SEC Issues Guidance Regarding Enhanced Mutual Fund Disclosure


On June 26, 2014, the employees of the SEC?ˉs Division of Investment Management issued guidance associated with mutual fund disclosure enhancements adopted in ’09. The guidance is dependant on comments employees provides to numerous registrants ever since then and is supposed to further the Commission?ˉs objective of improved disclosure to investors.


On The month of january 13, 2009, the Commission adopted amendments to create N-1A that would provide investors with increased readily understandable information in investing decision. Underneath the amendments, certain information will be designed in plain British and appearance inside a prescribed order at the outset of the statutory prospectus (i.e., the ?°Summary Section?±). The data needed to become presented within the Summary Section includes Products 2 through 8 of Form N-1A (i.e., disclosure associated with investment objectives, costs, principal investment opportunities and risks, performance, investment advisors and portfolio mangers, purchase, purchase and tax information along with a statement regarding financial intermediary compensation). As the Commission didn’t impose page limits around the Summary Section (noting that doing this could constrain appropriate disclosure), it emphasized its intent that registrants make a disadvantage-cise summary which will provide key information to investors.

Coincident using the adoption from the Form N-1A amendments, the Commission also adopted amend-ments to Rule 498 underneath the Securities Act, supplying a brand new choice for satisfying pro-spectus delivery obligations. Under this method, the data that’s incorporated within the Summary Portion of the statutory prospectus is distributed or provided to investors by means of an overview Prospec-tus. The statutory prospectus is published openly on the web and provided in paper form or via email to investors upon request. As the staff guidance doesn’t particularly involve compliance with Rule 498, it requires the information of Summary Prospectuses with the dis-closures within the Summary Portion of the statutory prospectus.

Utilisation of the Summary Prospectus is optional but, based on the staff?ˉs estimate in line with the quantity of Summary Prospectuses filed using the Commission by March 31, 2014, well more than 80% of mutual funds offer investors Summary Prospectuses.

Staff Observations

Employees has observed there are a substantial quantity of prospectuses by which disclosure within the Summary Section remains complex, technical and duplicative. Within the guidance, employees highlights comments it provides to registrants regarding certain rule and form needs that, whilst not exhaustive from the disclosure needs, have been in-tended to concentrate registrants on supplying investors with obvious and concise disclosure.

  • Summarize the main Investment Opportunities and Risks. The guidance reminds registrants the layered disclosure regime adopted through the Commission in ’09 might be undermined by Summary Sections that repeat instead of summarize the data available elsewhere within the statutory prospectus. Within the staff?ˉs view, the repeating substantially exactly the same or identical information as a result of both Products 4 and 9 frequently highlights that the registrant hasn’t provided an overview as a result of Item 4. Once the staff observes an overview Section that doesn’t seem to summarize a fund?ˉs principal strategies and risks, it’ll help remind the registrant the Summary Section is supposed to summarize key information which more in depth, non-duplicative information ought to be presented elsewhere.
  • Plain British Needs. The guidance reminds registrants that Form N-1A mandates that the Summary Section be designed in plain British. Additionally, the guidance further reminds registrants the prospectus, in the whole, is susceptible to the necessity the information be presented inside a obvious, concise, and understandable manner. The guidance notes that, notwithstanding these needs, employees continues to see the utilization of terminology that aren’t described in plain British. The guidance also claims that failure to follow along with the plain British needs undermines the effectiveness from the Summary Section, and, thus, the Summary Prospectus. Therefore, employees urges registrants to revisit their disclosures considering these needs.
  • Summary Section Must Only Include Needed or Allowed Information. The guidance highlights the shape N-1A requirement the Summary Section not include disclosure apart from that needed or allowed by Products 2 through 8. The guidance reminds registrants that the fund can include information elsewhere within the prospectus or perhaps in the SAI that isn’t otherwise needed by Form N-1A. The guidance notes the staff carefully scrutinizes the disclosure within the Summary Section, so when in-formation is incorporated that isn’t needed or allowed, it’ll comment towards the registrant that such informa-tion ought to be moved from the Summary Section.
  • Inclusion of Non-Principal Strategies and Risks within the Prospectus. The guidance reminds registrants that Form N-1A needs a fund to reveal its principal investment opportunities and risks in the prospectus and describe any investment opportunities and risks that aren’t principal within the SAI. The guidance notes that Form N-1A permits registrants to incorporate (with the exception of the Summary Section) information within the prospectus that isn’t otherwise needed. The guidance claims that many registrants use in their prospectus information associated with strategies and risks that aren’t principal and frequently don’t clearly indicate which from the strategies and risks are principal and which aren’t principal. Since it believes this can lead to prospectus disclosure that doesn’t clearly and concisely inform investors about how exactly the fund primarily promises to invest, employees has, and continuously, comment that disclosure should distinguish which from the strategies and risks are principal and which aren’t principal.
  • Avoid Mix-References. The guidance also reminds registrants that mix-references towards the SAI or shareholder reports ought to be prevented. The guidance notes the staff frequently has observed numerous mix-references within the Summary Section, so it believes can also add unnecessary complexity. When appropriate, employees has, and continuously, claim that mix-references be deleted.


Employees urges registrants to examine their disclosure considering this guidance so the 2009 amendments might have their intended aftereffect of provid-ing investors with obvious and concise, user-friendly disclosure.



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