
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-28]

 
                      TITLE 15--COMMERCE AND TRADE
 
              CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
 
                   SUBCHAPTER I--INVESTMENT COMPANIES
 
Sec. 80a-28. Face-amount certificate companies


(a) Issuance or sale of certificates

    It shall be unlawful for any registered face-amount certificate 
company to issue or sell any face-amount certificate, or to collect or 
accept any payment on any such certificate issued by such company on or 
after the effective date of this subchapter, unless--
        (1) such company, if organized before March 15, 1940, was 
    actively and continuously engaged in selling face-amount 
    certificates on and before that date, and has outstanding capital 
    stock worth upon a fair valuation of assets not less than $50,000; 
    or if organized on or after March 15, 1940, has capital stock in an 
    amount not less than $250,000 which has been bona fide subscribed 
    and paid for in cash; and
        (2) such company maintains at all times minimum certificate 
    reserves on all its outstanding face-amount certificates in an 
    aggregate amount calculated and adjusted as follows:
            (A) the reserves for each certificate of the installment 
        type shall be based on assumed annual, semi-annual, quarterly, 
        or monthly reserve payments according to the manner in which 
        gross payments for any certificate year are made by the holder, 
        which reserve payments shall be sufficient in amount, as and 
        when accumulated at a rate not to exceed 3\1/2\ per centum per 
        annum compounded annually, to provide the minimum maturity or 
        face amount of the certificate when due. Such reserve payments 
        may be graduated according to certificate years so that the 
        reserve payment or payments for the first certificate year shall 
        amount to at least 50 per centum of the required gross annual 
        payment for such year and the reserve payment or payments for 
        each of the second to fifth certificate years inclusive shall 
        amount to at least 93 per centum of each such year's required 
        gross annual payment and for the sixth and each subsequent 
        certificate year the reserve payment or payments shall amount to 
        at least 96 per centum of each such year's required gross annual 
        payment: Provided, That such aggregate reserve payments shall 
        amount to at least 93 per centum of the aggregate gross annual 
        payments required to be made by the holder to obtain the 
        maturity of the certificate. The company may at its option take 
        as loading from the gross payment or payments for a certificate 
        year, as and when made by the certificate holder, an amount or 
        amounts equal in the aggregate for such year to not more than 
        the excess, if any, of the gross payment or payments required to 
        be made by the holder for such year, over and above the 
        percentage of the gross annual payment required herein for such 
        year for reserve purposes. Such loading may be taken by the 
        company prior to or after the setting up of the reserve payment 
        or payments for such year and the reserve payment or payments 
        for such year may be graduated and adjusted to correspond with 
        the amount of the gross payment or payments made by the 
        certificate holder for such year less the loading so taken;
            (B) if the foregoing minimum percentages of the gross annual 
        payments required under the provisions of such certificate 
        should produce reserve payments larger than are necessary at 
        3\1/2\ per centum per annum compounded annually to provide the 
        minimum maturity or face amount of the certificate when due, the 
        reserve shall be based upon reserve payments accumulated as 
        provided under preceding subparagraph (A) of this paragraph 
        except that in lieu of the 3\1/2\ per centum rate specified 
        therein, such rate shall be lowered to the minimum rate, 
        expressed in multiples of one-eighth of 1 per centum, which will 
        accumulate such reserve payments to the maturity value when due;
            (C) if the actual annual gross payment to be made by the 
        certificate holder on any certificate issued prior to or after 
        the effective date of this chapter is less than the amount of 
        any assumed reserve payment or payments for a certificate year, 
        such company shall maintain as a part of such minimum 
        certificate reserves a deficiency reserve equal to the total 
        present value of future deficiencies in the gross payments, 
        calculated at a rate not to exceed 3\1/2\ per centum per annum 
        compounded annually;
            (D) for each certificate of the installment type the amount 
        of the reserve shall at any time be at least equal to (1) the 
        then amount of the reserve payments set up under subparagraphs 
        (A) or (B) of this paragraph; (2) the accumulations on such 
        reserve payments as computed under subparagraphs (A) or (B) of 
        this paragraph; (3) the amount of any deficiency reserve 
        required under subparagraph (C) of this paragraph; and (4) such 
        amount as shall have been credited to the account of each 
        certificate holder in the form of any credit, or any dividend, 
        or any interest in addition to the minimum maturity amount 
        specified in such certificate, plus any accumulations on any 
        amount or amounts so credited, at a rate not exceeding 3\1/2\ 
        per centum per annum compounded annually;
            (E) for each certificate which is fully paid, including any 
        fully paid obligations resulting from or effected upon the 
        maturity of the previously issued certificate, and for each 
        paid-up certificate issued as provided in subsection (f) of this 
        section prior to maturity, the amount of the reserve shall at 
        any time be at least equal to (1) such amount as and when 
        accumulated at a rate not to exceed 3\1/2\ per centum per annum 
        compounded annually, will provide the amount or amounts payable 
        when due and (2) such amount as shall have been credited to the 
        account of each such certificate holder in the form of any 
        credit, or any dividend, or any interest in addition to the 
        minimum maturity amount specified in the certificate, plus any 
        accumulations on any amount or amounts so credited, at a rate 
        not exceeding 3\1/2\ per centum per annum compounded annually;
            (F) for each certificate of the installment type under which 
        gross payments have been made by or credited to the holder 
        thereof covering a payment period or periods or any part thereof 
        beyond the then current payment period as defined by the terms 
        of such certificate, and for which period or periods no reserve 
        has been set up under subparagraph (A) or (B) of this paragraph, 
        an advance payment reserve shall be set up and maintained in the 
        amount of the present value of any such unapplied advance gross 
        payments, computed at a rate not to exceed 3\1/2\ per centum per 
        annum compounded annually;
            (G) such appropriate contingency reserves for death and 
        disability benefits and for reinstatement rights on any such 
        certificate providing for such benefits or rights as the 
        Commission shall prescribe by rule, regulation, or order based 
        upon the experience of face-amount companies in relation to such 
        contingencies.

