SEC Approves NASD Advertising Proposal

Washington, DC, July 19, 2006 - The Securities and Exchange Commission has approved an NASD rule amendment requiring mutual funds to disclose expense ratios in performance advertising.

Background
In December 2003, NASD proposed amendments to Rules 2210 and 2211 to require all member communications with the public that contain investment company performance information to present specified information about the fund’s expenses and performance in a prominent text box.

 The adopted amendments require member communications with the public—other than institutional sales material and public appearances—that present non-money market fund performance information to disclose:

• the fund’s standardized performance information, calculated in accordance with the SEC’s advertising rules;
• the fund’s maximum sales charge imposed on purchases or the maximum deferred sales charge; and
• the fund’s expense ratio, gross of any fee waivers or expense reimbursements.

The amendments require that this information appear in a text box in print advertisements, but not in websites or other electronic advertisements. In addition to the required information, the text box may contain comparative performance data and a fund’s expense ratio net of fee waivers and reimbursements. Electronic advertisements may present standardized performance and other required disclosures through the use of a hyperlink; and funds may file templates, on a case-by-case basis, to show how similar performance sales material will be revised to comply with the new requirements.

The effective date of the amendments will be six months after the end of the calendar quarter following publication of a  NASD Notice to Members announcing SEC approval.

ICI Position
In a  January 2004 comment letter, the Institute expressed support for the proposal, and made several recommendations for NASD to consider before finalizing the proposal.

Related Links
A section of this website is devoted to the Institute's support for regulatory and legislative efforts that help maintain meaningful disclosure in fund prospectuses, shareholder reports, advertisements, and sales literature.