SEC Division of Investment Management staff letter: Munder Capital Management

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Our Ref. No. 96-77-CC'

Munder Capital

RESPONSE OF THE OFFICE OF CHIEF COUNSEL Managemen t

DIVISION OF INVESTMNT MAAGEMENT File No. 801-48394

Your letter of February 9, 1996 requests our assurance that

we would not recommend enforcement action to the Commission under

Rule 206 (4) -1 under the Investment Advisers Act of 1940 (IIAdvisers Actll) 1./ if the registered open-end management

investment companies advised by Munder Capital Management

(IIMunderll) provide informtion via the Internet about their recent portfolio purchase and sale transactions under the

circumstances described in your letter.

According to the representations in your letter, Munder, a

registered investment adviser, serves as adviser to The Munder

Funds, Inc. and The Munder Funds Trust, representing in the

aggregate 19 portfolios (" the Funds "). Munder also has various other institutional clients. You state that Munder and the Funds have made information

available on the Internet that they previously had made available

in printed format. The information includes basic information

about Munder's advisory organization, including information about

the firm's history, investment philosophy, as well as background

information on key personnel. You state that the information

regarding the Funds includes the prospectuses of the Funds,

information regarding Fund size, portfolio turnover rate, number

of portfolio holdings, industry diversification, and top ten

holdings, as well as advertising and supplemental sales literature. In addition, Munder provides portfolio transaction

information on a fund-by- fund basis. The portfolio transaction

information reflects all new portfolio positions added or

eliminated during the month. This information is updated 'on a

monthly basis and made available at least 15 days after the end of each month. The presentation of the portfolio transaction information also discusses each portfolio company's business,

along with the reasons the investment adviser found the security

attractive or the adviser's rationale for selling the security.

1./ Rule 206 (4) -1 deems certain investment adviser advertising practices to be fraudulent, deceptive, or manipulative. In particular, under paragraph (a) (2), investment advisers are

prohibited from publishing, circulating, or distributing any

advertisement that refers to their past specific

recommendations that were or would have been profitable to

any person. The rule, however, does permit an advertisement

that meets certain conditions to set out or offer to furnish

a list of all recommendations made by an investment adviser ~ within the immediately preceding period of not less than one year. Effective November 4, 2022, This Letter is Withdrawn. Please consult the following web page for more information:
https://www.sec.gov/divisions/investment/im￾modified-withdrawn-staff-statements

The information includes disclosure that the information reflects,' all positions added or eliminated during a specified month. 2./

You believe that the portfolio transaction information is

useful to existing fund shareholders, brokers, and potential

investors. You assert that providing portfolio transaction

information via the Internet is consistent with Commission

efforts to provide mutual fund investors with material

information regarding mutual funds and their investment

perf ormnce. á/ '

You assert that disclosure of fund portfolio transaction

informtion should not be subject to or prohibited by Rule

206 (4) -1 because the information that Munder and the Funds are providìng is investment company sales literature, ~/ and not

an advertisement for advisory services under Rule 206 (4) -1 (b) . In support, you note that in National Association of Securities

Dealers (pub. avail. Oct. 19, 1993), the staff suggested by

2./ A disclaimer is included stating that the information

provided should not be considered as a recommendation to

purchase or sell a particular security and that there is no

assurance, as of the date of publication, that the

securities purchased remain in a fund's portfolio or that securities sold have not been repurchased. Additionally i it is noted that the securities purchased do not represent a

fund's entire portfolio and in the aggregate may represent a small percentage of a fund's portfolio. ' á/ You note that mutual funds currently are required to report

their portfolio holdings to shareholders at least semi￾annually, pursuant to Section 30 (d) of the Investment

Company Act of 1940 (111940 Act") and Rule 30d-1 thereunder.

