[Federal Register Volume 72, Number 230 (Friday, November 30, 2007)]
[Proposed Rules]
[Pages 67790-67824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5852]



[[Page 67789]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 230, 232, 239, and 274



Enhanced Disclosure and New Prospectus Delivery Option for Registered 
Open-End Management Investment Companies; Proposed Rule

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

[[Page 67790]]


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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.

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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 [email protected]. 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.
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    \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.
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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

[[Page 67791]]

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.
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    \12\ An open-end management investment company is an investment 
company, other than a unit investment trust or face-amount 
certificate company, that offers for sale or has outstanding any 
redeemable security of which it is the issuer. See Sections 4 and 
5(a)(1) of the Investment Company Act [15 U.S.C. 80a-4 and 80a-
5(a)(1)].
    \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).
    \15\ See 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 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'').
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    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\
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    \16\ See Charles A. Jaffe, Improving Disclosure of Funds Can Be 
Done, The Fort Worth Star-Telegram (May 7, 2006) (``Bring back the 
profile prospectus, and make its use mandatory. * * * A two page-
summary of [the] key points [in the profile]--at the front of the 
prospectus--would give investors the bare minimum of what they 
should know out of the paperwork.''); Experts: Investors Face Excess 
Information, supra note 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.
    \17\ See 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).
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    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\
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    \18\ See, 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'').
    \19\ See 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'').
    \20\ See 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).
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    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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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.
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    \21\ See 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'').
    \22\ Recent surveys show that Internet use among adults is at an 
all time high with approximately three quarters of Americans having 
access to the Internet. See A Typology of Information and Technology 
Users, Pew Internet & American Life Project, at 2 (May 2007), 
available at: http://www.pewinternet.org/pdfs/PIP_ICT_Typology.pdf; Internet Penetration and Impact, Pew Internet & 
American Life Project, at 3 (Apr. 2006), available at: http://www.pewinternet.org/pdfs/PIP_Internet_Impact.pdf. Further, while 
some have noted a ``digital divide'' for certain groups, see, e.g., 
Susannah Fox, Digital Divisions, Pew Internet & American Life 
Project, at 1 (Oct. 5, 2005) (noting that certain groups lag behind 
in Internet usage, including Americans age 65 and older, African-
Americans, and those with less education), others have noted that 
this divide may be diminishing for those groups. See, e.g., Mutual 
Fund Shareholders' Use of the Internet, 2006, Investment Company 
Institute, Research Fundamentals, at 7 (Oct. 2006), available at: 
http://www.ici.org/stats/res/1fm-v15n6.pdf (``Recent increases in 
Internet access among older shareholders * * * have narrowed the 
generational gap considerably. Today, shareholders age 65 or older 
are more than twice as likely to have Internet access than in 
2000.''); Michel Marriott, Blacks Turn to Internet Highway, And 
Digital Divide Starts to 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 (``African-
Americans are steadily gaining access to and ease with the Internet, 
signaling a remarkable closing of the `digital divide' that many 
experts had worried would be a crippling disadvantage in achieving 
success.'').
    \23\ See John B. Horrigan, Home Broadband Adoption 2007, Pew 
Internet & American Life Project, at 1 (June 2007), available at: 
http://www.pewinternet.org/pdfs/PIP_Broadband%202007.pdf (47% of 
all adult Americans had a broadband connection at home as of early 
2007).
    \24\ See 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).
    \25\ Exchange Act Release No. 56135 (July 26, 2007) [72 FR 42222 
(Aug. 1, 2007)].
    \26\ A mutual fund may issue more than one class of shares that 
represent interests in the same portfolio of securities with each 
class, among other things, having a different arrangement for 
shareholder services or the distribution of securities, or both. See 
rule 18f-3 under the Investment Company Act [17 CFR 270.18f-3].
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    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.
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    \27\ See supra notes 16 and 20.
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    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.
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    \28\ A ``statutory prospectus'' is a prospectus that meets the 
requirements of Section 10(a) of the Securities Act [15 U.S.C. 
77j(a)].
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    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, user-friendly 
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.
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    \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).
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    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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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.
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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.
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    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.
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    \31\ Proposed General Instruction C.3.(c)(ii) of Form N-1A.
    \32\ General Instruction C.3.(c) of Form N-1A.
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    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\
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    \33\ Proposed General Instruction B.4.(c) of Form N-1A; 17 CFR 
230.421(d).
    \34\ Rule 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.
    \35\ Pursuant 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).
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    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\
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    \36\ Proposed General Instruction C.3.(a) to Form N-1A.
    \37\ Proposed General Instruction C.3.(b) of Form N-1A.
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    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.
---------------------------------------------------------------------------

