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January 12, 1989
TO: BOARD OF GOVERNORS NO. 4-89
DIRECT MARKETING COMMITTEE NO. 2-89
MARKETING COMMITTEE NO. 2-89
OPERATIONS COMMITTEE NO. 2-89
SALES FORCE MARKETING COMMITTEE NO. 2-89
ACCOUNTING/TREASURERS COMMITTEE NO. 6-89
SEC RULES MEMBERS NO. 2-89
RE: INSTITUTE COMMENT LETTER ON PROPOSED RULE PERMITTING
DEFERRED SALES LOADS
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Attached is the comment letter filed by the Institute with
respect to SEC proposed rule 6c-10, which would permit mutual
funds to impose both contingent and non-contingent deferred sales
loads pursuant to the conditions in the rule. (See Institute
Memorandum to Board of Governors No. 70-88, SEC Rules Members No.
54-88, Operations Committee No. 27-88, Accounting/Treasurers
Advisory Committee No. 39-88, Marketing Committee No. 30-88,
Sales Force Marketing Committee No. 41-88, Direct Marketing
Committee No. 38-88, dated November 3, 1988.)
The Institute comment letter generally supports the portion
of the proposed rule that would codify exemptive relief for
contingent deferred sales loads (CDSLs). However, the specific
terms and conditions governing the imposition of CDSLs should
fall within the self-regulatory processes of the National
Association of Securities Dealers, Inc. ("NASD").
With respect to the portion of the proposal permitting the
use of non-contingent deferred loads, the Institute letter
opposes the proposal as uneconomic and unworkable. The letter
objects to this portion of the proposed rule on the grounds that
the Staff has no experience in the area of non-contingent
deferred loads and that there is little interest in the industry
for such a rule. The proposal, particularly as it relates to
installment deferred loads, is unworkable and infeasible because
it creates a number of operational problems such as the
prohibition against charging interest, payment and tax problems,
burdensome transfer agent and computer capacity and redesign
problems, distributor recordkeeping and accounting burdens and
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specific unworkable conditions of the proposed rule. The letter
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states that further operational difficulties would undoubtedly
arise for any fund which actually attempted to implement a
deferred installment load arrangement.
As with respect to CDSLs, the Institute suggests that the
specific terms of the non-contingent deferred load should be
delegated to the NASD if the Commission wishes to adopt such a
rule notwithstanding the problems noted in the comment letter.
Finally, the letter points out that deferred loads are no
substitute for spread-load 12b-1 plans. Although the
Commission's proposing release states that the deferred load
proposal was intended to provide an alternative to the use of
12b-1 plans, the proposal creates a number of practical and
operational problems and fails to adequately replace those
benefits provided by 12b-1 plans.
We will keep you informed of developments.
Catherine L. Heron
Deputy General Counsel