67790 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

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. 

10 17 CFR 239.17b and 274.11c. 

11 17 CFR 239.23. 

12An 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)]. 

13 Investment Company Institute, 2007 

Investment Company Fact Book, at 57 (2007), 

available at: http://www.icifactbook.org/pdf/ 

2007_factbook.pdf (96 million individuals own 

mutual funds). 

14 Id. at 10 (as of year-end 2006, there were 8,726 

mutual funds). 

15See William D. Lutz, Ph.D., Professor of 

English, Rutgers University, Transcript of U.S. 

Securities and Exchange Commission Interactive 

Data Roundtable, at 69 (June 12, 2006), available at: 

http://www.sec.gov/spotlight/xbrl/ 

xbrlofficialtranscript0606.pdf (‘‘June 12 Roundtable 

Transcript’’) (stating that current mutual fund 

prospectus is ‘‘unreadable’’); Don Phillips, 

Managing Director, Morningstar, Inc., id. at 26 

(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 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 230, 232, 239, and 274 

[Release Nos. 33–8861; IC–28064; 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: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission is proposing 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 

proposed amendments, if adopted, 

would 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 

proposing rule amendments that would 

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 would also be 

required to send the statutory 

prospectus to the investor. The 

proposals 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. 

DATES: Comments should be submitted 

on or before February 28, 2008. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–28–07 on the subject line; 

or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–28–07. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for public inspection and 

copying in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

am and 3 pm. All comments received 

will be posted without change; we do 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Kieran G. Brown, Senior Counsel; 

Sanjay Lamba, Senior Counsel; Tara R. 

Buckley, Branch Chief; or Brent J. 

Fields, Assistant Director, Office of 

Disclosure Regulation, Division of 

Investment Management, at (202) 551– 

6784, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–5720. 

SUPPLEMENTARY INFORMATION: The 

Securities and Exchange Commission 

(‘‘Commission’’) is proposing for 

comment amendments to rules 159A,1

482,2 485,3 497,4 and 498 5 under the 

Securities Act of 1933 (‘‘Securities Act’’) 

and rules 304 6 and 401 7 of Regulation 

S–T.8 The Commission is also proposing 

for comment 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; 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. 

Table of Contents 

I. Background 

II. Discussion 

A. Proposed Amendments to Form N–1A 

B. New Delivery Option for Mutual Funds 

C. Technical and Conforming Amendments 

D. Compliance Date 

III. General Request for Comments 

IV. Special Request for Comments From 

Investors 

V. Paperwork Reduction Act 

VI. Cost/Benefit Analysis 

VII. Consideration of Promotion of Efficiency, 

Competition, and Capital Formation 

VIII. Initial Regulatory Flexibility Analysis 

IX. Consideration of Impact on the Economy 

X. Statutory Authority 

Text of Proposed Rule and Form 

Amendments 

Appendix 

I. Background 

Millions of individual Americans 

invest in shares of open-end 

management investment companies 

(‘‘mutual funds’’),12 relying on mutual 

funds for their retirement, their 

children’s education, and their other 

basic financial needs.13 These investors 

face a difficult task in choosing among 

the more than 8,000 available mutual 

funds.14 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.15 Current Commission rules 


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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’’). 

16See 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 pagesummary 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 15 (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 15, 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: http:// 

www.finra.org/web/groups/rules_regs/documents/ 

rules_regs/p013690.pdf. 

17See ICI Investor Preferences Study, supra note 

15, 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). 

18See, e.g., Henry H. Hopkins, Vice President and 

Chief Legal Counsel, T. Rowe Price Group, Inc., 

June 12 Roundtable Transcript, supra note 15, at 31 

(‘‘[S]hareholders prefer receiving a concise 

summary of fund information before buying.’’); 

William D. Lutz, Ph.D., Professor of English, 

Rutgers University, id. at 88 (stating that ‘‘investors 

[should] be able to find quickly and easily the 

information they want’’). 

19See 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’ website or 

upon request in paper); Elisse B. Walter, Senior 

Executive Vice President, NASD, id. at 41 (noting 

that the industry-recommended disclosure 

document, the ‘‘profile plus,’’ would include 

hyperlinks to the statutory prospectus, which 

would enable investors to ‘‘choose for themselves 

the level of detail they want’’). 

20See Barbara Roper, Director of Investor 

Protection, Consumer Federation of America, June 

12 Roundtable Transcript, supra note 15, 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.’’); William D. Lutz, 

Ph.D., Professor of English, Rutgers University, id. 

at 88 (noting that the information that mutual fund 

investors want has not changed substantially since 

the adoption of the profile); Elisse B. Walter, Senior 

Executive Vice President, NASD, id. at 40–41 

(noting that NASD’s ‘‘profile plus’’ builds on the 

profile and includes key information about a fund’s 

objectives, risks, fees, and performance, as well as 

information about dealer fees and conflicts of 

interest). 

21See 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’’); Elisse B. 

Walter, Senior Executive Vice President, NASD, id. 

at 41 (noting that the Internet ‘‘doesn’t force 

disclosure into one size fits all’’). 

22Recent 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 

Continued 

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.16

Furthermore, recent investor surveys 

indicate that investors prefer to receive 

information in concise, user-friendly 

formats.17

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.18 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.19 There 

was consensus among the roundtable 

participants that the key information 

that investors need to make an 

investment decision includes 

information about a mutual fund’s 

investment objectives and strategies, 

risks, costs, and performance.20

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.21 In recent 

years, access to the Internet has greatly 

expanded, 22 and significant strides 


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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/1fmv15n6.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 Close, The New York Times (Mar. 

31, 2006), available at: http://www.nytimes.com/

2006/03/31/us/31divide.html?ex=1301461200&

en=6fd4e942aaaa04ad&ei=5088 (‘‘AfricanAmericans 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.’’). 

23See 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). 

24See Securities Act Release No. 8823 (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). 

25Exchange Act Release No. 56135 (July 26, 2007) 

[72 FR 42222 (Aug. 1, 2007)]. 

26A 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]. 

27See supra notes 16 and 20. 

28A ‘‘statutory prospectus’’ is a prospectus that 

meets the requirements of Section 10(a) of the 

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

29 Items 2 and 3 of Form N–1A. See Investment 

Company Act Release No. 23064 (Mar. 13, 1998) [63 

FR 13916, 13919–25 (Mar. 23, 1998)] (adopting risk/ 

return summary requirement). 

have been made in the speed and 

quality of Internet connections.23 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.24 Earlier 

this year, we adopted rules that provide 

all shareholders with the ability to 

choose whether to receive proxy 

materials in paper or via the Internet.25

As suggested by the participants at the 

roundtable, advances in technology also 

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 an 

interactive format that facilitates 

comparisons of key information, such as 

expenses, across different funds and 

different share classes of the same 

fund.26 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. 

We are proposing 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 proposal is the 

provision to all investors of streamlined 

and user-friendly information that is key 

to an investment decision. More 

detailed information would be provided 

both on the Internet and, upon an 

investor’s request, in paper or by e-mail. 

To implement this improved 

disclosure framework, we are proposing 

amendments to Form N–1A that would 

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 has been identified by the 

participants in the roundtable, by 

investor research, and by a variety of 

commentators as information that is 

important to most investors in selecting 

mutual funds.27 The key information 

would be required to be presented in 

plain English in a standardized order. 

Our intent is that this information 

would be presented succinctly, in three 

or four pages at the front of the 

prospectus. 

We are also proposing a new option 

for satisfying prospectus delivery 

obligations with respect to mutual fund 

securities under the Securities Act. 

Under the proposed option, key 

information would be sent or given to 

investors in the form of a summary 

prospectus (‘‘Summary Prospectus’’), 

and the statutory prospectus would be 

provided on an Internet Web site.28

Upon an investor’s request, funds would 

also be required to send the statutory 

prospectus to the investor. Our intent in 

proposing 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. 

Today’s proposals have the potential 

to revolutionize the provision of 

information to the millions of mutual 

fund investors who rely on mutual 

funds for their most basic financial 

needs. The proposals are 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 usable formats, the 

proposals 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. 

II. Discussion 

A. Proposed Amendments to Form N–

1A 

We are proposing amendments to 

Form N–1A that would 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. This 

presentation is intended to address 

investors’ preferences for concise, userfriendly information. The proposed 

summary section in a fund’s prospectus 

would provide investors with key 

information about the fund that 

investors could use to evaluate and 

compare the fund. This summary would 

be located in a standardized, easily 

accessible place and would be available 

to all investors, regardless of whether 

the fund uses a Summary Prospectus 

and regardless of whether the investor is 

reviewing the prospectus in a paper or 

electronic format. 

Our proposal builds upon the risk/ 

return summary that is currently 

required at the front of every mutual 

fund prospectus.29 The risk/return 

summary presents a mutual fund’s 

investment objectives and strategies, 

risks, and costs, in a standardized order 

at the front of the prospectus. The risk/ 

return summary has, to a significant 

extent, functioned effectively to convey 

this information to investors. As a 

result, the current risk/return summary 

serves as the centerpiece of the 

proposed prospectus summary section. 

We are, however, proposing to modify 

the front portion of the prospectus in 

two significant ways in order to make it 

more useful to investors. First, we are 

proposing to require that brief 

additional information be included in 


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30 Investment Company Act Release No. 23065 

(Mar. 13, 1998) [63 FR 13968 (Mar. 23, 1998)]. Our 

proposed amendments would eliminate the profile. 

31Proposed General Instruction C.3.(c)(ii) of Form 

N–1A. 

32 General Instruction C.3.(c) of Form N–1A. 

33Proposed General Instruction B.4.(c) of Form 

N–1A; 17 CFR 230.421(d). 

34Rule 421(d) requires the use of 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. 

35Pursuant to rule 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. 17 CFR 230.421(b). 

36Proposed General Instruction C.3.(a) to Form 

N–1A. 

37Proposed General Instruction C.3.(b) of Form 

N–1A. 

38Proposed General Instruction C.3.(c)(ii) of Form 

N–1A; see supra note and accompanying text. 

the summary section of the prospectus 

so that this section will function as a 

more comprehensive presentation. The 

information required in the summary 

section of the prospectus would be the 

same as that required in the new 

Summary Prospectus, and it is key 

information that is important to an 

investment decision. This approach 

differs from that used in the current 

risk/return summary. When the 

Commission adopted the risk/return 

summary, it simultaneously permitted 

funds to offer their shares pursuant to a 

‘‘profile’’ that summarizes key 

information about the fund.30 While the 

risk/return summary items were 

included in the profile, the profile also 

included additional information. We 

believe 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; and, for that 

reason, we are proposing to require the 

same information in the summary 

section of the statutory prospectus and 

in the Summary Prospectus. In each 

case, our intent is for funds to prepare 

a concise summary (on the order of 

three or four pages) that will provide 

comprehensive key information. 

Second, we are proposing to require 

that the summary information be 

presented separately for each fund 

covered by a multiple fund prospectus 

and that the information for multiple 

funds not be integrated.31 This 

requirement is intended to assist 

investors in finding important 

information regarding the particular 

fund in which they are interested. 

Currently, in presenting the risk/return 

summary information, multiple fund 

prospectuses may present all of the 

investment objectives, investment 

strategies, and risks for multiple funds, 

followed by the performance 

information for those funds, and, 

finally, the fee tables for those funds.32

Unfortunately, in practice, this 

flexibility has too frequently resulted in 

lengthy presentations that are not 

summary in nature and from which an 

investor would have considerable 

difficulty extracting the information 

about the particular fund in which he or 

she is interested. In practice, multiple 

fund prospectuses have integrated 

information for as many as 40 funds, 

and we are concerned that it would be 

extremely difficult, if not impossible, to 

achieve our goal of short summaries on 

the order of three or four pages if those 

summaries were permitted to contain 

information about multiple funds. 

The proposed requirement that 

summary information be separately 

presented for each fund in a multiple 

fund prospectus is intended to address 

the problem of lengthy, 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. Rather than 

eliminate altogether the ability to use 

multiple fund prospectuses, which 

could have more significant cost and 

other implications than our proposal, 

we concluded that it was preferable to 

propose to require a self-contained 

summary section for each fund. 

The Commission is committed to 

encouraging statutory prospectuses that 

are simpler, clearer, and more useful to 

investors. The proposed prospectus 

summary section is 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 

proposing the following amendments to 

Form N–1A in order to implement the 

summary section. 

1. General Instructions to Form N–1A 

We are proposing amendments to the 

General Instructions to Form N–1A to 

address the proposed new summary 

section of the statutory prospectus. 

These proposed amendments address 

plain English and organizational 

requirements. 

We propose to amend 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.33 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.34

The amended instruction would 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 usable summaries at the 

front of their prospectuses. The 

prospectus, in its entirety, also would 

remain subject to the requirement that 

the information be presented in a clear, 

concise, and understandable manner.35

We are also proposing amendments to 

the organizational requirements of the 

General Instructions. The proposals 

would 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.36 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.37

As noted above, we are also proposing 

that a multiple fund prospectus be 

required to present all of the summary 

information for each fund sequentially 

and not integrate the information for 

more than one fund.38 That is, a 

multiple fund prospectus would 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 would not be permitted to 

present the investment objectives for 

several funds followed by the fee tables 

for several funds. A multiple fund 

prospectus would be required to clearly 

identify the name of the particular fund 

at the beginning of the summary 

information for the fund. 

As is the case with the current risk/ 

return summary, the proposed 

instructions would 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 


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67794 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

39Proposed General Instruction C.3.(c)(ii) of Form 

N–1A. 

40 Instruction 6 to Item 1(b) of Form N–1A; Item 

6(g) of Form N–1A; Investment Company Act 

Release No. 23064, supra note , 63 FR at 13932–

33. 

41See infra notes 87 through 90 and 

accompanying text. 

42 Instruction to Item 18(a) of Form N–1A; 

proposed Item 24(a) of Form N–1A (redesignating 

current Item 18(a) and eliminating Instruction). 

43Proposed Item 2 of Form N–1A; Item 2(a) of 

Form N–1A; rule 498(c)(2)(i). See Investment 

Company Act Release No. 23064, supra note 29, 63 

FR 13919–20 (adopting investment objectives or 

goals disclosure requirement in Item 2(a) of Form 

N–1A). 

44Proposed Item 3 of Form N–1A; Item 3 of Form 

N–1A; rule 498(c)(2)(iv). 

45See Barbara Roper, Director of Investor 

Protection, Consumer Federation of America, June 

12 Roundtable Transcript, supra note 15, 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. 

46For example, a 1% increase in annual fees 

reduces an investor’s return by approximately 18% 

over 20 years. 

47Proposed Item 3 of Form N–1A; proposed 

Instruction 1(b) to proposed Item 3 of Form N–1A. 

prospectus.39 Generally, this flexibility 

has resulted in effective presentations of 

class-specific cost and performance 

information that facilitate comparisons 

among classes. 

Finally, we are proposing to eliminate 

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.40 This option appears to 

be unnecessary in light of the proposed 

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.41 In addition, 

the option to provide a separate 

purchase and redemption document has 

been used infrequently since its 

adoption. We are also proposing to 

eliminate a similar provision in the 

requirements for the statement of 

additional information (‘‘SAI’’).42 The 

proposed 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 would 

continue to be required in those 

documents. 

We request comment on the proposed 

amendments to the General 

Instructions, and in particular on the 

following issues: 

• Are the proposed revisions to the 

General Instructions appropriate? Will 

they be helpful in encouraging 

prospectus summary sections that 

address investors’ preferences for 

concise, user-friendly information? 

• Should we amend the General 

Instructions to Form N–1A in other 

respects? For example, should we 

impose any formatting requirements on 

the summary section of the prospectus, 

such as limitations on page length (e.g., 

three or four pages) or required font 

sizes or layouts? Would any such 

formatting requirements further the goal 

of making the summary section a userfriendly presentation of information? 

• Is it appropriate to prohibit a fund 

from including information in the 

summary section that is not required? 

• Are the proposed requirements for 

the order of information appropriate? 

Will they contribute to more readable 

prospectuses and summary information 

that is easy to evaluate and compare? 

• Is it helpful for the prospectus to 

have a separate summary section? 

• Are the requirements with respect 

to multiple fund and multiple class 

prospectuses appropriate? Should we 

prohibit multiple fund or multiple class 

prospectuses altogether? Should we 

provide greater or lesser flexibility in 

the presentation of multiple fund or 

multiple class prospectuses? If we 

permit greater flexibility, how can we 

do so consistent with the goal of 

achieving concise, readable summaries? 

For example, if we permit integrated 

multiple fund summary presentations 

for some or all funds, should we also 

impose a maximum page limit on a 

summary section that integrates the 

information for multiple funds? 

• Should we eliminate or otherwise 

modify the optional separate purchase 

and redemption document? What, if 

any, purpose will this option serve if we 

adopt the new Summary Prospectus? 

