INSTITUTE SUBMITS FOLLOW-UP LETTER TO NASAA COMMITTEE ON TELEPHONE EXCHANGE/REDEMPTION SERVICE

August 19, 1992 TO: STATE LIAISON COMMITTEE NO. 30-92 SEC RULES COMMITTEE NO. 61-92 TRANSFER AGENT ADVISORY COMMITTEE NO. 46-92 RE: INSTITUTE SUBMITS FOLLOW-UP LETTER TO NASAA COMMITTEE ON TELEPHONE EXCHANGE/REDEMPTION SERVICE __________________________________________________________ As we previously advised you, the NASAA Investment Company Registration/Trading Practices Committee has been charged with reviewing the basis for disclosure in mutual fund prospectuses which sets forth the extent to which the mutual fund and their affiliates will be held liable for acting upon instructions in connection with telephone redemptions or exchanges. The Institute submitted a letter to the NASAA Committee which outlined the legal basis for telephone disclaimer language and the various safeguards most mutual funds have implemented in order to protect against fraudulent telephone transactions. (See Memorandum to State Securities Members No. 34-92, SEC Rules Committee No. 46-92 and Transfer Agent Advisory Committee No. 38- 92, dated July 13, 1992.) In discussions with the NASAA Committee, the Institute was advised that in order to alleviate the various states’ concerns, the NASAA Committee may be drafting uniform disclosure guidelines for states to use in reviewing the telephone disclaimer language in mutual fund prospectuses. As a result of these discussions, the Institute submitted an additional letter to the NASAA Committee which reiterates its view that adequate disclosure is already required to be included in a fund prospectus. The letter also notes that the ability to transact exchanges and redemptions over the telephone subjects shareholders to minimal risks. In addition, it is the Institute’s understanding that no losses have transpired from telephone redemption requests and we are unaware of any investor complaints received by any state with respect to any losses suffered as a result of the telephone privilege. A copy of the Institute’s letter is attached. The NASAA Committee has given this project a priority status and will be actively reviewing this issue, particularly in light of the recent disclosure requirements imposed by Oklahoma on certain funds. As you may be aware, Oklahoma has required, as a pre-condition to renewal of a mutual fund registration, that a fund either (1) supplement its prospectus or provide front page prospectus disclosure, or (2) include disclosure in the account application immediately preceding the investor signature. It is the Institute’s understanding that Oklahoma has required one of these alternatives to be taken when a mutual fund either automatically provides telephone redemption and/or exchange privilege or when telephone liability disclaimer language is included in the prospectus or SAI. Mutual funds requiring investors to elect the telephone privilege have not been required to amend the disclosure in the prospectus or application. The Institute will be holding additional discussions with the NASAA Committee on this issue and will keep you further advised. Patricia Louie Assistant Counsel Attachment