February 28, 2008

Ms. Nancy M. Morris
Secretary
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-9303

Re: Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies: File No. S7-28-07

Dear Ms. Morris:

The Investment Company Institute¹ is pleased to express its strong support for the Commission's proposed concept of a new prospectus delivery option for mutual funds.² The proposal to permit funds to provide investors with a summary of key information (a "Summary Prospectus"), and make additional information, including the statutory prospectus, available on the Internet and in paper or by email upon request, represents an historic milestone in the ongoing quest to better serve fund investors' information needs.³

The Commission and the industry have invested substantial time and resources in continual efforts to improve mutual fund disclosure over nearly three decades.⁴ The importance of these efforts is indisputable. With millions of U.S. investors choosing mutual funds to save for their retirement, for their children's education, and for other important financial goals, it is critical that those investors and the financial professionals who assist them have ready access to the information they want and need in a form they can use. Yet, despite all best intentions, past disclosure reform efforts have resulted in only limited or temporary improvements.

The Commission's proposed Summary Prospectus concept represents a possible breakthrough. The proposal is consistent with earlier Commission efforts to highlight for investors the most essential fund information, while making additional information available to those who want it. Previously, the Commission pursued this ideal by moving important information to the front of a lengthy document or set of documents. In the case of the fund profile, which like the Summary Prospectus culled out key information for investors in a shorter document, the long-form prospectus was still required to be sent to investors to supplement the profile document. Now that the vast majority of mutual fund investors have access to the Internet,⁵ it is finally possible to provide them with a streamlined document that presents key information in the concise, user-friendly format they prefer, without any net loss in the amount of information available to investors and the marketplace at large.⁶

Enhancing the financial literacy of fund investors is a shared goal of the Commission and the industry, and we believe that the Summary Prospectus has the potential to make disclosure documents more usable for the average investor. We also believe that such a document will make mutual fund information more accessible and understandable to 401(k) plan participants,⁷ and could provide a template for disclosure about other investment products offered in 401(k) and similar defined contribution plans.⁸ Importantly, the proposal also seeks to address the concerns over potential liability that dampened enthusiasm for the fund profile. In our view, discussed in more detail below, it largely succeeds in doing so.

By relying primarily on the Internet to make certain information available to investors, the proposal clearly reflects Chairman Cox's strong leadership and unrelenting commitment to regulatory approaches that take advantage of technology for the benefit of investors. At Chairman Cox's urging, the proposal aims even higher, attempting to provide enhanced features to improve the utility of disclosure through the use of technology. We commend the Commission for recognizing and seeking to capitalize on the advantages that technology can offer.

As evidenced in the Proposing Release, the proposal rests on a strong foundation. It reflects the strikingly broad consensus that investors would be best served by simplified, streamlined disclosure of essential fund information, and is supported by an extensive record, including empirical research conducted by the Commission, the Institute and others.⁹

The transformative possibilities presented by this proposal make it critically important for the Commission to seek to maximize funds' implementation of the Summary Prospectus. The proposed quarterly updating requirement, however, represents a significant barrier to broad adoption of the Summary Prospectus by the industry. Institute members firmly believe that quarterly updating of top ten portfolio holdings and performance information in the Summary Prospectus is neither necessary nor appropriate from a policy perspective. Additionally, the costs and burdens the requirement would involve - not only for funds but also for those who distribute fund shares and advise investors - will likely deter most industry participants from adopting the Summary Prospectus. Meanwhile, quarterly updated information is already widely available on the Internet and from other sources. In light of the ready availability of this information, we believe that requiring quarterly updating of the Summary Prospectus is not so important as to warrant risking the success of the whole initiative.

Certain other aspects of the proposal, including some aspects of the technology requirements for making additional information available on the Internet and the conditions for using the Summary Prospectus, may also limit the willingness of some fund complexes to participate. Each of these concerns and our recommendations for addressing them are discussed in more detail below. We also offer comments on the format, content, and order of the proposed Summary Prospectus, as well as the filing and compliance requirements and transition period. We hope our comments will help to improve the quality and utility of the Summary Prospectus for investors, and increase the likelihood of its widespread use by mutual funds and fund distributors.

In summary, our comments are as follows:

Table of Contents

A. Possibilities for Investor Confusion

1. Proliferation of Time Periods Within the Summary Prospectus
2. Different Information in Summary and Statutory Prospectus

B. Operational Burdens and Costs

1. Creating Updated Summary Prospectuses
2. Printing and Distribution of the Updated Summary Prospectus

a. Print On Demand for Post-Transaction Fulfillment

b. Print On Demand for Other Purposes

C. Intermediary Compliance and Legal Concerns
D. Interpretive Questions and Technical Issue

1. Annual Updates
2. Incorporation by Reference - Updates to Summary Prospectus Legend

E. Alternative Approach

A. Potential for Increased Litigation Risk and Associated Costs

1. Risks Created by Certain Terms
2. "Greater Prominence" Requirement
3. Proposed Revisions to Other Problematic Terms

B. Not Bound Together
C. Incorporation by Reference

A. Posting Documents on the Web

1. "Central Web Site With Prominent Links"
2. "Current Versions"

B. Formatting Requirements for Documents Posted on the Web

1. Links From a Table of Contents to the Referenced Sections of the Same Document (Internal Links)
2. Links From the Summary Prospectus to the Statutory Prospectus and SAI (External Links)

C. Saved Documents
D. Provision of Documents by Email Upon Request
E. Safe Harbor Provision

A. Format

1. Multiple Fund Presentations
2. Duplicative Information in the Summary Section
3. Page Limits and Other Formatting Requirements

B. Order
C. Content

1. Fee Table - Summary Presentation
2. Fee Table - Other Proposed Changes

a. Breakpoint Discount Disclosure

b. Revised Heading Under "Annual Fund Operating Expenses"

c. Expense Reimbursements and Fee Waiver Arrangements

d. Portfolio Turnover Disclosure

3. Performance Table
4. Portfolio Holdings
5. Management
6. Financial Intermediary Compensation

I. Quarterly Updating Requirement
We strongly oppose the proposed requirement that a Summary Prospectus contain average annual total returns and yield (if applicable) as of the most recent calendar quarter, as well as quarterly updated top ten portfolio holdings information.¹⁰ The Commission's desire to have performance information updated on a frequent basis in a disclosure document signals to us a troubling shift toward focusing on short-term performance information rather than the regulator's traditional role of encouraging investors to consider long-term performance.¹¹ The proposal also seems inconsistent with the stated purpose of the performance bar chart and table, which is to illustrate the variability of a fund's returns over time to show volatility and risks relative to the market - not current performance.¹²

Moreover, our survey of and extensive discussions with members make clear that a quarterly update requirement for this optional document will significantly reduce industry interest in using the Summary Prospectus.¹³ Institute members strongly question the benefits to shareholders of providing quarterly updated performance and holdings information in the Summary Prospectus. Members widely believe that the costs and burdens involved far outweigh any potential benefits, particularly given that updated performance information, along with portfolio holdings, is already widely accessible to investors through a number of sources, such as fund websites, third party sources, and fund fact sheets. Our analysis suggests that up to 70 percent of funds would face substantial cost and operational burdens in complying with a quarterly updating requirement, and that these burdens would likely lead funds to elect not to use the Summary Prospectus.¹⁴ By contrast, if the quarterly updating requirement were eliminated, nearly 80 percent of funds would find it cost-effective to use the Summary Prospectus.

Regularly updated performance and portfolio holdings information is already widely available on the Internet and from other sources. Thus, the benefit to shareholders of requiring this information in the Summary Prospectus seems minimal, particularly given the impact the requirement would likely have on funds' use of the Summary Prospectus. Because a quarterly updating requirement would likely prevent many funds from adopting - and shareholders from receiving - the Summary Prospectus, we urge the Commission to eliminate this requirement.¹⁵ We propose instead that the legend in the Summary Prospectus direct investors to a specified website for updated performance information, as well as portfolio holdings information if such information is required to be provided in the Summary Prospectus. Our concerns and our suggested alternative approach are discussed in more detail below.

