July 14, 1994
TO: DIRECT MARKETING COMMITTEE NO. 17-94
MARKETING POLICY COMMITTEE NO. 30-94
PUBLIC INFORMATION COMMITTEE NO. 23-94
SALES FORCE MARKETING COMMITTEE NO. 24-94
SHAREHOLDER COMMUNICATIONS COMMITTEE NO. 16-94
RE: Response to NASAA letter on Summary Prospectus Proposal
__________________________________________________________
Attached is a copy of the Institute's response to the recent
letter sent by the North American Securities Administrators
Association, Inc., to the SEC's Division of Investment Management
regarding the Commission's summary prospectus proposal. The
following summary of both letters was produced by our legal
staff.
I. The NASAA Committee's Letter
The Committee's letter enclosed the results of the
Committee's survey of state regulators concerning the summary
prospectus proposal and purports to set forth "minimum
requirements" necessary for widespread acceptance of the summary
prospectus among state regulators. The Committee's recommended
"minimum requirements" include a requirement that the summary
prospectus rule provide for its staged implementation, that the
fund and the adviser be "seasoned" before using the summary
prospectus, that the summary prospectus be permanently prefiled,
and that investors be permitted to obtain a refund of sales
charges if they redeem within 10 days of receiving the full
prospectus.
II. The Institute's Response
The Institute's response reiterates the benefits of the
summary prospectus, particularly for the defined contribution
plan market. The Institute's response also states that the
Committee's recommendations simply do not comport with the
results of its survey, and that an examination of the survey
suggests that it may have been biased in favor of the Committee's
own recommendations.
The Institute's letter strongly opposes staged
implementation of the summary prospectus proposal because it
would be "simply illogical" to limit the benefits of more
clarified disclosure to the purchasers of "the least complex"
funds (such as money market funds). Moreover, staged
implementation would undermine the advantages of the summary
prospectus for the defined contribution plan market.
The Institute's letter also opposes the Committee
recommendation for a three-year seasoning requirement for both
the fund and the adviser. It notes that such a requirement would
serve little purpose, would restrict the dissemination of useful
information about newer funds (as well as established funds with
new advisers), and would act as a barrier to entry into the
industry. The proposal also could chill the creation of new
funds that are particularly well-suited for the retirement
market.
In addition, the Institute's letter opposes the Committee's
recommendation that summary prospectuses be permanently prefiled
with the states and the SEC or the NASD. It points out that the
Committee's survey did not indicate a state prefiling requirement
is necessary for widespread state acceptance. Moreover, a state
prefiling requirement could undermine the utility of the summary
prospectus and deprive most investors of the advantages provided
by the summary prospectus. The Institute's letter does propose
that the NASD designate an official to serve as the principal
liaison with the SEC and NASAA for matters related to summary
prospectus disclosure.
Finally, the Institute's letter opposes the Committee's
recommendation for a sales charge rebate provision. The
Institute's letter points out that summary prospectuses would
contain all information that is material to the investor's
decision, including the existence ofa sales load that is not
refundable on redemption. Moreover, to the extent any summary
prospectus contained misleading information or omitted material
information, full prospectus liability would apply. Finally, a
sales charge rebate provision would raise operational problems
and impose costs on all shareholders.
Erick Kanter
Vice President
Public Information & Marketing
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