At last - sweet simplicity: the SEC shortens fund prospectuses.
Let's be honest, now.
If you're inclination is to answer (b), you needn't be embarrassed, because you're certainly not alone. Surveys compiled by the Investment Co. Institute, the trade group representing mutual fund companies, show approximately half the investors out there don't even open a prospectus on their way to making a deposit. And for good reason: too often it seemed prospectuses were crammed with legalese and numbers. The thick documentation seemed tailored for lawyers or securities pros, not the average investor.
Take heart. The Securities and Exchange Commission has noticed this sad fact, too, and has now pushed forward with some of its most dramatic steps ever to revamp the dowdy, stuffy prospectus. First, after a year of experimenting with new formats with mutual fund companies like Dreyfus, Vanguard, T. Rowe Price and Fidelity, the federal agency is proposing prospectus changes and is awaiting public comment; it hopes to finalize the rules by this fall. Fund profiles will be trimmed to a few pages instead of dozens and will be more concise and easier to read. In a few pages, you'll get a short profile of the mutual fund that's grabbed your interest as well as a clear picture of what you're buying into, how a fund has performed in the past, and what risk you're taking on. You'll get a rundown on fund expenses, so you can gauge how mindful management is of efficiency. Also to be included will be a set of overall objectives the fund adheres so you can judge whether it belongs in your portfolio. Of course, you'll be supplied instructions on how to buy into the fund, material that wasn't that hard to find in the first place. That means even the most attention-challenged individual investors will no longer have an excuse to forgo leafing through and researching their investment choices.
Best of all, the SEC intends to prod fund companies into using clear, simple English. Here's an example. Funds would be required to identify what are now termed "Rule 12b-1 fees" as marketing fees.
The changes are long overdue. The current meaty prospectus layout has been required since 1933, when the SEC sought to make stock prospectuses more comprehensive. The problem is that what worked for company shares never really fit mutual funds, where investors key in on results and a few criteria. That's been a concern for the SEC, which started trimming away the girth of mutual fund prospectuses in 1980, when the average investor faced wading through 60 pages of financial jargon. And while industry efforts to streamline have reduced that number to 30 on average, the tendency, says ICI spokesperson John Collins, has been to include a lot of material that simply overwhelms consumers.
Brooke Stephens, a financial planner and author of Talking Dollars and Making Sense: A Wealth Building Guide for African-Americans, (McGraw-Hill; $14.95) says the changes are good for investors. "It should be easy to understand where your money is, but I'd recommend you dig deeper and get the fund's annual report in addition to the short prospectus so you really know all you can before buying."
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|Title Annotation:||mutual fund information is more readable for investors under Securities and Exchange Commission's guides|
|Date:||Jul 1, 1997|
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