Statement by SEC Commissioner:
Open Meeting Statement on Mutual Fund Prospectus Disclosure and Delivery
Commissioner Paul S. Atkins
U.S. Securities and Exchange Commission
November 15, 2007
Thank you, Mr. Chairman. The wonders of technology enable me to take part in this meeting from 3700 miles away in London. Technology's wonders are also responsible for this proposal. It has been widely recognized for a long time that mutual fund disclosure leaves a lot to be desired. Over the years, the SEC has mandated disclosure upon disclosure, which has left us with cluttered disclosure documents. We have never taken a comprehensive review of this cluttered attic. During my first stint at the Commission, Chairman Levitt did spur the creation of a trial profile as part of a broader effort to improve fund disclosure. I salute Chairman Cox for reinvigorating and updating this effort.
There is a lot of information in the documents that investors get, but that information is impenetrable for many investors. According to a recent Investment Company Institute survey, less than forty percent of investors look to a prospectus as a source of information prior to purchasing a mutual fund.1 Prospectuses languish at the bottom of piles of mail or go immediately into the trash. The ICI study found that two-thirds of investors believe that prospectuses contain too much information and only three percent believe that prospectuses contain too little information.2 Hence, it makes sense to pull key information into one shorter document while allowing those who want more information to easily obtain it.
Today's proposal attempts to do that. It does so by making it possible for funds to provide investors with usable information that gives them a good overview of the fund. At the same time, it offers investors the opportunity to dig deeper to learn more about any of the summary areas in which they are interested. Hyperlinks make this digging easy and more inviting than it would be if one had to look through a long paper prospectus. Those who want paper prospectuses would still be able to get them.
My enthusiasm about today's proposal is tinged by some reservations. Commenters will be able to tell me whether these reservations are well-founded. First, the quarterly updating requirement seems perhaps unnecessary. Consistent with the proposal's reliance on the Internet, the Summary Prospectus could point investors to the fund's website for the most up-to-date information. Second, it will be interesting to see whether investors think that a list of the top ten portfolio holdings is key information. I can see arguments both ways. As with Form 13-F there is always the possibility that there is some element of window-dressing by funds that do not want to show their hand for all the world to see and perhaps to use for front-running purposes, to the fund shareholders' detriment. Third, how costly will it be for funds to change their prospectuses to include the summary information up front as we are proposing? Finally, we tried to do something similar with the "profile" that we adopted nearly ten years ago, in 1998. Does today's proposal address the problems that prevented the profile from being widely used by allowing for incorporation by reference of the full prospectus? Those are just some of the issues that we will have to address during and after the comment period.
Thank you to the Investment Management team — Buddy Donohue, Susan Nash, Brent Fields (my former counsel), Tara Buckley, Kieran Brown, and Sanjay Lamba — for all your work in putting this proposal together. This was truly a Commission-wide effort, so thank you also to the Divisions of Corporation Finance and Market Regulation and the Offices of General Counsel, Economic Analysis, Investor Education, and Information Technology.