SEC Proposes New Rules for Fund Ads
The Securities and Exchange Commission proposed rules Tuesday that could make mutual fund advertisements clearer, especially in cases where fund companies tout performance that isn’t necessarily current.
Existing SEC rules allow fund ads to include returns for one-, five- and 10-year periods that are current to the end of the most recent quarter. But many fund companies play up their most impressive performance figures in ads, even though the quoted performance may reflect gains achieved years ago.
Under the SEC proposal, which was issued for public comment for 60 days, funds that use dated figures also must display the time period more prominently. The proposal also would require fund ads to direct investors to the most recent month-end figures, using a telephone number or a Web site.
“This will help raise the bar for mutual-fund advertising,” David S. Schwartz, an SEC attorney, told the commission.
The SEC proposal follows complaints from investors and members of Congress that some funds still are hyping performance from the boom years of the late 1990s and are failing to adequately disclose expenses to investors. In recent years, the SEC has charged Van Kampen Investment Advisory Corp. and Dreyfus Corp. with using misleading advertising. Both paid fines without admitting or denying wrongdoing.
The SEC also proposed giving funds more flexibility in how they advertise their portfolios. The measure would eliminate a requirement that limits ad content to what is contained in a fund’s prospectus.
WorldCom Shares Sink After Action by S&P;
WorldCom Inc. stock slumped to a new 10-year low Tuesday and set a U.S. trading record with some 670 million shares changing hands. The wild action reflected Standard & Poor’s decision to drop the once highflying telecom company from the blue-chip S&P; 500 index effective at Tuesday’s close of trading.
WorldCom stock (ticker symbol: WCOM) dropped 20 cents, or about 14%, to close at $1.24. Earlier in the day, it set a low of $1.08--down more than 90% from its 52-week high of $19.01.
Standard & Poor’s, which cut WorldCom bonds to a junk rating on Friday, said Monday that it was removing the company from the S&P; 500 index because it no longer represented its industry.
WorldCom Chief Executive Bernie Ebbers resigned at the end of last month, and the U.S. Securities and Exchange Commission is looking into the company’s accounting and $366 million worth of personal loans made to Ebbers.
The loss of membership in the S&P; 500 meant that money managers who try to mimic the performance of that benchmark index were compelled to dump WorldCom shares Tuesday.
US Airways Group (U) also was dropped from the S&P; 500 on Tuesday. The airline’s shares slid 13cents to $2.85.
Bloomberg News
Fiat Plans IPO
of Ferrari Shares
Investors who could never afford to drive a Ferrari now may at least be able to own a piece of the company.
Fiat said it plans to sell shares in Ferrari, the maker of high-performance sports cars, in an initial offering to reduce the parent firm’s debt.
Fiat will keep at least 50% of Ferrari, whose cars can sell for $200,000 or more.
Fiat said it applied for a listing for Ferrari on Italy’s main stock exchange. It wasn’t clear whether the company’s shares might also trade in U.S. markets as American depositary receipts.
“If you consider how many fans Ferrari has throughout the world, the IPO should be a big success,” said Stefano Masullo, head of investment firm Opus Consulting.
Still, Ferrari is less profitable than other European luxury car makers, analysts said.
Its operating profit margin, or earnings before tax and interest as a percentage of sales, was 5.9% last year, half of Porsche’s 12%. BMW’s operating margin was 8.2%.
“Trophy investments are all very well if you have enough money to not worry about getting a return,” said Jeremy Podger, who helps oversee $20 billion in assets at Investec Guinness Flight.
Bloomberg News
