NASD ISSUES ANOTHER NOTICE ON DISCLOSURE REQUIREMENTS FOR CASH/NON-CASH COMPENSATION ARRANGEMENTS

May 23, 1994 TO: BOARD OF GOVERNORS NO. 44-94 SEC RULES COMMITTEE NO. 55-94 RE: NASD ISSUES ANOTHER NOTICE ON DISCLOSURE REQUIREMENTS FOR CASH/NON-CASH COMPENSATION ARRANGEMENTS __________________________________________________________ The NASD recently issued the attached Notice to Members No. 94-41 to emphasize that disclosure relating to compensation arrangements for sales of mutual funds must be included in a fund's prospectus. This Notice was issued in response to a number of inquiries as to whether the guidance provided in NASD Notice to Members 94-14 (March 1994) reflected current disclosure obligations under Article III, Section 26(l)(1)(C) or proposed future disclosure obligations. Inasmuch as a proposed amendment to this provision of the Rules of Fair Practice has been pending for several years, many individuals believed that the guidance provided in Notice 94-14 would apply only upon final approval by the SEC of the rule amendment. Notice 94-41 states that the guidance provided in Notice 94-14 "applies now to the current disclosure obligations of members in the sale of mutual fund securities" and that the previous Notice was published to address the NASD's concern that the "current level of disclosure in many cases does not meet the requirements of Section 26(l)(1)(C)." (Emphasis added.) In addition, the Notice clarifies that disclosure with respect to "special" short-term compensation arrangements that are available to all participating members must be set forth in the fund's prospectus or in a sticker to the prospectus. Also, pleased be advised that in a letter dated May 3, 1994 to the SEC, the NASD formally withdrew rule filing SR-NASD-92-36, the proposed amendment to Article III, Section 26(l)(1)(C). Paul Schott Stevens General Counsel Attachment