[Federal Register Volume 69, Number 250 (Thursday, December 30, 2004)]
[Notices]
[Pages 78499-78508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28581]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50919; File No. SR-MSRB-2004-09]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Municipal Securities Rulemaking Board Relating to 
Advertisements of Municipal Fund Securities Under MSRB Rule G-21

December 22, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 16, 2004, the Municipal Securities Rulemaking Board 
(``MSRB'' or ``Board'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the MSRB. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The MSRB has filed with the SEC a proposed rule change amending 
Rule G-21, on advertising, to establish specific requirements with 
respect to advertisements by brokers, dealers and municipal securities 
dealers (``dealers'') relating to municipal fund securities. The MSRB 
proposes an effective date for the proposed rule change of the first 
calendar day of the month beginning 90 or more calendar days after SEC 
approval.
    Below is the text of the proposed rule change. Proposed new 
language is in italic; proposed deletions are in brackets.
* * * * *

Rule G-21. Advertising.

    (a)-(c) No change.
    (d) New Issue Advertisements. In addition to the requirements of 
section (c), all advertisements for new issue municipal securities 
(other than municipal fund securities) shall [also] be subject to the 
following requirements:
    (i)-(ii) No change.
    (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:

[[Page 78500]]

    (i) Required disclosures. Each advertisement for municipal fund 
securities:
    (A) must include a statement that:
    (1) advises an investor to consider the investment objectives, 
risks, and charges and expenses associated with municipal fund 
securities before investing;
    (2) explains that more information about municipal fund securities 
is available in the issuer's official statement;
    (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
    (4) states that the official statement should be read carefully 
before investing.
    (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:
    (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;
    (2) if the advertisement relates to municipal fund securities 
issued by a qualified tuition program under Internal Revenue Code 
Section 529, a statement that advises an investor 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; and
    (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.
    (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 (provided 
that the disclosure with respect to investment value fluctuation is not 
required for municipal fund securities that the issuer holds out as 
having the characteristics of a money market fund and as maintaining a 
stable net asset value); and that current performance may be lower or 
higher than the performance data included in the advertisement; and
    (2) if a sales load or any other nonrecurring fee is charged, the 
maximum amount of the load or fee 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.
    (D) must present the statements required by clauses (A), (B) and 
(C) of this paragraph, 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 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 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 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 clause (C) of this paragraph 
must be presented in close proximity to the performance data and, in a 
print advertisement, must be presented in the body of the advertisement 
and not in a footnote unless the performance data appears only in such 
footnote.
    (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) to the extent that information necessary to calculate 
performance data 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) 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) performance data shall be calculated as of 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;
    (D) 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) 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

[[Page 78501]]

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) notwithstanding any of the foregoing, this 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 issuer and security. 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 dealer and other parties. 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.
    (v) Tax consequences and other features. 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 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 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 name the 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 registered securities. 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 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.
    (f) [(e)] No change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the MSRB included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The MSRB has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule G-21, on advertising, establishes standards for dealer 
advertisements relating to municipal securities. The MSRB has 
previously provided interpretive guidance to dealers regarding the 
application of these standards to advertisements of municipal fund 
securities.\3\ The proposed rule change amends Rule G-21 to establish 
specific standards applicable solely to dealer advertisements of 
municipal fund securities. In particular, the proposed rule change 
incorporates the advertising standards enunciated in the 2002 Notice

[[Page 78502]]

into Rule G-21, with certain modifications. In addition, the proposed 
rule change includes specific requirements regarding the calculation 
and display of performance data for municipal fund securities in a 
manner consistent with Rule 482 adopted by the SEC under the Securities 
Act of 1933, as amended (the ``Securities Act''),\4\ in connection with 
the advertisement of mutual fund performance. The proposed rule change 
also includes general disclosure requirements regarding municipal fund 
securities that are similar in most respects to generalized disclosures 
currently required for mutual fund advertisements under SEC rules.
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    \3\ See Rule G-21 Interpretation--Application of Fair Practice 
and Advertising Rules to Municipal Fund Securities, May 14, 2002, 
reprinted in MSRB Rule Book (the ``2002 Notice''). The 2002 Notice 
also confirmed previous guidance on advertisements of municipal fund 
securities published in 2001. See Rule G-30 Interpretation--
Interpretive Notice on Commissions and Other Charges, Advertisements 
and Official Statements Relating to Municipal Fund Securities, 
December 19, 2001, reprinted in MSRB Rule Book. Municipal fund 
securities are municipal securities issued by an issuer that, but 
for the application of Section 2(b) of the Investment Company Act of 
1940, as amended (the ``Investment Company Act''), would constitute 
an investment company within the meaning of the Investment Company 
Act. The most common forms of municipal fund securities sold by 
dealers consist of interests in trusts established by states as 
qualified tuition programs under Section 529 of the Internal Revenue 
Code of 1986, as amended (``529 college savings plans''), and 
interests in local government investment pools (``LGIPs'').
    \4\ 15 U.S.C. 77a et seq.
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General Disclosures

