INSTITUTE MEETING WITH NASAA INVESTMENT COMPANY REGISTRATION/TRADING PRACTICES COMMITTEE

July 16, 1990 TO: STATE LIAISON COMMITTEE NO. 15-90 UNIT INVESTMENT TRUST COMMITTEE NO. 30-90 CONTRACTUAL PLANS COMMITTEE NO. 7-90 RE: INSTITUTE MEETING WITH NASAA INVESTMENT COMPANY REGISTRATION/TRADING PRACTICES COMMITTEE __________________________________________________________ On July 13, 1990, the Institute met with the Investment Company Registration/Trading Practices Committee of the North American Securities Administrators Association ("NASAA") to discuss some of the concerns of industry with respect to state regulation of investment companies and to discuss other issues of mutual concern. The Institute focused its discussion on uniformity of state investment company regulation, with particular emphasis on state substantive regulation of mutual funds that differ from federal regulation and the impact of such restrictions in light of the adoption of Rule 144A by the Securities and Exchange Commission. In addition, the Institute recommended that the Committee urge NASAA to continue to encourage the states to adopt legislation and/or rules that embody the intent of NASAA's 1984 and 1985 Resolutions regarding expense limitations, sales literature filing requirements, registration, amendment and renewal requirement, sales reporting requirements and oversales. The Institute also urged the Committee to recommend to NASAA that states adopt either the blue chip exemption for qualified mutual funds and unit trusts or the blanket exemption from registration for all mutual funds and unit trusts as proposed by the State Regulation of Securities Committee of the American Bar Association. In addition, the Institute expressed concern over the recent escalation of state registration fees and noted that approximately eight states have enacted substantial fee increases since the beginning of the year. The Institute recommended that the Committee urge the states to review the registration fees charged by the states and to allow funds to pay a fee based on "net" sales rather than gross sales as allowed by the SEC. The Institute also recommended that states consider adoption of other procedures such as indefinite registration, with a minimal initial fee (or no fee), or a reduction of the minimum fee to alleviate the fee burden for mutual funds and unit trusts. Moreover, states without a maximum fee should consider the feasibility of adopting a fee cap. The Institute also reviewed the ramifications of the possible adoption of the Office of the Comptroller of the Currency's proposal to amend its regulations governing bank common trust funds. If adopted, the Comptroller's proposed amendments would convert bank common trust funds from administrative devices for the management of pre-existing trust assets into mutual funds. The Institute urged NASAA to take such steps as are necessary to ensure that all publicly-offered bank common trust funds are made fully subject to federal and state laws governing mutual funds, including, where applicable, registration of their shares, regulation of fund sales literature and registration of banks offering the funds as broker-dealers or agents. Inasmuch as certain states have recently questioned the sales load of contractual plans, the Institute also submitted a memorandum outlining the federal regulation of contractual plans to the Committee and stated its willingness to provide any additional information that the Committee may require regarding contractual plans. The Committee indicated that it would review the information submitted by the Institute and develop recommendations that would be presented at the NASAA Fall Conference in Billings, Montana. The NASAA Conference will be held August 26-30, 1990 and the Committee has tentatively scheduled its open meeting on Monday, August 27th, from 10:00 a.m. to 12 noon. A copy of the Institute's statement is attached. We will keep you advised of any developments. Patricia Louie Assistant General Counsel Attachment