April 15, 1992
TO: UNIT INVESTMENT TRUST COMMITTEE NO. 22-92
RE: SEC STAFF PROPOSES MODIFIED ELTR FORMULA
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The Institute has received a letter from the staff of the
Division of Investment Management proposing modifications to the
estimated long-term return ("ELTR") formula proposed in the
Institute's December 7, 1989 submission to the SEC concerning
uniform performance advertising rules for unit investment trusts.
(See Memorandum to Unit Investment Trust Members No. 67-89, dated
December 11, 1989.) A copy of the staff's letter is attached.
The attached letter notes that the staff has indicated its
preference for the use of internal rate of return ("IRR") as a
measure of UIT performance because, in the staff's view, ELTR
does not fully reflect the effect of a sales load on an
investor's return. Specifically, according to the staff, ELTR
does not reflect the fact that when an investor receives his
principal back at the end of a trust's life, he does not get back
the sales load. As you may recall, the Institute has previously
argued that ELTR is preferable to IRR for several reasons,
including among others the significant costs and burdens that a
requirement to quote IRR would impose on UIT sponsors. (See
Memorandum to Unit Investment Trust Committee No. 29-90, dated
July 2, 1990.) The attached letter appears to be sympathetic to
this concern.
The staff's letter proposes a modified version of ELTR that
is intended "to produce a more accurate yield figure in a way
that avoids the demands on computer resources that generation of
IRR may entail." The letter requests comments on (1) whether the
proposed modified formula raises the same concerns regarding
computer time and resources that led the Institute and industry
members to oppose the use of IRR in the past and (2) whether the
modified formula would approximate IRR more closely than the
original ELTR formula did. The UIT Yield Subcommittee will be
meeting soon to discuss the staff's proposal and the Institute's
response.
If you have any comments on the proposed revised formula,
please call me at (202) 955-3514 by Monday, April 27.
Frances M. Stadler
Assistant General Counsel
Attachment