A. Possibilities for Investor Confusion
We are concerned that the proposed quarterly updating requirement could unintentionally generate investor confusion in at least two ways. First, a single quarterly Summary Prospectus could contain information from four or more time periods, which could confuse an investor. The fact that a Summary Prospectus may contain different information from the statutory prospectus for the same fund may also result in investor confusion.

1. Proliferation of Time Periods Within the Summary Prospectus
Quarterly updated Summary Prospectuses may contain information reflecting at least four time periods. Form N-1A currently requires performance information to be displayed in the bar chart and performance table as of the most recently ended calendar year. Following the bar chart, a fund must disclose its best and worst quarter in the last 10 years (or period of the bar chart). A fund with a fiscal year other than the calendar year must include a footnote to the bar chart providing year-to-date information as of the most recent quarter at the time the registration statement is filed. Fee table information is presented on a fiscal year end basis. As proposed, a Summary Prospectus would also contain updated performance information from the most recently ended calendar quarter (in the performance table) and, in many cases, portfolio holdings information as of the immediately prior calendar quarter.¹⁶ This confusing array of time periods, covering a much smaller number of items than in a statutory prospectus, seems excessively complicated for a document that is intended to simplify fund disclosure for investors.

2. Different Information in Summary and Statutory Prospectus
Another opportunity for confusion arises because the Summary Prospectus and summary section of the full prospectus are identical except for the updated information. A fund or intermediary could sell fund shares to two investors simultaneously, and provide them with otherwise identical documents containing different performance data and portfolio holdings (using a Summary Prospectus for one investor and the statutory prospectus for the other). The proposed rule evidently contemplates this scenario - it provides protection for funds against allegations that a statutory prospectus omitted material information by virtue of not containing the quarterly updated performance and portfolio holdings information contained in the Summary Prospectus.¹⁷

We applaud the Commission for its attention to potential liability concerns arising out of differences between the two documents, and we agree that this rule would provide substantial comfort to funds with respect to such allegations.¹⁸ Nevertheless, it does not address the possibility that investors may be confused by such differences. More importantly, it contravenes the Commission's attempts to enable investors to compare performance across multiple funds.

B. Operational Burdens and Costs
Institute members have voiced serious concerns about the impact a quarterly updating requirement would have at every stage of the Summary Prospectus' lifecycle, from creation, to distribution, to use by intermediaries at various points in the sales process. Members have assured us (including through our survey) that each of these concerns - financial, logistical, and compliance - will be factored into their consideration of whether and how to use the Summary Prospectus. Cost considerations are discussed in more detail in the Institute's cost-benefit analysis, attached as Appendix B. Members' operational, logistical and compliance considerations are described below.

1. Creating Updated Summary Prospectuses
Institute members are extremely concerned about the difficulties of creating Summary Prospectuses every calendar quarter - that is, creating or updating the actual document. Putting aside costs, processing updated documents creates substantial logistical challenges, particularly with respect to staffing and workflow.

Quarter end is already an extremely busy time for fund companies.¹⁹ The compilation of quarter-end data and the review of fund fact sheets typically create a quarter-end rush for the legal and compliance departments, as well as for the design or desktop publishing and the web publishing groups. Institute members do not expect the Summary Prospectus to replace fund fact sheets.²⁰ Thus, the maintenance of Summary Prospectuses would be in addition to fact sheets and other existing quarter-end obligations.²¹

Moreover, as confirmed by most of our survey respondents, updating of Summary Prospectuses would likely require an entirely new process, one that would be more rigorous and complex than the one used for fund fact sheets. Several Institute members have explained that their marketing or communications departments are responsible for the design of fund fact sheets. These personnel pull and compile fund information from internal database systems, after which the resulting documents undergo compliance review; such documents are filed with FINRA only after first use and when there are material changes. Further, there is no mandated schedule for fact sheet updates, so holding up this process due to operational or other delays will not have any regulatory implications.

By contrast, Summary Prospectuses would likely originate and be overseen in the legal department, where they would be drafted, updated, reviewed, and prepared for filing with the SEC.²² In many cases, members anticipate that a variety of other parties or business units also will be involved in the updating and internal review of Summary Prospectuses. While the information that would be required to be updated - top ten portfolio holdings and performance - is generally readily available, members report that they would likely review the entire document before filing to ensure that all appropriate updates, such as any stickers filed during the previous quarter, were properly captured.²³

These updates would all be required within 30 days of quarter end, further complicating matters. Many fund complexes stagger the fiscal year ends of their funds to ensure a steady workflow for legal and other personnel involved with fund disclosure and annual and semi-annual financial reports. Even assuming the most cursory review, simply adding 20 or 40 or 150 documents to the queue for quarter-end review will create bottlenecks during those periods. Even if personnel were added to help with the increased volume of filings, the requirement would necessarily result in the very cyclical workflows that staggered fiscal years have successfully prevented.²⁴

Finally, once these documents are created, they must be formatted - for EDGAR, for printing, and for posting on the Internet (complete with embedded links to the statutory prospectus, SAI and shareholder reports).²⁵ Again, these tasks must be completed within a very short window, and in addition to all of the other materials that already must be formatted and uploaded at the end of the calendar quarter. And, in stark contrast to fact sheets and other literature, a delay or failure could result in a disruption of the ability to sell a fund's shares, or a violation of federal securities laws.²⁶

Over 70 percent of fund complexes that responded to our member survey reported that, as a result of the quarterly updating requirement, moderate to severe bottlenecking - impacting legal and compliance, marketing, production, IT, administration and accounting personnel - would occur in the month after calendar quarter end.²⁷ These complexes collectively offer 2,958 funds, or 92 percent of funds covered in our survey. About 60 percent of respondents (offering 2,636 funds, or 82 percent of funds in our survey) indicated that they do not have sufficient current staff to compile and update Summary Prospectuses for each fund within a 30-day window at calendar quarter end,²⁸ and many noted that they would have to hire new staff, outsource job functions, and/or hire temporary staff. Forty-five percent of responding complexes (offering 1,758 funds or 55 percent of funds in our survey) stated that bottlenecking could be a significant factor in keeping them from opting to use Summary Prospectuses.²⁹

2. Printing and Distribution of the Updated Summary Prospectus
Institute members expect that a quarterly updating requirement would essentially require them to move to an "on demand" printing model for distribution of Summary Prospectuses, at least for purposes other than annual fulfillment.³⁰ We understand that it typically takes 10 to 15 business days for a statutory prospectus to be printed and delivered to fulfillment vendors. Even if this time were cut in half as a result of a shorter document,³¹ funds likely could not produce the Summary Prospectuses quickly enough to ensure the timely delivery of printed copies to the various destinations they would need to reach. Funds cannot take the risk that updated Summary Prospectuses might not be available when needed, because failure to deliver the printed copies in a timely fashion could result in an inability to sell the fund.³² As discussed below, shifting quickly to a print on demand regime would entail changes in business practices, new or amended vendor contracts, and for a few fund families, significant initial outlays that could substantially delay implementation of the Summary Prospectus.

A. PRINT ON DEMAND FOR POST-TRANSACTION FULFILLMENT
The use of print-on-demand technology for a wide variety of business and other purposes is steadily increasing due to its potential to improve the cost-effectiveness of certain document production and delivery processes. This trend is likely to continue as the technology continues to evolve. But the shift to a print-on-demand approach for mutual fund post-transaction fulfillment purposes is not a simple matter, even before costs are considered. Institute members have very elaborate systems - not to mention vendor contracts - to ensure that their prospectuses are printed and delivered to all of the necessary locations in a timely manner for post-transaction fulfillment. For example, some larger fund complexes have their own print facilities, where they print some or all of their own materials, and then either use internal fulfillment centers or deliver the copies to other vendors for post-transaction fulfillment. Others outsource to a financial printer that prints in bulk and ships copies to needed locations - usually more than one - for fulfillment. And some use combined print/fulfillment vendors that either offset print and maintain stock, or print on demand.

