CITE

    15 USC Sec. 80a-28                                          01/05/2009

EXPCITE

    TITLE 15 - COMMERCE AND TRADE
    CHAPTER 2D - INVESTMENT COMPANIES AND ADVISERS
    SUBCHAPTER I - INVESTMENT COMPANIES

HEAD

    Sec. 80a-28. Face-amount certificate companies

STATUTE

    (a) Issuance or sale of certificates
      It shall be unlawful for any registered face-amount certificate
    company to issue or sell any face-amount certificate, or to collect
    or accept any payment on any such certificate issued by such
    company on or after the effective date of this subchapter, unless -
        (1) such company, if organized before March 15, 1940, was
      actively and continuously engaged in selling face-amount
      certificates 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 maintains at all times minimum certificate
      reserves on all its outstanding face-amount certificates 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 are made by the holder, which
        reserve payments shall be sufficient in amount, as and when
        accumulated at a rate not to exceed 3 1/2  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 so that the reserve
        payment or payments for the first certificate year 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 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 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 may at its option take
        as loading from the gross payment or payments for a certificate
        year, 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 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 3
        1/2  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 3 1/2  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,
        such company 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 3 1/2  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 of each
        certificate holder in the form of any credit, 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 3 1/2
        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) 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 3 1/2  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 of each such certificate holder in the form of any
        credit, 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 3 1/2  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 3 1/2  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 shall prescribe by rule, regulation, or order based
        upon the experience of face-amount companies in relation to
        such contingencies.
    At no time shall the aggregate certificate reserves herein required
    by subparagraphs (A) to (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 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 to issue or sell any face-amount certificate, or to collect
    or accept any payment on any such certificate issued by such
    company on or after the effective date of this subchapter, unless
    such company 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) of this section. As used in this
    subsection, "qualified investments" means investments of a kind
    which life-insurance companies 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 shall by rule, regulation, or order 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 as the Commission shall prescribe for the protection of
    investors.
    (c) Certificate reserve requirements
      The Commission shall by rule, regulation, or order, in the public
    interest or for the protection of investors, require a registered
    face-amount certificate company to deposit and maintain, upon such
    terms and conditions as the Commission 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 for a trustee of a unit investment
    trust, all or any part of the investments maintained by such
    company as certificate reserve requirements under the provisions of
    subsection (b) of this section: Provided, however, That where
    qualified investments are maintained on deposit by such company in
    respect of its liabilities under certificates issued to or held by
    residents of any State as required by the statute of such State or
    by any order, regulation, or requirement of such State or any
    official or agency thereof, the amount so on deposit, but not to
    exceed the amount of reserves required by subsection (a) of this
    section 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) of
    this section 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).
    (d) Provisions required in certificate
      It shall be unlawful for any registered face-amount certificate
    company to issue or sell any face-amount certificate, or to collect
    or accept any payment on any such certificate issued by such
    company 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 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) of
      this section and at the end of such certificate year, 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 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) of subsection (a) of this section, 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 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) of this section, 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) of this section 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) of subsection (a) of this section, 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 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) of this section, 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) of subsection (a) of this section or item (2) of subparagraph
      (E) of paragraph (2) of said subsection (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
    to the certificate holder on the security 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 any unpaid balance on such
    loans or advances and interest thereon, for the purposes of this
    subsection and subsections (b) and (c) of this section.
      Any certificate may provide that the company 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, 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 may, by rules and regulations or
    orders 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 to issue or sell any face-amount certificate, or to collect
    or accept any payment on any such certificate issued by such
    company 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 to issue or sell any face-amount certificate, or to collect
    or accept any payment on any such certificate issued by such
    company on or after the effective date of this subchapter, (1)
    unless such face-amount certificate 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) 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 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 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 which on or before the effective
    date of this chapter has discontinued the offering of face-amount
    certificates to the public and issues face-amount certificates 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 which does not maintain the minimum certificate reserve on
    all its outstanding face-amount certificates 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 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 pursuant to the provision of the
    next sentence of this paragraph. At least thirty days before such
    company shall declare, pay, or distribute any dividend, it shall
    give the Commission written notice of its intention to declare,
    pay, or distribute the same; and if at any time it shall appear to
    the Commission that the declaration, payment or distribution of any
    dividend for or during any calendar year might impair the financial
    integrity of such company or its ability to meet its liabilities
    under its outstanding face-amount certificates, it may by order
    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 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 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
    of such certificate was and is required to have with respect to
    such certificates. With respect to all face-amount certificates
    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) of this section, 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 are made by
    the holder, which reserve payments shall be sufficient in amount,
    as and when accumulated at a rate not to exceed 3 1/2  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 so that the reserve
    payment or payments for the first three certificate years 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 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 shall amount to at least 93
    per centum of such year's gross annual payment; and for the sixth
    and each subsequent certificate year 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 may at its
    option take as loading from the gross payment or payments for a
    certificate year, 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
    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) and (2) of subsection (d) of
    this section, (A) in respect of any certificate of the installment
    type, during the first certificate year, 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 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) of subsection (a) of this
    section, 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 shall be set out in the
    certificate.

SOURCE

    (Aug. 22, 1940, ch. 686, title I, Sec. 28, 54 Stat. 829; Pub. L. 91-
    547, Sec. 17, Dec. 14, 1970, 84 Stat. 1426; Pub. L. 100-181, title
    VI, Secs. 620, 621, Dec. 4, 1987, 101 Stat. 1262.)

REFERENCES IN TEXT

      For the effective date of this subchapter, referred to in
    subsecs. (a), (b), (d), (e), and (f), see section 80a-52 of this
    title.
      For the effective date of this chapter, referred to in subsecs.
    (a)(2)(C), (g), and (h), see sections 80a-52 and 80b-21 of this
    title.
      For the effective date of this subsection, referred to in subsec.
    (i), as the day upon expiration of 6 months after Dec. 14, 1970,
    see section 30(3) of Pub. L. 91-547, set out as a note under
    section 80a-52 of this title.

AMENDMENTS

      1987 - Subsec. (a)(2)(B). Pub. L. 100-181, Sec. 620, substituted
    "paragraph" for "subsection".
      Subsec. (d)(2). Pub. L. 100-181, Sec. 621, inserted "of" before
    "subsection (a)".
      1970 - Subsec. (i). Pub. L. 91-547 added subsec. (i).
                     EFFECTIVE DATE OF 1970 AMENDMENT
      Amendment by Pub. L. 91-547 effective on expiration of six months
    after Dec. 14, 1970, see section 30(3) of Pub. L. 91-547, set out
    as a note under section 80a-2 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.