    The proposed rule change includes in clauses (A) and (B) of Rule G-
21(e)(i) disclosure provisions modeled after SEC general disclosure 
requirements for mutual fund advertisements, with certain 
modifications. The modifications recognize the difference between the 
prospectus required for mutual funds and the official statement 
indirectly required for municipal fund securities under Rule 15c2-12 
adopted by the SEC under the Act,\5\ as well as other differences in 
characteristics between municipal fund securities and mutual funds.
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    \5\ SEC Rule 15c2-12 provides, among other things, that the 
underwriter for most primary offerings of municipal securities must 
obtain and review the issuer's near-final official statement before 
purchasing or offering the securities, contract with the issuer to 
receive copies of the final official statement within specified time 
frames after the final agreement to purchase or offer the 
securities, and distribute copies of the official statement to 
potential customers upon request. For purposes of the rule, a final 
official statement must set forth information concerning the terms 
of the issue; information, including financial or operating data, 
concerning the issuer and other entities, enterprises, funds, 
accounts and other persons material to an evaluation of the 
offering; and a description of undertakings regarding the provision 
of secondary market information, as well as disclosure of any 
failures to provide such information during the past five years. A 
final official statement need not contain each item of information 
required to be included in a prospectus under the Securities Act.
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    New section (e)(i)(A) of Rule G-21 requires that all dealer 
advertisements relating to municipal fund securities include 
generalized disclosure that: (1) Advises investors to consider the 
investment objectives, risks, and charges and expenses associated with 
municipal fund securities before investing; (2) explains that more 
information about municipal fund securities is available in the 
issuer's official statement; (3) if the advertisement identifies a 
source from which an investor may obtain an official statement and the 
dealer that publishes the advertisement is the underwriter for the 
municipal fund securities for which such official statement may be 
supplied, states that such dealer is the underwriter for such municipal 
fund securities; and (4) states that the official statement should be 
read carefully before investing. The disclosures required in clauses 
(1), (2), and (4) of Rule G-21(e)(i)(A) are substantially similar to 
the analogous disclosures required under section (b)(1)(i) of SEC Rule 
482 in connection with a mutual fund advertisement that would be 
considered a prospectus under the Securities Act. The disclosure 
required in clause (3) of Rule G-21(e)(i)(A) is substantially similar 
to the analogous disclosure required under section (b) of Rule 135a 
adopted by the SEC under the Securities Act in connection with generic 
mutual fund advertisements.
    New section (e)(i)(B) of Rule G-21 requires that all dealer 
advertisements that refer by name (including marketing name) to any 
municipal fund security, issuer of municipal fund securities, 
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 of such securities held as assets, must 
include additional disclosure that: (1) Identifies a source from which 
an investor may obtain an official statement; (2) if the advertisement 
relates to municipal fund securities issued through a 529 college 
savings plan, advises an investor 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 529 college savings plan; and (3) if the advertisement 
is for a municipal fund security that the issuer holds out as having 
the characteristics of a money market fund, states 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 that, if the 
security is held out as maintaining a stable net asset value, although 
the issuer seeks to preserve the value of the investment at a fixed 
share price, it is possible to lose money by investing in the security. 
The disclosure required in clause (1) of Rule G-21(e)(i)(B) is 
substantially similar to the analogous disclosure required under 
section (b)(1)(i) of SEC Rule 482. The disclosure required in clause 
(3) of Rule G-21(e)(i)(B) is substantially similar to the analogous 
disclosure required under section (b)(4) of SEC Rule 482. The 
disclosure required in clause (2) of Rule G-21(e)(i)(B) is not derived 
from SEC mutual fund advertising rules but is analogous to the point-
of-sale disclosure obligation under Rule G-17 described in the 2002 
Notice.\6\
    New section (e)(i)(D) of Rule G-21 requires that these general 
disclosures be presented in the same format required under SEC Rule 
482.
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    \6\ The specific disclosure required in the proposed rule change 
is somewhat broader than that currently required under the point-of-
sale disclosure obligation described in the 2002 Notice. The MSRB 
expects to file with the SEC in the near future a proposed rule 
change that expands this point-of-sale disclosure requirement under 
Rule G-17 to also reference the possible existence of other non-tax 
state benefits. See MSRB Notice 2004-16 (June 10, 2004).
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Historical Performance Data