Accommodating a print-on-demand environment on the fulfillment side would require a substantial initial investment.³³ A fund or vendor would not only need very expensive high-speed online printers, and the space to house them, but also a system for ensuring that, a month after each calendar quarter end, updated Summary Prospectuses for every fund they process are received and catalogued overnight to be put into use the following day. While we understand that a few large fulfillment vendors may be able to handle these tasks with relative ease, the in-house and smaller fulfillment vendors, as well as some broker-dealers that do not outsource post-transaction fulfillment, may not. As a result, many funds would need to reallocate internal resources currently devoted to printing, reconsider their vendor contracts, and potentially shift their business to the few, large vendors that have print-on-demand capabilities.³⁴ Broker-dealers that do not outsource fulfillment would either be forced to do so, because the volume of orders placed through them would be too high to be fulfilled through in-house printing, or would continue to use the statutory prospectus for fulfillment.

B. PRINT ON DEMAND FOR OTHER PURPOSES
Institute members are also concerned about their ability to provide updated Summary Prospectuses for purposes other than post-sale and annual fulfillment. Many members currently send bulk copies of their statutory prospectuses to multiple proprietary or broker-dealer branch offices, for use in the pre-sale process (e.g., to accompany marketing materials for purposes of Section 2(a)(10) of the Securities Act of 1933). Some also send prospectuses, either a single courtesy copy or bulk copies, to individual investment advisers who sell their funds.³⁵

Given the time limitations imposed by quarterly updating, funds would likely be unable to continue sending paper copies to these locations; instead, they would have to rely on making electronic copies available. Institute members are concerned that intermediaries would resist the cost shifting that would result if the intermediaries had to print their own copies. More importantly, broker-dealers, including those with branch locations or small offices, would have to develop internal systems or subscribe to a database or other system to ensure that updated Summary Prospectuses for all funds sold by the firm are received, catalogued and available for use at all locations on a timely basis.³⁶ This type of infrastructure does not exist today and would be very costly to implement, particularly for small, independent broker dealers. Ultimately, members believe that this compliance burden may result in limited or slow adoption of the Summary Prospectus by the broker-dealer community, with branches and independent broker-dealers in particular opting to use the statutory prospectus for pre-sale purposes.

C. Intermediary Compliance and Legal Concerns
A quarterly updating requirement may also create certain compliance and legal concerns for intermediaries. As discussed above, there is genuine concern about funds' ability to get the updated Summary Prospectuses to their destinations by one month after calendar-quarter end. If there were such a problem, ostensibly the intermediary could instead provide the statutory prospectus to new purchasers (assuming that the intermediary had a supply of statutory prospectuses on hand for this eventuality), at least until the Summary Prospectuses were completed. From a compliance perspective, however, there is a real concern that this substitution could be mistaken for an attempt to mislead shareholders by providing them with alternate information (such as more favorable performance information), and, therefore, it is not likely to be a viable solution. This concern may also lead some intermediaries to opt to use the statutory prospectus for pre-sale purposes.

As a related matter, Institute members are concerned that intermediaries may not want to use different documents for different funds (i.e., Summary Prospectuses for those that provide them, and statutory prospectuses for those that do not), and that intermediaries' clients could be confused by receiving a statutory prospectus for some funds and a Summary Prospectus for others. Intermediaries might insist on using the statutory prospectus for all funds, particularly if a substantial number of funds opt not to use Summary Prospectuses, e.g., if quarterly updating is required.³⁷

Intermediaries may also resist using Summary Prospectuses for the reasons described above, including: (1) the possible need to change existing business models (e.g., broker-dealers that do not currently outsource post-transaction fulfillment may be forced to do so); (2) printing costs imposed by a print on demand environment may be shifted to broker-dealers and other intermediaries; (3) a new infrastructure would need to be developed to ensure that broker-dealers and other intermediaries have timely and convenient access to updated Summary Prospectuses; and (4) intermediaries may not want to run the risk that, if a quarterly update were unavailable and they delivered the statutory prospectus instead, this substitution might lead to allegations of improper sales practices. None of these concerns would exist if quarterly updating were not required.

D. Interpretive Questions and Technical Issue
The proposed quarterly updating requirement has generated several interpretive questions and at least one troublesome technical issue. In our view, these questions and issues are further evidence of the drawbacks of the quarterly updating requirement, because they illustrate that the requirement unnecessarily complicates the Commission's otherwise laudable proposal. We strenuously oppose the quarterly updating requirement; however, if the Commission nevertheless resolves to retain it, we offer the following comments and suggestions.

1. Annual Updates
Several Institute members and legal counsel have interpreted proposed Rule 498(e) to require, in certain circumstances, five updates. While we do not believe the Commission intended this result, there is some basis for the confusion. We understand that paragraph (e) is intended to allow a Summary Prospectus that has been "sent or given" to investors to be deemed valid for a year, in order to satisfy any annual delivery obligation.³⁸ To address the time at which a Summary Prospectus used for these purposes is no longer valid, this paragraph ties expiration to the date on which a fund is required to update its registration statement to satisfy Section 10(a)(3) of the Securities Act.

As written, however, Rule 498(e) could be read to imply that the Summary Prospectus currently in use would no longer be valid as of this date, which could be, under some circumstances, during a calendar quarter. For example, the annual update for a fund whose fiscal year ends November 30 must be filed by March 29.³⁹ At that time, the current Summary Prospectus, updated as of December 31, would be valid until April 30, when information from the quarter ended March 31 would be required. The proposed rule could be read to require the fund to update (and file on EDGAR) its Summary Prospectus on March 29, even though there would be no information to update.

We believe that a more appropriate reading of Rule 498(e) is that the expiration of the Summary Prospectus only applies to those that have been "sent or given" to investors, and not to the Summary Prospectus itself. We suggest that the adopting release make clear that a fund need not re-file an updated Summary Prospectus at the time its annual registration statement update is due. The end result would be that a fund using a Summary Prospectus to conduct its annual updating mailing would do so in conjunction with its registration statement update. We believe this is the intention of the rule as proposed.

This reading, however, presents two additional concerns. First, funds with off-calendar quarter fiscal year ends would be required to send or give duplicative Summary Prospectuses to certain investors. For example, in the scenario provided above, new investors in the fund between January 30 and March 29 would have received the December 31 quarterly Summary Prospectus following their purchase. On March 29, all Summary Prospectuses previously sent or given would become invalid; the fund would likely send out its current Summary Prospectus (as of December 31) to all shareholders. The recent investors would therefore receive the exact same information they received upon purchasing the fund.⁴⁰ Also, even if a fund filed its registration statement update early, it would have to wait to send an annual mailing until the date that the update was due to avoid a similar invalidation of just-sent Summary Prospectuses.

Funds should not be required to send these shareholders duplicate copies of a Summary Prospectus with the exact same content, updated as of the same quarter. If the final rule requires quarterly updating, we recommend that the Commission address this situation by adding the following language to the end of Rule 498(e)(1)(ii):

Another problem is presented by this requirement with respect to funds with fiscal years that do coincide with calendar quarters. The due date for these funds' registration statement updates will generally be two to three days prior to the deadline for a new Summary Prospectus. For example, a fund with a fiscal year end of March 31 is required to file an update to its registration statement by July 29. This would likely be the date on which it would send out a Summary Prospectus for annual update purposes. Its next updated Summary Prospectus, however, would not necessarily be available at least until July 31 (one month after quarter end). The result that existing shareholders might miss receiving more recent information by a few days seems unnecessary. This could be addressed by revising subparagraph (e)(1) to state that a Summary Prospectus is valid until the earlier of the time set forth in (i), or a specified number of days after the fund is required to file an amendment to its registration statement. We recommend that the Summary Prospectus remain valid until 20 days after the registration statement update is due.

