Levitt Calls For Simpler Prospectus To Protect The ‘Financially Illiterate’

In a recent address to the Investment Company Institute, Securities and Exchange Commission Chairman Arthur Levitt sounded yet another warning about the numbers of “financially illiterate” investors in the market.

“Investors today are not as sophisticated as they should be,” he said at the May 22 meeting. Investors, he said, would be better off with mutual fund prospectuses that contain “more understandable, more meaningful information.”

In 1994, Levitt embarked on a project to improve disclosure about mutual funds, and he asked mutual fund companies to develop a concise, standardized “profile” prospectus.

The result?

The ICI and eight mutual fund companies have developed a prototype profile prospectus.

Say you are an investor and want to compare the risk of Fund A with the risk of Fund B. Instead of wading through probably pages and pages of prospectus legalese, you will find the risk of both funds listed as item No. 3 on the shorter profile prospectuses.

Or what about the two funds’ performances for each of the last 10 years? Just go to item No. 6, and you can find bar charts for 10 years of performance.

On May 20, user research about the prototype was submitted to the SEC. The prototype and the longer prospectus now in use known as the Section 10(a) was given to 1,000 mutual fund shareholders.

The ICI research found that 61 percent of those surveyed would like to use a profile-style prospectus, and 72 percent said it was easy to find information about fund risks on the shorter version.

Showboat churns to record high

Showboat Inc. shares rose 7.5 percent Friday amid speculation that it will be acquired by another gambling company interested in entering or expanding in Atlantic City, New Jersey.

Showboat shares rose$2.375 to close at $34.125 with 830,600 shares changing hands, more than five times its three-month daily average of 145,400. Earlier, shares reached a record high of $35.50.

“There is no question that people have begun to speculate and that accounts for some of the upside activity in the stock,” said Scott Renner, a casino analyst at Salomon Brothers Inc. He said possible acquirers include ITT Corp., MGM Grand Inc. and Hilton.

MGM Grand Inc.’s plans to spend $700 million either buying or building a casino in Atlantic City sparked speculation that it’s interested in acquiring Showboat, which sits next to 20 acres of vacant land.

Las Vegas-based Showboat owns casinos in Atlantic City and Las Vegas, and a 26 percent stake in a Sydney, Australia, casino. It’s also building a riverboat casino in East Chicago, Illinois.

The New York Stock Exchange said it asked the company to make a public statement indicating whether there are any corporate developments that would explain the rise in its stock price.

Showboat Treasurer M. Brad Straub said the company doesn’t comment on market speculation or activity in its stock price.

With voters in many states refusing to legalize casino gambling, gaming companies are looking to expand by buying smaller rivals in Atlantic City and Las Vegas.