Investment Management and Financial Markets Group
February 5, 2009
Summary Prospectus and New Prospectus Delivery Option for
Mutual Funds
The SEC has adopted an “improved mutual fund disclosure framework.” The new rules call for a new summary
section (Summary Section) to be placed at the beginning of the statutorily required full prospectus, and provide
that a mutual fund may satisfy its prospectus delivery obligation by providing an investor a “Summary Prospectus”
containing substantially the same information that is in the Summary Section and making other disclosure
documents available online or, upon request, on paper. The goal of the new rules is to afford mutual fund
investors “streamlined and user-friendly information that is key to an investment decision.”
Summary Section and Summary Prospectus Content
The SEC amended Form N-1A, which will require the Summary Section. Amended Rule 498 under the 1933 Act
provides for the Summary Prospectus. Both must include the following disclosure about a fund, in the order
indicated:
•
The fund’s investment objectives and goals, in the same manner as previously required;
•
Fees and expenses, including:(i) a brief narrative alerting investors to the availability of “breakpoint
discounts;” (ii) portfolio turnover rate for the most recent fiscal year as a percentage of the average value of
the portfolio; (iii) a short explanation of the effect of that portfolio turnover rate on the fund’s transaction
costs and performance; and (iv) specific captions regarding the effect of expense reimbursements or fee
waiver arrangements on disclosed gross operating expenses;
•
Principal investment strategies, risks and performance, including the risk/return bar chart and table
illustrating the variability of returns and past performance, as previously required;
•
The fund’s investment adviser(s), portfolio manager(s), and sub-adviser(s) who have significant
responsibility for the management of the fund;
•
The share purchase and sale process, including minimum initial investment requirements and information
as to whether shares are redeemable and the procedures for redeeming shares;
•
Brief tax information;
•
Information about payments by the fund or a related entity to financial intermediaries, in order to “alert
investors to the potential conflicts of interest.”
The SEC had proposed that a list of the fund’s ten largest holdings be included in the Summary Section and
Summary Prospectus. Commenters argued, though, that such information could be misleading, and the SEC
eliminated that requirement.
The Summary Section and Summary Prospectus must be written in “Plain English.” Funds generally cannot omit,
add, or change the order of any information explicitly required to be disclosed. A multiple fund statutory
prospectus must contain a separate Summary Section for each fund sequentially and cannot integrate the
CHICAGO ● SAN DIEGO● WASHINGTON
information for more than one fund. However, a multiple fund prospectus may integrate certain information in the
Summary Section if it is identical for all funds covered in the statutory prospectus. A Summary Section may
pertain to multiple classes of the same fund. The SEC has guaranteed that each Summary Prospectus be about
three to four pages, though no page limits or requirements have been adopted.
Satisfying Prospectus Delivery Obligations: Use of Summary Prospectus
The content of the Summary Prospectus required by amended Rule 498 is generally the same information
required in the Summary Section. The SEC believes it is important to maintain uniformity between the Summary
Section and the Summary Prospectus. Accordingly, if a fund files a 497 “sticker” to its statutory prospectus to
change any information in the Summary Section, the Summary Prospectus also must be “stickered” to reflect the
changed information.
Under the new rule, a mutual fund may satisfy its prospectus delivery obligations by delivering only the Summary
Prospectus to investors as long as specific requirements are met, including:
•
The fund’s Summary Prospectus, statutory prospectus, SAI, and most recent annual and semi-annual
reports to shareholders are accessible, free of charge, at a website (the website must be disclosed on the
cover or at the beginning of the Summary Prospectus);
•
These disclosure documents are accessible online for at least 90 days after the Summary Prospectus is
delivered to investors;
•
Investors are able to retain an electronic version of the disclosure documents through downloading or
otherwise, free of charge;
•
The full statutory prospectus and the SAI on the website include a table of contents with hyperlinks directing
a reader to the relevant sections within the document;
•
A reader can hyperlink between the Summary Prospectus and the related sections within the statutory
prospectus and the SAI.
Funds are also required to send an investor, upon request, a paper copy or an email containing an electronic
copy, or a direct link, to all the disclosure documents required to be online. In adopting the release, the SEC
stated its desire to have investors choose “whether to review a fund’s information on the Internet or whether to
receive that information directly, either in paper or through an email.”
Incorporation by reference
A fund is permitted to incorporate by reference into the Summary Prospectus information contained in its full
statutory prospectus, SAI, and shareholder reports. The SEC acknowledged that part of the industry’s reluctance
to use the “profile prospectus,” adopted in 1998, were liability concerns stemming from the abbreviated nature of
the document and the inability to incorporate by reference important portions of a fund’s registration statement.
The SEC explained that the Summary Prospectus is not a “self-contained” document but “one piece in a layered
disclosure regime.”
Compliance Date
The effective date of these amendments is March 31, 2009. All initial registration statements, annual updates, and
post-effective amendments that add a new series, filed on or after January 1, 2010 must comply with the new
requirements. The final compliance date is January 1, 2011. A fund’s registration statement must comply with the
new requirements before it can rely on a Summary Prospectus to satisfy its prospectus delivery obligations.
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For further information, please contact Cheryl Allaire 858-509-7424, Cameron Avery 312-807-4302, Kevin Bettsteller 312-8074442, Paul Dykstra 312-781-6029, David Glatz 312-807-4295, Alan Goldberg 312-807-4227, Mark Greer 312-807-4393,
Stevens Kelly 312-807-4240, Molly Moynihan 202-955-7027, Anna Paglia 312-781-7163, Joanne Phillips 202-955-6824,
Paulita Pike 312-781-6027, Eric Purple 202-955-7081, Bruce Rosenblum 202-955-7087, Donald Weiss 312-807-4303,
Gwendolyn Williamson 202-955-7059, or Stacy Winick 202-955-7040 of Bell, Boyd & Lloyd’s Investment Management and
Financial Markets Group or visit our Web site at www.bellboyd.com.
This publication has been prepared by the Investment Management and Financial Markets Group of Bell, Boyd & Lloyd LLP
for clients and friends of the firm and is for information only. It is not a substitute for legal advice or individual analysis of a
particular legal matter. Readers should not act without seeking professional legal counsel. Transmission and receipt of this
publication does not create an attorney-client relationship.
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