July 21, 1989
TO: SEC RULES COMMITTEE NO. 41-89
CLOSED-END FUND COMMITTEE NO. 27-89
UNIT INVESTMENT TRUST COMMITTEE NO. 36-89
ADVERTISING SUBCOMMITTEE
RE: RISK DISCLOSURE ON HIGH-YIELD BONDS
__________________________________________________________
The recent release issued by the SEC on Management's
Discussion and Analysis (the "Release") included a discussion of
the Commission's position on risk disclosure by investment
companies that invest in high-yield or non-investment grade debt.
Excerpts from the Release were distributed to SEC Rules Members,
Closed-End Fund Members and Unit Investment Trust Members under
cover of a memorandum dated May 22, 1989.
Several Institute members have expressed concern with some
of the language in the Release. For example, the Release
requires each investment company permitted to invest in high-
yield bonds to include the risk disclosure in its prospectus,
even if the fund does not currently hold any such securities in
its portfolio. This conflicts with the Instructions to Form
N-1A, permitting such disclosure to be made in the SAI.
Additionally, the Release requires disclosure of "market price
volatility based upon interest rate sensitivity", even though
studies have indicated that high yield bonds are less rate
sensitive than other debt securities.
The Institute is considering submitting a written response
to the SEC. If you have any comments on the Release, please
contact the undersigned by August 7. I would especially
appreciate hearing about comments given by the staff on
registration statements after the Release was published.
For your convenience, a copy of the May 22 memorandum is
attached.
Craig S. Tyle
Assistant General Counsel
Attachment