New Summary Prospectus Rule and Form N-1A Changes K&L Gates Webinar
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New Summary Prospectus Rule and Form N-1A Changes K&L Gates Webinar April 14, 2009 Speakers: Francine J. Rosenberger, Partner, K&L Gates LLP Jeff Levering, VP Corporate Development, NewRiver, Inc. George P. Attisano, Counsel at K&L Gates LLP Speakers Francine J. Rosenberger Partner Washington DC 202.778.9187 francine.rosenberger@klgates.com George P. Attisano Counsel Boston 617.261.3240 george.attisano@klgates.com Jeff Levering Vice President, Corporate Development NewRiver, Inc. W: 978.247.7295 Jeff.Levering@newriver.com 2 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 3 Overview Disclosure Regime Changes Summary Prospectus New Delivery Option Layered Regime To improve mutual fund disclosure by providing investors with key information in a clear and concise format, while enhancing the means of delivering more detailed information to investors 4 Layered Regime Consists of 3 Layers Gr cc rA te ea 1st Layer Summary Prospectus s es to rm fo In ion at 2nd Layer Statutory Prospectus th wi r ye La 5 ch Ea 3rd Layer Online Access to Fund Information – including SAI & Shareholder Reports Overview (cont.) Form and Rule Changes: Rule 498 – Former Profile Prospectus Rule Forms N-1A, N-4 and N-14 disclosure requirements Rule 497 – Filing of definitives and supplements Rule 482 – Advertising rule Other rules to address references 6 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 7 Revisions to Form N-1A Instructions Front cover page Revised risk/return summary Summary portion of prospectus Disclosure in remainder of prospectus need not repeat any disclosure contained in summary portion of prospectus 8 Summary Portion of Statutory Prospectus Items in Summary Portion What Changed? Item 2. Objective/Goal Same disclosure Item 3. Fee Table and Example Added disclosures: breakpoints and portfolio turnover; New: Can show net expenses with waivers and ETF disclosure Item 4(a). Principal Investment Strategies Same disclosure Item 4(b). Narrative Risks Same disclosure Item 4(c). Risk/Return Bar Chart Added disclosure on updated performance Item 5(a). Adviser/Subadvisers Split disclosure; Excludes certain subadvisers Item 5(b). Portfolio Managers Split disclosure Item 6. Purchase and Sale Information Split disclosure; New: ETF disclosure Item 7. Tax Information New Item 8. Financial Intermediary Compensation New 9 Summary Portion of Statutory Prospectus (cont.) Must be in plain English May not omit required information May not include additional information No page limits 10 Summary Portion of Statutory Prospectus (cont.) Integration of Disclosure Must be on a fund-by-fund basis, sequentially May integrate disclosure for multiple classes May integrate identical information for: Purchase and sale Tax information Financial intermediary compensation If integrated, prospectus must include legend 11 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Requirements Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 12 New Disclosures for ETFs Focuses on secondary market purchasers Front Cover: Identify principal market Fee Table: Modify narrative explanation Exclude fees charged for purchase and redemption Purchase and Sale: Specify number of shares necessary to issue or redeem creation unit Explain purchase and sale of individual shares Explain market price versus net asset value Shareholder Information: Table showing premium and discount information May omit from prospectus if make available on internet 13 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 14 Summary Prospectus Voluntary compliance May be delivered in place of statutory prospectus Only contain disclosure for a single fund May be bound together with statutory prospectus only for funds for variable annuity/insurance contracts May be sent with other documents but must have greater prominence 15 Summary Prospectus (cont.) Cover page and legend Fund name and share class Ticker symbol Identify as “Summary Prospectus” Date Legend provides internet address, toll free telephone number and e-mail address to obtain statutory prospectus and other information Incorporation by reference only from fund documents and not required information 16 Summary Prospectus (cont.) Summary Portion of Statutory Prospectus Item 2. Investment Objectives/Goals Item 3. Fee Table and Example Item 4. Principal Investments Strategies, Narrative Risks and Bar Chart and Table Item 5. Adviser and portfolio managers Item 6. Purchase and sale information (except ETFs and funds for retirement plans and variable insurance contracts) Item 7. Tax information Item 8. Compensation to Financial Intermediaries 17 Variable Annuity Considerations Variable annuity issuers have an obligation to deliver a prospectus of the sub-funds to contract owners Option available