September 26, 1989
TO: BOARD OF GOVERNORS NO. 58-89
STATE SECURITIES MEMBERS NO. 31-89
RE: CALIFORNIA EXPENSE LIMITATION RULE AMENDED
__________________________________________________________
The Institute has been working for several years to
eliminate expense limitations in all states. In 1978, at the
Institute's urging, the North American Securities Administrators
Association (NASAA) and the Midwest Securities Commissioners
Association adopted a resolution encouraging states to repeal
their expense limitations. At that time, there were twenty-eight
states with either formal or informal expense limitations in
effect. In 1984, again at the Institute's urging, NASAA adopted
a similar resolution recommending the states to suspend or repeal
their expense limitations. In addition, the Institute has
repeatedly petitioned the states to suspend or repeal their
expense limitations. As a result of the Institute's efforts, no
state, except California, continues to enforce a traditional
expense limitation.
The Institute has met with the California Department of
Corporations many times to urge the Department to suspend or
repeal their expense limitation. The Institute is pleased to
announce that the Department has adopted amendments to the rule
that substantially increases the amount of allowable expenses.
Pursuant to the amended rule, the annual expense limitation
percentage cap is increased to two and one-half percent of the
first $30 million of the average net assets of the fund, two
percent of the next $70 million and one and one-half percent of
the remaining average net assets. In addition, the amended rule
allows funds to exclude a portion of annual distribution plan
expenses and custodian fees attributable to investments in
foreign securities when calculating the expenses of the fund for
purposes of the expense limitation rule.
- 2 -
The rule was also amended to require expense limitation
reports from only those funds that have exceeded the new expense
limitation and are required to reduce or rebate advisory or
management fees or those funds that are relying on a waiver from
the rule.
Attached is a copy of the amended rule, which is effective
September 21, 1989.
Natalie Shirley
Associate General Counsel
Attachment