Request for Comments on Draft Amendments Relating to Rule G-21, on Advertising

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

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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.