(1). 

353 44 U.S.C. 3501 et seq. 

115
0637). We published notice soliciting comments on the collection of information 

requirements in the release proposing the amendments354 and submitted the proposed 

collections of information to the Office of Management and Budget (“OMB”) for review 

and approval in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. Four 

commenters specifically addressed the collection of information requirements and we 

have revised the proposed rule amendments in response to those comments.355 We have 

also revised the estimated reporting and cost burdens of the rule amendments to address 

these comments, as discussed below. 

Form N-1A under the Securities Act and the Investment Company Act356 is used 

by mutual funds to register under the Investment Company Act and to offer their 

securities under the Securities Act. Rule 498 under the Securities Act will be used by 

mutual funds that choose to send or give a Summary Prospectus to investors.357 An 

agency may not conduct or sponsor, and a person is not required to respond to a 

collection of information, unless it displays a currently valid OMB control number. 

Because we have modified our proposals as described above, we are revising the burden 

estimate for Form N-1A and rule 498. We have submitted a revised request for both to 

OMB. 

354 See Proposing Release, supra note 12, 72 FR at 67809. 

355 See American Century Letter, supra note 48; Capital Research Letter, supra note 34; 

Janus Letter, supra note 63; ICI Letter, supra note 34. 

356 17 CFR 239.15A; 17 CFR 274.11A. 

357 A request has been submitted to OMB to remove the collection of information for the 

fund profile, which is being eliminated, under current rule 498. 

116
We are adopting an improved mutual fund disclosure framework that we 

originally proposed in November 2007.358 This improved disclosure framework is 

intended to provide investors with information that is easier to use and more readily 

accessible, while retaining the comprehensive quality of the information that is available 

today. The foundation of the improved disclosure framework is the provision to all 

investors of streamlined and user-friendly information that is key to an investment 

decision. 

To implement the new disclosure framework, we are adopting amendments to 

Form N-1A that will require every prospectus to include a summary section at the front 

of the prospectus, consisting of key information about the fund, including investment 

objectives and strategies, risks, costs, and performance. We are also adopting a new 

option for satisfying prospectus delivery obligations with respect to mutual fund 

securities under the Securities Act. Under the option, key information will be sent or 

given to investors in the form of a Summary Prospectus, and the statutory prospectus will 

be provided on an Internet Web site. Funds that select this option will also be required to 

send the statutory prospectus to the investor upon request. 

We are also adopting technical and conforming amendments to rules 159A and 

482 under the Securities Act that reflect the Summary Prospectus and the elimination of 

the voluntary profile, along with amendments that update the cross references to Form 

N-1A contained in rule 485 under the Securities Act, rules 304 and 401 of Regulation 

S-T, Form N-4 under the Securities Act and the Investment Company Act, and Form 

N-14 under the Securities Act. These technical and conforming amendments do not 

See Proposing Release, supra note 12, 72 FR at 67990. 

117

358 
constitute a collection of information because we are not altering the legal requirements 

of these rules and forms. 

Finally, amendments to rule 497 provide the requirements for filing Summary 

Prospectuses with the Commission. These amendments do not constitute a separate 

collection of information under rule 497 because the burden required by these 

amendments is part of the collection of information under rule 498. 

A. Form N-1A 

Form N-1A, including the amendments, contains collection of information 

requirements. The likely respondents to this information collection are open-end 

management investment companies registered or registering with the Commission. 

Compliance with the disclosure requirements of Form N-1A is mandatory. Responses to 

the disclosure requirements are not confidential. 

Much of the information that is required in the summary section of the prospectus 

under the amendments has previously been required in a fund’s prospectus. However, 

the amendments require new information regarding the exchange ticker symbol and the 

compensation received by financial intermediaries. In addition, except for some 

information common to multiple funds, the summary section must be presented 

separately for each fund covered by a multiple fund prospectus. As a result, the 

amendments to Form N-1A may require additional burden hours to compile, review, and 

present the required information in a separate summary section for each fund. We 

estimate that the amendments will increase the hour burden per portfolio per filing of an 

initial registration statement or the initial creation of a post-effective amendment to a 

registration statement by approximately 17 hours. 

118
In the proposing release, we estimated that the proposed amendments would 

increase the hour burden per portfolio per filing of an initial registration statement or the 

initial creation of a post-effective amendment to a registration statement by 

approximately 16 hours.359 We received two comments on this estimate.360 One 

commenter anticipated approximately 19,000 hours for its 75 funds, or over 253 hours 

per portfolio, to initially comply with the proposed amendments.361 Another commenter, 

who conducted a survey of mutual fund complexes, estimated that the amendments 

would increase the hour burden per portfolio by 17 hours.362 Recognizing that the 

commenter surveyed a broad cross-section of the mutual fund industry, and having 

reviewed the specific questions it asked respondents, we have incorporated this estimate 

in our analysis.363 

We estimate, as we did in the proposing release, that subsequent post-effective 

amendments to a registration statement will require, on average, approximately 4 burden 

hours per portfolio to update and review the information.364 We received one comment, 

which estimated that ongoing compliance with the proposed amendments to Form N-1A 

359 Proposing Release, supra note 12, 72 FR at 67808. 

360 See Janus Letter, supra note 63; ICI Letter, supra note 34. 

361 Janus Letter, supra note 63. The commenter did not, however, indicate what percentage 

of the 19,000 hours it would dedicate to compliance with the proposed amendments to 

Form N-1A and what percentage it would dedicate to compliance with proposed rule 498. 

362 ICI Letter, supra note 34. The commenter estimated that the 42 fund complexes it 

surveyed offer 3,122 funds, accounting for nearly 60 percent of total mutual fund 

industry assets as of December 2007. 

363 Although the final rule eliminates disclosure of portfolio holdings in the summary 

section, we believe that the 17 hours estimated by the commenter based on its survey 

remains reasonable. 

364 See Proposing Release, supra note 12, 72 FR at 67808. 

119
would require an average of 9 hours per fund.365 However, we believe that the 

commenter based this estimate on responses to an ambiguous survey question.366 We 

believe that respondents may have interpreted this question to ask how many hours it 

would take them to update and review all information each year to comply with Form N1A rather than only how many additional hours it would take them each year to update 

and review information to comply with the amended items in Form N-1A.367 For this 

reason, we are not adjusting our original burden hour estimate. 

Because the PRA estimates represent the average burden over a three-year period, 

we estimate the average hour burden for one portfolio to comply with the amendments to 

be approximately 8 hours.368 We estimate that 8,752 portfolios file initial registration 

statements and post-effective amendments on Form N-1A.369 Thus, the incremental hour 

burden resulting from the amendments relating to the summary section disclosure would 

be 70,016 hours.370 The total annual hour burden for all funds for preparation and filing 

365 See ICI Letter, supra note 34. 

366 See id. (asking survey respondents, “How much time (in hours) would you estimate that 

it would take to update and review the information each year for Form N-1A on an ongoing basis for all of your funds?” (bold in original)). 

367 The respondents estimated that initial compliance with the Form N-1A amendments, 

including the creation of separate summaries for funds in a multiple fund prospectus, 

would require an average of 17 hours per fund, whereas ongoing compliance would 

average 9 hours per fund. See ICI Letter, supra note 34. Once such summary sections 

have been created, we do not believe that an update of such information on an annual 

basis should require more than half the time it takes to initially compile, review, and 

present that information in the summary section. 

368 (17 hours in the first year + 4 hours in the second year + 4 hours in the third year) ÷ 3 

years = approximately 8 hours. 

369 See 2008 ICI Fact Book, supra note 16, at 15. In the Proposing Release, based on 

information in the 2007 version of the ICI Fact Book, we assumed that there were 8,726 

portfolios. See Proposing Release, supra note 12, 72 FR at 67990 n. 14. 

370 8 hours x 8,752 portfolios. 

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of registration statements and post-effective amendments to Form N-1A would be 

approximately 1,645,200 hours.371 

B. Rule 498 

Rule 498 contains collection of information requirements. The likely respondents 

to this information collection are open-end management investment companies registered 

or registering with the Commission. Under rule 498, use of the Summary Prospectus is 

voluntary, but the rule’s requirements regarding provision of the statutory prospectus are 

mandatory for funds that elect to send or give a Summary Prospectus in reliance upon 

rule 498. The information provided under rule 498 will not be kept confidential. 

We estimate that for those funds that choose to use the Summary Prospectus, 

initial compliance with the requirements for the Summary Prospectus will require 

approximately 23 burden hours per portfolio. We originally assumed in the proposing 

release that rule 498 would not impose any substantial new information collection 

requirements with respect to the initial preparation of a Summary Prospectus beyond 

those discussed above in connection with the collection of information for Form N-1A.372 

One commenter suggested that initial compliance with requirements for the Summary 

Prospectus and the other provisions of rule 498 would require approximately 23 burden 

hours per portfolio.373 The commenter pointed out that initial compliance with the 

requirements for the Summary Prospectus would include, among other things, a 

document design process to create the Summary Prospectus; technology requirements for 

371 70,016 hours + 1,575,184 hours. Currently, the approved annual hour burden for 

preparing and filing registration statements on Form N-1A is 1,575,184 hours. 

372 See Proposing Release, supra note 12, 72 FR at 67809. 

373 See ICI Letter, supra note 34. 

121
posting documents on funds’ websites and providing hyperlinks within and between 

certain documents; and communication with distribution channels regarding the use of 

the Summary Prospectus.374 Recognizing that we may have underestimated the costs 

associated with initial compliance with rule 498 and that the commenter based its 

estimate on a survey of a broad cross-section of the mutual fund industry, we have added 

an estimate of 23 burden hours necessary for initial compliance with rule 498. 

In addition to initial compliance, we estimate, as we did in the proposing release, 

that rule 498 will impose a 1⁄2 hour burden per portfolio annually associated with the 

compilation of the additional information required on a cover page or at the beginning of 

the Summary Prospectus.375 Rule 498 also imposes annual hour burdens associated with 

the posting of a fund’s Summary Prospectus, statutory prospectus, SAI, and most recent 

report to shareholders on an Internet Web site.376 We estimate that the average hour 

burden for one portfolio to comply with the Internet Web site posting requirements will 

be approximately one hour annually.377 

374 See id. 

375 See Proposing Release, supra note 12, 72 FR at 67809. 

376 Rule 498, as proposed, also would have imposed an annual hour burden associated with 

updating the Summary Prospectus every quarter. In the Proposing Release, we estimated 

that quarterly updating would impose approximately 3 burden hours per quarter per 

portfolio, or 9 hours annually for each of the three subsequent quarters. See Proposing 

Release, supra note 12, 72 FR at 67809. However, we are not including quarterly 

updating requirements in the final rule. 

377 See Proposing Release, supra note 12, 72 FR at 67809. We have reduced this figure from 

the 4 hour estimate we made in the Proposing Release because we have not included 

quarterly updating requirements in the final rule. We originally estimated that Internet 

Web site posting would require approximately 1 hour per quarter, but without quarterly 

updating, we estimate that it will require 1 hour annually. 

We received four comments on our original estimates of the burden of ongoing 

compliance. See American Century Letter, supra note 48; Capital Research Letter, supra 

note 34; Janus Letter, supra note 63; ICI Letter, supra note 34. One commenter estimated 

122
Because the PRA estimates represent the average burden over a three-year period, 

we estimate the average hour burden for one portfolio to comply with the amendments to 

be approximately 9 hours.378 The Summary Prospectus is voluntary, so the percentage of 

funds that will choose to provide it is uncertain. Given the potential benefits of the 

amendments to funds, we assume that 80% of all funds will choose to send or give the 

Summary Prospectus.379 Assuming 80% of all funds file a Summary Prospectus, the total 

annual hour burden for filing and updating Summary Prospectuses and posting the 

required disclosure documents to an Internet Web site pursuant to rule 498 would be 

approximately 63,014 hours.380 

that filing Summary Prospectuses for its funds would require approximately 1150 hours 

per quarter, or 11 hours per fund. See American Century Letter, supra note 48. The 

second commenter estimated that the proposed quarterly updating requirement would 

require its 75 funds to spend approximately 5,300 burden hours. See Janus Letter, supra 

note 63. The third commenter estimated that it would spend an additional 4,400 hours 

per year to comply with the proposed quarterly updating requirements. See Capital 

Research Letter, supra note 34. Based on a survey of mutual funds, the fourth commenter 

stated that ongoing compliance with rule 498, as proposed, would require approximately 

10 hours per fund per update. See ICI Letter, supra note 34. All three commenters, 

however, based their estimates on the proposal’s requirement of quarterly updating of top 

10 portfolio holdings and performance information. Because we are not requiring 

quarterly updating of performance information and we are not requiring any disclosure of 

top 10 portfolio holdings, we are not making further adjustments to our estimates. 

378 (23 hours in the first year + 1.5 hours in the second year + 1.5 hours in the third year) ÷ 3 

years = approximately 9 hours. 

379 See Proposing Release, supra note 12, 72 FR at 67809. In the Proposing Release, we 

assumed that 75% of all funds would choose to send or give a Summary Prospectus. 

However, one commenter estimated that 80% of funds would elect to use the Summary 

Prospectus if the Commission eliminated quarterly updating requirements from the final 

rule. See ICI Letter, supra note 34. Having eliminated quarterly updating from the final 

rule and recognizing that the commenter had surveyed a major cross-section of the 

mutual fund industry, we have adopted the commenter’s estimate that 80% of funds will 

likely choose to send or give a Summary Prospectus. 

380 9 hours x 8,752 portfolios x .80. 

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C. ETF-Related Amendments 

We are amending Form N-1A to provide more useful information to investors 

who purchase and sell ETF shares on national securities exchanges. 

The amendments permit an ETF to exclude certain information from its 

prospectus that is not pertinent to investors purchasing individual ETF shares on 

secondary markets. Specifically, an ETF that has creation units of 25,000 shares or more 

may exclude from its prospectus: (i) information on how to purchase and redeem shares 

of the ETF;381 and (ii) fee table fees and expenses for purchases and redemptions of 

creation units.382 Based on conversations with industry representatives, Commission staff 

estimated in the ETF proposing release that these amendments would decrease the 

information collection burdens of an ETF that has creation units of 25,000 shares or more 

by an average of 1.4 hours per fund per filing of an initial registration statement or posteffective amendment to a registration statement. We requested comment on this estimate 

in the ETF proposing release. No commenters addressed this estimate and we continue to 

believe that it is appropriate. 

The amendments also require disclosures designed to include important 

information for purchasers of individual ETF shares, as described below. An ETF will 

have to modify the narrative explanation preceding the example in the fee table in its 

prospectus and periodic reports to state that fund shares are sold on the secondary market 

rather than redeemed at the end of the periods indicated, and that investors in ETF shares 

may be required to pay brokerage commissions that are not reflected in the fee table.383 

381 Item 6(c)(2) of Form N-1A. 

382 Instruction 1(e)(ii) to Item 3 of Form N-1A. 

383 Instruction 1(e)(i) to Item 3 of Form N-1A; Instruction 1(e)(i) to Item 27(d) of Form N124
We believe that the added information collection burdens associated with this statement, 

if any, would be negligible. 

