
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: 15USC80b-5]

 
                      TITLE 15--COMMERCE AND TRADE
 
              CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
 
                   SUBCHAPTER II--INVESTMENT ADVISERS
 
Sec. 80b-5. Investment advisory contracts


(a) Compensation, assignment, and partnership-membership provisions

    No investment adviser, unless exempt from registration pursuant to 
section 80b-3(b) of this title, shall make use of the mails or any means 
or instrumentality of interstate commerce, directly or indirectly, to 
enter into, extend, or renew any investment advisory contract, or in any 
way to perform any investment advisory contract entered into, extended, 
or renewed on or after November 1, 1940, if such contract--
        (1) provides for compensation to the investment adviser on the 
    basis of a share of capital gains upon or capital appreciation of 
    the funds or any portion of the funds of the client;
        (2) fails to provide, in substance, that no assignment of such 
    contract shall be made by the investment adviser without the consent 
    of the other party to the contract; or
        (3) fails to provide, in substance, that the investment adviser, 
    if a partnership, will notify the other party to the contract of any 
    change in the membership of such partnership within a reasonable 
    time after such change.

(b) Compensation prohibition inapplicable to certain compensation 
        computations

    Paragraph (1) of subsection (a) of this section shall not--
        (1) be construed to prohibit an investment advisory contract 
    which provides for compensation based upon the total value of a fund 
    averaged over a definite period, or as of definite dates, or taken 
    as of a definite date;
        (2) apply to an investment advisory contract with--
            (A) an investment company registered under subchapter I of 
        this chapter, or
            (B) any other person (except a trust, governmental plan, 
        collective trust fund, or separate account referred to in 
        section 80a-3(c)(11) of this title), provided that the contract 
        relates to the investment of assets in excess of $1 million,

    if the contract provides for compensation based on the asset value 
    of the company or fund under management averaged over a specified 
    period and increasing and decreasing proportionately with the 
    investment performance of the company or fund over a specified 
    period in relation to the investment record of an appropriate index 
    of securities prices or such other measure of investment performance 
    as the Commission by rule, regulation, or order may specify;
        (3) apply with respect to any investment advisory contract 
    between an investment adviser and a business development company, as 
    defined in this subchapter, if (A) the compensation provided for in 
    such contract does not exceed 20 per centum of the realized capital 
    gains upon the funds of the business development company over a 
    specified period or as of definite dates, computed net of all 
    realized capital losses and unrealized capital depreciation, and the 
    condition of section 80a-60(a)(3)(B)(iii) of this title is 
    satisfied, and (B) the business development company does not have 
    outstanding any option, warrant, or right issued pursuant to section 
    80a-60(a)(3)(B) of this title and does not have a profit-sharing 
    plan described in section 80a-56(n) of this title;
        (4) apply to an investment advisory contract with a company 
    excepted from the definition of an investment company under section 
    80a-3(c)(7) of this title; or
        (5) apply to an investment advisory contract with a person who 
    is not a resident of the United States.

(c) Measurement of changes in compensation

    For purposes of paragraph (2) of subsection (b) of this section, the 
point from which increases and decreases in compensation are measured 
shall be the fee which is paid or earned when the investment performance 
of such company or fund is equivalent to that of the index or other 
measure of performance, and an index of securities prices shall be 
deemed appropriate unless the Commission by order shall determine 
otherwise.

(d) ``Investment advisory contract'' defined

    As used in paragraphs (2) and (3) of subsection (a) of this section, 
``investment advisory contract'' means any contract or agreement whereby 
a person agrees to act as investment adviser to or to manage any 
investment or trading account of another person other than an investment 
company registered under subchapter I of this chapter.

(e) Exempt persons and transactions

    The Commission, by rule or regulation, upon its own motion, or by 
order upon application, may conditionally or unconditionally exempt any 
person or transaction, or any class or classes of persons or 
transactions, from subsection (a)(1) of this section, if and to the 
extent that the exemption relates to an investment advisory contract 
with any person that the Commission determines does not need the 
protections of subsection (a)(1) of this section, on the basis of such 
factors as financial sophistication, net worth, knowledge of and 
experience in financial matters, amount of assets under management, 
relationship with a registered investment adviser, and such other 
factors as the Commission determines are consistent with this section.

(Aug. 22, 1940, ch. 686, title II, Sec. 205, 54 Stat. 852; Pub. L. 86-
750, Sec. 7, Sept. 13, 1960, 74 Stat. 887; Pub. L. 91-547, Sec. 25, Dec. 
14, 1970, 84 Stat. 1432; Pub. L. 96-477, title II, Sec. 203, Oct. 21, 
1980, 94 Stat. 2290; Pub. L. 100-181, title VII, Sec. 703, Dec. 4, 1987, 
101 Stat. 1263; Pub. L. 104-290, title II, Sec. 210, Oct. 11, 1996, 110 
Stat. 3436.)


                               Amendments

    1996--Subsec. (b)(4), (5). Pub. L. 104-290, Sec. 210(1), added pars. 
(4) and (5).
    Subsec. (e). Pub. L. 104-290, Sec. 210(2), added subsec. (e).
    1987--Pub. L. 100-181 completely revised and expanded provisions on 
investment advisory contracts, changing structure of section from a 
single unlettered paragraph to one consisting of four subsections 
lettered (a) to (d).
    1980--Pub. L. 96-477 provided that par. (1) of this section was not 
to apply with respect to any investment advisory contract between an 
investment adviser and a business development company so long as the 
compensation provided for in such contract did not exceed 20 per cent of 
the realized capital gains upon the funds of the business development 
company and such business development company did not have outstanding 
any option, warrant, or right issued pursuant to section 80a-60(a)(3)(B) 
of this title and did not have a profit-sharing plan.
    1970--Pub. L. 91-547 substituted reference to section ``80b-3(b)'' 
for ``80b-3'' of this title in first sentence, redesignated as second 
sentence former third sentence, designating existing provisions as cl. 
(A) and adding cl. (B) and items (i) and (ii) and provision respecting 
compensation based on asset value of company or fund under management 
averaged over a specified period in relation to investment record of an 
index of securities or such other measure of investment performance 
specified by Commission rules, regulations, or orders, inserted third 
sentence provision respecting point from which compensation is to be 
measured, substituted in fourth, formerly third, sentence ``paragraphs 
(2) and (3) of this section'' for ``this section'' and in definition of 
``investment advisory contract'' the words ``account of another person 
other than an investment company registered under subchapter I of this 
chapter'' for ``account for a person other than an investment company''.
    1960--Pub. L. 86-750 substituted ``unless exempt from registration 
pursuant to'' for ``registered under''.


                    Effective Date of 1970 Amendment

    Amendment by Pub. L. 91-547 effective on expiration of one year 
after Dec. 14, 1970, see section 30(1) 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 section 80a-60 of this title.
