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§ 4:4.2 MUTUAL FUND REGULATIONWhether an amendment is eligible for filing under Rule 485(b), ormust be filed under Rule 485(a)(1), can be a difficult matter ofprofessional judgment—and often must be determined in the contextof fund management’s distinct preference for Rule 485(b). The onlyguidance is the requirement in Rule 485(b) that the changes mustbe “nonmaterial.” In addition, the Commission has required anamendment including the first filing of a summary prospectus to bemade under Rule 485(a), and has permitted funds that have receivedexemption orders permitting the substitution of sub-advisers withoutshareholder votes to add information about the new sub-adviser in aRule 485(b) filing. Presumably, this is permitted because suchfunds are required to provide an information statement to theirshareholders (containing most of the information that would be in aproxy statement) with respect to any new sub-adviser and will alsohave submitted a prospectus supplement to the Commission pursuantto Rule 497. 33The extreme cases are easy. For example, revisions to informationabout directors’ compensation are not material, and revisions to theidentity of the fund’s investment adviser or fundamental investmentobjective are material. The hard cases are in the gray area in between,and the Commission staff generally depends on counsel to make thecall and provide the required representation.A summary prospectus may also have to be amended from time totime in other respects to ensure that the summary information isaccurate in all material respects. As such changes would also involveamendments to the summary section of the fund’s full statutoryprospectus, the prospectus changes would be filed in the same manneras other amendments to the fund’s Form N-1A registration statement;thereafter, the revised summary prospectus would be filed pursuant toRule 497(k) within five days after its first use.§ 4:4.2 Interim UpdatesEvents often occur between the normal annual updates of a fund’sregistration statement that call for correction of the disclosures inits currently effective prospectus or SAI. Most often they are mattersabout which fund management has had some advance notice, such asrevisions in fund operating policies, changes in service providers,additions of new share classes, or changes in other sales arrangements.33. In a recent administrative proceeding, the Commission stated that informationabout a change in a fund’s industry concentration policy,developed in a Rule 485(b) filing, was material and should have beenreflected in a Rule 485(a) filing. See In the Matter of Charles SchwabInvestment Management et al., Investment Company Act Release No.29,522 (Jan. 11, 2011).4–32
Prospectus Disclosure and Delivery Requirements § 4:4.2Sometimes they are unanticipated events, such as departures of keyportfolio managers, significant events affecting the fund’s strategies orinvestments, or developments with respect to the fund’s adviser.For truly material corrections, the only alternative is to file anamendment under Rule 485(a), which will not become effective forsixty days (or a shorter waiting period, if the SEC staff is willing toexpedite its review of the changes and accelerate the effectiveness ofthe amendment). In these circumstances, the fund may have to stopselling shares until the amendment is processed, in order to avoidliability under the 1933 Act. When making interim amendments,counsel should bear in mind section 3-18(c) of Regulation S-X, whichwill require the addition of interim unaudited financial information ifthe audited financial statements are more than 245 days old on theeffective date of the amendment.Less material corrections can be made immediately by anamendment to the registration statement filed under Rule 485(b), ifthe change qualifies for filing under that Rule. In appropriatecircumstances, they can also be made immediately by “supplementing”the prospectus or SAI with additional material (often in the form of a“sticker” that can be affixed to the prospectus or SAI) or printing acorrected prospectus or SAI (in which case the dating of the prospectusshould be revised to indicate the original effective date, supplemented asof a later date). The supplement can be filed with the SEC pursuant toRule 497(e) of the 1933 Act, as a form of prospectus varying from theform filed under Rule 497(c) (or referred to in a certificate filed underRule 497(j)) after the effective date of the registration statement. 34 Asupplement to the summary prospectus portion of Part A must alsosupplement the summary prospectus when it is used alone as an offeringdocument; the SEC staff has indicated that in such cases the summaryprospectus may be reprinted even if the statutory prospectus is not.As in the case of annual amendments to the fund’s registrationstatement, whether a correction is eligible for filing as an amendmentunder Rule 485(b) or as a supplement under Rule 497, or is so materialthat it must be filed under Rule 485(a), can be a difficult matter ofprofessional judgment—and usually must be determined in the contextof fund management’s desire to avoid any interruption in sales offund shares. Little formal guidance about these judgments is available.In its 1995 “generic comment letter”, the staff reminded registrantsthat “they may not materially alter the nature of the fundcontemplated in the last pre-effective amendment by merely filing34. If the form of prospectus filed under Rule 497(c) includes information inresponse to items 2–4 of Form N-1A that varies from the information inthe registration statement as filed, then an interactive data supplementmust also be filed. See infra section 4:3.8[C].(Mutual Fund Reg., Rel. #9, 6/11)4–33
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