SEC Division of Investment Management staff letter: Investment Company Institute

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

DIVISION OF

INVESTMENT MANAGEMENT AC SA ~ iq :¿f3
BEON'
RUL LJ q '1
PULI
July 29, 1996

AV'i-n.A.TI.t' 7/aq /qto i
Craig S. Tyle, Esq.

Vice President and Senior Counsel
Investment Company Institute
1401 H Street, N.W.
Washington, D.C. 20005-2148

Dear Mr. Tyle:
Your letter dated July 29, 1996, asks the Division of Investment Management to continue thepilot program that permits a mutual fund to use a "fund profile" together with its prospectus under certin conditions. The form and disclosure requirements of a profile were set forth in a letter from the Division to the Investment Company Institute ("1995 Letter")! and in the ICI's "Instructions for Profies" dated July 19, 1995 ("1995 Instructions"). As stated in the 1995 Letter, permission to use the profies was granted for a one-year period that expires on July 31, 1996. Your letter specifically requests confrmation that any mutual fund may prepare and distribute profiles that comply with the ICI's revised profie instructions (" 1996 In.structions "), which are attached to your letter. You note that on May 20, 1996, the iei submitted to the Commission its research findings on shareholder assessment of the profie and suggestions for changes to the profie. You submit that ~he 1996 Instructions

reflect most of these findings and suggestions.
Given the voluntary nature of the profie initiative, we do not object to the extension of the 1995 Letter and the use of the 1996 Instructions. Thus, the Division wil not recommend enforcement action to the Commission against any open-end investment company that delivers a profie with its prospectus, provided that the contents of the profie conform to the 1996 Instructions and use of the profile is consistent with the terms and conditions set forth in our 1995 Letter.

In order to faciltate the orderly transition of all profies to the format of the 1996 Instructions, the Division wil not object if an open-end investment company continues to use See Letter from Jack W. Murphy, Associate Director and Chief Counsel, to Paul Schott Stevens, General Counsel of the Investment Company Institute (pub. avaiL. July 31, 1995).

Craig S. Tyle

July 29, 1996

profies conforming to the 1995 Instructions after July 31, 1996, until the next amendment to its registration statement becomes effective. Each registrant relying on this letter must send or deliver a copy of its current prospectus, including the profile, to the Division of Investment Management, Attention:
Richard Pfordte, Senior Counsel. Ths copy is in addition to the fiings required to be made with the Commission as discussed in the 1995 Letter. Furter, the relief granted by this letter is available to any open-end investment company though July 31, 1997, or until such earlier time as the Commission or its staff takes action with respect to profies. ~ dv ISrreiy,~ Heidi Sta Associate Director

rr INVESTMENT COMPANY INSTITUTE

CRAIG S. TYLE
VICE PRESIDENT & SENIOR COUNSEL
SECURITIES AND FINANCIAL REGULATION

July 29, 1996
Heidi Starn

Associate Director
Division of Investment Management
U.S. Securities and Exchange Commssion

450 5th Street, N.W.

Washington, D.C. 20549

Re: The Profile
Dear Ms. Starn:
As you know, on August 1, 1995 the Division provided no-action assurances to the Investment Company Institute for the use on a one-year trial basis of a mutual fund "profile" that is prepared according to specific instructions. On May 20th, the Institute submitted to the Commission our research findings on shareholder assessment of the profile and our suggestions for the profile. These suggestions were developed by the eight mutual fund organizations who participated in the project, and reflect the research findings, our experience with the document to date, and our consultations with Institute members and outside experts on mutual fund disclosure and related issues. Attached are proposed instructions that reflect most of the suggestions presented in our May 20th letter. (The instructions do not include the Institute's suggestions that would apply if the profile could be distributed with an application to purchase.) The Intitute respectfully requests confirmation that after August 1,1996 any mutual fund that chooses to do so, may prepare and distribute profiles, provided that they comply with the attached profile instructions (as well as with the other conditions of the August 1, 1995 letter, a copy of which is attached). We also request confirmation that mutual funds may corLtinue to use existing profies that were developed according to the 1995 instructions until the next regular update, at which time the profies would be revised to comply with the attached instructions. Thank you again for the Division's efforts towards development of the profile. Please do not hesitate to contact us should you have any questions concerning the enclosed instructions or the profile prospectus. Sincerely, ~ 'JVU

