For many investors, reading a mutual fund prospectus is about as daunting an exercise as reading "War and Peace." In Martian.
So today, the fund industry and the Securities and Exchange Commission will launch a simplified- prospectus experiment, in an effort to get people to actually read more details about the funds they buy.
The "profile" prospectus, to be used by as many as eight fund firms initially, is a two-page supplement to the regular prospectus. The profile addresses 11 key points that the industry and SEC agreed average investors should understand before buying a fund.
Among the 11 points: What is the fund's goal? What are the major risks? What are the fund's expenses? And how do I sell shares?
The basic idea is to better educate the investor, but industry executives say another benefit of the profile is that its standardized format should allow investors to easily compare one company's funds against other companies'.
The eight firms in the experiment are: American Express; Bank of America; Capital Group; Dreyfus; Fidelity; Scudder; T. Rowe Price, and Vanguard. Most will use profile prospectuses with only three of their funds initially.
The industry and the SEC expect to survey investors over the next year to gauge reaction to the profile prospectus. It may later become required for all companies.