At no time shall the aggregate certificate reserves herein required by 
subparagraphs (A) to (F) of this paragraph, be less than the aggregate 
surrender values and other amounts to which all certificate holders may 
be then entitled.
    For the purpose of this subsection, no certificate of the 
installment type shall be deemed to be outstanding if before a surrender 
value has been attained the holder thereof has been in continuous 
default in making his payments thereon for a period of one year.

(b) Asset requirements prior to sale of certificates

    It shall be unlawful for any registered face-amount certificate 
company to issue or sell any face-amount certificate, or to collect or 
accept any payment on any such certificate issued by such company on or 
after the effective date of this subchapter, unless such company has, in 
cash or qualified investments, assets having a value not less than the 
aggregate amount of the capital stock requirement and certificate 
reserves as computed under the provisions of subsection (a) of this 
section. As used in this subsection, ``qualified investments'' means 
investments of a kind which life-insurance companies are permitted to 
invest in or hold under the provisions of the Code of the District of 
Columbia as heretofore or hereafter amended, and such other investments 
as the Commission shall by rule, regulation, or order authorize as 
qualified investments. Such investments shall be valued in accordance 
with the provisions of said Code where such provisions are applicable. 
Investments to which such provisions do not apply shall be valued in 
accordance with such rules, regulations, or orders as the Commission 
shall prescribe for the protection of investors.

(c) Certificate reserve requirements

    The Commission shall by rule, regulation, or order, in the public 
interest or for the protection of investors, require a registered face-
amount certificate company to deposit and maintain, upon such terms and 
conditions as the Commission shall prescribe and as are appropriate for 
the protection of investors, with one or more institutions having the 
qualifications required by paragraph (1) of section 80a-26(a) of this 
title for a trustee of a unit investment trust, all or any part of the 
investments maintained by such company as certificate reserve 
requirements under the provisions of subsection (b) of this section: 
Provided, however, That where qualified investments are maintained on 
deposit by such company in respect of its liabilities under certificates 
issued to or held by residents of any State as required by the statute 
of such State or by any order, regulation, or requirement of such State 
or any official or agency thereof, the amount so on deposit, but not to 
exceed the amount of reserves required by subsection (a) of this section 
for the certificates so issued or held, shall be deducted from the 
amount of qualified investments that may be required to be deposited 
hereunder.
    Assets which are qualified investments under subsection (b) of this 
section and which are deposited under or as permitted by this 
subsection, may be used and shall be considered as a part of the assets 
required to be maintained under the provisions of said subsection (b).