• Are there alternatives we should 

consider that would achieve our goal of 

providing enhanced disclosures to 

investors in a more cost effective 

manner? 

2. Information Required in Summary 

Section 

The summary section of a mutual 

fund statutory prospectus would consist 

of the following information: (1) 

Investment objectives; (2) costs; (3) 

principal investment strategies, risks, 

and performance; (4) top ten portfolio 

holdings; (5) investment advisers and 

portfolio managers; (6) brief purchase 

and sale and tax information; and (7) 

financial intermediary compensation. 

This information is largely drawn from 

the current risk/return summary and 

fund profile. 

Investment Objectives and Goals 

Like the current risk/return summary, 

the proposed summary section would 

begin with disclosure of a fund’s 

investment objectives or goals. A fund 

also would be permitted to identify its 

type or category (e.g., that it is a money 

market fund or balanced fund).43

Fee Table 

The fee table and example, which are 

drawn from the current risk/return 

summary and which disclose the costs 

of investing, would immediately follow 

the fund’s investment objectives.44 In 

order to address continuing concerns 

about investor understanding of mutual 

fund costs,45 we are proposing several 

modifications to the current fee table 

that are intended to provide greater 

prominence to the cost disclosures and 

make the table more understandable. 

We are proposing to move the fee 

table forward from its current location, 

which follows information about 

investment strategies, risks, and past 

performance. Contrary to our intent in 

including the fee table in the risk/return 

summary, this information has 

sometimes appeared fairly deep within 

the prospectus, particularly in multiple 

fund prospectuses covering a large 

number of funds. The proposed change 

to the location of the fee table, together 

with the proposed requirement that the 

summary section for each fund be 

provided separately, should serve to 

enhance the prominence of the cost 

information. The fee table and example 

are designed to help investors 

understand the costs of investing in a 

fund and to compare those costs with 

the costs of other funds. Placing the fee 

table and example at the front of the 

summary information reflects the 

importance of costs to an investment 

decision.46

We are proposing several additional 

amendments to the fee table that are 

intended to improve the disclosure that 

investors receive regarding fees and 

expenses of the fund. First, we are 

proposing that mutual funds that offer 

discounts on front-end sales charges for 

volume purchases (so-called 

‘‘breakpoint discounts’’) include brief 

narrative disclosure alerting investors to 

the availability of those discounts.47

Several years ago, the Commission and 

NASD staffs identified concerns 

regarding the extent to which mutual 

fund investors were receiving 

breakpoint discounts to which they 

were entitled. The Commission adopted 

enhanced prospectus disclosure 

requirements regarding breakpoint 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 67795 

48See Investment Company Act Release No. 

26464 (June 7, 2004) [69 FR 33262 (June 14, 2004)]. 

49 Item 22(d)(1) of Form N–1A; Investment 

Company Act Release No. 26372 (Feb. 27, 2004) [69 

FR 11244 (Mar. 9, 2004)] (adopting disclosure of 

ongoing 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 ongoing fees). 

50Proposed Instruction 5 to proposed Item 3 of 

Form N–1A. 

51 Instruction 7 to Item 4(b)(1) of Form N–1A; 

Item 8(a) of Form N–1A; Item 11(e) of Form N–1A. 

The portfolio turnover rate that would be required 

to be disclosed in the summary section would be 

calculated in the same manner that is currently 

required in Form N–1A. 

52See 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. 53 Instructions 3(d)(i) and 5(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. 

54Proposed Instructions 3(e) and 6(b) to proposed 

Item 3 of Form N–1A. 

55Proposed Instruction 4(a) to proposed Item 3 of 

Form N–1A. We also propose 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). 

56Proposed Item 4 of Form N–1A. To conform to 

other changes we are proposing to Form N–1A, the 

Instructions to proposed 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 

proposed requirement that information for each 

fund be presented separately. Proposed Instructions 

2(e) and 3 to proposed Item 4(b)(2) of Form N–1A. 

57 Items 2(b) and (c) of Form N–1A. 

58Proposed Item 5 of Form N–1A. 

59See Henry H. Hopkins, Vice President and 

Chief Legal Counsel, T. Rowe Price Group, Inc., 

Continued 

discounts at that time.48 We believe that 

investor awareness of the availability of 

these discounts may be heightened 

further by requiring brief narrative 

disclosure about the availability of these 

discounts at the beginning of the fee 

table. 

Second, we are proposing to revise 

the heading ‘‘Annual Fund Operating 

Expenses’’ in the fee table. Specifically, 

we propose to revise the parenthetical 

following the heading to read ‘‘ongoing 

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.’’ In 

recent years, we have taken significant 

steps to address concerns that investors 

do not understand that they pay ongoing 

costs every year when they invest in 

mutual funds, including requiring 

disclosure of ongoing costs in 

shareholder reports.49 Our proposed 

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. 

Third, for funds other than money 

market funds, the proposal would 

require the addition of brief disclosure 

regarding portfolio turnover 

immediately following the fee table 

example.50 A fund would 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 

would be accompanied by a brief 

explanation of the effect of portfolio 

turnover on transaction costs and fund 

performance. The prospectus currently 

is required to include the portfolio 

turnover rate in the financial highlights 

table as well as narrative information 

about portfolio turnover,51 and the 

effect of transaction costs is reflected in 

fund performance. Nonetheless, some 

concerns 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.52 Our proposal to require 

brief portfolio turnover disclosure in the 

summary section of the prospectus is 

intended to address these concerns. 

Finally, we are proposing to amend 

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.53

While gross operating expenses may 

provide investors with a more accurate 

understanding of the potential long-term 

costs of an investment in the fund, they 

may also overstate the actual, current 

expenses. In addition, gross operating 

expenses may overstate long-term 

expenses because any expense increase 

due to the termination of an expense 

reimbursement or fee waiver 

arrangement may be offset by reduced 

expenses that accompany economies of 

scale resulting from asset growth. 

To address these issues, we are 

proposing to permit a fund to place two 

additional captions directly below the 

‘‘Total Annual Fund Operating 

Expenses’’ caption in cases where there 

were expense reimbursement or fee 

waiver arrangements that reduced fund 

operating expenses and that will 

continue to reduce them for no less than 

one year from the effective date of the 

fund’s registration statement.54 One 

caption would show the amount of the 

expense reimbursement or fee waiver, 

and a second caption would 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 

would also be required to disclose the 

period for which the expense 

reimbursement or fee waiver 

arrangement is expected to continue, 

and briefly describe who can terminate 

the arrangement and under what 

circumstances. Further, in computing 

the fee table example, a fund would be 

permitted to reflect any expense 

reimbursement or fee waiver 

arrangements that reduced any fund 

operating expenses during the most 

recently completed calendar year and 

that will continue to reduce them for no 

less than one year from the effective 

date of the fund’s registration 

statement.55 This adjustment could 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. 

Investments, Risks, and Performance 

Following the fee table and example, 

we are proposing that a fund disclose its 

principal investment strategies and 

risks,56 in the same manner required in 

the current risk/return summary.57 This 

would include the current risk/return 

bar chart and table illustrating the 

variability of returns and showing the 

fund’s past performance. 

Portfolio Holdings 

The proposed summary section would 

next need to include a list of the 10 

largest issues contained in the fund’s 

portfolio, in descending order, together 

with the percentage of net assets 

represented by each.58 Information 

concerning 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. It 

was suggested at our roundtable that it 

may be appropriate to include this 

information, which currently is not 

contained in the prospectus, in a short 

summary of key fund information.59 In 


rwilkins on PROD1PC63 with PROPOSALS2
67796 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

June 12 Roundtable Transcript, supra note 15, at 32 

(suggesting that the current profile be amended to 

include the top 10 portfolio holdings). 

60Form N–CSR [17 CFR 249.331; 17 CFR 

274.128]; Form N–Q [17 CFR 249.332; 17 CFR 

274.130]. 

61Proposed Instruction 1 to proposed Item 5 of 

Form N–1A. 

62This proposed aggregration provision is the 

same as that currently applicable for purposes of 

determining whether the value of an issue exceeds 

one percent of net asset value in the summary 

portfolio schedule that may be included in a fund’s 

report to shareholders. Schedule VI of Regulation 

S–X [17 CFR 210.12–12C] (Summary of Schedule of 

Investments in Securities of Unaffiliated Issuers). 

63Proposed Instruction 2 to proposed Item 5 of 

Form N–1A. 

64Note 1 to Schedule I of Regulation S–X [17 CFR 

210.12–12] (Schedule of Investments in Securities 

of Unaffiliated Issuers); Note 5 to Schedule VI of 

Regulation S–X [17 CFR 210.12–12C] (Summary of 

Schedule of Investments in Securities of 

Unaffiliated Issuers). 

65 Investment Company Act Release No. 26372, 

supra note 49, 69 FR at 11250. 

66Proposed Instruction 3 to proposed Item 5 of 

Form N–1A. 

67Proposed Item 6 of Form N–1A. 

68 Item 5 of Form N–1A; rule 498(c)(2)(v). 

Additional disclosures regarding investment 

advisers and portfolio managers that are currently 

required in the prospectus would continue to be 

required, but not in the summary section. Proposed 

Item 11(a) of Form N–1A. 

69Proposed Instruction 1 to proposed Item 6(a) of 

Form N–1A; rule 498(c)(2)(v)(B)(1). A fund would 

continue to be required to provide the name, 

address, and experience of all sub-advisers 

elsewhere in the prospectus. Proposed Item 

11(a)(1)(i) of Form N–1A. 

70Proposed Instruction 2 to proposed Item 6(a) of 

Form N–1A; rule 498(c)(2)(v)(B)(2). 

71This proposed exception would be consistent 

with the requirements of the current profile. Rule 

498(c)(2)(v)(B)(2). 

72 Item 5(a)(2) of Form N–1A. 

73Proposed Item 7 of Form N–1A. 

74See rules 498(c)(2)(vi) and (vii) (profile 

purchase and sale disclosures). 

addition, many funds and third party 

analysts include top 10 portfolio 

holdings in fund summaries distributed 

to investors and prominently on their 

Web sites, suggesting significant 

investor interest in this information. 

While complete portfolio holdings 

information currently is available in 

Commission filings on Form N–CSR and 

Form N–Q on a quarterly basis,60 we 

believe that the top 10 holdings may be 

important information in the summary 

section of the prospectus, which is 

intended to bring together, in a single, 

readily accessible place, key 

information that is important to an 

investment decision. 

Mutual funds would be required to 

provide their top 10 portfolio holdings 

as of the end of the most recent calendar 

quarter.61 In determining their top 10 

holdings, funds would be required to 

aggregate and treat as a single issue (1) 

all fully collateralized repurchase 

agreements; and (2) all securities of any 

one issuer (other than fully 

collateralized repurchase agreements).62

The U.S. Treasury and each agency, 

instrumentality, or corporation, 

including each government-sponsored 

entity, that issues U.S. government 

securities would be treated as a separate 

issuer.63

We are proposing an exclusion to the 

requirement to list the top 10 holdings 

that is similar to an exclusion in the 

current requirements for quarterly 

disclosure of a fund’s complete portfolio 

holdings.64 Funds rely on this exclusion 

to guard against the premature release of 

certain positions that could lead to 

front-running and other predatory 

trading practices.65 Currently, a fund’s 

complete portfolio schedule filed with 

the Commission on Form N–CSR or 

Form N–Q may list an amount not 

exceeding five percent of the total value 

of the portfolio holdings in one amount 

as ‘‘Miscellaneous securities,’’ provided 

that securities so listed are not 

restricted, have been held for not more 

than one year prior to the date of the 

related balance sheet, and have not 

previously been reported by name to the 

shareholders, or set forth in any 

registration statement, application, or 

annual report or otherwise made 

available to the public. 

Under the proposal, in listing the top 

10 holdings, any securities that would 

be required to be listed separately or 

included in a group of securities that is 

listed in the aggregate as a single issue 

could be listed in one amount as 

‘‘Miscellaneous securities,’’ provided 

that the securities so listed are eligible 

to be categorized by the fund as 

‘‘Miscellaneous securities’’ in a 

complete portfolio schedule dated as of 

the end of the most recent calendar 

quarter. However, if any security that is 

included in ‘‘Miscellaneous securities’’

would otherwise be required to be 

included in a group of securities that is 

listed in the aggregate as a single issue 

in the top 10 portfolio holdings, the 

remaining securities of that group must 

nonetheless be listed in the top 10 

portfolio holdings, even if the remaining 

securities alone would not otherwise be 

required to be listed in this manner (e.g., 

because the combined value of the 

security listed in ‘‘Miscellaneous 

securities’’ and the remaining securities 

of the same issuer is sufficient to cause 

them to be among the 10 largest issues, 

but the value of the remaining securities 

alone is not sufficient to cause the 

remaining securities to be among the 10 

largest issues). A brief footnote 

explaining the term ‘‘Miscellaneous 

securities’’ would be required.66

Management 

The next item in the proposed 

prospectus summary section would be 

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.67 These 

items are similar to disclosures 

currently required in a fund profile, as 

well as in the fund’s prospectus.68

As in the current profile, a fund 

would not be required to identify a subadviser whose sole responsibility is 

limited to day-to-day management of the 

fund’s cash instruments unless the fund 

is a money market fund or other fund 

with a principal investment strategy of 

regularly holding cash instruments.69

Also as in the current profile, a fund 

having three or more sub-advisers, each 

of which manages a portion of the 

fund’s portfolio, would not be required 

to identify each sub-adviser, except that 

the fund would 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.70 We believe that, 

as in the current profile, a significant 

portion of the fund’s net assets for this 

purpose generally should be deemed to 

be 30% or more of the fund’s net 

assets.71 The portfolio managers 

required to be listed would be the same 

ones with respect to which information 

is currently required in the 

prospectus.72

Purchase and Sale of Fund Shares 

The proposed summary section would 

next disclose the fund’s minimum 

initial or subsequent investment 

requirements and the fact that the fund’s 

shares are redeemable, and would 

identify the procedures for redeeming 

shares (e.g., on any business day by 

written request, telephone, or wire 

transfer).73 This disclosure would be the 

same as that required in the current rule 

498 profile except that we are not 

proposing to include certain fee 

disclosures that are also covered by the 

fee table, including a fund’s sales loads, 

breakpoints, and charges upon 

redemption.74

Tax Information 

Our proposals would require a mutual 

fund to state, as applicable, that it 

intends to make distributions that may 

be taxed as ordinary income or capital 

gains or that the fund intends to 

distribute tax-exempt income. A fund 

that holds itself out as investing in 

securities generating tax-exempt income 

would be required to provide, as 

applicable, a general statement to the 

effect that a portion of the fund’s 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 67797 

75Proposed Item 8 of Form N–1A. 

76See rule 498(c)(2)(viii). The current rule 498 

profile also requires (1) a description of how 

frequently the fund intends to make distributions 

and what options for reinvestment of distributions 

are available to investors; (2) a statement that 

distributions may be taxable at different rates 

depending on the length of time that the fund holds 

its assets; and (3) that if a fund expects that its 

distributions primarily will consist of ordinary 

income or capital gains, disclosure to that effect be 

provided. This disclosure would continue to be 

required in the statutory prospectus. Proposed 

Items 12(d) and (f)(1)(i) (redesignating current Items 

6(d) and (f)(1)(i)). 

77Proposed Item 9 of Form N–1A. 

78The 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 short-form disclosure document that would 

include, among other things, basic information 

about such potential conflicts of interest. Comment 

Letter of NASD, dated March 31, 2005, available at: 

http://www.sec.gov/rules/proposed/s70604/ 

nasd033005.pdf (supporting the use of a ‘‘profile 

plus’’ document on the Internet). See also supra 

note 16. 

79 Instruction 3(c)(iii) to Item 3 of Form N–1A. 

80Cf. Instruction 7 to Item 4 of Form N–1A. 

distributions may be subject to federal 

income tax.75 This proposed disclosure 

is a streamlined version of the tax 

disclosure required in the current rule 

498 profile.76

Financial Intermediary Compensation 

The proposed summary section of the 

prospectus would conclude with the 

following statement, which could be 

modified provided that the modified 

statement contains comparable 

information.77

‘‘Payments to Broker-Dealers and Other 

Financial Intermediaries 

If you purchase the Fund through a brokerdealer 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 influence the brokerdealer 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.’’

This disclosure would be new to fund 

prospectuses and would 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 distributionrelated costs that create conflicts for 

broker-dealers and their associated 

persons.78

We request comment generally on the 

information proposed to be included in 

the summary section of the statutory 

prospectus, and in particular on the 

following issues: 

• Does the proposed summary section 

encourage prospectuses that are simpler, 

clearer, and more useful to investors? 

Would the proposed summary section 

help investors to better compare funds? 

• Should each of the proposed items 

be included in the summary section? 

Should any additional disclosure items 

currently required in Form N–1A be 

included in the summary section? 

Should we consider disclosure items 

that are not currently in Form N–1A? If 

so, what types of additional disclosures 

should we consider including in the 

summary section? 

