Market timing. The mutual fund industry has not heard the end of this phrase, ever since New York Attorney General Eliot Spitzer, in 2003, unearthed shady trading practices through which fund companies allowed some investors to rapidly trade in and out of funds. The practice, commonly known as market timing, raises expenses for the fund and hurts long-term shareholders.

The SEC adopted a new disclosure rule, which took effect May 28, 2004, requiring a fund to disclose in its prospectus and statement of additional information its market-timing risks; policies and procedures adopted, if any, by the board of directors, aimed at deterring market-timing; and any arrangement that permits it.

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