    The proposed rule change establishes in new section (e)(ii) of Rule 
G-21 specific requirements with respect to the inclusion of performance 
data in municipal fund security advertisements.
    Calculation and Display of Performance Data. Under the proposed 
rule change, such advertisements must comply with the method of 
computing and displaying performance data for mutual funds as 
prescribed in section (d) or (e) of SEC Rule 482, with certain 
modifications described below. In effect, for municipal fund securities 
other than those that are held out by the issuer as having the 
characteristics of a money market fund, quotations of performance in an 
advertisement are limited to the average annual total return, current 
yield (but only if accompanied by average annual total return), tax-
equivalent yield (but only if accompanied by average annual total 
return and current yield), after-tax return (but only if accompanied by 
average annual total return), or other non-prescribed performance 
measures (but only if accompanied by average annual total return and, 
if adjusted to reflect the effects of taxes, after-tax return), as 
provided in SEC Rule 482(d). In the case of municipal fund securities 
that are held out by the issuer as having the characteristics of a 
money market fund, quotations of performance in an advertisement are 
limited to the current yield, effective yield (but only if accompanied 
by current yield), tax-equivalent yield or tax-equivalent effective 
yield (but only if accompanied by current yield), or total return (but 
only if accompanied by current yield), as provided in SEC Rule 
482(e).\7\
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    \7\ SEC Rule 482 incorporates the calculation methods set forth 
in Forms N-1, N-3, and N-4 for purposes of calculating the various 
types of quotations described in the rule. These methods are also 
incorporated into Rule G-21(e)(ii).

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[[Page 78503]]

    Clauses (A) through (E) of Rule G-21(e)(ii) modify the basic 
performance data calculation methods established for mutual funds to 
reflect the fact that certain items of information that exist in the 
mutual fund industry--such as the registration statement and the 
specific items of information required to be disclosed in the 
prospectus and statement of additional information--do not exist for 
municipal fund securities, as well as to reflect other differences in 
characteristics between municipal fund securities and mutual funds. 
Thus, Rule G-21(e)(ii) provides that: (A) A dealer can use information 
provided in the issuer's official statement, otherwise made available 
by the issuer, or otherwise obtained from other reliable sources to 
calculate performance to the extent such information is not available 
from a balance sheet in a registration statement or from a prospectus; 
(B) the life of a municipal fund securities issue should be measured 
from when the issuer first issues the securities; (C) performance data 
in advertisements must be calculated as of 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 dealer; \8\ (D) expenses having the same characteristics as those 
permitted to be paid under Rule 12b-1 adopted by the SEC under the 
Investment Company Act but not technically accrued under a 12b-1 plan 
must be treated as 12b-1 expenses for purposes of calculating 
performance; \9\ and (E) in calculating tax-equivalent yields or after-
tax returns, the dealer shall assume that any unreinvested 
distributions are used in a manner that qualifies for any federal tax-
exemption or other federally tax-advantaged treatment with respect to 
such distributions, provided that: (1) The advertisement also provides 
a general description of how federal law intends such distributions be 
used and discloses that such yield or return would be lower if 
distributions are not used in this manner; and (2) if the federal 
income tax treatment upon which such yield or return is 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 Federal income tax treatment is 
not extended or otherwise changed.
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    \8\ As noted in footnote 17 and accompanying text, infra, the 
MSRB is publishing for comment concurrent with this filing a draft 
amendment that would modify this clause (C).
    \9\ Thus, asset-based charges paid to the program manager or 
investment advisor, to the issuer or its agents, or to any other 
party generally are to be treated as 12b-1 expenses for purposes of 
calculating performance even if any such charges may not technically 
be paid under a formal 12b-1 plan. In addition, any 12b-1 expenses 
incurred in connection with underlying assets of the municipal fund 
securities also must be treated as 12b-1 expenses of the municipal 
fund securities to the extent that such expenses are not waived or 
not included within the asset-based charges described in the 
preceding sentence.
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    Performance data included in municipal fund security advertisements 
are required to be displayed in the manner provided in section (d) or 
(e) of SEC Rule 482, as appropriate, with respect to prominence and 
positioning of information.
    Disclosures Accompanying Performance Data. New Section (e)(i)(C) of 
Rule G-21 requires that advertisements that include performance data 
for municipal fund securities also include certain related legends and 
disclosures modeled after those required under SEC Rule 482 for mutual 
funds advertisements that display performance information. These 
disclosures emphasize that the performance data is historical and does 
not guarantee future results, that the value of holdings is subject to 
fluctuation (except where the municipal fund security is held out as 
having the characteristics of a money market fund and as maintaining a 
stable net asset value), and that current performance may be different 
from the performance data included in the advertisement.\10\ 
Advertisements containing performance data also are required to include 
the maximum amount of any sales load or other nonrecurring fee and, if 
such load or fee is not reflected in the performance data, to disclose 
that the load or fee is not so reflected and that performance would be 
lower if it had been reflected. These nonrecurring fees that are 
subject to disclosure include such fees imposed not only by the dealer 
but also by the issuer or any other party to the issuance of the 
municipal fund securities or the maintenance of investments therein.
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    \10\ As noted in footnote 17 and accompanying text, infra, the 
MSRB is publishing for comment concurrent with this filing a draft 
amendment that would modify this provision.
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    New Section (e)(i)(D) requires that these legends and disclosures 
be presented in the same format required under SEC Rule 482.
Additional Requirements
    The proposed rule change includes in new paragraphs (iii) through 
(vi) of Rule G-21(e) additional requirements with respect to municipal 
fund security advertisements, based largely on interpretive guidance 
provided in the 2002 Notice.
    Nature of Issuer and Security. New paragraph (iii) requires that an 
advertisement: (1) for a specific municipal fund security provide 
sufficient information to identify the security in a manner that is not 
false or misleading; (2) that identifies a specific municipal fund 
security include the name of the issuer (or its marketing name, 
including state), presented in a manner no less prominent than any 
other entity identified in the advertisement, and not imply that a 
different entity is the issuer; (3) 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; and (4) that concerns a specific class or 
category of municipal fund securities (e.g., A shares versus B shares; 
direct sale shares versus advisor shares; in-state shares versus 
national shares; etc.) clearly disclose this fact in a manner no less 
prominent than the information provided with respect to such class or 
category.
    Capacity of Dealer and Other Parties. New paragraph (iv) requires 
an advertisement about services provided with respect to municipal fund 
securities to clearly indicate the entity providing such services. If 
any person or entity other than the dealer is named in the 
advertisement, it must reflect any relationship between the dealer and 
such other person or entity. An advertisement soliciting purchases that 
would be effected by any party other than the dealer that publishes the 
advertisement (i.e., the issuer or another dealer) must identify which 
entity would effect the transaction, provided that it 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 dealer that publishes 
the advertisement.
    Tax Consequences and Other Features. New paragraph (v) requires 
that any discussion of tax implications or other benefits or features 
of investments in municipal fund securities included in an 
advertisement not be false or misleading. If an advertisement includes 
statements regarding tax or other benefits offered in connection with 
such municipal fund securities or otherwise offered under state or 
federal law, it must also 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 name the factors that may materially 
limit the availability of

