Has the Security and Exchange Commission’s Rule 421 made mutual fund prospectuses more accessible?

A mutual fund must provide prospectuses to each potential investor before the fund may accept monies from that individual. The prospectuses are a major source of information about the fund and yet they have historically been largely unreadable by the public. While the poor readability has been a problem in the past, it is becoming a greater problem as the number of individuals responsible for their own investment decision making increases. Recognising this problem, the Securities and Exchange Commission (SEC) adopted Rule 421 in 1998, requiring that prospectuses be made more readable as measured by a subjective reading of the document. This study applies four objective tests to mutual fund prospectuses from both preand post‐Rule 421 periods and finds substantial evidence that mutual fund companies have complied with Rule 421 and are producing prospectuses that are much more readable and accessible by the general public.