SEC Amends Mutual Fund Advertising Rules

by Glen Shapiro, LawAndTax-News.com, New York

26 September 2003

The US Securities and Exchange Commission (SEC) on Wednesday approved several amendments to mutual fund and investment company advertising rules.

In a statement released following the regulator's recent open meeting, the SEC explained that:

"The amendments address concerns that, especially in times of strong market performance, some funds may use advertising techniques focusing on past fund performance that may create unrealistic investor expectations, or may mislead potential investors."

"These concerns arose during the period of extraordinary market returns in 1999-2000, when many funds experienced impressive performance and engaged in advertising campaigns focused on past performance. Recently, improvements in market performance have again generated an increase in fund advertising highlighting the short-term performance."

Under the terms of the new rules:

• Funds which advertise performance must make available returns that are current to the most recent month end, either via a toll-free service or on a website;
• Fund advertisements which contain performance information must also include disclosure that past performance does not guarantee future results, and that current performance may be lower or higher than the performance quoted;
• Fund advertisements will be required to direct investors' attention to the fund's investment objectives, risks, charges, and expenses; and
• Funds will be required to ensure that important information, such as the dates between which quoted performance occurred, is displayed prominently in their advertisements.

The SEC also stressed that fund advertising is subject to the antifraud provisions of US federal securities laws. Funds have until March 31, 2004 to come into compliance with the new rules.

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