The SEC’s Division of Investment Management has issued an IM Guidance Update (the Enhanced Disclosure Guidance Update) relating to the enhanced mutual fund disclosure amendments to Form N-1A adopted in 2009, which were aimed at providing investors with improved and more concise and user-friendly disclosure, including by permitting funds to provide investors key information in the form of a summary prospectus. The Enhanced Disclosure Guidance Update is based on comments the SEC staff has provided to a number of funds since the 2009 amendments. Specifically, the SEC staff reminds funds, when updating or drafting their prospectuses, to prepare a concise summary section of the prospectus (on the order of three or four pages). The SEC staff notes that, despite guidance to the contrary, it often receives filings with summary sections that are significantly longer than three to four pages, including those that are ten to twenty pages in length. The Enhanced Disclosure Guidance Update highlights certain other form requirements that are intended to further the SEC’s goal of clear and concise disclosure and provides guidance on such requirements, including the following:
- Principal investment strategies and risks in Item 4 (the summary section) should be summarized in a way that is not duplicative of the information given in response to Item 9 of Form N-1A;
- The plain English requirements of Form N-1A should be followed, including by avoiding technical terms that are not explained in plain English, unnecessary defined terms, long, compound sentences, and long, dense paragraphs that may be difficult for investors to read;
- Only the information required or permitted by Form N-1A in the summary section (including, in particular, in the footnotes to the fee table) should be included;
- Principal and non-principal strategies and risks should be distinguished; and
- Cross-references in the summary section should be avoided.
The SEC staff encourages funds to revisit their prospectus disclosure in light of the guidance.