INVESTMENT COMPANY ACT OF 1940 [Chapter 686 of the 76th

INVESTMENT COMPANY ACT OF 1940

øReferences in brackets ø¿ are to title 15, United States Code¿

[Chapter 686 of the 76th Congress]

[As Amended Through P.L. 117–263, Enacted December 23, 2022]

øCurrency: This publication is a compilation of the text of chapter 686 of the 76th

Congress. It was last amended by the public law listed in the As Amended

Through note above and below at the bottom of each page of the pdf version and

reflects current law through the date of the enactment of the public law listed at

https://www.govinfo.gov/app/collection/comps/¿

øNote: While this publication does not represent an official version of any Federal

statute, substantial efforts have been made to ensure the accuracy of its contents.

The official version of Federal law is found in the United States Statutes at Large

and in the United States Code. The legal effect to be given to the Statutes at

Large and the United States Code is established by statute (1 U.S.C. 112, 204).¿

AN ACT To provide for the registration and regulation of investment companies and

investment advisers, and for other purposes

Be it enacted by the Senate and House of Representatives of the

United States of America in Congress assembled,

TITLE I—INVESTMENT COMPANIES

FINDINGS AND DECLARATION OF POLICY

. 1. ø80a–1¿ (a) Upon the basis of facts disclosed by the

record and reports of the Securities and Exchange Commission

made pursuant to section 30 of the Public Utility Holding Company

Act of 1935, and facts otherwise disclosed and ascertained, it is

hereby found that investment companies are affected with a na-

tional public interest in that, among other things—

(1) the securities issued by such companies, which con-

stitute a substantial part of all securities publicly offered, are

distributed, purchased, paid for, exchanged, transferred, re-

deemed, and repurchased by use of the mails and means and

instrumentalities of interstate commerce, and in the case of the

numerous companies which issue redeemable securities this

process of distribution and redemption is continuous;

(2) the principal activities of such companies—investing,

reinvesting, and trading in securities—are conducted by use of

the mails and means and instrumentalities of interstate com-

merce, including the facilities of national securities exchanges,

and constitute a substantial part of all transactions effected in

the securities markets of the Nation;

(3) such companies customarily invest and trade in securi-

ties issued by, and may dominate and control or otherwise af-

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As Amended Through P.L. 117-263, Enacted December 23, 2022

2 Sec. 1 INVESTMENT COMPANY ACT OF 1940

fect the policies and management of, companies engaged in

business in interstate commerce;

(4) such companies are media for the investment in the na-

tional economy of a substantial part of the national savings

and may have a vital effect upon the flow of such savings into

the capital markets; and

(5) the activities of such companies, extending over many

States, their use of the instrumentalities of interstate com-

merce and the wide geographic distribution of their security

holders, make difficult, if not impossible, effective State regula-

tion of such companies in the interest of investors.

(b) Upon the basis of facts disclosed by the record and reports

of the Securities and Exchange Commission made pursuant to sec-

tion 30 of the Public Utility Holding Company Act of 1935, and

facts otherwise disclosed and ascertained, it is hereby declared that

the national public interest and the interest of investors are ad-

versely affected—

(1) when investors purchase, pay for, exchange, receive

dividends upon, vote, refrain from voting, sell, or surrender se-

curities issued by investment companies without adequate, ac-

curate, and explicit information, fairly presented, concerning

the character of such securities and the circumstances, policies,

and financial responsibility of such companies and their man-

agement;

(2) when investment companies are organized, operated,

managed, or their portfolio securities are selected, in the inter-

est of directors, officers, investment advisers, depositors, or

other affiliated persons thereof, in the interest of underwriters,

brokers, or dealers, in the interest of special classes of their se-

curity holders, or in the interest of other investment companies

or persons engaged in other lines of business, rather than in

the interest of all classes of such companies’ security holders;

(3) when investment companies issue securities containing

inequitable or discriminatory provisions, or fail to protect the

preferences and privileges of the holders of their outstanding

securities;

(4) when the control of investment companies is unduly

concentrated through pyramiding or inequitable methods of

control, or is inequitably distributed, or when investment com-

panies are managed by irresponsible persons;

(5) when investment companies, in keeping their accounts,

in maintaining reserves, and in computing their earnings and

the asset value of their outstanding securities, employ unsound

or misleading methods, or are not subjected to adequate inde-

pendent scrutiny;

(6) when investment companies are reorganized, become

inactive, or change the character of their business, or when the

control or management thereof is transferred, without the con-

sent of their security holders;

(7) when investment companies by excessive borrowing

and the issuance of excessive amounts of senior securities in-

crease unduly the speculative character of their junior securi-

ties; or

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3 Sec. 2 INVESTMENT COMPANY ACT OF 1940

(8) when investment companies operate without adequate

assets or reserves.

It is hereby declared that the policy and purposes of this title, in

accordance with which the provisions of this title shall be inter-

preted, are to mitigate and, so far as is feasible, to eliminate the

conditions enumerated in this section which adversely affect the

national public interest and the interest of investors.

GENERAL DEFINITIONS

. 2. ø80a–2¿ (a) When used in this title, unless the context

otherwise requires—

(1) ‘‘Advisory board’’ means a board, whether elected or ap-

pointed, which is distinct from the board of directors or board

of trustees, of an investment company, and which is composed

solely of persons who do not serve such company in any other

capacity, whether or not the functions of such board are such

as to render its members ‘‘directors’’ within the definition of

that term, which board has advisory functions as to invest-

ments but has no power to determine that any security or

other investment shall be purchased or sold by such company.

(2) ‘‘Affiliated company’’ means a company which is an af-

filiated person.

(3) ‘‘Affiliated person’’ of another person means (A) any

person directly or indirectly owning, controlling, or holding

with power to vote, 5 per centum or more of the outstanding

voting securities of such other person; (B) any person 5 per

centum or more of whose outstanding voting securities are di-

rectly or indirectly owned, controlled, or held with power to

vote, by such other person; (C) any person directly or indirectly

controlling, controlled by, or under common control with, such

other person; (D) any officer, director, partner, copartner, or

employee of such other person; (E) if such other person is an

investment company, any investment adviser thereof or any

member of an advisory board thereof; and (F) if such other per-

son is an unincorporated investment company not having a

board of directors, the depositor thereof.

(4) ‘‘Assignment’’ includes any direct or indirect transfer or

hypothecation of a contract or chose in action by the assignor,

or of a controlling block of the assignor’s outstanding voting se-

curities by a security holder of the assignor; but does not in-

clude an assignment of partnership interests incidental to the

death or withdrawal of a minority of the members of the part-

nership having only a minority interest in the partnership

business or to the admission to the partnership of one or more

members who, after such admission, shall be only a minority

of the members and shall have only a minority interest in the

business.

(5) ‘‘Bank’’ means (A) a depository institution (as defined

in section 3 of the Federal Deposit Insurance Act) or a branch

or agency of a foreign bank (as such terms are defined in sec-

tion 1(b) of the International Banking Act of 1978), (B) a mem-

ber bank of the Federal Reserve System, (C) any other banking

institution or trust company, whether incorporated or not,

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4 Sec. 2 INVESTMENT COMPANY ACT OF 1940

doing business under the laws of any State or of the United

States, a substantial portion of the business of which consists

of receiving deposits or exercising fiduciary powers similar to

those permitted to national banks under the authority of the

Comptroller of the Currency, and which is supervised and ex-

amined by State or Federal authority having supervision over

banks, and which is not operated for the purpose of evading

the provisions of this title, and (D) a receiver, conservator, or

other liquidating agent of any institution or firm included in

clause (A), (B), or (C) of this paragraph.

(6) The term ‘‘broker’’ has the same meaning as given in

section 3 of the Securities Exchange Act of 1934, except that

such term does not include any person solely by reason of the

fact that such person is an underwriter for one or more invest-

ment companies.

(7) ‘‘Commission’’ means the Securities and Exchange

Commission.

(8) ‘‘Company’’ means a corporation, a partnership, an as-

sociation, a joint-stock company, a trust, a fund, or any orga-

nized group of persons whether incorporated or not; or any re-

ceiver, trustee in a case under title 11 of the United States

Code or similar official or any liquidating agent for any of the

foregoing, in his capacity as such.

(9) ‘‘Control’’ means the power to exercise a controlling in-

fluence over the management or policies of a company, unless

such power is solely the result of an official position with such

company.

Any person who owns beneficially, either directly or

through one or more controlled companies, more than 25 per

centum of the voting securities of a company shall be presumed

to control such company. Any person who does not so own

more than 25 per centum of the voting securities of any com-

pany shall be presumed not to control such company. A natural

person shall be presumed not to be a controlled person within

the meaning of this title. Any such presumption may be rebut-

ted by evidence, but except as hereinafter provided, shall con-

tinue until a determination to the contrary made by the Com-

mission by order either on its own motion or on application by

an interested person. If an application filed hereunder is not

granted or denied by the Commission within sixty days after

filing thereof, the determination sought by the application

shall be deemed to have been temporarily granted pending

final determination of the Commission thereon. The Commis-

sion, upon its own motion or upon application, may by order

revoke or modify any order issued under this paragraph when-

ever it shall find that the determination embraced in such

original order is no longer consistent with the facts.

(10) ‘‘Convicted’’ includes a verdict, judgment, or plea of

guilty, or a finding of guilt on a plea of nolo contendere, if such

verdict, judgment, plea, or finding has not been reversed, set

aside, or withdrawn, whether or not sentence has been im-

posed.

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5 Sec. 2 INVESTMENT COMPANY ACT OF 1940

(11) The term ‘‘dealer’’ has the same meaning as given in

the Securities Exchange Act of 1934, but does not include an

insurance company or investment company.

(12) ‘‘Director’’ means any director of a corporation or any

person performing similar functions with respect to any organi-

zation, whether incorporated or unincorporated, including any

natural person who is a member of a board of trustees of a

management company created as a common-law trust.

(13) ‘‘Employees’ securities company’’ means any invest-

ment company or similar issuer all of the outstanding securi-

ties of which (other than short-term paper) are beneficially

owned (A) by the employees or persons on retainer of a single

employer or of two or more employers each of which is an af-

filiated company of the other, (B) by former employees of such

employer or employers, (C) by members of the immediate fam-

ily of such employees, persons on retainer, or former employ-

ees, (D) by any two or more of the foregoing classes of persons,

or (E) by such employer or employers together with any one or

more of the foregoing classes of persons.

(14) ‘‘Exchange’’ means any organization, association, or

group of persons, whether incorporated or unincorporated,

which constitutes, maintains, or provides a market place or fa-

cilities for bringing together purchasers and sellers of securi-

ties or for otherwise performing with respect to securities the

functions commonly performed by a stock exchange as that

term is generally understood, and includes the market place

and the market facilities maintained by such exchange.

(15) ‘‘Face-amount certificate’’ means any certificate, in-

vestment contract, or other security which represents an obli-

gation on the part of its issuer to pay a stated or determinable

sum or sums at a fixed or determinable date or dates more

than twenty-four months after the date of issuance, in consid-

eration of the payment of periodic installments of a stated or

determinable amount (which security shall be known as a face-

amount certificate of the ‘‘installment type’’); or any security

which represents a similar obligation on the part of a face-

amount certificate company, the consideration for which is the

payment of a single lump sum (which security shall be known

as a ‘‘fully paid’’ face-amount certificate).

(16) ‘‘Government security’’ means any security issued or

guaranteed as to principal or interest by the United States, or

by a person controlled or supervised by and acting as an in-

strumentality of the Government of the United States pursu-

ant to authority granted by the Congress of the United States;

or any certificate of deposit for any of the foregoing.

(17) ‘‘Insurance company’’ means a company which is orga-

nized as an insurance company, whose primary and predomi-

nant business activity is the writing of insurance or the rein-

suring of risks underwritten by insurance companies, and

which is subject to supervision by the insurance commissioner

or a similar official or agency of a State; or any receiver or

similar official or any liquidating agent for such a company, in

his capacity as such.

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6 Sec. 2 INVESTMENT COMPANY ACT OF 1940

(18) ‘‘Interstate commerce’’ means trade, commerce, trans-

portation, or communication among the several States, or be-

tween any foreign country and any State, or between any State

and any place or ship outside thereof.

(19) ‘‘Interested person’’ of another person means—

(A) when used with respect to an investment com-

pany—

(i) any affiliated person of such company,

(ii) any member of the immediate family of any

natural person who is an affiliated person of such com-

pany,

(iii) any interested person of any investment ad-

viser of or principal underwriter for such company,

(iv) any person or partner or employee of any per-

son who at any time since the beginning of the last

two completed fiscal years of such company has acted

as legal counsel for such company,

(v) any person or any affiliated person of a person

(other than a registered investment company) that, at

any time during the 6-month period preceding the

date of the determination of whether that person or af-

filiated person is an interested person, has executed

any portfolio transactions for, engaged in any principal

transactions with, or distributed shares for—

(I) the investment company;

(II) any other investment company having the

same investment adviser as such investment com-

pany or holding itself out to investors as a related

company for purposes of investment or investor

services; or

(III) any account over which the investment

company’s investment adviser has brokerage

placement discretion,

(vi) any person or any affiliated person of a person

(other than a registered investment company) that, at

any time during the 6-month period preceding the

date of the determination of whether that person or af-

filiated person is an interested person, has loaned

money or other property to—

(I) the investment company;

(II) any other investment company having the

same investment adviser as such investment com-

pany or holding itself out to investors as a related

company for purposes of investment or investor

services; or

(III) any account for which the investment

company’s investment adviser has borrowing au-

thority, and

(vii) any natural person whom the Commission by

order shall have determined to be an interested person

by reason of having had, at any time since the begin-

ning of the last two completed fiscal years of such

company, a material business or professional relation-

ship with such company or with the principal execu-

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7 Sec. 2 INVESTMENT COMPANY ACT OF 1940

tive officer of such company or with any other invest-

ment company having the same investment adviser or

principal underwriter or with the principal executive

officer of such other investment company:

Provided, That no person shall be deemed to be an inter-

ested person of an investment company solely by reason of

(aa) his being a member of its board of directors or advi-

sory board or an owner of its securities, or (bb) his mem-

bership in the immediate family of any person specified in

clause (aa) of this proviso; and

(B) when used with respect to an investment adviser

of or principal underwriter for any investment company—

(i) any affiliated person of such investment ad-

viser or principal underwriter,

(ii) any member of the immediate family of any

natural person who is an affiliated person of such in-

vestment advisor or principal underwiter,

(iii) any person who knowingly has any direct or

indirect beneficial interest in, or who is designated as

trustee, executor, or guardian of any legal interest in,

any security issued either by such investment adviser

or principal underwriter or by a controlling person of

such investment adviser or principal underwriter,

(iv) any person or partner or employee of any per-

son who at any time since the beginning of the last

two completed fiscal years of such investment com-

pany has acted as legal counsel for such investment

adviser or principal underwriter,

(v) any person or any affiliated person of a person

(other than a registered investment company) that, at

any time during the 6-month period preceding the

date of the determination of whether that person or af-

filiated person is an interested person, has executed

any portfolio transactions for, engaged in any principal

transactions with, or distributed shares for—

(I) any investment company for which the in-

vestment adviser or principal underwriter serves

as such;

(II) any investment company holding itself out

to investors, for purposes of investment or inves-

tor services, as a company related to any invest-

ment company for which the investment adviser

or principal underwriter serves as such; or

(III) any account over which the investment

adviser has brokerage placement discretion,

(vi) any person or any affiliated person of a person

(other than a registered investment company) that, at

any time during the 6-month period preceding the

date of the determination of whether that person or af-

filiated person is an interested person, has loaned

money or other property to—

(I) any investment company for which the in-

vestment adviser or principal underwriter serves

as such;

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8 Sec. 2 INVESTMENT COMPANY ACT OF 1940

(II) any investment company holding itself out

to investors, for purposes of investment or inves-

tor services, as a company related to any invest-

ment company for which the investment adviser

or principal underwriter serves as such; or

(III) any account for which the investment ad-

viser has borrowing authority, and

(vii) any natural person whom the Commission by

order shall have determined to be an interested person

by reason of having had at any time since the begin-

ning of the last two completed fiscal years of such in-

vestment company a material business or professional

relationship with such investment adviser or principal

underwriter or with the principal executive officer or

any controlling person of such investment adviser or

principal underwriter.

For the purposes of this paragraph (19), ‘‘member of the

immediate family’’ means any parent, spouse of a parent,

child, spouse of a child, spouse, brother, or sister, and in-

cludes step and adoptive relationships. The Commission

may modify or revoke any order issued under clause (vii)

of subparagaph (A) or (B) of this paragraph whenever it

finds that such order is no longer consistent with the facts.

No order issued pursuant to clause (vii) of subparagraph

(A) or (B) of this paragraph shall become effective until at

least sixty days after the entry thereof, and no such order

shall affect the status of any person for the purposes of

this title or for any other purpose for any period prior to

the effective date of such order.

(20) ‘‘Investment adviser’’ of an investment company

means (A) any person (other than a bona fide officer, director,

trustee, member of an advisory board, or employee of such

company, as such) who pursuant to contract with such com-

pany regularly furnishes advice to such company with respect

to the desirability of investing in, purchasing or selling securi-

ties or other property, or is empowered to determine what se-

curities or other property shall be purchased or sold by such

company, and (B) any other person who pursuant to contract

with a person described in clause (A) regularly performs sub-

stantially all of the duties undertaken by such person de-

scribed in clause (A); but does not include (i) a person whose

advice is furnished solely through uniform publications distrib-

uted to subscribers thereto, (ii) a person who furnishes only

statistical and other factual information, advice regarding eco-

nomic factors and trends, or advice as to occasional trans-

actions in specific securities, but without generally furnishing

advice or making recommendations regarding the purchase or

sale of securities, (iii) a company furnishing such services at

cost to one or more investment companies, insurance compa-

nies, or other financial institutions, (iv) any person the char-

acter and amount of whose compensation for such services

must be approved by a court, or (v) such other persons as the

Commission may by rules and regulations or order determine

not to be within the intent of this definition.

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(21) ‘‘Investment banker’’ means any person engaged in

the business of underwriting securities issued by other per-

sons, but does not include an investment company, any person

who acts as an underwriter in isolated transactions but not as

a part of a regular business, or any person solely by reason of

the fact that such person is an underwriter for one or more in-

vestment companies.

(22) ‘‘Issuer’’ means every person who issues or proposes to

issue any security, or has outstanding any security which it

has issued.

(23) ‘‘Lend’’ includes a purchase coupled with an agree-

ment by the vendor to repurchase; ‘‘borrow’’ includes a sale

coupled with a similar agreement.

(24) ‘‘Majority-owned subsidiary’’ of a person means a com-

pany 50 per centum or more of the outstanding voting securi-

ties of which are owned by such person, or by a company

which, within the meaning of this paragraph, is a majority-

owned subsidiary of such person.

(25) ‘‘Means or instrumentality of interstate commerce’’ in-

cludes any facility of a national securities exchange.

(26) ‘‘National securities exchange’’ means an exchange

registered under section 6 of the Securities Exchange Act of

1934.

(27) ‘‘Periodic payment plan certificate’’ means (A) any cer-

tificate, investment contract, or other security providing for a

series of periodic payments by the holder, and representing an

undivided interest in certain specified securities or in a unit or

fund of securities purchased wholly or partly with the proceeds

of such payments, and (B) any security the issuer of which is

also issuing securities of the character described in clause (A)

and the holder of which has substantially the same rights and

privileges as those which holders of securities of the character

described in clause (A) have upon completing the periodic pay-

ments for which such securities provide.

(28) ‘‘Person’’ means a natural person or a company.

(29) ‘‘Principal underwriter’’ of or for any investment com-

pany other than a closed-end company, or of any security

issued by such a company, means any underwriter who as

principal purchases from such company, or pursuant to con-

tract has the right (whether absolute or conditional) from time

to time to purchase from such company, any such security for

distribution, or who as agent for such company sells or has the

right to sell any such security to a dealer or to the public or

both, but does not include a dealer who purchases from such

company through a principal underwriter acting as agent for

such company. ‘‘Principal underwriter’’ of or for a closed-end

company or any issuer which is not an investment company, or

of any security issued by such a company or issuer, means any

underwriter who, in connection with a primary distribution of

securities, (A) is in privity of contract with the issuer or an af-

filiated person of the issuer; (B) acting alone or in concert with

one or more other persons, initiates or directs the formation of

an underwriting syndicate; or (C) is allowed a rate of gross

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10 Sec. 2 INVESTMENT COMPANY ACT OF 1940

commission, spread, or other profit greater than the rate al-

lowed another underwriter participating in the distribution.

(30) ‘‘Promoter’’ of a company or a proposed company

means a person who, acting alone or in concert with other per-

sons, is initiating or directing, or has within one year initiated

or directed, the organization of such company.

(31) ‘‘Prospectus’’, as used in section 22, means a written

prospectus intended to meet the requirements of section 10(a)

of the Securities Act of 1933 and currently in use. As used else-

where, ‘‘prospectus’’ means a prospectus as defined in the Secu-

rities Act of 1933.

(32) ‘‘Redeemable security’’ means any security, other than

short-term paper, under the terms of which the holder, upon

its presentation to the issuer or to a person designated by the

issuer, is entitled (whether absolutely or only out of surplus)

to receive approximately his proportionate share of the issuer’s

current net assets, or the cash equivalent thereof.

(33) ‘‘Reorganization’’ means (A) a reorganization under

the supervision of a court of competent jurisdiction; (B) a merg-

er or consolidation; (C) a sale of 75 per centum or more in

value of the assets of a company; (D) a restatement of the cap-

ital of a company, or an exchange of securities issued by a com-

pany for any of its own outstanding securities; (E) a voluntary

dissolution or liquidation of a company; (F) a recapitalization

or other procedure or transaction which has for its purpose the

alteration, modification, or elimination of any of the rights,

preferences, or privileges of any class of securities issued by a

company, as provided in its charter or other instrument cre-

ating or defining such rights, preferences, and privileges; (G)

an exchange of securities issued by a company for outstanding

securities issued by another company or companies, prelimi-

nary to and for the purpose of effecting or consummating any

of the foregoing; or (H) any exchange of securities by a com-

pany which is not an investment company for securities issued

by a registered investment company.

(34) ‘‘Sale’’, ‘‘sell’’, ‘‘offer to sell’’, or ‘‘offer for sale’’ includes

every contract of sale or disposition of, attempt or offer to dis-

pose of, or solicitation of an offer to buy, a security or interest

in a security, for value. Any security given or delivered with,

or as a bonus on account of, any purchase of securities or any

other thing, shall be conclusively presumed to constitute a part

of the subject of such purchase and to have been sold for value.

(35) ‘‘Sales load’’ means the difference between the price of

a security to the public and that portion of the proceeds from

its sale which is received and invested or held for investment

by the issuer (or in the case of a unit investment trust, by the

depositor or trustee), less any portion of such difference de-

ducted for trustee’s or custodian’s fee, insurance premiums,

issue taxes, or administrative expenses or fees which are not

properly chargeable to sales or promotional activities. In the

case of a periodic payment plan certificate, ‘‘sales load’’ in-

cludes the sales load on any investment company securities in

which the payments made on such certificate are invested, as

well as the sales load on the certificate itself.

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The words ‘‘Philippine Islands’’ were deleted from the definition of the term ‘‘State’’ on the

basis of Presidential Proclamation No. 2695, effective July 4, 1946 (11 F.R. 7517; 60 Stat. 1352),

which granted independence to the Philippine Islands.

(36) ‘‘Security’’ means any note, stock, treasury stock, secu-

rity future, bond, debenture, evidence of indebtedness, certifi-

cate of interest or participation in any profit-sharing agree-

ment, collateral-trust certificate, preorganization certificate or

subsciption, transferable share, investment contract, voting-

trust certificate, certificate of deposit for a security, fractional

undivided interest in oil, gas, or other mineral rights, any put,

call, straddle, option, or privilege on any security (including a

certificate of deposit) or on any group or index of securities (in-

cluding any interest therein or based on the value thereof), or

any put, call, straddle, option, or privilege entered into on a

national securities exchange relating to foreign currency, or, in

general, any interest or instrument commonly known as a ‘‘se-

curity’’, or any certificate of interest or participation in, tem-

porary or interim certificate for, receipt for, guarantee of, or

warrant or right to subscribe to or purchase, any of the fore-

going.

(37) ‘‘Separate account’’ means an account established and

maintained by an insurance company pursuant to the laws of

any State or territory of the United States, or of Canada or any

province thereof, under which income, gains and losses, wheth-

er or not realized, from assets allocated to such account, are,

in accordance with the applicable contract, credited to or

charged against such account without regard to other income,

gains, or losses of the insurance company.

(38) ‘‘Short-term paper’’ means any note, draft, bill of ex-

change, or banker’s acceptance payable on demand or having

a maturity at the time of issuance of not exceeding nine

months, exclusive of days of grace, or any renewal thereof pay-

able on demand or having a maturity likewise limited; and

such other classes of securities, of a commercial rather than an

investment character, as the Commission may designate by

rules and regulations.

(39) ‘‘State’’ means any State of the United States, the Dis-

trict of Columbia, Puerto Rico, the Virgin Islands, or any other

possession of the United States.

(40) ‘‘Underwriter’’ means any person who has purchased

from an issuer with a view to, or sells for an issuer in connec-

tion with, the distribution of any security, or participates or

has a direct or indirect participation in any such undertaking,

or participates or has a participation in the direct or indirect

underwriting of any such undertaking; but such term shall not

include a person whose interest is limited to a commission

from an underwriter or dealer not in excess of the usual and

customary distributor’s or seller’s commission. As used in this

paragraph the term ‘‘issuer’’ shall include, in addition to an

issuer, any person directly or indirectly controlling or con-

trolled by the issuer, or any person under direct or indirect

common control with the issuer. When the distribution of the

securities in respect of which any person is an underwriter is

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12 Sec. 2 INVESTMENT COMPANY ACT OF 1940

completed such person shall cease to be an underwriter in re-

spect of such securities or the issuer thereof.

(41) ‘‘Value’’, with respect to assets of registered invest-

ment companies, except as provided in subsection (b) of section

28 of this title, means—

(A) as used in sections 3, 5, and 12 of this title, (i)

with respect to securities owned at the end of the last pre-

ceding fiscal quarter for which market quotations are read-

ily available, the market value at the end of such quarter;

(ii) with respect to other securities and assets owned at the

end of the last preceding fiscal quarter, fair value at the

end of such quarter, as determined in good faith by the

board of directors; and (iii) with respect to securities and

other assets acquired after the end of the last preceding

fiscal quarter, the cost thereof; and

(B) as used elsewhere in this title, (i) with respect to

securities for which market quotations are readily avail-

able, the market value of such securities; and (ii) with re-

spect to other securities and assets, fair value as deter-

mined in good faith by the board of directors;

in each case as of such time or times as determined pursuant

to this title, and the rules and regulations issued by the Com-

mission hereunder. Notwithstanding the fact that market

quotations for securities issued by controlled companies are

available, the board of directors may in good faith determine

the value of such securities: Provided, That the value so deter-

mined is not in excess of the higher of market value or asset

value of such securities in the case of majority-owned subsidi-

aries, and is not in excess of market value in the case of other

controlled companies.

For purposes of the valuation of those assets of a registered di-

versified company which are not subject to the limitations provided

for in section 5(b)(1), the Commission may, by rules and regula-

tions or orders, permit any security to be carried at cost, if it shall

determine that such procedure is consistent with the general intent

and purposes of this title. For purposes of sections 5 and 12, in lieu

of values determined as provided in clause (A) above, the Commis-

sion shall by rules and regulations permit valuation of securities at

cost or other basis in cases where it may be more convenient for

such company to make its computations on such basis by reason of

the necessity or desirability of complying with the provisions of any

United States revenue laws or rules and regulations issued there-

under, or the laws or the rules and regulations issued thereunder

of any State in which the securities of such company may be quali-

fied for sale.

The foregoing definition shall not derogate from the authority

of the Commission with respect to the reports, information, and

documents to be filed with the Commission by any registered com-

pany, or with respect to the accounting policies and principles to

be following by any such company, as provided in sections 8, 30,

and 31.

(42) ‘‘Voting security’’ means any security presently enti-

tling the owner or holder thereof to vote for the election of di-

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rectors of a company. A specified percentage of the outstanding

voting securities of a company means such amount of its out-

standing voting securities as entitles the holder or holders

thereof to cast said specified percentage of the aggregate votes

which the holders of all the outstanding voting securities of

such company are entitled to cast. The vote of a majority of the

outstanding voting securities of a company means the vote, at

the annual or a special meeting of the security holders of such

company duly called, (A) of 67 per centum or more of the vot-

ing securities present at such meeting, if the holders of more

than 50 per centum of the outstanding voting securities of such

company are present or represented by proxy; or (B) of more

than 50 per centum of the outstanding voting securities of such

company, whichever is the less.

(43) ‘‘Wholly-owned subsidiary’’ of a person means a com-

pany 95 per centum or more of the outstanding voting securi-

ties of which are owned by such person, or by a company

which, within the meaning of this paragraph, is a wholly-

owned subsidiary of such person.

(44) ‘‘Securities Act of 1933’’, ‘‘Securities Exchange Act of

1934’’, and ‘‘Trust Indenture Act of 1939’’ means those Acts, re-

spectively, as heretofore or hereafter amended.

(45) ‘‘Savings and loan association’’ means a savings and

loan association, building and loan association, cooperative

bank, homestead association, or similar institution, which is

supervised and examined by State or Federal authority having

supervision over any such institution, and a receiver, conser-

vator, or other liquidating agent of any such institution.

