Interactive Data for Mutual Fund Risk/Return Summary — A Small Entity Compliance Guide
Interactive Data for Mutual Fund Risk/Return Summary — A Small Entity Compliance Guide1
The Securities and Exchange Commission has adopted rule amendments to rules 485 and 497 under the Securities Act of 1933 ("Securities Act"), rules 11, 202, 401, and 405 of Regulation S-T, and amendments to Form N-1A under the Securities Act and the Investment Company Act of 1940 ("Investment Company Act") to require open-end management investment companies ("mutual funds") to provide the risk/return summary section of their prospectuses to the Commission and on their Web sites, if they maintain one, in interactive data format using eXtensible Business Reporting Language or XBRL. The rule amendments also permit investment companies to submit portfolio holdings information in the Commission's voluntary interactive data program without being required to submit other financial information in an interactive data format.
The risk/return summary section of a mutual fund prospectus contains information about a fund's investment objectives and strategies, costs, risks, and past performance. Risk/return summary information in interactive data format requires a standard list of tags. The tags establish a consistent structure of identity and context. This consistent structure can be recognized and processed by a variety of different software applications, making tagged data "interactive," that is, data that can be retrieved, searched, and analyzed through automated means, such as databases, financial reporting systems, and spreadsheets, that recognize and process tagged information.
Requiring mutual funds to submit the risk/return summary section of their prospectuses using interactive data will enable investors, analysts, and the Commission staff to capture and analyze that information more quickly and at less cost than is possible using the same information provided in the traditional format. Any investor with a computer and an Internet connection will have the ability to acquire and download data that have generally been available only to intermediaries and third-party analysts. The rule amendments do not change disclosure requirements under the federal securities laws and regulations, but add a requirement to include risk/return summary information in interactive data format as an exhibit. In other words, requiring filers to provide risk/return summary information using XBRL will not otherwise alter the disclosure or formatting standards of mutual fund prospectuses. These filings will continue to be available as they are today for those who prefer to view the traditional text-based document.
Specifics of the Amendments
The amendments, among other things, require mutual funds to submit a complete set of their risk/return summary information, set forth in Items 2, 3, and 4 of Form N-1A,2 in interactive data format. The principal elements of the rule amendments are as follows:
Mutual funds must submit to the Commission a new exhibit with their risk/return summary information in interactive data format, beginning with initial registration statements and post-effective amendments that are annual updates to effective registration statements that become effective after January 1, 2011.3
An interactive data file submitted with a registration statement must be filed as a post-effective amendment under rule 485(b) under the Securities Act4 and must be filed after effectiveness of the related filing, but no later than 15 business days after the effective date of the related filing. An interactive data file required to be submitted with a form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act5 may be submitted with the filing or subsequent to the filing, but no later than 15 business days after the filing made pursuant to rule 497.
Risk/return summary information in interactive data format must be provided as an exhibit identified in General Instruction C.3.(g).(iv) of Form N-1A.
The rules do not alter the requirements to provide risk/return summary information with the traditional format filings.
A mutual fund required to provide risk/return summary information in interactive data format to the Commission also is required to post that information in interactive data format on its Web site not later than the end of the calendar day it submitted or was required to submit the interactive data exhibit to the Commission, whichever is earlier. The Web site posting requirement applies only to the extent a mutual fund already maintains a Web site.
If a mutual fund does not submit or post interactive data as required, the fund's ability to file post-effective amendments to its registration statement under rule 485(b) under the Securities Act will be automatically suspended until the fund submits and posts the interactive data as required.
A filer may apply for a continuing hardship exemption if information otherwise required to be submitted in electronic format cannot be so filed without undue burden or expense. Similarly, an exemption may also be sought from the Web site posting requirement.
Mutual funds providing risk/return summary information in interactive data format are required to use the most recent list of tags released by XBRL U.S. as required by Regulation S-T and the EDGAR Filer Manual.6 Mutual funds also are required to tag a limited number of document and entity identifier elements, such as the form type and the fund's name. As with interactive data for the risk/return summary, these document and entity identifier elements must be formatted using the appropriate list of tags as required by Regulation S-T and the EDGAR Filer Manual.
