A recent federal court decision is causing mutual fund industry lawyers to have reservations about simplifying fund prospectuses even as mutual fund companies are redoubling their efforts to produce the revised documents.

A decision by the Second Circuit of U.S. Court of Appeals in a case involving the Alliance North American Government Income mutual fund underscores the importance of simple, complete explanations of the risks of investing in funds, lawyers say. The Appeals Court last month refused to throw out a case involving the fund, in effect saying that it is possible the fund's prospectus misled investors about risks because of allegedly inadequate disclosure.

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