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Mutual Fund Prospectus Comparable Information Requirements

Mutual funds are required to provide a prospectus (or written offering document) to purchasers of shares in the mutual funds. A prospectus also is available upon request prior to purchasing shares of a mutual fund. To protect investors, the Securities and Exchange Commission requires that a prospectus must contain information regarding investment objectives and strategies of the fund, risks in buying shares of the fund, fees and expenses, and past performance.

Format requirements

To assist investors in comparing mutual funds, the Securities and Exchange Commission has required that particular information must be presented in each prospectus in a particular format. For example, a prospectus must be updated each year, and the date that the prospectus was issued must appear on the front cover so that investors may determine that the most recent prospectus of the mutual fund is being reviewed. Other information placement and formatting requirements designed to allow comparisons of funds include:

A bar chart of annual returns appearing toward the front of the prospectus and just after a narrative of the fund’s investment objectives, strategies, and risks to describe the total annual return of the fund for each of the last ten years or for each of the years of the fund’s existence if that has been less than ten years.

A table showing for the last year, the last five years, and the last ten years (or at least for as long as the fund has existed) the following information regarding risk and return:

  • The percentage of return before taxes achieved by the fund;
  • The percentage of return after reduction for taxes on distributions; and
  • The percentage of return after reduction for taxes on distributions and taxes on the sale of shares in the fund.

A table showing fees and expenses of the fund and presenting the costs that would be incurred if $10,000 were invested in the fund over the last one year, three years, five years, and ten years; and

A presentation of financial highlights toward the end of the prospectus using audited information on fund performance for the previous five years and including:

  • Net asset values of the fund at the beginning and end of each period;
  • Total returns; and
  • Ratios of expenses to average net assets, of net income to average net assets, and of portfolio turnover.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

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