The proposed amendments would have required each ETF to include a separate 

line item for returns based on the market price of ETF shares in the average annual total 

returns table in Item 2 of the Form,

384 and to calculate total return at market prices in 

addition to returns at NAV for their financial highlights tables.385 At the suggestion of 

commenters, we have not adopted these requirements. 

The proposed amendments would have required ETFs to include 

premium/discount information in both the prospectus and annual report of each ETF. 

Based on commenters suggestions, the final amendments permit ETFs to omit the 

historical premium/discount disclosure in those documents if the ETF includes 

premium/discount information on its Internet Web site and discloses in the prospectus 

and annual report an Internet address where investors can locate the information.386 

Commission staff estimated in the ETF proposing release that each ETF currently spends 

an average of 0.5 hours per filing of an initial registration statement or a post-effective 

1A. The amendments also require each ETF to identify the principal U.S. market on 

which its shares are traded and include a statement to the effect that ETF shares are 

bought and sold on national securities exchanges. We believe that the added information 

collection burdens associated with these very brief and specific statements, if any, would 

be negligible. 

384 Proposed Instruction 5(a) to Item 2(c)(2) of Form N-1A. 

385 Proposed Instruction 3(f) to Item 8(a) of Form N-1A. 

386 Item 11(g)(2) of Form N-1A; Item 27(b)(7)(iv) of Form N-1A. Although the time period 

required in the disclosure is different in the prospectus and annual report, ETFs will be 

able to omit both disclosures by providing on their Internet Web site only the 

premium/discount information required by Item 11(g)(2) (the most recently completed 

fiscal year and quarters since that year). Id. 

125
amendment to a registration statement to include this disclosure.387 The staff further 

estimated that each ETF also would spend 0.5 hours per annual report to include this 

disclosure. We requested comment on these estimates in the ETF proposing release. No 

commenters addressed these estimates and we continue to believe that they are 

appropriate for ETFs that choose to include the information in the prospectus and annual 

report. 

Based on Commission filings, Commission staff estimates that on an annual basis, 

ETFs file initial registration statements covering 98 ETF portfolios, and post-effective 

amendments covering 1,441 ETF portfolios on Form N-1A. Based on staff estimates, we 

estimate that the amendments will not increase the hour burden per ETF per filing on an 

initial registration or post-effective amendment to a registration statement. We estimate 

that the amendments will add approximately 0.5 hours, which staff estimates will be 

offset by a reduction of 1.4 hours (elimination of description of creation units and 

associated fees). Although the total annual hour burden for ETFs to prepare and file 

initial registration statements and post-effective amendments may decrease slightly, we 

are not decreasing our overall estimates to reflect the incremental decrease in order to be 

conservative in our estimates of the collection of information burdens. 

V. COST/BENEFIT ANALYSIS 

The Commission is sensitive to the costs and benefits imposed by its rules. We 

are adopting amendments to Form N-1A that will require every prospectus to include a 

summary section at the front of the prospectus, consisting of key information about the 

fund, including investment objectives and strategies, risks, costs, and performance. The 

This estimate is based on discussions with representatives of ETFs, which include 

premium/discount information as required by their exemptive orders. 

126

387 
key information is required to be presented in plain English in a standardized order. Our 

intent is that this information will be presented succinctly, in three or four pages, at the 

front of the prospectus. 

We are also adopting a new option for satisfying prospectus delivery obligations 

with respect to mutual fund securities under the Securities Act. Under the option, key 

information will be sent or given to investors in the form of a Summary Prospectus, and 

the statutory prospectus will be provided on an Internet Web site. Upon an investor’s 

request, funds will also be required to send the statutory prospectus to the investor. Our 

intent in providing this option is that funds take full advantage of the Internet’s search 

and retrieval capabilities in order to enhance the provision of information to mutual fund 

investors. 

The disclosure framework that we are adopting has the potential to revolutionize 

the provision of information to the millions of investors who rely on mutual funds for 

their most basic financial needs. It is intended to help investors who are overwhelmed by 

the choices among thousands of available funds described in lengthy and legalistic 

documents to readily access key information that is important to an informed investment 

decision. At the same time, by harnessing the power of technology to deliver information 

in better, more useable formats, the disclosure framework can help those investors, their 

intermediaries, third-party analysts, the financial press, and others to locate and compare 

facts and data from the wealth of more detailed disclosures that are available. 

In the proposing release, we requested public comment and specific data 

regarding the costs and benefits of the amendments. As discussed below, we received 

127
five comments directly addressing our quantitative cost/benefit analysis.388 We also 

received numerous comments pertinent to qualitative aspects of our analysis.389 

A. Benefits 

1. Form N-1A 

Possible benefits of the amendments include enhanced disclosure of information 

needed to make informed investment decisions about mutual funds, more rapid 

dissemination of information over the Internet, and reduced printing and mailing costs. 

Millions of individual Americans invest in shares of mutual funds, relying on 

mutual funds for their retirements, their children’s educations, and their other basic 

financial needs.390 These investors face a difficult task in choosing among the more than 

8,000 available mutual funds.391 Fund prospectuses, which have been criticized by 

investor advocates, representatives of the fund industry, and others as long and 

complicated, often prove difficult for investors to use efficiently in comparing their many 

choices. Current Commission rules require mutual fund prospectuses to contain key 

information about investment objectives, risks, and expenses that, while important to 

investors, can be difficult for investors to extract. Prospectuses are often long, both 

because they contain a wealth of detailed information and because prospectuses for 

388 See Data Communiqué Letter, supra note 35; ICI Letter, supra note 34; MFS Letter, 

supra note 150; NewRiver Letter, supra note 228; Memorandum from the Division of 

Investment Management regarding August 25, 2008 meeting with representatives of RR 

Donnelly & Sons Co. and Prospectus Central, LLC (Aug. 26, 2008) (“RR Donnelley 

Memorandum”). 

389 See, e.g., AARP Letter, supra note 34; CFA Institute Letter, supra note 37; CMFI Letter, 

supra note 44; Fund Democracy et al. Letter, supra note 34; ICI Letter, supra note 34; 

MFDF Letter, supra note 34; NAPFA Letter, supra note 44. 

390 See supra note 16. 

391 See 2008 ICI Fact Book, supra note 16, at 15. 

128
multiple funds are often combined in a single document. Too frequently, the language of 

prospectuses is complex and legalistic, and the presentation formats make little use of 

graphic design techniques that would contribute to readability. 

The amendments require investment information that is key to an investment 

decision to be provided in a streamlined document with other more detailed information 

provided elsewhere. The provision of this information to investors in concise, userfriendly formats will allow investors to compare information across funds and may assist 

them in making better informed portfolio allocation decisions in line with their 

investment goals. 

The amendments also will provide the additional benefits of increased Internet 

availability of fund information, by providing layered disclosure that allows investors to 

move back and forth between the information within the Summary Prospectus and more 

detailed information within other disclosure documents. These benefits include, among 

other things, facilitating comparisons among funds and replacing one-size-fits-all 

disclosure with disclosure that each investor can tailor to his or her own needs. In recent 

years, access to the Internet has greatly expanded,392 and significant strides have been 

made in the speed and quality of Internet connections.393 Advances in technology offer a 

promising means to address the length and complexity of mutual fund prospectuses by 

streamlining the key information that is provided to investors, ensuring that access to the 

full wealth of information about a fund is immediately and easily accessible, and 

providing the means to present all information about a fund online in a format that 

facilitates comparisons of key information, such as expenses, across different funds and 

392 See supra note 25. 

393 See supra note 26. 

129
different share classes of the same fund. Technology has the potential to replace the 

current one-size-fits-all mutual fund prospectus with an approach that allows investors, 

their financial intermediaries, third-party analysts, and others to tailor the wealth of 

available information to their particular needs and circumstances. 

Significant technological advances have increased both the market’s demand for 

more timely disclosure and the ability of funds to capture, process, and disseminate 

information. The amendments will enable funds to take greater advantage of the Internet 

to more rapidly communicate and deliver information to investors. Accordingly, investor 

demand for information could be satisfied through relatively inexpensive mass 

dissemination of the information through electronic means. We anticipate that demand 

for the information in the statutory prospectus and SAI will increase as access to that 

information becomes easier through the use of layered disclosure that allows investors, 

their financial intermediaries, third-party analysts, and others to tailor the wealth of 

available information to their particular needs and circumstances. 

Nearly all of the comments we received, including comments from consumer 

groups and industry representatives, agreed with our conclusion that investors will benefit 

greatly from receiving the Summary Prospectus containing key information that investors 

will be more likely to read and understand, with the ability to access more detailed 

information either immediately in a user-friendly format online or, within a matter of 

days, in paper.394 This conclusion is also supported by our recent telephone survey of 

investors, which found that many mutual fund investors do not read statutory 

See, e.g., Fund Democracy et al. Letter, supra note 34; ICI Letter, supra note 34; see also 

supra notes 315-317 and accompanying text (discussing the qualitative benefits of the 

amendments). 

130

394 
prospectuses because they are long, complicated, and hard to understand.395 In addition, 

the views expressed by investors in our focus groups also support our conclusion that 

investors will derive significant benefits from the Summary Prospectus, coupled with 

ready access to more detailed information in whatever format they choose.396 

In addition to benefiting investors, the Summary Prospectus also will provide 

quantifiable cost savings to funds. We believe that funds will benefit from being able to 

send or give a Summary Prospectus rather than having to print and send statutory 

prospectuses to all investors and prospective investors. We expect that funds will 

experience cost savings with respect to both annual mailings to their current shareholders 

and mailings made in connection with a purchase of fund shares. We estimate that funds 

distribute approximately 300,000,000 statutory prospectuses annually to their current 

shareholders397 and another 64,500,000 in connection with fund purchases.398 We 

395 Telephone Survey Report, supra note 32, at 56, 58. 

396 See Focus Group Report, supra note 32, at 5-6. See also Focus Group Transcripts, supra 

note 32, at 63 (“It’s a two-minute read. If I want more information, I can ask for it.”); id. 

at 38 (“I think both [the long-form prospectus and short-form prospectus] have their 

place. I think it would be foolish to give up the long-form for ‘this’ and I think it would 

be foolish not to have the short-form and insist on a long-form. They both have their 

place.”). 

397 See 2008 ICI Fact Book, supra note 16, at 110 (estimating 298,966,000 shareholder 

accounts at the end of 2007). In the Proposing Release, we used an estimate of 

290,000,000 statutory prospectuses, which was based on the 2007 version of the ICI Fact 

Book estimate of the number of shareholder accounts at the end of 2006. See Proposing 

Release, supra note 12, 72 FR at 67810. 

Often, a fund will mail a statutory prospectus to each of its shareholders annually in 

addition to mailing a statutory prospectus in connection with a purchase of fund shares. 

We recognize that: some shareholders may currently receive their fund documents 

electronically; some households where more than one fund investor resides will only 

receive one copy of the statutory prospectus per household; some accounts may hold 

more than one fund; and not all funds send out statutory prospectuses annually. 

Therefore, the actual number of prospectuses mailed annually may be higher or lower 

than our estimate. 

131
received two comments related to the estimated number of statutory prospectuses that are 

distributed.399 

We estimate that the cost savings for annual mailings will be approximately 

$126,000,000400 and that the cost savings for purchase mailings will be approximately 

$80,496,000.401 These cost savings would be reduced by the costs of sending the 

398 Our estimate of the number of statutory prospectuses sent out to fulfill a fund’s 

prospectus delivery obligation upon purchase is based on information provided by 

Broadridge Financial Solutions, Inc. (“Broadridge”) prior to issuing the Proposing 

Release. See Memorandum from the Division of Investment Management regarding 

October 25, 2007 meeting with Broadridge representatives (Nov. 28, 2007) (“Broadridge 

Memorandum”). 

399 One commenter stated that our estimates of the numbers of statutory prospectuses 

distributed to existing shareholders and investors purchasing shares in the Proposing 

Release are reasonable because they fall within the range between the commenter’s 

lowest possible estimates (230,000,000 for annual fulfillment and 58,000,000 for 

purchase fulfillment) and the commenter’s highest possible estimates (373,000,000 

million for annual fulfillment and 95,000,000 for purchase fulfillment). See ICI Letter, 

supra note 34. A second commenter estimated that the number of statutory prospectuses 

distributed to existing shareholders is 231,981,600 and the number distributed to 

investors purchasing fund shares is 72,494,250, based on its experience preparing 

distributions of statutory prospectuses and shareholder reports for mutual funds. See 

Data Communiqué Letter, supra note 35. 

400 Our annual estimates are derived from information we received from Broadridge. See 

Broadridge Memorandum, supra note 398. Broadridge estimated that the average cost of 

a statutory prospectus printed in a full production run is $0.27 and that the average cost to 

mail a statutory prospectus by bulk mail is $0.255. Id. The cost savings with respect to 

annual mailings were calculated by multiplying the costs of printing and mailing a 

statutory prospectus by the 300,000,000 statutory prospectuses mailed annually reduced 

to reflect our estimate that 80% of funds will elect to send Summary Prospectuses (($0.27 

for the printing of a statutory prospectus + $0.255 for the mailing of a statutory 

prospectus) x 300,000,000 statutory prospectuses x 80% of funds). 

401 For purposes of our estimate, we used Broadridge’s printing cost estimate of $0.35 that is 

blended to reflect full production printing runs and digital print on demand documents. 

Id. This blended rate reflects the fact that a fund may run out of statutory prospectuses 

produced in a full production run and may have to print additional statutory prospectuses 

on demand. Broadridge also estimated that the average cost to mail a statutory 

prospectus by first class mail is $1.21. Id. The cost savings with respect to purchase 

mailings were calculated by multiplying the costs of printing and mailing a statutory 

prospectus by 64,500,000 statutory prospectuses mailed in connection with a fund 

purchase reduced to reflect our estimate that 80% of funds will elect to send Summary 

Prospectuses (($0.35 for the printing of a statutory prospectus + $1.21 for the mailing of a 

statutory prospectus) x 64,500,000 statutory prospectuses x 80% of funds). 

132 
statutory prospectus to those investors who request it. We estimate that approximately 

2% of the investors who own shares in the 80% of funds that likely will choose to send or 

give the Summary Prospectus will request that a statutory prospectus be mailed to 

them.

402 We estimate that the cost of mailing statutory prospectuses to existing investors 

would be $12,288,000.403 We further estimate that approximately 3% investors 

purchasing shares in the 80% of funds that likely will choose to send or give the 

Summary Prospectus will request that a statutory prospectus be sent to them.404 We 

402 We originally did not project that existing investors would request hard copies of the 

statutory prospectus. However, one commenter stated that at most 2% of existing 

investors would likely request hard copies, based on information from Broadridge 

indicating investor requests for written materials under the Commission’s notice and 

access e-proxy model have averaged around 2%. See ICI Letter, supra note 34. We 

believe that it is reasonable to estimate a similar percentage of existing investors will 

request hard copies of the statutory prospectus. 

403 For purposes of this estimate, we used the digital print on demand rate of $1.35 and the 

average first class mail rate of $1.21. See Broadridge Memorandum, supra note 398 

(estimating postage costs of $1.21); ICI Letter, supra note 34 (estimating a digital print on 

demand rate of $1.35). In the Proposing Release, we estimated a blended print rate of 

$0.35 for prospectuses sent to requesting investors. See Proposing Release, supra note 

12, 72 FR at 67810 n. 162. However, one commenter stated that this estimate is too low 

because it largely reflects economies of scale from high volume offset printing that are 

not realistic given the likely low number of investor requests for hard copies of the 

statutory prospectus. See ICI Letter, supra note 34. Therefore, we have adopted the 

commenter’s digital print rate estimate of $1.35. 