(d) Provisions required in certificate

    It shall be unlawful for any registered face-amount certificate 
company to issue or sell any face-amount certificate, or to collect or 
accept any payment on any such certificate issued by such company on or 
after the effective date of this subchapter, unless such certificate 
contains a provision or provisions to the effect--
        (1) that, in respect of any certificate of the installment type, 
    during the first certificate year the holder of the certificate, 
    upon surrender thereof, shall be entitled to a value payable in cash 
    not less than the reserve payments as specified in subparagraph (A) 
    or (B) of paragraph (2) of subsection (a) of this section and at the 
    end of such certificate year, a value payable in cash at least equal 
    to 50 per centum of the amount of the gross annual payment required 
    thereby for such year;
        (2) that, in respect of any certificate of the installment type, 
    at any time after the expiration of the first certificate year and 
    prior to maturity, the holder of the certificate, upon surrender 
    thereof, shall be entitled to a value payable in cash not less than 
    the then amount of the reserve for such certificate required by 
    numbered items (1) and (2) of subparagraph (D) of paragraph (2) of 
    subsection (a) of this section, less a surrender charge that shall 
    not exceed 2 per centum of the face or maturity amount of the 
    certificate, or 15 per centum of the amount of such reserve, 
    whichever is the lesser, but in no event shall such value be less 
    than 50 per centum of the amount of such reserve. The amount of the 
    surrender value for the end of each certificate year shall be set 
    out in the certificate;
        (3) that, in respect of any certificate of the installment type, 
    the holder of the certificate, upon surrender thereof for cash or 
    upon receipt of a paid-up certificate as provided in subsection (f) 
    of this section, shall be entitled to a value payable in cash equal 
    to the then amount of any advance payment reserve under such 
    certificate required by subparagraph (F) of paragraph (2) of 
    subsection (a) of this section in addition to any other amounts due 
    the holder hereunder;
        (4) that at any time prior to maturity, in respect of any 
    certificate which is fully paid, the holder of the certificate, upon 
    surrender thereof, shall be entitled to a value payable in cash not 
    less than the then amount of the reserve for such certificate 
    required by item (1) of subparagraph (E) of paragraph (2) of 
    subsection (a) of this section, less a surrender charge that shall 
    not exceed 2 per centum of the face or maturity amount of the 
    certificate, or 15 per centum of the amount of such reserve, 
    whichever is the lesser: Provided, however, That such surrender 
    charge shall not apply as to any obligations of a fully paid type 
    resulting from the maturity of a previously issued certificate. The 
    amount of the surrender value for the end of each certificate year 
    shall be set out in the certificate;
        (5) that in respect of any certificate, the holder of the 
    certificate, upon maturity, upon surrender thereof for cash or upon 
    receipt of a paid-up certificate as provided in subsection (f) of 
    this section, shall be entitled to a value payable in cash equal to 
    the then amount of the reserve, if any, for such certificate 
    required by item (4) of subparagraph (D) of paragraph (2) of 
    subsection (a) of this section or item (2) of subparagraph (E) of 
    paragraph (2) of said subsection (a) in addition to any other 
    amounts due the holder hereunder.

    The term ``certificate year'' as used in this section in respect of 
any certificate of the installment type means a period or periods for 
which one year's payment or payments as provided by the certificate have 
been made thereon by the holder and the certificate maintained in force 
by such payments for the time for which the same have been made, and in 
respect of any certificate which is fully paid or paid-up means any year 
ending on the anniversary of the date of issuance of the certificate.
    Any certificate may provide for loans or advances by the company to 
the certificate holder on the security of such certificate upon terms 
prescribed therein but at an interest rate not exceeding 6 per centum 
per annum. The amount of the required reserves, deposits, and the 
surrender values thereof available to the holder may be adjusted to take 
into account any unpaid balance on such loans or advances and interest 
thereon, for the purposes of this subsection and subsections (b) and (c) 
of this section.
    Any certificate may provide that the company at its option may, 
prior to the maturity thereof, defer any payment or payments to the 
certificate holder to which he may be entitled under this subsection, 
for a period of not more than thirty days: Provided, That in the event 
such option is exercised by the company, interest shall accrue on any 
payment or payments due to the holder, for the period of such deferment 
at a rate equal to that used in accumulating the reserves for such 
certificate: And provided further, That the Commission may, by rules and 
regulations or orders in the public interest or for the protection of 
investors, make provision for any other deferment upon such terms and 
conditions as it shall prescribe.

