As recently amended, Article 19.1 of Consob Regulation 11971/1999 on issuers provides for the supervision of advertisements concerning collective investment undertakings and open pension funds to be carried out ex postinstead of ex ante. This change has made it necessary to lay down standards for the drafting of such advertisements in order to ensure compliance by interested parties with the principles requiring such advertising to be correct, clear and not misleading.(1)

In particular, the definition of standards is intended to achieve the dual objective of ensuring the comparability of the information contained in advertisements through the application of objective criteria defined ex anteand disclosed to the market and of minimizing unfair behaviour on the part of both Italian and foreign intermediaries.

The communication starts by specifying the matters and persons it applies to and subsequently is divided into two parts: the first defines the scope of Article 17 of Consob Regulation 11971/1999; the second clarifies how the provisions of Article 18 on the description of past yields of collective investment undertakings and open pension funds are to be applied.

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1. The following standards apply to the drafting of advertisements for Italian and foreign collective investment undertakings and open pension funds distributed by whomsoever in Italy.

The drafting standards laid down are to be considered as applying to collective investment undertakings and open pension funds distributed in Italy. It should be noted, however, that the "social security" nature of the latter excludes the application of some provisions.

The specification of the persons to whom the communication is addressed is necessary in order to make it absolutely clear that the regulatory framework applies to all advertisements that appear in Italy, regardless of the nationality of the advertiser.

This ensures that intermediaries receive equal treatment and that the information provided to the investing public is uniform.

2. The rules apply to all advertisements regardless of the medium used (print, radio, television, e-mail, website, etc.).

The Commission is of the opinion that advertisements must be correct and not misleading independently of the advertising media used.

Some derogations are granted exclusively for Internet sites and newsletters in view of their greater information content.

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Having defined the advertisers to whom the drafting standards apply, in what follows rules are laid down for the contents of advertisements with reference to the "general criteria" established in Article 17 of Consob Regulation 11971/1999.

3. The message conveyed by an advertisement must not be likely to mislead investors.

Messages are to be considered misleading where they are structured in such a way as to lead the investing public astray.(2)

Consequently, whether an advertisement is misleading must be evaluated with reference both to the single expressions used (e.g. terms such as " guarantees" or " ensures" in connection with objectives for the rate of return of an investment(3)) and to the message as a whole, by avoiding, in particular, placing emphasis on the "benefits" of the proposed investment without indicating (albeit summarily) the related risks.

3.1The information contained in advertisements must be consistent with that set out in the related prospectus.

Where, for example, an investment policy is described, the description must be clear and consistent with the risk/return profile indicated in the prospectus, so as to prevent investors from having an erroneous perception of the product on offer.

3.2Every advertisement must contain the warning " Read the prospectus before accepting" in legible print. Where advertisements are broadcast by radio or TV, the warning must be given orally.

The warning must be reproduced using characters allowing it to be read easily and immediately; where advertisements are broadcast, the warning must be clearly audible.

3.3 The sources of statistics, research results and other data in advertisements must be indicated; claims of preeminence may only be made if they are based on objective and documented data.

Specifying the sources of data mentioned in an advertisement makes it possible to verify their appropriateness and objectiveness.

Claims of preeminence (such as " the biggest management company", " the best fund" and " the most innovative product") can be backed by calculations based on data not obtained from third-parties that are independent of the management company, provided the methods used are objective.

3.4 Comparisons may be made in advertisements only with products having homogeneous risk/return parameters (in terms of their nature and size).

Advertised products can be compared only with other products and parameters having a similar risk profile (financial, credit and legal risk, etc.). The terms of the comparison must be set out and the related data must be publicly available.

In the case of pension funds, the homogeneity criterion is complied with even if the comparison is with products " that meet the same needs or have the same objectives" (such as insurance policies). The products compared must nonetheless have similar risk/return profiles and the comparison must observe the principle of correctness. In other words it is necessary to describe (albeit summarily) the different characteristics of the products compared.

