June 14, 1989
TO: BOARD OF GOVERNORS NO. 36-89
STATE SECURITIES MEMBERS NO. 22-89
SEC RULES COMMITTEE NO. 27-89
AD HOC RULE 12b-1 COMMITTEE
RE: TESTIMONY IN CALIFORNIA CONCERNING CDSLs
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The Institute was recently invited to testify before the
California Senate Commission on Corporate Goverance regarding
Contingent Deferred Sales Loads (CDSLs). The Commission, which
is authorized by the California Senate for the purpose of
reviewing issues relating to business and securities and making
recommendations to the Senate regarding such issues, is composed
of California legislators, regulators, including the Commissioner
of Corporations, academicians and business leaders.
It is our understanding that a Commission staff member
became concerned about CDSLs upon reading recent articles in the
Wall Street Journal. Based on this, the staff member questioned
the adequacy of disclosure of CDSLs and suggested that California
state legislation limiting CDSLs or requiring additional
disclosure may be required.
The Institute testified at the hearing that several recent
changes had been adopted by the SEC and NASD to make disclosure
of fees more prominent and easy to understand, including the
SEC's requirement of a prospectus fee table, the NASD rule
governing newspaper quotations and the NASD's pronouncement that
brokers are affirmatively obligated to ensure that investors
understand the nature of fees, including CDSLs. The Institute
further testified that sufficient time has not been allowed to
fully evaluate the new requirements and that any efforts to
require additional disclosure or limitations, at this time, would
be premature.
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Based on the testimony, the Chairman of the Commission
agreed that it was unnecessary to proceed with a proposal to
require additional disclosure or to limit CDSLs. Attached is a
copy of the Institute's testimony and a letter from the
Commission confirming the Chairman's position.
Natalie Shirley
Associate General Counsel
Attachment