Rule 498, as adopted, allows a fund that serves as an investment option for a member-based defined contribution plan (or certain other tax-deferred arrangements) to also provide investors with a profile that includes disclosure tailored to the plan (or other arrangement). Profiles suitable for such use may exclude information about the purchase and sale of fund units, fund distributions, tax consequences and fund services that are otherwise required in a profile. As noted by the FRFA, the Commission considered several alternatives to Rule 498, including establishing different compliance or reporting requirements for junior investment firms or exempting it in whole or in part. Given that the use of the profile would be optional and would be subject to the same disclosure requirements when using the profiles of all funds, the Commission considers that the rule would not impose additional burdens on junior investment firms. Separate treatment of small investment companies would be incompatible with investor protection. Describe how often the fund intends to make distributions and the options available to investors to reinvest the distributions (if applicable). If applicable, indicate that the fund intends to make distributions that may be taxed as ordinary income or capital gains (which may be taxable at different rates depending on the duration of the fund`s assets) or that the fund intends to distribute income tax-free. If a fund expects its distributions to consist primarily of ordinary income or capital gains because of its investment objectives or strategies, provide information for that purpose. In the case of a fund that invests in securities that generate tax-exempt income, you can provide a general statement indicating that a portion of the fund`s distributions may be subject to federal income tax. Based, among other things, on its previous experience with summary documents, such as advertisements designed to meet the requirements of Rule 482 of the Securities Act,34 the Commission disagrees with commentators` assertions that the use of profiles will result in significant potential liabilities under federal securities laws. The Commission considers that a fund that uses a profile should generally not be held liable for the omission of information in the fund`s prospectus if the profile contains the information required or permitted under Rule 498; Potential liability would only be incurred if a profile contains a material misrepresentation or omits a statement necessary not to materially mislead the disclosure in the profile.
The mere omission in the profile of the information required or permitted in the prospectus should not, in the Commission`s view, give rise to liability under federal securities laws. 35 The Commission decided to adopt Rule 498 and to authorise the Funds to use summary disclosure documents in accordance with Article 10(b) of the Law on Transferable Securities 16 and other provisions of the Federal Securities Law. 17 Article 10(b) empowers the Commission to adopt rules permitting the use of a summary prospectus where the Commission considers that it is `necessary or proportionate in the public interest and for the protection of investors`. 18 In carrying out that assessment of the profiles, the Commission took account, inter alia: a comprehensive analysis of the disclosure of the funds which it recently carried out; its assessment of the use of funds for pilot profiles; its assessment of certain other disclosure initiatives; and its extensive experience in administering the two-part disclosure format adopted in 1983, which allows a fund to provide investors with a simplified prospectus containing key information about the fund and to publish more detailed information about the fund in a supplementary information return (SID), which investors can obtain upon request. 19 The Commission considers that the broad support received by the proposed commentators generally suggested that the funds could develop profiles containing information that was particularly relevant to plan members investing in funds. The Commission shall adopt the specific provisions on the profiles used for the plans, as proposed, with amendments to take account of the comments made. 126 The Commission submits that the observations are consistent with the objective underlying the profile and could lead to better disclosure than that provided for in the Commission`s proposal.
