1 See NASD Notice to Members 97-47 (August 1997). The Request for Comment is also available on the Internet at
http://www.nasdr.com/2520.htm.
2 See MassMutual Institutional Funds (pub. avail. Sept. 28, 1995).
3 See Bramwell Growth Fund (pub. avail. Aug. 7, 1996).
4 See Nicholas-Applegate Mutual Funds (pub. avail. Aug. 6, 1996 and Feb. 7, 1997), ITT-Hartford Mutual Funds (pub.
avail. Feb. 7, 1997) and GE Funds (pub. avail. Feb. 7, 1997).
August 7, 1997
TO: SEC RULES COMMITTEE No. 78-97
ADVERTISING SUBCOMMITTEE No. 28-97
RE: NASDR REQUESTS COMMENT ON PRESENTATION OF RELATED
PERFORMANCE INFORMATION
______________________________________________________________________________
NASD Regulation, Inc. recently requested comment on issues raised by allowing mutual
fund advertising and sales literature to include the presentation of performance information of
other substantially similar mutual funds and unregistered funds and accounts managed by the
same investment adviser or portfolio manager.1 A copy of NASDRs notice requesting
comment is attached.
The Notice discusses a series of no-action letters issued by the SEC staff that permit
mutual funds to present a range of performance information in their sales material and
prospectuses in specific factual situations and subject to certain conditions. These letters can be
categorized as allowing the performance of: (1) an unregistered private account or fund which
is converted into a registered mutual fund to be included as part of the registered funds track
record (the MassMutual no-action letter);2 (2) a substantially similar mutual fund managed by
the same portfolio manager to be included in a newer, unaffiliated mutual funds prospectus
(the Bramwell no-action letter);3 and (3) a substantially similar unregistered private account or
registered mutual fund to be included in the prospectus and sales material of a mutual fund
managed by the same investment adviser (the Nicholas-Applegate I & II, ITT-Hartford, and GE
Funds no-action letters).4 The Notice refers to these types of performance information as
"Related Performance Information."
Although these no-action letters indicate that the SEC staff will not recommend
enforcement action for presentation of Related Performance Information in mutual fund sales
5 Since the SEC staffs issuance of the MassMutual no-action letter, NASDR has permitted NASD members to include
the performance of an unregistered predecessor fund as part of a registered mutual funds track record in sales
material under appropriate conditions. NASDR states that it is now reviewing its position concerning the
presentation of predecessor performance as part of its comprehensive consideration of the presentation of all types of
Related Performance Information.
material based on the representations contained in those letters, to date, NASDR generally has
not permitted Related Performance Information in mutual fund sales material.5 In light of these
letters, as well as the public interest in Related Performance Information, NASDR has
commenced a comprehensive examination of the issues related to such presentations. The
Notice includes a series of questions raised by these issues and requests both general and
specific comments on the potential investor benefits and concerns associated with the
presentation of Related Performance Information.
With respect to the potential benefits, commenters are asked to address a number of
questions, including: (i) whether Related Performance Information provides a "sound basis" for
making an investment decision; (ii) whether investors want or need this information; (iii) how
mutual funds propose to present this information; (iv) what are the legal and practical
limitations on providing this information; (v) what conditions should be imposed on using this
type of information (e.g., should it be limited to new funds); and (vi) whether the benefits are so
great that NASDR should require the use of this information in mutual fund sales material.
With respect to the potential concerns, NASDR also has requested comment on a
number of issues, including: (i) whether NASDR should impose specific disclosure standards
on the presentation of Related Performance Information; (ii) whether NASDR should impose
standards on the calculation of Related Performance Information; (iii) whether NASDR should
impose standards to discourage the "incubation" of private account performance; and (iv)
whether NASDR should impose standards to promote the comparability of performance data.
Comments must be received by NASDR by September 29, 1997. Before any rule
change becomes effective, it must be adopted by the NASDR Board of Directors, may be
reviewed by the NASD Board of Directors, and must be approved by the SEC.
A group composed of Advertising Subcommittee members, as well as the full
Subcommittee, have been working on the Institutes position with regard to these types of prior
performance issues. A draft comment letter in response to the Notice, based upon the work of
this group, will be circulated for your review. If in the mean time you have any questions or
comments regarding the Notice, please call or e-mail Joe Savage (202/326-5819 or
savage@ici.org) or Craig Tyle (202/326-5815 or tyle@ici.org).
Joseph P. Savage
Assistant Counsel
Attachment (in .pdf format)