November 15, 1995
TO: DIRECT MARKETING COMMITTEE No. 50-95
MARKETING POLICY COMMITTEE No. 57-95
PUBLIC INFORMATION COMMITTEE No. 42-95
SALES FORCE MARKETING COMMITTEE No. 54-95
SHAREHOLDER COMMUNICATIONS COMMITTEE No. 42-95
RE: SEC STAFF LETTER PERMITTING ADVERTISING OF PAST PERFORMANCE
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The Division of Investment Management recently granted no-action relief to a registered
investment company with several series ("Funds") that sought to include as part of
standardized average annual total return, performance of the Funds predecessor unregistered
separate investment accounts ("SIAs"). The staff permitted the Funds to include this
performance information in prospectuses, statements of additional information,
advertisements, and sales literature. The SIAs originally were created as investment vehicles
for pension plans and were exempt from registration under Section 3(c)(11) of the Investment
Company Act of 1940 ("Investment Company Act"). Shortly before the effective date of the
Funds registration statement, the assets of each SIA were transferred to a corresponding series
of the fund in exchange for fund shares. A copy of the request for no-action relief and the
staffs response are attached.
The Funds represented, in part, that:
the Funds effectively are continuations of pre-existing accounts that were created for
purposes entirely unrelated to the establishment of a performance record;
each series is managed in a manner that is in all material respects equivalent to the
management of the corresponding SIA; and
any quotation of performance would be accompanied by disclosure that the quoted
performance data includes the performance of the SIAs for periods before the Funds
registration statement became effective, the SIAs were not registered under the
Investment Company Act and therefore were not subject to certain investment
restrictions that are imposed by the Investment Company Act, and if the SIAs had been
registered under the Investment Company Act, the SIAs performance may have been
adversely affected.
In addition, the staffs letter permits the Funds to restate the past performance of the
SIAs to reflect the Funds fees and expenses, as stated in the fee table in the Funds initial
prospectus. Finally, the staff stated that the letters analysis also would apply to a registered
investment company that previously was a private investment company or a common trust
fund.
Dorothy M. Donohue
Assistant Counsel