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February 18, 2000
TO: SEC RULES COMMITTEE No. 23-00
RE: MUTUAL FUND PERFORMANCE ADVERTISING
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As discussed at the SEC Rules Committee meeting earlier this week, due to the very strong
performance of the equity markets and certain market sectors in 1999, many mutual funds also achieved
unusually strong performance. In recent weeks, much attention has been focused on mutual fund
advertisements reflecting this extraordinary performance. For example, last month, the Securities and
Exchange Commission issued a set of “mutual fund tips,” reminding investors to look at more than a fund’s
past performance when making an investment decision. In addition, several recent press articles have
criticized fund advertisements that emphasize unusually strong performance, while disclosing the unusual
nature of that performance in small print.
Yesterday evening, SEC Chairman Arthur Levitt delivered remarks at a conference in which he
announced a new SEC initiative in this area. Chairman Levitt stated that the Division of Investment
Management and the Office of Compliance Inspections and Examinations will conduct “a special review
of fund marketing,” designed to “determine whether a fund’s actual portfolio performance and investment
strategies are consistent with its web-site statements, its advertisements, and its disclosure in prospectuses.”
Chairman Levitt said that the SEC also will be reviewing the current fund advertising rules “to promote,
more generally, balance and responsibility.” He indicated that the SEC will work closely with the NASD
“to assist us in bringing clarity to what’s meaningful and appropriate to tell investors.” (A copy of Chairman
Levitt's remarks is attached.)
Those of you who attended the Committee meeting last Tuesday will recall that it was the consensus
of the Committee that the Institute should urge the NASD to provide general guidance on fund
advertisements that include unusually strong performance. Accordingly, attached for your review are draft
bullet points that would form the basis for our recommendations to the NASD. Please provide me with
any comments by Monday, February 28th. I can be reached at (202) 326-5822 or by e-mail to
frances@ici.org.
Frances M. Stadler
Deputy Senior Counsel
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