    \38\ Proposed General Instruction C.3.(c)(ii) of Form N-1A; see 
supra note and accompanying text.
---------------------------------------------------------------------------

    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

[[Page 67794]]

prospectus.\39\ Generally, this flexibility has resulted in effective 
presentations of class-specific cost and performance information that 
facilitate comparisons among classes.
---------------------------------------------------------------------------

    \39\ Proposed General Instruction C.3.(c)(ii) of Form N-1A.
---------------------------------------------------------------------------

    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.
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    \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.
    \41\ See 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).
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    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 user-friendly 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\
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    \43\ Proposed 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).
---------------------------------------------------------------------------

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.
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    \44\ Proposed Item 3 of Form N-1A; Item 3 of Form N-1A; rule 
498(c)(2)(iv).
    \45\ See 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.
---------------------------------------------------------------------------

    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\
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    \46\ For example, a 1% increase in annual fees reduces an 
investor's return by approximately 18% over 20 years.
---------------------------------------------------------------------------

    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

[[Page 67795]]

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.
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    \47\ Proposed Item 3 of Form N-1A; proposed Instruction 1(b) to 
proposed Item 3 of Form N-1A.
    \48\ See Investment Company Act Release No. 26464 (June 7, 2004) 
[69 FR 33262 (June 14, 2004)].
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    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \50\ Proposed 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.
    \52\ See Investment Company Act Release No. 26313 (Dec. 18, 
2003) [68 FR 74820 (Dec. 24, 2003)] (request for comment regarding 
ways to improve disclosure of transaction costs); Report of the 
Mutual Fund Task Force on Soft Dollars and Portfolio Transaction 
Costs (Nov. 11, 2004), available at: http://www.finra.org/web/groups/rules_regs/documents/rules_regs/p012356.pdf.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \54\ Proposed Instructions 3(e) and 6(b) to proposed Item 3 of 
Form N-1A.
    \55\ Proposed 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).
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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.
---------------------------------------------------------------------------

    \56\ Proposed 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.
---------------------------------------------------------------------------

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

[[Page 67796]]

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.
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    \58\ Proposed Item 5 of Form N-1A.
    \59\ See Henry H. Hopkins, Vice President and Chief Legal 
Counsel, T. Rowe Price Group, Inc., June 12 Roundtable Transcript, 
supra note 15, at 32 (suggesting that the current profile be amended 
to include the top 10 portfolio holdings).
    \60\ Form N-CSR [17 CFR 249.331; 17 CFR 274.128]; Form N-Q [17 
CFR 249.332; 17 CFR 274.130].
---------------------------------------------------------------------------

    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\
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    \61\ Proposed Instruction 1 to proposed Item 5 of Form N-1A.
    \62\ This 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).
    \63\ Proposed Instruction 2 to proposed Item 5 of Form N-1A.
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    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.
---------------------------------------------------------------------------

    \64\ Note 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \66\ Proposed Instruction 3 to proposed Item 5 of Form N-1A.
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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\
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    \67\ Proposed 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.
---------------------------------------------------------------------------

    As in the current profile, a fund would not be required to identify 
a sub-adviser 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\
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    \69\ Proposed 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.
    \70\ Proposed Instruction 2 to proposed Item 6(a) of Form N-1A; 
rule 498(c)(2)(v)(B)(2).
    \71\ This 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.
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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\
---------------------------------------------------------------------------

    \73\ Proposed Item 7 of Form N-1A.
    \74\ See rules 498(c)(2)(vi) and (vii) (profile purchase and 
sale disclosures).
---------------------------------------------------------------------------

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

[[Page 67797]]

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\
---------------------------------------------------------------------------

    \75\ Proposed Item 8 of Form N-1A.
    \76\ See 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)).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \77\ Proposed Item 9 of Form N-1A.

    ``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.''

