GUIDELINES ON ADVERTISEMENTS AND INVITATIONS UNDER RULE 22 OF THE VOLUNTARY PENSION SYSTEM RULES, 2005 ISSUED BY:

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1 GUIDELINES ON ADVERTISEMENTS AND INVITATIONS UNDER RULE 22 OF THE VOLUNTARY PENSION SYSTEM RULES, 2005 ISSUED BY: SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN DRAFT Securities and Exchange Commission of Pakistan - 1 -

2 GUIDELINES ON ADVERTISEMENTS AND INVITATIONS UNDER RULE 22 OF THE VOLUNTARY PENSION SYSTEM RULES, INTRODUCTION 1.1 These guidelines are made pursuant to rule 43 of the Voluntary Pension System Rules, 2005 ( VPS Rules ). The purpose of these Guidelines is to set out the policy of the Securities and Exchange Commission of Pakistan (the Commission ) in relation to the approval for advertisement, invitations and announcements to the public under rule 22 of the VPS Rules. 1.2 Apart from the general approval process, these guidelines also provide the responsibilities of the issuers of such material and the requirements in terms of disclosures, information, comparisons, invitations and any other related material included therein. 1.3 Any approval granted by the Commission under rule 22 shall not absolve the issuer from its obligations and responsibilities imposed on it under the trust deed and by any other applicable laws. 1.4 The approval granted by the Commission under rule 22 of VPS Rules shall remain in force as long as the requirements detailed in the VPS Rule (as interpreted, where necessary, by these guidelines) remain satisfied. 1.5 These guidelines should be read together with VPS Rules and other applicable laws. 2. TERMS AND CONDITIONS OF THE APPROVAL While granting approval for the issuance of any advertisement and invitation material under rule 22(1) of the VPS Rules, the Commission, in addition to the conditions applicable to the issuer under the VPS Rules and the trust deed, may take into account the adherence to the following standards: a) All advertisements and invitation materials shall bear the full name of the Pension Fund Manager and the Trustee of the pension fund. b) All advertisements and invitation material shall be based upon the principles of good faith and fair dealing. Securities and Exchange Commission of Pakistan - 2 -

3 c) Any advertisement and invitation material shall not be misleading and shall not omit any material fact, if such omission will cause the communication to be misread and misunderstood. For the purpose of these guidelines,- (i) Advertisement and invitation materials/ Materials refers to all such notices as referred to in clause (ii), (iii), (iv) and (vi) and include any other activity for a similar purpose. (ii) Advertisements and invitations refers to any notice that;- (a) Issues, offers for subscription or purchase, or makes invitations to subscribe for or purchase, products of the pension fund; (b) refers whether directly or indirectly, to an offer document in respect of any pension fund. (c) refers whether directly or indirectly, to an issue, intended issue, offer, intended offer, invitation or intended invitation in respect of products of a pension fund; or (d) refers whether directly or indirectly, to another notice that refers to an offer document in relation to an issue, intended issue, offer, intended offer, invitation or intended invitation in respect of products of a pension fund; or (e) refers whether directly or indirectly, to the promotion of any of the schemes or products of the pension Fund. (f) refers whether directly or indirectly, to the disclosure of performance, rating, ranking or grading of the pension fund or any one scheme of the pension fund. (g) refers whether directly or indirectly, to any sales material (as provided below at (iii)). (h) refers whether directly or indirectly, to any form or application to be filled in by the individual while becoming a participant in the Fund. (iii) Notice referred to above shall include but not limited to any notice published in a document, newspaper or periodical, or on any medium capable of suggesting words and ideas and any materials disseminated, intended or apparently intended, to advertise and invite for a pension fund. Forms of publication medium include, but not be limited to, the following: (a) Published materials (e.g. magazine, journal, periodical); (b) Display of posters, notices, signs or billboards; (c) Letters, circulars, newsletters, brochures, application forms or pamphlets; (d) Sound broadcasting, cinema or television; and (e) Telephone, facsimile, telex, computer transmission (internet) or others electronic transmission. Including website publications under what ever name or head, the purpose of which is to promote or advertise. (iv) Sales Material refers to any written communication offering to sell or induce the sale of products of a pension fund, distributed or otherwise made available to the public or to the participants. The purpose of such communication shall be either to sell the products of the pension fund or to convey the performance of the pension funds or to influence the opinion or behavior of those who receive such communication. (v) Issuer refers to the Fund manager, the pension fund, or any person/institution acting on behalf of both or one or any other person/institution applying to the Commission for approval of advertisements and invitation in respect of any pension fund or any scheme or products of the pension fund for issuance. Securities and Exchange Commission of Pakistan - 3 -