[[Page 78504]]

such benefits (such as residency, purpose for or timing of 
distributions, or other factors, as applicable).\11\ 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.
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    \11\ For example, if an advertisement notes that investors in a 
particular 529 college savings plan may qualify for scholarships or 
matching grants, it may also need to state that such scholarships or 
matching grants are available only for attendance at in-state 
colleges or to in-state investors, if that is in fact the case.
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    Underlying Registered Securities. New paragraph (vi) requires that, 
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 be presented in a manner that would be in 
compliance with any SEC or NASD advertising rules that would be 
applicable if the advertisement related solely to such underlying 
security. Details of the underlying security included in the 
advertisement must be accompanied by any further statements 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 provision does not limit the 
applicability of any rule of the SEC, 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 fund 
securities.
Exemption From New Issue Price/Yield Requirement
    The proposed rule change exempts municipal fund security 
advertisements from the provision of Rule G-21(d) relating to 
advertisements of initial reoffering prices or yields of new issue 
municipal securities. This provision is designed for advertisements by 
underwriting syndicates for municipal debt offerings and does not deal 
with matters relevant to municipal fund securities.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
section 15B(b)(2)(C) of the Act,\12\ which requires that the rules of 
the MSRB shall ``be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in municipal securities, to remove 
impediments to and perfect the mechanism of a free and open market in 
municipal securities, and, in general, to protect investors and the 
public interest* * *.\13\
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    \12\ 15 U.S.C. 78o-4(b)(2)(C).
    \13\ Id.
---------------------------------------------------------------------------