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 
distribution-related costs that create conflicts for broker-dealers and 
their associated persons.\78\
---------------------------------------------------------------------------

    \78\ The Commission has recognized these concerns in a separate 
initiative in which the Commission proposed to require, among other 
things, disclosure of mutual fund distribution-related costs and 
conflicts of interest by selling broker-dealers and other financial 
intermediaries at the point of sale. Securities Act Release No. 8544 
(Feb. 28, 2005) [70 FR 10521 (Mar. 4, 2005)]; Securities Act Release 
No. 8358 (Jan. 29, 2004) [69 FR 6438 (Feb. 10, 2004)]. One commenter 
to that proposal recommended use of a 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.
---------------------------------------------------------------------------

    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?
---------------------------------------------------------------------------

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

     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?
---------------------------------------------------------------------------

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

[[Page 67798]]

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\
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    \81\ Cf. 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).
---------------------------------------------------------------------------

     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 sub-advisers 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 
broker-dealers, 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\
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    \82\ Proposed Item 1(b)(3) of Form N-1A.
---------------------------------------------------------------------------

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,

[[Page 67799]]

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)).
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    \83\ 15 U.S.C. 77e(b)(2).
    \84\ A fund could rely upon existing Commission guidance, which 
typically requires affirmative consent from individual investors, to 
send or give a Summary Prospectus by electronic means. See 
Securities Act Release No. 7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 
13, 1995)]; Securities Act Release No. 7856 (Apr. 28, 2000) [65 FR 
25843 (May 4, 2000)].
    \85\ Cf. 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'').
    \86\ Proposed rule 498(c).
---------------------------------------------------------------------------

    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\
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    \87\ Proposed 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.
    \90\ See, 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)].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \91\ Exchange 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).
---------------------------------------------------------------------------

    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

[[Page 67800]]

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.
---------------------------------------------------------------------------

    \92\ Proposed 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.
    \93\ Proposed 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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \95\ A 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \96\ Proposed rule 498(b)(4).
    \97\ See supra introductory text to Section II.A. and Section 
II.A.1.
---------------------------------------------------------------------------

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 [------------]. You can also get this 
information at no cost by calling [------------] or by sending an e-
mail request to [------------].'' \98\
---------------------------------------------------------------------------

    \98\ Proposed rule 498(b)(1).

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\
---------------------------------------------------------------------------

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

    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 broker-dealer 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\
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    \100\ Proposed rule 498(b)(1)(iv)(A).
    \101\ Cf. rule 14a-16(b)(3) under the Exchange Act [17 CFR 
240.14a-16(b)(3)] (similar requirement in rules relating to Internet 
availability of proxy materials).
    \102\ For a description of the information required to be 
available at the Web site and a discussion of the manner in which 
such information must be available, see infra Section II.B.3.
    \103\ Cf. 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).

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[[Page 67801]]

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\
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    \104\ Proposed rule 498(b)(2)(ii).
    \105\ Cf. 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).
---------------------------------------------------------------------------

    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 one-month lag is intended to eliminate any potential harm 
to fund shareholders from predatory trading practices, such as trading 
ahead of funds or ``front-running,'' 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.
---------------------------------------------------------------------------

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

    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\
---------------------------------------------------------------------------

    \107\ Proposed Instruction to proposed rule 498(b)(2)(ii) and 
(iii).
    \108\ Proposed rule 498(e)(2). Cf. rule 408(b) under the 
Securities Act [17 CFR 230.408(b)].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \109\ Proposed 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.
---------------------------------------------------------------------------

    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 semi-
annual 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'

[[Page 67802]]

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 semi-annual 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.
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    \110\ Proposed rule 498(c)(3), (d)(3), and (f).
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    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.
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    \111\ The cost to access the Internet itself (e.g., monthly 
subscription to an Internet service provider) and related costs, 
such as the cost of printer ink, would not be considered costs for 
purposes of determining whether information is accessible, free of 
charge.
    \112\ Proposed rule 498(f)(1).
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    We are proposing to require that the information on the Internet be 
presented in a format that:

[[Page 67803]]

     Is convenient for both reading online and printing on 
paper; \113\
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    \113\ Proposed 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).
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     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
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    \114\ Proposed rule 498(f)(2)(ii).
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     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\
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    \115\ Proposed rule 498(f)(2)(iii).

