[9663]
February 10, 1998
TO: SEC RULES COMMITTEE No. 9-98
RE: INSTITUTE DRAFT LETTER PROPOSING AMENDMENTS TO EXCHANGE
OFFER RULE
______________________________________________________________________________
The Institute has prepared a draft letter to the SEC staff proposing amendments to Rule 11a-3
under the Investment Company Act of 1940, the rule that governs mutual fund exchange offers. The
letter reiterates and amplifies recommendations the Institute made to the SEC in a 1995 comment letter
on proposed amendments to Rule 6c-10. The proposed amendments would: (i) allow deferred sales
loads to be imposed on exchange offers at the time of the exchange; (ii) eliminate the deferred sales load
calculation restrictions for partial exchanges and for shares acquired through reinvestments of dividends
and capital gain distributions; and (iii) accommodate exchanges involving funds that impose installment
loads. The InstituteGs letter is attached.
The draft letter will be discussed at the upcoming SEC Rules Committee meeting on
Wednesday, February 18th. If you are unable to attend, please contact me by telephone (202) 326-
5923, fax (202) 326-5827, or e-mail (simmonbe@ici.org) with your comments by Tuesday, February
17th.
The draft letter recommends, among other things, that funds be allowed to impose a deferred
sales load on an exchanged security at the time of the exchange. The letter explains that allowing funds
to impose a sales load at the time of an exchange would relieve the funds of administrative and
recordkeeping burdens involved in assessing and recording deferred loads upon redemption of acquired
shares, and the financial burden of waiving the deferred load on the exchanged security at the time of the
exchange. (The Institute requests comment on whether and to what extent these burdens remain valid
and whether, as stated in the draft letter, there are situations in which there is more than one transfer
agent involved in the exchange.)
The draft letter also recommends that Rule 11a-3 eliminate the provisions concerning the
calculation of sales loads with respect to partial exchanges and exchanged shares acquired through
reinvestments of dividends and capital gains distributions. The letter explains that removing these
provisions would make the rule consistent with the 1996 amendments to Rule 6c-10 under the 1940 Act,
which eliminated similar provisions on the theory that appropriate disclosure and the NASDGs limits on
sales charges provide adequate investor protection.
Finally, the draft letter notes that although the definition of “deferred sales load” in Rule 11a-3
was amended to cover installment loads (consistent with amended Rule 6c-10), additional technical
modifications are needed to fully accommodate them.
Barry E. Simmons
Assistant Counsel
Attachment