CITE
15 USC Sec. 80a-12 01/05/2009
EXPCITE
TITLE 15 - COMMERCE AND TRADE
CHAPTER 2D - INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I - INVESTMENT COMPANIES
HEAD
Sec. 80a-12. Functions and activities of investment companies
STATUTE
(a) Purchase of securities on margin; joint trading accounts; short
sales of securities; exceptions
It shall be unlawful for any registered investment company, in
contravention of such rules and regulations or orders as the
Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors -
(1) to purchase any security on margin, except such short-term
credits as are necessary for the clearance of transactions;
(2) to participate on a joint or a joint and several basis in
any trading account in securities, except in connection with an
underwriting in which such registered company is a participant;
or
(3) to effect a short sale of any security, except in
connection with an underwriting in which such registered company
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 (other
than a company complying with the provisions of section 80a-10(d)
of this title) to act as a distributor of securities of which it is
the issuer, except through an underwriter, in contravention of such
rules and regulations as the Commission 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 to
make any commitment as underwriter, if immediately thereafter the
amount of its outstanding underwriting commitments, plus the value
of its investments in securities of issuers (other than investment
companies) of which it owns more than 10 per centum of the
outstanding voting securities, 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
(the "acquiring company") and any company or companies controlled
by such acquiring company to purchase or otherwise acquire any
security issued by any other investment company (the "acquired
company"), and for any investment company (the "acquiring company")
and any company or companies controlled by such acquiring company
to purchase or otherwise acquire any security issued by any
registered investment company (the "acquired company"), if the
acquiring company and any company or companies controlled by it
immediately after such purchase or acquisition own in the aggregate
-
(i) more than 3 per centum of the total outstanding voting
stock of the acquired company;
(ii) securities issued by the acquired company having an
aggregate value in excess of 5 per centum of the value of the
total assets of the acquiring company; or
(iii) securities issued by the acquired company and all other
investment companies (other than treasury stock of the acquiring
company) having an aggregate value in excess of 10 per centum of
the value of the total assets of the acquiring company.
(B) It shall be unlawful for any registered open-end investment
company (the "acquired company"), any principal underwriter
therefor, or any broker or dealer registered under the Securities
Exchange Act of 1934 [15 U.S.C. 78a et seq.], knowingly to sell or
otherwise dispose of any security issued by the acquired company to
any other investment company (the "acquiring company") or any
company or companies controlled by the acquiring company, if
immediately after such sale or disposition -
(i) more than 3 per centum of the total outstanding voting
stock of the acquired company is owned by the acquiring company
and any company or companies controlled by it; or
(ii) more than 10 per centum of the total outstanding voting
stock of the acquired company is owned by the acquiring company
and other investment companies and companies controlled by them.
(C) It shall be unlawful for any investment company (the
"acquiring company") and any company or companies controlled by the
acquiring company to purchase or otherwise acquire any security
issued by a registered closed-end investment company, if
immediately after such purchase or acquisition the acquiring
company, other investment companies having the same investment
adviser, and companies controlled by such investment companies, own
more than 10 per centum of the total outstanding voting stock of
such closed-end company.
(D) The provisions of this paragraph shall not apply to a
security received as a dividend or as a result of an offer of
exchange approved pursuant to section 80a-11 of this title or of a
plan of reorganization of any company (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 (or securities) purchased or acquired by an investment
company if -
(i) the depositor of, or principal underwriter for, such
investment company is a broker or dealer registered under the
Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], or a
person controlled by such a broker or dealer;
(ii) such security is the only investment security held by such
investment company (or such securities are the only investment
securities held by such investment company, if such investment
company is a registered unit investment trust that issues two or
more classes or series of securities, each of which provides for
the accumulation of shares of a different investment company);
and
(iii) the purchase or acquisition is made pursuant to an
arrangement with the issuer of, or principal underwriter for the
issuer of, the security whereby such investment company is
obligated -
(aa) either to seek instructions from its security holders
with regard to the voting of all proxies with respect to such
security 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,
and
(bb) in the event that such investment company is not a
registered investment company, to refrain substituting such
security unless the Commission shall have approved such
substitution in the manner provided in section 80a-26 of this
title.
(F) The provisions of this paragraph shall not apply to
securities purchased or otherwise acquired by a registered
investment company if -
(i) immediately after such purchase or acquisition not more
than 3 per centum of the total outstanding stock of such issuer
is owned by such registered investment company and all affiliated
persons of such registered investment company; and
(ii) such registered investment company has not offered or sold
after January 1, 1971, and is not proposing to offer or sell any
security issued by it through a principal underwriter or
otherwise at a public offering price which includes a sales load
of more than 1 1/2 per centum.
