January 26, 1990
TO: SEC RULES MEMBERS NO. 6-90
CLOSED-END FUND MEMBERS NO. 4-90
UNIT INVESTMENT TRUST MEMBERS NO. 6-90
RE: INSTITUTE LETTER ON ASSET COMPOSITION DISCLOSURE
FOR HIGH YIELD BOND FUNDS
__________________________________________________________
As we previously informed you, last fall the staff of the
Division of Investment Management distributed a letter to
investment company registrants setting forth requested disclosure
for investment companies that invest in high yield bonds. (See
Memorandum to SEC Rules Members No. 55-89, Closed-End Fund
Members No. 49-89 and Unit Investment Trust Members No. 52-89,
dated October 5, 1989). One of the requested disclosure items
was a tabular or narrative presentation of the percentages of
total assets represented by bonds in different rating categories,
and by unrated bonds. In subsequent communications with the
Institute, the staff has indicated that they are requesting this
disclosure from all registrants that invest at least 5% of their
average annual assets in bonds rated below investment grade, and
that the calculation should be based on dollar-weighting,
computed no less frequently than monthly.
Attached is a letter from the Institute to the staff,
setting forth its opposition to the requested asset composition
disclosure. The letter was prepared by a special task force of
Institute members. In the letter, the Institute argues that the
disclosure (1) places too much emphasis on ratings, (2) will
impose additional costs on funds, (3) will be inconsistent in its
treatment of unrated securities, (4) may not be timely, (5) is
not necessary to protect against "yield hunting" and (6), in any
event, is properly the subject of rulemaking.
We will keep you informed of developments.
Craig S. Tyle
Associate General Counsel
Attachment