17 CFR 270.3a-4

Securities and Exchange Commission

§ 270.3a–4

company which satisfies the conditions
of § 270.3a–1(a) and which is:
(a) A company that is not an investment company as defined in section
3(a) of the Act;
(b) A company that is an investment
company as defined in section 3(a)(1)(C)
of the Act (15 U.S.C. 80a–3(a)(1)(C)), but
which is excluded from the definition
of the term ‘‘investment company’’ by
section 3(b)(1) or 3(b)(2) of the Act (15
U.S.C. 80a–3(b)(1) or 80a–3(b)(2)); or
(c) A company that is deemed not to
be an investment company for purposes
of the Act by rule 3a–1.
[46 FR 6884, Jan. 22, 1981, as amended at 67
FR 43536, June 28, 2002]

§ 270.3a–4 Status of investment advisory programs.

dwashington3 on PROD1PC60 with CFR

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 § 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

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§ 270.3a–5

17 CFR Ch. II (4–1–09 Edition)

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]

dwashington3 on PROD1PC60 with CFR

§ 270.3a–5 Exemption for subsidiaries
organized to finance the operations
of domestic or foreign companies.
(a) A finance subsidiary will not be
considered an investment company
under section 3(a) of the Act (15 U.S.C.
80a–3(a)) and securities of a finance
subsidiary held by the parent company
or a company controlled by the parent
company will not be considered ‘‘investment securities’’ under section
3(a)(1)(C) of the Act (15 U.S.C. 80a–
3(a)(1)(C)); Provided, That:
(1) Any debt securities of the finance
subsidiary issued to or held by the public are unconditionally guaranteed by
the parent company as to the payment
of principal, interest, and premium, if
any (except that the guarantee may be
subordinated in right of payment to
other debt of the parent company);
(2) Any non-voting preferred stock of
the finance subsidiary issued to or held
by the public is unconditionally guaranteed by the parent company as to
payment of dividends, payment of the
liquidation preference in the event of
liquidation, and payments to be made
under a sinking fund, if a sinking fund
is to be provided (except that the guarantee may be subordinated in right of

payment to other debt of the parent
company);
(3) The parent company’s guarantee
provides that in the event of a default
in payment of principal, interest, premium, dividends, liquidation preference or payments made under a sinking fund on any debt securities or nonvoting preferred stock issued by the finance subsidiary, the holders of those
securities may institute legal proceedings directly against the parent
company (or, in the case of a partnership or joint venture, against the partners or participants in the joint venture) to enforce the guarantee without
first proceeding against the finance
subsidiary;
(4) Any securities issued by the finance subsidiary which are convertible
or exchangeable are convertible or exchangeable only for securities issued
by the parent company (and, in the
case of a partnership or joint venture,
for securities issued by the partners or
participants in the joint venture) or for
debt securities or non-voting preferred
stock issued by the finance subsidiary
meeting the applicable requirements of
paragraphs (a)(1) through (a)(3);
(5) The finance subsidiary invests in
or loans to its parent company or a
company controlled by its parent company at least 85% of any cash or cash
equivalents raised by the finance subsidiary through an offering of its debt
securities or non-voting preferred
stock or through other borrowings as
soon as practicable, but in no event
later than six months after the finance
subsidiary’s receipt of such cash or
cash equivalents;
(6) The finance subsidiary does not
invest in, reinvest in, own, hold or
trade in securities other than Government securities, securities of its parent
company or a company controlled by
its parent company (or in the case of a
partnership or joint venture, the securities of the partners or participants in
the joint venture) or debt securities
(including
repurchase
agreements)
which are exempted from the provisions of the Securities Act of 1933 by
section 3(a)(3) of that Act; and
(7) Where the parent company is a
foreign bank as the term is used in rule
3a–6 (17 CFR 270.3a–6 of this chapter),
the parent company may, in lieu of the

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