February 18, 1993
TO: BOARD OF GOVERNORS NO. 12-93
SEC RULES MEMBERS NO. 20-93
ACCOUNTING/TREASURERS MEMBERS NO. 5-93
BROKER/DEALER ASSOCIATE MEMBERS NO. 6-93
SMALL FUNDS MEMBERS NO. 2-93
RULE 12b-1 AD HOC COMMITTEE
RE: NASD ISSUES QUESTIONS AND ANSWERS ON ASSET-BASED SALES
CHARGE ISSUES
__________________________________________________________
The NASD has issued a Notice to Members that sets forth
questions and answers about its new rules governing asset-based
sales charges, which were approved by the SEC last year. The
questions and answers are intended to assist NASD members in
interpreting and implementing the new rules. As a reminder, the
new rules take effect July 7, 1993.
The Notice states that the statements included therein
"supersede and replace any and all prior statements of the NASD
on the subject of investment company sales charges to the extent
such prior statements are inconsistent with this Notice." It
goes on to note that the NASD may publish further questions and
answers as needed. The Notice also reminds members that its rule
applies to NASD members, not investment companies, and,
accordingly, NASD members are responsible for compliance. In
this regard, the Notice states that members may rely on
disclosure in a fund's prospectus or on other statements from a
fund about the amount of sales charges paid by the fund "unless
the member knows, or should have known on the exercise of
reasonable diligence, that the statements are not true."
The questions and answers included in the Notice are
divided into five sections. The first section addresses basic
questions concerning the calculations required to be made under
the rule, e.g., how frequently must a fund calculate its
remaining balance, what interest rate should be applied, etc.
The second section addresses issues concerning retroactive
calculations, i.e., how to apply the rule to sales occurring
before July 7, 1993.
The third section of the questions and answers concerns
service fees. Among other things, the section provides a more
detailed explanation of what types of payments are considered
"service fees" for purposes of the new rule. The fourth section
addresses exchanges between funds and how portions of a fund's
remaining balance may be transferred to another fund pursuant to
an exchange. Finally, the fifth section addresses miscellaneous
matters.
The Notice to Members also includes an example of
calculations to be made under the rule for a hypothetical fund.
A copy of the Notice to Members is attached.
Craig S. Tyle
Vice President - Securities
Attachment