RCA - June 1997 - Ask The Analyst - Electronic Communications And Mutual Funds

Q: Our firm would like to advertise using an Internet banner advertisement that would hyper-link to our mutual fund Web site. Must we include a prospectus offer or other disclosure in the banner advertisement itself?

A: In this case the disclosures depend on the content of the banner advertisement. For instance, if the advertisement contains only a mutual fund or fund family name, such as the "ABC Funds," and if the advertisement links directly to a home-page which contains properly disclosed prospectus offering language, then there is no need for the banner advertisement itself to offer a prospectus or to include other disclosure language. However, if the banner advertisement includes language or graphics which relate to the desirability of owning a fund or funds, additional disclosure may be required. For example, a statement such as "ABC Funds - Outstanding Performance and Expert Money Management" would require a prospectus offer. In addition, NASD Conduct Rules would require that the "Outstanding Performance" claim be both true and substantiated in the homepage itself in order to provide the reader with a sound basis for evaluating the facts regarding the ABC Funds. The NASD Conduct Rules would also prohibit the use of language or graphics which were promissory of the success, or exaggerated the past performance, of a mutual fund (e.g., a line graph with an unwavering, upward trajectory) in a banner advertisement.