Attachments
1401 H STREET. NW . WASHINGTON. DC 20005-2148 . 202/326-5815 . FAX 202/326-5827

INSTRUCTIONS FOR THE PROFILE
July 29, 1996
General: The profile would be considered part of the Section 10(a) prospectus under the securities laws, and should be in a format that would enable it to be used as a prospectus wrapper or included as a separate document that would accompany the Section 10(a) prospectus. Limit the contents of the profile to the information set forth herein. Additional information, or more detailed responses to the items listed, may only be disclosed in a separate document (except for any legends). The profile may not contain cross-references to the full prospectus or to any other document, except for the legend below. The relegation of critical information to footnotes is discouraged. Date. Provide the date of the profile. Prominent Disclosure of Certain Information. The name of the investment company and the fact that the document is a "Profile" or "Fund Profile" must appear prominently at the beginnng of the profile. Avoid the phrase "profile prospectus". The following legend must appear prominently in the profile and in bold letters:
This profile contains key information about the fund. If you would like more information before you invest, please consult the fund's accompanying prospectus. For details about the fund's holdings or recent investment strategies, please review the fund's most recent annual or semiannual report. The reports may be obtained at no cost by calling Other Information Required in the Profile. Include the following eleven disclosure items in

the order listed and numbered accordingly. Include the appropriate heading (e.g., "Risks"), although this requirement may be satisfied by using a question-and-answer format (e.g., "What are the risks of the fund?"). Investment companies should, to the extent possible, attempt to use language that a typical investor in the investment company should easily understand and avoid the use of technical terms.

1. Goals or Objectives. Briefly describe the investment company's goals or objectives.
   This description can include identification of the tye of investment company being offered (e.g., money market fund, balanced fund).
2. Investment Strategies. Briefly describe the investment company's principal investment
   strategies, including the manner in which the investment company intends to achieve its objectives, a short description of the types of securities in which the investment company principally invests or is expected to invest and any special investment practices or techniques that the investment company principally uses or is expected to use. For example, an equity

fund should briefly describe the criteria used for making investments; a fixed income fund should disclose its general policies (if any) with respect to average maturity or duration and credit quality. If the investment company has a policy of concentrating in an industry, group of

industries, or group of issuers, disclose this fact.

3. Risks.

(a) Narrative Disclosure -- Briefly describe, in narrative form, the principal risk factors

that are expected to affect significantly the investment company's overall performance. These factors should be specific to the tye of investment company. Disclosure that the principal value of the shares may fluctuate, by itself, is not sufficient. If the fund is non-diversified, this fact must be disclosed. Also state that loss of money is a risk of investing in the investment company. The specified disclosure of this fact can vary depending upon the type of investment company. For example, a money market fund could disclose that there is no guarantee that it wil maintain a $1 per share price. Do not describe the risk factors associated with individual securities in which the

investment company may invest unless they are likely to alter significantly the overall risk of

an investment in the investment company as described in the profile.

(b) Risks and Rewards -- An investment company may, if it wishes, also include a discussion of the anticipated rewards of investing in the investment company. If so, the discussions of risk and reward must be separated and labeled accordingly. Avoid promissory language in discussing rewards.
4. Appropriateness. Briefly set forth characteristics of an investor for whom the
investment company might be expected to be an appropriate and; or inappropriate investment (e.g., time horizon, wilingness to tolerate fluctuations in principal, material tax consequences).
5. Fees and Expenses. Include the fee table from Item 2(a)(i) of Form N-1A, with all items
including the hypothetical example. Provide a brief explanation of the difference between shareholder-level and fund-level expenses. In accordance with Form N-1A, if expenses have been waived, disclose what the expenses would have been absent the waiver.
6. Past Performance.

(a) Bar Graph -- Include a bar graph showing the annual total returns of the investment company for each of the last 10 calendar years, or the life of the investment company if less than 10 years. The graph must include disclosure of the yearly returns in numerical form.

Compute total returns without regard to any front-end or deferred sales charges;

however, if the investment company assesses any such charges, disclose the fact that these

charges are not reflected. Only include returns for full years (i.e., no stub periods).

As an option, funds may include in the bar graph a graphical comparison to an

appropriate broad-based securities market index, such as the index used for purposes of

complying with Item 5A(b) of Form N-1A.