• How would the required narrative 

explanations of various items contribute 

to readability and length of the 

summary section? Should each of these 

explanations be required, permitted, or 

prohibited in the summary section? 

Should any of these explanations be 

required to appear in the prospectus, 

but outside the summary section? 

• Is the proposed order of the 

information appropriate, or should it be 

modified? If so, how should it be 

modified? 

• Should we also require a fund to 

disclose whether its objective may be 

changed without shareholder approval 

in the summary section? 

• Are our proposed revisions to the 

fee table and example appropriate? Are 

there any other revisions to the fee table 

or example that we should consider? 

• Is the proposed disclosure at the 

beginning of the fee table regarding 

discounts on front-end sales charges for 

volume purchases (i.e., breakpoint 

discounts) appropriate? 

• Should we consider any other 

revisions to headings in the fee table to 

make them more understandable to 

investors? For example, should the 

terms ‘‘load’’ or ‘‘12b–1’’ be eliminated? 

Do investors generally understand these 

terms, or are there clearer terms that we 

should require? 

• How, if at all, should expense 

reimbursement and fee waiver 

arrangements be reflected in the fee 

table and expense example and 

accompanying disclosures? 

• Should funds be required to 

disclose the detailed fee table 

information in the summary section or 

would it be more useful to investors to 

require disclosure of total shareholder 

fees and total annual fund operating 

expenses in the summary section and 

require disclosure of the detailed fee 

table outside the summary section? Are 

there any details regarding fund fees or 

expenses that should be included only 

outside the summary section? For 

example, the fee table currently permits 

‘‘Other Expenses’’ to be subdivided into 

no more than three subcaptions that 

identify the largest expense or expenses 

comprising ‘‘Other Expenses.’’ 79 Should 

we permit this detail in the summary 

section of the prospectus, or should we 

require that funds providing this level of 

detail include it outside the summary 

section? 

• Are there any revisions to the fee 

table example that would make it more 

useful for investors? For example, 

should the fee table example separately 

break out one-time charges, such as 

sales loads, and recurring expenses, 

such as management and 12b–1 fees? 

Should the required narrative 

explanation of the purpose of the fee 

table example be modified or 

eliminated? 

• Should the proposed disclosure 

regarding a fund’s portfolio turnover 

rate be included in the summary 

section? Should the proposed portfolio 

turnover narrative disclosure be 

modified or should funds be required to 

disclose their portfolio turnover in the 

summary section without any narrative 

explanation? Should any additional 

information regarding a fund’s portfolio 

turnover rate be required to be disclosed 

as part of the summary section, for 

example, information about a fund that 

engages in active and frequent trading of 

portfolio securities and the tax 

consequences to shareholders and 

effects on fund performance of 

increased portfolio turnover? 80 Should 

funds be required to provide an 

explanation of the effect of portfolio 

turnover on transaction costs and fund 

performance? Should new funds (e.g., 

funds with less than six months or one 

year of operations) be required to 

include information about portfolio 

turnover in the summary section given 

their limited period of operations? Is the 

portfolio turnover rate meaningful 

enough for a new fund that it should be 

required in the summary section? 

• Should we consider any revisions 

to the bar chart or table disclosing a 

fund’s returns? For example, should we 

modify or eliminate the required 

explanation that this information 

illustrates the variability of a fund’s 

returns? 

• Are there additional performance 

measures, such as past performance 

adjusted for the impact of inflation, that 


rwilkins on PROD1PC63 with PROPOSALS2
67798 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

81Cf. Item 22(d)(2) of Form N–1A; Investment 

Company Act Release No. 26372, supra note 49, 69 

FR at 11251–52 (requiring similar disclosures in 

shareholder reports). 

82Proposed Item 1(b)(3) of Form N–1A. 

83 15 U.S.C. 77e(b)(2). 

84A 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)]. 

should be required in the summary 

section? 

• Should we require disclosure 

regarding portfolio holdings in the 

summary section? If so, what 

information should be required, e.g., top 

five holdings, top 10, top 25? If we 

require portfolio holdings disclosure, 

should any funds be exempt from the 

requirement, e.g., money market funds 

or exchange-traded funds? Should new 

funds be exempt from this requirement? 

Are there circumstances where this 

disclosure might not be useful to 

investors or where additional 

information regarding a fund’s 

investment exposures would be 

necessary to make the portfolio holdings 

information useful, for example, where 

the top 10 holdings represent a 

relatively small percentage of the fund’s 

total holdings? Should we require funds 

to disclose additional information such 

as the percentage of a fund’s net assets 

represented by the combined top 10 

holdings? Should we require a fund to 

disclose its holdings that represent a 

specified percentage of the fund’s 

holdings? 

• Would the proposed exception to 

the requirement to list the top 10 

holdings that would permit a fund to 

list an amount not exceeding five 

percent of the total value of the portfolio 

holdings in one amount as 

‘‘Miscellaneous securities’’ adequately 

guard against the premature release of 

certain positions that could lead to 

front-running and other predatory 

trading practices? If not, what other 

protections would be necessary? Is the 

‘‘Miscellaneous securities’’ exception 

necessary and appropriate? 

• Should we require funds to present 

tables, charts, or graphs that depict 

portfolio holdings by reasonably 

identifiable categories (e.g., industry 

sector, geographic region, credit quality, 

maturity, etc.) either instead of, or in 

addition to, top 10 portfolio holdings? 81

• Should, as proposed, a fund having 

three or more sub-advisers be required 

to identify only those sub-advisers that 

are (or are reasonably expected to be) 

responsible for the management of a 

significant portion of the fund’s net 

assets? Are there situations where this 

would result in the disclosure of no subadvisers and, if so, would this be 

appropriate? Should we, as proposed, 

provide that a ‘‘significant portion’’ of a 

fund’s net assets generally would be 

deemed to be 30% or more of a fund’s 

net assets? Should a higher or lower 

percentage or some other measure or 

standard be used? 

• Should any or all of the information 

that we propose to require in the 

summary section regarding the purchase 

and sale of fund shares be permitted 

rather than required? Should any of this 

information be prohibited from being 

included in the summary section? 

• Should any additional information 

regarding the purchase and sale of fund 

shares be required to be disclosed in the 

summary section? For example, should 

information regarding policies and 

procedures with respect to frequent 

purchases and redemptions of fund 

shares be disclosed in the summary, or 

is it appropriate to maintain the location 

of this information elsewhere in the 

prospectus? 

• Is there any additional tax 

information that should be included in 

the summary section? 

• Should we require disclosure 

regarding the compensation of brokerdealers, banks, and other financial 

intermediaries in the summary section? 

Should we permit this disclosure to be 

omitted or modified in any context? For 

example, should a fund be permitted to 

omit this disclosure if the fund is 

marketed directly to investors or where 

a transaction is initiated by an investor 

and not on the basis of a financial 

intermediary’s recommendation? 

Should funds be permitted to modify 

this disclosure to reflect the fact that 

some transactions may be initiated by 

an investor and not on the basis of a 

financial intermediary’s 

recommendation? 

• In addition or as an alternative to 

directing customers to ask salespersons 

or visit a financial intermediary’s Web 

site for more information about 

intermediary compensation, should the 

summary prospectus direct customers to 

other sources of information? Do all 

financial intermediaries that distribute 

mutual funds have Internet Web sites? 

Is information typically available on the 

Web sites of financial intermediaries? 

Should the Commission require that 

such information be made available on 

intermediaries’ Web sites? 

• Should we require or permit a fund 

to include its ticker symbol in the 

summary section? Alternatively, should 

we require or permit a fund to include 

its ticker symbol on the front or back 

cover page of the statutory prospectus or 

SAI or elsewhere in those documents? 

3. Conforming and Technical 

Amendments to Form N–1A 

The proposed amendments to Form 

N–1A would require adding new items 

to the form and revising and 

renumbering certain existing items. We 

are proposing conforming amendments 

to Form N–1A in order to update the 

table of contents and the various 

references to Form N–1A items 

contained within the form. We are also 

proposing technical amendments to 

Form N–1A to update the Commission’s 

telephone number and address.82

B. New Delivery Option for Mutual 

Funds 

1. Use of Summary Prospectus and 

Satisfaction of Statutory Prospectus 

Delivery Requirements 

The Commission is proposing to 

replace rule 498, the current voluntary 

profile rule, with a new rule that would 

permit 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 would 

require a fund to send the statutory 

prospectus in paper or by e-mail upon 

request. The Summary Prospectus 

would be required to contain the key 

information that is included in the new 

summary section of the statutory 

prospectus in the same order that would 

be required in the statutory prospectus. 

As discussed above, the proposal is 

intended to take advantage of 

technological developments and the 

expanded use of the Internet in order 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 to investors 

today. The proposal 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 proposed new rule would 

provide that any obligation under 

Section 5(b)(2) of the Securities Act 83 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; 84 and, if any other materials 

accompany the Summary Prospectus, 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 67799 

85Cf. 17 CFR 240.17a–5(c)(5)(ii) (requiring a 

financial disclosure document to be ‘‘given 

prominence in the materials delivered to customers 

of the broker or dealer’’). 

86Proposed rule 498(c). 

87Proposed rule 498(d). This provision would be 

limited to a mutual fund Summary Prospectus that 

satisfies the terms of the proposed rule and would 

not apply in the case of any issuer other than a 

mutual fund. 

88 15 U.S.C. 77b(a)(10)(a). 

89 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. 

90See, e.g., Section 17(a) of the Securities Act [15 

U.S.C. 77q(a)]; Section 10(b) of the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’) [15 U.S.C. 

78j(b)]; Section 34(b) of the Investment Company 

Act [15 U.S.C. 80a–33(b)]. 

91Exchange Act Release No. 56135, supra note 

25, 72 FR 42222 (shareholder choice regarding 

proxy materials); Exchange Act Release No. 55146 

(Jan. 22, 2007) [72 FR 4148 (Jan. 29, 2007)] (Internet 

availability of proxy materials); Securities Act 

Release No. 8591 (July 19, 2005) [70 FR 44722 (Aug. 

3, 2005)] (securities offering reform). 

the Summary Prospectus is given greater 

prominence than those materials and is 

not bound together with any of those 

materials; 85 (2) 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 (3) the conditions set forth in the 

rule, which require a fund to provide 

the statutory prospectus and other 

information on the Internet in the 

manner specified in the rule, are 

satisfied.86 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) would be 

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 

satisfaction of the Section 5(b)(2) 

obligation by other means, a Section 

5(b)(2) violation would result. The rule 

would also require a fund to send the 

statutory prospectus upon request. This 

requirement would not be a condition to 

reliance on the rule, and failure to send 

the requested statutory prospectus 

would result in a violation of the rule 

(as opposed to a violation of Section 

5(b)(2)). 

The proposed rule also would provide 

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; and, if 

any other materials accompany the 

Summary Prospectus, the Summary 

Prospectus is given greater prominence 

than those materials and is not bound 

together with any of those materials; (2) 

the Summary Prospectus that was sent 

or given satisfies the rule’s requirements 

at the time of the communication; and 

(3) the conditions set forth in the rule, 

which require a fund to provide the 

statutory prospectus and other 

information on the Internet in the 

manner specified in the rule, are 

satisfied.87 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 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.88 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.89 Similarly, under 

our proposal, communications that are 

preceded or accompanied by a 

Summary Prospectus would not be 

deemed to be prospectuses and would 

not be subject to Section 12(a)(2) if all 

the conditions of the proposed rule are 

met. These communications would 

remain subject to the general antifraud 

provisions of the federal securities 

laws.90

The current proposal 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. In crafting this 

proposal, the Commission has drawn 

upon recent initiatives that have 

harnessed technology in order to 

provide investors with better access to 

information.91 The current proposal 

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. 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. The requirement that the 

Summary Prospectus be given greater 

prominence than, and not be bound 

together with, accompanying materials 

is intended to prevent the Summary 

Prospectus from being obscured by 

accompanying sales materials and 

highlight for investors the concise, 

balanced presentation of the Summary 

Prospectus. In short, we believe that the 

proposal has the potential to result in 

funds providing investors with more 

usable information than they receive 

today in a format that investors are more 

likely to use and understand. Under the 

proposal, an investor could choose to 

receive the statutory prospectus in the 

same paper format that would be 

provided today. 

We request comment generally on the 

proposed prospectus delivery option for 

mutual funds and specifically on the 

following issues: 

• Should we permit mutual funds to 

meet their prospectus delivery 

obligations in the manner provided in 

the proposed rule? Does this approach 

adequately protect investors and 

provide them with material information 

about the fund? Does the proposed 

approach adequately protect investors 

who have no Internet access or limited 

Internet access or who prefer not to 

receive information about mutual fund 

investments over the Internet? Should 

we make any other changes with respect 

to prospectus delivery obligations? 

• Are there other approaches that 

would provide mutual fund investors 

with key information in a user-friendly 

format? 

• Should we permit mutual funds to 

meet their prospectus delivery 

obligations by filing with the 

Commission and/or by posting online 

without giving or sending a Summary 

Prospectus? 

• Should mutual fund investors have 

the ability to opt out of the rule 


rwilkins on PROD1PC63 with PROPOSALS2
67800 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

92Proposed rule 498(b). Proposed rule 498(a) 

would define terms used in the rule. The Appendix 

to this release contains a hypothetical Summary 

Prospectus, which is provided solely for illustrative 

purposes. 

93Proposed rule 498(b); rule 498(a)(2) [17 CFR 

230.498(a)(2)]. Section 10(b) of the Securities Act 

authorizes the Commission to adopt rules 

permitting the use of a prospectus for the purposes 

of Section 5(b)(1) that summarizes information 

contained in the statutory prospectus. Section 24(g) 

of the Investment Company Act 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. 15 U.S.C. 77j(b); 15 

U.S.C. 77e(b)(1); 15 U.S.C. 80a–24(g). 

94Proposed rule 498(b)(2)(i). 

95A Summary Prospectus that omits certain 

information required by the proposed rule or 

includes additional information not permitted by 

the proposed 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. 

96Proposed rule 498(b)(4). 

97See supra introductory text to Section II.A. and 

Section II.A.1. 

98Proposed rule 498(b)(1). 

99Proposed rule 498(b)(1)(iv)(B). 

100Proposed rule 498(b)(1)(iv)(A). 

101Cf. 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). 

102For 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 infra Section II.B.3. 

103Cf. Exchange Act Release No. 55146, supra 

note 91, 72 FR at 4153–54 n. 79 (use of central site 

with prominent links in electronic delivery of proxy 

materials). 

permanently and thereafter receive a 

paper copy of any statutory prospectus? 

How could this be implemented in 

practice? For example, how would a 

mutual fund that had no prior 

relationship with an investor be 

apprised of the investor’s decision to 

opt out? Could such an opt-out 

provision be implemented on a fund or 

fund complex basis? 

• Should we require that the 

Summary Prospectus be given greater 

prominence than other materials that 

accompany the Summary Prospectus 

and that the Summary Prospectus not be 

bound together with any of those 

materials? Are any clarifications of these 

requirements needed? Are the 

requirements workable in all situations? 

Should we permit a Summary 

Prospectus to be included within a 

newspaper or magazine? Should we 

impose additional requirements to 

encourage the prominence and 

separateness of a Summary Prospectus, 

when provided in paper, at an Internet 

Web site, or by e-mail, such as requiring 

that the Summary Prospectus be at the 

top of a list of documents provided 

electronically or on top of a group of 

documents provided in paper? 

2. Content of Summary Prospectus 

The proposed rule sets forth the 

content requirements that a Summary 

Prospectus must satisfy.92 Similar to a 

current profile, a Summary Prospectus 

meeting the requirements of the rule 

would 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.93 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 would, however, 

preclude the use of the Summary 

Prospectus for the other purposes 

described in proposed 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 would have to be 

met by means other than the proposed 

rule or a Section 5(b)(2) violation would 

result. 

General 

The proposal generally would require 

the Summary Prospectus to include the 

same information as the summary 

section of the statutory prospectus in 

the same order as would be required in 

the statutory prospectus.94 This key 

information about investment 

objectives, costs, and risks would form 

the body of the Summary Prospectus. 

The Summary Prospectus would 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 would not be a 

Summary Prospectus under the 

proposed rule and could not be used 

under the proposed rule for any 

purpose, including meeting the 

obligation to deliver a fund’s statutory 

prospectus.95

In addition, a Summary Prospectus 

would be permitted to describe only one 

fund, but could describe multiple 

classes of a single fund.96 These 

restrictions are similar to restrictions 

with respect to the proposed summary 

section of the statutory prospectus.97

Like those restrictions, they are 

intended to result in a presentation of 

key fund information that is concise and 

easy to read. 

Cover Page or Beginning of Summary 

Prospectus 

The proposed Summary Prospectus 

would 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; 

• A statement identifying the 

document as a ‘‘Summary Prospectus’’; 

and 

• The approximate date of the 

Summary Prospectus’s first use. 