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.
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    \116\ Proposed rule 498(f)(3).
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    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\
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    \117\ Proposed 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.
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    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\
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    \118\ Proposed rule 498(g).
    \119\ See 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).
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    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

[[Page 67804]]

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?
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    \120\ Recently, 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.
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     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 semi-annual 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\
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    \121\ Proposed rule 498(b)(3)(i) and (ii).
    \122\ Proposed rule 498(b)(3)(ii)(B).
    \123\ Proposed rule 498(b)(3)(ii)(C).
    \124\ Cf. 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.
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    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\

[[Page 67805]]

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.
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    \125\ Proposed rule 498(b)(3)(ii)(A) and (f). As discussed in 
Section II.B.3, this would not include the requirement to send or 
give a paper or electronic copy of the requested information upon 
request.
    \126\ Proposed rule 498(b)(1)(iv)(B) and (b)(3)(ii)(A).
    \127\ Proposed 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).
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    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 self-
contained 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.
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    \128\ In 1998, one study indicated that over one-third of 
Americans over the age of 16 used the Internet. Associated Press 
Online, One-Third of Americans Use Internet (Aug. 25, 1998). As 
noted above, 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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \129\ 17 CFR 230.159.
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    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

[[Page 67806]]

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.
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    \130\ See Securities Act Release No. 8591, 70 FR at 44766, supra 
note 91.
    \131\ These include a prospectus or oral statement in the case 
of Section 12(a)(2), or a statement to which Section 17(a)(2) is 
applicable.
    \132\ Or, in the case of Section 17(a)(2), any omission to state 
a material fact necessary in order to make the statements made, in 
light of the circumstances under which they were made, not 
misleading.
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    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\
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    \133\ See 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.
    \134\ Whether or not any or all of the incorporated information 
was conveyed to an investor prior to the time that the Summary 
Prospectus was received would be a facts and circumstances 
determination.
    \135\ Cf. Investment Company Act Release No. 13436 (Aug. 12, 
1983) [48 FR 37928, 37930 (Aug. 22, 1983)] (discussing incorporation 
by reference of the SAI into the statutory prospectus); see also 
White v. Melton, 757 F. Supp. 267, 272 (S.D.N.Y. 1991) (addressing 
effect of incorporation by reference of the SAI into the statutory 
prospectus).
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    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\
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    \136\ 15 U.S.C. 77s(a).
    \137\ Cf. Investment Company Act Release No. 23065, supra note 
30, 63 FR at 13972 (similar Commission statement in context of 
profile).
    \138\ See also Section 38(c) of the Investment Company Act [15 
U.S.C. 80a-37(c)] (similar provision under Investment Company Act).
---------------------------------------------------------------------------

    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

[[Page 67807]]

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.
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    \139\ Proposed rule 497(k). We are also proposing to delete the 
reference to the profile from rule 497(a) [17 CFR 230.497(a)].
---------------------------------------------------------------------------

    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\
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    \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, Sec.  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).
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    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\
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    \143\ Proposed amendment to rule 482(a).
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     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\
---------------------------------------------------------------------------

    \144\ Proposed rule 482(b)(1).
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     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\
---------------------------------------------------------------------------

    \145\ Proposed rule 482(c).

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 post-effective 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

[[Page 67808]]

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.
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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.
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    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.
---------------------------------------------------------------------------

    \150\ See supra notes 143 through 145 and accompanying text.
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    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\
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    \151\ (16 hours in the first year + 4 hours in the second year + 
4 hours in the third year) / 3 years = 8 hours.
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    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\
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    \152\ Currently, 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.
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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

[[Page 67809]]

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) x (.75 x 8,726 portfolios)).
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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.
    \154\ We 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.
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    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.
---------------------------------------------------------------------------

    \155\ See supra notes 16 and 20.
---------------------------------------------------------------------------

    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

[[Page 67810]]

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.
---------------------------------------------------------------------------

    \156\ See supra note 13.
    \157\ See supra note 14.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \158\ See supra note 22.
    \159\ See supra note 23.
---------------------------------------------------------------------------

    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

[[Page 67811]]

$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\
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    \160\ Often, 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.
    \161\ Our 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) x 290,000,000 statutory prospectuses x 75% of funds).
    \162\ For purposes of our estimate, we used Broadridge's 
printing cost estimate of $0.35 that is blended to reflect full 
production printing runs and digital print on demand documents. 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) x 64,500,000 statutory 
prospectuses x 75% of funds).
    \163\ We 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.
    \164\ For 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) x 
64,500,000 statutory prospectuses x 75% of funds x 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 x 75%).
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    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.
---------------------------------------------------------------------------