(b) For all investment companies -- Include the standardized 1,5, and 10 year total return data, computed in accordance with Form N-1A, and, at the option of any non-money market fund, the fund's SEC yield, each as of the end of the most recent calendar quarter as is practicable. For money market funds only -- In addition to the 1,5 and 10 year total return data,

include (i) the fund's 7-day yield, computed in accordance with Form N-1A, current as of the end of the most calendar quarter as is practicable, and (ii) a toll-free number where investors can obtain the current 7-day yield. Do not provide other performance numbers in response to this item. Disclose the fact that past performance is no guarantee of future results. (c) Updating Information -- In lieu of revising performance numbers in a profile to bring them current to the most recent calendar quarter, an investment company may stamp the current performance numbers in any equally prominent place in the profile, or may provide the current information on a separate document (such as a "sticker" or "buck slip") that accompanies the profile.
7. Investment Adviser. Identify the investment company's investment adviser and any
subadviser that manages a material portion of the investment company's portfolio. Briefly disclose the information required by Item 5(c) of Form N-1A with respect to persons primarily responsible for the day-to-day management of the fund's portfolio. Investment companies that are money market funds or whose investment objectives involve replicating the performance of an index are not required to provide the Item 5(c) disclosure. In the event that all investment decisions are made by a commttee, and no person is primarily responsible for making recommendations to that commttee, the profile may state this fact in lieu of identifying the committee members. If three or more persons or sub advisers each manage a portion of the investment company's portfolio, the profie may state this fact in lieu of identifying individual persons or subadvisers.
8. Purchases. Briefly describe how to purchase shares of the investment company.
Include any minimum investment requirements. Where available, note variations in sales loads.
9. Redemptions. Briefly describe how to redeem shares of the investment company.

10. Distributions. Disclose when and how (e.g., cash, reinvestment) distributions are
    made by the investment company. Disclose information concerning the tax treatment of distributions (e.g., whether they are taxable as capital gains or ordinary income).
11. Other Services. Briefly describe other services available to investors of the investment
    company (e.g., exchange privileges, telephone transactions).

..NITED STA TES
-
SEOJRITIES AND EXCHANGE COMMISSION
WASHINGTON. 0 C. 20549
QI'/ISIOH OF

~"EST~EHT MAHAG!lo!HT

July 31, 1995

Paul Schott Stevens, Esq.

Gener. Counsel

Investent Compay Insttute
1401 H Str, N. W.

Washigtn, DC 2005-2148

De Mr. Stevens:
We have reviewed the ICI's "Inctons for Prfies" da July 19, 1995

("Instrctons"), toget with your acmpaying let. Th Inons de eleen dilosure items to be inlude in 1 profi1, includ inoron re th fud's objectives, invesent stgi, ri and aprori of invesen, Iee an exp,

pas peiforman, invesen ad, and purcha, repton an dition pro.

In order to provide consisy an eay compailty wit ot profi, th .Inctoñ spif the ord in which th eleen dilosure ites sbo ~ in 1 profi an how those ites should be pr. 1b co of 1 profi ar li to th inoron. se

fort in the InstctoDS. Unde th Inoi;, 1 profie wil be pa of th prosps. .

consttutig Pa A of 1 fund's reon stment on Form N-IA. Tb profie wil either accompay, be atche to, or be physicay inrpra with, th reder of the

prosptus reui under Secon 10(1) of th Seces Ac of 1933 ("Secti Ac").

The Geera Instctons for Pa A in For N-1A st th th inoron in the

prosptus nee no be in any pacu ord, exce th dilos reDd to Ites 1

(cover page), 2 (synsi, inludi fee tale), an 3 (ti highgh tale)(exce pargrh (c) of Ite 3) mus be in numenca ord in th prosps an miynot be preed or sete by any ot ite. Ru 48 1 unde th Seri Ac spes cert items of inormation th ar reir to ap on th outside an inid cover paes of any

prosps relag to a re sten of an inesen compay.

