Funds Meet 'Elements of Style'

For many investors, reading a mutual-fund prospectus is about as much fun as clipping a cat's nails.

That's why, surveys show, few of them bother with the dense documents, often heavy with legalese, that fund companies are required by law to provide. But buried in their pages is important information on everything from what funds can invest in to fees and services.

"It's really kind of an owner's manual for the fund," says Zeldy Lyman, retail marketing director of John Hancock funds in Boston.

John Hancock has recently joined the ranks of companies trying to combat unfriendly prospectuses. Hancock has critics raving with the simplified language and design of its latest prospectuses.

Key information is now given in short sentences, not 100-word eye-glazers.

Formerly, Hancock's Discovery fund could invest 25 percent of its assets "in the securities of foreign issuers, including securities in the form of American Depositary Receipts, ..." and two other types of securities. It's English, but hardly user-friendly.

In the new prospectus, 25 percent of assets can simply go into "... foreign securities, which carry additional risks."

In addition to improved graphics, several funds are included in one brochure. So, for example, all the growth funds are together.

Hancock's overhaul comes at a time when other fund companies are still experimenting with "profile prospectuses." Last year, with the blessing of the Securities and Exchange Commission (SEC), several companies began using profiles that answer 11 key questions about funds. The short profiles are not yet substitutes for the main document, however. The SEC is expected to make formal comment by year end on the profile idea and other disclosure issues.

But Jeff Kelley, Morningstar Inc. contributing editor, says that Hancock's plain-English documents outdo not only prospectus makeovers by other companies, but also the profile prospectuses.

"Hancock's new effort renders the profile prospectus moot," he wrote last month. "It's both highly readable and comprehensive. In short, it's the model for the rest of the industry to adopt."

Surveys by companies testing the profile prospectuses, including Fidelity Investments, Dreyfus Corp., and Scudder Stevens & Clark, have found that investors like the new profiles better than the parent documents. But the profiles, while short and readable, are not comprehensive.

John Hancock was impressed with the profiles, but was more interested in "attacking" the main document, Ms. Lyman says. She notes that prospectus information is "all important."