The costs were calculated by multiplying the costs of printing and mailing a statutory 

prospectus by the 300,000,000 prospectuses sent out annually to existing shareholders 

reduced to reflect our estimate that 80% of funds will elect to adopt the new disclosure 

option and 2% of investors will request a statutory prospectus be mailed to them (($1.35 

for the printing of a statutory prospectus + $1.21 for the mailing of a statutory 

prospectus) x 300,000,000 statutory prospectuses x 80% of funds x 2% of investors). 

404 In the Proposing Release, we originally estimated that 10% of such investors would likely 

request hard copies of the statutory prospectus. However, one commenter stated that 2% 

of both existing investors and investors purchasing fund shares would request hard copies 

of the statutory prospectus. See ICI Letter, supra note 34. While we agree with the 

commenter that we may have initially underestimated the percentage of existing investors 

and overestimated the percentage of purchasing investors that would request hard copies, 

we do not believe that the same percentage of both groups would request hard copies. 

Investors making initial fund purchases would potentially have a greater interest in 

receiving hard copies of statutory prospectuses than investors that have owned fund 

133 
estimate that the cost of sending statutory prospectuses requested by investors making 

purchases of fund shares would be approximately $3,962,880.405 Therefore, we estimate 

the annual cost savings will be approximately $190,245,120,406 or approximately $21,737 

per portfolio.407 

We received four comments bearing on the cost savings of the new delivery 

option.408 Of those, only two commenters provided actual estimates of the total savings 

shares for some time. For this reason, we have lowered our original estimate that 10% of 

investors purchasing fund shares would request hard copies, but have lowered it less than 

the commenter suggested. 

405 For purposes of this estimate, we used the digital print on demand rate of $1.35 and the 

average first class mail rate of $1.21. See supra note 403. The costs were calculated by 

multiplying the costs of printing and mailing a statutory prospectus by the 64,500,000 

prospectuses sent out in response to fund purchases reduced to reflect our estimate that 

80% of funds will elect to send Summary Prospectuses and 3% of investors will request a 

statutory prospectus be mailed to them (($1.35 for the printing of a statutory prospectus + 

$1.21 for the mailing of a statutory prospectus) x 64,500,000 statutory prospectuses x 

80% of funds x 3% of investors). 

406 ($126,000,000 cost savings for annual mailings + $80,496,000 cost savings for purchase 

mailings) – ($12,288,000 cost of sending requested statutory prospectuses to existing 

investors + $3,962,880 cost of sending requested statutory prospectuses to investors 

purchasing funds). 

A study of industry participants estimated cost savings of approximately $300,000,000 

per year. See Forrester Consulting Study commissioned on behalf of NewRiver, Inc., 

The Short-Form Prospectus, at 6 (Oct. 2007), available at 

http://www1.newriver.com/upload_files/ForresterConsulting_NewRiver_ShortForm_Pro 

spectus_10_25_2007.pdf. 

407 $190,245,120 ÷ 8,752 portfolios. 

Although we believe that not all funds will choose to use the Summary Prospectus, we 

believe it is appropriate to estimate the amendments’ effect across the entire mutual fund 

industry. Therefore, we have estimated the average cost savings per portfolio industrywide rather than estimate the cost savings per portfolio only for those portfolios using the 

Summary Prospectus. 

408 See Data Communiqué Letter, supra note 35; ICI letter, supra note 34; MFS Letter, supra 

note 150; RR Donnelley Memorandum, supra note 388. 

134
that would be generated by the new delivery option.409 Insofar as these two commenters’ 

total savings estimates differed from our $190,245,120 figure, they did so largely because 

the commenters assumed different per unit printing and postage costs. However, 

assuming (1) that 80% of funds will choose to send or give the Summary Prospectus, (2) 

that funds distribute approximately 300,000,000 statutory prospectuses to existing 

investors annually and distribute approximately 64,500,000 statutory prospectuses to 

purchasing investors annually, and (3) that 2% of existing investors in funds using the 

new delivery option and 3% of investors purchasing shares in such funds request hard 

copies of the statutory prospectus, the commenters’ differing per unit printing and 

postage cost estimates would not produce total cost savings estimates that differ 

significantly from our estimate.410 

409 See Data Communiqué Letter, supra note 35 (estimating $220,254,203 in annual cost 

savings) ICI Letter, supra note 34 (estimating $236,000,000 in annual cost savings). 

The two commenters also provided the printing and postage cost estimates they used to 

arrive at their total cost savings estimates. See Data Communiqué Letter, supra note 35 

(estimating per unit printing and postage costs for annual fulfillment of $0.25 and $0.392 

respectively, per unit printing and postage costs for purchase fulfillment of $0.25 and 

$0.654 respectively, and a blended per unit printing and postage cost for delivery of hard 

copies of the statutory prospectus to requesting investors of $0.50); ICI Letter, supra note 

34 (estimating per unit printing and postage costs for annual fulfillment of $0.26 and 

$0.255 respectively, per unit printing and postage costs for purchase fulfillment of $0.26 

and $1.39 respectively, and per unit printing and postage costs for delivery of hard copies 

of the statutory prospectus to requesting investors of $1.35 and $1.39 respectively). 

Of the two commenters that did not provide total cost savings estimates, one commenter 

estimated that it currently pays an average of $0.15 per piece for offset printing of a 

statutory prospectus. MFS Letter, supra note 150. The other commenter estimated that a 

fund with a print volume of 30,000 64-page statutory prospectuses could save 6.3% by 

using a four-page Summary Prospectus and that a fund with a print volume of 100,000 

64-page statutory prospectuses could save 22.2%, assuming that 10% of investors still 

request hard copies of the statutory prospectus. RR Donnelley Memorandum, supra note 

388. 

410 One commenter also did not account for the fact that less than 100% of funds would 

adopt the new delivery option in its calculation of quantified benefits. See ICI Letter, 

supra note 34. 

135
We expect that funds will face the highest level of uncertainty about the extent of 

investors’ continued use of printed statutory prospectuses in the first year after adoption 

of the amendments. We expect that, as funds gain familiarity with the extent of 

continued use of printed prospectuses and as shareholders increasingly turn to the Internet 

for fund information, the number of requested paper copies will decline, as will funds’ 

tendency to print more copies than ultimately are requested. 

2. ETF-Related Disclosures 

As noted above, in March of this year, the Commission proposed several 

amendments to Form N-1A to accommodate the use of the form by ETFs, and we are 

adopting those amendments today, with some changes to respond to issues raised by 

commenters. As noted in the ETF proposing release, many of the exemptive orders that 

permit an ETF to operate exempt broker-dealers from the obligation to deliver 

prospectuses in secondary market transactions. The exemptive orders permit a brokerdealer instead to deliver a product description containing basic information about the ETF 

and its shares. We understand that many, if not most, broker-dealers transmit a 

prospectus to purchasers and do not rely on the exemption in our orders. In light of this 

practice, we are adopting amendments to Form N-1A designed to meet the needs of 

investors (including retail investors) who purchase ETF shares in the secondary market 

rather than financial institutions that purchase creation units directly from the ETF. 

We expect that one benefit of the amendments will be to provide ETF investors 

purchasing shares in the secondary market with information on the investment that they 

currently may not receive in a product description, such as the fund’s fee table and the 

name and length of service of the portfolio manager. Another benefit of the amendments 

will be to provide ETF investors purchasing shares in the secondary market with 

136
prospectus disclosure that is specifically tailored to ETFs. We expect this would provide 

ETF investors with information that will allow them to understand more easily an 

investment in an ETF. This information also may be helpful to investors in making 

portfolio allocation decisions. 

Our amendments are designed to simplify prospectus and periodic report 

disclosure in two ways. First, the amendments allow ETFs to exclude from the 

prospectus information on how to purchase and redeem creation units, including 

information on fees and expenses associated with creation unit sales or purchases. 

Current ETF prospectuses and periodic reports include detailed information on how to 

purchase and redeem creation units. The fee table and example include information on 

transaction fees payable only by creation unit purchasers. Our amendments permit ETFs 

with creation units of at least 25,000 shares to exclude this information because it is not 

relevant (and may be potentially confusing) to investors purchasing in secondary market 

transactions.411 This provision should simplify ETF prospectuses without compromising 

the disclosure provided to investors who purchase ETF shares in secondary market 

transactions. 

Second, our exemptive orders require ETFs to include in their prospectuses and 

annual reports premium/discount information to alert investors of the extent and 

frequency with which market prices deviated from the fund’s NAV. ETFs may omit this 

disclosure if they provide the information on their Internet Web sites and provide an 

Internet address where investors may locate the information. ETFs have generally 

included this information in a supplemental section of the prospectus and annual 

See supra Part III.A.4. 

137

411 
report.412 The amendments incorporate this disclosure in the shareholder information 

section (Item 11 of Form N-1A) of the prospectus and the management’s discussion of 

fund performance in the annual reports (Item 27(b)(7) of Form N-1A ). We anticipate 

that this may benefit ETF investors by simplifying the prospectuses and annual reports of 

ETFs while codifying important disclosures mandated by our ETF exemptive orders. 

ETFs also may benefit because they may choose to disclose this information in the most 

cost efficient way – either in the prospectus and the annual report, or on their Web sites. 

B. Costs 

1. Form N-1A 

While the amendments will result in significant cost savings for funds, we believe 

that there will be costs associated with them. These include the costs for funds to 

compile and review the new information required by our amendments and to post the 

required disclosure documents on an Internet Web site. These costs may include both 

internal costs (for attorneys and other non-legal staff, such as computer programmers, to 

prepare and review the required disclosure) and external costs (for printing and mailing 

of the Summary Prospectus). We estimate that the external costs for printing and mailing 

of the Summary Prospectus will be approximately $106,200,000413 or approximately 

$12,134 per portfolio.414 

412 See, e.g., iShares MSCI Series, Prospectus 62-65 (Jan. 1, 2007); iShares MSCI Series, 

2006 Shareholders Annual Report 130-136 (Aug. 31, 2006). 

413 This estimate assumes printing and postage costs for annual fulfillment of $0.08 and 

$0.255 per unit respectively and printing and postage costs for purchase fulfillment of 

$0.08 and $0.42 per unit respectively. We increased our estimate of postage costs for 

purchase fulfillment from $0.41 in the Proposing Release to $0.42 to reflect the current 

rate for first class mail. Our estimate is derived as follows: [(($0.08 to offset print a 

Summary Prospectus + $0.255 for bulk mail) x 300,000,000 prospectuses estimated to be 

sent out annually) + (($0.08 to offset print a Summary Prospectus + $0.42 for first class 

mail) x 64,500,000 prospectuses estimated to be sent out in response to a fund purchase)] 

x 80% of funds. 

138
We received four comments regarding our estimates of per unit print costs for the 

Summary Prospectus.415 Of the four commenters, only one accounted for the likelihood 

that some funds would print Summary Prospectuses in color.416 In discussing its 

estimates, the commenter reported that 47% of funds it surveyed expected to use color for 

the Summary Prospectus. Therefore the commenter’s per unit print cost estimates 

In the Proposing Release, we estimated printing costs of $0.11 per unit for on-demand 

printing in black and white. See Proposing Release, supra note 12, 72 FR at 67811 n. 

168. However, we have changed our estimate of per unit printing costs based on 

comments we received and based on our decision not to include a quarterly updating 

requirement in the final rule. Instead of using the original $0.11 per unit figure for ondemand printing in black and white, we now estimate printing costs of $0.08 per unit, a 

figure representing offset printing of a blend of color and black and white. See ICI 

Letter, supra note 34. 

414 $106,200,000 ÷ 8,752 portfolios. 

Our new cost/benefit analysis retains our original postage costs of $0.255 per unit for 

annual fulfillment and $0.41 per unit for purchase fulfillment. Two commenters assumed 

the same postage costs in their cost/benefit analyses. See ICI Letter, supra note 34; 

NewRiver Letter, supra note 228. Another commenter’s estimates of postage costs were 

close to ours ($0.233 per unit for annual fulfillment and $0.484 per unit for purchase 

fulfillment). See Data Communiqué Letter, supra note 35. By contrast, a fourth 

commenter estimated postage costs of $0.241 per Summary Prospectus, without 

differentiating between annual and purchase fulfillment costs. See RR Donnelley 

Memorandum, supra note 388. However, we did not adjust our postage cost estimates 

based on this comment because the other three commenters largely agreed with our 

original postage cost estimates. 

Although we believe that not all funds will choose to use the Summary Prospectus, we 

believe it is appropriate to estimate the amendments’ effect across the entire mutual fund 

industry. Therefore, we have estimated the average external costs per portfolio industrywide rather than estimate the costs per portfolio only for those portfolios using the 

Summary Prospectus. 

415 Data Communiqué Letter, supra note 35 (estimating $0.07 per unit for offset printing in 

black and white); ICI Letter, supra note 34 (estimating $0.17 per unit for annual 

fulfillment and $0.26 per unit for purchase fulfillment, with both figures representing a 

blend of offset printing and print on demand as well as a blend of color and black and 

white printing); MFS Letter, supra note 150 (estimating $0.10 per unit for print on 

demand, but not indicating whether that figure includes any color printing); NewRiver 

Letter, supra note 228 (estimating $0.10 per unit for print on demand, but not indicating 

whether that figure includes any color printing). 

416 See ICI Letter, supra note 34. 

139
represent a blend of 47% color and 53% black and white. Assuming that the Commission 

would require quarterly updating of the Summary Prospectus, the commenter estimated a 

per unit printing cost of $0.17 for annual fulfillment and $0.26 for purchase fulfillment.417 

However, the commenter also estimated that without quarterly updating, most funds 

would print Summary Prospectuses by offset methods, and therefore estimated a per unit 

print cost of $0.08 per unit for both annual and purchase fulfillment.418 

We accept the commenter’s assertion that roughly half of funds will print their 

Summary Prospectuses in color and half will print in black and white because their 

estimate was based on a survey of a broad cross-section of the mutual fund industry. 

Additionally, with the elimination of quarterly updating requirements in the final rule, we 

believe that most funds will likely print Summary Prospectuses for annual and purchase 

fulfillment at the same time, giving most funds sufficient print volume to make offset 

printing methods economical.419 Therefore, we have revised our estimates of per unit 

print costs for annual and purchase fulfillment to $0.08 per unit. 

417 Given our assumptions that 80% of funds will adopt the Summary Prospectus, that funds 

distribute 300 million prospectuses for purposes of annual fulfillment, and that they 

distribute 64.5 million prospectuses for purchase fulfillment each year, the commenter’s 

per unit postage and mailing cost estimates would lead to total postage and mailing costs 

of $136,572,000 annually [(($0.17 for a blend of offset/print on demand and color/black 

and white printing + $0.255 for bulk mail) x 300,000,000 prospectuses estimated to be 

sent out annually) + (($0.26 for print on demand of a blend of color/black and white 

printing + $0.41 for first class mail) x 64,500,000 prospectuses estimated to be sent out in 

response to a fund purchase)] x 80% of funds. 

