August 4, 1994
TO: SEC RULES COMMITTEE NO. 86-94
SUBCOMMITTEE ON ADVERTISING NO. 15-94
RE: INSTITUTE COMMENT LETTER ON NASD RANKING GUIDELINES
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As we previously informed you, the Securities and Exchange
Commission recently approved proposed NASD guidelines concerning
the use of rankings in mutual fund sales material and solicited
comments on certain aspects of the guidelines. (See Memorandum to
SEC Rules Committee No. 76-94; Subcommittee on Advertising No. 13-
94, dated July 14, 1994.) The Institute recently submitted the
attached comment letter on the proposal.
The Institute's letter generally supports the guidelines,
subject to certain specific comments. The guidelines contain a new
Section II, which could be read to prohibit the use of rankings
created by funds on the basis of rankings developed by a ranking
entity. Because neither the NASD nor the Commission intended such
a prohibition, the Institute urged that the section be amended to
clarify that the guidelines permit these fund-created rankings.
The Institute also recommended deletion of the ambiguous term
"general promotional material" from Section II.
The guidelines require that total return and yield rankings
for non-money market funds be accompanied by total return rankings
for 1, 5, and 10-year periods supplied by the same ranking entity.
The Institute's letter states that many ranking entities,
particularly publications in general circulation, might not develop
those rankings. The Institute recommended an amendment to require
rankings for these periods only "to the extent that they have been
issued by the Ranking Entity." The Institute also recommended
that, at a minimum, the guidelines be clarified so that when a
publication in general circulation bases its rankings on
measurements of an independent ranking entity, disclosure of the 1,
5, and 10-year rankings of the other ranking entity will satisfy
the requirements of the guidelines.
Thomas M. Selman
Assistant Counsel
Attachment