July 14, 1994
TO: BOARD OF GOVERNORS NO. 60-94
SEC RULES COMMITTEE NO. 76-94
SUBCOMMITTEE ON ADVERTISING NO. 13-94
RE: SEC ORDER APPROVING NASD RANKING GUIDELINES
__________________________________________________________
The Securities and Exchange Commission recently adopted
guidelines of the National Association of Securities Dealers,
Inc., concerning the use of rankings in mutual fund sales
material. At the same time, the Commission solicited comments on
certain aspects of the guidelines. A copy of the Commission's
release is attached. Comments are due 21 days from the date of
publication in the Federal Register.
The guidelines generally require that all investment company
advertisements and sales literature containing a ranking disclose
certain information about the ranking and impose specific
requirements regarding references to rankings in advertisement
headlines, appropriate ranking time periods, and ranking
categories. The guidelines reflect several amendments to the
guidelines initially filed by the NASD, including the following:
- Part of the guidelines could be read to prohibit the
use of fund-created rankings. Sales material only may
include rankings that are "developed and produced" by
independent "Ranking Entities."
- In response to a comment from the Institute, the
guidelines do not require that total return and yield
rankings be accompanied by rankings for the life of the
fund. (The guidelines do require that they be
accompanied by 1-, 5-, and 10-year rankings.)
- Also in response to an Institute comment, the sales
material must disclose any material effect that a fee
waiver or expense advancement had on total return or
yield, rather than on the fund's ranking as originally
proposed.
- A ranking based on yield may be based only on the
current SEC standardized yield.
- The guidelines apply to all investment companies, not
only mutual funds.
Please provide any comments that you might have by Monday,
July 25th to Tom Selman, Assistant Counsel. Tom's direct number
is 202/326-5819 and our fax number is 202/326-5828.
Paul Schott Stevens
General Counsel
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