September 22, 1989
TO: STATE LIAISON COMMITTEE NO. 13-89
RE: NASAA REGULATED INDUSTRY COMMITTEE -
MUTUAL FUND REGISTRATION COMPLIANCE STUDY
__________________________________________________________
As you know, the Regulated Industry Committee (Committee)
of the North American Securities Administrators Association
(NASAA) prepared a Mutual Fund Study and Recommendations (Study)
in response to the Committee's growing concern with late renewals
which have resulted in fines and penalties that may affect the
net asset value of a fund (State Liaison Committee No. 10-89,
dated July 14, 1989). The Committee proposed a Policy Statement
that encouraged the adoption of an indemnification agreement
between the fund and the adviser which would indemnify the fund
from any and all losses resulting from a violation of the
registration provisions of the 1940 Act or any state securities
laws. The Committee also proposed that an escrow account be
established to satisfy any contingent liabilities imposed by the
states.
The Institute commented on the Committee's proposal
(Attachment A) and members of the Institute's staff and the State
Liaison Committee attended the Committee's meeting at the NASAA
Fall 1989 Conference to discuss the Study. The Institute
objected to the requirement for indemnification of all losses,
stating that the decision to indemnify should be left to the
board of directors of a fund. The Institute also objected to
making the fund's adviser the sole party responsible for
indemnification.
In response to the Institute's testimony, the Committee's
Policy Statement, which was adopted by the NASAA membership,
provides a mechanism for cooperation between the states and the
SEC for payment by a mutual fund's adviser, manager, underwriter,
sponsor or other third party service provider of fines assessed
by NASAA members for blue sky registration violations which have
been discovered by the SEC. In addition, the Committee agreed to
work with the Institute and its members to modify the other
documents contained in the Study prior to further dissemination
to the states. A copy of the amended Policy Statement which was
adopted by the NASAA membership is attached as Attachment B.
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Please submit any comments that you may have on the
proposed administrative rule, proposed amendment to statute or
model indemnification agreement to me by October 13, 1989.
Copies of these documents are attached as Attachment C.
Patricia Louie
Assistant General Counsel
Attachments