(46) ‘‘Eligible portfolio company’’ means any issuer which—

(A) is organized under the laws of, and has its prin-

cipal place of business in, any State or States;

(B) is neither an investment company as defined in

section 3 (other than a small business investment company

which is licensed by the Small Business Administration to

operate under the Small Business Investment Act of 1958

and which is a wholly-owned subsidiary of the business de-

velopment company) nor a company which would be an in-

vestment company except for the exclusion from the defini-

tion of investment company in section 3(c); and

(i) it does not have any class of securities with re-

spect to which a member of a national securities ex-

change, broker, or dealer may extend or maintain

credit to or for a customer pursuant to rules or regula-

tions adopted by the Board of Governors of the Federal

Reserve System under section 7 of the Securities Ex-

change Act of 1934;

(ii) it is controlled by a business development com-

pany, either alone or as part of a group acting to-

gether, and such business development company in

fact exercises a controlling influence over the manage-

ment or policies of such eligible portfolio company and,

as a result of such control, has an affiliated person

who is a director of such eligible portfolio company;

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As Amended Through P.L. 117-263, Enacted December 23, 2022

14 Sec. 2 INVESTMENT COMPANY ACT OF 1940

(iii) it has total assets of not more than

$4,000,000, and capital and surplus (shareholders’ eq-

uity less retained earnings) of not less than

$2,000,000, except that the Commission may adjust

such amounts by rule, regulation, or order to reflect

changes in 1 or more generally accepted indices or

other indicators for small businesses; or

(iv) it meets such other criteria as the Commission

may, by rule, establish as consistent with the public

interest, the protection of investors, and the purposes

fairly intended by the policy and provisions of this

title.

(47) ‘‘Making available significant managerial assistance’’

by a business development company means—

(A) any arrangement whereby a business development

company, through its directors, officers, employees, or gen-

eral partners, offers to provide, and, if accepted, does so

provide, significant guidance and counsel concerning the

management, operations, or business objectives and poli-

cies of a portfolio company;

(B) the exercise by a business development company of

a controlling influence over the management or policies of

a portfolio company by the business development company

acting individually or as part of a group acting together

which controls such portfolio company; or

pany licensed by the Small Business Administration to op-

erate under the Small Business Investment Act of 1958,

the making of loans to a portfolio company.

For purposes of subparagraph (A), the requirement that a busi-

ness development company make available significant manage-

rial assistance shall be deemed to be satisfied with respect to

any particular portfolio company where the business develop-

ment company purchases securities of such portfolio company

in conjunction with one or more other persons acting together,

and at least one of the persons in the group makes available

significant managerial assistance to such portfolio company,

except that such requirement will not be deemed to be satisfied

if the business development company, in all cases, makes

available significant managerial assistance solely in the man-

ner described in this sentence.

(48) ‘‘Business development company’’ means any closed-

end company which—

(A) is organized under the laws of, and has its prin-

cipal place of business in, any State or States;

(B) is operated for the purpose of making investments

in securities described in paragraphs (1) through (3) of sec-

tion 55(a), and makes available significant managerial as-

sistance with respect to the issuers of such securities, pro-

vided that a business development company must make

available significant managerial assistance only with re-

spect to the companies which are treated by such business

development company as satisfying the 70 per centum of

the value of its total assets condition of section 55; and

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As Amended Through P.L. 117-263, Enacted December 23, 2022

15 Sec. 2 INVESTMENT COMPANY ACT OF 1940

provided further that a business development company

need not make available significant managerial assistance

with respect to any company described in paragraph

(46)(C)(iii), or with respect to any other company that

meets such criteria as the Commission may by rule, regu-

lation, or order permit, as consistent with the public inter-

est, the protection of investors, and the purposes of this

title; and

to the provisions of sections 55 through 65.

(49) ‘‘Foreign securities authority’’ means any foreign gov-

ernment or any governmental body or regulatory organization

empowered by a foreign government to administer or enforce

its laws as they relate to securities matters.

(50) ‘‘Foreign financial regulatory authority’’ means any

(A) foreign securities authority, (B) other governmental body or

foreign equivalent of a self-regulatory organization empowered

by a foreign government to administer or enforce its laws relat-

ing to the regulation of fiduciaries, trusts, commercial lending,

insurance, trading in contracts of sale of a commodity for fu-

ture delivery, or other instruments traded on or subject to the

rules of a contract market, board of trade or foreign equivalent,

or other financial activities, or (C) membership organization a

function of which is to regulate the participation of its mem-

bers in activities listed above.

(51)(A) ‘‘Qualified purchaser’’ means—

(i) any natural person (including any person who holds

a joint, community property, or other similar shared own-

ership interest in an issuer that is excepted under section

3(c)(7) with that person’s qualified purchaser spouse) who

owns not less than $5,000,000 in investments, as defined

by the Commission;

(ii) any company that owns not less than $5,000,000 in

investments and that is owned directly or indirectly by or

for 2 or more natural persons who are related as siblings

or spouse (including former spouses), or direct lineal de-

scendants by birth or adoption, spouses of such persons,

the estates of such persons, or foundations, charitable or-

ganizations, or trusts established by or for the benefit of

such persons;

(iii) any trust that is not covered by clause (ii) and

that was not formed for the specific purpose of acquiring

the securities offered, as to which the trustee or other per-

son authorized to make decisions with respect to the trust,

and each settlor or other person who has contributed as-

sets to the trust, is a person described in clause (i), (ii), or

(iv); or

(iv) any person, acting for its own account or the ac-

counts of other qualified purchasers, who in the aggregate

owns and invests on a discretionary basis, not less than

$25,000,000 in investments.

(B) The Commission may adopt such rules and regulations

applicable to the persons and trusts specified in clauses (i)

through (iv) of subparagraph (A) as it determines are nec-

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16 Sec. 3 INVESTMENT COMPANY ACT OF 1940

See also 7 U.S.C. 2, 2a, 6m. øPrinted in appendix to this volume.¿

essary or appropriate in the public interest or for the protec-

tion of investors.

pany that, but for the exceptions provided for in paragraph (1)

or (7) of section 3(c), would be an investment company (here-

after in this paragraph referred to as an ‘‘excepted investment

company’’), unless all beneficial owners of its outstanding secu-

rities (other than short-term paper), determined in accordance

with section 3(c)(1)(A), that acquired such securities on or be-

fore April 30, 1996 (hereafter in this paragraph referred to as

‘‘pre-amendment beneficial owners’’), and all pre-amendment

beneficial owners of the outstanding securities (other than

short-term paper) of any excepted investment company that,

directly or indirectly, owns any outstanding securities of such

excepted investment company, have consented to its treatment

as a qualified purchaser. Unanimous consent of all trustees, di-

rectors, or general partners of a company or trust referred to

in clause (ii) or (iii) of subparagraph (A) shall constitute con-

sent for purposes of this subparagraph.

(52) The terms ‘‘security future’’ and ‘‘narrow-based secu-

rity index’’ have the same meanings as provided in section

3(a)(55) of the Securities Exchange Act of 1934.

(53) The term ‘‘credit rating agency’’ has the same mean-

ing as in section 3 of the Securities Exchange Act of 1934.

(54) The terms ‘‘commodity pool’’, ‘‘commodity pool oper-

ator’’, ‘‘commodity trading advisor’’, ‘‘major swap participant’’,

‘‘swap’’, ‘‘swap dealer’’, and ‘‘swap execution facility’’ have the

same meanings as in section 1a of the Commodity Exchange

Act (7 U.S.C. 1a).’’.

(b) No provision in this title shall apply to, or be deemed to in-

clude, the United States, a State, or any political subdivision of a

State, or any agency, authority, or instrumentality of any one or

more of the foregoing, or any corporation which is wholly owned di-

rectly or indirectly by any one or more of the foregoing, or any offi-

cer, agent, or employee of any of the foregoing acting as such in the

course of his official duty, unless such provision makes specific ref-

erence thereto.

ONSIDERATION OF

ROMOTION OF

FFICIENCY

, C

OMPETI

TION

AND

APITAL

ORMATION

.—Whenever pursuant to this title

the Commission is engaged in rulemaking and is required to con-

sider or determine whether an action is consistent with the public

interest, the Commission shall also consider, in addition to the pro-

tection of investors, whether the action will promote efficiency,

competition, and capital formation.

DEFINITION OF INVESTMENT COMPANY

. 3. ø80a–3¿ (a)(1) When used in this title, ‘‘investment

company’’ means any issuer which—

(A) is or holds itself out as being engaged primarily, or

proposes to engage primarily, in the business of investing, rein-

vesting, or trading in securities;

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17 Sec. 3 INVESTMENT COMPANY ACT OF 1940

(B) is engaged or proposes to engage in the business of

issuing face-amount certificates of the installment type, or has

been engaged in such business and has any such certificate

outstanding; or

vesting, reinvesting, owning, holding, or trading in securities,

and owns or proposes to acquire investment securities having

a value exceeding 40 per centum of the value of such issuer’s

total assets (exclusive of Government securities and cash

items) on an unconsolidated basis.

(2) As used in this section, ‘‘investment securities’’ includes all

securities except (A) Government securities, (B) securities issued by

employees’ securities companies, and (C) securities issued by ma-

jority-owned subsidiaries of the owner which (i) are not investment

companies, and (ii) are not relying on the exception from the defini-

tion of investment company in paragraph (1) or (7) of subsection

(c).

(b) Notwithstanding paragraph (1)(C) of subsection (a), none of

the following persons is an investment company within the mean-

ing of this title:

(1) Any issuer primarily engaged, directly or through a

wholly-owned subsidiary or subsidiaries, in a business or busi-

nesses other than that of investing, reinvesting, owning, hold-

ing, or trading in securities.

(2) Any issuer which the Commission, upon application by

such issuer, finds and by order declares to be primarily en-

gaged in a business or businesses other than that of investing,

reinvesting, owning, holding, or trading in securities either di-

rectly or (A) through majority-owned subsidiaries or (B)

through controlled companies conducting similar types of busi-

nesses. The filing of an application under this paragraph in

good faith by an issuer other than a registered investment

company shall exempt the applicant for a period of sixty days

from all provisions of this title applicable to investment compa-

nies as such. For cause shown, the Commission by order may

extend such period of exemption for an additional period or pe-

riods. Whenever the Commission, upon its own motion or upon

application, finds that the circumstances which gave rise to the

issuance of an order granting an application under this para-

graph no longer exist, the Commission shall by order revoke

such order.

(3) Any issuer all the outstanding securities of which

(other than short-term paper and directors’ qualifying shares)

are directly or indirectly owned by a company excepted from

the definition of investment company by paragraph (1) or (2)

of this subsection.

sons is an investment company within the meaning of this title:

(1) Any issuer whose outstanding securities (other than

short-term paper) are beneficially owned by not more than one

hundred persons (or, in the case of a qualifying venture capital

fund, 250 persons) and which is not making and does not pres-

ently propose to make a public offering of its securities. Such

issuer shall be deemed to be an investment company for pur-

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18 Sec. 3 INVESTMENT COMPANY ACT OF 1940

See footnote on previous page.

poses of the limitations set forth in subparagraphs (A)(i) and

(B)(i) of section 12(d)(1) governing the purchase or other acqui-

sition by such issuer of any security issued by any registered

investment company and the sale of any security issued by any

registered open-end investment company to any such issuer.

For purposes of this paragraph:

(A) Beneficial ownership by a company shall be

deemed to be beneficial ownership by one person, except

that, if the company owns 10 per centum or more of the

outstanding voting securities of the issuer, and is or, but

for the exception provided for in this paragraph or para-

graph (7), would be an investment company, the beneficial

ownership shall be deemed to be that of the holders of

such company’s outstanding securities (other than short-

term paper).

(B) Beneficial ownership by any person who acquires

securities or interests in securities of an issuer described

in the first sentence of this paragraph shall be deemed to

be beneficial ownership by the person from whom such

transfer was made, pursuant to such rules and regulations

as the Commission shall prescribe as necessary or appro-

priate in the public interest and consistent with the protec-

tion of investors and the purposes fairly intended by the

policy and provisions of this title, where the transfer was

caused by legal separation, divorce, death, or other invol-

untary event.

(C)(i) The term ‘‘qualifying venture capital fund’’

means a venture capital fund that has not more than

$10,000,000 in aggregate capital contributions and

uncalled committed capital, with such dollar amount to be

indexed for inflation once every 5 years by the Commis-

sion, beginning from a measurement made by the Commis-

sion on a date selected by the Commission, rounded to the

nearest $1,000,000.

(ii) The term ‘‘venture capital fund’’ has the meaning

given the term in section 275.203(l)–1 of title 17, Code of

Federal Regulations, or any successor regulation.

(2)

(A) Any person primarily engaged in the business of

underwriting and distributing securities issued by other per-

sons, selling securities to customers, acting as broker, and act-

ing as market intermediary, or any one or more of such activi-

ties, whose gross income normally is derived principally from

such business and related activities.

(B) For purposes of this paragraph—

(i) the term ‘‘market intermediary’’ means any person

that regularly holds itself out as being willing contempora-

neously to engage in, and that is regularly engaged in, the

business of entering into transactions on both sides of the

market for a financial contract or one or more such finan-

cial contracts; and

(ii) the term ‘‘financial contract’’ means any arrange-

ment that—

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19 Sec. 3 INVESTMENT COMPANY ACT OF 1940

(I) takes the form of an individually negotiated

contract, agreement, or option to buy, sell, lend, swap,

or repurchase, or other similar individually negotiated

transaction commonly entered into by participants in

the financial markets;

(II) is in respect of securities, commodities, cur-

rencies, interest or other rates, other measures of

value, or any other financial or economic interest simi-

lar in purpose or function to any of the foregoing; and

(III) is entered into in response to a request from

a counter party for a quotation, or is otherwise entered

into and structured to accommodate the objectives of

the counter party to such arrangement.

(3) Any bank or insurance company; any savings and loan

association, building and loan association, cooperative bank,

homestead association, or similar institution, or any receiver,

conservator, liquidator, liquidating agent, or similar official or

person thereof or therefor; or any common trust fund or similar

fund maintained by a bank exclusively for the collective invest-

ment and reinvestment of moneys contributed thereto by the

bank in its capacity as a trustee, executor, administrator, or

guardian, if—

(A) such fund is employed by the bank solely as an aid

to the administration of trusts, estates, or other accounts

created and maintained for a fiduciary purpose;

(B) except in connection with the ordinary advertising

of the bank’s fiduciary services, interests in such fund are

not—

(i) advertised; or

(ii) offered for sale to the general public; and

contravention of fiduciary principles established under ap-

plicable Federal or State law.

(4) Any person substantially all of whose business is con-

fined to making small loans, industrial banking, or similar

businesses.

(5) Any person who is not engaged in the business of

issuing redeemable securities, face-amount certificates of the

installment type or periodic payment plan certificates, and who

is primarily engaged in one or more of the following busi-

nesses: (A) Purchasing or otherwise acquiring notes, drafts, ac-

ceptances, open accounts receivable, and other obligations rep-

resenting part or all of the sales price of merchandise, insur-

ance, and services; (B) making loans to manufacturers, whole-

salers, and retailers of, and to prospective purchasers of, speci-

fied merchandise, insurance, and services; and (C) purchasing

or otherwise acquiring mortgages and other liens on and inter-

ests in real estate.

(6) Any company primarily engaged, directly or through

majority-owned subsidiaries, in one or more of the businesses

described in paragraphs (3), (4), and (5), or in one or more of

such businesses (from which not less than 25 centum of such

company’s gross income during its last fiscal year was derived)

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20 Sec. 3 INVESTMENT COMPANY ACT OF 1940

together with an additional business or businesses other than

investing, reinvesting, owning, holding, or trading in securities.

(7)(A) Any issuer, the outstanding securities of which are

owned exclusively by persons who, at the time of acquisition of

such securities, are qualified purchasers, and which is not

making and does not at that time propose to make a public of-

fering of such securities. Securities that are owned by persons

who received the securities from a qualified purchaser as a gift

or bequest, or in a case in which the transfer was caused by

legal separation, divorce, death, or other involuntary event,

shall be deemed to be owned by a qualified purchaser, subject

to such rules, regulations, and orders as the Commission may

prescribe as necessary or appropriate in the public interest or

for the protection of investors.

(B) Notwithstanding subparagraph (A), an issuer is within

the exception provided by this paragraph if—

(i) in addition to qualified purchasers, outstanding se-

curities of that issuer are beneficially owned by not more

than 100 persons who are not qualified purchasers, if—

(I) such persons acquired any portion of the secu-

rities of such issuer on or before September 1, 1996;

and

(II) at the time at which such persons initially ac-

quired the securities of such issuer, the issuer was ex-

cepted by paragraph (1); and

(ii) prior to availing itself of the exception provided by

this paragraph—

(I) such issuer has disclosed to each beneficial

owner, as determined under paragraph (1), that future

investors will be limited to qualified purchasers, and

that ownership in such issuer is no longer limited to

not more than 100 persons; and

(II) concurrently with or after such disclosure,

such issuer has provided each beneficial owner, as de-

termined under paragraph (1), with a reasonable op-

portunity to redeem any part or all of their interests

in the issuer, notwithstanding any agreement to the

contrary between the issuer and such persons, for that

person’s proportionate share of the issuer’s net assets.

(B)(ii)(II) shall receive an amount in cash equal to that per-

son’s proportionate share of the issuer’s net assets, unless the

issuer elects to provide such person with the option of receiv-

ing, and such person agrees to receive, all or a portion of such

person’s share in assets of the issuer. If the issuer elects to

provide such persons with such an opportunity, disclosure con-

cerning such opportunity shall be made in the disclosure re-

quired by subparagraph (B)(ii)(I).

(D) An issuer that is excepted under this paragraph shall

nonetheless be deemed to be an investment company for pur-

poses of the limitations set forth in subparagraphs (A)(i) and

(B)(i) of section 12(d)(1) relating to the purchase or other acqui-

sition by such issuer of any security issued by any registered

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As Amended Through P.L. 117-263, Enacted December 23, 2022

21 Sec. 3 INVESTMENT COMPANY ACT OF 1940

investment company and the sale of any security issued by any

registered open-end investment company to any such issuer.

(E) For purposes of determining compliance with this para-

graph and paragraph (1), an issuer that is otherwise excepted

under this paragraph and an issuer that is otherwise excepted

under paragraph (1) shall not be treated by the Commission as

being a single issuer for purposes of determining whether the

outstanding securities of the issuer excepted under paragraph

(1) are beneficially owned by not more than 100 persons or

whether the outstanding securities of the issuer excepted

under this paragraph are owned by persons that are not quali-

fied purchasers. Nothing in this subparagraph shall be con-

strued to establish that a person is a bona fide qualified pur-

chaser for purposes of this paragraph or a bona fide beneficial

owner for purposes of paragraph (1).

(8) øRepealed¿

(9) Any person substantially all of whose business consists

of owning or holding oil, gas, or other mineral royalties or

leases, or fractional interests therein, or certificates of interest

or participation in or investment contracts relative to such roy-

alties, leases, or fractional interests.

(10)(A) Any company organized and operated exclusively

for religious, educational, benevolent, fraternal, charitable, or

reformatory purposes—

(i) no part of the net earnings of which inures to the

benefit of any private shareholder or individual; or

(ii) which is or maintains a fund described in subpara-

graph (B).

(B) For the purposes of subparagraph (A)(ii), a fund is de-

scribed in this subparagraph if such fund is a pooled income

fund, collective trust fund, collective investment fund, or simi-

lar fund maintained by a charitable organization exclusively

for the collective investment and reinvestment of one or more

of the following:

(i) assets of the general endowment fund or other

funds of one or more charitable organizations;

(ii) assets of a pooled income fund;

(iii) assets contributed to a charitable organization in

exchange for the issuance of charitable gift annuities;

(iv) assets of a charitable remainder trust or of any

other trust, the remainder interests of which are irrev-

ocably dedicated to any charitable organization;

(v) assets of a charitable lead trust;

(vi) assets of a trust, the remainder interests of which

are revocably dedicated to or for the benefit of 1 or more

charitable organizations, if the ability to revoke the dedica-

tion is limited to circumstances involving—

(I) an adverse change in the financial cir-

cumstances of a settlor or an income beneficiary of the

trust;

(II) a change in the identity of the charitable orga-

nization or organizations having the remainder inter-

est, provided that the new beneficiary is also a chari-

table organization; or

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As Amended Through P.L. 117-263, Enacted December 23, 2022

22 Sec. 3 INVESTMENT COMPANY ACT OF 1940

(III) both the changes described in subclauses (I)

and (II);

(vii) assets of a trust not described in clauses (i)

through (v), the remainder interests of which are revocably

dedicated to a charitable organization, subject to subpara-

graph (C); or

(viii) such assets as the Commission may prescribe by

rule, regulation, or order in accordance with section 6(c).

subparagraph (B) shall be excluded from the definition of an

investment company for a period of 3 years after the date of

enactment of this subparagraph, but only if—

(i) such assets were contributed before the date which

is 60 days after the date of enactment of this subpara-

graph; and

(ii) such assets are commingled in the fund with assets

described in one or more of clauses (i) through (vi) and

(viii) of subparagraph (B).

(D) For purposes of this paragraph—

(i) a trust or fund is ‘‘maintained’’ by a charitable or-

ganization if the organization serves as a trustee or admin-

istrator of the trust or fund or has the power to remove the

trustees or administrators of the trust or fund and to des-

ignate new trustees or administrators;

(ii) the term ‘‘pooled income fund’’ has the same mean-

ing as in section 642(c)(5) of the Internal Revenue Code of

1986;

(iii) the term ‘‘charitable organization’’ means an orga-

nization described in paragraphs (1) through (5) of section

170(c) or section 501(c)(3) of the Internal Revenue Code of

1986;

(iv) the term ‘‘charitable lead trust’’ means a trust de-

scribed in section 170(f)(2)(B), 2055(e)(2)(B), or

2522(c)(2)(B) of the Internal Revenue Code of 1986;

(v) the term ‘‘charitable remainder trust’’ means a

charitable remainder annuity trust or a charitable remain-

der unitrust, as those terms are defined in section 664(d)

of the Internal Revenue Code of 1986; and

(vi) the term ‘‘charitable gift annuity’’ means an annu-

ity issued by a charitable organization that is described in

section 501(m)(5) of the Internal Revenue Code of 1986.

(11) Any employee’s stock bonus, pension, or profit-sharing

trust which meets the requirements for qualification under sec-

tion 401 of the Internal Revenue Code of 1986; or any govern-

mental plan described in section 3(a)(2)(C) of the Securities Act

of 1933; or any collective trust fund maintained by a bank con-

sisting solely of assets of one or more of such trusts, govern-

ment plans, or church plans, companies or accounts that are

excluded from the definition of an investment company under

paragraph (14) of this subsection; or any separate account the

assets of which are derived solely from (A) contributions under

pension or profit-sharing plans which meet the requirements of

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As Amended Through P.L. 117-263, Enacted December 23, 2022

23 Sec. 4 INVESTMENT COMPANY ACT OF 1940

26 U.S.C. 401.

26 U.S.C. 404(a)(2).

section 401 of the Internal Revenue Code of 1986

or the re-

quirements for deduction of the employer’s contribution under

section 404(a)(2) of such Code,

(B) contributions under gov-

ernmental plans in connection with which interests, participa-

tions, or securities are exempted from the registration provi-

sions of section 5 of the Securities Act of 1933 by section

3(a)(2)(C) of such Act, and (C) advances made by an insurance

company in connection with the operation of such separate ac-

count.

(12) Any voting trust the assets of which consist exclu-

sively of securities of a single issuer which is not an invest-

ment company.

(13) Any security holders’ protective committee or similar

issuer having outstanding and issuing no securities other than

certificates of deposit and short-term paper.

(14) Any church plan described in section 414(e) of the In-

ternal Revenue Code of 1986, if, under any such plan, no part

of the assets may be used for, or diverted to, purposes other

than the exclusive benefit of plan participants or beneficiaries,

or any company or account that is—

(A) established by a person that is eligible to establish

and maintain such a plan under section 414(e) of the In-

ternal Revenue Code of 1986; and

(B) substantially all of the activities of which consist

of—

(i) managing or holding assets contributed to such

church plans or other assets which are permitted to be

commingled with the assets of church plans under the

Internal Revenue Code of 1986; or

(ii) administering or providing benefits pursuant

to church plans.

CLASSIFICATION OF INVESTMENT COMPANIES

. 4. ø80a–4¿ For the purposes of this title, investment com-

panies are divided into three principal classes, defined as follows:

(1) ‘‘Face-amount certificate company’’ means an invest-

ment company which is engaged or proposes to engage in the

business of issuing face-amount certificates of the installment

type, or which has been engaged in such business and has any

such certificate outstanding.

(2) ‘‘Unit investment trust’’ means an investment company

which (A) is organized under a trust indenture, contract of cus-

todianship or agency, or similar instrument, (B) does not have

a board of directors, and (C) issues only redeemable securities,

each of which represents an undivided interest in a unit of

specified securities; but does not include a voting trust.

(3) ‘‘Management company’’ means any investment com-

pany other than a face-amount certificate company or a unit

investment trust.

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24 Sec. 5 INVESTMENT COMPANY ACT OF 1940

For additional exemptions, see 15 U.S.C. 77c note; 43 U.S.C. 1625.

Section 506(a) of Public Law 115–174 (enacted on May 24, 2018) provides for amendments

to strike paragraph (1) of subsection (a) and redesignate paragraph (2) through (5) as para-

graphs (1) through (4), respectively. Subsection (b) of such section 506 provides as follows:

(b) E

FFECTIVE

ATE AND

AFE

ARBOR

.—

(1) E

FFECTIVE DATE

.—Except as provided in paragraph (2), the amendment made by sub-

section (a) shall take effect on the date of enactment of this Act.

(2) S

AFE HARBOR

.—With respect to a company that is exempt under section 6(a)(1) of the

Investment Company Act of 1940 (15 U.S.C. 80a–6(a)(1)) on the day before the date of en-

actment of this Act, the amendment made by subsection (a) shall take effect on the date

that is 3 years after the date of enactment of this Act.

(3) E

XTENSION OF SAFE HARBOR

.—The Securities and Exchange Commission, by rule or

regulation upon its own motion, or by order upon application, may conditionally or uncondi-

tionally, under section 6(c) of the Investment Company Act of 1940 (15 U.S.C. 80a–6(c)),

further delay the effective date for a company described in paragraph (2) for a maximum

of 3 years following the initial 3-year period if, before the end of the initial 3-year period,

the Commission determines that such a rule, regulation, motion, or order is necessary or

appropriate in the public interest and for the protection of investors.

The words ‘‘Philippine Islands’’ have been deleted under the authority of Presidential Procla-

mation No. 2695 (60 Stat. 1352), which granted independence to the Philippine Islands.

SUBCLASSIFICATION OF MANAGEMENT COMPANIES

. 5. ø80a–5¿ (a) For the purposes of this title, management

companies are divided into open-end and closed-end companies, de-

fined as follows:

(1) ‘‘Open-end company’’ means a management company

which is offering for sale or has outstanding any redeemable

security of which it is the issuer.

(2) ‘‘Closed-end company’’ means any management com-

pany other than an open-end company.

(b) Management companies are further divided into diversified

companies and non-diversified companies, defined as follows:

(1) ‘‘Diversified company’’ means a management company

which meets the following requirements: At least 75 per cen-

tum of the value of its total assets is represented by cash and

cash items (including receivables), Government securities, se-

curities of other investment companies, and other securities for

the purposes of this calculation limited in respect of any one

issuer to an amount not greater in value than 5 per centum

of the value of the total assets of such management company

and to not more than 10 per centum of the outstanding voting

securities of such issuer.

(2) ‘‘Non-diversified company’’ means any management

company other than a diversified company.

qualification as such meets the requirements of paragraph (1) of

subsection (b) shall not lose its status as a diversified company be-

cause of any subsequent discrepancy between the value of its var-

ious investments and the requirements of said paragraph, so long

as any such discrepancy existing immediately after its acquisition

of any security or other property is neither wholly nor partly the

result of such acquisition.

EXEMPTIONS

. 6. ø80a–6¿ (a) The following investment companies are

exempt from the provisions of this title:

(1)

Any company organized or otherwise created under

the laws of and having its principal office and place of business

in Puerto Rico,

the Virgin Islands, or any other possession of

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As Amended Through P.L. 117-263, Enacted December 23, 2022

25 Sec. 6 INVESTMENT COMPANY ACT OF 1940

the United States; but such exemption shall terminate if any

security of which such company is the issuer is offered for sale

or sold after the effective date of this title, by such company

or an underwriter therefor, to a resident of any State other

than the State in which such company is organized.

(2)

Any company which since the effective date of this

title or within five years prior to such date has been reorga-

nized under the supervision of a court of competent jurisdic-

tion, if (A) such company was not an investment company at

the commencement of such reorganization proceedings, (B) at

the conclusion of such proceedings all outstanding securities of

such company were owned by creditors of such company or by

persons to whom such securities were issued on account of

creditors’ claims, and (C) more than 50 per centum of the vot-

ing securities of such company, and securities representing

more than 50 per centum of the net asset value of such com-

pany, are currently owned beneficially by not more than twen-

ty-five persons; but such exemption shall terminate if any secu-

rity of which such company is the issuer is offered for sale or

sold to the public after the conclusion of such proceedings by

the issuer or by or through any underwriter. For the purposes

of this paragraph, any new company organized as part of the

reorganization shall be deemed the same company as its prede-

cessor; and beneficial ownership shall be determined in the

manner provided in section 3(c)(1).

