In 2005, the Municipal Securities
Rulemaking Board (“MSRB”) adopted new section (e) of Rule G-21, on advertising,
that put into place standards for advertisements by brokers, dealers and
municipal securities dealers (“dealers”) of municipal fund securities,
including interests in 529 college savings plans (“529 plans”).[1]
This section of the rule was modeled in part on Rule 482 adopted by the
Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as
amended (the “Securities Act”), and also codified previous MSRB interpretive
guidance on advertisements of municipal fund securities. On May 12, 2006, the
MSRB published interpretive guidance on certain elements of amended Rule G-21
as they apply to advertisements of 529 plans (the “May 2006 Interpretation”).[2]
Today, the MSRB seeks comment on a
series of draft amendments to Rule G-21 that would further harmonize the MSRB’s
advertising rule with the rules of the SEC and NASD. The draft amendments also
would provide certain clarifications of and exceptions to existing standards
that the MSRB believes would more closely tailor the provisions of the rule to
the specific characteristics of the municipal fund securities market without
reducing the investor protections afforded by the rule. Specifically, the
draft amendments would:
● modify the definition of
“advertisement” to more closely align it with the definitions used by the SEC
and NASD in connection with advertising and sales materials;
● adopt a definition of “form
letter” consistent with the definition used by the SEC under the Investment
Company Act of 1940, as amended (the “Investment Company Act”);
● establish an explicit
baseline standard for advertisements and more clearly define “professional
advertisement” and “product advertisement”;
● adopt provisions for generic
advertisements of municipal fund securities that are substantially the same as
under Securities Act Rule 135a of the SEC relating to generic mutual fund
advertisements;
● adopt provisions requiring
advertisements and correspondence containing performance data to also include
disclosure of fees and expenses that are substantially the same as under recently
approved amendments to NASD Rule 2210(d)(3);
● clarify and simplify the
general disclosure requirements with respect to certain broadcast advertisements,
promotional materials and form letters relating to municipal fund securities;
and
● clarify the nature of
disclosures required in advertisements of municipal fund securities in connection
with tax matters.
The MSRB seeks comments on all
aspects of the draft amendments, which are set forth at the end of this notice.
The MSRB notes that, although most of the draft amendments described in this
notice relate to advertisements of municipal fund securities, certain
provisions would apply to advertisements of all types of municipal securities,
including bonds and notes. Thus, the MSRB seeks comment from all sectors of
the municipal securities industry.
GENERAL PROVISIONS
Definitions
Advertisement
The
draft amendments would modify the existing definition of “advertisement” as set
forth in Rule G-21(a)(i) to more closely conform it to the terms
“advertisement” and “sales literature” under NASD Rule 2210(a)(1) and (2).[3]
Form Letter
The
term “form letter” is defined in Rule G-21(a)(ii) in a manner consistent with
Investment Company Act Rule 24b-1 but clarifies that a form letter includes
both written letters (including post cards and similar mailings) and electronic
mail messages.
Professional & Product Advertisements
In
addition, the draft amendments provide explicit definitions of “professional
advertisement” and “product advertisement” and set forth the applicable content
standards for these types of advertisements. The amendment to the definition
of “professional advertisement” under Rule G-21(b)(i) does not effect a change
in how such term has been viewed historically under the rule. The amendment to
the definition of “product advertisement” under Rule G-21(c)(i), however, clarifies
that it applies to advertisements of specific municipal securities or that
discuss specific features of municipal securities, rather than to
advertisements that may merely mention general categories of municipal
securities.
[4]
The content standard for professional advertisements under Rule G-21(b)(ii) is
unchanged, as is the baseline standard for product advertisements under Rule
G-21(c)(ii).
[5]
General Content Standard for Advertisements
As
the May 2006 Interpretation suggests, the professional and product
advertisement content standards under existing Rule G-21 may not apply to certain
advertisements that do not fit neatly into either category. The draft
amendments address this situation by establishing under Rule G-21(a)(iii) a
general content standard for advertisements that are neither professional advertisements
nor product advertisements. This standard is the same as the existing baseline
content standard for product advertisements.
The
MSRB wishes to reiterate that all advertisements, regardless of
category, are subject to the MSRB’s basic fair dealing rule, Rule G-17, which
requires each dealer, in the conduct of its municipal securities activities, to
deal fairly with all persons, and prohibits the dealer from engaging in any
deceptive, dishonest or unfair practice. The draft amendments do not alter
these fair dealing principles, which continue to apply to all advertisements.
