Date:    8/19/97 8:54 PM
     
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-6009
     
Dear Mr. Katz:
     
I write to comment on the Commission's proposed changes to form N-1A, as 
described in releases 33-7398, 34-38346 and IC-22528. Although this letter 
arrives well after the end of the official comment period, I hope it will 
still be possible for the Commission to consider the comments it offers.
     
Introduction and general comments. Over the past several years it has been my 
privilege to work with four management companies in writing simplified mutual 
fund prospectuses. The first of these projects was for Fidelity Investments, 
which initiated a complete rewrite and redesign of its prospectuses in 1991.
     
The second project was for John Hancock Funds and was completed in 1996. 
Various features of this prospectus were granted no-action relief by the 
staff of the Division of Investment Management; some of these features are 
consistent with items in the Commission's proposed changes. The remaining two 
projects, for State Street Research Funds and for funds advised by J.P. 
Morgan, are still in progress. Prototypes developed in both of these projects 
have recently been submitted to the Division for comment. Although I speak on 
my own behalf in this letter and not on behalf of any client, my comments 
reflect many of the ideas embodied in their prospectuses, and the Commission 
may find it helpful to refer to these prospectuses (including the State 
Street Research and J.P. Morgan prototypes) in connection with this letter.
     
In all of these projects, the biggest challenge has not been to create 
simpler language or a more appealing design, but to find the most effective 
ways of organizing and presenting information. This is an important task, 
because even a clean and well-written document will fail as a communication 
if it is "unfriendly" to the reader in other ways. To the extent that a 
document like the John Hancock prospectus is helpful to investors, it is 
because it uses both language and design to pursue some of the basic tenets 
of good communication: put information in a logical order; help readers find 
their way around the document; avoid unnecessary repetition.
     
I believe the proposed changes to Form N-1A are a major step toward improving 
the usefulness and readability of mutual fund prospectuses. While the present 
form is already more conducive to good communication than is widely 
recognized (as the content of the Hancock no-action letter revealed), the 
proposed form would remove some of the hurdles that still remain. The 
proposed form also would permit the most important points in the prospectus 
to achieve greater prominence, by heightening their visibility as well as 
reducing the amount of material competing for the reader's attention.
     
The following comments focus on various aspects of the proposal:
     
Moving certain items to the back cover or the risk/return summary [Proposed 
Items 1(a)(1), 1(a)(3), 1(b)(1), 1(b)(2), 1(b)(3), 1(b)(4), 2(a), 2(c)(1)]. 
Generally, I believe these proposals are good because they would improve 
readability in two ways: by allowing the information to appear a more logical 
place, and by decreasing clutter on the front cover.
     
As the Commission recognizes, the impact of a more inviting cover should not 
be underestimated. The cover creates the first impression of the document, 
and this impression inevitably influences the reader's decision about how 
much time and effort to commit to the prospectus. The more effort a document 
appears to demand, the less effort a reader will want to make. Of course, it 
is equally important that an attractive cover be followed by a document that 
is itself reader-friendly, particularly in its opening pages. Otherwise, any 
opportunity created by the cover is lost.
     
