NASDR Solicits Comment on the Use of Bond Fund Risk Ratings in Supplemental Sales Literature

Washington, DC, February 7, 1997 - NASD Regulation, Inc. (NASDR) recently issued a Notice to Members soliciting comment on the use of bond mutual fund risk ratings in supplemental sales literature. In particular, NASDR is seeking comment on whether it should continue to prohibit the use of bond fund risk ratings by members and their associated persons.

According to the notice, within the past two years, NASDR has received several requests from rating entities to allow the use of bond fund risk ratings in sales literature. In the past, NASDR staff has taken the position that a rating that represents a judgment of how a bond fund will react to changes in various market conditions would be predictive of fund performance or misleading and, therefore, prohibited for use by members and their associated persons in supplemental sales literature. More recently, NASDR staff has considered whether such ratings could be used if they were accompanied by disclosure designed to limit the potential that the information could be misunderstood and if the symbols used for such ratings were altered to clarify their meaning or eliminate confusion with similar symbols used for credit ratings.

Comments are due by February 24, 1997.