--- kind: "range" citation: "15 U.S.C. §§ 80a–1–80a–64" title: "15" from: "80a–1" to: "80a–64" count: 65 release: "119-102" url: "https://uscodex.org/usc/15/80a-1..80a-64" --- # §80a–1. Findings and declaration of policy - (a) **Findings—** Upon the basis of facts disclosed by the record and reports of the [Securities](/usc/15/80a–2.md?p=a-36) and [Exchange](/usc/15/80a–2.md?p=a-14) [Commission](/usc/15/80a–2.md?p=a-7) made pursuant to section 79z–4[^1] of this title, and facts otherwise disclosed and ascertained, it is found that [investment companies](/usc/15/77z–2.md?p=i-2) are affected with a national public interest in that, among other things— - (1) the [securities](/usc/15/80a–2.md?p=a-36) issued by such [companies](/usc/15/80a–2.md?p=a-8), which constitute a substantial part of all [securities](/usc/15/80a–2.md?p=a-36) publicly offered, are distributed, purchased, paid for, exchanged, transferred, redeemed, and repurchased by use of the mails and means and instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), and in the case of the numerous [companies](/usc/15/80a–2.md?p=a-8) which issue [redeemable securities](/usc/15/80a–2.md?p=a-32) this process of distribution and redemption is continuous; - (2) the principal activities of such [companies](/usc/15/80a–2.md?p=a-8)—investing, reinvesting, and trading in [securities](/usc/15/80a–2.md?p=a-36)—are conducted by use of the mails and means and instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), including the facilities of [national securities exchanges](/usc/15/80a–2.md?p=a-26), and constitute a substantial part of all transactions effected in the [securities](/usc/15/80a–2.md?p=a-36) markets of the Nation; - (3) such [companies](/usc/15/80a–2.md?p=a-8) customarily invest and trade in [securities](/usc/15/80a–2.md?p=a-36) issued by, and may dominate and [control](/usc/15/80a–2.md?p=a-9) or otherwise affect the policies and management of, [companies](/usc/15/80a–2.md?p=a-8) engaged in business in [interstate commerce](/usc/15/80a–2.md?p=a-18); - (4) such [companies](/usc/15/80a–2.md?p=a-8) are media for the investment in the national economy of a substantial part of the national savings and may have a vital effect upon the flow of such savings into the capital markets; and - (5) the activities of such [companies](/usc/15/80a–2.md?p=a-8), extending over many [States](/usc/15/80a–2.md?p=a-39), their use of the instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18) and the wide geographic distribution of their [security](/usc/15/80a–2.md?p=a-36) holders, make difficult, if not impossible, effective [State](/usc/15/80a–2.md?p=a-39) regulation of such [companies](/usc/15/80a–2.md?p=a-8) in the interest of investors. - (b) **Policy—** Upon the basis of facts disclosed by the record and reports of the [Securities](/usc/15/80a–2.md?p=a-36) and [Exchange](/usc/15/80a–2.md?p=a-14) [Commission](/usc/15/80a–2.md?p=a-7) made pursuant to section 79z–4[^1] of this title, and facts otherwise disclosed and ascertained, it is declared that the national public interest and the interest of investors are adversely affected— - (1) when investors [purchase](/usc/15/78c–5.md?p=g), pay for, [exchange](/usc/15/80a–2.md?p=a-14), receive dividends upon, vote, refrain from voting, sell, or surrender [securities](/usc/15/80a–2.md?p=a-36) issued by [investment companies](/usc/15/77z–2.md?p=i-2) without adequate, accurate, and explicit information, fairly presented, concerning the character of such [securities](/usc/15/80a–2.md?p=a-36) and the circumstances, policies, and financial responsibility of such [companies](/usc/15/80a–2.md?p=a-8) and their management; - (2) when [investment companies](/usc/15/77z–2.md?p=i-2) are organized, operated, managed, or their portfolio [securities](/usc/15/80a–2.md?p=a-36) are selected, in the interest of [directors](/usc/15/80a–2.md?p=a-12), officers, [investment advisers](/usc/15/6102.md?p=d-2-B-ii), depositors, or other affiliated [persons](/usc/15/80a–2.md?p=a-28) thereof, in the interest of underwriters, [brokers](/usc/15/80a–2.md?p=a-6), or [dealers](/usc/15/80a–2.md?p=a-11), in the interest of special classes of their [security](/usc/15/80a–2.md?p=a-36) holders, or in the interest of other [investment companies](/usc/15/77z–2.md?p=i-2) or [persons](/usc/15/80a–2.md?p=a-28) engaged in other lines of business, rather than in the interest of all classes of such [companies](/usc/15/80a–2.md?p=a-8)’ [security](/usc/15/80a–2.md?p=a-36) holders; - (3) when [investment companies](/usc/15/77z–2.md?p=i-2) issue [securities](/usc/15/80a–2.md?p=a-36) containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding [securities](/usc/15/80a–2.md?p=a-36); - (4) when the [control](/usc/15/80a–2.md?p=a-9) of [investment companies](/usc/15/77z–2.md?p=i-2) is unduly concentrated through pyramiding or inequitable methods of [control](/usc/15/80a–2.md?p=a-9), or is inequitably distributed, or when [investment companies](/usc/15/77z–2.md?p=i-2) are managed by irresponsible [persons](/usc/15/80a–2.md?p=a-28); - (5) when [investment companies](/usc/15/77z–2.md?p=i-2), in keeping their [accounts](/usc/15/1681a.md?p=r-4), in maintaining reserves, and in computing their earnings and the asset value of their outstanding [securities](/usc/15/80a–2.md?p=a-36), employ unsound or misleading methods, or are not subjected to adequate independent scrutiny; - (6) when [investment companies](/usc/15/77z–2.md?p=i-2) are reorganized, become inactive, or change the character of their business, or when the [control](/usc/15/80a–2.md?p=a-9) or management thereof is transferred, without the consent of their [security](/usc/15/80a–2.md?p=a-36) holders; - (7) when [investment companies](/usc/15/77z–2.md?p=i-2) by excessive borrowing and the issuance of excessive amounts of senior [securities](/usc/15/80a–2.md?p=a-36) increase unduly the speculative character of their junior [securities](/usc/15/80a–2.md?p=a-36); or - (8) when [investment companies](/usc/15/77z–2.md?p=i-2) operate without adequate assets or reserves. It is declared that the policy and purposes of this subchapter, in accordance with which the provisions of this subchapter shall be interpreted, are to mitigate and, so far as is feasible, to eliminate the conditions enumerated in this section which adversely affect the national public interest and the interest of investors. # §80a–2. Definitions; applicability; rulemaking considerations - (a) **Definitions—** When used in this subchapter, unless the context otherwise requires— - (1) “Advisory board” means a [board](/usc/15/205c.md?p=1), whether elected or appointed, which is distinct from the [board](/usc/15/205c.md?p=1) of [directors](#a-12) or [board](/usc/15/205c.md?p=1) of trustees, of an [investment company](/usc/15/77z–2.md?p=i-2), and which is composed solely of [persons](#a-28) who do not serve such [company](#a-8) in any other capacity, whether or not the functions of such [board](/usc/15/205c.md?p=1) are such as to render its members “[directors](#a-12)” within the definition of that term, which [board](/usc/15/205c.md?p=1) has advisory functions as to investments but has no power to determine that any [security](#a-36) or other investment shall be purchased or sold by such [company](#a-8). - (2) “Affiliated company” means a [company](#a-8) which is an affiliated [person](#a-28). - (3) “Affiliated [person](#a-28)” of another [person](#a-28) means (A) any [person](#a-28) directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding [voting securities](#a-42) of such other [person](#a-28); (B) any [person](#a-28) 5 per centum or more of whose outstanding [voting securities](#a-42) are directly or indirectly owned, controlled, or held with power to vote, by such other [person](#a-28); (C) any [person](#a-28) directly or indirectly controlling, controlled by, or under common [control](#a-9) with, such other [person](#a-28); (D) any officer, [director](#a-12), partner, copartner, or employee of such other [person](#a-28); (E) if such other [person](#a-28) is an [investment company](/usc/15/77z–2.md?p=i-2), any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) thereof or any member of an [advisory board](#a-1) thereof; and (F) if such other [person](#a-28) is an unincorporated [investment company](/usc/15/77z–2.md?p=i-2) not having a [board](/usc/15/205c.md?p=1) of [directors](#a-12), the depositor thereof. - (4) “Assignment” includes any direct or indirect transfer or hypothecation of a contract or chose in action by the assignor, or of a controlling block of the assignor’s outstanding [voting securities](#a-42) by a [security](#a-36) holder of the assignor; but does not include an assignment of partnership interests incidental to the death or withdrawal of a minority of the members of the partnership having only a minority interest in the partnership business or to the admission to the partnership of one or more members who, after such admission, shall be only a minority of the members and shall have only a minority interest in the business. - (5) “Bank” means (A) a depository institution (as defined in [section 1813 of title 12](/usc/12/1813.md)) or a branch or agency of a foreign bank (as such terms are defined in [section 3101 of title 12](/usc/12/3101.md)), (B) a member bank of the Federal Reserve System, (C) any other banking institution or trust [company](#a-8), whether incorporated or not, doing business under the laws of any [State](#a-39) or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the [authority](/usc/15/3051.md?p=1) of the Comptroller of the Currency, and which is supervised and examined by [State](#a-39) or Federal [authority](/usc/15/3051.md?p=1) having supervision over banks, and which is not operated for the purpose of evading the provisions of this subchapter, and (D) a receiver, conservator, or other liquidating agent of any institution or firm included in clauses (A), (B), or (C) of this paragraph. - (6) The term “broker” has the same meaning as given in section 3 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78c](/usc/15/78c.md)], except that such term does not include any [person](#a-28) solely by reason of the fact that such [person](#a-28) is an underwriter for one or more [investment companies](/usc/15/77z–2.md?p=i-2). - (7) “Commission” means the [Securities](#a-36) and [Exchange](#a-14) Commission. - (8) “Company” means a corporation, a partnership, an [association](/usc/15/657h.md?p=a-2), a joint-stock company, a trust, a fund, or any organized group of [persons](#a-28) whether incorporated or not; or any receiver, trustee in a case under [title 11](/usc/11.md) or similar official or any liquidating agent for any of the foregoing, in his capacity as such. - (9) “Control” means the power to exercise a controlling influence over the management or policies of a [company](#a-8), unless such power is solely the result of an official position with such [company](#a-8). Any [person](#a-28) who owns beneficially, either directly or through one or more controlled [companies](#a-8), more than 25 per centum of the [voting securities](#a-42) of a [company](#a-8) shall be presumed to control such [company](#a-8). Any [person](#a-28) who does not so own more than 25 per centum of the [voting securities](#a-42) of any [company](#a-8) shall be presumed not to control such [company](#a-8). A natural [person](#a-28) shall be presumed not to be a controlled [person](#a-28) within the meaning of this subchapter. Any such presumption may be rebutted by evidence, but except as hereinafter provided, shall continue until a determination to the contrary made by the [Commission](#a-7) by [order](/usc/15/8702.md?p=14) either on its own motion or on [application](/usc/15/77ccc.md?p=8) by an interested [person](#a-28). If an [application](/usc/15/77ccc.md?p=8) filed hereunder is not granted or denied by the [Commission](#a-7) within sixty days after filing thereof, the determination sought by the [application](/usc/15/77ccc.md?p=8) shall be deemed to have been temporarily granted pending final determination of the [Commission](#a-7) thereon. The [Commission](#a-7), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), may by [order](/usc/15/8702.md?p=14) revoke or modify any [order](/usc/15/8702.md?p=14) issued under this paragraph whenever it shall find that the determination embraced in such original [order](/usc/15/8702.md?p=14) is no longer consistent with the facts. - (10) “Convicted” includes a verdict, judgment, or plea of guilty, or a finding of guilt on a plea of nolo contendere, if such verdict, judgment, plea, or finding has not been reversed, set aside, or withdrawn, whether or not sentence has been imposed. - (11) The term “dealer” has the same meaning as given in the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], but does not include an [insurance company](#a-17) or [investment company](/usc/15/77z–2.md?p=i-2). - (12) “Director” means any director of a corporation or any [person](#a-28) performing similar functions with respect to any organization, whether incorporated or unincorporated, including any natural [person](#a-28) who is a member of a [board](/usc/15/205c.md?p=1) of trustees of a [management company](/usc/15/80a–4.md?p=3) created as a common-law trust. - (13) “Employees’ [securities](#a-36) [company](#a-8)” means any [investment company](/usc/15/77z–2.md?p=i-2) or similar [issuer](#a-22) all of the outstanding [securities](#a-36) of which (other than [short-term paper](#a-38)) are beneficially owned (A) by the employees or [persons](#a-28) on retainer of a single employer or of two or more employers each of which is an [affiliated company](#a-2) of the other, (B) by former employees of such employer or employers, (C) by members of the immediate family of such employees, [persons](#a-28) on retainer, or former employees, (D) by any two or more of the foregoing classes of [persons](#a-28), or (E) by such employer or employers together with any one or more of the foregoing classes of [persons](#a-28). - (14) “Exchange” means any organization, [association](/usc/15/657h.md?p=a-2), or group of [persons](#a-28), whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of [securities](#a-36) or for otherwise performing with respect to [securities](#a-36) the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange. - (15) “Face-amount certificate” means any certificate, investment contract, or other [security](#a-36) which represents an obligation on the part of its [issuer](#a-22) to pay a stated or determinable sum or sums at a fixed or determinable date or dates more than twenty-four months after the date of issuance, in consideration of the payment of periodic installments of a stated or determinable amount (which [security](#a-36) shall be known as a face-amount certificate of the “installment type”); or any [security](#a-36) which represents a similar obligation on the part of a [face-amount certificate company](/usc/15/80a–4.md?p=1), the consideration for which is the payment of a single lump sum (which [security](#a-36) shall be known as a “fully paid” face-amount certificate). - (16) “Government security” means any [security](#a-36) issued or guaranteed as to principal or interest by the United States, or by a [person](#a-28) controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to [authority](/usc/15/3051.md?p=1) granted by the Congress of the United States; or any certificate of deposit for any of the foregoing. - (17) “Insurance company” means a [company](#a-8) which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies, and which is subject to supervision by the insurance commissioner or a similar official or agency of a [State](#a-39); or any receiver or similar official or any liquidating agent for such a [company](#a-8), in his capacity as such. - (18) “Interstate commerce” means trade, commerce, transportation, or communication among the several [States](#a-39), or between any foreign country and any [State](#a-39), or between any [State](#a-39) and any place or ship outside thereof. - (19) “Interested [person](#a-28)” of another [person](#a-28) means— - (A) when used with respect to an [investment company](/usc/15/77z–2.md?p=i-2)— - (i) any affiliated [person](#a-28) of such [company](#a-8), - (ii) any member of the immediate family of any natural [person](#a-28) who is an affiliated [person](#a-28) of such [company](#a-8), - (iii) any interested [person](#a-28) of any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for such [company](#a-8), - (iv) any [person](#a-28) or partner or employee of any [person](#a-28) who at any time since the beginning of the last two completed fiscal years of such [company](#a-8) has acted as legal counsel for such [company](#a-8), - (v) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for— - (I) the [investment company](/usc/15/77z–2.md?p=i-2); - (II) any other [investment company](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii) as such [investment company](/usc/15/77z–2.md?p=i-2) or holding itself out to investors as a related [company](#a-8) for purposes of investment or investor services; or - (III) any [account](/usc/15/1681a.md?p=r-4) over which the [investment company](/usc/15/77z–2.md?p=i-2)’s [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has brokerage placement discretion, - (vi) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has loaned money or other property to— - (I) the [investment company](/usc/15/77z–2.md?p=i-2); - (II) any other [investment company](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii) as such [investment company](/usc/15/77z–2.md?p=i-2) or holding itself out to investors as a related [company](#a-8) for purposes of investment or investor services; or - (III) any [account](/usc/15/1681a.md?p=r-4) for which the [investment company](/usc/15/77z–2.md?p=i-2)’s [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has borrowing [authority](/usc/15/3051.md?p=1), and - (vii) any natural [person](#a-28) whom the [Commission](#a-7) by [order](/usc/15/8702.md?p=14) shall have determined to be an interested [person](#a-28) by reason of having had, at any time since the beginning of the last two completed fiscal years of such [company](#a-8), a material business or professional relationship with such [company](#a-8) or with the principal executive officer of such [company](#a-8) or with any other [investment company](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter or with the principal executive officer of such other [investment company](/usc/15/77z–2.md?p=i-2): - (B) when used with respect to an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for any [investment company](/usc/15/77z–2.md?p=i-2)— - (i) any affiliated [person](#a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (ii) any member of the immediate family of any natural [person](#a-28) who is an affiliated [person](#a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (iii) any [person](#a-28) who knowingly has any direct or indirect beneficial interest in, or who is designated as trustee, executor, or guardian of any legal interest in, any [security](#a-36) issued either by such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of principal underwriter or by a controlling [person](#a-28) or such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (iv) any [person](#a-28) or partner or employee of any [person](#a-28) who at any time since the beginning of the last two completed fiscal years of such [investment company](/usc/15/77z–2.md?p=i-2) has acted as legal counsel for such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter, - (v) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for— - (I) any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; - (II) any [investment company](/usc/15/77z–2.md?p=i-2) holding itself out to investors, for purposes of investment or investor services, as a [company](#a-8) related to any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; or - (III) any [account](/usc/15/1681a.md?p=r-4) over which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has brokerage placement discretion, - (vi) any [person](#a-28) or any affiliated [person](#a-28) of a [person](#a-28) (other than a registered [investment company](/usc/15/77z–2.md?p=i-2)) that, at any time during the 6-month period preceding the date of the determination of whether that [person](#a-28) or affiliated [person](#a-28) is an interested [person](#a-28), has loaned money or other property to— - (I) any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; - (II) any [investment company](/usc/15/77z–2.md?p=i-2) holding itself out to investors, for purposes of investment or investor services, as a [company](#a-8) related to any [investment company](/usc/15/77z–2.md?p=i-2) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter serves as such; or - (III) any [account](/usc/15/1681a.md?p=r-4) for which the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) has borrowing [authority](/usc/15/3051.md?p=1), and - (vii) any natural [person](#a-28) whom the [Commission](#a-7) by [order](/usc/15/8702.md?p=14) shall have determined to be an interested [person](#a-28) by reason of having had at any time since the beginning of the last two completed fiscal years of such [investment company](/usc/15/77z–2.md?p=i-2) a material business or professional relationship with such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter or with the principal executive officer or any controlling [person](#a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or principal underwriter. For the purposes of this [paragraph (19)](#a-19), “member of the immediate family” means any parent, spouse of a parent, child, spouse of a child, spouse, brother, or sister, and includes step and adoptive relationships. The [Commission](#a-7) may modify or revoke any [order](/usc/15/8702.md?p=14) issued under [clause (vii)](#a-19-A-vii) of subparagraph (A) or (B) of this paragraph whenever it finds that such [order](/usc/15/8702.md?p=14) is no longer consistent with the facts. No [order](/usc/15/8702.md?p=14) issued pursuant to [clause (vii)](#a-19-A-vii) of subparagraph (A) or (B) of this paragraph shall become effective until at least sixty days after the entry thereof, and no such [order](/usc/15/8702.md?p=14) shall affect the status of any [person](#a-28) for the purposes of this subchapter or for any other purpose for any period prior to the effective date of such [order](/usc/15/8702.md?p=14). - (20) “[Investment adviser](/usc/15/6102.md?p=d-2-B-ii)” of an [investment company](/usc/15/77z–2.md?p=i-2) means (A) any [person](#a-28) (other than a bona fide officer, [director](#a-12), trustee, member of an [advisory board](#a-1), or employee of such [company](#a-8), as such) who pursuant to contract with such [company](#a-8) regularly furnishes advice to such [company](#a-8) with respect to the desirability of investing in, purchasing or selling [securities](#a-36) or other property, or is empowered to determine what [securities](#a-36) or other property shall be purchased or sold by such [company](#a-8), and (B) any other [person](#a-28) who pursuant to contract with a [person](#a-28) described in clause (A) of this paragraph regularly performs substantially all of the duties undertaken by such [person](#a-28) described in said clause (A); but does not include (i) a [person](#a-28) whose advice is furnished solely through uniform publications distributed to subscribers thereto, (ii) a [person](#a-28) who furnishes only statistical and other factual information, advice regarding economic factors and trends, or advice as to occasional transactions in specific [securities](#a-36), but without generally furnishing advice or making recommendations regarding the [purchase](/usc/15/78c–5.md?p=g) or sale of [securities](#a-36), (iii) a [company](#a-8) furnishing such services at cost to one or more [investment companies](/usc/15/77z–2.md?p=i-2), [insurance companies](#a-17), or other [financial institutions](/usc/15/1681s–2.md?p=a-7-G-ii), (iv) any [person](#a-28) the character and amount of whose compensation for such services must be approved by a court, or (v) such other [persons](#a-28) as the [Commission](#a-7) may by rules and regulations or [order](/usc/15/8702.md?p=14) determine not to be within the intent of this definition. - (21) “Investment banker” means any [person](#a-28) engaged in the business of underwriting [securities](#a-36) issued by other [persons](#a-28), but does not include an [investment company](/usc/15/77z–2.md?p=i-2), any [person](#a-28) who acts as an underwriter in isolated transactions but not as a part of a regular business, or any [person](#a-28) solely by reason of the fact that such [person](#a-28) is an underwriter for one or more [investment companies](/usc/15/77z–2.md?p=i-2). - (22) “Issuer” means every [person](#a-28) who issues or proposes to issue any [security](#a-36), or has outstanding any [security](#a-36) which it has issued. - (23) “Lend” includes a [purchase](/usc/15/78c–5.md?p=g) coupled with an [agreement](/usc/15/7a.md?p=2) by the vendor to repurchase; “borrow” includes a sale coupled with a similar [agreement](/usc/15/7a.md?p=2). - (24) “Majority-owned subsidiary” of a [person](#a-28) means a [company](#a-8) 50 per centum or more of the outstanding [voting securities](#a-42) of which are owned by such [person](#a-28), or by a [company](#a-8) which, within the meaning of this paragraph, is a majority-owned subsidiary of such [person](#a-28). - (25) “Means or instrumentality of interstate commerce” includes any facility of a [national securities exchange](#a-26). - (26) “National securities exchange” means an [exchange](#a-14) registered under section 6 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78f](/usc/15/78f.md)]. - (27) “Periodic payment plan certificate” means (A) any certificate, investment contract, or other [security](#a-36) providing for a series of periodic payments by the holder, and representing an undivided interest in certain specified [securities](#a-36) or in a unit or fund of [securities](#a-36) purchased wholly or partly with the proceeds of such payments, and (B) any [security](#a-36) the [issuer](#a-22) of which is also issuing [securities](#a-36) of the character described in clause (A) of this paragraph and the holder of which has substantially the same rights and privileges as those which holders of [securities](#a-36) of the character described in said clause (A) have upon completing the periodic payments for which such [securities](#a-36) provide. - (28) “Person” means a natural person or a [company](#a-8). - (29) “Principal underwriter” of or for any [investment company](/usc/15/77z–2.md?p=i-2) other than a [closed-end company](/usc/15/80a–5.md?p=a-2), or of any [security](#a-36) issued by such a [company](#a-8), means any underwriter who as principal [purchases](/usc/15/78c–5.md?p=g) from such [company](#a-8), or pursuant to contract has the right (whether absolute or conditional) from time to time to [purchase](/usc/15/78c–5.md?p=g) from such [company](#a-8), any such [security](#a-36) for distribution, or who as agent for such [company](#a-8) sells or has the right to sell any such [security](#a-36) to a [dealer](#a-11) or to the public or both, but does not include a [dealer](#a-11) who [purchases](/usc/15/78c–5.md?p=g) from such [company](#a-8) through a principal underwriter acting as agent for such [company](#a-8). “Principal underwriter” of or for a [closed-end company](/usc/15/80a–5.md?p=a-2) or any [issuer](#a-22) which is not an [investment company](/usc/15/77z–2.md?p=i-2), or of any [security](#a-36) issued by such a [company](#a-8) or [issuer](#a-22), means any underwriter who, in connection with a primary distribution of [securities](#a-36), (A) is in privity of contract with the [issuer](#a-22) or an affiliated [person](#a-28) of the [issuer](#a-22); (B) acting alone or in concert with one or more other [persons](#a-28), initiates or directs the formation of an underwriting syndicate; or (C) is allowed a rate of gross [commission](#a-7), spread, or other profit greater than the rate allowed another underwriter participating in the distribution. - (30) “Promoter” of a [company](#a-8) or a proposed [company](#a-8) means a [person](#a-28) who, acting alone or in concert with other [persons](#a-28), is initiating or directing, or has within one year initiated or directed, the organization of such [company](#a-8). - (31) “[Prospectus](/usc/15/77b.md?p=a-10)”, as used in [section 80a–22 of this title](/usc/15/80a–22.md), means a written [prospectus](/usc/15/77b.md?p=a-10) intended to meet the requirements of section 10(a) of the Securities Act of 1933 [[15 U.S.C. 77j(a)](/usc/15/77j.md?p=a)] and currently in use. As used elsewhere, “[prospectus](/usc/15/77b.md?p=a-10)” means a [prospectus](/usc/15/77b.md?p=a-10) as defined in the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.]. - (32) “Redeemable security” means any [security](#a-36), other than [short-term paper](#a-38), under the terms of which the holder, upon its presentation to the [issuer](#a-22) or to a [person](#a-28) designated by the [issuer](#a-22), is entitled (whether absolutely or only out of surplus) to receive approximately his proportionate share of the [issuer](#a-22)’s current net assets, or the cash equivalent thereof. - (33) “Reorganization” means (A) a reorganization under the supervision of a court of competent jurisdiction; (B) a merger or consolidation; (C) a sale of 75 per centum or more in value of the assets of a [company](#a-8); (D) a restatement of the capital of a [company](#a-8), or an [exchange](#a-14) of [securities](#a-36) issued by a [company](#a-8) for any of its own outstanding [securities](#a-36); (E) a voluntary dissolution or liquidation of a [company](#a-8); (F) a recapitalization or other procedure or transaction which has for its purpose the alteration, modification, or elimination of any of the rights, preferences, or privileges of any class of [securities](#a-36) issued by a [company](#a-8), as provided in its charter or other instrument creating or defining such rights, preferences, and privileges; (G) an [exchange](#a-14) of [securities](#a-36) issued by a [company](#a-8) for outstanding [securities](#a-36) issued by another [company](#a-8) or [companies](#a-8), preliminary to and for the purpose of effecting or consummating any of the foregoing; or (H) any [exchange](#a-14) of [securities](#a-36) by a [company](#a-8) which is not an [investment company](/usc/15/77z–2.md?p=i-2) for [securities](#a-36) issued by a registered [investment company](/usc/15/77z–2.md?p=i-2). - (34) “Sale”, “sell”, “offer to sell”, or “offer for sale” includes every contract of sale or disposition of, attempt or offer to dispose of, or solicitation of an offer to buy, a [security](#a-36) or interest in a [security](#a-36), for value. Any [security](#a-36) given or delivered with, or as a bonus on [account](/usc/15/1681a.md?p=r-4) of, any [purchase](/usc/15/78c–5.md?p=g) of [securities](#a-36) or any other thing, shall be conclusively presumed to constitute a part of the subject of such [purchase](/usc/15/78c–5.md?p=g) and to have been sold for value. - (35) “Sales load” means the difference between the price of a [security](#a-36) to the public and that portion of the proceeds from its sale which is received and invested or held for investment by the [issuer](#a-22) (or in the case of a [unit investment trust](/usc/15/80a–4.md?p=2), by the depositor or trustee), less any portion of such difference deducted for trustee’s or [custodian](/usc/15/57b–1.md?p=a-4)’s fees, insurance premiums, issue taxes, or administrative expenses or fees which are not properly chargeable to sales or promotional activities. In the case of a periodic payment plan certificate, “sales load” includes the sales load on any [investment company](/usc/15/77z–2.md?p=i-2) [securities](#a-36) in which the payments made on such certificate are invested, as well as the sales load on the certificate itself. - (36) “Security” means any note, stock, treasury stock, [security future](#a-52), bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing [agreement](/usc/15/7a.md?p=2), collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a [national securities exchange](#a-26) relating to foreign currency, or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or [purchase](/usc/15/78c–5.md?p=g), any of the foregoing. - (37) “Separate account” means an [account](/usc/15/1681a.md?p=r-4) established and maintained by an [insurance company](#a-17) pursuant to the laws of any [State](#a-39) or territory of the United States, or of Canada or any province thereof, under which income, gains and losses, whether or not realized, from assets allocated to such [account](/usc/15/1681a.md?p=r-4), are, in accordance with the applicable contract, credited to or charged against such [account](/usc/15/1681a.md?p=r-4) without regard to other income, gains, or losses of the [insurance company](#a-17). - (38) “Short-term paper” means any note, draft, bill of [exchange](#a-14), or banker’s acceptance payable on demand or having a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof payable on demand or having a maturity likewise limited; and such other classes of [securities](#a-36), of a commercial rather than an investment character, as the [Commission](#a-7) may designate by rules and regulations. - (39) “State” means any State of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, or any other possession of the United States. - (40) “Underwriter” means any [person](#a-28) who has purchased from an issuer with a view to, or sells for an issuer in connection with, the distribution of any [security](#a-36), or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a [person](#a-28) whose interest is limited to a [commission](#a-7) from an underwriter or [dealer](#a-11) not in excess of the usual and customary [distributor](/usc/15/1278.md?p=c-1-D-i)’s or seller’s [commission](#a-7). As used in this paragraph the term “issuer” shall include, in addition to an issuer, any [person](#a-28) directly or indirectly controlling or controlled by the issuer, or any [person](#a-28) under direct or indirect common [control](#a-9) with the issuer. When the distribution of the [securities](#a-36) in respect of which any [person](#a-28) is an underwriter is completed such [person](#a-28) shall cease to be an underwriter in respect of such [securities](#a-36) or the issuer thereof. - (41) “Value”, with respect to assets of registered [investment companies](/usc/15/77z–2.md?p=i-2), except as provided in subsection (b) of [section 80a–28 of this title](/usc/15/80a–28.md), means— - (A) as used in sections [80a–3](/usc/15/80a–3.md), [80a–5](/usc/15/80a–5.md), and [80a–12](/usc/15/80a–12.md) of this title, (i) with respect to [securities](#a-36) owned at the end of the last preceding fiscal quarter for which market quotations are readily available, the market value at the end of such quarter; (ii) with respect to other [securities](#a-36) and assets owned at the end of the last preceding fiscal quarter, fair value at the end of such quarter, as determined in good faith by the [board](/usc/15/205c.md?p=1) of [directors](#a-12); and (iii) with respect to [securities](#a-36) and other assets acquired after the end of the last preceding fiscal quarter, the cost thereof; and - (B) as used elsewhere in this subchapter, (i) with respect to [securities](#a-36) for which market quotations are readily available, the market value of such [securities](#a-36); and (ii) with respect to other [securities](#a-36) and assets, fair value as determined in good faith by the [board](/usc/15/205c.md?p=1) of [directors](#a-12); in each case as of such time or times as determined pursuant to this subchapter, and the rules and regulations issued by the [Commission](#a-7) hereunder. Notwithstanding the fact that market quotations for [securities](#a-36) issued by controlled [companies](#a-8) are available, the [board](/usc/15/205c.md?p=1) of [directors](#a-12) may in good faith determine the value of such [securities](#a-36): Provided, That the value so determined is not in excess of the higher of market value or asset value of such [securities](#a-36) in the case of majority-owned subsidiaries, and is not in excess of market value in the case of other controlled [companies](#a-8). For purposes of the valuation of those assets of a registered diversified [company](#a-8) which are not subject to the limitations provided for in [section 80a–5(b)(1) of this title](/usc/15/80a–5.md?p=b-1), the [Commission](#a-7) may, by rules and regulations or [orders](/usc/15/8702.md?p=14), permit any [security](#a-36) to be carried at cost, if it shall determine that such procedure is consistent with the general intent and purposes of this subchapter. For purposes of sections [80a–5](/usc/15/80a–5.md) and [80a–12](/usc/15/80a–12.md) of this title in lieu of values determined as provided in [clause (A)](#a-41-A) above, the [Commission](#a-7) shall by rules and regulations permit valuation of [securities](#a-36) at cost or other basis in cases where it may be more convenient for such [company](#a-8) to make its computations on such basis by reason of the necessity or desirability of complying with the provisions of any United States revenue laws or rules and regulations issued thereunder, or the laws or the rules and regulations issued thereunder of any [State](#a-39) in which the [securities](#a-36) of such [company](#a-8) may be qualified for sale. The foregoing definition shall not derogate from the [authority](/usc/15/3051.md?p=1) of the [Commission](#a-7) with respect to the reports, information, and documents to be filed with the [Commission](#a-7) by any registered [company](#a-8), or with respect to the accounting policies and principles to be followed by any such [company](#a-8), as provided in sections [80a–8](/usc/15/80a–8.md), [80a–29](/usc/15/80a–29.md), and [80a–30](/usc/15/80a–30.md) of this title. - (42) “Voting security” means any [security](#a-36) presently entitling the owner or holder thereof to vote for the election of [directors](#a-12) of a [company](#a-8). A specified percentage of the outstanding voting securities of a [company](#a-8) means such amount of its outstanding voting securities as entitles the holder or holders thereof to cast said specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such [company](#a-8) are entitled to cast. The vote of a majority of the outstanding voting securities of a [company](#a-8) means the vote, at the annual or a special meeting of the [security](#a-36) holders of such [company](#a-8) duly called, (A) of 67 per centum or more of the voting securities present at such meeting, if the holders of more than 50 per centum of the outstanding voting securities of such [company](#a-8) are present or represented by proxy; or (B) of more than 50 per centum of the outstanding voting securities of such [company](#a-8), whichever is the less. - (43) “Wholly-owned subsidiary” of a [person](#a-28) means a [company](#a-8) 95 per centum or more of the outstanding [voting securities](#a-42) of which are owned by such [person](#a-28), or by a [company](#a-8) which, within the meaning of this paragraph, is a wholly-owned subsidiary of such [person](#a-28). - (44) “Securities Act of 1933” [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], “[Securities](#a-36) Exchange Act of 1934” [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], and “Trust Indenture Act of 1939” [[15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.] mean those acts, respectively, as heretofore or hereafter amended. - (45) “Savings and loan association” means a savings and loan association, building and loan [association](/usc/15/657h.md?p=a-2), cooperative bank, homestead [association](/usc/15/657h.md?p=a-2), or similar institution, which is supervised and examined by [State](#a-39) or Federal [authority](/usc/15/3051.md?p=1) having supervision over any such institution, and a receiver, conservator, or other liquidating agent of any such institution. - (46) “Eligible portfolio company” means any [issuer](#a-22) which— - (A) is organized under the laws of, and has its principal place of business in, any [State](#a-39) or [States](#a-39); - (B) is neither an [investment company](/usc/15/77z–2.md?p=i-2) as defined in [section 80a–3 of this title](/usc/15/80a–3.md) (other than a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) which is licensed by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2) to operate under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.] and which is a wholly-owned subsidiary of the [business development company](#a-48)) nor a [company](#a-8) which would be an [investment company](/usc/15/77z–2.md?p=i-2) except for the exclusion from the definition of [investment company](/usc/15/77z–2.md?p=i-2) in [section 80a–3(c) of this title](/usc/15/80a–3.md?p=c); and - (C) satisfies one of the following: - (i) it does not have any class of [securities](#a-36) with respect to which a member of a [national securities exchange](#a-26), [broker](#a-6), or [dealer](#a-11) may extend or maintain [credit](/usc/15/1679a.md?p=4) to or for a [customer](/usc/15/78c–5.md?p=g) pursuant to rules or regulations adopted by the [Board](/usc/15/205c.md?p=1) of Governors of the Federal Reserve System under section 7 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78g](/usc/15/78g.md)]; - (ii) it is controlled by a [business development company](#a-48), either alone or as part of a group acting together, and such [business development company](#a-48) in fact exercises a controlling influence over the management or policies of such [eligible portfolio company](#a-46) and, as a result of such [control](#a-9), has an affiliated [person](#a-28) who is a [director](#a-12) of such [eligible portfolio company](#a-46); - (iii) it has total assets of not more than $4,000,000, and capital and surplus (shareholders’ equity less retained earnings) of not less than $2,000,000, except that the [Commission](#a-7) may adjust such amounts by rule, regulation, or [order](/usc/15/8702.md?p=14) to reflect changes in 1 or more generally accepted indices or other indicators for [small businesses](/usc/15/1691c–2.md?p=h-2); or - (iv) it meets such other criteria as the [Commission](#a-7) may, by rule, establish as consistent with the public interest, the protection of investors, and the purposes fairly intended by the policy and provisions of this subchapter. - (47) “Making available significant managerial assistance” by a [business development company](#a-48) means— - (A) any arrangement whereby a [business development company](#a-48), through its [directors](#a-12), officers, employees, or general partners, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio [company](#a-8); - (B) the exercise by a [business development company](#a-48) of a controlling influence over the management or policies of a portfolio [company](#a-8) by the [business development company](#a-48) acting individually or as part of a group acting together which [controls](#a-9) such portfolio [company](#a-8); or - (C) with respect to a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) licensed by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2) to operate under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.], the making of loans to a portfolio [company](#a-8). For purposes of [subparagraph (A)](#a-47-A), the requirement that a [business development company](#a-48) make available significant managerial assistance shall be deemed to be satisfied with respect to any particular portfolio [company](#a-8) where the [business development company](#a-48) [purchases](/usc/15/78c–5.md?p=g) [securities](#a-36) of such portfolio [company](#a-8) in conjunction with one or more other [persons](#a-28) acting together, and at least one of the [persons](#a-28) in the group makes available significant managerial assistance to such portfolio [company](#a-8), except that such requirement will not be deemed to be satisfied if the [business development company](#a-48), in all cases, makes available significant managerial assistance solely in the manner described in this sentence. - (48) “Business development company” means any [closed-end company](/usc/15/80a–5.md?p=a-2) which— - (A) is organized under the laws of, and has its principal place of business in, any [State](#a-39) or [States](#a-39); - (B) is operated for the purpose of making investments in [securities](#a-36) described in paragraphs (1) through (3) of [section 80a–54(a) of this title](/usc/15/80a–54.md?p=a), and makes available significant managerial assistance with respect to the [issuers](#a-22) of such [securities](#a-36), provided that a [business development company](#a-48) must make available significant managerial assistance only with respect to the [companies](#a-8) which are treated by such [business development company](#a-48) as satisfying the 70 per centum of the value of its total assets condition of [section 80a–54 of this title](/usc/15/80a–54.md); and provided further that a [business development company](#a-48) need not make available significant managerial assistance with respect to any [company](#a-8) described in [paragraph (46)(C)(iii)](#a-46-C-iii), or with respect to any other [company](#a-8) that meets such criteria as the [Commission](#a-7) may by rule, regulation, or [order](/usc/15/8702.md?p=14) permit, as consistent with the public interest, the protection of investors, and the purposes of this subchapter; and - (C) has elected pursuant to [section 80a–53(a) of this title](/usc/15/80a–53.md?p=a) to be subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title. - (49) “Foreign securities authority” means any foreign government or any governmental body or regulatory organization empowered by a foreign government to administer or enforce its laws as they relate to [securities](#a-36) matters. - (50) “Foreign financial regulatory authority” means any (A) [foreign securities authority](#a-49), (B) other governmental body or foreign equivalent of a [self-regulatory organization](/usc/15/78c.md?p=a-26) empowered by a foreign government to administer or enforce its laws relating to the regulation of fiduciaries, trusts, commercial lending, insurance, trading in contracts of sale of a commodity for future delivery, or other instruments traded on or subject to the rules of a contract market, [board](/usc/15/205c.md?p=1) of trade or foreign equivalent, or other financial activities, or (C) membership organization a function of which is to regulate the participation of its members in activities listed above. - (51) - (A) “Qualified purchaser” means— - (i) any natural [person](#a-28) (including any [person](#a-28) who holds a joint, community property, or other similar shared ownership interest in an [issuer](#a-22) that is excepted under [section 80a–3(c)(7) of this title](/usc/15/80a–3.md?p=c-7) with that [person](#a-28)’s [qualified purchaser](#a-51-A) spouse) who owns not less than $5,000,000 in investments, as defined by the [Commission](#a-7); - (ii) any [company](#a-8) that owns not less than $5,000,000 in investments and that is owned directly or indirectly by or for 2 or more [natural persons](/usc/15/15g.md?p=3) who are related as siblings or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such [persons](#a-28), the estates of such [persons](#a-28), or foundations, charitable organizations, or trusts established by or for the benefit of such [persons](#a-28); - (iii) any trust that is not covered by [clause (ii)](#a-51-A-ii) and that was not formed for the specific purpose of acquiring the [securities](#a-36) offered, as to which the trustee or other [person](#a-28) authorized to make decisions with respect to the trust, and each settlor or other [person](#a-28) who has contributed assets to the trust, is a [person](#a-28) described in clause [(i)](#a-51-A-i), [(ii)](#a-51-A-ii), or [(iv)](#a-51-A-iv); or - (iv) any [person](#a-28), acting for its own [account](/usc/15/1681a.md?p=r-4) or the [accounts](/usc/15/1681a.md?p=r-4) of other [qualified purchasers](#a-51-A), who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments. - (B) The [Commission](#a-7) may adopt such rules and regulations applicable to the [persons](#a-28) and trusts specified in [clauses (i) through (iv)](#a-51-A-i..a-51-A-iv) of subparagraph (A) as it determines are necessary or appropriate in the public interest or for the protection of investors. - (C) The term “qualified purchaser” does not include a [company](#a-8) that, but for the exceptions provided for in paragraph (1) or (7) of [section 80a–3(c) of this title](/usc/15/80a–3.md?p=c), would be an [investment company](/usc/15/77z–2.md?p=i-2) (hereafter in this paragraph referred to as an “excepted [investment company](/usc/15/77z–2.md?p=i-2)”), unless all beneficial owners of its outstanding [securities](#a-36) (other than [short-term paper](#a-38)), determined in accordance with [section 80a–3(c)(1)(A) of this title](/usc/15/80a–3.md?p=c-1-A), that acquired such [securities](#a-36) on or before April 30, 1996 (hereafter in this paragraph referred to as “pre-amendment beneficial owners”), and all pre-amendment beneficial owners of the outstanding [securities](#a-36) (other than [short-term paper](#a-38)) of any excepted [investment company](/usc/15/77z–2.md?p=i-2) that, directly or indirectly, owns any outstanding [securities](#a-36) of such excepted [investment company](/usc/15/77z–2.md?p=i-2), have consented to its treatment as a qualified purchaser. Unanimous consent of all trustees, [directors](#a-12), or general partners of a [company](#a-8) or trust referred to in clause [(ii)](#a-51-A-ii) or [(iii)](#a-51-A-iii) of subparagraph (A) shall constitute consent for purposes of this subparagraph. - (52) The terms “security future” and “narrow-based security index” have the same meanings as provided in section 3(a)(55) of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78c(a)(55)](/usc/15/78c.md?p=a-55)]. - (53) The term “credit rating agency” has the same meaning as in section 3 of the [Securities](#a-36) Exchange Act of 1934 [[15 U.S.C. 78c](/usc/15/78c.md)]. - (54) The terms “commodity pool”, “commodity pool operator”, “commodity trading advisor”, “major swap participant”, “swap”, “swap dealer”, and “swap execution facility” have the same meanings as in [section 1a of title 7](/usc/7/1a.md). - (b) **Applicability to government—** No provision in this subchapter shall apply to, or be deemed to include, the United States, a [State](#a-39), or any political subdivision of a [State](#a-39), or any agency, [authority](/usc/15/3051.md?p=1), or instrumentality of any one or more of the foregoing, or any corporation which is wholly owned directly or indirectly by any one or more of the foregoing, or any officer, agent, or employee of any of the foregoing acting as such in the course of his official duty, unless such provision makes specific reference thereto. - (c) **Consideration of promotion of efficiency, competition, and capital formation—** Whenever pursuant to this subchapter the [Commission](#a-7) is engaged in rulemaking and is required to consider or determine whether an action is consistent with the public interest, the [Commission](#a-7) shall also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. # §80a–3. Definition of investment company - (a) **Definitions—** - (1) When used in this subchapter, “[investment company](/usc/15/77z–2.md?p=i-2)” means any [issuer](/usc/15/80a–2.md?p=a-22) which— - (A) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in [securities](/usc/15/80a–2.md?p=a-36); - (B) is engaged or proposes to engage in the business of issuing [face-amount certificates](/usc/15/80a–2.md?p=a-15) of the installment type, or has been engaged in such business and has any such certificate outstanding; or - (C) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36), and owns or proposes to acquire investment [securities](/usc/15/80a–2.md?p=a-36) having a value exceeding 40 per centum of the value of such [issuer](/usc/15/80a–2.md?p=a-22)’s total assets (exclusive of [Government securities](/usc/15/80a–2.md?p=a-16) and cash items) on an unconsolidated basis. - (2) As used in this section, “investment [securities](/usc/15/80a–2.md?p=a-36)” includes all [securities](/usc/15/80a–2.md?p=a-36) except (A) [Government securities](/usc/15/80a–2.md?p=a-16), (B) [securities](/usc/15/80a–2.md?p=a-36) issued by employees’ [securities](/usc/15/80a–2.md?p=a-36) [companies](/usc/15/80a–2.md?p=a-8), and (C) [securities](/usc/15/80a–2.md?p=a-36) issued by majority-owned subsidiaries of the owner which (i) are not [investment companies](/usc/15/77z–2.md?p=i-2), and (ii) are not relying on the exception from the definition of [investment company](/usc/15/77z–2.md?p=i-2) in paragraph [(1)](#c-1) or [(7)](#c-7) of subsection (c). - (b) **Exemption from provisions—** Notwithstanding [paragraph (1)(C)](#a-1-C) of subsection (a), none of the following [persons](/usc/15/80a–2.md?p=a-28) is an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of this subchapter: - (1) Any [issuer](/usc/15/80a–2.md?p=a-22) primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36). - (2) Any [issuer](/usc/15/80a–2.md?p=a-22) which the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8) by such [issuer](/usc/15/80a–2.md?p=a-22), finds and by [order](/usc/15/8702.md?p=14) declares to be primarily engaged in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36) either directly or (A) through majority-owned subsidiaries or (B) through controlled [companies](/usc/15/80a–2.md?p=a-8) conducting similar types of businesses. The filing of an [application](/usc/15/77ccc.md?p=8) under this paragraph in good faith by an [issuer](/usc/15/80a–2.md?p=a-22) other than a registered [investment company](/usc/15/77z–2.md?p=i-2) shall exempt the [applicant](/usc/15/7a.md?p=3) for a period of sixty days from all provisions