SEC Division of Investment Management staff letter: Australian Securities Commission

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
IVISION OF

IN_ .MENT MANAGEMENT

R-'~1. .__. -~~. " e. ei . Z(lo \
M'~ S A~ . .. ~ \

~O?;;'J.on ~..:(lì+-L~~-l .
",ny ~'.~ ..- October 23, 1996 ~.i:; .-.-"':-- VI FACSIME =ii~-rm l~.L2-3~

Mark Adas
Regulatory Policy Brach
Offce of the Chaian
Austr Securities Commission

GPO Box 4866
Sydney NSW 2001 AUSTR
Dea Mr. Adas:
Ths lettr responds to your letter of September 24, 1996. In your letter, you ask

whether a fund must send a currnt prospetus to an existig sharholder if the shareholder makes additional purchases. The Securities Act of 1933 reuires issuers, includig mutual funds, to deliver a "statutory" prosptus to each investor prior to or with confination of a sae.! Ths obligation applies with respect to purchases made by both new investòrs and existig sharholders. Many funds satisfy their prosptus delivery obligation with respe to purchases made by new investors by includig a. statutory prospetus with the confation of the sae. With respect to subsequent purchases made by sharholders, however, many mutu funds do not deliver a statutory prosptus with the confination. Rather, they satisfy their prospectus delivery obligation by deliverig to each shareholder an updte statutory prosptus on an anua basis.2 Ths satisfies the prosptus delivery requirment beuse the Securities Act. i Section 5(b)(2). A "statutory prospetus" is a prosptus meetig the reuirments of
Section lO(a) of the Securities Act.
2 The Securities Act reuires a fund that is makg a contiuous offerig of its securities to maita a "currnt" statutory prosptus. Speifcay, Section 10(a)(3) of the Securities Act requires that any prospetus used more than 9 months afer the registrtion statement's effective date must conta fmancia and other inormation as of a date not more than 16 months prior to

Mark Adas
October 23, 1996

permts a fund to deliver the statutory prospectus before the confination. As long as the statutory prospetus that the fund delivere to the shareholder is currnt when the sharholder makes additional purchases, the Securities Act does not requir the fund to deliver another

3 If the prosptus tht was previously delivere to the statutory prosptus with the purchase.

sharholder is not currnt at the tie of the purchase, the fund must deliver to the sharholder

a copy of the latest prosptus before or at the tie of the additional purchase.

The anual'delivery of an updated statutory prosptus also permts a fund to send to

sharholders other communications durig the yea that mîght otheiwise be prohibite. Sales

literature generay meets the defmition of the term uprosptus U in the Securities Act, and so must comply with Securities Act reuirments relatig to prosptuses.4 Sales literature sent with or afer the delivery of a statutory prosptus, or usupplementa saes literature, U however, is excluded from the defmition of prosptus.s As a result, supplementa saes literature may

include any inormation that is not misleadig -- it generay is not subject to spifc

requirments as to content. Many funds rely on the exclusion for supplementa saes literature to provide to investors a form, attched to periodc accunt statements, tht may be use to purchase additional shars. .

I hope that ths answers your question. Please contact me at (202) 942-0660 (Fax: (202)

942-9659) if you wish to discuss ths matter furter or if you reuir additional inormation.

Sincerely, nfL,Ol~ lohn V. O'Haon
Assistat Chief Counsel

attchment such use. A fund makg a contiuous offerig of its securities ca updte its prosptus by filg a post-effective amendment to its registrtion statement that contas updted fmancia statements and other inormation. 3 See Letter to Registrts from Carlyn Lewis (Jan. 3, 1991) (attched). 4 Section 2(10) of the Securities Act generay defies the term "prosptus" to include any notice, cirula, advertsement, lettr, or communcation, writtn or by radio or television, that offers any security for sae or confins the sae of any security. S See Section 2(1

0) (a) of the Securities Act.

SENT BY:Aust. Secur I ties Camm. ;24- 9-96 5: 23PM ; ASC OOC-SYD COMPAN I E~ 202 942 9659; # 11 3 ~.~ AUSTRALIAN SECURlTIES COMMISSION FACSIMILE TO: Mr John Q'HanJun FH.OM: Mark Adams AssÎstant Chief Counsel Seniur Legal Officer Division of Investment R.egulatory lolicy ßrani,h Management Oflíce of the Chairman Securities Exchange

Commission

i"AX: 00 i 5 I 202 942 i)659 Fax: (61) 2 991 i 2066

DATE: 24/09196 Tel: (61) 2991 I 2622
PAGES: S File Ref:
Dear Me O'Han lon,
Mutual rund disdosui'c - Subsequcilt investments '1 have spoken t.o a colle,tgue of mine, Dirinne Weinstein, who hao; suggested that 1 contacl YOlJ as you might be able to help me. Would you please arrange for this facsimile to be given to someone appropriate in your office so that they could provide rot: with a short n:ply to the question beluw. Any assiNiance that

you and your colleagues could pmvidc would he greatly appreciated.
The Branch is invulved in tl number of projects related to appropriate offer doclIÙlent disclosure in relation to mutual funds (ie: in Australia. collective investment scheme..;). One of these projects involves consideration of appmpriate disclosure for suhsequent investments hy existing inveslors of a mutucil fund (ie: the information requirements for investors who have already invested in a mutual fund and who want to make a suhsequellt additional investment iii that niulucil fund or another mutual fund provided otlered by the same inve.o:tiietil compa.ny). Generally, without relief provided by administrative actiun by the ASC.. the Corporations

