SEC move entitles mutual fund investors to more information after July 1

MUTUAL FUNDS

April 18, 1993|By WERNER RENBERG | WERNER RENBERG,1993 By WERNER RENBERG

Now that the Securities and Exchange Commission ha released the details, you can get a better idea of the new information that mutual funds must soon provide to help you choose and monitor them.

Following up on SEC rule and registration form amendments that the commissioners approved a few weeks ago, the release spells out what a fund must begin to give you in a prospectus or annual report after July 1:

* Discussion of the factors, strategies and techniques that materially affected its performance during its most recent fiscal year (prospectus or annual report).

* An illustration showing a 10-year comparison of its performance to an appropriate securities index (prospectus or annual report).

* Total returns for each year covered in the condensed financial information table, which gives data for up to 10 years, depending on how long the fund has been in operation (prospectus).

* Disclosure about the portfolio manager (prospectus).

Proposals to elaborate on performance information and identify portfolio managers, offered for public comment in January 1990, had evoked a mixed response. Fund investors generally supported them. Reaction from industry members and the Investment Company Institute varied; they agreed with some, opposed or suggested changing others.

Led by Robert E. Plaze, assistant director of the SEC's Division of Investment Management, commission staffers analyzed the 669 comment letters -- 617 of them from individual investors -- and revised the proposals. The package was then submitted to commissioners for approval.

"The public's letters confirmed what we had suspected -- that people want more information," he said. "People gave some poignant stories of decisions they had made on the basis of information that turned out to be incorrect."

* Performance discussion. The SEC had requested comment on two alternative proposals. One would have required a fund's management to discuss its previous year's performance and the techniques used to achieve it in light of the fund's objectives. The other would have required a comparison of its total return with that of an appropriate index over specified periods.

Most comments from the industry objected to elements of both, noting that subjective judgments would have to be made in a management's analyzing its performance or in picking an appropriate index.

Most comments from investors and one from the industry, urged that the two be combined, the SEC reported.

Though he was not identified in the release, it is known that the lone industry executive was John C. Bogle, Vanguard's chairman, who in a 1989 speech urged that fund managements be required to report to shareholders on annual results, just as managements at industrial companies must do.

The SEC agreed, adopting the Investment Company Institute's proposed language, which calls for discussion of what happened during a year and why, but does not call for management to evaluate the effectiveness of its techniques.

* Index comparison. Although a number of industry comments claimed that comparing a managed fund with an unmanaged, expense-free index would be inappropriate, the SEC has made it mandatory.

Wondering "how much information is too much," in the words of the division's chief accountant, Lawrence A. Friend, the SEC required that an simple line graph be used for comparison, not numbers. For load funds, it will reflect sales charges.

The Standard & Poor's 500 Index, which represents 70 percent of the value of publicly traded stocks and is the most popular benchmark for the U.S. stock market, is expected to be widely used. But there are more than 100 other stock and bond indexes -- calculated by firms such as S&P, Wilshire, Frank Russell, Salomon, and Lehman -- from which fund managements can choose.

* Portfolio manager. Except for money market and index funds, the name and title -- and any other jobs held recently -- will have to be given for the person primarily responsible for day-to-day management. Changes must be disclosed by prospectus stickers.

* 10-Year table. The table of financial highlights must now include the total return for each year, enabling the recipient to see the volatility that annualized rates for five- and 10-year periods may not reveal.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.