(3)

Any issuer as to which there is outstanding a writing

filed with the Commission by the Federal Savings and Loan

Insurance Corporation stating that exemption of such issuer

from the provisions of this title is consistent with the public in-

terest and the protection of investors and is necessary or ap-

propriate by reason of the fact that such issuer holds or pro-

poses to acquire any assets or any product of any assets which

have been segregated (A) from assets of any company which at

the filing of such writing is an insured institution within the

meaning of section 401(a) of the National Housing Act, as here-

tofore or hereafter amended, or (B) as a part of or in connec-

tion with any plan for or condition to the insurance of accounts

of any company by said corporation or the conversion of any

company into a Federal savings and loan association. Any such

writing shall expire when canceled by a writing similarly filed

or at the expiration of two years after the date of its filing,

whichever first occurs; but said corporation may, nevertheless,

before, at, or after the expiration of any such writing file an-

other writing or writings with respect to such issuer.

(4)

Any company which prior to March 15, 1940, was and

now is a wholly-owned subsidiary of a registered face-amount

certificate company and was prior to said date and now is orga-

nized and operating under the insurance laws of any State and

subject to supervision and examination by the insurance com-

missioner thereof, and which prior to March 15, 1940, was and

now is engaged, subject to such laws, in business substantially

all of which consists of issuing and selling only to residents of

such State and investing the proceeds from, securities pro-

viding for or representing participations or interests in intan-

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As Amended Through P.L. 117-263, Enacted December 23, 2022

26 Sec. 6 INVESTMENT COMPANY ACT OF 1940

gible assets consisting of mortgages or other liens on real es-

tate or notes or bonds secured thereby or in a fund or deposit

of mortgages or other liens on real estate or notes or bonds se-

cured thereby or having outstanding such securities so issued

and sold.

(5)

(A) Any company that is not engaged in the business

of issuing redeemable securities, the operations of which are

subject to regulation by the State in which the company is or-

ganized under a statute governing entities that provide finan-

cial or managerial assistance to enterprises doing business, or

proposing to do business, in that State if—

(i) the organizational documents of the company state

that the activities of the company are limited to the pro-

motion of economic, business, or industrial development in

the State through the provision of financial or managerial

assistance to enterprises doing business, or proposing to do

business, in that State, and such other activities that are

incidental or necessary to carry out that purpose;

(ii) immediately following each sale of the securities of

the company by the company or any underwriter for the

company, not less than 80 percent of the securities of the

company being offered in such sale, on a class-by-class

basis, are held by persons who reside or who have a sub-

stantial business presence in that State;

(iii) the securities of the company are sold, or proposed

to be sold, by the company or by any underwriter for the

company, solely to accredited investors, as that term is de-

fined in section 2(a)(15) of the Securities Act of 1933, or to

such other persons that the Commission, as necessary or

appropriate in the public interest and consistent with the

protection of investors, may permit by rule, regulation, or

order; and

(iv) the company does not purchase any security

issued by an investment company or by any company that

would be an investment company except for the exclusions

from the definition of the term ‘‘investment company’’

under paragraph (1) or (7) of section 3(c), other than—

(I) any debt security that meets such standards of

credit-worthiness as the Commission shall adopt; or

(II) any security issued by a registered open-end

investment company that is required by its investment

policies to invest not less than 65 percent of its total

assets in securities described in subclause (I) or securi-

ties that are determined by such registered open-end

investment company to be comparable in quality to se-

curities described in subclause (I).

(B) Notwithstanding the exemption provided by this para-

graph, section 9 (and, to the extent necessary to enforce section

9, sections 38 through 51) shall apply to a company described

in this paragraph as if the company were an investment com-

pany registered under this title.

vided by this paragraph shall file with the Commission a noti-

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As Amended Through P.L. 117-263, Enacted December 23, 2022

27 Sec. 6 INVESTMENT COMPANY ACT OF 1940

fication stating that the company intends to do so, in such form

and manner as the Commission may prescribe by rule.

(D) Any company meeting the requirements of this para-

graph may rely on the exemption provided by this paragraph

upon filing with the Commission the notification required by

subparagraph (C), until such time as the Commission deter-

mines by order that such reliance is not in the public interest

or is not consistent with the protection of investors.

(E) The exemption provided by this paragraph may be sub-

ject to such additional terms and conditions as the Commission

may by rule, regulation, or order determine are necessary or

appropriate in the public interest or for the protection of inves-

tors.

(b) Upon application by any employees’ security company, the

Commission shall by order exempt such company from the provi-

sions of this title and of the rules and regulations hereunder, if and

to the extent that such exemption is consistent with the protection

of investors. In determining the provisions to which such an order

of exemption shall apply, the Commission shall give due weight,

among other things, to the form of organization and the capital

structure of such company, the persons by whom its voting securi-

ties, evidences of indebtedness, and other securities are owned and

controlled, the prices at which securities issued by such company

are sold and the sales load thereon, the disposition of the proceeds

of such sales, the character of the securities in which such proceeds

are invested, and any relationship between such company and the

issuer of any such security.

tion, or by order upon application, may conditionally or uncondi-

tionally exempt any person, security, or transaction, or any class

or classes of persons, securities, or transactions, from any provision

or provisions of this title or of any rule or regulation thereunder,

if and to the extent that such exemption is necessary or appro-

priate in the public interest and consistent with the protection of

investors and the purposes fairly intended by the policy and provi-

sions of this title.

(d) The Commission, by rules and regulations or order, shall

exempt a closed-end investment company from any or all provisions

of this title, but subject to such terms and conditions as may be

necessary or appropriate in the public interest or for the protection

of investors, if—

(1) the aggregate sums received by such company from the

sale of all its outstanding securities, plus the aggregate offer-

ing price of all securities of which such company is the issuer

and which it proposes to offer for sale, do not exceed

$10,000,000, or such other amount as the Commission may set

by rule, regulation, or order;

(2) no security of which such company is the issuer has

been or is proposed to be sold by such company or any under-

writer therefor, in connection with a public offering, to any per-

son who is not a resident of the State under the laws of which

such company is organized or otherwise created; and

(3) such exemption is not contrary to the public interest or

inconsistent with the protection of investors.

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As Amended Through P.L. 117-263, Enacted December 23, 2022

28 Sec. 7 INVESTMENT COMPANY ACT OF 1940

(e) If, in connection with any rule, regulation, or order under

this section exempting any investment company from any provision

of section 7, the Commission deems it necessary or appropriate in

the public interest or for the protection of investors that certain

specified provisions of this title pertaining to registered investment

companies shall be applicable in respect of such company, the pro-

visions so specified shall apply to such company, and to other per-

sons in their transactions and relations with such company, as

though such company were a registered investment company.

(f) Any closed-end company which—

(1) elects to be treated as a business development company

pursuant to section 54; or

(2) would be excluded from the definition of an investment

company by section 3(c)(1), except that it presently proposes to

make a public offering of its securities as a business develop-

ment company, and has notified the Commission, in a form

and manner which the Commission may, by rule, prescribe,

that it intends in good faith to file, within 90 days, a notifica-

tion of election to become subject to the provisions of sections

55 through 65,

shall be exempt from sections 1 through 53, except to the extent

provided in sections 59 through 65.

TRANSACTIONS BY UNREGISTERED INVESTMENT COMPANIES

. 7. ø80a–7¿ (a) No investment company organized or oth-

erwise created under the laws of the United States or of a State

and having a board of directors, unless registered under section 8,

shall directly or indirectly—

(1) offer for sale, sell, or deliver after sale, by the use of

the mails or any means or instrumentality of interstate com-

merce, any security or any interest in a security, whether the

issuer of such security is such investment company or another

person; or offer for sale, sell, or deliver after sale any such se-

curity or interest, having reason to believe that such security

or interest will be made the subject of a public offering by use

of the mails or any means or instrumentality of interstate com-

merce;

(2) purchase, redeem, retire, or otherwise acquire or at-

tempt to acquire, by use of the mails or any means or instru-

mentality of interstate commerce, any security or any interest

in a security, whether the issuer of such security is such in-

vestment company or another person;

(3) control any investment company which does any of the

acts enumerated in paragraphs (1) and (2);

(4) engage in any business in interstate commerce; or

(5) control any company which is engaged in any business

in interstate commerce.

The provisions of this subsection (a) shall not apply to transactions

of an investment company which are merely incidental to its dis-

solution.

(b) No depositor or trustee of or underwriter for any invest-

ment company, organized or otherwise created under the laws of

the United States or of a State and not having a board of directors,

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As Amended Through P.L. 117-263, Enacted December 23, 2022

29 Sec. 7 INVESTMENT COMPANY ACT OF 1940

unless such company is registered under section 8 or exempt under

section 6, shall directly or indirectly—

(1) offer for sale, sell, or deliver after sale, by use of the

mails or any means or instrumentality of interstate commerce,

any security or any interest in a security of which such com-

pany is the issuer; or offer for sale, sell, or deliver after sale

any such security or interest, having reason to believe that

such security or interest will be made the subject of a public

offering by use of the mails or any means or instrumentality

of interstate commerce;

(2) purchase, redeem, or otherwise acquire or attempt to

acquire, by use of the mails or any means or instrumentality

of interstate commerce, any security or any interest in a secu-

rity of which such company is the issuer; or

(3) sell or purchase for the account of such company, by

use of the mails or any means or instrumentality of interstate

commerce, any security or interest in a security, by whomever

issued.

The provisions of this subsection (b) shall not apply to transactions

which are merely incidental to the dissolution of an investment

company.

derwriter for such a promoter, shall make use of the mails or any

means or instrumentality of interstate commerce, directly or indi-

rectly, to offer for sale, sell, or deliver after sale, in connection with

a public offering, any preorganization certificate or subscription for

such a company.

(d) No investment company, unless organized or otherwise cre-

ated under the laws of the United States or of a State, and no de-

positor or trustee of or underwriter for such a company not so orga-

nized or created, shall make use of the mails or any means or in-

strumentality of interstate commerce, directly or indirectly, to offer

for sale, sell, or deliver after sale, in connection with a public offer-

ing, any security of which such company is the issuer. Notwith-

standing the provisions of this subsection and of section 8(a), the

Commission is authorized, upon application by an investment com-

pany organized or otherwise created under the laws of a foreign

country, to issue a conditional or unconditional order permitting

such company to register under this title and to make a public of-

fering of its securities by use of the mails and means or instrumen-

talities of interstate commerce, if the Commission finds that, by

reason of special circumstances or arrangements, it is both legally

and practically feasible effectively to enforce the provisions of this

title against such company and that the issuance of such order is

otherwise consistent with the public interest and the protection of

investors.

(e) D

ISCLOSURE BY

XEMPT

HARITABLE

RGANIZATIONS

.—

Each fund that is excluded from the definition of an investment

company under section 3(c)(10)(B) of this Act shall provide, to each

donor to such fund, at the time of the donation or within 90 days

after the date of enactment of this subsection, whichever is later,

written information describing the material terms of the operation

of such fund.

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30 Sec. 8 INVESTMENT COMPANY ACT OF 1940

REGISTRATION OF INVESTMENT COMPANIES

. 8. ø80a–8¿ (a) Any investment company organized or oth-

erwise created under the laws of the United States or of a State

may register for the purposes of this title by filing with the Com-

mission a notification of registration, in such form as the Commis-

sion shall by rules and regulations prescribe as necessary or appro-

priate in the public interest or for the protection of investors. An

investment company shall be deemed to be registered upon receipt

by the Commission of such notification of registration.

(b) Every registered investment company shall file with the

Commission, within such reasonable time after registration as the

Commission shall fix by rules and regulations, an original and such

copies of a registration statement, in such form and containing

such of the following information and documents as the Commis-

sion shall by rules and regulations prescribe as necessary or appro-

priate in the public interest or for the protection of investors:

(1) a recital of the policy of the registrant in respect of

each of the following types of activities, such recital consisting

in each case of a statement whether the registrant reserves

freedom of action to engage in activities of such type, and if

such freedom of action is reserved, a statement briefly indi-

cating, insofar as is practicable, the extent to which the reg-

istrant intends to engage therein: (A) the classification and

subclassifications, as defined in sections 4 and 5, within which

the registrant proposes to operate; (B) borrowing money; (C)

the issuance of senior securities; (D) engaging in the business

of underwriting securities issued by other persons; (E) concen-

trating investments in a particular industry or group of indus-

tries; (F) the purchase and sale of real estate and commodities,

or either of them; (G) making loans to other persons; and (H)

portfolio turn-over (including a statement showing the aggre-

gate dollar amount of purchases and sales of portfolio securi-

ties, other than Government securities, in each of the last

three full fiscal years preceding the filing of such registration

statement);

(2) a recital of all investment policies of the registrant, not

enumerated in paragraph (1), which are changeable only if au-

thorized by shareholder vote;

(3) a recital of all policies of the registrant, not enumer-

ated in paragraphs (1) and (2), in respect of matters which the

registrant deems matters of fundamental policy;

(4) the name and address of each affiliated person of the

registrant; the name and principal address of every company,

other than the registrant, of which each such person is an offi-

cer, director, or partner; a brief statement of the business expe-

rience for the preceding five years of each officer and director

of the registrant; and

(5) the information and documents which would be re-

quired to be filed in order to register under the Securities Act

of 1933 and the Securities Exchange Act of 1934 all securities

(other than short-term paper) which the registrant has out-

standing or proposes to issue.

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31 Sec. 8 INVESTMENT COMPANY ACT OF 1940

and regulations or order, for the filing of the following, or so much

of the following as the Commission may designate, in lieu of the

information and documents required pursuant to subsection (b):

(1) copies of the most recent registration statement filed by

the registrant under the Securities Act of 1933 and currently

effective under such Act, or if the registrant has not filed such

a statement, copies of a registration statement filed by the reg-

istrant under the Securities Exchange Act of 1934 and cur-

rently effective under such Act;

(2) copies of any reports filed by the registrant pursuant

to section 13 or 15(d) of the Securities Exchange Act of 1934;

and

(3) a report containing reasonably current information re-

garding the matters included in copies filed pursuant to para-

graphs (1) and (2), and such further information regarding

matters not included in such copies as the Commission is au-

thorized to require under subsection (b).

(d) If the registrant is a unit investment trust substantially all

of the assets of which are securities issued by another registered

investment company, the Commission is authorized to prescribe for

the registrant, by rules and regulations or order, a registration

statement which eliminates inappropriate duplication of informa-

tion contained in the registration statement filed under this section

by such other investment company.

(e) If it appears to the Commission that a registered invest-

ment company has failed to file the registration statement required

by this section or a report required pursuant to section 30 (a) or

(b), or has filed such a registration statement or report but omitted

therefrom material facts required to be stated therein, or has filed

such a registration statement or report in violation of section 34(b),

the Commission shall notify such company by registered mail or by

certified mail of the failure to file such registration statement or

report, or of the respects in which such registration statement or

report appears to be materially incomplete or misleading, as the

case may be, and shall fix a date (in no event earlier than thirty

days after the mailing of such notice) prior to which such company

may file such registration statement or report or correct the same.

If such registration statement or report is not filed or corrected

within the time so fixed by the Commission or any extension there-

of, the Commission, after appropriate notice and opportunity for

hearing, and upon such conditions and with such exemptions as it

deems appropriate for the protection of investors, may by order

suspend the registration of such company until such statement or

report is filed or corrected, or may by order revoke such registra-

tion, if the evidence establishes—

(1) that such company has failed to file a registration

statement required by this section or a report required pursu-

ant to section 30 (a) or (b), or has filed such a registration

statement or report but omitted therefrom material facts re-

quired to be stated therein, or has filed such a registration

statement or report in violation of section 34(b); and

(2) that such suspension or revocation is in the public in-

terest.

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32 Sec. 9 INVESTMENT COMPANY ACT OF 1940

(f) Whenever the Commission, on its own motion or upon appli-

cation, finds that a registered investment company has ceased to

be an investment company, it shall so declare by order and upon

the taking effect of such order the registration of such company

shall cease to be in effect. If necessary for the protection of inves-

tors, an order under this subsection may be made upon appropriate

conditions. The Commission’s denial of any application under this

subsection shall be by order.

(g) D

ATA

TANDARDS FOR

EGISTRATION

TATEMENTS

.—

(1) R

EQUIREMENT

.—The Commission shall, by rule, adopt

data standards for all registration statements required to be

filed with the Commission under this section, except that the

Commission may exempt exhibits, signatures, and certifi-

cations from those data standards.

(2) C

ONSISTENCY

.—The data standards required under

paragraph (1) shall incorporate, and ensure compatibility with

(to the extent feasible), all applicable data standards estab-

lished in the rules promulgated under section 124 of the Finan-

cial Stability Act of 2010, including, to the extent practicable,

by having the characteristics described in clauses (i) through

(vi) of subsection (c)(1)(B) of such section 124.

INELIGIBILITY OF CERTAIN AFFILIATED PERSONS AND UNDERWRITERS

. 9. ø80a–9¿ (a) It shall be unlawful for any of the following

persons to serve or act in the capacity of employee, officer, director,

member of an advisory board, investment adviser, or depositor of

any registered investment company, or principal underwriter for

any registered open-end company, registered unit investment trust,

or registered face-amount certificate company:

(1) any person who within 10 years has been convicted of

any felony or misdemeanor involving the purchase or sale of

any security or arising out of such person’s conduct as an un-

derwriter, broker, dealer, investment adviser, municipal securi-

ties dealer, government securities broker, government securi-

ties dealer, bank, transfer agent, credit rating agency, or entity

or person required to be registered under the Commodity Ex-

change Act, or as an affiliated person, salesman, or employee

of any investment company, bank, insurance company, or enti-

ty or person required to be registered under the Commodity

Exchange Act;

(2) any person who, by reason of any misconduct, is perma-

nently or temporarily enjoined by order, judgment, or decree of

any court of competent jurisdiction from acting as an under-

writer, broker, dealer, investment adviser, municipal securities

dealer, government securities broker, government securities

dealer, bank, transfer agent, credit rating agency, or entity or

person required to be registered under the Commodity Ex-

change Act, or as an affiliated person, salesman, or employee

of any investment company, bank, insurance company, or enti-

ty or person required to be registered under the Commodity

Exchange Act, or from engaging in or continuing any conduct

or practice in connection with any such activity or in connec-

tion with the purchase or sale of any security; or

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33 Sec. 9 INVESTMENT COMPANY ACT OF 1940

(3) a company any affiliated person of which is ineligible,

by reason of paragraph (1) or (2), to serve or act in the fore-

going capacities.

For the purposes of paragraphs (1), (2), and (3) of this subsection,

the term ‘‘investment adviser’’ shall include an investment adviser

as defined in title II of this Act.

(b) The Commission may, after notice and opportunity for hear-

ing, by order prohibit, conditionally or unconditionally, either per-

manently or for such period of time as it in its discretion shall

deem appropriate in the public interest, any person from serving

or acting as an employee, officer, director, member of an advisory

board, investment adviser or depositor of, or principal underwriter

for, a registered investment company or affiliated person of such

investment adviser, depositor, or principal underwriter, if such per-

son—

(1) has willfully made or caused to be made in any reg-

istration statement, application or report filed with the Com-

mission under this title any statement which was at the time

and in the light of the circumstances under which it was made

false or misleading with respect to any material fact, or has

omitted to state in any such registration statement, applica-

tion, or report any material fact which was required to be stat-

ed therein;

(2) has willfully violated any provision of the Securities Act

of 1933, or of the Securities Exchange Act of 1934, or of title

II of this Act, or of this title, or of the Commodity Exchange

Act, or of any rule or regulation under any of such statutes;

(3) has willfully aided, abetted, counseled, commanded, in-

duced, or procured the violation by any other person of the Se-

curities Act of 1933, or of the Securities Exchange Act of 1934,

or of title II of this Act, or of this title, or of the Commodity

Exchange Act, or of any rule or regulation under any of such

statutes;

(4) has been found by a foreign financial regulatory au-

thority to have—

(A) made or caused to be made in any application for

registration or report required to be filed with a foreign se-

curities authority, or in any proceeding before a foreign se-

curities authority with respect to registration, any state-

ment that was at the time and in light of the cir-

cumstances under which it was made false or misleading

with respect to any material fact, or has omitted to state

in any application or report to a foreign securities author-

ity any material fact that is required to be stated therein;

(B) violated any foreign statute or regulation regard-

ing transactions in securities or contracts of sale of a com-

modity for future delivery traded on or subject to the rules

of a contract market or any board of trade; or

procured the violation by any other person of any foreign

statute or regulation regarding transactions in securities

or contracts of sale of a commodity for future delivery trad-

ed on or subject to the rules of a contract market or any

board of trade;

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As Amended Through P.L. 117-263, Enacted December 23, 2022

34 Sec. 9 INVESTMENT COMPANY ACT OF 1940

So in law. The semicolon at the end of clause (iii) probably should be a period.

(5) within 10 years has been convicted by a foreign court

of competent jurisdiction of a crime, however denominated by

the laws of the relevant foreign government, that is substan-

tially equivalent to an offense set forth in paragraph (1) of sub-

section (a); or

(6) by reason of any misconduct, is temporarily or perma-

nently enjoined by any foreign court of competent jurisdiction

from acting in any of the capacities, set forth in paragraph (2)

of subsection (a), or a substantially equivalent foreign capacity,

or from engaging in or continuing any conduct or practice in

connection with any such activity or in connection with the

purchase or sale of any security.

serve or act in the capacities enumerated in that subsection, may

file with the Commission an application for an exemption from the

provisions of that subsection. The Commission shall by order grant

such application, either unconditionally or on an appropriate tem-

porary or other conditional basis, if it is established that the prohi-

bitions of subsection (a), as applied to such person, are unduly or

disproportionately severe or that the conduct of such person has

been such as not to make it against the public interest or protec-

tion of investors to grant such application.

(d) M

ONEY

ENALTIES IN

DMINISTRATIVE

ROCEEDINGS

.—

(1) A

UTHORITY OF COMMISSION

.—

(A) I

N GENERAL

.—In any proceeding instituted pursu-

ant to subsection (b) against any person, the Commission

may impose a civil penalty if it finds, on the record after

notice and opportunity for hearing, that such penalty is in

the public interest, and that such person—

(i) has willfully violated any provision of the Secu-

rities Act of 1933, the Securities Exchange Act of 1934,

the Investment Advisers Act of 1940, or this title, or

the rules or regulations thereunder;

(ii) has willfully aided, abetted, counseled, com-

manded, induced, or procured such a violation by any

other person; or

(iii) has willfully made or caused to be made in

any registration statement, application, or report re-

quired to be filed with the Commission under this

title, any statement which was, at the time and in the

light of the circumstances under which it was made,

false or misleading with respect to any material fact,

or has omitted to state in any such registration state-

ment, application, or report any material fact which

was required to be stated therein;

(B) C

EASE

AND

DESIST PROCEEDINGS

.—In any pro-

ceeding instituted pursuant to subsection (f) against any

person, the Commission may impose a civil penalty if the

Commission finds, on the record, after notice and oppor-

tunity for hearing, that such person—

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As Amended Through P.L. 117-263, Enacted December 23, 2022

35 Sec. 9 INVESTMENT COMPANY ACT OF 1940

(i) is violating or has violated any provision of this

title, or any rule or regulation issued under this title;

(ii) is or was a cause of the violation of any provi-

sion of this title, or any rule or regulation issued

under this title.

(2) M

AXIMUM AMOUNT OF PENALTY

.—

(A) F

IRST TIER

.—The maximum amount of penalty for

each act or omission described in paragraph (1) shall be

$5,000 for a natural person or $50,000 for any other per-

son.

(B) S

ECOND TIER

.—Notwithstanding subparagraph (A),

the maximum amount of penalty for each such act or omis-

sion shall be $50,000 for a natural person or $250,000 for

any other person if the act or omission described in para-

graph (1) involved fraud, deceit, manipulation, or delib-

erate or reckless disregard of a regulatory requirement.

HIRD TIER

.—Notwithstanding subparagraphs (A)

and (B), the maximum amount of penalty for each such act

or omission shall be $100,000 for a natural person or

$500,000 for any other person if—

(i) the act or omission described in paragraph (1)

involved fraud, deceit, manipulation, or deliberate or

reckless disregard of a regulatory requirement; and

(ii) such act or omission directly or indirectly re-

sulted in substantial losses or created a significant

risk of substantial losses to other persons or resulted

in substantial pecuniary gain to the person who com-

mitted the act or omission.

(3) D

ETERMINATION OF PUBLIC INTEREST

.—In considering

under this section whether a penalty is in the public interest,

the Commission may consider—

(A) whether the act or omission for which such penalty

is assessed involved fraud, deceit, manipulation, or delib-

erate or reckless disregard of a regulatory requirement;

(B) the harm to other persons resulting either directly

or indirectly from such act or omission;

riched, taking into account any restitution made to persons

injured by such behavior;

(D) whether such person previously has been found by

the Commission, another appropriate regulatory agency, or

a self-regulatory organization to have violated the Federal

securities laws, State securities laws, or the rules of a self-

regulatory organization, has been enjoined by a court of

competent jurisdiction from violations of such laws or

rules, or has been convicted by a court of competent juris-

diction of violations of such laws or of any felony or mis-

demeanor described in section 203(e)(2) of the Investment

Advisers Act of 1940;

(E) the need to deter such person and other persons

from committing such acts or omissions; and

(F) such other matters as justice may require.

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36 Sec. 9 INVESTMENT COMPANY ACT OF 1940

(4) E

VIDENCE CONCERNING ABILITY TO PAY

.—In any pro-

ceeding in which the Commission may impose a penalty under

this section, a respondent may present evidence of the respond-

ent’s ability to pay such penalty. The Commission may, in its

discretion, consider such evidence in determining whether such

penalty is in the public interest. Such evidence may relate to

the extent of such person’s ability to continue in business and

the collectability of a penalty, taking into account any other

claims of the United States or third parties upon such person’s

assets and the amount of such person’s assets.

(e) A

UTHORITY

NTER AN

RDER

EQUIRING AN

CCOUNT

ING AND

ISGORGEMENT

.—In any proceeding in which the Commis-

sion may impose a penalty under this section, the Commission may

enter an order requiring accounting and disgorgement, including

reasonable interest. The Commission is authorized to adopt rules,

regulations, and orders concerning payments to investors, rates of

interest, periods of accrual, and such other matters as it deems ap-

propriate to implement this subsection.

(f) C

EASE

AND

-D

ESIST

ROCEEDINGS

.—

(1) A

UTHORITY OF THE COMMISSION

.—If the Commission

finds, after notice and opportunity for hearing, that any person

is violating, has violated, or is about to violate any provision

of this title, or any rule or regulation thereunder, the Commis-

sion may publish its findings and enter an order requiring

such person, and any other person that is, was, or would be a

cause of the violation, due to an act or omission the person

knew or should have known would contribute to such violation,

to cease and desist from committing or causing such violation

and any future violation of the same provision, rule, or regula-

tion. Such order may, in addition to requiring a person to cease

and desist from committing or causing a violation, require such

person to comply, or to take steps to effect compliance, with

such provision, rule, or regulation, upon such terms and condi-

tions and within such time as the Commission may specify in

such order. Any such order may, as the Commission deems ap-

propriate, require future compliance or steps to effect future

compliance, either permanently or for such period of time as

the Commission may specify, with such provision, rule, or reg-

ulation with respect to any security, any issuer, or any other

person.

(2) H

EARING

.—The notice instituting proceedings pursuant

to paragraph (1) shall fix a hearing date not earlier than 30

days nor later than 60 days after service of the notice unless

an earlier or a later date is set by the Commission with the

consent of any respondent so served.

(3) T

EMPORARY ORDER

.—

(A) I

N GENERAL

.—Whenever the Commission deter-

mines that the alleged violation or threatened violation

specified in the notice instituting proceedings pursuant to

paragraph (1), or the continuation thereof, is likely to re-

sult in significant dissipation or conversion of assets, sig-

nificant harm to investors, or substantial harm to the pub-

lic interest, including, but not limited to, losses to the Se-

curities Investor Protection Corporation, prior to the com-

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37 Sec. 9 INVESTMENT COMPANY ACT OF 1940

pletion of the proceeding, the Commission may enter a

temporary order requiring the respondent to cease and de-

sist from the violation or threatened violation and to take

such action to prevent the violation or threatened violation

and to prevent dissipation or conversion of assets, signifi-

cant harm to investors, or substantial harm to the public

interest as the Commission deems appropriate pending

completion of such proceedings. Such an order shall be en-

tered only after notice and opportunity for a hearing, un-

less the Commission, notwithstanding section 40(a) of this

title, determines that notice and hearing prior to entry

would be impracticable or contrary to the public interest.

A temporary order shall become effective upon service

upon the respondent and, unless set aside, limited, or sus-

pended by the Commission or a court of competent juris-

diction, shall remain effective and enforceable pending the

completion of the proceedings.

(B) A

PPLICABILITY

.—This paragraph shall apply only

to a respondent that acts, or, at the time of the alleged

misconduct acted, as a broker, dealer, investment adviser,

investment company, municipal securities dealer, govern-

ment securities broker, government securities dealer, or

transfer agent, or is, or was at the time of the alleged mis-

conduct, an associated person of, or a person seeking to be-

come associated with, any of the foregoing.