No issuer of any security purchased or acquired by a registered
investment company pursuant to this subparagraph shall be obligated
to redeem such security in an amount exceeding 1 per centum of such
issuer's total outstanding securities during any period of less
than thirty days. Such investment company shall exercise voting
rights by proxy or otherwise with respect to any security 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 of a
registered open-end investment company or a registered unit
investment trust (hereafter in this subparagraph referred to as the
"acquired company") purchased or otherwise acquired by a registered
open-end investment company or a registered unit investment trust
(hereafter in this subparagraph referred to as the "acquiring
company") if -
(I) the acquired company and the acquiring company are part of
the same group of investment companies;
(II) the securities of the acquired company, securities of
other registered open-end investment companies and registered
unit investment trusts that are part of the same group of
investment companies, Government securities, and short-term paper
are the only investments held by the acquiring company;
(III) with respect to -
(aa) securities of the acquired company, the acquiring
company does not pay and is not assessed any charges or fees
for distribution-related activities, unless the acquiring
company does not charge a sales load or other fees or charges
for distribution-related activities; or
(bb) securities of the acquiring company, any sales loads and
other distribution-related fees charged, when aggregated with
any sales load and distribution-related fees paid by the
acquiring company with respect to securities of the acquired
company, are not excessive under rules adopted pursuant to
section 80a-22(b) of this title or section 80a-22(c) of this
title by a securities association registered under section 15A
of the Securities Exchange Act of 1934 [15 U.S.C. 78o-3], or
the Commission;
(IV) the acquired company has a policy that prohibits it from
acquiring any securities of registered open-end investment
companies or registered unit investment trusts in reliance on
this subparagraph or subparagraph (F); and
(V) such acquisition is not in contravention of such rules and
regulations as the Commission 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 that hold themselves out to investors as related
companies for purposes of investment and investor services.
(H) For the purposes of this paragraph, the value of an
investment company's total assets shall be computed as of the time
of a purchase or acquisition or as closely thereto as is reasonably
possible.
(I) In any action brought to enforce the provisions of this
paragraph, the Commission may join as a party the issuer of any
security purchased or otherwise acquired in violation of this
paragraph, and the court may issue any order with respect to such
issuer as may be necessary or appropriate for the enforcement of
the provisions of this paragraph.
(J) The Commission, by rule or regulation, upon its own motion or
by order upon application, may conditionally or unconditionally
exempt any person, security, or transaction, or any class or
classes of persons, securities, or transactions from any provision
of this subsection, 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
and any company or companies controlled by such registered
investment company to purchase or otherwise acquire any security
(except a security received as a dividend or as a result of a plan
of reorganization of any company, other than a plan devised for the
purpose of evading the provisions of this paragraph) issued by any
insurance company of which such registered investment company and
any company or companies controlled by such registered company do
not, at the time of such purchase or acquisition, own in the
aggregate at least 25 per centum of the total outstanding voting
stock, if such registered company and any company or companies
controlled by it own in the aggregate, or as a result of such
purchase or acquisition will own in the aggregate, more than 10 per
centum of the total outstanding voting stock of such insurance
company.
(3) It shall be unlawful for any registered investment company
and any company or companies controlled by such registered
investment company to purchase or otherwise acquire any security
issued by or any other interest in the business of any person who
is a broker, a dealer, is engaged in the business of underwriting,
or is either an investment adviser of an investment company or an
investment adviser registered under subchapter II of this chapter,
unless (A) such person is a corporation all the outstanding
securities of which (other than short-term paper, securities
representing bank loans, and directors' qualifying shares) are, or
after such acquisition will be, owned by one or more registered
investment companies; and (B) such person is primarily engaged in
the business of underwriting and distributing securities issued by
other persons, selling securities to customers, or any one or more
of such or related activities, and the gross income of such person
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 may hereafter purchase or otherwise acquire any
security issued by any one corporation engaged or proposing to
engage in the business of underwriting, furnishing capital to
industry, financing promotional enterprises, purchasing securities
of issuers for which no ready market is in existence, and
reorganizing companies or similar activities; provided -
(1) That the securities issued by such corporation (other than
short-term paper and securities 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 only;
(2) That the aggregate cost of the securities of such
corporation purchased by such registered investment company does
not exceed 5 per centum of the value of the total assets of such
registered company at the time of any purchase or acquisition of
such securities; 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
any investment in any such corporation shall be deemed to be an
investment in an investment company.
(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 may organize not more than two face-
amount certificate companies 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 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 for a face-amount company organized on or after March
15, 1940: And provided further, That the aggregate cost to such
registered company of all such capital stock issued by face-amount
certificate companies organized or otherwise created under laws
other than the laws of the United States or any State thereof shall
not exceed twice the amount of the minimum capital stock
requirement provided in subdivision (1) of subsection (a) of said
section 80a-28 for a company 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 if the original purchase
was made by such registered face-amount certificate company 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 and any company or companies controlled by such
registered company may purchase or otherwise acquire from another
investment company or any company or companies controlled by such
registered company more than 10 per centum of the total outstanding
voting stock of any insurance company owned by any such company or
companies, or may acquire the securities of any insurance company
if the Commission by order determines that such acquisition is in
the public interest because the financial condition of such
insurance company 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
or the acquisition of the securities of any newly created insurance
company by a registered investment company, alone or with other
persons. 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, or to
affect the right under State law of any insurance company to
acquire securities of any other insurance company or insurance
companies.
