The SEC’s Division of Investment Management, through its Disclosure Review and Accounting Office, requests that mutual fund sponsors revamp the principal risk disclosure in the summary prospectuses. The staff “strongly encourage[s]” funds to list principal risks in order of importance (rather than alphabetically) to better highlight risks that investors should consider. Although the staff recognizes that this requires subjective judgment, the staff will not comment on a fund’s methodology. The staff also recommends that funds tailor principal risk disclosure rather than utilize generic, standardized disclosure across funds, especially where different funds have differing investment objectives and policies. The staff also reminds registrants to leave non-principal risks and other details to the Statement of Additional Information.
New registrants should expect the Disclosure staff to provide significant comments if they merely offer kitchen sink disclosure for principal risks.