SEC Proposes Amendments to Improve Mutual Fund Ad Disclosure for Investors


Washington, D.C., May 14, 2002 -- The Securities and Exchange Commission today proposed rule amendments intended to encourage mutual fund advertisements to convey more balanced information to prospective investors, particularly with respect to past performance. The proposed amendments are designed to raise standards for mutual fund performance advertising so that investors are informed and not misled.

"These proposals are consistent with the Commission's current approach to mutual fund advertising, and reflect good changes that will help investors," said SEC Chairman Harvey L. Pitt. "As these proposals go forward, we also want to consider whether our current approach to mutual fund advertising can be improved without diminishing the protections public investors receive."

The Commission's concerns that mutual fund advertising could mislead investors or create unrealistic expectations were heightened when many funds engaged in advertising campaigns that highlighted their impressive performance during the period of extraordinary market returns in 1999-2000. The Commission previously addressed these concerns through enforcement actions and investor education efforts [see, for example, Mutual Fund Investing: Look at More Than a Fund's Past Performance (Jan. 24, 2000),].

The amendments proposed today would:

  • Require fund advertisements that contain performance information to include disclosure that past performance does not guarantee future results and that current performance may be lower or higher than the performance quoted;
  • Require fund advertisements to include disclosure that would direct investors' attention to a fund's charges and expenses;
  • Require more prominent disclosure in fund advertisements of important information, such as the dates during which quoted performance occurred; and
  • Reemphasize that fund advertisements are subject to the antifraud provisions of the federal securities laws.

The proposed amendments would also require funds that advertise performance to make available, by a toll-free or collect telephone number, returns that are current to the last day of the previous calendar month. Fund advertisements would be required to identify the telephone number and, if available, a Web site where an investor could obtain this information. Under existing rules, funds that advertise performance information typically include returns for 1, 5, and 10-year periods that are current to the last day of the most recent calendar quarter.

The Commission today also proposed amendments that would implement a provision of the National Securities Markets Improvement Act of 1996 by:

  • Eliminating the requirement in rule 482 under the Securities Act that investment company advertisements under that rule contain only information the substance of which is included in the statutory prospectus;
  • Rescinding, as duplicative, the provisions of rule 134 under the Securities Act that permit investment companies to include in "tombstone" advertisements a broad range of information; and
  • Making conforming changes to investment company registration forms, including Form N-1A for mutual funds and Forms N-3, N-4, and N-6 for variable insurance products.
These proposed amendments would provide funds with the ability to include more timely information in their advertisements under rule 482, such as information about current economic conditions, that normally would not be included in a fund's prospectus. It would also ensure that this information is subject to prospectus liability, which presently is not the case when this information is included in a "tombstone" advertisement under rule 134.

The amendments also would improve prospectus disclosure by permitting funds to eliminate from their prospectuses boilerplate disclosure that clutters the prospectus and obscures other important information.

Comments on the proposed rule amendments are due by July 31, 2002. The Commission especially invites suggestions for alternative methods for regulating fund advertisements that could improve the quality of information that is provided to investors.

An audio webcast of the Commission's proceedings is available on the SEC Web site at

Last modified: 5/14/2002