Several comments on specific items:
* I believe it would be beneficial to have the registrant name and the 
Investment Company Act file number accompany the portfolio description, 
rather than appear on the back cover. This is a more logical placement in the 
case of consolidated prospectuses, and would work for single-fund 
prospectuses as well.
* Allowing fund companies some flexibility in the wording and typographic 
treatment of the 481(b)(1) disclaimer is a significant improvement. The 
meaning of the traditional wording is confusing, and numerous studies done 
since the legend was introduced have shown that blocks of text set entirely 
in upper case take longer to read and are more likely to be read incorrectly. 
I hope the Commission will, to the extent that this falls under its 
jurisdiction, allow similar flexibility for the disclaimers for money market 
funds, single-state money market funds, and bank-advised or bank-sold funds. 
I also hope the Commission will consider allowing the 481(b)(1) disclaimer to 
appear in the same place as these other disclaimers, i.e., effectively within 
the first two inside pages of the prospectus. All of these disclaimers are of 
a similar nature and significance, and could benefit in impact from being 
presented as a group.
* The John Hancock letter permits reference to a "current SAI" rather than 
requiring that the date of the SAI be stated explicitly, and I hope the 
Commission will consider allowing this under the new form.
* When the back cover describes the fund information that is available at the 
SEC's public reference room or Internet site, I believe it is important to 
state that these are "text-only copies." To the extent that a prospectus uses 
design elements to communicate (and not simply as text formatting), the 
difference in reader-friendliness between the designed version and the 
text-only EDGAR version may be substantial.
* Because many investors may find it helpful to see a one-sentence 
description of the fund on the cover of the prospectus, I hope the Commission 
will allow this type of information to continue to appear on the cover at the 
investment company's option.
     
Description of who may, and who may not, want to invest [2(c)(1)]. I strongly 
support the idea of requiring this disclosure, and of requiring that it be 
placed near the front of the prospectus.
     
Risk/return bar chart and table [2(c)(2)]. I strongly support the concept of 
a bar chart showing fund annual returns for the past ten years and a table 
with 1/5/10-year average annual fund and broad-based index returns. The 
presentation of this information gives the investor an easy way to see what 
the fund has historically offered in the way of performance next to what this 
performance has "cost" in terms of volatility (as represented by fluctuations 
in year-to-year returns). However, I urge the Commission to re-examine its 
proposal to put the bar chart on a calendar year basis while keeping the 
average annual return figures on a fiscal year basis.
     
For the risk/reward section to convey its message, the reader needs to 
perceive very clearly that risk and return are two sides of the same story. 
The two elements are already somewhat unequal in that one is a table, the 
other a chart (although I believe that this is in fact the best way to 
present the information in each case). Adding the discrepancy between the 
calendar and fiscal time periods would run contrary to the reader's natural 
expectations and significantly weaken the link between risk and reward.
     
Circumstances suggest two possible options:
     
1. Present all risk/reward information by calendar year. This would allow for 
easy comparability among different prospectuses (and also with most other 
sources of market and investment information, which report on a calendar year 
basis). Because financial highlights would remain on a fiscal year basis, 
there would still be the potential for some confusion within a given 
prospectus, although this potential could be reduced if the Commission allows 
the highlights to be placed elsewhere in the document. The J.P. Morgan 
prototype prospectus utilizes this solution.
     
2. Present all risk/reward information by fiscal year. This has the advantage 
of allowing a given prospectus to be completely consistent in presenting its 
financial data, including the financial highlights. It also means that those 
funds whose fiscal year falls toward the end of the calendar year will not be 
forced to report old data, as they would under the proposal or under Option 1. 
(Calendar year data for such funds could be up to 11 months old when a 
prospectus appears and up to 23 months old by the time the next version 
appears.) The State Street Research prototype prospectus utilizes this 
solution.
     
While Option 2 might appear to run counter to the goal of making prospectuses 
easy to compare, I believe that in practice there is no meaningful loss of 
comparability. What this section of the prospectus serves to communicate is a 
general picture of the historical risks and rewards of the fund. Over any peri 
od of years the general picture will be essentially the same, regardless of the 
whether the measurement is made by fiscal year or calendar year. Under Option 
2, comparability of the most important aspect remains intact: one may still 
come away from this section with a sense of how the fund performs, in terms of 
risk and reward, compared to a broad-based market index, and one may easily 
compare this to the general picture of another fund, even if the two measure by 
somewhat different periods. In the meantime, the risk of confusion within each 
individual prospectus -- which I believe to be a very real risk
-- would be substantially smaller.
     
