* See Institute Memorandum to Tax Committee No. 23-95 and Accounting/Treasurers Committee
No. 22-95, dated June 16, 1995.
September 10, 1996
TO: BOARD OF GOVERNORS No. 52-96
RE: IRS REVENUE PROCEDURE ON MULTI-CLASS FUNDS
______________________________________________________________________________
As you may know, the Internal Revenue Service has, in the last seven years, issued over
200 private letter rulings that refuse to recognize the separate classes in a multi-class fund. As a
result, significant restrictions have been imposed on the expense differential permitted with
respect to the classes of a multi-class fund.
We are pleased to report that the IRS has issued the attached revenue procedure
revising its position of the last seven years. Consistent with the recommendations of the
Institute,* the revenue procedure establishes a safe harbor for multi-class funds that make
different distributions to different groups of shares as a result of different expense allocations.
A fund that satisfies the conditions of the revenue procedure will not be deemed to have paid
non-deductible preferential dividends.
The revenue procedure does not address the treatment of fund distributions that differ
as a result of waivers or reimbursements of fund expenses or as a result of performance-based
advisory fees. Comments on the effect of waivers, reimbursements or performance-based
advisory fees are solicited in an announcement accompanying the revenue procedure.
The Institute will continue to work with the IRS to resolve these remaining issues and
will keep you informed of further developments.
Catherine L. Heron
Vice President & Senior Counsel
Attachment