The Proposed Amendments

On November 21, 2007, the Securities and Exchange Commission (the “Commission”) issued a release proposing amendments to enhance the disclosure provided to investors in mutual funds. If adopted, the proposed amendments would alter Form N-1A to require that a mutual fund provide, in plain English, a summary of certain key information at the front of the statutory prospectus. The amendments would also permit a fund to satisfy its prospectus delivery requirements under the Securities Act of 1933, as amended (the “1933 Act”), by sending or giving a summary prospectus directly to investors and providing the statutory prospectus on an Internet Web site. Comments to the proposed amendments to the mutual fund prospectus disclosure and prospectus delivery rules (collectively, the “Proposed Amendments”) must be received by the Commission on or before February 28, 2008.

Proposed Amendments to Form N-1A

Background

In addition to the detailed information required in a mutual fund prospectus, Form N-1A currently requires that a risk/return summary be included in the front of the prospectus. This summary must include information regarding the fund’s investment objectives and strategies, risks and costs in a predetermined format. Several studies and investor surveys have revealed, however, that investors are still unable, even with the risk/return summary, to access key information regarding an individual fund quickly and easily. As these studies have shown that such information is critical to the decision making process of investors, the Commission has proposed amendments to Form N-1A (the “N-1A Amendments”) with the intent of ensuring that critical information is contained in an easily accessible format while retaining the comprehensive nature of the information that is available today. N-1A Amendments

The N-1A Amendments would require that each statutory prospectus include a summary section at the front of the prospectus consisting of key information presented in plain English. The proposed summary section is similar to the current risk/return summary but would include certain additional information and would need to present information in a standardized order. Additionally, in the case of multiple fund prospectuses, the N-1A Amendments would require that separate summary sections be included for each fund covered by the statutory prospectus and, unlike the current risk/return summary, would not permit the presentation of integrated fund information. However, as with the current risk/return summary, a fund with multiple share classes would be permitted to integrate the information for all classes of the fund.

The N-1A Amendments would also eliminate the option in Form N-1A for a fund to present detailed information regarding purchase and redemption procedures in a separate document that accompanies the prospectus rather than include such information directly in the prospectus. Under the N-1A Amendments, the only option available to a fund to convey such information would be to use a summary prospectus that would contain the same purchase and redemption information of a fund as is in the summary section of the statutory prospectus.

Information Required in the Summary Section

The N-1A Amendments would require that the following information be contained in the summary section of a mutual fund statutory prospectus in the following order: (1) investment objectives; (2) costs; (3) principal investment strategies, risks and performance; (4) top 10 portfolio holdings; (5) investment advisers and portfolio managers; (6) brief purchase and sale and tax information; and (7) financial intermediary compensation.

Investment Objectives and Goals

As with the current risk/return summary, the first item in the proposed summary section is disclosure of the fund’s investment objectives or goals.

Costs (Fee Table)

Next, the summary section would include a fee table and example showing the cost of investing in the fund. While the proposed fee table disclosure is similar to the current fee table used in the risk/ return summary, there would be several notable differences.

First, the proposed fee table would need to include a brief description of the types of discounts on frontend sales charges for volume purchases (“breakpoint discounts”) if offered. While this information is required elsewhere in the statutory prospectus, the Commission is of the opinion that including a brief description in the summary section would increase investor awareness of this issue.

Second, the parenthetical following the fee table heading “Annual Fund Operating Expenses” would be revised to read “ongoing expenses that you pay each year as a percentage of the value of your investment,” rather than “expenses that are deducted from Fund assets” as is the case with the current risk/return summary. The intent of this change is to clarify to investors that they will be charged expenses on an annual basis.

Third, immediately following the fee table example, a fund, except a money market fund, would have to provide its portfolio turnover rate for the most recent fiscal year as a percentage of the average value of its portfolio. The fund would be required to supplement this disclosure with a written explanation of the effect of such turnover on transaction costs and fund performance. As with the disclosure of breakpoint discounts, an in-depth discussion of this topic is currently required in the statutory prospectus, however, the Commission is of the view that a brief description at the front of the prospectus could enhance investor understanding of this complex concept.

