Rule 12d1-1-15USC 80a-12

WAIS Document Retrieval

From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC80a-12]

TITLE 15--COMMERCE AND TRADE
CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I--INVESTMENT COMPANIES
Sec. 80a-12. Functions and activities of investment companies

(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
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (1 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (2 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (3 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (4 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (5 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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 shortterm 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.
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (6 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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 faceamount 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 facehttp://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (7 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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.
(Aug. 22, 1940, ch. 686, title I, Sec. 12, 54 Stat. 808; Pub. L. 91547,
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.)

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (8 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (9 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (10 of 11)6/21/2006 10:09:16 AM

WAIS Document Retrieval

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.
Section Referred to in Other Sections
This section is referred to in sections 80a-2, 80a-3, 80a-6, 80a10,
80a-17, 80a-22, 80a-59 of this title.

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+15USC80a-12 (11 of 11)6/21/2006 10:09:16 AM