In addition, funds are required to include in their

prospectuses or annual reports management's discussion of

those factors, strategies and techniques that materially

affected their performance during their most recently

completed fiscal year. Item SA of Form N-1A. The release

proposing the management's discussion requirement mentioned

the composition of the portfolio as one factor affecting

performance that may be discussed. Investment Company Act

Release No. 17294 at n.14 (Jan. 8, 1990).

~/ Supplemental sales literature must be preceded or

accompanied by a final prospectus. You have represented

that the distribution of prospectuses and sales literature

through the Internet complies with the Commission's

interpretative guidance regarding use of electronic media.

Use of Electronic Media For Delivery Purposes, Securities

Act Release No. 7233 (Oct. 6, 1995).

implication, in the context of testimonials, that Rule 206~4) -1 "

may not apply to mutual fund advertising. 2/

Rule 206(4)-1(b) broadly defines the term lIadvertisementll to include any communication addressed to more than one person that

offers any investment advisory service with regard to securities.

Materials designed to maintain existing clients or solicit new

clients for the adviser are considered to be advertisements within Rule 206 (4) -1. 2/ Generally, we would not view documents relating specifically to one or more investment

companies, such as prospectuses, advertisements or sales

literature, as designed to maintain existing clients or solicit

new clients for the adviser unless the documents are directed to

such persons or refer to advisory services that are offered to such persons. 2/ We therefore agree with your view that the portfoliQ transaction information, which reflects only services

provided to the Funds and does not refer to services provided to

Munder's other clients, should not be considered an advertisement

for Munder's advisory services. ~/

Therefore, if the portfolio transaction information is made

available via the Internet under the circumstances set forth in

your letter and described above, we would not recommend that the

Commission take enforcement action under Rule 206(4)-1. Because

this response is based on the facts and representations in your

2/ Rule 206 (4) -1 (a) (1) prohibits the use, in any advertisement

wi thin the scope of the rule, of any direct or indirect

reference to any testimonial concerning any services

rendered by an adviser. The National Association of

Securities Dealers letter did not treat testimonials in

mutual fund advertising as subject to an absolute

prohibition, such as that contained in Rule 206 (4) -1 (a) (1) . 2/ See Denver Investment Advisors, Inc. (pub. avail. July 30,

1993) i S.E.C. v. C.R. Richmond & Co., 565 F.2d 1101 (9th

Cir. 1977) i and Spear & Staff, 42 S.E.C. 549 (1965).

2/ Of course, such documents may be designed to solicit new

shareholders for the fund, or may be providing information

to existing fund shareholders.

~/ Because we agree with your contention that the portfolio transaction information is not an II advertisement II subj ect to 206 (4) - 1, we do not reach the question of whether it involves a recommendation within paragraph (a) (2). In

addition, nothing in this letter addresses in any way the

adequacy of any of the information provided on Munder's Web

site under the Securities Act of 1933, the 1940 Act, or the

National Association of Securities Dealers' Rules of Fair Practice.

letter, you should note that any different facts or

representations might require a different conclusion.

~r~
Veena K. Jain

At torney

..\
LAW OFFICES OF
477 MAISON AVE DECHERT PRICE & RHOADS TE POST omCE sQuAR . SOlJ NE YORK NY 10022-5891 BOSTON, MA 02109-4603 (212) 326-3500 (617) 728-7100 1500 K STRET, N.W. 40 BEl A TIC TOWE WASHIGTON, DC 20005-1208 65 A VE LOUIE 1717 ARm ST 1050 BRUSSEL, BELGIU PHIELHI PA 19103-2793 (32-2) 535-5411 (215) 994-0 TELEPHONE: (202) 626-3300 1TSS SAI DEæET TITY NORll TI ST 2 SERjE' IN HABURG, PA 17101-1603 FAX: (202) 626-3334 LONDON EC4Y 1LT, ENGLA (717) 237-200 (44171) 583-5353 PRICETON PIK CORPRATE CE 151, BOULAR HAUSSMA P.O. BOX 5218 February 9, 1996 75008 PAR, FRCE PRICEON, NJ 08543-5218 (33-1) 53 83 84 70 (609) 520-3200 AC I It . .-.-.- Jack W. Murphy, Esquire ~N )/ Chief Counsel Division of Investment Management RU ~O Ú? I (. ) - I ( b u. S. Securities and Exchange Commission