(4) R

EVIEW OF TEMPORARY ORDERS

.—

(A) C

OMMISSION REVIEW

.—At any time after the re-

spondent has been served with a temporary cease-and-de-

sist order pursuant to paragraph (3), the respondent may

apply to the Commission to have the order set aside, lim-

ited, or suspended. If the respondent has been served with

a temporary cease-and-desist order entered without a prior

Commission hearing, the respondent may, within 10 days

after the date on which the order was served, request a

hearing on such application and the Commission shall hold

a hearing and render a decision on such application at the

earliest possible time.

(B) J

UDICIAL REVIEW

.—Within—

(i) 10 days after the date the respondent was

served with a temporary cease-and-desist order en-

tered with a prior Commission hearing, or

(ii) 10 days after the Commission renders a deci-

sion on an application and hearing under subpara-

graph (A), with respect to any temporary cease-and-

desist order entered without a prior Commission hear-

ing,

the respondent may apply to the United States district

court for the district in which the respondent resides or

has its principal place of business, or for the District of Co-

lumbia, for an order setting aside, limiting, or suspending

the effectiveness or enforcement of the order, and the court

shall have jurisdiction to enter such an order. A respond-

ent served with a temporary cease-and-desist order en-

tered without a prior Commission hearing may not apply

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38 Sec. 10 INVESTMENT COMPANY ACT OF 1940

to the court except after hearing and decision by the Com-

mission on the respondent’s application under subpara-

graph (A) of this paragraph.

O AUTOMATIC STAY OF TEMPORARY ORDER

.—The

commencement of proceedings under subparagraph (B) of

this paragraph shall not, unless specifically ordered by the

court, operate as a stay of the Commission’s order.

(D) E

XCLUSIVE REVIEW

.—Section 43 of this title shall

not apply to a temporary order entered pursuant to this

section.

(5) A

UTHORITY TO ENTER AN ORDER REQUIRING AN AC

COUNTING AND DISGORGEMENT

.—In any cease-and-desist pro-

ceeding under subsection (f)(1), the Commission may enter an

order requiring accounting and disgorgement, including rea-

sonable interest. The Commission is authorized to adopt rules,

regulations, and orders concerning payments to investors, rates

of interest, periods of accrual, and such other matters as it

deems appropriate to implement this subsection.

(g) For the purposes of this section, the term ‘‘investment ad-

viser’’ includes a corporate or other trustee performing the func-

tions of an investment adviser.

AFFILIATIONS OF DIRECTORS

. 10. ø80a–10¿ (a) No registered investment company shall

have a board of directors more than 60 per centum of the members

of which are persons who are interested persons of such registered

company.

(b) No registered investment company shall—

(1) employ as regular broker any director, officer, or em-

ployee of such registered company, or any person of which any

such director, officer, or employee is an affiliated person, un-

less a majority of the board of directors of such registered com-

pany shall be persons who are not such brokers or affiliated

persons of any of such brokers;

(2) use as a principal underwriter of securities issued by

it any director, officer, or employee of such registered company

or any person of which any such director, officer, or employee

is an interested person, unless a majority of the board of direc-

tors of such registered company shall be persons who are not

such principal underwriters or interested persons of any of

such principal underwriters; or

(3) have as director, officer, or employee any investment

banker, or any affiliated person of any investment banker, un-

less a majority of the board of directors of such registered com-

pany shall be persons who are not investment bankers or affili-

ated persons of any investment banker. For the purposes of

this paragraph, a person shall not be deemed an affiliated per-

son of an investment banker solely by reason of the fact that

he is an affiliated person of a company of the character de-

scribed in section 12(d)(3) (A) and (B).

its board of directors consisting of persons who are officers, direc-

tors, or employees of any one bank (together with its affiliates and

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39 Sec. 10 INVESTMENT COMPANY ACT OF 1940

Two consecutive commas so in law. See section 401(c) of Public Law 109–351 (120 Stat.

1973).

subsidiaries) or any one bank holding company (together with its

affiliates and subsidiaries) (as such terms are defined in section 2

of the Bank Holding Company Act of 1956) or any one savings and

loan holding company, together with its affiliates and subsidiaries

(as such terms are defined in section 10 of the Home Owners’ Loan

Act),,

except that, if on March 15, 1940, any registered invest-

ment company had a majority of its directors consisting of persons

who are directors, officers, or employees of any one bank, such com-

pany may continue to have the same percentage of its board of di-

rectors consisting of persons who are directors, officers, or employ-

ees of such bank.

(d) Notwithstanding subsections (a) and (b)(2) of this section,

a registered investment company may have a board of directors all

the members of which, except one, are interested persons of the in-

vestment adviser of such company, or are officers or employees of

such company, if—

(1) such investment company is an open-end company;

(2) such investment adviser is registered under title II of

this Act and is engaged principally in the business of rendering

investment supervisory services as defined in title II;

(3) no sales load is charged on securities issued by such in-

vestment company;

(4) any premium over net asset value charged by such

company upon the issuance of any such security, plus any dis-

count from net asset value charged on redemption thereof,

shall not in the aggregate exceed 2 per centum;

(5) no sales or promotion expenses are incurred by such

registered company; but expenses incurred in complying with

laws regulating the issue or sale of securities shall not be

deemed sales or promotion expenses;

(6) such investment adviser is the only investment adviser

to such investment company, and such investment adviser does

not receive a management fee exceeding 1 per centum per

annum of the value of such company’s net assets averaged over

the year or taken as of a definite date or dates within the year;

(7) all executive salaries and executive expenses and office

rent of such investment company are paid by such investment

adviser; and

(8) such investment company has only one class of securi-

ties outstanding, each unit of which has equal voting rights

with every other unit.

(e) If by reason of the death, disqualification, or bona fide res-

ignation of any director or directors, the requirements of the fore-

going provisions of this section or of section 15(f)(1) in respect of

directors shall not be met by a registered investment company, the

operation of such provision shall be suspended as to such registered

company—

(1) for a period of thirty days if the vacancy or vacancies

may be filled by action of the board of directors;

(2) for a period of sixty days if a vote of stockholders is re-

quired to fill the vacancy or vacancies; or

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40 Sec. 11 INVESTMENT COMPANY ACT OF 1940

(3) for such longer period as the Commission may pre-

scribe, by rules and regulations upon its own motion or by

order upon application, as not inconsistent with the protection

of investors.

(f) No registered investment company shall knowingly pur-

chase or otherwise acquire, during the existence of any under-

writing or selling syndicate, any security (except a security of

which such company is the issuer) a principal underwriter of which

is an officer, director, member of an advisory board, investment ad-

viser, or employee of such registered company, or is a person (other

than a company of the character described in section 12(d)(3) (A)

and (B)) of which any such officer, director, member of an advisory

board, investment adviser, or employee is an affiliated person, un-

less in acquiring such security such registered company is itself

acting as a principal underwriter for the issuer. The Commission,

by rules and regulations upon its own motion or by order upon ap-

plication, may conditionally or unconditionally exempt any trans-

action or classes of transactions from any of the provisions of this

subsection, if and to the extent that such exemption is consistent

with the protection of investors.

(g) In the case of a registered investment company which has

an advisory board, such board, as a distinct entity, shall be subject

to the same restrictions as to its membership as are imposed upon

a board of directors by this section.

(h) In the case of a registered management company which is

an unincorporated company not having a board of directors, the

provisions of this section shall apply as follows:

(1) the provisions of subsection (a), as modified by sub-

section (e), shall apply to the board of directors of the depositor

of such company;

(2) the provisions of subsections (b) and (c), as modified by

subsection (e), shall apply to the board of directors of the de-

positor and of every investment adviser of such company; and

(3) the provisions of subsection (f) shall apply to purchases

and other acquisitions for the account of such company of secu-

rities a principal underwriter of which is the depositor or an

investment adviser of such company, or an affiliated person of

such depositor or investment adviser.

OFFERS OF EXCHANGE

. 11. ø80a–11¿ (a) It shall be unlawful for any registered

open-end company or any principal underwriter for such a company

to make or cause to be made an offer to the holder of a security

of such company or of any other open-end investment company to

exchange his security for a security in the same or another such

company on any basis other than the relative net asset values of

the respective securities to be exchanged, unless the terms of the

offer have first been submitted to and approved by the Commission

or are in accordance with such rules and regulations as the Com-

mission may have prescribed in respect of such offers which are in

effect at the time such offer is made. For the purposes of this sec-

tion, (A) an offer by a principal underwriter means an offer commu-

nicated to holders of securities of a class or series but does not in-

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41 Sec. 12 INVESTMENT COMPANY ACT OF 1940

clude an offer made by such principal underwriter to an individual

investor in the course of a retail business conducted by such prin-

cipal underwriter, and (B) the net asset value means the net asset

value which is in effect for the purpose of determining the price at

which the securities, or class or series of securities involved, are of-

fered for sale to the public either (1) at the time of the receipt by

the offeror of the acceptance of the offer or (2) at such later times

as is specified in the offer.

(b) The provisions of this section shall not apply to any offer

made pursuant to any plan of reorganization, which is submitted

to and requires the approval of the holders of at least a majority

of the outstanding shares of the class or series to which the secu-

rity owned by the offeree belongs.

tive of the basis of exchange, (1) to any offer of exchange of any

security of a registered open-end company for a security of a reg-

istered unit investment trust or registered face-amount certificate

company; and (2) to any type of offer of exchange of the securities

of registered unit investment trusts or registered face-amount cer-

tificate companies for the securities of any other investment com-

pany.

FUNCTIONS AND ACTIVITIES OF INVESTMENT COMPANIES

. 12. ø80a–12¿ (a) It shall be unlawful for any registered

investment company, in contravention of such rules and regula-

tions or orders as the Commission may prescribe as necessary or

appropriate in the public interest or for the protection of inves-

tors—

(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 partici-

pant; or

(3) to effect a short sale of any security, except in connec-

tion with an underwriting in which such registered company is

a participant.

(b) It shall be unlawful for any registered open-end company

(other than a company complying with the provisions of section 10

(d)) to act as a distributor of securities of which it is the issuer, ex-

cept through an underwriter, in contravention of such rules and

regulations as the Commission may prescribe as necessary or ap-

propriate in the public interest or for the protection of investors.

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 invest-

ment 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)(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 ac-

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42 Sec. 12 INVESTMENT COMPANY ACT OF 1940

quire any security issued by any other investment company (the

‘‘acquired company’’), and for any investment company (the ‘‘acquir-

ing 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 com-

pany’’), 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, 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 com-

pany and any company or companies controlled by it; or

(ii) more than 10 per centum of the total outstanding vot-

ing stock of the acquired company is owned by the acquiring

company and other investment companies and companies con-

trolled by them.

quiring 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 imme-

diately 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 secu-

rity received as a dividend or as a result of an offer of exchange

approved pursuant to section 11 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 secu-

rity (or securities) purchased or acquired by an investment com-

pany if—

(i) the depositor of, or principal underwriter for, such in-

vestment company is a broker or dealer registered under the

Securities Exchange Act of 1934, or a person controlled by such

a broker or dealer;

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43 Sec. 12 INVESTMENT COMPANY ACT OF 1940

(ii) such security is the only investment security held by

such investment company (or such securities are the only in-

vestment 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 invest-

ment company); and

(iii) the purchase or acquisition is made pursuant to an ar-

rangement with the issuer of, or principal underwriter for the

issuer of, the security whereby such investment company is ob-

ligated—

(aa) either to seek instructions from its security hold-

ers 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 from sub-

stituting such security unless the Commission shall have

approved such substitution in the manner provided in sec-

tion 26 of this Act.

(F) The provisions of this paragraph shall not apply to securi-

ties 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 affili-

ated 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

⁄

per centum.

No issuer of any security purchased or acquired by a registered in-

vestment company pursuant to this subparagraph shall be obli-

gated to redeem such security in an amount exceeding 1 per cen-

tum 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 man-

ner prescribed by subparagraph (E) of this subsection.

(G)(i) This paragraph does not apply to securities of a reg-

istered open-end investment company or a registered unit invest-

ment trust (hereafter in this subparagraph referred to as the ‘‘ac-

quired 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 com-

pany’’) 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

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As Amended Through P.L. 117-263, Enacted December 23, 2022

44 Sec. 12 INVESTMENT COMPANY ACT OF 1940

unit investment trusts that are part of the same group of in-

vestment 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 ag-

gregated 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 adopt-

ed pursuant to section 22(b) or section 22(c) by a securities

association registered under section 15A of the Securities

Exchange Act of 1934, or the Commission;

(IV) the acquired company has a policy that prohibits it

from acquiring any securities of registered open-end invest-

ment companies or registered unit investment trusts in reli-

ance 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 pre-

scribe with respect to acquisitions in accordance with this sub-

paragraph, as necessary and appropriate for the protection of

investors.

(ii) For purposes of this subparagraph, the term ‘‘group of in-

vestment companies’’ means any 2 or more registered investment

companies that hold themselves out to investors as related compa-

nies for purposes of investment and investor services.

(H) For the purposes of this paragraph, the value of an invest-

ment company’s total assets shall be computed as of the time of a

purchase or acquisition or as closely thereto as is reasonably pos-

sible.

(I) In any action brought to enforce the provisions of this para-

graph, the Commission may join as a party the issuer of any secu-

rity 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 provi-

sions 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

paragraph, 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 in-

vestment 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 com-

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As Amended Through P.L. 117-263, Enacted December 23, 2022

45 Sec. 12 INVESTMENT COMPANY ACT OF 1940

pany do not, at the time of such purchase or acquisition, own in

the aggregate at least 25 per centum of the total outstanding vot-

ing stock, if such registered company and any company or compa-

nies 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 in-

vestment 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 title II of this Act, 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 securi-

ties 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) Notwithstanding any provisions of this title, 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 indus-

try, 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 in-

vestment companies only;

(2) That the aggregate cost of the securities of such cor-

poration 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 ac-

quisition 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 5(b) any investment in

any such corporation shall be deemed to be an investment in an

investment company.

(f) Notwithstanding any provisions of this Act, 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 reg-

istered company of all such stock so acquired shall not exceed six

times the amount of the minimum capital stock requirement pro-

vided in subdivision (1) of subsection (a) of section 28 for a face-

amount company organized on or after March 15, 1940: And pro-

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As Amended Through P.L. 117-263, Enacted December 23, 2022

46 Sec. 13 INVESTMENT COMPANY ACT OF 1940

So in law. Probably should include ‘‘or’’ after the semicolon at the end.

vided further, That the aggregate cost to such registered company

of all such capital stock issued by face-amount certificate compa-

nies 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 sub-

division (1) of subsection (a) of section 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) Notwithstanding the provisions of this section any reg-

istered investment company and any company or companies con-

trolled by such registered company may purchase or otherwise ac-

quire from another investment company or any company or compa-

nies controlled by such registered company more than 10 per cen-

tum of the total outstanding voting stock of any insurance company

owned by any such company or companies, or may acquire the se-

curities of any insurance company if the Commission by order de-

termines 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.

CHANGES IN INVESTMENT POLICY

. 13. ø80a–13¿ (a) No registered investment company shall,

unless authorized by the vote of a majority of its outstanding vot-

ing securities—

(1) change its subclassification as defined in section 5(a)

(1) and (2) of this title or its subclassification from a diversified

to a non-diversified company;

(2) borrow money, issue senior securities, underwrite secu-

rities issued by other persons, purchase or sell real estate or

commodities or make loans to other persons, except in each

case in accordance with the recitals of policy contained in its

registration statement in respect thereto;

(3) deviate from its policy in respect of concentration of in-

vestments in any particular industry or group of industries as

recited in its registration statement, deviate from any invest-

ment policy which is changeable only if authorized by share-

holder vote, or deviate from any policy recited in its registra-

tion statement pursuant to section 8(b)(3);

(4) change the nature of its business so as to cease to be

an investment company.

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As Amended Through P.L. 117-263, Enacted December 23, 2022

47 Sec. 13 INVESTMENT COMPANY ACT OF 1940

Section 401(a) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of

2010 (Public Law 111–195) provides as follows:

SEC. 401. GENERAL PROVISIONS.

(a) S

UNSET

.—The provisions of this Act (other than sections 105 and 305 and the amendments

made by sections 102, 107, 109, and 205) shall terminate, and section 13(c)(1)(B) of the Invest-

ment Company Act of 1940, as added by section 203(a), shall cease to be effective, on the date

that is 30 days after the date on which the President certifies to Congress that—

(1) the Government of Iran has ceased providing support for acts of international ter-

rorism and no longer satisfies the requirements for designation as a state sponsor of ter-

rorism (as defined in section 301) under—

(A) section 6(j)(1)(A) of the Export Administration Act of 1979 (50 U.S.C. App.

2405(j)(1)(A)) (or any successor thereto);

(B) section 40(d) of the Arms Export Control Act (22 U.S.C. 2780(d)); or

(2) Iran has ceased the pursuit, acquisition, and development of nuclear, biological, and

chemical weapons and ballistic missiles and ballistic missile launch technology.

(b) In the case of a common-law trust of the character de-

scribed in section 16(c), either written approval by holders of a ma-

jority of the outstanding shares of beneficial interest or the vote of

a majority of such outstanding shares cast in person or by proxy

at a meeting called for the purpose shall for the purposes of sub-

section (a) be deemed the equivalent of the vote of a majority of the

outstanding voting securities, and the provisions of paragraph (42)

of section 2(a) as to a majority shall be applicable to the vote cast

at such a meeting.

IMITATION ON

CTIONS

.—

(1) I

N GENERAL

.—Notwithstanding any other provision of

Federal or State law, no person may bring any civil, criminal,

or administrative action against any registered investment

company, or any employee, officer, director, or investment ad-

viser thereof, based solely upon the investment company di-

vesting from, or avoiding investing in, securities issued by per-

sons that the investment company determines, using credible

information available to the public—

(A) conduct or have direct investments in business op-

erations in Sudan described in section 3(d) of the Sudan

Accountability and Divestment Act of 2007 (50 U.S.C. 1701

note); or

(B)

engage in investment activities in Iran described

in section 202(c) of the Comprehensive Iran Sanctions, Ac-

countability, and Divestment Act of 2010.

(2) A

PPLICABILITY

.—

(A) R

ULE OF CONSTRUCTION

.—Nothing in paragraph

(1) shall be construed to create, imply, diminish, change,

or affect in any way whether or not a private right of ac-

tion exists under subsection (a) or any other provision of

this Act.

(B) D

ISCLOSURES

.—Paragraph (1) shall not apply to a

registered investment company, or any employee, officer,

director, or investment adviser thereof, unless the invest-

ment company makes disclosures in accordance with regu-

lations prescribed by the Commission.

(3) P

ERSON DEFINED

.—For purposes of this subsection the

term ‘‘person’’ includes the Federal Government and any State

or political subdivision of a State.

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48 Sec. 14 INVESTMENT COMPANY ACT OF 1940

SIZE OF INVESTMENT COMPANIES

. 14. ø80a–14¿ (a) No registered investment company orga-

nized after the date of enactment of this title, and no principal un-

derwriter for such a company, shall make a public offering of secu-

rities of which such company is the issuer, unless—

(1) such company has a net worth of at least $100,000;

(2) such company has previously made a public offering of

its securities, and at the time of such offering had a net worth

of at least $100,000; or

(3) provision is made in connection with and as a condition

of the registration of such securities under the Securities Act

of 1933 which in the opinion of the Commission adequately in-

sures (A) that after the effective date of such registration state-

ment such company will not issue any security or receive any

proceeds of any subscription for any security until firm agree-

ments have been made with such company by not more than

twenty-five responsible persons to purchase from it securities

to be issued by it for an aggregate net amount which plus the

then net worth of the company, if any, will equal at least

$100,000; (B) that said aggregate net amount will be paid in

to such company before any subscriptions for such securities

will be accepted from any persons in excess of twenty-five; (C)

that arrangements will be made whereby any proceeds so paid

in, as well as any sales load, will be refunded to any subscriber

on demand without any deduction, in the event that the net

proceeds so received by the company do not result in the com-

pany having a net worth of at least $100,000 within ninety

days after such registration statement becomes effective.

At any time after occurrence of the event specified in clause (C) of

paragraph (3) of this subsection the Commission may issue a stop

order suspending the effectiveness of the registration statement of

such securities under the Securities Act of 1933 and may suspend

or revoke the registration of such company under this title.

(b) The Commission is authorized, at such times as it deems

that any substantial further increase in size of investment compa-

nies creates any problem involving the protection of investors or

the public interest, to make a study and investigation of the effects

of size on the investment policy of investment companies and on se-

curity markets, on concentration of control of wealth and industry,

and on companies in which investment companies are interested,

and from time to time to report the results of its studies and inves-

tigations and its recommendations to the Congress.

INVESTMENT ADVISORY AND UNDERWRITING CONTRACTS

. 15. ø80a–15¿ (a) It shall be unlawful for any person to

serve or act as investment adviser of a registered investment com-

pany, except pursuant to a written contract, which contract, wheth-

er with such registered company or with an investment adviser of

such registered company, has been approved by the vote of a major-

ity of the outstanding voting securities of such registered company,

and—

(1) precisely describes all compensation to be paid there-

under;

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49 Sec. 15 INVESTMENT COMPANY ACT OF 1940

(2) shall continue in effect for a period more than two

years from the date of its execution, only so long as such con-

tinuance is specifically approved at least annually by the board

of directors or by vote of a majority of the outstanding voting

securities of such company;

(3) provides, in substance, that it may be terminated at

any time, without the payment of any penalty, by the board of

directors of such registered company or by vote of a majority

of the outstanding voting securities of such company on not

more than sixty days’ written notice to the investment adviser;

and

(4) provides, in substance, for its automatic termination in

the event of its assignment.

(b) It shall be unlawful for any principal underwriter for a reg-

istered open-end company to offer for sale, sell, or deliver after sale

any security of which such company is the issuer, except pursuant

to a written contract with such company, which contract—

(1) shall continue in effect for a period more than two

years from the date of its execution, only so long as such con-

tinuance is specifically approved at least annually by the board

of directors or by vote of a majority of the outstanding voting

securities of such company; and

(2) provides, in substance, for its automatic termination in

the event of its assignment.

of this section, it shall be unlawful for any registered investment

company having a board of directors to enter into, renew, or per-

form any contract or agreement, written or oral, whereby a person

undertakes regularly to serve or act as investment adviser of or

principal underwriter for such company, unless the terms of such

contract or agreement and any renewal thereof have been approved

by the vote of a majority of directors, who are not parties to such

contract or agreement or interested persons of any such party, cast

in person at a meeting called for the purpose of voting on such ap-

proval. It shall be the duty of the directors of a registered invest-

ment company to request and evaluate, and the duty of an invest-

ment adviser to such company to furnish, such information as may

reasonably be necessary to evaluate the terms of any contract

whereby a person undertakes regularly to serve or act as invest-

ment adviser of such company. It shall be unlawful for the direc-

tors of a registered investment company, in connection with their

evaluation of the terms of any contract whereby a person under-

takes regularly to serve or act as investment adviser of such com-

pany, to take into account the purchase price or other consideration

any person may have paid in connection with a transaction of the

type referred to in paragraph (1), (3), or (4) of subsection (f).

(d) In the case of a common-law trust of the character de-

scribed in section 16(c), either written approval by holders of a ma-

jority of the outstanding shares of beneficial interest or the vote of

a majority of such outstanding shares cast in person or by proxy

at a meeting called for the purpose shall for the purposes of this

section be deemed the equivalent of the vote of a majority of the

outstanding voting securities, and the provisions of paragraph (42)

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50 Sec. 15 INVESTMENT COMPANY ACT OF 1940

of section 2(a) as to a majority shall be applicable to the vote cast

at such a meeting.

(e) Nothing contained in this section shall be deemed to require

or contemplate any action by an advisory board of any registered

company or by any of the members of such a board.

(f)(1) An investment adviser, or a corporate trustee performing

the functions of an investment adviser, of a registered investment

company or an affiliated person of such investment adviser or cor-

porate trustee may receive any amount or benefit in connection

with a sale of securities of, or a sale of any other interest in, such

investment adviser or corporate trustee which results in an assign-

ment of an investment advisory contract with such company or the

change in control of or identity of such corporate trustee, if—

(A) for a period of three years after the time of such action,

at least 75 per centum of the members of the board of directors

of such registered company or such corporate trustee (or suc-

cessor thereto, by reorganization or otherwise) are not (i) inter-

ested persons of the investment adviser of such company or

such corporate trustee, or (ii) interested persons of the prede-

cessor investment adviser or such corporate trustee; and

(B) there is not imposed an unfair burden on such com-

pany as a result of such transaction or any express or implied

terms, conditions, or understandings applicable thereto.

(2)(A) For the purpose of paragraph (1)(A) of this subsection,

interested persons of a corporate trustee shall be determined in ac-

cordance with section 2(a)(19)(B): Provided, That no person shall be

deemed to be an interested person of a corporate trustee solely by

reason of (i) his being a member of its board of directors or advi-

sory board or (ii) his membership in the immediate family of any

person specified in clause (i) of this subparagraph.

(B) For the purpose of paragraph (1)(B) of this subsection, an

unfair burden on a registered investment company includes any ar-

rangement, during the two-year period after the date on which any

such transaction occurs, whereby the investment adviser or cor-

porate trustee or predecessor or successor investment advisers or

corporate trustee or any interested person of any such adviser or

any such corporate trustee receives or is entitled to receive any

compensation directly or indirectly (i) from any person in connec-

tion with the purchase or sale of securities or other property to,

from, or on behalf of such company, other than bona fide ordinary

compensation as principal underwriter for such company, or (ii)

from such company or its security holders for other than bona fide

investment advisory or other services.

(3) If—

(A) an assignment of an investment advisory contract with

a registered investment company results in a successor invest-

ment adviser to such company, or if there is a change in con-

trol of or identity of a corporate trustee of a registered invest-

ment company, and such adviser or trustee is then an invest-

ment adviser or corporate trustee with respect to other assets

substantially greater in amount than the amount of assets of

such company, or

(B) as a result of a merger of, or a sale of substantially all

the assets by, a registered investment company with or to an-

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51 Sec. 16 INVESTMENT COMPANY ACT OF 1940

other registered investment company with assets substantially

greater in amount, a transaction occurs which would be subject

to paragraph (1)(A) of this subsection,

such discrepancy in size of assets shall be considered by the Com-

mission in determining whether or to what extent an application

under section 6(c) for exemption from the provisions of paragraph

(1)(A) should be granted.

(4) Paragraph (1)(A) of this subsection shall not apply to a

transaction in which a controlling block of outstanding voting secu-

rities of an investment adviser to a registered investment company

or of a corporate trustee performing the functions of an investment

adviser to a registered investment company is—

(A) distributed to the public and in which there is, in fact,

no change in the identity of the persons who control such in-

vestment adviser or corporate trustee, or

(B) transferred to the investment adviser or the corporate

trustee, or an affiliated person or persons of such investment

adviser or corporate trustee, or is transferred from the invest-

ment adviser or corporate trustee to an affiliated person or per-

sons of the investment adviser, or corporate trustee: Provided,

That (i) each transferee (other than such adviser or trustee) is

a natural person and (ii) the transferees (other than such ad-

viser or trustee) owned in the aggregate more than 25 per cen-

tum of such voting securities for a period of at least six months

prior to such transfer.

CHANGES IN BOARD OF DIRECTORS

;

PROVISIONS RELATIVE TO STRICT

TRUSTS

. 16. ø80a–16¿ (a) No person shall serve as a director of a

registered investment company unless elected to that office by the

holders of the outstanding voting securities of such company, at an

annual or a special meeting duly called for that purpose; except

that vacancies occurring between such meetings may be filled in

any otherwise legal manner if immediately after filling any such

vacancy at least two-thirds of the directors then holding office shall

have been elected to such office by the holders of the outstanding

voting securities of the company at such an annual or special meet-

ing. In the event that at any time less than a majority of the direc-

tors of such company holding office at that time were so elected by

the holders of the outstanding voting securities, the board of direc-

tors or proper officer of such company shall forthwith cause to be

held as promptly as possible and in any event within sixty days a

meeting of such holders for the purpose of electing directors to fill

any existing vacancies in the board of directors unless the Commis-

sion shall by order extend such period. The foregoing provisions of

this subsection shall not apply to members of an advisory board.

Nothing herein shall, however, preclude a registered invest-

ment company from dividing its directors into classes if its charter,

certificate of incorporation, articles of association, by-laws, trust in-

denture, or other instrument or the law under which it is orga-

nized, so provides and prescribes the tenure of office of the several

classes: Provided, That no class shall be elected for a shorter period

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52 Sec. 16 INVESTMENT COMPANY ACT OF 1940

than one year or for a longer period than five years and the term

of office of at least one class shall expire each year.

(b) Any vacancy on the board of directors of a registered invest-

ment company which occurs in connection with compliance with

section 15(f)(1)(A) and which must be filled by a person who is not

an interested person of either party to a transaction subject to sec-

tion 15(f)(1)(A) shall be filled only by a person (1) who has been se-

lected and proposed for election by a majority of the directors of

such company who are not such interested persons, and (2) who

has been elected by the holders of the outstanding voting securities

of such company, except that in the case of the death, disqualifica-

tion, or bona fide resignation of a director selected and elected pur-

suant to clauses (1) and (2) of this subsection (b), the vacancy cre-

ated thereby may be filled as provided in subsection (a).

a common-law trust existing on the date of enactment of this title

under an indenture of trust which does not provide for the election

of trustees by the shareholders. No natural person shall serve as

trustee of such a trust, which is registered as an investment com-

pany, after the holders of record of not less than two-thirds of the

outstanding shares of beneficial interest in such trust have de-

clared that he be removed from that office either by declaration in

writing filed with the custodian of the securities of the trust or by

votes cast in person or by proxy at a meeting called for the pur-

pose. Solicitation of such a declaration shall be deemed a solicita-

tion of a proxy within the meaning of section 20(a).