(e) Liability of holder to legal action for unpaid amount of certificate

    It shall be unlawful for any registered face-amount certificate 
company to issue or sell any face-amount certificate, or to collect or 
accept any payment on any such certificate issued by such company on or 
after the effective date of this subchapter, which certificate makes the 
holder liable to any legal action or proceeding for any unpaid amount on 
such certificate.

(f) Optional right to paid up certificate in lieu of cash surrender 
        value

    It shall be unlawful for any registered face-amount certificate 
company to issue or sell any face-amount certificate, or to collect or 
accept any payment on any such certificate issued by such company on or 
after the effective date of this subchapter, (1) unless such face-amount 
certificate contains a provision or provisions to the effect that the 
holder shall have an optional right to receive a paid-up certificate in 
lieu of the then attained cash surrender value provided therein and in 
the amount of such value plus accumulations thereon at a rate to be 
specified in the paid-up certificate equal to that used in computing the 
reserve on the original certificate under subparagraph (A) or (B) of 
paragraph (2) of subsection (a) of this section, such paid-up 
certificate to become due and payable at the end of a period equal to 
the balance of the term of such original certificate before maturity; 
and during the period prior to maturity such paid-up certificate shall 
have a cash value upon surrender thereof equal to the then amount of the 
reserve therefor; and (2) unless such face-amount certificate contains a 
further provision or provisions to the effect that if the holder be in 
continuous default in his payments on such certificate for a period of 
six months without having exercised his option to receive a paid-up 
certificate, as herein provided, the company at the expiration of such 
six months shall pay the surrender value in cash if such value is less 
than $100 or if such value is $100 or more shall issue such paid-up 
certificate to such holder and such payment or issuance, plus the 
payment of all other amounts to which he may be then entitled under the 
original certificate, shall operate to cancel his original certificate: 
Provided, That in lieu of the issuance of a new paid-up certificate the 
original certificate may be converted into a paid-up certificate with 
the same effect; and (3) unless, where such certificate provides, in the 
event of default, for the deferment of payments thereon by the holder or 
of the due dates of such payments or of the maturity date of the 
certificate, it shall also provide in effect for the right of 
reinstatement by the holder of the certificate after default and for an 
option in the holder, at the time of reinstatement, to make up the 
payment or payments for the default period next preceding such 
reinstatement with interest thereon not exceeding 6 per centum per 
annum, with the same effect as if no such default in making such 
payments had occurred.
    The term ``default'' as used in this subsection shall, without 
restricting its usual meaning, include a failure to make a payment or 
payments as and when provided by the certificate.

(g) Application of section to company issuing certificates only to 
        holders of previously issued certificates

    The foregoing provisions of this section shall not apply to a face-
amount certificate company which on or before the effective date of this 
chapter has discontinued the offering of face-amount certificates to the 
public and issues face-amount certificates only to the holders of 
certificates previously issued pursuant to an obligation expressed or 
implied in such certificates.

(h) Declaration or payment of dividends

    It shall be unlawful for any registered face-amount certificate 
company which does not maintain the minimum certificate reserve on all 
its outstanding face-amount certificates issued prior to the effective 
date of this chapter, in an aggregate amount calculated and adjusted as 
provided in this section to declare or pay any dividends on the shares 
of such company for or during any calendar year which shall exceed one-
third of the net earnings for the next preceding calendar year or which 
shall exceed 10 per centum of the aggregate net earnings for the next 
preceding five calendar years, whichever is the lesser amount, or any 
dividend which shall have been forbidden by the Commission pursuant to 
the provision of the next sentence of this paragraph. At least thirty 
days before such company shall declare, pay, or distribute any dividend, 
it shall give the Commission written notice of its intention to declare, 
pay, or distribute the same; and if at any time it shall appear to the 
Commission that the declaration, payment or distribution of any dividend 
for or during any calendar year might impair the financial integrity of 
such company or its ability to meet its liabilities under its 
outstanding face-amount certificates, it may by order forbid the 
declaration, distribution, or payment of any such dividend.

