November 30, 1989
TO: UNIT INVESTMENT TRUST COMMITTEE NO. 81-89
RE: SEC CLARIFIES INTERIM YIELD GUIDELINES
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We have been informed that last week the staff refused to
allow a new unit trust to go effective with estimated current
return included in its prospectus where the trust's estimated
current return was over 25 basis points higher than its internal
rate of return. (The estimated current return was within a few
basis points of its estimated long-term yield.) Previously, the
staff had allowed similar trusts to go effective (with estimated
current return included) provided that a statement of cash flows
was also set forth in the prospectus. Although the trust in
question was eventually allowed to go effective with both
estimated current return and a statement of cash flows included
in the prospectus, the sponsor was informed that the staff would
no longer allow estimated current return to be included in
similar cases in the future.
As a result of the above, the Institute sought
clarification from the staff and argued that the interim
guidelines should not be changed, especially since the Institute
would shortly be submitting its proposed rules on performance
advertising. The staff replied that the person who had stated
that the interim guidelines would be changed was in error and
that no such change in policy had been made.
Thus, in the case of trusts for which estimated current
return is over 25 basis points (40 in the case of longer-term
trusts) higher than internal rate of return, estimated current
return may be included in the prospectus provided (1) it is
within 25 (or 40) basis points of estimated long-term yield and
(2) a statement of cash flows is included in the prospectus.
Craig S. Tyle
Associate General Counsel