Investor Alert

Investing with Borrowed Funds:
No "Margin" for Error

Investor purchases of securities "on margin" have grown dramatically in recent months. As NASD recently reported, the amount of debt taken on to buy securities reached $174 billion in July, an increase of over 25% since the beginning of the year. Some commentators see this growth as a sign that the speculative trading of the late '90s may be returning.

NASD is issuing this Alert because we are concerned that many investors may underestimate the risks of trading on margin and misunderstand the operation and reason for margin calls. Investors who cannot satisfy margin calls can have large portions of their accounts liquidated under unfavorable market conditions. These liquidations can create substantial losses for investors.

Before you decide to open a margin account, make sure you understand the risks.

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New - Understanding Investment Professional Designations

Investors can sometimes become confused by the many designations used by investment professionals. You should be careful judging anyone's qualifications from a set of initials following a name.

Use our professional designations database to help you sort through the list of professional designations and to better understand what education and experience requirements are necessary for a designation, and whether the granting organization mandates continuing education, offers a public disciplinary process, provides a means to check a professional's status, and otherwise ensures that a professional designation is more than just a string of letters.

News Dispatch

NASD Fines Morgan Stanley $2 Million for Prohibited
Mutual Fund Sales Contests

NASD has announced that it had censured and fined Morgan Stanley DW Inc. $2 million for conducting prohibited sales contests for its brokers and managers to promote the sale of Morgan Stanley mutual funds and a selected few variable annuities. Between October 1999 and December 2002, the firm conducted 29 contests, and offered or awarded various forms of non-cash compensation to the winners, including tickets to Britney Spears and Rolling Stones concerts, tickets to the NBA finals, tuition for a high-performance automobile racing school, and trips to resorts.

Morgan Stanley conducted at least two national contests, 10 regional contests and 17 branch contests that violated NASD conduct rules. The 29 contests violated NASD rules because they favored Morgan Stanley's own proprietary mutual funds. The estimated value of the contest rewards totaled $1 million.

NASD also charged Morgan Stanley and the head of its retail sales division, Bruce F. Alonso, with supervisory violations. Morgan Stanley failed to have any supervisory systems or procedures in place to detect and prevent this widespread misconduct. In fact, NASD found that the firm did not have any systems or monitoring procedures in place until January of this year. Alonso, who led the effort to promote MSDW proprietary mutual funds, failed to supervise the sales force to prevent the sales contest violations in question. He was censured and fined $250,000.

Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999 or by sending an e-mail through NASD's Web Site.