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SEC Proposes Rule For Mutual Fund Ads

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The Securities and Exchange Commission is proposing a rule aimed at combating misleading mutual fund advertisements.

The proposed rule would allow mutual funds to include more timely information in their advertisements than what is normally presented in a funds prospectus.

But at the same time, the SEC is proposing to reinforce antifraud protections by holding funds responsible for material misstatements or omissions appearing in these advertisements.

Comments on the proposed rule must be filed with the SEC by July 31, 2002.

Carl Wilkerson, chief counsel for securities with the American Council of Life Insurers, Washington, says that ACLI will be scheduling a meeting of its Securities Committee to evaluate what comments, if any, ACLI should offer on the SECs proposed changes.

He adds that the quality and freshness of information is always important for consumers to be able to make informed purchasing decisions.

In its notice of proposed rulemaking, SEC notes that current restrictions on advertising cause special problems.

Many funds, SEC says, experienced extraordinary performance during 1999 and 2000, particularly funds investing in technology and Internet stocks.

Eager to attract new investors, many of these funds engaged in advertising campaigns focusing on past performance, SEC adds.

“We became concerned that some funds, when advertising their performance, may resort to techniques that create unrealistic investor expectations or may mislead potential investors,” SEC says.

This could be accomplished, SEC says, through the selective presentation of performance information.

The proposed rule, SEC says, will allow funds to provide information about current economic conditions that would not normally be included in the prospectus.

In addition, SEC says, the proposed rule will permit funds to eliminate some boilerplate disclosure information from the prospectus that is little more than clutter and which may obscure other important information.

But while allowing presentation of more timely information, SEC says it is reinforcing its antifraud protections.

SEC notes that it has already instituted enforcement actions based on misleading fund advertising.

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 3, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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