On June 26th, the staff of the SEC’s Division of Investment Management published guidance on its 2009 mutual fund disclosure enhancements (“Guidance”). The enhancements were adopted as amendments to Form N-1A (the registration form used by mutual funds) and Rule 498 under the Securities Act of 1933, and were intended to address complex and lengthy disclosures in fund prospectuses.
The 2009 amendments to Form N-1A required certain key information to be written in a concise manner and in plain English and to appear in a specified order at the beginning of the fund’s prospectus. The SEC believed that this new “Summary Prospectus” section would not only provide clearer and more useable disclosure to investors, but would also facilitate comparisons among funds. In a complementary manner, the 2009 amendments to Rule 498 provided that funds could satisfy their prospectus delivery obligations by delivering to investors the Summary Prospectus. Through this “layered” disclosure approach, key information would thus be sent or given to investors, and investors would have access to more detailed information in the full prospectus, which would be posted publicly on the internet and provided in paper form or by email at their request.
The Guidance indicates the SEC staff has observed that, in a significant number of prospectuses filed since 2009, disclosure remains complex, technical and duplicative. The Guidance, which is based on staff comments to a number of registrants, highlights the following rule and form requirements with the aim of encouraging registrants to review their disclosures and focusing them on providing clearer and more concise disclosure to investors.
The Guidance is a useful reminder of basic prospectus drafting requirements and the staff’s general approach to the review of fund filings.
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This article was originally published by Bingham McCutchen LLP.