Abbreviated prospectuses, proposed by the Securities and Exchange Commission three years ago, are still not being widely used by mutual fund companies because of concerns over increased costs and potential liability.
A spot check of mutual fund companies suggests that a limited number of them are using the abbreviated prospectuses, known as prototype profile prospectuses.
The SEC in October, 1994, recommended that companies provide customers with 4-page, abbreviated versions of full-fledged prospectuses to make it easier to glean information about funds. The profiles were designed so that certain fund information would appear in the same position for all funds.
After an initial trial by eight mutual fund companies, interest in the profile prospectuses appears to have lapsed. Many companies, among them Stein Roe, never tried the short forms and have no plans to do so. Companies say they are concerned about printing and mailing costs, the additional work of having to periodically update the performance information in the prospectuses and the possibility that a shorter document would leave them open to charges that they were not adequately disclosing information about their funds.
In the past year, the need to respond to the SEC's new requirement that fund companies produce full prospectuses in simplified language has also taken precedence over producing the abbreviated versions for some companies. This has been the case for Dreyfus and Scudder. However, at least a few funds have just recently revived or initiated their use. T. Rowe Price, one of the companies that originally tested but then abandoned their use, planned to file profile prospectuses last month for three funds and plans to do so for more.
The American Century Funds first made profile prospectuses available for some of its funds in mid-August and also plans more. One reason fund companies hesitate to use the short form prospectuses is that the SEC requires they contain total return performance information as of the latest calendar quarter. This means that companies need to frequently revise these prospectuses.
One solution to the problem some companies have developed is to place stickers on the prospectuses that provide the new performance information.
Another solution companies have developed is to have electronic versions of the prospectuses created that can be produced, with the most recent information, as needed. Yet another solution, which American Century says it plans to pursue is to provide the prospectuses to customers through its Website.