SEC Issues 'Plain English' Rule For Fund Brochures

SEC Issues 'Plain English' Rule For Fund Brochures - 1/26/2009 , Class Action News, Class Action, Securities News, shareholder class action, claim, litigation, securities action, common stock'>

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SEC Issues 'Plain English' Rule For Fund Brochures
Christie Smythe

Securities Law 360. January 26, 2009
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EXCERPT: In an effort to enhance public disclosure for mutual fund investors, the U.S. Securities and Exchange Commission has adopted new regulations requiring fund professionals to provide summarized investment brochure information “in plain English.” The changes “require key information to appear in plain English in a standardized order at the front of the mutual fund statutory prospectus,” or a required narrative description of the fund, according to the rule, published Monday in the Federal Register. The rule change also allows funds to send only summary prospectus information to investors and provide a longer, more technical statutory prospectus online, as long as the funds also send the statutory prospectus information to investors on request. Both amendments are intended “to improve mutual fund disclosure by providing investors with key information” in a “clear and concise format, while enhancing the means of delivering more detailed information to investors,” the new regulations said. The regulations become effective on March 31, according to the Federal Register. The summary prospectus sections will be required to contain key information about investment objectives and strategies, risks, costs, and performance, according to the regulations. Traditional prospectus information brochures have long been criticized by investor advocates as being too packed with complicated wording to allow average investors the opportunity to quickly grasp and compare differing funds, the regulations said. The SEC voted unanimously to move forward with discussions of the new rules in February 2008. The Investment Company Institute, an association of regulated funds, applauded the new rule when it was being discussed by the SEC last year. In a statement, ICI President and CEO Paul Schott Stevens said the new rule will help “tens of millions of American mutual fund investors better understand their fund investments.”

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