Above all, I hope that any debate on the relative merits of these two options 
is not allowed to obscure the main issue, which is that the risk and reward 
information can only impart the desired message if they are both reported on 
the same basis. Whether this basis is calendar or fiscal is less important.
     
Moving certain items to the Statement of Additional Information [4(b), 
4(b)(1), 4(d), 6(b), 7(d), 8(a)(2), 8(b), 11(a), 13(a), 13(e), 14(a), 
15(a)(1), 15(b), 15(f), 15(g), 15(h), 17(a), 18(b), 18(c), Instruction 4]. I 
strongly support the Commission's efforts to move various items to the SAI. 
From the average investor's viewpoint, the usefulness of the items identified 
in the proposal is limited. At the same time the cost of including them in 
the prospectus -- in terms of potential impact on an investor's attentiveness 
and goodwill -- is relatively high, and their presence detracts from the 
visibility of other, more important information.
     
Eliminating certain items [no citations]. For reasons similar to those stated 
just above, I strongly support the proposals to eliminate the requirements 
for including certain items, particularly the "read and keep" cover language, 
the disclosure of wire redemption charges in the fee table, the description 
of advertising performance calculations, the allocation of brokerage 
transactions based on fund sales, and issues pertaining to when a feeder fund 
might leave a master fund.
     
Risk/return summary [2] and portfolio description [4(b)(1), 4(b)(2)]. I 
believe that shifting the focus of the portfolio description from a "laundry 
list" of securities and risks to a discussion of the portfolio as a whole 
(including investment style risk) is one of the most positive and significant 
changes in the proposal. This type of disclosure has the potential to improve 
investor understanding of the fund and to provide some investor education, 
while also allowing portfolio and risk language to be more concise and better 
organized.
     
The proposed risk/return summary honors another tenet of good communication, 
that of comparability. Under the format proposed for this summary, investors 
would find it easier to compare different funds at a glance because the same 
type of information would appear in the same location with the same series of 
headings.
     
The goal of comparability is clearly of great importance, and I 
wholeheartedly share the Commission's interest in promoting it. At the same 
time, I believe that imposing a mandatory, fixed-format risk/return summary 
would create problems for many investment companies, particularly those 
companies that are most interested in the cause of prospectus simplification.
     
In view of the length of the relevant passages in existing simplified 
prospectuses, the summary of a simplified prospectus is likely to be nearly 
as long as the material it is summarizing. Not only would there be 
substantial overlap between the summary and the full discussion, but one 
would appear right after the other. The reader would thus be forced to 
encounter much of the same information, probably including verbatim 
repetitions, in the space of a few pages. This situation is highly unfriendly 
to the reader and would, I believe, perceptibly reduce the appeal and 
usefulness of simplified prospectuses.
     
One strength of the summary is that, by providing prospectus writers with 
clear instructions and a fixed format, it will ease the burden for those 
companies that want to achieve compliance with minimum effort. However, 
requiring the summary for all prospectuses would increase the burden for 
those companies that are most inclined to engage in thorough simplification. 
It thus has the unwanted consequence of creating a disincentive to thorough 
simplification.
     
I believe that one effective solution would be for the Commission to give the 
staff of the Division of Investment Management the ability to grant an 
exemption from the summary requirement for any prospectus that, in the staff's 
judgment, effectively met the information requirements of the summary in its 
full discussion. This solution would allow the Commission to offer an 
incentive to thorough simplification, while leaving in place the proposed 
summary as a means of achieving compliance-driven simplification. Removing the 
disincentive for thorough simplification will allow the market forces that 
have played a large role in these efforts to continue as an effective force 
for reform. This solution also has the benefit of allowing the staff a certain 
amount of latitude in its review process. Equally important, it achieves all 
of this without sacrificing the goal of comparability. The information in 
question would still be located in the same part of each prospectus (i.e., the 
first few pages) and could be in the same general order and format.
     