to use summary prospectus VA issuers may bind the summary prospectuses and statutory prospectuses for individual contract of an individual investor If use binding: Must add a table of contents May add a cover page 18 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Requirements Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 19 Delivery Option Delivery of Summary Prospectus satisfies Section 5 ONLY if: 1. Summary prospectus delivered no later than confirmation 2. Summary prospectus is not bound together with any materials (with limited exception for VA and variable life insurance contracts) 3. Summary prospectus satisfies the general requirements of Rule 498 4. Statutory prospectus and other information available via Internet in specified manner 20 Website Functional Requirements Rule Requirement References from the SEC’s Adopting Release Direct access to document “The Internet address at which the statutory prospectus and other information are available is not permitted to be the address of the Commission’s Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”). Page 75 “The address is required to be specific enough to lead investors directly to the statutory prospectus and other required information, rather than to the home page or other section of the Web site on which the materials are posted.” Pages 76 Availability of summary and statutory prospectuses, SAI, & semi and annual shareholder reports Page 82 Linked table of contents in the Prospectus & SAI Page 86 2-click linkage of summary prospectus to statutory prospectus and/or SAI Page 89 Human readable online & human readable printed “…posted information must be presented in human-readable text, rather than machine-readable software code, when accessed through an Internet browser and that it must be printable in human-readable text. “ Page 85 Continuous Access: 90 days (website on paper) & 6 Months (e-delivery link by request) Page 83, Page 94 21 Legal Considerations Voluntary option to satisfy delivery obligations Incorporation by reference Requirements to satisfy delivery obligation vs. requirements to comply with summary prospectus rule Additional requirements of rule Summary prospectus must be given “greater prominence” than accompanying materials Statutory prospectus must be provided by mail or email upon request 22 Legal Considerations (cont.) Limited safe harbor for temporary online unavailability Like force majeure provision For events beyond a fund’s control A fund must have in place reasonable procedures and take prompt action 23 Implementation must meet distributors’ requirement “Directing clients to a fund Web site to access the statutory prospectus raises significant issues for intermediaries. Overcoming these concerns will most likely hinge on the ability to access statutory prospectuses through a neutral party such as an industry utility or vendor. Ira D. Hammerman, SIFMA, February 28, 2008 24 Demo: Website Requirements 1 Summary Prospectus along with other Disclosure Documents 2 3 Friendly user icons for print, save, and print-ready PDF* functions Integrated Supplements 25 Demo: Website Requirements (cont.) 5 Friendly user icons for print, save, and print-ready PDF* functions 4 “Across Document Linking” to the Prospectus and SAI *Optional service 26 Demo: Website Requirements (cont.) 6 Linkable table of contents within the Prospectus and SAI 7 Deep linking within Prospectus and SAI docs 27 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 28 Implementing New Rule and Changes Is the Summary Prospectus right for the fund? How much disclosure is enough? What are the filing and supplementing requirements? How much time will it take to implement the new rule and changes? What should a fund company consider for selecting vendors? 29 Filing and Updating Requirements File summary portion as part of statutory prospectus File stand alone summary prospectus under Rule 497(k) no later than first use No quarterly update of summary prospectus Updated performance information available on a web site or at a toll-free telephone number Result: Follow standard updating process Supplement both statutory and summary prospectuses 30 Compliance Dates January 2011 Effective date is March 31, 2009 All Form N-1A filings on or after January 1, 2010 must comply Final Compliance Date Initial registration statements Post-effective amendments for new series Post-effective amendments for annual updates Must file under Rule 485(a) SEC staff will consider requests for Rule 485(b) filings Final compliance date is January 1, 2011 31 Timeline for Implementing Summary Prospectus • Create model summary portions and summary prospectuses • Consider disclosure modifications and use of summary prospectus • Create timeline • Solicit feedback and suggestions • Involve legal, compliance, operations, transfer agent, marketing • Consider creating