15 USC Sec. 80b-5 01/05/2009
TITLE 15 - COMMERCE AND TRADE
CHAPTER 2D - INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER II - INVESTMENT ADVISERS
Sec. 80b-5. Investment advisory contracts
(a) Compensation, assignment, and partnership-membership provisions
No investment adviser, unless exempt from registration pursuant
to section 80b-3(b) of this title, shall make use of the mails or
any means or instrumentality of interstate commerce, directly or
indirectly, to enter into, extend, or renew any investment advisory
contract, or in any way to perform any investment advisory contract
entered into, extended, or renewed on or after November 1, 1940, if
such contract -
(1) provides for compensation to the investment adviser on the
basis of a share of capital gains upon or capital appreciation of
the funds or any portion of the funds of the client;
(2) fails to provide, in substance, that no assignment of such
contract shall be made by the investment adviser without the
consent of the other party to the contract; or
(3) fails to provide, in substance, that the investment
adviser, if a partnership, will notify the other party to the
contract of any change in the membership of such partnership
within a reasonable time after such change.
(b) Compensation prohibition inapplicable to certain compensation
Paragraph (1) of subsection (a) of this section shall not -
(1) be construed to prohibit an investment advisory contract
which provides for compensation based upon the total value of a
fund averaged over a definite period, or as of definite dates, or
taken as of a definite date;
(2) apply to an investment advisory contract with -
(A) an investment company registered under subchapter I of
this chapter, or
(B) any other person (except a trust, governmental plan,
collective trust fund, or separate account referred to in
section 80a-3(c)(11) of this title), provided that the contract
relates to the investment of assets in excess of $1 million,
if the contract provides for compensation based on the asset
value of the company or fund under management averaged over a
specified period and increasing and decreasing proportionately
with the investment performance of the company or fund over a
specified period in relation to the investment record of an
appropriate index of securities prices or such other measure of
investment performance as the Commission by rule, regulation, or
order may specify;
(3) apply with respect to any investment advisory contract
between an investment adviser and a business development company,
as defined in this subchapter, if (A) the compensation provided
for in such contract does not exceed 20 per centum of the
realized capital gains upon the funds of the business development
company over a specified period or as of definite dates, computed
net of all realized capital losses and unrealized capital
depreciation, and the condition of section 80a-60(a)(3)(B)(iii)
of this title is satisfied, and (B) the business development
company does not have outstanding any option, warrant, or right
issued pursuant to section 80a-60(a)(3)(B) of this title and does
not have a profit-sharing plan described in section 80a-56(n) of
(4) apply to an investment advisory contract with a company
excepted from the definition of an investment company under
section 80a-3(c)(7) of this title; or
(5) apply to an investment advisory contract with a person who
is not a resident of the United States.
(c) Measurement of changes in compensation
For purposes of paragraph (2) of subsection (b) of this section,
the point from which increases and decreases in compensation are
measured shall be the fee which is paid or earned when the
investment performance of such company or fund is equivalent to
that of the index or other measure of performance, and an index of
securities prices shall be deemed appropriate unless the Commission
by order shall determine otherwise.
(d) "Investment advisory contract" defined
As used in paragraphs (2) and (3) of subsection (a) of this
section, "investment advisory contract" means any contract or
agreement whereby a person agrees to act as investment adviser to
or to manage any investment or trading account of another person
other than an investment company registered under subchapter I of
(e) Exempt persons and transactions
The Commission, by rule or regulation, upon its own motion, or by
order upon application, may conditionally or unconditionally exempt
any person or transaction, or any class or classes of persons or
transactions, from subsection (a)(1) of this section, if and to the
extent that the exemption relates to an investment advisory
contract with any person that the Commission determines does not
need the protections of subsection (a)(1) of this section, on the
basis of such factors as financial sophistication, net worth,
knowledge of and experience in financial matters, amount of assets
under management, relationship with a registered investment
adviser, and such other factors as the Commission determines are
consistent with this section.
(Aug. 22, 1940, ch. 686, title II, Sec. 205, 54 Stat. 852; Pub. L.
86-750, Sec. 7, Sept. 13, 1960, 74 Stat. 887; Pub. L. 91-547, Sec.
25, Dec. 14, 1970, 84 Stat. 1432; Pub. L. 96-477, title II, Sec.
203, Oct. 21, 1980, 94 Stat. 2290; Pub. L. 100-181, title VII, Sec.
703, Dec. 4, 1987, 101 Stat. 1263; Pub. L. 104-290, title II, Sec.
210, Oct. 11, 1996, 110 Stat. 3436.)
1996 - Subsec. (b)(4), (5). Pub. L. 104-290, Sec. 210(1), added
pars. (4) and (5).
Subsec. (e). Pub. L. 104-290, Sec. 210(2), added subsec. (e).
1987 - Pub. L. 100-181 completely revised and expanded provisions
on investment advisory contracts, changing structure of section
from a single unlettered paragraph to one consisting of four
subsections lettered (a) to (d).
1980 - Pub. L. 96-477 provided that par. (1) of this section was
not to apply with respect to any investment advisory contract
between an investment adviser and a business development company so
long as the compensation provided for in such contract did not
exceed 20 per cent of the realized capital gains upon the funds of
the business development company and such business development
company did not have outstanding any option, warrant, or right
issued pursuant to section 80a-60(a)(3)(B) of this title and did
not have a profit-sharing plan.
1970 - Pub. L. 91-547 substituted reference to section "80b-3(b)"
for "80b-3" of this title in first sentence, redesignated as second
sentence former third sentence, designating existing provisions as
cl. (A) and adding cl. (B) and items (i) and (ii) and provision
respecting compensation based on asset value of company or fund
under management averaged over a specified period in relation to
investment record of an index of securities or such other measure
of investment performance specified by Commission rules,
regulations, or orders, inserted third sentence provision
respecting point from which compensation is to be measured,
substituted in fourth, formerly third, sentence "paragraphs (2) and
(3) of this section" for "this section" and in definition of
"investment advisory contract" the words "account of another person
other than an investment company registered under subchapter I of
this chapter" for "account for a person other than an investment
1960 - Pub. L. 86-750 substituted "unless exempt from
registration pursuant to" for "registered under".
EFFECTIVE DATE OF 1970 AMENDMENT
Amendment by Pub. L. 91-547 effective on expiration of one year
after Dec. 14, 1970, see section 30(1) 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.