
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 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 
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 
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 
        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 
    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 
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 short-
term 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.

    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 face-
amount 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 face-
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. 91-547, 
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.)

                       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 
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 
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, 80a-10, 
80a-17, 80a-22, 80a-59 of this title.
