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Roye offers agenda for investment management


WASHINGTON -- Some mutual funds are coming up short in their efforts to meet new Securities and Exchange Commission rules which require improved disclosure in fund prospectuses, said Paul F. Roye, the director of the SEC's Division of Investment Management last week.

The new rules, which took effect Dec. 1, require funds to take a variety of steps to reorganize and simplify prospectuses, the key disclosure document which investors receive when buying a mutual fund. Before funds can begin selling their shares to the public, the language in their prospectuses must be reviewed by the SEC.

Roye said that the most frequent problems in the new filings have occurred in a section which summarizes risks and potential returns from investing in a fund. Disclosure has been too generic in some instances and too detailed in others, Roye said.

In some instance, the SEC will ask funds to rewrite their revised prospectuses, Roye said.

Roye did not identify particular companies that would be required to make changes. Less than half of the filings have problems, Roye said.

Roye's comments were his first public remarks since he became director of the Division of Investment Management on Nov. 23.

Roye also outlined his goals as division director in a speech here last week to the Investment Company Institute's (ICI) Securities Law Procedures Conference.

The agency's priorities include a re-evaluation of mutual fund annual reports and consideration of a possible new requirement that funds make special filings when special events occur affecting the fund, such as the changing of a portfolio manager. The commissioners are also likely to review a proposed change in the rules for advertising prospectuses. The proposals would give funds more flexibility in advertising. Current rules generally prohibit a fund from advertising any claims or information not explicitly included in its prospectus.

The SEC will also address the issues of fund directors' independence and mutual fund fees at a forum in February on mutual fund governance and directors roles. The composition of mutual fund boards, litigation challenging directors' independence based on the amount of fees they receive and the role fund directors play in approving the fees and expenses which funds pay will be discussed.

The SEC expects to issue a report early next year assessing fees and expenses in the mutual fund industry.