GENERIC ADVERTISEMENTS FOR MUNICIPAL FUND SECURITIES
The draft amendments incorporate in
Rule G-21(e)(i)(B)(1), with minor modifications, the provisions of Securities
Act Rule 135a of the SEC relating to generic mutual fund advertising. Just as
a generic mutual fund advertisement that meets the requirements of Rule 135a
generally need not comply with Securities Act Rule 482 (including the general
disclosure provisions under that rule), so too a generic advertisement of
municipal fund securities that meets the requirements of draft Rule G-21(e)(i)(B)(1)
would not need to include the general disclosures required under Rule
G-21(e)(i)(A)(1) or (2).
In addition, advertisements that
promote an issuer and its public purpose without promoting specific municipal
fund securities or identifying a dealer or its affiliates would qualify under
the draft amendments as generic advertisements of municipal fund securities.
This provision would effectively codify in Rule G-21(e)(i)(B)(2), with minor
modifications, interpretive guidance provided in the May 2006 Interpretation.
[6]
PERFORMANCE DATA FOR MUNICIPAL FUND SECURITIES
The draft amendments incorporate into
Rule G-21 certain amendments to NASD’s advertising rule recently approved by
the SEC.
[7]
Amended NASD Rule 2210(d)(3) will require advertisements, sales literature and
all correspondence relating to non-money market mutual funds that provide
performance data to disclose the mutual fund’s fees and expenses, generally
consisting of the maximum sales charge and total annual fund operating expense
ratio.
[8]
The NASD rule amendment also will require that such information be set forth
prominently. In the case of a print advertisement, this will entail presentation
in a prominent text box, which may also include certain additional relevant
information as required under Securities Act Rule 482.
Draft Rule G-21(e)(i)(A)(3)(b) and
(c) will similarly require that advertisements containing performance data for
municipal fund securities disclose the relevant maximum sales charge or
deferred sales charge and total annual operating expense ratio.
[9]
In addition, Rule G-21(e)(i)(A)(4) will provide that print advertisements must
provide for text box disclosure of this information, which may be combined with
comparative performance and fee data and disclosures provided for under section
(e) of the rule.
The NASD amendments also apply the
new disclosure requirements to any correspondence that includes performance
data, even if such correspondence does not qualify as an advertisement.
[10]
Accordingly, the draft amendments to Rule G-21 would include new subsection (e)(vii)
providing that any correspondence with the public that includes performance
data for municipal fund securities must comply with the performance data
requirements of Rule G-21(e) as if such correspondence were a product
advertisement under that section of the rule.
[11]
Further, current Rule
G-21(e)(ii)(E)(2) provides that, in connection with the calculation of any tax-equivalent
yield or after-tax return that appears in an advertisement for municipal fund
securities, if the then-effective federal income tax treatment upon which such
yield or return was based is subject to lapse or other adverse change without
extension or change of federal law, the advertisement must disclose this fact
and that such yield or return would be lower if the then-effective federal
income tax treatment is not extended or otherwise changed. In view of the recent
enactment by Congress and expected signing by the President of the Pension
Protection Act of 2006, which repeals the sunset provision of the Economic
Growth and Tax Relief Reconciliation Act of 2001 as it applies to 529 plans and
therefore eliminates the potential reversion of federal tax treatment for
investments in 529 plans previously scheduled to occur on January 1, 2011,
[12]
the MSRB seeks comment on whether this provision of Rule G-21 should be deleted,
or whether there are other circumstances in which this provision might be relevant.
GENERAL DISCLOSURE
REQUIREMENTS
Substance
of Disclosure
Rule G-21 currently provides for
certain basic disclosures to be included in many municipal fund securities
advertisements.
[13]
These disclosures are designed to communicate to the public basic information
concerning investments in municipal fund securities and are deemed complied
with if the substance of such information is effectively conveyed, regardless
of the specific language used in the advertisement. The draft amendments
provide several language changes to Rule G-21(e)(i)(A)(1) and (2) to clarify
that these disclosures are not legends requiring that specific language be
included in advertisements, but instead require that such information be
effectively conveyed.
