Notice to Members 99-103

SEC Approves Rule Change Relating to Sales Charges for Investment Companies and Variable Contracts

Effective Date: April 1, 2000

On October 20, 1999, the Securities and Exchange Commission (SEC) approved amendments to National Association of Securities Dealers, Inc. (NASD®) Rules 2820 (Variable Contracts Rule) and 2830 (Investment Company Rule) that regulate the sales charges imposed by investment companies and variable annuity contracts sold by NASD members. Generally, the amendments revise the Investment Company Rule to:

  • provide maximum aggregate sales charge limits for fund-of-funds arrangements;
  • permit mutual funds to charge installment loads;
  • prohibit loads on reinvested dividends;
  • impose redemption order requirements for shares subject to contingent deferred sales loads (CDSLs); and
  • eliminate duplicative prospectus disclosure.

The amendments revise the Variable Contracts Rule to eliminate the specific sales charge limitations in the rule and a filing requirement relating to changes in sales charges. The amendments are effective on April 1, 2000.

Questions concerning this Notice may be directed to Thomas M. Selman, Vice President, Investment Companies/Corporate Financing, NASD Regulation, Inc. (NASD RegulationSM) at (240) 386-4533; or Joseph P. Savage, Counsel, Advertising/Investment Companies Regulation, NASD Regulation, at (202) 728- 8233.