418 See Memorandum from the Division of Investment Management regarding September 

29, 2008 telephone conversation with representatives of the Investment Company 

Institute (October 6, 2008). 

419 We recognize that some funds may not have sufficient numbers of investors and 

purchasers to warrant printing Summary Prospectuses by offset method. ICI, however, 

estimated that absent a quarterly updating requirement, nearly 90% of funds would print 

Summary Prospectuses by offset methods. See id. 

140
For purposes of the PRA, we have estimated that the new disclosure requirements, 

assuming 80% of funds choose to send or give a Summary Prospectus, would add: (1) 

70,016 hours to the annual burden of preparing Form N-1A; and (2) 63,014 hours to the 

annual burden of preparing and using a Summary Prospectus, including complying with 

Internet posting requirements, under rule 498. We estimate that this additional burden 

would equal total internal costs of $37,248,400 annually420 or approximately $4,256 per 

portfolio.421 

The amendments also may result in costs associated with investors printing fund 

documents posted online. We estimate that approximately 1⁄2% of existing investors and 

3% of investors purchasing shares will print statutory prospectuses at an estimated cost of 

$2.03 per statutory prospectus.422 Based on these assumptions, the amendments are 

estimated to produce annual investor printing costs of $5,578,440.423 

420 This cost increase is estimated by multiplying the total annual hour burden (133,030 

hours) by the rounded estimated hourly wage rate of $280. The estimated wage figure is 

based on published rates for compliance attorneys and senior programmers, modified to 

account for an 1800-hour work-year and multiplied by 5.35 to account for bonuses, firm 

size, employee benefits, and overhead, yielding effective hourly rates of $270 and $289, 

respectively. See Securities Industry and Financial Markets Association’s Report on 

Management & Professional Earnings in the Securities Industry 2007. The estimated 

wage rate is further based on the estimate that attorneys and programmers would divide 

time equally, resulting in a rounded weighted wage rate of $280 (($270 x .50) + ($289 x 

.50)). 

In the Proposing Release, we estimated an hourly wage rate of $252.50, which was based 

on the Report on Management & Professional Earnings in the Securities Industry 2006. 

See Proposing Release, supra note 12, 72 FR at 67811 n. 170. 

421 $37,248,400 ÷ 8,752 portfolios. 

In the Proposing Release, we estimated the costs per fund choosing to use the Summary 

Prospectus. See Proposing Release, supra note 12, 72 FR 67811 n. 166. We have revised 

this calculation to produce an average cost per portfolio industry-wide. 

422 Our estimate of potential printing costs is based on data provided by Lexecon Inc. in 

response to Investment Company Act Release No. 27182 (Dec. 8, 2005) [70 FR 74598 

(Dec. 15, 2005)]. See Lexecon Inc. Letter (Feb. 13, 2006). To calculate printing costs, 

141
We received one comment letter arguing that the use of the Summary Prospectus 

under rule 498 may impose costs on investors by relieving funds of liability for 

misleading disclosure.

424 For the reasons discussed in Parts III.B.4.a. and III.B.5., we do 

not believe that the amendments, as adopted, will entail such costs. 

2. ETF-Related Disclosures 

The primary goal of our amendments relating to ETF disclosures is to provide 

investors in ETF shares with more valuable information regarding an investment in an 

ETF. We do not expect that the amendments will result in significant additional costs to 

ETFs.425 As noted above, the N-1A amendments generally codify disclosure 

requirements in existing ETF exemptive orders. 

we estimate that 100% of prospectuses are printed in black and white at a cost of $0.035 

per page for ink and that the average prospectus length is approximately 45 pages at a 

cost of $0.010 per page for the paper (($0.035 for ink + $0.010 for paper) x 45 pages). 

In the Proposing Release, we estimated that approximately 5% of investors making fund 

purchases would print statutory prospectuses. See Proposing Release, supra note 12, 72 

FR at 67811. However, we received a comment estimating that 2% of both existing 

investors and investors purchasing fund shares would print the statutory prospectus. See 

ICI Letter, supra note 34. While we agree with the commenter that we may have initially 

underestimated the percentage of existing investors and overestimated the percentage of 

investors purchasing fund shares that would print the statutory prospectus, we do not 

believe that the same percentage of both groups of investors would print statutory 

prospectuses. Rather, we believe that investors making initial fund purchases would have 

greater interest in printing statutory prospectuses than investors who already own fund 

shares. Thus, we have lowered our original estimate of investors purchasing shares who 

print the statutory prospectus to 3% and estimate that approximately 1⁄2% of existing 

investors will print statutory prospectuses. 

423 (300,000,000 x 1⁄2% of printing investors) + (64,500,000 x 3% of printing investors) x 

80% of funds x $2.03. 

424 Fund Democracy et al. Letter, supra note 34. 

425 Existing ETFs would face a one-time “learning cost” to determine the difference between 

the current Form N-1A requirements as modified by their exemptive orders and the 

amendments we are adopting today. We do not anticipate that this cost will be significant 

given the similarity of the amendments to the conditions in existing exemptive orders. 

142
In addition to codifying disclosure requirements of existing exemptive orders, we 

are adopting a few new disclosure requirements in Form N-1A. The disclosure 

amendments require each ETF to identify the principal U.S. market on which its shares 

are traded426 and include statements to the effect that (i) ETF shares are bought and sold 

on national securities exchanges;427 (ii) because the price of shares is based on market 

price, shares may trade at a premium or discount to NAV;428 and (iii) ETF investors may 

be required to pay brokerage commissions.429 Including these additional statements 

should present minimal, if any, printing costs. Any additional costs incurred by an ETF 

in complying with these additional disclosures should be offset by the cost-savings of the 

amendments, which would allow most, if not all, ETFs to exclude creation unit purchase 

and redemption information in their prospectuses.430 

VI. CONSIDERATION OF PROMOTION OF EFFICIENCY, 

COMPETITION, AND CAPITAL FORMATION 

Section 2(c) of the Investment Company Act431 and Section 2(b) of the Securities 

Act432 require the Commission, when engaging in rulemaking that requires it to consider 

426 Item 1(a)(2) of Form N-1A.; rule 498(b)(1)(ii). 

427 Item 6(c)(i)(A) of Form N-1A. 

428 Item 6(c)(i)(B) of Form N-1A. 

429 Instruction 1(e)(i) to Item 3 of Form N-1A. We also are adopting a conforming 

amendment to the expense example in ETF annual and semi-annual reports. Instruction 

1(e)(i) to Item 27(d) of Form N-1A. 

430 See Instruction 1(e)(ii) to Item 3 of Form N-1A; Items 6(c)(ii); 11(g)(1) of Form N-1A. 

For purposes of our Paperwork Reduction Act analysis, we have estimated that these 

amendments will not change the current Form N-1A compliance costs. See supra Part 

IV.C. 

431 15 U.S.C. 80a-2(c). 

432 15 U.S.C. 77b(b). 

143
or determine whether an action is necessary or appropriate in the public interest, to 

consider, in addition to the protection of investors, whether the action will promote 

efficiency, competition, and capital formation. We requested, but did not receive, any 

comments directly addressing whether the proposed amendments, if adopted, would 

promote efficiency, competition, and capital formation, or comments on any anticompetitive effects of the proposed amendments.433 

The amendments we are adopting are intended to provide enhanced disclosure 

regarding mutual funds. These changes may improve efficiency. The enhanced 

disclosure requirements may enable shareholders to make more informed investment 

decisions by focusing attention on key information, which could promote efficiency. We 

anticipate that the amendments will increase efficiency at mutual funds by providing an 

alternative to the printing and mailing of paper copies of statutory prospectuses. 

We anticipate that improving investors’ ability to make informed investment 

decisions may also lead to increased competitiveness of the U.S. capital markets. The 

ability of investors to directly locate the information they seek regarding a fund or funds 

through the use of the Internet may result in more investment in the U.S. capital markets. 

In addition, we believe that the amendments may enhance competition and efficiency 

because they will reduce fund printing and mailing costs. Funds could, for example, use 

these savings to conduct additional investment research or to pass cost savings on to 

investors. We also believe that the amendments will enhance competition among funds 

because they will facilitate investor comparisons of mutual fund information, including 

important cost and fee disclosures. 

See Proposing Release, supra note 12, 72 FR at 67812. 

144

433 
We anticipate that this increased market efficiency also may promote capital 

formation by improving the flow of information between funds and their investors. 

Specifically, we believe that the amendments will: (1) facilitate greater availability of 

information to investors and the market with regard to all funds; (2) build upon the 

increased importance of electronic dissemination of information, including the use of the 

Internet; and (3) promote the capital formation process. 

VII. FINAL REGULATORY FLEXIBILITY ANALYSIS 

This Final Regulatory Flexibility Analysis has been prepared in accordance with 

the Regulatory Flexibility Act.434 It relates to the Commission’s amendments to Form 

N-1A under the Securities Act and the Investment Company Act and to new rule 498 

under the Securities Act. 

A. Need for the Rule 

We are adopting an improved mutual fund disclosure framework that is intended 

to provide investors with information that is easier to use and more readily accessible, 

while retaining the comprehensive quality of the information that is available today. The 

foundation of the improved disclosure framework is the provision to all investors of 

streamlined and user-friendly information that is key to an investment decision. 

In addition, the amendments to Form N-1A that specifically apply to ETFs are 

intended to accommodate the form for use by ETFs and are designed to provide more 

useful information to investors who purchase and sell ETF shares on national securities 

exchanges. 

5 U.S.C. 603 et seq. 

145

434 
B. Significant Issues Raised by Public Comment 

In the proposing release, we requested comment on the number of small entity 

issuers that may be affected, the existence or nature of the potential impact and how to 

quantify the impact of the amendments. Commenters generally supported the 

proposal.435 One commenter, however, stated that the proposal would simply add another 

costly burden to small fund families.436 While we believe there will be some costs 

associated with the amendments, we have tried to minimize those costs. Nearly all of the 

information that is required in the summary section of the prospectus under the 

amendments has previously been required in a fund’s prospectus. We eliminated the 

proposed quarterly updating requirement in response to commenters’ concerns. In 

addition, we have made use of the Summary Prospectus voluntary, meaning that a fund 

can choose whether or not to adopt it considering its costs and benefits to the fund and its 

investors. 

In the initial regulatory flexibility analysis for the ETF proposing release, we 

requested comment on any aspect of the IRFA, including the number of small entities 

likely to rely on the proposed amendments to Form N-1A, the likely impact of the 

proposed amendments on small entities, and the nature of any impact on small entities. 

We also requested empirical data supporting the extent of any impact on small entities. 

We received no comments on that analysis. 

435 See supra note 206 and accompanying text. 

436 See McCormick Letter, supra note 74. The commenter made specific suggestions for 

improving mutual fund disclosure, such as consolidating the statutory prospectus and SAI 

and eliminating the semi-annual reports and quarterly filings on Form N-Q, that were 

beyond the scope of this particular rulemaking. 

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C. Small Entities Subject to the Rule 

For purposes of the Regulatory Flexibility Act, an investment company is a small 

entity if it, together with other investment companies in the same group of related 

investment companies, has net assets of $50 million or less as of the end of its most 

recent fiscal year.437 Approximately 127 mutual funds registered on Form N-1A meet 

this definition.438 Of the approximately 593 registered open-end investment companies 

that are ETFs, only one is a small entity.439 

D. Reporting, Recordkeeping, and Other Compliance Requirements 

The amendments we are adopting require all funds, including funds that are small 

entities, to provide key information in a summary section of their statutory prospectuses. 

In addition, the amendments provide a new option that will permit a person to satisfy its 

mutual fund prospectus delivery obligations under the Securities Act. Under the option, 

key information will be sent or given to investors in the form of a Summary Prospectus, 

and the statutory prospectus will be provided on an Internet Web site. Upon an investor’s 

request, funds are required to send the statutory prospectus to the investor. No funds are 

required to send or give a Summary Prospectus. However, for purposes of the PRA, we 

estimate that 80% of all funds will choose to send or give a Summary Prospectus 

pursuant to rule 498 both to enhance investor access to information about a fund and to 

437 17 CFR 270.0-10. 

438 This estimate is based on analysis by the Division of Investment Management staff of 

publicly available data. 

439 For purposes of this analysis, any series or portfolio of an ETF is considered a separate 

ETF. Therefore, there are 593 portfolios or series of registered open-end investment 

companies operating as ETFs. For purposes of determining whether a fund is a small 

entity under the Regulatory Flexibility Act, however, the assets of funds (including each 

portfolio and series of a fund) in the same group of related investment companies are 

aggregated. 

147
take advantage of the cost savings that a fund may realize. If a fund elects the new 

delivery regime for prospectuses, it is required to prepare, file, and send or give a 

Summary Prospectus to investors. The required disclosure in the Summary Prospectus is 

information that generally is readily available to funds. A fund is required to post the 

statutory prospectus along with other required documents to an Internet Web site and 

provide either a paper or an e-mail copy of its statutory prospectus to requesting 

shareholders. 

For purposes of the Paperwork Reduction Act, we have estimated that the new 

disclosure requirements would increase the hour burden of filings on Form N-1A by 

70,016 hours annually and for rule 498 by 63,014 hours annually. We estimate that this 

additional burden would increase total internal costs per portfolio, including those that 

are small entities, by approximately $4,256 per portfolio annually.440 We also estimate 

that the external costs for printing and mailing of the Summary Prospectus will be 

approximately $12,075 per portfolio.441 However, we estimate that the benefit of 

decreased printing and other costs will decrease total external costs per portfolio, 

including those that are small entities, by approximately $21,737 per portfolio 

annually.442 

The amendments to Form N-1A that specifically apply to ETFs will impose 

reporting requirements on open-end funds that operate as ETFs. The amendments require 

440 These figures are based on an estimated hourly wage rate of $280. See supra note 420. 

We note that this estimate includes a one-time burden of 17 hours to create the summary 

section of the statutory prospectus and a one-time burden of 23 hours to create the 

Summary Prospectus. 

441 See supra note 414 and accompanying text. 

442 See supra note 407 and accompanying text. 

148
an ETF to disclose in its prospectus and annual reports the number of trading days on 

which the market price of an ETF’s shares was greater than its NAV and the number of 

days it was less than its NAV (premium/discount information) unless the ETF discloses 

this information on its Web site and provides an Internet address where an investor can 

locate the information.443 The amendments also require the ETF to disclose in its 

prospectus (in addition to its exchange ticker trading symbol), the principal U.S. 

market(s) on which its shares are traded.444 

The amendments to Form N-1A also eliminate some disclosure requirements for 

ETFs with creation units of 25,000 or more shares and replace them with fewer 

disclosures. Under the amendments, those ETFs do not have to: (i) disclose information 

on how to buy and redeem shares of ETF;445 (ii) include in its fee table in its prospectus 

or annual and semi-annual reports fees and expenses for purchases or sales of creation 

units;446 or (iii) disclose procedures for the purchase and redemption of fund shares.447 

443 Item 11(g)(2) of Form N-1A (requiring premium/discount information in the prospectus 

to span the most recently completed calendar year and quarters since that year); Item 

27(b)(7)(iv) of Form N-1A (requiring premium/discount information disclosed in annual 

reports to span five fiscal years). The ETF is required to present premiums or discounts 

as a percentage of NAV and to explain that shareholders may pay more than NAV when 

purchasing shares and receive less than NAV when selling, because shares are bought 

and sold at market prices. Instructions 2, 3 to Item 11(g)(2) of Form N-1A; Instructions 

2, 3 to Item 27(b)(7)(iv). 