[14]
In general, the context in which the information is provided is an important
factor in determining whether the information is effectively conveyed.
The MSRB understands that these advertising
disclosures have presented considerable challenges in the context of broadcast
advertisements, such as traditional television or radio commercials with 30-second
run-times or public service announcements that may have considerably shorter
run-times.
[15]
The clarification that such disclosures do not constitute a legend, as
described above, should help dealers to produce such time-limited broadcast
advertisements in a manner that appropriately balances the intended message
with the required disclosures. Further, given the unique nature of broadcast
advertisements, where the oral presentation of more information can often
result in a decreased likelihood that the central message of such information
will be understood and retained, the MSRB believes that somewhat abbreviated
forms of the required disclosures may be appropriate for such time-limited
broadcast advertisements, particularly if the disclosures are made with close
attention paid to ensuring that they are presented with equal prominence to the
remainder of the message.
Thus, for example, in a
time-limited broadcast advertisement for a non-money market 529 plan, the
following language, spoken in a manner consistent with the remaining oral
presentation of information, generally would satisfy the disclosure
requirements of draft Rule G-21(e)(i)(A)(1) and (2): “To learn about [529 plan
name], its investment objectives, risks and costs, read the official statement
available from [source]. Check with your home state to learn if it offers tax
or other benefits for investing in its own 529 plan.” Further, in a
time-limited television advertisement, the source for the official statement,
together with a contact telephone number or web address, generally could be
displayed on screen while other portions of the disclosures are spoken. This
example is intended to be illustrative and is not intended to be exclusive or
to necessarily establish a baseline for disclosure.
Home State Tax Benefits
The rule currently requires 529
plan product advertisements to state that investors should consider, before
investing, whether their home states offer state tax or other benefits only
available for investments in the home state 529 plan. For advertisements (such
as form letters, post cards, e-mails and other written or electronic mailings)
concerning a state’s 529 plan that are sent to, or are otherwise distributed
through means that are reasonably likely to result in the advertisements being
received by, only residents of such state, draft Rule G-21(e)(i)(A)(2)(b) would
modify this provision to permit dealers to omit such disclosure since it is not
relevant to such recipients. The MSRB views such omission as most suitable with
respect to advertisements that are delivered directly to intended recipients,
and not well suited with respect to broadcast advertisements where the dealer
would bear the burden of establishing that such broadcast is reasonably likely
to result in the message being received only by in-state residents.
Communications
with Existing Customers
Draft Rule G-21(e)(i)(B)(3) would
permit dealers to distribute form letters that omit some or all of the
disclosures required under Rule G-21(e)(i)(A)(1) and (2) to existing customers
who have previously invested in municipal fund securities. Form letters sent
solely to existing customers about the same or related municipal fund
securities that such customers already own could omit all of the standard
disclosures under such subparagraphs (1) and (2) since that information will
have previously been provided to such customers. If the form letters relate to
municipal fund securities other than, or unrelated to, the one the customer
already invests in, then the disclosures under subparagraph (2) would be
required. Furthermore, if the form letter identifies a source for obtaining an
official statement and the dealer underwrites the municipal fund securities
advertised in the form letter, the dealer would be required to disclose that it
is the underwriter.
TAX-RELATED DISCLOSURES
Rule G-21(e)(v) requires a product
advertisement for municipal fund securities that discusses tax benefits to disclose
that such benefits may be conditioned on meeting certain requirements. If the
nature of specific benefits is described, the factors that may materially limit
their availability must be named. The draft amendments modify this subsection
to clarify that generalized statements regarding tax benefits require only a
generalized statement that certain conditions may apply and that, where
specific benefits are described, only those substantive factors that may
materially affect the ability to realize such benefits must be listed, rather
than explained in full. For example, a statement that 529 plans are federally
tax-advantaged, or that investors may qualify for federal tax benefits by
investing in a 529 plan, without identifying the specific benefits, would be
viewed as generalized statements. In such cases, a statement that certain
conditions may apply, or that refers customers to the official statement for
more information, would be sufficient. Furthermore, the inclusion of the required home state tax disclosure under
Rule G-21(e)(i)(A)(2)(b) does not, by itself, require the disclosure of
conditions for receiving such state tax benefits.