2. Incorporation by Reference - Updates to Summary Prospectus Legend
As proposed and as discussed further below, a Summary Prospectus may incorporate by reference information from certain additional documents, including the fund's statutory prospectus, SAI and most recent shareholder report. The legend in the Summary Prospectus must clearly identify the document or documents from which information is being incorporated, including the date of the document, and explain how that material can be obtained.

If quarterly updating were required, a Summary Prospectus for a fund with a fiscal year end that is other than a calendar quarter end would likely, at several points in any given year, incorporate outdated documents. For example, the annual registration statement update for a fund with a fiscal year end of October 31, 2007 is due February 28, 2008. Summary Prospectuses for that fund would be issued on January 31, 2008 (Q1), April 30, 2008 (Q2), July 30, 2008 (Q3), and October 31, 2008 (Q4). When first issued, the Q1 Summary Prospectus would incorporate by reference the 2007 statutory prospectus and SAI. But, during the period the Q1 Summary Prospectus is otherwise valid (on February 28), a new statutory prospectus and SAI would become available. Thus, between February 28 and April 30, 2008, when the Summary Prospectus was updated, the legend in the otherwise current (Q1) Summary Prospectus would incorporate by reference an outdated prospectus and SAI.⁴¹ The fund's annual and semi-annual reports would present a similar problem: these reports would be transmitted by June 29 and December 30,⁴² rendering the legends in the Q2 and Q4 quarterly Summary Prospectuses out of date.

As a practical matter, few if any funds would risk that they have incorporated by reference outdated information and be in technical violation of the incorporation by reference and other provisions of the proposed rule. Thus, a fund with an off-calendar quarter fiscal year could conceivably be required to file a total of seven "quarterly" updates each year, just to ensure its incorporation by reference remains valid.⁴³

E. Alternative Approach
As an alternative to the quarterly updating requirement, we propose requiring that the legend at the beginning of the Summary Prospectus⁴⁴ specify that a shareholder can find updated performance and top ten portfolio holdings information (if required) on a specified website and at the toll-free number provided. We believe that this approach would maximize funds' use of the Summary Prospectus, as well as provide substantial cost savings, both of which accrue to investors' benefit, while providing investors who seek updated information with convenient access to it. Including this direction in the required legend would sufficiently draw investors' attention to the availability of the information, while avoiding the concerns expressed above that threaten to make the Summary Prospectus significantly less attractive for fund families.

II. Use of the Summary Prospectus: Addressing Liability and Compliance Concerns
As proposed, Rule 498 would allow funds to meet their prospectus delivery obligations under Section 5(b)(2) of the Securities Act by delivering only the Summary Prospectus, subject to certain conditions. In addition, the rule would permit the Summary Prospectus to incorporate by reference information from the statutory prospectus, SAI and shareholder reports - again, subject to certain conditions. The rule further provides that certain sales material will not be deemed a prospectus under Section 2(a)(10) of the Securities Act if it is accompanied or preceded by a Summary Prospectus, also subject to various conditions.

The applicable conditions in each case include requirements regarding the availability of fund documents on the Internet, as well as certain electronic formatting requirements. Under the proposal as currently structured, failure to meet these requirements could give rise to a private right of action under Section 12 of the Securities Act, potentially subjecting funds to strict liability. To our knowledge, none of the Commission's existing regulations imposing similar technological requirements (e.g., Internet Availability of Proxy Materials) have implicated private rights of action under the federal securities laws. Given the novelty of the proposal's conditioning obligations enforceable by private rights of action on meeting prescribed technological requirements, we cannot stress enough the importance of due care and precision in formulating these requirements so as to ensure that funds are not subject to the distraction and costs of unwarranted litigation, notwithstanding their good faith efforts to satisfy the requirements.

The Institute believes that the Commission recognizes these concerns⁴⁵ and has gone to great lengths to seek to ensure that proper use of the Summary Prospectus does not subject funds to the threat of new or additional legal liability. We applaud the Commission's efforts. The proposed approach largely achieves the Commission's goal, and thus goes a long way toward addressing the concerns surrounding liability that prevented many funds from using fund profiles.

We are concerned, however, that certain aspects of the rule may unintentionally increase funds' litigation risk and associated costs by potentially affecting whether a lawsuit against a fund will survive a motion to dismiss. We also suggest changes to certain of the conditions imposed by the rule, which we believe will adequately achieve the Commission's goals, without compromising investor protection, while decreasing the costs and potential risks of using the Summary Prospectus. The conditions relating to provision of the statutory prospectus, SAI and shareholder reports on the Internet are discussed in more detail in Section III.

A. Potential for Increased Litigation Risk and Associated Costs
1. Risks Created by Certain Terms
The Institute strongly supports the Commission's objectives of providing investors with "information that is easier to use and more readily accessible, while retaining the comprehensive quality of the information that is available today."⁴⁶ Subject to our comments in this letter, we believe the Commission's proposed requirements to achieve its goals are appropriate and reasonable. We believe, however, that certain terms used in the proposed requirements associated with the satisfaction of a fund's delivery obligations under Section 5(b)(2) of the Securities Act, its ability to incorporate by reference specified information from other fund documents, and its use of the Summary Prospectus to accompany or precede sales material, may create unintended litigation risk and associated cost.

As proposed, a fund may only rely on Rule 498 to meet its delivery obligations under Section 5(b)(2) if the Summary Prospectus is given "greater prominence" than any materials accompanying it,⁴⁷ if it meets the general requirements set forth in proposed Rule 498(b), and if the requirements surrounding availability of the fund's statutory prospectus and other materials, set forth in proposed Rule 498(f), are met.⁴⁸ The same requirements apply if a Summary Prospectus is provided along with sales material pursuant to Section 2(a)(10) of the Securities Act. They include: (1) the website on which materials required to be accessible under the rule (i.e., statutory prospectus, SAI and shareholder reports), if it is a central site, must have "prominent links" to each document⁴⁹; (2) the Summary Prospectus legend must "clearly identify" any document from which information is incorporated by reference⁵⁰; (3) the materials required to be accessible must be presented on the website in a format or formats that are "convenient for both reading online and printing on paper"⁵¹; and (4) if the Summary Prospectus includes links to the tables of contents in the statutory prospectus and SAI, rather than directly to sections of those documents, the tables of contents must "prominently display" the sections within the documents that provide additional detail concerning information contained in the Summary Prospectus.⁵²

The proposed rule further provides that a fund may incorporate by reference certain specified information into its Summary Prospectus if, among other things, it complies with requirements (2)-(4) above. Incorporation by reference is a critical element of liability protection because, even if a fund meets its delivery obligations under Section 5(b)(2), absent successful incorporation by reference it could be alleged to have omitted material information not contained in the Summary Prospectus itself.⁵³ A fund's alleged failure to meet its delivery obligations, or its delivery of a document allegedly containing a material misstatement or omission,⁵⁴ could result in private litigation being filed under Section 12 of the Securities Act, under which a shareholder may have a right of rescission.

The Institute is concerned that by requiring funds to satisfy these requirements in order to meet their delivery obligations, incorporate specified information by reference into the Summary Prospectus, and avoid delivering deficient prospectuses in the form of supplemental sales literature, the proposed rule may increase funds' risks and costs of litigation under Section 12. More specifically, the current wording of these requirements may leave some courts unwilling to resolve Section 12 lawsuits as a matter of law on motions to dismiss (i.e., under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim on which relief can be granted). The assessment of a fund's compliance with one or more of these requirements - and therefore, its compliance with its statutory delivery obligations, successful incorporation by reference, and/or use of the Summary Prospectus to accompany or precede sales material pursuant to Section 2(a)(10) - may be viewed by some courts as requiring a fact-based inquiry precluding resolution on a motion to dismiss. For example, some courts may be reluctant to determine, as a matter of law on a motion to dismiss, that a particular document has "greater prominence" than another, or that a document is "convenient for viewing online and printing on paper."