In addition, the cover page or beginning 

of the Summary Prospectus would be 

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 [llllll]. You can also 

get this information at no cost by calling 

[llllll] or by sending an e-mail 

request to [llllll].’’ 98

In addition, the legend could 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.99

The legend would be 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.100 The legend would also 

be permitted to indicate that the 

statutory prospectus and other 

information are available from a 

financial intermediary (such as a brokerdealer or bank) through which shares of 

the fund may be purchased or sold. The 

Internet address at which the statutory 

prospectus and other information are 

available would not be permitted to be 

the address of the Commission’s 

Electronic Data Gathering, Analysis, and 

Retrieval System (‘‘EDGAR’’).101 The 

address would be 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.102 The 

Web site could be a central site with 

prominent links to each required 

document.103


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 67801 

104Proposed rule 498(b)(2)(ii). 

105Cf. rule 498(c)(2)(iii) (current voluntary profile 

rule requiring quarterly updating of return 

information as soon as practicable after the 

completion of each calendar quarter). The date of 

the performance information would be required to 

be included along with the performance 

information. The proposed rule would not require 

a fund to explain in the Summary Prospectus the 

reasons for any change in the securities market 

index used for comparison purposes in the 

performance presentation. Cf. Instruction 2(c) to 

proposed Item 4(b)(2) of Form N–1A (requiring this 

explanation in proposed summary section of 

prospectus). Proposed rule 498(b)(2)(ii). 

106Proposed rule 498(b)(2)(iii). 

107Proposed Instruction to proposed rule 

498(b)(2)(ii) and (iii). 

108Proposed rule 498(e)(2). Cf. rule 408(b) under 

the Securities Act [17 CFR 230.408(b)]. 

109Proposed rule 498(e)(1). 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. 

Updating Requirements 

The proposed Summary Prospectus 

rule, similar to the current voluntary 

profile rule, would require that average 

annual total returns and yield be 

provided as of the end of the most 

recent calendar quarter prior to the 

Summary Prospectus’s first use.104 This 

information would be required to be 

updated as of the end of each 

succeeding calendar quarter not later 

than one month after the completion of 

the quarter.105

The proposed Summary Prospectus 

rule also would require the top 10 

portfolio holdings information to be 

provided as of the end of the most 

recent calendar quarter prior to the 

Summary Prospectus’s first use or the 

immediately prior calendar quarter if 

the most recent calendar quarter ended 

less than one month prior to the 

Summary Prospectus’s first use.106 This 

is intended to ensure that there is a lag 

of at least one month between the end 

of a calendar quarter and disclosure of 

the top 10 holdings as of the end of that 

quarter. The portfolio holdings 

information would be required to be 

updated on the same schedule as the 

performance information, at the end of 

each succeeding calendar quarter not 

later than one month after the 

completion of the quarter. The onemonth lag is intended to eliminate any 

potential harm to fund shareholders 

from predatory trading practices, such 

as trading ahead of funds or ‘‘frontrunning,’’ that could result from more 

immediate disclosure of fund portfolio 

holdings. In order to minimize the 

number of times that a fund would be 

required to update its Summary 

Prospectus, the proposed rule would 

also permit a one-month lag in the 

required quarterly update of 

performance information, so that both 

items could be updated on the same 

schedule. 

The Commission is proposing to 

require quarterly updating of 

performance and portfolio holdings 

information in the Summary Prospectus 

because we believe that providing 

updated information in a concise, 

summary document may contribute 

significantly to the usefulness of the 

document to investors and their 

financial intermediaries. A fund could 

reflect the updated performance and 

portfolio holdings information in the 

Summary Prospectus by affixing a label 

or sticker, or by other reasonable means, 

and would not be required to reprint the 

Summary Prospectus each quarter.107

This is intended to minimize the costs 

of quarterly updating while still 

resulting in an up-to-date and concise, 

unified presentation of key information. 

A fund would not be required to update 

the performance and portfolio holdings 

information in its statutory prospectus 

on a quarterly basis. The proposed rule 

would provide that the failure to 

include in a statutory prospectus or 

registration statement the quarterly 

updated performance and portfolio 

holdings information required to be 

included in a Summary Prospectus 

would not, solely by virtue of inclusion 

of the information in a Summary 

Prospectus, be considered an omission 

of material information required to be 

included in the statutory prospectus or 

registration statement.108

Notwithstanding the quarterly 

updating requirements, the proposed 

rule would provide that, for purposes of 

satisfying a fund’s prospectus delivery 

obligations, a Summary Prospectus that 

satisfies the requirements of the rule at 

the time it is sent or given shall be 

deemed to continue to satisfy those 

requirements until the earlier of the date 

on which (1) the information in the 

Summary Prospectus is required to be 

updated for any purpose other than the 

required quarterly updates to the 

portfolio holdings and performance 

information; or (2) the fund is required 

to file an annual updating amendment 

to its registration statement for the 

purpose of updating its statutory 

prospectus to satisfy the requirements of 

Section 10(a)(3) of the Securities Act.109

Thus, if a fund’s Summary Prospectus 

had previously been provided to an 

investor, persons could continue to rely 

on the rule with respect to their 

prospectus delivery obligations to that 

investor without providing a new 

Summary Prospectus that merely 

reflects the quarterly updates to top 10 

holdings and performance information. 

The previously provided Summary 

Prospectus would continue to be 

deemed current for purposes of the 

proposed rule until the fund is required 

to update the Summary Prospectus for 

some other purpose or is required to file 

an annual updating amendment to its 

registration statement. This would be 

true in the case of existing investors as 

well as new investors. Today, some 

funds choose to send an updated 

statutory prospectus to all of their 

existing shareholders once each year in 

order to meet their prospectus delivery 

obligations with respect to those 

shareholders who purchase additional 

shares of the fund during the coming 

year. Under the proposed rule, a fund 

could instead send an updated 

Summary Prospectus to its shareholders 

once each year, so long as the only 

changes to the Summary Prospectus 

during the year are the required 

quarterly updates to holdings and 

performance information and so long as 

the other conditions of the rule are 

satisfied. 

We request comment generally on the 

proposed content and updating 

requirements of the Summary 

Prospectus and specifically on the 

following issues: 

• Should the Summary Prospectus be 

required to include the same 

information as the summary section of 

the statutory prospectus in the same 

order as required in the statutory 

prospectus? Should any of the 

information that we propose to require 

in the Summary Prospectus not be 

required? Should any additional 

information, such as additional 

information from the statutory 

prospectus, SAI, or annual or semiannual report, be required to be 

included in the Summary Prospectus? 

• Should we, as proposed, prohibit 

the Summary Prospectus from including 

information that is not explicitly 

permitted? What effect would this 

prohibition have on the length, 

usability, and completeness of a 

Summary Prospectus? If we include this 

prohibition, should we make any 

exceptions to the prohibition? 

• Should we restrict the number of 

funds or share classes that may be 

included in a Summary Prospectus? 

Would including multiple funds in a 

Summary Prospectus make it too long 

and confusing, and would it decrease 

the likelihood that investors would use 

the Summary Prospectus? Or would 

including multiple funds in a Summary 

Prospectus contribute to investors’


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67802 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

110Proposed rule 498(c)(3), (d)(3), and (f). 111The 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, would not be considered costs for 

purposes of determining whether information is 

accessible, free of charge. 112Proposed rule 498(f)(1). 

ability to compare those funds? Are 

there groups of funds that should be 

permitted to be included in a single 

Summary Prospectus even if we 

generally prohibit multiple fund 

Summary Prospectuses? Instead of, or in 

addition to, restricting the number of 

funds in a Summary Prospectus, should 

we impose page limits on Summary 

Prospectuses (e.g., three or four pages)? 

If so, what should the page limits be? 

How would we address situations in 

which a fund may conclude that it 

cannot provide the information required 

in the Summary Prospectus within a 

prescribed page limit? 

• Is the information that we propose 

to require on the cover page or at the 

beginning of the Summary Prospectus 

appropriate? Should we include any 

additional information or eliminate any 

of the information that we have 

proposed to include? 

• Is the proposed legend sufficient to 

notify investors of the availability and 

significance of the statutory prospectus 

and other information about the fund 

and how to obtain this information? 

Should the legend include greater detail 

about the information that is available? 

Will the legend adequately inform 

investors of the various means for 

obtaining additional information about a 

fund? Are the proposed requirements 

for the Web site address where 

additional information is available 

adequate to ensure that the Web site and 

the additional information will be easy 

to locate? 

• Should we require or permit a fund 

to include its ticker symbol in the 

Summary Prospectus? If so, where 

should such information be included 

(e.g., at the beginning or on the cover 

page)? 

• Will a one-month lag in reporting 

top 10 portfolio holdings sufficiently 

protect against potential dangers to 

shareholders, such as the dangers of 

front-running? Would a shorter or 

longer delay be more appropriate? 

• Should we require the performance 

and portfolio holdings information in 

the Summary Prospectus to be updated 

quarterly? How would the inclusion of 

performance and portfolio holdings 

information that is not updated 

quarterly affect the usefulness of a 

Summary Prospectus to investors? How 

would the inclusion of performance and 

portfolio holdings information that is 

not updated quarterly affect investors’

perceptions of the Summary Prospectus 

and investors’ interest in reviewing the 

information in the Summary 

Prospectus? 

• Would semi-annual updating of 

performance and portfolio holdings 

information in the Summary Prospectus 

be more appropriate or should we 

require annual updating only? 

• Would any concerns relating to 

investor confusion, liability, or other 

matters arise from requiring quarterly 

updating of performance and portfolio 

holdings information in the Summary 

Prospectus but not in the statutory 

prospectus? Have any such concerns 

resulted in practice for funds that 

currently use the voluntary profile, 

where performance information is 

required to be updated on a quarterly 

basis, but such information is not 

required to be updated quarterly in the 

statutory prospectus? 

• If we require quarterly or semiannual updating of performance and 

portfolio holdings information in the 

Summary Prospectus, should we also 

require this information to be updated 

quarterly or semi-annually in the 

statutory prospectus? 

• What, if any, burdens would be 

associated with the requirement for 

quarterly updating of performance and 

portfolio holdings information? Would 

any burdens be reduced due to the 

availability of ‘‘on demand’’ printing 

technologies in which copies of 

documents are printed only as needed? 

How would any such burdens differ 

from those associated with quarterly 

updates to sales materials that include 

performance information, which funds 

routinely undertake today? If we require 

quarterly updating, how can we 

minimize any associated burdens? 

• Should the rule require funds to 

provide quarterly updated performance 

and portfolio holdings information on 

an Internet Web site and/or on a toll-free 

telephone line instead of updating the 

Summary Prospectus quarterly? If so, 

should the Summary Prospectus be 

required to disclose the availability of 

the updated information? Would the 

addition of a legend to this effect, and 

the elimination of the updated 

information, affect the usefulness and 

perceived usefulness of the Summary 

Prospectus to investors, as well as their 

willingness to read and use the 

Summary Prospectus? 

• Would it be appropriate for the 

proposed rule to deem a previously 

provided Summary Prospectus to be 

current notwithstanding subsequent 

quarterly updates to performance and 

portfolio holdings information? If we 

require quarterly updating, should we 

include any additional safe harbors or 

provide for a cure provision in cases 

where a Summary Prospectus that lacks 

a required quarterly update has been 

inadvertently distributed? 

3. Provision of Statutory Prospectus, 

SAI, and Shareholder Reports 

In addition to sending or giving a 

Summary Prospectus, a person that 

decides to rely on the proposed rule to 

meet its statutory prospectus delivery 

obligations with respect to a mutual 

fund’s securities would be required to 

provide the statutory prospectus itself 

on the Internet, together with other 

information, in the manner specified by 

the rule.110 In order to maximize both 

the accessibility and usability of the 

information, the statutory prospectus 

would be required to be provided in two 

ways, by posting on an Internet website 

and by sending the information directly 

to any investor requesting a copy. 

Sending the information directly to any 

investor would not, however, be a 

condition of reliance on the rule. 

Under the proposal, the statutory 

prospectus and other information would 

be 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 

would be 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.111 These documents would 

be required to be accessible on or before 

the time that the Summary Prospectus is 

sent or given and current versions of the 

documents would be 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 proposed 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, and (ii) 

in the case of reliance on the proposed 

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.112 This 

requirement is 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 the 

proposed rule. 

We are proposing to require that the 

information on the Internet be presented 

in a format that: 


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Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 67803 

113Proposed rule 498(f)(2)(i). See also 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). 

114Proposed rule 498(f)(2)(ii). 

115Proposed rule 498(f)(2)(iii). 

116Proposed rule 498(f)(3). 

117Proposed rule 498(f)(4). This safe harbor 

would not be available to a fund that repeatedly 

fails to comply with the proposed rule’s Internet 

posting requirements or that is not in compliance 

with the requirements over a prolonged period. 

118Proposed rule 498(g). 119See Instruction 3 to Item 1 of Form N–1A 

(requiring the SAI and shareholder reports to be 

sent within three business days of receipt of a 

request). 

• Is convenient for both reading 

online and printing on paper; 113

• permits persons accessing the 

statutory prospectus or SAI to move 

directly back and forth between the 

table of contents in that document and 

each section of that document 

referenced in the table of contents; 114

and 

• permits persons accessing the 

Summary Prospectus to move directly 

back and forth between each section of 

the Summary Prospectus and (A) any 

section of the statutory prospectus and 

SAI that provides additional detail 

concerning that section of the Summary 

Prospectus; or (B) tables of contents in 

the statutory prospectus and SAI that 

prominently display the sections within 

those documents that provide additional 

detail concerning information contained 

in the Summary Prospectus.115

The first requirement is designed to 

ensure that the information provided 

over the Internet will be user-friendly, 

both online and when printed. This 

imposes on the online information a 

standard of usability that is comparable 

to the readability of a paper document. 

The latter two requirements are 

intended to result in online information 

that is in a better and more usable 

format than the same information when 

provided in paper. The first of those two 

requirements would allow an investor 

or other user to move directly between 

the table of contents in 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. 

The second requirement would allow an 

investor to move back and forth between 

related sections of the Summary 

Prospectus, statutory prospectus, and 

SAI, either directly through a single 

mouse click or indirectly by means of a 

table of contents in the prospectus or 

SAI, in which case two mouse clicks 

would be required. 

In addition, 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 

meets the first two requirements 

enumerated in the preceding 

paragraph.116 That is, the format must 

be convenient for both reading online 

and printing on paper, and persons 

accessing the downloaded version of the 

statutory prospectus or SAI must be able 

to move directly back and forth between 

the table of contents in that document 

and each section of that document 

referenced in the table of contents. An 

electronic version that is retained by an 

investor would not be required to 

incorporate links between the Summary 

Prospectus, statutory prospectus, and 

SAI because we anticipate that there 

may be technical difficulties associated 

with keeping these links current. 

Compliance with all of the conditions 

in the proposed rule regarding Internet 

posting would be required in order to 

meet prospectus delivery obligations 

under Section 5(b)(2) of the Securities 

Act. Failure to comply with any of the 

conditions would be a violation of 

Section 5(b)(2) unless the fund’s 

statutory prospectus is delivered by 

means other than reliance on the rule. 

The Commission recognizes, however, 

that there may be times when, due to 

system outages or other technological 

issues, a fund is temporarily not in 

compliance with the Internet posting 

requirements of the rule, despite the 

fund’s best efforts. For that reason, the 

proposed rule includes a safe harbor 

provision stating that the conditions 

regarding Internet availability of a 

fund’s Summary Prospectus, statutory 

prospectus, SAI, and shareholder 

reports would 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 would be 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.117

The Commission believes that every 

investor in a fund taking advantage of 

the proposed prospectus delivery 

regime should be 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. For that reason, 

the proposed rule would require 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 report to 

any person requesting such a copy 

within three business days after 

receiving a request for a paper copy. 

Similarly, a fund (or financial 

intermediary through which shares of 

the fund may be purchased or sold) 

would also be required to 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.118 This requirement, which is 

intended to ensure that an investor has 

prompt access to the required 

information in the form that he or she 

prefers, is based on a similar, existing 

requirement with respect to requests for 

the SAI and shareholder reports.119

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, as 

applicable, to a person requesting such 

a copy would not be 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 complied with all other 

aspects of the proposed rule would not 

violate Section 5(b)(2) of the Securities 

Act if the fund failed to send the 

required paper or electronic copy of the 

statutory prospectus, SAI, or most 

recent shareholder reports. This failure 

would, however, constitute a violation 

of the Commission’s rules. 

We request comment generally on the 

proposal to require that persons relying 

on the proposed rule provide the fund’s 

statutory prospectus and other 

information on the Internet and upon 

request and specifically on the following 

issues: 

• Should we permit the fund’s 

current statutory prospectus and other 

information to be provided in the 

manner specified in the proposed rule? 

For what period of time should persons 

relying on the rule be required to retain 

this information on an Internet Web 

site? 

