January 18, 1990
TO: UNIT INVESTMENT TRUST MEMBERS NO. 3-90
RE: STAFF ISSUES GENERIC COMMENT LETTER; CLARIFIES
INTERIM YIELD GUIDELINES
__________________________________________________________
The staff of the Division of Investment Management has sent
to investment company registrants a letter that sets forth staff
comments on registration statements and post-effective
amendments. A copy of the letter is attached.
The letter sets forth in detail the staff's position on
permissible performance measurements for unit trusts. The staff
states that, when used alone, estimated current return ("ECR") is
misleading and, therefore, the staff will not accelerate a UIT
filing containing only estimated current return. Instead, the
following standards apply:
-- If the higher of ECR and "Wesolowski-Hicks Formula" (or
"WHF") is no more than 25 basis points (40 in the case of trusts
with dollar weighted average maturities of over 15 years) above
internal rate of return ("IRR"), the prospectus may include both
ECR and WHF.
-- If either ECR or WHF is more than 25 basis points (or
40, as the case may be) above IRR, but ECR is no more than 25
basis points (or 40) above WHF, the propsectus may include both
ECR and WHF provided a cash flow table for the life of the trust
is also included.
-- If ECR is over 25 basis points (or 40) above WHF, ECR
cannot be used. IRR may be used alone, or WHF can be used
together with a cash flow table or IRR.
-- If ECR is lower than WHF, WHF should be presented and
use of ECR is optional.
-- In each case, the prospectus must describe any numbers
used, including how they were calculated, and must explain any
differences where two numbers are used.
-- A cash flow statement must be prepared in all cases, and
registrants should be prepared to submit it supplementally, along
with a list of the yields to maturity for each portfolio
instrument and the calculation of WHF.
-- It is not acceptable for a prospectus to contain no
percentage numbers and to contain "dollar amounts that sales
personnel could readily use to calculate estimated current
return."
The letter also sets forth the staff's views on other
matters of interest to unit trusts, such as risk disclosure for
high yield bonds, updating requirements under Rule 485 and
computation of fees under Rule 24f-2. Please refer to the letter
for a more complete discussion of the staff's views on these and
other matters.
Craig S. Tyle
Associate General Counsel
Attachment
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