of this subchapter applicable to [investment companies](/usc/15/77z–2.md?p=i-2) as such. For cause shown, the [Commission](/usc/15/80a–2.md?p=a-7) by [order](/usc/15/8702.md?p=14) may extend such period of exemption for an additional period or periods. Whenever the [Commission](/usc/15/80a–2.md?p=a-7), upon its own motion or upon [application](/usc/15/77ccc.md?p=8), finds that the circumstances which gave rise to the issuance of an [order](/usc/15/8702.md?p=14) granting an [application](/usc/15/77ccc.md?p=8) under this paragraph no longer exist, the [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) revoke such [order](/usc/15/8702.md?p=14). - (3) Any [issuer](/usc/15/80a–2.md?p=a-22) all the outstanding [securities](/usc/15/80a–2.md?p=a-36) of which (other than [short-term paper](/usc/15/80a–2.md?p=a-38) and [directors](/usc/15/80a–2.md?p=a-12)’ qualifying shares) are directly or indirectly owned by a [company](/usc/15/80a–2.md?p=a-8) excepted from the definition of [investment company](/usc/15/77z–2.md?p=i-2) by paragraph (1) or (2) of this subsection. - (c) **Further exemptions—** Notwithstanding [subsection (a)](#a), none of the following [persons](/usc/15/80a–2.md?p=a-28) is an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of this subchapter: - (1) Any [issuer](/usc/15/80a–2.md?p=a-22) whose outstanding [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) are beneficially owned by not more than one hundred [persons](/usc/15/80a–2.md?p=a-28) (or, in the case of a [qualifying venture capital fund](#c-1-C-i), 250 [persons](/usc/15/80a–2.md?p=a-28)) and which is not making and does not presently propose to make a public offering of its [securities](/usc/15/80a–2.md?p=a-36). Such [issuer](/usc/15/80a–2.md?p=a-22) shall be deemed to be an [investment company](/usc/15/77z–2.md?p=i-2) for purposes of the limitations set forth in subparagraphs (A)(i) and (B)(i) of [section 80a–12(d)(1) of this title](/usc/15/80a–12.md?p=d-1) governing the [purchase](/usc/15/78c–5.md?p=g) or other acquisition by such [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered [investment company](/usc/15/77z–2.md?p=i-2) and the sale of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered open-end [investment company](/usc/15/77z–2.md?p=i-2) to any such [issuer](/usc/15/80a–2.md?p=a-22). For purposes of this paragraph: - (A) Beneficial ownership by a [company](/usc/15/80a–2.md?p=a-8) shall be deemed to be beneficial ownership by one [person](/usc/15/80a–2.md?p=a-28), except that, if the [company](/usc/15/80a–2.md?p=a-8) owns 10 per centum or more of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the [issuer](/usc/15/80a–2.md?p=a-22), and is or, but for the exception provided for in this paragraph or [paragraph (7)](#c-7), would be an [investment company](/usc/15/77z–2.md?p=i-2), the beneficial ownership shall be deemed to be that of the holders of such [company](/usc/15/80a–2.md?p=a-8)’s outstanding [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)). - (B) Beneficial ownership by any [person](/usc/15/80a–2.md?p=a-28) who acquires [securities](/usc/15/80a–2.md?p=a-36) or interests in [securities](/usc/15/80a–2.md?p=a-36) of an [issuer](/usc/15/80a–2.md?p=a-22) described in the first sentence of this paragraph shall be deemed to be beneficial ownership by the [person](/usc/15/80a–2.md?p=a-28) from whom such transfer was made, pursuant to such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe as necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter, where the transfer was caused by legal separation, divorce, death, or other involuntary event. - (C) - (i) The term “qualifying venture capital fund” means a [venture capital fund](#c-1-C-ii) that has not more than $10,000,000 in aggregate capital contributions and uncalled committed capital, with such dollar amount to be indexed for inflation once every 5 years by the [Commission](/usc/15/80a–2.md?p=a-7), beginning from a measurement made by the [Commission](/usc/15/80a–2.md?p=a-7) on a date selected by the [Commission](/usc/15/80a–2.md?p=a-7), rounded to the nearest $1,000,000. - (ii) The term “venture capital fund” has the meaning given the term in [section 275.203(l)–1](/cfr/17/275.203..1.md) of title 17, Code of Federal Regulations, or any successor regulation. - (2) - (A) Any [person](/usc/15/80a–2.md?p=a-28) primarily engaged in the business of underwriting and distributing [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28), selling [securities](/usc/15/80a–2.md?p=a-36) to [customers](/usc/15/78c–5.md?p=g), acting as [broker](/usc/15/80a–2.md?p=a-6), and acting as [market intermediary](#c-2-B-i), or any one or more of such activities, whose gross income normally is derived principally from such business and related activities. - (B) For purposes of this paragraph— - (i) the term “market intermediary” means any [person](/usc/15/80a–2.md?p=a-28) that regularly holds itself out as being willing contemporaneously to engage in, and that is regularly engaged in, the business of entering into transactions on both sides of the market for a [financial contract](#c-2-B-ii) or one or more such [financial contracts](#c-2-B-ii); and - (ii) the term “financial contract” means any arrangement that— - (I) takes the form of an individually negotiated contract, [agreement](/usc/15/7a.md?p=2), or option to buy, sell, [lend](/usc/15/80a–2.md?p=a-23), [swap](/usc/15/80a–2.md?p=a-54), or repurchase, or other similar individually negotiated transaction commonly entered into by participants in the financial markets; - (II) is in respect of [securities](/usc/15/80a–2.md?p=a-36), commodities, currencies, interest or other rates, other measures of value, or any other financial or economic interest similar in purpose or function to any of the foregoing; and - (III) is entered into in response to a request from a counter party for a quotation, or is otherwise entered into and structured to accommodate the objectives of the counter party to such arrangement. - (3) Any bank or [insurance company](/usc/15/80a–2.md?p=a-17); any [savings and loan association](/usc/15/80a–2.md?p=a-45), building and loan [association](/usc/15/657h.md?p=a-2), cooperative bank, homestead [association](/usc/15/657h.md?p=a-2), or similar institution, or any receiver, conservator, liquidator, liquidating agent, or similar official or [person](/usc/15/80a–2.md?p=a-28) thereof or therefor; or any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee, executor, [administrator](/usc/15/9001.md?p=1), or guardian, if— - (A) such fund is employed by the bank solely as an aid to the [administration](/usc/15/2203.md?p=2) of trusts, estates, or other [accounts](/usc/15/1681a.md?p=r-4) created and maintained for a fiduciary purpose; - (B) except in connection with the ordinary advertising of the bank’s fiduciary services, interests in such fund are not— - (i) advertised; or - (ii) offered for sale to the general public; and - (C) fees and expenses charged by such fund are not in contravention of fiduciary principles established under applicable Federal or [State](/usc/15/80a–2.md?p=a-39) law. - (4) Any [person](/usc/15/80a–2.md?p=a-28) substantially all of whose business is confined to making small loans, industrial banking, or similar businesses. - (5) Any [person](/usc/15/80a–2.md?p=a-28) who is not engaged in the business of issuing [redeemable securities](/usc/15/80a–2.md?p=a-32), [face-amount certificates](/usc/15/80a–2.md?p=a-15) of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses: (A) Purchasing or otherwise acquiring notes, drafts, acceptances, open [accounts](/usc/15/1681a.md?p=r-4) receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services; (B) making loans to [manufacturers](/usc/15/1278.md?p=c-1-D-i), wholesalers, and [retailers](/usc/15/1278.md?p=c-1-D-ii) of, and to prospective purchasers of, specified merchandise, insurance, and services; and (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. - (6) Any [company](/usc/15/80a–2.md?p=a-8) primarily engaged, directly or through majority-owned subsidiaries, in one or more of the businesses described in paragraphs (3), (4), and (5) of this subsection, or in one or more of such businesses (from which not less than 25 per centum of such [company](/usc/15/80a–2.md?p=a-8)’s gross income during its last fiscal year was derived) together with an additional business or businesses other than investing, reinvesting, owning, holding, or trading in [securities](/usc/15/80a–2.md?p=a-36). - (7) - (A) Any [issuer](/usc/15/80a–2.md?p=a-22), the outstanding [securities](/usc/15/80a–2.md?p=a-36) of which are owned exclusively by [persons](/usc/15/80a–2.md?p=a-28) who, at the time of acquisition of such [securities](/usc/15/80a–2.md?p=a-36), are [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), and which is not making and does not at that time propose to make a public offering of such [securities](/usc/15/80a–2.md?p=a-36). [Securities](/usc/15/80a–2.md?p=a-36) that are owned by [persons](/usc/15/80a–2.md?p=a-28) who received the [securities](/usc/15/80a–2.md?p=a-36) from a [qualified purchaser](/usc/15/80a–2.md?p=a-51-A) as a gift or bequest, or in a case in which the transfer was caused by legal separation, divorce, death, or other involuntary event, shall be deemed to be owned by a [qualified purchaser](/usc/15/80a–2.md?p=a-51-A), subject to such rules, regulations, and [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (B) Notwithstanding [subparagraph (A)](#c-7-A), an [issuer](/usc/15/80a–2.md?p=a-22) is within the exception provided by this paragraph if— - (i) in addition to [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), outstanding [securities](/usc/15/80a–2.md?p=a-36) of that [issuer](/usc/15/80a–2.md?p=a-22) are beneficially owned by not more than 100 [persons](/usc/15/80a–2.md?p=a-28) who are not [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), if— - (I) such [persons](/usc/15/80a–2.md?p=a-28) acquired any portion of the [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22) on or before September 1, 1996; and - (II) at the time at which such [persons](/usc/15/80a–2.md?p=a-28) initially acquired the [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22), the [issuer](/usc/15/80a–2.md?p=a-22) was excepted by [paragraph (1)](#c-1); and - (ii) prior to availing itself of the exception provided by this paragraph— - (I) such [issuer](/usc/15/80a–2.md?p=a-22) has disclosed to each beneficial owner, as determined under [paragraph (1)](#c-1), that future investors will be limited to [qualified purchasers](/usc/15/80a–2.md?p=a-51-A), and that ownership in such [issuer](/usc/15/80a–2.md?p=a-22) is no longer limited to not more than 100 [persons](/usc/15/80a–2.md?p=a-28); and - (II) concurrently with or after such disclosure, such [issuer](/usc/15/80a–2.md?p=a-22) has provided each beneficial owner, as determined under [paragraph (1)](#c-1), with a reasonable opportunity to redeem any part or all of their interests in the [issuer](/usc/15/80a–2.md?p=a-22), notwithstanding any [agreement](/usc/15/7a.md?p=2) to the contrary between the [issuer](/usc/15/80a–2.md?p=a-22) and such [persons](/usc/15/80a–2.md?p=a-28), for that [person](/usc/15/80a–2.md?p=a-28)’s proportionate share of the [issuer](/usc/15/80a–2.md?p=a-22)’s net assets. - (C) Each [person](/usc/15/80a–2.md?p=a-28) that elects to redeem under [subparagraph (B)(ii)(II)](#c-7-B-ii-II) shall receive an amount in cash equal to that [person](/usc/15/80a–2.md?p=a-28)’s proportionate share of the [issuer](/usc/15/80a–2.md?p=a-22)’s net assets, unless the [issuer](/usc/15/80a–2.md?p=a-22) elects to provide such [person](/usc/15/80a–2.md?p=a-28) with the option of receiving, and such [person](/usc/15/80a–2.md?p=a-28) agrees to receive, all or a portion of such [person](/usc/15/80a–2.md?p=a-28)’s share in assets of the [issuer](/usc/15/80a–2.md?p=a-22). If the [issuer](/usc/15/80a–2.md?p=a-22) elects to provide such [persons](/usc/15/80a–2.md?p=a-28) with such an opportunity, disclosure concerning such opportunity shall be made in the disclosure required by [subparagraph (B)(ii)(I)](#c-7-B-ii-I). - (D) An [issuer](/usc/15/80a–2.md?p=a-22) that is excepted under this paragraph shall nonetheless be deemed to be an [investment company](/usc/15/77z–2.md?p=i-2) for purposes of the limitations set forth in subparagraphs (A)(i) and (B)(i) of [section 80a–12(d)(1) of this title](/usc/15/80a–12.md?p=d-1) relating to the [purchase](/usc/15/78c–5.md?p=g) or other acquisition by such [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered [investment company](/usc/15/77z–2.md?p=i-2) and the sale of any [security](/usc/15/80a–2.md?p=a-36) issued by any registered open-end [investment company](/usc/15/77z–2.md?p=i-2) to any such [issuer](/usc/15/80a–2.md?p=a-22). - (E) For purposes of determining compliance with this paragraph and [paragraph (1)](#c-1), an [issuer](/usc/15/80a–2.md?p=a-22) that is otherwise excepted under this paragraph and an [issuer](/usc/15/80a–2.md?p=a-22) that is otherwise excepted under [paragraph (1)](#c-1) shall not be treated by the [Commission](/usc/15/80a–2.md?p=a-7) as being a single [issuer](/usc/15/80a–2.md?p=a-22) for purposes of determining whether the outstanding [securities](/usc/15/80a–2.md?p=a-36) of the [issuer](/usc/15/80a–2.md?p=a-22) excepted under [paragraph (1)](#c-1) are beneficially owned by not more than 100 [persons](/usc/15/80a–2.md?p=a-28) or whether the outstanding [securities](/usc/15/80a–2.md?p=a-36) of the [issuer](/usc/15/80a–2.md?p=a-22) excepted under this paragraph are owned by [persons](/usc/15/80a–2.md?p=a-28) that are not [qualified purchasers](/usc/15/80a–2.md?p=a-51-A). Nothing in this subparagraph shall be construed to establish that a [person](/usc/15/80a–2.md?p=a-28) is a bona fide [qualified purchaser](/usc/15/80a–2.md?p=a-51-A) for purposes of this paragraph or a bona fide beneficial owner for purposes of [paragraph (1)](#c-1). - (8) [Repealed] Pub. L. 111–203, title IX, § 986(c)(2), July 21, 2010, 124 Stat. 1936. - (9) Any [person](/usc/15/80a–2.md?p=a-28) substantially all of whose business consists of owning or holding oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, leases, or fractional interests. - (10) - (A) Any [company](/usc/15/80a–2.md?p=a-8) organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes— - (i) no part of the net earnings of which inures to the benefit of any private shareholder or individual; or - (ii) which is or maintains a fund described in [subparagraph (B)](#c-10-B). - (B) For the purposes of [subparagraph (A)(ii)](#c-10-A-ii), a fund is described in this subparagraph if such fund is a [pooled income fund](#c-10-D-ii), collective trust fund, collective investment fund, or similar fund maintained by a [charitable organization](#c-10-D-iii) exclusively for the collective investment and reinvestment of one or more of the following: - (i) assets of the general endowment fund or other funds of one or more [charitable organizations](#c-10-D-iii); - (ii) assets of a [pooled income fund](#c-10-D-ii); - (iii) assets contributed to a [charitable organization](#c-10-D-iii) in [exchange](/usc/15/80a–2.md?p=a-14) for the issuance of [charitable gift annuities](#c-10-D-vi); - (iv) assets of a [charitable remainder trust](#c-10-D-v) or of any other trust, the remainder interests of which are irrevocably dedicated to any [charitable organization](#c-10-D-iii); - (v) assets of a [charitable lead trust](#c-10-D-iv); - (vi) assets of a trust, the remainder interests of which are revocably dedicated to or for the benefit of 1 or more [charitable organizations](#c-10-D-iii), if the ability to revoke the dedication is limited to circumstances involving— - (I) an adverse change in the financial circumstances of a settlor or an income beneficiary of the trust; - (II) a change in the identity of the [charitable organization](#c-10-D-iii) or organizations having the remainder interest, provided that the new beneficiary is also a [charitable organization](#c-10-D-iii); or - (III) both the changes described in subclauses [(I)](#c-10-B-vi-I) and [(II)](#c-10-B-vi-II); - (vii) assets of a trust not described in [clauses (i) through (v)](#c-10-B-i..c-10-B-v), the remainder interests of which are revocably dedicated to a [charitable organization](#c-10-D-iii), subject to [subparagraph (C)](#c-10-C); or - (viii) such assets as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rule, regulation, or [order](/usc/15/8702.md?p=14) in accordance with [section 80a–6(c) of this title](/usc/15/80a–6.md?p=c). - (C) A fund that contains assets described in [clause (vii)](#c-10-B-vii) of subparagraph (B) shall be excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) for a period of 3 years after December 8, 1995, but only if— - (i) such assets were contributed before the date which is 60 days after December 8, 1995; and - (ii) such assets are commingled in the fund with assets described in one or more of clauses [(i) through (vi)](#c-10-B-i..c-10-B-vi) and [(viii)](#c-10-B-viii) of subparagraph (B). - (D) For purposes of this paragraph— - (i) a trust or fund is “maintained” by a [charitable organization](#c-10-D-iii) if the organization serves as a trustee or [administrator](/usc/15/9001.md?p=1) of the trust or fund or has the power to remove the trustees or [administrators](/usc/15/9001.md?p=1) of the trust or fund and to designate new trustees or [administrators](/usc/15/9001.md?p=1); - (ii) the term “pooled income fund” has the same meaning as in [section 642(c)(5) of title 26](/usc/26/642.md?p=c-5); - (iii) the term “charitable organization” means an organization described in [paragraphs (1) through (5)](/usc/15/170.md?p=c-1..c-5) of section 170(c) or [section 501(c)(3) of title 26](/usc/26/501.md?p=c-3); - (iv) the term “charitable lead trust” means a trust described in section [170(f)(2)(B)](/usc/26/170.md?p=f-2-B), [2055(e)(2)(B)](/usc/26/2055.md?p=e-2-B), or [2522(c)(2)(B)](/usc/26/2522.md?p=c-2-B) of title 26; - (v) the term “charitable remainder trust” means a charitable remainder annuity trust or a charitable remainder unitrust, as those terms are defined in [section 664(d) of title 26](/usc/26/664.md?p=d); and - (vi) the term “charitable gift annuity” means an annuity issued by a [charitable organization](#c-10-D-iii) that is described in [section 501(m)(5) of title 26](/usc/26/501.md?p=m-5). - (11) Any employee’s stock bonus, pension, or profit-sharing trust which meets the requirements for qualification under [section 401 of title 26](/usc/26/401.md); or any governmental plan described in [section 77c(a)(2)(C) of this title](/usc/15/77c.md); or any collective trust fund maintained by a bank consisting solely of assets of one or more of such trusts, government plans, or church plans, [companies](/usc/15/80a–2.md?p=a-8) or [accounts](/usc/15/1681a.md?p=r-4) that are excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under paragraph (14) of this subsection; or any [separate account](/usc/15/80a–2.md?p=a-37) the assets of which are derived solely from (A) contributions under pension or profit-sharing plans which meet the requirements of [section 401 of title 26](/usc/26/401.md) or the requirements for deduction of the employer’s contribution under [section 404(a)(2) of title 26](/usc/26/404.md?p=a-2), (B) contributions under governmental plans in connection with which interests, participations, or [securities](/usc/15/80a–2.md?p=a-36) are exempted from the registration provisions of [section 77e of this title](/usc/15/77e.md) by [section 77c(a)(2)(C) of this title](/usc/15/77c.md), and (C) advances made by an [insurance company](/usc/15/80a–2.md?p=a-17) in connection with the operation of such [separate account](/usc/15/80a–2.md?p=a-37). - (12) Any voting trust the assets of which consist exclusively of [securities](/usc/15/80a–2.md?p=a-36) of a single [issuer](/usc/15/80a–2.md?p=a-22) which is not an [investment company](/usc/15/77z–2.md?p=i-2). - (13) Any [security](/usc/15/80a–2.md?p=a-36) holders’ protective [committee](/usc/15/2921.md?p=1) or similar [issuer](/usc/15/80a–2.md?p=a-22) having outstanding and issuing no [securities](/usc/15/80a–2.md?p=a-36) other than certificates of deposit and [short-term paper](/usc/15/80a–2.md?p=a-38). - (14) Any church plan described in [section 414(e) of title 26](/usc/26/414.md?p=e), if, under any such plan, no part of the assets may be used for, or diverted to, purposes other than the exclusive benefit of plan participants or beneficiaries, or any [company](/usc/15/80a–2.md?p=a-8) or [account](/usc/15/1681a.md?p=r-4) that is— - (A) established by a [person](/usc/15/80a–2.md?p=a-28) that is eligible to establish and maintain such a plan under [section 414(e) of title 26](/usc/26/414.md?p=e); and - (B) substantially all of the activities of which consist of— - (i) managing or holding assets contributed to such church plans or other assets which are permitted to be commingled with the assets of church plans under [title 26](/usc/26.md); or - (ii) administering or providing benefits pursuant to church plans. # §80a–3a. Protection of philanthropy under State law - (a) **Registration requirements—** A [security](/usc/15/80a–2.md?p=a-36) issued by or any interest or participation in any pooled income fund, collective trust fund, collective investment fund, or similar fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B), and the offer or sale thereof, shall be exempt from any statute or regulation of a [State](#d-3) that requires registration or qualification of [securities](/usc/15/80a–2.md?p=a-36). - (b) **Treatment of charitable organizations—** No [charitable organization](#d-1), or any trustee, [director](/usc/15/80a–2.md?p=a-12), officer, employee, or volunteer of a [charitable organization](#d-1) acting within the scope of such [person](/usc/15/80a–2.md?p=a-28)’s employment or duties, shall be required to register as, or be subject to regulation as, a [dealer](/usc/15/80a–2.md?p=a-11), [broker](/usc/15/80a–2.md?p=a-6), agent, or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) under the [securities laws](/usc/15/77z–2.md?p=i-5) of any [State](#d-3) because such organization or [person](/usc/15/80a–2.md?p=a-28) buys, holds, sells, or trades in [securities](/usc/15/80a–2.md?p=a-36) for its own [account](/usc/15/1681a.md?p=r-4) in its capacity as trustee or [administrator](/usc/15/9001.md?p=1) of, or otherwise on behalf of or for the [account](/usc/15/1681a.md?p=r-4) of one or more of the following: - (1) a [charitable organization](#d-1); - (2) a fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B); or - (3) a trust or other donative instrument described in [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B), or the settlors (or potential settlors) or beneficiaries of any such trusts or other instruments. - (c) **State action—** Notwithstanding subsections [(a)](#a) and [(b)](#b), during the 3-year period beginning on December 8, 1995, a [State](#d-3) may enact a statute that specifically refers to this section and provides prospectively that this section shall not preempt the laws of that [State](#d-3) referred to in this section. - (d) **Definitions—** For purposes of this section— - (1) the term “charitable organization” means an organization described in [paragraphs (1) through (5)](/usc/15/170.md?p=c-1..c-5) of section 170(c) or [section 501(c)(3) of title 26](/usc/26/501.md?p=c-3); - (2) the term “[security](/usc/15/80a–2.md?p=a-36)” has the same meaning as in [section 78c of this title](/usc/15/78c.md); and - (3) the term “State” means each of the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. # §80a–4. Classification of investment companies For the purposes of this subchapter, [investment companies](/usc/15/77z–2.md?p=i-2) are divided into three principal classes, defined as follows: - (1) “Face-amount certificate company” means an [investment company](/usc/15/77z–2.md?p=i-2) which is engaged or proposes to engage in the business of issuing [face-amount certificates](/usc/15/80a–2.md?p=a-15) of the installment type, or which has been engaged in such business and has any such certificate outstanding. - (2) “Unit investment trust” means an [investment company](/usc/15/77z–2.md?p=i-2) which (A) is organized under a trust indenture, contract of custodianship or agency, or similar instrument, (B) does not have a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), and (C) issues only [redeemable securities](/usc/15/80a–2.md?p=a-32), each of which represents an undivided interest in a unit of specified [securities](/usc/15/80a–2.md?p=a-36); but does not include a voting trust. - (3) “Management company” means any [investment company](/usc/15/77z–2.md?p=i-2) other than a [face-amount certificate company](#1) or a [unit investment trust](#2). # §80a–5. Subclassification of management companies - (a) **Open-end and closed-end companies—** For the purposes of this subchapter, [management companies](/usc/15/80a–4.md?p=3) are divided into open-end and [closed-end companies](#a-2), defined as follows: - (1) “Open-end company” means a [management company](/usc/15/80a–4.md?p=3) which is offering for sale or has outstanding any [redeemable security](/usc/15/80a–2.md?p=a-32) of which it is the [issuer](/usc/15/80a–2.md?p=a-22). - (2) “Closed-end company” means any [management company](/usc/15/80a–4.md?p=3) other than an [open-end company](#a-1). - (b) **Diversified and non-diversified companies—** [Management companies](/usc/15/80a–4.md?p=3) are further divided into [diversified companies](#b-1) and [non-diversified companies](#b-2), defined as follows: - (1) “Diversified company” means a [management company](/usc/15/80a–4.md?p=3) which meets the following requirements: At least 75 per centum of the value of its total assets is represented by cash and cash items (including receivables), [Government securities](/usc/15/80a–2.md?p=a-16), [securities](/usc/15/80a–2.md?p=a-36) of other [investment companies](/usc/15/77z–2.md?p=i-2), and other [securities](/usc/15/80a–2.md?p=a-36) for the purposes of this calculation limited in respect of any one [issuer](/usc/15/80a–2.md?p=a-22) to an amount not greater in value than 5 per centum of the value of the total assets of such [management company](/usc/15/80a–4.md?p=3) and to not more than 10 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [issuer](/usc/15/80a–2.md?p=a-22). - (2) “Non-diversified company” means any [management company](/usc/15/80a–4.md?p=3) other than a [diversified company](#b-1). - (c) **Loss of status as diversified company—** A registered [diversified company](#b-1) which at the time of its qualification as such meets the requirements of [paragraph (1)](#b-1) of subsection (b) shall not lose its status as a [diversified company](#b-1) because of any subsequent discrepancy between the value of its various investments and the requirements of said paragraph, so long as any such discrepancy existing immediately after its acquisition of any [security](/usc/15/80a–2.md?p=a-36) or other property is neither wholly nor partly the result of such acquisition. # §80a–6. Exemptions - (a) **Exemption of specified investment companies—** The following [investment companies](/usc/15/77z–2.md?p=i-2) are exempt from the provisions of this subchapter: - (1) Any [company](/usc/15/80a–2.md?p=a-8) which since the effective date of this subchapter or within five years prior to such date has been reorganized under the supervision of a court of competent jurisdiction, if (A) such [company](/usc/15/80a–2.md?p=a-8) was not an [investment company](/usc/15/77z–2.md?p=i-2) at the commencement of such [reorganization](/usc/15/80a–2.md?p=a-33) proceedings, (B) at the conclusion of such proceedings all outstanding [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) were owned by [creditors](/usc/15/1615.md?p=d-2) of such [company](/usc/15/80a–2.md?p=a-8) or by [persons](/usc/15/80a–2.md?p=a-28) to whom such [securities](/usc/15/80a–2.md?p=a-36) were issued on [account](/usc/15/1681a.md?p=r-4) of [creditors](/usc/15/1615.md?p=d-2)’ claims, and (C) more than 50 per centum of the [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), and [securities](/usc/15/80a–2.md?p=a-36) representing more than 50 per centum of the net asset value of such [company](/usc/15/80a–2.md?p=a-8), are currently owned beneficially by not more than twenty-five [persons](/usc/15/80a–2.md?p=a-28); but such exemption shall terminate if any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22) is offered for sale or sold to the public after the conclusion of such proceedings by the [issuer](/usc/15/80a–2.md?p=a-22) or by or through any underwriter. For the purposes of this paragraph, any new [company](/usc/15/80a–2.md?p=a-8) organized as part of the [reorganization](/usc/15/80a–2.md?p=a-33) shall be deemed the same [company](/usc/15/80a–2.md?p=a-8) as its predecessor; and beneficial ownership shall be determined in the manner provided in [section 80a–3(c)(1) of this title](/usc/15/80a–3.md?p=c-1). - (2) Any [issuer](/usc/15/80a–2.md?p=a-22) as to which there is outstanding a writing filed with the [Commission](/usc/15/80a–2.md?p=a-7) by the Federal Savings and Loan Insurance Corporation stating that exemption of such [issuer](/usc/15/80a–2.md?p=a-22) from the provisions of this subchapter is consistent with the public interest and the protection of investors and is necessary or appropriate by reason of the fact that such [issuer](/usc/15/80a–2.md?p=a-22) holds or proposes to acquire any assets or any product of any assets which have been segregated (A) from assets of any [company](/usc/15/80a–2.md?p=a-8) which at the filing of such writing is an insured institution within the meaning of section 1724(a)[^1] of [title 12](/usc/12.md), or (B) as a part of or in connection with any plan for or condition to the insurance of [accounts](/usc/15/1681a.md?p=r-4) of any [company](/usc/15/80a–2.md?p=a-8) by said corporation or the conversion of any [company](/usc/15/80a–2.md?p=a-8) into a Federal [savings and loan association](/usc/15/80a–2.md?p=a-45). Any such writing shall expire when canceled by a writing similarly filed or at the expiration of two years after the date of its filing, whichever first occurs; but said corporation may, nevertheless, before, at, or after the expiration of any such writing file another writing or writings with respect to such [issuer](/usc/15/80a–2.md?p=a-22). - (3) Any [company](/usc/15/80a–2.md?p=a-8) which prior to March 15, 1940, was and now is a wholly-owned subsidiary of a registered [face-amount certificate company](/usc/15/80a–4.md?p=1) and was prior to said date and now is organized and operating under the insurance laws of any [State](/usc/15/80a–2.md?p=a-39) and subject to supervision and examination by the insurance commissioner thereof, and which prior to March 15, 1940, was and now is engaged, subject to such laws, in business substantially all of which consists of issuing and selling only to residents of such [State](/usc/15/80a–2.md?p=a-39) and investing the proceeds from, [securities](/usc/15/80a–2.md?p=a-36) providing for or representing participations or interests in intangible assets consisting of mortgages or other liens on real estate or notes or bonds secured thereby or in a fund or deposit of mortgages or other liens on real estate or notes or bonds secured thereby or having outstanding such [securities](/usc/15/80a–2.md?p=a-36) so issued and sold. - (4) - (A) Any [company](/usc/15/80a–2.md?p=a-8) that is not engaged in the business of issuing [redeemable securities](/usc/15/80a–2.md?p=a-32), the operations of which are subject to regulation by the [State](/usc/15/80a–2.md?p=a-39) in which the [company](/usc/15/80a–2.md?p=a-8) is organized under a statute governing entities that provide financial or managerial assistance to enterprises doing business, or proposing to do business, in that [State](/usc/15/80a–2.md?p=a-39) if— - (i) the organizational documents of the [company](/usc/15/80a–2.md?p=a-8) [state](/usc/15/80a–2.md?p=a-39) that the activities of the [company](/usc/15/80a–2.md?p=a-8) are limited to the promotion of economic, business, or industrial development in the [State](/usc/15/80a–2.md?p=a-39) through the provision of financial or managerial assistance to enterprises doing business, or proposing to do business, in that [State](/usc/15/80a–2.md?p=a-39), and such other activities that are incidental or necessary to carry out that purpose; - (ii) immediately following each sale of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) by the [company](/usc/15/80a–2.md?p=a-8) or any underwriter for the [company](/usc/15/80a–2.md?p=a-8), not less than 80 percent of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) being offered in such sale, on a class-by-class basis, are held by [persons](/usc/15/80a–2.md?p=a-28) who reside or who have a substantial business presence in that [State](/usc/15/80a–2.md?p=a-39); - (iii) the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) are sold, or proposed to be sold, by the [company](/usc/15/80a–2.md?p=a-8) or by any underwriter for the [company](/usc/15/80a–2.md?p=a-8), solely to accredited investors, as that term is defined in [section 77b(a)(15) of this title](/usc/15/77b.md?p=a-15), or to such other [persons](/usc/15/80a–2.md?p=a-28) that the [Commission](/usc/15/80a–2.md?p=a-7), as necessary or appropriate in the public interest and consistent with the protection of investors, may permit by rule, regulation, or [order](/usc/15/8702.md?p=14); and - (iv) the [company](/usc/15/80a–2.md?p=a-8) does not [purchase](/usc/15/78c–5.md?p=g) any [security](/usc/15/80a–2.md?p=a-36) issued by an [investment company](/usc/15/77z–2.md?p=i-2) or by any [company](/usc/15/80a–2.md?p=a-8) that would be an [investment company](/usc/15/77z–2.md?p=i-2) except for the exclusions from the definition of the term “[investment company](/usc/15/77z–2.md?p=i-2)” under paragraph (1) or (7) of [section 80a–3(c) of this title](/usc/15/80a–3.md?p=c), other than— - (I) any debt [security](/usc/15/80a–2.md?p=a-36) that meets such standards of [credit](/usc/15/1679a.md?p=4)-worthiness as the [Commission](/usc/15/80a–2.md?p=a-7) shall adopt; or - (II) any [security](/usc/15/80a–2.md?p=a-36) issued by a registered open-end [investment company](/usc/15/77z–2.md?p=i-2) that is required by its investment policies to invest not less than 65 percent of its total assets in [securities](/usc/15/80a–2.md?p=a-36) described in [subclause (I)](#a-4-A-iv-I) or [securities](/usc/15/80a–2.md?p=a-36) that are determined by such registered open-end [investment company](/usc/15/77z–2.md?p=i-2) to be comparable in quality to [securities](/usc/15/80a–2.md?p=a-36) described in [subclause (I)](#a-4-A-iv-I). - (B) Notwithstanding the exemption provided by this paragraph, [section 80a–9 of this title](/usc/15/80a–9.md) (and, to the extent necessary to enforce [section 80a–9 of this title](/usc/15/80a–9.md), [sections 80a–37 through 80a–50](/usc/15/80a–37..80a–50.md) of this title) shall apply to a [company](/usc/15/80a–2.md?p=a-8) described in this paragraph as if the [company](/usc/15/80a–2.md?p=a-8) were an [investment company](/usc/15/77z–2.md?p=i-2) registered under this subchapter. - (C) Any [company](/usc/15/80a–2.md?p=a-8) proposing to rely on the exemption provided by this paragraph shall file with the [Commission](/usc/15/80a–2.md?p=a-7) a notification stating that the [company](/usc/15/80a–2.md?p=a-8) intends to do so, in such form and manner as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rule. - (D) Any [company](/usc/15/80a–2.md?p=a-8) meeting the requirements of this paragraph may rely on the exemption provided by this paragraph upon filing with the [Commission](/usc/15/80a–2.md?p=a-7) the notification required by [subparagraph (C)](#a-4-C), until such time as the [Commission](/usc/15/80a–2.md?p=a-7) determines by [order](/usc/15/8702.md?p=14) that such reliance is not in the public interest or is not consistent with the protection of investors. - (E) The exemption provided by this paragraph may be subject to such additional terms and conditions as the [Commission](/usc/15/80a–2.md?p=a-7) may by rule, regulation, or [order](/usc/15/8702.md?p=14) determine are necessary or appropriate in the public interest or for the protection of investors. - (b) **Exemption of employees’ security company upon application; matters considered—** Upon [application](/usc/15/77ccc.md?p=8) by any employees’ [security](/usc/15/80a–2.md?p=a-36) [company](/usc/15/80a–2.md?p=a-8), the [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) exempt such [company](/usc/15/80a–2.md?p=a-8) from the provisions of this subchapter and of the rules and regulations hereunder, if and to the extent that such exemption is consistent with the protection of investors. In determining the provisions to which such an [order](/usc/15/8702.md?p=14) of exemption shall apply, the [Commission](/usc/15/80a–2.md?p=a-7) shall give due weight, among other things, to the form of organization and the capital structure of such [company](/usc/15/80a–2.md?p=a-8), the [persons](/usc/15/80a–2.md?p=a-28) by whom its [voting securities](/usc/15/80a–2.md?p=a-42), evidences of indebtedness, and other [securities](/usc/15/80a–2.md?p=a-36) are owned and controlled, the prices at which [securities](/usc/15/80a–2.md?p=a-36) issued by such [company](/usc/15/80a–2.md?p=a-8) are sold and the [sales load](/usc/15/80a–2.md?p=a-35) thereon, the disposition of the proceeds of such sales, the character of the [securities](/usc/15/80a–2.md?p=a-36) in which such proceeds are invested, and any relationship between such [company](/usc/15/80a–2.md?p=a-8) and the [issuer](/usc/15/80a–2.md?p=a-22) of any such [security](/usc/15/80a–2.md?p=a-36). - (c) **Exemption of persons, securities or any class or classes of persons as necessary and appropriate in public interest—** The [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, or any class or classes of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or transactions, from any provision or provisions of this subchapter or of any rule or regulation thereunder, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter. - (d) **Exemption of closed-end investment companies—** The [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations or [order](/usc/15/8702.md?p=14), shall exempt a closed-end [investment company](/usc/15/77z–2.md?p=i-2) from any or all provisions of this subchapter, but subject to such terms and conditions as may be necessary or appropriate in the public interest or for the protection of investors, if— - (1) the aggregate sums received by such [company](/usc/15/80a–2.md?p=a-8) from the sale of all its outstanding [securities](/usc/15/80a–2.md?p=a-36), plus the aggregate offering price of all [securities](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22) and which it proposes to offer for sale, do not exceed $10,000,000, or such other amount as the [Commission](/usc/15/80a–2.md?p=a-7) may set by rule, regulation, or [order](/usc/15/8702.md?p=14); - (2) no [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22) has been or is proposed to be sold by such [company](/usc/15/80a–2.md?p=a-8) or any underwriter therefor, in connection with a public offering, to any [person](/usc/15/80a–2.md?p=a-28) who is not a resident of the [State](/usc/15/80a–2.md?p=a-39) under the laws of which such [company](/usc/15/80a–2.md?p=a-8) is organized or otherwise created; and - (3) such exemption is not contrary to the public interest or inconsistent with the protection of investors. - (e) **Application of certain specified provisions of subchapter to otherwise exempt companies—** If, in connection with any rule, regulation, or [order](/usc/15/8702.md?p=14) under this section exempting any [investment company](/usc/15/77z–2.md?p=i-2) from any provision of [section 80a–7 of this title](/usc/15/80a–7.md), the [Commission](/usc/15/80a–2.md?p=a-7) deems it necessary or appropriate in the public interest or for the protection of investors that certain specified provisions of this subchapter pertaining to registered [investment companies](/usc/15/77z–2.md?p=i-2) shall be applicable in respect of such [company](/usc/15/80a–2.md?p=a-8), the provisions so specified shall apply to such [company](/usc/15/80a–2.md?p=a-8), and to other [persons](/usc/15/80a–2.md?p=a-28) in their transactions and relations with such [company](/usc/15/80a–2.md?p=a-8), as though such [company](/usc/15/80a–2.md?p=a-8) were a registered [investment company](/usc/15/77z–2.md?p=i-2). - (f) **Exemption of closed-end company treated as business development company—** Any [closed-end company](/usc/15/80a–5.md?p=a-2) which— - (1) elects to be treated as a [business development company](/usc/15/80a–2.md?p=a-48) pursuant to [section 80a–53 of this title](/usc/15/80a–53.md); or - (2) would be excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) by [section 80a–3(c)(1) of this title](/usc/15/80a–3.md?p=c-1), except that it presently proposes to make a public offering of its [securities](/usc/15/80a–2.md?p=a-36) as a [business development company](/usc/15/80a–2.md?p=a-48), and has notified the [Commission](/usc/15/80a–2.md?p=a-7), in a form and manner which the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe, that it intends in good faith to file, within 90 days, a notification of election to become subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title, shall be exempt from [sections 80a–1 through 80a–52](/usc/15/80a–1..80a–52.md) of this title, except to the extent provided in [sections 80a–58 through 80a–64](/usc/15/80a–58..80a–64.md) of this title. # §80a–7. Transactions by unregistered investment companies - (a) **Prohibition of transactions in interstate commerce by companies—** No [investment company](/usc/15/77z–2.md?p=i-2) organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39) and having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), unless registered under [section 80a–8 of this title](/usc/15/80a–8.md), shall directly or indirectly— - (1) offer for sale, sell, or deliver after sale, by the use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36), whether the [issuer](/usc/15/80a–2.md?p=a-22) of such [security](/usc/15/80a–2.md?p=a-36) is such [investment company](/usc/15/77z–2.md?p=i-2) or another [person](/usc/15/80a–2.md?p=a-28); or offer for sale, sell, or deliver after sale any such [security](/usc/15/80a–2.md?p=a-36) or interest, having reason to believe that such [security](/usc/15/80a–2.md?p=a-36) or interest will be made the subject of a public offering by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25); - (2) [purchase](/usc/15/78c–5.md?p=g), redeem, retire, or otherwise acquire or attempt to acquire, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36), whether the [issuer](/usc/15/80a–2.md?p=a-22) of such [security](/usc/15/80a–2.md?p=a-36) is such [investment company](/usc/15/77z–2.md?p=i-2) or another [person](/usc/15/80a–2.md?p=a-28); - (3) [control](/usc/15/80a–2.md?p=a-9) any [investment company](/usc/15/77z–2.md?p=i-2) which does any of the acts enumerated in paragraphs (1) and (2) of this subsection; - (4) engage in any business in [interstate commerce](/usc/15/80a–2.md?p=a-18); or - (5) [control](/usc/15/80a–2.md?p=a-9) any [company](/usc/15/80a–2.md?p=a-8) which is engaged in any business in [interstate commerce](/usc/15/80a–2.md?p=a-18). The provisions of this subsection shall not apply to transactions of an [investment company](/usc/15/77z–2.md?p=i-2) which are merely incidental to its dissolution. - (b) **Prohibition of transactions in interstate commerce by depositors or trustees of companies—** No depositor or trustee of or underwriter for any [investment company](/usc/15/77z–2.md?p=i-2), organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39) and not having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), unless such [company](/usc/15/80a–2.md?p=a-8) is registered under [section 80a–8 of this title](/usc/15/80a–8.md) or exempt under [section 80a–6 of this title](/usc/15/80a–6.md), shall directly or indirectly— - (1) offer for sale, sell, or deliver after sale, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22); or offer for sale, sell, or deliver after sale any such [security](/usc/15/80a–2.md?p=a-36) or interest, having reason to believe that such [security](/usc/15/80a–2.md?p=a-36) or interest will be made the subject of a public offering by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25); - (2) [purchase](/usc/15/78c–5.md?p=g), redeem, or otherwise acquire or attempt to acquire, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or any interest in a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22); or - (3) sell or [purchase](/usc/15/78c–5.md?p=g) for the [account](/usc/15/1681a.md?p=r-4) of such [company](/usc/15/80a–2.md?p=a-8), by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), any [security](/usc/15/80a–2.md?p=a-36) or interest in a [security](/usc/15/80a–2.md?p=a-36), by whomever issued. The provisions of this subsection shall not apply to transactions which are merely incidental to the dissolution of an [investment company](/usc/15/77z–2.md?p=i-2). - (c) **Prohibition of transactions in interstate commerce by promoters of proposed investment companies—** No promoter of a proposed [investment company](/usc/15/77z–2.md?p=i-2), and no underwriter for such a promoter, shall make use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), directly or indirectly, to offer for sale, sell, or deliver after sale, in connection with a public offering, any preorganization certificate or subscription for such a [company](/usc/15/80a–2.md?p=a-8). - (d) **Prohibition of transactions in interstate commerce by companies not organized under laws of the United States or a State; exceptions—** No [investment company](/usc/15/77z–2.md?p=i-2), unless organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39), and no depositor or trustee of or underwriter for such a [company](/usc/15/80a–2.md?p=a-8) not so organized or created, shall make use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), directly or indirectly, to offer for sale, sell, or deliver after sale, in connection with a public offering, any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22). Notwithstanding the provisions of this subsection and of [section 80a–8(a) of this title](/usc/15/80a–8.md?p=a), the [Commission](/usc/15/80a–2.md?p=a-7) is authorized, upon [application](/usc/15/77ccc.md?p=8) by an [investment company](/usc/15/77z–2.md?p=i-2) organized or otherwise created under the laws of a foreign country, to issue a conditional or unconditional [order](/usc/15/8702.md?p=14) permitting such [company](/usc/15/80a–2.md?p=a-8) to register under this subchapter, and to make a public offering of its [securities](/usc/15/80a–2.md?p=a-36) by use of the mails and means or instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), if the [Commission](/usc/15/80a–2.md?p=a-7) finds that, by reason of special circumstances or arrangements, it is both legally and practically feasible effectively to enforce the provisions of this subchapter against such [company](/usc/15/80a–2.md?p=a-8) and that the issuance of such [order](/usc/15/8702.md?p=14) is otherwise consistent with the public interest and the protection of investors. - (e) **Disclosure by exempt charitable organizations—** Each fund that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) under [section 80a–3(c)(10)(B) of this title](/usc/15/80a–3.md?p=c-10-B) shall provide, to each donor to such fund, at the time of the donation or within 90 days after December 8, 1995, whichever is later, written information describing the material terms of the operation of such fund. # §80a–8. Registration of investment companies - (a) **Notification of registration; effective date of registration—** Any [investment company](/usc/15/77z–2.md?p=i-2) organized or otherwise created under the laws of the United States or of a [State](/usc/15/80a–2.md?p=a-39) may register for the purposes of this subchapter by filing with the [Commission](/usc/15/80a–2.md?p=a-7) a notification of registration, in such form as the [Commission](/usc/15/80a–2.md?p=a-7) shall by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. An [investment company](/usc/15/77z–2.md?p=i-2) shall be deemed to be registered upon receipt by the [Commission](/usc/15/80a–2.md?p=a-7) of such notification of registration. - (b) **Registration statement; contents—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall file with the [Commission](/usc/15/80a–2.md?p=a-7), within such reasonable time after registration as the [Commission](/usc/15/80a–2.md?p=a-7) shall fix by rules and regulations, an original and such copies of a [registration statement](/usc/15/77b.md?p=a-8), in such form and containing such of the following information and documents as the [Commission](/usc/15/80a–2.md?p=a-7) shall by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors: - (1) a recital of the policy of the registrant in respect of each of the following types of activities, such recital consisting in each case of a statement whether the registrant reserves freedom of action to engage in activities of such type, and if such freedom of action is reserved, a statement briefly indicating, insofar as is practicable, the extent to which the registrant intends to engage therein: (A) the classification and subclassifications, as defined in sections [80a–4](/usc/15/80a–4.md) and [80a–5](/usc/15/80a–5.md) of this title, within which the registrant proposes to operate; (B) borrowing money; (C) the issuance of senior [securities](/usc/15/80a–2.md?p=a-36); (D) engaging in the business of underwriting [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28); (E) concentrating investments in a particular industry or group of industries; (F) the [purchase](/usc/15/78c–5.md?p=g) and sale of real estate and commodities, or either of them; (G) making loans to other [persons](/usc/15/80a–2.md?p=a-28); and (H) portfolio turn-over (including a statement showing the aggregate dollar amount of [purchases](/usc/15/78c–5.md?p=g) and sales of portfolio [securities](/usc/15/80a–2.md?p=a-36), other than [Government securities](/usc/15/80a–2.md?p=a-16), in each of the last three full fiscal years preceding the filing of such [registration statement](/usc/15/77b.md?p=a-8)); - (2) a recital of all investment policies of the registrant, not enumerated in [paragraph (1)](#b-1), which are changeable only if authorized by shareholder vote; - (3) a recital of all policies of the registrant, not enumerated in paragraphs [(1)](#b-1) and [(2)](#b-2), in respect of matters which the registrant deems matters of fundamental policy; - (4) the name and address of each affiliated [person](/usc/15/80a–2.md?p=a-28) of the registrant; the name and principal address of every [company](/usc/15/80a–2.md?p=a-8), other than the registrant, of which each such [person](/usc/15/80a–2.md?p=a-28) is an officer, [director](/usc/15/80a–2.md?p=a-12), or partner; a brief statement of the business experience for the preceding five years of each officer and [director](/usc/15/80a–2.md?p=a-12) of the registrant; and - (5) the information and documents which would be required to be filed in [order](/usc/15/8702.md?p=14) to register under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], all [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) which the registrant has outstanding or proposes to issue. - (c) **Alternative information—** The [Commission](/usc/15/80a–2.md?p=a-7) shall make provision, by permissive rules and regulations or [order](/usc/15/8702.md?p=14), for the filing of the following, or so much of the following as the [Commission](/usc/15/80a–2.md?p=a-7) may designate, in lieu of the information and documents required pursuant to [subsection (b)](#b): - (1) copies of the most recent [registration statement](/usc/15/77b.md?p=a-8) filed by the registrant under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and currently effective under such Act, or if the registrant has not filed such a statement, copies of a [registration statement](/usc/15/77b.md?p=a-8) filed by the registrant under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.] and currently effective under such Act; - (2) copies of any reports filed by the registrant pursuant to section [78m](/usc/15/78m.md) or [78o(d)](/usc/15/78o.md?p=d) of this title; and - (3) a report containing reasonably current information regarding the matters included in copies filed pursuant to paragraphs (1) and (2) of this subsection, and such further information regarding matters not included in such copies as the [Commission](/usc/15/80a–2.md?p=a-7) is authorized to require under [subsection (b)](#b). - (d) **Registration of unit investment trusts—** If the registrant is a [unit investment trust](/usc/15/80a–4.md?p=2) substantially all of the assets of which are [securities](/usc/15/80a–2.md?p=a-36) issued by another registered [investment company](/usc/15/77z–2.md?p=i-2), the [Commission](/usc/15/80a–2.md?p=a-7) is authorized to prescribe for the registrant, by rules and regulations or [order](/usc/15/8702.md?p=14), a [registration statement](/usc/15/77b.md?p=a-8) which eliminates inappropriate duplication of information contained in the [registration statement](/usc/15/77b.md?p=a-8) filed under this section by such other [investment company](/usc/15/77z–2.md?p=i-2). - (e) **Failure to file registration statement or omissions of material fact—** If it appears to the [Commission](/usc/15/80a–2.md?p=a-7) that a registered [investment company](/usc/15/77z–2.md?p=i-2) has failed to file the [registration statement](/usc/15/77b.md?p=a-8) required by this section or a report required pursuant to section [80a–29 (a)](/usc/15/80a–29.md?p=a) or [(b)](/usc/15/80a–29.md?p=b) of this title, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report but omitted therefrom material facts required to be stated therein, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report