RCA – September 1997 – Ask The Analyst – Mutual Funds (Reprinted from July 1995 RCA)

Q: I recently saw a favorable article in a major magazine on a mutual that my company sells. I would like to mail copies of this article to clients, but my branch manager won't let me do so until I add a lot of disclosures. Since anyone could have read the article in the maga¬zine, why do I have to add so much information?


A: Unlike the original, printed magazine article, your distribution of this reprint makes it sales literature as defined in NASD Conduct Rule 2210, regarding communications with the public. Accordingly, you and your firm will be held responsible for the content of the article. You will need to obtain advance, written approval by a registered principal of your firm according to Rule 2210(b)(1). In addition, since the article concerns a mutual fund, your firm must submit it to the Advertising Regulation Department within 10 days of first use as specified by Rule 2210(c)(1); your firm may voluntarily submit the article prior to use. The article must include a balanced discussion of risk and reward, and must avoid exaggerated, misleading or promissory statements or claims in order to comply with Rule 2210. The rule also requires clear and prominent disclosure of you NASD member firm's name. If the article fails to disclose risks or contains exaggerated, misleading, or promissory language, your firm must determine whether the presentation can be "cured" through additional disclosure which would accompany the article, such as a cover letter, or whether to avoid using the article completely. In addition, SEC rules permit only very limited communications about mutual funds before prospectus delivery. If the article contains information beyond SEC rule specifications, you must use the piece with the prospectus for the fund. Finally, we advise obtaining appropriate permission to use the reprint in accordance with federal copyright laws.