444 Item 1(a)(2) of Form N-1A; rule 498(b)(1)(ii). 

445 Item 6(c)(ii) of Form N-1A. Instead ETF prospectuses could simply state that individual 

fund shares can only be bought and sold on the secondary market through a brokerdealer. Item 6(c)(i)(A) of Form N-1A. 

446 Instruction 1(e)(ii) to Item 3 of Form N-1A; Instruction 1(e)(ii) to Item 27(d) of Form 

N-1A. An ETF will instead modify the narrative explanation preceding the example in 

the fee table to state that investors may be required to pay brokerage commissions that 

are not reflected in the fee table. Instruction 1(e)(i) to Item 3 of Form N-1A; Instruction 

1(e)(i) to Item 27(d) of Form N-1A. 

447 Item 11(g)(1) of Form N-1A. 

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The amendments to Form N-1A are designed to accommodate the form for use by 

ETFs and to meet the needs of investors (including retail investors) who purchase ETF 

shares in secondary market transactions rather than institutional investors purchasing 

creation units directly from the ETF. We anticipate that the amendments will have a 

negligible impact (if any) on the disclosure burdens on ETFs while providing necessary 

information to ETF investors. We do not believe that the amendments to Form N-1A will 

disproportionately impact small funds. 

E. Agency Action to Minimize the Effect on Small Entities 

The Regulatory Flexibility Act directs us to consider significant alternatives that 

would accomplish our stated objective, while minimizing any significant adverse impact 

on small issuers. In connection with the amendments, the Commission considered the 

following alternatives: (1) the establishment of differing compliance or reporting 

requirements or timetables that take into account the resources available to small entities; 

(2) the clarification, consolidation, or simplification of compliance and reporting 

requirements under the amendments for small entities; (3) the use of performance rather 

than design standards; and (4) an exemption from coverage of the amendments, or any 

part thereof, for small entities. 

The Commission believes at the present time that special compliance or reporting 

requirements for small entities, or an exemption from coverage for small entities, would 

not be appropriate or consistent with investor protection. We believe that the 

amendments to Form N-1A will provide investors with enhanced disclosure regarding 

funds. This enhanced disclosure will allow investors to better assess their investment 

decisions. The ETF amendments to Form N-1A are designed to accommodate the form 

for use by ETFs and to meet the needs of investors (including retail investors) who 

150
purchase ETF shares in secondary market transactions rather than financial institutions 

purchasing creation units directly from the ETF. Different disclosure requirements for 

funds that are small entities may create the risk that investors in these funds would be less 

able to evaluate funds and less able to compare different funds, thereby lessening the 

ability of investors to make informed choices among funds. We believe it is important 

for the disclosure that is required by the amendments to Form N-1A to be provided to 

investors in all funds, not just funds that are not considered small entities. 

Rule 498 provides a new option that permits a person to satisfy its mutual fund 

prospectus delivery obligations under the Securities Act. Under the option, key 

information is to be sent or given to investors in the form of a Summary Prospectus, and 

the statutory prospectus is to be provided on an Internet Web site. Upon an investor’s 

request, funds are required to send the statutory prospectus to the investor. Because the 

rule is optional, an exemption from the rule for small entities would deprive small entities 

of the potential benefits of the rule. 

We have endeavored through the amendments to minimize the regulatory burden 

on all funds, including small entities, while meeting our regulatory objectives. Small 

entities should benefit from the Commission’s reasoned approach to the amendments to 

the same degree as other funds. We also have endeavored to clarify, consolidate, and 

simplify disclosure for all funds, including those that are small entities. Finally, we do 

not consider using performance rather than design standards to be consistent with our 

statutory mandate of investor protection in the present context. Based on our past 

experience, we believe that the disclosure required by the amendments will be more 

useful to investors if there are enumerated informational requirements. 

151
VIII. STATUTORY AUTHORITY 

The Commission is adopting amendments to Form N-1A and Form N-4 pursuant 

to authority set forth in Sections 5, 6, 7, 10, and 19(a) of the Securities Act [15 U.S.C. 

77e, 77f, 77g, 77j, and 77s(a)] and Sections 8, 24(a), 24(g), 30, and 38 of the Investment 

Company Act [15 U.S.C. 80a-8, 80a-24(a), 80a-24(g), 80a-29, and 80a-37]. The 

Commission is adopting amendments to Form N-14 pursuant to authority set forth in 

Sections 5, 6, 7, 10, and 19(a) of the Securities Act [15 U.S.C. 77e, 77f, 77g, 77j, and 

77s(a)]. The Commission is adopting amendments to rules 159A, 482, 485, 497, and 498 

under the Securities Act and to rules 304 and 401 of Regulation S-T pursuant to authority 

set forth in Sections 5, 6, 7, 10, 19, and 28 of the Securities Act [15 U.S.C. 77e, 77f, 77g, 

77j, 77s, and 77z-3] and Sections 8, 24(a), 24(g), 30, and 38 of the Investment Company 

Act [15 U.S.C. 80a-8, 80a-24(a), 80a-24(g), 80a-29, and 80a-37]. 

List of Subjects 

17 CFR Parts 230 and 274 

Investment companies, Reporting and recordkeeping requirements, Securities. 

17 CFR Parts 232 and 239 

Reporting and recordkeeping requirements, Securities. 

TEXT OF FINAL RULE AND FORM AMENDMENTS 

For the reasons set out in the preamble, the Commission amends Title 17, Chapter 

II, of the Code of Federal Regulations as follows. 

PART 230 – GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 

1. The authority citation for Part 230 continues to read in part as follows: 

152

1933 
Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z-3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a–28, 

80a–29, 80a–30, and 80a–37, unless otherwise noted. 

* * * * * 

2. Section 230.159A is amended by revising the word “profile” in paragraph 

(a)(2) to read “summary prospectus”. 

3. Section 230.482 is amended by: 

a. Revising paragraph (a) before the note; and 

b. Revising paragraphs (b)(1) and (c). 

The revisions read as follows: 

§ 230.482 Advertising by an investment company as satisfying requirements of 

section 10. 

(a) Scope of rule. This section applies to an advertisement or other sales 

material (advertisement) with respect to securities of an investment company registered 

under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) (1940 Act), or a 

business development company, that is selling or proposing to sell its securities pursuant 

to a registration statement that has been filed under the Act. This section does not apply 

to an advertisement that is excepted from the definition of prospectus by section 2(a)(10) 

of the Act (15 U.S.C. 77b(a)(10)) or § 230.498(d) or to a summary prospectus under 

§ 230.498. An advertisement that complies with this section, which may include 

information the substance of which is not included in the prospectus specified in section 

10(a) of the Act (15 U.S.C 77j(a)), will be deemed to be a prospectus under section 10(b) 

of the Act (15 U.S.C. 77j(b)) for the purposes of section 5(b)(1) of the Act (15 U.S.C. 

77e(b)(1)). 

153
Note to paragraph (a): * * * 

(b) * * * 

(1) Availability of additional information. An advertisement must include a 

statement that advises an investor to consider the investment objectives, risks, and 

charges and expenses of the investment company carefully before investing; explains that 

the prospectus and, if available, the summary prospectus contain this and other 

information about the investment company; identifies a source from which an investor 

may obtain a prospectus and, if available, a summary prospectus; and states that the 

prospectus and, if available, the summary prospectus should be read carefully before 

investing. 

* * * * * 

(c) Use of applications. An advertisement that complies with this section may 

not contain or be accompanied by any application by which a prospective investor may 

invest in the investment company, except that a prospectus meeting the requirements of 

section 10(a) of the Act (15 U.S.C. 77j(a)) by which a unit investment trust offers 

variable annuity or variable life insurance contracts may contain a contract application 

although the prospectus includes, or is accompanied by, information about an investment 

company in which the unit investment trust invests that, pursuant to this section, is 

deemed a prospectus under section 10(b) of the Act (15 U.S.C. 77j(b)). 

* * * * * 

4. Section 230.485 is amended by revising the reference “Items 5 or 6(a)(2) 

of Form N-1A” in paragraph (b)(1)(iv) to read “Item 5(b) or 10(a)(2) of Form N-1A”. 

154
5. Section 230.497 is amended by revising paragraphs (a) and (k). 

The revisions read as follows: 

§230.497 Filing of investment company prospectuses – number of copies. 

(a) Five copies of every form of prospectus sent or given to any person prior 

to the effective date of the registration statement that varies from the form or forms of 

prospectus included in the registration statement filed pursuant to § 230.402(a) shall be 

filed as part of the registration statement not later than the date that form of prospectus is 

first sent or given to any person, except that an investment company advertisement under 

§ 230.482 shall be filed under this paragraph (a) (but not as part of the registration 

statement) unless filed under paragraph (i) of this section. 

* * * * * 

(k) Summary Prospectus filing requirements. This paragraph (k), and not the 

other provisions of § 230.497, shall govern the filing of summary prospectuses under 

§ 230.498. Each definitive form of a summary prospectus under § 230.498 shall be filed 

with the Commission no later than the date that it is first used. 

6. Revise Section 230.498 to read as follows: 

§230.498 Summary Prospectuses for open-end management investment 

companies. 

(a) Definitions. For purposes of this section: 

(1) Class means a class of shares issued by a Fund that has more than one 

class that represent interests in the same portfolio of securities under § 270.18f-3 of this 

chapter or under an order exempting the Fund from sections 18(f), 18(g), and 18(i) of the 

Investment Company Act (15 U.S.C. 80a-18(f), 80a-18(g), and 80a-18(i)). 

(2) Exchange-Traded Fund means a Fund or a Class, the shares of which are 

traded on a national securities exchange, and that has formed and operates pursuant to an 

155
exemptive order granted by the Commission or in reliance on an exemptive rule adopted 

by the Commission. 

(3) Fund means an open-end management investment company, or any Series 

of such a company, that has, or is included in, an effective registration statement on Form 

N-1A (§§239.15A and 274.11A of this chapter) and that has a current prospectus that 

satisfies the requirements of section 10(a) of the Act (15 U.S.C. 77j(a)). 

(4) Series means shares offered by a Fund that represent undivided interests in 

a portfolio of investments and that are preferred over all other series of shares for assets 

specifically allocated to that series in accordance with § 270.18f-2(a) of this chapter. 

(5) Statement of Additional Information means the statement of additional 

information required by Part B of Form N-1A. 

(6) Statutory Prospectus means a prospectus that satisfies the requirements of 

section 10(a) of the Act. 

(7) Summary Prospectus means the summary prospectus described in 

paragraph (b) of this section. 

(b) General requirements for Summary Prospectus. This paragraph describes 

the requirements for a Fund’s Summary Prospectus. A Summary Prospectus that 

complies with this paragraph (b) will be deemed to be a prospectus that is authorized 

under section 10(b) of the Act (15 U.S.C. 77j(b)) and section 24(g) of the Investment 

Company Act (15 U.S.C. 80a-24(g)) for the purposes of section 5(b)(1) of the Act (15 

U.S.C. 77e(b)(1)). 

(1) Cover page or beginning of Summary Prospectus. Include on the cover 

page of the Summary Prospectus or at the beginning of the Summary Prospectus: 

156
(i) The Fund’s name and the Class or Classes, if any, to which the Summary 

Prospectus relates. 

(ii) The exchange ticker symbol of the Fund’s shares or, if the Summary 

Prospectus relates to one or more Classes of the Fund’s shares, adjacent to each such 

Class, the exchange ticker symbol of such Class of the Fund’s shares. If the Fund is an 

Exchange-Traded Fund, also identify the principal U.S. market or markets on which the 

Fund shares are traded. 

(iii) A statement identifying the document as a “Summary Prospectus.” 

(iv) The approximate date of the Summary Prospectus’s first use. 

(v) The following legend: 

Before you invest, you may want to review the Fund’s prospectus, which contains 

more information about the Fund and its risks. You can find the Fund’s prospectus and 

other information about the Fund online at [__________]. You can also get this 

information at no cost by calling [_____________] or by sending an e-mail request to 

[__________]. 

(A) The legend must provide an Internet address, other than the address of the 

Commission’s electronic filing system; toll free (or collect) telephone number; and e-mail 

address that investors can use to obtain the Statutory Prospectus and other information. 

The Internet Web site address must be specific enough to lead investors directly to the 

Statutory Prospectus and other materials that are required to be accessible under 

paragraph (e)(1) of this section, rather than to the home page or other section of the Web 

site on which the materials are posted. The Web site could be a central site with 

prominent links to each document. The legend may indicate, if applicable, that the 

Statutory Prospectus and other information are available from a financial intermediary 

157
(such as a broker-dealer or bank) through which shares of the Fund may be purchased or 

sold. 

(B) If a Fund incorporates any information by reference into the Summary 

Prospectus, the legend must identify 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 a part of a document, the legend must clearly identify the part 

by page, paragraph, caption, or otherwise. If information is incorporated from a source 

other than the Statutory Prospectus, the legend must explain that the incorporated 

information may be obtained, free of charge, in the same manner as the Statutory 

Prospectus. A Fund may modify the legend to include a statement to the effect that the 

Summary Prospectus is intended for use in connection with a defined contribution plan 

that meets the requirements for qualification under section 401(k) of the Internal Revenue 

Code (26 U.S.C. 401(k)), a tax-deferred arrangement under section 403(b) or 457 of the 

Internal Revenue Code (26 U.S.C. 403(b) or 457), or a variable contract as defined in 

section 817(d) of the Internal Revenue Code (26 U.S.C. 817(d)), as applicable, and is not 

intended for use by other investors. 

(2) Contents of the Summary Prospectus. Except as otherwise provided in 

this paragraph (b), provide the information required or permitted by Items 2 through 8 of 

Form N-1A, and only that information, in the order required by the form. A Summary 

Prospectus may omit the explanation and information required by Instruction 2(c) to Item 

4(b)(2) of Form N-1A. 

(3) Incorporation by reference. 

(i) Except as provided by paragraph (b)(3)(ii) of this section, information 

may not be incorporated by reference into a Summary Prospectus. Information that is 

158
incorporated by reference into a Summary Prospectus in accordance with paragraph 

(b)(3)(ii) of this section need not be sent or given with the Summary Prospectus. 

(ii) A Fund may incorporate by reference into a Summary Prospectus any or 

all of the information contained in the Fund’s Statutory Prospectus and Statement of 

Additional Information, and any information from the Fund’s reports to shareholders 

under § 270.30e-1 that the Fund has incorporated by reference into the Fund’s Statutory 

Prospectus, provided that: 

(A) The conditions of paragraphs (b)(1)(v)(B) and (e) of this section are met; 

(B) A Fund may not incorporate by reference into a Summary Prospectus 

information that paragraphs (b)(1) and (2) of this section require to be included in the 

Summary Prospectus; and 

(C) Information that is permitted to be incorporated by reference into the 

Summary Prospectus may be incorporated by reference into the Summary Prospectus 

only by reference to the specific document that contains the information, not by reference 

to another document that incorporates such information by reference. 