4 (vi) offer document refers to a document containing information on a pension scheme/product published to invite offers by public to participate in such scheme/product and includes the documents to be signed by the participant at the time of joining a scheme/product. (vii) Misleading refers to any communication that ; a) Contains an untrue statement b) Does not contain appropriate explanation/limitations to make the statement/advertisement clearly understandable. c) Portrays part performance unless such performance is disclosed as per these guidelines. d) Contains any forecasts of growth in NAVs or promise any return that is not backed by adequate reserve funds or sponsor s or third party guarantees. e) Contains any unwarranted/unexplained comparisons. f) Contains claims about management capability unless such capability is supported by a track record of over 3 years. d) All advertisement and invitation materials shall bring to the knowledge of the participants or the public, whosoever is the intended recipient of such communication, the fact that pension fund investments are prone to risks of fluctuation in Net Asset Values (NAVs), uncertainty of dividend distributions and other inherent risks of unit based pension fund schemes. e) When engaged in public speaking, seminars, TV/Radio shows, interview to the press etc., the representative of the pension funds and their employees should strictly observe the guidelines stated herein, even though some of such forms of communications may not amount to advertisements and invitation material. f) Issuer of any advertisement and invitation material shall refrain from using exaggerated or unwarranted claims, superlatives and opinions, which cannot be substantiated by the available public data. Issuer shall also avoid future forecasts and estimates of growth. g) Any advertisement and invitation material shall not treat any disclosure of risks, as required by any regulation or guidelines issued from time to time and are in force at the time of issue, as hedged in communications with participants/public. h) Statistical information, charts, graphs, etc., when used shall always be supported by their source. And the source shall be easily accessible for anyone who has a direct or indirect access to such advertisements and invitation material. i) Issuer of any advertisement and invitation material shall refrain from making comparisons unless essential to the form and content of such material. If used, such comparisons should be clear and unambiguous and should be verifiable by the recipient of such communication even without consulting the issuer. 3. Application for Approval of Advertisement and Invitational Material Securities and Exchange Commission of Pakistan - 4 -

5 3.1 While applying for approval under rule 22(1), the applicant shall ensure that the contents of the advertisement and invitation material are based on the following priciples: (1) General Principles The contents of the advertisement and invitation material are based on the principles of good faith and fair dealing. As such, the advertisement and invitation material must not in any way mislead or deceive a prospective investor. Rather such material shall be issued with the objective to enable the investor and the other interested parties to make a well-informed decision. While exercising the principals of good faith and fair dealing with due diligence in issuance of advertisement and invitation material following shall be kept in mind:- (a) a prospective investor cannot be expected to have any special understanding or knowledge of the matters contained in the advertisement and invitation material. (b) the validity of a statement will depend on its contextual setting. A statement made in one context may be misleading or wrong in another context. So in any of these cases, full reference to the condition must be given so as to communicate the real essence of the statement. (c) the exaggeration of certain incidental features of the pension fund (e.g. insurance coverage, or some payment plan) may mislead the investors. (d) in certain cases different levels of explanation or detail may be necessary for different classes of investors. So each and every material should contain all the right explanations for the right target. (e) issuers should present the most up-to-date information (e.g. NAV, profits, appreciation in the value of portfolio or interest rate figures). Information of irrelevant or non corresponding time period with the intention to present a more favorable picture shall result in investors being misinformed. (2) Incidental Features (i) As the exaggeration of certain incidental features may mislead investors, issuers are required to present incidental features in all advertisements and invitation materials according to the following principles: Securities and Exchange Commission of Pakistan - 5 -