    The MSRB believes that the proposed rule change is consistent with 
the Act because it will further investor protection by raising the 
standards for advertisements of municipal fund securities and by making 
information provided in such advertisements comparable for different 
municipal fund securities investments and between municipal fund 
securities and registered mutual funds.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The MSRB does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purposes of the Act since it would apply equally to all dealers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    On June 10, 2004, the MSRB published for comment draft rule changes 
to Rule G-21 with respect to advertisements of municipal fund 
securities.\14\ The MSRB received eight comment letters.\15\ After 
reviewing these comments, the MSRB approved the draft amendments, with 
certain modifications, for filing with the SEC. The comments and 
modifications to the draft amendments are discussed below.
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    \14\ See MSRB Notice 2004-16 (June 10, 2004).
    \15\ Letter from Kenneth B. Roberts, Hawkins Delafield & Wood 
LLP (``Hawkins''), to Ernesto A. Lanza, Senior Associate General 
Counsel, MSRB, dated August 20, 2004; letter from Mary L. Schapiro, 
Vice Chairman, NASD, and President, Regulatory Policy and Oversight, 
to Ernesto A. Lanza, dated September 9, 2004; letter from Tamara K. 
Salmon, Senior Associate Counsel, Investment Company Institute 
(``ICI''), to Ernesto A. Lanza, dated September 10, 2004; letter 
from David J. Pearlman, College Savings Foundation (``CSF''), to 
Ernesto A. Lanza, dated September 13, 2004; letter from Elizabeth L. 
Bordowitz, General Counsel, Finance Authority of Maine (``FAME''), 
to Ernesto A. Lanza, dated September 13, 2004; letter from Diana F. 
Cantor, Chair, College Savings Plan Network (``CSPN''), and 
Executive Director, Virginia College Savings Plan, to Ernesto A. 
Lanza, dated September 15, 2004; letter from Elizabeth Varley and 
Michael D. Udoff, Co-Staff Advisers, Securities Industry Association 
(``SIA'') Ad Hoc 529 Plans Committee, to Ernesto A. Lanza, dated 
September 15, 2004; and letter from Raquel Alexander, PhD, Assistant 
Professor, and LeAnn Luna, PhD, Assistant Professor, University of 
North Carolina at Wilmington, to Ernesto A. Lanza, dated September 
15, 2004. Most commentators also provided comments on the proposed 
modification to the MSRB's existing point-of-sale disclosure 
obligation relating to sales of out-of-state 529 college savings 
plans, as described in the June notice. The MSRB expects to file 
with the SEC in the near future a proposed rule change that expands 
this point-of-sale disclosure requirement under Rule G-17 to also 
reference the possible existence of other non-tax state benefits. 
The MSRB will address comments on this subject at that time.
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General Disclosures
    Summary of Draft Amendment. Draft Rule G-21(e)(i)(A) would require 
dealer advertisements of municipal fund securities to include 
generalized disclosure to the effect that investors should consider the 
securities' investment objectives, risks and charges before investing; 
that more information about the securities is available in the issuer's 
official statement; identifies where an official statement can be 
obtained; and states that the official statement should be read 
carefully before investing. Advertisements of 529 college savings plans 
also must advise investors to consider whether their home states offer 
state tax or other benefits only available for investments in the in-
state plans. Further, advertisements for municipal fund securities that 
are marketed as money market securities would be required to disclose 
that investments are not insured and, if marketed as maintaining a 
stable net asset value, it is still possible to lose money. These 
disclosures would be required to be given emphasis equal to that used 
in the major portion of the advertisement. In addition, the MSRB sought 
comment on whether the rule should require that dealers that advertise 
529 college savings plans include in their generalized disclosure 
language the URL of an MSRB-maintained Web site where investors can 
obtain general information about the 529 college savings plan market.
    Discussion of Comments. Commentators generally supported the 
proposed general disclosures, with several providing suggested changes.
     State tax and other benefits--Three commentators 
representative of, or generally acting on behalf of, state issuers 
suggested modifications to the language relating to the potential 
benefits of investing in an in-state plan. CSPN and FAME stated that 
the proposed language should reflect that some benefits may be 
dependent on the designated beneficiary's home state (rather than or in 
addition to the home state of the investor). Hawkins suggested that if 
a state's 529 college savings plan is offered solely within that state 
and an advertisement of such plan is

[[Page 78505]]