Rule 406T of Regulation S-T addresses the liability for an interactive data file and provides that an interactive data file is:
Subject to the anti-fraud provisions of Section 17(a)(1) of the Securities Act, Section 10(b) of and rule 10b-5 under the Securities Exchange Act of 1934 ("Exchange Act"), and Section 206(1) of the Investment Advisers Act of 1940, except as provided below;
Deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act or Section 34(b) of the Investment Company Act, and otherwise is not subject to liability under these sections;
Deemed filed for purposes of rule 103 of Regulation S-T;7 and
Subject to liability for a failure to comply with rule 405 of Regulation S-T, but shall be deemed to have complied with rule 405 and would not be subject to liability under the anti-fraud provisions set forth above or under any other liability provision if the electronic filer:
makes a good faith attempt to comply with rule 405; and
after the electronic filer becomes aware that the interactive data file fails to comply with rule 405, promptly amends the interactive data file to comply with rule 405.
The liability provisions of new rule 406T will apply only until October 31, 2014, and, thereafter, an interactive data file will be subject to the same liability provisions as the related official filing.
The voluntary program is being modified to allow for participation by mutual funds with respect to risk/return summary information up until January 1, 2011, but continue to permit investment companies to participate with respect to financial statement information thereafter. As a result, the voluntary program will continue after the compliance date of these rule amendments for the financial statements of investment companies that are registered under the Investment Company Act, business development companies,8 and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X.
Registered investment companies, business development companies, and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X are permitted, under the voluntary program, to submit exhibits containing a tagged schedule of portfolio holdings without having to submit other financial information in interactive data format.
As was the case in the voluntary program, the new requirement for interactive data reporting is intended to be disclosure neutral in that we do not intend the rules to result in mutual funds providing more, less, or different disclosure for any given disclosure item, regardless of the format of the electronic filing.
The SEC's Division of Investment Management is happy to assist small companies with questions regarding mutual fund disclosure. You can contact the Division's Office of Disclosure Regulation at (202) 551-6784.
This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a "small entity compliance guide" under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.
Risk/return summary information in interactive data format is required as an exhibit to a registration statement or post-effective amendment thereto that contains risk/return summary information and to any form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act that contains risk/return summary information that varies from the registration statement. Such interactive data is not required as an exhibit to a post-effective amendment that does not contain risk/return summary information or to a form of prospectus filed pursuant to rule 497(c) or (e) that does not contain risk/return summary information that varies from the registration statement. For a discussion of rule 497(c) and (e) under the Securities Act, see note 5.
A post-effective amendment filed under rule 485(b) under the Securities Act may become effective immediately upon filing. A post-effective amendment may only be filed under rule 485(b) if it is filed for one or more specified purposes, including to make non-material changes to the registration statement.
Rule 497(c) under the Securities Act requires mutual funds to file, within five days after the effective date of a registration statement or the commencement of a public offering after the effective date of a registration statement, whichever occurs later, ten copies of each form of prospectus and form of statement of additional information ("SAI") used after the effective date. Rule 497(e) under the Securities Act provides that, after the effective date of a registration statement, no prospectus that purports to comply with Section 10 of the Securities Act or SAI that varies from any form of prospectus or form of SAI filed pursuant to rule 497(c) shall be used until filed with the Commission.
Rule 405 of Regulation S-T directly sets forth the basic tagging requirements and indirectly sets forth the rest of the tagging requirements through the requirement to comply with the EDGAR Filer Manual.
The interactive data file is deemed filed for purposes of Rule 103 of Regulation S-T and, as a result, in general, the mutual fund would not be subject to liability for electronic transmission errors beyond its control if the mutual fund corrects the problem through an amendment as soon as reasonably practicable after the fund becomes aware of the problem.