On January 13, 2009, the Securities and Exchange Commission (the “Commission”) adopted several amendments to the registration form for open-end funds that require exchange-traded funds, or ETFs, to disclose additional information in their prospectuses intended for retail investors who purchase ETF shares in secondary market transactions.1 Although ETFs are classified, as a technical matter, as open-end funds (i.e., they offer daily redemption rights to investors accumulating large blocks of shares known as “creation units”), from a retail investor’s standpoint, they more resemble publicly-traded, closed-end funds since their shares trade throughout the day on an exchange.

Specifically, the amendments require ETF prospectuses to: (1) identify the principal U.S. exchange or exchanges on which the ETF shares trade and the fund’s exchange ticker symbol(s); (2) indicate that investors in ETF shares may pay brokerage commissions not reflected in the fee table; (3) explain that shareholders may pay more than the ETF’s NAV per share when purchasing shares on the market and may receive less than NAV per share when selling shares on the market, (4) disclose the extent to which market prices of ETF shares have tracked the fund’s NAV; and (5) disclose the number of trading days during the most recently completed calendar year (and quarters since that year) on which the market price of the ETF shares traded above and below its NAV (“premium/discount information”).2 The premium/ discount information need not be included if it is provided on the ETF’s website and the prospectus identifies the website address where the information can be located.3

The amendments also permit an ETF with a creation unit size of at least 25,000 shares to exclude prospectus disclosure on how to purchase and redeem shares directly from the ETF4 (though such information must still be included in the ETF’s statement of additional information). The Commission reasoned that ETF prospectus disclosure should be more suited to retail investors, rather than institutions and firms that purchase large-block “creation units” directly from the ETF.

The amendments became effective on March 31, 2009. All Form N-1A registration statements for ETFs filed on or after January 1, 2010, must comply with the new disclosure requirements. The full text of the Adopting Release is available at http://www.sec.gov/rules/final/2009/33-8998.pdf.