6 a) No un-due prominence shall be given to any incidental feature (e.g. free insurance coverage, free consumer goods or incentives, etc.) that is contained in any advertisement and invitation material (e.g. the advertisement and invitation material shall stress upon the pension fund and not the incidental features; b) The offer of any incidental features shall be made subject to the full disclosure of the conditions in which such features may be passed to the participant. If such offer is only for a specific class or category of the participants of the pension fund, it shall be disclosed clearly as not to mislead the other classes of participants. c) There shall be no hidden or additional costs imposed upon investors with such promotions. (ii) The principles of honesty and greatest possible accuracy shall underpin all advertisements and invitation materials. In this regard, dishonesty or inaccuracy can result from exaggerations, omissions or implications of certain statements contained in the advertisement and invitation material. Issuers shall be careful that selective emphasis of certain features of a product may create a certain cataleptic bias towards the product which may be misleading. Furthermore, In preparing an advertisement and invitation material, issuers shall bear in mind that inherent in investments are the risks of price fluctuations directly attributed to the market fluctuation over which no one can have any control whatsoever and the uncertainty of distributions, rates of return and yield. Accordingly, statements about possible benefits connected with investing should be counterbalanced with the disclosure of the associated risks/limitations so as to avoid misleading an investor into something against his prudence. (iii) Care and attention shall always be paid to the overall impression of the advertisement and invitation material. Material shall always be presented with the objective of educating the investor and leading him to a well informed decision and not to confuse him over the lucrative figure comparison and hiding information that would have a material impact on his decision making. (3) Language and Graphics (i) The use of ambiguous terms, or industry terms which are not explained or understood fully by any person with a normal knowledge shall be Securities and Exchange Commission of Pakistan - 6 -

7 avoided wherever possible. If such terms or references are to be used, they must be explained with sufficient clarity. It shall always be considered that a statement made in an unclear manner may result in a lack of understanding or even a serious misunderstanding. It shall be noted that a complex or overly technical explanation may be worse than too little communication. (ii) A statement of opinion in respect of a pension fund or a Pension Fund Manager shall be reasonable and, where appropriate, capable of verification. In this regard, any testimonial quoted or referred to in an advertisement and invitation material should be relevant, factual and attributable to an independent source (i.e. ratings shall always bear the name of the rater). The source and the date of the testimonial quoted or referred to in the advertisement and invitation material shall be disclosed in the material and it shall also be made sure that such testimony is easily accessible by all who have an access to such advertising and invitation material. (iii) An advertisement and invitation material shall not give a participant the impression that his capital is secure or his income/profits are guaranteed or that any rate of return is certain, unless otherwise appropriate. It shall, in no case, imply that an investor can get profit without any risk. (iv) An advertisement and invitation material statement shall not give an investor the impression that his investment will always increase in value. In addition, the language shall avoid implying urgency or emergency. The words and the context shall not pressurize the reader into investing within a certain time frame. (v) An advertisement and invitation material shall not use definitive or unreasonably promising language in the representation of the outcome of investment in the pension fund. It should always be made clear, unless other wise, that all the investments are subject to market fluctuation and other risk, of inherent nature, associated with the unit based pension fund schemes. (vi) The issuer of the advertisement and invitation material shall refrain from making direct forecasts or projections of the future performance of the pension fund. Any statement that indirectly relates to the future performance of a fund must allow for the vicissitudes of the market and must not be made in certain terms. Securities and Exchange Commission of Pakistan - 7 -

8 (vii) An advertisement and invitation material shall not use language or graphics that may be considered by a reasonable person to be poor in taste. (viii) The participation and involvement of the regulatory authorities in the industry shall only be stated in a factual manner and shall not be intended to give investors the impression that their investments are safe/ secure or profits are guaranteed. In particular, an advertisement and invitation material shall not imply that the authorities have taken responsibility for the financial soundness of the unit trust fund or of the management company, or that the authorities recommend the unit, or that authorities have ratified the statements and opinions expressed. (4) Comparison Comparisons made between two or more pension funds, or between two or more alternative investments, shall be fair, reasonable, accurate and shall be based on similar time periods. Material differences between the subjects of comparison shall be highlighted. While making a comparison it should be ensured that,- (a) the comparison is as complete as it is practicable and that no fact is omitted which, if disclosed, may alter the conclusions reasonably drawn or implied by the comparison. (b) Issuers shall note that comparisons with alternative investments or savings vehicles should explain clearly any relevant differences in guarantees, fluctuation of principal and/or return, insurance, and any other factors necessary to make such comparisons fair and not misleading. (c) Any performance comparison between funds, or between alternative investments, should be fairly and accurately based on reports published by an independent organization. Any external source of such material must be identified. The source and the date of the report quoted should be disclosed in the advertisement and invitation material. (d) Only the investment performance of funds with similar investment objectives, investment policies and risk profiles can be compared in order to ensure a like with like comparison. (5) Investment Performance (i) Performance figures quoted (which include, but is not limited to awards and rankings of the fund or the fund manager) or referred to Securities and Exchange Commission of Pakistan - 8 -

