The Securities and Exchange Commission on Thursday proposed new guidelines to make mutual fund prospectuses easier to understand.
"Today, many prospectuses, by their very length and complexity, tend to obscure the essential information that would help people make investment decisions," SEC Chairman Arthur Levitt said.
Under the agency's plan, prospectuses would no longer contain detailed, technical descriptions of the fund's individual securities. Instead, they would focus on the aggregate risks facing the mutual fund.
Mutual funds also would be required to provide investors with a standardized summary of investment strategies, risks, performance, and fees. The "fund profile" would not replace the prospectus, nor would mutual funds be required to issue them.
"The investors want more choices about how they receive information," Mr. Levitt said. "This will provide that."
Finally, the SEC wants to make mutual fund names more consistent with the securities they invest in. For example, the plan would require a mutual fund with the word "stock" in its name to invest at least 80% of its assets in stocks.
The industry has 90 days to comment on the plan.