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Presentation ofpast yields and other data
(Article 18)

As regards the manner of indicating past yields, Article 18 of Consob Regulation 11971/1999, as recently amended, does not require advertisers to comply with the standards laid down for prospectuses.

Reflecting the different aims of prospectuses and advertisements, the amended text requires that the manner in which past yields are given be clearly defined as regards both the period to which the calculation of the yields refers and the ways in which they are presented.

The ways of stating past yields indicated below are to be considered as always applying regardless of the advertising medium used. In particular, in the case of radio or TV commercials all the warnings indicated below must also be transmitted orally.

4. The yields of Italian and foreign collective investment undertakings reported in advertisements must be compared with the related benchmark yields.

Wherever a performance is included in an advertisement, it must be accompanied by the rate of return of the corresponding benchmark in the same period, so as to ensure that investors can always make an easy comparison with the chosen risk/return profile.

4.1 Yields must be given net of taxation or, if this is not possible, the fact that they are gross of taxation must be adequately highlighted.

Where yields are given gross of taxation, the related warning must be clearly legible.

The only addition to the relevant regulatory provisions is that the warning that the data on yields are given gross of taxation should be adequately highlighted. The warning must also be reproduced adequately in radio and TV commercials.

4.2Advertisements that give past yields must contain a clearly legible warning that "There is no guarantee that the same yields will be obtained in the future".

This warning must be included in every advertisement giving past yields. It must also be presented in such a way that it is easy for investors to read or hear.

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As regards the manner of giving data on yields, Article 18.1a) requires persons preparing advertisements to specify the period to which the calculation of the yield refers.

This must be identified in compliance with the general principles that advertisements be correct and not misleading, and with the requirement contained in Article 18.1b) that they indicate clearly the risk profile associated with the yield.

In particular, advertisements are to be considered correct and potentially not misleading if the yields were achieved in a period that is longer than the minimum period for significance, considered to be the 12 months terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published or broadcast.

It is therefore necessary for advertisements to contain certain tables and/or charts giving the past yields, with the right to indicate other supplementary data (see below, "voluntary presentations").

Appropriate derogations are provided for in the case of funds that have been operational for less than 12 months (or that have recently seen significant changes in their investment policies) and for pension funds.

Mandatory presentationsof past yields 

5.Advertisements must contain the following numerical and/or graphical data on a quarterly basis:

Numerical data:

A.The performanceof the fund/sub-fund in the 12 months terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast (31 March, 30 June, 30 September, or 31 December).

B. The average annual compound rate of return of the fund/sub-fund for the last 3 or 5 years terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast. If these data are not available, the average annual compound rate of return for the last 2 years can be given. Instead of the average annual compound rate of return, the data for each year can be given.

Charts:

C. A line graph giving the yields in the 12 months terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast.

D. A line graph or histogram giving the yields for the last 3 or 5 years terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast (by means of a line graph or histogram for each of the years considered). If these data are not available, the yields for the last 2 years can be given.

The mandatory presentation of numerical or graphical data is the " minimum" requirement for advertisements. Accordingly, especially as regards point B, advertisers can give the results for both 3 and 5 years. Moreover, data can be presented in both numerical and graphical form.

The specification of the intervals for presenting data is intended to prevent investors' attention being attracted by the presentation of just a short-term yield.

The presentation of funds' performances in the medium and long term makes it possible to attenuate the impact of their short-term performances. In fact short-term rates of return may not be significant in relation to the time horizon of the proposed investment, as, for example, in the case of an equity fund.

All the mandatory forms of presentation must be sufficiently highlighted.

5.1 In addition to the mandatory forms of presentation, advertisers can give yields for multiples of 12 months terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast, up to 120 months.

The reference period must always be indicated in the advertisement. For advertising material that is distributed on a continuing basis (such as brochures), the publication of the advertisement is to be considered as coinciding with the date it is first made available to the market, which must be indicated in the material.