    \167\ Our estimates above take into account these possible 
reductions in cost savings.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \168\ Our 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) x 290,000,000 Summary Prospectuses 
estimated to be sent out annually x 75% of funds) + (($0.11 for 
printing a Summary Prospectus on demand + $0.41 for first class 
mail) x 64,500,000 prospectuses estimated to be sent out in response 
to a fund purchase x 75% of funds).
    \169\ $104,542,500 / (8,726 funds x 75%).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \170\ This 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 x .50) + ($244 x .50)).
    \171\ $39,935,148 / (8,726 funds x 75%).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \172\ Our 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) x 45 pages).
    \173\ (64,500,000 purchasers x 75% of funds x 5% of printing 
investors) x $2.03).
---------------------------------------------------------------------------

    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

[[Page 67812]]

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.
---------------------------------------------------------------------------

    \174\ 15 U.S.C. 80a-2(c).
    \175\ 15 U.S.C. 77b(b).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

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

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\
---------------------------------------------------------------------------

    \177\ 17 CFR 270.0-10.
    \178\ This estimate is based on analysis by the Division of 
Investment Management staff of publicly available data.
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \179\ These 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.
    \180\ See supra note 166 and accompanying text.
---------------------------------------------------------------------------

    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.

[[Page 67813]]

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:
---------------------------------------------------------------------------

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

     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.
* * * * *


Sec.  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:


Sec.  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

[[Page 67814]]

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 Sec.  230.498(d) or to a summary 
prospectus under Sec.  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)).
* * * * *


Sec.  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:


Sec.  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 Sec.  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 Sec.  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 Sec.  230.497, shall govern the filing of 
summary prospectuses under Sec.  230.498. Each definitive form of a 
summary prospectus under Sec.  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 Sec.  230.498 to read as follows:


Sec.  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 Sec.  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 (Sec. Sec.  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 Sec.  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

[[Page 67815]]

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 Sec.  
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 Sec.  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 Sec.  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

[[Page 67816]]

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 Sec.  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 semi-annual reports 
to shareholders to any person requesting such a copy within three 
business days after receiving a request for a paper copy. If paragraph 
(c) or (d) of this section is relied on with respect to a Fund, the 
Fund (or a financial intermediary through which shares of the Fund may 
be purchased or sold) must send, at no cost to the requestor and by e-
mail, an electronic copy of the Fund's Statutory Prospectus, Statement 
of Additional Information, and most recent annual and semi-annual 
reports to shareholders to any person requesting such a copy within 
three business days after receiving a request for an electronic copy. 
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.
* * * * *


Sec.  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''.


Sec.  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 Sec.  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 Sec. Sec.  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

[[Page 67817]]

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

[[Page 67818]]

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

[[Page 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 $[----------
--] 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 --% 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

[[Page 67820]]

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 sub-adviser whose sole responsibility 
for the Fund is limited to day-to-day management of the Fund's holdings 
of cash and cash equivalent instruments, unless the Fund is a Money 
Market Fund or other Fund with a principal investment strategy of 
regularly holding cash and cash equivalent instruments.
    2. A Fund having three or more sub-advisers, each of which manages 
a portion of the Fund's portfolio, need not identify each such sub-
adviser, except that the Fund must identify any sub-adviser that is (or 
is reasonably expected to be) responsible for the management of a 
significant portion of the Fund's net assets. For purposes of this 
paragraph, a significant portion of a Fund's net assets generally will 
be deemed to be 30% or more of the fund's net assets.
    (b) Portfolio Manager(s). State the name, title, and length of 
service of the person or persons employed by or associated with the 
Fund or an investment adviser of the Fund who are primarily responsible 
for the day-to-day management of the Fund's portfolio (``Portfolio 
Manager'').
Instructions:
    1. This requirement does not apply to a Money Market Fund.
    2. If a committee, team, or other group of persons associated with 
the Fund or an investment adviser of the Fund is jointly and primarily 
responsible for the day-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-to-day 
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.

[[Page 67821]]

    (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 Sec. Sec.  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.

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