450 Fifth Street, N.W. :ø~ s/n/erCo

Washington, D.C. 20549

Re: Munder Capital Management/The Munder Funds -- Rule 206 (4) -1 of the Investment Advisers Act of 1940 Dear Mr. Murphy:

We are writing on behalf of Munder Capital Management

("Munder Capital"), a registered investment adviser and the

Munder Funds (the "funds") registered open-end investment

companies, under the Investment Company Act of 1940 ("1940 Act").

Munder capitat and the Funds have developed their own Web site on

the Internet. The Internet Web site provides Internet users

easy access to information on ,Munder Capital and The Munder

Funds, including information regarding recent portfolio purchase

and sale transactions of the Funds. The purpose of this letter

is to request that you confirm our interpretation that the

information regarding recent purchase and sale information by the

Funds does not result in a violation of Rule 206(4)-1 under the

Investment Advisers Act of 1940, as amended (the "Act") when such

information is made available via the Internet or that you will

not recommend that the Commission take enforcement action for

violation of Rule 206 (4) -1 of the Act.
1 The Internet is a network of computers from around the

world that permits users to create "home pages" or

graphic images on a computer screen. The Internet

provides file transfer, remote login, electronic mail,

news and other services.

~/\ '
Munder Capital Management is a Delaware general partnership

with principal offices at 480 Pierce street, Birmingham, Michigan
48009. The firm was founded in 1985 to provide high-quality
asset management services for institutional investors. As of

August 31, 1995, Munder Capital and its affiliates managed over

$30 billion for various institutional clients, including

investment companies, pension and profit sharing funds,

foundations and insurance companies, as well as for high net

worth individuals. Munder Capital ranks among the largest 3% of

U. S. investment advisory firms.
The Funds consist of The Munder Funds, Inc., a Maryland

corporation registered under the Investment Company Act of 1940

("1940 Act"), as an open-end investment company and The Munder

Funds Trust, a Massachusetts business trust, also registered

under the 1940 Act as an open-end investment company. Each fund

offers multiple classes of shares representing in the aggregate

19 portfolios, consisting of a variety of equity, fixed-income

and money market funds. The Funds are a full family of mutual

funds providing individual investors with a broad selection of

investment choices to meet their investment needs. Munder

Capital serves as the investment adviser to each of the

portfolios. Funds Distributor, Inc., located at One Exchange

Place, Boston, Massachusetts' 02109, is the principal underwriter

of the Funds i shares.

As the Staff is aware, many money management firms and

mutual fund groups are making use of the information

superhighway, providing clients and potential clients access to

information in a manner that was previously unavailable. Users

of the Internet can access a variety of information including

investment primers, worksheets, fund documents including

prospectuses and sales literature, share price and fund

pertormance information and even hear relordings of portfolio

managers talking about their portfolios. Munder Capital and

the Funds have made available on the Internet certain information that has previously been available only in printed format. with regard to Munder Capital, such information includes basic

information on the advisory organization, including information about the firm i s history, investment philosophy, as well as background information on key personnel. Information regarding

the Funds includes the prospectuses of the Funds, information

regarding Fund size, portfolio turnover rate, numer of portfolio

holdings, industry diversification, top ten holdings, as well as

2 See "Now. The Suoerhiqhway Leads to Mutual Funds," The New

York Times, August 13, 1995; "Marketing on the Internet:

Money Manaqers Cl ick On, " Institutional Investors, Inc.,

Money Management Letter, June 19, 1995; "Whv the Fund Home

Paqes Aren i t Ready for CVbertime;" Kipl inger i s Personal Finance Magazine, October 1995.