The Institute believes that a fund that takes reasonable steps to comply with the rule will be able to demonstrate its compliance with such requirements at some point during the course of litigation. If the effect of the requirements, however, is to permit lawsuits to proceed to discovery that otherwise would be terminated on a motion to dismiss, the impact of the rule will be highly detrimental, both in terms of the substantial additional defense costs accruing to the fund and possible reputational harm. Indeed, the costs associated with the defense of funds in litigation are ultimately borne by fund shareholders, as such costs are either paid directly by funds or can ultimately be expected to be reflected in the premiums paid by funds for insurance.

We do not believe that the risk of possible protracted litigation and associated costs outlined above, standing alone, will likely prevent widespread use of the Summary Prospectus. It is, however, another factor to be considered by Institute members as they weigh the costs and benefits of using the new document. Fortunately, we think this problem can be easily solved. Our proposed solutions are discussed below.

2. "Greater Prominence" Requirement
The "greater prominence" requirement presents the most serious concerns. At present, there is no similar standard to which funds may look for precedent on how such a requirement would be interpreted.⁵⁵ Institute members are concerned that regulatory and judicial views as to compliance with the standard would be extremely subjective and would vary widely. Absent clear guidance on how to approach such a requirement, funds may elect not to use the Summary Prospectus with supplemental sales literature, negating one of the benefits of the proposal. Further, having decided not to use the Summary Prospectus for these purposes, adopting it for other purposes may be less appealing.

Under proposed Rule 498, the standard requires a comparison between or among separate documents, each of which may have its own presentation and delivery requirements, and thus raises significant and novel compliance and interpretive questions. For example, would "greater prominence" require the Summary Prospectus to be printed in color, particularly if other materials that accompany it are in color? If so, this would have cost implications for many funds. Would funds have to use larger and/or bolder-face type for their Summary Prospectus than for any accompanying materials? How would a fund achieve compliance if the Summary Prospectus is mailed together with other important disclosure documents, such as the fund's annual report, a trade confirmation, privacy notice, or Summary Prospectuses for other funds (which presumably should also be "prominent")? And what would be necessary to comply in the electronic context?

We strongly support permitting other materials to accompany the Summary Prospectus, as the Commission has proposed. We understand from members that they hope to use the Summary Prospectus along with other materials; therefore, continuing to allow this flexibility should add to the potential benefits, including cost savings, from use of the Summary Prospectus. We also understand the Commission's interest in assuring that the Summary Prospectus will not be the proverbial "needle in a haystack" when other materials accompany it. Still, we question the need for the "greater prominence" requirement. No such requirement exists today with respect to the statutory prospectus, including when it is provided along with sales material in accordance with Section 2(a)(10) of the Securities Act. It is our strong expectation that the Summary Prospectus will be more appealing to investors specifically because of its less daunting size, and therefore will be more likely to be read than the statutory prospectus.⁵⁶ Further, the prohibition on binding other materials together with the Summary Prospectus serves the same goal as the "greater prominence requirement" and, in our view, sufficiently accomplishes it.

If the Commission remains convinced that additional measures are necessary to call attention to the Summary Prospectus, we recommend that the Commission replace the greater prominence requirement with a more specific and objective approach. One such approach would be to require a bold legend at the top of the Summary Prospectus stating: Important Information - Please Read. Alternatively or in addition, the rule could provide that a Summary Prospectus may not be inserted between two pieces of sales literature, or that it must be on top of any sales literature.⁵⁷ For electronic documents, the rule could indicate that providing a link to the Summary Prospectus in an email will meet the requirement if that link precedes any other links provided in the same email. We do not believe that any such limitations are necessary when a Summary Prospectus is sent or given with other documents required by the Commission, such as transaction confirmations, shareholder reports, privacy notices, or other Summary Prospectuses.

Finally, if the Commission nevertheless retains the "greater prominence" requirement in the final rule, we strongly suggest that the Commission make the requirement a condition of compliance with Rule 498, but not a condition of satisfying delivery obligations under Section 5(b)(2), successful incorporation by reference, and/or use of the Summary Prospectus to accompany or precede sales material.⁵⁸ Doing so will protect funds that attempt in good faith to comply with the requirement from the risk of unwarranted litigation. At the same time, we are confident that this change will not diminish investor protection, as the ability to satisfy delivery obligations, use the Summary Prospectus to accompany or precede sales material, and incorporate by reference will still be contingent on, among other things, compliance with most of the general requirements for the Summary Prospectus,⁵⁹ as well as the requirement that additional information be made available on the Internet. In addition, the SEC staff will be able to examine fund compliance with the rule, fund compliance programs under Rule 38a-1 under the Investment Company Act of 1940 will need to address compliance with the rule, and funds would face enforcement proceedings and related reputational harm if they fail to comply with the rule's terms.

We further request that the adopting release provide examples of what would constitute compliance in various common scenarios such as those described above. We believe this would help funds to develop industry practices for addressing other circumstances that might arise. We also request that the Commission clarify that the standard would not apply to multiple Summary Prospectuses provided together, either in paper or electronically - that is, the Summary Prospectuses would not have to meet the greater prominence standard relative to each other.

3. Proposed Revisions to Other Problematic Terms
We believe that certain terms contained in the other requirements described in Section II.A.1 are unnecessary, and could be deleted or rephrased to avoid creating potential ambiguity while still accomplishing the Commission's intent. First, the term "prominent," as used in "a central site with prominent links to each document," is potentially inaccurate⁶⁰ and, we believe, unnecessary to describe the envisioned site. Similarly, the word "clearly," in the requirement that the Summary Prospectus legend "clearly identify the document from which information is incorporated," does not seem useful or necessary, and should be deleted. If the Commission has in mind ways of identifying documents that either would or would not be sufficiently "clear," it would be more helpful to provide specific examples in the adopting release. Additionally, the requirement that a document be "convenient for both reading online and printing on paper" could be revised, without losing its meaning, to read: "capable of being both read online and printed in paper (e.g., in PDF)."⁶¹ Finally, the requirement that a table of contents of a document "prominently" display the sections contained in that document seems unnecessary, since a table of contents by definition lists the sections that follow.

If the Commission elects not to eliminate or revise these requirements as we propose, we recommend that the Commission make them conditions to compliance with the rule, rather than conditions of satisfying delivery obligations under Section 5(b)(2), successful incorporation by reference, and/or use of the Summary Prospectus to accompany or precede sales material.

B. Not Bound Together
As a general matter, we support the proposed requirement that, for purposes of statutory delivery obligations, the Summary Prospectus may not be bound together with any other materials. We agree with the Commission's intention to prevent the Summary Prospectus from "being obscured by accompanying sales materials."⁶² There are, however, several contexts in which Institute members believe that exceptions are warranted. We note that none of the suggested exceptions contemplates binding the Summary Prospectus with marketing material. Thus, we recommend that the Commission specifically prohibit the Summary Prospectus from being bound together with sales materials. Alternatively, we request specific carve-outs for the circumstances described below.

First, some Institute members currently bind the privacy notice required by Regulation S-P to their statutory prospectuses. They would like to do the same with their Summary Prospectuses. These members believe that binding the two documents together better ensures compliance with the privacy notice delivery obligation than simply sending the two documents together. Permitting a privacy notice to be attached to a Summary Prospectus should not implicate the concerns that are the basis for the prohibition.

