10.7. Investment Company Communications

The NASAA has certain rules regarding the communications broker-dealers and agents who are selling shares in an investment company can make to their clients. Investment companies include unit investment trusts, closed-end funds, open-end funds (mutual funds), and face amount certificates. These rules include:

• All sales charges that may be associated with purchasing, retaining, or redeeming the shares must be disclosed to clients.

• Solicitors cannot call a fund “no load” or say it has “no sales charge” if there is a front-end sales charge, a contingent deferred sales charge, or a marketing or service fee that exceeds 0.25% of the average assets of the fund per year (or for a closed-end fund, any underwriting fees or other offering expenses).

• All discounts due to breakpoints need to be disclosed.

• The recommendation of a particular class of investment company shares (A, B, or C) must be suitable for the investor.

• Solicitors should not recommend the purchase of multiple investment company funds that have the same investment objective because the client ends up paying higher fees for funds that are not properly diversified.

• Solicitors should not recommend the sale of a client’s current mutual fund for a new