in [violation](/usc/15/57b–1.md?p=a-7) of [section 80a–33(b) of this title](/usc/15/80a–33.md?p=b), the [Commission](/usc/15/80a–2.md?p=a-7) shall notify such [company](/usc/15/80a–2.md?p=a-8) by registered mail or by certified mail of the failure to file such [registration statement](/usc/15/77b.md?p=a-8) or report, or of the respects in which such [registration statement](/usc/15/77b.md?p=a-8) or report appears to be materially incomplete or misleading, as the case may be, and shall fix a date (in no event earlier than thirty days after the mailing of such notice) prior to which such [company](/usc/15/80a–2.md?p=a-8) may file such [registration statement](/usc/15/77b.md?p=a-8) or report or correct the same. If such [registration statement](/usc/15/77b.md?p=a-8) or report is not filed or corrected within the time so fixed by the [Commission](/usc/15/80a–2.md?p=a-7) or any extension thereof, the [Commission](/usc/15/80a–2.md?p=a-7), after appropriate notice and opportunity for hearing, and upon such conditions and with such exemptions as it deems appropriate for the protection of investors, may by [order](/usc/15/8702.md?p=14) suspend the registration of such [company](/usc/15/80a–2.md?p=a-8) until such statement or report is filed or corrected, or may by [order](/usc/15/8702.md?p=14) revoke such registration, if the evidence establishes— - (1) that such [company](/usc/15/80a–2.md?p=a-8) has failed to file a [registration statement](/usc/15/77b.md?p=a-8) required by this section or a report required pursuant to section [80a–29(a)](/usc/15/80a–29.md?p=a) or [(b)](/usc/15/80a–29.md?p=b) of this title, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report but omitted therefrom material facts required to be stated therein, or has filed such a [registration statement](/usc/15/77b.md?p=a-8) or report in [violation](/usc/15/57b–1.md?p=a-7) of [section 80a–33(b) of this title](/usc/15/80a–33.md?p=b); and - (2) that such suspension or revocation is in the public interest. - (f) **Cessation of existence as investment company—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7), on its own motion or upon [application](/usc/15/77ccc.md?p=8), finds that a registered [investment company](/usc/15/77z–2.md?p=i-2) has ceased to be an [investment company](/usc/15/77z–2.md?p=i-2), it shall so declare by [order](/usc/15/8702.md?p=14) and upon the taking effect of such [order](/usc/15/8702.md?p=14) the registration of such [company](/usc/15/80a–2.md?p=a-8) shall cease to be in effect. If necessary for the protection of investors, an [order](/usc/15/8702.md?p=14) under this subsection may be made upon appropriate conditions. The [Commission](/usc/15/80a–2.md?p=a-7)’s denial of any [application](/usc/15/77ccc.md?p=8) under this subsection shall be by [order](/usc/15/8702.md?p=14). - (g) **Data standards for registration statements—** - (1) **Requirement—** The [Commission](/usc/15/80a–2.md?p=a-7) shall, by rule, adopt data standards for all [registration statements](/usc/15/77b.md?p=a-8) required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this section, except that the [Commission](/usc/15/80a–2.md?p=a-7) may exempt exhibits, signatures, and certifications from those data standards. - (2) **Consistency—** The data standards required under [paragraph (1)](#g-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §80a–9. Ineligibility of certain affiliated persons and underwriters - (a) **Persons deemed ineligible for service with investment companies, etc.; investment adviser—** It shall be unlawful for any of the following [persons](/usc/15/80a–2.md?p=a-28) to serve or act in the capacity of employee, officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), investment adviser, or depositor of any registered [investment company](/usc/15/77z–2.md?p=i-2), or principal underwriter for any registered [open-end company](/usc/15/80a–5.md?p=a-1), registered [unit investment trust](/usc/15/80a–4.md?p=2), or registered [face-amount certificate company](/usc/15/80a–4.md?p=1): - (1) any [person](/usc/15/80a–2.md?p=a-28) who within 10 years has been [convicted](/usc/15/80a–2.md?p=a-10) of any felony or misdemeanor involving the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80a–2.md?p=a-36) or arising out of such [person](/usc/15/80a–2.md?p=a-28)’s conduct as an underwriter, [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), [investment adviser](#a), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), bank, [transfer agent](/usc/15/6102.md?p=d-2-B-i), [credit rating agency](/usc/15/80a–2.md?p=a-53), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or as an affiliated [person](/usc/15/80a–2.md?p=a-28), salesman, or employee of any [investment company](/usc/15/77z–2.md?p=i-2), bank, [insurance company](/usc/15/80a–2.md?p=a-17), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act; - (2) any [person](/usc/15/80a–2.md?p=a-28) who, by reason of any misconduct, is permanently or temporarily enjoined by [order](/usc/15/8702.md?p=14), judgment, or decree of any court of competent jurisdiction from acting as an underwriter, [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), [investment adviser](#a), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), bank, [transfer agent](/usc/15/6102.md?p=d-2-B-i), [credit rating agency](/usc/15/80a–2.md?p=a-53), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or as an affiliated [person](/usc/15/80a–2.md?p=a-28), salesman, or employee of any [investment company](/usc/15/77z–2.md?p=i-2), bank, [insurance company](/usc/15/80a–2.md?p=a-17), or entity or [person](/usc/15/80a–2.md?p=a-28) required to be registered under the Commodity Exchange Act, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80a–2.md?p=a-36); or - (3) a [company](/usc/15/80a–2.md?p=a-8) any affiliated [person](/usc/15/80a–2.md?p=a-28) of which is ineligible, by reason of paragraph (1) or (2) of this subsection, to serve or act in the foregoing capacities. For the purposes of [paragraphs (1) to (3)](#1..3) of this subsection, the term “investment adviser” shall include an investment adviser as defined in subchapter II of this chapter. - (b) **Certain persons serving investment companies; administrative action of Commission—** The [Commission](/usc/15/80a–2.md?p=a-7) may, after notice and opportunity for hearing, by [order](/usc/15/8702.md?p=14) prohibit, conditionally or unconditionally, either permanently or for such period of time as it in its discretion shall deem appropriate in the public interest, any [person](/usc/15/80a–2.md?p=a-28) from serving or acting as an employee, officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](#a) or depositor of, or principal underwriter for, a registered [investment company](/usc/15/77z–2.md?p=i-2) or affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](#a), depositor, or principal underwriter, if such [person](/usc/15/80a–2.md?p=a-28)— - (1) has willfully made or caused to be made in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8) or report filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter any statement which was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80a–2.md?p=a-39) in any such [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), or report any material fact which was required to be stated therein; - (2) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], or of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or of subchapter II of this chapter, or of this subchapter, or of the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or of any rule or regulation under any of such statutes; - (3) has willfully aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80a–2.md?p=a-28) of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], or of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or of subchapter II of this chapter, or of this subchapter, or of the Commodity Exchange Act [[7 U.S.C. 1](/usc/7/1.md) et seq.], or of any rule or regulation under any of such statutes; - (4) has been found by a [foreign financial regulatory authority](/usc/15/80a–2.md?p=a-50) to have— - (A) made or caused to be made in any [application](/usc/15/77ccc.md?p=8) for registration or report required to be filed with a [foreign securities authority](/usc/15/80a–2.md?p=a-49), or in any proceeding before a [foreign securities authority](/usc/15/80a–2.md?p=a-49) with respect to registration, any statement that was at the time and in light of the circumstances under which it was made false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80a–2.md?p=a-39) in any [application](/usc/15/77ccc.md?p=8) or report to a [foreign securities authority](/usc/15/80a–2.md?p=a-49) any material fact that is required to be stated therein; - (B) violated any foreign statute or regulation regarding transactions in [securities](/usc/15/80a–2.md?p=a-36) or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any [board](/usc/15/205c.md?p=1) of trade; or - (C) aided, abetted, counseled, commanded, induced, or procured the [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80a–2.md?p=a-28) of any foreign statute or regulation regarding transactions in [securities](/usc/15/80a–2.md?p=a-36) or contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market or any [board](/usc/15/205c.md?p=1) of trade; - (5) within 10 years has been [convicted](/usc/15/80a–2.md?p=a-10) by a foreign court of competent jurisdiction of a crime, however denominated by the laws of the relevant foreign government, that is substantially equivalent to an offense set forth in [paragraph (1)](#a-1) of subsection (a); or - (6) by reason of any misconduct, is temporarily or permanently enjoined by any foreign court of competent jurisdiction from acting in any of the capacities, set forth in [paragraph (2)](#a-2) of subsection (a), or a substantially equivalent foreign capacity, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale of any [security](/usc/15/80a–2.md?p=a-36). - (c) **Application of ineligible person for exemption—** Any [person](/usc/15/80a–2.md?p=a-28) who is ineligible, by reason of [subsection (a)](#a), to serve or act in the capacities enumerated in such subsection, may file with the [Commission](/usc/15/80a–2.md?p=a-7) an [application](/usc/15/77ccc.md?p=8) for an exemption from the provisions of such subsection. The [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) grant such [application](/usc/15/77ccc.md?p=8), either unconditionally or on an appropriate temporary or other conditional basis, if it is established that the prohibitions of such [subsection (a)](#a) as applied to such [person](/usc/15/80a–2.md?p=a-28), are unduly or disproportionately severe or that the conduct of such [person](/usc/15/80a–2.md?p=a-28) has been such as not to make it against the public interest or protection of investors to grant such [application](/usc/15/77ccc.md?p=8). - (d) **Money penalties in administrative proceedings—** - (1) **Authority of Commission—** - (A) **In general—** In any proceeding instituted pursuant to [subsection (b)](#b) against any [person](/usc/15/80a–2.md?p=a-28), the [Commission](/usc/15/80a–2.md?p=a-7) may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such penalty is in the public interest, and that such [person](/usc/15/80a–2.md?p=a-28)— - (i) has willfully violated any provision of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], subchapter II of this chapter, or this subchapter, or the rules or regulations thereunder; - (ii) has willfully aided, abetted, counseled, commanded, induced, or procured such a [violation](/usc/15/57b–1.md?p=a-7) by any other [person](/usc/15/80a–2.md?p=a-28); or - (iii) has willfully made or caused to be made in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), or report required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter, any statement which was, at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, or has omitted to [state](/usc/15/80a–2.md?p=a-39) in any such [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), or report any material fact which was required to be stated therein;[^1] - (B) **Cease-and-desist proceedings—** In any proceeding instituted pursuant to [subsection (f)](#f) against any [person](/usc/15/80a–2.md?p=a-28), the [Commission](/usc/15/80a–2.md?p=a-7) may impose a civil penalty if the [Commission](/usc/15/80a–2.md?p=a-7) finds, on the record, after notice and opportunity for hearing, that such [person](/usc/15/80a–2.md?p=a-28)— - (i) is violating or has violated any provision of this subchapter, or any rule or regulation issued under this subchapter; or - (ii) is or was a cause of the [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or any rule or regulation issued under this subchapter. - (2) **Maximum amount of penalty—** - (A) **First tier—** The maximum amount of penalty for each act or omission described in [paragraph (1)](#d-1) shall be $5,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $50,000 for any other [person](/usc/15/80a–2.md?p=a-28). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#d-2-A), the maximum amount of penalty for each such act or omission shall be $50,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $250,000 for any other [person](/usc/15/80a–2.md?p=a-28) if the act or omission described in [paragraph (1)](#d-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#d-2-A) and [(B)](#d-2-B), the maximum amount of penalty for each such act or omission shall be $100,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $500,000 for any other [person](/usc/15/80a–2.md?p=a-28) if— - (i) the act or omission described in [paragraph (1)](#d-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (ii) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/80a–2.md?p=a-28) or resulted in substantial pecuniary gain to the [person](/usc/15/80a–2.md?p=a-28) who committed the act or omission. - (3) **Determination of public interest—** In considering under this section whether a penalty is in the public interest, the [Commission](/usc/15/80a–2.md?p=a-7) may consider— - (A) whether the act or omission for which such penalty is assessed involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; - (B) the harm to other [persons](/usc/15/80a–2.md?p=a-28) resulting either directly or indirectly from such act or omission; - (C) the extent to which any [person](/usc/15/80a–2.md?p=a-28) was unjustly enriched, taking into [account](/usc/15/1681a.md?p=r-4) any restitution made to [persons](/usc/15/80a–2.md?p=a-28) injured by such behavior; - (D) whether such [person](/usc/15/80a–2.md?p=a-28) previously has been found by the [Commission](/usc/15/80a–2.md?p=a-7), another appropriate regulatory agency, or a [self-regulatory organization](/usc/15/78c.md?p=a-26) to have violated the Federal [securities laws](/usc/15/77z–2.md?p=i-5), [State](/usc/15/80a–2.md?p=a-39) [securities laws](/usc/15/77z–2.md?p=i-5), or the rules of a [self-regulatory organization](/usc/15/78c.md?p=a-26), has been enjoined by a court of competent jurisdiction from [violations](/usc/15/57b–1.md?p=a-7) of such laws or rules, or has been [convicted](/usc/15/80a–2.md?p=a-10) by a court of competent jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of such laws or of any felony or misdemeanor described in [section 80b–3(e)(2) of this title](/usc/15/80b–3.md?p=e-2); - (E) the need to deter such [person](/usc/15/80a–2.md?p=a-28) and other [persons](/usc/15/80a–2.md?p=a-28) from committing such acts or omissions; and - (F) such other matters as justice may require. - (4) **Evidence concerning ability to pay—** In any proceeding in which the [Commission](/usc/15/80a–2.md?p=a-7) may impose a penalty under this section, a respondent may present evidence of the respondent’s ability to pay such penalty. The [Commission](/usc/15/80a–2.md?p=a-7) may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such [person](/usc/15/80a–2.md?p=a-28)’s ability to continue in business and the collectability of a penalty, taking into [account](/usc/15/1681a.md?p=r-4) any other claims of the United States or third parties upon such [person](/usc/15/80a–2.md?p=a-28)’s assets and the amount of such [person](/usc/15/80a–2.md?p=a-28)’s assets. - (e) **Authority to enter order requiring accounting and disgorgement—** In any proceeding in which the [Commission](/usc/15/80a–2.md?p=a-7) may impose a penalty under this section, the [Commission](/usc/15/80a–2.md?p=a-7) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (f) **Cease-and-desist proceedings—** - (1) **Authority of Commission—** If the [Commission](/usc/15/80a–2.md?p=a-7) finds, after notice and opportunity for hearing, that any [person](/usc/15/80a–2.md?p=a-28) is violating, has violated, or is about to violate any provision of this subchapter, or any rule or regulation thereunder, the [Commission](/usc/15/80a–2.md?p=a-7) may publish its findings and enter an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/80a–2.md?p=a-28), and any other [person](/usc/15/80a–2.md?p=a-28) that is, was, or would be a cause of the [violation](/usc/15/57b–1.md?p=a-7), due to an act or omission the [person](/usc/15/80a–2.md?p=a-28) knew or should have known would contribute to such [violation](/usc/15/57b–1.md?p=a-7), to cease and desist from committing or causing such [violation](/usc/15/57b–1.md?p=a-7) and any future [violation](/usc/15/57b–1.md?p=a-7) of the same provision, rule, or regulation. Such [order](/usc/15/8702.md?p=14) may, in addition to requiring a [person](/usc/15/80a–2.md?p=a-28) to cease and desist from committing or causing a [violation](/usc/15/57b–1.md?p=a-7), require such [person](/usc/15/80a–2.md?p=a-28) to comply, or to take steps to effect compliance, with such provision, rule, or regulation, upon such terms and conditions and within such time as the [Commission](/usc/15/80a–2.md?p=a-7) may specify in such [order](/usc/15/8702.md?p=14). Any such [order](/usc/15/8702.md?p=14) may, as the [Commission](/usc/15/80a–2.md?p=a-7) deems appropriate, require future compliance or steps to effect future compliance, either permanently or for such period of time as the [Commission](/usc/15/80a–2.md?p=a-7) may specify, with such provision, rule, or regulation with respect to any [security](/usc/15/80a–2.md?p=a-36), any [issuer](/usc/15/80a–2.md?p=a-22), or any other [person](/usc/15/80a–2.md?p=a-28). - (2) **Hearing—** The notice instituting proceedings pursuant to [paragraph (1)](#f-1) shall fix a hearing date not earlier than 30 days nor later than 60 days after service of the notice unless an earlier or a later date is set by the [Commission](/usc/15/80a–2.md?p=a-7) with the consent of any respondent so served. - (3) **Temporary order—** - (A) **In general—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7) determines that the alleged [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) specified in the notice instituting proceedings pursuant to [paragraph (1)](#f-1), or the continuation thereof, is likely to result in significant dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest, including, but not limited to, losses to the [Securities](/usc/15/80a–2.md?p=a-36) Investor Protection Corporation, prior to the completion of the proceeding, the [Commission](/usc/15/80a–2.md?p=a-7) may enter a temporary [order](/usc/15/8702.md?p=14) requiring the respondent to cease and desist from the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to take such action to prevent the [violation](/usc/15/57b–1.md?p=a-7) or threatened [violation](/usc/15/57b–1.md?p=a-7) and to prevent dissipation or conversion of assets, significant harm to investors, or substantial harm to the public interest as the [Commission](/usc/15/80a–2.md?p=a-7) deems appropriate pending completion of such proceedings. Such an [order](/usc/15/8702.md?p=14) shall be entered only after notice and opportunity for a hearing, unless the [Commission](/usc/15/80a–2.md?p=a-7), notwithstanding [section 80a–39(a) of this title](/usc/15/80a–39.md?p=a), determines that notice and hearing prior to entry would be impracticable or contrary to the public interest. A temporary [order](/usc/15/8702.md?p=14) shall become effective upon service upon the respondent and, unless set aside, limited, or suspended by the [Commission](/usc/15/80a–2.md?p=a-7) or a court of competent jurisdiction, shall remain effective and enforceable pending the completion of the proceedings. - (B) **Applicability—** This paragraph shall apply only to a respondent that acts, or, at the time of the alleged misconduct acted, as a [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), [investment adviser](#a), [investment company](/usc/15/77z–2.md?p=i-2), [municipal securities dealer](/usc/15/6102.md?p=d-2-B-i), [government securities broker](/usc/15/6102.md?p=d-2-B-i), [government securities dealer](/usc/15/6102.md?p=d-2-B-i), or [transfer agent](/usc/15/6102.md?p=d-2-B-i), or is, or was at the time of the alleged misconduct, an associated [person](/usc/15/80a–2.md?p=a-28) of, or a [person](/usc/15/80a–2.md?p=a-28) seeking to become associated with, any of the foregoing. - (4) **Review of temporary orders—** - (A) **Commission review—** At any time after the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) pursuant to [paragraph (3)](#f-3), the respondent may apply to the [Commission](/usc/15/80a–2.md?p=a-7) to have the [order](/usc/15/8702.md?p=14) set aside, limited, or suspended. If the respondent has been served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing, the respondent may, within 10 days after the date on which the [order](/usc/15/8702.md?p=14) was served, request a hearing on such [application](/usc/15/77ccc.md?p=8) and the [Commission](/usc/15/80a–2.md?p=a-7) shall hold a hearing and render a decision on such [application](/usc/15/77ccc.md?p=8) at the earliest possible time. - (B) **Judicial review—** Within— - (i) 10 days after the date the respondent was served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered with a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing, or - (ii) 10 days after the [Commission](/usc/15/80a–2.md?p=a-7) renders a decision on an [application](/usc/15/77ccc.md?p=8) and hearing under [subparagraph (A)](#f-4-A), with respect to any temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing, the respondent may apply to the United States district court for the district in which the respondent resides or has its principal place of business, or for the District of Columbia, for an [order](/usc/15/8702.md?p=14) setting aside, limiting, or suspending the effectiveness or enforcement of the [order](/usc/15/8702.md?p=14), and the court shall have jurisdiction to enter such an [order](/usc/15/8702.md?p=14). A respondent served with a temporary cease-and-desist [order](/usc/15/8702.md?p=14) entered without a prior [Commission](/usc/15/80a–2.md?p=a-7) hearing may not apply to the court except after hearing and decision by the [Commission](/usc/15/80a–2.md?p=a-7) on the respondent’s [application](/usc/15/77ccc.md?p=8) under subparagraph (A) of this paragraph. - (C) **No automatic stay of temporary order—** The commencement of proceedings under subparagraph (B) of this paragraph shall not, unless specifically ordered by the court, operate as a stay of the [Commission](/usc/15/80a–2.md?p=a-7)’s [order](/usc/15/8702.md?p=14). - (D) **Exclusive review—** [Section 80a–42 of this title](/usc/15/80a–42.md) shall not apply to a temporary [order](/usc/15/8702.md?p=14) entered pursuant to this section. - (5) **Authority to enter order requiring accounting and disgorgement—** In any cease-and-desist proceeding under [subsection (f)(1)](#f-1), the [Commission](/usc/15/80a–2.md?p=a-7) may enter an [order](/usc/15/8702.md?p=14) requiring accounting and disgorgement, including reasonable interest. The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to adopt rules, regulations, and [orders](/usc/15/8702.md?p=14) concerning payments to investors, rates of interest, periods of accrual, and such other matters as it deems appropriate to implement this subsection. - (g) **Corporate or other trustees performing functions of investment advisers—** For the purposes of this section, the term “[investment adviser](#a)” includes a corporate or other trustee performing the functions of an [investment adviser](#a). # §80a–10. Affiliations or interest of directors, officers, and employees - (a) **Interested persons of company who may serve on board of directors—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall have a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) more than 60 per centum of the members of which are [persons](/usc/15/80a–2.md?p=a-28) who are interested [persons](/usc/15/80a–2.md?p=a-28) of such registered [company](/usc/15/80a–2.md?p=a-8). - (b) **Employment and use of directors, officers, etc., as regular broker, principal underwriter, or investment banker—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall— - (1) employ as regular [broker](/usc/15/80a–2.md?p=a-6) any [director](/usc/15/80a–2.md?p=a-12), officer, or employee of such registered [company](/usc/15/80a–2.md?p=a-8), or any [person](/usc/15/80a–2.md?p=a-28) of which any such [director](/usc/15/80a–2.md?p=a-12), officer, or employee is an affiliated [person](/usc/15/80a–2.md?p=a-28), unless a majority of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) shall be [persons](/usc/15/80a–2.md?p=a-28) who are not such [brokers](/usc/15/80a–2.md?p=a-6) or affiliated [persons](/usc/15/80a–2.md?p=a-28) of any of such [brokers](/usc/15/80a–2.md?p=a-6); - (2) use as a principal underwriter of [securities](/usc/15/80a–2.md?p=a-36) issued by it any [director](/usc/15/80a–2.md?p=a-12), officer, or employee of such registered [company](/usc/15/80a–2.md?p=a-8) or any [person](/usc/15/80a–2.md?p=a-28) of which any such [director](/usc/15/80a–2.md?p=a-12), officer, or employee is an interested [person](/usc/15/80a–2.md?p=a-28), unless a majority of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) shall be [persons](/usc/15/80a–2.md?p=a-28) who are not such principal underwriters or interested [persons](/usc/15/80a–2.md?p=a-28) of any of such principal underwriters; or - (3) have as [director](/usc/15/80a–2.md?p=a-12), officer, or employee any [investment banker](/usc/15/80a–2.md?p=a-21), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment banker](/usc/15/80a–2.md?p=a-21), unless a majority of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) shall be [persons](/usc/15/80a–2.md?p=a-28) who are not [investment bankers](/usc/15/80a–2.md?p=a-21) or affiliated [persons](/usc/15/80a–2.md?p=a-28) of any [investment banker](/usc/15/80a–2.md?p=a-21). For the purposes of this paragraph, a [person](/usc/15/80a–2.md?p=a-28) shall not be deemed an affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment banker](/usc/15/80a–2.md?p=a-21) solely by reason of the fact that he is an affiliated [person](/usc/15/80a–2.md?p=a-28) of a [company](/usc/15/80a–2.md?p=a-8) of the character described in section [80a–12(d)(3)(A)](/usc/15/80a–12.md) and [(B)](/usc/15/80a–12.md) of this title. - (c) **Officers, directors, or employees of one bank or bank holding company as majority of board of directors of company; exceptions—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall have a majority of its [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) consisting of [persons](/usc/15/80a–2.md?p=a-28) who are officers, [directors](/usc/15/80a–2.md?p=a-12), or employees of any one bank (together with its affiliates and subsidiaries) or any one bank holding [company](/usc/15/80a–2.md?p=a-8) (together with its affiliates and subsidiaries) (as such terms are defined in [section 1841 of title 12](/usc/12/1841.md)) or any one savings and loan holding [company](/usc/15/80a–2.md?p=a-8), together with its affiliates and subsidiaries (as such terms are defined in [section 1467a of title 12](/usc/12/1467a.md)),,[^1] except that, if on March 15, 1940, any registered [investment company](/usc/15/77z–2.md?p=i-2) had a majority of its [directors](/usc/15/80a–2.md?p=a-12) consisting of [persons](/usc/15/80a–2.md?p=a-28) who are [directors](/usc/15/80a–2.md?p=a-12), officers, or employees of any one bank, such [company](/usc/15/80a–2.md?p=a-8) may continue to have the same percentage of its [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) consisting of [persons](/usc/15/80a–2.md?p=a-28) who are [directors](/usc/15/80a–2.md?p=a-12), officers, or employees of such bank. - (d) **Exception to limitation of number of interested persons who may serve on board of directors—** Notwithstanding subsections [(a)](#a) and [(b)(2)](#b-2) of this section, a registered [investment company](/usc/15/77z–2.md?p=i-2) may have a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) all the members of which, except one, are interested [persons](/usc/15/80a–2.md?p=a-28) of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8), or are officers or employees of such [company](/usc/15/80a–2.md?p=a-8), if— - (1) such [investment company](/usc/15/77z–2.md?p=i-2) is an [open-end company](/usc/15/80a–5.md?p=a-1); - (2) such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is registered under subchapter II of this chapter and is engaged principally in the business of rendering investment supervisory services as defined in subchapter II; - (3) no [sales load](/usc/15/80a–2.md?p=a-35) is charged on [securities](/usc/15/80a–2.md?p=a-36) issued by such [investment company](/usc/15/77z–2.md?p=i-2); - (4) any premium over net asset value charged by such [company](/usc/15/80a–2.md?p=a-8) upon the issuance of any such [security](/usc/15/80a–2.md?p=a-36), plus any [discount](/usc/15/1602.md?p=q) from net asset value charged on redemption thereof, shall not in the aggregate exceed 2 per centum; - (5) no sales or promotion expenses are incurred by such registered [company](/usc/15/80a–2.md?p=a-8); but expenses incurred in complying with laws regulating the issue or sale of [securities](/usc/15/80a–2.md?p=a-36) shall not be deemed sales or promotion expenses; - (6) such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) is the only [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to such [investment company](/usc/15/77z–2.md?p=i-2), and such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) does not receive a management fee exceeding 1 per centum per annum of the value of such [company](/usc/15/80a–2.md?p=a-8)’s net assets averaged over the year or taken as of a definite date or dates within the year; - (7) all executive salaries and executive expenses and office rent of such [investment company](/usc/15/77z–2.md?p=i-2) are paid by such [investment adviser](/usc/15/6102.md?p=d-2-B-ii); and - (8) such [investment company](/usc/15/77z–2.md?p=i-2) has only one class of [securities](/usc/15/80a–2.md?p=a-36) outstanding, each unit of which has equal voting rights with every other unit. - (e) **Death, disqualification, or resignation of directors as suspension of limitation provisions—** If by reason of the death, disqualification, or bona fide resignation of any [director](/usc/15/80a–2.md?p=a-12) or [directors](/usc/15/80a–2.md?p=a-12), the requirements of the foregoing provisions of this section or of [section 80a–15(f)(1) of this title](/usc/15/80a–15.md?p=f-1) in respect of [directors](/usc/15/80a–2.md?p=a-12) shall not be met by a registered [investment company](/usc/15/77z–2.md?p=i-2), the operation of such provision shall be suspended as to such registered [company](/usc/15/80a–2.md?p=a-8)— - (1) for a period of thirty days if the vacancy or vacancies may be filled by action of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12); - (2) for a period of sixty days if a vote of stockholders is required to fill the vacancy or vacancies; or - (3) for such longer period as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, by rules and regulations upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), as not inconsistent with the protection of investors. - (f) **Officer, director, etc., of company acting as principal underwriter of security acquired by company—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall knowingly [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire, during the existence of any underwriting or selling syndicate, any [security](/usc/15/80a–2.md?p=a-36) (except a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22)) a principal underwriter of which is an officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or employee of such registered [company](/usc/15/80a–2.md?p=a-8), or is a [person](/usc/15/80a–2.md?p=a-28) (other than a [company](/usc/15/80a–2.md?p=a-8) of the character described in section [80a–12(d)(3)(A)](/usc/15/80a–12.md) and [(B)](/usc/15/80a–12.md) of this title) of which any such officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or employee is an affiliated [person](/usc/15/80a–2.md?p=a-28), unless in acquiring such [security](/usc/15/80a–2.md?p=a-36) such registered [company](/usc/15/80a–2.md?p=a-8) is itself acting as a principal underwriter for the [issuer](/usc/15/80a–2.md?p=a-22). The [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any transaction or classes of transactions from any of the provisions of this subsection, if and to the extent that such exemption is consistent with the protection of investors. - (g) **Advisory boards; restrictions on membership—** In the case of a registered [investment company](/usc/15/77z–2.md?p=i-2) which has an [advisory board](/usc/15/80a–2.md?p=a-1), such [board](/usc/15/205c.md?p=1), as a distinct entity, shall be subject to the same restrictions as to its membership as are imposed upon a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) by this section. - (h) **Application of section to unincorporated registered management companies—** In the case of a registered [management company](/usc/15/80a–4.md?p=3) which is an unincorporated [company](/usc/15/80a–2.md?p=a-8) not having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12), the provisions of this section shall apply as follows: - (1) the provisions of [subsection (a)](#a), as modified by [subsection (e)](#e), shall apply to the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of the depositor of such [company](/usc/15/80a–2.md?p=a-8); - (2) the provisions of subsections [(b)](#b) and [(c)](#c), as modified by [subsection (e)](#e), shall apply to the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of the depositor and of every [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8); and - (3) the provisions of [subsection (f)](#f) shall apply to [purchases](/usc/15/78c–5.md?p=g) and other acquisitions for the [account](/usc/15/1681a.md?p=r-4) of such [company](/usc/15/80a–2.md?p=a-8) of [securities](/usc/15/80a–2.md?p=a-36) a principal underwriter of which is the depositor or an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8), or an affiliated [person](/usc/15/80a–2.md?p=a-28) of such depositor or [investment adviser](/usc/15/6102.md?p=d-2-B-ii). # §80a–11. Offers to exchange securities - (a) **Approval by Commission for exchanges of securities on basis other than relative net asset value—** It shall be unlawful for any registered [open-end company](/usc/15/80a–5.md?p=a-1) or any principal underwriter for such a [company](/usc/15/80a–2.md?p=a-8) to make or cause to be made an offer to the holder of a [security](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) or of any other open-end [investment company](/usc/15/77z–2.md?p=i-2) to [exchange](/usc/15/80a–2.md?p=a-14) his [security](/usc/15/80a–2.md?p=a-36) for a [security](/usc/15/80a–2.md?p=a-36) in the same or another such [company](/usc/15/80a–2.md?p=a-8) on any basis other than the relative net asset values of the respective [securities](/usc/15/80a–2.md?p=a-36) to be exchanged, unless the terms of the offer have first been submitted to and approved by the [Commission](/usc/15/80a–2.md?p=a-7) or are in accordance with such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may have prescribed in respect of such offers which are in effect at the time such offer is made. For the purposes of this section, (A) an offer by a principal underwriter means an offer communicated to holders of [securities](/usc/15/80a–2.md?p=a-36) of a class or series but does not include an offer made by such principal underwriter to an individual investor in the course of a retail business conducted by such principal underwriter, and (B) the net asset value means the net asset value which is in effect for the purpose of determining the price at which the [securities](/usc/15/80a–2.md?p=a-36), or class or series of [securities](/usc/15/80a–2.md?p=a-36) involved, are offered for sale to the public either (1) at the time of the receipt by the offeror of the acceptance of the offer or (2) at such later times as is specified in the offer. - (b) **Application of section to offers pursuant to plan of reorganization—** The provisions of this section shall not apply to any offer made pursuant to any plan of [reorganization](/usc/15/80a–2.md?p=a-33), which is submitted to and requires the approval of the holders of at least a majority of the outstanding shares of the class or series to which the [security](/usc/15/80a–2.md?p=a-36) owned by the offeree belongs. - (c) **Application of section to specific exchange offers—** The provisions of [subsection (a)](#a) shall be applicable, irrespective of the basis of [exchange](/usc/15/80a–2.md?p=a-14), (1) to any offer of [exchange](/usc/15/80a–2.md?p=a-14) of any [security](/usc/15/80a–2.md?p=a-36) of a registered [open-end company](/usc/15/80a–5.md?p=a-1) for a [security](/usc/15/80a–2.md?p=a-36) of a registered [unit investment trust](/usc/15/80a–4.md?p=2) or registered [face-amount certificate company](/usc/15/80a–4.md?p=1); and (2) to any type of offer of [exchange](/usc/15/80a–2.md?p=a-14) of the [securities](/usc/15/80a–2.md?p=a-36) of registered [unit investment trusts](/usc/15/80a–4.md?p=2) or registered [face-amount certificate companies](/usc/15/80a–4.md?p=1) for the [securities](/usc/15/80a–2.md?p=a-36) of any other [investment company](/usc/15/77z–2.md?p=i-2). # §80a–12. Functions and activities of investment companies - (a) **Purchase of securities on margin; joint trading accounts; short sales of securities; exceptions—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2), in contravention of such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors— - (1) to [purchase](/usc/15/78c–5.md?p=g) any [security](/usc/15/80a–2.md?p=a-36) on margin, except such short-term [credits](/usc/15/1679a.md?p=4) as are necessary for the clearance of transactions; - (2) to participate on a joint or a joint and several basis in any trading [account](/usc/15/1681a.md?p=r-4) in [securities](/usc/15/80a–2.md?p=a-36), except in connection with an underwriting in which such registered [company](/usc/15/80a–2.md?p=a-8) is a participant; or - (3) to effect a short sale of any [security](/usc/15/80a–2.md?p=a-36), except in connection with an underwriting in which such registered [company](/usc/15/80a–2.md?p=a-8) is a participant. - (b) **Distribution by investment company of securities of which it is issuer—** It shall be unlawful for any registered [open-end company](/usc/15/80a–5.md?p=a-1) (other than a [company](/usc/15/80a–2.md?p=a-8) complying with the provisions of [section 80a–10(d) of this title](/usc/15/80a–10.md?p=d)) to act as a [distributor](/usc/15/1278.md?p=c-1-D-i) of [securities](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), except through an underwriter, in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (c) **Limitations on commitments as underwriter—** It shall be unlawful for any registered diversified [company](/usc/15/80a–2.md?p=a-8) to make any commitment as underwriter, if immediately thereafter the amount of its outstanding underwriting commitments, plus the value of its investments in [securities](/usc/15/80a–2.md?p=a-36) of [issuers](/usc/15/80a–2.md?p=a-22) (other than [investment companies](/usc/15/77z–2.md?p=i-2)) of which it owns more than 10 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), exceeds 25 per centum of the value of its total assets. - (d) **Limitations on acquisition by investment companies of securities of other specific businesses—** - (1) - (A) It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such acquiring [company](/usc/15/80a–2.md?p=a-8) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by any other [investment company](/usc/15/77z–2.md?p=i-2) (the “acquired [company](/usc/15/80a–2.md?p=a-8)”), and for any [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such acquiring [company](/usc/15/80a–2.md?p=a-8) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by any registered [investment company](/usc/15/77z–2.md?p=i-2) (the “acquired [company](/usc/15/80a–2.md?p=a-8)”), if the acquiring [company](/usc/15/80a–2.md?p=a-8) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by it immediately after such [purchase](/usc/15/78c–5.md?p=g) or acquisition own in the aggregate— - (i) more than 3 per centum of the total outstanding voting stock of the acquired [company](/usc/15/80a–2.md?p=a-8); - (ii) [securities](/usc/15/80a–2.md?p=a-36) issued by the acquired [company](/usc/15/80a–2.md?p=a-8) having an aggregate value in excess of 5 per centum of the value of the total assets of the acquiring [company](/usc/15/80a–2.md?p=a-8); or - (iii) [securities](/usc/15/80a–2.md?p=a-36) issued by the acquired [company](/usc/15/80a–2.md?p=a-8) and all other [investment companies](/usc/15/77z–2.md?p=i-2) (other than treasury stock of the acquiring [company](/usc/15/80a–2.md?p=a-8)) having an aggregate value in excess of 10 per centum of the value of the total assets of the acquiring [company](/usc/15/80a–2.md?p=a-8). - (B) It shall be unlawful for any registered open-end [investment company](/usc/15/77z–2.md?p=i-2) (the “acquired [company](/usc/15/80a–2.md?p=a-8)”), any principal underwriter therefor, or any [broker or dealer](/usc/15/78c.md?p=h-2) registered under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], knowingly to sell or otherwise dispose of any [security](/usc/15/80a–2.md?p=a-36) issued by the acquired [company](/usc/15/80a–2.md?p=a-8) to any other [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) or any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by the acquiring [company](/usc/15/80a–2.md?p=a-8), if immediately after such sale or disposition— - (i) more than 3 per centum of the total outstanding voting stock of the acquired [company](/usc/15/80a–2.md?p=a-8) is owned by the acquiring [company](/usc/15/80a–2.md?p=a-8) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by it; or - (ii) more than 10 per centum of the total outstanding voting stock of the acquired [company](/usc/15/80a–2.md?p=a-8) is owned by the acquiring [company](/usc/15/80a–2.md?p=a-8) and other [investment companies](/usc/15/77z–2.md?p=i-2) and [companies](/usc/15/80a–2.md?p=a-8) controlled by them. - (C) It shall be unlawful for any [investment company](/usc/15/77z–2.md?p=i-2) (the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by the acquiring [company](/usc/15/80a–2.md?p=a-8) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), if immediately after such [purchase](/usc/15/78c–5.md?p=g) or acquisition the acquiring [company](/usc/15/80a–2.md?p=a-8), other [investment companies](/usc/15/77z–2.md?p=i-2) having the same [investment adviser](/usc/15/6102.md?p=d-2-B-ii), and [companies](/usc/15/80a–2.md?p=a-8) controlled by such [investment companies](/usc/15/77z–2.md?p=i-2), own more than 10 per centum of the total outstanding voting stock of such [closed-end company](/usc/15/80a–5.md?p=a-2). - (D) The provisions of this paragraph shall not apply to a [security](/usc/15/80a–2.md?p=a-36) received as a dividend or as a result of an offer of [exchange](/usc/15/80a–2.md?p=a-14) approved pursuant to [section 80a–11 of this title](/usc/15/80a–11.md) or of a plan of [reorganization](/usc/15/80a–2.md?p=a-33) of any [company](/usc/15/80a–2.md?p=a-8) (other than a plan devised for the purpose of evading the foregoing provisions). - (E) The provisions of this paragraph shall not apply to a [security](/usc/15/80a–2.md?p=a-36) (or [securities](/usc/15/80a–2.md?p=a-36)) purchased or acquired by an [investment company](/usc/15/77z–2.md?p=i-2) if— - (i) the depositor of, or principal underwriter for, such [investment company](/usc/15/77z–2.md?p=i-2) is a [broker or dealer](/usc/15/78c.md?p=h-2) registered under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or a [person](/usc/15/80a–2.md?p=a-28) controlled by such a [broker or dealer](/usc/15/78c.md?p=h-2); - (ii) such [security](/usc/15/80a–2.md?p=a-36) is the only investment [security](/usc/15/80a–2.md?p=a-36) held by such [investment company](/usc/15/77z–2.md?p=i-2) (or such [securities](/usc/15/80a–2.md?p=a-36) are the only investment [securities](/usc/15/80a–2.md?p=a-36) held by such [investment company](/usc/15/77z–2.md?p=i-2), if such [investment company](/usc/15/77z–2.md?p=i-2) is a registered [unit investment trust](/usc/15/80a–4.md?p=2) that issues two or more classes or series of [securities](/usc/15/80a–2.md?p=a-36), each of which provides for the accumulation of shares of a different [investment company](/usc/15/77z–2.md?p=i-2)); and - (iii) the [purchase](/usc/15/78c–5.md?p=g) or acquisition is made pursuant to an arrangement with the [issuer](/usc/15/80a–2.md?p=a-22) of, or principal underwriter for the [issuer](/usc/15/80a–2.md?p=a-22) of, the [security](/usc/15/80a–2.md?p=a-36) whereby such [investment company](/usc/15/77z–2.md?p=i-2) is obligated— - (aa) either to seek instructions from its [security](/usc/15/80a–2.md?p=a-36) holders with regard to the voting of all proxies with respect to such [security](/usc/15/80a–2.md?p=a-36) and to vote such proxies only in accordance with such instructions, or to vote the shares held by it in the same proportion as the vote of all other holders of such [security](/usc/15/80a–2.md?p=a-36), and - (bb) in the event that such [investment company](/usc/15/77z–2.md?p=i-2) is not a registered [investment company](/usc/15/77z–2.md?p=i-2), to refrain substituting such [security](/usc/15/80a–2.md?p=a-36) unless the [Commission](/usc/15/80a–2.md?p=a-7) shall have approved such substitution in the manner provided in [section 80a–26 of this title](/usc/15/80a–26.md). - (F) The provisions of this paragraph shall not apply to [securities](/usc/15/80a–2.md?p=a-36) purchased or otherwise acquired by a registered [investment company](/usc/15/77z–2.md?p=i-2) if— - (i) immediately after such [purchase](/usc/15/78c–5.md?p=g) or acquisition not more than 3 per centum of the total outstanding stock of such [issuer](/usc/15/80a–2.md?p=a-22) is owned by such registered [investment company](/usc/15/77z–2.md?p=i-2) and all affiliated [persons](/usc/15/80a–2.md?p=a-28) of such registered [investment company](/usc/15/77z–2.md?p=i-2); and - (ii) such registered [investment company](/usc/15/77z–2.md?p=i-2) has not offered or sold after January 1, 1971, and is not proposing to offer or sell any [security](/usc/15/80a–2.md?p=a-36) issued by it through a principal underwriter or otherwise at a public offering price which includes a [sales load](/usc/15/80a–2.md?p=a-35) of more than 1½ per centum. No [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) purchased or acquired by a registered [investment company](/usc/15/77z–2.md?p=i-2) pursuant to this subparagraph shall be obligated to redeem such [security](/usc/15/80a–2.md?p=a-36) in an amount exceeding 1 per centum of such [issuer](/usc/15/80a–2.md?p=a-22)’s total outstanding [securities](/usc/15/80a–2.md?p=a-36) during any period of less than thirty days. Such [investment company](/usc/15/77z–2.md?p=i-2) shall exercise voting rights by proxy or otherwise with respect to any [security](/usc/15/80a–2.md?p=a-36) purchased or acquired pursuant to this subparagraph in the manner prescribed by subparagraph (E) of this subsection. - (G) - (i) This paragraph does not apply to [securities](/usc/15/80a–2.md?p=a-36) of a registered open-end [investment company](/usc/15/77z–2.md?p=i-2) or a registered [unit investment trust](/usc/15/80a–4.md?p=2) (hereafter in this subparagraph referred to as the “acquired [company](/usc/15/80a–2.md?p=a-8)”) purchased or otherwise acquired by a registered open-end [investment company](/usc/15/77z–2.md?p=i-2) or a registered [unit investment trust](/usc/15/80a–4.md?p=2) (hereafter in this subparagraph referred to as the “acquiring [company](/usc/15/80a–2.md?p=a-8)”) if— - (I) the acquired [company](/usc/15/80a–2.md?p=a-8) and the acquiring [company](/usc/15/80a–2.md?p=a-8) are part of the same [group of investment companies](#d-1-G-ii); - (II) the [securities](/usc/15/80a–2.md?p=a-36) of the acquired [company](/usc/15/80a–2.md?p=a-8), [securities](/usc/15/80a–2.md?p=a-36) of other registered open-end [investment companies](/usc/15/77z–2.md?p=i-2) and registered [unit investment trusts](/usc/15/80a–4.md?p=2) that are part of the same [group of investment companies](#d-1-G-ii), [Government securities](/usc/15/80a–2.md?p=a-16), and [short-term paper](/usc/15/80a–2.md?p=a-38) are the only investments held by the acquiring [company](/usc/15/80a–2.md?p=a-8); - (III) with respect to— - (aa) [securities](/usc/15/80a–2.md?p=a-36) of the acquired [company](/usc/15/80a–2.md?p=a-8), the acquiring [company](/usc/15/80a–2.md?p=a-8) does not pay and is not assessed any charges or fees for distribution-related activities, unless the acquiring [company](/usc/15/80a–2.md?p=a-8) does not charge a [sales load](/usc/15/80a–2.md?p=a-35) or other fees or charges for distribution-related activities; or - (bb) [securities](/usc/15/80a–2.md?p=a-36) of the acquiring [company](/usc/15/80a–2.md?p=a-8), any [sales loads](/usc/15/80a–2.md?p=a-35) and other distribution-related fees charged, when aggregated with any [sales load](/usc/15/80a–2.md?p=a-35) and distribution-related fees paid by the acquiring [company](/usc/15/80a–2.md?p=a-8) with respect to [securities](/usc/15/80a–2.md?p=a-36) of the acquired [company](/usc/15/80a–2.md?p=a-8), are not excessive under rules adopted pursuant to [section 80a–22(b) of this title](/usc/15/80a–22.md?p=b) or [section 80a–22(c) of this title](/usc/15/80a–22.md?p=c) by a [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) registered under section 15A of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78o](/usc/15/78o.md)–3], or the [Commission](/usc/15/80a–2.md?p=a-7); - (IV) the acquired [company](/usc/15/80a–2.md?p=a-8) has a policy that prohibits it from acquiring any [securities](/usc/15/80a–2.md?p=a-36) of registered open-end [investment companies](/usc/15/77z–2.md?p=i-2) or registered [unit investment trusts](/usc/15/80a–4.md?p=2) in reliance on this subparagraph or [subparagraph (F)](#d-1-F); and - (V) such acquisition is not in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe with respect to acquisitions in accordance with this subparagraph, as necessary and appropriate for the protection of investors. - (ii) For purposes of this subparagraph, the term “group of investment companies” means any 2 or more registered [investment companies](/usc/15/77z–2.md?p=i-2) that hold themselves out to investors as related [companies](/usc/15/80a–2.md?p=a-8) for purposes of investment and investor services. - (H) For the purposes of this paragraph, the value of an [investment company](/usc/15/77z–2.md?p=i-2)’s total assets shall be computed as of the time of a [purchase](/usc/15/78c–5.md?p=g) or acquisition or as closely thereto as is reasonably possible. - (I) In any action brought to enforce the provisions of this paragraph, the [Commission](/usc/15/80a–2.md?p=a-7) may join as a party the [issuer](/usc/15/80a–2.md?p=a-22) of any [security](/usc/15/80a–2.md?p=a-36) purchased or otherwise acquired in [violation](/usc/15/57b–1.md?p=a-7) of this paragraph, and the court may issue any [order](/usc/15/8702.md?p=14) with respect to such [issuer](/usc/15/80a–2.md?p=a-22) as may be necessary or appropriate for the enforcement of the provisions of this paragraph. - (J) The [Commission](/usc/15/80a–2.md?p=a-7), by rule or regulation, upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), may conditionally or unconditionally exempt any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, or any class or classes of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or transactions from any provision of this paragraph, if and to the extent that such exemption is consistent with the public interest and the protection of investors. - (2) It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [investment company](/usc/15/77z–2.md?p=i-2) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) (except a [security](/usc/15/80a–2.md?p=a-36) received as a dividend or as a result of a plan of [reorganization](/usc/15/80a–2.md?p=a-33) of any [company](/usc/15/80a–2.md?p=a-8), other than a plan devised for the purpose of evading the provisions of this paragraph) issued by any [insurance company](/usc/15/80a–2.md?p=a-17) of which such registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) do not, at the time of such [purchase](/usc/15/78c–5.md?p=g) or acquisition, own in the aggregate at least 25 per centum of the total outstanding voting stock, if such registered [company](/usc/15/80a–2.md?p=a-8) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by it own in the aggregate, or as a result of such [purchase](/usc/15/78c–5.md?p=g) or acquisition will own in the aggregate, more than 10 per centum of the total outstanding voting stock of such [insurance company](/usc/15/80a–2.md?p=a-17). - (3) It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [investment company](/usc/15/77z–2.md?p=i-2) to [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by or any other interest in the business of any [person](/usc/15/80a–2.md?p=a-28) who is a [broker](/usc/15/80a–2.md?p=a-6), a [dealer](/usc/15/80a–2.md?p=a-11), is engaged in the business of underwriting, or is either an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of an [investment company](/usc/15/77z–2.md?p=i-2) or an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered under subchapter II of this chapter, unless (A) such [person](/usc/15/80a–2.md?p=a-28) is a corporation all the outstanding [securities](/usc/15/80a–2.md?p=a-36) of which (other than [short-term paper](/usc/15/80a–2.md?p=a-38), [securities](/usc/15/80a–2.md?p=a-36) representing bank loans, and [directors](/usc/15/80a–2.md?p=a-12)’ qualifying shares) are, or after such acquisition will be, owned by one or more registered [investment companies](/usc/15/77z–2.md?p=i-2); and (B) such [person](/usc/15/80a–2.md?p=a-28) is primarily engaged in the business of underwriting and distributing [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28), selling [securities](/usc/15/80a–2.md?p=a-36) to [customers](/usc/15/78c–5.md?p=g), or any one or more of such or related activities, and the gross income of such [person](/usc/15/80a–2.md?p=a-28) normally is derived principally from such business or related activities. - (e) **Acquisition of securities issued by corporations in business of underwriting, furnishing capital to industry, etc.