SEC Division of Investment Management staff letter: Investment Company Institute

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION J:.....-l~~ WASHINGTOl'.,D.C. 20549 L ...,. "-,. ," . " r- ~,t' ~ -:CA -'70 ., ; VISION OF

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IN. ..IENT MANAGEMENT

Jse"U!!. "-~(.L ) RU+:c, .PubÜê-.. , AvallablUt.y ~ "'/s--l;3 June 1S, 1993

Ms. Amy B.R. Lancellotta

Associate Counsel

Investment Company Institute

1600 M street

Washington, DC 20036

Re: Line Graph Comparison for Multi-class Funds

Dear Ms. Lancellotta:

New Item SA of Form N-1A requires, among other things,

mutual fund registrants to include in their prospectuses or

annual reports a line graph comparison of their performance to

that of an appropriate broad-based securities index. The item

does not however, specify how a mutual fund issuing multiple

classes of securities pursuant to exemptive orders under Section

18 of the Investment Company Act of 1940 ("multi-class funds"). should present the line graph comparison. Several persons

representing mutual fund organizations, including the Investment

Company Institute, have asked us for guidance in this regard.

There are several possible ways for registrants to convey

this information, and the Division is not, at this time, limiting

registrants to a single method in all circumstances. Instead, we

are providing guidance for registrants in developing an

appropriate method of presenting the information required by

Item SA. Registrants should be guided by their responsibility

under the Federal securities laws to present required disclosure

in a manner that does not mislead investors. As discussed in

more detail below, this may mean that a method of presentation

that is appropriate for one multi-class fund may not be

appropriate for another.

This letter assumes that a multi-class fund will be making

disclosures in a single prospectus or annual report.

1. Where each class of the fund's shares was initially offered

on the same date, the fund should present a single graph

that has a separate line showing the performance of each

class. Each line should reflect the applicable loads and

fees.
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2. A fund with classes initially offered on different dates

could use multiple graphs. Each graph should begin at the

time of initial offering of that class and show a separate

line for each class (that was offered at that time) assuming

an initial investment in each class at that time.

3. Funds with classes of shares offered on different dates

could also use only a line representing performance of the

oldest class for the performance of the fund, provided that:

a. prominent disclosure is made that the performance of

other classes will be greater than or less than the

line shown based on the differences in loads and fees

paid by shareholders investing in the different

classes; and

b. the one, five and ten year '(or life of fund)

performance required to be provided in or contiguous to

the line graph is provided for each class. "Life of

the class" should substitute for "life of the fund"

where the class has not been offered for the one, five

or ten year periods. The period covered by the "life

of the Class" should be disclosed.

As stated above, in some cases one or more of the

alternative approaches may not be appropriate because it could

matèrially mislead and confuse investors. Fo~ example, if the

oldest class of shares had substantially lower loads and\or fees

than the newer class (es), it would be inappropriate to use the

third approach discussed above. In addition, there may 'be other

methods of conveying ,the information than those described above

that may be used. However, we discourage the use of a single

graph with multiple line graph comparisons .(each beginning at a

different date) because we believe that investors will find such

a graph confusing.
The Division intends to review the line graph comparisons in

disclosure documents filed by registrants and intends to pay

particular attention to the line graphs of multi-class funds.

Based upon that review, we may provide further interpretive

advice and, in cases where the disclòsure is materially

deficient, may request that a multi-class fund restate its line

graph comparison and redistribute the disclosure document in

which it is presented.

Sincerely, /Z9?~
Robert E. Flaze

Assistant Director