A recent Financial Times article reports that the SEC appears to have increased its focus on derivatives disclosure in fund prospectuses. Last summer, SEC staff sent a letter to the industry urging funds to be more specific in their derivatives disclosure. However, it hasn't been until the last few months that the SEC staff has appeared to intensify its focus on this issue during the registration statement review process. According to the article, the staff "appears to be combing through certain funds' schedules of investments in quarterly, semi-annual and annual reports, comparing them with derivatives disclosures in the prospectus, and querying funds about discrepancies." In addition, the SEC staff has started asking funds to remove disclosure about derivatives they "might" invest in, but aren't doing so currently.
In general, the emphasis on derivatives disclosure appears to be consistent with previous industry guidance - that disclosure should accurately describe the specific derivative instruments used by the fund and the risks involved. The challenge for funds is to provide accurate and focused information while still providing investors with all the information they need to properly evaluate the strategies and risks of the fund.
The Financial Times article can be found here (free registration required to view article).