31 July 2002

Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W., Stop 6-9
Washington, D.C. 20549

Re: File No. S7-17-02-Proposed Amendments to Investment Company Advertising Rules

Dear Mr. Katz:

The U.S. Advocacy Committee (USAC) of the Association for Investment Management and Research (AIMR)1 appreciates the opportunity to comment on proposed amendments to investment company advertising rules. The USAC is a standing committee of AIMR charged with responding to new regulatory, legislative, and other developments in the United States affecting the investment profession, the practice of investment analysis and management, and the efficiency of financial markets.


We strongly believe that full disclosure is vital to investors' protection. For information to be "full," it must not only be understandable, but also must not be misleading-either overtly or when considered within the context in which it is presented. We share the SEC's concern that certain advertising practices by investment companies may challenge the integrity of the information being presented. While technically correct in terms of a specific date, and within the actual parameters of current securities laws, the information may nonetheless convey a picture of a fund's performance or strength that is not warranted under the total circumstances.

We therefore generally agree with the objectives and tenor of the proposed rules. We do not believe that eliminating the "substance of which" requirement for fund advertisements will substantially reduce important investor protections, given the other aspects of the proposal, the fact that the ads remain subject to section 12(a)(2) liability and antifraud provisions of the federal securities laws, and that through this proposal the SEC seeks to reemphasize this antifraud liability. Our additional comments are noted below.

Enhanced Disclosure

We support the requirement that fund advertising performance information make total return information current to the most recent month-end available to investors. In light of the recent market volatility, investors need to receive the most up-to-date information on a fund's performance. We support the requirement that the fund must provide the information within three calendar days after month-end, but believe that having to provide it through another method could be an administrative burden and impractical. We agree that the appropriate mechanism for providing this information is through telephone contact, and urge against any consideration of changing this requirement to instead require publication of the information. We also agree that the SEC should consider allowing funds to fulfill this requirement by posting the total return information within the three-day period on the fund's web site.

We suggest that in formulating the final rule, the SEC provide guidance for fund compliance where pricing revisions may result in revised total return figures. For example, funds that have to fair price certain assets may need to adjust the price after the period during which total return calculations were completed and made available to the public. Under the Proposal as drafted, we question whether the fund would be found in violation, even if this pricing and revaluation were performed in accordance with approved procedures. We thus recommend that the final rule address this and other situations that may involve extenuating circumstances.

Comparability of Fund Performance

Although not directly addressed by this Proposal, we believe that there is room for improvement in the existing requirements for the reporting of total return information for investment companies. Specifically, we encourage the SEC to consider future amendments to Item 2 of Form N-1A.

Currently, Item 2 (c)(2) of Form N-1A generally requires funds to provide average annual returns for one-, five- and ten-year periods (when applicable) compared with those of a broad measure of market performance. While we recognize that use of one-, five- and ten-year periods provides standardized information and support this approach, we also believe that correlating performance information with a fund's investment goals and horizons may provide additional useful information to investors.

To build more comparability among mutual funds' performance reporting, we therefore suggest that the SEC consider approaches that require funds with similar objectives to report performance for periods that are consistent with those objectives. For example, funds with very long-term growth objectives would also report performance for a 15- or 20- year period, in addition to the one-, five and ten-year information. In this way, investors would gain comparable information correlated to the types of funds in which they are potentially investing, rather than comparing total return information that may not be suited to, and thus not fully reflective of, the performance related to that particular fund.


The USAC appreciates the opportunity to comment on this Proposal. We generally support the Proposal as drafted, but urge consideration of our additional comments noted above. If we can provide additional information, please do not hesitate to contact us.


/s/ Deborah A. Lamb
Deborah A. Lamb
Chair, U.S. Advocacy
              /s/ Linda L. Rittenhouse
Linda L. Rittenhouse
AIMR Advocacy

1 With headquarters in Charlottesville, VA and regional offices in Hong Kong and London, the Association for Investment Management and Research® is a non-profit professional organization of 58,000 financial analysts, portfolio managers, and other investment professionals in 107 countries of which 44,800 are holders of the Chartered Financial Analyst® (CFA®) designation. AIMR's membership also includes 106 affiliated societies and chapters in 29 countries.