* * * * *
The
MSRB welcomes comments from all interested parties on all aspects of the draft
amendments. Comments should be submitted by no later than September 22,
2006 and may be directed to Jill C. Finder, Assistant General Counsel, or Ernesto
A. Lanza, Senior Associate General Counsel. Written comments will be
available for public inspection at the MSRB’s offices in Alexandria, Virginia.
August 11, 2006
* * * * *
TEXT OF DRAFT AMENDMENTS
[16]
Rule G-21. Advertising
(a) General
Provisions.
(i) Definition
of “Advertisement.” For purposes of this rule, the term “advertisement”
means any material (other than listings of offerings) published or used
designed for use in any electronic or other the
public, including electronic, media, or any written or
electronic promotional literature distributed or made generally
available to customers or designed for dissemination to the
public, including any notice, circular, report, market letter, form letter,
telemarketing script, seminar text, press release concerning the products
or services of the broker, dealer or municipal securities dealer, or
reprint, or any excerpt of the foregoing or of
a published article. The term does not apply to preliminary official
statements or official statements, but does apply to abstracts or summaries of
official statements, offering circulars and other such similar documents
prepared by brokers, dealers or municipal securities dealers.
(ii) Definition
of “Form Letter.” For purposes of this rule, the term “form letter” means
any written letter or electronic mail message distributed to 25 or more persons
within any period of 90 consecutive days.
(iii) General
Standard for Advertisements. Except as otherwise provided in this rule, no
broker, dealer or municipal securities dealer shall publish or disseminate, or
cause to be published or disseminated, any advertisement relating to municipal
securities that such broker, dealer or municipal securities dealer knows or has
reason to know is materially false or misleading.
(b) Professional
Advertisements.
(i) Definition
of “Professional Advertisement.” The term “professional advertisement”
means No broker, dealer or municipal securities dealer shall
publish or cause to be published any advertisement concerning the
facilities, services or skills with respect to municipal securities of such
broker, dealer or municipal securities dealer or of another broker, dealer, or
municipal securities dealer.
(ii) Standard
for Professional Advertisements. No broker, dealer or municipal
securities dealer shall publish or disseminate, or cause to be published or
disseminated, any professional advertisement that is
materially false or misleading.
(c) Product
Advertisements.
(i) Definition
of “Product Advertisement.” The term “product advertisement” means
No broker, dealer or municipal securities dealer shall publish or cause
to be published any advertisement concerning one or more specific
municipal securities, one or more specific issues of municipal
securities, the municipal securities of one or more specific issuers, or the
specific features of municipal securities.
(ii) Standard
for Product Advertisements. No broker, dealer or municipal securities
dealer shall publish or disseminate, or cause to be published or disseminated,
any product advertisement that which such broker, dealer,
or municipal securities dealer knows or has reason to know is materially false
or misleading and, to the extent applicable, that is not in compliance
with section (d) or (e) hereof.
(d) New Issue Product
Advertisements. In addition to the requirements of section (c), all product
advertisements for new issue municipal securities (other than municipal fund
securities) shall be subject to the following requirements:
(i) Accuracy at
Time of Sale. A syndicate or syndicate member which publishes or causes to
be published any advertisement regarding the offering by the syndicate of a new
issue of municipal securities, or any part thereof, may show the initial
reoffering prices or yields for the securities, even if the price or yield for
a maturity or maturities may have changed, provided that the advertisement
contains the date of sale of the securities by the issuer to the syndicate. In
the event that the prices or yields shown in a new issue advertisement are
other than the initial reoffering prices or yields, such an advertisement must
show the prices or yields of the securities as of the time the advertisement is
submitted for publication. For purposes of this rule, the date of sale shall be
deemed to be, in the case of competitive sales, the date on which bids are
required to be submitted to an issuer and, in the case of negotiated sales, the
date on which a contract to purchase securities from an issuer is executed.
(ii) Accuracy
at Time of Publication. Each advertisement relating to a new issue of
municipal securities shall also indicate, if applicable, that the securities
shown as available from the syndicate may no longer be available from the
syndicate at the time of publication or may be available from the syndicate at
a price or yield different from that shown in the advertisement.
(e) Municipal Fund Security Product
Advertisements. In addition to the requirements of section (c), all product
advertisements for municipal fund securities shall be subject to the following
requirements:
(i) Required dDisclosures.
