Download - Practising Law Institute

§ 4:3.6 MUTUAL FUND REGULATIONThe Commission staff has provided guidance for performancereporting in unusual circumstances. The instructions to item 4indicate that if the adviser has changed during the last ten calendaryears, and the successor meets certain requirements of independencefrom the predecessor, the bar chart and table can cover only theperiod in which the successor was managing the fund. And in avariety of no-action letters discussed in chapter 17, the staff haspermitted the use of performance information for predecessorinvestment companies or pooled investment vehicles, new classes ofexisting funds, and new series of master-feeder funds.§ 4:3.6 Fee TableItem 3 of Form N-1A provides for a summary of the shareholderfees (paid out of a shareholder’s investment) and per-share expenses ofa fund, both in tabular form and in the form of an example showingthe fund’s total dollar operating expenses under certain assumptions.Item 3 is also applied relatively rigidly by the Commission staff toincrease the comparability of data for various funds. However, unlikethe performance information required in the summary section of theprospectus, shareholder fee and expense information must be providedfor all classes of shares.Although the shareholder fee portion of the table includes a line forthe maximum deferred sales charge payable by a shareholder, if a classof shares is subject to a contingent deferred sales charge only duringthe first twelve months after purchase, the amount of the CDSC neednot be included in the chart. The Commission has a separate line forredemption fees, which are distinct from deferred sales charges. Theseare fees a redeeming shareholder must pay to the fund (rather than itsdistributor), and are imposed both to ensure that the transaction costsof redemptions are not borne by other shareholders and to discouragefrequent redemptions by market timers and others. The Commissionhas generally taken the position than redemption fees in excess of 2%of the amount redeemed are not consistent with the 1940 Act.The annual per share fund operating expenses in the fee table mustbe based on the fund’s actual expenses during its most recentlycompleted fiscal year. Newly organized funds which have not yetcompleted a full fiscal year, or with a first fiscal year of less thansix months, may use estimated expenses. In all cases, actual expensesmay be adjusted for extraordinary expenses as determined undergenerally accepted accounting principles, with an explanatory footnote.Actual expenses can also be adjusted (with an explanatoryfootnote) to delete other non-recurring increases or decreases inexpenses during the past fiscal year, or to add expenses the fundexpects to incur during the current fiscal year, that would materiallyaffect the information presented. However, the fund may not make4–24