The trustees of such a trust shall promptly call a meeting of

shareholders for the purpose of voting upon the question of removal

of any such trustee or trustees when requested in writing so to do

by the record holders of not less than 10 per centum of the out-

standing shares.

Whenever ten or more shareholders of record who have been

such for at least six months preceding the date of application, and

who hold in the aggregate either shares having a net asset value

of at least $25,000 or at least 1 per centum of the outstanding

shares, whichever is less, shall apply to the trustees in writing,

stating that they wish to communicate with other shareholders

with a view to obtaining signatures to a request for a meeting pur-

suant to this subsection (c) and accompanied by a form of commu-

nication and request which they wish to transmit, the trustees

shall within five business days after receipt of such application ei-

ther—

(1) afford to such applicants access to a list of the names

and addresses of all shareholders as recorded on the books of

the trust; or

(2) inform such applicants as to the approximate number

of shareholders of record, and the approximate cost of mailing

to them the proposed communication and form of request.

If the trustees elect to follow the course specified in paragraph

(2) of this subsection (c) the trustees, upon the written request of

such applicants, accompanied by a tender of the material to be

mailed and of the reasonable expenses of mailing, shall, with rea-

sonable promptness, mail such material to all shareholders of

record at their addresses as recorded on the books, unless within

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53 Sec. 17 INVESTMENT COMPANY ACT OF 1940

five business days after such tender the trustees shall mail to such

applicants and file with the Commission, together with a copy of

the material to be mailed, a written statement signed by at least

a majority of the trustees to the effect that in their opinion either

such material contains untrue statement of fact or omits to state

facts necessary to make the statements contained therein not mis-

leading, or would be in violation of applicable law, and specifying

the basis of such opinion.

After opportunity for hearing upon the objections specified in

the written statement so filed, the Commission may, and if de-

manded by the trustees or by such applicants shall, enter an order

either sustaining one or more of such objections or refusing to sus-

tain any of them. If the Commission shall enter an order refusing

to sustain any of such objections, or if, after the entry of an order

sustaining one or more of such objections, the Commission shall

find, after notice and opportunity for hearing, that all objections so

sustained have been met, and shall enter an order so declaring, the

trustees shall mail copies of such material to all shareholders with

reasonable promptness after the entry of such order and the re-

newal of such tender.

TRANSACTIONS OF CERTAIN AFFILIATED PERSONS AND UNDERWRITERS

. 17. ø80a–17¿ (a) It shall be unlawful for any affiliated

person or promoter of or principal underwriter for a registered in-

vestment company (other than a company of the character de-

scribed in section 12(d)(3) (A) and (B)), or any affiliated person of

such a person, promoter, or principal underwriter, acting as prin-

cipal—

(1) knowingly to sell any security or other property to such

registered company or to any company controlled by such reg-

istered company, unless such sale involves solely (A) securities

of which the buyer is the issuer, (B) securities of which the

seller is the issuer and which are part of a general offering to

the holders of a class of its securities, or (C) securities depos-

ited with the trustee of a unit investment trust or periodic pay-

ment plan by the depositor thereof;

(2) knowingly to purchase from such registered company,

or from any company controlled by such registered company,

any security or other property (except securities of which the

seller is the issuer);

(3) to borrow money or other property from such registered

company or from any company controlled by such registered

company (unless the borrower is controlled by the lender) ex-

cept as permitted in section 21(b); or

(4) to loan money or other property to such registered com-

pany, or to any company controlled by such registered com-

pany, in contravention of such rules, regulations, or orders as

the Commission may, after consultation with and taking into

consideration the views of the Federal banking agencies (as de-

fined in section 3 of the Federal Deposit Insurance Act), pre-

scribe or issue consistent with the protection of investors.

(b) Notwithstanding subsection (a), any person may file with

the Commission an application for an order exempting a proposed

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54 Sec. 17 INVESTMENT COMPANY ACT OF 1940

transaction of the applicant from one or more provisions of that

subsection. The Commission shall grant such application and issue

such order of exemption if evidence establishes that—

(1) the terms of the proposed transaction, including the

consideration to be paid or received, are reasonable and fair

and do not involve overreaching on the part of any person con-

cerned;

(2) the proposed transaction is consistent with the policy

of each registered investment company concerned, as recited in

its registration statement and reports filed under this title;

and

(3) the proposed transaction is consistent with the general

purposes of this title.

nary course of business, sell to or purchase from any company mer-

chandise or may enter into a lessor-lessee relationship with any

person and furnish the services incident thereto.

(d) It shall be unlawful for any affiliated person of or principal

underwriter for a registered investment company (other than a

company of the character described in section 12(d)(3) (A) and (B)),

or any affiliated person of such a person or principal underwriter,

acting as principal to effect any transaction in which such reg-

istered company, or a company controlled by such registered com-

pany, is a joint or a joint and several participant with such person,

principal underwriter, or affiliated person, in contravention of such

rules and regulations as the Commission may prescribe for the pur-

pose of limiting or preventing participation by such registered or

controlled company on a basis different from or less advantageous

than that of such other participant. Nothing contained in this sub-

section shall be deemed to preclude any affiliated person from act-

ing as manager of any underwriting syndicate or other group in

which such registered or controlled company is a participant and

receiving compensation therefor.

(e) It shall be unlawful for any affiliated person of a registered

investment company, or any affiliated person of such person—

(1) acting as agent, to accept from any source any com-

pensation (other than a regular salary or wages from such reg-

istered company) for the purchase or sale of any property to or

for such registered company or any controlled company thereof,

except in the course of such person’s business as an under-

writer or broker; or

(2) acting as broker, in connection with the sale of securi-

ties to or by such registered company or any controlled com-

pany thereof, to receive from any source a commission, fee, or

other remuneration for effecting such transaction which ex-

ceeds (A) the usual and customary broker’s commission if the

sale is effected on a securities exchange, or (B) 2 per centum

of the sales price if the sale is effected in connection with a sec-

ondary distribution of such securities, or (C) 1 per centum of

the purchase or sale price of such securities if the sale is other-

wise effected unless the Commission shall, by rules and regula-

tions or order in the public interest and consistent with the

protection of investors, permit a larger commission.

(f) C

USTODY OF

ECURITIES

.—

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As Amended Through P.L. 117-263, Enacted December 23, 2022

55 Sec. 17 INVESTMENT COMPANY ACT OF 1940

(1) Every registered management company shall place and

maintain its securities and similar investments in the custody

of (A) a bank or banks having the qualifications prescribed in

paragraph (1) of section 26(a) of this title for the trustees of

unit investment trusts; or (B) a company which is a member

of a national securities exchange as defined in the Securities

Exchange Act of 1934, subject to such rules and regulations as

the Commission may from time to time prescribe for the pro-

tection of investors; or (C) such registered company, but only

in accordance with such rules and regulations or orders as the

Commission may from time to time prescribe for the protection

of investors.

(2) Subject to such rules, regulations, and orders as the

Commission may adopt as necessary or appropriate for the pro-

tection of investors, a registered management company or any

such custodian, with the consent of the registered management

company for which it acts as custodian, may deposit all or any

part of the securities owned by such registered management

company in a system for the central handling of securities es-

tablished by a national securities exchange or national securi-

ties association registered with the Commission under the Se-

curities Exchange Act of 1934, or such other person as may be

permitted by the Commission, pursuant to which system all se-

curities of any particular class or series of any issuer deposited

within the system are treated as fungible and may be trans-

ferred or pledged by bookkeeping entry without physical deliv-

ery of such securities.

(3) Rules, regulations, and orders of the Commission under

this subsection, among other things, may make appropriate

provision with respect to such matters as the earmarking, seg-

regation, and hypothecation of such securities and invest-

ments, and may provide for or require periodic or other inspec-

tions by any or all of the following: Independent public ac-

countants, employees and agents of the Commission, and such

other persons as the Commission may designate.

(4) No member of a national securities exchange which

trades in securities for its own account may act as custodian

except in accordance with rules and regulations prescribed by

the Commission for the protection of investors.

(5) If a registered company maintains its securities and

similar investments in the custody of a qualified bank or

banks, the cash proceeds from the sale of such securities and

similar investments and other cash assets of the company shall

likewise be kept in the custody of such a bank or banks, or in

accordance with such rules and regulations or orders as the

Commission may from time to time prescribe for the protection

of investors, except that such a registered company may main-

tain a checking account in a bank or banks having the quali-

fications prescribed in paragraph (1) of section 26(a) of this

title for the trustees of unit investment trusts with the balance

of such account or the aggregate balances of such accounts at

no time in excess of the amount of the fidelity bond, main-

tained pursuant to section 17(g) of this title, covering the offi-

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56 Sec. 17 INVESTMENT COMPANY ACT OF 1940

cers or employees authorized to draw on such account or ac-

counts.

(6) The Commission may, after consultation with and tak-

ing into consideration the views of the Federal banking agen-

cies (as defined in section 3 of the Federal Deposit Insurance

Act), adopt rules and regulations, and issue orders, consistent

with the protection of investors, prescribing the conditions

under which a bank, or an affiliated person of a bank, either

of which is an affiliated person, promoter, organizer, or sponsor

of, or principal underwriter for, a registered management com-

pany, may serve as custodian of that registered management

company.

(g) The Commission is authorized to require by rules and regu-

lations or orders for the protection of investors that any officer or

employee of a registered management investment company who

may singly, or jointly with others, have access to securities or funds

of any registered company, either directly or through authority to

draw upon such funds or to direct generally the disposition of such

securities (unless the officer or employee has such access solely

through his position as an officer or employee of a bank) be bonded

by a reputable fidelity insurance company against larceny and em-

bezzlement in such reasonable minimum amounts as the Commis-

sion may prescribe.

(h) After one year from the effective date of this title, neither

the charter, certificate of incorporation, articles of association, in-

denture of trust, nor the by-laws of any registered investment com-

pany, nor any other instrument pursuant to which such a company

is organized or administered, shall contain any provision which

protects or purports to protect any director or officer of such com-

pany against any liability to the company or to its security holders

to which he would otherwise be subject by reason of willful misfea-

sance, bad faith, gross negligence or reckless disregard of the du-

ties involved in the conduct of his office.

(i) After one year from the effective date of this title no con-

tract or agreement under which any person undertakes to act as

investment adviser of, or principal underwriter for, a registered in-

vestment company shall contain any provision which protects or

purports to protect such person against any liability to such com-

pany or its security holders to which he would otherwise be subject

by reason of willful misfeasance, bad faith, or gross negligence, in

the performance of his duties, or by reason of his reckless disregard

of his obligations and duties under such contract or agreement.

(j) It shall be unlawful for any affiliated person of or principal

underwriter for a registered investment company or any affiliated

person of an investment adviser of or principal underwriter for a

registered investment company, to engage in any act, practice, or

course of business in connection with the purchase or sale, directly

or indirectly, by such person of any security held or to be acquired

by such registered investment company in contravention of such

rules and regulations as the Commission may adopt to define, and

prescribe means reasonably necessary to prevent, such acts, prac-

tices, or courses of business as are fraudulent, deceptive or manipu-

lative. Such rules and regulations may include requirements for

the adoption of codes of ethics by registered investment companies

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57 Sec. 18 INVESTMENT COMPANY ACT OF 1940

and investment advisers of, and principal underwriters for, such in-

vestment companies establishing such standards as are reasonably

necessary to prevent such acts, practices, or courses of business.

CAPITAL STRUCTURE

. 18. ø80a–18¿ (a) It shall be unlawful for any registered

closed-end company to issue any class of senior security, or to sell

any such security of which it is the issuer, unless—

(1) if such class of senior security represents an indebted-

ness—

(A) immediately after such issuance or sale, it will

have an asset coverage of at least 300 per centum;

(B) provision is made to prohibit the declaration of any

dividend (except a dividend payable in stock of the issuer),

or the declaration of any other distribution, upon any class

of the capital stock of such investment company, or the

purchase of any such capital stock, unless, in every such

case, such class of senior securities has at the time of the

declaration of any such dividend or distribution or at the

time of any such purchase an asset coverage of at least

300 per centum after deducting the amount of such divi-

dend, distribution, or purchase price, as the case may be,

except that dividends may be declared upon any preferred

stock if such senior security representing indebtedness has

an asset coverage of at least 200 per centum at the time

of declaration thereof after deducting the amount of such

dividend; and

(i) that, if on the last business day of each of

twelve consecutive calendar months such class of sen-

ior securities shall have an asset coverage of less than

100 per centum, the holders of such securities voting

as a class shall be entitled to elect at least a majority

of the members of the board of directors of such reg-

istered company, such voting right to continue until

such class of senior security shall have an asset cov-

erage of 110 per centum or more on the last business

day of each of three consecutive calendar months, or

(ii) that, if on the last business day of each of

twenty-four consecutive calendar months such class of

senior securities shall have an asset coverage of less

than 100 per centum, an event of default shall be

deemed to have occurred;

(2) if such class of senior security is a stock—

(A) immediately after such issuance or sale it will

have an asset coverage of at least 200 per centum;

(B) provision is made to prohibit the declaration of any

dividend (except a dividend payable in common stock of

the issuer), or the declaration of any other distribution,

upon the common stock of such investment company, or

the purchase of any such common stock, unless in every

such case such class of senior security has at the time of

the declaration of any such dividend or distribution or at

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58 Sec. 18 INVESTMENT COMPANY ACT OF 1940

the time of any such purchase an asset coverage of at least

200 per centum after deducting the amount of such divi-

dend, distribution or purchase price, as the case may be;

senior securities, voting as a class, to elect at least two di-

rectors at all times, and, subject to the prior rights, if any,

of the holders of any other class of senior securities out-

standing, to elect a majority of the directors if at any time

dividends on such class of securities shall be unpaid in an

amount equal to two full years’ dividends on such securi-

ties, and to continue to be so represented until all divi-

dends in arrears shall have been paid or otherwise pro-

vided for;

(D) provision is made requiring approval by the vote

of a majority of such securities, voting as a class, of any

plan of reorganization adversely affecting such securities

or of any action requiring a vote of security holders as in

section 13(a) provided; and

(E) such class of stock shall have complete priority

over any other class as to distribution of assets and pay-

ment of dividends, which dividends shall be cumulative.

(b) The asset coverage in respect of a senior security provided

for in subsection (a) may be determined on the basis of values cal-

culated as of a time within forty-eight hours (not including Sun-

days or holidays) next preceding the time of such determination.

The time of issue or sale shall, in the case of an offering of such

securities to existing stockholders of the issuer, be deemed to be

the first date on which such offering is made, and in all other cases

shall be deemed to be the time as of which a firm commitment to

issue or sell and to take or purchase such securities shall be made.

unlawful for any registered closed-end investment company to issue

or sell any senior security representing indebtedness if immediately

thereafter such company will have outstanding more than one class

of senior security representing indebtedness, or to issue or sell any

senior security which is a stock if immediately thereafter such com-

pany will have outstanding more than one class of senior security

which is a stock, except that (1) any such class of indebtedness or

stock may be issued in one or more series: Provided, That no such

series shall have a preference or priority over any other series upon

the distribution of the assets of such registered closed-end company

or in respect of the payment of interest or dividends, and (2) prom-

issory notes or other evidences of indebtedness issued in consider-

ation of any loan, extension, or renewal thereof, made by a bank

or other person and privately arranged, and not intended to be

publicly distributed, shall not be deemed to be a separate class of

senior securities representing indebtedness within the meaning of

this subsection (c).

(d) It shall be unlawful for any registered management com-

pany to issue any warrant or right to subscribe to or purchase a

security of which such company is the issuer, except in the form

of warrants or rights to subscribe expiring not later than one hun-

dred and twenty days after their issuance and issued exclusively

and ratably to a class or classes of such company’s security holders;

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59 Sec. 18 INVESTMENT COMPANY ACT OF 1940

except that any warrant may be issued in exchange for outstanding

warrants in connection with a plan of reorganization.

(e) The provisions of this section 18 shall not apply to any sen-

ior securities issued or sold by any registered closed-end company—

(1) for the purpose of refunding through payment, pur-

chase, redemption, retirement, or exchange, any senior security

of such registered investment company except that no senior

security representing indebtedness shall be so issued or sold

for the purpose of refunding any senior security which is a

stock; or

(2) pursuant to any plan of reorganization (other than for

refunding as referred to in paragraph (1) of this subsection,

provided—

(A) that such senior securities are issued or sold for

the purpose of substituting or exchanging such senior secu-

rities for outstanding senior securities, and if such senior

securities represent indebtedness they are issued or sold

for the purpose of substituting or exchanging such senior

securities for outstanding senior securities representing in-

debtedness, of any registered investment company which is

a party to such plan of reorganization; or

(B) that the total amount of such senior securities so

issued or sold pursuant to such plan does not exceed the

total amount of senior securities of all the companies

which are parties to such plan, and the total amount of

senior securities representing indebtedness so issued or

sold pursuant to such plan does not exceed the total

amount of senior securities representing indebtedness of

all such companies, or, alternatively, the total amount of

such senior securities so issued or sold pursuant to such

plan does not have the effect of increasing the ratio of sen-

ior securities representing indebtedness to the securities

representing stock or the ratio of senior securities rep-

resenting stock to securities junior thereto when compared

with such ratios as they existed before such reorganiza-

tion.

(f)(1) It shall be unlawful for any registered open-end company

to issue any class of senior security or to sell any senior security

of which it is the issuer, except that any such registered company

shall be permitted to borrow from any bank: Provided, That imme-

diately after any such borrowing there is an asset coverage of at

least 300 per centum for all borrowings of such registered company:

And provided further, That in the event that such asset coverage

shall at any time fall below 300 per centum such registered com-

pany shall, within three days thereafter (not including Sundays

and holidays) or such longer period as the Commission may pre-

scribe by rules and regulations, reduce the amount of its bor-

rowings to an extent that the asset coverage of such borrowings

shall be at least 300 per centum.

(2) ‘‘Senior security’’ shall not, in the case of a registered open-

end company, include a class or classes or a number of series of

preferred or special stock each of which is preferred over all other

classes or series in respect of assets specifically allocated to that

class or series: Provided, That (A) such company has outstanding

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no class or series of stock which is not so preferred over all other

classes or series, or (B) the only other outstanding class of the

issuer’s stock consists of a common stock upon which no dividend

(other than a liquidating dividend) is permitted to be paid and

which in the aggregate represents not more than one-half of 1 per

centum of the issuer’s outstanding voting securities. For the pur-

pose of insuring fair and equitable treatment of the holders of the

outstanding voting securities of each class or series of stock of such

company, the Commission may by rule, regulation, or order direct

that any matter required to be submitted to the holders of the out-

standing voting securities of such company shall not be deemed to

have been effectively acted upon unless approved by the holders of

such percentage (not exceeding a majority) of the outstanding vot-

ing securities of each class or series of stock affected by such mat-

ter as shall be prescribed in such rule, regulation, or order.

(g) Unless otherwise provided: ‘‘Senior security’’ means any

bond, debenture, note, or similar obligation or instrument consti-

tuting a security and evidencing indebtedness, and any stock of a

class having priority over any other class as to distribution of as-

sets or payment of dividends; and ‘‘senior security representing in-

debtedness’’ means any senior security other than stock.

The term ‘‘senior security’’, when used in subparagraphs (B)

and (C) of paragraph (1) of subsection (a), shall not include any

promissory note or other evidence of indebtedness issued in consid-

eration of any loan, extension, or renewal thereof, made by a bank

or other person and privately arranged, and not intended to be

publicly distributed; nor shall such term, when used in this section

18, include any such promissory note or other evidence of indebted-

ness in any case where such a loan is for temporary purposes only

and in an amount not exceeding 5 per centum of the value of the

total assets of the issuer at the time when the loan is made. A loan

shall be presumed to be for temporary purposes if it is repaid with-

in sixty days and is not extended or renewed; otherwise it shall be

presumed not to be for temporary purposes. Any such presumption

may be rebutted by evidence.

(h) ‘‘Asset coverage’’ of a class of senior security representing

an indebtedness of an issuer means the ratio which the value of

the total assets of such issuer, less all liabilities and indebtedness

not represented by senior securities, bears to the aggregate amount

of senior securities representing indebtedness of such issuer. ‘‘Asset

coverage’’ of a class of senior security of an issuer which is a stock

means the ratio which the value of the total assets of such issuer,

less all liabilities and indebtedness not represented by senior secu-

rities, bears to the aggregate amount of senior securities rep-

resenting indebtedness of such issuer plus the aggregate of the in-

voluntary liquidation preference of such class of senior security

which is a stock. The involuntary liquidation preference of a class

of senior security which is a stock shall be deemed to mean the

amount to which such class of senior security would be entitled on

involuntary liquidation of the issuer in preference to a security jun-

ior to it.

(i) Except as provided in subsection (a) of this section, or as

otherwise required by law, every share of stock hereafter issued by

a registered management company (except a common-law trust of

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61 Sec. 19 INVESTMENT COMPANY ACT OF 1940

the character described in section 16(c)) shall be a voting stock and

have equal voting rights with every other outstanding voting stock:

Provided, That this subsection shall not apply to shares issued pur-

suant to the terms of any warrant or subscription right outstanding

on March 15, 1940, or any firm contract entered into before March

15, 1940, to purchase such securities from such company nor to

shares issued in accordance with any rules, regulations, or orders

which the Commission may make permitting such issue.

(j) Notwithstanding any provision of this title, it shall be un-

lawful, after the date of enactment of this title, for any registered

face-amount certificate company—

(1) to issue, except in accordance with such rules, regula-

tions, or orders as the Commission may prescribe in the public

interest or as necessary or appropriate for the protection of in-

vestors, any security other than (A) a face-amount certificate;

(B) a common stock having a par value and being without pref-

erence as to dividends or distributions and having at least

equal voting rights with any outstanding security of such com-

pany; or (C) short-term payment or promissory notes or other

indebtedness issued in consideration of any loan, extension, or

renewal thereof, made by a bank or other person and privately

arranged and not intended to be publicly offered;

(2) if such company has outstanding any security, other

than such face-amount certificates, common stock, promissory

notes, or other evidence of indebtedness, to make any distribu-

tion or declare or pay any dividend on any capital security in

contravention of such rules and regulations or orders as the

Commission may prescribe in the public interest or as nec-

essary or appropriate for the protection of investors or to in-

sure the financial integrity of such company, to prevent the im-

pairment of the company’s ability to meet its obligations upon

its face-amount certificates; or

(3) to issue any of its securities except for cash or securi-

ties including securities of which such company is the issuer.

(k) The provisions of subparagraphs (A) and (B) of paragraph

(1) of subsection (a) of this section shall not apply to investment

companies operating under the Small Business Investment Act of

1958, and the provisions of paragraph (2) of said subsection shall

not apply to such companies so long as such class of senior security

shall be held or guaranteed by the Small Business Administration.

DIVIDENDS

. 19. ø80a–19¿ (a) It shall be unlawful for any registered

investment company to pay any dividend, or to make any distribu-

tion in the nature of a dividend payment, wholly or partly from any

source other than—

(1) such company’s accumulated undistributed net income,

determined in accordance with good accounting practice and

not including profits or losses realized upon the sale of securi-

ties or other properties; or

(2) such company’s net income so determined for the cur-

rent or preceding fiscal year;

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62 Sec. 20 INVESTMENT COMPANY ACT OF 1940

unless such payment is accompanied by a written statement which

adequately discloses the source or sources of such payment. The

Commission may prescribe the form of such statement by rules and

regulations in the public interest and for the protection of inves-

tors.

(b) It shall be unlawful in contravention of such rules, regula-

tions, or orders as the Commission may prescribe as necessary or

appropriate in the public interest or for the protection of investors

for any registered investment company to distribute long-term cap-

ital gains, as defined in the Internal Revenue Code of 1954, more

often than once every twelve months.

PROXIES

;

VOTING TRUSTS

;

CIRCULAR OWNERSHIP

. 20. ø80a–20¿ (a) It shall be unlawful for any person, by

use of the mails or any means or instrumentality of interstate com-

merce or otherwise, to solicit or to permit the use of his name to

solicit any proxy or consent or authorization in respect of any secu-

rity of which a registered investment company is the issuer in con-

travention of such rules and regulations as the Commission may

prescribe as necessary or appropriate in the public interest or for

the protection of investors.

(b) It shall be unlawful for any registered investment company

or affiliated person thereof, any issuer of a voting-trust certificate

relating to any security of a registered investment company, or any

underwriter of such a certificate, by use of the mails or any means

or instrumentality of interstate commerce, or otherwise, to offer for

sale, sell, or deliver after sale, in connection with a public offering,

any such voting-trust certificate.

ing security if, to the knowledge of such registered company, cross-

ownership or circular ownership exists, or after such acquisition

will exist, between such registered company and the issuer of such

security. Cross-ownership shall be deemed to exist between two

companies when each of such companies beneficially owns more

than 3 per centum of the outstanding voting securities of the other

company. Circular ownership shall be deemed to exist between two

companies if such companies are included within a group of three

or more companies, each of which—

(1) beneficially owns more than 3 per centum of the out-

standing voting securities of one or more other companies of

the group; and

(2) has more than 3 per centum of its own outstanding vot-

ing securities beneficially owned by another company, or by

each of two or more other companies, of the group.

(d) If cross-ownership or circular ownership between a reg-

istered investment company and any other company or companies

comes into existence upon the purchase by a registered investment

company of the securities of another company, it shall be the duty

of such registered company, within one year after it first knows of

the existence of such cross-ownership or circular ownership, to

eliminate the same.

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63 Sec. 22 INVESTMENT COMPANY ACT OF 1940

LOANS

. 21. ø80a–21¿ It shall be unlawful for any registered man-

agement company to lend money or property to any person, directly

or indirectly, if—

(a) the investment policies of such registered company, as

recited in its registration statement and reports filed under

this title, do not permit such a loan; or

(b) such person controls or is under common control with

such registered company; except that the provisions of this

paragraph shall not apply to any loan from a registered com-

pany to a company which owns all of the outstanding securities

of such registered company, except directors’ qualifying shares.

DISTRIBUTION

REDEMPTION

AND REPURCHASE OF REDEEMABLE

SECURITIES

. 22. ø80a–22¿ (a) A securities association registered under

section 15A of the Securities Exchange Act of 1934 may prescribe,

by rules adopted and in effect in accordance with said section and

subject to all provisions of said section applicable to the rules of

such an association—

(1) a method or methods for computing the minimum price

at which a member thereof may purchase from any investment

company, any redeemable security issued by such company and

the maximum price at which a member may sell to such com-

pany any redeemable security issued by it or which he may re-

ceive for such security upon redemption, so that the price in

each case will bear such relation to the current net asset value

of such security computed as of such time as the rules may

prescribe; and

(2) a minimum period of time which must elapse after the

sale or issue of such security before any resale to such com-

pany by a member or its redemption upon surrender by a

member;

in each case for the purpose of eliminating or reducing so far as

reasonably practicable any dilution of the value of other out-

standing securities of such company or any other result of such

purchase, redemption, or sale which is unfair to holders of such

other outstanding securities; and said rules may prohibit the mem-

bers of the association from purchasing, selling, or surrendering for

redemption any such redeemable securities in contravention of said

rules.

(b)(1) Such a securities association may also, by rules adopted

and in effect in accordance with said section 15A, and notwith-

standing the provisions of subsection (b)(6) thereof but subject to

all other provisions of said section applicable to the rules of such

an association, prohibit its members from purchasing, in connection

with a primary distribution of redeemable securities of which any

registered investment company is the issuer, any such security

from the issuer or from any principal underwriter except at a price

equal to the price at which such security is then offered to the pub-

lic less a commission, discount, or spread which is computed in con-

formity with a method or methods, and within such limitations as

to the relation thereof to said public offering price, as such rules

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64 Sec. 22 INVESTMENT COMPANY ACT OF 1940

may prescribe in order that the price at which such security is of-

fered or sold to the public shall not include an excessive sales load

but shall allow for reasonable compensation for sales personnel,

broker-dealers, and underwriters, and for reasonable sales loads to

investors. The Commission shall on application or otherwise, if it

appears that smaller companies are subject to relatively higher op-

erating costs, make due allowance therefor by granting any such

company or class of companies appropriate qualified exemptions

from the provisions of this section.

(2) At any time after the expiration of eighteen months from

the date of enactment of the Investment Company Amendments

Act of 1970 (or, if earlier, after a securities association has adopted

for purposes of paragraph (1) any rule respecting excessive sales

loads), the Commission may alter or supplement the rules of any

securities association as may be necessary to effectuate the pur-

poses of this subsection in the manner provided by section 19(c) of

the Securities Exchange Act of 1934.

(3) If any provision of this subsection is in conflict with any

provision of any law of the United States in effect on the date this

subsection takes effect, the provisions of this subsection shall pre-

vail.

to registered investment companies and to principal underwriters

of, and dealers in, the redeemable securities of any registered in-

vestment company, whether or not members of any securities asso-

ciation, to the same extent, covering the same subject matter, and

for the accomplishment of the same ends as are prescribed in sub-

section (a) of this section in respect of the rules which may be made

by a registered securities association governing its members. Any

rules and regulations so made by the Commission, to the extent

that they may be inconsistent with the rules of any such associa-

tion, shall so long as they remain in force supersede the rules of

the association and be binding upon its members as well as all

other underwriters and dealers to whom they may be applicable.

