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October 27, 1992
TO: PENSION COMMITTEE NO. 40-92
RE: INSTITUTE SUBMISSION TO THE SEC ON "OFF-THE-PAGE SALES"
__________________________________________________________
Attached is a copy of the Institute’s submission to the SEC
staff concerning its proposal to permit investors to purchase
shares of a mutual fund directly in response to certain
advertisements. The Institute’s proposal would implement a
recommendation of the SEC’s Division of Investment Management in
its study of reform of the Investment Company Act. As the
submission notes, the approach recommended in the proposal would
be especially appropriate in the context of employee
communications concerning participant-directed defined
contribution plans.
The SEC Staff’s Proposal
As you may know, the Division’s proposal generally would:
(1) require that the new advertisements contain standardized,
core information about the fund; (2) require that the statutory
prospectus be delivered with the confirmation of the sale; (3)
continue to permit investors to request the statutory prospectus
before investing; and (4) treat the advertisements as
prospectuses for purposes of liability under the Securities Act.
The Institute’s Submission
The Institute’s submission was developed by members of the
Subcommittee on Advertising. It proposes to amend Rule 482 under
the Securities Act to permit a new advertisement that could
include a purchase application (which would be called a "summary
advertising prospectus"). The proposal would require that the
summary advertising prospectus contain core information that is
material to an investment decision, such as information about the
fund’s investment objectives and policies, significant risk
factors, and fees and expenses. The proposal also would permit
the summary advertising prospectus to contain information other
than that required by the rule.
In addition to the changes to Rule 482, the Institute
proposes that summary advertising prospectuses be pre-filed with
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the NASD for one year after adoption of the rule. This provision
would give the NASD time to review summary advertising
prospectuses and establish standards for their use.
We will keep you informed of developments.
Kathy D. Ireland
Associate Counsel - Pension
Attachment
KDI:bmb