Making the Pertinent Information Seem That Way
Mutual fund shareholders, regulators and industry executives have been debating about out how to present enough pertinent information to shareholders without making them feel overwhelmed.
A 1996 survey of more than 1,000 recent fund buyers by the Investment Company Institute, the industry’s trade association, found that more than half don’t read the prospectus when they buy shares.
Too often, the information in them isn’t useful, said Barry Barbash, director of the Securities and Exchange Commission’s investment management division. Prospectuses or disclosure pamphlets are filled with boilerplate descriptions of risks and strategies that have more to do with regulatory and legal concerns than with what investors truly want to know.
The SEC has formally proposed three modifications, expected to become commonplace:
* Profile prospectuses: These one-page documents would summarize key facts about a fund, including performance, risks, suitability and how to buy shares.
* Simplified prospectuses: The prospectus itself would contain less legalese, be organized in an easy-to-follow way and be written in plain English.
* Better correlation between fund names and their investing styles: The SEC wants mutual funds to invest more closely in line with the manner implied by their names, where applicable. For example, small-stock funds currently must hold just 65% of their assets in small stocks. The agency wants to boost that to 80%.
The SEC is also talking about other ideas:
* Letting fund groups condense the listings of stocks and bonds in semiannual and annual reports. Currently, these documents must mention every one of a fund’s investment holdings--even if the tally runs into the hundreds. Barbash favors paring this to perhaps the 25 or 50 largest positions, to be supplemented with additional information on the types of securities held. Full listings would be available on request.
* Personalizing fund account statements. Account statements already show a person’s dollar balance, of course, but Barbash is asking fund companies to include individualized performance numbers in percentage terms. (See accompanying story.)
Russ Wiles is a mutual fund columnist for The Times. He can be reached at russ.wiles@pni.com