(iii) For purposes of § 230.159, information is conveyed to a person not later 

than the time that a Summary Prospectus is received by the person if the information is 

incorporated by reference into the Summary Prospectus in accordance with paragraph 

(b)(3)(ii) of this section. 

(4) Multiple Funds and Classes. A Summary Prospectus may describe only 

one Fund, but may describe more than one Class of a Fund. 

(c) Transfer of the security. Any obligation under section 5(b)(2) of the Act 

(15 U.S.C. 77e(b)(2)) to have a Statutory Prospectus precede or accompany the carrying 

or delivery of a Fund security in an offering registered on Form N-1A is satisfied if: 

159
(1) A Summary Prospectus is sent or given no later than the time of the 

carrying or delivery of the Fund security; 

(2) The Summary Prospectus is not bound together with any materials, except 

that 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 in the contract, provided that: 

(i) All of the Funds to which the Summary Prospectuses and Statutory 

Prospectuses that are bound together relate are available to the person to whom such 

documents are sent or given; and 

(ii) A table of contents identifying each Summary Prospectus and Statutory 

Prospectus that is bound together, and the page number on which it is found, is included 

at the beginning or immediately following a cover page of the bound materials; 

(3) The Summary Prospectus that is sent or given satisfies the requirements of 

paragraph (b) of this section at the time of the carrying or delivery of the Fund security; 

and 

(4) The conditions set forth in paragraph (e) of this section are satisfied. 

(d) Sending communications. A communication relating to an offering 

registered on Form N-1A sent or given after the effective date of a Fund’s registration 

statement (other than a prospectus permitted or required under section 10 of the Act) shall 

not be deemed a prospectus under section 2(a)(10) of the Act (15 U.S.C. 77b(a)(10)) if: 

(1) It is proved that prior to or at the same time with such communication a 

Summary Prospectus was sent or given to the person to whom the communication was 

made; 

160
(2) The Summary Prospectus is not bound together with any materials, except 

as permitted by paragraph (c)(2) of this section; 

(3) The Summary Prospectus that was sent or given satisfies the requirements 

of paragraph (b) of this section at the time of such communication; and 

(4) The conditions set forth in paragraph (e) of this section are satisfied. 

(e) Availability of Fund’s Statutory Prospectus and certain other Fund 

documents. 

(1) The Fund’s current Summary Prospectus, Statutory Prospectus, Statement 

of Additional Information, and most recent annual and semi-annual reports to 

shareholders under § 270.30e-1 are publicly accessible, free of charge, at the Web site 

address specified on the cover page or at the beginning of the Summary Prospectus on or 

before the time that the Summary Prospectus is sent or given and current versions of 

those documents remain on the Web site through the date that is at least 90 days after: 

(i) In the case of reliance on paragraph (c) of this section, the date that the 

Fund security is carried or delivered; or 

(ii) In the case of reliance on paragraph (d) of this section, the date that the 

communication is sent or given. 

(2) The materials that are accessible in accordance with paragraph (e)(1) of 

this section must be presented on the Web site in a format, or formats, that: 

(i) Are human-readable and capable of being printed on paper in 

human-readable format; 

(ii) Permit persons accessing the Statutory Prospectus or Statement of 

Additional Information to move directly back and forth between each section heading in 

a table of contents of such document and the section of the document referenced in that 

161
section heading; provided that, in the case of the Statutory Prospectus, the table of 

contents is either required by § 230.481(c) or contains the same section headings as the 

table of contents required by § 230.481(c); and 

(iii) Permit persons accessing the Summary Prospectus to move directly back 

and forth between: 

(A) Each section of the Summary Prospectus and any section of the Statutory 

Prospectus and Statement of Additional Information that provides additional detail 

concerning that section of the Summary Prospectus; or 

(B) 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 Statement of Additional 

Information that meet the requirements of paragraph (e)(2)(ii) of this section. 

(3) Persons accessing the materials specified in paragraph (e)(1) of this 

section must be able to permanently retain, free of charge, an electronic version of such 

materials in a format, or formats, that meet each of the requirements of paragraphs 

(e)(2)(i) and (ii) of this section. 

(4) The conditions set forth in paragraphs (e)(1), (e)(2), and (e)(3) of this 

section shall be deemed to be met, notwithstanding the fact that the materials specified in 

paragraph (e)(1) of this section are not available for a time in the manner required by 

paragraphs (e)(1), (e)(2), and (e)(3) of this section, provided that: 

(i) The Fund has reasonable procedures in place to ensure that the specified 

materials are available in the manner required by paragraphs (e)(1), (e)(2), and (e)(3) of 

this section; and 

162
(ii) The Fund takes prompt action to ensure that the specified documents 

become available in the manner required by paragraphs (e)(1), (e)(2), and (e)(3) of this 

section, as soon as practicable following the earlier of the time at which it knows or 

reasonably should have known that the documents are not available in the manner 

required by paragraphs (e)(1), (e)(2), and (e)(3) of this section. 

(f) Other requirements. 

(1) Delivery upon request. If paragraph (c) or (d) of this section is relied on 

with respect to a Fund, the Fund (or a financial intermediary through which shares of the 

Fund may be purchased or sold) must send, at no cost to the requestor and by U.S. first 

class mail or other reasonably prompt means, a paper copy of the Fund’s Statutory 

Prospectus, Statement of Additional Information, and most recent annual and 

semi-annual reports to shareholders to any person requesting such a copy within three 

business days after receiving a request for a paper copy. If paragraph (c) or (d) of this 

section is relied on with respect to a Fund, the Fund (or a financial intermediary through 

which shares of the Fund may be purchased or sold) must send, at no cost to the requestor 

and by e-mail, an electronic copy of the Fund’s Statutory Prospectus, Statement of 

Additional Information, and most recent annual and semi-annual reports to shareholders 

to any person requesting such a copy within three business days after receiving a request 

for an electronic copy. The requirement to send an electronic copy of a document by 

e-mail may be satisfied by sending a direct link to the document on the Internet; provided 

that a current version of the document is directly accessible through the link from the 

time that the e-mail is sent through the date that is six months after the date that the 

e-mail is sent and the e-mail explains both how long the link will remain useable and that, 

163
if the recipient desires to retain a copy of the document, he or she should access and save 

the document. 

(2) Greater prominence. If paragraph (c) or (d) of this section is relied on 

with respect to a Fund, the Fund’s Summary Prospectus shall be given greater 

prominence than any materials, with the exception of other Summary Prospectuses or 

Statutory Prospectuses, that accompany the Fund’s Summary Prospectus. 

(3) Convenient for reading and printing. If paragraph (c) or (d) of this section 

is relied on with respect to a Fund: 

(i) The materials that are accessible in accordance with paragraph (e)(1) of 

this section must be presented on the Web site in a format, or formats, that are convenient 

for both reading online and printing on paper; and 

(ii) Persons accessing the materials that are accessible in accordance with 

paragraph (e)(1) of this section must be able to permanently retain, free of charge, an 

electronic version of such materials in a format, or formats, that are convenient for both 

reading online and printing on paper. 

(4) Information in Summary Prospectus must be the same as information in 

Statutory Prospectus. If paragraph (c) or (d) of this section is relied on with respect to a 

Fund, the information provided in response to Items 2 through 8 of Form N-1A in the 

Fund’s Summary Prospectus must be the same as the information provided in response to 

Items 2 through 8 of Form N-1A in the Fund’s Statutory Prospectus except as expressly 

permitted by paragraph (b)(2) of this section. 

(5) Compliance with paragraph (f) not a condition to reliance on paragraphs 

(c) and (d). Compliance with this paragraph (f) is not a condition to the ability to rely on 

164
paragraph (c) or (d) of this section with respect to a Fund, and failure to comply with 

paragraph (f) does not negate the ability to rely on paragraph (c) or (d). 

PART 232 – REGULATION S-T – GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

7. The authority citation for Part 232 continues to read in part as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78l, 

78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 80a–8, 80a–29, 80a–30, 80a–37, and 7201 et 

seq.; and 18 U.S.C. 1350. 

* * * * * 

8. Section 232.304 is amended by revising the references “Item 22 of Form 

N-1A” in paragraphs (d) and (e) to read “Item 27 of Form N-1A”. 

9. Section 232.401 is amended by: 

a. Revising the reference “Item 8(a) of Form N-1A” in paragraph (b)(1)(iii) 

to read “Item 13(a) of Form N-1A”; and 

b. Revising the reference “Items 2 and 3 of Form N-1A” in paragraph 

(b)(1)(iv) to read “Items 2, 3, and 4 of Form N-1A”. 

PART 239 – FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 

10. The general authority citation for Part 239 is revised to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 

78m, 78n, 78o(d), 78u–5, 78w(a), 78ll, 78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 

80a–10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, and 80a–37, unless otherwise noted. 

* * * * * 

11. Form N-14 (referenced in § 239.23) is amended by: 

a. Revising paragraph (a) in Item 5; 

165
b. Revising the reference “Items 10 through 22 of Form N-1A” in Item 12(a) 

to read “Items 14 through 27 of Form N-1A”; and 

c. Revising the reference “Items 10 through 13 and 15 through 22 of Form 

N-1A” in Item 13(a) to read “Items 14 through 17 and 19 through 27 of Form N-1A”. 

The revision to paragraph (a) of Item 5 reads as follows: 

Note: The text of Form N-14 does not, and these amendments will not, appear in 

the Code of Federal Regulations. 

FORM N-14 

* * * * * 

Item 5. Information About the Registrant 

* * * * * 

(a) if the registrant is an open-end management investment company, furnish 

the information required by Items 2 through 8, 9(a), 9(b), and 10 through 13 of Form 

N-1A under the 1940 Act; 

* * * * * 

PART 274 – FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY 

ACT OF 1940 

12. The authority citation for Part 274 continues to read in part as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 

80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise noted. 

* * * * * 

13. Form N-1A (referenced in §§ 239.15A and 274.11A) is amended by: 

a. Revising the Cover Page by replacing the address reference “450 

5th Street, N.W., Washington, D.C. 20549-6009” with “100 F Street, NE, Washington, 

DC 20549-1090”; 

166
b. Revising the Table of Contents; 

c. Revising the General Instructions as follows: 

i. Adding the definitions “Exchange-Traded Fund” and “Market 

Price” in alphabetical order to paragraph A; 

ii. Revising the phrase “(except Items 1, 2, 3, and 8), B, and C (except 

Items 23(e) and (i) – (k))” in paragraph B.2.(b) to read “(except Items 1, 2, 3, 4, and 13), 

B, and C (except Items 28(e) and (i) – (k))”; 

iii. Revising paragraphs B.4.(c), C.3.(a), C.3.(b), and C.3.(c); 

iv. Revising the reference “Items 6(b)-(d) and 7(a)(2)-(5)” in 

paragraph C.3.(d)(i) to read “Items 6, 11(b)-(d), and 12(a)(2)-(5)”; and 

v. Revising the reference “Items 2(c)(2)(iii)(B) and (C) and 

2(c)(2)(iv)” in paragraph C.3.(d)(iii) to read “Items 4(b)(2)(iii)(B) and (C) and 

4(b)(2)(iv)”; 

d. Revising Item 1 as follows: 

i. Revising paragraph (a)(1); 

ii. Adding new paragraph (a)(2) and redesignating paragraphs (a)(2) 

and (a)(3) as paragraphs (a)(3) and (a)(4); 

iii. Removing Instruction 6 to Item 1(b)(1); 

iv. In Item 1(b)(3), revising the telephone number “1-202-942-8090” 

to read “1-202-551-8090”; and 

v. In Item 1(b)(3), revising the zip code “20549-0102” to read 

“20549-1520”; 

e. Redesignating Items 2, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 

17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, and 30 as Items 4, 9, 10, 

167
11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 

31, 32, 33, 34, and 35, respectively; 

f. Adding new Item 2; 

g. Revising Item 3 as follows: 

i. Adding a sentence after the sentence following the heading “Fees 

and expenses of the Fund”; 

ii. Revising the heading “Annual Fund Operating Expenses (expenses 

that are deducted from Fund assets)”; 

iii. Adding a new paragraph after the “Example” with the heading 

“Portfolio Turnover”; 

iv. Revising Instruction 1(b); 

v. Adding new Instruction 1(e); 

vi. In Instruction 2(a)(i), revising the reference “Item 7(a)” to read 

“Item 12(a)”; 

vii. Revising Instruction 3(e); 

viii. In Instruction 3(f)(iii), revising the references “Item 8(a)” to read 

“Item 13(a)”; 

ix. In Instruction 3(f)(vii), revising the reference “Item 8” to read 

“Item 13”; 

x. Revising Instruction 4(a); 

xi. Redesignating Instruction 5 as Instruction 6 and adding new 

Instruction 5; and 

xii. In newly redesignated Instruction 6, removing paragraph (b) and 

redesignating paragraph (c) as paragraph (b); 

168
h. Revising newly redesignated Item 4 as follows: 

i. Removing paragraph (a) and redesignating paragraphs (b) and (c) 

as paragraphs (a) and (b); 

ii. In newly redesignated Item 4(a), revising the reference “Item 4(b)” 

to read “Item 9(b)”; 

iii. In newly redesignated Item 4(b)(1)(i), revising the reference “Item 

4(c)” to read “Item 9(c)”; 

iv. In the Instruction to newly redesignated Item 4(b)(1)(iii), revising 

the reference “Items 2(c)(1)(ii) and (iii)” to read “Items 4(b)(1)(ii) and (iii)”; 

v. Revising newly redesignated Item 4(b)(2)(i); 

vi. In newly redesignated Item 4(b)(2)(iii), revising the reference 

“Item 22(b)(7)” to read “Item 27(b)(7)”; 

vii. In newly redesignated Item 4(b)(2)(iv), revising the reference 

“paragraph 2(c)(2)(iii)” to read “paragraph 4(b)(2)(iii)”; 

viii. In Instruction 1(a) to newly redesignated Item 4(b)(2), revising the 

reference “Item 8(a)” to read “Item 13(a)”; 

ix. In Instruction 1(b) to newly redesignated Item 4(b)(2), revising the 

reference “paragraph (c)(2)(i)” to read “paragraph (b)(2)(i)”; 

x. In Instruction 2(a) to newly redesignated Item 4(b)(2), revising the 

references “Item 21(a)”, “Item 21(b)(1)”, and “Items 21(b)(2) and (3)” to read “Item 

26(a)”, “Item 26(b)(1)”, and “Items 26(b)(2) and (3)”, respectively; 

xi. In Instruction 2(b) to newly redesignated Item 4(b)(2), revising the 

reference “Item 22(b)(7)” to read “Item 27(b)(7)”; 