The voluntary presentation of yields must refer to multiples of 12 months, up to a maximum of 120 months, starting from the last day of the calendar quarter that ends nearest to the date the advertisement is to be published or broadcast (e.g. an advertisement published on 20 April can give the yields achieved by the fund/sub-fund in multiples of 12 months, up to a maximum of 120 months, starting from 30 March of the same year).

Funds in operationfor less than 12 months 

For funds that have been in operation for less than 12 months or whose investment policies have recently seen significant changes, excluding pension funds, the following rules apply:

5.2 The yields achieved by funds/sub-funds that have been in operation for less than 12 months can be used in advertisements provided they refer to a period of at least 6 months. The period considered must start on the day the fund/sub-fund came into operation and terminate on the last day of the calendar month that ends nearest to the date the advertisement is to be published or broadcast. In such cases the advertisement must include the warning that " The fund has been in operation since …".

The same rules apply to the yields of funds/sub-funds that have been in operation for more than 6 months but whose investment policies have seen significant changes. In such cases the advertisement must include the warning that " The fund has had a new investment policy since …".

The Commission is of the opinion that newly-constituted funds/sub-funds should be allowed to publish/broadcast advertisements once they have been in operation for at least 6 months since investors' knowledge of the product in the first few months is of decisive importance for the successful launch of the fund/sub-fund.

Accordingly, data on yields can be included in advertisements provided they refer to a period of at least 6 months (in parallel with the half-yearly statement of operations). As soon as the product has been available for four calendar quarters, its performance can be included in advertisements in the ordinary way described in point 5.

5.3If a fund/sub-fund has been in operation for more than 12 months but not four calendar quarters, data on past yields must refer to the twelve calendar months from the date of the product's launch.

For example, a fund that came into operation on 20 July 2000 can advertise its performance, as of 31 July 2001 and through August and September, only with reference to the period from 31 July 2000 to 31 July 2001.

In fact in the foregoing example the fund would be able to advertise data on rates of return in the last 12 months only after 30 September 2001 since the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast would have been 30 June 2001, when the fund would not have been in operation for 12 months.

The above derogation thus allows funds to advertise the rate of return achieved in the first 12 months of operation to be advertised until there is an interval of 12 months between when the fund came into operation and the last day of the calendar quarter that ended nearest to the date the advertisement is to be published/broadcast.

The special social security aims of pension funds make a further differentiation in the presentation of past yields desirable, characterized by emphasis on the medium and long term.

Pension funds:mandatory presentationsof past yields 

5.4Advertisements must contain the following numerical and/or graphical data on a quarterly basis:

Numerical data:

A. The average annual compound rate of return of the fund/investment product for the last 5 years terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast. If these data are not available ( inter aliaas a result of significant changes in investment policy), the average annual compound rate of return must be given for the shorter period for which they are available, with a minimum of 1 year. Instead of the average annual compound rate of return, the data for each year can be given.

Charts:

B. A line graph or histogram giving the yields for the last 5 years terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast. If these data are not available, yields can be given for the shorter period for which they are available, with a minimum of 1 year.

The mandatory presentation of numerical or graphical data is the " minimum" requirement for advertisements. Accordingly, data can be presented in both numerical and graphical form. All the mandatory forms of presentation must be sufficiently highlighted.

Pension funds:Voluntary presentationsof past yields

5.5 In addition to the mandatory forms of presentation, advertisers can give yields for multiples of 12 months terminating on the last day of the calendar quarter that ends nearest to the date the advertisement is to be published/broadcast, up to 120 months.

The reference period must always be indicated in the advertisement.

The voluntary presentation of yields must refer to multiples of 12 months, up to a maximum of 120 months, starting from the last day of the calendar quarter that ends nearest to the date the advertisement is to be published or broadcast.

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Special ways ofpresentingperformances 

6. Yields may not refer to aggregates of funds or sub-funds with risk/return profiles that are not homogeneous

In general, advertisements giving aggregated data on the past yields of funds/sub-funds that are not homogeneous from the point of view of risk does not appear to observe the principle of correct information since it does not allow the yields to be attributed to a clearly identified fund/sub-fund. Even the application of weighting criteria does not result in the principle being observed since investors' attention would be " caught" by a performance that did not refer directly to the risk/return profile of the proposed investment.

