NASD MEMBERS PROHIBITED FROM USING ADVISER'S PERFORMANCE IN ADVERTISING AND SALES LITERATURE FOR NEW MUTUAL FUNDS; NASD CLARIFIES ADVERTISING FILING REQUIREMENTS

- 1 - June 25, 1992 TO: SUBCOMMITTEE ON ADVERTISING NO. 8-92 RE: NASD MEMBERS PROHIBITED FROM USING ADVISER’S PERFORMANCE IN ADVERTISING AND SALES LITERATURE FOR NEW MUTUAL FUNDS; NASD CLARIFIES ADVERTISING FILING REQUIREMENTS __________________________________________________________ The June 1992 issue of the NASD Regulatory and Compliance Alert includes an article that states that NASD members may not use an investment adviser’s track record in advertising or sales literature for new mutual funds. The article states that the prohibited presentations "include tables, charts, graphs or narrative descriptions of percentage or dollar amount results." However, the article states that general discussions of the adviser’s experience may be included in such advertising and sales literature; these may include "the amount of assets managed by the adviser, the age of the advisory firm, the type of accounts usually managed by the adviser, and the qualifications of the adviser’s employees, among other things." The article notes that the SEC staff has permitted the use of adviser performance in prospectuses of new funds, over which the NASD does not have jurisdiction. However, the NASD has concluded that the use of such information in promotional material could be misleading. The same issue of the Alert also includes an article intended to clarify the NASD’s advertising filing requirements. The article notes the following: 1) Advertising and sales literature need not be refiled if it is being reused without change. However, changes to text or significant design or presentation differences must be refiled. 2) Material revised to reflect NASD comments need not be refiled, unless specifically requested. However, the final copy must be maintained by the member for three years pursuant to NASD recordkeeping requirements. 3) Only one copy of material sent to the NASD for review needs to be filed. (The copy is not returned.) The filing - 2 - should include a brief cover letter that describes the material’s - 1 - use and whether the filing fee is enclosed or is to be deducted from the member’s account. 4) Material using the same format as a previously filed item that only updates performance or financial data need not be filed. This also applies to unit investment trusts offered in a series or as one of several state-specific trusts offering tax- free income, notwithstanding the fact that each trust is a new offering. Members need not file material that merely lists new portfolios and corresponding yields, provided a representative filing already has been made. Members with questions about filing requirements are instructed to phone the NASD Advertising Department at 202/728-8330. Craig S. Tyle Vice President - Securities