169
xii. In Instruction 2(d) to newly redesignated Item 4(b)(2), revising the 

references “Item 21(b)(2)” and “Item 21” to read “Item 26(b)(2)” and “Item 26”, 

respectively; 

xiii. In newly redesignated Item 4(b)(2), revising Instructions 2(e), 3(a), 

3(b), and 3(c); 

xiv. In Instruction 3(c)(ii)(D) to newly redesignated Item 4(b)(2), 

revising the reference “paragraphs 2(c)(2)(iii)(B) and (C)” to read “paragraphs 

4(b)(2)(iii)(B) and (C)”; 

xv. In Instruction 3(c)(iii) to newly redesignated Item 4(b)(2), revising 

the reference “paragraphs 2(c)(2)(iii)(A), (B), and (C)” to read “paragraphs 

4(b)(2)(iii)(A), (B), and (C)”; and 

xvi. In Instruction 4 to newly redesignated Item 4(b)(2), revising the 

reference “Item 22(b)(7)” to read “Item 27(b)(7)”; 

i. Adding new Items 5, 6, 7, and 8; 

j. In Instruction 5 to newly redesignated Item 9(b)(1), revising the 

reference “Item 11(c)(1)” to read “Item 16(c)(1)”; 

k. Revising newly redesignated Item 10 as follows: 

i. Revising paragraph (a)(1)(i); 

ii. Revising paragraph (a)(2); and 

iii. Removing the Instructions to newly redesignated Item 10(a)(2); 

l. Revising newly redesignated Item 11 as follows: 

i. Revising paragraph (a)(1); 

ii Revising paragraph (b); and 

iii. Revising paragraph (g); 

170
m. Revising newly redesignated Item 12 as follows: 

i. In Instruction 1 to newly redesignated Item 12(a)(2), revising the 

reference “Item 7” to read “Item 12”; 

ii. In Instruction 2 to newly redesignated Item 12(a)(2), revising the 

references “Item 7” and “Items 12(d) and 17(b)” to read “Item 12” and “Items 17(d) and 

22(b)”, respectively; 

iii. In newly redesignated Item 12(a)(5), revising the reference “Item 

17(a)” to read “Item 22(a)”; and 

iv. In the Instruction to newly redesignated Item 12(a)(5), revising the 

references “Item 7” to read “Item 12”; 

n. Revising newly redesignated Item 14 as follows: 

i. Revising paragraph (a)(1); and 

ii. Adding new paragraph (a)(2) and redesignating paragraphs (a)(2) 

and (a)(3) as paragraphs (a)(3) and (a)(4); 

o. Revising newly redesignated Item 16 as follows: 

i. In newly redesignated Item 16(d), revising the reference “Item 

4(b)” to read “Item 9(b)”; 

ii. In newly redesignated Item 16(e), revising the reference “Item 8” 

to read “Item 13”; and 

iii. In Instruction 1 to newly redesignated Item 16(f)(2), revising the 

reference “Item 11(f)(2)” to read “Item 16(f)(2)”; 

p. In newly redesignated Item 17, revising the references “Item 12” to 

read “Item 17”; 

171
q. In newly redesignated Items 20(a), 20(b), and 20(c), revising the 

references “Item 5(a)(2)” to read “Item 5(b)”; 

r. Revising newly redesignated Item 23 as follows: 

i. Removing the Instruction to newly redesignated Item 23(a); 

ii. In Instruction 4 to newly redesignated Item 23(c), revising the 

reference “Item 22” to read “Item 27”; and 

iii. In Instruction 1 to newly redesignated Item 23(e), revising the 

reference “Item 17(e)” to read “Item 23(e)”; 

s. In Instruction 1 to newly redesignated Item 25(c), revising the 

references “Item 7(b)(2)”, “Item 14(d)”, and “Item 30” to read “Item 12(b)(2)”, “Item 

19(d)”, and “Item 34”, respectively; 

t. Revising newly redesignated Item 27 as follows: 

i. In newly redesignated Item 27(a), revising the reference “Item 

17(c)” to read “Item 23(c)”; 

ii. In newly redesignated Item 27(b)(2), revising the reference “Item 

8(a)” to read “Item 13(a)”; 

iii. In newly redesignated Item 27(b)(5), revising the reference “Item 

12(a)(1)” to read “Item 17(a)(1)”; 

iv. In newly redesignated Item 27(b)(7)(ii)(B), revising the reference 

“Item 21(b)(1)” to read “Item 26(b)(1)”; 

v. In newly redesignated Item 27(b)(7), adding new paragraph (iv); 

vi. In Instruction 10 to newly redesignated Item 27(b)(7), revising the 

reference “Instruction 5 to Item 3” to read “Instruction 6 to Item 3”; 

172
vii. In the Instruction to newly redesignated Item 27(c)(1), revising the 

references “Item 22(b)(1)” and “Item 22(c)(1)” to read “Item 27(b)(1)” and “Item 

27(c)(1)”, respectively; 

viii. In newly redesignated Item 27(c)(2), revising the reference “Item 

8(a)” to read “Item 13(a)”; 

ix. In Instruction 1(c) to newly redesignated Item 27(d)(1), revising 

the reference “Item 8(a)” to read “Item 13(a)”; 

x. In newly redesignated Item 27(d)(1), adding Instruction 1(e); 

xi. In Instruction 2(a)(ii) to newly redesignated Item 27(d)(1), revising 

the reference “Item 22(d)(1)” to read “Item 27(d)(1)”; and 

xii. In the Instruction to newly redesignated Item 27(d)(4), revising the 

reference “Item 12(f)” to read “Item 17(f)”; 

u. In newly redesignated Item 28(k), revising the reference “Item 22” 

to read “Item 27”; 

v. Revising newly redesignated Item 32 as follows: 

i. In newly redesignated Item 32(b), revising the reference “Item 20” 

to read “Item 25”; 

ii. In Instruction 2 to newly redesignated Item 32(c), revising the 

reference “Item 20(c)” to read “Item 25(c)”; and 

w. In Instruction 1 to newly redesignated Item 34, revising the 

reference “Item 14” to read “Item 19”. 

The additions and revisions are to read as follows: 

Note: The text of Form N-1A does not, and these amendments will not, appear in 

the Code of Federal Regulations. 

173
FORM N-1A 

* * * * * 

CONTENTS OF FORM N-1A 

GENERAL INSTRUCTIONS 

A. Definitions 

B. Filing and Use of Form N-1A 

C. Preparation of the Registration Statement 

D. Incorporation by Reference 

PART A: INFORMATION REQUIRED IN A PROSPECTUS 

Item 1. Front and Back Cover Pages 

Item 2. Risk/Return Summary: Investment Objectives/Goals 

Item 3. Risk/Return Summary: Fee Table 

Item 4. Risk/Return Summary: Investments, Risks, and Performance 

Item 5. Management 

Item 6. Purchase and Sale of Fund Shares 

Item 7. Tax Information 

Item 8. Financial Intermediary Compensation 

Item 9. Investment Objectives, Principal Investment Strategies, Related 

Risks, and Disclosure of Portfolio Holdings 

Item 10. Management, Organization, and Capital Structure 

Item 11. Shareholder Information 

Item 12. Distribution Arrangements 

Item 13. Financial Highlights Information 

174
PART B: INFORMATION REQUIRED IN A STATEMENT OF 

ADDITIONAL INFORMATION 

Item 14. Cover Page and Table of Contents 

Item 15. Fund History 

Item 16. Description of the Fund and Its Investments and Risks 

Item 17. Management of the Fund 

Item 18. Control Persons and Principal Holders of Securities 

Item 19. Investment Advisory and Other Services 

Item 20. Portfolio Managers 

Item 21. Brokerage Allocation and Other Practices 

Item 22. Capital Stock and Other Securities 

Item 23. Purchase, Redemption, and Pricing of Shares 

Item 24. Taxation of the Fund 

Item 25. Underwriters 

Item 26. Calculation of Performance Data 

Item 27. Financial Statements 

PART C: OTHER INFORMATION 

Item 28. Exhibits 

Item 29. Persons Controlled by or Under Common Control with the Fund 

Item 30. Indemnification 

Item 31. Business and Other Connections of the Investment Adviser 

Item 32. Principal Underwriters 

Item 33. Location of Accounts and Records 

Item 34. Management Services 

175
Item 35. Undertakings 

SIGNATURES 

176
GENERAL INSTRUCTIONS 

A. Definitions 

* * * * * 

“Exchange-Traded Fund” means a Fund or Class, the shares of which are traded on a 

national securities exchange, and that has formed and operates pursuant to an exemptive 

order granted by the Commission or in reliance on an exemptive rule adopted by the 

Commission. 

* * * * * 

“Market Price” refers to the last reported sale price at which Exchange-Traded Fund 

shares trade on the principal U.S. market on which the Fund’s shares are traded during a 

regular trading session or, if it more accurately reflects the current market value of the 

Fund’s shares at the time the Fund uses to calculate its net asset value, a price within the 

range of the highest bid and lowest offer on the principal U.S. market on which the 

Fund’s shares are traded during a regular trading session. 

* * * * * 

B. Filing and Use of Form N-1A 

* * * * * 

4. * * * 

(c) The plain English requirements of rule 421 under the Securities Act [17 

CFR 230.421] apply to prospectus disclosure in Part A of Form N-1A. The information 

required by Items 2 through 8 must be provided in plain English under rule 421(d) under 

the Securities Act. 

* * * * * 

177
C. Preparation of the Registration Statement 

* * * * * 

3. * * * 

(a) Organization of Information. Organize the information in the prospectus 

and SAI to make it easy for investors to understand. Notwithstanding rule 421(a) under 

the Securities Act regarding the order of information required in a prospectus, disclose 

the information required by Items 2 through 8 in numerical order at the front of the 

prospectus. Do not precede these Items with any other Item except the Cover Page (Item 

1) or a table of contents meeting the requirements of rule 481(c) under the Securities Act. 

Information that is included in response to Items 2 through 8 need not be repeated 

elsewhere in the prospectus. Disclose the information required by Item 12 (Distribution 

Arrangements) in one place in the prospectus. 

(b) Other Information. A Fund may include, except in response to Items 2 

through 8, information in the prospectus or the SAI that is not otherwise required. For 

example, a Fund may include charts, graphs, or tables so long as the information is not 

incomplete, inaccurate, or misleading and does not, because of its nature, quantity, or 

manner of presentation, obscure or impede understanding of the information that is 

required to be included. Items 2 through 8 may not include disclosure other than that 

required or permitted by those Items. 

(c) Use of Form N-1A by More Than One Registrant, Series, or Class. Form 

N-1A may be used by one or more Registrants, Series, or Classes. 

(i) When disclosure is provided for more than one Fund or Class, the 

disclosure should be presented in a format designed to communicate the information 

effectively. Except as required by paragraph (c)(ii) for Items 2 through 8, Funds may 

178
order or group the response to any Item in any manner that organizes the information into 

readable and comprehensible segments and is consistent with the intent of the prospectus 

to provide clear and concise information about the Funds or Classes. Funds are 

encouraged to use, as appropriate, tables, side-by-side comparisons, captions, bullet 

points, or other organizational techniques when presenting disclosure for multiple Funds 

or Classes. 

(ii) Paragraph (a) requires Funds to disclose the information required by Items 

2 through 8 in numerical order at the front of the prospectus and not to precede Items 2 

through 8 with other information. Except as permitted by paragraph (c)(iii), a prospectus 

that contains information about more than one Fund must present all of the information 

required by Items 2 through 8 for each Fund sequentially and may not integrate the 

information for more than one Fund together. That is, a prospectus must present all of 

the information for a particular Fund that is required by Items 2 through 8 together, 

followed by all of the information for each additional Fund, and may not, for example, 

present all of the Item 2 (Risk/Return Summary: Investment Objectives/Goals) 

information for several Funds followed by all of the Item 3 (Risk/Return Summary: Fee 

Table) information for several Funds. If a prospectus contains information about 

multiple Funds, clearly identify the name of the relevant Fund at the beginning of the 

information for the Fund that is required by Items 2 through 8. A Multiple Class Fund 

may present the information required by Items 2 through 8 separately for each Class or 

may integrate the information for multiple Classes, although the order of the information 

must be as prescribed in Items 2 through 8. For example, the prospectus may present all 

of the Item 2 (Risk/Return Summary: Investment Objectives/Goals) information for 

several Classes followed by all of the Item 3 (Risk/Return Summary: Fee Table) 

179
information for the Classes, or may present Items 2 and 3 for each of several Classes 

sequentially. Other presentations of multiple Class information also would be acceptable 

if they are consistent with the Form’s intent to disclose the information required by Items 

2 through 8 in a standard order at the beginning of the prospectus. For a Multiple Class 

Fund, clearly identify the relevant Classes at the beginning of the Items 2 through 8 

information for those Classes. 

(iii) A prospectus that contains information about more than one Fund may 

integrate the information required by any of Items 6 through 8 for all of the Funds 

together, provided that the information contained in any Item that is integrated is identical 

for all Funds covered in the prospectus. If the information required by any of Items 6 

through 8 is integrated pursuant to this paragraph, the integrated information should be 

presented immediately following the separate presentations of Item 2 through 8 

information for individual Funds. In addition, include a statement containing the 

following information in each Fund’s separate presentation of Item 2 through 8 

information, in the location where the integrated information is omitted: “For important 

information about [purchase and sale of fund shares,] [tax information,] and [financial 

intermediary compensation], please turn to [identify section heading and page number of 

prospectus].” 

* * * * * 

PART A: INFORMATION REQUIRED IN A PROSPECTUS 

Item 1. Front and Back Cover Pages 

(a) Front Cover Page. Include the following information, in plain English 

under rule 421(d) under the Securities Act, on the outside front cover page of the 

prospectus: 

180
(1) The Fund’s name and the Class or Classes, if any, to which the prospectus 

relates. 

(2) The exchange ticker symbol of the Fund’s shares or, if the prospectus 

relates to one or more Classes of the Fund’s shares, adjacent to each such Class, the 

exchange ticker symbol of such Class of the Fund’s shares. If the Fund is an ExchangeTraded Fund, also identify the principal U.S. market or markets on which the Fund shares 

are traded. 

* * * * * 

Item 2. Risk/Return Summary: Investment Objectives/Goals 

Disclose the Fund’s investment objectives or goals. A Fund also may identify its 

type or category (e.g., that it is a Money Market Fund or a balanced fund). 

Item 3. Risk/Return Summary: Fee Table 

* * * * * 

Fees and expenses of the Fund 

* * * You may qualify for sales charge discounts if you and your 

family invest, or agree to invest in the future, at least $[_________] in [name of fund 

family] funds. More information about these and other discounts is available from 

your financial professional and in [identify section heading and page number] of the 

Fund’s prospectus and [identify section heading and page number] of the Fund’s 

statement of additional information. 

* * * * * 

Annual Fund Operating Expenses (expenses that you pay each year as a percentage of 

the value of your investment) 

* * * * * 

181
Example 

* * * * * 

Portfolio Turnover 

The Fund pays transaction costs, such as commissions, when it buys and sells 

securities (or “turns over” its portfolio). A higher portfolio turnover rate may 

indicate higher transaction costs and may result in higher taxes when Fund shares 

are held in a taxable account. These costs, which are not reflected in annual fund 

operating expenses or in the example, affect the Fund’s performance. During the 

most recent fiscal year, the Fund’s portfolio turnover rate was __% of the average 

value of its portfolio. 

 Instructions. 

1. General. 

(a) * * * 

(b) Include the narrative explanations in the order indicated. A Fund may 

modify the narrative explanations if the explanation contains comparable information to 

that shown. The narrative explanation regarding sales charge discounts is only required 

by a Fund that offers such discounts and should specify the minimum level of investment 

required to qualify for a discount as disclosed in the table required by Item 12(a)(1). 