9 in an advertisement and invitation material shall be factual information, independently sourced or independently verified, and published (where applicable) by a recognized financial and statistical reporting service. The source of information and/or the verifying party shall be disclosed and it shall also be made sure that such testimony is easily accessible by all who have an access to such advertising and invitation material. While issuing any performance figures the issuer shall also ensure that,- a. Performance figures for periods of less than one year are not used unless accompanied by the most recent figure of one year's duration for comparison purposes. b. In general, the appropriate time periods for illustration of results are those which are of sufficient duration and that the data can be meaningfully appreciated. The selection of a specific time period, solely for the purpose of illustrating performance at its best, is likely to mislead or provide bias to the presentation of the information and would, therefore, not be appropriate as this would result in an investment decision made on incomplete or misleading information. c. Investment performance data should be up-to-date and no more than six months old. For example, as at 31 December 2005, the promotional materials should not contain performance data covering periods which end before 30 June However, data should be updated if more recent data is significantly different. For the purpose of this a variation of 5% or more from that last published statistics to the current performance figures would be considered significant). (ii) Performance Awards won by the fund or by the Pension Fund Manager (may be an annual performance awards) shall be advertised for at most one year after the announcement date of such award along with the disclosure of the full name of the institution/association according it. (iii) Performance Rankings: (a) The ranking of a fund shall not be advertised unless the ranking relates to a period of one year or more. Therefore, rankings for a period of less than one year (e.g. monthly or quarterly rankings) shall not be used in advertisements and invitation materials as the short time frame and the lead time to publication of the said Securities and Exchange Commission of Pakistan - 9 -

10 materials may serve to confuse the public as monthly or quarterly rankings are too fluid compared to performance rankings which are based on a longer time period. (b) Where the ranking of a pension fund in a certain category is being advertised, the number of funds within that category shall at be least four. This is to ensure that any published rankings are based on a meaningful number of pension funds. Alternatively, the number of pension funds that were considered in the ranking category shall be disclosed. (iv) Performance Benchmarks (a) Performance benchmarks used in promotional materials shall be relevant, appropriate and consistent. (b) Performance benchmarks shall not be a moving target and shall be appropriate to the investment objective and policy of the fund. (v) Performance figures displayed must be actual rather than hypothetical/simulated results. Annualized returns are generally only acceptable if the actual returns for all the individual years are also shown separately. Issuers shall endeavor to present performance results in a manner which is clear and shows that within the longer periods illustrated, there have been short-term fluctuations. No single period of any length is to be taken as typical of what may be expected in future periods. Issuer shall also refrain from publicizing future projections based on part performance as investments are always prone to market fluctuations which are more likely in volatile markets, as Pakistan. Graphs, tables and other diagrams used shall be presented without distortions. Figures shown on graphs must give a fair picture of the position. The issuer shall ensure that,- (a) In selecting a format for the presentation of performance results, consideration is given, not only to the completeness and accuracy of the data, but also to the clarity and meaningfulness of the overall presentation. Careful consideration should be given to the visual impact of the data presented, as the reader may not go beyond a scanning of the trends depicted. Securities and Exchange Commission of Pakistan

11 (b) Furthermore, while a summary of investment results is often necessary in order to make the advertisement and invitation material readable and understandable, it must be recognised that the reader may not look beyond the summary data presented. Consequently issuers should take into account that the summary data must be fair in all respects and not likely to mislead, either directly or by distracting the reader from other necessary information. (vi) The basis of computation of investment figures shall be disclosed, for example, NAV vs. NAV or offer vs. offer. (6) Disclosure Statements (i) (ii) Disclosure statements shall be clearly displayed in an advertisement and invitation material and shall contain the following information; a) The name of the pension fund manager. b) The name of the trustee of the pension fund. c) Registered office or website address from where the copies of the offer document and other information may be obtained d) Fees and commissions to be charged to the participants/pension fund, whether in the form of front-end fee, annual management fee or any other fee. Media advertisement and invitation materials (e.g. television, cinema, radio, website publication, computer transmission) will require the above disclosure statements to be read out/displayed very clearly as an average reader or recipient of such material may not miss such facts while going through the advertisement or invitation material. (7) Warning Statements (i) Warning statements shall be clearly displayed in all advertisements and invitation materials, to the following effect: a) Investors are advised to read and understand the contents of the offer document before investing. Among others, investors shall consider the fees and charges involved; b) The price of units and distributions payable, if any, may go down as well as up; c) Where past performance is quoted, the past performance of a fund shall not be taken as indicative of its future performance; Securities and Exchange Commission of Pakistan