Law of Au.stTalïa requires botli initiaL. and existing investors in ,collective inve.~trnent schern~ LO apply for an interest (it:: initial ur further interest) in t~e scheme by completing an application for/'li attached to a copy of the cÙrrent registered p~?SpeClu,s. The ratiomuc is that lJ:\RllGl'OLICOMM"ojIW..IKl'WAR..'iI,' i:¡\i;::CDOC Oie investor should receive all material infurmation before each, invcstnlent decision. .: . i , , ! The inronna1joii iit thi" (ucHi,ni/c i~ confidonti"l, jn~Jld"d unly 1'Or.1l~(' uf tho indiv;du¡\l ut en ìly 'il\m'd ,,',ove, and rn.iy he (lrivilog..d. If yo,~ l\r~ R.ot ~'" inlodcd rcdi.i.",i, "ny'dj,,~cmin~I¡()I1, c:ol'yin~~.H :."" "J:Ú~e. inl."m!,,~,in is .~iCllY p~ohi~jled_ I!' Y')U hRve R:ccjv..iJ ihi. b.c~lilldo In tUur, 1,le,.." t~ll.hoDO me iium....,;,tøly and rciurn:l1lc origin'" f~'''J'''''' In 'Ilf at oro 1)0" '11(66. Sydney NSW ioc.i.

SENT BY:Aust.Securltles Comm. ;24- 9-96 5: 24PM ;ASC OOC-SYD COMPAN I E~ 202 942 9659; # 21 3 i Presently, the ASC is considering grantig con.ditional relie from this requirement on the

~asiiL th~t man~~me~t companies of col1e(,1:jve i~vesmient schemes provide çurrent

information to existing lDvcstors by other equally dTe(,1:ive means. :
On oue, eevi~~ of =iir e~ts m the United Staes, we ar s~n nut ~ur h,ow the proviso",

of the Securities Act 1931, Sccuri/ie.. Exchage Act 1934 and In.ve....'Tien/ Comp,my Ac;t 1940

and any relevant rules of the SEC operate in relation to'loffer document discki~ure for

subsequent investment.. by existing investors in a mutucll fund. .

In essence, is it the combined effe(,1:' of tliesl P, rovisions that L existing ÎnVt:tof in it mutual fund must re(,eive, whether it be from an advÎ8cr or the relevf~ investment company. a copy of the current registered prospectus in relation to the mutual fundat least before iir at the time of confiration of the subsequent investment. . I' i

Or is it the case. that an eXisting investor is' ~le to make :sllbS~lIent investments in a mutual fund without having to receive a copy of the relevant current !registered prospectus. If this is the case, i~ this because, the Invt;tor i-cceives relatively deta.ifd annual information from the investment (,mpany regarding the mutual tùnd under the USI s~curIties legislation and SEe rules. For you information most investors in collective invcstmen( chernes in Australia apply for interests in êl collective íDvcstment scheme ;either via an. inv stment. adviser l.r directly. In either ci:se) that investiç:nt is made by cl;mplction and de' ¡very of an application form attached to a copy of the current registered prospectus, Would you plca.~e arrange for someone; appropriate to repl to this question as Soon as pO$l:ib 1 c, A brief reply is mOre than sufficient. .j. ! U:\IUPOl .11-:.IMMON\WORnlMII')(IMH'Küs\F.c.rli)(:
Th.. i"funnal;oQ iii this Ii,cairn;lc is confidcnlial, int"llil"d uuly for use "fth.. imli"ìdiiiil OJ' l\lly nal1c(/lt\v", llnd ml\y in privilc&cd. If you are tint ih.. jnlended r..cii)i"nl, Nly diRRcminlilion, copyi"t..( Ii~" ..riho in'ormation i. s iclly ll1'~liilJiti,d. If

t~~jmil" in en..r, I'I"~S" i"lcphone. 111" iinmediulc/y Iil1ll'lllini Lbo origin,,1 f,,,~irnilo Lo ni ;\t GPO 130" '1\166, Sydney NRW -ioOo. you hav" received thiN

SENT BY:Ausl.Securltles Comm. ;24- 9-96 5:24PM ;ASC OOC-SYD COMPANIE~ 202 942 9659; # 31 3 i If the reply could be sent to:
Mark Adams

Regulatory Policy Branch
Office of the Chairman
Australian Securities Commission

GPO Box 4866

Sydney NSW 2001

Aus tnd Îa.

Facsimile number is as above.
Any inormatiun that you or Clny of your colleagucs could greatly appreciated. I am making a sjmilar request the InveStment Management rO:Vide ,on this ¡"ue would be iegulatory Organisation, United Kingdom. Your sincerely, t1GA ~ .Mark Adams RegulatolY Policy Branch i I i U:\R1Kil".lLICOMMONlW' 'Ki'IMRK\MF'R.(iIl~"lc.no(~

TIlci inforllidilXt ~o Ihis faCldl!II~Cl is ""nfí~entii~ in~endcd Di~ly fOT URe OftllCl ~m~ivjdii~i i)~ "nlí~Y IHUll..! :l~()ve, IIJ-id may he piiv~l"gcd.. If . you am n(.( Uic u.lciid.." rcu'prolll, any di..ollliat"'iil,'o,(,1Jymg or u'c ofU,,, mh,riiaf,Ún.. ii,¡ctly I'ruliihilcd. If yuu have r"c"Jvud th l$ tac~imilo in e'Tn.., pI""." IOlcpli"11tl In" iiim"di¡it"¡y and rctni tJ,e "rigi"al i¡,,;oiinilc 10 lUll at. Gl'O B"" 4R6(" Sydn..y NsW 2000. I