** Notwithstanding any provisions of this subchapter, any registered [investment company](/usc/15/77z–2.md?p=i-2) may hereafter [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire any [security](/usc/15/80a–2.md?p=a-36) issued by any one corporation engaged or proposing to engage in the business of underwriting, furnishing capital to industry, financing promotional enterprises, purchasing [securities](/usc/15/80a–2.md?p=a-36) of [issuers](/usc/15/80a–2.md?p=a-22) for which no ready market is in existence, and reorganizing [companies](/usc/15/80a–2.md?p=a-8) or similar activities; provided— - (1) That the [securities](/usc/15/80a–2.md?p=a-36) issued by such corporation (other than [short-term paper](/usc/15/80a–2.md?p=a-38) and [securities](/usc/15/80a–2.md?p=a-36) representing bank loans) shall consist solely of one class of common stock and shall have been originally issued or sold for investment to registered [investment companies](/usc/15/77z–2.md?p=i-2) only; - (2) That the aggregate cost of the [securities](/usc/15/80a–2.md?p=a-36) of such corporation purchased by such registered [investment company](/usc/15/77z–2.md?p=i-2) does not exceed 5 per centum of the value of the total assets of such registered [company](/usc/15/80a–2.md?p=a-8) at the time of any [purchase](/usc/15/78c–5.md?p=g) or acquisition of such [securities](/usc/15/80a–2.md?p=a-36); and - (3) That the aggregate paid-in capital and surplus of such corporation does not exceed $100,000,000. For the purpose of paragraph (1) of [section 80a–5(b) of this title](/usc/15/80a–5.md?p=b) any investment in any such corporation shall be deemed to be an investment in an [investment company](/usc/15/77z–2.md?p=i-2). - (f) **Organization and ownership by one registered face-amount certificate company of all or part of capital stock of not more than two other face-amount certificate companies; limitations—** Notwithstanding any provisions of this chapter, any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) may organize not more than two [face-amount certificate companies](/usc/15/80a–4.md?p=1) and acquire and own all or any part of the capital stock thereof only if such stock is acquired and held for investment: Provided, That the aggregate cost to such registered [company](/usc/15/80a–2.md?p=a-8) of all such stock so acquired shall not exceed six times the amount of the minimum capital stock requirement provided in subdivision (1) of subsection (a) of [section 80a–28 of this title](/usc/15/80a–28.md) for a face-amount [company](/usc/15/80a–2.md?p=a-8) organized on or after March 15, 1940: And provided further, That the aggregate cost to such registered [company](/usc/15/80a–2.md?p=a-8) of all such capital stock issued by [face-amount certificate companies](/usc/15/80a–4.md?p=1) organized or otherwise created under laws other than the laws of the United States or any [State](/usc/15/80a–2.md?p=a-39) thereof shall not exceed twice the amount of the minimum capital stock requirement provided in subdivision (1) of [subsection (a)](#a) of said [section 80a–28](/usc/15/80a–28.md) for a [company](/usc/15/80a–2.md?p=a-8) organized on or after March 15, 1940. Nothing contained in this subsection shall be deemed to prevent the sale of any such stock to any other [person](/usc/15/80a–2.md?p=a-28) if the original [purchase](/usc/15/78c–5.md?p=g) was made by such registered [face-amount certificate company](/usc/15/80a–4.md?p=1) in good faith for investment and not for resale. - (g) **Exceptions to limitation on ownership by investment company of securities of insurance com­pany—** Notwithstanding the provisions of this section any registered [investment company](/usc/15/77z–2.md?p=i-2) and any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) may [purchase](/usc/15/78c–5.md?p=g) or otherwise acquire from another [investment company](/usc/15/77z–2.md?p=i-2) or any [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) more than 10 per centum of the total outstanding voting stock of any [insurance company](/usc/15/80a–2.md?p=a-17) owned by any such [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8), or may acquire the [securities](/usc/15/80a–2.md?p=a-36) of any [insurance company](/usc/15/80a–2.md?p=a-17) if the [Commission](/usc/15/80a–2.md?p=a-7) by [order](/usc/15/8702.md?p=14) determines that such acquisition is in the public interest because the financial condition of such [insurance company](/usc/15/80a–2.md?p=a-17) will be improved as a result of such acquisition or any plan contemplated as a result thereof. This section shall not be deemed to prohibit the promotion of a new [insurance company](/usc/15/80a–2.md?p=a-17) or the acquisition of the [securities](/usc/15/80a–2.md?p=a-36) of any newly created [insurance company](/usc/15/80a–2.md?p=a-17) by a registered [investment company](/usc/15/77z–2.md?p=i-2), alone or with other [persons](/usc/15/80a–2.md?p=a-28). Nothing contained in this section shall in any way affect or derogate from the powers of any insurance commissioner or similar official or agency of the United States or any [State](/usc/15/80a–2.md?p=a-39), or to affect the right under [State](/usc/15/80a–2.md?p=a-39) law of any [insurance company](/usc/15/80a–2.md?p=a-17) to acquire [securities](/usc/15/80a–2.md?p=a-36) of any other [insurance company](/usc/15/80a–2.md?p=a-17) or [insurance companies](/usc/15/80a–2.md?p=a-17). # §80a–13. Changes in investment policy - (a) **Prohibited actions for registered investment companies—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall, unless authorized by the vote of a majority of its outstanding [voting securities](/usc/15/80a–2.md?p=a-42)— - (1) change its subclassification as defined in section [80a–5(a)(1)](/usc/15/80a–5.md?p=a-1) and [(2)](/usc/15/80a–5.md?p=a-2) of this title or its subclassification from a diversified to a nondiversified [company](/usc/15/80a–2.md?p=a-8); - (2) borrow money, issue senior [securities](/usc/15/80a–2.md?p=a-36), underwrite [securities](/usc/15/80a–2.md?p=a-36) issued by other [persons](/usc/15/80a–2.md?p=a-28), [purchase](/usc/15/78c–5.md?p=g) or sell real estate or commodities or make loans to other [persons](/usc/15/80a–2.md?p=a-28), except in each case in accordance with the recitals of policy contained in its [registration statement](/usc/15/77b.md?p=a-8) in respect thereto; - (3) deviate from its policy in respect of concentration of investments in any particular industry or group of industries as recited in its [registration statement](/usc/15/77b.md?p=a-8), deviate from any investment policy which is changeable only if authorized by shareholder vote, or deviate from any policy recited in its [registration statement](/usc/15/77b.md?p=a-8) pursuant to [section 80a–8(b)(3) of this title](/usc/15/80a–8.md?p=b-3); or - (4) change the nature of its business so as to cease to be an [investment company](/usc/15/77z–2.md?p=i-2). - (b) **Majority equivalent for common-law trusts—** In the case of a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md), either written approval by holders of a majority of the outstanding shares of beneficial interest or the vote of a majority of such outstanding shares cast in [person](/usc/15/80a–2.md?p=a-28) or by proxy at a meeting called for the purpose shall for the purposes of [subsection (a)](#a) be deemed the equivalent of the vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), and the provisions of paragraph (42) of [section 80a–2(a) of this title](/usc/15/80a–2.md?p=a) as to a majority shall be applicable to the vote cast at such a meeting. - (c) **Limitation on actions—** - (1) **In general—** Notwithstanding any other provision of Federal or [State](/usc/15/80a–2.md?p=a-39) law, no [person](#c-3) may bring any civil, criminal, or administrative action against any registered [investment company](/usc/15/77z–2.md?p=i-2), or any employee, officer, [director](/usc/15/80a–2.md?p=a-12), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) thereof, based solely upon the [investment company](/usc/15/77z–2.md?p=i-2) divesting from, or avoiding investing in, [securities](/usc/15/80a–2.md?p=a-36) issued by [persons](#c-3) that the [investment company](/usc/15/77z–2.md?p=i-2) determines, using credible information available to the public— - (A) conduct or have direct investments in business operations in Sudan described in [section 3(d)](/usc/15/3.md) of the Sudan Accountability and Divestment Act of 2007 ([50 U.S.C. 1701](/usc/50/1701.md) note); or - (B) engage in investment activities in Iran described in [section 8532(c) of title 22](/usc/22/8532.md?p=c). - (2) **Applicability—** - (A) **Rule of construction—** Nothing in [paragraph (1)](#c-1) shall be construed to create, imply, diminish, change, or affect in any way whether or not a private right of action exists under [subsection (a)](#a) or any other provision of this chapter. - (B) **Disclosures—** [Paragraph (1)](#c-1) shall not apply to a registered [investment company](/usc/15/77z–2.md?p=i-2), or any employee, officer, [director](/usc/15/80a–2.md?p=a-12), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) thereof, unless the [investment company](/usc/15/77z–2.md?p=i-2) makes disclosures in accordance with regulations prescribed by the [Commission](/usc/15/80a–2.md?p=a-7). - (3) **Person defined—** For purposes of this subsection the term “person” includes the Federal Government and any [State](/usc/15/80a–2.md?p=a-39) or political subdivision of a [State](/usc/15/80a–2.md?p=a-39). # §80a–14. Size of investment companies - (a) **Public offerings—** No registered [investment company](/usc/15/77z–2.md?p=i-2) organized after August 22, 1940, and no principal underwriter for such a [company](/usc/15/80a–2.md?p=a-8), shall make a public offering of [securities](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), unless— - (1) such [company](/usc/15/80a–2.md?p=a-8) has a net worth of at least $100,000; - (2) such [company](/usc/15/80a–2.md?p=a-8) has previously made a public offering of its [securities](/usc/15/80a–2.md?p=a-36), and at the time of such offering had a net worth of at least $100,000; or - (3) provision is made in connection with and as a condition of the registration of such [securities](/usc/15/80a–2.md?p=a-36) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] which in the opinion of the [Commission](/usc/15/80a–2.md?p=a-7) adequately insures (A) that after the effective date of such [registration statement](/usc/15/77b.md?p=a-8) such [company](/usc/15/80a–2.md?p=a-8) will not issue any [security](/usc/15/80a–2.md?p=a-36) or receive any proceeds of any subscription for any [security](/usc/15/80a–2.md?p=a-36) until firm [agreements](/usc/15/7a.md?p=2) have been made with such [company](/usc/15/80a–2.md?p=a-8) by not more than twenty-five responsible [persons](/usc/15/80a–2.md?p=a-28) to [purchase](/usc/15/78c–5.md?p=g) from it [securities](/usc/15/80a–2.md?p=a-36) to be issued by it for an aggregate net amount which plus the then net worth of the [company](/usc/15/80a–2.md?p=a-8), if any, will equal at least $100,000; (B) that said aggregate net amount will be paid in to such [company](/usc/15/80a–2.md?p=a-8) before any subscriptions for such [securities](/usc/15/80a–2.md?p=a-36) will be accepted from any [persons](/usc/15/80a–2.md?p=a-28) in excess of twenty-five; (C) that arrangements will be made whereby any proceeds so paid in, as well as any [sales load](/usc/15/80a–2.md?p=a-35), will be refunded to any subscriber on demand without any deduction, in the event that the net proceeds so received by the [company](/usc/15/80a–2.md?p=a-8) do not result in the [company](/usc/15/80a–2.md?p=a-8) having a net worth of at least $100,000 within ninety days after such [registration statement](/usc/15/77b.md?p=a-8) becomes effective. At any time after the occurrence of the event specified in clause (C) of paragraph (3) of this subsection the [Commission](/usc/15/80a–2.md?p=a-7) may issue a stop [order](/usc/15/8702.md?p=14) suspending the effectiveness of the [registration statement](/usc/15/77b.md?p=a-8) of such [securities](/usc/15/80a–2.md?p=a-36) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and may suspend or revoke the registration of such [company](/usc/15/80a–2.md?p=a-8) under this subchapter. - (b) **Study on effects of size—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, at such times as it deems that any substantial further increase in size of [investment companies](/usc/15/77z–2.md?p=i-2) creates any problem involving the protection of investors or the public interest, to make a study and investigation of the effects of size on the investment policy of [investment companies](/usc/15/77z–2.md?p=i-2) and on [security](/usc/15/80a–2.md?p=a-36) markets, on concentration of [control](/usc/15/80a–2.md?p=a-9) of wealth and industry, and on [companies](/usc/15/80a–2.md?p=a-8) in which [investment companies](/usc/15/77z–2.md?p=i-2) are interested, and from time to time to report the results of its studies and investigations and its recommendations to the Congress. # §80a–15. Contracts of advisers and underwriters - (a) **Written contract to serve or act as investment adviser; contents—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of a registered [investment company](/usc/15/77z–2.md?p=i-2), except pursuant to a written contract, which contract, whether with such registered [company](/usc/15/80a–2.md?p=a-8) or with an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such registered [company](/usc/15/80a–2.md?p=a-8), has been approved by the vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such registered [company](/usc/15/80a–2.md?p=a-8), and— - (1) precisely describes all compensation to be paid thereunder; - (2) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8); - (3) provides, in substance, that it may be terminated at any time, without the payment of any penalty, by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) or by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8) on not more than sixty days’ written notice to the [investment adviser](/usc/15/6102.md?p=d-2-B-ii); and - (4) provides, in substance, for its automatic termination in the event of its [assignment](/usc/15/80a–2.md?p=a-4). - (b) **Written contract with company for sale by principal underwriter of security of which company is issuer; contents—** It shall be unlawful for any principal underwriter for a registered [open-end company](/usc/15/80a–5.md?p=a-1) to offer for sale, sell, or deliver after sale any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), except pursuant to a written contract with such [company](/usc/15/80a–2.md?p=a-8), which contract— - (1) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8); and - (2) provides, in substance, for its automatic termination in the event of its [assignment](/usc/15/80a–2.md?p=a-4). - (c) **Approval of contract to undertake service as investment adviser or principal underwriter by majority of noninterested directors—** In addition to the requirements of subsections [(a)](#a) and [(b)](#b) of this section, it shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) having a [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) to enter into, renew, or perform any contract or [agreement](/usc/15/7a.md?p=2), written or oral, whereby a [person](/usc/15/80a–2.md?p=a-28) undertakes regularly to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for such [company](/usc/15/80a–2.md?p=a-8), unless the terms of such contract or [agreement](/usc/15/7a.md?p=2) and any renewal thereof have been approved by the vote of a majority of [directors](/usc/15/80a–2.md?p=a-12), who are not parties to such contract or [agreement](/usc/15/7a.md?p=2) or interested [persons](/usc/15/80a–2.md?p=a-28) of any such party, cast in [person](/usc/15/80a–2.md?p=a-28) at a meeting called for the purpose of voting on such approval. It shall be the duty of the [directors](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2) to request and evaluate, and the duty of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to such [company](/usc/15/80a–2.md?p=a-8) to furnish, such information as may reasonably be necessary to evaluate the terms of any contract whereby a [person](/usc/15/80a–2.md?p=a-28) undertakes regularly to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8). It shall be unlawful for the [directors](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2), in connection with their evaluation of the terms of any contract whereby a [person](/usc/15/80a–2.md?p=a-28) undertakes regularly to serve or act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8), to take into [account](/usc/15/1681a.md?p=r-4) the [purchase](/usc/15/78c–5.md?p=g) price or other consideration any [person](/usc/15/80a–2.md?p=a-28) may have paid in connection with a transaction of the type referred to in paragraph [(1)](#f-1), [(3)](#f-3), or [(4)](#f-4) of subsection (f). - (d) **Equivalent of vote of majority of outstanding voting securities in case of common-law trust—** In the case of a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md), either written approval by holders of a majority of the outstanding shares of beneficial interest or the vote of a majority of such outstanding shares cast in [person](/usc/15/80a–2.md?p=a-28) or by proxy at a meeting called for the purpose shall for the purposes of this section be deemed the equivalent of the vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), and the provisions of paragraph (42) of [section 80a–2(a) of this title](/usc/15/80a–2.md?p=a) as to a majority shall be applicable to the vote cast at such a meeting. - (e) **Exemption of advisory boards or members from provisions of this section—** Nothing contained in this section shall be deemed to require or contemplate any action by an [advisory board](/usc/15/80a–2.md?p=a-1) of any registered [company](/usc/15/80a–2.md?p=a-8) or by any of the members of such a [board](/usc/15/205c.md?p=1). - (f) **Receipt of benefits by investment adviser from sale of securities or other interest in such investment adviser resulting in assignment of investment advisory contract—** - (1) An [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or a corporate trustee performing the functions of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii), of a registered [investment company](/usc/15/77z–2.md?p=i-2) or an affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee may receive any amount or benefit in connection with a sale of [securities](/usc/15/80a–2.md?p=a-36) of, or a sale of any other interest in, such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee which results in an [assignment](/usc/15/80a–2.md?p=a-4) of an investment advisory contract with such [company](/usc/15/80a–2.md?p=a-8) or the change in [control](/usc/15/80a–2.md?p=a-9) of or identity of such corporate trustee, if— - (A) for a period of three years after the time of such action, at least 75 per centum of the members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) or such corporate trustee (or successor thereto, by [reorganization](/usc/15/80a–2.md?p=a-33) or otherwise) are not (i) interested [persons](/usc/15/80a–2.md?p=a-28) of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [company](/usc/15/80a–2.md?p=a-8) or such corporate trustee, or (ii) interested [persons](/usc/15/80a–2.md?p=a-28) of the predecessor [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or such corporate trustee; and - (B) there is not imposed an unfair burden on such [company](/usc/15/80a–2.md?p=a-8) as a result of such transaction or any express or implied terms, conditions, or understandings applicable thereto. - (2) - (A) For the purpose of paragraph (1)(A) of this subsection, interested [persons](/usc/15/80a–2.md?p=a-28) of a corporate trustee shall be determined in accordance with [section 80a–2(a)(19)(B) of this title](/usc/15/80a–2.md?p=a-19-B): Provided, That no [person](/usc/15/80a–2.md?p=a-28) shall be deemed to be an interested [person](/usc/15/80a–2.md?p=a-28) of a corporate trustee solely by reason of (i) his being a member of its [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or [advisory board](/usc/15/80a–2.md?p=a-1) or (ii) his membership in the immediate family of any [person](/usc/15/80a–2.md?p=a-28) specified in clause (i) of this subparagraph. - (B) For the purpose of paragraph (1)(B) of this subsection, an unfair burden on a registered [investment company](/usc/15/77z–2.md?p=i-2) includes any arrangement, during the two-year period after the date on which any such transaction occurs, whereby the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee or predecessor or successor [investment advisers](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee or any interested [person](/usc/15/80a–2.md?p=a-28) of any such adviser or any such corporate trustee receives or is entitled to receive any compensation directly or indirectly (i) from any [person](/usc/15/80a–2.md?p=a-28) in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale of [securities](/usc/15/80a–2.md?p=a-36) or other property to, from, or on behalf of such [company](/usc/15/80a–2.md?p=a-8), other than bona fide ordinary compensation as principal underwriter for such [company](/usc/15/80a–2.md?p=a-8), or (ii) from such [company](/usc/15/80a–2.md?p=a-8) or its [security](/usc/15/80a–2.md?p=a-36) holders for other than bona fide investment advisory or other services. - (3) If— - (A) an [assignment](/usc/15/80a–2.md?p=a-4) of an investment advisory contract with a registered [investment company](/usc/15/77z–2.md?p=i-2) results in a successor [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to such [company](/usc/15/80a–2.md?p=a-8), or if there is a change in [control](/usc/15/80a–2.md?p=a-9) of or identity of a corporate trustee of a registered [investment company](/usc/15/77z–2.md?p=i-2), and such adviser or trustee is then an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee with respect to other assets substantially greater in amount than the amount of assets of such [company](/usc/15/80a–2.md?p=a-8), or - (B) as a result of a merger of, or a sale of substantially all the assets by, a registered [investment company](/usc/15/77z–2.md?p=i-2) with or to another registered [investment company](/usc/15/77z–2.md?p=i-2) with assets substantially greater in amount, a transaction occurs which would be subject to paragraph (1)(A) of this subsection, such discrepancy in size of assets shall be considered by the [Commission](/usc/15/80a–2.md?p=a-7) in determining whether or to what extent an [application](/usc/15/77ccc.md?p=8) under [section 80a–6(c) of this title](/usc/15/80a–6.md?p=c) for exemption from the provisions of paragraph (1)(A) of this subsection should be granted. - (4) Paragraph (1)(A) of this subsection shall not apply to a transaction in which a controlling block of outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to a registered [investment company](/usc/15/77z–2.md?p=i-2) or of a corporate trustee performing the functions of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) to a registered [investment company](/usc/15/77z–2.md?p=i-2) is— - (A) distributed to the public and in which there is, in fact, no change in the identity of the [persons](/usc/15/80a–2.md?p=a-28) who [control](/usc/15/80a–2.md?p=a-9) such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee, or - (B) transferred to the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or the corporate trustee, or an affiliated [person](/usc/15/80a–2.md?p=a-28) or [persons](/usc/15/80a–2.md?p=a-28) of such [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee, or is transferred from the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee to an affiliated [person](/usc/15/80a–2.md?p=a-28) or [persons](/usc/15/80a–2.md?p=a-28) of the [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or corporate trustee: Provided, That (i) each transferee (other than such adviser or trustee) is a natural [person](/usc/15/80a–2.md?p=a-28) and (ii) the transferees (other than such adviser or trustee) owned in the aggregate more than 25 per centum of such [voting securities](/usc/15/80a–2.md?p=a-42) for a period of at least six months prior to such transfer. # §80a–16. Board of directors (a) Election of [directors](/usc/15/80a–2.md?p=a-12) No [person](/usc/15/80a–2.md?p=a-28) shall serve as a [director](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2) unless elected to that office by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), at an annual or a special meeting duly called for that purpose; except that vacancies occurring between such meetings may be filled in any otherwise legal manner if immediately after filling any such vacancy at least two-thirds of the [directors](/usc/15/80a–2.md?p=a-12) then holding office shall have been elected to such office by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the [company](/usc/15/80a–2.md?p=a-8) at such an annual or special meeting. In the event that at any time less than a majority of the [directors](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8) holding office at that time were so elected by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) or proper officer of such [company](/usc/15/80a–2.md?p=a-8) shall forthwith cause to be held as promptly as possible and in any event within sixty days a meeting of such holders for the purpose of electing [directors](/usc/15/80a–2.md?p=a-12) to fill any existing vacancies in the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) unless the [Commission](/usc/15/80a–2.md?p=a-7) shall by [order](/usc/15/8702.md?p=14) extend such period. The foregoing provisions of this subsection shall not apply to members of an [advisory board](/usc/15/80a–2.md?p=a-1). Nothing herein shall, however, preclude a registered [investment company](/usc/15/77z–2.md?p=i-2) from dividing its [directors](/usc/15/80a–2.md?p=a-12) into classes if its charter, certificate of incorporation, articles of [association](/usc/15/657h.md?p=a-2), by-laws, trust indenture, or other instrument or the law under which it is organized, so provides and prescribes the tenure of office of the several classes: Provided, That no class shall be elected for a shorter period than one year or for a longer period than five years and the term of office of at least one class shall expire each year. (b) Term vacancies Any vacancy on the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of a registered [investment company](/usc/15/77z–2.md?p=i-2) which occurs in connection with compliance with [section 80a–15(f)(1)(A) of this title](/usc/15/80a–15.md?p=f-1-A) and which must be filled by a [person](/usc/15/80a–2.md?p=a-28) who is not an interested [person](/usc/15/80a–2.md?p=a-28) of either party to a transaction subject to [section 80a–15(f)(1)(A) of this title](/usc/15/80a–15.md?p=f-1-A) shall be filled only by a [person](/usc/15/80a–2.md?p=a-28) (1) who has been selected and proposed for election by a majority of the [directors](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8) who are not such interested [persons](/usc/15/80a–2.md?p=a-28), and (2) who has been elected by the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), except that in the case of the death, disqualification, or bona fide resignation of a [director](/usc/15/80a–2.md?p=a-12) selected and elected pursuant to clauses (1) and (2) of this subsection (b), the vacancy created thereby may be filled as provided in subsection (a). (c) Trustees of common-law trusts The foregoing provisions of this section shall not apply to a common-law trust existing on August 22, 1940, under an indenture of trust which does not provide for the election of trustees by the shareholders. No natural [person](/usc/15/80a–2.md?p=a-28) shall serve as trustee of such a trust, which is registered as an [investment company](/usc/15/77z–2.md?p=i-2), after the holders of record of not less than two-thirds of the outstanding shares of beneficial interests in such trust have declared that he be removed from that office either by declaration in writing filed with the [custodian](/usc/15/57b–1.md?p=a-4) of the [securities](/usc/15/80a–2.md?p=a-36) of the trust or by votes cast in [person](/usc/15/80a–2.md?p=a-28) or by proxy at a meeting called for the purpose. Solicitation of such a declaration shall be deemed a solicitation of a proxy within the meaning of [section 80a–20(a) of this title](/usc/15/80a–20.md?p=a). The trustees of such a trust shall promptly call a meeting of shareholders for the purpose of voting upon the question of removal of any such trustee or trustees when requested in writing so to do by the record holders of not less than 10 per centum of the outstanding shares. Whenever ten or more shareholders of record who have been such for at least six months preceding the date of [application](/usc/15/77ccc.md?p=8), and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least 1 per centum of the outstanding shares, whichever is less, shall apply to the trustees in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to a request for a meeting pursuant to this subsection and accompanied by a form of communication and request which they wish to transmit, the trustees shall within five business days after receipt of such [application](/usc/15/77ccc.md?p=8) either— (1) afford to such [applicants](/usc/15/7a.md?p=3) access to a list of the names and addresses of all shareholders as recorded on the books of the trust; or (2) inform such [applicants](/usc/15/7a.md?p=3) as to the approximate number of shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request. If the trustees elect to follow the course specified in paragraph (2) of this subsection the trustees, upon the written request of such [applicants](/usc/15/7a.md?p=3), accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the trustees shall mail to such [applicants](/usc/15/7a.md?p=3) and file with the [Commission](/usc/15/80a–2.md?p=a-7), together with a copy of the material to be mailed, a written statement signed by at least a majority of the trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to [state](/usc/15/80a–2.md?p=a-39) facts necessary to make the statements contained therein not misleading, or would be in [violation](/usc/15/57b–1.md?p=a-7) of applicable law, and specifying the basis of such opinion. After opportunity for hearing upon the objections specified in the written statement so filed, the [Commission](/usc/15/80a–2.md?p=a-7) may, and if demanded by the trustees or by such [applicants](/usc/15/7a.md?p=3) shall, enter an [order](/usc/15/8702.md?p=14) either sustaining one or more of such objections or refusing to sustain any of them. If the [Commission](/usc/15/80a–2.md?p=a-7) shall enter an [order](/usc/15/8702.md?p=14) refusing to sustain any of such objections, or if, after the entry of an [order](/usc/15/8702.md?p=14) sustaining one or more of such objections, the [Commission](/usc/15/80a–2.md?p=a-7) shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an [order](/usc/15/8702.md?p=14) so declaring, the trustees shall mail copies of such material to all shareholders with reasonable promptness after the entry of such [order](/usc/15/8702.md?p=14) and the renewal of such tender. # §80a–17. Transactions of certain affiliated persons and underwriters - (a) **Prohibited transactions—** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) or promoter of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2) (other than a [company](/usc/15/80a–2.md?p=a-8) of the character described in section [80a–12(d)(3)(A)](/usc/15/80a–12.md) and [(B)](/usc/15/80a–12.md) of this title), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such a [person](/usc/15/80a–2.md?p=a-28), promoter, or principal underwriter, acting as principal— - (1) knowingly to sell any [security](/usc/15/80a–2.md?p=a-36) or other property to such registered [company](/usc/15/80a–2.md?p=a-8) or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), unless such sale involves solely (A) [securities](/usc/15/80a–2.md?p=a-36) of which the buyer is the [issuer](/usc/15/80a–2.md?p=a-22), (B) [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22) and which are part of a general offering to the holders of a class of its [securities](/usc/15/80a–2.md?p=a-36), or (C) [securities](/usc/15/80a–2.md?p=a-36) deposited with the trustee of a [unit investment trust](/usc/15/80a–4.md?p=2) or periodic payment plan by the depositor thereof; - (2) knowingly to [purchase](/usc/15/78c–5.md?p=g) from such registered [company](/usc/15/80a–2.md?p=a-8), or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), any [security](/usc/15/80a–2.md?p=a-36) or other property (except [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22)); - (3) to borrow money or other property from such registered [company](/usc/15/80a–2.md?p=a-8) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8) (unless the [borrower](/usc/15/697f.md?p=e-2) is controlled by the lender) except as permitted in [section 80a–21(b) of this title](/usc/15/80a–21.md?p=b); or - (4) to loan money or other property to such registered [company](/usc/15/80a–2.md?p=a-8), or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), in contravention of such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), prescribe or issue consistent with the protection of investors. - (b) **Application for exemption of proposed transaction from certain restrictions—** Notwithstanding [subsection (a)](#a), any [person](/usc/15/80a–2.md?p=a-28) may file with the [Commission](/usc/15/80a–2.md?p=a-7) an [application](/usc/15/77ccc.md?p=8) for an [order](/usc/15/8702.md?p=14) exempting a proposed transaction of the [applicant](/usc/15/7a.md?p=3) from one or more provisions of said subsection. The [Commission](/usc/15/80a–2.md?p=a-7) shall grant such [application](/usc/15/77ccc.md?p=8) and issue such [order](/usc/15/8702.md?p=14) of exemption if evidence establishes that— - (1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned; - (2) the proposed transaction is consistent with the policy of each registered [investment company](/usc/15/77z–2.md?p=i-2) concerned, as recited in its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under this subchapter; and - (3) the proposed transaction is consistent with the general purposes of this subchapter. - (c) **Sale or purchase of merchandise from any company or furnishing of services incident to lessor-lessee relationship—** Notwithstanding [subsection (a)](#a), a [person](/usc/15/80a–2.md?p=a-28) may, in the ordinary course of business, sell to or [purchase](/usc/15/78c–5.md?p=g) from any [company](/usc/15/80a–2.md?p=a-8) merchandise or may enter into a lessor-lessee relationship with any [person](/usc/15/80a–2.md?p=a-28) and furnish the services incident thereto. - (d) **Joint or joint and several participation with company in transactions—** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2) (other than a [company](/usc/15/80a–2.md?p=a-8) of the character described in [section 80a–12(d)(3)](/usc/15/80a–12.md?p=d-3) (A) and (B) of this title), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such a [person](/usc/15/80a–2.md?p=a-28) or principal underwriter, acting as principal to effect any transaction in which such registered [company](/usc/15/80a–2.md?p=a-8), or a [company](/usc/15/80a–2.md?p=a-8) controlled by such registered [company](/usc/15/80a–2.md?p=a-8), is a joint or a joint and several participant with such [person](/usc/15/80a–2.md?p=a-28), principal underwriter, or affiliated [person](/usc/15/80a–2.md?p=a-28), in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe for the purpose of limiting or preventing participation by such registered or controlled [company](/usc/15/80a–2.md?p=a-8) on a basis different from or less advantageous than that of such other participant. Nothing contained in this subsection shall be deemed to preclude any affiliated [person](/usc/15/80a–2.md?p=a-28) from acting as manager of any underwriting syndicate or other group in which such registered or controlled [company](/usc/15/80a–2.md?p=a-8) is a participant and receiving compensation therefor. - (e) **Acceptance of compensation, commissions, fees, etc.** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) of a registered [investment company](/usc/15/77z–2.md?p=i-2), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such [person](/usc/15/80a–2.md?p=a-28)— - (1) acting as agent, to accept from any source any compensation (other than a regular salary or wages from such registered [company](/usc/15/80a–2.md?p=a-8)) for the [purchase](/usc/15/78c–5.md?p=g) or sale of any property to or for such registered [company](/usc/15/80a–2.md?p=a-8) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, except in the course of such [person](/usc/15/80a–2.md?p=a-28)’s business as an underwriter or [broker](/usc/15/80a–2.md?p=a-6); or - (2) acting as [broker](/usc/15/80a–2.md?p=a-6), in connection with the sale of [securities](/usc/15/80a–2.md?p=a-36) to or by such registered [company](/usc/15/80a–2.md?p=a-8) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, to receive from any source a [commission](/usc/15/80a–2.md?p=a-7), fee, or other remuneration for effecting such transaction which exceeds (A) the usual and customary [broker](/usc/15/80a–2.md?p=a-6)’s [commission](/usc/15/80a–2.md?p=a-7) if the sale is effected on a [securities](/usc/15/80a–2.md?p=a-36) [exchange](/usc/15/80a–2.md?p=a-14), or (B) 2 per centum of the sales price if the sale is effected in connection with a secondary distribution of such [securities](/usc/15/80a–2.md?p=a-36), or (C) 1 per centum of the [purchase](/usc/15/78c–5.md?p=g) or sale price of such [securities](/usc/15/80a–2.md?p=a-36) if the sale is otherwise effected unless the [Commission](/usc/15/80a–2.md?p=a-7) shall, by rules and regulations or [order](/usc/15/8702.md?p=14) in the public interest and consistent with the protection of investors, permit a larger [commission](/usc/15/80a–2.md?p=a-7). - (f) **Custody of securities—** - (1) Every registered [management company](/usc/15/80a–4.md?p=3) shall place and maintain its [securities](/usc/15/80a–2.md?p=a-36) and similar investments in the custody of (A) a bank or banks having the qualifications prescribed in paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trustees of [unit investment trusts](/usc/15/80a–4.md?p=2); or (B) a [company](/usc/15/80a–2.md?p=a-8) which is a member of a [national securities exchange](/usc/15/80a–2.md?p=a-26) as defined in the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], subject to such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe for the protection of investors; or (C) such registered [company](/usc/15/80a–2.md?p=a-8), but only in accordance with such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe for the protection of investors. - (2) Subject to such rules, regulations, and [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may adopt as necessary or appropriate for the protection of investors, a registered [management company](/usc/15/80a–4.md?p=3) or any such [custodian](/usc/15/57b–1.md?p=a-4), with the consent of the registered [management company](/usc/15/80a–4.md?p=3) for which it acts as [custodian](/usc/15/57b–1.md?p=a-4), may deposit all or any part of the [securities](/usc/15/80a–2.md?p=a-36) owned by such registered [management company](/usc/15/80a–4.md?p=3) in a system for the central handling of [securities](/usc/15/80a–2.md?p=a-36) established by a [national securities exchange](/usc/15/80a–2.md?p=a-26) or national [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) registered with the [Commission](/usc/15/80a–2.md?p=a-7) under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or such other [person](/usc/15/80a–2.md?p=a-28) as may be permitted by the [Commission](/usc/15/80a–2.md?p=a-7), pursuant to which system all [securities](/usc/15/80a–2.md?p=a-36) of any particular class or series of any [issuer](/usc/15/80a–2.md?p=a-22) deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such [securities](/usc/15/80a–2.md?p=a-36). - (3) Rules, regulations, and [orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) under this subsection, among other things, may make appropriate provision with respect to such matters as the earmarking, segregation, and hypothecation of such [securities](/usc/15/80a–2.md?p=a-36) and investments, and may provide for or require periodic or other inspections by any or all of the following: Independent public accountants, employees and agents of the [Commission](/usc/15/80a–2.md?p=a-7), and such other [persons](/usc/15/80a–2.md?p=a-28) as the [Commission](/usc/15/80a–2.md?p=a-7) may designate. - (4) No member of a [national securities exchange](/usc/15/80a–2.md?p=a-26) which trades in [securities](/usc/15/80a–2.md?p=a-36) for its own [account](/usc/15/1681a.md?p=r-4) may act as [custodian](/usc/15/57b–1.md?p=a-4) except in accordance with rules and regulations prescribed by the [Commission](/usc/15/80a–2.md?p=a-7) for the protection of investors. - (5) If a registered [company](/usc/15/80a–2.md?p=a-8) maintains its [securities](/usc/15/80a–2.md?p=a-36) and similar investments in the custody of a qualified bank or banks, the cash proceeds from the sale of such [securities](/usc/15/80a–2.md?p=a-36) and similar investments and other cash assets of the [company](/usc/15/80a–2.md?p=a-8) shall likewise be kept in the custody of such a bank or banks, or in accordance with such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe for the protection of investors, except that such a registered [company](/usc/15/80a–2.md?p=a-8) may maintain a checking [account](/usc/15/1681a.md?p=r-4) in a bank or banks having the qualifications prescribed in paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trustees of [unit investment trusts](/usc/15/80a–4.md?p=2) with the balance of such [account](/usc/15/1681a.md?p=r-4) or the aggregate balances of such [accounts](/usc/15/1681a.md?p=r-4) at no time in excess of the amount of the fidelity bond, maintained pursuant to [subsection (g)](#g) covering the officers or employees authorized to draw on such [account](/usc/15/1681a.md?p=r-4) or [accounts](/usc/15/1681a.md?p=r-4). - (6) The [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), adopt rules and regulations, and issue [orders](/usc/15/8702.md?p=14), consistent with the protection of investors, prescribing the conditions under which a bank, or an affiliated [person](/usc/15/80a–2.md?p=a-28) of a bank, either of which is an affiliated [person](/usc/15/80a–2.md?p=a-28), promoter, organizer, or sponsor of, or principal underwriter for, a registered [management company](/usc/15/80a–4.md?p=3), may serve as [custodian](/usc/15/57b–1.md?p=a-4) of that registered [management company](/usc/15/80a–4.md?p=3). - (g) **Bonding of officers and employees having access to securities or funds—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to require by rules and regulations or [orders](/usc/15/8702.md?p=14) for the protection of investors that any officer or employee of a registered management [investment company](/usc/15/77z–2.md?p=i-2) who may singly, or jointly with others, have access to [securities](/usc/15/80a–2.md?p=a-36) or funds of any registered [company](/usc/15/80a–2.md?p=a-8), either directly or through [authority](/usc/15/3051.md?p=1) to draw upon such funds or to direct generally the disposition of such [securities](/usc/15/80a–2.md?p=a-36) (unless the officer or employee has such access solely through his position as an officer or employee of a bank) be bonded by a reputable fidelity [insurance company](/usc/15/80a–2.md?p=a-17) against larceny and embezzlement in such reasonable minimum amounts as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (h) **Provisions in charter, by-laws, etc., protecting against liability for willful misfeasance, etc.** After one year from the effective date of this subchapter, neither the charter, certificate of incorporation, articles of [association](/usc/15/657h.md?p=a-2), indenture of trust, nor the by-laws of any registered [investment company](/usc/15/77z–2.md?p=i-2), nor any other instrument pursuant to which such a [company](/usc/15/80a–2.md?p=a-8) is organized or administered, shall contain any provision which protects or purports to protect any [director](/usc/15/80a–2.md?p=a-12) or officer of such [company](/usc/15/80a–2.md?p=a-8) against any liability to the [company](/usc/15/80a–2.md?p=a-8) or to its [security](/usc/15/80a–2.md?p=a-36) holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. - (i) **Provisions in contracts protecting against willful misfeasance, etc.** After one year from the effective date of this subchapter no contract or [agreement](/usc/15/7a.md?p=2) under which any [person](/usc/15/80a–2.md?p=a-28) undertakes to act as [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of, or principal underwriter for, a registered [investment company](/usc/15/77z–2.md?p=i-2) shall contain any provision which protects or purports to protect such [person](/usc/15/80a–2.md?p=a-28) against any liability to such [company](/usc/15/80a–2.md?p=a-8) or its [security](/usc/15/80a–2.md?p=a-36) holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of his duties, or by reason of his reckless disregard of his obligations and duties under such contract or [agreement](/usc/15/7a.md?p=2). - (j) **Rules and regulations prohibiting fraudulent, deceptive or manipulative courses of conduct—** It shall be unlawful for any affiliated [person](/usc/15/80a–2.md?p=a-28) of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2) or any affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of or principal underwriter for a registered [investment company](/usc/15/77z–2.md?p=i-2), to engage in any act, practice, or course of business in connection with the [purchase](/usc/15/78c–5.md?p=g) or sale, directly or indirectly, by such [person](/usc/15/80a–2.md?p=a-28) of any [security](/usc/15/80a–2.md?p=a-36) held or to be acquired by such registered [investment company](/usc/15/77z–2.md?p=i-2) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may adopt to define, and prescribe means reasonably necessary to prevent, such acts, practices, or courses of business as are fraudulent, deceptive or manipulative. Such rules and regulations may include requirements for the adoption of codes of ethics by registered [investment companies](/usc/15/77z–2.md?p=i-2) and [investment advisers](/usc/15/6102.md?p=d-2-B-ii) of, and principal underwriters for, such [investment companies](/usc/15/77z–2.md?p=i-2) establishing such standards as are reasonably necessary to prevent such acts, practices, or courses of business. # §80a–18. Capital structure of investment companies - (a) **Qualifications on issuance of senior securities—** It shall be unlawful for any registered [closed-end company](/usc/15/80a–5.md?p=a-2) to issue any class of [senior security](#g), or to sell any such [security](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), unless— - (1) if such class of [senior security](#g) represents an indebtedness— - (A) immediately after such issuance or sale, it will have an asset coverage of at least 300 per centum; - (B) provision is made to prohibit the declaration of any dividend (except a dividend payable in stock of the [issuer](/usc/15/80a–2.md?p=a-22)), or the declaration of any other distribution, upon any class of the capital stock of such [investment company](/usc/15/77z–2.md?p=i-2), or the [purchase](/usc/15/78c–5.md?p=g) of any such capital stock, unless, in every such case, such class of [senior securities](#g) has at the time of the declaration of any such dividend or distribution or at the time of any such [purchase](/usc/15/78c–5.md?p=g) an asset coverage of at least 300 per centum after deducting the amount of such dividend, distribution, or [purchase](/usc/15/78c–5.md?p=g) price, as the case may be, except that dividends may be declared upon any preferred stock if such [senior security](#g) representing indebtedness has an asset coverage of at least 200 per centum at the time of declaration thereof after deducting the amount of such dividend; and - (C) provision is made either— - (i) that, if on the last business day of each of twelve consecutive calendar months such class of [senior securities](#g) shall have an asset coverage of less than 100 per centum, the holders of such [securities](/usc/15/80a–2.md?p=a-36) voting as a class shall be entitled to elect at least a majority of the members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8), such voting right to continue until such class of [senior security](#g) shall have an asset coverage of 110 per centum or more on the last business day of each of three consecutive calendar months, or - (ii) that, if on the last business day of each of twenty-four consecutive calendar months such class of [senior securities](#g) shall have an asset coverage of less than 100 per centum, an event of default shall be deemed to have occurred; - (2) if such class of [senior security](#g) is a stock— - (A) immediately after such issuance or sale it will have an asset coverage of at least 200 per centum; - (B) provision is made to prohibit the declaration of any dividend (except a dividend payable in common stock of the [issuer](/usc/15/80a–2.md?p=a-22)), or the declaration of any other distribution, upon the common stock of such [investment company](/usc/15/77z–2.md?p=i-2), or the [purchase](/usc/15/78c–5.md?p=g) of any such common stock, unless in every such case such class of [senior security](#g) has at the time of the declaration of any such dividend or distribution or at the time of any such [purchase](/usc/15/78c–5.md?p=g) an asset coverage of at least 200 per centum after deducting the amount of such dividend, distribution or [purchase](/usc/15/78c–5.md?p=g) price, as the case may be; - (C) provision is made to entitle the holders of such [senior securities](#g), voting as a class, to elect at least two [directors](/usc/15/80a–2.md?p=a-12) at all times, and, subject to the prior rights, if any, of the holders of any other class of [senior securities](#g) outstanding, to elect a majority of the [directors](/usc/15/80a–2.md?p=a-12) if at any time dividends on such class of [securities](/usc/15/80a–2.md?p=a-36) shall be unpaid in an amount equal to two full years’ dividends on such [securities](/usc/15/80a–2.md?p=a-36), and to continue to be so represented until all dividends in arrears shall have been paid or otherwise provided for; - (D) provision is made requiring approval by the vote of a majority of such [securities](/usc/15/80a–2.md?p=a-36), voting as a class, of any plan of [reorganization](/usc/15/80a–2.md?p=a-33) adversely affecting such [securities](/usc/15/80a–2.md?p=a-36) or of any action requiring a vote of [security](/usc/15/80a–2.md?p=a-36) holders as in [section 80a–13(a) of this title](/usc/15/80a–13.md?p=a) provided; and - (E) such class of stock shall have complete priority over any other class as to distribution of assets and payment of dividends, which dividends shall be cumulative. - (b) **Asset coverage in respect of senior securities—** The asset coverage in respect of a [senior security](#g) provided for in [subsection (a)](#a) may be determined on the basis of values calculated as of a time within forty-eight hours (not including Sundays or holidays) next preceding the time of such determination. The time of issue or sale shall, in the case of an offering of such [securities](/usc/15/80a–2.md?p=a-36) to existing stockholders of the [issuer](/usc/15/80a–2.md?p=a-22), be deemed to be the first date on which such offering is made, and in all other cases shall be deemed to be the time as of which a firm commitment to issue or sell and to take or [purchase](/usc/15/78c–5.md?p=g) such [securities](/usc/15/80a–2.md?p=a-36) shall be made. - (c) **Prohibitions relating to issuance of senior securities—** Notwithstanding the provisions of [subsection (a)](#a) it shall be unlawful for any registered closed-end [investment company](/usc/15/77z–2.md?p=i-2) to issue or sell any [senior security](#g) representing indebtedness if immediately thereafter such [company](/usc/15/80a–2.md?p=a-8) will have outstanding more than one class of [senior security](#g) representing indebtedness, or to issue or sell any [senior security](#g) which is a stock if immediately thereafter such [company](/usc/15/80a–2.md?p=a-8) will have outstanding more than one class of [senior security](#g) which is a stock, except that (1) any such class of indebtedness or stock may be issued in one or more series: Provided, That no such series shall have a preference or priority over any other series upon the distribution of the assets of such registered [closed-end company](/usc/15/80a–5.md?p=a-2) or in respect of the payment of interest or dividends, and (2) promissory