Although mutual fund groups are developing plain English prospectuses, progress is slow and even the Securities and Exchange Commission, which ordered the new prospectuses, will be hard pressed to meet its own deadlines for approving the revised documents.

The deadline for investment companies to begin efforts to produce the new prospectuses with the submission of new registration statements is Dec. 1 of this year. Although annual statements after that date must be updated under the new regulations and fund groups have a phase-in schedule, full compliance is required by all companies by Dec. 1, 1999.

Josiah Fisk, a principal for Firehouse Financial Communications LLC of Malden, Mass., who has been working with several investment companies on revising their prospectuses, says the task of developing the new prospectuses is laborious and time-consuming.

"If you're a large fund complex and you've got more than 20 or 30 funds, this can be a very complex process," he says.

Fisk says that secondary fund investments -- investments that do not conform to the fund's stated investment style -- are a particularly troublesome area. Most people, for example, would think, from the way prospectuses are currently written, that an equity income fund gets its income from stock dividends. However, the income also might come from junk bonds.

"What you find is there's a little bit of style drift between how a fund is managed versus the impression you would get from reading the prospectus," Fisk says. That, he adds, needs to be clarified in the new prospectuses.

Fisk says the SEC, which must examine all new prospectuses, will have as much trouble as the fund companies meeting its own deadlines. The SEC acknowledges its burden but is sticking with its deadlines.

Meanwhile, Fisk says that the fact that investment companies also are looking at the plain English prospectuses as an opportunity to improve other documents and internal policies, increases their work and makes the deadline more illusive.

Tom Connors, vice president of the legal department for John Hancock Funds of Boston, said his fund group on Oct. 1 began using its first consolidated plain English prospectus for its retail income funds. It still has to revise its prospectuses for annuity mutual funds and institutional series funds, he said.

John Hancock tested a plain English style prospectus in July, 1996 before the SEC adopted its final plain English rules early this year. Unlike its original prospectus, the new one lacks a list of every investment in the funds, Connors says. Instead, it focuses on the fund's strategies. One of the many questions the company considered in revising its prospectuses was whether to eliminate information about sales charges, including the fact that employees of the company or family members do not have to pay sales charges. It decided to retain that information, he said.

Unlike John Hancock, Pioneer Funds of Boston, which has $20 billion in assets, has opted for individual fund prospectuses rather than a consolidated prospectus.

It was easier, explained Mary Sue Hoban, director of shareholder communications. The company has used consolidated prospectuses until now. Pioneer is on schedule to have its annual updates ready by January, 1999, she said.

One of the main issues in introducing a plain English prospectus is leaving the SEC at least 60 days to review it, Hoban says. "We've designed a timeline--a development schedule," she said. "If fund companies are not doing that, that probably is a considerable risk."

Barry Miller, associate director of the SEC's Division of Investment Management, says most of the inquiries his agency has been receiving on plain English prospectuses relate to new information required, such as risk-return summaries. Many of those questions have been addressed in a letter he wrote to the Investment Company Institute (see MFMN Oct. 12). The letter is posted on the Internet at

Under the simplified prospectus rules adopted by the SEC, investment companies, as of June 1, may send consumers inquiring about their funds a shorter and simplified "fund profile," instead of the full-blown prospectus. The prospectus, though, still must be sent upon confirmation of a sale. Miller says that over a dozen fund groups have filed optional fund profiles so far.

T. Rowe Price of Baltimore, which participated in a test of the fund profile prior to the adoption of the new rules, planned to test just one fund profile in November. But it will be limited to a direct mail campaign for its largest equity income fund, says Rowena M. Itchon, a T. Rowe Price spokesperson.

It is not yet being offered, as originally intended, to investors who inquire about its funds. "We have 75 funds," Itchon said. "It's hard to execute a system in which some got profiles and others didn't."

Although retail investors have said the simple profile is a welcome improvement, Fisk of Firehouse Financial Communications says many fund companies have too much to do to produce the longer plain English prospectuses alone.

Moreover, issuing a fund profile means increased postage, Fisk says. "This is another document that has to be maintained. You already have a prospectus and Statement of Additional Information (SAI) for each fund."

John Hancock Funds will send out a full prospectus in response to an inquiry, says Zeldy Lyman, vice president of marketing for the company. Instead of a fund profile, it is adding clearly marked fund-specific marketing materials, including a bar chart showing annual returns of the funds, a highlight sheet with information about its rankings by Lipper Analytical Services, and information about its managers.

John Hancock fund executives say the beginning of the prospectus is nearly identical to the profile anyway. The profile is unnecessary, they say.

Hoban of Pioneer Funds said fund profiles are not her group's first priority, but they have not been ruled out. Producing fund profiles would mean having to bring them up to date quarterly, another substantial task, she says.

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