February 12, 1992
TO: YIELD ENHANCEMENT TASK FORCE NO. 2-92
RE: PROPOSAL TO REQUIRE SEC YIELD TO ACCOMPANY DISTRIBUTION RATE
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As you recall, at the most recent meeting of the Task Force
held on January 23, the group decided that, rather than pursuing
additional disclosure in fund prospectuses or sales
communications of the nature of various enhancement techniques,
consideration should be given to a requirement that sales
communications (including oral communications by brokers) include
a distribution rate only if the SEC yield for the fund is also
provided. The group felt that such a "two number" approach would
avoid the need for a complex and possibly confusing explanation
of accounting issues and would be more likely to tell investors
what they would be most interested in, i.e., the effect on
return. In addition, this approach would avoid the difficult
task of distinguishing enhancement techniques from other
portfolio management practices.
At the same time, the group felt that it would be premature
to recommend the two number approach before the details of the
proposal were worked out and further consideration was given to
its practical and marketing implications.
The work of the Task Force was discussed at the January
meeting of the Institute's Board of Governors, which directed the
Institute to proceed with a submission to the NASD recommending
that a fund's SEC yield accompany any quotation of its
distribution rate in oral sales communications.
Accordingly, attached is a draft letter to the NASD
recommending that they issue a Notice to Members implementing
this proposal. We would appreciate comments on the draft; please
direct them to Craig Tyle at 202/955-3522 by Friday, February 21.
Lawrence A. Rogers
General Counsel
Attachment