Rule 3a-4 Text

Sec. 270.3a-4 Status of investment advisory programs.

 

Note: This section is a nonexclusive safe harbor from the

definition of investment company for programs that provide discretionary

investment advisory services to clients. There is no registration

requirement under section 5 of the Securities Act of 1933 [15 U.S.C.

77e] with respect to programs that are organized and operated in the

manner described in Sec. 270.3a-4. The section is not intended, however,

to create any presumption about a program that is not organized and

operated in the manner contemplated by the section.

(a) Any program under which discretionary investment advisory

services are provided to clients that has the following characteristics

will not be deemed to be an investment company within the meaning of the

Act [15 U.S.C. 80a, et seq.]:

(1) Each client's account in the program is managed on the basis of

the client's financial situation and investment objectives and in

accordance with any reasonable restrictions imposed by the client on the

management of the account.

(2)(i) At the opening of the account, the sponsor or another person

designated by the sponsor obtains information from the client regarding

the client's financial situation and investment objectives, and gives

the client the opportunity to impose reasonable restrictions on the

management of the account;

(ii) At least annually, the sponsor or another person designated by

the sponsor contacts the client to determine whether there have been any

changes in the client's financial situation or investment objectives,

and whether the client wishes to impose any reasonable restrictions on

the management of the account or reasonably modify existing

restrictions;

(iii) At least quarterly, the sponsor or another person designated

by the sponsor notifies the client in writing to contact the sponsor or

such other person if there have been any changes in the client's

financial situation or investment objectives, or if the client

wishes to impose any reasonable restrictions on the management of the

client's account or reasonably modify existing restrictions, and

provides the client with a means through which such contact may be made;

and

(iv) The sponsor and personnel of the manager of the client's

account who are knowledgeable about the account and its management are

reasonably available to the client for consultation.

(3) Each client has the ability to impose reasonable restrictions on

the management of the client's account, including the designation of

particular securities or types of securities that should not be

purchased for the account, or that should be sold if held in the

account; Provided, however, that nothing in this section requires that a

client have the ability to require that particular securities or types

of securities be purchased for the account.

(4) The sponsor or person designated by the sponsor provides each

client with a statement, at least quarterly, containing a description of

all activity in the client's account during the preceding period,

including all transactions made on behalf of the account, all

contributions and withdrawals made by the client, all fees and expenses

charged to the account, and the value of the account at the beginning

and end of the period.

(5) Each client retains, with respect to all securities and funds in

the account, to the same extent as if the client held the securities and

funds outside the program, the right to:

(i) Withdraw securities or cash;

(ii) Vote securities, or delegate the authority to vote securities

to another person;

(iii) Be provided in a timely manner with a written confirmation or

other notification of each securities transaction, and all other

documents required by law to be provided to security holders; and

(iv) Proceed directly as a security holder against the issuer of any

security in the client's account and not be obligated to join any person

involved in the operation of the program, or any other client of the

program, as a condition precedent to initiating such proceeding.

(b) As used in this section, the term sponsor refers to any person

who receives compensation for sponsoring, organizing or administering

the program, or for selecting, or providing advice to clients regarding

the selection of, persons responsible for managing the client's account

in the program. If a program has more than one sponsor, one person shall

be designated the principal sponsor, and such person shall be considered

the sponsor of the program under this section.

 

[62 FR 15109, Mar. 31, 1997]