SEC Urged to Approve ‘Profile’ Prospectus

WASHINGTON — The mutual fund industry asked the Securities and Exchange Commission to make rule changes that would allow funds to distribute simplified prospectuses to prospective investors.

The request by the Investment Company Institute, the industry’s trade association, is for government authorization to use a new disclosure document, the “profile” prospectus, for mutual funds.

The new prospectus would be distributed with an application that investors may use either to purchase shares or to order a traditional prospectus, the ICI said.

“The SEC isn’t committed to any timetable in responding to our request,” said Paul S. Stevens, the ICI’s general counsel, speaking at the group’s annual membership meeting in Washington. “The research is extensive, and there is a lot for (regulators) to consider.”

The development of a profile prospectus was supported last year by SEC Chairman Arthur Levitt, who wants investors to receive a document “they can read, in language they can understand.”

The ICI released the results of a study Tuesday that found two-thirds of 1,000 people surveyed prefer to receive the profile prospectus either alone or with the option to order the traditional prospectus before investing.

The ICI has been working with eight fund companies for about 10 months to develop a four-page document that’s concise and easy to read, and contains information that helps consumers make mutual fund investment decisions.

“The profile will make it easier for investors to learn about mutual fund investing and to compare funds of different fund companies,” said Arthur S. Loring, general counsel at Fidelity Investments.

The ICI’s study found 37% of those surveyed said they think the traditional prospectus is “difficult to understand.” In contrast, 62% of those who consulted the traditional prospectus in their most recent purchase said the profile prospectus provides “the right amount of information,” according to the ICI.

Some securities lawyers are concerned that wide dissemination of profile prospectuses could result in an increase in class-action lawsuits, since the new documents wouldn’t include all the caveats that full prospectuses do.

This is a concern for the industry as well, ICI’s Stevens said. But, “we don’t view the profile prospectus as a substitute for the traditional prospectus,” he said.

SEC officials have said all the details about how profile prospectuses will be used haven’t been resolved yet. The SEC may let funds sell shares based on the profile prospectus, officials said. Fund companies would still, however, have to deliver the full prospectus to shareholders.