distributed solely within such state, the advertisement should be 
exempted from the proposed disclosure regarding potential benefits of 
investing in an in-state plan.
    The MSRB agrees that the general disclosure language in Rule G-
21(e)(i)(B)(2) should be modified to include reference to the 
designated beneficiary when discussing the benefits of in-state 
investments. However, the MSRB does not believe that the additional 
changes suggested by the commentators should be made. The MSRB believes 
that disclosure of potential in-state benefits should apply to all 529 
college savings plan advertisements, even if the advertisement for a 
529 college savings plan offered solely within a particular state is 
distributed solely within that state, as this would ensure uniform 
practices and avoid sometimes difficult factual determinations.
     Advertisements with limited information--Several 
commentators (CSF, CSPN, FAME and SIA) suggested that the proposed 
amendments permit an abbreviated form of the general disclosures for 
purposes of radio and television advertisements in view of the limited 
amount of time available in such advertisements to provide all required 
information. SIA argued that the requirement that equal prominence be 
given to the general disclosures would result in the advertisement's 
intended message being lost. CSF stated that the practical consequence 
of this requirement would quite possibly be that there would be no more 
radio or television advertisements of 529 college savings plans by 
dealers. CSF and SIA suggested that a broadcast advertisement that 
merely presents the dealer's name and address, the name of the 529 
college savings plan and the name of the sponsoring state be permitted 
to substitute an abbreviated reference to the official statement for 
further information. SIA further suggested that such a broadcast 
advertisement urge the investor to read the official statement 
carefully before investing and state how an investor may obtain the 
official statement.
    The MSRB notes that SEC Rule 135a effectively permits the use of 
certain types of mutual fund advertisements containing very limited 
information without including the disclosures required under SEC Rule 
482. SEC Rule 135a covers advertisements that include no more than 
explanatory information relating to mutual funds generally and/or to 
specific categories of mutual funds, as well as an invitation to 
inquire for further information. Such advertisements must contain the 
name and address of the dealer sponsoring the advertisement and whether 
the dealer is the principal underwriter of any mutual fund with respect 
to which information will be sent to any investor who asks for more 
information. However, such advertisements must not specifically refer 
by name to any mutual fund or fund family.
    The suggestion of CSF and SIA would provide for including the name 
of the 529 college savings plan and its sponsoring state, unlike under 
SEC Rule 135a. However, their proposal would provide for retaining 
certain of the general disclosures of the proposal that are not 
otherwise required under SEC Rule 135a. The MSRB believes that the 
general disclosure provision should be modified to permit more 
abbreviated general disclosures, set forth in Rule G-21(e)(i)(A), where 
an advertisement does not refer by name (including marketing name) to 
any specific municipal fund security, issuer of municipal fund 
securities or 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 of such securities 
held as assets. Such disclosures would be limited to statements 
advising investors to consider the investment objectives, risks and 
charges of municipal fund securities before investing; that more 
information about municipal fund securities is available in the 
issuer's official statement; and that the official statement should be 
read carefully before investing. Because these disclosures would be 
considerably shorter than otherwise required, the MSRB does not believe 
that the equal prominence requirement for such statements should be 
changed. Further, the MSRB does not believe that dealers should be 
permitted to identify a specific product in advertisements where only 
these more abbreviated general disclosures are provided. Any 
advertisement that specifically identifies a product must also include 
the general disclosures set forth in Rule G-21(e)(i)(B), as applicable.
     Reference to MSRB Web site--Most commentators stated that 
the MSRB should not require that 529 college savings plan 
advertisements include reference to an MSRB-maintained Web site on 529 
college savings plans, and no commentator supported such a requirement. 
The MSRB will take no further action with respect to such proposal at 
this time. However, the MSRB will continue to maintain and update its 
existing Web pages, at http://www.msrb.org/msrb1/mfs, that provide 
generalized information about municipal fund securities.
     Applicability to LGIPs--Hawkins suggested that the general 
disclosure provisions be made inapplicable to advertisements of LGIPs, 
arguing that the required references to the official statement are 
inappropriate because official statements are not typically prepared 
for LGIPs. The MSRB understands that most LGIPs do in fact prepare 
official statements (often referred to as information statements), and 
dealers marketing LGIPs generally are subject to SEC Rule 15c2-12. 
Therefore, the MSRB has not exempted dealer advertisements of LGIPs 
from the rule requirements.
Performance Data
    Summary of Proposal. Draft Rule G-21(e)(ii) would require 
advertisements that include performance data to comply with the method 
of computing and displaying mutual fund performance data provided under 
SEC Rule 482, with certain modifications. Among other things, the draft 
amendment would require that performance data shown in an advertisement 
be calculated as of the most recent calendar quarter for which such 
data, or all information required to calculate such performance data, 
is reasonably available to the dealer. SEC Rule 482 requires that such 
data be shown in mutual fund advertisements as of the most recent 
calendar quarter but does not make the determination of which calendar 
quarter is the most recent dependent upon the availability of such 
data.
    In addition, draft Rule G-21(e)(i) would require certain related 
disclosures for municipal fund securities advertisements that contain 
performance data. The disclosures emphasize that the performance 
information is historical and does not guarantee future results, the 
value of holdings is subject to fluctuation, and current performance 
may be lower or higher than the performance quoted. Advertisements 
containing performance data also would be required to include basic 
information about sales loads and other nonrecurring fees and note the 
impact of such loads or fees on performance as shown. The disclosures 
must be given emphasis equal to that of the performance data itself. 
These disclosures are required under SEC Rule 482 in mutual funds 
advertisements that display performance information.
    Discussion of Comments. Commentators generally supported the 
proposed performance data calculation methods and related legends and

[[Page 78506]]

disclosures, with several providing suggested changes.
     Most recent quarterly performance data--NASD stated that 
the difference in the language regarding the timing of quarterly data 
used in Rule G-21 as compared to the language used in SEC Rule 482 
``appears to give dealers latitude'' that ``may undermine the ability 
of investors to compare different municipal fund securities programs, 
or even the same program offered by different dealers who impose 
varying end dates for their performance calculation. At a minimum, the 
disparity between the language in Rule 482 and the MSRB's proposal 
would create confusion for broker-dealers that must comply with both 
provisions.''
    The language used in the draft amendment was not designed to give 
dealers latitude in deciding which timeframes to include in 
advertisements, nor would it normally lead to a different result under 
the draft rule as compared to SEC Rule 482.\16\ Rather, the language 
reflects the MSRB's recognition that its rulemaking should not be used 
to indirectly regulate state issuers in structuring their programs and 
that a state's structure might result in making compliance with the 
specific language of Rule 482 impossible without forcing a change in 
the structure. However, to mitigate the possibility of unintended 
ambiguity and possible inconsistent application of the rule between 
different dealers, the MSRB has modified the language of Rule G-
21(e)(ii)(C) to provide that calculations must be made as of the most 
recent quarter for which necessary information is available, rather 
than when such information is reasonably available. Dealers wishing to 
advertise performance would be tasked with taking all appropriate 
actions necessary to obtain information that is in fact available for 
purposes of such calculation.
---------------------------------------------------------------------------

    \16\ The MSRB notes that SEC Rule 482(g) provides a basic 
timeliness standard based on the ``most recent practicable date 
considering the type of investment company and the media through 
which data will be conveyed'' that also could be viewed as giving 
some latitude in deciding which timeframes to include in 
advertisements.
---------------------------------------------------------------------------

