The SEC requires mutual funds to provide very detailed information about all material information. (i) A prospectus that satisfies the requirements of Section 10(a) of the Act (15 U.S.C. 77j(a)) by which a mutual fund offers periodic payment plan certificates may contain a proposed contract even if the prospectus contains another prospectus that omits certain information required under Section 10(a) of the Investment Companies Act in which the mutual funds invest; and commentators have generally argued that funds could develop profiles that include information that is particularly relevant to plan members who invest in funds. The Commission shall adopt the specific provisions on the profiles used for the plans, as proposed, with amendments to take account of the comments made. 126 No commentator spoke in favour of the first proposed caption, and comments on the second were mixed. Many commentators believed that the second legend would clearly inform investors that the profile contains a summary disclosure of key information about a fund and that additional important information about the fund is available in the prospectus. However, several of these commentators urged the Commission to remove the material word from the caption. They argued that the use of that term falsely implied that a fund profile could be legally defective simply because it did not contain all the information contained in the fund`s prospectus. Several commentators suggested that the two proposed legends were insufficient and should be strengthened to increase investor awareness of the summary nature of the profile and the availability of additional information in the prospectus. The Commission proposed to allow a fund to tailor a profile for use by investors in member-based defined contribution schemes (`the plans`).
The Commission believes that plan members may find a useful profile in evaluating and comparing funds available as investment alternatives in a plan. 124 In its proposal for Rule 498, the Commission acknowledged that certain information relevant to investors in typical funds was of minor importance to plan members. For example, proposed Rule 498 would allow a fund offered under a plan to omit information about the purchase and sale of fund units, fund distributions and tax consequences. 125 As is apparent from the proposal to publish the profile, electronic media, such as the internet, may be particularly suitable for communicating the profile to investors. 119 Including the profile with the prospectus (and other information) on a fund`s website can be an effective way for the fund to distribute disclosure materials and for investors to receive disclosure materials. The electronic availability of the profile and prospectus would allow investors to access the fund`s prospectus at the same time as deciding to invest in the fund for more information. 120 The Commission submits that the objective pursued by a profile as a summary disclosure document permits the conclusion that a fund using a profile cannot be held liable, under federal securities laws, for the omission of information contained in the profile contained in the fund`s prospectus. Rule 498 sets out the information that may or must be included in a fund profile and requires the fund to indicate that the profile contains a summary of certain information contained in the fund`s prospectus. The Commission`s objective of adopting Rule 498, which is to facilitate the use of a short and summary disclosure document that investors can use to evaluate and compare funds, would not be achieved unless Rule 498 were interpreted as limiting the information that must be included in the profile. On the same day that it proposed comments on Rule 498, the Commission issued a notice proposing substantial changes to the disclosure requirements of the Form N-1A prospectus (« Form N-1A proposes publication »).
7 The proposed amendments to Form N-1A were intended to focus the disclosure of the prospectus on key information about a particular fund that would assist an investor in deciding whether or not to invest in that fund. The proposed amendments reflected the Commission`s firm belief that a prospectus, as the primary disclosure document under federal securities laws, should contain clear, concise and understandable information about an investment in a fund. The Commission understands that the use of profiles may lead to a restructuring of their advertising expenditure funds. However, it is difficult to determine how the use of profiles affects overall ad spend. Spend on profiles can be offset by reductions in other advertising costs, which does not result in a net increase in costs. -[2]- See Investment Company Institute (« ICI »), Trends in Mutual Fund Investing: September 1997 at 3 (October 30, 1997) (ICI News No. 97-93) (« ICI Trends ») (in September 1997, there were 6,666 funds) and ICI, Mutual Fund Ownership in the U.S., fundamentals, December 1996, at 1 (approximately 36.8 million households owned mutual funds directly or through a pension plan in April 1996). The Commission accepts the proposed requirement that a fund disclose in its profile information about the conditions under which it makes distributions and the intended tax treatment of those distributions. 101 Rule 498, as adopted, requires that a fund profile set out the frequency with which the fund intends to make distributions and the distribution reinvestment options (if any) available to investors in the fund. Rule 498 also requires a fund to disclose whether its distributions to shareholders may be taxed as ordinary income or capital gains, and that the rates shareholders pay on capital gains depend on how long the fund holds its assets. 102 Rule 498 requires that an exempt fund intend to distribute exempt income and, if so, indicate that a portion of its distributions may be taxable.
FINRA recommends that firms refer to these funds based on their specific strategies, rather than grouping them into a general category such as alternative investment funds. Companies must ensure that their disclosure to the public about hedge funds gives a fair and balanced picture of the risks and rewards of the funds and does not omit material facts or limitations. In order to ensure that fund investors who request additional information about a fund after verifying a profile receive such information without delay, the Commission proposed to require a fund to submit its prospectus to applicant investors within 3 working days of a request. Commenters who addressed this requirement were generally supportive, although one commenter stated that revising the requirement that shipments be made « reasonably in a timely manner, » which the commenter said should normally be done within 3 business days of a request, would protect funds from claims that they did not meet the requirements due to unforeseen circumstances. The Commission continues to consider that the prompt sending of the prospectus to investors upon request is an essential element of the profile initiative and of the objective of promoting effective disclosure of information on the funds. 58 Consequently, the Commission adopts the 3-working day dispatch requirement as proposed. 59 A unit trust is a joint investment in which a fund manager acquires assets such as shares and bonds from funds deposited by retail and institutional investors. There are thousands of mutual funds to choose from – how do you make a selection? The Securities and Exchange Commission requires a number of disclosures that should give you all the information you need to make an informed decision.
With the help of the leaked information, you can quickly uncover many important facts, such as whether an already successful fund has a new manager or whether a fund`s fees are competing with other similar funds. Evaluating and comparing funds has become an increasingly difficult task for investors as the number of funds has increased. The Commission has designed the profile in such a way that funds can use different offering documents to meet investors` different information needs. The Commission considers that Rule 498 allows funds to provide investors with a profile that effectively provides investors with information for the benefit of investors and funds. For example, funds may include profiles in various media such as magazines and use investor-specific profiles in defined contribution plans, certain other tax-advantaged treaties and variable insurance contracts. The profile, which provides investors with a concise and standardized information option, can also allow investors to use the information effectively by making it easier to compare funds before investing. This result will encourage competition between funds and allow investors to better choose an appropriate investment that is consistent with their investment objectives. The proposed summary of risk and return would require a table attached to a bar chart showing the fund`s fees and expenses, including sales costs incurred in connection with an investment in the fund.