notes or other evidences of indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other [person](/usc/15/80a–2.md?p=a-28) and privately arranged, and not intended to be publicly distributed, shall not be deemed to be a separate class of [senior securities](#g) representing indebtedness within the meaning of this subsection. - (d) **Warrants and rights to subscription—** It shall be unlawful for any registered [management company](/usc/15/80a–4.md?p=3) to issue any warrant or right to subscribe to or [purchase](/usc/15/78c–5.md?p=g) a [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), except in the form of warrants or rights to subscribe expiring not later than one hundred and twenty days after their issuance and issued exclusively and ratably to a class or classes of such [company](/usc/15/80a–2.md?p=a-8)’s [security](/usc/15/80a–2.md?p=a-36) holders; except that any warrant may be issued in [exchange](/usc/15/80a–2.md?p=a-14) for outstanding warrants in connection with a plan of [reorganization](/usc/15/80a–2.md?p=a-33). - (e) **Application of section to specific senior securities—** The provisions of this section shall not apply to any [senior securities](#g) issued or sold by any registered [closed-end company](/usc/15/80a–5.md?p=a-2)— - (1) for the purpose of refunding through payment, [purchase](/usc/15/78c–5.md?p=g), redemption, retirement, or [exchange](/usc/15/80a–2.md?p=a-14), any [senior security](#g) of such registered [investment company](/usc/15/77z–2.md?p=i-2) except that no [senior security](#g) representing indebtedness shall be so issued or sold for the purpose of refunding any [senior security](#g) which is a stock; or - (2) pursuant to any plan of [reorganization](/usc/15/80a–2.md?p=a-33) (other than for refunding as referred to in paragraph (1) of this subsection), provided— - (A) that such [senior securities](#g) are issued or sold for the purpose of substituting or exchanging such [senior securities](#g) for outstanding [senior securities](#g), and if such [senior securities](#g) represent indebtedness they are issued or sold for the purpose of substituting or exchanging such [senior securities](#g) for outstanding [senior securities](#g) representing indebtedness, of any registered [investment company](/usc/15/77z–2.md?p=i-2) which is a party to such plan of [reorganization](/usc/15/80a–2.md?p=a-33); or - (B) that the total amount of such [senior securities](#g) so issued or sold pursuant to such plan does not exceed the total amount of [senior securities](#g) of all the [companies](/usc/15/80a–2.md?p=a-8) which are parties to such plan, and the total amount of [senior securities](#g) representing indebtedness so issued or sold pursuant to such plan does not exceed the total amount of [senior securities](#g) representing indebtedness of all such [companies](/usc/15/80a–2.md?p=a-8), or, alternatively, the total amount of such [senior securities](#g) so issued or sold pursuant to such plan does not have the effect of increasing the ratio of [senior securities](#g) representing indebtedness to the [securities](/usc/15/80a–2.md?p=a-36) representing stock or the ratio of [senior securities](#g) representing stock to [securities](/usc/15/80a–2.md?p=a-36) junior thereto when compared with such ratios as they existed before such [reorganization](/usc/15/80a–2.md?p=a-33). - (f) **Senior securities securing loans from bank; securities not included in “senior security”—** - (1) It shall be unlawful for any registered [open-end company](/usc/15/80a–5.md?p=a-1) to issue any class of [senior security](#g) or to sell any [senior security](#g) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), except that any such registered [company](/usc/15/80a–2.md?p=a-8) shall be permitted to borrow from any bank: Provided, That immediately after any such borrowing there is an asset coverage of at least 300 per centum for all borrowings of such registered [company](/usc/15/80a–2.md?p=a-8): And provided further, That in the event that such asset coverage shall at any time fall below 300 per centum such registered [company](/usc/15/80a–2.md?p=a-8) shall, within three days thereafter (not including Sundays and holidays) or such longer period as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rules and regulations, reduce the amount of its borrowings to an extent that the asset coverage of such borrowings shall be at least 300 per centum. - (2) “[Senior security](#g)” shall not, in the case of a registered [open-end company](/usc/15/80a–5.md?p=a-1), include a class or classes or a number of series of preferred or special stock each of which is preferred over all other classes or series in respect of assets specifically allocated to that class or series: Provided, That (A) such [company](/usc/15/80a–2.md?p=a-8) has outstanding no class or series of stock which is not so preferred over all other classes or series, or (B) the only other outstanding class of the [issuer](/usc/15/80a–2.md?p=a-22)’s stock consists of a common stock upon which no dividend (other than a liquidating dividend) is permitted to be paid and which in the aggregate represents not more than one-half of 1 per centum of the [issuer](/usc/15/80a–2.md?p=a-22)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42). For the purpose of insuring fair and equitable treatment of the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of each class or series of stock of such [company](/usc/15/80a–2.md?p=a-8), the [Commission](/usc/15/80a–2.md?p=a-7) may by rule, regulation, or [order](/usc/15/8702.md?p=14) direct that any matter required to be submitted to the holders of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8) shall not be deemed to have been effectively acted upon unless approved by the holders of such percentage (not exceeding a majority) of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of each class or series of stock affected by such matter as shall be prescribed in such rule, regulation, or [order](/usc/15/8702.md?p=14). - (g) **“Senior security” defined—** Unless otherwise provided: “Senior security” means any bond, debenture, note, or similar obligation or instrument constituting a [security](/usc/15/80a–2.md?p=a-36) and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends; and “senior security representing indebtedness” means any senior security other than stock. The term “senior security”, when used in subparagraphs (B) and (C) of paragraph (1) of [subsection (a)](#a), shall not include any promissory note or other evidence of indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other [person](/usc/15/80a–2.md?p=a-28) and privately arranged, and not intended to be publicly distributed; nor shall such term, when used in this section, include any such promissory note or other evidence of indebtedness in any case where such a loan is for temporary purposes only and in an amount not exceeding 5 per centum of the value of the total assets of the [issuer](/usc/15/80a–2.md?p=a-22) at the time when the loan is made. A loan shall be presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed; otherwise it shall be presumed not to be for temporary purposes. Any such presumption may be rebutted by evidence. - (h) **“Asset coverage” defined—** “Asset coverage” of a class of [senior security](#g) representing an indebtedness of an [issuer](/usc/15/80a–2.md?p=a-22) means the ratio which the value of the total assets of such [issuer](/usc/15/80a–2.md?p=a-22), less all liabilities and indebtedness not represented by [senior securities](#g), bears to the aggregate amount of [senior securities](#g) representing indebtedness of such [issuer](/usc/15/80a–2.md?p=a-22). “Asset coverage” of a class of [senior security](#g) of an [issuer](/usc/15/80a–2.md?p=a-22) which is a stock means the ratio which the value of the total assets of such [issuer](/usc/15/80a–2.md?p=a-22), less all liabilities and indebtedness not represented by [senior securities](#g), bears to the aggregate amount of [senior securities](#g) representing indebtedness of such [issuer](/usc/15/80a–2.md?p=a-22) plus the aggregate of the involuntary liquidation preference of such class of [senior security](#g) which is a stock. The involuntary liquidation preference of a class of [senior security](#g) which is a stock shall be deemed to mean the amount to which such class of [senior security](#g) would be entitled on involuntary liquidation of the [issuer](/usc/15/80a–2.md?p=a-22) in preference to a [security](/usc/15/80a–2.md?p=a-36) junior to it. - (i) **Future issuance of stock as voting stock; exceptions—** Except as provided in [subsection (a)](#a) of this section, or as otherwise required by law, every share of stock hereafter issued by a registered [management company](/usc/15/80a–4.md?p=3) (except a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md)) shall be a voting stock and have equal voting rights with every other outstanding voting stock: Provided, That this subsection shall not apply to shares issued pursuant to the terms of any warrant or subscription right outstanding on March 15, 1940, or any firm contract entered into before March 15, 1940, to [purchase](/usc/15/78c–5.md?p=g) such [securities](/usc/15/80a–2.md?p=a-36) from such [company](/usc/15/80a–2.md?p=a-8) nor to shares issued in accordance with any rules, regulations, or [orders](/usc/15/8702.md?p=14) which the [Commission](/usc/15/80a–2.md?p=a-7) may make permitting such issue. - (j) **Securities issued by registered face-amount certificate company—** Notwithstanding any provision of this subchapter, it shall be unlawful, after August 22, 1940, for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1)— - (1) to issue, except in accordance with such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe in the public interest or as necessary or appropriate for the protection of investors, any [security](/usc/15/80a–2.md?p=a-36) other than (A) a [face-amount certificate](/usc/15/80a–2.md?p=a-15); (B) a common stock having a par value and being without preference as to dividends or distributions and having at least equal voting rights with any outstanding [security](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8); or (C) short-term payment or promissory notes or other indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other [person](/usc/15/80a–2.md?p=a-28) and privately arranged and not intended to be publicly offered; - (2) if such [company](/usc/15/80a–2.md?p=a-8) has outstanding any [security](/usc/15/80a–2.md?p=a-36), other than such [face-amount certificates](/usc/15/80a–2.md?p=a-15), common stock, promissory notes, or other evidence of indebtedness, to make any distribution or declare or pay any dividend on any capital [security](/usc/15/80a–2.md?p=a-36) in contravention of such rules and regulations or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe in the public interest or as necessary or appropriate for the protection of investors or to insure the financial integrity of such [company](/usc/15/80a–2.md?p=a-8), to prevent the impairment of the [company](/usc/15/80a–2.md?p=a-8)’s ability to meet its obligations upon its [face-amount certificates](/usc/15/80a–2.md?p=a-15); or - (3) to issue any of its [securities](/usc/15/80a–2.md?p=a-36) except for cash or [securities](/usc/15/80a–2.md?p=a-36) including [securities](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22). - (k) **Application of section to companies operating under Small Business Investment Act provisions—** The provisions of subparagraphs (A) and (B) of paragraph (1) of [subsection (a)](#a) of this section shall not apply to [investment companies](/usc/15/77z–2.md?p=i-2) operating under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.], and the provisions of [paragraph (2)](#a-2) of said subsection shall not apply to such [companies](/usc/15/80a–2.md?p=a-8) so long as such class of [senior security](#g) shall be held or guaranteed by the [Small Business](/usc/15/1691c–2.md?p=h-2) [Administration](/usc/15/2203.md?p=2). # §80a–19. Payments or distributions - (a) **Dividends; restriction; exception—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) to pay any dividend, or to make any distribution in the nature of a dividend payment, wholly or partly from any source other than— - (1) such [company](/usc/15/80a–2.md?p=a-8)’s accumulated undistributed net income, determined in accordance with good accounting practice and not including profits or losses realized upon the sale of [securities](/usc/15/80a–2.md?p=a-36) or other properties; or - (2) such [company](/usc/15/80a–2.md?p=a-8)’s net income so determined for the current or preceding fiscal year; unless such payment is accompanied by a written statement which adequately discloses the source or sources of such payment. The [Commission](/usc/15/80a–2.md?p=a-7) may prescribe the form of such statement by rules and regulations in the public interest and for the protection of investors. - (b) **Long-term capital gains; limitation—** It shall be unlawful in contravention of such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors for any registered [investment company](/usc/15/77z–2.md?p=i-2) to distribute long-term capital gains, as defined in [title 26](/usc/26.md), more often than once every twelve months. # §80a–20. Proxies; voting trusts; circular ownership - (a) **Prohibition on use of means of interstate commerce for solicitation of proxies—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25) or otherwise, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any [security](/usc/15/80a–2.md?p=a-36) of which a registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors. - (b) **Prohibition on use of means of interstate commerce for sale of voting-trust certificates—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) or affiliated [person](/usc/15/80a–2.md?p=a-28) thereof, any [issuer](/usc/15/80a–2.md?p=a-22) of a voting-trust certificate relating to any [security](/usc/15/80a–2.md?p=a-36) of a registered [investment company](/usc/15/77z–2.md?p=i-2), or any underwriter of such a certificate, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25), or otherwise, to offer for sale, sell, or deliver after sale, in connection with a public offering, any such voting-trust certificate. - (c) **Prohibition on purchase of securities knowingly resulting in cross-ownership or circular ownership—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall [purchase](/usc/15/78c–5.md?p=g) any [voting security](/usc/15/80a–2.md?p=a-42) if, to the knowledge of such registered [company](/usc/15/80a–2.md?p=a-8), cross-ownership or circular ownership exists, or after such acquisition will exist, between such registered [company](/usc/15/80a–2.md?p=a-8) and the [issuer](/usc/15/80a–2.md?p=a-22) of such [security](/usc/15/80a–2.md?p=a-36). Cross-ownership shall be deemed to exist between two [companies](/usc/15/80a–2.md?p=a-8) when each of such [companies](/usc/15/80a–2.md?p=a-8) beneficially owns more than 3 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the other [company](/usc/15/80a–2.md?p=a-8). Circular ownership shall be deemed to exist between two [companies](/usc/15/80a–2.md?p=a-8) if such [companies](/usc/15/80a–2.md?p=a-8) are included within a group of three or more [companies](/usc/15/80a–2.md?p=a-8), each of which— - (1) beneficially owns more than 3 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of one or more other [companies](/usc/15/80a–2.md?p=a-8) of the group; and - (2) has more than 3 per centum of its own outstanding [voting securities](/usc/15/80a–2.md?p=a-42) beneficially owned by another [company](/usc/15/80a–2.md?p=a-8), or by each of two or more other [companies](/usc/15/80a–2.md?p=a-8), of the group. - (d) **Duty to eliminate existing cross-ownership or circular ownership—** If cross-ownership or circular ownership between a registered [investment company](/usc/15/77z–2.md?p=i-2) and any other [company](/usc/15/80a–2.md?p=a-8) or [companies](/usc/15/80a–2.md?p=a-8) comes into existence upon the [purchase](/usc/15/78c–5.md?p=g) by a registered [investment company](/usc/15/77z–2.md?p=i-2) of the [securities](/usc/15/80a–2.md?p=a-36) of another [company](/usc/15/80a–2.md?p=a-8), it shall be the duty of such registered [company](/usc/15/80a–2.md?p=a-8), within one year after it first knows of the existence of such cross-ownership or circular ownership, to eliminate the same. # §80a–21. Loans by management companies It shall be unlawful for any registered [management company](/usc/15/80a–4.md?p=3) to [lend](/usc/15/80a–2.md?p=a-23) money or property to any [person](/usc/15/80a–2.md?p=a-28), directly or indirectly, if— - (a) the investment policies of such registered [company](/usc/15/80a–2.md?p=a-8), as recited in its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under this subchapter, do not permit such a loan; or - (b) such [person](/usc/15/80a–2.md?p=a-28) [controls](/usc/15/80a–2.md?p=a-9) or is under common [control](/usc/15/80a–2.md?p=a-9) with such registered [company](/usc/15/80a–2.md?p=a-8); except that the provisions of this paragraph shall not apply to any loan from a registered [company](/usc/15/80a–2.md?p=a-8) to a [company](/usc/15/80a–2.md?p=a-8) which owns all of the outstanding [securities](/usc/15/80a–2.md?p=a-36) of such registered [company](/usc/15/80a–2.md?p=a-8), except [directors](/usc/15/80a–2.md?p=a-12)’ qualifying shares. # §80a–22. Distribution, redemption, and repurchase of securities; regulations by securities associations - (a) **Rules relating to minimum and maximum prices for purchase and sale of securities from investment company; time for resale and redemption—** A [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) registered under [section 78o–3](/usc/15/78o–3.md) of this title may prescribe, by rules adopted and in effect in accordance with said section and subject to all provisions of said section applicable to the rules of such an [association](/usc/15/657h.md?p=a-2)— - (1) a method or methods for computing the minimum price at which a member thereof may [purchase](/usc/15/78c–5.md?p=g) from any [investment company](/usc/15/77z–2.md?p=i-2) any [redeemable security](/usc/15/80a–2.md?p=a-32) issued by such [company](/usc/15/80a–2.md?p=a-8) and the maximum price at which a member may sell to such [company](/usc/15/80a–2.md?p=a-8) any [redeemable security](/usc/15/80a–2.md?p=a-32) issued by it or which he may receive for such [security](/usc/15/80a–2.md?p=a-36) upon redemption, so that the price in each case will bear such relation to the current net asset value of such [security](/usc/15/80a–2.md?p=a-36) computed as of such time as the rules may prescribe; and - (2) a minimum period of time which must elapse after the sale or issue of such [security](/usc/15/80a–2.md?p=a-36) before any resale to such [company](/usc/15/80a–2.md?p=a-8) by a member or its redemption upon surrender by a member; in each case for the purpose of eliminating or reducing so far as reasonably practicable any dilution of the value of other outstanding [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) or any other result of such [purchase](/usc/15/78c–5.md?p=g), redemption, or sale which is unfair to holders of such other outstanding [securities](/usc/15/80a–2.md?p=a-36); and said rules may prohibit the members of the [association](/usc/15/657h.md?p=a-2) from purchasing, selling, or surrendering for redemption any such [redeemable securities](/usc/15/80a–2.md?p=a-32) in contravention of said rules. - (b) **Rules relating to purchase of securities by members from issuer investment company—** - (1) Such a [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) may also, by rules adopted and in effect in accordance with [section 78o–3](/usc/15/78o–3.md) of this title, and notwithstanding the provisions of subsection (b)(6) thereof but subject to all other provisions of said section applicable to the rules of such an [association](/usc/15/657h.md?p=a-2), prohibit its members from purchasing, in connection with a primary distribution of [redeemable securities](/usc/15/80a–2.md?p=a-32) of which any registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22), any such [security](/usc/15/80a–2.md?p=a-36) from the [issuer](/usc/15/80a–2.md?p=a-22) or from any principal underwriter except at a price equal to the price at which such [security](/usc/15/80a–2.md?p=a-36) is then offered to the public less a [commission](/usc/15/80a–2.md?p=a-7), [discount](/usc/15/1602.md?p=q), or spread which is computed in conformity with a method or methods, and within such limitations as to the relation thereof to said public offering price, as such rules may prescribe in [order](/usc/15/8702.md?p=14) that the price at which such [security](/usc/15/80a–2.md?p=a-36) is offered or sold to the public shall not include an excessive [sales load](/usc/15/80a–2.md?p=a-35) but shall allow for reasonable compensation for sales personnel, [broker](/usc/15/80a–2.md?p=a-6)-[dealers](/usc/15/80a–2.md?p=a-11), and underwriters, and for reasonable [sales loads](/usc/15/80a–2.md?p=a-35) to investors. The [Commission](/usc/15/80a–2.md?p=a-7) shall on [application](/usc/15/77ccc.md?p=8) or otherwise, if it appears that smaller [companies](/usc/15/80a–2.md?p=a-8) are subject to relatively higher operating costs, make due allowance therefor by granting any such [company](/usc/15/80a–2.md?p=a-8) or class of [companies](/usc/15/80a–2.md?p=a-8) appropriate qualified exemptions from the provisions of this section. - (2) At any time after the expiration of eighteen months from December 14, 1970 (or, if earlier, after a [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) has adopted for purposes of [paragraph (1)](#b-1) any rule respecting excessive [sales loads](/usc/15/80a–2.md?p=a-35)), the [Commission](/usc/15/80a–2.md?p=a-7) may alter or supplement the rules of any [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) as may be necessary to effectuate the purposes of this subsection in the manner provided by [section 78s(c) of this title](/usc/15/78s.md?p=c). - (3) If any provision of this subsection is in conflict with any provision of any law of the United States in effect on December 14, 1970, the provisions of this subsection shall prevail. - (c) **Conflicting rules of Commission and associations—** The [Commission](/usc/15/80a–2.md?p=a-7) may make rules and regulations applicable to registered [investment companies](/usc/15/77z–2.md?p=i-2) and to principal underwriters of, and [dealers](/usc/15/80a–2.md?p=a-11) in, the [redeemable securities](/usc/15/80a–2.md?p=a-32) of any registered [investment company](/usc/15/77z–2.md?p=i-2), whether or not members of any [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2), to the same extent, covering the same subject matter, and for the accomplishment of the same ends as are prescribed in [subsection (a)](#a) of this section in respect of the rules which may be made by a registered [securities](/usc/15/80a–2.md?p=a-36) [association](/usc/15/657h.md?p=a-2) governing its members. Any rules and regulations so made by the [Commission](/usc/15/80a–2.md?p=a-7), to the extent that they may be inconsistent with the rules of any such [association](/usc/15/657h.md?p=a-2), shall so long as they remain in force supersede the rules of the [association](/usc/15/657h.md?p=a-2) and be binding upon its members as well as all other underwriters and [dealers](/usc/15/80a–2.md?p=a-11) to whom they may be applicable. - (d) **Sale of securities except to or through principal underwriter; price of securities—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall sell any [redeemable security](/usc/15/80a–2.md?p=a-32) issued by it to any [person](/usc/15/80a–2.md?p=a-28) except either to or through a principal underwriter for distribution or at a current public offering price described in the [prospectus](/usc/15/77b.md?p=a-10), and, if such class of [security](/usc/15/80a–2.md?p=a-36) is being currently offered to the public by or through an underwriter, no principal underwriter of such [security](/usc/15/80a–2.md?p=a-36) and no [dealer](/usc/15/80a–2.md?p=a-11) shall sell any such [security](/usc/15/80a–2.md?p=a-36) to any [person](/usc/15/80a–2.md?p=a-28) except a [dealer](/usc/15/80a–2.md?p=a-11), a principal underwriter, or the [issuer](/usc/15/80a–2.md?p=a-22), except at a current public offering price described in the [prospectus](/usc/15/77b.md?p=a-10). Nothing in this subsection shall prevent a sale made (i) pursuant to an offer of [exchange](/usc/15/80a–2.md?p=a-14) permitted by [section 80a–11 of this title](/usc/15/80a–11.md) including any offer made pursuant to [section 80a–11(b) of this title](/usc/15/80a–11.md?p=b); (ii) pursuant to an offer made solely to all registered holders of the [securities](/usc/15/80a–2.md?p=a-36), or of a particular class or series of [securities](/usc/15/80a–2.md?p=a-36) issued by the [company](/usc/15/80a–2.md?p=a-8) proportionate to their holdings or proportionate to any cash distribution made to them by the [company](/usc/15/80a–2.md?p=a-8) (subject to appropriate qualifications designed solely to avoid issuance of fractional [securities](/usc/15/80a–2.md?p=a-36)); or (iii) in accordance with rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7) made pursuant to subsection (b) of [section 80a–12 of this title](/usc/15/80a–12.md). - (e) **Suspension of right of redemption or postponement of date of payment—** No registered [investment company](/usc/15/77z–2.md?p=i-2) shall suspend the right of redemption, or postpone the date of payment or satisfaction upon redemption of any [redeemable security](/usc/15/80a–2.md?p=a-32) in accordance with its terms for more than seven days after the tender of such [security](/usc/15/80a–2.md?p=a-36) to the [company](/usc/15/80a–2.md?p=a-8) or its agent designated for that purpose for redemption, except— - (1) for any period (A) during which the New York Stock [Exchange](/usc/15/80a–2.md?p=a-14) is closed other than customary week-end and holiday closings or (B) during which trading on the New York Stock [Exchange](/usc/15/80a–2.md?p=a-14) is restricted; - (2) for any period during which an emergency exists as a result of which (A) disposal by the [company](/usc/15/80a–2.md?p=a-8) of [securities](/usc/15/80a–2.md?p=a-36) owned by it is not reasonably practicable or (B) it is not reasonably practicable for such [company](/usc/15/80a–2.md?p=a-8) fairly to determine the value of its net assets; or - (3) for such other periods as the [Commission](/usc/15/80a–2.md?p=a-7) may by [order](/usc/15/8702.md?p=14) permit for the protection of [security](/usc/15/80a–2.md?p=a-36) holders of the [company](/usc/15/80a–2.md?p=a-8). The [Commission](/usc/15/80a–2.md?p=a-7) shall by rules and regulations determine the conditions under which (i) trading shall be deemed to be restricted and (ii) an emergency shall be deemed to exist within the meaning of this subsection. - (f) **Restrictions on transferability or negotiability of securities—** No registered [open-end company](/usc/15/80a–5.md?p=a-1) shall restrict the transferability or negotiability of any [security](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22) except in conformity with the statements with respect thereto contained in its [registration statement](/usc/15/77b.md?p=a-8) nor in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe in the interests of the holders of all of the outstanding [securities](/usc/15/80a–2.md?p=a-36) of such [investment company](/usc/15/77z–2.md?p=i-2). - (g) **Issuance of securities for services or property other than cash—** No registered [open-end company](/usc/15/80a–5.md?p=a-1) shall issue any of its [securities](/usc/15/80a–2.md?p=a-36) (1) for services; or (2) for property other than cash or [securities](/usc/15/80a–2.md?p=a-36) (including [securities](/usc/15/80a–2.md?p=a-36) of which such registered [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22)), except as a dividend or distribution to its [security](/usc/15/80a–2.md?p=a-36) holders or in connection with a [reorganization](/usc/15/80a–2.md?p=a-33). # §80a–23. Closed-end companies - (a) **Issuance of securities—** No registered [closed-end company](/usc/15/80a–5.md?p=a-2) shall issue any of its [securities](/usc/15/80a–2.md?p=a-36) (1) for services; or (2) for property other than cash or [securities](/usc/15/80a–2.md?p=a-36) (including [securities](/usc/15/80a–2.md?p=a-36) of which such registered [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22)), except as a dividend or distribution to its [security](/usc/15/80a–2.md?p=a-36) holders or in connection with a [reorganization](/usc/15/80a–2.md?p=a-33). - (b) **Sale of common stock at price below current net asset value—** No registered [closed-end company](/usc/15/80a–5.md?p=a-2) shall sell any common stock of which it is the [issuer](/usc/15/80a–2.md?p=a-22) at a price below the current net asset value of such stock, exclusive of any distributing [commission](/usc/15/80a–2.md?p=a-7) or [discount](/usc/15/1602.md?p=q) (which net asset value shall be determined as of a time within forty-eight hours, excluding Sundays and holidays, next preceding the time of such determination), except (1) in connection with an offering to the holders of one or more classes of its capital stock; (2) with the consent of a majority of its common stockholders; (3) upon conversion of a convertible [security](/usc/15/80a–2.md?p=a-36) in accordance with its terms; (4) upon the exercise of any warrant outstanding on August 22, 1940, or issued in accordance with the provisions of [section 80a–18(d) of this title](/usc/15/80a–18.md?p=d); or (5) under such other circumstances as the [Commission](/usc/15/80a–2.md?p=a-7) may permit by rules and regulations or [orders](/usc/15/8702.md?p=14) for the protection of investors. - (c) **Purchase of securities of which it is issuer; exceptions—** No registered [closed-end company](/usc/15/80a–5.md?p=a-2) shall [purchase](/usc/15/78c–5.md?p=g) any [securities](/usc/15/80a–2.md?p=a-36) of any class of which it is the [issuer](/usc/15/80a–2.md?p=a-22) except— - (1) on a [securities](/usc/15/80a–2.md?p=a-36) [exchange](/usc/15/80a–2.md?p=a-14) or such other open market as the [Commission](/usc/15/80a–2.md?p=a-7) may designate by rules and regulations or [orders](/usc/15/8702.md?p=14): Provided, That if such [securities](/usc/15/80a–2.md?p=a-36) are stock, such registered [company](/usc/15/80a–2.md?p=a-8) shall, within the preceding six months, have informed stockholders of its intention to [purchase](/usc/15/78c–5.md?p=g) stock of such class by letter or report addressed to stockholders of such class; or - (2) pursuant to tenders, after reasonable opportunity to submit tenders given to all holders of [securities](/usc/15/80a–2.md?p=a-36) of the class to be purchased; or - (3) under such other circumstances as the [Commission](/usc/15/80a–2.md?p=a-7) may permit by rules and regulations or [orders](/usc/15/8702.md?p=14) for the protection of investors in [order](/usc/15/8702.md?p=14) to insure that such [purchases](/usc/15/78c–5.md?p=g) are made in a manner or on a basis which does not unfairly discriminate against any holders of the class or classes of [securities](/usc/15/80a–2.md?p=a-36) to be purchased. # §80a–24. Registration of securities under Securities Act of 1933 - (a) **Registration statement; contents—** In registering under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], any [security](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), a registered [investment company](/usc/15/77z–2.md?p=i-2), in lieu of furnishing a [registration statement](/usc/15/77b.md?p=a-8) containing the information and documents specified in schedule A of said Act [[15 U.S.C. 77aa](/usc/15/77aa.md)], may file a [registration statement](/usc/15/77b.md?p=a-8) containing the following information and documents: - (1) such copies of the [registration statement](/usc/15/77b.md?p=a-8) filed by such [company](/usc/15/80a–2.md?p=a-8) under this subchapter, and of such reports filed by such [company](/usc/15/80a–2.md?p=a-8) pursuant to [section 80a–29 of this title](/usc/15/80a–29.md) or such copies of portions of such [registration statement](/usc/15/77b.md?p=a-8) and reports, as the [Commission](/usc/15/80a–2.md?p=a-7) shall designate by rules and regulations; and - (2) such additional information and documents (including a [prospectus](/usc/15/77b.md?p=a-10)) as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe by rules and regulations as necessary or appropriate in the public interest or for the protection of investors. - (b) **Filing of three copies of advertisement, pamphlet, etc. in connection with public offering; time of filing—** It shall be unlawful for any of the following [companies](/usc/15/80a–2.md?p=a-8), or for any underwriter for such a [company](/usc/15/80a–2.md?p=a-8), in connection with a public offering of any [security](/usc/15/80a–2.md?p=a-36) of which such [company](/usc/15/80a–2.md?p=a-8) is the [issuer](/usc/15/80a–2.md?p=a-22), to make use of the mails or any means or instrumentalities of [interstate commerce](/usc/15/80a–2.md?p=a-18), to transmit any advertisement, pamphlet, circular, form letter, or other sales literature addressed to or intended for distribution to prospective investors unless three copies of the full text thereof have been filed with the [Commission](/usc/15/80a–2.md?p=a-7) or are filed with the [Commission](/usc/15/80a–2.md?p=a-7) within ten days thereafter: - (1) any registered [open-end company](/usc/15/80a–5.md?p=a-1); - (2) any registered [unit investment trust](/usc/15/80a–4.md?p=2); or - (3) any registered [face-amount certificate company](/usc/15/80a–4.md?p=1). - (c) **Additional requirement for prospectuses relating to periodic payment plan certificates or face-amount certificate—** In addition to the powers relative to [prospectuses](/usc/15/77b.md?p=a-10) granted the [Commission](/usc/15/80a–2.md?p=a-7) by section 10 of the Securities Act of 1933 [[15 U.S.C. 77j](/usc/15/77j.md)], the [Commission](/usc/15/80a–2.md?p=a-7) is authorized to require, by rules and regulations or [order](/usc/15/8702.md?p=14), that the information contained in any [prospectus](/usc/15/77b.md?p=a-10) relating to any periodic payment plan certificate or [face-amount certificate](/usc/15/80a–2.md?p=a-15) registered under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], on or after the effective date of this subchapter be presented in such form and [order](/usc/15/8702.md?p=14) of items, and such [prospectus](/usc/15/77b.md?p=a-10) contain such summaries of any portion of such information, as are necessary or appropriate in the public interest or for the protection of investors. - (d) **Application of other provisions to securities of investment companies, face-amount certificate companies, and open-end companies or unit investment trust—** The exemption provided by [paragraph (8)](/usc/15/3.md) of section 3(a) of the Securities Act of 1933 [[15 U.S.C. 77c(a)(8)](/usc/15/77c.md?p=a-8)] shall not apply to any [security](/usc/15/80a–2.md?p=a-36) of which an [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22). The exemption provided by paragraph (11) of said [section 3(a)](/usc/15/3.md?p=a) [[15 U.S.C. 77c(a)(11)](/usc/15/77c.md?p=a-11)] shall not apply to any [security](/usc/15/80a–2.md?p=a-36) of which a registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22). The exemption provided by [section 4(3)](/usc/15/4.md)[^1] of the Securities Act of 1933 [[15 U.S.C. 77d(a)(3)](/usc/15/77d.md?p=a-3)] shall not apply to any transaction in a [security](/usc/15/80a–2.md?p=a-36) issued by a [face-amount certificate company](/usc/15/80a–4.md?p=1) or in a [redeemable security](/usc/15/80a–2.md?p=a-32) issued by an open-end [management company](/usc/15/80a–4.md?p=3) or [unit investment trust](/usc/15/80a–4.md?p=2) if any other [security](/usc/15/80a–2.md?p=a-36) of the same class is currently being offered or sold by the [issuer](/usc/15/80a–2.md?p=a-22) or by or through an underwriter in a distribution which is not exempted from [section 5](/usc/15/5.md) of said Act [[15 U.S.C. 77e](/usc/15/77e.md)], except to such extent and subject to such terms and conditions as the [Commission](/usc/15/80a–2.md?p=a-7), having due regard for the public interest and the protection of investors, may prescribe by rules or regulations with respect to any class of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or transactions. - (e) **Amendment of registration statements relating to securities issued by face-amount certificate companies, open-end management companies or unit investment trusts—** For the purposes of section 11 of the Securities Act of 1933, as amended [[15 U.S.C. 77k](/usc/15/77k.md)] the effective date of the latest amendment filed shall be deemed the effective date of the [registration statement](/usc/15/77b.md?p=a-8) with respect to [securities](/usc/15/80a–2.md?p=a-36) sold after such amendment shall have become effective. For the purposes of section 13 of the Securities Act of 1933, as amended [[15 U.S.C. 77m](/usc/15/77m.md)], no such [security](/usc/15/80a–2.md?p=a-36) shall be deemed to have been bona fide offered to the public prior to the effective date of the latest amendment filed pursuant to this subsection. Except to the extent the [Commission](/usc/15/80a–2.md?p=a-7) otherwise provides by rules or regulations as appropriate in the public interest or for the protection of investors, no [prospectus](/usc/15/77b.md?p=a-10) relating to a [security](/usc/15/80a–2.md?p=a-36) issued by a [face-amount certificate company](/usc/15/80a–4.md?p=1) or a [redeemable security](/usc/15/80a–2.md?p=a-32) issued by an open-end [management company](/usc/15/80a–4.md?p=3) or [unit investment trust](/usc/15/80a–4.md?p=2) which varies for the purposes of [subsection (a)(3)](/usc/15/10.md) of section 10 of the Securities Act of 1933 [[15 U.S.C. 77j(a)(3)](/usc/15/77j.md?p=a-3)] from the latest [prospectus](/usc/15/77b.md?p=a-10) filed as a part of the [registration statement](/usc/15/77b.md?p=a-8) shall be deemed to meet the requirements of said [section 10](/usc/15/10.md) [[15 U.S.C. 77j](/usc/15/77j.md)] unless filed as part of an amendment to the [registration statement](/usc/15/77b.md?p=a-8) under said Act [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] and such amendment has become effective. - (f) **Registration of indefinite amount of securities—** - (1) **Registration of securities—** Upon the effective date of its [registration statement](/usc/15/77b.md?p=a-8), as provided by section 8 of the Securities Act of 1933 [[15 U.S.C. 77h](/usc/15/77h.md)], a [face-amount certificate company](/usc/15/80a–4.md?p=1), open-end [management company](/usc/15/80a–4.md?p=3), or [unit investment trust](/usc/15/80a–4.md?p=2), shall be deemed to have registered an indefinite amount of [securities](/usc/15/80a–2.md?p=a-36). - (2) **Payment of registration fees—** Not later than 90 days after the end of the fiscal year of a [company](/usc/15/80a–2.md?p=a-8) or trust referred to in [paragraph (1)](#f-1), the [company](/usc/15/80a–2.md?p=a-8) or trust, as applicable, shall pay a registration fee to the [Commission](/usc/15/80a–2.md?p=a-7), calculated in the manner specified in section 6(b) of the Securities Act of 1933 [[15 U.S.C. 77f(b)](/usc/15/77f.md?p=b)], based on the aggregate sales price for which its [securities](/usc/15/80a–2.md?p=a-36) (including, for purposes of this paragraph, all [securities](/usc/15/80a–2.md?p=a-36) issued pursuant to a dividend reinvestment plan) were sold pursuant to a registration of an indefinite amount of [securities](/usc/15/80a–2.md?p=a-36) under this subsection during the previous fiscal year of the [company](/usc/15/80a–2.md?p=a-8) or trust, reduced by— - (A) the aggregate redemption or repurchase price of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) or trust during that year; and - (B) the aggregate redemption or repurchase price of the [securities](/usc/15/80a–2.md?p=a-36) of the [company](/usc/15/80a–2.md?p=a-8) or trust during any prior fiscal year ending not more than 1 year before October 11, 1996, that were not used previously by the [company](/usc/15/80a–2.md?p=a-8) or trust to reduce fees payable under this section. - (3) **Interest due on late payment—** A [company](/usc/15/80a–2.md?p=a-8) or trust paying the fee required by this subsection or any portion thereof more than 90 days after the end of the fiscal year of the [company](/usc/15/80a–2.md?p=a-8) or trust shall pay to the [Commission](/usc/15/80a–2.md?p=a-7) interest on unpaid amounts, at the average investment rate for Treasury tax and loan [accounts](/usc/15/1681a.md?p=r-4) published by the Secretary of the Treasury pursuant to [section 3717(a) of title 31](/usc/31/3717.md?p=a). The payment of interest pursuant to this paragraph shall not preclude the [Commission](/usc/15/80a–2.md?p=a-7) from bringing an action to enforce the requirements of [paragraph (2)](#f-2). - (4) **Rulemaking authority—** The [Commission](/usc/15/80a–2.md?p=a-7) may adopt rules and regulations to implement this subsection. - (g) **Additional prospectuses—** In addition to any [prospectus](/usc/15/77b.md?p=a-10) permitted or required by section 10(a) of the Securities Act of 1933 [[15 U.S.C. 77j(a)](/usc/15/77j.md?p=a)], the [Commission](/usc/15/80a–2.md?p=a-7) shall permit, by rules or regulations deemed necessary or appropriate in the public interest or for the protection of investors, the use of a [prospectus](/usc/15/77b.md?p=a-10) for purposes of [section 5(b)(1)](/usc/15/5.md) of that Act [[15 U.S.C. 77e(b)(1)](/usc/15/77e.md?p=b-1)] with respect to [securities](/usc/15/80a–2.md?p=a-36) issued by a registered [investment company](/usc/15/77z–2.md?p=i-2). Such a [prospectus](/usc/15/77b.md?p=a-10), which may include information the substance of which is not included in the [prospectus](/usc/15/77b.md?p=a-10) specified in section 10(a) of the Securities Act of 1933, shall be deemed to be permitted by [section 10(b)](/usc/15/10.md) of that Act [[15 U.S.C. 77j(b)](/usc/15/77j.md?p=b)]. # §80a–25. Reorganization plans; reports by Commission - (a) **Filing of reorganization plan and other information with Commission—** Any [person](/usc/15/80a–2.md?p=a-28) who, by use of the mails or any [means or instrumentality of interstate commerce](/usc/15/80a–2.md?p=a-25) or otherwise, solicits or permits the use of his name to solicit any proxy, consent, authorization, power of attorney, ratification, deposit, or dissent in respect of any plan of [reorganization](/usc/15/80a–2.md?p=a-33) of any registered [investment company](/usc/15/77z–2.md?p=i-2) shall file with, or mail to, the [Commission](/usc/15/80a–2.md?p=a-7) for its information, within twenty-four hours after the commencement of any such solicitation, a copy of such plan and any deposit [agreement](/usc/15/7a.md?p=2) relating thereto and of any proxy, consent, authorization, power of attorney, ratification, instrument of deposit, or instrument of dissent in respect thereto, if or to the extent that such documents shall not already have been filed with the [Commission](/usc/15/80a–2.md?p=a-7). - (b) **Advisory report by Commission at request of shareholders—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, if so requested, prior to any solicitation of [security](/usc/15/80a–2.md?p=a-36) holders with respect to any plan of [reorganization](/usc/15/80a–2.md?p=a-33), by any registered [investment company](/usc/15/77z–2.md?p=i-2) which is, or any of the [securities](/usc/15/80a–2.md?p=a-36) of which are, the subject of or is a participant in any such plan, or if so requested by the holders of 25 per centum of any class of its outstanding [securities](/usc/15/80a–2.md?p=a-36), to render an advisory report in respect of the fairness of any such plan and its effect upon any class or classes of [security](/usc/15/80a–2.md?p=a-36) holders. In such event any registered [investment company](/usc/15/77z–2.md?p=i-2), in respect of which the [Commission](/usc/15/80a–2.md?p=a-7) shall have rendered any such advisory report, shall mail promptly a copy of such advisory report to all its [security](/usc/15/80a–2.md?p=a-36) holders affected by any such plan: Provided, That such advisory report shall have been received by it at least forty-eight hours (not including Sundays and holidays) before final action is taken in relation to such plan at any meeting of [security](/usc/15/80a–2.md?p=a-36) holders called to act in relation thereto, or any adjournment of any such meeting, or if no meeting be called, then prior to the final date of acceptance of such plan by [security](/usc/15/80a–2.md?p=a-36) holders. In respect of [securities](/usc/15/80a–2.md?p=a-36) not registered as to ownership, in lieu of mailing a copy of such advisory report, such registered [company](/usc/15/80a–2.md?p=a-8) shall publish promptly a statement of the existence of such advisory report in a newspaper of general circulation in its principal place of business and shall make available copies of such advisory report upon request. Notwithstanding the provision of this section the [Commission](/usc/15/80a–2.md?p=a-7) shall not render such advisory report although so requested by any such [investment company](/usc/15/77z–2.md?p=i-2) or such [security](/usc/15/80a–2.md?p=a-36) holders if the fairness or feasibility of said plan is in issue in any proceeding pending in any court of competent jurisdiction unless such plan is submitted to the [Commission](/usc/15/80a–2.md?p=a-7) for that purpose by such court. - (c) **Enjoinder of plan of reorganization—** Any district court of the United States in the [State](/usc/15/80a–2.md?p=a-39) of incorporation of a registered [investment company](/usc/15/77z–2.md?p=i-2), or any such court for the district in which such [company](/usc/15/80a–2.md?p=a-8) maintains its principal place of business, is authorized to enjoin the consummation of any plan of [reorganization](/usc/15/80a–2.md?p=a-33) of such registered [investment company](/usc/15/77z–2.md?p=i-2) upon proceedings instituted by the [Commission](/usc/15/80a–2.md?p=a-7) (which is authorized so to proceed upon behalf of [security](/usc/15/80a–2.md?p=a-36) holders of such registered [company](/usc/15/80a–2.md?p=a-8), or any class thereof), if such court shall determine that any such plan is not fair and equitable to all [security](/usc/15/80a–2.md?p=a-36) holders. - (d) **Application of section to reorganizations under title 11—** Nothing contained in this section shall in any way affect or derogate from the powers of the courts of the United States and the [Commission](/usc/15/80a–2.md?p=a-7) with reference to [reorganizations](/usc/15/80a–2.md?p=a-33) contained in [title 11](/usc/11.md). # §80a–26. Unit investment trusts - (a) **Custody and sale of securities—** No principal underwriter for or depositor of a registered [unit investment trust](/usc/15/80a–4.md?p=2) shall sell, except by surrender to the trustee for redemption, any [security](/usc/15/80a–2.md?p=a-36) of which such trust is the [issuer](/usc/15/80a–2.md?p=a-22) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)), unless the trust indenture, [agreement](/usc/15/7a.md?p=2) of custodianship, or other instrument pursuant to which such [security](/usc/15/80a–2.md?p=a-36) is issued— - (1) designates one or more trustees or [custodians](/usc/15/57b–1.md?p=a-4), each of which is a bank, and provides that each such trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall have at all times an aggregate capital, surplus, and undivided profits of a specified minimum amount, which shall not be less than $500,000 (but may also provide, if such trustee or [custodian](/usc/15/57b–1.md?p=a-4) publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or [examining authority](/usc/15/78lll.md?p=6), that for the purposes of this paragraph the aggregate capital, surplus, and undivided profits of such trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall be deemed to be its aggregate capital, surplus, and undivided profits as set forth in its most recent report of condition so published); - (2) provides, in substance, (A) that during the life of the trust the trustee or [custodian](/usc/15/57b–1.md?p=a-4), if not otherwise remunerated, may charge against and collect from the income of the trust, and from the corpus thereof if no income is available, such fees for its services and such reimbursement for its expenses as are provided for in such instrument; (B) that no such charge or collection shall be made except for services theretofore performed or expenses theretofore incurred; (C) that no payment to the depositor of or a principal underwriter for such trust, or to any affiliated [person](/usc/15/80a–2.md?p=a-28) or agent of such depositor or underwriter, shall be allowed the trustee or [custodian](/usc/15/57b–1.md?p=a-4) as an expense (except that provision may be made for the payment to any such [person](/usc/15/80a–2.md?p=a-28) of a fee, not exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as compensation for performing bookkeeping and other administrative services, of a character normally performed by the trustee or [custodian](/usc/15/57b–1.md?p=a-4) itself); and (D) that the trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall have possession of all [securities](/usc/15/80a–2.md?p=a-36) and other property in which the funds of the trust are invested, all funds held for such investment, all equalization, redemption, and other special funds of the trust, and all income upon, accretions to, and proceeds of such property and funds, and shall segregate and hold the same in trust (subject only to the charges and collections allowed under clauses (A), (B), and (C) of this paragraph) until distribution thereof to the [security](/usc/15/80a–2.md?p=a-36) holders of the trust; - (3) provides, in substance, that the trustee or [custodian](/usc/15/57b–1.md?p=a-4) shall not resign until either (A) the trust has been completely liquidated and the proceeds of the liquidation distributed to the [security](/usc/15/80a–2.md?p=a-36) holders of the trust, or (B) a successor trustee or [custodian](/usc/15/57b–1.md?p=a-4), having the qualifications prescribed in paragraph (1) of this subsection, has been designated and has accepted such trusteeship or custodianship; and - (4) provides, in substance, (A) that a record will be kept by the depositor or an agent of the depositor of the name and address of, and the shares issued by the trust and held by, every holder of any [security](/usc/15/80a–2.md?p=a-36) issued pursuant to such instrument, insofar as such information is known to the depositor or agent; and (B) that whenever a [security](/usc/15/80a–2.md?p=a-36) is deposited with the trustee in substitution for any [security](/usc/15/80a–2.md?p=a-36) in which such [security](/usc/15/80a–2.md?p=a-36) holder has an undivided interest, the depositor or the agent of the depositor will, within five days after such substitution, either deliver or mail to such [security](/usc/15/80a–2.md?p=a-36) holder a notice of substitution, including an identification of the [securities](/usc/15/80a–2.md?p=a-36) eliminated and the [securities](/usc/15/80a–2.md?p=a-36) substituted, and a specification of the shares of such [security](/usc/15/80a–2.md?p=a-36) holder affected by the substitution. - (b) **Bank or affiliated person of bank as trustee or custodian—** The [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), adopt rules and regulations, and issue [orders](/usc/15/8702.md?p=14), consistent with the protection of investors, prescribing the conditions under which a bank, or an affiliated [person](/usc/15/80a–2.md?p=a-28) of a bank, either of which is an affiliated [person](/usc/15/80a–2.md?p=a-28) of a principal underwriter for, or depositor of, a registered [unit investment trust](/usc/15/80a–4.md?p=2), may serve as trustee or [custodian](/usc/15/57b–1.md?p=a-4) under [subsection (a)(1)](#a-1). - (c) **Substitution of securities—** It shall be unlawful for any depositor or trustee of a registered [unit investment trust](/usc/15/80a–4.md?p=2) holding the [security](/usc/15/80a–2.md?p=a-36) of a single [issuer](/usc/15/80a–2.md?p=a-22) to substitute another [security](/usc/15/80a–2.md?p=a-36) for such [security](/usc/15/80a–2.md?p=a-36) unless the [Commission](/usc/15/80a–2.md?p=a-7) shall have approved such substitution. The [Commission](/usc/15/80a–2.md?p=a-7) shall issue an [order](/usc/15/8702.md?p=14) approving such substitution if the evidence establishes that it is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter. - (d) **Binding contract or agreement embodying applicable provisions deemed to qualify non-complying instrument by which securities were issued—** In the event that a trust indenture, [agreement](/usc/15/7a.md?p=2) of custodianship, or other instrument pursuant to which [securities](/usc/15/80a–2.md?p=a-36) of a registered [unit investment trust](/usc/15/80a–4.md?p=2) are issued does not comply with the requirements of [subsection (a)](#a), such instrument will be deemed to meet such requirements if a written contract or [agreement](/usc/15/7a.md?p=2) binding on the parties and embodying such requirements has been executed by the depositor on the one part and the trustee or [custodian](/usc/15/57b–1.md?p=a-4) on the other part, and three copies of such contract or [agreement](/usc/15/7a.md?p=2) have been filed with the [Commission](/usc/15/80a–2.md?p=a-7). - (e) **Liquidation of unit investment trust—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7) has reason to believe that a [unit investment trust](/usc/15/80a–4.md?p=2) is inactive and that its liquidation is in the interest of the [security](/usc/15/80a–2.md?p=a-36) holders of such trust, the [Commission](/usc/15/80a–2.md?p=a-7) may file a complaint seeking the liquidation of such trust in the district court of the United States in any district wherein any trustee of such trust resides or has its principal place of business. A copy of such complaint shall be served on every trustee of such trust, and notice of the proceeding shall be given such other interested [persons](/usc/15/80a–2.md?p=a-28) in such manner and at such times as the court may direct. If the court determines that such liquidation is in the interest of the [security](/usc/15/80a–2.md?p=a-36) holders of such trust, the court shall [order](/usc/15/8702.md?p=14) such liquidation and, after payment of necessary expenses, the distribution of the proceeds to the [security](/usc/15/80a–2.md?p=a-36) holders of the trust in such manner and on such terms as may to the court appear equitable. - (f) **Exemption—** - (1) **In general—** [Subsection (a)](#a) does not apply to any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or to the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) and principal underwriter of such [account](/usc/15/1681a.md?p=r-4). - (2) **Limitation on sales—** It shall be unlawful for any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or for the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) of such [account](/usc/15/1681a.md?p=r-4), to sell any such contract— - (A) unless the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the [insurance company](/usc/15/80a–2.md?p=a-17), and, beginning on the earlier of August 1, 1997, or the earliest effective date of any [registration statement](/usc/15/77b.md?p=a-8) or amendment thereto for such contract following October 11, 1996, the [insurance company](/usc/15/80a–2.md?p=a-17) so represents in the [registration statement](/usc/15/77b.md?p=a-8) for the contract; and - (B) unless the [insurance company](/usc/15/80a–2.md?p=a-17)— - (i) complies with all other applicable provisions of this section, as if it were a trustee or [custodian](/usc/15/57b–1.md?p=a-4) of the registered [separate account](/usc/15/80a–2.md?p=a-37); - (ii) files with the insurance regulatory [authority](/usc/15/3051.md?p=1) of the [State](/usc/15/80a–2.md?p=a-39) which is the domiciliary [State](/usc/15/80a–2.md?p=a-39) of the [insurance company](/usc/15/80a–2.md?p=a-17), an annual statement of its financial condition, which most recent statement indicates that the [insurance company](/usc/15/80a–2.md?p=a-17) has a combined capital and surplus, if a stock [company](/usc/15/80a–2.md?p=a-8), or an unassigned surplus, if a mutual [company](/usc/15/80a–2.md?p=a-8), of not less than $1,000,000, or such other amount as the [Commission](/usc/15/80a–2.md?p=a-7) may from time to time prescribe by rule, as necessary or appropriate in the public interest or for the protection of investors; and - (iii) together with its registered [separate accounts](/usc/15/80a–2.md?p=a-37), is supervised and examined periodically by the insurance [authority](/usc/15/3051.md?p=1) of such [State](/usc/15/80a–2.md?p=a-39). - (3) **Fees and charges—** For purposes of [paragraph (2)](#f-2), the fees and charges deducted under the contract shall include all fees and charges imposed for any purpose and in any manner. - (4) **Regulatory authority—** The [Commission](/usc/15/80a–2.md?p=a-7) may issue such rules and regulations to carry out [paragraph (2)(A)](#f-2-A) as it determines are necessary or appropriate in the public interest or for the protection of investors. # §80a–27. Periodic payment plans - (a) **Sale of certificates; restrictions—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate, if— - (1) the [sales load](/usc/15/80a–2.md?p=a-35) on such certificate exceeds 9 per centum of the total payments to be made thereon; - (2) more than one-half of any of the first twelve monthly payments thereon, or their equivalent, is deducted for [sales load](/usc/15/80a–2.md?p=a-35); - (3) the amount of [sales load](/usc/15/80a–2.md?p=a-35) deducted from any one of such first payments exceeds proportionately the amount deducted from any other such payment, or the amount deducted from any subsequent payment exceeds proportionately the amount deducted from any other subsequent payment; - (4) the first payment on such certificate is less than $20, or any subsequent payment is less than $10; - (5) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [management company](/usc/15/80a–4.md?p=3), the proceeds of such certificate or the [securities](/usc/15/80a–2.md?p=a-36) in which such proceeds are invested are subject to management fees (other than fees for administrative services of the character described in clause (C), [paragraph (2)](#a-2), of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a)) exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, whether such fees are payable to such [company](/usc/15/80a–2.md?p=a-8) or to [investment advisers](/usc/15/6102.md?p=d-2-B-ii) thereof; or - (6) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [unit investment trust](/usc/15/80a–4.md?p=2) the assets of which are [securities](/usc/15/80a–2.md?p=a-36) issued by a [management company](/usc/15/80a–4.md?p=3), the depositor of or principal underwriter for such trust, or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such depositor or underwriter, is to receive from such [management company](/usc/15/80a–4.md?p=3) or any affiliated [person](/usc/15/80a–2.md?p=a-28) thereof any fee or payment on [account](/usc/15/1681a.md?p=r-4) of payments on such certificate exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (b) **Exemptions—** If it appears to the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8) or otherwise, that smaller [companies](/usc/15/80a–2.md?p=a-8) are subjected to relatively higher operating costs and that in [order](/usc/15/8702.md?p=14) to make due allowance therefor it is necessary or appropriate in the public interest and consistent with the protection of investors that a provision or provisions of paragraph [(1)](#a-1), [(2)](#a-2), or [(3)](#a-3) of subsection (a) relative to [sales load](/usc/15/80a–2.md?p=a-35) be relaxed in the case of certain registered [investment companies](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or certain specified classes of such [companies](/usc/15/80a–2.md?p=a-8), the [Commission](/usc/15/80a–2.md?p=a-7) is authorized by rules and regulations or [order](/usc/15/8702.md?p=14) to grant any such [company](/usc/15/80a–2.md?p=a-8) or class of [companies](/usc/15/80a–2.md?p=a-8) appropriate qualified exemptions from the provisions of said paragraphs. - (c) **Sale of certificates; requirements—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate, unless— - (1) such certificate is a [redeemable security](/usc/15/80a–2.md?p=a-32); and - (2) the proceeds of all payments on such certificate (except such amounts as are deducted for [sales load](/usc/15/80a–2.md?p=a-35)) are deposited with a trustee or [custodian](/usc/15/57b–1.md?p=a-4) having the qualifications prescribed in paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trustees of [unit investment trusts](/usc/15/80a–4.md?p=2), and are held by such trustee or [custodian](/usc/15/57b–1.md?p=a-4) under an indenture or [agreement](/usc/15/7a.md?p=2) containing, in substance, the provisions required by paragraphs (2) and (3) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for the trust indentures of [unit investment trusts](/usc/15/80a–4.md?p=2). - (d) **Surrender of certificates; regulations—** Notwithstanding [subsection (a)](#a) of this section, it shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate unless the certificate provide that the holder thereof may surrender the certificate at any time within the first eighteen months after the issuance of the certificate and receive in payment thereof, in cash, the sum of (1) the value of his [account](/usc/15/1681a.md?p=r-4), and (2) an amount, from such underwriter or depositor, equal to that part of the excess paid for sales loading which is over 15 per centum of the gross payments made by the certificate holder. