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§ 4:4.1 MUTUAL FUND REGULATIONmanagers; and revised sales and distribution arrangements. For thispurpose, counsel should attempt to ensure that the current prospectusand SAI are distributed for review to the appropriate officers of thefund’s investment adviser and administrators. An annual update tothe fund’s officer and director questionnaire should also be circulatedfor completion.One aspect of this annual review process requires some carefulanalysis. As indicated above, prospectus disclosure about investmentstrategies and risks should focus on what the fund is in fact doing, andnot what it might do. During the course of a year, the types ofsecurities in which the fund is actually investing and which itintends to emphasize can vary considerably, and the disclosures inlast year’s prospectus may not be adequate. For example, the portfoliomanagers of a growth equity fund that previously had substantialaggregate positions in technology stocks, and included an explanationof the attendant risks, may have restructured the portfolio becausethey view the healthcare industry as providing better prospects. Todetermine whether prospectus disclosure should change, it is useful toreview the portfolio listings in the fund’s current annual report (or, if itis not yet available, the latest semi-annual report), and it is imperativeto discuss the matter with the relevant portfolio managers. 29 This typeof discussion may also result in proposed changes in future positionsthat may create issues under the 1940 Act. 30When filing an amendment to the fund’s registration statement,Part C must also be updated. However, previously filed exhibits can beincorporated by reference in the exhibit listing.29. For another example, see Piper Capital Mgmt., Inc., Initial Dec. ReleaseNo. ID-175, 73 S.E.C. Docket 2524-77, 2000 WL 1759455 (Nov. 30,2000). In this proceeding, a fund with the objectives of achieving a highlevel of current income and preserving capital initially invested only inU.S. Treasury notes and ordinary government agency securities. The fundlater began shifting the overall composition of its portfolio to leveragedinvestments in interest-rate-sensitive collateralized mortgage obligations.The administrative law judge held that the alteration in the fund’sportfolio materially deviated from the objective of preserving capital andwas not adequately disclosed in the prospectus.30. See, e.g., In re Charles Schwab Corporation Securities Litigation,No. C08-01510 [WHA] (S.D. Cal. 2009), holding that section 13(a) ofthe 1940 Act required a shareholder vote before a fund could lawfullydeviate from the statement in its SAI that it would treat mortgage-backedsecurities issued by private lenders and not federally guaranteed as anindustry for purposes of its concentration policy.4–30
Prospectus Disclosure and Delivery Requirements § 4:4.1[B] Rule 485A normal annual amendment to a fund’s registration statement,which merely updates the financial statements and makes a variety ofother non-material changes, will become effective immediately uponfiling pursuant to Rule 485(b) under the 1933 Act if the appropriatebox is checked on the cover page of Form N-1A. 31 To take advantage ofthis procedure, the fund must certify on the signature page that theamendment meets all of the requirements of Rule 485(b). In addition,if counsel to the fund has prepared or reviewed the amendment,counsel must furnish to the Commission at the time the amendmentis filed a written representation that the amendment does not containdisclosures that would render it ineligible to become effective underRule 485(b). A fund that fails to submit or post a required interactivedata exhibit will lose its right to use Rule 485(b) until the submissionor posting is completed.If immediate effectiveness under Rule 485(b) is not availablebecause of the materiality of the revisions, a fund has two otheroptions. Rule 485(a)(2) provides for automatic effectiveness seventyfivedays after filing, if the purpose of the filing is to add informationabout a new series of the fund; the fund may designate a later effectivedate that may be up to ninety-five days after filing. Otherwise,Rule 485(a)(1) provides for automatic effectiveness sixty days afterfiling (or on a later date designated by the fund which may be up toeighty days after filing). 32 If an earlier effective date is necessary, theSEC staff will cooperate in appropriate circumstances to accelerate theeffective date of the registration statement pursuant to section 8(a) ofthe 1933 Act and Rule 461 under the Act (which requires a writtenacceleration request by the fund and its underwriter). In allcases, automatic effectiveness is subject to the Commission staff ’sability to request the fund to voluntarily file a delaying amendmentif disclosure matters remain to be worked out, or ultimately theCommission’s ability to issue a stop order under section 8(b) of the1933 Act preventing effectiveness of the amendment.31. Rule 485(b) also permits the fund to designate an effective date that iswithin thirty days after the filing date. This procedure is often used toprovide adequate time to print revised prospectuses in advance and getthem into the hands of a distributor’s network of offices for use on andafter the effective date.32. The Commission staff noted in its 1994 “generic comment letter”: “It isthe staff’s position that the first day after filing is the day following theday of filing, not the day of filing. Thus, for a post-effective amendmentfiled on November 1, sixty days after filing is December 31 (notDecember 30). . . .”(Mutual Fund Reg., Rel. #9, 6/11)4–31
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