ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, February 26, 1997 TAG: 9702260073
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: BOSTON
SOURCE: Associated Press
USING PLAIN ENGLISH and clearing away the clutter should help investors understand what they're investing in, federal regulators say.
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 down with 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. Levitt said many investors tend to scorn prospectuses when choosing a mutual fund.
A survey by the Investment Company Institute, a trade organization of mutual fund managers, last year found that only half of fund shareholders consulted a prospectus before making an investment. A separate survey by the SEC and the Comptroller of the Currency found investors viewed prospectuses as the fifth-best source of information.
``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.
Besides 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.
The SEC also is proposing another rule that is intended to prevent mutual funds from misleading investors about investment objectives and risks. That rule would require funds with a name suggesting a particular type of investment to allocate at least 80 percent of its money accordingly. For example, a Japanese bond fund must have 80 percent or more of its money in Japanese bonds.
The new profile rule developed by the SEC and a handful of major mutual fund companies, would include information about a fund's performance history and risks. Investors would receive detailed prospectuses after purchasing fund shares.
SEC officials, led by Levitt, have been concerned for some time that not all mutual fund companies provide consistent information to people who invest through employer-sponsored plans such as 401(k)s.
There's a significant loophole in the law: funds sold to a corporate 401(k) plan have to provide those documents only to the company, not its employees.
That can mean workers lack important financial information while making crucial decisions on how to invest their retirement savings.
The SEC's proposal ``stands to dramatically revise and, we believe, substantially improve'' disclosures to mutual fund investors, said Paul Stevens, senior vice president and general counsel of the Investment Company Institute.
The proposals must be approved by the SEC commissioners at a meeting scheduled for Thursday. They would then be subject to a public comment period and approved again to become final.
LENGTH: Medium: 70 linesby CNB