Similarly, Institute members affiliated with variable insurance product issuers have suggested that those issuers would welcome the ability to bundle several Summary Prospectuses in place of the statutory prospectuses they currently use for disclosure purposes. They envision binding Summary Prospectuses of the underlying funds with the prospectus for the variable insurance product and other documents that must be delivered to consumers, such as the insurer's privacy notices. Such binding (using statutory prospectuses) is commonly done today in order to ensure that a registered representative of a broker-dealer selling the variable insurance product delivers all required documentation. These members have suggested that they would not use Summary Prospectuses in the insurance context if they could not bundle them with these materials.⁶³

Additionally, if the rule as ultimately adopted requires a separate Summary Prospectus for each fund, many members believe that it would be beneficial to investors to permit the binding of Summary Prospectuses for certain similar types of funds that an investor may wish to view as a set, such as money market, asset allocation or target date funds.

Finally, we recommend that the Commission permit Summary Prospectuses to appear in a newspaper or magazine. So long as the Summary Prospectus meets the requirements of Rule 498, there does not appear to be any significant policy reason to prohibit such a presentation. If the Commission does not follow our recommendation above to eliminate the greater prominence standard, it would need to create an exception or address how compliance would be achieved when a Summary Prospectus is published in a newspaper or magazine.

C. Incorporation by Reference
We strongly support the Commission's proposal to permit incorporation by reference of certain enumerated information. Subject to the recommendations above for addressing litigation risks, we agree that it is appropriate to require that funds make any information that is incorporated by reference available on the Internet and in paper or by email upon request within three days. We have the following technical comments.

Under the proposal, a fund may incorporate by reference information from its statutory prospectus, SAI, or most recent report to shareholders. We recommend that funds be permitted to incorporate by reference information from both the most recent annual shareholder report and most recent semi-annual shareholder report. The annual and semi-annual reports are not interchangeable. Annual reports are required to contain audited information, for 12 months, while semi-annual reports may contain unaudited financials and cover only a six-month period. A fund should not be restricted to incorporating its 12-month, audited financials to just six months of the year.⁶⁴

We also commend the Commission for seeking to clarify, through its explicit statement in proposed Rule 498(b)(3)(C)(iii), that information that is incorporated by reference into the Summary Prospectus is deemed to be received no later than with the Summary Prospectus (i.e., as part of the Summary Prospectus). Clarification of the relationship between Rule 159 and the proposed Summary Prospectus is important to eliminate some confusion in the mutual fund legal community about the effect of Rule 159. We suggest, however, that the explicit reference to Rule 159 in the Rule text be deleted, and that the language in the adopting release not limit the application to Rule 159. We believe that, as written, the statement could be read to imply that information incorporated by reference into the Summary Prospectus would not be deemed to be part of the Summary Prospectus for purposes other than Rule 159. This reading would be inconsistent with a previous statement by the Commission, when it adopted Form N-1A, that information incorporated by reference would be considered part of the document into which it is incorporated as a matter of law.⁶⁵

We further suggest that the rule state that "information is conveyed to a person not later than the time that a Summary Prospectus is "conveyed to the person," rather than "received by the person." A fund can only control when information is conveyed; it would have no way to document, for compliance or litigation purposes, when such information is received.

III. Provision of Statutory Prospectus, SAI and Shareholder Reports (Technology Requirements)
The Institute strongly supports in concept the Commission's proposed framework for requiring the statutory prospectus, SAI and shareholder reports to be made available on the Internet, and in paper or electronically by request.⁶⁶ We commend the Commission for approaching this regulation in a technology-neutral manner. We recognize the importance, and difficulty, of drafting regulations that both work in the current technological environment and are flexible enough to adapt to future technology.

We stress, however, that while the possibilities for new and improved presentations of information are virtually limitless, widespread use of the Summary Prospectus in the near term depends on required technology changes being evolutionary, rather than revolutionary. First, many fund complexes have already voluntarily invested substantial resources in technology to develop and maintain websites that offer investors and intermediaries a wealth of fund and other investment and market information, educational materials, and interactive features such as expense calculators and retirement planning tools. While they are clearly committed to using electronic media in ways that benefit investors, our members have indicated that if the technology requirements for Summary Prospectuses make it necessary to radically revamp existing systems and formats, the costs involved will markedly dampen interest.⁶⁷

Second, while we agree that the Commission's layered disclosure concept makes a great deal of sense and is worth pursuing, additional developments - beyond those that can be accomplished through the presentation requirements in the Summary Prospectus proposal - are necessary to fully realize the Commission's vision. The current requirements for the content and structure of fund registration statements were not developed with layered, web-based presentations in mind; as a result, the logical relationships between summary and detailed disclosures are not well defined. Over the longer term, the Commission should consider rethinking and perhaps completely refashioning the current requirements, such as by requiring funds to submit data, rather than forms. Efforts of this type will take time, but the Commission should not stall the important progress of the current proposal. Statements in the adopting release indicating the Commission's future intentions to further the use of technology to fully achieve the goals of layered disclosure will allow the fund industry to develop web-based tools over time that are in accord with the Commission's future rulemakings in this area.

The detailed comments that follow are generally intended to clarify the proposed requirements in light of the applications Institute members tell us they would use for initial implementation of the Summary Prospectus.

A. Posting Documents on the Web
1. "Central Web Site With Prominent Links"
We support the proposed requirement that the Summary Prospectus, statutory prospectus, SAI, and most recent annual and semi-annual reports be available free of charge on the Internet at a site other than EDGAR. We also agree that it is important to include an Internet address in the legend on the Summary Prospectus that will allow investors to find this additional information with ease. We expect that many fund groups would comply with this requirement by providing the address of a Web page from which an investor could select his or her fund from a list of funds.⁶⁸ Having selected a fund by clicking on it or selecting it from a drop down menu, the investor from there would be able to access the fund's documents.⁶⁹ Alternatively, the page could contain a list of funds as well as links to each of the required documents.

We believe that the process we describe is consistent with the Commission's vision. We are concerned, however, that the rule text requiring a "central site with prominent links to each document" may not accurately describe this initial Web page. For example, a complex comprising 25 funds may include in a Summary Prospectus legend a link to a page with each fund listed alphabetically and, in table format, links to each fund's Summary Prospectus, statutory prospectus, SAI, annual report and semi-annual report. Such a page would contain 125 links; while an investor should not have any difficulty finding what he is looking for, it may not be accurate to describe each of those links as "prominent."⁷⁰ We therefore propose removing the word "prominent." We further recommend that the adopting release provide examples of the types of processes that would satisfy the requirement, such as the one described above.

2. "Current Versions"
The proposed rule would require funds using the Summary Prospectus to maintain "current versions" of the Summary Prospectus, statutory prospectus, SAI and shareholder reports on the Internet for at least 90 days after either the fund security is carried or delivered, or the communication is sent or given. We interpret "current" to mean updated as necessary, rather than "current" as of the date the security was carried or delivered or the communication was sent or given. That is, if during the course of the 90-day period after a Summary Prospectus was delivered, the fund filed an annual update to its registration statement, the fund would be required to maintain its updated statutory prospectus and SAI on the Internet, but not the version that was current when the Summary Prospectus was delivered (which has been superseded).⁷¹ Assuming our interpretation reflects the Commission's intention, we support this requirement. We request that the Commission clarify, in the adopting release, that a fund would never be required to maintain stale content on the Internet.

