Alert November 18, 2008

SEC to Consider Adopting Mutual Fund Summary Prospectus Proposal at November 19 Open Meeting

The agenda for the SEC’s open meeting scheduled for Wednesday, November 19, 2008 at 10:00 a.m. includes consideration of whether to adopt its “Summary Prospectus” proposal, which will (i) revise the disclosure requirements for the statutory prospectus currently used by registered open‑end management investment companies (“mutual funds”) and (ii) create the new Summary Prospectus for use in mutual fund sales.  The proposed disclosure changes create a brief, self-contained presentation of key fund characteristics that would appear in both the current statutory prospectus and the new Summary Prospectus.  In addition, under the proposal, the Summary Prospectus could be used to satisfy certain prospectus use and delivery requirements under the Securities Act of 1933, as amended (the “1933 Act”), subject to several conditions that include providing investors access to the statutory prospectus and other fund documents via the Internet.  (For a detailed discussion of the proposal, see the December 5, 2007 Alert.) 

The open meeting agenda announcement also indicates that the SEC will consider whether to adopt related amendments to Form N-1A, the registration form for mutual funds, including amendments that address exchange-traded funds (“ETFs”).  Although not clear, the reference to ETF disclosure requirements appears to suggest that the SEC will be looking at amendments to Form N-1A proposed in April of this year as part of a broader ETF initiative.  The proposed ETF disclosure changes are designed to focus the disclosure provided in ETF prospectuses on the needs of secondary market investors in ETFs.  A companion element of the ETF initiative would eliminate exemptive relief from the statutory prospectus delivery requirements previously granted to broker-dealers for sales of ETFs in the secondary market in favor of allowing those obligations to be met by delivery of a Summary Prospectus (or the product description currently required to be delivered under the rules of listing exchanges if the Summary Prospectus proposal has not been adopted by the time the SEC takes final action on the ETF initiative).  Given its close relationship to the proposed ETF prospectus disclosure changes, the proposal affecting ETF prospectus delivery requirements may also be addressed at the November 19 meeting.  (See the April 1, 2008 Alert for a detailed discussion of the ETF initiative, which also includes (1) codification of exemptive relief that the SEC has provided in the past to allow index based ETFs and actively managed ETFs to operate and (2) new Rule 12d1-4 under the Investment Company Act of 1940, as amended (the “1940 Act”), which would allow registered funds to invest in ETFs to acquire ETF shares in excess of the limits in Section 12d(1) of the 1940 Act.)