1 Release No. 34-38369 (Mar. 5, 1997), 62 Fed. Reg. 11510 (Mar. 12, 1997). A copy of the proposal was previously distributed to you; see Memorandum to Advertising Subcommittee No. 32-96 and SEC
Rules Members No. 75-96, dated Dec. 9, 1996.
March 21, 1997
TO: DIRECT MARKETING COMMITTEE No. 7-97
MARKETING POLICY COMMITTEE No. 10-97
SALES FORCE MARKETING COMMITTEE No. 8-97
SHAREHOLDER COMMUNICATIONS COMMITTEE No. 5-97
RE: SEC APPROVES NASD RULE PROPOSAL ON FUND RANKINGS
______________________________________________________________________________
The Securities and Exchange Commission has approved the proposal of the NASD to
revise its guidelines for the use of rankings in mutual fund advertising and sales literature.1
Under the NASDs prior guidelines, all rankings based on total return used in fund advertising
and sales literature had to be accompanied by rankings from the same entity for one, five and
ten year periods (unless the fund was not in existence for the requisite time period). The new
guidelines provide that, if one, five and ten year rankings are not published by the ranking
entity, the fund may use other rankings from that entity representing short, medium and long
term performance. For purposes of the guidelines, the NASDR staff considers "short" to be
interpreted as 1-4 years, "medium" as 5-9 years, and "long" as ten years or more. The
amendments also clarify that the rankings for these prescribed time periods must be for the
same investment category (or subcategory) as the total return ranking(s) that they accompany.
The Institute had filed a comment letter supporting the proposal. Our comment letter
requested clarification that funds in existence for less than ten years could use only short, or
only short and medium, rankings if one year, or one and five year, rankings are not available.
The SECs release does not address this point, but we understand from the NASDR staff that
this is permissible.
A copy of the SECs release is attached.
Craig S. Tyle
Vice President and Senior Counsel
Attachment (in .pdf format)