Fund Directions - Key Aspects of the New Prospectus Disclosure Requirements for Mutual Funds and the New Summary Prospectus Delivery Option

Key Aspects of the New Prospectus Disclosure Requirements for Mutual Funds and the New Summary Prospectus Delivery Option

By Paul M. Miller and Erin Loomis*

Paul M. Miller

Erin Loomis Earlier this year, the Securities and Exchange Commission amended the prospectus disclosure requirements applicable to mutual funds and adopted a new summary prospectus delivery option for mutual funds. The compliance date for the amended disclosure requirements, which is January 2010, is approaching, and many funds are in the process of updating their prospectuses to comply with the new requirements. In light of the impending compliance date, this article discusses certain key aspects of the amended disclosure requirements and the new summary prospectus delivery option that funds and their boards should be aware of as they consider these items.

With the addition of the new summary prospectus delivery option, a mutual fund or other person selling the fund's shares may elect to deliver to investors either a statutory prospectus, which is the prospectus filed as part of the fund's registration statement, complying with the requirements of Form N-1A or a new summary prospectus complying with the amended requirements of Rule 498 under the Securities Act of 1933. Regardless of the option selected, mutual funds must modify their statutory prospectuses to comply with the amended prospectus disclosure requirements.

Amended Prospectus Disclosure Requirements

The amended disclosure requirements, which were designed to harmonize the information presented at the beginning of the statutory prospectus and the information in the new summary prospectus, reflect significant changes to the prior disclosure requirements of Form N-1A. The amended requirements mandate that a fund's prospectus contain a new version of the risk/return summary at the beginning of the prospectus consisting of the following information: (i) investment objectives; (ii) fee table, including portfolio turnover information; (iii) principal investment strategies, risks and performance information; (iv) investment adviser (and sub-adviser) and portfolio manager information; (v) brief purchase and sale information; (vi) tax information; and (vii) financial intermediary compensation information.

Key aspects of the ...

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Key Aspects of the New Prospectus Disclosure Requirements for Mutual Funds and the New Summary Prospectus Delivery Option