(d) No registered investment company shall sell any redeem-

able security issued by it to any person except either to or through

a principal underwriter for distribution or at a current public offer-

ing price described in the prospectus, and, if such class of security

is being currently offered to the public by or through an under-

writer, no principal underwriter of such security and no dealer

shall sell any such security to any person except a dealer, a prin-

cipal underwriter, or the issuer, except at a current public offering

price described in the prospectus. Nothing in this subsection shall

prevent a sale made (i) pursuant to an offer of exchange permitted

by section 11 including any offer made pursuant to section 11(b);

(ii) pursuant to an offer made solely to all registered holders of the

securities, or of a particular class or series of securities issued by

the company proportionate to their holdings or proportionate to any

cash distribution made to them by the company (subject to appro-

priate qualifications designed solely to avoid issuance of fractional

securities); or (iii) in accordance with rules and regulations of the

Commission made pursuant to subsection (b) of section 12.

(e) No registered investment company shall suspend the right

of redemption, or postpone the date of payment or satisfaction upon

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As Amended Through P.L. 117-263, Enacted December 23, 2022

65 Sec. 23 INVESTMENT COMPANY ACT OF 1940

redemption of any redeemable security in accordance with its terms

for more than seven days after the tender of such security to the

company or its agent designated for that purpose for redemption,

except—

(1) for any period (A) during which the New York Stock

Exchange is closed other than customary week-end and holiday

closings or (B) during which trading on the New York Stock

Exchange is restricted;

(2) for any period during which an emergency exists as a

result of which (A) disposal by the company of securities owned

by it is not reasonably practicable or (B) it is not reasonably

practicable for such company fairly to determine the value of

its net assets; or

(3) for such other periods as the Commission may by order

permit for the protection of security holders of the company.

The Commission shall by rules and regulations determine the con-

ditions under which (i) trading shall be deemed to be restricted and

(ii) an emergency shall be deemed to exist within the meaning of

this subsection.

(f) No registered open-end company shall restrict the transfer-

ability or negotiability of any security of which it is the issuer ex-

cept in conformity with the statements with respect thereto con-

tained in its registration statement nor in contravention of such

rules and regulations as the Commission may prescribe in the in-

terests of the holders of all of the outstanding securities of such in-

vestment company.

(g) No registered open-end company shall issue any of its secu-

rities (1) for services; or (2) for property other than cash or securi-

ties (including securities of which such registered company is the

issuer), except as a dividend or distribution to its security holders

or in connection with a reorganization.

DISTRIBUTION AND REPURCHASE OF SECURITIES

CLOSED

END

COMPANIES

. 23. ø80a–23¿ (a) No registered closed-end company shall

issue any of its securities (1) for services; or (2) for property other

than cash or securities (including securities of which such reg-

istered company is the issuer), except as a dividend or distribution

to its security holders or in connection with a reorganization.

(b) No registered closed-end company shall sell any common

stock of which it is the issuer at a price below the current net asset

value of such stock, exclusive of any distributing commission or dis-

count (which net asset value shall be determined as of a time with-

in forty-eight hours, excluding Sundays and holidays, next pre-

ceding the time of such determination), except (1) in connection

with an offering to the holders of one or more classes of its capital

stock; (2) with the consent of a majority of its common stock-

holders; (3) upon conversion of a convertible security in accordance

with its terms; (4) upon the exercise of any warrant outstanding on

the date of enactment of this Act or issued in accordance with the

provisions of section 18(d); or (5) under such other circumstances

as the Commission may permit by rules and regulations or orders

for the protection of investors.

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As Amended Through P.L. 117-263, Enacted December 23, 2022

66 Sec. 24 INVESTMENT COMPANY ACT OF 1940

rities of any class of which it is the issuer except—

(1) on a securities exchange or such other open market as

the Commission may designate by rules and regulations or or-

ders: Provided, That if such securities are stock, such reg-

istered company shall, within the preceding six months, have

informed stockholders of its intention to purchase stock of such

class by letter or report addressed to stockholders of such class;

(2) pursuant to tenders, after reasonable opportunity to

submit tenders given to all holders of securities of the class to

be purchased; or

(3) under such other circumstances as the Commission

may permit by rules and regulations or orders for the protec-

tion of investors in order to insure that such purchases are

made in a manner or on a basis which does not unfairly dis-

criminate against any holders of the class or classes of securi-

ties to be purchased.

REGISTRATION OF SECURITIES UNDER SECURITIES ACT OF 1933

. 24. ø80a–24¿ (a) In registering under the Securities Act

of 1933 any security of which it is the issuer, a registered invest-

ment company, in lieu of furnishing a registration statement con-

taining the information and documents specified in schedule A of

said Act, may file a registration statement containing the following

information and documents:

(1) such copies of the registration statement filed by such

company under this title, and of such reports filed by such

company pursuant to section 30 or such copies of portions of

such registration statement and reports, as the Commission

shall designate by rules and regulations; and

(2) such additional information and documents (including

a prospectus) as the Commission shall prescribe by rules and

regulations as necessary or appropriate in the public interest

or for the protection of investors.

(b) It shall be unlawful for any of the following companies, or

for any underwriter for such a company, in connection with a pub-

lic offering of any security of which such company is the issuer, to

make use of the mails or any means or instrumentalities of inter-

state commerce, to transmit any advertisement, pamphlet, circular,

form letter, or other sales literature addressed to or intended for

distribution to prospective investors unless three copies of the full

text thereof have been filed with the Commission or are filed with

the Commission within ten days thereafter:

(1) any registered open-end company;

(2) any registered unit investment trust; or

(3) any registered face-amount certificate company.

the Commission by section 10 of the Securities Act of 1933, the

Commission is authorized to require, by rules and regulations or

order, that the information contained in any prospectus relating to

any periodic payment plan certificate or face-amount certificate

registered under the Securities Act of 1933 on or after the effective

date of this title be presented in such form and order of items, and

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67 Sec. 24 INVESTMENT COMPANY ACT OF 1940

such prospectus contain such summaries of any portion of such in-

formation, as are necessary or appropriate in the public interest or

for the protection of investors.

(d) The exemption provided by paragraph (8) of section 3(a) of

the Securities Act of 1933 shall not apply to any security of which

an investment company is the issuer. The exemption provided by

paragraph (11) of said section 3(a) shall not apply to any security

of which a registered investment company is the issuer. The ex-

emption provided by section 4(3) of the Securities Act of 1933 shall

not apply to any transaction in a security issued by a face-amount

certificate company or in a redeemable security issued by an open-

end management company or unit investment trust if any other se-

curity of the same class is currently being offered or sold by the

issuer or by or through an underwriter in a distribution which is

not exempted from section 5 of said Act, except to such extent and

subject to such terms and conditions as the Commission, having

due regard for the public interest and the protection of investors,

may prescribe by rules or regulations with respect to any class of

persons, securities, or transactions.

(e) For the purposes of section 11 of the Securities Act of 1933,

as amended, the effective date of the latest amendment filed shall

be deemed the effective date of the registration statement with re-

spect to securities sold after such amendment shall have become ef-

fective. For the purposes of section 13 of the Securities Act of 1933,

as amended, no such security shall be deemed to have been bona

fide offered to the public prior to the effective date of the latest

amendment filed pursuant to this subsection. Except to the extent

the Commission otherwise provides by rules or regulations as ap-

propriate in the public interest or for the protection of investors,

no prospectus relating to a security issued by a face-amount certifi-

cate company or a redeemable security issued by an open-end man-

agement company or unit investment trust which varies for the

purposes of subsection (a)(3) of section 10 of the Securities Act of

1933 from the latest prospectus filed as a part of the registration

statement shall be deemed to meet the requirements of said section

10 unless filed as part of an amendment to the registration state-

ment under said Act and such amendment has become effective.

(f) R

EGISTRATION OF

NDEFINITE

MOUNT OF

ECURITIES

.—

(1) R

EGISTRATION OF SECURITIES

.—Upon the effective date

of its registration statement, as provided by section 8 of the Se-

curities Act of 1933, a face-amount certificate company, open-

end management company, or unit investment trust, shall be

deemed to have registered an indefinite amount of securities.

(2) P

AYMENT OF REGISTRATION FEES

.—Not later than 90

days after the end of the fiscal year of a company or trust re-

ferred to in paragraph (1), the company or trust, as applicable,

shall pay a registration fee to the Commission, calculated in

the manner specified in section 6(b) of the Securities Act of

1933, based on the aggregate sales price for which its securi-

ties (including, for purposes of this paragraph, all securities

issued pursuant to a dividend reinvestment plan) were sold

pursuant to a registration of an indefinite amount of securities

under this subsection during the previous fiscal year of the

company or trust, reduced by—

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68 Sec. 25 INVESTMENT COMPANY ACT OF 1940

(A) the aggregate redemption or repurchase price of

the securities of the company or trust during that year;

and

(B) the aggregate redemption or repurchase price of

the securities of the company or trust during any prior fis-

cal year ending not more than 1 year before the date of en-

actment of the Investment Company Act Amendments of

1996, that were not used previously by the company or

trust to reduce fees payable under this section.

(3) I

NTEREST DUE ON LATE PAYMENT

.—A company or trust

paying the fee required by this subsection or any portion there-

of more than 90 days after the end of the fiscal year of the

company or trust shall pay to the Commission interest on un-

paid amounts, at the average investment rate for Treasury tax

and loan accounts published by the Secretary of the Treasury

pursuant to section 3717(a) of title 31, United States Code. The

payment of interest pursuant to this paragraph shall not pre-

clude the Commission from bringing an action to enforce the

requirements of paragraph (2).

(4) R

ULEMAKING AUTHORITY

.—The Commission may adopt

rules and regulations to implement this subsection.

(g) A

DDITIONAL

ROSPECTUSES

.—In addition to any prospectus

permitted or required by section 10(a) of the Securities Act of 1933,

the Commission shall permit, by rules or regulations deemed nec-

essary or appropriate in the public interest or for the protection of

investors, the use of a prospectus for purposes of section 5(b)(1) of

that Act with respect to securities issued by a registered invest-

ment company. Such a prospectus, which may include information

the substance of which is not included in the prospectus specified

in section 10(a) of the Securities Act of 1933, shall be deemed to

be permitted by section 10(b) of that Act.

PLANS OF REORGANIZATION

. 25. ø80a–25¿ (a) Any person who, by use of the mails or

any means or instrumentality of interstate commerce or otherwise,

solicits or permits the use of his name to solicit any proxy, consent,

authorization, power of attorney, ratification, deposit, or dissent in

respect of any plan of reorganization of any registered investment

company shall file with, or mail to, the Commission for its informa-

tion, within twenty-four hours after the commencement of any such

solicitation, a copy of such plan and any deposit agreement relating

thereto and of any proxy, consent, authorization, power of attorney,

ratification, instrument of deposit, or instrument of dissent in re-

spect thereto, if or to the extent that such documents shall not al-

ready have been filed with the Commission.

(b) The Commission is authorized, if so requested, prior to any

solicitation of security holders with respect to any plan of reorga-

nization, by any registered investment company which is, or any of

the securities of which are, the subject of or is a participant in any

such plan, or if so requested by the holders of 25 per centum of any

class of its outstanding securities, to render an advisory report in

respect of the fairness of any such plan and its effect upon any

class or classes of security holders. In such event any registered in-

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vestment company, in respect of which the Commission shall have

rendered any such advisory report, shall mail promptly a copy of

such advisory report to all its security holders affected by any such

plan: Provided, That such advisory report shall have been received

by it at least forty-eight hours (not including Sundays and holi-

days) before final action is taken in relation to such plan at any

meeting of security holders called to act in relation thereto, or any

adjournment of any such meeting, or if no meeting be called, then

prior to the final date of acceptance of such plan by security hold-

ers. In respect of securities not registered as to ownership, in lieu

of mailing a copy of such advisory report, such registered company

shall publish promptly a statement of the existence of such advi-

sory report in a newspaper of general circulation in its principal

place of business and shall make available copies of such advisory

report upon request. Notwithstanding the provision of this section

the Commission shall not render such advisory report although so

requested by any such investment company or such security hold-

ers if the fairness or feasibility of said plan is in issue in any pro-

ceeding pending in any court of competent jurisdiction unless such

plan is submitted to the Commission for that purpose by such

court.

poration of a registered investment company, or any such court for

the district in which such company maintains its principal place of

business, is authorized to enjoin the consummation of any plan of

reorganization of such registered investment company upon pro-

ceedings instituted by the Commission (which is authorized so to

proceed upon behalf of security holders of such registered company,

or any class thereof), if such court shall determine that any such

plan is not fair and equitable to all security holders.

(d) Nothing contained in this section shall in any way affect or

derogate from the powers of the courts of the United States and the

Commission with reference to reorganizations contained in title 11

of the United States Code.

UNIT INVESTMENT TRUSTS

. 26. ø80a–26¿ (a) No principal underwriter for or depositor

of a registered unit investment trust shall sell, except by surrender

to the trustee for redemption, any security of which such trust is

the issuer (other than short-term paper), unless the trust inden-

ture, agreement of custodianship, or other instrument pursuant to

which such security is issued—

(1) designates one or more trustees or custodians, each of

which is a bank, and provides that each such trustee or custo-

dian shall have at all times an aggregate capital, surplus, and

undivided profits of a specified minimum amount, which shall

not be less than $500,000 (but may also provide, if such trustee

or custodian publishes reports of condition at least annually,

pursuant to law or to the requirements of its supervising or ex-

amining authority, that for the purposes of this paragraph the

aggregate capital, surplus, and undivided profits of such trust-

ee or custodian shall be deemed to be its aggregate capital,

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70 Sec. 26 INVESTMENT COMPANY ACT OF 1940

surplus, and undivided profits as set forth in its most recent

report of condition so published);

(2) provides, in substance, (A) that during the life of the

trust the trustee or custodian, if not otherwise remunerated,

may charge against and collect from the income of the trust,

and from the corpus thereof if no income is available, such fees

for its services and such reimbursement for its expenses as are

provided for in such instrument; (B) that no such charge or col-

lection shall be made except for services theretofore performed

or expenses theretofore incurred; (C) that no payment to the

depositor of or a principal underwriter for such trust, or to any

affiliated person or agent of such depositor or underwriter,

shall be allowed the trustee or custodian as an expense (except

that provision may be made for the payment to any such per-

son of a fee, not exceeding such reasonable amount as the

Commission may prescribe as compensation for performing

bookkeeping and other administrative services, of a character

normally performed by the trustee or custodian itself); and (D)

that the trustee or custodian shall have possession of all secu-

rities and other property in which the funds of the trust are

invested, all funds held for such investment, all equalization,

redemption, and other special funds of the trust, and all in-

come upon, accretions to, and proceeds of such property and

funds, and shall segregate and hold the same in trust (subject

only to the charges and collections allowed under clauses (A),

(B), and (C)) until distribution thereof to the security holders

of the trust;

(3) provides, in substance, that the trustee or custodian

shall not resign until either (A) the trust has been completely

liquidated and the proceeds of the liquidation distributed to

the security holders of the trust, or (B) a successor trustee or

custodian, having the qualifications prescribed in paragraph

(1), has been designated and has accepted such trusteeship or

custodianship; and

(4) provides, in substance, (A) that a record will be kept by

the depositor or an agent of the depositor of the name and ad-

dress of, and the shares issued by the trust and held by, every

holder of any security issued pursuant to such instrument, in-

sofar as such information is known to the depositor or agent;

and (B) that whenever a security is deposited with the trustee

in substitution for any security in which such security holder

has an undivided interest, the depositor or the agent of the de-

positor will, within five days after such substitution, either de-

liver or mail to such security holder a notice of substitution, in-

cluding an identification of the securities eliminated and the

securities substituted, and a specification of the shares of such

security holder affected by the substitution.

(b) The Commission may, after consultation with and taking

into consideration the views of the Federal banking agencies (as de-

fined in section 3 of the Federal Deposit Insurance Act), adopt

rules and regulations, and issue orders, consistent with the protec-

tion of investors, prescribing the conditions under which a bank, or

an affiliated person of a bank, either of which is an affiliated per-

son of a principal underwriter for, or depositor of, a registered unit

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71 Sec. 26 INVESTMENT COMPANY ACT OF 1940

investment trust, may serve as trustee or custodian under sub-

section (a)(1).

istered unit investment trust holding the security of a single issuer

to substitute another security for such security unless the Commis-

sion shall have approved such substitution. The Commission shall

issue an order approving such substitution if the evidence estab-

lishes that it is consistent with the protection of investors and the

purposes fairly intended by the policy and provisions of this title.

(d) In the event that a trust indenture, agreement of custodian-

ship, or other instrument pursuant to which securities of a reg-

istered unit investment trust are issued does not comply with the

requirements of subsection (a) of this section, such instrument will

be deemed to meet such requirements if a written contract or

agreement binding on the parties and embodying such require-

ments has been executed by the depositor on the one part and the

trustee or custodian on the other part, and three copies of such con-

tract or agreement have been filed with the Commission.

(e) Whenever the Commission has reason to believe that a unit

investment trust is inactive and that its liquidation is in the inter-

est of the security holders of such trust, the Commission may file

a complaint seeking the liquidation of such trust in the district

court of the United States in any district wherein any trustee of

such trust resides or has its principal place of business. A copy of

such complaint shall be served on every trustee of such trust, and

notice of the proceeding shall be given such other interested per-

sons in such manner and at such times as the court may direct.

If the court determines that such liquidation is in the interest of

the security holders of such trust, the court shall order such liq-

uidation and, after payment of necessary expenses, the distribution

of the proceeds to the security holders of the trust in such manner

and on such terms as may to the court appear equitable.

(f) E

XEMPTION

.—

(1) I

N GENERAL

.—Subsection (a) does not apply to any reg-

istered separate account funding variable insurance contracts,

or to the sponsoring insurance company and principal under-

writer of such account.

(2) L

IMITATION ON SALES

.—It shall be unlawful for any reg-

istered separate account funding variable insurance contracts,

or for the sponsoring insurance company of such account, to

sell any such contract—

(A) unless the fees and charges deducted under the

contract, in the aggregate, are reasonable in relation to the

services rendered, the expenses expected to be incurred,

and the risks assumed by the insurance company, and, be-

ginning on the earlier of August 1, 1997, or the earliest ef-

fective date of any registration statement or amendment

thereto for such contract following the date of enactment

of this subsection, the insurance company so represents in

the registration statement for the contract; and

(B) unless the insurance company—

(i) complies with all other applicable provisions of

this section, as if it were a trustee or custodian of the

registered separate account;

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72 Sec. 27 INVESTMENT COMPANY ACT OF 1940

(ii) files with the insurance regulatory authority of

the State which is the domiciliary State of the insur-

ance company, an annual statement of its financial

condition, which most recent statement indicates that

the insurance company has a combined capital and

surplus, if a stock company, or an unassigned surplus,

if a mutual company, of not less than $1,000,000, or

such other amount as the Commission may from time

to time prescribe by rule, as necessary or appropriate

in the public interest or for the protection of investors;

and

(iii) together with its registered separate accounts,

is supervised and examined periodically by the insur-

ance authority of such State.

(3) F

EES AND CHARGES

.—For purposes of paragraph (2),

the fees and charges deducted under the contract shall include

all fees and charges imposed for any purpose and in any man-

ner.

(4) R

EGULATORY AUTHORITY

.—The Commission may issue

such rules and regulations to carry out paragraph (2)(A) as it

determines are necessary or appropriate in the public interest

or for the protection of investors.

PERIODIC PAYMENT PLANS

. 27. ø80a–27¿ (a) It shall be unlawful for any registered

investment company issuing periodic payment plan certificates, or

for any depositor of or underwriter for such company, to sell any

such certificate, if—

(1) the sales load on such certificate exceeds 9 per centum

of the total payments to be made thereon;

(2) more than one-half of any of the first twelve monthly

payments thereon, or their equivalent, is deducted for sales

load;

(3) the amount of sales load deducted from any one of such

first payments exceeds proportionately the amount deducted

from any other such payment, or the amount deducted from

any subsequent payment exceeds proportionately the amount

deducted from any other subsequent payment;

(4) the first payment on such certificate is less than $20,

or any subsequent payment is less than $10;

(5) if such registered company is a management company,

the proceeds of such certificate or the securities in which such

proceeds are invested are subject to management fees (other

than fees for administrative services of the character described

in clause (C), paragraph (2), of section 26(a)) exceeding such

reasonable amount as the Commission may prescribe, whether

such fees are payable to such company or to investment advis-

ers thereof; or

(6) if such registered company is a unit investment trust

the assets of which are securities issued by a management

company, the depositor of or principal underwriter for such

trust, or any affiliated person of such depositor or underwriter,

is to receive from such management company or any affiliated

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person thereof any fee or payment on account of payments on

such certificate exceeding such reasonable amount as the Com-

mission may prescribe.

(b) If it appears to the Commission, upon application or other-

wise, that smaller companies are subjected to relatively higher op-

erating costs and that in order to make due allowance therefor it

is necessary or appropriate in the public interest and consistent

with the protection of investors that a provision or provisions of

paragraph (1), (2), or (3) of subsection (a) relative to sales load be

relaxed in the case of certain registered investment companies

issuing periodic payment plan certificates, or certain specified

classes of such companies, the Commission is authorized by rules

and regulations or order to grant any such company or class of

companies appropriate qualified exemptions from the provisions of

said paragraphs.

issuing periodic payment plan certificates, or for any depositor of

or underwriter for such company, to sell any such certificate, un-

less—

(1) such certificate is a redeemable security; and

(2) the proceeds of all payments on such certificate (except

such amounts as are deducted for sales load) are deposited

with a trustee or custodian having the qualifications prescribed

in paragraph (1) of section 26(a) for the trustees of unit invest-

ment trusts, and are held by such trustee or custodian under

an indenture or agreement containing, in substance, the provi-

sions required by paragraphs (2) and (3) of section 26(a) for the

trust indentures of unit investment trusts.

(d) Notwithstanding subsection (a) of this section, it shall be

unlawful for any registered investment company issuing periodic

payment plan certificates, or for any depositor of or underwriter for

such company, to sell any such certificate unless the certificate pro-

vides that the holder thereof may surrender the certificate at any

time within the first eighteen months after the issuance of the cer-

tificate and receive in payment thereof, in cash, the sum of (1) the

value of his account, and (2) an amount, from such underwriter or

depositor, equal to that part of the excess paid for sales loading

which is over 15 per centum of the gross payments made by the

certificate holder. The Commission may make rules and regulations

applicable to such underwriters and depositors specifying such re-

serve requirements as it deems necessary or appropriate in order

for such underwriters and depositors to carry out the obligations to

refund sales charges required by this subsection.

(e) With respect to any periodic payment plan certificate sold

subject to the provisions of subsection (d) of this section, the reg-

istered investment company issuing such periodic payment plan

certificate, or any depositor of or underwriter for such company,

shall in writing (1) inform each certificate holder who has missed

three payments or more, within thirty days following the expiration

of fifteen months after the issuance of the certificate, or, if any

such holder has missed one payment or more after such period of

fifteen months but prior to the expiration of eighteen months after

the issuance of the certificate, at any time prior to the expiration

of such eighteen-month period, of his right to surrender his certifi-

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cate as specified in subsection (d) of this section, and (2) inform the

certificate holder of (A) the value of the holder’s account as of the

time the written notice was given to such holder, and (B) the

amount to which he is entitled as specified in subsection (d) of this

section. The Commission may make rules specifying the method,

form, and contents of the notice required by this subsection.

(f) With respect to any periodic payment plan (other than a

plan under which the amount of sales load deducted from any pay-

ment thereon does not exceed 9 per centum of such payment), the

custodian bank for such plan shall mail to each certificate holder,

within sixty days after the issuance of the certificate, a statement

of charges to be deducted from the projected payments on the cer-

tificate and a notice of his right of withdrawal as specified in this

section. The Commission may make rules specifying the method,

form, and contents of the notice required by this subsection. The

certificate holder may within forty-five days of the mailing of the

notice specified in this subsection surrender his certificate and re-

ceive in payment thereof, in cash, the sum of (1) the value of his

account, and (2) an amount, from the underwriter or depositor,

equal to the difference between the gross payments made and the

net amount invested. The Commission may make rules and regula-

tions applicable to underwriters and depositors of companies

issuing any such certificate specifying such reserve requirements as

it deems necessary or appropriate in order for such underwriters

and depositors to carry out the obligations to refund sales charges

required by this subsection.

(g) Notwithstanding the provisions of subsections (a) and (d),

a registered investment company issuing periodic payment plan

certificates may elect, by written notice to the Commission, to be

governed by the provisions of subsection (h) rather than the provi-

sions of subsections (a) and (d) of this section.

(h) Upon making the election specified in subsection (g), it

shall be unlawful for any such electing registered investment com-

pany issuing periodic payment plan certificates, or for any deposi-

tor of or underwriter for such company, to sell any such certificate,

if—

(1) the sales load on such certificate exceeds 9 per centum

of the total payments to be made thereon;

(2) more than 20 per centum of any payment thereon is de-

ducted for sales load, or an average of more than 16 per cen-

tum is deducted for sales load from the first forty-eight month-

ly payments thereon, or their equivalent;

(3) the amount of sales load deducted from any one of the

first twelve monthly payments, the thirteenth through twenty-

fourth monthly payments, the twenty-fifth through thirty-sixth

monthly payments, or the thirty-seventh through forty-eighth

monthly payments, or their equivalents, respectively, exceeds

proportionately the amount deducted from any other such pay-

ment, or the amount deducted from any subsequent payment

exceeds proportionately the amount deducted from any other

subsequent payment;

(4) the deduction for sales load on the excess of the pay-

ment or payments in any month over the minimum monthly

payment, or its equivalent, to be made on the certificate ex-

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75 Sec. 28 INVESTMENT COMPANY ACT OF 1940

ceeds the sales load applicable to payments subsequent to the

first forty-eight monthly payments or their equivalent;

(5) the first payment on such certificate is less than $20,

or any subsequent payment is less than $10;

(6) if such registered company is a management company,

the proceeds of such certificate or the securities in which such

proceeds are invested are subject to management fees (other

than fees for administrative services of the character described

in clause (C) of paragraph (2) of section 26(a)) exceeding such

reasonable amount as the Commission may prescribe, whether

such fees are payable to such company or to investment advis-

ers thereof; or

(7) if such registered company is a unit investment trust

the assets of which are securities issued by a management

company, the depositor of or principal underwriter for such

trust, or any affiliated person of such depositor or underwriter,

is to receive from such management company or any affiliated

person thereof any fee or payment on account of payments on

such certificate exceeding such reasonable amount as the Com-

mission may prescribe.

(i)(1) This section does not apply to any registered separate ac-

count funding variable insurance contracts, or to the sponsoring in-

surance company and principal underwriter of such account, except

as provided in paragraph (2).

(2) It shall be unlawful for any registered separate account

funding variable insurance contracts, or for the sponsoring insur-

ance company of such account, to sell any such contract unless—

(A) such contract is a redeemable security; and

(B) the insurance company complies with section 26(f) and

any rules or regulations issued by the Commission under sec-

tion 26(f).

(j) T

ERMINATION OF

ALES

.—

(1) T

ERMINATION

.—Effective 30 days after the date of en-

actment of the Military Personnel Financial Services Protec-

tion Act, it shall be unlawful, subject to subsection (i)—

(A) for any registered investment company to issue

any periodic payment plan certificate; or

(B) for such company, or any depositor of or under-

writer for any such company, or any other person, to sell

such a certificate.

(2) N

O INVALIDATION OF EXISTING CERTIFICATES

.—Para-

graph (1) shall not be construed to alter, invalidate, or other-

wise affect any rights or obligations, including rights of re-

demption, under any periodic payment plan certificate issued

and sold before 30 days after such date of enactment.

FACE

AMOUNT CERTIFICATE COMPANIES

. 28. ø80a–28¿ (a) 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 certifi-

cate issued by such company on or after the effective date of this

title, unless—

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76 Sec. 28 INVESTMENT COMPANY ACT OF 1940

(1) such company, if organized before March 15, 1940, was

actively and continuously engaged in selling face-amount cer-

tificates 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 certifi-

cate 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

⁄

per centum per annum compounded an-

nually, 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 an-

nual 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 pay-

ment or payments shall amount to at least 96 per centum

of each such year’s required gross annual payment: Pro-

vided, 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 hold-

er, an amount or amounts equal in the aggregate for such

year to not more than the excess, if any, of the gross pay-

ment or payments required to be made by the holder for

such year, over and above the percentage of the gross an-

nual 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 pay-

ments for such year and the reserve payment or payments

for such year may be graduated and adjusted to cor-

respond with the amount of the gross payment or pay-

ments 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

⁄

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

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77 Sec. 28 INVESTMENT COMPANY ACT OF 1940

preceding subparagraph (A) of this paragraph except that

in lieu of the 3

⁄

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 accu-

mulate such reserve payments to the maturity value when

due;

the certificate holder on any certificate issued prior to or

after the effective date of this Act is less than the amount

of any assumed reserve payment or payments for a certifi-

cate 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

⁄

per cen-

tum 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 section 28(a)(2) (A) or (B); (2) the accumulations on

such reserve payments as computed under subparagraphs

(A) or (B) of this paragraph (2); (3) the amount of any defi-

ciency reserve required under subparagraph (C) hereof;

and (4) such amount as shall have been credited to the ac-

count of each certificate holder in the form of any credit,

or any dividend, or any interest in addition to the min-

imum maturity amount specified in such certificate, plus

any accumulations on any amount or amounts so credited,

at a rate not exceeding 3

⁄

per centum per annum com-

pounded 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

⁄

per cen-

tum 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 ma-

turity amount specified in the certificate, plus any accumu-

lations on any amount or amounts so credited, at a rate

not exceeding 3

⁄

per centum per annum compounded an-

nually;

(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 sub-

paragraph (A) or (B) hereof, an advance payment reserve

shall be set up and maintained in the amount of the

present value of any such unapplied advance gross pay-

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As Amended Through P.L. 117-263, Enacted December 23, 2022

78 Sec. 28 INVESTMENT COMPANY ACT OF 1940

ments, computed at a rate not to exceed 3

⁄

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 re-

lation to such contingencies.

