The Securities and Exchange Commission will consider a handful of proposed changes to the Investment Company Act at its open meeting 10 a.m. tomorrow, most of which are intended to give investors more information about how their funds invest and how much those funds cost.
One proposal would require fund companies to file a complete list of their portfolio holdings once each quarter, whereas funds must now reveal that information twice a year. In addition, the SEC may also allow fund companies to include a summary portfolio schedule in reports to shareholders. The idea is to allow fund companies to provide narrowed-down, key information that investors can use to figure out how their funds are allocating assets and whether those funds are meeting their investment objectives, said Paul Roye, the SECs director of investment management, during a press conference this afternoon.
"Investors can tailor the information flow to their own needs," he said. Another SEC official said that the abbreviated portfolio disclosure could save fund companies millions in costs because they can slash printing and mailing expenses.
In addition, the commission will consider whether funds should provide portfolio holdings to shareholders in a graphic or tabular format, again in the interest of helping investors understand what a portfolio holds and how its assets are allocated. Roye said the graphical presentation could break down data by industry sectors, geographical regions or other factors.
The commission is thinking of exempting money market funds from having to disclose their portfolio schedules to shareholders, provided those funds provide a complete schedule of holdings to the SEC. In addition, a money market funds portfolio holdings would have to be available to shareholders upon request, the SEC said. Such reports are currently issued by money market funds 60 days after a semi-annual reporting period. By then much of the information can be stale because a fund has already divested many of the interests that are listed in the report, Roye said.
"The actual portfolio [report] has limited utility for investors," he said. The commission will also consider changing the delay period from 60 days, Roye added, but he declined to disclose what that delay period might be changed to. "That is a detail that the commission has to consider at this point," he said.
Round Dollar Figure
Funds may also have to disclose in their reports to shareholders the expenses that shareholders must pay during a reporting period. Roye said that funds currently provide investors with an expense ratio, but under the proposed rule, funds would provide investors with a dollar figure for costs based on a consistent rate of return. That rate of return Roye used the example of 5% would be dictated by the SEC.
While funds currently disclose expenses based on projected numbers, under the new rule, funds would also provide costs based on exact, historical data, Roye said. The new data, he said, "would allow you to use the funds actual expenses to see how expensive it is compared to other funds."
Lastly, the SEC will consider whether funds must include what the SEC calls a "Managements Discussion of Performance" in their annual reports to shareholders.