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November 29, 1989
TO: UNIT INVESTMENT TRUST COMMITTEE NO. 80-89
JOINT TASK FORCE ON UIT YIELD
RE: DRAFT PROPOSAL TO SEC
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Attached is a draft of the Institute's proposal to the SEC
on unit investment trust performance advertising. As you may
recall, the staff is expecting a proposal by December 7.
Therefore, please call me with your comments no later than 5:00
p.m. on December 5.
The draft reflects the proposal as approved by the
Institute's Executive Committee. In the course of drafting the
proposal, however, certain issues that were not expressly
addressed during the two meetings of the Joint Task Force came to
light. Therefore, you should pay special attention to these
items, which are listed below:
(1) Expense Ratio. In computing the expense ratio, accrued
interest on the bonds is excluded. Please consider if this is
correct. In addition, since the expenses on a trust may vary in
accordance with the payment option chosen, the proposal requires
that the highest expense ratio be used in calculating ELTR.
(2) Foreign Currency Obligations. It appeared, upon
reflection, that there was no need to compute a yield in the
local currency and then convert this into U.S. dollars because,
unlike the case of a mutual fund, the yield is a snapshot and,
therefore, the exchange rate should not affect yield. Is this
correct?
(3) Time of Calculation. The draft proposal adopts the
same approach as the mutual fund rules, i.e., the performance
data must be as of the most recent practicable date, considering
the type of unit investment trust and the medium through which
the data will be conveyed.
(4) Disclosure of Maximum Sales Charge. The draft proposal
requires that unit investment trust advertisements and
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supplemental sales literature disclose the maximum sales charge
on the trust. This is consistent with the mutual fund rules.
(5) Bonds with Put Options. A separate section on
computing the yield on bonds with put options was not included
since it is our understanding that the yield on these bonds is
simply computed to the "priced-to" date in the market.
Since I will be out of town on Friday, please call me with
comments on Monday, December 4 or Tuesday, December 5. Thank you
for your attention to this project.
Craig S. Tyle
Associate General Counsel
Attachment