Mutual Fund Disclosure Should Have Shorter Summaries in Plain English
The staff of the SEC’s Division of Investment Management has issued mutual fund disclosure guidance that advises registrants to reduce Summary disclosure and use plain English. The staff says that the Summary Section should be a summary and not a restatement of the investment strategies and risks stated elsewhere in the prospectus. The Summary Section should also omit any information not required by the Summary Section such as purchase and sale information. Although the staff would not set a specific page limit, the staff expects that the Summary Section should not exceed 3-4 pages. The staff also warned that prospectuses should include principal investment strategies and risks and leave other information to the SAI. The guidance also said that the registrants are not following the plain English rules and continue to overuse technical terms, long sentences, and dense paragraphs.
OUR TAKE: Lawyers wrestle with the need to include full disclosure to avoid liability with the SEC’s admonitions about summaries and plain English requirements. Consequently, mutual fund prospectus drafting has become as much art as science. We recommend retaining a law firm that has extensive experience with drafting registration statements and interacting with the SEC’s disclosure staff.