Although th prfi wu DO contela whe Form N- lA or Ru 481 was

adopted, we belie th use of a profie is consist with th policie unrlying the Form an the Rule. i 'Ioi, th st woud no remmen enoren acon to th Commkuon for fa to coly with th seen reen of For N-1A or Ru

481, Ü 1 re wi th ti fre de beow l UJ a profi merig th

reirents in th lDoo. 1b sts posi is in DO way inen to al th othr reirments of For N-1A or Ru 481 aplile to a re You let al re coon th th st wil DO ob if a profi is fi eit as 1 sule UD Ru 497 or as a po-eece am un Ri 485(b). Th st wil no reeu enorcen ac to th Co un Ru 497 un th Seces Ad if a re fi a profi mee th reen in th InctOD as 1 suleen to it th prosp pu to Ri 497(e), prde th th profie is al inlud in th ne post.:ece ameuen to th æg's reon stmen. Adonay, th st wil no remmen emorcen Id to th

Commi'-tion purs to Rue 48 un th Se Ar ü a re iDlud 1 prfie

~ Investent Compay Ac Rei. No. 3436 (Aug. 12, 1983) (adg For N-1A).

Paul Schott Stevens, Es.
July 31. 1995

meetig the reuirments of the Instrctons as par of a post~ffecve amendment to its

registrtion statement pursuant to Rule 485(b)(l)(vü).i The regit or counsel to the

registrt must make a written reresentation under Rule 485(b) th the post~ffecve

amendment (includig the profue) does not conta dilosure tht would render it ineligible to be decla effective under pah (b). The use of profies is being underten intiy as an exprient for a period of one

yea. Durig tht tie period, th st of the Division intend to monitor the indust's use

of profues to assess wheter invesrs fid them helpfu in deidg to ines in a fu. The

no-action positions ta in th leter wil be effecve only for a pe of one yea frm the da of th letr, unl oterwis ext by th off. Ady, to as us with ths monitorig, and as a condtion to th noacon reli gr by th let, eah

regit th use a profi must send or deliver a coy of it cu prs, inludg the profue, to the Division of Invesent Maement, Aton: Em D. Str. Th coy wil be in adtion to figs re to be ma wit th Commsion. The st s positions cont in th let ar li to prfi contg

disclosure concerng a single se or fund. Th st wis to fi as th re of

the inti use of the profi by compag th us of profi of si fw or se. .1í addition, the st is concrn th alowing cobi profies for i nube of seri or funds may not be compable with th role of th profi as a co siimm2ry of mari disclosure include in th prosps. Finy, the relief grted by th le is availe to any op inesent company tht wishes to provide a profie with its prosp, prode it conform to th Instrctons and the conditions to th relief se for abve. Sincely, ~Lù ~ ;. MUIy Asia Di aD Ch Co Post-effecve amen th co ony ro uø cM"&e beme effecve automacay an with st re pu to lb 48S(b). UDd

pagrh (b)(1)(vü) a regi may fi i po~ece amen th cont any non-mari chage which th re des ~iopri.

i

INVESTMENT COMPANY INSTITUTE
(I
PAUL SCHOTT STEVENS

G=:..E~.._ c.:'.:'s¿:_
July 19, 1995

Bar P. Barbash

Diector
Division of Investment Management
U.s. Seties and Exchge Commsion
450 5th Street, N.W.
Washigton, D.C. 20549

Re: Muhial Fund Profies
Dear Mr. Barbash;

The Investment Company Intihite is pleas to submit the genal intrctons for

preparation of the mutual fud "profi," which wer develope by th eight muhial fud organations who parcipate in th proje, an which reflec the commnts of the Diviion

of Investment Mangement and th Nort Amerca Seties Admtrators Asation.

The Intihite respey reqests conftion of the maer in which the profies wil be formtted and fied under the Common's rues. In parcu, we request conftion tht the Diviion wi not objec if th profies ar fied as par of the fuds' regtration statements and wi pet the fig of a profie either as a supplemt under Rule 497 under the Seties Act of 1933 or as a po-eecve amdment to a retration statet under Rule 48S(b) of tht Act (if the amdmt oth meets the reuits of Rule 48(b)). We also reuest conftion tht th next pot~ffve amdmt to a regtration statement tht inudes th profie may be fied under Rule 48) (if the amdmt oth meets the rets of Rul 48)). 'T you aga for th Divion's effort toards developmet of th profie. Pleas do not hestate to cota us shuld you have any question co th enos or th no￾acton let to be isued with re to th profie pro Enclosure