B. Formatting Requirements for Documents Posted on the Web
1. Links From a Table of Contents to the Referenced Sections of the Same Document (Internal Links)
Proposed Rule 498(f)(2)(ii) would require a person accessing the statutory prospectus or SAI to be able to "move directly back and forth between the table of contents in such document (including from the table of contents required by § 230.481(c)) and each section of the document referenced in the table of contents." We believe that, using current technology - specifically, Adobe Acrobat, the format most commonly used today for electronic versions of fund disclosure documents - the intent of the requirement could be achieved by either (1) "hyperlinks" (i.e., links from specific words in a table of contents) or (2) "bookmarks" (i.e., a document index replicating the table of contents, but displayed in a separate panel to the left of the document itself).⁷² The proposed rule text appears to permit only the first method. We suggest certain modifications to clarify that both of these alternatives comply with a literal reading of the rule.⁷³

While bookmarks typically replicate a document's table of contents as a matter of course, they are not technically "in" the document; rather, they sit in a separate frame on the side of a document, and do not appear when a document is printed.⁷⁴ This has two implications for the proposed rule text. First, the rule should require links from "a table of contents of such document," rather than "the table of contents in such document." These changes will make clear that either hyperlinks or bookmarks may be used.⁷⁵ Additionally, the requirement that there be links from the Rule 481(c) table of contents must be changed, because by definition the Rule 481(c) table of contents must be in the document, in a prescribed location. We do not think the cross-reference to Rule 481(c) is necessary, because the bookmark index would, as a matter of course, replicate the document's table of contents. We therefore suggest deleting it.⁷⁶

2. Links From the Summary Prospectus to the Statutory Prospectus and SAI (External Links)
The rule would also require a viewer to be able to move between sections of the Summary Prospectus and "A) any section of the statutory prospectus and SAI that provides additional detail concerning that section of the summary prospectus, or B) tables of contents in the statutory prospectus and SAI that prominently display the sections within those documents that provide additional detail concerning information contained in the summary prospectus."⁷⁷

As a preliminary matter, Institute members unanimously report that they would choose to comply with the second option, because of the interpretive questions raised by the first option ("any section that provides additional detail") and the number of links that could result. The sections of the Summary Prospectus are not designed to flow naturally into the statutory prospectus, nor the statutory prospectus into the SAI. As a result, it could be difficult to identify the specific sections of the larger documents that should be linked to any section of the Summary Prospectus. Moreover, even if those sections were identified, compliance might require three or more links at the end of a single section of the Summary Prospectus, which could make for a confusing graphical presentation and a frustrating number of clicks by a user.

We expect that the second option would be implemented by placing, at the end of each section of the Summary Prospectus, a statement to the effect of: "For more information, see the statutory prospectus or statement of additional information," with the underlined or highlighted text linking to the table of contents of the described document.⁷⁸ While we believe that such a requirement is not particularly onerous, we note that this, too, would make for a cluttered presentation - particularly in the paper version that is delivered to investors.⁷⁹ Additionally, the appearance of so many links in so many places might create mistaken expectations about where the links would lead (i.e., a reader might expect to link to specific sections within the prospectus and/or SAI, rather than to the same place - the table(s) of contents - over and over again). For all of these reasons, we suggest that the Commission not require links after every section. Alternatives might include requiring links at the beginning and end of the Summary Prospectus, or allowing funds the option of structuring the presentation so that the links are always clearly visible on the computer screen.⁸⁰

We would also like the Commission to clarify the meaning of the language "back and forth" as it relates to viewing two separate documents. When a viewer of the Summary Prospectus clicks on a link to the statutory prospectus, current best practices would dictate that a new window, or new screen in the same window, would open to display the statutory prospectus. The viewer could then navigate through the statutory prospectus using the links or bookmarks provided, as discussed above. The Summary Prospectus would remain open on the viewer's computer in a separate window or screen, so he could easily return to it.⁸¹ He could not do so, however, by clicking a "back" button. We believe that the rule text adequately addresses this most likely scenario, but we suggest that the adopting release acknowledge that movement between multiple windows constitutes "back and forth."

C. Saved Documents
We support the proposed requirement that a viewer must be able to permanently retain any of the required documents, in a format that is convenient for reading online and printing on paper and that maintains its internal links. As the Commission implicitly recognized with its questions, however, this requirement presents a complicated issue with respect to technology.

The proposal would not require that a saved document (in particular, the Summary Prospectus) maintain its links to other documents (i.e., the statutory prospectus or SAI). We support this approach, because it would be difficult to ensure that such links would remain active and accurate in perpetuity. It is also not possible, however, to ensure that such links are deactivated when a viewer saves a document.⁸² Institute members report that typically such links would continue to direct a viewer to the current version of the target document.⁸³ Over time, though, this could change for any number of reasons, such as because a fund has changed its name or merged, or because the fund has redesigned its Web architecture or changed its file-saving protocol. In all likelihood, if the link did not direct a viewer to the current document, the viewer would reach an error page.

We have concerns about the potential for legal challenges, such as allegations of misstatements or omissions as a result of active links in saved documents. A viewer might expect, for example, that a link in a Summary Prospectus saved in 2008 would, in 2012, take him to the 2008 statutory prospectus, when in fact it would almost certainly take him to either the 2012 prospectus or an error page. Over time, we hope that other technology solutions for managing expired links will emerge. In the meantime, we request that the Commission include an express statement in the rule to the effect that, once a document is saved, a fund is not responsible for maintaining the external links it contains and that failure to maintain a link, or to notify a viewer of the date of the document to which he or she has been directed, will not be a basis for legal liability.⁸⁴

D. Provision of Documents by Email Upon Request
The proposed rule would require that a fund send, by email, an "electronic copy" of the fund's statutory prospectus, SAI, or shareholder reports to any person requesting such a copy. We believe that sending, by email, a direct link to the requested document on the Internet should satisfy this requirement, and we request that the rule clarify this - otherwise, the word "copy" could be interpreted to mean that compliance could only be achieved by sending a copy of the file as an attachment to an email.

Under the current e-delivery regime, materials are typically delivered via an email with a link to the target document.⁸⁵ Institute members tell us that this is considered a best practice for electronic delivery for several reasons. First, it is more convenient for the recipients. Downloading attachments to emails takes bandwidth - a significant amount of bandwidth for large documents such as the statutory prospectus, SAI and shareholder reports. In practical terms, this means that it could take a long time for an investor with a dial-up connection to receive a prospectus or SAI attached to an email. Using hyperlinks would allow users to control when the download occurs. Emails with attachments also are more likely to get caught in spam filters. Second, funds prefer to manage the electronic environment through a Web interface because it is easier to control content and disclosure; once a document is sent out, it is impossible to control what happens to it.

While we urge the Commission to continue to allow electronic delivery to be satisfied with links, we recognize that this creates complications similar to those described in the section above. If an e-delivery recipient saves an email containing a link to the target document, how long must the link remain active? Would a recipient have an expectation that, by saving the link, he or she would have perpetual access to the version of the target document that was current when the link was received, as opposed to an updated version?

Despite these concerns, we believe it is preferable to permit e-delivery using links, and we suggest that the Commission specify in the final rule that this form of e-delivery is acceptable, including for the purpose of responding to a request for an electronic copy of a document. To address the question raised in the prior paragraph about how long a link must remain active, we recommend that a link sent by email in response to a request for a statutory prospectus, SAI or shareholder report be required to link to the then-current (i.e., updated, if applicable) version of the target document until the later of (1) 90 days from the date the email is sent or (2) the date the target document is updated; after that there would be no continuing obligation to maintain the link.

The practical result of this would be that an investor would have access to the actual document they requested (for example, the 2008 prospectus) until it expired; but, if it expired sooner than 90 days from the date they requested it, they would have access to the updated version for at least the duration of the 90 days. As discussed above, in all likelihood the link would continue indefinitely to direct the viewer to the current version of the target document, barring a merger, name change, or similar event or possibly a website restructuring.⁸⁶

In addition, best practices might dictate (or the Commission could require) that the email containing the link should inform the recipient that if she wants to retain a copy of the target document, she should click on the link to open the document and save it.

E. Safe Harbor Provision
Proposed Rule 498(f) offers a safe harbor for funds that are temporarily out of compliance with the requirement, set forth in paragraph (f)(1), that certain documents be posted on the Internet, provided that the fund has "reasonable procedures in place" to ensure compliance, and that it takes "prompt action" to ensure that the documents become available as soon as practicable. We appreciate the Commission's recognition that occasionally, despite its best efforts and reasonable procedures, a fund may find itself in violation of the rule due to circumstances beyond its reasonable control, and that this should not be deemed a failure of the fund's prospectus delivery obligations or its ability to incorporate information by reference.