,

advertising and supplemental sales literature.3 The , '

prospectuses and supplemental sales literature are made available

pursuant to the conditions set forth in the SEC' s Recen¡ Release on the "Use of Electronic Media For Delivery Purposes." Any information that could be considered supplemental sales

literature of the Funds is sUbstantially the same as material

that has been previously filed with the NASD. Any newly

developed supplemental sale literature to be provided on the

Internet will be filed with the NASD.

In addition ,to the information set forth above, Munder

Capital and the Funds include, with respect to each fund, a

portfolio commentary discussing market conditions, as well as

information on recent fund portfolio transactions. This

information is made available on a fund by fund basis which

reflects -all new portfolio positions added during the month and

all portfolio positions eliminated during the month (unless the

sale program has not been completed). This information would be

updated on a monthly basis and made available at least 15 days or

more after the end of each month. with regard to portfolio

positions added during a month, information is provided on the

portfolio company's business and the reasons the investment

adviser found the security attractive. With regard to positions

eliminated during the month, 'information is provided explaining

the investment adviser's rationale for selling the security.

A disclaimer is included with such portfolio transaction

information stating that the purchase and sale information

provided should not be construed as a recommendation to purchase

or sell a particular security and that there is no assurance that

the securities purchased remain in a fund's portfolio or that

securities sold have not been repurchased. Additionally, it is noted that the securities purchased do not represent a fund i s entire portfolio and in the aggregate may represent a small percentage of a Fund i s portfolio. Our clients are of the view that providing access through

the Internet to information regarding portfolio transactions to

existing fund shareholders, brokers and potential investors

provides useful information regarding management of the Funds.

Indeed, it is our understanding that many investment advisers

provide this type of information to institutional investors and

market professionals. This information provides insight into how

3 Much of the information regarding the Funds would qualify as

advertising permitted under Rules 134 and 482 of the

Securities Act of 1983 and would not be required to be

accompanied by the prospectuses of the Funds.

4 See Investment Company Act Release No. 21399 (October 6,

1995) .

"1 . the Funds are managed and the investment adviser i s investment " philosophy. Furthermore, providing this information. is consistent with the SEC i S efforts to provide mutual fund

investors with material information regarding mutual funds and

their investment performance. Funds are currently required to

disclose their portfolio holdings pursuant to Section 30 Cd) of

the 1940 Act and Rule 30d-1 thereunder, which requires that such

information be provided to shareholders at least semi-annually.

Mutual Fund prospectuses or their annual reports now must include

management's discussion and analyses ("MD&A") of those factors,

strategies and techniques that materially affected their performance during their most recently completed fiscal year. S Additionally, the SEC recently required that funds disclose

background information on mutual fund portfolio managers

responsiblg for the day-to-day management of a fund i s

portfolio. Information regarding fund portfolio transactions

is consistent with these efforts to make more information

available to fund investors regarding how funds are managed.

The MD&A discussion is designed to help investors understand

the nature of investment strategies being used by funds. In the

release proposing the MD&A requirement, the SEC listed portfolio

information as one of the various factors impacting performance

that might be discussed. Thé release suggested that the types of

portfolio information that could be discussed could include

information regarding the composition of the portfolio, including

types of issuersj types of securities, quality of portfolio

securities, etc. Information regarding fund portfolio

transactions is routinely reported to a fund's directors on a

regular basis to assist them in evaluating the quality of

portfolio management. There appears to be no reason why this

information should not be made available to existing fund

shareholders, brokers who sell fund shares and potential fund

investors. Addi tionally, there appears to be no reason why this

information cannot be provided in supplemental material when a

fund's prospectus has been delivered electronically and the

information is not presented in a misleading manner.

We seek to confirm our view that the disclosure of this

information is not subject to or prohibited by Rule 206(4)-1

under the Investment Advisers Act of 1940 (the "Advisers Act"). Rule 206(4)-1(a) provides in part that:

S See Item SA. of Form N-1A.

