Communications with Prospects and Customers - Securities Act of 1933

Information Required in Prospectus
Section 10 of the Securities Act of 1933 permits a summary prospectus to be used instead of the complete prospectus. The summary prospectus must include all material information, must not contain any untrue statements and must state that a complete prospectus is also available.

The body of all printed prospectuses must be in Roman type at least as large and as legible as 10-point type. Where necessary for space, financial statements and other tabular data may be as small as eight-point type. When a prospectus is distributed via electronic medium, issuers must present all documents in a similar style as required in paper documents and must present all information in a format readily communicated to investors.

Exam Tips and Tricks
The legibility of the prospectus type is likely to be tested. For example, answers that state that the body may be in eight-point or Italic type are incorrect.

The Securities Act of 1933 also prescribes procedures for amending the prospectus. Such changes must be included in a statement of additional information, which is then attached to and becomes part of the prospectus.

Civil Liabilities Arising in Connection with Prospectuses and Communications
Section 12 of the act states that any person who offers or sells a security and uses false statements of materials facts, or omits any material facts is subject to civil liabilities under the act. The purchaser may sue, either at law or in equity, in any court of competent jurisdiction to recover the amount paid for such security, plus interest, minus any income received from the security and the amount received if the security has been sold.

Rule 134 - Communication Not Deemed a Prospectus
Tombstone advertisements, which are typically run in newspapers surrounded by a black border, are permitted for mutual fund shares as well. These are not considered to be prospectuses and are not allowed to contain fund performance information.

Typically, they include the following information:

  • Name of issuer
  • Fund name
  • Classification and type of mutual fund
  • Underwriters
  • Date of sale

If a tombstone ad also includes a description of the fund's objectives and policies, the most current net asset value or the length of the fund's (or its investment adviser's) existence, it must also include a legend that states that more complete information regarding charges and expenses is available, the name and address of the issuer and that the prospectus should be ready before investing.

Exam Tips and Tricks
Expect questions about tombstone ads - particularly that performance information is not permitted in the ad.

Rule 135a - Generic Advertising
If an advertisement or letter does not specifically refer by name to the securities of a particular investment company, the investment company is not deemed to offer any security for sale and, therefore, does not require a prospectus as long as such communication contains the name and address of a registered broker or dealer or other person sponsoring the communication and is limited to any one or more of the following:

Explanatory information relating to securities of investment companies generally or to the nature of investment companies, or to services offered in connection with the ownership of such securities

The mention or explanation of investment companies of different generic types or having various investment objectives, such as balanced funds, growth funds, income funds, leveraged funds, specialty funds, variable annuities, bond funds, and no-load funds

  • Offers, descriptions and explanation of various products and services not constituting a security subject to registration under the act, provided that such offers, descriptions and explanations do not relate directly to the desirability of owning or purchasing a security issued by a registered investment company
  • Invitation to inquire for further information

If such communication contains a solicitation of inquiries and prospectuses for investment company securities that are to be sent or delivered in response to such inquiries, the number of such investment companies and, if applicable, the fact that the sponsor of the communication is the principal underwriter or investment adviser in respect to such investment companies shall be stated.

Rule 156 - Investment Company Sales Literature
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