March 19, 1992
TO: SEC RULES COMMITTEE NO. 14-92
STATE LIAISON COMMITTEE NO. 11-92
RE: INSTITUTE SUBMITS COMMENTS TO TEXAS ON STAFF 12B-1 FEE
POSITION
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As you know, Texas is one of the four remaining states
without a maximum registration fee. However, money market funds
qualifying for the conditional exemption provided in Section
123.3 of the Texas Administrative Code are able to use a special
reduced registration fee formula which results in considerable
savings to these funds. Section 123.3 specifically provides, as
one of the conditions for qualifying for the exemption, that a
money market fund may not charge a commission or redemption fee.
The Institute has been advised by certain of its members
that the staff of the Texas Securities Board is taking the
position that 12b-1 fees will be treated as "commissions" for
purposes of qualifying for "money market fund" status. It is our
understanding that some money market funds with a 12b-1 fee have
been denied the use of the exemption and are therefore unable to
utilize the reduced fee formula.
The Institute submitted the attached comment letter to the
Texas Securities Board which sets forth the reasons why the
staff's position is inappropriate. In its letter, the Institute
initially notes that treating 12b-1 fees as commissions is
inconsistent with the rationale underlying the exemption, i.e.,
to alleviate the enormous financial burden on money market funds
that would result if they were required to calculate their
registration fee on the same basis as other issuers. Moreover,
there are certain fundamental differences between 12b-1 fees and
commissions. In particular, a 12b-1 fee is an ongoing fund-level
expense unlike a commission or redemption fee which is a
transactional charge. Furthermore, 12b-1 fees are subject to
strict requirements pursuant to Rule 12b-1 of the Investment
Company Act of 1940.
It is our understanding that the Texas Securities Board
will be reviewing the staff's position in the near future. We
will keep you advised of further developments.
Patricia Louie
Assistant General Counsel
Attachment