RCA - January 1996 - Ask The Analyst - Mutual Fund Matters

Q. Which company name must be shown in mutual fund sales communications-the dealer, distributor, or underwriter?

A. The communication must identify the name of the NASD member that will sell the product to the investor or investing public. If there is more than one entity named, then the material must indicate clearly which will sell the security to the investor.

Q. Must sales literature sent to mutual fund shareholders be filed with the NASD?

A. The NASD does not distinguish between prospective investors and existing shareholders when determining whether sales communications must be filed and whether they comply with applicable rules. Prospective and existing shareholders are considered members of the public. In addition, existing shareholders may choose to purchase additional fund shares, based in whole or in part on sales literature they receive after an initial investment Consequently, all sales literature sent to shareholders must be submitted to the NASD within 10 days of first use.

Q. Do press releases announcing the availability of new mutual funds have to be filed with the NASD, and if so, must they be accompanied by prospectus?

A. Yes. Since press releases announcing the availability of new mutual funds are mass distributed to non-registered persons, they must be filed with the NASD. Similar to other communications with the public, press release contents determine the need for an accompanying prospectus. If the contents of such a release exceed the provisions of certain SEC rules, it must be accompanied by a prospectus for the security under discussion.

Q. Can a member leave copies of mutual fund research reports at a counter for customers to pick up without filing the reports as advertising?

A. Many members have "reference corners" or libraries where research information is available for investors to read at their leisure. Generally, these reference materials would not have to be filed. However, if a member leaves multiple copies of a specific mutual fund research report on a counter or otherwise makes the report available to customers, such material would be considered fund sales literature and be subject to a member firm's internal review and filing with the NASD within 10 days of first use. The research report may also require additional disclosures. See "Ask The Analyst," Regulatory & Compliance Alert, January 1995, page 8.

Q. Suppose a mutual fund research report that includes a ranking is published twice a year. For how long can it be used as sales literature if it is verified that the ranking has not changed?

A. Generally, a member may use a mutual fund research report as sales literature as long as the information remains accurate, even if the report is published just twice a year. However, you may not use any research report that has been superseded by a more recent one. In addition, any ranking set forth in a report must be current to the most recent calendar quarter ended before its use. At the end of the calendar quarter, the ranking can be updated, using a "buckslip" or similar means, so that the reader has the most recent available rankings.