• Should we require that the 

information on the Internet Web site be 


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67804 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

120Recently, the Commission adopted rule 

amendments to enable mutual funds to submit 

information from the risk/return summary section 

of their prospectuses using interactive data under 

the Commission’s voluntary interactive data 

program. See Securities Act Release No. 8823, supra 

note 24. 

121Proposed rule 498(b)(3)(i) and (ii). 122Proposed rule 498(b)(3)(ii)(B). 123Proposed rule 498(b)(3)(ii)(C). 124Cf. Item 10(d) of Reg. 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. 125Proposed rule 498(b)(3)(ii)(A) and (f). As 

discussed in Section II.B.3, this would not include 

in a format that is convenient for both 

reading online and printing on paper? 

• Are the proposed requirements 

regarding the ability to move back and 

forth within the statutory prospectus 

and the SAI from the table of contents 

to relevant sections, and between the 

Summary Prospectus, statutory 

prospectus, and SAI appropriate and 

useful? Would it be difficult or 

expensive for funds to comply with 

these requirements? Will these 

requirements help investors to navigate 

effectively within and between these 

documents and contribute to a more 

useful presentation of information than 

is possible through paper documents? 

• Are there steps that the Commission 

should take to enhance the accessibility 

to the general public of fund Summary 

Prospectuses, statutory prospectuses, 

and other information that would be 

provided on an Internet Web site 

pursuant to the proposed rule? How can 

we enhance the availability of this 

information to investors, intermediaries, 

analysts, and others who are researching 

funds? 

• What steps can the Commission 

take to enhance electronically provided 

documents? Should we require funds to 

tag any of the information in the 

Summary Prospectus or statutory 

prospectus using the eXtensible 

Business Reporting Language (‘‘XBRL’’) 

taxonomy that was recently developed 

by the Investment Company Institute 

and is being used in the Commission’s 

voluntary data tagging program? 120

Should the Commission make the 

submission of tagged risk/return 

summary information using the XBRL 

taxonomy mandatory in order for funds 

to rely upon the proposed rule 

amendments? If so, should funds be 

required to tag all of the risk/return 

summary information or should only 

certain information be required to be 

tagged, such as fees and expenses, past 

performance, and other numerical 

information? Are there any features, 

such as the ability to search documents 

for words and phrases, that we should 

require in documents that are provided 

electronically? 

• Should we require that persons 

accessing the Web site at which the 

required documents are posted must be 

able to permanently retain, through 

downloading or otherwise, free of 

charge, an electronic version of such 

documents? Should we require that 

documents downloaded from the 

Internet Web site must retain links that 

enable a user to move readily within a 

single document, as proposed? Would 

this proposed requirement present any 

technological difficulties? Should we 

also require that downloaded 

documents retain links that enable a 

user to move readily between related 

passages of multiple documents? Would 

it be technologically feasible to meet 

such a requirement? What would the 

costs be of complying with requirements 

that downloaded documents retain 

links, either within a single document 

or between related passages of multiple 

documents? 

• Does the proposed rule 

appropriately address the possibility of 

inadvertent technological problems that 

may arise from time to time when 

information is provided electronically? 

Should funds having technological 

issues be required to disclose on the 

Web site that the information was not 

available for a time in the manner 

required and explain the reasons for the 

failure to comply? If so, how long 

should such information be required to 

be retained on the Web site? Should 

funds that are not able to comply for a 

prolonged period, perhaps a week or 

more, due to technological issues, or 

that are not able to comply repeatedly 

over a long period due to such reasons, 

be required to notify the Commission 

and/or investors? 

• Are the requirements for sending 

the statutory prospectus, SAI, and 

annual and semi-annual shareholder 

reports in paper and electronically 

appropriate? Should funds be required 

to send a paper or 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 a copy? Would a longer or shorter 

period be appropriate? Will these 

requirements, together with the 

requirements for providing information 

on the Internet, as well as the proposed 

Summary Prospectus, enhance 

investors’ ability to access, understand, 

and use the information that they 

receive? 

• Should the requirements to send 

the statutory prospectus, SAI, and 

shareholder reports be a condition to 

reliance on the rule? Should failure to 

comply with these requirements result 

in a violation of Section 5(b)(2) of the 

Securities Act? Alternatively, should the 

failure to comply with these 

requirements be a violation of 

Commission rules that does not result in 

an inability to rely on the rule or a 

violation of Section 5(b)(2)? 

• Should we require funds or other 

persons that use the proposed 

prospectus delivery regime to retain any 

additional records beyond those 

required by our current rules? Should 

we expressly require those persons to 

retain proof that the statutory 

prospectus, SAI, and annual and semiannual reports were available on the 

Internet as required by the rule and 

records of the dates that documents 

were requested, along with the dates 

such documents were sent? 

4. Incorporation by Reference 

Permissible Incorporation by Reference 

The proposed rule would permit a 

fund to incorporate by reference into the 

Summary Prospectus information 

contained in its statutory prospectus 

and SAI, as well as any information 

from its most recent shareholder report, 

subject to the conditions described 

below.121 A fund would not be 

permitted to incorporate by reference 

into the Summary Prospectus 

information from any other source. In 

addition, a fund could not incorporate 

by reference any of the information 

described above that is required to be 

included in the Summary Prospectus.122

Information could 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.123 Thus, if a 

fund’s statutory prospectus incorporates 

the fund’s SAI by reference, the 

Summary Prospectus could not 

incorporate information in the SAI 

simply by referencing the statutory 

prospectus but would be required to 

reference the SAI directly.124

Incorporation by reference of 

information from a fund’s statutory 

prospectus, SAI, and shareholder report 

would be permitted only if the fund 

satisfies the conditions described in 

Section II.B.3, above, which prescribe 

the means by which the incorporated 

information is provided to investors.125


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Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 67805 

the requirement to send or give a paper or 

electronic copy of the requested information upon 

request. 

126Proposed rule 498(b)(1)(iv)(B) and (b)(3)(ii)(A). 

127Proposed rule 498(b)(3)(i). Cf. Gen. Instr. 

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). 

128 In 1998, one study indicated that over onethird 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, more recent surveys show that Internet use 

among American adults is at an all time high, with 

approximately three quarters identifying themselves 

as Internet users. See supra note 22. Moreover, very 

few American homes had broadband connections in 

1998. 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 . 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). 129 17 CFR 230.159. 

In addition, if a fund incorporates 

information by reference, the Summary 

Prospectus legend would be required to 

clearly identify the document from 

which the information is incorporated, 

including the date of the document, and 

explain that any information that is 

incorporated from the SAI or 

shareholder report may be obtained, free 

of charge, in the same manner as the 

statutory prospectus.126 A fund that 

failed to comply with any of these 

conditions could 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, would not also be 

required to send or give the 

incorporated information together with 

the Summary Prospectus.127 While a 

fund would be required to send a paper 

or electronic copy of the incorporated 

information upon request, failure to do 

so would not preclude or nullify the 

incorporation by reference. It would, 

however, be a violation of Commission 

rules. 

We are proposing to permit 

incorporation by reference in the 

Summary Prospectus in order to further 

our goal of creating a layered disclosure 

regime. The proposed rule requires 

provision to investors of all of the 

information in the Summary Prospectus, 

statutory prospectus, SAI, and 

shareholder reports. By using multiple 

means to provide this information and 

using technology to provide information 

in a layered format, the proposal is 

intended to facilitate investors’ ability to 

effectively choose to review the 

particular information in which they are 

interested. Indeed, each investor in a 

fund taking advantage of the proposed 

prospectus delivery regime can also 

choose the particular means of receiving 

information because all of the 

information will be required to be 

promptly sent to any requesting investor 

in paper or electronically. We are 

proposing to permit incorporation by 

reference in the Summary Prospectus of 

the statutory prospectus, SAI, and 

information from the fund’s most recent 

shareholder report because, under the 

proposal, these documents would be 

provided at the same time, though by 

different means. 

Our determination to propose to 

permit incorporation 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 almost 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. 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. 

By contrast, we do not intend the 

Summary Prospectus to be a selfcontained document, but rather one 

element in a layered disclosure regime 

that results in the simultaneous 

provision of information to investors 

through multiple means. Indeed, we 

intend the Summary Prospectus to 

provide investors with better, more 

usable 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 in 1998 have made 

this possible.128 At the moment that an 

investor receives a Summary 

Prospectus, he or she is also able to 

immediately review the full statutory 

prospectus, SAI, and shareholder 

reports online. Perhaps even more 

significantly, an investor could make 

use of required links between the 

Summary Prospectus and the other 

documents in order to move quickly and 

easily between the documents to review 

particular information of interest to the 

investor without having to read through 

lengthy, unrelated information. In 

addition, under our proposal, an 

investor who chooses to review the 

incorporated information in paper or 

electronically would be sent a copy of 

this information, promptly upon 

request. As a result of these 

considerations, we believe that it is 

consistent with the purpose of the 

Summary Prospectus and in the public 

interest to permit incorporation by 

reference of the statutory prospectus, 

SAI, and shareholder reports into the 

Summary Prospectus, subject to the 

conditions to incorporation contained in 

the proposed rule. 

Effect of Incorporation by Reference 

Proposed rule 498 would provide 

that, for purposes of rule 159 under the 

Securities Act,129 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 proposed rule 498. 

This proposal addresses the question of 

when information that is incorporated 

into the Summary Prospectus under 

proposed rule 498 is conveyed for 

purposes of Sections 12(a)(2) and 

17(a)(2) of the Securities Act. 

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. 

Securities Act Section 17(a)(2) is a 

general antifraud provision which 

makes it unlawful for any person in the 

offer and sale 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. 

As we have previously stated, we 

interpret Section 12(a)(2) and Section 

17(a)(2) as meaning 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 


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130See Securities Act Release No. 8591, 70 FR at 

44766, supra note 91. 

131These 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. 

132Or, 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. 

133See Securities Act Release No. 8591, 70 FR at 

44766, supra note 91. 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. 

134Whether or not any or all of the incorporated 

information was conveyed to an investor prior to 

the time that the Summary Prospectus was received 

would be a facts and circumstances determination. 

135Cf. 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). 

136 15 U.S.C. 77s(a). 

137Cf. Investment Company Act Release No. 

23065, supra note 30, 63 FR at 13972 (similar 

Commission statement in context of profile). 

138See also Section 38(c) of the Investment 

Company Act [15 U.S.C. 80a–37(c)] (similar 

provision under Investment Company Act). 

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.130 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 Section 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 statement 131

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 circumstances 

under which they were made, not 

misleading,132 any information 

conveyed to the purchaser only after the 

time of sale will not be taken into 

account. 

Proposed 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 proposed rule. 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.133 We 

have designed the requirements of 

proposed 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, proposed 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.134 The relevant 

facts and circumstances required by rule 

498 include actual receipt of the 

Summary Prospectus; 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 convenient for 

both reading online and in paper, and 

meet the document linking 

requirements of the rule.135

Proposed 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. Proposed 

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 information 

incorporated by reference into a mutual 

fund Summary Prospectus in 

accordance with the proposed rule. 

The Commission believes that a 

person that provides investors with a 

mutual fund Summary Prospectus in 

good faith compliance with the 

proposed rule would be able to rely on 

Section 19(a) of the Securities Act 136

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.137 Section 19(a) protects a 

defendant from liability for actions 

taken in good faith in conformity with 

any rule of the Commission.138

We request comment generally on the 

proposal to permit incorporation by 

reference into the Summary Prospectus 

and specifically on the following issues: 

• Does the proposed rule provide 

adequate means of providing investors 

with the information in the Summary 

Prospectus, statutory prospectus, SAI, 

and shareholder reports? Will these 

means result in more or less effective 

provision of information than our 

current rules require? Do these means of 

providing information adequately 

protect investors? 

• Should we permit a fund to 

incorporate by reference into the 

proposed Summary Prospectus any or 

all of the information contained in its 

statutory prospectus and SAI and any or 

all of the information from the fund’s 

most recent shareholder report? Is there 

any other information that should be 

permitted to be incorporated by 

reference into the proposed Summary 

Prospectus? 

• Should we permit a fund to 

incorporate by reference into the 

proposed Summary Prospectus any of 

the information that is required to be 

included in the Summary Prospectus? 

• Should we require materials that 

are incorporated by reference into the 

Summary Prospectus to be available 

online in the manner described in 

Section II.B.3 above? Are there any 

additional conditions that we should 

impose on the ability to incorporate by 

reference into the Summary Prospectus? 

Should satisfaction of the requirement 

to send a paper or electronic copy of 

materials incorporated by reference be a 

condition to the ability to incorporate by 

reference or should we, as proposed, 

provide that failure to satisfy this 

requirement is a rule violation that does 

not affect the ability to incorporate by 

reference? 

• Is the proposal relating to rule 159 

appropriate? Should conveyance of 

information incorporated in the 

Summary Prospectus be tied to the time 

of receipt of the Summary Prospectus, 

the time that the Summary Prospectus is 

sent or given, or some other time? Does 

proposed rule 498 adequately ensure 

that information incorporated by 

reference into a Summary Prospectus 

will have been effectively conveyed to 

a person who receives the Summary 

Prospectus? Does the proposal relating 

to rule 159 provide sufficient clarity 

regarding the effect of incorporation by 

reference into a Summary Prospectus 

and the impact on liability of using a 

Summary Prospectus? 

5. Filing Requirements for the Summary 

Prospectus 

The Commission is proposing to 

require each Summary Prospectus to be 

filed with the Commission on EDGAR 


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139Proposed rule 497(k). We are also proposing 

to delete the reference to the profile from rule 

497(a) [17 CFR 230.497(a)]. 

140 15 U.S.C. 77j(b) and 77k. Congress provided a 

specific exception from liability under Section 11 

of the Securities Act for summary prospectuses 

under Section 10(b) of the Securities Act in order 

to encourage the use of summary prospectuses. L. 

Loss & J. Seligman, Securities Regulation, § 2–b–5 

(3d ed. 2006) (citing S. Rep. 1036, 83d Cong., 2d 

Sess. 17–18 (1954) and H.R. Rep. 1542, 83d Cong., 

2d Sess. 26 (1954)). Information in the Summary 

Prospectus that is also contained in the statutory 

prospectus would be part of the registration 

statement for the purposes of Section 11 of the 

Securities Act as a result of its inclusion in the 

statutory prospectus. 

141 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’’). 

142 15 U.S.C. 77j(b). 

143Proposed amendment to rule 482(a). 

144Proposed rule 482(b)(1). 

145Proposed rule 482(c). 

no later than the fifth business day after 

the date that it is first used.139 We are 

not proposing to require that a fund file 

the Summary Prospectus before it is first 

used because the content of the 

Summary Prospectus would be 

essentially identical to the content of 

the summary section of the statutory 

prospectus, which is filed prior to its 

first use. We are proposing that the 

Summary Prospectus be filed after it is 

first used in order to ensure that the 

Commission’s EDGAR system contains a 

copy of every Summary Prospectus that 

is actually being used. A Summary 

Prospectus that is filed on EDGAR will 

be publicly available; however, a fund 

could not rely on this availability to 

satisfy the requirements to post the 

document online discussed in Section 

II.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.140 In accordance with Section 

10(b), a Summary Prospectus would be 

filed as part of the registration 

statement, but would not be deemed a 

part of the registration statement for 

purposes of Section 11 of the Securities 

Act. A Summary Prospectus would be 

subject to the stop order and other 

administrative provisions of Section 8 of 

the Securities Act.141 This is in addition 

to the 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.142

We request comment generally on the 

proposed filing requirements for the 

Summary Prospectus and specifically 

on the following issues: 

• Should we require pre-use filing of 

the Summary Prospectus? Should we 

require post-use filing? 

• Should the Summary Prospectus be 

filed as part of the registration statement 

and be subject to the stop order and 

other administrative provisions of 

Section 8 of the Securities Act? Should 

the Summary Prospectus be subject to 

Section 11 liability? Would investors be 

adequately protected under the 

proposed rule, or should we provide 

additional investor protections? 

C. Technical and Conforming 

Amendments 

We are proposing the following 

conforming amendments to rule 482 

under the Securities Act, the investment 

company advertising rule, to reflect the 

proposed Summary Prospectus and the 

proposed elimination of the voluntary 

profile. 

• The scope section of rule 482 would 

be revised to clarify that the rule does 

not apply to a Summary Prospectus or 

to a communication that, pursuant to 

proposed rule 498, is not deemed a 

‘‘prospectus’’ under section 2(a)(10) of 

the Securities Act.143

• For funds using the Summary 

Prospectus, the legend required in a rule 

482 advertisement regarding the 

availability of the statutory prospectus 

would be required to include references 

to the Summary Prospectus.144

• The provision addressing the use of 

rule 482 advertisements together with a 

profile that includes an application to 

purchase shares is deleted as 

unnecessary.145

We are also proposing amendments to 

various cross-references to Form N–1A 

in our rules and forms to reflect changes 

that we are proposing 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 N–

14 under the Securities Act. We are also 

proposing to revise rule 159A under the 

Securities Act to refer to a Summary 

Prospectus rather than a profile. 