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules and regulations applicable to such underwriters and depositors specifying such reserve requirements as it deems necessary or appropriate in [order](/usc/15/8702.md?p=14) for such underwriters and depositors to carry out the obligations to refund sales charges required by this subsection. - (e) **Refund privileges; notice; rules—** With respect to any periodic payment plan certificate sold subject to the provisions of [subsection (d)](#d) of this section, the registered [investment company](/usc/15/77z–2.md?p=i-2) issuing such periodic payment plan certificate, or any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), shall in writing (1) inform each certificate holder who has missed three payments or more, within thirty days following the expiration of fifteen months after the issuance of the certificate, or, if any such holder has missed one payment or more after such period of fifteen months but prior to the expiration of eighteen months after the issuance of the certificate, at any time prior to the expiration of such eighteen-month period, of his right to surrender his certificate as specified in [subsection (d)](#d) of this section, and (2) inform the certificate holder of (A) the value of the holder’s [account](/usc/15/1681a.md?p=r-4) as of the time the written notice was given to such holder, and (B) the amount to which he is entitled as specified in [subsection (d)](#d) of this section. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules specifying the method, form, and contents of the notice required by this subsection. - (f) **Charges, statement; rules; surrender of certificates; regulations—** With respect to any periodic payment plan (other than a plan under which the amount of [sales load](/usc/15/80a–2.md?p=a-35) deducted from any payment thereon does not exceed 9 per centum of such payment), the [custodian](/usc/15/57b–1.md?p=a-4) bank for such plan shall mail to each certificate holder, within sixty days after the issuance of the certificate, a statement of charges to be deducted from the projected payments on the certificate and a notice of his right of withdrawal as specified in this section. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules specifying the method, form, and contents of the notice required by this subsection. The certificate holder may within forty-five days of the mailing of the notice specified in this subsection surrender his certificate and receive in payment thereof, in cash, the sum of (1) the value of his [account](/usc/15/1681a.md?p=r-4), and (2) an amount, from the underwriter or depositor, equal to the difference between the gross payments made and the net amount invested. The [Commission](/usc/15/80a–2.md?p=a-7) may make rules and regulations applicable to underwriters and depositors of [companies](/usc/15/80a–2.md?p=a-8) issuing any such certificate specifying such reserve requirements as it deems necessary or appropriate in [order](/usc/15/8702.md?p=14) for such underwriters and depositors to carry out the obligations to refund sales charges required by this subsection. - (g) **Governing provisions; election—** Notwithstanding the provisions of subsections [(a)](#a) and [(d)](#d), a registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates may elect, by written notice to the [Commission](/usc/15/80a–2.md?p=a-7), to be governed by the provisions of [subsection (h)](#h) rather than the provisions of subsections [(a)](#a) and [(d)](#d) of this section. - (h) **Sale of certificates; restrictions—** Upon making the election specified in [subsection (g)](#g), it shall be unlawful for any such electing registered [investment company](/usc/15/77z–2.md?p=i-2) issuing periodic payment plan certificates, or for any depositor of or underwriter for such [company](/usc/15/80a–2.md?p=a-8), to sell any such certificate, if— - (1) the [sales load](/usc/15/80a–2.md?p=a-35) on such certificate exceeds 9 per centum of the total payments to be made thereon; - (2) more than 20 per centum of any payment thereon is deducted for [sales load](/usc/15/80a–2.md?p=a-35), or an average of more than 16 per centum is deducted for [sales load](/usc/15/80a–2.md?p=a-35) from the first forty-eight monthly payments thereon, or their equivalent; - (3) the amount of [sales load](/usc/15/80a–2.md?p=a-35) deducted from any one of the first twelve monthly payments, the thirteenth through twenty-fourth monthly payments, the twenty-fifth through thirty-sixth monthly payments, or the thirty-seventh through forty-eighth monthly payments, or their equivalents, respectively, exceeds proportionately the amount deducted from any other such payment, or the amount deducted from any subsequent payment exceeds proportionately the amount deducted from any other subsequent payment; - (4) the deduction for [sales load](/usc/15/80a–2.md?p=a-35) on the excess of the payment or payments in any month over the minimum monthly payment, or its equivalent, to be made on the certificate exceeds the [sales load](/usc/15/80a–2.md?p=a-35) applicable to payments subsequent to the first forty-eight monthly payments or their equivalent; - (5) the first payment on such certificate is less than $20, or any subsequent payment is less than $10; - (6) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [management company](/usc/15/80a–4.md?p=3), the proceeds of such certificate or the [securities](/usc/15/80a–2.md?p=a-36) in which such proceeds are invested are subject to management fees (other than fees for administrative services of the character described in clause (C) of paragraph (2) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a)) exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, whether such fees are payable to such [company](/usc/15/80a–2.md?p=a-8) or to [investment advisers](/usc/15/6102.md?p=d-2-B-ii) thereof; or - (7) if such registered [company](/usc/15/80a–2.md?p=a-8) is a [unit investment trust](/usc/15/80a–4.md?p=2) the assets of which are [securities](/usc/15/80a–2.md?p=a-36) issued by a [management company](/usc/15/80a–4.md?p=3), the depositor of or principal underwriter for such trust, or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such depositor or underwriter, is to receive from such [management company](/usc/15/80a–4.md?p=3) or any affiliated [person](/usc/15/80a–2.md?p=a-28) thereof any fee or payment on [account](/usc/15/1681a.md?p=r-4) of payments on such certificate exceeding such reasonable amount as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (i) **Applicability to registered separate account funding variable insurance contracts—** - (1) This section does not apply to any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or to the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) and principal underwriter of such [account](/usc/15/1681a.md?p=r-4), except as provided in [paragraph (2)](#i-2). - (2) It shall be unlawful for any registered [separate account](/usc/15/80a–2.md?p=a-37) funding variable insurance contracts, or for the sponsoring [insurance company](/usc/15/80a–2.md?p=a-17) of such [account](/usc/15/1681a.md?p=r-4), to sell any such contract unless— - (A) such contract is a [redeemable security](/usc/15/80a–2.md?p=a-32); and - (B) the [insurance company](/usc/15/80a–2.md?p=a-17) complies with [section 80a–26(f) of this title](/usc/15/80a–26.md?p=f) and any rules or regulations issued by the [Commission](/usc/15/80a–2.md?p=a-7) under [section 80a–26(f) of this title](/usc/15/80a–26.md?p=f). - (j) **Termination of sales—** - (1) **Termination—** Effective 30 days after September 29, 2006, it shall be unlawful, subject to [subsection (i)](#i)— - (A) for any registered [investment company](/usc/15/77z–2.md?p=i-2) to issue any periodic payment plan certificate; or - (B) for such [company](/usc/15/80a–2.md?p=a-8), or any depositor of or underwriter for any such [company](/usc/15/80a–2.md?p=a-8), or any other [person](/usc/15/80a–2.md?p=a-28), to sell such a certificate. - (2) **No invalidation of existing certificates—** [Paragraph (1)](#j-1) shall not be construed to alter, invalidate, or otherwise affect any rights or obligations, including rights of redemption, under any periodic payment plan certificate issued and sold before 30 days after September 29, 2006. # §80a–28. Face-amount certificate companies - (a) **Issuance or sale of certificates—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, unless— - (1) such [company](/usc/15/80a–2.md?p=a-8), if organized before March 15, 1940, was actively and continuously engaged in selling [face-amount certificates](/usc/15/80a–2.md?p=a-15) on and before that date, and has outstanding capital stock worth upon a fair valuation of assets not less than $50,000; or if organized on or after March 15, 1940, has capital stock in an amount not less than $250,000 which has been bona fide subscribed and paid for in cash; and - (2) such [company](/usc/15/80a–2.md?p=a-8) maintains at all times minimum certificate reserves on all its outstanding [face-amount certificates](/usc/15/80a–2.md?p=a-15) in an aggregate amount calculated and adjusted as follows: - (A) the reserves for each certificate of the installment type shall be based on assumed annual, semi-annual, quarterly, or monthly reserve payments according to the manner in which gross payments for any [certificate year](#d) are made by the holder, which reserve payments shall be sufficient in amount, as and when accumulated at a rate not to exceed 3½ per centum per annum compounded annually, to provide the minimum maturity or face amount of the certificate when due. Such reserve payments may be graduated according to [certificate years](#d) so that the reserve payment or payments for the first [certificate year](#d) shall amount to at least 50 per centum of the required gross annual payment for such year and the reserve payment or payments for each of the second to fifth [certificate years](#d) inclusive shall amount to at least 93 per centum of each such year’s required gross annual payment and for the sixth and each subsequent [certificate year](#d) the reserve payment or payments shall amount to at least 96 per centum of each such year’s required gross annual payment: Provided, That such aggregate reserve payments shall amount to at least 93 per centum of the aggregate gross annual payments required to be made by the holder to obtain the maturity of the certificate. The [company](/usc/15/80a–2.md?p=a-8) may at its option take as loading from the gross payment or payments for a [certificate year](#d), as and when made by the certificate holder, an amount or amounts equal in the aggregate for such year to not more than the excess, if any, of the gross payment or payments required to be made by the holder for such year, over and above the percentage of the gross annual payment required herein for such year for reserve purposes. Such loading may be taken by the [company](/usc/15/80a–2.md?p=a-8) prior to or after the setting up of the reserve payment or payments for such year and the reserve payment or payments for such year may be graduated and adjusted to correspond with the amount of the gross payment or payments made by the certificate holder for such year less the loading so taken; - (B) if the foregoing minimum percentages of the gross annual payments required under the provisions of such certificate should produce reserve payments larger than are necessary at 3½ per centum per annum compounded annually to provide the minimum maturity or face amount of the certificate when due, the reserve shall be based upon reserve payments accumulated as provided under preceding subparagraph (A) of this paragraph except that in lieu of the 3½ per centum rate specified therein, such rate shall be lowered to the minimum rate, expressed in multiples of one-eighth of 1 per centum, which will accumulate such reserve payments to the maturity value when due; - (C) if the actual annual gross payment to be made by the certificate holder on any certificate issued prior to or after the effective date of this chapter is less than the amount of any assumed reserve payment or payments for a [certificate year](#d), such [company](/usc/15/80a–2.md?p=a-8) shall maintain as a part of such minimum certificate reserves a deficiency reserve equal to the total present value of future deficiencies in the gross payments, calculated at a rate not to exceed 3½ per centum per annum compounded annually; - (D) for each certificate of the installment type the amount of the reserve shall at any time be at least equal to (1) the then amount of the reserve payments set up under subparagraphs (A) or (B) of this paragraph; (2) the accumulations on such reserve payments as computed under subparagraphs (A) or (B) of this paragraph; (3) the amount of any deficiency reserve required under subparagraph (C) of this paragraph; and (4) such amount as shall have been credited to the [account](/usc/15/1681a.md?p=r-4) of each certificate holder in the form of any [credit](/usc/15/1679a.md?p=4), or any dividend, or any interest in addition to the minimum maturity amount specified in such certificate, plus any accumulations on any amount or amounts so credited, at a rate not exceeding 3½ per centum per annum compounded annually; - (E) for each certificate which is fully paid, including any fully paid obligations resulting from or effected upon the maturity of the previously issued certificate, and for each paid-up certificate issued as provided in [subsection (f)](#f) of this section prior to maturity, the amount of the reserve shall at any time be at least equal to (1) such amount as and when accumulated at a rate not to exceed 3½ per centum per annum compounded annually, will provide the amount or amounts payable when due and (2) such amount as shall have been credited to the [account](/usc/15/1681a.md?p=r-4) of each such certificate holder in the form of any [credit](/usc/15/1679a.md?p=4), or any dividend, or any interest in addition to the minimum maturity amount specified in the certificate, plus any accumulations on any amount or amounts so credited, at a rate not exceeding 3½ per centum per annum compounded annually; - (F) for each certificate of the installment type under which gross payments have been made by or credited to the holder thereof covering a payment period or periods or any part thereof beyond the then current payment period as defined by the terms of such certificate, and for which period or periods no reserve has been set up under subparagraph (A) or (B) of this paragraph, an advance payment reserve shall be set up and maintained in the amount of the present value of any such unapplied advance gross payments, computed at a rate not to exceed 3½ per centum per annum compounded annually; - (G) such appropriate contingency reserves for death and disability benefits and for reinstatement rights on any such certificate providing for such benefits or rights as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe by rule, regulation, or [order](/usc/15/8702.md?p=14) based upon the experience of face-amount [companies](/usc/15/80a–2.md?p=a-8) in relation to such contingencies. At no time shall the aggregate certificate reserves herein required by [subparagraphs (A) to (F)](#a-A..a-F) of this paragraph, be less than the aggregate surrender values and other amounts to which all certificate holders may be then entitled. For the purpose of this subsection, no certificate of the installment type shall be deemed to be outstanding if before a surrender value has been attained the holder thereof has been in continuous [default](#f) in making his payments thereon for a period of one year. - (b) **Asset requirements prior to sale of certificates—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, unless such [company](/usc/15/80a–2.md?p=a-8) has, in cash or qualified investments, assets having a value not less than the aggregate amount of the capital stock requirement and certificate reserves as computed under the provisions of [subsection (a)](#a) hereof. As used in this subsection, “qualified investments” means investments of a kind which life-[insurance companies](/usc/15/80a–2.md?p=a-17) are permitted to invest in or hold under the provisions of the Code of the District of Columbia as heretofore or hereafter amended, and such other investments as the [Commission](/usc/15/80a–2.md?p=a-7) shall by rule, regulation, or [order](/usc/15/8702.md?p=14) authorize as qualified investments. Such investments shall be valued in accordance with the provisions of said Code where such provisions are applicable. Investments to which such provisions do not apply shall be valued in accordance with such rules, regulations, or [orders](/usc/15/8702.md?p=14) as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe for the protection of investors. - (c) **Certificate reserve requirements—** The [Commission](/usc/15/80a–2.md?p=a-7) shall by rule, regulation, or [order](/usc/15/8702.md?p=14), in the public interest or for the protection of investors, require a registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to deposit and maintain, upon such terms and conditions as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe and as are appropriate for the protection of investors, with one or more institutions having the qualifications required by paragraph (1) of [section 80a–26(a) of this title](/usc/15/80a–26.md?p=a) for a trustee of a [unit investment trust](/usc/15/80a–4.md?p=2), all or any part of the investments maintained by such [company](/usc/15/80a–2.md?p=a-8) as certificate reserve requirements under the provisions of [subsection (b)](#b) hereof: Provided, however, That where qualified investments are maintained on deposit by such [company](/usc/15/80a–2.md?p=a-8) in respect of its liabilities under certificates issued to or held by residents of any [State](/usc/15/80a–2.md?p=a-39) as required by the statute of such [State](/usc/15/80a–2.md?p=a-39) or by any [order](/usc/15/8702.md?p=14), regulation, or requirement of such [State](/usc/15/80a–2.md?p=a-39) or any official or agency thereof, the amount so on deposit, but not to exceed the amount of reserves required by [subsection (a)](#a) hereof for the certificates so issued or held, shall be deducted from the amount of qualified investments that may be required to be deposited hereunder. Assets which are qualified investments under [subsection (b)](#b) and which are deposited under or as permitted by this subsection, may be used and shall be considered as a part of the assets required to be maintained under the provisions of said [subsection (b)](#b). - (d) **Provisions required in certificate—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, unless such certificate contains a provision or provisions to the effect— - (1) that, in respect of any certificate of the installment type, during the first [certificate year](#d) the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the reserve payments as specified in subparagraph (A) or (B) of paragraph (2) of [subsection (a)](#a) and at the end of such [certificate year](#d), a value payable in cash at least equal to 50 per centum of the amount of the gross annual payment required thereby for such year; - (2) that, in respect of any certificate of the installment type, at any time after the expiration of the first [certificate year](#d) and prior to maturity, the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the then amount of the reserve for such certificate required by numbered items (1) and (2) of subparagraph (D) of [paragraph (2)](#a-2) of subsection (a) hereof, less a surrender charge that shall not exceed 2 per centum of the face or maturity amount of the certificate, or 15 per centum of the amount of such reserve, whichever is the lesser, but in no event shall such value be less than 50 per centum of the amount of such reserve. The amount of the surrender value for the end of each [certificate year](#d) shall be set out in the certificate; - (3) that, in respect of any certificate of the installment type, the holder of the certificate, upon surrender thereof for cash or upon receipt of a paid-up certificate as provided in [subsection (f)](#f) hereof, shall be entitled to a value payable in cash equal to the then amount of any advance payment reserve under such certificate required by subparagraph (F) of paragraph (2) of [subsection (a)](#a) hereof in addition to any other amounts due the holder hereunder; - (4) that at any time prior to maturity, in respect of any certificate which is fully paid, the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the then amount of the reserve for such certificate required by item (1) of subparagraph (E) of [paragraph (2)](#a-2) of subsection (a) hereof, less a surrender charge that shall not exceed 2 per centum of the face or maturity amount of the certificate, or 15 per centum of the amount of such reserve, whichever is the lesser: Provided, however, That such surrender charge shall not apply as to any obligations of a fully paid type resulting from the maturity of a previously issued certificate. The amount of the surrender value for the end of each [certificate year](#d) shall be set out in the certificate; - (5) that in respect of any certificate, the holder of the certificate, upon maturity, upon surrender thereof for cash or upon receipt of a paid-up certificate as provided in [subsection (f)](#f) hereof, shall be entitled to a value payable in cash equal to the then amount of the reserve, if any, for such certificate required by item (4) of subparagraph (D) of [paragraph (2)](#a-2) of subsection (a) hereof or item (2) of subparagraph (E) of [paragraph (2)](#d-2) of said [subsection (a)](#a) in addition to any other amounts due the holder hereunder. The term “certificate year” as used in this section in respect of any certificate of the installment type means a period or periods for which one year’s payment or payments as provided by the certificate have been made thereon by the holder and the certificate maintained in force by such payments for the time for which the same have been made, and in respect of any certificate which is fully paid or paid-up means any year ending on the anniversary of the date of issuance of the certificate. Any certificate may provide for loans or advances by the [company](/usc/15/80a–2.md?p=a-8) to the certificate holder on the [security](/usc/15/80a–2.md?p=a-36) of such certificate upon terms prescribed therein but at an interest rate not exceeding 6 per centum per annum. The amount of the required reserves, deposits, and the surrender values thereof available to the holder may be adjusted to take into [account](/usc/15/1681a.md?p=r-4) any unpaid balance on such loans or advances and interest thereon, for the purposes of this subsection and subsections [(b)](#b) and [(c)](#c) hereof. Any certificate may provide that the [company](/usc/15/80a–2.md?p=a-8) at its option may, prior to the maturity thereof, defer any payment or payments to the certificate holder to which he may be entitled under this subsection, for a period of not more than thirty days: Provided, That in the event such option is exercised by the [company](/usc/15/80a–2.md?p=a-8), interest shall accrue on any payment or payments due to the holder, for the period of such deferment at a rate equal to that used in accumulating the reserves for such certificate: And provided further, That the [Commission](/usc/15/80a–2.md?p=a-7) may, by rules and regulations or [orders](/usc/15/8702.md?p=14) in the public interest or for the protection of investors, make provision for any other deferment upon such terms and conditions as it shall prescribe. - (e) **Liability of holder to legal action for unpaid amount of certificate—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, which certificate makes the holder liable to any legal action or proceeding for any unpaid amount on such certificate. - (f) **Optional right to paid up certificate in lieu of cash surrender value—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to issue or sell any [face-amount certificate](/usc/15/80a–2.md?p=a-15), or to collect or accept any payment on any such certificate issued by such [company](/usc/15/80a–2.md?p=a-8) on or after the effective date of this subchapter, (1) unless such [face-amount certificate](/usc/15/80a–2.md?p=a-15) contains a provision or provisions to the effect that the holder shall have an optional right to receive a paid-up certificate in lieu of the then attained cash surrender value provided therein and in the amount of such value plus accumulations thereon at a rate to be specified in the paid-up certificate equal to that used in computing the reserve on the original certificate under subparagraph (A) or (B) of paragraph (2) of [subsection (a)](#a) of this section, such paid-up certificate to become due and payable at the end of a period equal to the balance of the term of such original certificate before maturity; and during the period prior to maturity such paid-up certificate shall have a cash value upon surrender thereof equal to the then amount of the reserve therefor; and (2) unless such [face-amount certificate](/usc/15/80a–2.md?p=a-15) contains a further provision or provisions to the effect that if the holder be in continuous default in his payments on such certificate for a period of six months without having exercised his option to receive a paid-up certificate, as herein provided, the [company](/usc/15/80a–2.md?p=a-8) at the expiration of such six months shall pay the surrender value in cash if such value is less than $100 or if such value is $100 or more shall issue such paid-up certificate to such holder and such payment or issuance, plus the payment of all other amounts to which he may be then entitled under the original certificate, shall operate to cancel his original certificate: Provided, That in lieu of the issuance of a new paid-up certificate the original certificate may be converted into a paid-up certificate with the same effect; and (3) unless, where such certificate provides, in the event of default, for the deferment of payments thereon by the holder or of the due dates of such payments or of the maturity date of the certificate, it shall also provide in effect for the right of reinstatement by the holder of the certificate after default and for an option in the holder, at the time of reinstatement, to make up the payment or payments for the default period next preceding such reinstatement with interest thereon not exceeding 6 per centum per annum, with the same effect as if no such default in making such payments had occurred. The term “default” as used in this subsection shall, without restricting its usual meaning, include a failure to make a payment or payments as and when provided by the certificate. - (g) **Application of section to company issuing certificates only to holders of previously issued certificates—** The foregoing provisions of this section shall not apply to a [face-amount certificate company](/usc/15/80a–4.md?p=1) which on or before the effective date of this chapter has discontinued the offering of [face-amount certificates](/usc/15/80a–2.md?p=a-15) to the public and issues [face-amount certificates](/usc/15/80a–2.md?p=a-15) only to the holders of certificates previously issued pursuant to an obligation expressed or implied in such certificates. - (h) **Declaration or payment of dividends—** It shall be unlawful for any registered [face-amount certificate company](/usc/15/80a–4.md?p=1) which does not maintain the minimum certificate reserve on all its outstanding [face-amount certificates](/usc/15/80a–2.md?p=a-15) issued prior to the effective date of this chapter, in an aggregate amount calculated and adjusted as provided in this section to declare or pay any dividends on the shares of such [company](/usc/15/80a–2.md?p=a-8) for or during any calendar year which shall exceed one-third of the net earnings for the next preceding calendar year or which shall exceed 10 per centum of the aggregate net earnings for the next preceding five calendar years, whichever is the lesser amount, or any dividend which shall have been forbidden by the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to the provision of the next sentence of this paragraph. At least thirty days before such [company](/usc/15/80a–2.md?p=a-8) shall declare, pay, or distribute any dividend, it shall give the [Commission](/usc/15/80a–2.md?p=a-7) written notice of its intention to declare, pay, or distribute the same; and if at any time it shall appear to the [Commission](/usc/15/80a–2.md?p=a-7) that the declaration, payment or distribution of any dividend for or during any calendar year might impair the financial integrity of such [company](/usc/15/80a–2.md?p=a-8) or its ability to meet its liabilities under its outstanding [face-amount certificates](/usc/15/80a–2.md?p=a-15), it may by [order](/usc/15/8702.md?p=14) forbid the declaration, distribution, or payment of any such dividend. - (i) **Application of section to certificates issued prior to effective date of section—** The foregoing provisions of this section shall apply to all [face-amount certificates](/usc/15/80a–2.md?p=a-15) issued prior to the effective date of this subsection; to the collection or acceptance of any payment on such certificates; to the issuance of [face-amount certificates](/usc/15/80a–2.md?p=a-15) to the holders of such certificates pursuant to an obligation expressed or implied in such certificates; to the provisions of such certificates; to the minimum certificate reserves and deposits maintained with respect thereto; and to the assets that the [issuer](/usc/15/80a–2.md?p=a-22) of such certificate was and is required to have with respect to such certificates. With respect to all [face-amount certificates](/usc/15/80a–2.md?p=a-15) issued after the effective date of this subsection, the provisions of this section shall apply except as hereinafter provided. - (1) Notwithstanding subparagraph (A) of paragraph (2) of [subsection (a)](#a), the reserves for each certificate of the installment type shall be based on assumed annual, semiannual, quarterly, or monthly reserve payments according to the manner in which gross payments for any [certificate year](#d) are made by the holder, which reserve payments shall be sufficient in amount, as and when accumulated at a rate not to exceed 3½ per centum per annum compounded annually, to provide the minimum maturity or face amount of the certificate when due. Such reserve payments may be graduated according to [certificate years](#d) so that the reserve payment or payments for the first three [certificate years](#d) shall amount to at least 80 per centum of the required gross annual payment for such years; the reserve payment or payments for the fourth [certificate year](#d) shall amount to at least 90 per centum of such year’s required gross annual payment; the reserve payment or payments for the fifth [certificate year](#d) shall amount to at least 93 per centum of such year’s gross annual payment; and for the sixth and each subsequent [certificate year](#d) the reserve payment or payments shall amount to at least 96 per centum of each such year’s required gross annual payment: Provided, That such aggregate reserve payments shall amount to at least 93 per centum of the aggregate gross annual payments required to be made by the holder to obtain the maturity of the certificate. The [company](/usc/15/80a–2.md?p=a-8) may at its option take as loading from the gross payment or payments for a [certificate year](#d), as and when made by the certificate holder, an amount or amounts equal in the aggregate for such year to not more than the excess, if any, of the gross payment or payments required to be made by the holder for such year, over and above the percentage of the gross annual payment required herein for such year for reserve purposes. Such loading may be taken by the [company](/usc/15/80a–2.md?p=a-8) prior to or after the setting up of the reserve payment or payments for such year and the reserve payment or payments for such year may be graduated and adjusted to correspond with the amount of the gross payment or payments made by the certificate holder for such year less the loading so taken. - (2) Notwithstanding paragraphs [(1)](#d-1) and [(2)](#d-2) of subsection (d), (A) in respect of any certificate of the installment type, during the first [certificate year](#d), the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than 80 per centum of the amount of the gross payments made on the certificate; and (B) in respect of any certificate of the installment type, at any time after the expiration of the first [certificate year](#d) and prior to maturity, the holder of the certificate, upon surrender thereof, shall be entitled to a value payable in cash not less than the then amount of the reserve for such certificate required by clauses (1) and (2) of subparagraph (D) of [paragraph (2)](#a-2) of subsection (a), less a surrender charge that shall not exceed 2 per centum of the face or maturity amount of the certificate, or 15 per centum of the amount of such reserve, whichever is the lesser, but in no event shall such value be less than 80 per centum of the gross payments made on the certificate. The amount of the surrender value for the end of each [certificate year](#d) shall be set out in the certificate. # §80a–29. Reports and financial statements of investment companies and affiliated persons - (a) **Annual report by company—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall file annually with the [Commission](/usc/15/80a–2.md?p=a-7) such information, documents, and reports as [investment companies](/usc/15/77z–2.md?p=i-2) having [securities](/usc/15/80a–2.md?p=a-36) registered on a [national securities exchange](/usc/15/80a–2.md?p=a-26) are required to file annually pursuant to section 13(a) of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78m(a)](/usc/15/78m.md?p=a)] and the rules and regulations issued thereunder. - (b) **Semi-annual or quarterly filing of information; copies of periodic or interim reports sent to security holders—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall file with the [Commission](/usc/15/80a–2.md?p=a-7)— - (1) such information, documents, and reports (other than financial statements), as the [Commission](/usc/15/80a–2.md?p=a-7) may require to keep reasonably current the information and documents contained in the [registration statement](/usc/15/77b.md?p=a-8) of such [company](/usc/15/80a–2.md?p=a-8) filed under this subchapter; and - (2) copies of every periodic or interim report or similar communication containing financial statements and transmitted to any class of such [company](/usc/15/80a–2.md?p=a-8)’s [security](/usc/15/80a–2.md?p=a-36) holders, such copies to be filed not later than ten days after such transmission. Any information or documents contained in a report or other communication to [security](/usc/15/80a–2.md?p=a-36) holders filed pursuant to paragraph (2) of this subsection may be incorporated by reference in any report subsequently or concurrently filed pursuant to paragraph (1) of this subsection. - (c) **Minimizing reporting burdens—** - (1) The [Commission](/usc/15/80a–2.md?p=a-7) shall take such action as it deems necessary or appropriate, consistent with the public interest and the protection of investors, to avoid unnecessary reporting by, and minimize the compliance burdens on, registered [investment companies](/usc/15/77z–2.md?p=i-2) and their affiliated [persons](/usc/15/80a–2.md?p=a-28) in exercising its [authority](/usc/15/3051.md?p=1)— - (A) under [subsection (f)](#f); and - (B) under [subsection (b)(1)](#b-1), if the [Commission](/usc/15/80a–2.md?p=a-7) requires the filing of information, documents, and reports under that subsection on a basis more frequently than semiannually. - (2) Action taken by the [Commission](/usc/15/80a–2.md?p=a-7) under [paragraph (1)](#c-1) shall include considering, and requesting public comment on— - (A) feasible alternatives that minimize the reporting burdens on registered [investment companies](/usc/15/77z–2.md?p=i-2); and - (B) the utility of such information, documents, and reports to the [Commission](/usc/15/80a–2.md?p=a-7) in relation to the costs to registered [investment companies](/usc/15/77z–2.md?p=i-2) and their affiliated [persons](/usc/15/80a–2.md?p=a-28) of providing such information, documents, and reports. - (d) **Reports under this section in lieu of reports under other provisions of law—** The [Commission](/usc/15/80a–2.md?p=a-7) shall issue rules and regulations permitting the filing with the [Commission](/usc/15/80a–2.md?p=a-7), and with any [national securities exchange](/usc/15/80a–2.md?p=a-26) concerned, of copies of periodic reports, or of extracts therefrom, filed by any registered [investment company](/usc/15/77z–2.md?p=i-2) pursuant to subsections [(a)](#a) and [(b)](#b), in lieu of any reports and documents required of such [company](/usc/15/80a–2.md?p=a-8) under section 13 or 15(d) of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78m](/usc/15/78m.md) or 78o(d)]. - (e) **Semiannual reports to stockholders—** Every registered [investment company](/usc/15/77z–2.md?p=i-2) shall transmit to its stockholders, at least semiannually, reports containing such of the following information and financial statements or their equivalent, as of a reasonably current date, as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rules and regulations for the protection of investors, which reports shall not be misleading in any material respect in the light of the reports required to be filed pursuant to subsections [(a)](#a) and [(b)](#b): - (1) a balance sheet accompanied by a statement of the aggregate value of investments on the date of such balance sheet; - (2) a list showing the amounts and values of [securities](/usc/15/80a–2.md?p=a-36) owned on the date of such balance sheet; - (3) a statement of income, for the period covered by the report, which shall be itemized at least with respect to each category of income and expense representing more than 5 per centum of total income or expense; - (4) a statement of surplus, which shall be itemized at least with respect to each charge or [credit](/usc/15/1679a.md?p=4) to the surplus [account](/usc/15/1681a.md?p=r-4) which represents more than 5 per centum of the total charges or [credits](/usc/15/1679a.md?p=4) during the period covered by the report; - (5) a statement of the aggregate remuneration paid by the [company](/usc/15/80a–2.md?p=a-8) during the period covered by the report (A) to all [directors](/usc/15/80a–2.md?p=a-12) and to all members of any [advisory board](/usc/15/80a–2.md?p=a-1) for regular compensation; (B) to each [director](/usc/15/80a–2.md?p=a-12) and to each member of an [advisory board](/usc/15/80a–2.md?p=a-1) for special compensation; (C) to all officers; and (D) to each [person](/usc/15/80a–2.md?p=a-28) of whom any officer or [director](/usc/15/80a–2.md?p=a-12) of the [company](/usc/15/80a–2.md?p=a-8) is an affiliated [person](/usc/15/80a–2.md?p=a-28); and - (6) a statement of the aggregate dollar amounts of [purchases](/usc/15/78c–5.md?p=g) and sales of investment [securities](/usc/15/80a–2.md?p=a-36), other than [Government securities](/usc/15/80a–2.md?p=a-16), made during the period covered by the report: - (f) **Additional information—** The [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, require that semiannual reports containing the information set forth in [subsection (e)](#e) include such other information as the [Commission](/usc/15/80a–2.md?p=a-7) deems necessary or appropriate in the public interest or for the protection of investors. - (g) **Certificate of independent public accountants—** Financial statements contained in annual reports required pursuant to subsections [(a)](#a) and [(e)](#e), if required by the rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7), shall be accompanied by a certificate of independent public accountants. The certificate of such independent public accountants shall be based upon an [audit](/usc/15/7201.md?p=2) not less in scope or procedures followed than that which independent public accountants would ordinarily make for the purpose of presenting comprehensive and dependable financial statements, and shall contain such information as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, by rules and regulations in the public interest or for the protection of investors, as to the nature and scope of the [audit](/usc/15/7201.md?p=2) and the findings and opinion of the accountants. Each such report shall [state](/usc/15/80a–2.md?p=a-39) that such independent public accountants have verified [securities](/usc/15/80a–2.md?p=a-36) owned, either by actual examination, or by receipt of a certificate from the [custodian](/usc/15/57b–1.md?p=a-4), as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe by rules and regulations. - (h) **Duties and liabilities of affiliated persons—** Every [person](/usc/15/80a–2.md?p=a-28) who is directly or indirectly the beneficial owner of more than 10 per centum of any class of outstanding [securities](/usc/15/80a–2.md?p=a-36) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) of which a registered [closed-end company](/usc/15/80a–5.md?p=a-2) is the [issuer](/usc/15/80a–2.md?p=a-22) or who is an officer, [director](/usc/15/80a–2.md?p=a-12), member of an [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), or affiliated [person](/usc/15/80a–2.md?p=a-28) of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such a [company](/usc/15/80a–2.md?p=a-8) shall in respect of his transactions in any [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) (other than [short-term paper](/usc/15/80a–2.md?p=a-38)) be subject to the same duties and liabilities as those imposed by section 16 of the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78p](/usc/15/78p.md)] upon certain beneficial owners, [directors](/usc/15/80a–2.md?p=a-12), and officers in respect of their transactions in certain [equity securities](/usc/15/9041.md?p=6). - (i) **Disclosure to church plan participants—** A [person](/usc/15/80a–2.md?p=a-28) that maintains a church plan that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) solely by reason of [section 80a–3(c)(14) of this title](/usc/15/80a–3.md?p=c-14) shall provide disclosure to plan participants, in writing, and not less frequently than annually, and for new participants joining such a plan after May 31, 1996, as soon as is practicable after joining such plan, that— - (1) the plan, or any [company](/usc/15/80a–2.md?p=a-8) or [account](/usc/15/1681a.md?p=r-4) maintained to manage or hold plan assets and interests in such plan, [company](/usc/15/80a–2.md?p=a-8), or [account](/usc/15/1681a.md?p=r-4), are not subject to registration, regulation, or reporting under this subchapter, the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or [State](/usc/15/80a–2.md?p=a-39) [securities laws](/usc/15/77z–2.md?p=i-5); and - (2) plan participants and beneficiaries therefore will not be afforded the protections of those provisions. - (j) **Notice to Commission—** The [Commission](/usc/15/80a–2.md?p=a-7) may issue rules and regulations to require any [person](/usc/15/80a–2.md?p=a-28) that maintains a church plan that is excluded from the definition of an [investment company](/usc/15/77z–2.md?p=i-2) solely by reason of [section 80a–3(c)(14) of this title](/usc/15/80a–3.md?p=c-14) to file a notice with the [Commission](/usc/15/80a–2.md?p=a-7) containing such information and in such form as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or consistent with the protection of investors. - (k) **Data standards for reports—** - (1) **Requirement—** The [Commission](/usc/15/80a–2.md?p=a-7) shall, by rule, adopt data standards for all reports required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this section, except that the [Commission](/usc/15/80a–2.md?p=a-7) may exempt exhibits, signatures, and certifications from those data standards. - (2) **Consistency—** The data standards required under [paragraph (1)](#k-1) shall incorporate, and ensure compatibility with (to the extent feasible), all applicable data standards established in the rules promulgated under [section 5334 of title 12](/usc/12/5334.md), including, to the extent practicable, by having the characteristics described in [clauses (i) through (vi)](#c-1-B-i..c-1-B-vi) of subsection (c)(1)(B) of such [section 5334](/usc/12/5334.md). # §80a–30. Accounts and records - (a) **Maintenance of records—** - (1) **In general—** Each registered [investment company](/usc/15/77z–2.md?p=i-2), and each underwriter, [broker](/usc/15/80a–2.md?p=a-6), [dealer](/usc/15/80a–2.md?p=a-11), or [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is a majority-owned subsidiary of such a [company](/usc/15/80a–2.md?p=a-8), shall maintain and preserve such records (as defined in [section 78c(a)(37) of this title](/usc/15/78c.md?p=a-37)) for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations, may prescribe as necessary or appropriate in the public interest or for the protection of investors. Each [investment adviser](/usc/15/6102.md?p=d-2-B-ii) that is not a majority-owned subsidiary of, and each depositor of any registered [investment company](/usc/15/77z–2.md?p=i-2), and each principal underwriter for any registered [investment company](/usc/15/77z–2.md?p=i-2) other than a [closed-end company](/usc/15/80a–5.md?p=a-2), shall maintain and preserve for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe by rules and regulations, such records as are necessary or appropriate to record such [person](/usc/15/80a–2.md?p=a-28)’s transactions with such registered [company](/usc/15/80a–2.md?p=a-8). Each [person](/usc/15/80a–2.md?p=a-28) having custody or use of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of a registered [investment company](/usc/15/77z–2.md?p=i-2) shall maintain and preserve all records that relate to the custody or use by such [person](/usc/15/80a–2.md?p=a-28) of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of the registered [investment company](/usc/15/77z–2.md?p=i-2) for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7), by