1.3.2.1. Statutory, Omitting, and Summary Prospectuses
Some investment companies, such as closed-end funds and ETFs, only issue securities at one time. Mutual funds and UITs, however, constantly offer and redeem shares in a perpetual underwriting. Because every mutual fund advertisement could be considered an offer of a new security, according to the Securities Act each one must be accompanied by a prospectus. But prospectuses are normally many pages long. If every copy of every ad had to include all of this information, it would put mutual funds at a disadvantage compared to other types of firms seeking to promote themselves to potential investors.
For this reason, the SEC allows a mutual fund advertisement that meets certain standards to be defined as an “omitting” prospectus, which simply means a prospectus that omits information normally included in a prospectus. This allows the ad to be compliant with the requirement to include a prospectus because the ad is a prospectus. However, this standard only applies to newspaper, magazine, radio, television, and website advertisements. All other sales literature that refers to a specific mutual fund must be accompanied or preceded by a statutory prospectus. The SEC refers to these latter materials as“supplemental sales literature,” and they will be described in detail below.
To qualify as an omitting prospectus, an advertisement must include a statement that advises an investor to consider the investment objectives, risks, charges, and expenses of the investment company carefully before investing. The ad also needs to explain that the full prospectus (known as the statutory prospectus) is available and identify the source from which an investor may obtain the statutory prospectus.
An advertisement containing performance data must include a legend disclosing the following:
- • The performance data quoted represents past performance
- • Past performance does not guarantee future resul