We request comment generally on the 

proposed technical and conforming 

amendments. 

D. Compliance Date 

If the proposed amendments to Form 

N–1A are adopted, the Commission 

expects to provide for a transition 

period after the effective date in order 

to give funds sufficient time to prepare 

their registration statements under the 

amendments. If we adopt the proposed 

amendments to Form N–1A, we expect 

to require all initial registration 

statements on Form N–1A, and all posteffective amendments that are annual 

updates to effective registration 

statements on Form N–1A, filed six 

months or more after the effective date, 

to comply with the proposed 

amendments to Form N–1A. We expect 

that we would not permit a person to 

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. The Commission requests 

comment on the proposed compliance 

date. 

III. General Request for Comments 

The Commission requests comment 

on the amendments proposed in this 

release, whether any further changes to 

our rules or forms are necessary or 

appropriate to implement the objectives 

of our proposed amendments, and on 

other matters that might affect the 

proposals contained in this release. 

IV. Special Request for Comments From 

Investors 

We are proposing changes that are 

intended to provide you, the investor, 

with concise information about mutual 

funds that is easier to use than the 

mutual fund prospectuses available 

today. 

Under our proposals, every mutual 

fund prospectus would include a 

summary section, consisting of the 

following key information about the 

fund: (1) Investment objectives; (2) 

costs; (3) principal investment 

strategies, risks, and performance; (4) 

top 10 portfolio holdings; (5) identity of 

investment advisers and portfolio 

managers; (6) brief purchase, sale, and 

tax information; and (7) information 

about broker compensation and 

conflicts. Our intent is that this 

information would be presented in three 

or four pages at the front of the 

prospectus. 

We are also proposing to permit 

mutual funds to send or give you the 

summary information while providing 

the prospectus online and, upon your 

request, sending you a paper copy of the 

prospectus. The proposal is intended to 

provide you with key information that 

is easier to use while using the power 

of the Internet to make the more 

detailed information in the prospectus 

available to you at all times. You would 

still be able to get the prospectus in 

paper by asking for it. 

We want to know your views on our 

proposals and on the questions we have 

asked throughout this release. In 


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146 44 U.S.C. 3501 et seq. 147 44 U.S.C. 3507(d); 5 CFR 1320.11. 148 17 CFR 239.15A; 17 CFR 274.11A. 149 If proposed rule 498 is adopted, a request 

would be submitted to OMB to remove the 

collection of information for current rule 498. 

150See supra notes 143 through 145 and 

accompanying text. 

151 (16 hours in the first year + 4 hours in the 

second year + 4 hours in the third year) ÷ 3 years 

= 8 hours. 

152Currently, the approved annual hour burden 

for preparing and filing registration statements on 

Form N–1A is 1,127,280 hours based on the 

previous estimate of 2,602 responses, referencing a 

total of 7,025 portfolios. We currently have 

outstanding a request for extension of the 

previously approved collection for Form N–1A. If 

our request is granted, the annual hour burden will 

be adjusted accordingly. 

addition, we want to know your views 

generally regarding the mutual fund 

prospectuses that you currently receive. 

What improvements would you suggest 

that would make it easier to read and 

understand mutual fund prospectuses? 

Would you find it useful to receive a 

short summary of the key information in 

a mutual fund prospectus, with the 

more detailed information readily 

available to you online and sent to you 

upon your request? Is the information 

that we propose to include in the 

summary section of the prospectus the 

information that you need to make an 

informed investment decision? If not, 

what information would you like to see 

in the summary? 

V. Paperwork Reduction Act 

Certain provisions of the proposed 

amendments contain ‘‘collection of 

information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).146 We are 

submitting the proposed collections of 

information to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA.147

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;’’ and (2) 

‘‘Summary Prospectus for Open-End 

Management Investment Companies.’’

Form N–1A (OMB Control No. 3235–

0307) under the Securities Act and the 

Investment Company Act 148 is used by 

mutual funds to register under the 

Investment Company Act and to offer 

their securities under the Securities Act. 

The Commission is proposing a new 

collection of information under 

proposed rule 498 under the Securities 

Act to be used by mutual funds that 

choose to send or give a Summary 

Prospectus to investors.149 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. 

We are proposing 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 proposal is the 

provision to all investors of streamlined 

and user-friendly information that is key 

to an investment decision. More 

detailed information would be provided 

both on the Internet and, upon an 

investor’s request, in paper or by e-mail. 

The proposed amendments to Form 

N–1A, if adopted, would 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. Proposed rule 498, if 

adopted, would provide a new option 

that would permit a person to satisfy its 

mutual fund prospectus delivery 

obligations under the Securities Act. 

Under the proposed option, key 

information would be sent or given to 

investors in the form of a Summary 

Prospectus, and the statutory prospectus 

would be provided on an Internet Web 

site. Upon an investor’s request, funds 

would also be required to send the 

statutory prospectus to the investor. 

We are also proposing technical and 

conforming amendments to rules 159A 

and 482 under the Securities Act that, 

if adopted, would reflect the proposed 

Summary Prospectus and the 

elimination of the voluntary profile, 

along with amendments that would 

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.150 These technical 

and conforming amendments do not 

constitute a collection of information 

because we are not altering the legal 

requirements of these rules and forms. 

Finally, proposed amendments to rule 

497, if adopted, would provide the 

requirements for filing Summary 

Prospectuses with the Commission. 

These amendments would 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 proposed rule 498. 

Form N–1A 

Form N–1A, including the proposed 

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 would 

be required in the summary section of 

the prospectus is currently required in 

a fund’s prospectus. However, our 

proposal would require new 

information regarding a fund’s portfolio 

holdings and the compensation received 

by financial intermediaries which 

would entail costs, including the costs 

of compiling and reviewing the 

information. Thus, we estimate 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 16 hours. We further estimate that 

subsequent post-effective amendments 

to a registration statement would 

require, on average, approximately 4 

burden hours per portfolio to update 

and review the information. 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 

proposed amendments to be 

approximately 8 hours.151

We received 2,397 initial registration 

statements and post-effective 

amendments on Form N–1A during our 

2006 fiscal year covering approximately 

8,726 portfolios. Thus, the incremental 

hour burden resulting from the 

proposed amendments relating to the 

proposed summary section disclosure 

would be 69,808 hours (8 hours x 8,726 

portfolios). If the proposed amendments 

to Form N–1A are adopted, the total 

annual hour burden for all funds for 

preparation and filing of registration 

statements and post-effective 

amendments to Form N–1A would be 

1,197,088 hours (69,808 hours + 

1,127,280 hours).152

Rule 498 

Proposed rule 498 would contain 

collection of information requirements. 

The likely respondents to this 

information collection are open-end 

management investment companies 

registered or registering with the 

Commission. Under proposed rule 498, 

use of the Summary Prospectus would 

be voluntary, but the rule’s 

requirements regarding provision of the 

statutory prospectus would be 


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153 In addition to the annual filing of a 

registration statement on Form N–1A, quantified 

above, a fund that chooses to provide Summary 

Prospectuses would have to update those Summary 

Prospectuses for each of the subsequent 3 quarters 

of the year. 

154We believe our estimate of 75% is reasonable 

given the potential benefits of our proposed 

amendments to funds. A recent study of industry 

participants found that 64% of respondents are very 

likely to consider using a short-form prospectus and 

that 31% are somewhat likely to consider using a 

short-form prospectus. See Forrester Consulting 

Study commissioned on behalf of NewRiver, Inc., 

The Short-Form Prospectus, at 5 (Oct. 2007), 

available at: http://www1.newriver.com/ 

news_events/news/ 

new_research_finds_mutual_fund_providers_

overwhelmingly_support_the_

securities_and_exchange_commissions_

proposed_shortform_prospectus_rule.php. Study 

respondents included brokerage firms, banks, 

insurance companies, mutual fund families, and 

money management and financial advisory firms. 

Id. at 4. 155See supra notes 16 and 20. 

mandatory for funds that elect to send 

or give a Summary Prospectus in 

reliance upon proposed rule 498. The 

information provided under proposed 

rule 498 would not be kept confidential. 

Our preliminary estimate is that 

proposed 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. It, 

however, would impose a 1⁄2 hour 

burden annually associated with the 

compilation of the additional 

information required on a cover page or 

at the beginning of the Summary 

Prospectus. Proposed rule 498 also 

would impose hour burdens associated 

with the quarterly updating of the 

Summary Prospectus, as well as 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. 

The Commission estimates the average 

hour burden for one portfolio to comply 

with the proposed quarterly updating 

requirements to be approximately 3 

hours per quarter, or 9 hours annually 

for each of the three subsequent 

quarters.153 The Commission also 

estimates that the average hour burden 

for one portfolio to comply with the 

proposed Internet Web site posting 

requirements would be 1 hour per 

quarter, or 4 hours annually. The 

Summary Prospectus is voluntary, so 

the percentage of funds that will choose 

to provide it is uncertain. Given this 

uncertainty, we have assumed that 75% 

of all funds would choose to send or 

give a Summary Prospectus.154

Assuming 75% 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 proposed 

rule 498 would be 88,351 hours ((1⁄2

hour + 9 hours + 4 hours) × (.75 × 8,726 

portfolios)). 

Pursuant to 44 U.S.C. 3506(c)(2)(B), 

we request comments to: (1) Evaluate 

whether the proposed collections of 

information are necessary for the proper 

performance of the functions of the 

agency, including whether the 

information would have practical 

utility; (2) evaluate the accuracy of our 

estimate of the burden of the proposed 

collections of information; (3) determine 

whether there are ways to enhance the 

quality, utility, and clarity of the 

information to be collected; and (4) 

evaluate whether there are ways to 

minimize the burden of the collections 

of information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology. 

Persons submitting comments on the 

collection of information requirements 

should direct the comments to the 

Office of Management and Budget, 

Attention: Desk Officer for the 

Securities and Exchange Commission, 

Office of Information and Regulatory 

Affairs, Washington, DC 20503, and 

should send a copy to Nancy M. Morris, 

Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–1090, with 

reference to File No. S7–28–07. 

Requests for materials submitted to 

OMB by the Commission with regard to 

these collections of information should 

be in writing, refer to File No. S7–28– 

07, and be submitted to the Securities 

and Exchange Commission, Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549–0609. OMB is 

required to make a decision concerning 

the collections of information between 

30 and 60 days after publication of this 

release. Consequently, a comment to 

OMB is best assured of having its full 

effect if OMB receives it within 30 days 

of publication. 

VI. Cost/Benefit Analysis 

The Commission is sensitive to the 

costs and benefits imposed by its rules. 

We are proposing 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 proposal is the 

provision to all investors of streamlined 

and user-friendly information that is key 

to an investment decision. More 

detailed information would be provided 

both on the Internet and, upon an 

investor’s request, in paper or by e-mail. 

To implement this improved 

disclosure framework, we are proposing 

amendments to Form N–1A that would 

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. As 

discussed in the release, this key 

information has been identified by the 

participants in the June 2006 

roundtable, by investor research, and by 

a variety of commentators as the 

information that is important to most 

investors in selecting mutual funds.155

The key information would be required 

to be presented in plain English in a 

standardized order. Our intent is that 

this information would be presented 

succinctly, in three or four pages at the 

front of the prospectus. 

We are also proposing a new option 

that would permit a person to satisfy its 

mutual fund prospectus delivery 

obligations under the Securities Act. 

Under the proposed option, key 

information would be sent or given to 

investors in the form of a Summary 

Prospectus, and the statutory prospectus 

would be provided on an Internet Web 

site. Upon an investor’s request, funds 

would also be required to send the 

statutory prospectus to the investor. Our 

intent in proposing 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. 

Today’s proposal has the potential to 

revolutionize the provision of 

information to the millions of mutual 

fund investors who rely on mutual 

funds for their most basic financial 

needs. The proposal 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 usable formats, the 

proposals 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. 

A. Benefits 

Possible benefits of the proposed 

amendments include enhanced 


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156See supra note 13. 

157See supra note 14. 

158See supra note 22. 

159See supra note 23. 

160Often, a fund will mail a statutory prospectus 

to each of its shareholders annually in addition to 

mailing a statutory prospectus in response to a 

purchase of fund shares. For purposes of this 

analysis, our best estimate of the number of 

statutory prospectuses mailed annually is based on 

the approximately 290,000,000 shareholder 

accounts in 2006. See Investment Company 

Institute, 2007 Investment Company Fact Book, at 

101, supra note 13 (noting 289,997,000 shareholder 

accounts at the end of 2006). 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. 

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 (‘‘Broadridge’’). We evaluated the 

information provided and believe the data likely 

represent relevant information and costs. We solicit 

comment on our estimates that incorporate 

information provided by Broadridge. 

161Our annual estimates are derived from 

information we received from Broadridge. 

Broadridge estimates 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. The 

cost savings with respect to annual mailings were 

calculated by multiplying the costs of printing and 

mailing a statutory prospectus by the 290,000,000 

statutory prospectuses mailed annually reduced to 

reflect our estimate that 75% 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) × 290,000,000 statutory 

prospectuses × 75% of funds). 

162For 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. 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. 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 response to a fund 

purchase reduced to reflect our estimate that 75% 

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) × 

64,500,000 statutory prospectuses × 75% of funds). 

163We believe that the actual number of investors 

who would request that a statutory prospectus be 

sent to them may actually be lower given that 

investors may also request delivery by e-mail and 

our understanding that currently only a small 

percentage of investors request that a copy of a 

fund’s SAI be sent to them. 

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.156 These 

investors face a difficult task in 

choosing among the more than 8,000 

available mutual funds.157 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 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. 

Our proposal would 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, 

user-friendly formats, as proposed, 

would allow investors to compare 

information across funds and may assist 

them in making better informed 

portfolio allocation decisions in line 

with their investment goals. 

Our proposal also would 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,158 and significant strides 

have been made in the speed and 

quality of Internet connections.159

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 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 

proposal would 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. 

The Summary Prospectus proposal 

also would provide cost savings to 

funds. We believe that funds will 

benefit from being able to send or give 

a Summary Prospectus and not having 

to print and send statutory prospectuses 

to all investors and prospective 

investors. We expect that funds would 

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 290,000,000 statutory 

prospectuses annually to their current 

shareholders and another 64,500,000 in 

connection with fund purchases.160 We 

estimate that the cost savings for annual 

mailings would be approximately 

$114,187,500 161 and that the cost 

savings for purchase mailings would be 

approximately $75,465,000.162 These 

cost savings would be reduced by the 

costs of sending the statutory prospectus 

to those investors who request it. We 

estimate that approximately 10% of 

64,500,000 investors making purchases 

will request that a statutory prospectus 

be sent to them.163 We estimate that the 

cost of sending statutory prospectuses to 

requesting investors would be 


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164For purposes of this estimate, we used the 

blended printing rate of $0.35 and the average first 

class mail rate of $1.21. 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 75% of funds will elect to 

send Summary Prospectuses and 10% of investors 

will request a statutory prospectus be mailed to 

them (($0.35 for the printing of a statutory 

prospectus + $1.21 for the mailing of a statutory 

prospectus) × 64,500,000 statutory prospectuses × 

75% of funds × 10% of requesting investors). 

165 (($114,187,500 cost savings for annual 

mailings + $75,465,000 cost savings for purchase 

mailings) ¥$7,546,500 cost of sending requested 

statutory prospectuses). 

A recent study of industry participants estimated 

cost savings of approximately $300,000,000 per 

year. See The Short-Form Prospectus, supra note 

154, at 6. 

166 $182,106,000 ÷ (8,726 portfolios × 75%). 

167Our estimates above take into account these 

possible reductions in cost savings. 

168Our estimate is derived from estimates 

provided to us by Broadridge. Broadridge estimates 

that the average cost to print a Summary Prospectus 

on demand is $0.11. We note that some funds may 

receive reduced bulk printing rates; however, 

Broadridge informed us that it believes that the 

majority of funds will print the Summary 

Prospectus on demand. With respect to mailing 

costs for a Summary Prospectus, Broadridge 

estimates that Summary Prospectuses sent out 

annually will be mailed at the bulk rate of $0.255 

and that Summary Prospectuses sent out in 

connection with fund purchases will be mailed first 

class at a rate of $0.41. Our estimate, therefore, was 

derived as follows: (($0.11 for printing a Summary 

Prospectus on demand + $0.255 for bulk mail) × 

290,000,000 Summary Prospectuses estimated to be 

sent out annually × 75% of funds) + (($0.11 for 

printing a Summary Prospectus on demand + $0.41 

for first class mail) × 64,500,000 prospectuses 

estimated to be sent out in response to a fund 

purchase × 75% of funds). 

169 $104,542,500 ÷ (8,726 funds × 75%). 

