May 19, 1992
TO: STATE SECURITIES MEMBERS NO. 25-92
RE: UPDATE ON HIGH YIELD BOND FUND DISCLOSURE IN ARIZONA AND
TEXAS
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As you know, certain states are requiring additional cover
page disclosure for high yield bond funds. The following is an
update of the current disclosure requirements for Arizona and
Texas.
Arizona
In 1990, the Arizona Securities Division began requiring
investment companies investing over thirty-five percent of its
assets in high yield bonds to include a legend stating "THESE ARE
SPECULATIVE SECURITIES" on the outside front cover of the
prospectus pursuant to Rule 118B of the Arizona Securities
Division. (See Memorandum to State Securities Members No. 2-91,
dated January 4, 1991.)
As a substitute for the foregoing language, the staff of
the Arizona Securities Division will accept the following
language "This Fund invests primarily in high-yield, high-risk
securities and therefore may not be suitable for all investors."
The Institute has also been advised by the staff of the
Arizona Securities Division that the Washington Securities
Division disclosure for high yield bond funds may be used to
satisfy the requirements of Rule 118B. (See Memorandum to State
Securities Members No. 20-92, dated May 7, 1992 for Washington
disclosure.)
Texas
According to the staff of the Texas Securities Board,
additional cover page disclosure is not required for high yield
bond funds. However, the staff is requiring funds investing in
high yield securities to state in their prospectuses that these
securities are commonly called "junk bonds." Therefore, high
yield bond funds should be sure that the term "high yield
securities" is immediately preceded or followed by the term "junk
bonds."
We will keep you advised of developments.
Patricia Louie
Assistant General Counsel