At no time shall the aggregate certificate reserves herein required

by subparagraphs (A) to (F), inclusive, 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 (a), no certificate of the in-

stallment type shall be deemed to be outstanding if before a sur-

render value has been attained the holder thereof has been in con-

tinuous default in making his payments thereon for a period of one

year.

(b) It shall be unlawful for any registered face-amount certifi-

cate company to issue or sell any face-amount certificate, or to col-

lect or accept any payment on any such certificate issued by such

company on or after the effective date of this title, unless such com-

pany has, in cash or qualified investments, assets having a value

not less than the aggregate amount of the capital stock require-

ment and certificate reserves as computed under the provisions of

subsection (a) hereof. As used in this subsection, ‘‘qualified invest-

ments’’ means investments of a kind which life-insurance compa-

nies are permitted to invest in or hold under the provisions of the

Code of the District of Columbia as heretofore or hereafter amend-

ed, and such other investments as the Commission shall by rule,

regulation, or order authorize as qualified investments. Such in-

vestments 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.

public interest or for the protection of investors, require a reg-

istered 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 26(a) for a trustee of a unit investment trust, all or

any part of the investments maintained by such company as certifi-

cate reserve requirements under the provisions of subsection (b)

hereof: 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 re-

quired 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 re-

quired by subsection (a) hereof for the certificates so issued or held,

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As Amended Through P.L. 117-263, Enacted December 23, 2022

79 Sec. 28 INVESTMENT COMPANY ACT OF 1940

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)

and which are deposited under or as permitted by this subsection

(c), may be used and shall be considered as a part of the assets re-

quired to be maintained under the provisions of said subsection (b).

(d) It shall be unlawful for any registered face-amount certifi-

cate company to issue or sell any face-amount certificate, or to col-

lect or accept any payment on any such certificate issued by such

company on or after the effective date of this title, unless such cer-

tificate 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 certifi-

cate, upon surrender thereof, shall be entitled to a value pay-

able in cash not less than the reserve payments as specified in

subparagraph (A) or (B) of paragraph (2) of subsection (a) 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 certifi-

cate required by numbered items (1) and (2) of subparagraph

(D) of paragraph (2) of subsection (a) hereof, less a surrender

charge that shall not exceed 2 per centum of the face or matu-

rity 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 sub-

section (f) hereof, 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 para-

graph (2) of subsection (a) hereof 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 cer-

tificate required by item (1) of subparagraph (E) of paragraph

(2) of subsection (a) hereof, 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 sur-

render 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;

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As Amended Through P.L. 117-263, Enacted December 23, 2022

80 Sec. 28 INVESTMENT COMPANY ACT OF 1940

(5) that in respect of any certificate, the holder of the cer-

tificate, upon maturity, upon surrender thereof for cash or

upon receipt of a paid-up certificate as provided in subsection

(f) hereof, shall be entitled to a value payable in cash equal to

the then amount of the reserve, if any, for such certificate re-

quired by item (4) of subparagraph (D) of paragraph (2) of sub-

section (a) hereof or item (2) of subparagraph (E) of paragraph

(2) of subsection (a) hereof 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 certifi-

cate 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 com-

pany 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, de-

posits, 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) hereof.

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 sub-

section (d), 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 accumu-

lating 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) It shall be unlawful for any registered face-amount certifi-

cate company to issue or sell any face-amount certificate, or to col-

lect or accept any payment on any such certificate issued by such

company on or after the effective date of this title, which certificate

makes the holder liable to any legal action or proceeding for any

unpaid amount on such certificate.

(f) It shall be unlawful for any registered face-amount certifi-

cate company to issue or sell any face-amount certificate, or to col-

lect or accept any payment on any such certificate issued by such

company on or after the effective date of this title, (1) unless such

face-amount certificate contains a provision or provisions to the ef-

fect that the holder shall have an optional right to receive a paid-

up certificate in lieu of the then attained cash surrender value pro-

vided 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

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As Amended Through P.L. 117-263, Enacted December 23, 2022

81 Sec. 28 INVESTMENT COMPANY ACT OF 1940

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 with-

out 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 cer-

tificate to such holder and such payment or issuance, plus the pay-

ment of all other amounts to which he may be then entitled under

the original certificate, shall operate to cancel his original certifi-

cate: Provided, That in lieu of the issuance of a new paid-up certifi-

cate the original certificate may be converted into a paid-up certifi-

cate 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 reinstate-

ment, to make up the payment or payments for the default period

next preceding such reinstatement with interest thereon not ex-

ceeding 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 (f) shall, without

restricting its usual meaning, include a failure to make a payment

or payments as and when provided by the certificate.

(g) The foregoing provisions of this section shall not apply to

a face-amount certificate company which on or before the effective

date of this Act has discontinued the offering of face-amount certifi-

cates 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) It shall be unlawful for any registered face-amount certifi-

cate company which does not maintain the minimum certificate re-

serve on all its outstanding face-amount certificates issued prior to

the effective date of this Act, in an aggregate amount calculated

and adjusted as provided in section 28, to declare or pay any divi-

dends 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 Com-

mission that the declaration, payment or distribution of any divi-

dend for or during any calendar year might impair the financial in-

tegrity of such company or its ability to meet its liabilities under

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As Amended Through P.L. 117-263, Enacted December 23, 2022

82 Sec. 28 INVESTMENT COMPANY ACT OF 1940

its outstanding face-amount certificates, it may by order forbid the

declaration, distribution, or payment of any such dividend.

(i) 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 hold-

ers of such certificates pursuant to an obligation expressed or im-

plied in such certificates; to the provisions of such certificates; to

the minimum certificate reserves and deposits maintained with re-

spect 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 sub-

section (a), 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 re-

serve payments shall be sufficient in amount, as and when accumu-

lated at a rate not to exceed 3

⁄

per centum per annum com-

pounded 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 pay-

ment 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 certifi-

cate year shall amount to at least 90 per centum of such year’s re-

quired 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 sub-

sequent 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 an-

nual payments required to be made by the holder to obtain the ma-

turity 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),

(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

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As Amended Through P.L. 117-263, Enacted December 23, 2022

83 Sec. 30 INVESTMENT COMPANY ACT OF 1940

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 sub-

section (a), less a surrender charge that shall not exceed 2 per cen-

tum of the face or maturity amount of the certificate, or 15 per cen-

tum 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 cer-

tificate.

BANKRUPTCY OF FACE

AMOUNT CERTIFICATE COMPANIES

. 29. øSection 29 amended section 67 and section 44 of the

Bankruptcy Act, with respect to the bankruptcy of face-amount cer-

tificate companies, as defined in section 4(1) of the Investment

Company Act of 1940.¿

PERIODIC AND OTHER REPORTS

;

REPORTS OF AFFILIATED PERSONS

. 30. ø80a–29¿ (a) Every registered investment company

shall file annually with the Commission such information, docu-

ments, and reports as investment companies having securities reg-

istered on a national securities exchange are required to file annu-

ally pursuant to section 13(a) of the Securities Exchange Act of

1934 and the rules and regulations issued thereunder.

(b) Every registered investment company shall file with the

Commission—

(1) such information, documents, and reports (other than

financial statements), as the Commission may require to keep

reasonably current the information and documents contained

in the registration statement of such company filed under this

title; and

(2) copies of every periodic or interim report or similar

communication containing financial statements and trans-

mitted to any class of such company’s security holders, such

copies to be filed not later than ten days after such trans-

mission.

Any information or documents contained in a report or other com-

munication to security holders filed pursuant to paragraph (2) may

be incorporated by reference in any report subsequently or concur-

rently filed pursuant to paragraph (1).

(c)(1) The Commission shall take such action as it deems nec-

essary or appropriate, consistent with the public interest and the

protection of investors, to avoid unnecessary reporting by, and min-

imize the compliance burdens on, registered investment companies

and their affiliated persons in exercising its authority—

(A) under subsection (f); and

(B) under subsection (b)(1), if the Commission requires the

filing of information, documents, and reports under that sub-

section on a basis more frequently than semiannually.

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As Amended Through P.L. 117-263, Enacted December 23, 2022

84 Sec. 30 INVESTMENT COMPANY ACT OF 1940

(2) Action taken by the Commission under paragraph (1) shall

include considering, and requesting public comment on—

(A) feasible alternatives that minimize the reporting bur-

dens on registered investment companies; and

(B) the utility of such information, documents, and reports

to the Commission in relation to the costs to registered invest-

ment companies and their affiliated persons of providing such

information, documents, and reports.

(d) The Commission shall issue rules and regulations permit-

ting the filing with the Commission, and with any national securi-

ties exchange concerned, of copies of periodic reports, or of extracts

therefrom, filed by any registered investment company pursuant to

subsections (a) and (b), in lieu of any reports and documents re-

quired of such company under section 13 or 15(d) of the Securities

Exchange Act of 1934.

(e) Every registered investment company shall transmit to its

stockholders, at least semiannually, reports containing such of the

following information and financial statements or their equivalent,

as of a reasonably current date, as the Commission may prescribe

by rules and regulations for the protection of investors, which re-

ports shall not be misleading in any material respect in the light

of the reports required to be filed pursuant to subsections (a) and

(b):

(1) a balance sheet accompanied by a statement of the ag-

gregate value of investments on the date of such balance sheet;

(2) a list showing the amounts and values of securities

owned on the date of such balance sheet;

(3) a statement of income, for the period covered by the re-

port, which shall be itemized at least with respect to each cat-

egory of income and expense representing more than 5 per cen-

tum of total income or expense;

(4) a statement of surplus, which shall be itemized at least

with respect to each charge or credit to the surplus account

which represents more than 5 per centum of the total charges

or credits during the period covered by the report;

(5) a statement of the aggregate remuneration paid by the

company during the period covered by the report (A) to all di-

rectors and to all members of any advisory board for regular

compensation; (B) to each director and to each member of an

advisory board for special compensation; (C) to all officers; and

(D) to each person of whom any officer or director of the com-

pany is an affiliated person; and

(6) a statement of the aggregate dollar amounts of pur-

chases and sales of investment securities, other than Govern-

ment securities, made during the period covered by the report:

Provided, That if in the judgment of the Commission any item re-

quired under this subsection is inapplicable or inappropriate to any

specified type or types of investment company, the Commission

may by rules and regulations permit in lieu thereof the inclusion

of such item of a comparable character as it may deem applicable

or appropriate to such type or types of investment company.

(f) The Commission may, by rule, require that semiannual re-

ports containing the information set forth in subsection (e) include

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As Amended Through P.L. 117-263, Enacted December 23, 2022

85 Sec. 30 INVESTMENT COMPANY ACT OF 1940

such other information as the Commission deems necessary or ap-

propriate in the public interest or for the protection of investors.

(g) Financial statements contained in annual reports required

pursuant to subsections (a) and (e), if required by the rules and

regulations of the Commission, shall be accompanied by a certifi-

cate of independent public accountants. The certificate of such

independent public accountants shall be based upon an audit not

less in scope or procedures followed than that which independent

public accountants would ordinarily make for the purpose of pre-

senting comprehensive and dependable financial statements, and

shall contain such information as the Commission may prescribe,

by rules and regulations in the public interest or for the protection

of investors, as to the nature and scope of the audit and the find-

ings and opinion of the accountants. Each such report shall state

that such independent public accountants have verified securities

owned, either by actual examination, or by receipt of a certificate

from the custodian, as the Commission may prescribe by rules and

regulations.

(h) Every person who is directly or indirectly the beneficial

owner of more than 10 per centum of any class of outstanding secu-

rities (other than short-term paper) of which a registered closed-

end company is the issuer or who is an officer, director, member

of an advisory board, investment adviser, or affiliated person of an

investment adviser of such a company shall in respect of his trans-

actions in any securities of such company (other than short-term

paper) be subject to the same duties and liabilities as those im-

posed by section 16 of the Securities Exchange Act of 1934 upon

certain beneficial owners, directors, and officers in respect of their

transactions in certain equity securities.

(i) D

ISCLOSURE TO

HURCH

LAN

ARTICIPANTS

.—A person

that maintains a church plan that is excluded from the definition

of an investment company solely by reason of section 3(c)(14) shall

provide disclosure to plan participants, in writing, and not less fre-

quently than annually, and for new participants joining such a

plan after May 31, 1996, as soon as is practicable after joining such

plan, that—

(1) the plan, or any company or account maintained to

manage or hold plan assets and interests in such plan, com-

pany, or account, are not subject to registration, regulation, or

reporting under this title, the Securities Act of 1933, the Secu-

rities Exchange Act of 1934, or State securities laws; and

(2) plan participants and beneficiaries therefore will not be

afforded the protections of those provisions.

(j) N

OTICE TO

OMMISSION

.—The Commission may issue rules

and regulations to require any person that maintains a church plan

that is excluded from the definition of an investment company sole-

ly by reason of section 3(c)(14) to file a notice with the Commission

containing such information and in such form as the Commission

may prescribe as necessary or appropriate in the public interest or

consistent with the protection of investors.

(k) D

ATA

TANDARDS FOR

EPORTS

.—

(1) R

EQUIREMENT

.—The Commission shall, by rule, adopt

data standards for all reports required to be filed with the

Commission under this section, except that the Commission

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As Amended Through P.L. 117-263, Enacted December 23, 2022

86 Sec. 31 INVESTMENT COMPANY ACT OF 1940

may exempt exhibits, signatures, and certifications from those

data standards.

(2) C

ONSISTENCY

.—The data standards required under

paragraph (1) shall incorporate, and ensure compatibility with

(to the extent feasible), all applicable data standards estab-

lished in the rules promulgated under section 124 of the Finan-

cial Stability Act of 2010, including, to the extent practicable,

by having the characteristics described in clauses (i) through

(vi) of subsection (c)(1)(B) of such section 124.

ACCOUNTS AND RECORDS

. 31. ø80a–30¿ (a) M

AINTENANCE OF

ECORDS

.—

(1) I

N GENERAL

.—Each registered investment company,

and each underwriter, broker, dealer, or investment adviser

that is a majority-owned subsidiary of such a company, shall

maintain and preserve such records (as defined in section

3(a)(37) of the Securities Exchange Act of 1934) for such period

or periods as the Commission, by rules and regulations, may

prescribe as necessary or appropriate in the public interest or

for the protection of investors. Each investment adviser that is

not a majority-owned subsidiary of, and each depositor of any

registered investment company, and each principal under-

writer for any registered investment company other than a

closed-end company, shall maintain and preserve for such pe-

riod or periods as the Commission shall prescribe by rules and

regulations, such records as are necessary or appropriate to

record such person’s transactions with such registered com-

pany. Each person having custody or use of the securities, de-

posits, or credits of a registered investment company shall

maintain and preserve all records that relate to the custody or

use by such person of the securities, deposits, or credits of the

registered investment company for such period or periods as

the Commission, by rule or regulation, may prescribe, as nec-

essary or appropriate in the public interest or for the protec-

tion of investors.

(2) M

INIMIZING COMPLIANCE BURDEN

.—In exercising its au-

thority under this subsection, the Commission shall take such

steps as it deems necessary or appropriate, consistent with the

public interest and for the protection of investors, to avoid un-

necessary recordkeeping by, and minimize the compliance bur-

den on, persons required to maintain records under this sub-

section (hereafter in this section referred to as ‘‘subject per-

sons’’). Such steps shall include considering, and requesting

public comment on—

(A) feasible alternatives that minimize the record-

keeping burdens on subject persons;

(B) the necessity of such records in view of the public

benefits derived from the independent scrutiny of such

records through Commission examination;

tion that would be required to be reflected in such records;

and

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As Amended Through P.L. 117-263, Enacted December 23, 2022

87 Sec. 31 INVESTMENT COMPANY ACT OF 1940

(D) the effects that a proposed recordkeeping require-

ment would have on internal compliance policies and pro-

cedures.

(b) E

XAMINATIONS OF

ECORDS

.—

(1) I

N GENERAL

.—All records required to be maintained

and preserved in accordance with subsection (a) shall be sub-

ject at any time and from time to time to such reasonable peri-

odic, special, and other examinations by the Commission, or

any member or representative thereof, as the Commission may

prescribe.

(2) A

VAILABILITY

.—For purposes of examinations referred

to in paragraph (1), any subject person shall make available to

the Commission or its representatives any copies or extracts

from such records as may be prepared without undue effort,

expense, or delay as the Commission or its representatives

may reasonably request.

(3) C

OMMISSION ACTION

.—The Commission shall exercise

its authority under this subsection with due regard for the ben-

efits of internal compliance policies and procedures and the ef-

fective implementation and operation thereof.

(4) R

ECORDS OF PERSONS WITH CUSTODY OR USE

.—

(A) I

N GENERAL

.—Records of persons having custody

or use of the securities, deposits, or credits of a registered

investment company that relate to such custody or use, are

subject at any time, or from time to time, to such reason-

able periodic, special, or other examinations and other in-

formation and document requests by representatives of the

Commission, as the Commission deems necessary or ap-

propriate in the public interest or for the protection of in-

vestors.

(B) C

ERTAIN PERSONS SUBJECT TO OTHER REGULA

TION

.—Any person that is subject to regulation and exam-

ination by a Federal financial institution regulatory agency

(as such term is defined under section 212(c)(2) of title 18,

United States Code) may satisfy any examination request,

information request, or document request described under

subparagraph (A), by providing to the Commission a de-

tailed listing, in writing, of the securities, deposits, or cred-

its of the registered investment company within the cus-

tody or use of such person.

EGULATORY

UTHORITY

.—The Commission may, in the

public interest or for the protection of investors, issue rules and

regulations providing for a reasonable degree of uniformity in the

accounting policies and principles to be followed by registered in-

vestment companies in maintaining their accounting records and in

preparing financial statements required pursuant to this title.

(d) E

XEMPTION

UTHORITY

.—The Commission, upon applica-

tion made by any registered investment company, may by order ex-

empt a specific transaction or transactions from the provisions of

any rule or regulation made pursuant to subsection (e), if the Com-

mission finds that such rule or regulation should not reasonably be

applied to such transaction.

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88 Sec. 32 INVESTMENT COMPANY ACT OF 1940

ACCOUNTANTS AND AUDITORS

. 32. ø80a–31¿ (a) It shall be unlawful for any registered

management company or registered face-amount certificate com-

pany to file with the Commission any financial statement signed or

certified by an independent public accountant, unless—

(1) such accountant shall have been selected at a meeting

held within thirty days before or after the beginning of the fis-

cal year or before the annual meeting of stockholders in that

year by the vote, cast in person, of a majority of those members

of the board of directors who are not interested persons of such

registered company;

(2) such selection shall have been submitted for ratification

or rejection at the next succeeding annual meeting of stock-

holders if such meeting be held, except that any vacancy occur-

ring between annual meetings, due to the death or resignation

of the accountant, may be filled by the vote of a majority of

those members of the board of directors who are not interested

persons of such registered company, cast in person at a meet-

ing called for the purpose of voting on such action;

(3) the employment of such accountant shall have been

conditioned upon the right of the company by vote of a major-

ity of the outstanding voting securities at any meeting called

for the purpose to terminate such employment forthwith with-

out any penalty; and

(4) such certificate or report of such accountant shall be

addressed both to the board of directors of such registered com-

pany and to the security holders thereof.

If the selection of an accountant has been rejected pursuant to

paragraph (2) or his employment terminated pursuant to para-

graph (3), the vacancy so occurring may be filled by a vote of a ma-

jority of the outstanding voting securities, either at the meeting at

which the rejection or termination occurred or, if not so filled, at

a subsequent meeting which shall be called for the purpose. In the

case of a common-law trust of the character described in section

16(c), no ratification of the employment of such accountant shall be

required but such employment may be terminated and such ac-

countant removed by action of the holders of record of a majority

of the outstanding shares of beneficial interest in such trust in the

same manner as is provided in section 16(c) in respect of the re-

moval of a trustee, and all the provisions therein contained as to

the calling of a meeting shall be applicable. In the event of such

termination and removal, the vacancy so occurring may be filled by

action of the holders of record of a majority of the shares of bene-

ficial interest either at the meeting, if any, at which such termi-

nation and removal occurs, or by instruments in writing filed with

the custodian, or if not so filed within a reasonable time then at

a subsequent meeting which shall be called by the trustees for the

purpose. The provisions of paragraph (42) of section 2(a) as to a

majority shall be applicable to the vote cast at any meeting of the

shareholders of such a trust held pursuant to this subsection.

(b) No registered management company or registered face-

amount certificate company shall file with the Commission any fi-

nancial statement in the preparation of which the controller or

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As Amended Through P.L. 117-263, Enacted December 23, 2022

89 Sec. 34 INVESTMENT COMPANY ACT OF 1940

other principal accounting officer or employee of such company par-

ticipated, unless such controller, officer or employee was selected,

either by vote of the holders of such company’s voting securities at

the last annual meeting of such security holders, or by the board

of directors of such company.

order in the public interest or for the protection of investors, to re-

quire accountants and auditors to keep reports, work sheets, and

other documents and papers relating to registered investment com-

panies for such period or periods as the Commission may prescribe,

and to make the same available for inspection by the Commission

or any member or representative thereof.

FILING OF DOCUMENTS WITH COMMISSION IN CIVIL ACTIONS

. 33. ø80a–32¿ Every registered investment company which

is a party and every affiliated person of such company who is a

party defendant to any action or claim by a registered investment

company or a security holder thereof in a derivative or representa-

tive capacity against an officer, director, investment adviser, trust-

ee, or depositor of such company, shall file with the Commission,

unless already so filed, (1) a copy of all pleadings, verdicts, or judg-

ments filed with the court or served in connection with such action

or claim, (2) a copy of any proposed settlement, compromise, or dis-

continuance of such action, and (3) a copy of such motions, tran-

scripts, or other documents filed in or issued by the court or served

in connection with such action or claim as may be requested in

writing by the Commission. If any document referred to in clause

(1) or (2)—

(A) is delivered to such company or party defendant, such

document shall be filed with the Commission not later than ten

days after the receipt thereof; or

(B) is filed in such court or delivered by such company or

party defendant, such document shall be filed with the Com-

mission not later than five days after such filing or delivery.

DESTRUCTION AND FALSIFICATION OF REPORTS AND RECORDS

. 34. ø80a–33¿ (a) It shall be unlawful for any person, ex-

cept as permitted by rule, regulation, or order of the Commission,

willfully to destroy, mutilate, or alter any account, book, or other

document the preservation of which has been required pursuant to

section 31(a) or 32(c).

(b) It shall be unlawful for any person to make any untrue

statement of a material fact in any registration statement, applica-

tion, report, account, record, or other document filed or transmitted

pursuant to this title or the keeping of which is required pursuant

to section 31(a). It shall be unlawful for any person so filing, trans-

mitting, or keeping any such document to omit to state therein any

fact necessary in order to prevent the statements made therein, in

the light of the circumstances under which they were made, from

being materially misleading. For the purposes of this subsection,

any part of any such document which is signed or certified by an

accountant or auditor in his capacity as such shall be deemed to

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As Amended Through P.L. 117-263, Enacted December 23, 2022

90 Sec. 35 INVESTMENT COMPANY ACT OF 1940

be made, filed, transmitted, or kept by such accountant or auditor,

as well as by the person filing, transmitting, or keeping the com-

plete document.

UNLAWFUL REPRESENTATIONS AND NAMES

. 35. ø80a–34¿ (a) M

ISREPRESENTATION OF

UARANTEES

.—

(1) I

N GENERAL

.—It shall be unlawful for any person,

issuing or selling any security of which a registered investment

company is the issuer, to represent or imply in any manner

whatsoever that such security or company—

(A) has been guaranteed, sponsored, recommended, or

approved by the United States, or any agency, instrumen-

tality or officer of the United States;

(B) has been insured by the Federal Deposit Insurance

Corporation; or

any bank or insured depository institution.

(2) D

ISCLOSURES

.—Any person issuing or selling the secu-

rities of a registered investment company that is advised by,

or sold through, a bank shall prominently disclose that an in-

vestment in the company is not insured by the Federal Deposit

Insurance Corporation or any other government agency. The

Commission may, after consultation with and taking into con-

sideration the views of the Federal banking agencies (as de-

fined in section 3 of the Federal Deposit Insurance Act), adopt

rules and regulations, and issue orders, consistent with the

protection of investors, prescribing the manner in which the

disclosure under this paragraph shall be provided.

(3) D

EFINITIONS

.—The terms ‘‘insured depository institu-

tion’’ and ‘‘appropriate Federal banking agency’’ have the same

meanings as given in section 3 of the Federal Deposit Insur-

ance Act.

(b) It shall be unlawful for any person registered under any

section of this title to represent or imply in any manner whatsoever

that such person has been sponsored, recommended, or approved,

or that his abilities or qualifications have in any respect been

passed upon by the United States or any agency or officer thereof.

prohibit a statement that a person or security is registered under

this Act, the Securities Act of 1933, or the Securities Exchange Act

of 1934, if such statement is true in fact and if the effect of such

registration is not misrepresented.

(d) D

ECEPTIVE OR

ISLEADING

AMES

.—It shall be unlawful

for any registered investment company to adopt as a part of the

name or title of such company, or of any securities of which it is

the issuer, any word or words that the Commission finds are mate-

rially deceptive or misleading. The Commission is authorized, by

rule, regulation, or order, to define such names or titles as are ma-

terially deceptive or misleading.

BREACH OF FIDUCIARY DUTY

. 36. ø80a–35¿ (a) The Commission is authorized to bring

an action in the proper district court of the United States, or in the

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As Amended Through P.L. 117-263, Enacted December 23, 2022

91 Sec. 36 INVESTMENT COMPANY ACT OF 1940

United States court of any territory or other place subject to the

jurisdiction of the United States, alleging that a person who is, or

at the time of the alleged misconduct was, serving or acting in one

or more of the following capacities has engaged within five years

of the commencement of the action or is about to engage in any act

or practice constituting a breach of fiduciary duty involving per-

sonal misconduct in respect of any registered investment company

for which such person so serves or acts, or at the time of the al-

leged misconduct, so served or acted—

(1) as officer, director, member of any advisory board, in-

vestment adviser, or depositor; or

(2) as principal underwriter, if such registered company is

an open-end company, unit investment trust, or face-amount

certificate company.

If such allegations are established, the court may enjoin such per-

sons from acting in any or all such capacities either permanently

or temporarily and award such injunctive or other relief against

such person as may be reasonable and appropriate in the cir-

cumstances, having due regard to the protection of investors and

to the effectuation of the policies declared in section 1(b) of this

title.

(b) For the purposes of this subsection, the investment adviser

of a registered investment company shall be deemed to have a fidu-

ciary duty with respect to the receipt of compensation for services,

or of payments of a material nature, paid by such registered invest-

ment company, or by the security holders thereof, to such invest-

ment adviser or any affiliated person of such investment adviser.

An action may be brought under this subsection by the Commis-

sion, or by a security holder of such registered investment company

on behalf of such company, against such investment adviser, or any

affiliated person of such investment adviser, or any other person

enumerated in subsection (a) of this section who has a fiduciary

duty concerning such compensation or payments, for breach of fidu-

ciary duty in respect of such compensation or payments paid by

such registered investment company or by the security holders

thereof to such investment adviser or person. With respect to any

such action the following provisions shall apply:

(1) It shall not be necessary to allege or prove that any de-

fendant engaged in personal misconduct, and the plaintiff shall

have the burden of proving a breach of fiduciary duty.

(2) In any such action approval by the board of directors

of such investment company of such compensation or pay-

ments, or of contracts or other arrangements providing for

such compensation or payments, and ratification or approval of

such compensation or payments, or of contracts or other ar-

rangements providing for such compensation or payments, by

the shareholders of such investment company, shall be given

such consideration by the court as is deemed appropriate under

all the circumstances.

(3) No such action shall be brought or maintained against

any person other than the recipient of such compensation or

payments, and no damages or other relief shall be granted

against any person other than the recipient of such compensa-

tion or payments. No award of damages shall be recoverable

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92 Sec. 37 INVESTMENT COMPANY ACT OF 1940

for any period prior to one year before the action was insti-

tuted. Any award of damages against such recipient shall be

limited to the actual damages resulting from the breach of fi-

duciary duty and shall in no event exceed the amount of com-

pensation or payments received from such investment com-

pany, or the security holders thereof, by such recipient.

(4) This subsection shall not apply to compensation or pay-

ments made in connection with transactions subject to section

17 of this title, or rules, regulations, or orders thereunder, or

to sales loads for the acquisition of any security issued by a

registered investment company.

(5) Any action pursuant to this subsection may be brought

only in an appropriate district court of the United States.

(6) No finding by a court with respect to a breach of fidu-

ciary duty under this subsection shall be made a basis (A) for

a finding of a violation of this title for the purposes of sections

9 and 49 of this title, section 15 of the Securities Exchange Act

of 1934, or section 203 of title II of this Act, or (B) for an in-

junction to prohibit any person from serving in any of the ca-

pacities enumerated in subsection (a) of this section.

the term ‘‘investment adviser’’ includes a corporate or other trustee

performing the functions of an investment adviser.