INSTRUCTIONS FOR THE PROFILE
July 19, 1995

GeneraL: The profie would be considered par of the prospectus under the securities laws. and should be in a format that would enable it to be used as a prospectus wrapper or included as a separate docent tht would accompany the fu prospe. The nae of the fud and the fact tht the docent is a "Profie" or "Fund Profie" must appear promiently at the begig of the docnt. Avoid the phras "profie

prospectus." The followig legend must appear somewhere in the docent:
Th Profie conta key inormtion about the Fund. More

deta appear in the Fund's accompanyig Prospe.
Include the following eleven diosur items in the order lite and num accordingly. Include the appropriate headig (e.g., "Riks), although th requient ca be satisfied by using a question-and-aner formt (e.g., "Wht ar th ri of th fud?"). . Lit the contents of the profie to the inormation set fort her Additiona inormation, or more detaed respons to th ite lite, may only be dios in a separate

docent (except for any legends tht may be reui under law). 'T profie may not contai cross-references to the fu prospe or to any othr doct, except for the legend above. .

1. Go or Objecive. Briefy desbe the fud's goa or objves. Th desption
   can include identication of th ty of fud (e.g., money maket fud, balce fud).
2. Invetmt Strateg. Briefy desbe the fud's investmt policies, includig a
   short descption of the ty of seties in which th fud invests or wi invest pripaly

and any speal investment practce or tecques. If the fud ha a policy of concentratig investments in an inus or grup of inustres, th fact must be diose.

3. Riks. Br des, in naative form th pripal ri factrs aste with an
   investment in th fu Th shd be spc to th ty of fu. (For exle, diose

tht the pripal value of th sh may fluctte is not sufcient) If th fu is nondiverifed, th fa must be dios.

A fud may, if it wi, al inude a dion of th anticipate rear of investi in th fud. If so, th dions of ri and rear must be searte an labeed accordigly. Avoid promiry laguge in di reards

4. AfI"o-te. Briefy se fort chacttics of an investor for whom th fud

iight be exp to be an approprite and/or inpproprite investmt (e.g., ti horion,

wignes to tolerate flucttions in pricipal, mateal ta consuen).

j. Ftis and Expenses. liclude the tee table tram (tern 2(a)(i) or Form ~-i., ,,¡ith 3d items mcluding the hypotheti~al ex~ple, Provide a bnef explananon of the diHerence bet''een

shareholder-level and.fund-levelexpenss. li accordance with Form :--lA. if expenses have

been waived. include disclosure of what the expenses would have been absent the waiver.
6. P:ist Per.tormance.

(a) Bar Graph --liclude a bar graph showing the annual total returns or the fund tor each of the last 10 calendar year, or the life of the fund if less than 10 years. The graph must include disclosure of the yearly retu in numerical form. Compute total retu without regard to any front-end or deferr sales charges; however. if the fud assesses any such chges, the fact that thes charges are not ret1ected must be discose. Ony include retu for fu years (Le., no stub periods). As an option, fuds may include in the bar graph a graphical comparson to an appropriate broad-bas seties maket index, such as the index us for puroses of complyig with Item SA(b) of Form N-1A.

(b) For money mar~t fund only - Include (i) the fud's 7 ~ay yield, cuent as of .~e

end of the most reent calendar quar and (ü) a toll-fr num wher investors can obtå the cunt 7 ~ay yield. .

For all othe funds - Include the stadardied 1, 5, and 10 year tota retu data and. at the option of the fud, the fud's SEe yield, each as of th end of the most recent calendar

quarer.
Do not provide other performce numbers in repons to th item. The fact that past performce is no guante of futu reuits must be diose. (c) Dislosure Coning Inwstmet Straugy - Funds may consider includig a brief discsion of the maer in which th fud ha be seg to acheve its stated objectives, simiar to the inormtion provided in repons to Ite 5A(a) of Form N-1A.

7. Investmt Adt1. Identi th fud's investmnt advi. Funds al should

consider identi th subadvi (if any) and/ or providig diosure simar to the inormtion pro in rens to Ite 5(c) of Form N-1A, by identig the portolio

maager and su th portolio magers lengt of servce and prior busin experience. Fun gey shuld consder diosure conceg a subadvis who mages a material porton of th fu's portlio.

8. Purc~. Briefly desbe ho to purdw sh. Inude any mium

investments. Whre avaible, note vartiON in saes loads

9. Redemptions. Briefly describe how to redeem shares.
10. Distributions. Disclose when and how (e.g., cash. reinvestment) distrbutions are
    made.
11. Other Serices. Briefly describe other services avaiable to investors (e.g.. exchange
    privileges, telephone transactions).