(A) Substance and Format of
Disclosure. Except as described in paragraph (B) of this subsection (i),
each product Each advertisement for municipal fund
securities:
(1) basic disclosure –
(A) must include a statement to the effect that:
(a) (1) advises
an investor should to consider the investment
objectives, risks, and charges and expenses associated with municipal fund
securities before investing;
(b) (2) explains
that more information about municipal fund securities is available in
the issuer's official statement;
(c) (3) if
the advertisement identifies a source from which an investor may obtain an
official statement and the broker, dealer or municipal securities dealer that
publishes the advertisement is the underwriter for one or more of the issues of
municipal fund securities for which any such official statement may be supplied,
states that such broker, dealer or municipal securities dealer is
the underwriter for one or more issues (as appropriate) of such municipal fund
securities; and
(d) (4) states that
the official statement should be read carefully before investing.
(2) additional disclosures for
identified products – (B) that refers by name
(including marketing name) to any municipal fund security, issuer of municipal
fund securities, state or other governmental entity that sponsors the issuance
of municipal fund securities, or to any securities held as assets of municipal
fund securities or to any issuer thereof, must include the following
disclosures, as applicable:
(a) (1) unless
the offer of such municipal fund securities is exempt from Exchange Act Rule
15c2-12 and the issuer thereof has not produced an official statement, a source
from which an investor may obtain an official statement;
(b) (2) if
the advertisement relates to municipal fund securities issued by a qualified
tuition program under Internal Revenue Code Section 529, a statement to
the effect that advises an investor should to consider, before investing, whether the investor's or designated beneficiary’s
home state offers any state tax or other benefits that are only available for
investments in such state's qualified tuition program; provided, however,
that this statement shall not be required for any advertisement relating to
municipal fund securities of a specific state if such advertisement is sent to,
or is otherwise distributed through means that are reasonably likely to result
in the advertisement being received by, only residents of such state and is not
otherwise published or disseminated by the broker, dealer or municipal
securities dealer, any of its affiliates, the issuer or any of the issuer’s
agents; and
(c) (3) if
the advertisement is for a municipal fund security that the issuer holds out as
having the characteristics of a money market fund, statements to the effect
that an investment in the security is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency (unless such
guarantee is provided by or on behalf of such issuer) and, if the security is
held out as maintaining a stable net asset value, that although the issuer
seeks to preserve the value of the investment at $1.00 per share or such other
applicable fixed share price, it is possible to lose money by investing in the
security.
(3) additional disclosures
concerning performance – (C) that includes
performance data must include:
(a) (1) a
legend disclosing that the performance data included in the advertisement
represents past performance; that past performance does not guarantee future
results; that the investment return and the value of the investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost; and that current performance may be lower or
higher than the performance data included in the advertisement. Unless
the advertisement includes total return quotations current to the most recent
month ended seven business days prior to the date of any use of the
advertisement, the legend must also identify either a toll-free (or collect)
telephone number or a website where an investor may obtain total return
quotations current to the most recent month-end for which such total return, or
all information required for the calculation of such total return, is
available; and
(b) (2) if
a sales load or any other nonrecurring fee is charged, the maximum amount of
the load or fee (including the maximum sales charge imposed on purchases
or the maximum deferred sales charge, to the extent applicable, current as of
the date such advertisement is submitted for publication or otherwise
disseminated) and, if the sales load or fee is not reflected in the
performance data included in the advertisement, a statement that the
performance data does not reflect the deduction of the sales load or fee and
that the performance data would be lower if such load or fee were included.;
and
(c) to the extent that such
performance data relates to municipal fund securities that are not held out as
having the characteristics of a money market fund and to the extent applicable,
the total annual operating expense ratio of such municipal fund securities
(calculated in the same manner as the total annual fund operating expenses
required to be included in the registration statement for a registered
investment company, subject to paragraph (e)(ii)(A) hereof), gross of any fee
waivers or expense reimbursements, current as of the date of submission of such
advertisement for publication.
