RCA - December 1998 - Ask the Analyst - Mutual Funds Ranking Guidelines

Q. The Rankings Guidelines require that advertisements featuring mutual fund performance rankings also disclose one-year, five-year, and ten-year performance rankings (or short, medium, and long-term rankings if the specified time period rankings are not available). Do these additional rankings need to be presented with equal prominence? Can the additional rankings be shown in a footnote?


A. Although the Rankings Guidelines do not require that the additional rankings appear with equal prominence to other ranking data, nevertheless, you must ensure that they are presented in a manner that is clear and enhances the reader's understanding of the information. For example, an advertisement could mislead if it featured a favorable one-year ranking prominently in the headline, while relegating a relatively poor five-year ranking to a footnote.


Q. We would like to calculate current yield for our mutual fund based on shares outstanding on the last day of the period instead of an average during the 30-day period. Can this performance figure appear in advertising prior to prospectus delivery?


A. No. The presentation of income or yield performance in mutual fund communications used prior to prospectus delivery is limited to the standardized 30-day yield calculated in accordance with the formula set forth in SEC Form N-1A. That formula requires the use of the average number of shares outstanding during the period that were entitled to receive dividends. (Please see SEC Rule 482(e)(1) and Form N-1A for further information regarding yield quotations in mutual fund advertising.)