6 See Item 5 (c) of Form N-1A.

7 See Investment Company Act Release No. 17294 (January 8,

1990) .

It shall constitute a fraudulent, deceptive, . '

or manipulative act, practice or course of

business within the meaning of section 206 (4)

of the Act, for any investment adviser,

directly or indirectly to publish, circulate or distribute any advertisement: . . . (2) which refers, directly or indirectly, to past

specific recommendations of such investment

adv iser which were or could have been

profitable to any person: provided, however,

that this shall not prohibit an advertisement

which sets out or offers to finish a list of

all recommendations made by such investment

adviser within the immediately preceding

period of not less than one year if such

advertisement, and such list if it is furnished separately:
(A) State the name of each such security

recommended, the date and nature of each such

recommendation (e. q., whether to buy, sell or

hold), the market price at that time, the

price at which the recommendation was to be

acted upon, and the market price of each such

security as of the most recent practicable date, and (B) contain the following cautionary legend on the first page thereof

in print or type as the largest print or type

used in the body or text thereof:

"It shall not be assumed that recommendations

made in the future will be profitable or will

equal the performance of the securities in this list;" Accordingly, Rule 206 (4) -1 regards the selective disclosure

of recommendations, which may refer only to recommendations which

were or would have been profitable and ignores those which were

or would hive been unprofitable, as inherently misleading and

deceptive.
We believe that the disclosure of recent fund portfolio

transactions should be regarded as outside the scope of Rule

206(4)-1. First, the disclosure of these transactions is not a

recommendation by the Funds or their adviser to purchase or sell

a particular security, but simply factual information regarding

recent purchases and sales by the Funds. Indeed the information

is accompanied by disclosure that such information should not be

See Investment Advisers Act Release No. 12 i (November 2,

1961) .

~ construed as a recommendation to purchase or sell a particular , 9 Moreover, the fund portfolio transaction information security. is not presented on a selective basis, but would reflect all

purchase and sale transactions for a fund for a given period.

Addi tionally, no reference would be made as to whether the

purchase or sale transactions have been profitable to a fund.

The purpose of Rule 206(4)-1(a) (2) is to prevent the use of

selective recommendations which were or would have been

profitable. The disclosure of the fund portfolio transaction

information is not selective, it does not rise to the level of a

recommendation, nor is there any reference to the profitability

of any recommendation. The disclosure of the fund transaction

information is comparable to the disclosure made by a number of fund i s of their top ten holdings, and the disclosure by advisers of the top ten holdings in specified types of accounts under their management, which apparently are not regarded as recommendations prohibited by Rule 206(4)-1. Moreover, we believe that an arguent can be made that Rule

these circumstances. Rule 206(4)-1

by its terms applies to advertisements by investment advisers.

206(4)-1 is inapplicable in

The information in question involves investment company . information, and, as such is not technically an investment

adviser advertisement. In correspondence with the National

Association of Securities Dealers, the SEC staff suggested by

implication that Rule 206(4)-1 may not apply to mutual fund

advertising in the context of testimonials. See National

Association of Securities Dealers (available October 19, 1993).

9 We are aware that in Investment Advisers Act Release No.

1406 (March 16, 1994) the Commission stated in a footnote

(See footnote 12) that each trade initiated by an adviser

would constitute "advice." However, this statement was made

in the context of the suitability of investment advice to

advisory clients. The information on recent portfolio

transactions would not constitute "advice" to anyone

reviewing the material and this point will be emphasized by

the accompanying disclaimer.

~
In sum, we believe that presentation of information , '

regarding recent portfolio purchase and sale transactions of the

Funds is not subject to or prohibited by Rule 206 (4) -1. If you

need further information about these matters, please contact me

at (202) 626-3316 or Allan Mostoff at (202) 626-3310.

Sincerely,
Ps:J~, ~¿'j
Paul F. Roye

cc: Robert G. Bagnall, Esquire

Senior Special ~ounsel