1 See Memorandum to SEC Rules Committee No. 76-97, dated August 6, 1997.
2 See Memorandum to SEC Rules Committee No. 85-97, dated September 5, 1997.
[9290]
September 30, 1997
TO: SEC RULES COMMITTEE No. 96-97
RE: COMMENT LETTER ON PROPOSED AMENDMENTS TO NASD SALES CHARGE
RULES
______________________________________________________________________________
As previously indicated, NASD Regulation, Inc. recently solicited comments on
proposed changes to its rules governing investment company sales charges.1 A copy of the
Institutes comment letter as filed with NASDR is attached, and it is summarized below. With
the exception of our comments on the proposed prohibition on loads on reinvested dividends,
the comment letter is virtually identical to the draft letter we circulated to you earlier this
month.2
Funds of Funds
The letter recommends that NASDR clarify that the cumulative limits imposed on asset-
based sales charges under NASD Conduct Rule 2830 would continue to apply individually to
the acquiring and acquired funds in a fund of funds structure. It further 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 be required to 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. The letter also recommends certain technical
revisions to NASDRs proposal with respect to funds of funds.
Installment Loads
The letter supports the proposed 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 and would permit installment loads.
Loads on Reinvested Dividends
2The attached letter, unlike the earlier draft, opposes the proposed prohibition on loads
on reinvested dividends. It notes that while virtually no mutual funds currently impose such
loads, certain unit investment trusts do so pursuant to SEC exemptive orders. The letter
recommends that NASDR treat deferred loads on reinvested dividends the same as it currently
treats front-end loads on reinvested dividends, i.e., subject them to lower maximum sales
charge limits.
CDSL Calculations
The letter states that the Institute does not object to the proposed reinstatement of
requirements concerning the order in which shares of a fund with a contingent deferred sales
load must be redeemed.
Prospectus Disclosure
The letter supports NASDRs proposal to eliminate the current prospectus disclosure
requirement regarding the long-term effects of Rule 12b-1 plans, in deference to the SECs
pending proposed amendments to Form N-1A (which would require similar disclosure).
Frances M. Stadler
Associate Counsel
Attachment (in .pdf format)