The SEC is considering a rule change that could save mutual funds millions of dollars each year by creating a new, abbreviated mutual fund document that would take the place of lengthy fund prospectuses under some circumstances.

SEC rulemakers are considering a proposal that would allow funds to send shareholders the new document, known as an "annual prospectus update," said Paul Roye, director of the SEC's division of investment management, in a recent speech. Funds could, if they chose, provide the annual prospectus update to shareholders rather than sending a complete prospectus, he said. Shareholders could request a complete prospectus if they wanted one, Roye said.

Currently, most funds send a complete prospectus to all shareholders each year. That satisfies regulatory requirements that shareholders periodically receive an updated prospectus.

That system, however, can be wasteful while not benefiting shareholders, Roye said. Shareholders receiving the full prospectus annually cannot readily tell what has been added to the document during the year, he said. The annual prospectus update would be a concise document that informs shareholders of important changes in the fund and might include updated expense information, Roye said.

Roye spoke at the Investment Company Institute's Securities Law Developments Conference in Washington, D.C. He did not give a timetable as to when the SEC might propose the new rule.

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