170This cost increase is estimated by multiplying 

the total annual hour burden (158,159 hours) by the 

estimated hourly wage rate of $252.50. 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 $261 and $244, 

respectively. See Securities Industry Association, 

Report on Management & Professional Earnings in 

the Securities Industry 2006 (Sept. 2006). The 

estimated wage rate is further based on the estimate 

that attorneys and programmers would divide time 

equally, resulting in a weighted wage rate of 

$252.50 (($261 × .50) + ($244 × .50)). 

171 $39,935,148 ÷ (8,726 funds × 75%). 

172Our estimate of potential home printing costs 

depends on data provided by Lexecon and ADP in 

response to Exchange Act Release No. 55146, supra 

note. See letter from ADP. The Lexecon data was 

included in the ADP comment letter. To calculate 

home printing costs, 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) × 45 pages). 

173 (64,500,000 purchasers × 75% of funds × 5% 

of printing investors) × $2.03). 

174 15 U.S.C. 80a–2(c). 

$7,546,500.164 Therefore, we estimate 

the annual cost savings will be 

approximately $182,106,000,165 or 

approximately $27,826 per portfolio.166

The full potential for savings may be 

reduced by several factors.167 First, 

some mutual funds might not elect to 

send or give Summary Prospectuses 

pursuant to proposed rule 498. Second, 

to the extent that some shareholders do 

not have access to the Internet and 

request paper copies of prospectuses 

from the fund, the savings in printing 

and mailing costs would be reduced. 

Third, the requirement that funds 

supply requesting shareholders with 

paper copies within three business days 

may limit funds’ ability to reduce 

printing costs by causing them to 

maintain inventories of paper copies. 

Technological advances, such as the 

ability to print documents on demand, 

however, may alleviate the need for 

such a paper inventory. 

We expect that funds would 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 proposed 

amendments. We expect that, as funds 

gain familiarity with the 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. 

We request comment on these benefits 

and any other potential benefits. 

Specifically, we request comment on 

our data and analysis, including any 

data on the printing and mailing cost 

savings that may be realized as a result 

of our proposed amendments, if 

adopted. Are there any other factors that 

would reduce the costs to funds? We 

also request comment on the current 

number of paper copies of the SAI 

requested by investors and the number 

of paper copies of the statutory 

prospectus funds estimate that investors 

would request if our proposed 

amendments are adopted. 

B. Costs 

While our proposal would result in 

significant cost savings for funds, we 

believe that there will be costs 

associated with the proposal. These 

include the costs for funds to compile 

and review the new information 

required by our proposal 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 would be $104,542,500 168 or 

approximately $15,974 per portfolio.169

There may also be external costs 

connected with the review of the 

required disclosure by outside counsel; 

however, we expect those costs to be 

minimal given that most of the 

information required is already required 

in a fund’s prospectus. 

For purposes of the PRA, we have 

estimated that the proposed new 

disclosure requirements, assuming 75% 

of funds choose to send or give a 

Summary Prospectus, would add: (1) 

69,808 hours to the annual burden of 

preparing Form N–1A; and (2) 88,351 

hours to the annual burden of preparing 

and using a Summary Prospectus under 

proposed rule 498. We estimate that this 

additional burden would equal total 

internal costs of $39,935,148 

annually 170 or approximately $6,102 

per portfolio.171

Our proposal also may result in 

potential costs for individual fund 

investors. These include any paper and 

printing costs for those investors who 

choose to print posted materials. We 

estimate that approximately 5% of 

investors making fund purchases will 

print statutory prospectuses at home at 

an estimated cost of $2.03 per statutory 

prospectus.172 Based on these 

assumptions, the proposal is estimated 

to produce annual home printing costs 

of $4,910,063.173

As these costs are difficult to quantify, 

we request comment on the magnitude 

of these potential costs and whether 

there are any other additional potential 

costs, including whether any such costs 

would affect different classes of 

investors differently. We also request 

comment on the nature and magnitude 

of our estimates of the costs of the 

additional disclosure that would be 

required if our proposal were adopted. 

C. Request for Comments 

We request comments on all aspects 

of this cost-benefit analysis, including 

identification of any additional costs or 

benefits of, or suggested alternatives to, 

the proposed amendments. Commenters 

are requested to provide empirical data 

and other factual support for their views 

to the extent possible. 

VII. Consideration of Promotion of 

Efficiency, Competition, and Capital 

Formation 

Section 2(c) of the Investment 

Company Act 174 and Section 2(b) of the 


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175 15 U.S.C. 77b(b). 

176 5 U.S.C. 603 et seq. 

177 17 CFR 270.0–10. 

178This estimate is based on analysis by the 

Division of Investment Management staff of 

publicly available data. 

179These figures are based on an estimated hourly 

wage rate of $252.50. See supra note 170. We note 

that this estimate includes a one-time burden of 16 

hours to create the summary section of the statutory 

prospectus. 

180See supra note 166 and accompanying text. 

Securities Act 175 require the 

Commission, when engaging in 

rulemaking that requires it to consider 

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. 

The proposed amendments 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, which 

could promote efficiency. We anticipate 

that the proposed rules, if adopted, 

would increase efficiency at mutual 

funds by providing an alternative to the 

printing and mailing of paper copies of 

statutory prospectuses. 

We anticipate that our proposal will 

improve investors’ ability to make 

informed investment decisions and, 

therefore, lead to increased efficiency 

and competitiveness of the U.S. capital 

markets. Similarly, 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 fund investors or 

existing investors investing in more 

funds. 

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 proposal will: (1) Facilitate greater 

availability of information to investors 

and the market with regard to all funds; 

(2) reflect the increased importance of 

electronic dissemination of information, 

including the use of the Internet; and (3) 

promote the capital formation process. 

We request comment on whether the 

proposed amendments, if adopted, 

would promote efficiency, competition, 

and capital formation. We also request 

comment on any anti-competitive 

effects of the proposed amendments. 

Commenters are requested to provide 

empirical data and other factual support 

for their views if possible. 

VIII. Initial Regulatory Flexibility 

Analysis 

This Initial Regulatory Flexibility 

Analysis has been prepared in 

accordance with the Regulatory 

Flexibility Act.176 It relates to the 

Commission’s proposed amendments to 

Form N–1A under the Securities Act 

and the Investment Company Act and to 

proposed new rule 498 under the 

Securities Act. 

A. Reasons for, and Objectives of, 

Proposed Amendments 

We are proposing 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 proposal is the 

provision to all investors of streamlined 

and user-friendly information that is key 

to an investment decision. More 

detailed information would be provided 

both on the Internet and, upon an 

investor’s request, in paper or by e-mail. 

B. Legal Basis 

The Commission is proposing 

amendments to Form N–1A 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 

proposing amendments to rule 498 

under the Securities Act 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]. 

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.177 Approximately 131 mutual 

funds registered on Form N–1A meet 

this definition.178

D. Reporting, Recordkeeping, and Other 

Compliance Requirements 

The proposed amendments would 

require all funds, including funds that 

are small entities, to provide key 

information in a summary section of 

their statutory prospectuses. In addition, 

the proposed amendments provide a 

new option that would permit a person 

to satisfy its mutual fund prospectus 

delivery obligations under the Securities 

Act. Under the proposed option, key 

information would be sent or given to 

investors in the form of a Summary 

Prospectus, and the statutory prospectus 

would be provided on an Internet Web 

site. Upon an investor’s request, funds 

would also be required to send the 

statutory prospectus to the investor. No 

funds would be required to send or give 

a Summary Prospectus. However, for 

purposes of the PRA, we estimate that 

75% of all funds would choose to send 

or give a Summary Prospectus pursuant 

to proposed rule 498 both to enhance 

investor access to information about a 

fund and to take advantage of the cost 

savings that a fund may realize. If a fund 

elects the proposed new delivery regime 

for prospectuses, it would be required to 

prepare, file, and send or give a 

Summary Prospectus to investors. 

Moreover, a fund would be required to 

update its Summary Prospectus 

quarterly. The required disclosure in the 

Summary Prospectus is information that 

generally would be readily available to 

funds. A fund would be 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 proposed new disclosure 

requirements would increase the hour 

burden of filings on Form N–1A by 

69,808 hours annually and for proposed 

rule 498 by 88,351 hours annually. We 

estimate that this additional burden 

would increase total internal costs per 

fund, including funds that are small 

entities, by approximately $6,102 per 

portfolio annually.179 Also for purposes 

of the Paperwork Reduction Act, we 

have estimated that the benefit of 

decreased printing and other costs 

would decrease total external costs per 

fund, including funds that are small 

entities, by approximately $27,826 per 

portfolio annually.180

The Commission solicits comment on 

these estimates and the anticipated 

effect the proposed amendments would 

have on small entities. 

E. Duplicative, Overlapping or 

Conflicting Federal Rules 

We believe that there are no rules that 

duplicate, overlap, or conflict with the 

proposed amendments. 


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181Pub. L. 104–21, Title II, 110 Stat. 857 (1996). 

F. 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 

proposed 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 

proposed amendments for small 

entities; (3) the use of performance 

rather than design standards; and (4) an 

exemption from coverage of the 

proposed 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 proposed 

amendments to Form N–1A would 

provide investors with enhanced 

disclosure regarding funds. This 

enhanced disclosure would allow 

investors to better assess their 

investment decisions. 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 would be required by the 

proposed amendments to Form N–1A to 

be provided to investors in all funds, 

not just funds that are not considered 

small entities. 

Proposed rule 498, if adopted, would 

provide a new option that would permit 

a person to satisfy its mutual fund 

prospectus delivery obligations under 

the Securities Act. Under the proposed 

option, key information would be sent 

or given to investors in the form of a 

Summary Prospectus, and the statutory 

prospectus would be provided on an 

Internet Web site. Upon an investor’s 

request, funds would also be required to 

send the statutory prospectus to the 

investor. Because the proposed rule is 

designed to provide investors with more 

accessible disclosure, an exemption 

from the proposed rule or separate 

requirements for small entities would 

not achieve the goal of more accessible 

disclosure for the investors in those 

funds. 

We have endeavored through the 

proposed 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 proposed 

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 context of prospectus 

disclosure requirements. 

G. Request for Comments 

The Commission encourages the 

submission of written comments with 

respect to any aspect of this analysis. 

Comment is specifically requested on 

the number of small entities that would 

be affected by the proposed 

amendments and the likely impact of 

the proposal on small entities. 

Commenters are asked to describe the 

nature of any impact and provide 

empirical data supporting the extent of 

the impact. These comments will be 

considered in the preparation of the 

Final Regulatory Flexibility Analysis, if 

the proposed amendments are adopted, 

and will be placed in the same public 

file as comments on the proposed 

amendments themselves. 

IX. Consideration of Impact on the 

Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),181 a rule is ‘‘major’’

if it results or is likely to result in: 

• An annual effect on the economy of 

$100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment, or innovation. 

We request comment on whether our 

proposal would be a ‘‘major rule’’ for 

purposes of SBREFA. We solicit 

comment and empirical data on: 

• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential effect on competition, 

investment or innovation. 

X. Statutory Authority 

The Commission is proposing 

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 proposing 

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 proposing 

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 Proposed Rule and Form 

Amendments 

For the reasons set out in the 

preamble, the Commission proposes to 

amend Title 17, Chapter II, of the Code 

of Federal Regulations as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

1. The authority citation for part 230 

continues to read in part as follows: 

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. 

* * * * * 

§ 230.159A [Amended] 

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 


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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)). 

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)). 

* * * * * 

§ 230.485 [Amended] 

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 6(b) or 11(a)(2) of Form N–

1A’’. 

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 fifth 

business day after the date that it is first 

used. 

6. Revise § 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) 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)). 

(3) 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. 

(4) Statement of Additional 

Information means the statement of 

additional information required by Part 

B of Form N–1A. 

(5) Statutory Prospectus means a 

prospectus that satisfies the 

requirements of section 10(a) of the Act. 

(6) 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: 

(i) The Fund’s name and the Class or 

Classes, if any, to which the Summary 

Prospectus relates. 

(ii) A statement identifying the 

document as a ‘‘Summary Prospectus.’’

(iii) The approximate date of the 

Summary Prospectus’s first use. 

(iv) 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 (f)(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 

(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 


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clearly identify the document from 

which the information is incorporated, 

including the date of the document; 

and, 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) and 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. (i) Except as otherwise 

provided in this paragraph (b), provide 

the information required or permitted 

by Items 2 through 9 of Form N–1A, and 

only that information, in the order 

required by the form. 

(ii) Provide in the table required by 

Item 4(b) of Form N–1A the Fund’s 

average annual total returns and, if 

applicable, yield as of the end of the 

most recent calendar quarter prior to the 

Summary Prospectus’s first use. Update 

the return information as of the end of 

each succeeding calendar quarter not 

later than one month after the 

completion of the quarter. Include the 

date of the return information in the 

table. A Summary Prospectus may omit 

the explanation and information 

required by Instruction 2(c) to Item 

4(b)(2) of Form N–1A. 

(iii) Provide the portfolio holdings 

information required by Item 5 of Form 

N–1A as of the end of the most recent 

calendar quarter prior to the Summary 

Prospectus’s first use or the immediately 

prior calendar quarter if the most recent 

calendar quarter ended less than one 

month prior to the Summary 

Prospectus’s first use. Update the 

portfolio holdings information as of the 

end of each succeeding calendar quarter 

not later than one month after the 

completion of the quarter. 

Instruction to paragraphs (b)(2)(ii) 

and (iii). A Fund may reflect the 

updated performance and portfolio 

holdings information in the Summary 

Prospectus by affixing a label or sticker, 

or by other reasonable means. 

(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 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 most 

recent report to the Fund’s shareholders 

under § 270.30e–1, provided that: 

(A) The conditions of paragraphs 

(b)(1)(iv)(B) and (f) 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: 

(1) A Summary Prospectus is sent or 

given no later than the time of the 

carrying or delivery of the Fund 

security; and, if any other materials 

accompany the Summary Prospectus, 

the Summary Prospectus is given greater 

prominence than those materials and is 

not bound together with any of those 

materials; 

(2) 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 

(3) The conditions set forth in 

paragraph (f) 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; and, if any 

other materials accompany the 

Summary Prospectus, the Summary 

Prospectus is given greater prominence 

than those materials and is not bound 

together with any of those materials; 

(2) The Summary Prospectus that was 

sent or given satisfies the requirements 

of paragraph (b) of this section at the 

time of such communication; and 

(3) The conditions set forth in 

paragraph (f) of this section are satisfied. 

(e) Updated Summary Prospectuses. 

(1) For purposes of paragraphs (c) and 

(d) of this section, a Summary 

Prospectus that satisfies the 

requirements of paragraph (b) of this 

section at the time it is sent or given 

shall be deemed to continue to satisfy 

those requirements until the earlier of 

the date on which: 

(i) The information in the Summary 

Prospectus is required to be updated for 

any purpose other than compliance with 

paragraphs (b)(2)(ii) and (iii) of this 

section; or 

(ii) The Fund is required to file an 

amendment to its registration statement 

for the purpose of updating its Statutory 

Prospectus to satisfy the requirements of 

section 10(a)(3) of the Act (15 U.S.C. 

77j(a)(3)). 

(2) Unless otherwise required to be 

included in the Statutory Prospectus or 

registration statement, the failure to 

include in a Statutory Prospectus or 

registration statement the updated 

return and portfolio holdings 

information required to be included in 

a Summary Prospectus by paragraphs 

(b)(2)(ii) and (b)(2)(iii) of this section 

will not, solely by virtue of inclusion of 

the information in a Summary 

Prospectus, be considered an omission 

of material information required to be 

included in the Statutory Prospectus or 

registration statement. 

(f) 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 


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67816 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

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 (f)(1) of this 

section must be presented on the Web 

site in a format, or formats, that: 

(i) Are convenient for both reading 

online and printing on paper; 

(ii) Permit persons accessing the 

Statutory Prospectus or Statement of 

Additional Information to move directly 

back and forth between the table of 

contents in such document (including 

from the table of contents required by 

§ 230.481(c)) and each section of the 

document referenced in the table of 

contents; and 

(iii) Permit persons accessing the 

Summary Prospectus to move directly 

back and forth between each section of 

the Summary Prospectus and: 

(A) Any section of the Statutory 

Prospectus and Statement of Additional 

Information that provides additional 

detail concerning that section of the 

Summary Prospectus, or 

(B) Tables of contents in the Statutory 

Prospectus and Statement of Additional 

Information that prominently display 

the sections within the Statutory 

Prospectus and Statement of Additional 

Information that provide additional 

detail concerning that section of the 

Summary Prospectus. 

(3) Persons accessing the materials 

specified in paragraph (f)(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 (f)(2)(i) and 

(ii) of this section. 

