Gateway Opens Door to a Better Prospectus

Peter W. Thayer has a Harvard MBA, owns $244,000 worth of shares in the Gateway Index Plus Fund and figures he has seen birds of more than 1,370 species worldwide.

And it didn’t take a Senate investigation to shake all that information out of him.

Thayer, president of the Gateway Trust group of funds in Cincinnati and manager of the Index Plus portfolio, reveals those facts and a bunch more in the company’s May prospectus.

So complete is Gateway’s unusual prospectus that it can honestly be considered a breakthrough. Of course, every prospectus is supposed to provide all the relevant information that current or potential shareholders need. But if you ever hoped to extract certain sensitive data, you had to look elsewhere.

Only last month, for example, did the Securities and Exchange Commission begin requiring fund companies to provide a limited set of performance facts--and it gave them a choice of listing the information in the prospectus or in the annual report.

At the same time, the SEC ordered companies to disclose the names and titles of their portfolio managers (except for money market funds, index portfolios and funds run by investment committees).

Until now, investors generally have been unable to find out how a fund performed in the past--or even who the manager was--by reading the fund’s prospectus. Although the new SEC regulations are a welcome step in the right direction, they don’t mandate nearly as much disclosure as Gateway has made on its own.

Among other things, the Gateway prospectus includes the following revolutionary presentations:

* Total returns listed in five different ways, including yearly results and returns for periods compared to those of the benchmark Standard & Poor’s 500 index.

* Fund risk expressed four different ways. These include important measures such as “standard deviation” and “beta.”

* Information on each portfolio manager, including age, educational background, professional distinctions and amount of personal investments in the fund. (Most shareholders probably do not give a hoot about Thayer’s bird-watching passion, but Gateway included that and other tidbits to help humanize the prospectus.)

Thayer decided to undertake a radical rewriting of the prospectus with two other members of the company’s management team last year after he realized how useless the document was. “I was reviewing our prospectus and found that even I couldn’t find certain things, like total return,” he said. “We had sentences in there from 16 years ago, which we had probably copied from someone else’s prospectus.”

Thayer’s real motivation, however, was to educate less sophisticated investors about the risks borne by their funds. “We and other fund groups have received a great inflow of money, much of it coming from people who had been in CDs for the past 20 years,” he said. Many of these individuals, Thayer figures, probably don’t have a good understanding of what they own--a situation that, left unchecked, could lead to a flood of redemptions in the next bear market.

Gateway is unique in the amount of information it has revealed in its prospectus, but the company is not alone in making a greater effort toward readability. Several other fund groups have recast their prospectuses, with an emphasis on clear, concise writing presented in a visually appealing format. For example, the prospectuses for Fidelity Magellan and about 10 other Fidelity funds now include glossaries of terms, summaries of key facts about the funds and total returns expressed in various ways.

“More information alone isn’t the answer. It’s providing more information in a way that’s easily digestible,” said Michael Hines, Fidelity’s senior vice president of marketing. “Today’s consumers simply demand better information, and they don’t want to work hard to get it.”

Several other fund groups have also started to wrap their prospectuses in glitzy marketing pieces that feature illustrations, answers to frequently asked questions and other helpful information. Such changes are overdue in an industry that prides itself on visibility and disclosure. In the past, most investors probably ignored the prospectus--because they couldn’t find the information they sought or couldn’t stand to wade through the mumbo jumbo.

The new SEC-mandated changes, together with voluntary breakthroughs on the part of fund companies such as Gateway, finally promise to alter that situation for the better.