(4) format of disclosure –
(D) must present the statements required by subparagraphs (1),
(2) and (3) clauses (A), (B) and (C) of this paragraph (A),
when in a print advertisement, in a type size at least as large as and of a
style different from, but at least as prominent as, that used in the major
portion of the advertisement, provided that when performance data is presented
in a type size smaller than that of the major portion of the advertisement, the
statements required by subparagraph (3) clause (C) of
this paragraph may appear in a type size no smaller than that of the
performance data. If an advertisement is delivered through an electronic
medium, the legibility requirements for the statements required by subparagraphs
(1), (2) and (3) clauses (A), (B) and (C) of this
paragraph relating to type size and style may be satisfied by presenting the
statements in any manner reasonably calculated to draw investor attention to
them. In a radio or television advertisement, the statements required by subparagraphs
(1), (2) and (3) clauses (A), (B) and (C) of this
paragraph must be given emphasis equal to that used in the major portion of the
advertisement. The statements required by subparagraph (3) clause
(C) of this paragraph must be presented in close proximity to the
performance data; provided that and, in a print
advertisement, such statements must be presented in the body of
the advertisement and not in a footnote unless the performance data appears
only in such footnote; and further provided that the maximum sales charge
or maximum deferred sales charge required to be disclosed pursuant to clause (3)(b)
and the information required to be disclosed pursuant to clause (3)(c), along
with the standardized performance information mandated by Securities Act Rule
482 as applicable by virtue of subsection (e)(ii) of this rule, must be
presented in a prominent text box that contains only such information but which
may also contain comparative performance and fee data and disclosures required
under this section (e).
(B) Exceptions from Certain
Disclosure Requirements. Notwithstanding any other provision of this rule,
the following advertisements relating to municipal fund securities shall not be
subject to the provisions of subparagraphs (1) and (2) of paragraph (e)(i)(A):
(1) generic advertisements
– any advertisement that does not refer by name to any specific municipal fund
security or to any specific investment option or portfolio of an issuer of
municipal fund securities, but includes the name and address of the broker,
dealer or municipal securities dealer or other person sponsoring the
advertisement, and that is limited to any one or more of the following:
(a) explanatory information
relating to municipal fund securities generally or the nature of the issuers
thereof or of the programs through which they are issued, or to services
offered in connection with the ownership of such securities; or
(b) the mention or explanation of
municipal fund securities of different generic types or having various
investment objectives; or
(c) offers, descriptions, and
explanations of various products and services not constituting a municipal fund
security, provided that such offers, descriptions, and explanations do not
relate directly to the desirability of owning or purchasing a municipal fund
security; or
(d) invitation to inquire for
further information; provided that if an official statement for municipal fund
securities is to be sent or delivered in response to such inquiries and if the
sponsor of the advertisement is the underwriter for one or more of the issues
of municipal fund securities for which such official statement may be supplied,
the advertisement must state that such broker, dealer or municipal securities
dealer is the underwriter for one or more issues (as appropriate) of such
municipal fund securities.
(2) certain blind
advertisements – any advertisement that does not identify a broker, dealer
or municipal securities dealer or any affiliate of a broker, dealer or
municipal securities dealer and that is limited to any one or more of the
following:
(a) the name of an issuer of
municipal fund securities; or
(b) contact information for an
issuer of municipal fund securities or for any agent of such issuer to obtain
an official statement or other information; provided that, if any such agent of
the issuer is a broker, dealer or municipal securities dealer or an affiliate
of a broker, dealer or municipal securities dealer, no orders for municipal
fund securities shall be accepted through such source; or
(c) a logo or other graphic
design of an issuer of municipal fund securities that does not directly or
indirectly identify the broker, dealer or municipal securities dealer or any
affiliate of the broker, dealer or municipal securities dealer; or
(d) a service mark, trademark or
short slogan of the issuer’s general objectives that does not constitute a call
to invest in municipal fund securities.
(3) certain form letters to
existing customers – any form letter distributed solely to existing
customers of the broker, dealer or municipal securities dealer to whom the
broker, dealer or municipal securities dealer has previously sent or caused to
be sent an official statement for:
(a) any municipal fund securities
of the issuer of such municipal fund securities; or
(b) any municipal fund securities
of a different issuer of municipal fund securities, provided that the
advertisement includes the applicable disclosures under clause (e)(i)(A)(1)(c)
and subparagraph (e)(i)(A)(2) of this rule.
