Certainly most of us would welcome two of the proposed changes. The SEI2 wants to mandate the use of plain English in prospectuses, those dense disclosure statements that are mailed to investors before they can buy a fund. It’s hard to see how we’re better off slogging through a lot of turgid legalese to find out what we’re sinking our money into. The SEC also wants to allow investors to buy funds based on a shortened version of a prospectus, called a profile prospectus. That could turn the document into something that weactually read rather than carry back and forth in our briefcases until we finally jam it into a file somewhere.
But Disclosure Lite may not be the improvement it seems. It certainly isn’t going down easy at Morningstar, the Chicago purveyor of mutual-fund information. The influential ranker of mutual funds isn’t a great fan of current prospectuses. But Don Phillips, Morningstar’s president, thinks the SEC’s proposals focus on the wrong issues. Rather than sugarcoating prospectuses, he argues, the agency should be making changes that empower shareholders. A key suggestion in his second posting on the topic at Morningstar’s Web site: advise shareholders of their ownership rights, and tell them how they can praise or criticize their representatives on the fund’s board of directors. Treating investors as owners of their fund was a core protective feature of the Investment Act of 1040, according to Phillips. But the agency’s proposed changes “turn mutual funds into products and shareholders into consumers,” he says.
Another proposed change that neither Phillips nor anyone else seems wild about: letting fund managers tout their performance managing previous funds even after they move on to a new one. Fund companies already have enough fun manipulating track records for their advertisements. Why give them new material to confuse us with? The first step for becoming an activist of the sort Phillips recommends: read the proposal, if you have the fortitude to gel: through 148 pages on the SEC’s Web site (www. sec.gov), and weigh in with your opinions (www.rule comments@sec.gov).
The Securities and Exchange Commision is proposing the following changes for mutual funds:
Disclosure statements, called prospectuses, to be written in plain English.
Investors can buy funds after seeing a shortened prospectus.
Fund managers can tout their former fund’s record when they move to another fund.
