Corporate Governance

SEC Attempts to Simplify Mutual Fund Disclosures

By Tamar Weinrib

On November 20, the SEC voted unanimously to simplify mutual fund prospectuses so that investors can easily understand disclosures.  Essentially, the rule provides for the sending of summary prospectuses to investors that detail the fund's risks and returns, including investment objectives and strategies, fees, risks and performance in plain English.  The summary will also include brief information regarding investment advisers and portfolio managers, purchase and sale procedures, tax consequences, and financial intermediary compensation.  Companies must also provide investors with the full prospectus if requested and the summary will appear in that as well.  In addition, the online materials must be in a user-friendly format that permits investors and other users to move back and forth between the summary prospectus and the statutory prospectus. The new rule is designed to facilitate smart investing as investors will be better equipped to compare information on the various mutual funds available.   While the SEC's intention is praiseworthy, this may lead investors to rely on a bare bones interpretation of actual disclosures so that any ultimate investment decision is in actuality not fully informed.  To avoid this pitfall, investors should still look at the full prospectus to ensure they have a complete picture and rely on the summary simply for clarification.  The rule changes are effective on February 28, 2009, and funds must begin complying with the form changes on January 1, 2010.  Refer to the SEC press release for additional information. 

Full post as published by PomTalk on November 24, 2008 (boomark / email).