Sec To Overhaul Fund Documents Proposed Changes Would Make Prospectuses Easier To Read

Federal regulators are proposing sweeping revisions to lengthy, sometimes indecipherable disclosure requirements that would make it easier for investors to understand the risks when choosing a mutual fund.

The rules would allow mutual funds to be sold for the first time without first giving investors the traditional prospectuses. Investors would get a shorter summary profile outlining a fund’s risks, performance and investment style.

SEC Chairman Arthur Levitt Jr. outlined the plans Tuesday in a Boston speech. He said prospectuses are bogged by legal and technical minutiae that obscure information that’s essential to investors.

“In our view, prospectuses, whether long or short, should provide investors with useful, accurate and relevant information in language that they can understand,” Levitt said in his prepared remarks at a public forum.

An estimated 63 million Americans now invest in more than 6,270 mutual funds, which had combined assets of $3.54 trillion in December.

A survey by the Investment Company Institute last year found that only half of fund shareholders consulted a prospectus before making an investment.

“These new rules may not represent the Holy Grail - but they will make prospectuses simpler, clearer, more useful, and, we hope, more used,” Levitt said.

Beside the new profile documents, the SEC is proposing a complete rewrite of the prospectus document to make it simpler for both investors and mutual fund companies. It will use plain English and clear away the clutter. It will include a new summary of the risks and return of the fund.