(ii) Performance
dData. Each product advertisement that
includes performance data relating to municipal fund securities must present
performance data in the format, and calculated pursuant to the methods,
prescribed in paragraph (d) of Securities Act Rule 482 (or, in the case of a
municipal fund security that the issuer holds out as having the characteristics
of a money market fund, paragraph (e) of Securities Act Rule 482) and, to
the extent applicable, subparagraph (e)(i)(A)(4) of this rule, provided
that:
(A) source of data
– to the extent that information necessary to calculate performance
data or to determine loads, fees and expenses for purposes of clause (e)(i)(A)(3)(b)
or (c) is not available from an applicable balance sheet included in a
registration statement, or from a prospectus, the broker, dealer or municipal
securities dealer shall use information derived from the issuer's official
statement, otherwise made available by the issuer or its agents, or (when
unavailable from the official statement, the issuer or the issuer's agents)
derived from such other sources which the broker, dealer or municipal
securities dealer reasonably believes are reliable;
(B) period of calculation
– if the issuer first began issuing the municipal fund securities fewer
than one, five, or ten years prior to the date of the submission of the
advertisement for publication, such shorter period shall be substituted for any
otherwise prescribed longer period in connection with the calculation of
average annual total return or any similar returns;
(C) currentness of calculation
– performance data shall be calculated as of the most recent
practicable date considering the type of municipal fund securities and the
media through which data will be conveyed, except that any advertisement
containing total return quotations will be considered to have complied with
this paragraph provided that:
(1) (a) the total return quotations are current
to the most recent calendar quarter ended prior to the submission of the
advertisement for publication for which such performance data, or all
information required for the calculation of such performance data, is available
to the broker, dealer or municipal securities dealer as described in paragraph
clause (A) of this subsection (e)(ii) paragraph;
and
(b) total return quotations (current to
the most recent month ended seven business days prior to the date of any use of
the advertisement for which such total return, or all information required for
the calculation of such total return, is available to the broker, dealer or
municipal securities dealer as described in paragraph clause
(A) of this subsection (e)(ii) paragraph) are
provided at the toll-free (or collect) telephone number or website identified
pursuant to clause (i)(A)(3)(a) paragraph (i)(C)(1)
of this section (e) and the month to which such information is current is
identified; or
(2) the total return quotations are
current to the most recent month ended seven business days prior to the date of
any use of the advertisement for which such total return, or all information
required for the calculation of such total return, is available to the broker,
dealer or municipal securities dealer and the month to which such information
is current is identified.
(D) 12b-1-type plans
– where such calculation is required to include expenses accrued under
a plan adopted under Investment Company Act Rule 12b-1, the broker, dealer or
municipal securities dealer shall include all such expenses as well as any
expenses having the same characteristics as expenses under such a plan where
such a plan is not required to be adopted under said Rule 12b-1 as a result of
Section 2(b) of the Investment Company Act of 1940;
(E) tax-adjusted calculations
– in calculating tax-equivalent yields or after-tax returns, the
broker, dealer or municipal securities dealer shall assume that any
unreinvested distributions are used in the manner intended with respect to such
municipal fund securities in order to qualify for any federal tax-exemption or
other federally tax-advantaged treatment with respect to such distributions,
provided that:
(1) the advertisement must also provide
a general description of how federal law intends that such distributions be
used and disclose that such yield or return would be lower if distributions are
not used in this manner; and
(2) if the then-effective federal
income tax treatment upon which such yield or return was based is subject to
lapse or other adverse change without extension or change of federal law, the
advertisement must disclose this fact and that such yield or return would be
lower if the then-effective federal income tax treatment is not extended or
otherwise changed.
(F) applicability with respect
to underlying assets – notwithstanding any of the foregoing,
this subsection (e)(ii) paragraph shall apply
solely to the calculation of performance relating to municipal fund securities
and does not apply to, or limit the applicability of any rule of the
Commission, NASD or any other regulatory body relating to, the calculation of
performance for any security held as an underlying asset of the municipal fund
securities.
(iii) Nature of
iIssuer and sSecurity. An
advertisement for a specific municipal fund security must provide sufficient
information to identify such specific security in a manner that is not false or
misleading. An advertisement that identifies a specific municipal fund
security must include the name of the issuer (or the issuer's marketing name
for its issuance of municipal fund securities, together with the state of the
issuer), presented in a manner no less prominent than any other entity
identified in the advertisement, and must not imply that a different entity is
the issuer of the municipal fund security. An advertisement must not
raise an inference that, because municipal fund securities are issued under a
government-sponsored plan, investors are guaranteed against investment losses
if no such guarantee exists. If an advertisement concerns a specific
class or category of an issuer's municipal fund securities (e.g., A
shares versus B shares; direct sale shares versus advisor shares; in-state
shares versus national shares; etc.), this must clearly be disclosed in a
manner no less prominent than the information provided with respect to such
class or category.