working group • Commence 60-day filings with SEC • Prepare off-cycle updates or work into annual registration update process • Circulate updated prospectus and proposed summary prospectuses • Request ability to make Rule 485(b) filings once SEC has reviewed sample of summary prospectus disclosures • Select and work with vendors for website • Consider coordination with financial intermediaries 32 Vendor Selection Buy versus Build Decision Legal structural changes, “plain English” Composition EDGAR Filing Website development Website maintenance and hosting Digital Print Timing Speed of decision making, contract negotiations What’s the internal review process (management, Board) 33 Vendor selections will likely be made in 2009 May Maybegin beginto to use use Summaries Summaries Vendor Vendor Selection? Selection? Must Mustbegin begin to toFile File summary summary section sectionin in Statutory Statutory 34 All Allfunds funds must must have have filed filed summary summary section sectionin in Statutory Statutory Vendor Consolidation: Single Envelope Smaller prospectus can be printed digitally (versus off-set) Material savings and improved investor experience 35 Doing Nothing is Expensive for Fund Companies and Their Distributors TODAY TOMORROW 12 Fund Prospectus: ~ 69 pages 12 Fund Prospectus: ~ 117 pages* *12 funds at 4 pages per fund for the summary section 36 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 37 Fund Company Wants to Build versus Buy? Consider that Fund will need… 38 Agenda Overview Revisions to Form N-1A New Disclosures for ETFs Summary Prospectus Delivery Option and Legal Considerations Implementing New Rule and Changes Technology Checklist Questions 39 About the Speakers Francine J. Rosenberger Partner Washington DC 202.778.9187 francine.rosenberger@klgates.com Ms. Rosenberger is a partner in the Investment Management practice. She concentrates on regulatory and transactional matters involving mutual funds, closed-end funds, exchange traded funds (ETFs), investment advisers and broker-dealers. Her experience includes: Developing compliance programs for funds and investment advisers; Advising fund boards on fund governance and regulatory issues, including developing governance programs; Developing comprehensive programs for compliance with the Sarbanes-Oxley Act and the USA PATRIOT Act, including disclosure controls and procedures, whistleblower procedures, antimoney laundering programs and customer identification procedures; Representing clients before the SEC in connection with no-action requests and exemptive applications, including with respect to electronic delivery issues; Advising funds and investment advisers on the formation, reorganization and termination of investment companies; Advising clients regarding SEC inquiries and inspections; and Developing procedures for ETFs, structuring and negotiated various agreements relating to ETFs, and preparing ABA comment letter to SEC concept release on ETFs. 40 About the Speakers George P. Attisano Counsel Boston 617.261.3240 george.attisano@klgates.com Mr. George Attisano is counsel in the firm’s Boston office. He focuses his practice on various issues and matters under the Investment Company Act and the Investment Advisers Act. Mr. Attisano has extensive experience with a wide variety of SEC filings, including registration statements, proxies and shareholder reports. He has counseled open-end and closed-end fund boards on a variety of legal issues. He also has counseled funds and investment advisers on developing new products and in connection with SEC staff examinations, preparing responses to SEC inquiries and addressing issues raised in SEC staff deficiency letters. 41 About the Speakers Jeff Levering Vice President, Corporate Development NewRiver, Inc. W: 978.247.7295 Jeff.Levering@newriver.com Mr. Levering leads NewRiver's Corporate Development and is responsible for strategic corporate planning, major accounts' initiatives, business partnerships, and regulatory affairs. Jeff has over 20 years' experience in investment management firms and has been involved in the design of many of NewRiver's products. Jeff has worked in both the retail and institutional side of the investment business, having spent time with Fidelity Investments, Putnam Investments, and Nicholas-Applegate Capital Management. Jeff is a regular speaker at national and regional conferences, and is quoted frequently in industry publications. Jeff holds a Bachelor of Arts in History and Political Science from the American International College, and he previously held Series 26, 6, and 63 NASD Licenses. 42 New Summary Prospectus Rule and Form N-1A Changes K&L Gates Webinar April 14, 2009 Speakers: Francine J. Rosenberger, Partner at K&L Gates LLP Jeff Levering, VP Corporate Development, NewRiver, Inc. George P. Attisano, Counsel at K&L Gates LLP
