March 24, 1992
TO: STATE SECURITIES MEMBERS NO. 14-92
RE: DISCLOSURE FOR HIGH YIELD BOND FUNDS IN WASHINGTON
__________________________________________________________
As we previously advised you, the Washington Securities
Division has required additional risk disclosure for high yield
bond funds (See Memoranda to State Securities Members No. 45-91,
dated October 7, 1991 and No. 50-91, dated November 5, 1991).
The Institute has been advised that the staff of the Washington
Securities Division has taken the position that the requisite
disclosure will be based upon the percentage of assets invested
in high yield bonds.
Investment companies that invest more than 35% but less
than 50% of its assets in high yield bonds must state "This fund
invests primarily in high-yield, high risk securities and
therefore may not be suitable for all investors." Investment
companies that invest from 50% to 75% of its assets in high yield
bonds must disclose that "These securities are considered to be
speculative." Investment companies that invest over 75% of its
assets in high yield bonds must disclose that "These securities
are considered to be highly speculative."
Notwithstanding the foregoing, it is our understanding that
the Washington Securities Division will accept the legend
currently required by the Arizona Securities Division in lieu of
the Washington disclosure. Moreover, it may be possible to
negotiate with the staff on a case-by-case basis for less severe
language.
The Institute has contacted the staff of the Washington
Securities Division to express its concerns with respect to this
disclosure and will be arranging a meeting with the staff in
order to resolve this issue. We will keep you advised of
developments.
Patricia Louie
Assistant General Counsel