Mutual Fund Disclosure Requirements
A mutual fund is a pooled investment in which a fund manager purchases assets such as stocks and bonds using money deposited by individual and institutional investors. There are thousands of mutual funds out there from which to choose -- how do you make a selection? The Securities and Exchange Commission requires a series of disclosures that should give you all the information you need to make an informed decision. Using the disclosed information, you can quickly find out many important facts, such as whether a previously successful fund has a new manager, or if a fund’s fees are competitive with other similar funds.
Every mutual fund must publish a prospectus and make it available to potential and actual investors. The prospectus discusses the fund’s aims, strategies, risks, fees/expenses and past performance. The SEC requires mutual funds to date the prospectus and issue an updated one each year. A required chart or table is included to disclose the risk/return experience of the fund over a several different time periods. There is also a standard fee table that shows how a $10,000 investment would have fared over time periods of one, three, five and 10 years. The financial highlights section provides audited reports for each of the previous five years, including net asset values, total returns and numerous ratios.
Keen researchers will comb through each page of a fund prospectus with great relish. For the less ambitious, there is also the fund profile, which summarizes information from the prospectus. You’ll be able to discover the fund's objectives, strategies, performance, risks, expenses and after-tax returns. You will also be able to identify who is managing the fund, the investment requirements such as minimum amount and sales fees, types of investments commonly made by the fund, and other important information.
Statement of Additional Information (SAI)
The SAI gives consumers even greater insight than that provided by the prospectus into the way a fund operates. It is considered Part B of the fund’s registration statement and contains additional details not found in the prospectus, such as data concerning the fund’s history, how the fund manages debt, and any investment concentrations of particular types of assets or industries. You can learn about the officers, advisers and directors, as well as matters concerning taxes, performance and brokerage commissions. The mutual fund must send an SAI to you if you request one. The prospectus contains the details on how to request an SAI.
Mutual funds have two months after a fund's fiscal year and mid-year to provide a series of financial reports with the latest information. The latest list of portfolio contents must be disclosed, as well as other timely information. The information must be correct as of the final day of the fiscal year and mid-year. All disclosure documents must be available by contacting the fund via the phone, by mail or at the fund’s website. You can also contact any broker who sells shares of the fund.
ERISA Fee Disclosures
Recently, the Department of Labor mandated additional reporting requirements for mutual funds that sell into the 401(k) and 403(b) retirement plan markets, which operate under Employee Retirement Income Security Act (ERISA) rules. Reports must be issued to plan sponsors and to participants analyzing how various fees are calculated and charged. The information includes an overall expense ratio and itemized explanations of every fee charged against the participants’ investments.
- Mutual Fund Regulation; Clifford Kirsch
- Mutual Funds: Portfolio Structures, Analysis, Management, and Stewardship; John A. Haslem
- Getting Started in Mutual Funds; Alvin D. Hall
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