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Division of Investment Management Issues Guidance Regarding Enhanced Mutual Fund Disclosure

In June 2014, the staff of the Division of Investment Management of the SEC published a Guidance Update related to the enhanced mutual fund disclosure amendments adopted in 2009, which require funds to include a summary section, written in plain English, containing certain information (i.e., investment objectives and strategies, risks, costs and performance) at the beginning of each mutual fund statutory prospectus. 

According to the Guidance Update, since the adoption of these amendments, a significant number of summary sections still contain “complex, technical and duplicative” information. The Guidance Update highlights certain rule and form requirements, as well as comments the staff provided to funds related to these amendments, including: 

Investment Strategies and Risks: Form N-1A requires that a summary section include a summary of principal strategies and risks. Funds often repeat the principal investment strategies and risk disclosure contained elsewhere in the prospectus, rather than summarizing this information. Duplicative disclosure increases the length of a prospectus and undermines the purpose of the amendments. Additionally, Form N-1A provides that non-principal strategies and risks should be disclosed in the SAI. Many funds include the additional, non-principal strategies and risks elsewhere in their prospectuses and do not clearly indicate whether the strategies/ risks are principal or non-principal. 

Plain English Requirements: Form N-1A requires that a summary section be written in plain English. Many funds still use technical terms, unnecessary defined terms and long, dense paragraphs in summary sections which undermine the stated goal of creating useable summaries for investors. 

Inclusion of Required or Permitted Information: Form N-1A requires that a summary section only include disclosures required or permitted by the Form. The Guidance Update highlights certain fee table footnotes and purchase and sale information as examples of disclosure that funds often incorrectly include in summary sections. 

Cross-References: Form N-1A provides that funds should avoid cross-references to the SAI or shareholder reports. Some funds have numerous cross-references in their summary sections, which unnecessarily add to summary section complexity. 

The Guidance Update encourages funds to revisit their disclosure in light of the established framework of Form N-1A and the Guidance Update. 

The Guidance Update is available at 

© 2019 Vedder Price


About this Author

Vedder Price P.C. attorneys provide a full range of services to a diverse financial services clientele. Attorneys practicing in the firm’s Investment Services Group are experienced in all aspects of investment company and investment adviser securities regulations, broker-dealer regulatory and compliance matters, derivatives and financial product matters, and ERISA and tax matters. Clients include mutual fund complexes, hedge and other private funds, money managers, broker-dealers, independent directors, and many other types of institutions such as banks, savings and loans,...