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SEC Proposes Amendments to Fund Advertising Rules
Washington, DC, May 21, 2002 - The SEC recently proposed amendments to rules under the Securities Act of 1933 and the Investment Company Act of 1940 relating to investment company advertising. Comments are due to the SEC by July 31, 2002.
Proposed Revisions to Rule 482
The SEC has proposed to amend Rule 482 to eliminate the “substance of which” requirement, thereby permitting mutual funds to include in an advertisement information that is not included in the statutory prospectus. The change is intended to permit investment companies to include more information in Rule 482 advertisements on a real-time basis. It would also permit funds to eliminate from their statutory prospectuses information that clutters the prospectus and obscures more important information. All Rule 482 ads would, however, remain subject to liability under the Securities Act and the antifraud provisions of the federal securities laws, as well as to any applicable advertising rules of NASD Regulation, Inc.
In order to encourage advertisements to convey balanced information to prospective investors, the SEC has proposed enhancing the disclosure required by Rule 482 to include in any advertisement that contains performance figures narrative information, such as:
- a statement that past performance does not guarantee future results;
- a statement that current performance may be lower or higher than the performance data quoted; and
- a toll-free (or collect) telephone number where an investor may obtain performance data current to the most recent month-end.
In addition, the SEC seeks comment on whether funds should be required to provide more current performance information in all advertisements and, if so, how current such information should be.
Proposed Revisions to Rules 134 and 156
The SEC has also proposed to revise Rule 134 to exclude registered investment companies from being able to utilize tombstone ads. Instead, all fund advertisements would be subject to Rule 482.
Revisions to Rule 156—relating to investment company sales literature—were also proposed to provide further guidance regarding the factors to be weighed in considering whether a statement of material fact in investment company sales literature is or might be misleading.
To accommodate the proposed revisions to Rules 482 and 134, the SEC has proposed amendments to various forms used by investment companies, including Form N-1A.