February 24, 1992
TO: CONTRACTUAL PLANS COMMITTEE NO. 5-92
RE: NASAA COMMITTEE ISSUES REVISED PROPOSED GUIDELINES
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As we previously advised you, the Institute and certain of
its contractual plan members met with representatives of NASAA in
Boston on February 20, 1992 to discuss the NASAA Investment
Company Registration/Trading Practices Committee's ("NASAA
Committee") proposed guidelines for registration of contractual
plans in the states. The proposed guidelines contained several
provisions which were unacceptable to the contractual plan
sponsors. (See Memorandum to Contractual Plans Committee No. 4-
92, dated February 18, 1992.)
On February 21, 1992, the NASAA Committee issued a revised
version of the proposed guidelines which will be submitted to
members of NASAA for consideration at the NASAA Spring Conference
(March 28 - April 1, 1992). The revised proposals incorporated
several of the changes recommended by the Institute and the
contractual plan sponsors. Such changes include the addition of
a definition for "current account", modification of the
definition of "persistency rate", deletion of the provision
regarding the suitability of a contractual plan for certain
retirement programs, modification of the prohibition on agent
contact after the 28 month notice is sent and deletion of the
requirement that all proceeds of the plan investment must be
dedicated exclusively to the plan.
However, the NASAA Committee amended the proposal regarding
the investment objective of the underlying fund to require that
the investment objective be "consistent with the principles of
long-term investment and preservation of capital." Upon
notification of this restriction, the Institute immediately
contacted the Chair of the NASAA Committee to apprise her of the
ramifications such restriction would have on all contractual
plans. Based upon our discussions with members of the NASAA
Committee on this issue, we have been advised that this provision
will be amended as follows:
The stated investment objective of a Periodic Payment Plan
shall be a fundamental policy of the plan as defined in
Section 8(b) of the Investment Company Act of 1940 and
shall be consistent with the goal of providing a long term
investment opportunity suitable for persons of relatively
modest means. If a fund's investment objective is not
currently a fundamental policy, it shall be made one at the
next meeting of shareholders.
* * *
A copy of the revised version of the NASAA Committee's
proposed guidelines (without the foregoing amendment relating to
the investment objective) as well as the Institute's follow-up
letter to the NASAA Committee on the February 20th meeting is
attached. We will keep you advised of developments.
Patricia Louie
Assistant General Counsel
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