(4) The conditions set forth in 

paragraphs (f)(1), (f)(2), and (f)(3) of this 

section shall be deemed to be met, 

notwithstanding the fact that the 

materials specified in paragraph (f)(1) of 

this section are not available for a time 

in the manner required by such 

paragraphs, provided that: 

(i) The Fund has reasonable 

procedures in place to ensure that the 

specified materials are available in the 

manner required by paragraphs (f)(1), 

(f)(2), and (f)(3) of this section; and 

(ii) The Fund takes prompt action to 

ensure that the specified documents 

become available in the manner 

required by paragraphs (f)(1), (f)(2), and 

(f)(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 (f)(1), (f)(2), and (f)(3) of 

this section. 

(g) 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 semiannual 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 semiannual reports to shareholders to any 

person requesting such a copy within 

three business days after receiving a 

request for an electronic copy. 

Compliance with this paragraph (g) is 

not a condition to the ability to rely on 

paragraph (c) or (d) of this section with 

respect to a Fund, and failure to comply 

with paragraph (g) 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. 

* * * * * 

§ 232.304 [Amended] 

8. Section 232.304 is amended by 

revising the references ‘‘Item 22 of Form 

N–1A’’ in paragraphs (d) and (e) to read 

‘‘Item 28 of Form N–1A’’. 

§ 232.401 [Amended] 

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 14(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(d), 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; 

b. Revising the reference ‘‘Items 10 

through 22 of Form N–1A’’ in Item 12(a) 

to read ‘‘Items 15 through 28 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 15 

through 18 and 20 through 28 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 9, 10(a), 10(b), and 11 

through 14 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 Table of Contents; 

b. Revising the General Instructions as 

follows: 

i. 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 14), 

B, and C (except Items 29(e) and (i)- 

(k))’’; 

ii. Revising paragraphs B.4.(c), C.3.(a), 

C.3.(b), and C.3.(c); 

iii. Revising the reference ‘‘Items 6(b)–

(d) and 7(a)(2)–(5)’’ in paragraph 


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C.3.(d)(i) to read ‘‘Items 12(b)–(d) and 

13(a)(2)–(5)’’; and 

iv. 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)’’; 

c. Revising Item 1 as follows: 

i. Removing Instruction 6 to Item 

1(b)(1); 

ii. In Item 1(b)(3), revising the 

telephone number ‘‘1–202–942–8090’’

to read ‘‘1–202–551–8090’’; and 

iii. In Item 1(b)(3), revising the zip 

code ‘‘20549–0102’’ to read ‘‘20549–

0213’’; 

d. 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, 10, 11, 12, 13, 14, 15, 16, 

17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 

28, 29, 30, 31, 32, 33, 34, 35, and 36, 

respectively; 

e. Adding new Item 2; 

f. 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. In Instruction 2(a)(i), revising the 

reference ‘‘Item 7(a)’’ to read ‘‘Item 

13(a)’’; 

vi. Revising Instruction 3(e); 

vii. In Instruction 3(f)(iii), revising the 

references ‘‘Item 8(a)’’ to read ‘‘Item 

14(a)’’; 

viii. In Instruction 3(f)(vii), revising 

the reference ‘‘Item 8’’ to read ‘‘Item 

14’’; 

ix. Revising Instruction 4(a); 

x. Redesignating Instruction 5 as 

Instruction 6 and adding new 

Instruction 5; and 

xi. In newly redesignated Instruction 

6, revising paragraph (b); 

g. 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 10(b)’’; 

iii. In newly redesignated Item 

4(b)(1)(i), revising the reference ‘‘Item 

4(c)’’ to read ‘‘Item 10(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. In newly redesignated Item 

4(b)(2)(i), revising the reference 

‘‘paragraphs (c)(2)(ii) and (iii)’’ to read 

‘‘paragraphs (b)(2)(ii) and (iii)’’; 

vi. In newly redesignated Item 

4(b)(2)(iii), revising the reference ‘‘Item 

22(b)(7)’’ to read ‘‘Item 28(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 

14(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 27(a)’’, ‘‘Item 27(b)(1)’’, and 

‘‘Items 27(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 

28(b)(7)’’; 

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 27(b)(2)’’ and ‘‘Item 

27’’, respectively; 

xiii. In newly redesignated Item 

4(b)(2), revising Instructions 2(e), 3(a), 

3(b), and 3(c); and 

xiv. In Instruction 4 to newly 

redesignated Item 4(b)(2), revising the 

reference ‘‘Item 22(b)(7)’’ to read ‘‘Item 

28(b)(7)’’; 

h. Adding new Items 5, 6, 7, 8, and 

9; 

i. In Instruction 5 to newly 

redesignated Item 10(b)(1), revising the 

reference ‘‘Item 11(c)(1)’’ to read ‘‘Item 

17(c)(1)’’; 

j. Revising newly redesignated Item 

11 as follows: 

i. Revising paragraph (a)(1)(i); 

ii. Revising paragraph (a)(2); and 

iii. Removing the Instructions to 

newly redesignated Item 11(a)(2); 

k. In newly redesignated Item 12, 

removing paragraph (g); 

l. Revising newly redesignated Item 

13 as follows: 

i. In Instruction 1 to newly 

redesignated Item 13(a)(2), revising the 

reference ‘‘Item 7’’ to read ‘‘Item 13’’; 

ii. In Instruction 2 to newly 

redesignated Item 13(a)(2), revising the 

references ‘‘Item 7’’ and ‘‘Items 12(d) 

and 17(b)’’ to read ‘‘Item 13’’ and ‘‘Items 

18(d) and 23(b)’’, respectively; 

iii. In newly redesignated Item 

13(a)(5), revising the reference ‘‘Item 

17(a)’’ to read ‘‘Item 23(a)’’; and 

iv. In the Instruction to newly 

redesignated Item 13(a)(5), revising the 

reference ‘‘Item 7’’ to read ‘‘Item 13’’; 

m. Revising newly redesignated Item 

17 as follows: 

i. In newly redesignated Item 17(d), 

revising the reference ‘‘Item 4(b)’’ to 

read ‘‘Item 10(b)’’; 

ii. In newly redesignated Item 17(e), 

revising the reference ‘‘Item 8’’ to read 

‘‘Item 14’’; and 

iii. In Instruction 1 to newly 

redesignated Item 17(f)(2), revising the 

reference ‘‘Item 11(f)(2)’’ to read ‘‘Item 

17(f)(2)’’; 

n. In newly redesignated Item 18, 

revising the reference ‘‘Item 12’’ to read 

‘‘Item 18’’; 

o. In newly redesignated Items 21(a), 

21(b), and 21(c), revising the reference 

‘‘Item 5(a)(2)’’ to read ‘‘Item 6(b)’’; 

p. Revising newly redesignated Item 

24 as follows: 

i. Removing the Instruction to newly 

redesignated Item 24(a); 

ii. In Instruction 4 to newly 

redesignated Item 24(c), revising the 

reference ‘‘Item 22’’ to read ‘‘Item 28’’; 

and 

iii. In Instruction 1 to newly 

redesignated Item 24(e), revising the 

reference ‘‘Item 17(e)’’ to read ‘‘Item 

23(e)’’; 

q. In Instruction 1 to newly 

redesignated Item 26(c), revising the 

references ‘‘Item 7(b)(2)’’, ‘‘Item 14(d)’’, 

and ‘‘Item 30’’ to read ‘‘Item 13(b)(2)’’, 

‘‘Item 20(d)’’, and ‘‘Item 36’’, 

respectively; 

r. Revising newly redesignated Item 

28 as follows: 

i. In newly redesignated Item 28(a), 

revising the reference ‘‘Item 17(c)’’ to 

read ‘‘Item 23(c)’’; 

ii. In newly redesignated Item 

28(b)(2), revising the reference ‘‘Item 

8(a)’’ to read ‘‘Item 14(a)’’; 

iii. In newly redesignated Item 

28(b)(5), revising the reference ‘‘Item 

12(a)(1)’’ to read ‘‘Item 18(a)(1)’’; 

iv. In newly redesignated Item 

28(b)(7)(ii)(B), revising the reference 

‘‘Item 21(b)(1)’’ to read ‘‘Item 27(b)(1)’’; 

v. In Instruction 10 to newly 

redesignated Item 28(b)(7), revising the 

reference ‘‘Instruction 5 to Item 3’’ to 

read ‘‘Instruction 6 to Item 3’’; 

vi. In the Instruction to newly 

redesignated Item 28(c)(1), revising the 

references ‘‘Item 22(b)(1)’’ and ‘‘Item 

22(c)(1)’’ to read ‘‘Item 28(b)(1)’’ and 

‘‘Item 28(c)(1)’’, respectively; 

vii. In newly redesignated Item 

28(c)(2), revising the reference ‘‘Item 

8(a)’’ to read ‘‘Item 14(a)’’; 

viii. In Instruction 1(c) to newly 

redesignated Item 28(d)(1), revising the 

reference ‘‘Item 8(a)’’ to read ‘‘Item 

14(a)’’; 

ix. In Instruction 2(a)(ii) to newly 

redesignated Item 28(d)(1), revising the 

reference ‘‘Item 22(d)(1)’’ to read ‘‘Item 

28(d)(1)’’; and 

x. In the Instruction to newly 

redesignated Item 28(d)(4), revising the 


rwilkins on PROD1PC63 with PROPOSALS2
67818 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

reference ‘‘Item 12(f)’’ to read ‘‘Item 

18(f)’’; 

s. In newly redesignated Item 29(k), 

revising the reference ‘‘Item 22’’ to read 

‘‘Item 28’’; 

t. Revising newly redesignated Item 

33 as follows: 

i. In newly redesignated Item 33(b), 

revising the reference ‘‘Item 20’’ to read 

‘‘Item 26’’; 

ii. In Instruction 2 to newly 

redesignated Item 33(c), revising the 

reference ‘‘Item 20(c)’’ to read ‘‘Item 

26(c)’’; and 

u. In Instruction 1 to newly 

redesignated Item 35, revising the 

reference ‘‘Item 14’’ to read ‘‘Item 20’’. 

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. 

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. Portfolio Holdings 

Item 6. Management 

Item 7. Purchase and Sale of Fund Shares 

Item 8. Tax Information 

Item 9. Financial Intermediary 

Compensation 

Item 10. Investment Objectives, Principal 

Investment Strategies, Related Risks, and 

Disclosure of Portfolio Holdings 

Item 11. Management, Organization, and 

Capital Structure 

Item 12. Shareholder Information 

Item 13. Distribution Arrangements 

Item 14. Financial Highlights Information 

Part B: Information Required in a Statement 

of Additional Information 

Item 15. Cover Page and Table of Contents 

Item 16. Fund History 

Item 17. Description of the Fund and Its 

Investments and Risks 

Item 18. Management of the Fund 

Item 19. Control Persons and Principal 

Holders of Securities 

Item 20. Investment Advisory and Other 

Services 

Item 21. Portfolio Managers 

Item 22. Brokerage Allocation and Other 

Practices 

Item 23. Capital Stock and Other Securities 

Item 24. Purchase, Redemption, and 

Pricing of Shares 

Item 25. Taxation of the Fund 

Item 26. Underwriters 

Item 27. Calculation of Performance Data 

Item 28 Financial Statements 

Part C: Other Information 

Item 29. Exhibits 

Item 30. Persons Controlled by or Under 

Common Control with the Fund 

Item 31. Indemnification 

Item 32. Business and Other Connections 

of the Investment Adviser 

Item 33. Principal Underwriters 

Item 34. Location of Accounts and Records 

Item 35. Management Services 

Item 36. Undertakings 

Signatures 

General Instructions 

* * * * * 

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 

9 must be provided in plain English 

under rule 421(d) under the Securities 

Act. 

* * * * * 

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 9 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 9 need not be 

repeated elsewhere in the prospectus. 

Disclose the information required by 

Item 13 (Distribution Arrangements) in 

one place in the prospectus. 

(b) Other Information. A Fund may 

include, except in response to Items 2 

through 9, 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 9 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 9, Funds may 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 9 in numerical order at 

the front of the prospectus and not to 

precede Items 2 through 9 with other 

information. A prospectus that contains 

information about more than one Fund 

must present all of the information 

required by Items 2 through 9 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 9 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 9. A 

Multiple Class Fund may present the 

information required by Items 2 through 

9 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 9. 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) 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 


rwilkins on PROD1PC63 with PROPOSALS2
Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 67819 

intent to disclose the information 

required by Items 2 through 9 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 9 

information for those Classes. 

* * * * * 

Part A: Information Required in a 

Prospectus 

* * * * * 

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 $[llllll] in [name of fund 

family] funds. 

* * * * * 

Annual Fund Operating Expenses 

(ongoing expenses that you pay each 

year as a percentage of the value of your 

investment) 

* * * * * 

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 may 

indicate higher transaction costs. 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 l% 

of the average value of its whole 

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. 

* * * * * 

3. Annual Fund Operating Expenses. 

(a) * * * 

(e) If there were expense 

reimbursement or fee waiver 

arrangements that reduced any Fund 

operating expenses and will continue to 

reduce them 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, 

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 waiver 

arrangements that reduced any Fund 

operating expenses during the most 

recently completed calendar year and 

that will continue to reduce them 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 14(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. 

6. New Funds. * * * 

(a) * * * 

(b) 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 New 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 New Fund’s 

net expenses after subtracting the fee 

reimbursement or expense waiver from 

the total fund operating expenses. The 

New 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 

New Fund provides this disclosure, also 

disclose the period for which the 

expense reimbursement or fee waiver 

arrangement is expected to continue, 

and briefly describe who can terminate 

the arrangement and under what 

circumstances. 

* * * * * 

Item 4. Risk/Return Summary: 

Investments, Risks, and Performance 

* * * * * 

(2) Risk/Return Bar Chart and Table. 

* * * * * 

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 broad-based 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 


rwilkins on PROD1PC63 with PROPOSALS2
67820 Federal Register / Vol. 72, No. 230 / Friday, November 30, 2007 / Proposed Rules 

Classes all have fewer than 10 years of 

returns; and 

(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. Portfolio Holdings 

Provide a list of the ten largest issues 

contained in the Fund’s portfolio, in 

descending order, together with the 

percentage of net assets represented by 

each. Include the date as of which the 

holdings are provided adjacent to the 

holdings information. 

Instructions. 

1. Provide the required information as 

of the end of the most recent calendar 

quarter. 

2. For purposes of the list, aggregate 

and treat as a single issue, respectively, 

(a) all fully collateralized repurchase 

agreements; and (b) all securities of any 

one issuer (other than fully 

collateralized repurchase agreements). 

The U.S. Treasury and each agency, 

instrumentality, or corporation, 

including each government-sponsored 

entity, that issues U.S. government 

securities is a separate issuer. 

3. Any securities that would be 

required to be listed separately or 

included in a group of securities that is 

listed in the aggregate as a single issue 

may be listed in one amount as 

‘‘Miscellaneous securities,’’ provided 

the securities so listed are eligible to be 

categorized as ‘‘Miscellaneous 

securities’’ in accordance with Schedule 

I—Investments in securities of 

unaffiliated issuers [17 CFR 210.12–12] 

as of the end of the most recent calendar 

quarter. However, if any security that is 

included in ‘‘Miscellaneous securities’’

would otherwise be required to be 

included in a group of securities that is 

listed in the aggregate as a single issue, 

the remaining securities of that group 

must nonetheless be listed as required, 

even if the remaining securities alone 

would not otherwise be required to be 

listed in this manner (e.g., because the 

combined value of the security listed in 

‘‘Miscellaneous securities’’ and the 

remaining securities of the same issuer 

is sufficient to cause them to be among 

the 10 largest issues, but the value of the 

remaining securities alone is not 

sufficient to cause such remaining 

securities to be among the 10 largest 

issues). If any securities are listed as 

‘‘Miscellaneous securities,’’ briefly 

explain in a footnote what that term 

represents. 

Item 6. Management 

(a) Investment Adviser(s). Provide the 

name of each investment adviser of the 

Fund, including sub-advisers. 

Instructions: 

1. A Fund need not identify a subadviser 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 subadvisers, 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 subadviser 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-to-day 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-today management of the Fund’s portfolio. 

Item 7. 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). 

Item 8. 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. 

Item 9. Financial Intermediary 

Compensation 

Include the following statement. A 

Fund may modify the statement if the 

modified statement contains comparable 

information. 

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 influence 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 11. Management, Organization, 

and Capital Structure 

(a) Management. 


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(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 6(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 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. 

* * * * * 

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 28(b)(ii) of 

Form N–1A’’ and by revising the 

reference ‘‘Item 22(b)(ii) equation’’ to 

read ‘‘Item 28(b)(ii) equation’’ in 

Instruction 3 to Item 21(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. 

Dated: November 21, 2007. 

Nancy M. Morris, 

Secretary. 

Appendix 

Note: This Appendix will not appear in the 

Code of Federal Regulations. 

BILLING CODE 8011–01–P 


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[FR Doc. 07–5852 Filed 11–29–07; 8:45 am] 

BILLING CODE 8011–01–C 


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