Fourth, the N-1A Amendments would 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. While a fund is currently required to disclose in the risk/return summary only its gross operating expenses, the Commission is aware that such information does not always convey the actual expenses currently associated with an investment in the fund. Under the N-1A Amendments, in instances where a fund has entered into expense reimbursement or fee waiver arrangements, the fund would be permitted to include two captions directly below the “Total Annual Fund Operating Expenses” column. The first caption would indicate the amount of the relevant expense reimbursement or fee waiver and the second would depict the net expenses of the fund following the subtraction of these reductions from the fund’s gross expenses. Furthermore, a fund would be permitted to include such reductions for all applicable years when computing the fee table example contingent upon the fact that the expense reimbursements or fee waivers reduced fund expenses during the most recently completed calendar year and shall continue to reduce them for no less than one year from the effective date of the fund’s registration statement.

Principal Investment Strategies, Risks and Performance

The next item in the proposed summary section would be disclosure of the fund’s principal investment strategies and risks. This disclosure would follow the format established for the current risk/return summary.

Portfolio Holdings

The proposed summary section would next include a list of the fund’s 10 largest holdings. This information would be presented in descending order and would include the percentage of net assets represented by each holding. Portfolio holdings information would need to be current as of the end of the most recent quarter. Furthermore, a fund would have to aggregate and treat as a single issuer (1) all fully collateralized repurchase agreements; and (2) all securities of any one issuer. While many funds already include their top portfolio holdings on their Web sites or in marketing material (and with the full list of a fund’s portfolio holdings already required by certain publicly filed documents such as Forms N-CSR and N-Q), the Commission is of the view that this information is of critical importance to investors when making investment decisions and, thus, should be included in an easily accessible location.

The N-1A Amendments also include an exclusion to this requirement similar to the exclusion that exists in connection with a fund’s quarterly disclosure of its complete portfolio holdings on Forms N-CSR and N-Q. As such, a fund would be able to list an amount not exceeding 5 percent of the total value of the portfolio holdings in one amount entitled “Miscellaneous Securities” with an appropriate footnote explaining the nature of this category.

Management

Next, the proposed summary section would list 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. As with the current Rule 498 profile prospectus (“profile prospectus”), a fund, except one that operates an investment strategy of regularly holding cash instruments, would not be required to disclose sub-advisers whose sole responsibility is the day-to-day management of the fund’s cash instruments.  The summary section would also not require the disclosure of the individual identity of sub-advisers if a fund employs three or more such advisers (unless a sub-adviser was individually responsible for the management of more than 30 percent of the fund’s assets).

Purchase and Sale of Fund Shares

The proposed summary section would next disclose the fund’s minimum initial and subsequent investment requirements, the fact that fund shares are redeemable and the procedures for redeeming fund shares. This disclosure would be similar to what is currently required in the profile prospectus but would not require a fund to disclose information contained within the fee table portion of the summary section, such as redemption charges and sales loads.

Tax Information

The penultimate portion of the proposed summary section would address the taxable nature of the distributions that the fund intends to make. This disclosure would indicate whether the fund intends to make distributions that may be taxed as ordinary income or capital gains, or that is tax-exempt.

Financial Intermediary Compensation

The Commission believes that investors may not be fully cognizant of the impact of, and conflicts that may be created by, certain costs related to the distribution of a fund. Accordingly, the final portion of the proposed summary section would be the following statement (or a similar legend that retains the original meaning):

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.

In proposing the requirements for the summary section of the statutory prospectus, and, in turn the summary prospectus, the Commission has requested comment on certain issues relating to the Proposed Amendments, including, but not limited to, the following issues:

1. Do the required narrative explanations aide or hinder investors’ use of the summary?

2. Should the fact that a fund may change its objective without shareholder consent be disclosed in the summary?

3. How should expense reimbursements and fee waiver arrangements be reflected?

4. Should a fund be prohibited from including non-required information in the summary?

5. Should the proposed order of the summary be rearranged to improve investor usability and should any of the proposed items not be included or be revised (conversely, are there sections that should have been included)?

6. Is it advisable to prohibit integration of multiple funds into one summary?

7. Should additional information regarding the purchase and sale of fund shares be included, i.e., information regarding frequent trading?

