SEC Proposes Mutual Fund Ad Rule Change

Many funds, particularly those investing in technology stocks, experienced extraordinary gains in 1999 and 2000. Some of these funds tried to attract investors with advertising campaigns that focused on past performance, the SEC says.

"We became concerned that some funds, when advertising their performance, may resort to techniques that create unrealistic investor expectations or may mislead potential investors," the SEC says.

The proposed rule would let funds provide information about current economic conditions that would not normally be included in the prospectus, the SEC says.

In addition, the SEC says, the proposed rule would let funds eliminate some boilerplate disclosure information from the prospectus that is little more than clutter and which might obscure other important information.

The SEC emphasizes that, even as it eases some advertising restrictions, it will continue to strengthen antifraud protections by holding funds responsible for material misstatements or omissions appearing in their ads. The commission reports that it has already responded to some misleading fund advertising with enforcement actions.