On October 2, 2019, the Disclosure Review and Accounting Office (“DRAO”) of the SEC’s Division of Investment Management (the “Division”) issued Accounting and Disclosure Information (“ADI”) 2019-09 on “Performance and Fee Issues.” The ADI provides the DRAO staff’s observations from reviewing fund disclosure filings with the SEC. The ADI notes that DRAO not only reviews fund disclosures on a one-off basis (e.g., in the context of a filing made under Rule 485(a) under the Securities Act of 1933) but also monitors “industry-wide data” contained in XBRL, N-PORT and N-CEN filings, as well as information from “private data sources.” To encourage funds to carefully prepare and review filings with performance and expense data, the ADI lists several errors by funds found by DRAO in filings containing these disclosures, including the following:
- failing to reflect sales loads in average annual total return tables,
- incorrectly presenting negative performance as positive,
- transposing the performance of different share classes and benchmarks,
- showing net expenses greater than gross expenses in the fee table (e.g., by including recoupments by the adviser of previously waived expenses in the “net” line item),
- failing to include acquired fund fees and expenses in the fee table (which is either required to be included in “other expenses” or as a separate line item if they exceed 0.01%),
- incorrectly calculating expenses in the hypothetical expense table (either through mathematical errors or showing the effect of fee waivers for an incorrect term), and
- incorrectly tagging risk/return summaries in XBRL filings (such as by using the wrong tags or incorrect data or associating tagged information with the wrong fund or class).