June 24, 1993
TO: PENSION COMMITTEE NO. 22-93
RE: INSTITUTE COMMENT LETTER ON SEC SUMMARY PROSPECTUS PROPOSAL
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As we previously informed you, the Securities and Exchange Commission has
proposed to amend Rule 482 to permit investors to purchase mutual fund shares
from a summary prospectus. (See Institute Memorandum to Pension Committee No.
10-93, dated March 24, 1993.) The Institute recently submitted the attached
comment letter to the Securities and Exchange Commission in support of the
proposal.
The Institute's letter states that the proposal would provide information
in a concise, easy-to-read format that will make it easier for investors to
assess a particular mutual fund and to compare several different mutual funds.
The Institute pointed out that this benefit would be particularly important in
the defined contribution retirement market, where employees often are required
to choose among a number of mutual funds and other investment vehicles.
The Institute also stated that the proposal would allow investors to
purchase shares of mutual funds in a single step, thereby eliminating delays that
some investors may wish to avoid. By removing restrictions that are virtually
unique to mutual funds, the proposal "would simply enable funds to compete on a
more equal basis with other providers of financial products and eliminate
unnecessary costs and burdens." Even under the proposal, mutual funds would be
subject to more extensive requirements than those imposed on bank accounts by the
Truth in Savings Act.
The Institute's letter supports the investor protections in the proposal,
which would subject the summary prospectus to legal liability under the
Securities Act, mandate filing with the NASD and the SEC, continue to permit
potential investors to obtain a full prospectus before investing, and require
that funds deliver the full prospectus to all investors, including those
purchasing from the summary prospectus, with their confirmation statements.
The Institute recommends removing exclusions from the proposal pertaining
to multiclass and two-tier fund structures and funds that have been publicly
offered for less than two years. The letter states that an exclusion for new
funds could have serious anti-competitive effects. Excluding multiclass and two-
tier funds, a growing segment of the industry, would deprive many retirement plan
participants of the benefits of the proposal. The Institute generally supported
the disclosure items set forth in the proposal, with certain modifications.
Kathy D. Ireland
Associate Counsel - Pension
Attachment