Earlier this year the SEC adopted rule amendments requiring open-end management companies, referred to as “mutual funds” (but not closed-end companies, unit investment trusts, face-amount certificate companies or business development companies), to provide risk/return summary information in XBRL format in order to improve the usefulness of this data to investors. Rel. No. 33-9006, IC-28617, 74 F.R. 7748, February 19, 2009. The compliance date is January 1, 2011. More detailed information about this development follows.

Submission of Information Using Interactive Data

The rule amendments require that after January 1, 2011, mutual funds that file an initial registration statement or a post-effective amendment that is an annual update must include as a new exhibit a complete set of their risk/return summary information, which is set forth in Items 2, 3 and 4 of Form N-1A, in interactive data format. In addition, they will be required to provide document and entity identifier tags. Similarly, if a mutual fund files a Rule 497 prospectus that contains changes to the N-1A Items 2, 3 or 4 information that comprises the risk/return summary, the information must be filed as an exhibit in XBRL format. The SEC believes that the interactive data format can be used by investors to capture and analyze that data more quickly and at less cost than is possible with data in a “static” format, and that “any investor with a computer and an Internet connection” will have the ability to download this data, which has heretofore generally been available only to intermediaries and third-party analysts.

Content and Submission Requirements

When filing a registration statement on Form N-1A (either an initial registration or an annual post-effective updating amendment) after the effective date of these amendments, a mutual fund must submit its risk/return XBRL summary as a post-effective amendment to the registration statement filed pursuant to Rule 485(b) under the Securities Act of 1933, as amended (the “1933 Act”) within 15 business days after the effective date of the registration statement to which it relates. This amendment need only contain the new exhibit, a facing page, a signature page, a cover letter explaining the nature of the amendment, and a new exhibit index.

With respect to prospectus filings pursuant to Rule 497(c) or (e), the amendments provide that the XBRLtagged risk/return summary must be submitted with or within 15 business days after the filing of the form of prospectus. The Edgar Filer Manual has been amended to require that the interactive data file be filed as an exhibit (EX-101) contained in the Edgar 497 submission. Mutual funds that submit their data file after the Rule 497 filing is made should make a second Edgar 497 submission that includes a Rule 497 document (which may incorporate by reference the previously made Rule 497 prospectus filing) and the related interactive data exhibit.

Website Posting

The new rules will require each mutual fund to provide its interactive data files on the fund’s Website (if it has one) no later than the end of the day that the files are submitted to the SEC or are required to be submitted, whichever is earlier. The data files must remain on the fund’s Website so long as the registration statement to which the files relate remains current.

Consequences of Non-Compliance

The penalty for failing to provide the required interactive data submission to the SEC, or failing to post the interactive data on the fund’s Website, by the required due date is that the mutual fund’s ability to file post-effective amendments under Rule 485(b) will be automatically suspended. This suspension does not apply to a post-effective amendment filed solely for the purpose of submitting the delinquent interactive data.

Application of Federal Securities Laws

As noted in the adopting release, “interactive data must meet investor expectations of reliability and accuracy.” New Rule 406T of Regulation S-T addresses the liability for inaccurate interactive data files and provides that the data files are:

  • subject to the anti-fraud provisions of Section 17(a)(1) of the 1933 Act and Section 10(b) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and Rule 10b-5 thereunder, as well as Section 206(1) of the Investment Advisers Act of 1940 (the “Advisers Act”);
  • deemed not “filed” or “part of a registration statement or prospectus” for purposes of Sections 11 or 12 of the 1933 Act, deemed not “filed” for purposes of Section 18 of the 1934 Act or Section 34(b) of the 1940 Act, and otherwise not subject to liability under these section; and
  • deemed “filed” for purposes of Rule 103 of Regulation S-T.