6.1 Comparative yield data based on rankings can be presented in advertisements provided at least the following are indicated: a) the category the fund/sub-fund belongs to; b) the observation period, which must be 12 months or a multiple thereof; c) and an indicator of the risk involved. The ranking must be drawn up for products with homogeneous risk/return profiles and must refer to a significant sample of the universe of products considered.

The use of rankings in advertisements is permitted provided the comparison between funds/sub-funds is homogeneous both ex ante, in terms of the category they belong to, and ex post, by including a risk indicator corrected for the effective risk (e.g. the Sharpe index).

The criteria indicated above, which are to be understood as the " minimum" criteria for the inclusion of rankings in advertisements, must be applied to a significant sample of funds/sub-funds (in relation to the universe of the category in question); moreover, the method used to draw up the ranking must be publicly available.

The category a fund/sub-fund belongs to is to be understood as meaning a " group" of funds/sub-funds that are homogeneous in terms of their management strategies and investment objectives. In Italy this can be taken to mean funds/sub-funds belonging to the same Assogestioni category. For foreign funds/sub-funds which are not covered by this classification, reference can be made to the analogous categories established by other national associations. As regards pension funds, the homogeneous " groups" to be used in defining categories must also be identified with reference to their yield objectives.

The rule also applies to classifications, howsoever drawn up by third parties that are independent of the management company publishing or broadcasting the advertisement, used as the basis for awarding bonuses.

The inclusion in advertisements of bonuses awards must also observe the principle of correct information and avoid omissions that could result in the advertisements being misleading. It is thus indispensable that the following be indicated: the period to which the ranking refers; the source of the data; and the size of the sample considered. It would not be correct, instead, to include a bonus that has been awarded to a fund/sub-fund whose management team has changed.

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As regards other " voluntary communications" with a promotional content (such as newsletters, periodic reports and Internet sites), the Commission is of the view that a distinction can be made and less rigid rules applied in view of their greater information content and the smaller possibility of selecting periods so as to flatter performance figures (notably in the case of websites with a predefined structure).

With special reference to the Internet, all the communications posted on websites must observe the general principles laid down for advertisements. They must also comply with the indications for the presentation of yield data set out below.

7.Communications with a promotional content (such as newsletters, periodic reports and web pages) must contain the presentations referred to in points 5 and 5.4. However, they may also contain yields referring to additional periods other than those specified for "voluntary presentations".

If yields refer to periods of less than 12 months, the benchmark may be omitted.

The additional reference periods for the presentation of yields must be the same as the interval at which the report or the newsletter is sent out, with a minimum of 1 month.

In the case of websites, yield data referring to other periods can be provided where investors can submit queries to a database without any restrictions (such queries can concern any data on yields: weekly, monthly, two-monthly, etc.) and where the site is structured in such a way that the data are updated regularly at fixed intervals.

7.1 If details of the composition of assets are given, issuers' creditworthiness must be indicated, together with the average duration of debt securities and the geographical and sectoral breakdowns of equity securities.

Newsletters and other periodic reports sent to investors on a voluntary basis concerning bond or balanced funds/sub-funds must indicate -- if present to a significant degree -- the percentage of the portfolio consisting of securities that are not " investment grade" and the average duration of the bond component if data on the composition of the portfolio is provided.

7.2 Voluntary communications with a promotional content must be drafted so as to be clear and, where technical terms are used, contain a legend or, for websites, permit documentation to be consulted.

Building in simple procedures for consulting documentation, such as a glossary, makes it easier for investors to understand any technical terms that are used.

All the information on websites must be made easy for navigators to use, where necessary by providing explanatory links.

With special reference to the presentation of yields, there should be a note advising investors to read the latest annual statement of operations, so that they can obtain more detailed information on the investment policy effectively pursued. Alternatively, voluntary communications can contain a summary description of the investment strategies adopted.