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SEC Adopts Rules to Address Market Timing

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WASHINGTON (–The Securities and Exchange Commission has announced new rule amendments designed to force mutual fund companies to better explain to their investors any fund timing arrangements they have.

The amendments focus mainly on providing more information in mutual fund prospectuses.

They require, for instance, that mutual funds disclose in the prospectus any shareholder risks from the frequent share purchases and redemptions that are the hallmark of market timing.

They also require mutual funds to state in their prospectuses whether the fund board of directors has policies regulating market timing in place and, if not, describe specifically why it feels such policies are not appropriate for the fund.

Mutual fund companies also will have to describe in their prospectuses any policies they have that are designed to deter market timing.

Another amendment requires mutual funds and insurance companies offering variable annuities to explain in their prospectuses “both the circumstances under which they will use fair value pricing and the effects of using fair value pricing,” according to a statement from the SEC.

Beyond the prospectus requirements, the SEC will also require mutual funds to disclose market-timing arrangements in their statements of additional information and also require similar disclosure for insurance company separate accounts that offer variable insurance contracts.

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