Form and Rule Changes

The SEC adopted revisions to Form N-1A that require mutual funds to provide a new summary section at the front of the prospectus with key information about the fund such as its investment objective and strategies, risks, costs and performance.  The SEC also adopted rules allowing funds to satisfy their delivery obligations with a summary prospectus in lieu of a full statutory prospectus.  Whether or not a fund group elects to use the summary prospectus for its shareholders, it still must update its current form of prospectus to provide for an up-front summary section.

Budget Additional Time for Annual Updates

The changes to Form N-1A are the most significant changes made to the Form since 1998 and, depending on the number of funds offered in the prospectus and the style in which they are described, could result in significant hours added to the annual update process. Note that mutual funds must file their re-formatted summary prospectus via a 485(a) filing rather than a 485(b) filing which means you must allocate 60 days for SEC staff review and comment on the registration statement.

Not to mention the changes to the registration statement itself, if a fund opts to use a summary prospectus there are Information Technology (IT) issues that must be addressed.  The SEC’s summary prospectus rule provides that the statutory (or full) prospectus be posted on a fund’s Web site and have certain links built into it as well as links to other documents, such as the new summary prospectus.  If a fund elects to use the summary prospectus, then time should be budgeted in order to bring IT professionals into the process in terms of making sure the correct links are established and maintained.

Timing

Funds with 12/31 fiscal year ends must file annual update with SEC by  2/28 to be effective by 5/1/2010.

If a fund cannot plan for sufficient time to allow a 60 day SEC review period then it will have to make an additional filing during 2010 so that it will have its summary version prospectus effective prior to January 1, 2011.