SEC Mulls New Rules for Funds

WASHINGTON -- Securities and Exchange Commission Chairman Arthur Levitt Jr. plans to propose Thursday new rules intended to make it easier for investors to select from the thousands of available mutual funds.


The announcement would cap several years of effort by the commission to make disclosure documents such as mutual fund prospectuses more readable.


With stocks at or near all-time highs and more than 40 percent of the American adult population in the market, Levitt has expressed concern that investors are not getting adequate disclosure of the risks involved in stock and bond investing.


The full commission is expected to vote Thursday to issue the three rule proposals for public comment, commission sources said.


The most important of these would be a top-to-bottom rewrite of the mutual fund prospectus, with the addition of material about funds' risks, according to commission documents.


Investors rarely consult the prospectus before taking the plunge, according to survey research done for the commission. To encourage investors to read prospectuses, Levitt will propose relegating less relevant information to a separate document.


Each new prospectus would highlight a fund's historical risks and returns. The section would include a 10-year bar chart comparing a fund's past performance with that of the Standard & Poor's 500-stock index. The chart would show investors how volatile a fund's performance has been.


Levitt is expected to announce a second rule that would allow management companies to sell a fund based on a four-page "profile,'' which would summarize the prospectus' key points -- the fund's investment strategy, potential risks, historical performance and fees and other expenses.


Levitt will suggest a third rule that bans misleading fund names. The SEC wants to ensure that when a fund advertises itself as a stock or bond fund that it operates like one. In recent years, some stock funds have had less than 60 percent of their money in equities, and some U.S. government bond funds have had many high-risk securities.