On the subject of the format for the proposed summary and the profile I have 
two brief additional comments. First, I believe that requiring mandatory 
wording for the titles of each section is unnecessary; as long as the 
sections of the profile deal with the same subjects in the same order, 
readers will find it just as easy to make comparisons. (Comparability is 
likely to be far more affected by different fund companies' interpretations 
of the type and depth of discussion that is warranted in any given section.) 
Second, if the Commission does decide to impose mandatory wording, I believe 
that the question-and-answer format is not ideal, in part because it tends to 
become tiresome to the reader after the first few encounters.
     
Fee table and expense example [3]. I support the effort to clarify the terms 
used in the fee table and the proposed changes in reporting, but hope the 
Commission will specify the points to be communicated rather than requiring 
the use of verbatim wording. I also hope the Commission will consider 
allowing master/feeder information to be left unmentioned in fee table 
footnotes, as such information demands a context that is only provided 
elsewhere in the document, where master/feeder arrangements are discussed.
     
With regard to the example, I believe the proposed changes may not be enough 
to make it as useful to investors as other alternatives. One possible 
alternative, which appears in the J.P. Morgan prototype, is a graphic scale 
showing the fund's expenses alongside the average for the fund's peer group. 
Each asset class would have a scale that would accommodate the most expensive 
fund in the class. The concept may need refinement but would have the 
advantage of communicating useful information in a clear and intuitive format. 
I do not believe the example as currently constituted, or as modified by the 
proposal, is helpful enough to merit the space and attention it requires.
     
Holidays [7(a)(2)]. As most funds follow the New York Stock Exchange in 
setting their business days, I hope the Commission will continue to allow 
fund companies simply to state this fact, rather than requiring a list of 
holidays.
     
Sales charges [8(a)(1)]. I urge the Commission to drop the requirement to 
disclose sales charges as a percentage of the net amount invested. This 
measurement, although well-intentioned, does not relate to how investors 
think about their investment. Its presence is confusing and distracts from 
the presentation of a number they do understand intuitively: the amount that 
is coming "off the top" of their investment to pay a sales charge.
     
Financial highlights [9]. I strongly support the Commission's efforts to 
address the readability issues presented by the financial highlights table as 
it is currently constituted. Allowing, or requiring, the table to be moved to 
the back of the prospectus is one effective option. I also hope the 
Commission will consider allowing investment companies to offer a more 
streamlined version of the highlights, which contains only the most useful 
items.
     
I believe it is fairly easy to determine which items these are. At both State 
Street Research and J.P. Morgan, the prospectus teams identified the same 
items, unprompted by me. In the prototypes shown to the Commission by these 
firms, streamlined highlights are presented toward the front of the document, 
with full highlights in the back. This is one possible option, although 
another would be to allow streamlined highlights near the front as an 
alternative to full highlights in the back. Because the full highlights 
combine frequently used information with rarely used information, moving them 
to a different location does not entirely address the communications problems 
involved.
     
With regard to Item 9(a), I hope the Commission will continue to allow the 
flexibility of having a simplified introduction to the financial highlights, 
as in the John Hancock prospectus, where the narrative is limited to language 
about the fund's auditors. All other information in 9(a) may effectively be 
conveyed elsewhere in the document or through the language and layout of the 
highlights table itself.
     
Conclusion
     
I strongly believe that the Commission and the staff of the Division of 
Investment Management are justified in their faith that the full prospectus 
(a term less pejorative than "long-form prospectus") can be an effective and 
frequently used tool for investors. In its responses to previous 
simplification efforts the staff has been receptive to new ideas and 
encouraging of simplification. The proposed changes to Form N-IA and the 
proposed Plain English guidelines offer vital support to a reform effort that 
has the potential to benefit all parties who use prospectuses. I look forward 
to the Commission's release of the new N-1A and to the new phase in 
prospectus reform that it inaugurates.
     
Sincerely,
     
Josiah Fisk
Firehouse Financial Communications
15 Crowl Road
New Salem, MA 01355-9552