* * * * * 

(e) If the Fund is an Exchange-Traded Fund, 

(i) Modify the narrative explanation to state that investors may pay brokerage 

commissions on their purchases and sales of Exchange-Traded Fund shares, which are 

not reflected in the example; and 

182
(ii) If the Fund issues or redeems shares in creation units of not less than 

25,000 shares each, exclude any fees charged for the purchase and redemption of the 

Fund’s creation units. 

* * * * * 

3. Annual Fund Operating Expenses. 

(a) * * * 

(e) If there are expense reimbursement or fee waiver arrangements that will 

reduce any Fund operating expenses for no less than one year from the effective date of 

the Fund’s registration statement, a Fund may add two captions to the table: one caption 

showing the amount of the expense reimbursement or fee waiver, and a second caption 

showing the Fund’s net expenses after subtracting the fee reimbursement or expense 

waiver from the total fund operating expenses. The Fund should place these additional 

captions directly below the “Total Annual Fund Operating Expenses” caption of the table 

and should use appropriate descriptive captions, such as “Fee Waiver [and/or Expense 

Reimbursement]” and “Total Annual Fund Operating Expenses After Fee Waiver [and/or 

Expense Reimbursement],” respectively. If the Fund provides this disclosure, also 

disclose the period for which the expense reimbursement or fee waiver arrangement is 

expected to continue, including the expected termination date, and briefly describe who 

can terminate the arrangement and under what circumstances. 

* * * * * 

4. Example. 

(a) Assume that the percentage amounts listed under “Total Annual Fund 

Operating Expenses” remain the same in each year of the 1-, 3-, 5-, and 10-year periods, 

except that an adjustment may be made to reflect any expense reimbursement or fee 

183
waiver arrangements that will reduce any Fund operating expenses for no less than one 

year from the effective date of the Fund’s registration statement. An adjustment to reflect 

any expense reimbursement or fee waiver arrangement may be reflected only in the 

period(s) for which the expense reimbursement or fee waiver arrangement is expected to 

continue. 

* * * * * 

5. Portfolio Turnover. Disclose the portfolio turnover rate provided in 

response to Item 13(a) for the most recent fiscal year (or for such shorter period as the 

Fund has been in operation). Disclose the period for which the information is provided if 

less than a full fiscal year. A Fund that is a Money Market Fund may omit the portfolio 

turnover information required by this Item. 

* * * * * 

Item 4. Risk/Return Summary: Investments, Risks, and Performance 

* * * * * 

(b) Principal risks of investing in the Fund. 

* * * * * 

(2) Risk/Return Bar Chart and Table. 

(i) Include the bar chart and table required by paragraphs (b)(2)(ii) and (iii) of 

this section. Provide a brief explanation of how the information illustrates the variability 

of the Fund’s returns (e.g., by stating that the information provides some indication of the 

risks of investing in the Fund by showing changes in the Fund’s performance from year 

to year and by showing how the Fund’s average annual returns for 1, 5, and 10 years 

compare with those of a broad measure of market performance). Provide a statement to 

the effect that the Fund’s past performance (before and after taxes) is not necessarily an 

184
indication of how the Fund will perform in the future. If applicable, include a statement 

explaining that updated performance information is available and providing a Web site 

address and/or toll-free (or collect) telephone number where the updated information may 

be obtained. 

* * * * * 

 Instructions. 

* * * * * 

2. Table. 

* * * * * 

(e) Returns required by paragraphs 4(b)(2)(iii)(A), (B), and (C) for a Fund or 

Series must be adjacent to one another and appear in that order. The returns for a broadbased securities market index, as required by paragraph 4(b)(2)(iii), must precede or 

follow all of the returns for a Fund or Series rather than be interspersed with the returns 

of the Fund or Series. 

3. Multiple Class Funds. 

(a) When a Multiple Class Fund presents information for more than one Class 

together in response to Item 4(b)(2), provide annual total returns in the bar chart for only 

one of those Classes. The Fund can select which Class to include (e.g., the oldest Class, 

the Class with the greatest net assets) if the Fund: 

(i) Selects the Class with 10 or more years of annual returns if other Classes 

have fewer than 10 years of annual returns; 

(ii) Selects the Class with the longest period of annual returns when the 

Classes all have fewer than 10 years of returns; and 

185
(iii) If the Fund provides annual total returns in the bar chart for a Class that is 

different from the Class selected for the most immediately preceding period, explain in a 

footnote to the bar chart the reasons for the selection of a different Class. 

(b) When a Multiple Class Fund offers a new Class in a prospectus and 

separately presents information for the new Class in response to Item 4(b)(2), include the 

bar chart with annual total returns for any other existing Class for the first year that the 

Class is offered. Explain in a footnote that the returns are for a Class that is not presented 

that would have substantially similar annual returns because the shares are invested in the 

same portfolio of securities and the annual returns would differ only to the extent that the 

Classes do not have the same expenses. Include return information for the other Class 

reflected in the bar chart in the performance table. 

(c) When a Multiple Class Fund presents information for more than one Class 

together in response to Item 4(b)(2): 

(i) Provide the returns required by paragraph 4(b)(2)(iii)(A) of this Item for 

each of the Classes; 

(ii) Provide the returns required by paragraphs 4(b)(2)(iii)(B) and (C) of this 

Item for only one of those Classes. The Fund may select the Class for which it provides 

the returns required by paragraphs 4(b)(2)(iii)(B) and (C) of this Item, provided that the 

Fund: 

* * * * * 

Item 5. Management 

(a) Investment Adviser(s). Provide the name of each investment adviser of 

the Fund, including sub-advisers. 

 Instructions. 

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1. A Fund need not identify a sub-adviser whose sole responsibility for the 

Fund is limited to day-to-day management of the Fund’s holdings of cash and cash 

equivalent instruments, unless the Fund is a Money Market Fund or other Fund with a 

principal investment strategy of regularly holding cash and cash equivalent instruments. 

2. A Fund having three or more sub-advisers, each of which manages a 

portion of the Fund’s portfolio, need not identify each such sub-adviser, except that the 

Fund must identify any sub-adviser that is (or is reasonably expected to be) responsible 

for the management of a significant portion of the Fund’s net assets. For purposes of this 

paragraph, a significant portion of a Fund’s net assets generally will be deemed to be 

30% or more of the Fund’s net assets. 

(b) Portfolio Manager(s). State the name, title, and length of service of the 

person or persons employed by or associated with the Fund or an investment adviser of 

the Fund who are primarily responsible for the day-to-day management of the Fund’s 

portfolio (“Portfolio Manager”). 

 Instructions. 

1. This requirement does not apply to a Money Market Fund. 

2. If a committee, team, or other group of persons associated with the Fund 

or an investment adviser of the Fund is jointly and primarily responsible for the day-today management of the Fund’s portfolio, information in response to this Item is required 

for each member of such committee, team, or other group. If more than five persons are 

jointly and primarily responsible for the day-to-day management of the Fund’s portfolio, 

the Fund need only provide information for the five persons with the most significant 

responsibility for the day-to-day management of the Fund’s portfolio. 

187
Item 6. Purchase and Sale of Fund Shares 

(a) Purchase of Fund Shares. Disclose the Fund’s minimum initial or 

subsequent investment requirements. 

(b) Sale of Fund Shares. Also disclose that the Fund’s shares are redeemable 

and briefly identify the procedures for redeeming shares (e.g., on any business day by 

written request, telephone, or wire transfer). 

(c) Exchange-Traded Funds. If the Fund is an Exchange-Traded Fund, 

(i) Specify the number of shares that the Fund will issue (or redeem) in 

exchange for the deposit or delivery of basket assets (i.e., the securities or other assets the 

Fund specifies each day in name and number as the securities or assets in exchange for 

which it will issue or in return for which it will redeem Fund shares) and explain that: 

(A) Individual Fund shares may only be purchased and sold on a national 

securities exchange through a broker-dealer; and 

(B) The price of Fund shares is based on market price, and because ExchangeTraded Fund shares trade at market prices rather than net asset value, shares may trade at 

a price greater than net asset value (premium) or less than net asset value (discount); and 

(ii) If the Fund issues shares in creation units of not less than 25,000 shares 

each, the Fund may omit the information required by Items 6(a) and 6(b). 

Item 7. Tax Information 

State, as applicable, that the Fund intends to make distributions that may be taxed 

as ordinary income or capital gains or that the Fund intends to distribute tax-exempt 

income. For a Fund that holds itself out as investing in securities generating tax-exempt 

income, provide, as applicable, a general statement to the effect that a portion of the 

Fund’s distributions may be subject to federal income tax. 

188
Item 8. Financial Intermediary Compensation 

Include the following statement. A Fund may modify the statement if the 

modified statement contains comparable information. A Fund may omit the statement if 

neither the Fund nor any of its related companies pay financial intermediaries for the sale 

of Fund shares or related services. 

Payments to Broker-Dealers and Other Financial Intermediaries. 

If you purchase the Fund through a broker-dealer or other financial intermediary 

(such as a bank), the Fund and its related companies may pay the intermediary for 

the sale of Fund shares and related services. These payments may create a 

conflict of interest by influencing the broker-dealer or other intermediary and 

your salesperson to recommend the Fund over another investment. Ask your 

salesperson or visit your financial intermediary’s Web site for more information. 

* * * * * 

Item 10. Management, Organization, and Capital Structure 

(a) Management. 

(1) Investment Adviser. 

(i) Provide the name and address of each investment adviser of the Fund, 

including sub-advisers. Describe the investment adviser’s experience as an investment 

adviser and the advisory services that it provides to the Fund. 

* * * * * 

(2) Portfolio Manager. For each Portfolio Manager identified in response to 

Item 5(b), state the Portfolio Manager’s business experience during the past 5 years. 

Include a statement, adjacent to the foregoing disclosure, that the SAI provides additional 

information about the Portfolio Manager’s(s’) compensation, other accounts managed by 

189
the Portfolio Manager(s), and the Portfolio Manager’s(s’) ownership of securities in the 

Fund. If a Portfolio Manager is a member of a committee, team, or other group of 

persons associated with the Fund or an investment adviser of the Fund that is jointly and 

primarily responsible for the day-to-day management of the Fund’s portfolio, provide a 

brief description of the person’s role on the committee, team, or other group (e.g., lead 

member), including a description of any limitations on the person’s role and the 

relationship between the person’s role and the roles of other persons who have 

responsibility for the day-to-day management of the Fund’s portfolio. 

* * * * * 

Item 11. Shareholder Information 

(a) * * * 

(1) An explanation that the price of Fund shares is based on the Fund’s net 

asset value and the method used to value Fund shares (market price, fair value, or 

amortized cost); except that if the Fund is an Exchange-Traded Fund, an explanation that 

the price of Fund shares is based on market price. 

* * * * * 

(b) Purchase of Fund Shares. Describe the procedures for purchasing the 

Fund’s shares. 

* * * * * 

(g) Exchange-Traded Funds. If the Fund is an Exchange-Traded Fund: 

(1) The Fund may omit from the prospectus the information required by 

Items 11(a)(2), (b), and (c) if the Fund issues or redeems Fund shares in creation units of 

not less than 25,000 shares each; and 

190
(2) Provide a table showing the number of days the Market Price of the Fund 

shares was greater than the Fund’s net asset value and the number of days it was less than 

the Fund’s net asset value (i.e., premium or discount) for the most recently completed 

calendar year, and the most recently completed calendar quarters since that year (or the 

life of the Fund, if shorter). The Fund may omit this table if the Fund provides an 

Internet address at the Fund’s Web site, which is publicly accessible, free of charge, that 

investors can use to obtain the premium/discount information required in this Item. 

 Instructions. 

1. Provide the information in tabular form. 

2. Express the information as a percentage of the net asset value of the Fund, 

using separate columns for the number of days the Market Price was greater than the 

Fund’s net asset value and the number of days it was less than the Fund’s net asset value. 

Round all percentages to the nearest hundredth of one percent. 

3. Adjacent to the table, provide a brief explanation that: shareholders may 

pay more than net asset value when they buy Fund shares and receive less than net asset 

value when they sell those shares, because shares are bought and sold at current market 

prices. 

4. Include a statement that the data presented represents past performance 

and cannot be used to predict future results. 

* * * * * 

Item 14. Cover Page and Table of Contents 

(a) Front Cover Page. Include the following information on the outside front 

cover page of the SAI: 

191
(1) The Fund’s name and the Class or Classes, if any, to which the SAI 

relates. If the Fund is a Series, also provide the Registrant’s name. 

(2) The exchange ticker symbol of the Fund’s securities or, if the SAI relates 

to one or more Classes of the Fund’s securities, adjacent to each such Class, the exchange 

ticker symbol of such Class of the Fund’s securities. If the Fund is an Exchange-Traded 

Fund, also identify the principal U.S. market or markets on which the Fund shares are 

traded. 

* * * * * 

Item 27. Financial Statements 

* * * * * 

(b) Annual Report. * * * 

* * * * * 

(7) Management’s Discussion of Fund Performance. * * * 

* * * * * 

(iv) Provide a table showing the number of days the Market Price of the Fund 

shares was greater than the Fund’s net asset value and the number of days it was less than 

the Fund’s net asset value (i.e., premium or discount) for the most recently completed 

five fiscal years (or the life of the Fund, if shorter). The Fund may omit this table from 

the annual report if the Fund provides an Internet address at the Fund’s Web site, which 

is publicly accessible, free of charge, that investors can use to obtain the 

premium/discount information required in Item 11(g)(2). 

 Instructions. 

1. Provide the information in tabular form. 

192
2. Express the information as a percentage of the net asset value of the 

Exchange-Traded Fund, using separate columns for the number of days the Market Price 

was greater than the Fund’s net asset value and the number of days it was less than the 

Fund’s net asset value. Round all percentages to the nearest hundredth of one percent. 

3. Adjacent to the table, provide a brief explanation that: shareholders may 

pay more than net asset value when they buy Fund shares and receive less than net asset 

value when they sell those shares, because shares are bought and sold at current market 

prices. 

4. Include a statement that the data presented represents past performance 

and cannot be used to predict future results. 

* * * * * 

(d) Annual and Semi-Annual Reports. * * * 

(1) Expense Example. * * * 

* * * * * 

 Instructions. 

1. General. 

* * * * * 

(e) If the Fund is an Exchange-Traded Fund: 

(i) Modify the narrative explanation to state that investors may pay brokerage 

commissions on their purchases and sales of Exchange-Traded Fund shares, which are 

not reflected in the example; and 

(ii) If the Fund issues or redeems shares in creation units of not less than 

25,000 shares each, exclude any fees charged for the purchase and redemption of the 

Fund’s creation units. 

193
* * * * * 

14. Form N-4 (referenced in §§ 239.17b and 274.11c) is amended by revising 

the reference “Item 22(b)(ii) of Form N-1A” to read “Item 27(b)(ii) of Form N-1A” and 

by revising the reference “Item 22(b)(ii) equation” to read “Item 27(b)(ii) equation” in 

Instruction 3 to Item 20(b)(ii). 

Note: The text of Form N-4 does not, and these amendments will not, appear in 

the Code of Federal Regulations. 

By the Commission. 

Elizabeth M. Murphy 

Secretary 

January 13, 2009 

194