     Most recent month-end performance data--ICI and NASD 
suggested that the MSRB add a requirement that dealers include in 
municipal fund security advertisements that contain performance data a 
phone number or Web address where investors may obtain performance data 
current to the most recent month-end. They stated that this would make 
the MSRB's advertising rule consistent with the similar requirement 
established under SEC Rule 482. Rule 482 requires that mutual fund 
advertisements that show performance data also include a phone number 
or Web site address at which performance data may be obtained that is 
current to the most recent month, available no later than seven 
business days after the end of the month. This requirement was not 
included in draft Rule G-21(e). Concurrent with the filing of this 
proposed rule change, the MSRB is publishing for industry comment a 
draft amendment to Rule G-21 that would require inclusion in dealer 
advertisements that contain performance data for municipal fund 
securities of a phone number or Web address where investors may obtain 
performance data current to the most recent month-end.\17\
---------------------------------------------------------------------------

    \17\ See MSRB Notice 2004-43 (December 16, 2004).
---------------------------------------------------------------------------

     Affect of federal tax treatment of 529 plans--The MSRB 
sought comment on whether the methods of calculating performance 
provided under SEC Rule 482, as modified by the draft amendments, were 
appropriate for municipal fund securities. ICI stated that ``the 
proposed modifications satisfactorily address any disparities that 
should be taken into account in incorporating the provisions of Rule 
482 into Rule G-21.'' CSPN and FAME strongly supported the effort to 
develop a uniform method of calculating performance. They suggested 
that the MSRB establish basic assumptions that 529 college savings plan 
distributions will be used in a manner that would preserve their tax-
exempt nature (with a footnote to the effect that after-tax returns 
would differ if current law sunsets). In addition, they suggested that 
after-tax returns should not be required to be shown for 529 college 
savings plan advertisements since such investments are intended to be 
tax-exempt.
    The MSRB does not believe that such assumptions about the tax-
exempt nature of 529 college savings plan investments should apply for 
all purposes of calculating performance. Thus, the baseline total 
return calculation would continue to ignore all tax effects. However, 
in calculating tax-equivalent yields or after-tax returns, the MSRB 
believes it is appropriate to assume that unreinvested distributions 
are used for purposes that would maintain any intended federal tax 
benefit, as set forth in Rule G-21(e)(ii)(E). Such assumption would 
require that the advertisement include a general description of how 
federal law intends that such distributions be used to maintain the 
favorable tax treatment and a disclosure that the tax-equivalent yield 
or after-tax return would be lower if distributions are not used in 
such manner. In addition, if the favorable tax treatment is subject to 
lapse or other adverse change without extension or other change of law, 
the advertisement must disclose this fact and that such yield or return 
would be lower if the favorable tax treatment is not extended or 
otherwise changed.
    Further, the MSRB does not believe that the provision requiring the 
inclusion of after tax-return should be eliminated. The only 
circumstance in which a dealer would be required to show after-tax 
return is if the advertisement also includes a performance measure that 
is adjusted to reflect the effect of taxes (e.g., a tax equivalent 
return intended to show how the tax benefits of investing in 529 
college savings plans compares to other fully taxable investments). 
Under this circumstance, it is appropriate that the advertisement also 
include performance that does not include such adjustment.

Additional Requirements

    Draft Rule G-21 would incorporate, with certain modifications, 
several existing interpretive positions from the 2002 Notice. 
Commentators generally supported the incorporation of these positions 
into the rule, with several providing suggested changes.
     Nature of Issuer and Security--Draft Rule 21(e)(iii) would 
require, among other things, that an advertisement that identifies a 
specific municipal fund security include the name of the issuer 
presented in a manner no less prominent than any other entity 
identified in the advertisement.
    CSF argued that, in some cases, providing the name of the legal 
issuer in connection with 529 college savings plan securities may not 
help consumers understand the nature of the issuer and may result in 
confusion since the legal issuer may be an obscure state trust. CSF 
suggested that it would be more helpful to identify the 529 college 
savings plan by marketing name, together with the name of the state 
that establishes and maintains the plan. CSF also suggested that 
dealers be permitted to include the marketing logo, rather than a logo 
of the legal issuer, in advertisements, which logo should appear at 
least as prominently as the dealer's logo. SIA stated that the 
requirement that the issuer's name be given equal prominence to that of 
the dealer is unnecessary and subject to second guessing. SIA argued 
that the policy objective of the proposed rule, which is to prevent 
investor confusion

