Broker-dealers and agents shall observe high standards of
commercial honor and just and equitable principles of trade in the conduct of
their business and shall give particular consideration to any conflicts of
interest that may arise or exist.The practices listed below are examples of
practices relating to investment company shares which may be considered
contrary to such standards and may thus constitute grounds for discipline under
Section 16412 of the Act.
This section is not intended to be all inclusive, and thus
practices not enumerated herein may also be deemed dishonest or unethical. This
section is also not intended to limit or define fraudulent and other prohibited
practices under Subchapter 5 of the Act or to preclude application of the
general anti-fraud provisions contained therein against any person for
practices similar in kind to those listed below.
For purposes of this section, the delivery of a prospectus,
in and of itself, shall not be dispositive that the broker-dealer or agent
provided the customer full and fair disclosure.
A person may be deemed to have engaged in "dishonest or
unethical practices" under Section 16412(4)(M) of the Act by engaging in one or
more of the following practices in connection with the solicitation of
investment company shares:
1. Failing
to adequately disclose to a customer all sales charges, including asset based
and contingent deferred sales charges, which may be imposed with respect to the
purchase, retention or redemption of such shares;
2. Stating or implying to a customer that the
shares are sold without a commission, are "no load" or have "no sales charge"
if there is associated with the purchase of the shares:
A. A front-end load;
B. A contingent deferred sales
load;
C. A SEC Rule 12 b-1 fee or a
service fee if such fees in total exceeds .25%of average net fund assets per
year; or
D. In the case of
closed-end investment company shares, underwriting fees, commissions or other
offering expenses;
3.
Failing to disclose to any customer any relevant:
A. Sales charge discount on the purchase of
shares in dollar amounts at or above a breakpoint; or
B. Letter of intent feature, if available,
which will reduce the sales charges;
4. Recommending to a customer the purchase of
a specific class of investment company shares in connection with a multi-class
sales charge or fee arrangement without reasonable grounds to believe that the
sales charge or fee arrangement associated with such class of shares is
suitable and appropriate based on the customer's investment objectives,
financial situation and other securities holdings, and the associated
transaction or other fees;
5.
Recommending to a customer the purchase of investment company shares which
results in the customer simultaneously holding shares in different investment
company portfolios having similar investment objectives and policies without
reasonable grounds to believe that such recommendation is suitable and
appropriate based on the customer's investment objectives, financial situation
and other securities holdings, and any associated transaction charges or other
fees;
6. Recommending to a customer
the liquidation or redemption of investment company shares for the purpose of
purchasing another investment without reasonable grounds to believe that such
recommendation is suitable and appropriate based on the customer's investment
objectives, financial situation and other securities holdings and any
associated transaction charges or other fees;
7. Stating or implying to a customer the
fund's current yield or income without disclosing the fund's most recent
average annual return, calculated in a manner prescribed in SEC Form N-1A, for
one, five and ten year periods and fully explaining the difference between
current yield and total return;
8.
Stating or implying to a customer that the investment performance of an
investment company portfolio is comparable to that of a savings account,
certificate of deposit or other bank deposit account without disclosing to the
customer that the shares are not insured or otherwise guaranteed by the FDIC or
any other government agency and the relevant differences regarding risk,
guarantees, fluctuation of principal and/or return, and any other factors which
are necessary to ensure that such comparisons are fair, complete and not
misleading;
9. Stating or implying
to a customer the existence of insurance, credit quality, guarantees or similar
features regarding securities held, or proposed to be held, in the investment
company's portfolio without disclosing to the customer other kinds of relevant
investment risks, including but not limited to, interest rate, market,
political, liquidity, or currency exchange risks, which may adversely affect
investment performance and result in loss and/or fluctuation of principal
notwithstanding the creditworthiness of such portfolio securities;
10. Stating or implying to a customer:
(A) that the purchase of such shares shortly
before an ex-dividend date is advantageous to such customer unless there are
specific, clearly described tax or other advantages to the customer;
or
(B) that a distribution of
long-term capital gains by an investment company is part of the income yield
from an investment in such shares; or
11. Making:
A. Projections of future
performance;
B. Statements not
warranted under existing circumstances; or
C. Statements based upon non-public
information.