September 6, 1994
TO: CLOSED-END FUND COMMITTEE NO. 19-94
SEC RULES COMMITTEE NO. 101-94
UNIT INVESTMENT TRUST COMMITTEE NO. 59-94
RE: SEC PROPOSAL TO REQUIRE DISCLOSURE OF SECURITY RATINGS
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The Securities and Exchange Commission has proposed to require
disclosure with respect to security ratings in prospectuses under
the Securities Act of 1933. The proposal would replace the current
voluntary ratings disclosure policy with a system requiring
disclosure in a final prospectus of a rating given by a nationally
recognized statistical rating organization (NRSRO), whenever a
rating with respect to the securities being offered is obtained by
or on behalf of the issuer. A copy of the Commission's release is
attached.
The proposal as drafted would not apply to investment
companies. The Commission noted in the release, however, that
closed-end funds often issue senior securities that are rated by
one or more NRSRO, and requested comment on whether the proposed
disclosure requirement also should be applied to closed-end funds
and other investment companies. [Pages 18-19 of the release.]
In addition, the Commission stated that, "Mutual funds often
represent that they invest only in securities that have a specified
rating, such as investment grade, or disclose the percentage of
their portfolios comprised of securities with specified ratings."
Based on a concern that, because a rating may not convey a
security's level of market risk, investors may not perceive the
limitations of a rating or the investment characteristics it
addresses, the Commission solicited comment on whether current
mutual fund disclosure practices and requirements are adequate.
[Pages 21-22 of the release.]
Comments on the proposed disclosure requirements are due
within 90 days from the date of publication in the Federal
Register. If you have any comments on the proposal that you would
like the Institute to consider including in a comment letter,
please contact the undersigned by October 14, 1994. My direct
number is 202/326-5824.
Amy B.R. Lancellotta
Associate Counsel
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