2nd UPDATE: SEC To Require Summary Mutual Fund Prospectuses
By Judith Burns Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- The Securities and Exchange Commission voted unanimously Wednesday to require mutual fund companies to provide short summaries of key information about their funds and give investors the option to get more details online rather than on paper.
Investors have long complained that fund prospectuses, the document describing a fund, are too long, and many skip reading them altogether. An SEC survey found most investors agreed that the documents were hard to understand and contained too much information to absorb.
SEC Chairman Christopher Cox said the new rule will put shorter, user-friendly documents in the hands of investors and help them to "more easily obtain the key information they need" about a mutual fund investment.
Under the new rule, mutual funds must provide brief summaries describing the fund's investment objectives and strategies, risks, costs and performance. Information on the fund's investment advisors and portfolio managers, procedures for buying and selling funds, compensation to brokers or other financial intermediaries who sell the fund, and tax implications also must be included in the summary.
Fund firms must present the summary information in a standardized format using plain English and update it annually. Each fund must have its own summary document, although fund firms may use the same summary for multiple classes of the same fund, the SEC said. Fund firms must begin supplying summary data in 2010, and have the option to start as early as March, 2009.
Investors will find the summaries at the front of the fund's prospectus. Fund firms will be free to supply investors with a printed copy of the summary alone, provided they post the summary and full prospectus online and make printed copies of the longer document available to investors upon request.
"Funds can take advantage of this option to provide investors with the information they want and need most, while giving them more detailed disclosure on the Internet or on paper by request," Investment Company Institute President and Chief Executive Paul Schott Stevens said in a statement welcoming the SEC's rule change.
Using the Internet to convey information is something the fund industry is doing to a large extent already, with many fund firms posting prospectuses online, noted Galloway. He said the SEC's rule encourages funds to continue moving in that direction and to provide information in a way "that investors can understand."
The SEC first proposed a summary prospectus requirement a year ago and said it got mostly positive reaction to the idea. Regulators modified the final rule, scrapping a requirement for the summaries to include the fund's top 10 holdings, in response to criticism from fund companies that such information could quickly become outdated.
The SEC also scrapped plans for quarterly updates of the summary data, instead voting to require the summaries to be updated once a year.
"That's a huge plus from the industry's perspective," said Jackson Galloway, a senior counsel with the law firm of Goodwin Procter in Boston.
SEC commissioner Elisse Walter predicted the summary data would help "the little guy" shopping for funds, and commissioner Troy Paredes said it should be useful to investors suffering from "information overload."
The expected shift from printed to electronic documents should produce dramatic cost savings for fund companies, and fund firms should consider lowering fees as a result, said SEC commissioner Luis Aguilar. The ICI, the leading trade group for the mutual fund industry, said the cost of printing a full-blown prospectus is more than three times the cost of printing a summary, and estimates that the summary prospectus, without quarterly updates, could produce annual savings of up to $63.8 million.
Separately, the SEC postponed a vote Wednesday on whether to finalize one of three rule changes targeting credit-ratings agencies. Cox said the two-week delay will allow the commission to take up all of the credit-ratings rule proposals at a public meeting on Dec. 3.
"We're going to deal with all of the subjects that were raised in the proposals, not only making final rules but also asking additional questions," Cox told reporters. He said it's likely "that we will add to what has already been proposed" with regard to ratings firms.
Congress gave the SEC authority in 2006 to register and inspect ratings firms such as Standard & Poor's, a unit of McGraw Hill Cos. (MHP), and Moody's Investors Service, a unit of Moody's Corp. (MCO). The SEC proposed additional rules for rating firms in June aimed at curbing potential conflicts of interest and spurring competition, an effort prompted by complaints that ratings firms gave overly rosy assessments of mortgage-backed securities that later turned sour.
-By Judith Burns, Dow Jones Newswires; 202-862-6692; Judith.Burns@dowjones.com
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(END) Dow Jones Newswires
November 19, 2008 16:51 ET (21:51 GMT)
Publié le 19 novembre 2008 Copyright © 2008 Dowjones
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