12 (ii) In addition to the warning statements in (7)(i) above, the issuers shall highlight any special risks of investing in the particular fund. (iii) Warning statements shall be highlighted and generally printed in the same type size as the rest of the advertisement and invitation material or at least shall be capable of being read with reasonable ease by anyone scanning such material. Furthermore, where the warning statements are submerged by the preponderance of written text, warning statements may be boxed. For the purpose of these Guidelines reasonable ease would mean that a person with reasonable eyesight would notice the warning statement and be able to read the message without any reading aids such as magnifying glasses, or squinting to read the text, etc. 3.2 The application for approval of any advertisement and invitation material under rule 22(1) of the VPS Rules, the applicant shall follow the procedure stated herein; (1) The application shall contain all the relevant information regarding the dates of the proposal to be published, its advertising media and the facts and figures to be disclosed/ published in the report. (2) The application shall also contain a copy of the material in the publication format. If the material is other than advertising material it shall contain both English and Urdu versions which are to be distributed. In case of advertisement, it shall contain the copy of the same in the language in which it is to be published. Approval granted for one material shall only be applicable to that material in particular. (3) In case of electronic media advertisements, issuers are required to submit scripts and storyboards along with the audio or video tapes/cds. Of the commercial. (4) In case of bi-lingual material a certificate of confirmation from the relevant designated person, preferably dealing in such areas and having sound expertise, shall accompany the application as to confirm the equivalence of all such version. (5) In case of change of any material facts or medium of publication the approval granted for one publication shall stand cancelled under the Rule 22(2) of the VPS RULES and a new approval shall be sought. Securities and Exchange Commission of Pakistan

13 (6) For those advertisements and invitation material that include performance data (including awards and ranking) for the pension fund, supporting information shall be submitted to SECP to substantiate such performance. (7) The issuer shall submit a copy of the publication of approved advertisement and invitation in any medium, after the first such publication, within 14 days with the Commission. However, In case of electronic media, this requirement may be relaxed by the Commission on submission of formal application by the issuer. All such applications shall be accompanied by a declaration by the fund manager and the issuer (in case if issuer is other than the fund manager) that only approved material has been broadcasted. (8) It shall be the responsibility of issuer to ensure that the advertisements and invitation material comply with all other relevant laws and regulations. (9) Any advertisement and invitation material submitted for approval, which concerns the trustee, must be accompanies by its written consent. (10) Applications, so submitted shall be singed by the contact person, designated by the pension fund manager and approved by the Commission for this purpose. Contact Person for the purpose of these guidelines refers to an individual appointed by the pension fund manager and approved by the Commission to act as designated person for overseeing and facilitating all communications with the Commission. (11) Any application, submitted for approval under Rules 22(1) of the VPS RULES shall be accompanied by an affidavit by the relevant pension fund manager that all the information, facts and figures furnished in the application are true and are in compliance with these guidelines and any other applicable for the time being in-force. 4. Obligations of the Fund Manager regarding Advertisements and Invitations The Compliance of these guidelines is mainly the responsibility of the Pension Fund manger and his associates or any person acting on his or their behalf. Pension Fund Manger shall, at all times, take the notice of the following and ensure that,- (i) All such application for the approval must contain full information regarding the material submitted for approval and shall also be Securities and Exchange Commission of Pakistan

14 accompanied by such documents which may verify all the material facts and figures stated /disclosed in the material. (ii) The Fund Manager shall ensure at all times that any representations made and information supplied to a client is accurate and not misleading. (iii) A fund manger shall also ensure that all advertisements and marketing materials are approved as required by SECP before issue. All such material shall always contain true and fair figures and performance claims, which can be verified with reasonable ease and may be verifiable through a third party (iv) The fund manager shall always comply with all applicable statutory requirements regarding any advertisement or promotional activity including the guidelines. Securities and Exchange Commission of Pakistan