(iv) Capacity
of dDealer and oOther pParties.
An advertisement that relates to or describes services provided with respect to
municipal fund securities must clearly indicate the entity providing those
services. If any person or entity other than the broker, dealer or
municipal securities dealer is named in the advertisement, the advertisement
must reflect any relationship between the broker, dealer or municipal
securities dealer and such other person or entity. An advertisement
soliciting purchases of municipal fund securities that would be effected by a
broker, dealer or municipal securities dealer or any other entity other than
the broker, dealer or municipal securities dealer that publishes the
advertisement must identify which entity would effect the transaction, provided
that the advertisement may identify one or more such entities in general
descriptive terms but must specifically name any such other entity if it is the
issuer, an affiliate of the issuer, or an affiliate of the broker, dealer or
municipal securities dealer that publishes the advertisement. This subsection
(iv) shall not apply to any advertisement described in subparagraph (e)(i)(B)(2)
of this rule.
(v) Tax cConsequences
and oOther fFeatures. Any
discussion of tax implications or other benefits or features of investments in
municipal fund securities included in an advertisement must not be false or
misleading. In the case of an advertisement that includes generalized
statements regarding tax or other benefits offered in connection with such
municipal fund securities or otherwise offered under state or federal law, the
advertisement also must include a generalized statement state
that the availability of such tax or other benefits may be conditioned on meeting
certain requirements. If the advertisement describes the nature of
specific benefits, such advertisement must also briefly list name
the substantive factors that may materially limit the
availability of such benefits (such as residency, purpose for or timing of
distributions, or other factors, as applicable). Such statements of
conditions or limitations must be presented in close proximity to, and in a
manner no less prominent than, the description of such benefits.
(vi) Underlying
rRegistered sSecurities. If
an advertisement for a municipal fund security provides specific details of a
security held as an underlying asset of the municipal fund security, the
details included in the advertisement relating to such underlying security must
be presented in a manner that would be in compliance with any Commission or
NASD advertising rules that would be applicable if the advertisement related
solely to such underlying security; provided that details of the underlying
security must be accompanied by any further statements relating to such details
as are necessary to ensure that the inclusion of such details does not cause
the advertisement to be false or misleading with respect to the municipal fund
securities advertised. This subsection paragraph
does not limit the applicability of any rule of the Commission, NASD or any
other regulatory body relating to advertisements of securities other than
municipal fund securities, including advertisements that contain information
about such other securities together with information about municipal
securities.
(vii) Correspondence
Presenting Performance Data. Notwithstanding any other provision of this
rule, all correspondence with the public that includes performance data
relating to municipal fund securities must comply with the provisions of subparagraph
(e)(i)(A)(3) (presented in the manner provided in subparagraph (e)(i)(A)(4))
and subsection (e)(ii) as if such correspondence were a product advertisement
under this rule.
(f) Approval by Principal.
Each advertisement subject to the requirements of this rule must be approved in
writing by a municipal securities principal or general securities principal
prior to first use. Each broker, dealer and municipal securities dealer shall
make and keep current in a separate file records of all such advertisements.
Rule
G-27. Supervision
(a)-(c) No change.
(d) Review of Correspondence
(i) No change.
(ii) Review of
correspondence. Each dealer shall develop written procedures that are
appropriate to its business, size, structure, and customers for the review of
incoming and outgoing written (i.e., non-electronic) and electronic
correspondence with the public relating to its municipal securities activities,
including review for compliance with Rule G-21(e)(vii). Procedures
shall include the review of incoming, written correspondence directed to
municipal securities representatives and related to the dealer’s municipal
securities activities to properly identify and handle customer complaints and
to ensure that customer funds and securities are handled in accordance with the
dealer’s procedures. Where such procedures for the review of correspondence do
not require review of all correspondence prior to use or distribution, they
must include provisions for the education and training of associated persons as
to the dealer's procedures governing correspondence; documentation of such
education and training; and surveillance and follow-up to ensure that such
procedures are implemented and adhered to.
(iii) No change.
(e) No change.