rule or regulation, may prescribe, as necessary or appropriate in the public interest or for the protection of investors. - (2) **Minimizing compliance burden—** In exercising its [authority](/usc/15/3051.md?p=1) under this subsection, the [Commission](/usc/15/80a–2.md?p=a-7) shall take such steps as it deems necessary or appropriate, consistent with the public interest and for the protection of investors, to avoid unnecessary recordkeeping by, and minimize the compliance burden on, [persons](/usc/15/80a–2.md?p=a-28) required to maintain records under this subsection (hereafter in this section referred to as “subject [persons](/usc/15/80a–2.md?p=a-28)”). Such steps shall include considering, and requesting public comment on— - (A) feasible alternatives that minimize the recordkeeping burdens on subject [persons](/usc/15/80a–2.md?p=a-28); - (B) the necessity of such records in view of the public benefits derived from the independent scrutiny of such records through [Commission](/usc/15/80a–2.md?p=a-7) examination; - (C) the costs associated with maintaining the information that would be required to be reflected in such records; and - (D) the effects that a proposed recordkeeping requirement would have on internal compliance policies and procedures. - (b) **Examinations of records—** - (1) **In general—** All records required to be maintained and preserved in accordance with [subsection (a)](#a) shall be subject at any time and from time to time to such reasonable periodic, special, and other examinations by the [Commission](/usc/15/80a–2.md?p=a-7), or any member or representative thereof, as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe. - (2) **Availability—** For purposes of examinations referred to in [paragraph (1)](#b-1), any subject [person](/usc/15/80a–2.md?p=a-28) shall make available to the [Commission](/usc/15/80a–2.md?p=a-7) or its representatives any copies or extracts from such records as may be prepared without undue effort, expense, or delay as the [Commission](/usc/15/80a–2.md?p=a-7) or its representatives may reasonably request. - (3) **Commission action—** The [Commission](/usc/15/80a–2.md?p=a-7) shall exercise its [authority](/usc/15/3051.md?p=1) under this subsection with due regard for the benefits of internal compliance policies and procedures and the effective implementation and operation thereof. - (4) **Records of persons with custody or use—** - (A) **In general—** Records of [persons](/usc/15/80a–2.md?p=a-28) having custody or use of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of a registered [investment company](/usc/15/77z–2.md?p=i-2) that relate to such custody or use, are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations and other information and document requests by representatives of the [Commission](/usc/15/80a–2.md?p=a-7), as the [Commission](/usc/15/80a–2.md?p=a-7) deems necessary or appropriate in the public interest or for the protection of investors. - (B) **Certain persons subject to other regulation—** Any [person](/usc/15/80a–2.md?p=a-28) that is subject to regulation and examination by a Federal [financial institution](/usc/15/1681s–2.md?p=a-7-G-ii) regulatory agency (as such term is defined under [section 212(c)(2) of title 18](/usc/18/212.md?p=c-2)) may satisfy any examination request, information request, or document request described under [subparagraph (A)](#b-4-A), by providing to the [Commission](/usc/15/80a–2.md?p=a-7) a detailed listing, in writing, of the [securities](/usc/15/80a–2.md?p=a-36), deposits, or [credits](/usc/15/1679a.md?p=4) of the registered [investment company](/usc/15/77z–2.md?p=i-2) within the custody or use of such [person](/usc/15/80a–2.md?p=a-28). - (c) **Regulatory authority—** The [Commission](/usc/15/80a–2.md?p=a-7) may, in the public interest or for the protection of investors, issue rules and regulations providing for a reasonable degree of uniformity in the accounting policies and principles to be followed by registered [investment companies](/usc/15/77z–2.md?p=i-2) in maintaining their accounting records and in preparing financial statements required pursuant to this subchapter. - (d) **Exemption authority—** The [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8) made by any registered [investment company](/usc/15/77z–2.md?p=i-2), may by [order](/usc/15/8702.md?p=14) exempt a specific transaction or transactions from the provisions of any rule or regulation made pursuant to subsection (e), if the [Commission](/usc/15/80a–2.md?p=a-7) finds that such rule or regulation should not reasonably be applied to such transaction. # §80a–31. Accountants and auditors - (a) **Selection of accountant—** It shall be unlawful for any registered [management company](/usc/15/80a–4.md?p=3) or registered [face-amount certificate company](/usc/15/80a–4.md?p=1) to file with the [Commission](/usc/15/80a–2.md?p=a-7) any financial statement signed or certified by an independent public accountant, unless— - (1) such accountant shall have been selected at a meeting held within thirty days before or after the beginning of the fiscal year or before the annual meeting of stockholders in that year by the vote, cast in [person](/usc/15/80a–2.md?p=a-28), of a majority of those members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such registered [company](/usc/15/80a–2.md?p=a-8); - (2) such selection shall have been submitted for ratification or rejection at the next succeeding annual meeting of stockholders if such meeting be held, except that any vacancy occurring between annual meetings, due to the death or resignation of the accountant, may be filled by the vote of a majority of those members of the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such registered [company](/usc/15/80a–2.md?p=a-8), cast in [person](/usc/15/80a–2.md?p=a-28) at a meeting called for the purpose of voting on such action; - (3) the employment of such accountant shall have been conditioned upon the right of the [company](/usc/15/80a–2.md?p=a-8) by vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) at any meeting called for the purpose to terminate such employment forthwith without any penalty; and - (4) such certificate or report of such accountant shall be addressed both to the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such registered [company](/usc/15/80a–2.md?p=a-8) and to the [security](/usc/15/80a–2.md?p=a-36) holders thereof. If the selection of an accountant has been rejected pursuant to [paragraph (2)](#a-2) or his employment terminated pursuant to [paragraph (3)](#a-3), the vacancy so occurring may be filled by a vote of a majority of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42), either at the meeting at which the rejection or termination occurred or, if not so filled, at a subsequent meeting which shall be called for the purpose. In the case of a common-law trust of the character described in [section 80a–16(c) of this title](/usc/15/80a–16.md), no ratification of the employment of such accountant shall be required but such employment may be terminated and such accountant removed by action of the holders of record of a majority of the outstanding shares of beneficial interest in such trust in the same manner as is provided in [section 80a–16(c) of this title](/usc/15/80a–16.md) in respect of the removal of a trustee, and all the provisions therein contained as to the calling of a meeting shall be applicable. In the event of such termination and removal, the vacancy so occurring may be filled by action of the holders of record of a majority of the shares of beneficial interest either at the meeting, if any, at which such termination and removal occurs, or by instruments in writing filed with the [custodian](/usc/15/57b–1.md?p=a-4), or if not so filed within a reasonable time then at a subsequent meeting which shall be called by the trustees for the purpose. The provisions of paragraph (42) of [section 80a–2(a) of this title](/usc/15/80a–2.md?p=a) as to a majority shall be applicable to the vote cast at any meeting of the shareholders of such a trust held pursuant to this subsection. - (b) **Selection of controller or other principal accounting officer—** No registered [management company](/usc/15/80a–4.md?p=3) or registered [face-amount certificate company](/usc/15/80a–4.md?p=1) shall file with the [Commission](/usc/15/80a–2.md?p=a-7) any financial statement in the preparation of which the controller or other principal accounting officer or employee of such [company](/usc/15/80a–2.md?p=a-8) participated, unless such controller, officer or employee was selected, either by vote of the holders of such [company](/usc/15/80a–2.md?p=a-8)’s [voting securities](/usc/15/80a–2.md?p=a-42) at the last annual meeting of such [security](/usc/15/80a–2.md?p=a-36) holders, or by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8). - (c) **Reports of accountants and auditors—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, by rules and regulations or [order](/usc/15/8702.md?p=14) in the public interest or for the protection of investors, to require accountants and auditors to keep reports, work sheets, and other documents and papers relating to registered [investment companies](/usc/15/77z–2.md?p=i-2) for such period or periods as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, and to make the same available for inspection by the [Commission](/usc/15/80a–2.md?p=a-7) or any member or representative thereof. # §80a–32. Filing of documents with Commission in civil actions Every registered [investment company](/usc/15/77z–2.md?p=i-2) which is a party and every affiliated [person](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8) who is a party defendant to any action or claim by a registered [investment company](/usc/15/77z–2.md?p=i-2) or a [security](/usc/15/80a–2.md?p=a-36) holder thereof in a derivative or representative capacity against an officer, [director](/usc/15/80a–2.md?p=a-12), [investment adviser](/usc/15/6102.md?p=d-2-B-ii), trustee, or depositor of such [company](/usc/15/80a–2.md?p=a-8), shall file with the [Commission](/usc/15/80a–2.md?p=a-7), unless already so filed, (1) a copy of all pleadings, verdicts, or judgments filed with the court or served in connection with such action or claim, (2) a copy of any proposed settlement, compromise, or discontinuance of such action, and (3) a copy of such motions, transcripts, or other documents filed in or issued by the court or served in connection with such action or claim as may be requested in writing by the [Commission](/usc/15/80a–2.md?p=a-7). If any document referred to in clause (1) or (2)— - (A) is delivered to such [company](/usc/15/80a–2.md?p=a-8) or party defendant, such document shall be filed with the [Commission](/usc/15/80a–2.md?p=a-7) not later than ten days after the receipt thereof; or - (B) is filed in such court or delivered by such [company](/usc/15/80a–2.md?p=a-8) or party defendant, such documents shall be filed with the [Commission](/usc/15/80a–2.md?p=a-7) not later than five days after such filing or delivery. # §80a–33. Destruction and falsification of reports and records - (a) **Willful destruction—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), except as permitted by rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), willfully to destroy, mutilate, or alter any [account](/usc/15/1681a.md?p=r-4), book, or other document the preservation of which has been required pursuant to section [80a–30(a)](/usc/15/80a–30.md?p=a) or [80a–31(c)](/usc/15/80a–31.md?p=c) of this title. - (b) **Untrue statements or omissions—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) to make any untrue statement of a material fact in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), report, [account](/usc/15/1681a.md?p=r-4), record, or other document filed or transmitted pursuant to this subchapter or the keeping of which is required pursuant to [section 80a–30 (a)](/usc/15/80a–30.md?p=a) of this title. It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) so filing, transmitting, or keeping any such document to omit to [state](/usc/15/80a–2.md?p=a-39) therein any fact necessary in [order](/usc/15/8702.md?p=14) to prevent the statements made therein, in the light of the circumstances under which they were made, from being materially misleading. For the purposes of this subsection, any part of any such document which is signed or certified by an accountant or auditor in his capacity as such shall be deemed to be made, filed, transmitted, or kept by such accountant or auditor, as well as by the [person](/usc/15/80a–2.md?p=a-28) filing, transmitting, or keeping the complete document. # §80a–34. Unlawful representations and names - (a) **Misrepresentation of guarantees—** - (1) **In general—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), issuing or selling any [security](/usc/15/80a–2.md?p=a-36) of which a registered [investment company](/usc/15/77z–2.md?p=i-2) is the [issuer](/usc/15/80a–2.md?p=a-22), to represent or imply in any manner whatsoever that such [security](/usc/15/80a–2.md?p=a-36) or [company](/usc/15/80a–2.md?p=a-8)— - (A) has been guaranteed, sponsored, recommended, or approved by the United States, or any agency, instrumentality or officer of the United States; - (B) has been insured by the Federal Deposit Insurance Corporation; or - (C) is guaranteed by or is otherwise an obligation of any bank or [insured depository institution](#a-3). - (2) **Disclosures—** Any [person](/usc/15/80a–2.md?p=a-28) issuing or selling the [securities](/usc/15/80a–2.md?p=a-36) of a registered [investment company](/usc/15/77z–2.md?p=i-2) that is advised by, or sold through, a bank shall prominently disclose that an investment in the [company](/usc/15/80a–2.md?p=a-8) is not insured by the Federal Deposit Insurance Corporation or any other government agency. The [Commission](/usc/15/80a–2.md?p=a-7) may, after consultation with and taking into consideration the views of the Federal banking agencies (as defined in [section 1813 of title 12](/usc/12/1813.md)), adopt rules and regulations, and issue [orders](/usc/15/8702.md?p=14), consistent with the protection of investors, prescribing the manner in which the disclosure under this paragraph shall be provided. - (3) **Definitions—** The terms “insured depository institution” and “appropriate Federal banking agency” have the same meanings as given in [section 1813 of title 12](/usc/12/1813.md). - (b) **Unlawful representation of sponsorship by United States or agency thereof—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) registered under any section of this subchapter, to represent or imply in any manner whatsoever that such [person](/usc/15/80a–2.md?p=a-28) has been sponsored, recommended, or approved, or that his abilities or qualifications have in any respect been passed upon by the United States or any agency or officer thereof. - (c) **Statement of registration under securities provisions—** No provision of subsection [(a)](#a) or [(b)](#b) shall be construed to prohibit a statement that a [person](/usc/15/80a–2.md?p=a-28) or [security](/usc/15/80a–2.md?p=a-36) is registered under this chapter, the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], or the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], if such statement is true in fact and if the effect of such registration is not misrepresented. - (d) **Deceptive or misleading names—** It shall be unlawful for any registered [investment company](/usc/15/77z–2.md?p=i-2) to adopt as a part of the name or title of such [company](/usc/15/80a–2.md?p=a-8), or of any [securities](/usc/15/80a–2.md?p=a-36) of which it is the [issuer](/usc/15/80a–2.md?p=a-22), any word or words that the [Commission](/usc/15/80a–2.md?p=a-7) finds are materially deceptive or misleading. The [Commission](/usc/15/80a–2.md?p=a-7) is authorized, by rule, regulation, or [order](/usc/15/8702.md?p=14), to define such names or titles as are materially deceptive or misleading. # §80a–35. Breach of fiduciary duty - (a) **Civil actions by Commission; jurisdiction; allegations; injunctive or other relief—** The [Commission](/usc/15/80a–2.md?p=a-7) is authorized to bring an action in the proper district court of the United States, or in the United States court of any territory or other place subject to the jurisdiction of the United States, alleging that a [person](/usc/15/80a–2.md?p=a-28) who is, or at the time of the alleged misconduct was, serving or acting in one or more of the following capacities has engaged within five years of the commencement of the action or is about to engage in any act or practice constituting a breach of fiduciary duty involving personal misconduct in respect of any registered [investment company](/usc/15/77z–2.md?p=i-2) for which such [person](/usc/15/80a–2.md?p=a-28) so serves or acts, or at the time of the alleged misconduct, so served or acted— - (1) as officer, [director](/usc/15/80a–2.md?p=a-12), member of any [advisory board](/usc/15/80a–2.md?p=a-1), [investment adviser](#c), or depositor; or - (2) as principal underwriter, if such registered [company](/usc/15/80a–2.md?p=a-8) is an [open-end company](/usc/15/80a–5.md?p=a-1), [unit investment trust](/usc/15/80a–4.md?p=2), or [face-amount certificate company](/usc/15/80a–4.md?p=1). If such allegations are established, the court may enjoin such [persons](/usc/15/80a–2.md?p=a-28) from acting in any or all such capacities either permanently or temporarily and award such injunctive or other relief against such [person](/usc/15/80a–2.md?p=a-28) as may be reasonable and appropriate in the circumstances, having due regard to the protection of investors and to the effectuation of the policies declared in [section 80a–1(b) of this title](/usc/15/80a–1.md?p=b). - (b) **Compensation or payments as basis of fiduciary duty; civil actions by Commission or security holder; burden of proof; judicial consideration of director or shareholder approval; persons liable; extent of liability; exempted transactions; jurisdiction; finding restriction—** For the purposes of this subsection, the [investment adviser](#c) of a registered [investment company](/usc/15/77z–2.md?p=i-2) shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered [investment company](/usc/15/77z–2.md?p=i-2) or by the [security](/usc/15/80a–2.md?p=a-36) holders thereof, to such [investment adviser](#c) or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](#c). An action may be brought under this subsection by the [Commission](/usc/15/80a–2.md?p=a-7), or by a [security](/usc/15/80a–2.md?p=a-36) holder of such registered [investment company](/usc/15/77z–2.md?p=i-2) on behalf of such [company](/usc/15/80a–2.md?p=a-8), against such [investment adviser](#c), or any affiliated [person](/usc/15/80a–2.md?p=a-28) of such [investment adviser](#c), or any other [person](/usc/15/80a–2.md?p=a-28) enumerated in [subsection (a)](#a) of this section who has a fiduciary duty concerning such compensation or payments, for breach of fiduciary duty in respect of such compensation or payments paid by such registered [investment company](/usc/15/77z–2.md?p=i-2) or by the [security](/usc/15/80a–2.md?p=a-36) holders thereof to such [investment adviser](#c) or [person](/usc/15/80a–2.md?p=a-28). With respect to any such action the following provisions shall apply: - (1) It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty. - (2) In any such action approval by the [board](/usc/15/205c.md?p=1) of [directors](/usc/15/80a–2.md?p=a-12) of such [investment company](/usc/15/77z–2.md?p=i-2) of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, and ratification or approval of such compensation or payments, or of contracts or other arrangements providing for such compensation or payments, by the shareholders of such [investment company](/usc/15/77z–2.md?p=i-2), shall be given such consideration by the court as is deemed appropriate under all the circumstances. - (3) No such action shall be brought or maintained against any [person](/usc/15/80a–2.md?p=a-28) other than the recipient of such compensation or payments, and no damages or other relief shall be granted against any [person](/usc/15/80a–2.md?p=a-28) other than the recipient of such compensation or payments. No award of damages shall be recoverable for any period prior to one year before the action was instituted. Any award of damages against such recipient shall be limited to the actual damages resulting from the breach of fiduciary duty and shall in no event exceed the amount of compensation or payment received from such [investment company](/usc/15/77z–2.md?p=i-2), or the [security](/usc/15/80a–2.md?p=a-36) holders thereof, by such recipient. - (4) This subsection shall not apply to compensation or payments made in connection with transactions subject to [section 80a–17 of this title](/usc/15/80a–17.md), or rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, or to [sales loads](/usc/15/80a–2.md?p=a-35) for the acquisition of any [security](/usc/15/80a–2.md?p=a-36) issued by a registered [investment company](/usc/15/77z–2.md?p=i-2). - (5) Any action pursuant to this subsection may be brought only in an appropriate district court of the United States. - (6) No finding by a court with respect to a breach of fiduciary duty under this subsection shall be made a basis (A) for a finding of a [violation](/usc/15/57b–1.md?p=a-7) of this subchapter for the purposes of sections [80a–9](/usc/15/80a–9.md) and [80a–48](/usc/15/80a–48.md) of this title, [section 78o](/usc/15/78o.md) of this title, or [section 80b–3 of this title](/usc/15/80b–3.md), or (B) for an injunction to prohibit any [person](/usc/15/80a–2.md?p=a-28) from serving in any of the capacities enumerated in [subsection (a)](#a) of this section. - (c) **Corporate or other trustees performing functions of investment advisers—** For the purposes of subsections [(a)](#a) and [(b)](#b) of this section, the term “[investment adviser](/usc/15/6102.md?p=d-2-B-ii)” includes a corporate or other trustee performing the functions of an [investment adviser](/usc/15/6102.md?p=d-2-B-ii). # §80a–36. Larceny and embezzlement Whoever steals, unlawfully abstracts, unlawfully and willfully converts to his own use or to the use of another, or embezzles any of the moneys, funds, [securities](/usc/15/80a–2.md?p=a-36), [credits](/usc/15/1679a.md?p=4), property, or assets of any registered [investment company](/usc/15/77z–2.md?p=i-2) shall be deemed guilty of a crime, and upon conviction thereof shall be subject to the penalties provided in [section 80a–48 of this title](/usc/15/80a–48.md). A judgment of conviction or acquittal on the merits under the laws of any [State](/usc/15/80a–2.md?p=a-39) shall be a bar to any prosecution under this section for the same act or acts. # §80a–37. Rules, regulations, and orders - (a) **Powers of Commission—** The [Commission](/usc/15/80a–2.md?p=a-7) shall have [authority](/usc/15/3051.md?p=1) from time to time to make, issue, amend, and rescind such rules and regulations and such [orders](/usc/15/8702.md?p=14) as are necessary or appropriate to the exercise of the powers conferred upon the [Commission](/usc/15/80a–2.md?p=a-7) elsewhere in this subchapter, including rules and regulations defining accounting, technical, and trade terms used in this subchapter, and prescribing the form or forms in which information required in [registration statements](/usc/15/77b.md?p=a-8), [applications](/usc/15/77ccc.md?p=8), and reports to the [Commission](/usc/15/80a–2.md?p=a-7) shall be set forth. For the purposes of its rules or regulations the [Commission](/usc/15/80a–2.md?p=a-7) may classify [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), and other matters within its jurisdiction and prescribe different requirements for different classes of [persons](/usc/15/80a–2.md?p=a-28), [securities](/usc/15/80a–2.md?p=a-36), or matters. - (b) **Filing of information and documents—** The [Commission](/usc/15/80a–2.md?p=a-7), by such rules and regulations or [order](/usc/15/8702.md?p=14) as it deems necessary or appropriate in the public interest or for the protection of investors, may authorize the filing of any information or documents required to be filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter, subchapter II of this chapter, the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], or the Trust Indenture Act of 1939 [[15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.], by incorporating by reference any information or documents theretofore or concurrently filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter or any of such Acts. - (c) **Good faith conformance with rules, regulations, and orders—** No provision of this subchapter imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), notwithstanding that such rule, regulation, or [order](/usc/15/8702.md?p=14) may, after such act or omission, by amended or rescinded or be determined by judicial or other [authority](/usc/15/3051.md?p=1) to be invalid for any reason. # §80a–38. Procedure for issuance of rules and regulations Subject to the provisions of [chapter 15](/usc/44/ch15.md) of title 44 and regulations prescribed under the [authority](/usc/15/3051.md?p=1) thereof, the rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter, and amendments thereof, shall be effective upon publication in the manner which the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe, or upon such later date as may be provided in such rules and regulations. # §80a–39. Procedure for issuance of orders - (a) **Notice and hearing—** [Orders](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter shall be issued only after appropriate notice and opportunity for hearing. Notice to the parties to a proceeding before the [Commission](/usc/15/80a–2.md?p=a-7) shall be given by personal service upon each party or by registered mail or certified mail or confirmed telegraphic notice to the party’s last known business address. Notice to interested [persons](/usc/15/80a–2.md?p=a-28), if any, other than parties may be given in the same manner or by publication in the Federal Register. - (b) **Application verified under oath admissible as evidence—** The [Commission](/usc/15/80a–2.md?p=a-7) may provide, by appropriate rules or regulations, that an [application](/usc/15/77ccc.md?p=8) verified under oath may be admissible in evidence in a proceeding before the [Commission](/usc/15/80a–2.md?p=a-7) and that the record in such a proceeding may consist, in whole or in part, of such [application](/usc/15/77ccc.md?p=8). - (c) **Parties—** In any proceeding before the [Commission](/usc/15/80a–2.md?p=a-7), the [Commission](/usc/15/80a–2.md?p=a-7), in accordance with such rules and regulations as it may prescribe, shall admit as a party any interested [State](/usc/15/80a–2.md?p=a-39) or [State](/usc/15/80a–2.md?p=a-39) agency, and may admit as a party any representative of interested [security](/usc/15/80a–2.md?p=a-36) holders, or any other [person](/usc/15/80a–2.md?p=a-28) whose participation in the proceeding may be in the public interest or for the protection of investors. # §80a–40. Hearings by Commission Hearings may be public and may be held before the [Commission](/usc/15/80a–2.md?p=a-7), any member or members thereof, or any officer or officers of the [Commission](/usc/15/80a–2.md?p=a-7) designated by it, and appropriate records thereof shall be kept. # §80a–41. Enforcement of subchapter - (a) **Investigation—** The [Commission](/usc/15/80a–2.md?p=a-7) may make such investigations as it deems necessary to determine whether any [person](/usc/15/80a–2.md?p=a-28) has violated or is about to violate any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, or to determine whether any action in any court or any proceeding before the [Commission](/usc/15/80a–2.md?p=a-7) shall be instituted under this subchapter against a particular [person](/usc/15/80a–2.md?p=a-28) or [persons](/usc/15/80a–2.md?p=a-28), or with respect to a particular transaction or transactions. The [Commission](/usc/15/80a–2.md?p=a-7) shall permit any [person](/usc/15/80a–2.md?p=a-28) to file with it a statement in writing, under oath or otherwise as the [Commission](/usc/15/80a–2.md?p=a-7) shall determine, as to all the facts and circumstances concerning the matter to be investigated. - (b) **Administration of oaths and affirmations, subpena of witnesses, etc.** For the purpose of any investigation or any other proceeding under this subchapter, any member of the [Commission](/usc/15/80a–2.md?p=a-7), or any officer thereof designated by it, is empowered to administer oaths and affirmations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records which are relevant or material to the inquiry. Such attendance of witnesses and the production of any such records may be required from any place in any [State](/usc/15/80a–2.md?p=a-39) or in any Territory or other place subject to the jurisdiction of the United States at any designated place of hearing. - (c) **Jurisdiction of courts of United States—** In case of contumacy by, or refusal to obey a subpena issued to, any [person](/usc/15/80a–2.md?p=a-28), the [Commission](/usc/15/80a–2.md?p=a-7) may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such [person](/usc/15/80a–2.md?p=a-28) resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), and other records. And such court may issue an [order](/usc/15/8702.md?p=14) requiring such [person](/usc/15/80a–2.md?p=a-28) to appear before the [Commission](/usc/15/80a–2.md?p=a-7) or member or officer designated by the [Commission](/usc/15/80a–2.md?p=a-7), there to produce records, if so ordered, or to give testimony touching the matter under investigation or in question; any failure to obey such [order](/usc/15/8702.md?p=14) of the court may be punished by such court as a contempt thereof. All process in any such case may be served in the judicial district whereof such [person](/usc/15/80a–2.md?p=a-28) is an inhabitant or wherever he may be found. Any [person](/usc/15/80a–2.md?p=a-28) who without just cause shall fail or refuse to attend and testify or to answer any lawful inquiry or to produce books, papers, correspondence, memoranda, contracts, [agreements](/usc/15/7a.md?p=2), or other records, if in his or its power so to do, in obedience to the subpena of the [Commission](/usc/15/80a–2.md?p=a-7), shall be guilty of a misdemeanor, and upon conviction shall be subject to a fine of not more than $1,000 or to imprisonment for a term of not more than one year, or both. - (d) **Action for injunction—** Whenever it shall appear to the [Commission](/usc/15/80a–2.md?p=a-7) that any [person](/usc/15/80a–2.md?p=a-28) has engaged or is about to engage in any act or practice constituting a [violation](/usc/15/57b–1.md?p=a-7) of any provision of this subchapter, or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, it may in its discretion bring an action in the proper district court of the United States, or the proper United States court of any Territory or other place subject to the jurisdiction of the United States, to enjoin such acts or practices and to enforce compliance with this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder. Upon a showing that such [person](/usc/15/80a–2.md?p=a-28) has engaged or is about to engage in any such act or practice, a permanent or temporary injunction or decree or restraining [order](/usc/15/8702.md?p=14) shall be granted without bond. In any proceeding under this subsection to enforce compliance with [section 80a–7 of this title](/usc/15/80a–7.md), the court as a court of equity may, to the extent it deems necessary or appropriate, take exclusive jurisdiction and possession of the [investment company](/usc/15/77z–2.md?p=i-2) or [companies](/usc/15/80a–2.md?p=a-8) involved and the books, records, and assets thereof, wherever located; and the court shall have jurisdiction to appoint a trustee, who with the approval of the court shall have power to dispose of any or all of such assets, subject to such terms and conditions as the court may prescribe. The [Commission](/usc/15/80a–2.md?p=a-7) may transmit such evidence as may be available concerning any [violation](/usc/15/57b–1.md?p=a-7) of the provisions of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, to the Attorney General, who, in his discretion, may [institute](/usc/15/9401.md?p=7) the appropriate criminal proceedings under this subchapter. - (e) **Money penalties in civil actions—** - (1) **Authority of Commission—** Whenever it shall appear to the [Commission](/usc/15/80a–2.md?p=a-7) that any [person](/usc/15/80a–2.md?p=a-28) has violated any provision of this subchapter, the rules or regulations thereunder, or a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to [section 80a–9(f) of this title](/usc/15/80a–9.md?p=f), the [Commission](/usc/15/80a–2.md?p=a-7) may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, upon a proper showing, a civil penalty to be paid by the [person](/usc/15/80a–2.md?p=a-28) who committed such [violation](/usc/15/57b–1.md?p=a-7). - (2) **Amount of penalty—** - (A) **First tier—** The amount of the penalty shall be determined by the court in light of the facts and circumstances. For each [violation](/usc/15/57b–1.md?p=a-7), the amount of the penalty shall not exceed the greater of (i) $5,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $50,000 for any other [person](/usc/15/80a–2.md?p=a-28), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7). - (B) **Second tier—** Notwithstanding [subparagraph (A)](#e-2-A), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $50,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $250,000 for any other [person](/usc/15/80a–2.md?p=a-28), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#e-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. - (C) **Third tier—** Notwithstanding subparagraphs [(A)](#e-2-A) and [(B)](#e-2-B), the amount of penalty for each such [violation](/usc/15/57b–1.md?p=a-7) shall not exceed the greater of (i) $100,000 for a natural [person](/usc/15/80a–2.md?p=a-28) or $500,000 for any other [person](/usc/15/80a–2.md?p=a-28), or (ii) the gross amount of pecuniary gain to such defendant as a result of the [violation](/usc/15/57b–1.md?p=a-7), if— - (I) the [violation](/usc/15/57b–1.md?p=a-7) described in [paragraph (1)](#e-1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and - (II) such [violation](/usc/15/57b–1.md?p=a-7) directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other [persons](/usc/15/80a–2.md?p=a-28). - (3) **Procedures for collection—** - (A) **Payment of penalty to Treasury—** A penalty imposed under this section shall be payable into the Treasury of the United States, except as otherwise provided in [section 7246 of this title](/usc/15/7246.md) and [section 78u–6 of this title](/usc/15/78u–6.md). - (B) **Collection of penalties—** If a [person](/usc/15/80a–2.md?p=a-28) upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s [order](/usc/15/8702.md?p=14), the [Commission](/usc/15/80a–2.md?p=a-7) may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court. - (C) **Remedy not exclusive—** The actions authorized by this subsection may be brought in addition to any other action that the [Commission](/usc/15/80a–2.md?p=a-7) or the Attorney General is entitled to bring. - (D) **Jurisdiction and venue—** For purposes of [section 80a–43 of this title](/usc/15/80a–43.md), actions under this paragraph shall be actions to enforce a liability or a duty created by this subchapter. - (4) **Special provisions relating to a violation of a cease-and-desist order—** In an action to enforce a cease-and-desist [order](/usc/15/8702.md?p=14) entered by the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to [section 80a–9(f) of this title](/usc/15/80a–9.md?p=f), each separate [violation](/usc/15/57b–1.md?p=a-7) of such [order](/usc/15/8702.md?p=14) shall be a separate offense, except that in the case of a [violation](/usc/15/57b–1.md?p=a-7) through a continuing failure to comply with the [order](/usc/15/8702.md?p=14), each day of the failure to comply shall be deemed a separate offense. # §80a–42. Court review of orders - (a) Any [person](/usc/15/80a–2.md?p=a-28) or party aggrieved by an [order](/usc/15/8702.md?p=14) issued by the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter may obtain a review of such [order](/usc/15/8702.md?p=14) in the United States court of appeals within any circuit wherein such [person](/usc/15/80a–2.md?p=a-28) resides or has his principal place of business, or in the United States Court of Appeals for the District of Columbia, by filing in such court, within sixty days after the entry of such [order](/usc/15/8702.md?p=14), a written petition praying that the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) be modified or set aside in whole or in part. A copy of such petition shall be forthwith transmitted by the clerk of the court to any member of the [Commission](/usc/15/80a–2.md?p=a-7) or any officer thereof designated by the [Commission](/usc/15/80a–2.md?p=a-7) for that purpose, and thereupon the [Commission](/usc/15/80a–2.md?p=a-7) shall file in the court the record upon which the [order](/usc/15/8702.md?p=14) complained of was entered, as provided in [section 2112 of title 28](/usc/28/2112.md). Upon the filing of such petition such court shall have jurisdiction, which upon the filing of the record shall be exclusive, to affirm, modify, or set aside such [order](/usc/15/8702.md?p=14), in whole or in part. No objection to the [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) shall be considered by the court unless such objection shall have been urged before the [Commission](/usc/15/80a–2.md?p=a-7) or unless there were reasonable grounds for failure so to do. The findings of the [Commission](/usc/15/80a–2.md?p=a-7) as to the facts, if supported by substantial evidence, shall be conclusive. If [application](/usc/15/77ccc.md?p=8) is made to the court for leave to adduce additional evidence, and it is shown to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the proceeding before the [Commission](/usc/15/80a–2.md?p=a-7), the court may [order](/usc/15/8702.md?p=14) such additional evidence to be taken before the [Commission](/usc/15/80a–2.md?p=a-7) and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The [Commission](/usc/15/80a–2.md?p=a-7) may modify its findings as to the facts by reason of the additional evidence so taken, and it shall file with the court such modified or new findings, which, if supported by substantial evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original [order](/usc/15/8702.md?p=14). The judgment and decree of the court affirming, modifying, or setting aside, in whole or in part, any such [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in [section 1254 of title 28](/usc/28/1254.md). - (b) The commencement of proceedings under [subsection (a)](#a) to review an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) issued under [section 80a–8(e) of this title](/usc/15/80a–8.md?p=e) shall operate as a stay of the [Commission](/usc/15/80a–2.md?p=a-7)’s [order](/usc/15/8702.md?p=14) unless the court otherwise [orders](/usc/15/8702.md?p=14). The commencement of proceedings under [subsection (a)](#a) to review an [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7) issued under any provision of this subchapter other than [section 80a–8(e) of this title](/usc/15/80a–8.md?p=e) shall not operate as a stay of the [Commission](/usc/15/80a–2.md?p=a-7)’s [order](/usc/15/8702.md?p=14) unless the court specifically so [orders](/usc/15/8702.md?p=14). # §80a–43. Jurisdiction of offenses and suits The district courts of the United States and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have jurisdiction of [violations](/usc/15/57b–1.md?p=a-7) of this subchapter or the rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, and, concurrently with [State](/usc/15/80a–2.md?p=a-39) and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any [violation](/usc/15/57b–1.md?p=a-7) of, this subchapter or the rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the [violation](/usc/15/57b–1.md?p=a-7) occurred. A criminal proceeding based upon a [violation](/usc/15/57b–1.md?p=a-7) of [section 80a–33 of this title](/usc/15/80a–33.md), or upon a failure to file a report or other document required to be filed under this subchapter, may be brought in the district wherein the defendant is an inhabitant or maintains his principal office or place of business. Any suit or action to enforce any liability or duty created by, or to enjoin any [violation](/usc/15/57b–1.md?p=a-7) of, this subchapter or rules, regulations, or [orders](/usc/15/8702.md?p=14) thereunder, may be brought in any such district or in the district wherein the defendant is an inhabitant or transacts business, and process in such cases may be served in any district of which the defendant is an inhabitant or transacts business or wherever the defendant may be found. In any action or proceeding instituted by the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter in a United States district court for any judicial district, a subpoena issued to compel the attendance of a witness or the production of documents or tangible things (or both) at a hearing or trial may be served at any place within the United States. [Rule 45(c)(3)(A)(ii)](/usc/28a/civil-45.md) of the Federal Rules of Civil Procedure shall not apply to a subpoena issued under the preceding sentence. Judgments and decrees so rendered shall be subject to review as provided in sections [1254](/usc/28/1254.md), [1291](/usc/28/1291.md), [1292](/usc/28/1292.md), and [1294](/usc/28/1294.md) of title 28. No costs shall be assessed for or against the [Commission](/usc/15/80a–2.md?p=a-7) in any proceeding under this subchapter brought by or against the [Commission](/usc/15/80a–2.md?p=a-7) in any court. The [Commission](/usc/15/80a–2.md?p=a-7) may intervene as a party in any action or suit to enforce any liability or duty created by, or to enjoin any noncompliance with, [section 80a–35(b) of this title](/usc/15/80a–35.md?p=b) at any stage of such action or suit prior to final judgment therein. # §80a–44. Disclosure of information filed with Commission; copies - (a) The information contained in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), report, or other document filed with the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to any provision of this subchapter or of any rule or regulation thereunder (as distinguished from any information or document transmitted to the [Commission](/usc/15/80a–2.md?p=a-7)) shall be made available to the public, unless and except insofar as the [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations upon its own motion, or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), finds that public disclosure is neither necessary nor appropriate in the public interest or for the protection of investors. Except as provided in [section 78x(c) of this title](/usc/15/78x.md?p=c), it shall be unlawful for any member, officer, or employee of the [Commission](/usc/15/80a–2.md?p=a-7) to use for personal benefit, or to disclose to any [person](/usc/15/80a–2.md?p=a-28) other than an official or employee of the United States or of a [State](/usc/15/80a–2.md?p=a-39), for official use, or for any such official or employee to use for personal benefit, any information contained in any document so filed or transmitted, if such information is not available to the public. - (b) Photostatic or other copies of information contained in documents filed with the [Commission](/usc/15/80a–2.md?p=a-7) under this subchapter and made available to the public shall be furnished any [person](/usc/15/80a–2.md?p=a-28) at such reasonable charge and under such reasonable limitations as the [Commission](/usc/15/80a–2.md?p=a-7) shall prescribe. # §80a–45. Reports by Commission; hiring and leasing authority - (a) **Omitted—** - (b) **Hiring and leasing authority—** The provisions of [section 78d(b) of this title](/usc/15/78d.md?p=b) shall be applicable with respect to the power of the [Commission](/usc/15/80a–2.md?p=a-7)— - (1) to appoint and fix the compensation of such employees as may be necessary for carrying out its functions under this subchapter, and - (2) to lease and allocate such real property as may be necessary for carrying out its functions under this subchapter. # §80a–46. Validity of contracts - (a) **Waiver of compliance as void—** Any condition, stipulation, or provision binding any [person](/usc/15/80a–2.md?p=a-28) to waive compliance with any provision of this subchapter or with any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder shall be void. - (b) **Equitable results; rescission; severance—** - (1) A contract that is made, or whose performance involves, a [violation](/usc/15/57b–1.md?p=a-7) of this subchapter, or of any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder, is unenforceable by either party (or by a nonparty to the contract who acquired a right under the contract with knowledge of the facts by reason of which the making or performance violated or would violate any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder) unless a court finds that under the circumstances enforcement would produce a more equitable result than nonenforcement and would not be inconsistent with the purposes of this subchapter. - (2) To the extent that a contract described in [paragraph (1)](#b-1) has been performed, a court may not deny rescission at the instance of any party unless such court finds that under the circumstances the denial of rescission would produce a more equitable result than its grant and would not be inconsistent with the purposes of this subchapter. - (3) This subsection shall not apply (A) to the lawful portion of a contract to the extent that it may be severed from the unlawful portion of the contract, or (B) to preclude recovery against any [person](/usc/15/80a–2.md?p=a-28) for unjust enrichment. # §80a–47. Liability of controlling persons; preventing compliance with subchapter - (a) **Procurement—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28), directly or indirectly, to cause to be done any act or thing through or by means of any other [person](/usc/15/80a–2.md?p=a-28) which it would be unlawful for such [person](/usc/15/80a–2.md?p=a-28) to do under the provisions of this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder. - (b) **Substantially assisting a violation—** For purposes of any action brought by the [Commission](/usc/15/80a–2.md?p=a-7) under subsection (d) or (e) of [section 80a–41 of this title](/usc/15/80a–41.md), any [person](/usc/15/80a–2.md?p=a-28) that knowingly or recklessly provides substantial assistance to another [person](/usc/15/80a–2.md?p=a-28) in [violation](/usc/15/57b–1.md?p=a-7) of a provision of this subchapter, or of any rule or regulation issued under this subchapter, shall be deemed to be in [violation](/usc/15/57b–1.md?p=a-7) of such provision to the same extent as the [person](/usc/15/80a–2.md?p=a-28) to whom such assistance is provided. - (c) **Obstructing compliance—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) without just cause to hinder, delay, or obstruct the making, filing, or keeping of any information, document, report, record, or [account](/usc/15/1681a.md?p=r-4) required to be made, filed, or kept under any provision of this subchapter or any rule, regulation, or [order](/usc/15/8702.md?p=14) thereunder. # §80a–48. Penalties Any [person](/usc/15/80a–2.md?p=a-28) who willfully violates any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder, or any [person](/usc/15/80a–2.md?p=a-28) who willfully in any [registration statement](/usc/15/77b.md?p=a-8), [application](/usc/15/77ccc.md?p=8), report, [account](/usc/15/1681a.md?p=r-4), record, or other document filed or transmitted pursuant to this subchapter or the keeping of which is required pursuant to [section 80a–30(a) of this title](/usc/15/80a–30.md?p=a) makes any untrue statement of a material fact or omits to [state](/usc/15/80a–2.md?p=a-39) any material fact necessary in [order](/usc/15/8702.md?p=14) to prevent the statements made therein from being materially misleading in the light of the circumstances under which they were made, shall upon conviction be fined not more than $10,000 or imprisoned not more than five years, or both; but no [person](/usc/15/80a–2.md?p=a-28) shall be [convicted](/usc/15/80a–2.md?p=a-10) under this section for the [violation](/usc/15/57b–1.md?p=a-7) of any rule, regulation, or [order](/usc/15/8702.md?p=14) if he proves that he had no actual knowledge of such rule, regulation, or [order](/usc/15/8702.md?p=14). # §80a–49. Construction with other laws Except where specific provision is made to the contrary, nothing in this subchapter shall affect (1) the jurisdiction of the [Commission](/usc/15/80a–2.md?p=a-7) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], the Trust Indenture Act of 1939 [[15 U.S.C. 77aaa](/usc/15/77aaa.md) et seq.], or subchapter II of this chapter, over any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, or (2) the rights, obligations, duties, or liabilities of any [person](/usc/15/80a–2.md?p=a-28) under such Acts; nor shall anything in this subchapter affect the jurisdiction of any other [commission](/usc/15/80a–2.md?p=a-7), [board](/usc/15/205c.md?p=1), agency, or officer of the United States or of any [State](/usc/15/80a–2.md?p=a-39) or political subdivision of any [State](/usc/15/80a–2.md?p=a-39), over any [person](/usc/15/80a–2.md?p=a-28), [security](/usc/15/80a–2.md?p=a-36), or transaction, insofar as such jurisdiction does not conflict with any provision of this subchapter or of any rule, regulation, or [order](/usc/15/8702.md?p=14) hereunder. # §80a–50. Separability If any provision of this subchapter or any provision incorporated in this subchapter by reference, or the [application](/usc/15/77ccc.md?p=8) of any such provision to any [person](/usc/15/80a–2.md?p=a-28) or circumstances, shall be held invalid, the remainder of this subchapter and the [application](/usc/15/77ccc.md?p=8) of any such provision to [person](/usc/15/80a–2.md?p=a-28) or circumstances other than those as to which it is held invalid shall not be affected thereby. # §80a–51. Short title This subchapter may be cited as the “Investment Company Act of 1940”. # §80a–52. Effective date The effective date of the provisions of this subchapter, so far as the same relate to [face-amount certificates](/usc/15/80a–2.md?p=a-15) or to [face-amount certificate companies](/usc/15/80a–4.md?p=1), is January 1, 1941. The effective date of provisions hereof, insofar as the same do not apply to [face-amount certificates](/usc/15/80a–2.md?p=a-15) or [face-amount certificate companies](/usc/15/80a–4.md?p=1) is November 1, 1940. Except as herein otherwise provided, every provision of this subchapter shall take effect on November 1, 1940. # §80a–53. Election to be regulated as business development company - (a) **Eligibility—** Any [company](/usc/15/80a–2.md?p=a-8) defined in section [80a–2(a)(48)(A)](/usc/15/80a–2.md?p=a-48-A) and [(B)](/usc/15/80a–2.md?p=a-48-B) of this title may elect to be subject to the provisions of [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title by filing with the [Commission](/usc/15/80a–2.md?p=a-7) a notification of election, if such [company](/usc/15/80a–2.md?p=a-8)— - (1) has a class of its [equity securities](/usc/15/9041.md?p=6) registered under [section 78l](/usc/15/78l.md) of this title; or - (2) has filed a [registration statement](/usc/15/77b.md?p=a-8) pursuant to [section 78l](/usc/15/78l.md) of this title for a class of its [equity securities](/usc/15/9041.md?p=6). - (b) **Form and manner of notification; effect—** The [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe the form and manner in which notification of election under this section shall be given. A [business development company](/usc/15/80a–2.md?p=a-48) shall be deemed to be subject to [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title upon receipt by the [Commission](/usc/15/80a–2.md?p=a-7) of such notification of election. - (c) **Revocation or withdrawal of election—** Whenever the [Commission](/usc/15/80a–2.md?p=a-7) finds, on its own motion or upon [application](/usc/15/77ccc.md?p=8), that a [business development company](/usc/15/80a–2.md?p=a-48) which has filed a notification of election pursuant to [subsection (a)](#a) of this section has ceased to engage in business, the [Commission](/usc/15/80a–2.md?p=a-7) shall so declare by [order](/usc/15/8702.md?p=14) revoking such [company](/usc/15/80a–2.md?p=a-8)’s election. Any [business development company](/usc/15/80a–2.md?p=a-48) may voluntarily withdraw its election under [subsection (a)](#a) by filing a notice of withdrawal of election with the [Commission](/usc/15/80a–2.md?p=a-7), in a form and manner which the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe. Such withdrawal shall be effective immediately upon receipt by the [Commission](/usc/15/80a–2.md?p=a-7). # §80a–54. Acquisition of assets by business development companies - (a) **Permissible assets; percentage—** It shall be unlawful for a [business development company](/usc/15/80a–2.md?p=a-48) to acquire any assets (other than those described in [paragraphs (1) through (7)](#1..7) of this subsection) unless, at the time the acquisition is made, assets described in [paragraphs (1) through (6)](#a-1..a-6) below represent at least 70 per centum of the value of its total assets (other than assets described in [paragraph (7)](#a-7) below): - (1) [securities](/usc/15/80a–2.md?p=a-36) purchased, in transactions not involving any public offering or in such other transactions as the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe if it finds that enforcement of this subchapter and of the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.] with respect to such transactions is not necessary in the public interest or for the protection of investors by reason of the small