8. Should information regarding compensation of broker-dealers, banks and other financial intermediaries be included in the summary and should a fund be able to modify such required disclosure?

9. Should the summary direct customers to other sources of referenced information (i.e., a financial intermediary’s Web site)? And, should such information be required on a financial intermediary’s Web site?

10. Should the summary prospectus include the same information as the summary section?

New Delivery Option for Mutual Funds

Background

Section 5(b)(2) of the 1933 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. Currently, Rule 498 under the 1933 Act provides that an open-end management investment company may provide a profile prospectus to investors in lieu of a full prospectus contingent upon such document containing certain requisite information, including information regarding how investors can obtain the statutory prospectus and other relevant information. However, the profile prospectus has not been received favorably by the investment management industry. Reluctance by industry participants to embrace this option rests primarily in the fear that the use of summarized information that does not incorporate by reference the statutory prospectus’ more fulsome disclosure could result in a violation of the anti-fraud provisions of the securities laws because of the omission of material information.

Proposed Delivery Option for Mutual Funds

In response to the industry’s rejection of the profile prospectus, the Commission has proposed a new rule that would replace Rule 498 and permit a mutual fund to satisfy its prospectus delivery requirements through the use of a new summary prospectus that would incorporate by reference key information contained within the full prospectus contingent upon the full prospectus being made available online and in hard copy upon request (“Rule 498 Amendments”).

Contents of the Summary Prospectus

The summary prospectus, as proposed, would contain the same information, in the same order, as the summary section of the statutory prospectus discussed above. As with the summary section, the summary prospectus would have to be specific to an individual fund and could not be used for multiple funds of the same fund family. Furthermore, unless specifically authorized by rule, the summary prospectus could not include any additional information or omit any information required to be included in the summary section of the statutory prospectus. If the summary prospectus deviated from this requirement, it would not be permitted for use for any purpose.

As proposed, the summary prospectus would begin with a cover page or introductory section listing the fund’s name and the share classes to which it relates, a statement indicating that the document is a “Summary Prospectus,” the date of the document’s first use and a legend indicating that additional information is contained in the statutory prospectus and the means of obtaining such document.

The aforementioned legend would be required to provide the Internet address, toll-free (or collect) telephone number and email address that investors can use to obtain the statutory prospectus and other information. The proposed rule would not allow a fund to use the address of the Commission’s Electronic Data Gathering, Analysis, and Retrieval System (“Edgar”) and the link would also need to be specific enough to lead investors directly to the statutory prospectus rather than to a home page or other section of a Web site on which the materials are posted.

Updating

As with the current profile prospectus, the proposed summary prospectus 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’ first use and updated as of the end of each succeeding calendar quarter not later than one month after the completion of the quarter. In addition, a fund would also be required to update the top 10 portfolio holdings information as of the end of the most recent calendar quarter prior to the summary prospectus’ first use1 and updated in the same manner as the performance information as noted above. The fund would be permitted to affix a label or sticker, or other reasonable means, in updating the summary prospectus to avoid the need to reprint the document each quarter. While the fund would have to update the summary prospectus according to the preceding schedule, it would not be required to alter the manner in which it updates the statutory prospectus.

A fund may rely upon the summary prospectus to satisfy its prospectus delivery obligations under the 1933 Act until the earlier of the date that (1) the information in the summary prospectus is required to be updated for any reason other than the quarterly updates of performance information or portfolio holdings, 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 1933 Act. Accordingly, for investors that had already received the summary prospectus, the fund could rely upon the rule to satisfy the prospectus delivery requirements if the only updates were those relating to performance information or portfolio holdings.

Provision of Other Required Information (Statutory Prospectus, SAI and Shareholder Reports)

If a fund wishes to use the summary prospectus to satisfy its prospectus delivery requirements, it would also have to provide a copy of the statutory prospectus along with other required information such as the SAI and most recent annual and semi-annual shareholder reports (“Other Information”), to investors by (1) posting a copy on an Internet Web site and (2) by sending the document by email or in hard copy to any investor that requests a copy.

