* See Memorandum to SEC Rules Committee No. 76-97, dated August 6, 1997.
[9220]
September 5, 1997
TO: SEC RULES COMMITTEE No. 85-97
RE: DRAFT COMMENT LETTER ON PROPOSED AMENDMENTS TO NASD SALES
CHARGE RULES
______________________________________________________________________________
In a recent Notice to Members, NASD Regulation, Inc. solicited comments on proposed
changes to its rules governing investment company sales charges.* As previously indicated, the
amendments would: (1) impose maximum aggregate sales charge limits on funds of funds
(including master-feeder funds); (2) permit installment loads; (3) prohibit loads on reinvested
dividends; (4) reinstate a requirement specifying the order in which shares subject to a
contingent deferred sales load ("CDSL") must be redeemed; and (5) eliminate a disclosure
requirement regarding the effect of asset-based sales charges. A copy of the Institutes draft
comment letter on the proposed amendments is attached for your review.
Comments on the proposed amendments must be filed by September 29th. If you
have comments on the attached draft letter, please contact me at (202) 326-5822 (or by e-mail
to frances@ici.org) by Friday, September 19th.
The draft letter recommends certain revisions to NASDRs proposal as it relates to funds
of funds with asset-based sales charges. First, the letter suggests that NASDR clarify that the
cumulative limits on asset-based sales charges (i.e., 7.25% or 6.25% times total new gross sales,
plus interest) would continue to apply individually to acquiring and acquired funds in a fund
of funds structure. This clarification would prevent possible undue discriminatory treatment
among different investment company structures (e.g., master-feeder funds and multiple class
funds).
Second, the draft letter recommends that in the case of an affiliated fund of funds in
which an acquired fund has an asset-based sales charge, the acquired fund should exclude sales
made to the acquiring fund when calculating total new gross sales for purposes of applying the
cumulative sales charge limits. The letter states that this approach would ensure that investors
are not subjected inappropriately to sales charges at two levels.
2The draft letter supports the proposed revised definition of "deferred sales charge,"
which would be consistent with the definition of "deferred sales load" in Rule 6c-10 under the
Investment Company Act of 1940. It also supports the proposed deletion of the current
prospectus disclosure requirement regarding the long-term effects of Rule 12b-1 plans, in light
of the pending proposed amendments to Form N-1A, which would require similar disclosure.
The draft letter indicates that the Institute does not object to the proposal to prohibit
front-end and deferred sales charges on reinvested dividends, nor to the proposed
reinstatement of a requirement regarding the order in which funds with CDSL must redeem
shares. The draft letter also recommends several technical changes to the proposed
amendments.
Frances M. Stadler
Associate Counsel
Attachment (in .pdf format)