We strongly urge the Commission to similarly adopt a safe harbor for the requirements of paragraphs (f)(2) and (3). A fund's statutory delivery obligations, as well as the ability to deliver supplemental sales literature and incorporate by reference additional information into the Summary Prospectus, depend on compliance with these and other technological requirements.

As proposed, the safe harbor applies only in situations in which the "materials specified in paragraph (f)(1)... are not available for a time in the manner required."⁸⁷ Even if the specified documents are available, a fund with reasonable procedures in place may find itself temporarily out of compliance in some minor way for other reasons. For example, one of the required links from the table of contents in the SAI to the sections in that document may be inactive; or, a link from a Summary Prospectus to a statutory prospectus might unintentionally lead an investor to the first page of the statutory prospectus, rather than to the table of contents. Where a fund has reasonable procedures in place to prevent, detect and correct such errors, it should not be at risk for a private right of action for failure to meet prospectus delivery obligations under Section 5(b)(2), to properly incorporate by reference specified material into the Summary Prospectus, or for the delivery of a materially deficient prospectus (i.e., because supplemental sales literature is deemed a prospectus under Section 2(a)(10)).

As a related matter, while the rule text does not limit the situations in which funds may rely upon this safe harbor, the Proposing Release specifically mentions "system outages or other technological issues." We note that other events could also result in temporary non-compliance, including natural disasters, acts of terrorism, pandemic illnesses or, in the case of failure to comply with 498(f)(2) (such as a single inactive link), human error that was not detected despite reasonable procedures to do so. We request that the adopting release be worded to include a broader spectrum of unpredictable or undetected events.

IV. Format, Order, and Content of the Summary Prospectus⁸⁸
Broadly speaking, there is widespread agreement - among fund industry participants, investor groups, analysts and others - about the key information that investors want and need. This includes information about a mutual fund's investment objectives and strategies, risks, costs, and historical performance. Institute members also do not dispute the importance of including the identity of the investment adviser, basic information on how to purchase and sell fund shares, the proposed statement on dividends, capital gains, and taxes, and payments to intermediaries, when applicable.

Additionally, we agree that it is appropriate for the Commission to prescribe the content and order of information included in the Summary Prospectus, and to prohibit the inclusion of additional information. While flexibility can be useful in catering to different groups of investors,⁸⁹ the Institute and its members recognize that, for purposes of a primary disclosure document, standardization is important, both to promote comparability and to reduce litigation risk.⁹⁰

While there is general consensus on the key information investors need, we have some concerns about the content and presentation of the proposed Summary Prospectus. One concern involves the volume of content. The Commission envisions that a Summary Prospectus should be three to four pages in length. Several Institute members that have attempted to compose sample documents report that, including all of the proposed content and necessary footnotes, their samples are closer to six or seven pages.⁹¹ A Summary Prospectus of this length would be problematic. First, at some point it would cease to be a true summary; it would also substantially lengthen multi-fund statutory prospectuses. Additionally, printing a six or seven page document on demand would substantially increase the estimated costs. In view of the need to keep the document at a reasonable length, our suggestions regarding the content of the Summary Prospectus attempt to focus on the information that is most critical to investors.

We also offer several comments and suggestions, many in response to questions in the Proposing Release, regarding the format of the document, the order in which each item is presented, and the specific content of certain included elements. We believe the modifications we suggest would improve the overall quality and utility of the Summary Prospectus.⁹²

A. Format
1. Multiple Fund Presentations
As proposed, a Summary Prospectus would be permitted to include information only about a single fund or series. The corresponding summary section of the statutory prospectus would also be required to treat multiple funds sequentially and not integrate the information for more than one fund. A number of Institute members have noted that an integrated format may be more useful to investors in certain circumstances, in particular for groups of funds an investor may wish to compare, such as target date funds and asset allocation funds. Other members believe that requiring a separate document for each fund will better accomplish the Commission's goals of keeping the document short and facilitating comparisons across funds.

Given this split of opinion, we expect individual Institute members to comment on this issue. The Institute would likely support an exception that was narrowly designed to permit multiple fund presentations for those groups of funds that investors may benefit from viewing side by side.

2. Duplicative Information in the Summary Section
If the Commission ultimately requires that multiple funds be treated sequentially in the summary section of the statutory prospectus, there is likely to be significant duplication of information. In particular, for multiple funds in the same fund complex, the disclosure regarding purchase and sale of fund shares, tax information, and intermediary compensation are likely to be identical. Investment adviser information may also be the same. This could add many pages to the summary section. The repetition could be tedious for readers and cause the overall length of the document to be overwhelming.

We recommend that the Commission consider permitting funds to elect to provide this information only once, at the end of the entire summary section. Where the information would otherwise be included, a fund's summary section could have a cross-reference to the effect of: "For important information about this fund's investment adviser, purchase and sale of fund shares, tax information, and intermediary compensation, please turn to page." We believe this is particularly important as some fund complexes that use combined prospectuses may elect not to use Summary Prospectuses, particularly if quarterly updating will be required. In that event, investors in those funds will receive a statutory prospectus that is even longer than the one that exists today.

3. Page Limits and Other Formatting Requirements
We support the Commission's proposal not to impose a page limit or other formatting requirements (e.g., font size or layout) in the summary section or Summary Prospectus. Institute members appreciate some flexibility to create their own style. For example, many funds currently offer their prospectuses in "digest" size (5½ x 8 inches). Others have proprietary fonts or layouts. Additionally, some summaries may have longer disclosures than others (e.g., because the fund has multiple share classes or more numerous or complex strategies or risks). It is more important that this information is clear and legible than that it fit precise page parameters. We believe that the Commission's proposed approach of prescribing the order and content of each item included is sufficient to address its goal of standardization.

We recognize that, if the final rule permits integration of information about multiple funds in the summary section or Summary Prospectus rather than requiring sequential presentations, an outside limit on the number of pages or funds included may be desirable. In this event, we would encourage the Commission to bear in mind the desire for flexibility in page size and other formatting parameters in setting any such limit.

B. Order
We recommend that the Commission reconsider its proposal to place the fee table after a fund's investment objectives, but before its strategies and risks. We believe the Commission's concerns about investor understanding of mutual funds costs are misplaced.⁹³ Institute data demonstrates that investors already gravitate toward low-cost funds.⁹⁴ This evidence suggests that efforts by the Commission and others to emphasize the importance of mutual fund fees have been successful.

More importantly, we do not believe that moving the fee table forward in the Summary Prospectus - and thereby divorcing the fund's objectives from the explanation of how it seeks to achieve those objectives - is appropriate or logical. First, the fee table will already be more prominent in the Summary Prospectus (or summary section) than in many current risk/return summaries, assuming that the final rules retain the requirement that only one fund may be presented in each. Also, if the Commission is concerned that the investors do not understand the fee table, simply moving the same presentation forward will not solve this problem; the fee table itself should be improved.⁹⁵ Further, presenting the fee table before the strategies and risks inappropriately overemphasizes costs by suggesting that the price investors pay is more important than what, exactly, they are buying.

We believe that an essential quality for the Summary Prospectus is readability. The included information should, wherever possible, flow logically from one element to the next. The Commission carefully considered the order of presentation of much of the same information when it adopted the risk/return summary as part of the 1998 amendments to Form N-1A, and that order continues to make sense today.

As the Commission explained in 1998, the information contained in the risk/return summary should provide an "executive summary" of key information about the fund.⁹⁶ Investment objectives, strategies, and risks are the backbone of this story, as they define the fund. A fund must first identify its objectives - typically with a simple statement. The 1998 release explains how the next sections logically follow. The strategy section is intended to provide more detail, summarizing "how the fund intends to achieve those objectives," and the risk disclosure "summarizes the risks of a fund's anticipated portfolio as a whole" - that is, the risks of investing in a fund with the objectives and strategies previously described.⁹⁷ The Commission conceived the performance bar chart and table as an important part of the fund's risk disclosure; as noted above, the Commission has consistently explained th