March 23, 1993
TO: SEC RULES COMMITTEE NO. 25-93
SUBCOMMITTEE ON ADVERTISING NO. 7-93
RE: SEC PROPOSES OFF-THE-PAGE PROSPECTUS
__________________________________________________________
The Securities and Exchange Commission recently proposed to
amend Rule 482 to permit investors to purchase shares of a mutual
fund directly in response to a short-form prospectus, which the
Commission called an "off-the-page" prospectus. The proposal
would implement the SEC staff's recommendation in its Investment
Company Act study, and it resembles the Institute's October
submission to the SEC staff. (See Memorandum to SEC Rules
Committee No. 81-92, dated October 22, 1992.) A copy of the
SEC's proposing release is attached.
Description of the SEC's Proposal
As recommended by the Institute in its submission, the
SEC's proposal would permit the use of off-the-page prospectuses
in direct mailings as well as the print media. However, funds
could use an off-the-page prospectus only after two years from
the date that the advertised shares were first publicly sold.
Funds with multi-class or two-tier structures could not use the
prospectus, nor could the interval funds that the SEC recently
proposed to authorize. As recommended by the Institute, funds
could use the off-the-page prospectus without granting a right of
rescission to persons investing in response to the off-the-page
prospectus.
The proposal would require off-the-page prospectuses to
contain standardized, core information about the fund, including:
(1) the fund's name and type and the adviser's name;
(2) the fee table and fee table examples called for by
Form N-1A;
(3) legends concerning sales loads;
(4) the fund's historical performance;
(5) the fund's portfolio turnover rate;
(6) the fund's investment objectives and policies and
principal risk factors;
(7) material tax consequences of investing in the fund;
(8) a statement of the purpose of 12b-1 fees (if
applicable);
(9) a description of any restrictions or charges on
redemption; and
(10) material legal proceedings.
As recommended by the Institute, the off-the-page
prospectus could contain information other than that which is
required by the rule (as long the substance of the information
also is in the full Section 10(a) prospectus). The off-the-page
prospectus would be a Section 10 prospectus for purposes of the
prospectus liability provisions of Section 12(2) of the
Securities Act.
The application accompanying the off-the-page prospectus
would contain a box that investors could check to request the
statutory prospectus before investing. In all cases, the
statutory prospectus would have to be delivered with the
confirmation of the sale. The proposal would require that an
off-the-page prospectus be pre-filed with the NASD (or the SEC in
the case of nonmembers) for one year after its first use. In
addition, the proposal would require that all off-the-page
prospectuses be filed with the SEC within three days after their
first use.
Requests for Comment
The SEC requested comment on numerous issues, including
whether use of off-the-page prospectuses should be prohibited in
direct mail advertisements and the appropriateness of the two-
year seasoning requirement. The SEC also requested comment on
the disclosure that the proposal would require in an off-the-page
prospectus and the proposed filing requirements.
The proposal has a ninety-day comment period. Please
direct any comments to Tom Selman at 202/955-6251.
Craig S. Tyle
Vice President - Securities
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