CITE

    15 USC Sec. 80b-5                                           01/05/2009

EXPCITE

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

HEAD

    Sec. 80b-5. Investment advisory contracts

STATUTE

    (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
      computations
      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
      this title;
        (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
    this chapter.
    (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.

SOURCE

    (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.)

AMENDMENTS

      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
    company".
      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.