The Division of Investment Management’s (“Division”) Disclosure Review and Accounting Office (“DRAO”) is responsible for reviewing initial registration statements, proxy statements, and shareholder reports (“filings”) for mutual funds, exchange traded funds (ETFs), closed-end funds, and similar investment funds and insurance product securities.  The disclosure review process seeks to achieve accurate, clear, and concise disclosures and help ensure that funds comply with the federal securities laws.  To accomplish this, the staff uses a risk-based approach to identify filings and disclosures that should receive a greater degree of review, such as filings by novel and complex funds and new disclosures.   

DRAO generally performs some level of review of all initial registration statements, many post-effective amendments, and all preliminary proxy materials.  The staff may conduct a full or selective review of a filing.  A full review is a comprehensive review in which the staff examines the entire filing for compliance with the applicable requirements of the federal securities laws.  A selective review focuses on one or more specific items of disclosure and determining that the filing is in good order.[1]

To identify the appropriate level of review, the staff uses a risk-based process that considers several factors.  These may include: the fund type and strategy; the materiality of the changes from a prior filing; the date of the last reviewable filing by the fund and its level of review; current market conditions; recent rule adoptions that affect the fund;[2] the results of risk-based analytics; Division or Commission policy priorities; and information in the fund’s cover letter that may accompany a filing, including the requested level of review.[3] 

The staff encourages funds to request a selective review of a filing that contains disclosure that is not substantially different than the disclosure contained in one or more prior filings by funds in the same complex.  If a fund believes that a selective review is appropriate, a request should be made in the cover letter accompanying the filing.  Requests for selective review may be appropriate for initial registration statements, post-effective amendments to a registration statement, proxy statements,[4] and closed-end fund tender offer filings.[5]  The request should include: (i) a statement as to whether the disclosure in the filing has been reviewed by the staff in another context; (ii) a statement identifying prior filings that the registrant considers similar to, or intends as precedent for, the current filing; (iii) a summary of the material changes made in the current filing from the previous filings; and (iv) any specific areas that the registrant believes warrant particular attention.[6]  In identifying prior filings which are intended to serve as disclosure precedent, funds may rely on several prior filings by that fund complex.  The cover letter accompanying the filing should identify the prior filings that the fund considers similar to its latest filing.

DRAO will determine whether the current filing is similar to a prior filing by the same complex by considering various factors including, as relevant: (i) the type of fund, e.g., money market fund, equity fund, bond fund, or balanced fund; (ii) the classification of the fund, e.g., open-end fund, closed-end fund, or ETF; (iii) the fund’s investment objective, e.g., growth, income, total return, or preservation of capital; (iv) the fund’s investment strategies; and (v) the extent to which disclosure is the same.  The staff considers all this information in the context of its risk-based process described above to determine whether the staff agrees with the fund’s view that selective review of the filing is appropriate, or whether a more comprehensive review should be performed.

Under certain circumstances, it may be appropriate for a fund to request that a filing receive a limited review, particularly where a review would be duplicative of a review the staff already has undertaken.[7]  The following are two examples of filings that may be eligible to receive this type of review:

• Registration statement filings made solely to add a new series that has identical objectives, strategies, and policies of an existing series in the same fund complex (e.g., an insurance product fund clone of a retail fund), and the new series is part of an existing trust. 
• In the master-feeder fund structure, registration statement and preliminary proxy statement filings made by feeder funds relating solely to changes reviewed or under review in the master fund’s filing.

In the staff’s experience, these filings generally are routine and historically have not presented novel questions of law or fact.  In these circumstances, where a fund requests a limited review in the cover letter accompanying the filing,[8] the staff generally will not perform a substantive review of the filing.  However, funds that receive this limited review will still receive a SOX review at least once every three years.

* * * *

We hope that this ADI will assist registrants in preparing their filings.  We also welcome feedback on this ADI and on any disclosure matters.  If you have any questions or feedback, please contact:

Disclosure Review and Accounting Office

Phone: 202.551.6921

Email: IMDRAO@sec.gov