amount, or the limited nature of the public offering, involved in such transactions— - (A) from the [issuer](/usc/15/80a–2.md?p=a-22) of such [securities](/usc/15/80a–2.md?p=a-36), which [issuer](/usc/15/80a–2.md?p=a-22) is an [eligible portfolio company](/usc/15/80a–2.md?p=a-46), from any [person](/usc/15/80a–2.md?p=a-28) who is, or who within the preceding thirteen months has been, an affiliated [person](/usc/15/80a–2.md?p=a-28) of such [eligible portfolio company](/usc/15/80a–2.md?p=a-46), or from any other [person](/usc/15/80a–2.md?p=a-28), subject to such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe as necessary or appropriate in the public interest or for the protection of investors; or - (B) from the [issuer](/usc/15/80a–2.md?p=a-22) of such [securities](/usc/15/80a–2.md?p=a-36), which [issuer](/usc/15/80a–2.md?p=a-22) is described in section [80a–2(a)(46)(A)](/usc/15/80a–2.md?p=a-46-A) and [(B)](/usc/15/80a–2.md?p=a-46-B) of this title but is not an [eligible portfolio company](/usc/15/80a–2.md?p=a-46) because it has issued a class of [securities](/usc/15/80a–2.md?p=a-36) with respect to which a member of a [national securities exchange](/usc/15/80a–2.md?p=a-26), [broker](/usc/15/80a–2.md?p=a-6), or [dealer](/usc/15/80a–2.md?p=a-11) may extend or maintain [credit](/usc/15/1679a.md?p=4) to or for a [customer](/usc/15/78c–5.md?p=g) pursuant to rules or regulations adopted by the [Board](/usc/15/205c.md?p=1) of Governors of the Federal Reserve System under [section 78g of this title](/usc/15/78g.md), or from any [person](/usc/15/80a–2.md?p=a-28) who is an officer or employee of such [issuer](/usc/15/80a–2.md?p=a-22), if— - (i) at the time of the [purchase](/usc/15/78c–5.md?p=g), the [business development company](/usc/15/80a–2.md?p=a-48) owns at least 50 per centum of— - (I) the greatest number of [equity securities](/usc/15/9041.md?p=6) of such [issuer](/usc/15/80a–2.md?p=a-22) and [securities](/usc/15/80a–2.md?p=a-36) convertible into or exchangeable for such [securities](/usc/15/80a–2.md?p=a-36); and - (II) the greatest amount of debt [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22), held by such [business development company](/usc/15/80a–2.md?p=a-48) at any point in time during the period when such [issuer](/usc/15/80a–2.md?p=a-22) was an [eligible portfolio company](/usc/15/80a–2.md?p=a-46), except that options, warrants, and similar [securities](/usc/15/80a–2.md?p=a-36) which have by their terms expired and debt [securities](/usc/15/80a–2.md?p=a-36) which have been converted, or repaid or prepaid in the ordinary course of business or incident to a public offering of [securities](/usc/15/80a–2.md?p=a-36) of such [issuer](/usc/15/80a–2.md?p=a-22), shall not be considered to have been held by such [business development company](/usc/15/80a–2.md?p=a-48) for purposes of this requirement; and - (ii) the [business development company](/usc/15/80a–2.md?p=a-48) is one of the 20 largest holders of record of such [issuer](/usc/15/80a–2.md?p=a-22)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42); - (2) [securities](/usc/15/80a–2.md?p=a-36) of any [eligible portfolio company](/usc/15/80a–2.md?p=a-46) with respect to which the [business development company](/usc/15/80a–2.md?p=a-48) satisfies the requirements of [section 80a–2(a)(46)(C)(ii) of this title](/usc/15/80a–2.md?p=a-46-C-ii); - (3) [securities](/usc/15/80a–2.md?p=a-36) purchased in transactions not involving any public offering from an [issuer](/usc/15/80a–2.md?p=a-22) described in sections [80a–2(a)(46)(A)](/usc/15/80a–2.md?p=a-46-A) and [(B)](/usc/15/80a–2.md?p=a-46-B) of this title or from a [person](/usc/15/80a–2.md?p=a-28) who is, or who within the preceding thirteen months has been, an affiliated [person](/usc/15/80a–2.md?p=a-28) of such [issuer](/usc/15/80a–2.md?p=a-22), or from any [person](/usc/15/80a–2.md?p=a-28) in transactions incident thereto, if such [securities](/usc/15/80a–2.md?p=a-36) were— - (A) issued by an [issuer](/usc/15/80a–2.md?p=a-22) that is, or was immediately prior to the [purchase](/usc/15/78c–5.md?p=g) of its [securities](/usc/15/80a–2.md?p=a-36) by the [business development company](/usc/15/80a–2.md?p=a-48), in bankruptcy proceedings, subject to [reorganization](/usc/15/80a–2.md?p=a-33) under the supervision of a court of competent jurisdiction, or subject to a plan or arrangement resulting from such bankruptcy proceedings or [reorganization](/usc/15/80a–2.md?p=a-33); - (B) issued by an [issuer](/usc/15/80a–2.md?p=a-22) pursuant to or in consummation of such a plan or arrangement; or - (C) issued by an [issuer](/usc/15/80a–2.md?p=a-22) that, immediately prior to the [purchase](/usc/15/78c–5.md?p=g) of such [issuer](/usc/15/80a–2.md?p=a-22)’s [securities](/usc/15/80a–2.md?p=a-36) by the [business development company](/usc/15/80a–2.md?p=a-48), was not in bankruptcy proceedings but was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements; - (4) [securities](/usc/15/80a–2.md?p=a-36) of [eligible portfolio companies](/usc/15/80a–2.md?p=a-46) purchased from any [person](/usc/15/80a–2.md?p=a-28) in transactions not involving any public offering, if there is no ready market for such [securities](/usc/15/80a–2.md?p=a-36) and if immediately prior to such [purchase](/usc/15/78c–5.md?p=g) the [business development company](/usc/15/80a–2.md?p=a-48) owns at least 60 per centum of the outstanding [equity securities](/usc/15/9041.md?p=6) of such [issuer](/usc/15/80a–2.md?p=a-22) (giving effect to all [securities](/usc/15/80a–2.md?p=a-36) presently convertible into or exchangeable for [equity securities](/usc/15/9041.md?p=6) of such [issuer](/usc/15/80a–2.md?p=a-22) as if such [securities](/usc/15/80a–2.md?p=a-36) were so converted or exchanged); - (5) [securities](/usc/15/80a–2.md?p=a-36) received in [exchange](/usc/15/80a–2.md?p=a-14) for or distributed on or with respect to [securities](/usc/15/80a–2.md?p=a-36) described in [paragraphs (1) through (4)](#1..4) of this subsection, or pursuant to the exercise of options, warrants, or rights relating to [securities](/usc/15/80a–2.md?p=a-36) described in such paragraphs; - (6) cash, cash items, [Government securities](/usc/15/80a–2.md?p=a-16), or high quality debt [securities](/usc/15/80a–2.md?p=a-36) maturing in one year or less from the time of investment in such high quality debt [securities](/usc/15/80a–2.md?p=a-36); and - (7) office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operations of the [business development company](/usc/15/80a–2.md?p=a-48), deferred organization and operating expenses, and other noninvestment assets necessary and appropriate to its operations as a [business development company](/usc/15/80a–2.md?p=a-48), including notes of indebtedness of [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners held by a [business development company](/usc/15/80a–2.md?p=a-48) as payment for [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) issued in connection with an executive compensation plan described in [section 80a–56(j) of this title](/usc/15/80a–56.md?p=j). - (b) **Valuation of assets—** For purposes of this section, the value of a [business development company](/usc/15/80a–2.md?p=a-48)’s assets shall be determined as of the date of the most recent financial statements filed by such [company](/usc/15/80a–2.md?p=a-8) with the [Commission](/usc/15/80a–2.md?p=a-7) pursuant to [section 78m of this title](/usc/15/78m.md), and shall be determined no less frequently than annually. # §80a–55. Qualifications of directors - (a) **Non-interested persons—** A majority of a [business development company](/usc/15/80a–2.md?p=a-48)’s [directors](/usc/15/80a–2.md?p=a-12) or general partners shall be [persons](/usc/15/80a–2.md?p=a-28) who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8). - (b) **Vacancies; suspension of provisions—** If, by reason of the death, disqualification, or bona fide resignation of any [director](/usc/15/80a–2.md?p=a-12) or general partner, a [business development company](/usc/15/80a–2.md?p=a-48) does not meet the requirements of [subsection (a)](#a) of this section, or the requirements of [section 80a–15(f)(1) of this title](/usc/15/80a–15.md?p=f-1) with respect to [directors](/usc/15/80a–2.md?p=a-12), the operation of such provisions shall be suspended for a period of 90 days or for such longer period as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe, upon its own motion or by [order](/usc/15/8702.md?p=14) upon [application](/usc/15/77ccc.md?p=8), as not inconsistent with the protection of investors. # §80a–56. Transactions with certain affiliates - (a) **Transactions involving controlling or closely affiliated persons—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) who is related to a [business development company](/usc/15/80a–2.md?p=a-48) in a manner described in [subsection (b)](#b) of this section, acting as principal— - (1) knowingly to sell any [security](/usc/15/80a–2.md?p=a-36) or other property to such [business development company](/usc/15/80a–2.md?p=a-48) or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), unless such sale involves solely (A) [securities](/usc/15/80a–2.md?p=a-36) of which the buyer is the [issuer](/usc/15/80a–2.md?p=a-22), or (B) [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22) and which are part of a general offering to the holders of a class of its [securities](/usc/15/80a–2.md?p=a-36); - (2) knowingly to [purchase](/usc/15/78c–5.md?p=g) from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), any [security](/usc/15/80a–2.md?p=a-36) or other property (except [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22)); - (3) knowingly to borrow money or other property from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) (unless the [borrower](/usc/15/697f.md?p=e-2) is controlled by the lender), except as permitted in [section 80a–21(b)](/usc/15/80a–21.md?p=b) or [section 80a–61 of this title](/usc/15/80a–61.md); or - (4) knowingly to effect any transaction in which such [business development company](/usc/15/80a–2.md?p=a-48) or a [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) is a joint or a joint and several participant with such [person](/usc/15/80a–2.md?p=a-28) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe for the purpose of limiting or preventing participation by such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) on a basis less advantageous than that of such [person](/usc/15/80a–2.md?p=a-28), except that nothing contained in this paragraph shall be deemed to preclude any [person](/usc/15/80a–2.md?p=a-28) from acting as manager of any underwriting syndicate or other group in which such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) is a participant and receiving compensation therefor. - (b) **Controlling or closely affiliated persons—** The provisions of [subsection (a)](#a) of this section shall apply to the following [persons](/usc/15/80a–2.md?p=a-28): - (1) Any [director](/usc/15/80a–2.md?p=a-12), officer, employee, or member of an [advisory board](/usc/15/80a–2.md?p=a-1) of a [business development company](/usc/15/80a–2.md?p=a-48) or any [person](/usc/15/80a–2.md?p=a-28) (other than the [business development company](/usc/15/80a–2.md?p=a-48) itself) who is, within the meaning of [section 80a–2(a)(3)(C) of this title](/usc/15/80a–2.md), an affiliated [person](/usc/15/80a–2.md?p=a-28) of any such [person](/usc/15/80a–2.md?p=a-28) specified in this paragraph. - (2) Any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) or promoter of, general partner in, principal underwriter for, or [person](/usc/15/80a–2.md?p=a-28) directly or indirectly either controlling, controlled by, or under common [control](/usc/15/80a–2.md?p=a-9) with, a [business development company](/usc/15/80a–2.md?p=a-48) (except the [business development company](/usc/15/80a–2.md?p=a-48) itself and any [person](/usc/15/80a–2.md?p=a-28) who, if it were not directly or indirectly controlled by the [business development company](/usc/15/80a–2.md?p=a-48), would not be directly or indirectly under the [control](/usc/15/80a–2.md?p=a-9) of a [person](/usc/15/80a–2.md?p=a-28) who [controls](/usc/15/80a–2.md?p=a-9) the [business development company](/usc/15/80a–2.md?p=a-48)), or any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of section [80a–2(a)(3)(C)](/usc/15/80a–2.md) or [(D)](/usc/15/80a–2.md) of this title, an affiliated [person](/usc/15/80a–2.md?p=a-28) of any such [person](/usc/15/80a–2.md?p=a-28) specified in this paragraph. - (c) **Exemption orders—** Notwithstanding paragraphs [(1)](#a-1), [(2)](#a-2), and [(3)](#a-3) of subsection (a), any [person](/usc/15/80a–2.md?p=a-28) may file with the [Commission](/usc/15/80a–2.md?p=a-7) an [application](/usc/15/77ccc.md?p=8) for an [order](/usc/15/8702.md?p=14) exempting a proposed transaction of the [applicant](/usc/15/7a.md?p=3) from one or more provisions of such paragraphs. The [Commission](/usc/15/80a–2.md?p=a-7) shall grant such [application](/usc/15/77ccc.md?p=8) and issue such [order](/usc/15/8702.md?p=14) of exemption if evidence establishes that— - (1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching of the [business development company](/usc/15/80a–2.md?p=a-48) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned; - (2) the proposed transaction is consistent with the policy of the [business development company](/usc/15/80a–2.md?p=a-48) as recited in the filings made by such [company](/usc/15/80a–2.md?p=a-8) with the [Commission](/usc/15/80a–2.md?p=a-7) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], and its reports to shareholders or partners; and - (3) the proposed transaction is consistent with the general purposes of this subchapter. - (d) **Transactions involving noncontrolling shareholders or affiliated persons—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) who is related to a [business development company](/usc/15/80a–2.md?p=a-48) in the manner described in [subsection (e)](#e) of this section and who is not subject to the prohibitions of [subsection (a)](#a) of this section, acting as principal— - (1) knowingly to sell any [security](/usc/15/80a–2.md?p=a-36) or other property to such [business development company](/usc/15/80a–2.md?p=a-48) or to any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), unless such sale involves solely (A) [securities](/usc/15/80a–2.md?p=a-36) of which the buyer is the [issuer](/usc/15/80a–2.md?p=a-22), or (B) [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22) and which are part of a general offering to the holders of a class of its [securities](/usc/15/80a–2.md?p=a-36); - (2) knowingly to [purchase](/usc/15/78c–5.md?p=g) from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48), any [security](/usc/15/80a–2.md?p=a-36) or other property (except [securities](/usc/15/80a–2.md?p=a-36) of which the seller is the [issuer](/usc/15/80a–2.md?p=a-22)); - (3) knowingly to borrow money or other property from such [business development company](/usc/15/80a–2.md?p=a-48) or from any [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) (unless the [borrower](/usc/15/697f.md?p=e-2) is controlled by the lender), except as permitted in [section 80a–21(b) of this title](/usc/15/80a–21.md?p=b); or - (4) knowingly to effect any transaction in which such [business development company](/usc/15/80a–2.md?p=a-48) or a [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) is a joint or a joint and several participant with such affiliated [person](/usc/15/80a–2.md?p=a-28) in contravention of such rules and regulations as the [Commission](/usc/15/80a–2.md?p=a-7) may prescribe for the purpose of limiting or preventing participation by such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) on a basis less advantageous than that of such affiliated [person](/usc/15/80a–2.md?p=a-28), except that nothing contained in this paragraph shall be deemed to preclude any [person](/usc/15/80a–2.md?p=a-28) from acting as manager of any underwriting syndicate or other group in which such [business development company](/usc/15/80a–2.md?p=a-48) or controlled [company](/usc/15/80a–2.md?p=a-8) is a participant and receiving compensation therefor. - (e) **Noncontrolling shareholders or affiliated persons; executive officer—** The provisions of [subsection (d)](#d) of this section shall apply to the following [persons](/usc/15/80a–2.md?p=a-28): - (1) Any [person](/usc/15/80a–2.md?p=a-28) (A) who is, within the meaning of [section 80a–2(a)(3)(A) of this title](/usc/15/80a–2.md), an affiliated [person](/usc/15/80a–2.md?p=a-28) of a [business development company](/usc/15/80a–2.md?p=a-48), (B) who is an [executive officer](#e) or a [director](/usc/15/80a–2.md?p=a-12) of, or general partner in, any such affiliated [person](/usc/15/80a–2.md?p=a-28), or (C) who directly or indirectly either [controls](/usc/15/80a–2.md?p=a-9), is controlled by, or is under common [control](/usc/15/80a–2.md?p=a-9) with, such affiliated [person](/usc/15/80a–2.md?p=a-28). - (2) Any [person](/usc/15/80a–2.md?p=a-28) who is an affiliated [person](/usc/15/80a–2.md?p=a-28) of a [director](/usc/15/80a–2.md?p=a-12), officer, employee, [investment adviser](/usc/15/6102.md?p=d-2-B-ii), member of an [advisory board](/usc/15/80a–2.md?p=a-1) or promoter of, principal underwriter for, general partner in, or an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [person](/usc/15/80a–2.md?p=a-28) directly or indirectly either controlling or under common [control](/usc/15/80a–2.md?p=a-9) with a [business development company](/usc/15/80a–2.md?p=a-48) (except the [business development company](/usc/15/80a–2.md?p=a-48) itself and any [person](/usc/15/80a–2.md?p=a-28) who, if it were not directly or indirectly controlled by the [business development company](/usc/15/80a–2.md?p=a-48), would not be directly or indirectly under the [control](/usc/15/80a–2.md?p=a-9) of a [person](/usc/15/80a–2.md?p=a-28) who [controls](/usc/15/80a–2.md?p=a-9) the [business development company](/usc/15/80a–2.md?p=a-48)). For purposes of this subsection, the term “executive officer” means the president, secretary, treasurer, any vice president in charge of a principal business function, and any other [person](/usc/15/80a–2.md?p=a-28) who performs similar policymaking functions. - (f) **Approval of proposed transactions—** Notwithstanding [subsection (d)](#d) of this section, a [person](/usc/15/80a–2.md?p=a-28) described in [subsection (e)](#e) may engage in a proposed transaction described in [subsection (d)](#d) if such proposed transaction is approved by the [required majority](#o) (as defined in [subsection (o)](#o)) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in the [business development company](/usc/15/80a–2.md?p=a-48) on the basis that— - (1) the terms thereof, including the consideration to be paid or received, are reasonable and fair to the shareholders or partners of the [business development company](/usc/15/80a–2.md?p=a-48) and do not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned; - (2) the proposed transaction is consistent with the interests of the shareholders or partners of the [business development company](/usc/15/80a–2.md?p=a-48) and is consistent with the policy of such [company](/usc/15/80a–2.md?p=a-8) as recited in filings made by such [company](/usc/15/80a–2.md?p=a-8) with the [Commission](/usc/15/80a–2.md?p=a-7) under the Securities Act of 1933 [[15 U.S.C. 77a](/usc/15/77a.md) et seq.], its [registration statement](/usc/15/77b.md?p=a-8) and reports filed under the [Securities](/usc/15/80a–2.md?p=a-36) Exchange Act of 1934 [[15 U.S.C. 78a](/usc/15/78a.md) et seq.], and its reports to shareholders or partners; and - (3) the [directors](/usc/15/80a–2.md?p=a-12) or general partners record in their minutes and preserve in their records, for such periods as if such records were required to be maintained pursuant to [section 80a–30(a) of this title](/usc/15/80a–30.md?p=a), a description of such transaction, their findings, the information or materials upon which their findings were based, and the basis therefor. - (g) **Transactions in the ordinary course of business—** Notwithstanding subsection [(a)](#a) or [(d)](#d), a [person](/usc/15/80a–2.md?p=a-28) may, in the ordinary course of business, sell to or [purchase](/usc/15/78c–5.md?p=g) from any [company](/usc/15/80a–2.md?p=a-8) merchandise or may enter into a lessor-lessee relationship with any [person](/usc/15/80a–2.md?p=a-28) and furnish the services incident thereto. - (h) **Inquiry procedures—** The [directors](/usc/15/80a–2.md?p=a-12) of or general partners in any [business development company](/usc/15/80a–2.md?p=a-48) shall adopt, and periodically review and update as appropriate, procedures reasonably designed to ensure that reasonable inquiry is made, prior to the consummation of any transaction in which such [business development company](/usc/15/80a–2.md?p=a-48) or a [company](/usc/15/80a–2.md?p=a-8) controlled by such [business development company](/usc/15/80a–2.md?p=a-48) proposes to participate, with respect to the possible involvement in the transaction of [persons](/usc/15/80a–2.md?p=a-28) described in subsections [(b)](#b) and [(e)](#e) of this section. - (i) **Rules and regulations of Commission—** Until the adoption by the [Commission](/usc/15/80a–2.md?p=a-7) of rules or regulations under subsections [(a)](#a) and [(d)](#d) of this section, the rules and regulations of the [Commission](/usc/15/80a–2.md?p=a-7) under subsections (a) and (d) of [section 80a–17 of this title](/usc/15/80a–17.md) applicable to registered closed-end [investment companies](/usc/15/77z–2.md?p=i-2) shall be deemed to apply to transactions subject to subsections [(a)](#a) and [(d)](#d) of this section. Any rules or regulations adopted by the [Commission](/usc/15/80a–2.md?p=a-7) to implement this section shall be no more restrictive than the rules or regulations adopted by the [Commission](/usc/15/80a–2.md?p=a-7) under subsections (a) and (d) of [section 80a–17 of this title](/usc/15/80a–17.md) that are applicable to all registered closed-end [investment companies](/usc/15/77z–2.md?p=i-2). - (j) **Warrants, options, and rights to purchase voting securities; loans to facilitate executive compensation plans—** Notwithstanding subsections [(a)](#a) and [(d)](#d) of this section, any [director](/usc/15/80a–2.md?p=a-12), officer, or employee of, or general partner in, a [business development company](/usc/15/80a–2.md?p=a-48) may— - (1) acquire warrants, options, and rights to [purchase](/usc/15/78c–5.md?p=g) [voting securities](/usc/15/80a–2.md?p=a-42) of such [business development company](/usc/15/80a–2.md?p=a-48), and [securities](/usc/15/80a–2.md?p=a-36) issued upon the exercise or conversion thereof, pursuant to an executive compensation plan offered by such [company](/usc/15/80a–2.md?p=a-8) which meets the requirements of [section 80a–60(a)(4)(B) of this title](/usc/15/80a–60.md?p=a-4-B); and - (2) borrow money from such [business development company](/usc/15/80a–2.md?p=a-48) for the purpose of purchasing [securities](/usc/15/80a–2.md?p=a-36) issued by such [company](/usc/15/80a–2.md?p=a-8) pursuant to an executive compensation plan, if each such loan— - (A) has a term of not more than ten years; - (B) becomes due within a reasonable time, not to exceed sixty days, after the termination of such [person](/usc/15/80a–2.md?p=a-28)’s employment or service; - (C) bears interest at no less than the prevailing rate applicable to 90-day United States Treasury bills at the time the loan is made; - (D) at all times is fully collateralized (such collateral may include any [securities](/usc/15/80a–2.md?p=a-36) issued by such [business development company](/usc/15/80a–2.md?p=a-48)); and - (E) - (i) in the case of a loan to any officer or employee of such [business development company](/usc/15/80a–2.md?p=a-48) (including any officer or employee who is also a [director](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8)), is approved by the [required majority](#o) (as defined in [subsection (o)](#o)) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that the loan is in the best interests of such [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners; or - (ii) in the case of a loan to any [director](/usc/15/80a–2.md?p=a-12) of such [business development company](/usc/15/80a–2.md?p=a-48) who is not also an officer or employee of such [company](/usc/15/80a–2.md?p=a-8), or to any general partner in such [company](/usc/15/80a–2.md?p=a-8), is approved by [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8), on the basis that the terms of the loan are fair and reasonable and do not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners. - (k) **Restriction on brokerage commissions—** It shall be unlawful for any [person](/usc/15/80a–2.md?p=a-28) described in [subsection (l)](#l)— - (1) acting as agent, to accept from any source any compensation (other than a regular salary or wages from the [business development company](/usc/15/80a–2.md?p=a-48)) for the [purchase](/usc/15/78c–5.md?p=g) or sale of any property to or for such [business development company](/usc/15/80a–2.md?p=a-48) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, except in the course of such [person](/usc/15/80a–2.md?p=a-28)’s business as an underwriter or [broker](/usc/15/80a–2.md?p=a-6); or - (2) acting as [broker](/usc/15/80a–2.md?p=a-6), in connection with the sale of [securities](/usc/15/80a–2.md?p=a-36) to or by the [business development company](/usc/15/80a–2.md?p=a-48) or any controlled [company](/usc/15/80a–2.md?p=a-8) thereof, to receive from any source a [commission](/usc/15/80a–2.md?p=a-7), fee, or other remuneration for effecting such transaction which exceeds— - (A) the usual and customary [broker](/usc/15/80a–2.md?p=a-6)’s [commission](/usc/15/80a–2.md?p=a-7) if the sale is effected on a [securities](/usc/15/80a–2.md?p=a-36) [exchange](/usc/15/80a–2.md?p=a-14); - (B) 2 per centum of the sales price if the sale is effected in connection with a secondary distribution of such [securities](/usc/15/80a–2.md?p=a-36); or - (C) 1 per centum of the [purchase](/usc/15/78c–5.md?p=g) or sale price of such [securities](/usc/15/80a–2.md?p=a-36) if the sale is otherwise effected, unless the [Commission](/usc/15/80a–2.md?p=a-7), by rules and regulations or [order](/usc/15/8702.md?p=14) in the public interest and consistent with the protection of investors, permits a larger [commission](/usc/15/80a–2.md?p=a-7). - (l) **Persons subject to brokerage commission restrictions—** The provisions of [subsection (k)](#k) of this section shall apply to the following [persons](/usc/15/80a–2.md?p=a-28): - (1) Any affiliated [person](/usc/15/80a–2.md?p=a-28) of a [business development company](/usc/15/80a–2.md?p=a-48). - (2) - (A) Any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of section [80a–2(a)(3)(B)](/usc/15/80a–2.md), [(C)](/usc/15/80a–2.md), or [(D)](/usc/15/80a–2.md) of this title, an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [director](/usc/15/80a–2.md?p=a-12), officer, employee, or member of an [advisory board](/usc/15/80a–2.md?p=a-1) of the [business development company](/usc/15/80a–2.md?p=a-48). - (B) Any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of section [80a–2(a)(3)(A)](/usc/15/80a–2.md), [(B)](/usc/15/80a–2.md), [(C)](/usc/15/80a–2.md), or [(D)](/usc/15/80a–2.md) of this title, an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of, general partner in, or [person](/usc/15/80a–2.md?p=a-28) directly or indirectly either controlling, controlled by, or under common [control](/usc/15/80a–2.md?p=a-9) with, the [business development company](/usc/15/80a–2.md?p=a-48). - (C) Any [person](/usc/15/80a–2.md?p=a-28) who is, within the meaning of [section 80a–2(a)(3)(C) of this title](/usc/15/80a–2.md), an affiliated [person](/usc/15/80a–2.md?p=a-28) of any [person](/usc/15/80a–2.md?p=a-28) who is an affiliated [person](/usc/15/80a–2.md?p=a-28) of the [business development company](/usc/15/80a–2.md?p=a-48) within the meaning of [section 80a–2(a)(3)(A) of this title](/usc/15/80a–2.md). - (m) **Receipt of fee or salary from transaction participant—** For purposes of subsections [(a)](#a) and [(d)](#d), a [person](/usc/15/80a–2.md?p=a-28) who is a [director](/usc/15/80a–2.md?p=a-12), officer, or employee of a party to a transaction and who receives his usual and ordinary fee or salary for usual and customary services as a [director](/usc/15/80a–2.md?p=a-12), officer, or employee from such party shall not be deemed to have a financial interest or to participate in the transaction solely by reason of his receipt of such fee or salary. - (n) **Profit-sharing plans—** - (1) Notwithstanding [subsection (a)(4)](#a-4) of this section, a [business development company](/usc/15/80a–2.md?p=a-48) may establish and maintain a profit-sharing plan for its [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners and such [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners may participate in such profit-sharing plan, if— - (A) - (i) in the case of a profit-sharing plan for officers and employees of the [business development company](/usc/15/80a–2.md?p=a-48) (including any officer or employee who is also a [director](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8)), such profit-sharing plan is approved by the [required majority](#o) (as defined in [subsection (o)](#o)) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that such plan is reasonable and fair to the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8), does not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned, and is consistent with the interests of the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8); or - (ii) in the case of a profit-sharing plan which includes one or more [directors](/usc/15/80a–2.md?p=a-12) of the [business development company](/usc/15/80a–2.md?p=a-48) who are not also officers or employees of such [company](/usc/15/80a–2.md?p=a-8), or one or more general partners in such [company](/usc/15/80a–2.md?p=a-8), such profit-sharing plan is approved by [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8), on the basis that such plan is reasonable and fair to the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8), does not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners on the part of any [person](/usc/15/80a–2.md?p=a-28) concerned, and is consistent with the interests of the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8); and - (B) the aggregate amount of benefits which would be paid or accrued under such plan shall not exceed 20 per centum of the [business development company](/usc/15/80a–2.md?p=a-48)’s net income after taxes in any fiscal year. - (2) This subsection may not be used where the [business development company](/usc/15/80a–2.md?p=a-48) has outstanding any stock option, warrant, or right issued as part of an executive compensation plan, including a plan pursuant to [section 80a–60(a)(4)(B) of this title](/usc/15/80a–60.md?p=a-4-B), or has an [investment adviser](/usc/15/6102.md?p=d-2-B-ii) registered or required to be registered under subchapter II of this chapter. - (o) **Required majority for approval of proposed transactions—** The term “required majority”, when used with respect to the approval of a proposed transaction, plan, or arrangement, means both a majority of a [business development company](/usc/15/80a–2.md?p=a-48)’s [directors](/usc/15/80a–2.md?p=a-12) or general partners who have no financial interest in such transaction, plan, or arrangement and a majority of such [directors](/usc/15/80a–2.md?p=a-12) or general partners who are not interested [persons](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8). # §80a–57. Changes in investment policy No [business development company](/usc/15/80a–2.md?p=a-48) shall, unless authorized by the vote of a majority of its outstanding [voting securities](/usc/15/80a–2.md?p=a-42) or partnership interests, change the nature of its business so as to cease to be, or to withdraw its election as, a [business development company](/usc/15/80a–2.md?p=a-48). # §80a–58. Incorporation of subchapter provisions Notwithstanding the exemption set forth in [section 80–6(f) of this title](https://uscode.house.gov/view.xhtml?req=(/us/usc/t15/s80–6/f)), sections [80a–1](/usc/15/80a–1.md), [80a–2](/usc/15/80a–2.md), [80a–3](/usc/15/80a–3.md), [80a–4](/usc/15/80a–4.md), [80a–5](/usc/15/80a–5.md), [80a–6](/usc/15/80a–6.md), [80a–9](/usc/15/80a–9.md), [80a–10(f)](/usc/15/80a–10.md?p=f), [80a–15(a)](/usc/15/80a–15.md?p=a), [(c)](/usc/15/80a–15.md?p=c), and [(f)](/usc/15/80a–15.md?p=f), [80a–16(b)](/usc/15/80a–16.md), [80a–17(f) through (j)](/usc/15/80a–17.md?p=f..j), [80a–19(a)](/usc/15/80a–19.md?p=a), [80a–20(b)](/usc/15/80a–20.md?p=b), [80a–31(a)](/usc/15/80a–31.md?p=a) and [(c)](/usc/15/80a–31.md?p=c), [80a–32 through 80a–46](/usc/15/80a–32..80a–46.md), and [80a–48 through 80a–52](/usc/15/80a–48..80a–52.md) of this title shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2). # §80a–59. Functions and activities of business development companies Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–12 of this title](/usc/15/80a–12.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that the [Commission](/usc/15/80a–2.md?p=a-7) shall not prescribe any rule, regulation, or [order](/usc/15/8702.md?p=14) pursuant to [section 80a–12(a)(1) of this title](/usc/15/80a–12.md?p=a-1) governing the circumstances in which a [business development company](/usc/15/80a–2.md?p=a-48) may borrow from a bank in [order](/usc/15/8702.md?p=14) to [purchase](/usc/15/78c–5.md?p=g) any [security](/usc/15/80a–2.md?p=a-36). # §80a–60. Capital structure - (a) **Exceptions for business development company—** Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–18 of this title](/usc/15/80a–18.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except as follows: - (1) Except as provided in [paragraph (2)](#a-2), the asset coverage requirements of subparagraphs (A) and (B) of [section 80a–18(a)(1) of this title](/usc/15/80a–18.md?p=a-1) (and any related rule promulgated under this subchapter) applicable to [business development companies](/usc/15/80a–2.md?p=a-48) shall be 200 percent. - (2) The asset coverage requirements of subparagraphs (A) and (B) of [section 80a–18(a)(1) of this title](/usc/15/80a–18.md?p=a-1) and of subparagraphs (A) and (B) of [section 80a–18(a)(2) of this title](/usc/15/80a–18.md?p=a-2) (and any related rule promulgated under this subchapter) applicable to a [business development company](/usc/15/80a–2.md?p=a-48) shall be 150 percent if— - (A) not later than 5 business days after the date on which those asset coverage requirements are approved under subparagraph (D) of this paragraph, the [business development company](/usc/15/80a–2.md?p=a-48) discloses that the requirements were approved, and the effective date of the approval, in— - (i) any filing submitted to the [Commission](/usc/15/80a–2.md?p=a-7) under section [78m(a)](/usc/15/78m.md?p=a) or [78o(d)](/usc/15/78o.md?p=d) of this title; and - (ii) a notice on the website of the [business development company](/usc/15/80a–2.md?p=a-48); - (B) the [business development company](/usc/15/80a–2.md?p=a-48) discloses, in each periodic filing required under [section 78m(a) of this title](/usc/15/78m.md?p=a)— - (i) the aggregate outstanding principal amount or liquidation preference, as applicable, of the senior [securities](/usc/15/80a–2.md?p=a-36) issued by the [business development company](/usc/15/80a–2.md?p=a-48) and the asset coverage percentage as of the date of the [business development company](/usc/15/80a–2.md?p=a-48)’s most recent financial statements included in that filing; - (ii) that the [business development company](/usc/15/80a–2.md?p=a-48), under [subparagraph (D)](#a-2-D), has approved the asset coverage requirements under this paragraph; and - (iii) the effective date of the approval described in [clause (ii)](#a-2-B-ii); - (C) with respect to a [business development company](/usc/15/80a–2.md?p=a-48) that is an [issuer](/usc/15/80a–2.md?p=a-22) of common [equity securities](/usc/15/9041.md?p=6), each periodic filing of the [company](/usc/15/80a–2.md?p=a-8) required under [section 78m(a) of this title](/usc/15/78m.md?p=a) includes disclosures that are reasonably designed to ensure that shareholders are informed of— - (i) the amount of senior [securities](/usc/15/80a–2.md?p=a-36) (and the associated asset coverage ratios) of the [company](/usc/15/80a–2.md?p=a-8), determined as of the date of the most recent financial statements of the [company](/usc/15/80a–2.md?p=a-8) included in that filing; and - (ii) the principal risk factors associated with the senior [securities](/usc/15/80a–2.md?p=a-36) described in [clause (i)](#a-2-C-i), to the extent that risk is incurred by the [company](/usc/15/80a–2.md?p=a-8); and - (D) the [company](/usc/15/80a–2.md?p=a-8)— - (i) - (I) through a vote of the required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title), approves the [application](/usc/15/77ccc.md?p=8) of this paragraph to the [company](/usc/15/80a–2.md?p=a-8), to become effective on the date that is 1 year after the date of the approval; or - (II) obtains, at a special or annual meeting of shareholders or partners at which a quorum is present, the approval of more than 50 percent of the votes cast for the [application](/usc/15/77ccc.md?p=8) of this paragraph to the [company](/usc/15/80a–2.md?p=a-8), to become effective on the first day after the date of the approval; and - (ii) if the [company](/usc/15/80a–2.md?p=a-8) is not an [issuer](/usc/15/80a–2.md?p=a-22) of common [equity securities](/usc/15/9041.md?p=6) that are listed on a [national securities exchange](/usc/15/80a–2.md?p=a-26), extends, to each [person](/usc/15/80a–2.md?p=a-28) that is a shareholder as of the date of an approval described in subclause [(I)](#a-2-D-i-I) or [(II)](#a-2-D-i-II) of clause (i), as applicable, the opportunity (which may include a tender offer) to sell the [securities](/usc/15/80a–2.md?p=a-36) held by that shareholder as of that applicable approval date, with 25 percent of those [securities](/usc/15/80a–2.md?p=a-36) to be repurchased in each of the 4 calendar quarters following the calendar quarter in which that applicable approval date takes place. - (3) Notwithstanding [section 80a–18(c) of this title](/usc/15/80a–18.md?p=c), a [business development company](/usc/15/80a–2.md?p=a-48) may issue more than one class of senior [security](/usc/15/80a–2.md?p=a-36) representing indebtedness. - (4) Notwithstanding [section 80a–18(d) of this title](/usc/15/80a–18.md?p=d)— - (A) a [business development company](/usc/15/80a–2.md?p=a-48) may issue warrants, options, or rights to subscribe or convert to [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), accompanied by [securities](/usc/15/80a–2.md?p=a-36), if— - (i) such warrants, options, or rights expire by their terms within ten years; - (ii) such warrants, options, or rights are not separately transferable unless no class of such warrants, options, or rights and the [securities](/usc/15/80a–2.md?p=a-36) accompanying them has been publicly distributed; - (iii) the exercise or conversion price is not less than the current market value at the date of issuance, or if no such market value exists, the current net asset value of such [voting securities](/usc/15/80a–2.md?p=a-42); and - (iv) the proposal to issue such [securities](/usc/15/80a–2.md?p=a-36) is authorized by the shareholders or partners of such [business development company](/usc/15/80a–2.md?p=a-48), and such issuance is approved by the required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that such issuance is in the best interests of such [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners; - (B) a [business development company](/usc/15/80a–2.md?p=a-48) may issue, to its [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners, warrants, options, and rights to [purchase](/usc/15/78c–5.md?p=g) [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8) pursuant to an executive compensation plan, if— - (i) - (I) in the case of warrants, options, or rights issued to any officer or employee of such [business development company](/usc/15/80a–2.md?p=a-48) (including any officer or employee who is also a [director](/usc/15/80a–2.md?p=a-12) of such [company](/usc/15/80a–2.md?p=a-8)), such [securities](/usc/15/80a–2.md?p=a-36) satisfy the conditions in clauses [(i)](#a-4-A-i), [(iii)](#a-4-A-iii), and [(iv)](#a-4-A-iv) of subparagraph (A); or (II) in the case of warrants, options, or rights issued to any [director](/usc/15/80a–2.md?p=a-12) of such [business development company](/usc/15/80a–2.md?p=a-48) who is not also an officer or employee of such [company](/usc/15/80a–2.md?p=a-8), or to any general partner in such [company](/usc/15/80a–2.md?p=a-8), the proposal to issue such [securities](/usc/15/80a–2.md?p=a-36) satisfies the conditions in clauses [(i)](#a-4-A-i) and [(iii)](#a-4-A-iii) of subparagraph (A), is authorized by the shareholders or partners of such [company](/usc/15/80a–2.md?p=a-8), and is approved by [order](/usc/15/8702.md?p=14) of the [Commission](/usc/15/80a–2.md?p=a-7), upon [application](/usc/15/77ccc.md?p=8), on the basis that the terms of the proposal are fair and reasonable and do not involve overreaching of such [company](/usc/15/80a–2.md?p=a-8) or its shareholders or partners; - (ii) such [securities](/usc/15/80a–2.md?p=a-36) are not transferable except for disposition by gift, will, or intestacy; - (iii) no [investment adviser](/usc/15/6102.md?p=d-2-B-ii) of such [business development company](/usc/15/80a–2.md?p=a-48) receives any compensation described in [section 80b–5(a)(1) of this title](/usc/15/80b–5.md?p=a-1), except to the extent permitted by paragraph (1) or (2) of [section 80b–5(b) of this title](/usc/15/80b–5.md?p=b); and - (iv) such [business development company](/usc/15/80a–2.md?p=a-48) does not have a profit-sharing plan described in [section 80a–56(n) of this title](/usc/15/80a–56.md?p=n); and - (C) a [business development company](/usc/15/80a–2.md?p=a-48) may issue warrants, options, or rights to subscribe to, convert to, or [purchase](/usc/15/78c–5.md?p=g) [voting securities](/usc/15/80a–2.md?p=a-42) not accompanied by [securities](/usc/15/80a–2.md?p=a-36), if— - (i) such warrants, options, or rights satisfy the conditions in clauses [(i)](#a-4-A-i) and [(iii)](#a-4-A-iii) of subparagraph (A); and - (ii) the proposal to issue such warrants, options, or rights is authorized by the shareholders or partners of such [business development company](/usc/15/80a–2.md?p=a-48), and such issuance is approved by the required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [company](/usc/15/80a–2.md?p=a-8) on the basis that such issuance is in the best interests of the [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners. Notwithstanding this paragraph, the amount of [voting securities](/usc/15/80a–2.md?p=a-42) that would result from the exercise of all outstanding warrants, options, and rights at the time of issuance shall not exceed 25 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of the [business development company](/usc/15/80a–2.md?p=a-48), except that if the amount of [voting securities](/usc/15/80a–2.md?p=a-42) that would result from the exercise of all outstanding warrants, options, and rights issued to such [company](/usc/15/80a–2.md?p=a-8)’s [directors](/usc/15/80a–2.md?p=a-12), officers, employees, and general partners pursuant to any executive compensation plan meeting the requirements of subparagraph (B) of this paragraph would exceed 15 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8), then the total amount of [voting securities](/usc/15/80a–2.md?p=a-42) that would result from the exercise of all outstanding warrants, options, and rights at the time of issuance shall not exceed 20 per centum of the outstanding [voting securities](/usc/15/80a–2.md?p=a-42) of such [company](/usc/15/80a–2.md?p=a-8). - (5) For purposes of measuring the asset coverage requirements of [section 80a–18(a) of this title](/usc/15/80a–18.md?p=a), a senior [security](/usc/15/80a–2.md?p=a-36) created by the guarantee by a [business development company](/usc/15/80a–2.md?p=a-48) of indebtedness issued by another [company](/usc/15/80a–2.md?p=a-8) shall be the amount of the maximum potential liability less the fair market value of the net unencumbered assets (plus the indebtedness which has been guaranteed) available in the borrowing [company](/usc/15/80a–2.md?p=a-8) whose debts have been guaranteed, except that a guarantee issued by a [business development company](/usc/15/80a–2.md?p=a-48) of indebtedness issued by a [company](/usc/15/80a–2.md?p=a-8) which is a wholly-owned subsidiary of the [business development company](/usc/15/80a–2.md?p=a-48) and is licensed as a [small business](/usc/15/1691c–2.md?p=h-2) [investment company](/usc/15/77z–2.md?p=i-2) under the [Small Business](/usc/15/1691c–2.md?p=h-2) Investment Act of 1958 [[15 U.S.C. 661](/usc/15/661.md) et seq.] shall not be deemed to be a senior [security](/usc/15/80a–2.md?p=a-36) of such [business development company](/usc/15/80a–2.md?p=a-48) for purposes of [section 80a–18(a) of this title](/usc/15/80a–18.md?p=a) if the amount of the indebtedness at the time of its issuance by the borrowing [company](/usc/15/80a–2.md?p=a-8) is itself taken fully into [account](/usc/15/1681a.md?p=r-4) as a liability by such [business development company](/usc/15/80a–2.md?p=a-48), as if it were issued by such [business development company](/usc/15/80a–2.md?p=a-48), in determining whether such [business development company](/usc/15/80a–2.md?p=a-48), at that time, satisfies the asset coverage requirements of [section 80a–18(a) of this title](/usc/15/80a–18.md?p=a). - (b) **Compliance—** A [business development company](/usc/15/80a–2.md?p=a-48) shall comply with the provisions of this section at the time it becomes subject to [sections 80a–54 through 80a–64](/usc/15/80a–54..80a–64.md) of this title, as if it were issuing a [security](/usc/15/80a–2.md?p=a-36) of each class which it has outstanding at such time. # §80a–61. Loans Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–21 of this title](/usc/15/80a–21.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that nothing in that section shall be deemed to prohibit— - (1) any loan to a [director](/usc/15/80a–2.md?p=a-12), officer, or employee of, or general partner in, a [business development company](/usc/15/80a–2.md?p=a-48) for the purpose of purchasing [securities](/usc/15/80a–2.md?p=a-36) of such [company](/usc/15/80a–2.md?p=a-8) as part of an executive compensation plan, if such loan meets the requirements of [section 80a–56(j) of this title](/usc/15/80a–56.md?p=j); or - (2) any loan to a [company](/usc/15/80a–2.md?p=a-8) controlled by a [business development company](/usc/15/80a–2.md?p=a-48), which [companies](/usc/15/80a–2.md?p=a-8) could be deemed to be under common [control](/usc/15/80a–2.md?p=a-9) solely because a third [person](/usc/15/80a–2.md?p=a-28) [controls](/usc/15/80a–2.md?p=a-9) such [business development company](/usc/15/80a–2.md?p=a-48). # §80a–62. Distribution and repurchase of securities Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–23 of this title](/usc/15/80a–23.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except as follows: - (1) The prohibitions of [section 80a–23(a)(2) of this title](/usc/15/80a–23.md) shall not apply to any [company](/usc/15/80a–2.md?p=a-8) which (A) is a wholly-owned subsidiary of, or directly or indirectly controlled by, a [business development company](/usc/15/80a–2.md?p=a-48), and (B) immediately after the issuance of any of its [securities](/usc/15/80a–2.md?p=a-36) for property other than cash or [securities](/usc/15/80a–2.md?p=a-36), will not be an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of [section 80a–3(a) of this title](/usc/15/80a–3.md?p=a). - (2) Notwithstanding the provisions of [section 80a–23(b) of this title](/usc/15/80a–23.md?p=b), a [business development company](/usc/15/80a–2.md?p=a-48) may sell any common stock of which it is the [issuer](/usc/15/80a–2.md?p=a-22) at a price below the current net asset value of such stock, and may sell warrants, options, or rights to acquire any such common stock at a price below the current net asset value of such stock, if— - (A) the holders of a majority of such [business development company](/usc/15/80a–2.md?p=a-48)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42), and the holders of a majority of such [company](/usc/15/80a–2.md?p=a-8)’s outstanding [voting securities](/usc/15/80a–2.md?p=a-42) that are not affiliated [persons](/usc/15/80a–2.md?p=a-28) of such [company](/usc/15/80a–2.md?p=a-8), approved such [company](/usc/15/80a–2.md?p=a-8)’s policy and practice of making such sales of [securities](/usc/15/80a–2.md?p=a-36) at the last annual meeting of shareholders or partners within one year immediately prior to any such sale, except that the shareholder approval requirements of this subparagraph shall not apply to the initial public offering by a [business development company](/usc/15/80a–2.md?p=a-48) of its [securities](/usc/15/80a–2.md?p=a-36); - (B) a required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [business development company](/usc/15/80a–2.md?p=a-48) have determined that any such sale would be in the best interests of such [company](/usc/15/80a–2.md?p=a-8) and its shareholders or partners; and - (C) a required majority (as defined in [section 80a–56(o)](/usc/15/80a–56.md?p=o) of this title) of the [directors](/usc/15/80a–2.md?p=a-12) of or general partners in such [business development company](/usc/15/80a–2.md?p=a-48), in consultation with the underwriter or underwriters of the offering if it is to be underwritten, have determined in good faith, and as of a time immediately prior to the first solicitation by or on behalf of such [company](/usc/15/80a–2.md?p=a-8) of firm commitments to [purchase](/usc/15/78c–5.md?p=g) such [securities](/usc/15/80a–2.md?p=a-36) or immediately prior to the issuance of such [securities](/usc/15/80a–2.md?p=a-36), that the price at which such [securities](/usc/15/80a–2.md?p=a-36) are to be sold is not less than a price which closely approximates the market value of those [securities](/usc/15/80a–2.md?p=a-36), less any distributing [commission](/usc/15/80a–2.md?p=a-7) or [discount](/usc/15/1602.md?p=q). - (3) A [business development company](/usc/15/80a–2.md?p=a-48) may sell any common stock of which it is the [issuer](/usc/15/80a–2.md?p=a-22) at a price below the current net asset value of such stock upon the exercise of any warrant, option, or right issued in accordance with [section 80a–60(a)(4) of this title](/usc/15/80a–60.md?p=a-4). # §80a–63. Accounts and records - (a) **Exception for business development company—** Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–30 of this title](/usc/15/80a–30.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that the reference to the financial statements required to be filed pursuant to [section 80a–29 of this title](/usc/15/80a–29.md) shall be construed to refer to the financial statements required to be filed by such [business development company](/usc/15/80a–2.md?p=a-48) pursuant to [section 78m of this title](/usc/15/78m.md). - (b) **Risk factors statement; availability—** - (1) In addition to the requirements of [subsection (a)](#a), a [business development company](/usc/15/80a–2.md?p=a-48) shall file with the [Commission](/usc/15/80a–2.md?p=a-7) and supply annually to its shareholders a written statement, in such form and manner as the [Commission](/usc/15/80a–2.md?p=a-7) may, by rule, prescribe, describing the risk factors involved in an investment in the [securities](/usc/15/80a–2.md?p=a-36) of a [business development company](/usc/15/80a–2.md?p=a-48) due to the nature of such [company](/usc/15/80a–2.md?p=a-8)’s investment portfolio and capital structure, and shall supply copies of such statement to any [registered broker or dealer](/usc/15/78c.md?p=h-2) upon request. - (2) If the [Commission](/usc/15/80a–2.md?p=a-7) finds it is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this subchapter, the [Commission](/usc/15/80a–2.md?p=a-7) may also require, by rule, any [person](/usc/15/80a–2.md?p=a-28) who, acting as principal or agent, sells a [security](/usc/15/80a–2.md?p=a-36) of a [business development company](/usc/15/80a–2.md?p=a-48) to inform the purchaser of such [securities](/usc/15/80a–2.md?p=a-36), at or before the time of sale, of the existence of the risk statement prepared by such [business development company](/usc/15/80a–2.md?p=a-48) pursuant to this subsection, and make such risk statement available on request. The [Commission](/usc/15/80a–2.md?p=a-7), in making such rules and regulations, shall consider, among other matters, whether any such rule or regulation would impose any unreasonable burdens on such [brokers](/usc/15/80a–2.md?p=a-6) or [dealers](/usc/15/80a–2.md?p=a-11) or unreasonably impair the maintenance of fair and orderly markets. # §80a–64. Preventing compliance with subchapter; liability of controlling persons Notwithstanding the exemption set forth in [section 80a–6(f) of this title](/usc/15/80a–6.md?p=f), [section 80a–47 of this title](/usc/15/80a–47.md) shall apply to a [business development company](/usc/15/80a–2.md?p=a-48) to the same extent as if it were a registered closed-end [investment company](/usc/15/77z–2.md?p=i-2), except that the provisions of [section 80a–47(a) of this title](/usc/15/80a–47.md?p=a) shall not be construed to require any [company](/usc/15/80a–2.md?p=a-8) which is not an [investment company](/usc/15/77z–2.md?p=i-2) within the meaning of [section 80a–3(a) of this title](/usc/15/80a–3.md?p=a) to comply with the provisions of this subchapter which are applicable to a [business development company](/usc/15/80a–2.md?p=a-48) solely because such [company](/usc/15/80a–2.md?p=a-8) is a wholly-owned subsidiary of, or directly or indirectly controlled by, a [business development company](/usc/15/80a–2.md?p=a-48).