SEC Approves Amendments to Rule G-21 Relating to Month-End Performance Data for Municipal Fund Securities

On August 18, 2005, the Securities and Exchange Commission (the “SEC”) approved amendments to Rule G-21, on advertising, of the Municipal Securities Rulemaking Board (“MSRB”).[1]  The amendments generally require that performance data current to the most recent month-end be made available if brokers, dealers and municipal securities dealers (“dealers”) use advertisements of municipal fund securities containing performance data.  All advertisements of municipal fund securities containing performance data submitted or caused to be submitted for publication by dealers on or after December 1, 2005 must comply with the provisions of these amendments.

The MSRB has previously amended Rule G-21 to, among other things, establish requirements relating to the inclusion of performance data in advertisements for municipal fund securities submitted or caused to be submitted for publication by dealers on or after December 1, 2005.[2]  The current amendments will require dealers to include in advertisements that contain performance data a phone number or web address where investors may obtain such data current to the most recent month-end, unless the data included in the advertisement is itself current to the most recent month-end.  Specifically, the current amendment revises clause (C) of Rule G-21(e)(ii) to provide that performance data in advertisements must be calculated as of the most recent practicable date considering the type of municipal fund securities and the media used, except that any advertisement containing total return quotations would be in compliance with this requirement if:

(1)(a) total return quotations are current to the most recent calendar quarter ended prior to the submission of the advertisement for publication for which such return, or all information required for the calculation of such return, is available to the dealer, and (b) total return quotations (current to the most recent month ended seven business days prior to the date of any use[3] for which such return, or all information required for the calculation of such return, is available to the dealer) are provided at a toll-free or collect telephone number or website identified in the advertisement and the month to which such information is current is identified; or

(2) 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 return, or all information required for the calculation of such return, is available to the dealer and the month to which such information is current is identified.

In addition, revised clause (C)(1) of Rule G-21(e)(i) requires that any advertisement that displays performance information that is not current to the most recent month ended seven business days prior to the date of any use of the advertisement must identify 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 return is available.

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Questions regarding this notice and amended Rule G-21 may be directed to Ernesto A. Lanza, Senior Associate General Counsel, or Ghassan Hitti, Assistant General Counsel.

August 23, 2005

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TEXT OF AMENDMENTS TO RULE G-21 [4]

Rule G-21.  Advertising.

(a)-(d) No changes.

(e) Municipal Fund Security Advertisements. In addition to the requirements of section (c), all advertisements for municipal fund securities shall be subject to the following requirements:

        (i) Required disclosures.  Each advertisement for municipal fund securities:

(A)-(B) No changes.

(C) that includes performance data must include:

(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

(2) No changes.

(D) No changes.

        (ii) Performance data. Each 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), provided that:

(A)-(B) No changes.

(C) 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 clause (A) of this 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 clause (A) of this paragraph) are provided at the toll-free (or collect) telephone number or website identified pursuant to 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)-(F) No changes.

(iii)-(vi) No changes.

(f) No changes.