(i) Application of section to certificates issued prior to effective 
        date of section

    The foregoing provisions of this section shall apply to all face-
amount certificates issued prior to the effective date of this 
subsection; to the collection or acceptance of any payment on such 
certificates; to the issuance of face-amount certificates to the holders 
of such certificates pursuant to an obligation expressed or implied in 
such certificates; to the provisions of such certificates; to the 
minimum certificate reserves and deposits maintained with respect 
thereto; and to the assets that the issuer of such certificate was and 
is required to have with respect to such certificates. With respect to 
all face-amount certificates issued after the effective date of this 
subsection, the provisions of this section shall apply except as 
hereinafter provided.
    (1) Notwithstanding subparagraph (A) of paragraph (2) of subsection 
(a) of this section, the reserves for each certificate of the 
installment type shall be based on assumed annual, semiannual, 
quarterly, or monthly reserve payments according to the manner in which 
gross payments for any certificate year are made by the holder, which 
reserve payments shall be sufficient in amount, as and when accumulated 
at a rate not to exceed 3\1/2\ per centum per annum compounded annually, 
to provide the minimum maturity or face amount of the certificate when 
due. Such reserve payments may be graduated according to certificate 
years so that the reserve payment or payments for the first three 
certificate years shall amount to at least 80 per centum of the required 
gross annual payment for such years; the reserve payment or payments for 
the fourth certificate year shall amount to at least 90 per centum of 
such year's required gross annual payment; the reserve payment or 
payments for the fifth certificate year shall amount to at least 93 per 
centum of such year's gross annual payment; and for the sixth and each 
subsequent certificate year the reserve payment or payments shall amount 
to at least 96 per centum of each such year's required gross annual 
payment: Provided, That such aggregate reserve payments shall amount to 
at least 93 per centum of the aggregate gross annual payments required 
to be made by the holder to obtain the maturity of the certificate. The 
company may at its option take as loading from the gross payment or 
payments for a certificate year, as and when made by the certificate 
holder, an amount or amounts equal in the aggregate for such year to not 
more than the excess, if any, of the gross payment or payments required 
to be made by the holder for such year, over and above the percentage of 
the gross annual payment required herein for such year for reserve 
purposes. Such loading may be taken by the company prior to or after the 
setting up of the reserve payment or payments for such year and the 
reserve payment or payments for such year may be graduated and adjusted 
to correspond with the amount of the gross payment or payments made by 
the certificate holder for such year less the loading so taken.
    (2) Notwithstanding paragraphs (1) and (2) of subsection (d) of this 
section, (A) in respect of any certificate of the installment type, 
during the first certificate year, the holder of the certificate, upon 
surrender thereof, shall be entitled to a value payable in cash not less 
than 80 per centum of the amount of the gross payments made on the 
certificate; and (B) in respect of any certificate of the installment 
type, at any time after the expiration of the first certificate year and 
prior to maturity, the holder of the certificate, upon surrender 
thereof, shall be entitled to a value payable in cash not less than the 
then amount of the reserve for such certificate required by clauses (1) 
and (2) of subparagraph (D) of paragraph (2) of subsection (a) of this 
section, less a surrender charge that shall not exceed 2 per centum of 
the face or maturity amount of the certificate, or 15 per centum of the 
amount of such reserve, whichever is the lesser, but in no event shall 
such value be less than 80 per centum of the gross payments made on the 
certificate. The amount of the surrender value for the end of each 
certificate year shall be set out in the certificate.

(Aug. 22, 1940, ch. 686, title I, Sec. 28, 54 Stat. 829; Pub. L. 91-547, 
Sec. 17, Dec. 14, 1970, 84 Stat. 1426; Pub. L. 100-181, title VI, 
Secs. 620, 621, Dec. 4, 1987, 101 Stat. 1262.)

                       References in Text

    For the effective date of this subchapter, referred to in subsecs. 
(a), (b), (d), (e), and (f), see section 80a-52 of this title.
    For the effective date of this chapter, referred to in subsecs. 
(a)(2)(C), (g), and (h), see sections 80a-52 and 80b-21 of this title.
    For the effective date of this subsection, referred to in subsec. 
(i), as the day upon expiration of 6 months after Dec. 14, 1970, see 
section 30(3) of Pub. L. 91-547, set out as a note under section 80a-52 
of this title.


                               Amendments

    1987--Subsec. (a)(2)(B). Pub. L. 100-181, Sec. 620, substituted 
``paragraph'' for ``subsection''.
    Subsec. (d)(2). Pub. L. 100-181, Sec. 621, inserted ``of'' before 
``subsection (a)''.
    1970--Subsec. (i). Pub. L. 91-547 added subsec. (i).


                    Effective Date of 1970 Amendment

    Amendment by Pub. L. 91-547 effective on expiration of six months 
after Dec. 14, 1970, see section 30(3) of Pub. L. 91-547, set out as a 
note under section 80a-2 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-6, 80a-12 of this 
title.