SOURCE
(Aug. 22, 1940, ch. 686, title I, Sec. 12, 54 Stat. 808; Pub. L. 91-
547, Sec. 7, Dec. 14, 1970, 84 Stat. 1417; Pub. L. 100-181, title
VI, Sec. 610, Dec. 4, 1987, 101 Stat. 1261; Pub. L. 104-290, title
II, Sec. 202, Oct. 11, 1996, 110 Stat. 3426; Pub. L. 105-353, title
III, Sec. 301(c)(3), Nov. 3, 1998, 112 Stat. 3236.)
REFERENCES IN TEXT
The Securities Exchange Act of 1934, referred to in subsec.
(d)(1)(B), (E)(i), is act June 6, 1934, ch. 404, 48 Stat. 881, as
amended, which is classified generally to 2B (Sec. 78a et seq.) of
this title. For complete classification of this Act to the Code,
see section 78a of this title and Tables.
AMENDMENTS
1998 - Subsec. (d)(1)(G)(i)(III)(bb). Pub. L. 105-353 substituted
"the acquired company" for "the acquired fund".
1996 - Subsec. (d)(1)(D), (E). Pub. L. 104-290, Sec. 202(3),
substituted "this paragraph" for "this paragraph (1)".
Subsec. (d)(1)(E)(iii). Pub. L. 104-290, Sec. 202(1)(A), struck
out "in the event such investment company is not a registered
investment company," after "(iii)".
Subsec. (d)(1)(E)(iii)(bb). Pub. L. 104-290, Sec. 202(1)(B),
inserted "in the event that such investment company is not a
registered investment company," after "(bb)".
Subsec. (d)(1)(F). Pub. L. 104-290, Sec. 202(3), substituted
"this paragraph" for "this paragraph (1)".
Subsec. (d)(1)(G). Pub. L. 104-290, Sec. 202(2), (4), added
subpar. (G). Former subpar. (G) redesignated (H).
Subsec. (d)(1)(H). Pub. L. 104-290, Sec. 202(3), substituted
"this paragraph" for "this paragraph (1)".
Pub. L. 104-290, Sec. 202(2), redesignated subpar. (G) as (H).
Former subpar. (H) redesignated (I).
Subsec. (d)(1)(I). Pub. L. 104-290, Sec. 202(3), substituted
"this paragraph" for "this paragraph (1)" wherever appearing.
Pub. L. 104-290, Sec. 202(2), redesignated subpar. (H) as (I).
Subsec. (d)(1)(J). Pub. L. 104-290, Sec. 202(5), added subpar.
(J).
1987 - Subsec. (d)(1)(A)(iii). Pub. L. 100-181, Sec. 610(1),
substituted "treasury" for "Treasury".
Subsec. (d)(1)(G). Pub. L. 100-181, Sec. 610(2), substituted "is
reasonably possible" for "it reasonably possible".
Subsec. (f). Pub. L. 100-181, Sec. 610(3), substituted "thereof
only" for "only thereof".
1970 - Subsec. (d)(1). Pub. L. 91-547 substituted provisions
designated as subpars. (A) to (C) and (E) to (H) for former
introductory provisions reading "It shall be unlawful for any
registered investment company and any company or companies
controlled by such registered investment company to purchase or
otherwise acquire after August 22, 1940, any security issued by or
any other interest in the business of - " and subpar. (1) reading
"any other investment company of which such registered investment
company and company or companies controlled by such registered
company shall not at the time of such purchase or acquisition own
in the aggregate at least 25 per centum of the total outstanding
voting stock, if such registered investment company and any company
or companies controlled by it own in the aggregate or as a result
of such purchase or acquisition will own in the aggregate more than
5 per centum of the total outstanding voting stock of such other
investment company if the policy of such other investment company
is the concentration of investments in a particular industry or
group of industries, or more than 3 per centum of the total
outstanding voting stock of such other investment company if the
policy of such other investment company is not the concentration of
investments in a particular industry or group of industries, except
and cl. (B) exception reading "a security purchased with the
proceeds of payments on periodic payment plan certificates,
pursuant to the terms of the trust indenture under which such
certificates are issued", cl. (A) of such subpar. (1) being
incorporated in subpar. (D) of this par. (1).
Subsec. (d)(2). Pub. L. 91-547 incorporated existing introductory
text and subpar. (2) provisions in provisions redesignated as par.
(2) and struck out "after August 22, 1940," after "purchase or
otherwise acquire".
Subsec. (d)(3). Pub. L. 91-547 incorporated existing introductory
text and subpar. (3) provisions in provisions redesignated as par.
(3) and struck out "after August 22, 1940," after "purchase or
otherwise acquire".
EFFECTIVE DATE OF 1970 AMENDMENT
Amendment by Pub. L. 91-547 effective Dec. 14, 1970, see section
30 of Pub. L. 91-547, set out as a note under section 80a-52 of
this title.
TRANSFER OF FUNCTIONS
For transfer of functions of Securities and Exchange Commission,
with certain exceptions, to Chairman of such Commission, see Reorg.
Plan No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175,
64 Stat. 1265, set out under section 78d of this title.