SEC Adopts Rule Prohibiting Misleading Mutual Fund Names
FOR IMMEDIATE RELEASE
Washington, D.C., January 17, 2001 The Securities and Exchange Commission announced today that it has adopted a new rule to prohibit the use of mutual fund names that may mislead investors about a fund's investments and risks. The rule requires that a mutual fund with a name suggesting that it focuses on a particular type of investment invest at least 80% of its assets in accordance with its name. The text of the rule is available on the Commission's website at http://www.sec.gov/rules/finrindx.htm.
Paul Roye, Director of the Commission's Division of Investment Management, said, "Today's Commission action will contribute greatly to 'truth in labeling' of mutual funds. It will benefit investors significantly, by giving them greater assurance that a fund's investments will be consistent with its name. We caution investors, however, that a mutual fund's name cannot tell the whole story about the fund and that, before investing, investors should consult other sources of information, particularly the fund's prospectus."
The significant aspects of the fund names rule include the following:
New 80% Investment Standard
The rule requires a fund with a name suggesting that the fund focuses on a particular type of investment (e.g., "stocks" or "bonds") to invest at least 80% of its assets accordingly. Under Commission staff positions, these funds previously were subject to a 65% investment requirement.
Truth in Labeling
By tightening the investment requirement, the rule is intended to provide an investor greater assurance that the fund's investments will be consistent with its name and to help reduce confusion when an investor selects a fund for specific investment needs and asset allocation goals.
Prior Shareholder Approval or Notice Required to Change Investment Policy
A fund may not change the 80% investment policy suggested by its name unless it obtains the prior approval of shareholders or notifies shareholders of the change at least 60 days in advance.
Fund Names Suggesting Guarantee or Approval by the U.S. Government
The rule prohibits the use of any name suggesting that a fund or its securities are guaranteed or approved by the U.S. government.
Funds That Desire More Investment Flexibility
A fund whose name does not connote a particular investment emphasis is not required to invest 80% of its assets in a particular type of investment.
For further information, contact Susan Nash at (202) 942-0630.
Additional Materials Available on This Topic
Final Rule: Investment Company Names