Internet Access to Statutory Prospectus and Other Information

Under the Rule 498 Amendments, the statutory prospectus and Other Information would have to be made accessible free of charge at the Web address listed on the cover of the summary prospectus.2 These documents would have to be made available at the time the summary prospectus is sent and must remain on the Web site for 90 days following such time. As noted above, these documents would need to be provided in a manner that permits (1) persons accessing the statutory prospectus or SAI to move directly back and forth between the table of contents and each section within that document, and (2) 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) the 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. In connection with the latter requirement, investors would have to be able to navigate between the sections of a document with one mouse click and between related sections of a document with two clicks.

In addition to accessing this information online, a fund would also have to make these documents available to investors in a format whereby they would have the ability to permanently retain, without charge, an electronic copy of the statutory prospectus and Other Information that meets the hyperlink requirements noted above.3 A fund would have to comply with each of these requirements in order to satisfy the prospectus delivery requirements of the 1933 Act.4

Hardcopy of Statutory Prospectus and Other Information

In addition to making the statutory prospectus and Other Information available online, a fund would also be required to make such information available free of charge (either directly or through a financial intermediary) via first class U.S. mail within three days of receiving a request from an investor. Upon the request of the investor, the fund would also be required to send an electronic copy within the same time period. Failure to send this information within the prescribed time limits would not render a fund unable to rely upon the summary prospectus to satisfy its prospectus delivery requirements, but would cause the fund to be in violation of this rule.

Incorporation By Reference

As noted above, one of the primary reasons why funds were reluctant to use the profile prospectus was its prohibition against incorporating by reference information contained within the statutory prospectus, SAI or shareholder reports. When the Commission adopted the profile prospectus, it stated that incorporation by reference was not permitted because the profile prospectus was intended to serve as a self-contained disclosure document. Conversely, the Commission is now proposing to permit the incorporation of information by reference in the summary prospectus because this document is intended to serve as “one element in a layered disclosure regime that results in the simultaneous provision of information to investors through multiple means.” Thus, while a fund may only send investors the summary prospectus, additional disclosure will be available, both online and via the mail, in the form of the statutory prospectus, SAI and most recent shareholder reports.

To direct investors to the additional available disclosure regarding a fund, the Commission would permit the incorporation of information by reference to the aforementioned additional documents and would mandate that hyperlinks are provided for the online versions of these documents to ease the manner in which investors would be able to navigate between these various forms of disclosure. The Rule 498 Amendments would also ensure that all information that is incorporated by reference would be deemed to have been “effectively” conveyed to the investor at the time they receive the summary prospectus to avoid violations of the anti-fraud provisions under Sections 12(a)(2) and 17(a)(2) of the 1933 Act.

A fund may incorporate by reference any information not required to be in the summary prospectus from any of the sources listed above, however, they may not reference any alternate sources. Furthermore, information cannot be incorporated by reference to a document that only contains the reference by way of another document. To incorporate information by reference, the summary would have to contain a legend identifying the document from which the information is incorporated, the date of the document and a statement that the SAI or shareholder report may be obtained, free of charge, in the same manner as the statutory prospectus.

The Commission has requested comment on various aspects of how the Rule 498 Amendments will affect the prospectus delivery requirements of a fund including, but not limited to, the following issues:

1. Should a mutual fund be permitted to meet its prospectus delivery requirement through the use of a summary prospectus? Does this approach adequately protect investors?

2. Should a mutual fund be permitted to meet its prospectus delivery requirement simply by filing its prospectus with the Commission or posting online?

3. Should investors be able to opt out of receiving the summary prospectus and instead receive only the statutory prospectus?

4. Should the summary prospectus be permitted to be used as an advertisement in a magazine or newspaper?

5. Should the performance and portfolio holdings information in the summary prospectus be updated quarterly/semi-annually? Would this cause problems if different from the updating requirements of the statutory prospectus?

6. Should quarterly updated performance and portfolio holdings information be provided in an alternate source (Web site, toll-free telephone number, etc.)?

7. Should any of the information in the summary prospectus be tagged as extensible Business Reporting Language (“XBRL”)?

8. Does the proposed rule adequately address technological issues that could arise in connection with the electronic posting of information?

9. Should pre-use filing of the summary prospectus be required?

10. Should the summary prospectus be filed as part of the registration statement?