[[Page 78507]]

as to who the issuer of the security is, is satisfied by the other 
requirements set forth in this section that the issuer be identified 
and that the advertisement not imply that another entity is the issuer 
of the security.
    The MSRB believes that it is appropriate to permit dealers to use 
the marketing name and state of a 529 college savings plan in 
substitution for the legal name of the issuer. However, the MSRB does 
not agree that such issuer information should be permitted to be 
presented in a manner that is less prominent than any other entity 
identified in the advertisement. This provision would also permit the 
use of the 529 college savings plans logo, so long as such logo is 
presented in a manner no less prominent than any other entity's logo 
included in the advertisement.
     Capacity of Dealer and Other Parties--Draft Rule 21(e)(iv) 
would require an advertisement that relates to or describes services 
provided with respect to municipal fund securities to clearly indicate 
the entity providing such services. In addition, an advertisement 
soliciting purchases of municipal fund securities that would be 
effected by any party other than the dealer that publishes the 
advertisement (i.e., the issuer or another dealer) must clearly state 
which entity would effect the transaction.
    CSF and SIA argued that many 529 college savings plans are marketed 
through hundreds of dealers and it would be extremely difficult if not 
impossible for a primary distributor to list in its advertisement all 
such dealers. CSF suggested that only dealers that are affiliates of 
the dealer publishing the advertisement and, if applicable, the issuer 
itself be required to be identified by name in such advertisements. 
NASD stated that this provision resembles, but is not identical to, 
NASD Rule 2210(d)(2)(C), which generally requires that all sales 
material prominently disclose the name of the member and, if it 
includes other names, reflect which products or services are being 
offered by the member.
    It was not the intent of the original proposal to require that a 
primary distributor list its many hundreds of selling dealers used in 
the 529 college savings plan's distribution channels. The MSRB has 
modified this provision so that the only parties effecting transactions 
in municipal fund securities that must be specifically named in an 
advertisement are the dealer publishing the advertisement, any other 
dealer affiliated with such dealer and the issuer, as applicable. In 
addition, the rule language has been revised to more closely track the 
NASD requirement that, if any parties other than the dealer is named in 
a municipal fund securities advertisement, the products or services 
offered by such parties in connection with such municipal fund 
securities must be stated.
     Tax Consequences and Other Features--Draft Rule 21(e)(v) 
would require, among other things, that an advertisement that includes 
statements regarding tax or other benefits offered under state or 
federal law must make clear the nature of such benefits and that the 
availability of such benefits may be materially limited based upon 
residency, purpose for or timing of share redemptions, or other 
factors, as applicable. These limitations would be required to be 
described in the advertisement in close proximity to, and in a manner 
no less prominent than, the description of such benefits.
    CSF argued that state tax treatment of 529 college savings plans is 
extremely complex and that not all variations in state treatment will 
be a benefit to in-state investors. It suggested that the reference in 
the rule language to ``state tax or other benefits'' should be changed 
to ``different state tax or other consequences.'' CSF also expressed 
concern over the proposal's requirement that an advertisement that 
includes information about tax or other state benefits must ``make 
clear the nature of such benefits.'' CSF stated:

    If all that would be required is a general statement that tax 
and other benefits may be available only through the home-state 
program, the guidance should so state. . . . If a laundry list of 
all potential aspects of differing treatment is required, we are 
concerned that such a list could not practically be updated to 
account for all new state laws, and that even if it could, space 
limitations would make it impractical or impossible to achieve 
compliance.

    CSPN and Hawkins stated that only general statements of limitation 
are appropriate where an advertisement contains only general statements 
of benefits, so long as the investor is directed to the official 
statement for additional information. Hawkins suggested that the 
proposed rule language appears to require dealer advertisements that 
refer in any manner to tax or other benefits to include a detailed 
description of the nature of, and of limitations applicable to receipt 
of, such benefits. Hawkins argued that it may be impractical to include 
such a detailed description within most advertisements without 
resulting in potentially misleading or incomplete statements.
    FAME suggested certain changes to terminology in this provision, 
stating that references to ``shares'' are not appropriate for many 529 
college savings plans. In addition, CSPN and FAME stated that some 
state benefits may not be specifically provided for under state law but 
are created by state entities under general grants of authority.
    The MSRB has modified the rule language to more narrowly focus the 
types of disclosures that would be required to be made in an 
advertisement that includes descriptions of tax or other beneficial 
features offered under state or federal law in connection with an 
investment in municipal fund securities. Thus, the modified language 
would make clear that general statements regarding the existence of 
beneficial features would not require an extensive listing of all such 
features but would require general disclosure that such features may be 
subject to limitations. However, as the information about tax matters 
becomes more detailed, the rule would require comparably detailed 
discussion of potential limitations. However, the reference to 
``benefits'' has not been eliminated from the rule. The rule already 
addresses the broader concept of ``tax implications'' but is also 
specifically aimed at ensuring that the ``hyping'' of beneficial 
treatment is tempered by an equally prominent discussion of potential 
limitations. Further, certain limited modifications have been made to 
the rule language to address the concerns regarding use of the term 
``shares'' and reference to benefits provided under state law.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The MSRB proposes an effective date for the proposed rule change of 
the first calendar day of the month beginning 90 or more calendar days 
after SEC approval. Within 35 days of the date of publication of this 
notice in the Federal Register or within such longer period (i) as the 
Commission may designate up to 90 days of such date if it finds such 
longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 78508]]

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-MSRB-2004-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-MSRB-2004-09. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the MSRB's 
principal office. All comments received will be posted without change; 
the Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
MSRB-2004-09 and should be submitted on or before January 20, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-28581 Filed 12-29-04; 8:45 am]
BILLING CODE 8010-01-P