LARCENY AND EMBEZZLEMENT

. 37. ø80a–36¿ Whoever steals, unlawfully abstracts, un-

lawfully and willfully converts to his own use or to the use of an-

other, or embezzles any of the moneys, funds, securities, credits,

property, or assets of any registered investment company shall be

deemed guilty of a crime, and upon conviction thereof shall be sub-

ject to the penalties provided in section 49. A judgment of convic-

tion or acquittal on the merits under the laws of any State shall

be a bar to any prosecution under this section for the same act or

acts.

RULES

REGULATIONS

AND ORDERS

;

GENERAL POWERS OF

COMMISSION

. 38. ø80a–37¿ (a) The Commission shall have authority

from time to time to make, issue, amend, and rescind such rules

and regulations and such orders as are necessary or appropriate to

the exercise of the powers conferred upon the Commission else-

where in this title, including rules and regulations defining ac-

counting, technical, and trade terms used in this title, and pre-

scribing the form or forms in which information required in reg-

istration statements, applications, and reports to the Commission

shall be set forth. For the purposes of its rules or regulations the

Commission may classify persons, securities, and other matters

within its jurisdiction and prescribe different requirements for dif-

ferent classes of persons, securities, or matters.

(b) The Commission, by such rules and regulations or order as

it deems necessary or appropriate in the public interest or for the

protection of investors, may authorize the filing of any information

or documents required to be filed with the Commission under this

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93 Sec. 42 INVESTMENT COMPANY ACT OF 1940

title, title II of this Act, the Securities Act of 1933, the Securities

Exchange Act of 1934, or the Trust Indenture Act of 1939, by incor-

porating by reference any information or documents theretofore or

concurrently filed with the Commission under this title or any of

such Acts.

to any act done or omitted in good faith in conformity with any

rule, regulation, or order of the Commission, notwithstanding that

such rule, regulation, or order may, after such act or omission, be

amended or rescinded or be determined by judicial or other author-

ity to be invalid for any reason.

RULES AND REGULATIONS

;

PROCEDURE FOR ISSUANCE

. 39. ø80a–38¿ Subject to the provisions of the Federal Reg-

ister Act and regulations prescribed under the authority thereof,

the rules and regulations of the Commission under this title, and

amendments thereof, shall be effective upon publication in the

manner which the Commission shall prescribe, or upon such later

date as may be provided in such rules and regulations.

ORDERS

;

PROCEDURE FOR ISSUANCE

. 40. ø80a–39¿ (a) Orders of the Commission under this

title shall be issued only after appropriate notice and opportunity

for hearing. Notice to the parties to a proceeding before the Com-

mission shall be given by personal service upon each party or by

registered mail or certified mail or confirmed telegraphic notice to

the party’s last known business address. Notice to interested per-

sons, if any, other than parties may be given in the same manner

or by publication in the Federal Register.

(b) The Commission may provide, by appropriate rules or regu-

lations, that an application verified under oath may be admissible

in evidence in a proceeding before the Commission and that the

record in such a proceeding may consist, in whole or in part, of

such application.

in accordance with such rules and regulations as it may prescribe,

shall admit as a party any interested State or State agency, and

may admit as a party any representative of interested security

holders, or any other person whose participation in the proceeding

may be in the public interest or for the protection of investors.

HEARINGS BY COMMISSION

. 41. ø80a–40¿ Hearings may be public and may be held be-

fore the Commission, any member or members thereof, or any offi-

cer or officers of the Commission designated by it, and appropriate

records thereof shall be kept.

ENFORCEMENT OF TITLE

. 42. ø80a–41¿ (a) The Commission may make such inves-

tigations as it deems necessary to determine whether any person

has violated or is about to violate any provision of this title or of

any rule, regulation, or order hereunder, or to determine whether

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any action in any court or any proceeding before the Commission

shall be instituted under this title against a particular person or

persons, or with respect to a particular transaction or transactions.

The Commission shall permit any person to file with it a statement

in writing, under oath or otherwise as the Commission shall deter-

mine, as to all the facts and circumstances concerning the matter

to be investigated.

(b) For the purpose of any investigation or any other pro-

ceeding under this title, any member of the Commission, or any of-

ficer thereof designated by it, is empowered to administer oaths

and affirmations, subpena witnesses, compel their attendance, take

evidence, and require the production of any books, papers, cor-

respondence, memoranda, contracts, agreements, or other records

which are relevant or material to the inquiry. Such attendance of

witnesses and the production of any such records may be required

from any place in any State or in any Territory or other place sub-

ject to the jurisdiction of the United States at any designated place

of hearing.

to, any person, the Commission may invoke the aid of any court of

the United States within the jurisdiction of which such investiga-

tion or proceeding is carried on, or where such person resides or

carries on business, in requiring the attendance and testimony of

witnesses and the production of books, papers, correspondence,

memoranda, contracts, agreements, and other records. And such

court may issue an order requiring such person to appear before

the Commission or member or officer designated by the Commis-

sion, there to produce records, if so ordered, or to give testimony

touching the matter under investigation or in question; any failure

to obey such order of the court may be punished by such court as

a contempt thereof. All process in any such case may be served in

the judicial district whereof such person is an inhabitant or wher-

ever he may be found. Any person who without just cause shall fail

or refuse to attend and testify or to answer any lawful inquiry or

to produce books, papers, correspondence, memoranda, contracts,

agreements, or other records, if in his or its power so to do, in obe-

dience to the subpena of the Commission, shall be guilty of a mis-

demeanor, and upon conviction shall be subject to a fine of not

more than $1,000 or to imprisonment for a term of not more than

one year, or both.

(d) Whenever it shall appear to the Commission that any per-

son has engaged or is about to engage in any act or practice consti-

tuting a violation of any provision of this title, or of any rule, regu-

lation, or order hereunder, it may in its discretion bring an action

in the proper district court of the United States, or the proper

United States court of any Territory or other place subject to the

jurisdiction of the United States, to enjoin such acts or practices

and to enforce compliance with this title or any rule, regulation, or

order hereunder. Upon a showing that such person has engaged or

is about to engage in any such act or practice, a permanent or tem-

porary injunction or decree or restraining order shall be granted

without bond. In any proceeding under this subsection to enforce

compliance with section 7, the court as a court of equity may, to

the extent it deems necessary or appropriate, take exclusive juris-

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diction and possession of the investment company or companies in-

volved and the books, records, and assets thereof, wherever located;

and the court shall have jurisdiction to appoint a trustee, who with

the approval of the court shall have power to dispose of any or all

of such assets, subject to such terms and conditions as the court

may prescribe. The Commission may transmit such evidence as

may be available concerning any violation of the provisions of this

title, or of any rule, regulation, or order thereunder, to the Attor-

ney General, who, in his discretion, may institute the appropriate

criminal proceedings under this title.

(e) M

ONEY

ENALTIES IN

IVIL

CTIONS

.—

(1) A

UTHORITY OF COMMISSION

.—Whenever it shall appear

to the Commission that any person has violated any provision

of this title, the rules or regulations thereunder, or a cease-

and-desist order entered by the Commission pursuant to sec-

tion 9(f) of this title, the Commission may bring an action in

a United States district court to seek, and the court shall have

jurisdiction to impose, upon a proper showing, a civil penalty

to be paid by the person who committed such violation.

(2) A

MOUNT OF PENALTY

.—

(A) F

IRST TIER

.—The amount of the penalty shall be

determined by the court in light of the facts and cir-

cumstances. For each violation, the amount of the penalty

shall not exceed the greater of (i) $5,000 for a natural per-

son or $50,000 for any other person, or (ii) the gross

amount of pecuniary gain to such defendant as a result of

the violation.

(B) S

ECOND TIER

.—Notwithstanding subparagraph (A),

the amount of penalty for each such violation shall not ex-

ceed the greater of (i) $50,000 for a natural person or

$250,000 for any other person, or (ii) the gross amount of

pecuniary gain to such defendant as a result of the viola-

tion, if the violation described in paragraph (1) involved

fraud, deceit, manipulation, or deliberate or reckless dis-

regard of a regulatory requirement.

HIRD TIER

.—Notwithstanding subparagraphs (A)

and (B), the amount of penalty for each such violation

shall not exceed the greater of (i) $100,000 for a natural

person or $500,000 for any other person, or (ii) the gross

amount of pecuniary gain to such defendant as a result of

the violation, if—

(I) the violation described in paragraph (1) in-

volved fraud, deceit, manipulation, or deliberate or

reckless disregard of a regulatory requirement; and

(II) such violation directly or indirectly resulted in

substantial losses or created a significant risk of sub-

stantial losses to other persons.

(3) P

ROCEDURES FOR COLLECTION

.—

(A) P

AYMENT OF PENALTY TO TREASURY

.—A penalty

imposed under this section shall be payable into the Treas-

ury of the United States, except as otherwise provided in

section 308 of the Sarbanes-Oxley Act of 2002 and section

21F of the Securities Exchange Act of 1934.

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(B) C

OLLECTION OF PENALTIES

.—If a person upon

whom such a penalty is imposed shall fail to pay such pen-

alty within the time prescribed in the court’s order, the

Commission may refer the matter to the Attorney General

who shall recover such penalty by action in the appro-

priate United States district court.

EMEDY NOT EXCLUSIVE

.—The actions authorized

by this subsection may be brought in addition to any other

action that the Commission or the Attorney General is en-

titled to bring.

(D) J

URISDICTION AND VENUE

.—For purposes of section

44 of this title, actions under this paragraph shall be ac-

tions to enforce a liability or a duty created by this title.

(4) S

PECIAL PROVISIONS RELATING TO A VIOLATION OF A

CEASE

AND

DESIST ORDER

.—In an action to enforce a cease-and-

desist order entered by the Commission pursuant to section

9(f), each separate violation of such order shall be a separate

offense, except that in the case of a violation through a con-

tinuing failure to comply with the order, each day of the failure

to comply shall be deemed a separate offense.

COURT REVIEW OF ORDERS

. 43. ø80a–42¿ (a) Any person or party aggrieved by an

order issued by the Commission under this title may obtain a re-

view of such order in the court of appeals of the United States

within any circuit wherein such person resides or has his principal

place of business, or in the United States Court of Appeals for the

District of Columbia, by filing in such court, within sixty days after

the entry of such order, a written petition praying that the order

of the Commission be modified or set aside in whole or in part. A

copy of such petition shall be forthwith transmitted by the clerk of

the court to any member of the Commission or any officer thereof

designated by the Commission for that purpose, and thereupon the

Commission shall file in the court the record upon which the order

complained of was entered, as provided in section 2112 of title 28,

United States Code. Upon the filing of such petition such court

shall have jurisdiction, which upon the filing of the record shall be

exclusive, to affirm, modify, or set aside such order, in whole or in

part. No objection to the order of the Commission shall be consid-

ered by the court unless such objection shall have been urged be-

fore the Commission or unless there were reasonable grounds for

failure so to do. The findings of the Commission as to the facts, if

supported by substantial evidence, shall be conclusive. If applica-

tion is made to the court for leave to adduce additional evidence,

and it is shown to the satisfaction of the court that such additional

evidence is material and that there were reasonable grounds for

failure to adduce such evidence in the proceeding before the Com-

mission, the court may order such additional evidence to be taken

before the Commission and to be adduced upon the hearing in such

manner and upon such terms and conditions as to the court may

seem proper. The Commission may modify its findings as to the

facts by reason of the additional evidence so taken, and it shall file

with the court such modified or new findings, which, if supported

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97 Sec. 44 INVESTMENT COMPANY ACT OF 1940

by substantial evidence, shall be conclusive, and its recommenda-

tion, if any, for the modification or setting aside of the original

order. The judgment and decree of the court affirming, modifying,

or setting aside, in whole or in part, any such order of the Commis-

sion shall be final, subject to review by the Supreme Court of the

United States upon certiorari or certification as provided in section

1254 of title 28, United States Code.

(b) The commencement of proceedings under subsection (a) to

review an order of the Commission issued under section 8(e) shall

operate as a stay of the Commission’s order unless the court other-

wise orders. The commencement of proceedings under subsection

(a) to review an order of the Commission issued under any provi-

sion of this title other than section 8(e) shall not operate as a stay

of the Commission’s order unless the court specifically so orders.

JURISDICTION OF OFFENSES AND SUITS

. 44. ø80a–43¿ The district courts of the United States and

the United States courts of any Territory or other place subject to

the jurisdiction of the United States shall have jurisdiction of viola-

tions of this title or the rules, regulations, or orders thereunder,

and, concurrently with State and Territorial courts, of all suits in

equity and actions at law brought to enforce any liability or duty

created by, or to enjoin any violation of, this title or the rules, regu-

lations, or orders thereunder. Any criminal proceeding may be

brought in the district wherein any act or transaction constituting

the violation occurred. A criminal proceeding based upon a viola-

tion of section 34, or upon a failure to file a report or other docu-

ment required to be filed under this title, may be brought in the

district wherein the defendant is an inhabitant or maintains his

principal office or place of business. Any suit or action to enforce

any liability or duty created by, or to enjoin any violation of, this

title or rules, regulations, or orders thereunder, may be brought in

any such district or in the district wherein the defendant is an in-

habitant or transacts business, and process in such cases may be

served in any district of which the defendant is an inhabitant or

transacts business or wherever the defendant may be found. In any

action or proceeding instituted by the Commission under this title

in a United States district court for any judicial district, a sub-

poena issued to compel the attendance of a witness or the produc-

tion of documents or tangible things (or both) at a hearing or trial

may be served at any place within the United States. Rule

45(c)(3)(A)(ii) of the Federal Rules of Civil Procedure shall not

apply to a subpoena issued under the preceding sentence. Judg-

ments and decrees so rendered shall be subject to review as pro-

vided in sections 1254, 1291, 1292, and 1294 of title 28, United

States Code. No costs shall be assesssed for or against the Commis-

sion in any proceeding under this title brought by or against the

Commission in any court. The Commission may intervene as a

party in any action or suit to enforce any liability or duty created

by, or to enjoin any noncompliance with, section 36(b) of this title

at any stage of such action or suit prior to final judgment therein.

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98 Sec. 45 INVESTMENT COMPANY ACT OF 1940

INFORMATION FILED WITH COMMISSION

. 45. ø80a–44¿ (a) The information contained in any reg-

istration statement, application, report, or other document filed

with the Commission pursuant to any provision of this title or of

any rule or regulation thereunder (as distinguished from any infor-

mation or document transmitted to the Commission) shall be made

available to the public, unless and except insofar as the Commis-

sion, by rules and regulations upon its own motion, or by order

upon application, finds that public disclosure is neither necessary

nor appropriate in the public interest or for the protection of inves-

tors. Except as provided in section 24(c) of the Securities Exchange

Act of 1934, it shall be unlawful for any member, officer, or em-

ployee of the Commission to use for personal benefit, or to disclose

to any person other than an official or employee of the United

States or of a State, for official use, or for any such official or em-

ployee to use for personal benefit, any information contained in any

document so filed or transmitted, if such information is not avail-

able to the public.

(b) Photostatic or other copies of information contained in docu-

ments filed with the Commission under this title and made avail-

able to the public shall be furnished any person at such reasonable

charge and under such reasonable limitations as the Commission

shall prescribe.

ANNUAL REPORTS OF COMMISSION

;

EMPLOYEES OF THE COMMISSION

. 46. ø80a–45¿ (a) The Commission shall submit annually

a report to the Congress covering the work of the Commission for

the preceding year and including such information, data, and rec-

ommendations for further legislation in connection with the mat-

ters covered by this title as it may find advisable.

(b) The provisions of section 4(b) of the Securities Exchange

Act of 1934 shall be applicable with respect to the power of the

Commission—

(1) to appoint and fix the compensation of such employees

as may be necessary for carrying out its functions under this

title, and

(2) to lease and allocate such real property as may be nec-

essary for carrying out its functions under this title.

VALIDITY OF CONTRACTS

. 47. ø80a–46¿ (a) Any condition, stipulation, or provision

binding any person to waive compliance with any provision of this

title or with any rule, regulation, or order thereunder shall be void.

(b)(1) A contract that is made, or whose performance involves,

a violation of this title, or of any rule, regulation, or order there-

under, is unenforceable by either party (or by a nonparty to the

contract who acquired a right under the contract with knowledge

of the facts by reason of which the making or performance violated

or would violate any provision of this title or of any rule, regula-

tion, or order thereunder) unless a court finds that under the cir-

cumstances enforcement would produce a more equitable result

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As Amended Through P.L. 117-263, Enacted December 23, 2022

99 Sec. 50 INVESTMENT COMPANY ACT OF 1940

See also 18 U.S.C. 3571. øPrinted in appendix to this volume.¿

than nonenforcement and would not be inconsistent with the pur-

poses of this title.

(2) To the extent that a contract described in paragraph (1) has

been performed, a court may not deny rescission at the instance of

any party unless such court finds that under the circumstances the

denial of rescission would produce a more equitable result than its

grant and would not be inconsistent with the purposes of this title.

(3) This subsection shall not apply (A) to the lawful portion of

a contract to the extent that it may be severed from the unlawful

portion of the contract, or (B) to preclude recovery against any per-

son for unjust enrichment.

LIABILITY OF CONTROLLING PERSONS

;

PREVENTING COMPLIANCE WITH

TITLE

. 48. ø80a–47¿ (a) It shall be unlawful for any person, di-

rectly or indirectly, to cause to be done any act or thing through

or by means of any other person which it would be unlawful for

such person to do under the provisions of this title or any rule, reg-

ulation, or order thereunder.

(b) For purposes of any action brought by the Commission

under subsection (d) or (e) of section 42, any person that knowingly

or recklessly provides substantial assistance to another person in

violation of a provision of this Act, or of any rule or regulation

issued under this Act, shall be deemed to be in violation of such

provision to the same extent as the person to whom such assistance

is provided.

hinder, delay, or obstruct the making, filing, or keeping of any in-

formation, document, report, record, or account required to be

made, filed, or kept under any provision of this title or any rule,

regulation, or order thereunder.

PENALTIES

. 49. ø80a–48¿ Any person who willfully violates any provi-

sion of this title or of any rule, regulation, or order hereunder, or

any person who willfully in any registration statement, application,

report, account, record, or other document filed or transmitted pur-

suant to this title or the keeping of which is required pursuant to

section 31(a) makes any untrue statement of a material fact or

omits to state any material fact necessary in order to prevent the

statements made therein from being materially misleading in the

light of the circumstances under which they were made, shall upon

conviction be fined not more than $10,000 or imprisoned not more

than five years, or both; but no person shall be convicted under this

section for the violation of any rule, regulation, or order if he

proves that he had no actual knowledge of such rule, regulation,

or order.

EFFECT ON EXISTING LAW

. 50. ø80a–49¿ Except where specific provision is made to

the contrary, nothing in this title shall affect (1) the jurisdiction of

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100 Sec. 51 INVESTMENT COMPANY ACT OF 1940

the Commission under the Securities Act of 1933, the Securities

Exchange Act of 1934, the Trust Indenture Act of 1939, or title II

of this Act, over any person, security, or transaction, or (2) the

rights, obligations, duties, or liabilities of any person under such

Acts; nor shall anything in this title affect the jurisdiction of any

other commission, board, agency, or officer of the United States or

of any State or political subdivision of any State, over any person,

security, or transaction, insofar as such jurisdiction does not con-

flict with any provision of this title or of any rule, regulation, or

order hereunder.

SEPARABILITY OF PROVISIONS

. 51. ø80a–50¿ If any provision of this title or any provision

incorporated in this title by reference, or the application of any

such provision to any person or circumstances, shall be held in-

valid, the remainder of this title and the application of any such

provision to person or circumstances other than those as to which

it is held invalid shall not be affected thereby.

SHORT TITLE

. 52. ø80a–51¿ This title may be cited as the ‘‘Investment

Company Act of 1940’’.

EFFECTIVE DATE

. 53. ø80a–52¿ The effective date of the provisions of this

title, so far as the same relate to face-amount certificates or to face-

amount certificate companies, is January 1, 1941. The effective

date of provisions hereof, insofar as the same do not apply to face-

amount certificates or face-amount certificate companies, is Novem-

ber 1, 1940. Except as herein otherwise provided, every provision

of this title shall take effect on November 1, 1940.

ELECTION TO BE REGULATED AS A BUSINESS DEVELOPMENT COMPANY

. 54. ø80a–53¿ (a) Any company defined in section 2(a)(48)

(A) and (B) may elect to be subject to the provisions of sections 55

through 65 by filing with the Commission a notification of election,

if such company—

(1) has a class of its equity securities registered under sec-

tion 12 of the Securities Exchange Act of 1934; or

(2) has filed a registration statement pursuant to section

12 of the Securities Exchange Act of 1934 for a class of its eq-

uity securities.

(b) The Commission may, by rule, prescribe the form and man-

ner in which notification of election under this section shall be

given. A business development company shall be deemed to be sub-

ject to sections 55 through 65 upon receipt by the Commission of

such notification of election.

application, that a business development company which has filed

a notification of election pursuant to subsection (a) of this section

has ceased to engage in business, the Commission shall so declare

by order revoking such company’s election. Any business develop-

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101 Sec. 55 INVESTMENT COMPANY ACT OF 1940

ment company may voluntarily withdraw its election under sub-

section (a) by filing a notice of withdrawal of election with the

Commission, in a form and manner which the Commission may, by

rule, prescribe. Such withdrawal shall be effective immediately

upon receipt by the Commission.

FUNCTIONS AND ACTIVITIES OF BUSINESS DEVELOPMENT COMPANIES

. 55. ø80a–54¿ (a) It shall be unlawful for a business devel-

opment company to acquire any assets (other than those described

in paragraphs (1) through (7) of this subsection) unless, at the time

the acquisition is made, assets described in paragraphs (1) through

(6) below represent at least 70 per centum of the value of its total

assets (other than assets described in paragraph (7) below):

(1) securities purchased, in transactions not involving any

public offering or in such other transactions as the Commission

may, by rule, prescribe if it finds that enforcement of this title

and of the Securities Act of 1933 with respect to such trans-

actions is not necessary in the public interest or for the protec-

tion of investors by reason of the small amount, or the limited

nature of the public offering, involved in such transactions—

(A) from the issuer of such securities, which issuer is

an eligible portfolio company, from any person who is, or

who within the preceding thirteen months has been, an af-

filiated person of such eligible portfolio company, or from

any other person, subject to such rules and regulations as

the Commission may prescribe as necessary or appropriate

in the public interest or for the protection of investors; or

(B) from the issuer of such securities, which issuer is

described in section 2(a)(46) (A) and (B) but is not an eligi-

ble portfolio company because it has issued a class of secu-

rities with respect to which a member of a national securi-

ties exchange, broker, or dealer may extend or maintain

credit to or for a customer pursuant to rules or regulations

adopted by the Board of Governors of the Federal Reserve

System under section 7 of the Securities Exchange Act of

1934, or from any person who is an officer or employee of

such issuer, if—

(i) at the time of the purchase, the business devel-

opment company owns at least 50 per centum of—

(I) the greatest number of equity securities of

such issuer and securities convertible into or ex-

changeable for such securities; and

(II) the greatest amount of debt securities of

such issuer,

held by such business development company at any

point in time during the period when such issuer was

an eligible portfolio company, except that options, war-

rants, and similar securities which have by their

terms expired and debt securities which have been

converted, or repaid or prepaid in the ordinary course

of business or incident to a public offering of securities

of such issuer, shall not be considered to have been

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102 Sec. 55 INVESTMENT COMPANY ACT OF 1940

held by such business development company for pur-

poses of this requirement; and

(ii) the business development company is one of

the 20 largest holders of record of such issuer’s out-

standing voting securities;

(2) securities of any eligible portfolio company with respect

to which the business development company satisfies the re-

quirements of section 2(a)(46)(C)(ii);

(3) securities purchased in transactions not involving any

public offering from an issuer described in sections 2(a)(46) (A)

and (B) or from a person who is, or who within the preceding

thirteen months has been, an affiliated person of such issuer,

or from any person in transactions incident thereto, if such se-

curities were—

(A) issued by an issuer that is, or was immediately

prior to the purchase of its securities by the business de-

velopment company, in bankruptcy proceedings, subject to

reorganization under the supervision of a court of com-

petent jurisdiction, or subject to a plan or arrangement re-

sulting from such bankruptcy proceedings or reorganiza-

tion;

(B) issued by an issuer pursuant to or in consumma-

tion of such a plan or arrangement; or

purchase of such issuer’s securities by the business devel-

opment company, was not in bankruptcy proceedings but

was unable to meet its obligations as they came due with-

out material assistance other than conventional lending or

financing arrangements;

(4) securities of eligible portfolio companies purchased

from any person in transactions not involving any public offer-

ing, if there is no ready market for such securities and if im-

mediately prior to such purchase the business development

company owns at least 60 per centum of the outstanding equity

securities of such issuer (giving effect to all securities presently

convertible into or exchangeable for equity securities of such

issuer as if such securities were so converted or exchanged);

(5) securities received in exchange for or distributed on or

with respect to securities described in paragraphs (1) through

(4) of this subsection, or pursuant to the exercise of options,

warrants, or rights relating to securities described in such

paragraphs;

(6) cash, cash items, Government securities, or high qual-

ity debt securities maturing in one year or less from the time

of investment in such high quality debt securities; and

(7) office furniture and equipment, interests in real estate

and leasehold improvements and facilities maintained to con-

duct the business operations of the business development com-

pany, deferred organization and operating expenses, and other

noninvestment assets necessary and appropriate to its oper-

ations as a business development company, including notes of

indebtedness of directors, officers, employees, and general part-

ners held by a business development company as payment for

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103 Sec. 57 INVESTMENT COMPANY ACT OF 1940

securities of such company issued in connection with an execu-

tive compensation plan described in section 57(j).

(b) For purposes of this section, the value of a business devel-

opment company’s assets shall be determined as of the date of the

most recent financial statements filed by such company with the

Commission pursuant to section 13 of the Securities Exchange Act

of 1934, and shall be determined no less frequently than annually.

QUALIFICATIONS OF DIRECTORS

. 56. ø80a–55¿ (a) A majority of a business development

company’s directors or general partners shall be persons who are

not interested persons of such company.

(b) If, by reason of the death, disqualification, or bona fide res-

ignation of any director or general partner, a business development

company does not meet the requirements of subsection (a) of this

section, or the requirements of section 15(f)(1) of this title with re-

spect to directors, the operation of such provisions shall be sus-

pended for a period of 90 days or for such longer period as the

Commission may prescribe, upon its own motion or by order upon

application, as not inconsistent with the protection of investors.

TRANSACTIONS WITH CERTAIN AFFILIATES

. 57. ø80a–56¿ (a) It shall be unlawful for any person who

is related to a business development company in a manner de-

scribed in subsection (b) of this section, acting as principal—

(1) knowingly to sell any security or other property to such

business development company or to any company controlled

by such business development company, unless such sale in-

volves solely (A) securities of which the buyer is the issuer, or

(B) securities of which the seller is the issuer and which are

part of a general offering to the holders of a class of its securi-

ties;

(2) knowingly to purchase from such business development

company or from any company controlled by such business de-

velopment company, any security or other property (except se-

curities of which the seller is the issuer);

(3) knowingly to borrow money or other property from such

business development company or from any company con-

trolled by such business development company (unless the bor-

rower is controlled by the lender), except as permitted in sec-

tion 21(b) or section 62; or

(4) knowingly to effect any transaction in which such busi-

ness development company or a company controlled by such

business development company is a joint or a joint and several

participant with such person in contravention of such rules

and regulations as the Commission may prescribe for the pur-

pose of limiting or preventing participation by such business

development company or controlled company on a basis less

advantageous than that of such person, except that nothing

contained in this paragraph shall be deemed to preclude any

person from acting as manager of any underwriting syndicate

or other group in which such business development company or

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104 Sec. 57 INVESTMENT COMPANY ACT OF 1940

controlled company is a participant and receiving compensa-

tion therefor.

(b) The provisions of subsection (a) of this section shall apply

to the following persons:

(1) Any director, officer, employee, or member of an advi-

sory board of a business development company or any person

(other than the business development company itself) who is,

within the meaning of section 2(a)(3)(C) of this title, an affili-

ated person of any such person specified in this paragraph.

(2) Any investment adviser or promoter of, general partner

in, principal underwriter for, or person directly or indirectly ei-

ther controlling, controlled by, or under common control with,

a business development company (except the business develop-

ment company itself and any person who, if it were not directly

or indirectly controlled by the business development company,

would not be directly or indirectly under the control of a person

who controls the business development company), or any per-

son who is, within the meaning of section 2(a)(3) (C) or (D), an

affiliated person of any such person specified in this para-

graph.

(a), any person may file with the Commission an application for an

order exempting a proposed transaction of the applicant from one

or more provisions of such paragraphs. The Commission shall grant

such application and issue such order of exemption if evidence es-

tablishes that—

(1) the terms of the proposed transaction, including the

consideration to be paid or received, are reasonable and fair

and do not involve overreaching of the business development

company or its shareholders or partners on the part of any per-

son concerned;

(2) the proposed transaction is consistent with the policy

of the business development company as recited in the filings

made by such company with the Commission under the Securi-

ties Act of 1933, its registration statement and reports filed

under the Securities Exchange Act of 1934, and its reports to

shareholders or partners; and

(3) the proposed transaction is consistent with the general

purposes of this title.

(d) It shall be unlawful for any person who is related to a busi-

ness development company in the manner described in subsection

(e) of this section and who is not subject to the prohibitions of sub-

section (a) of this section, acting as principal—

(1) knowingly to sell any security or other property to such

business development company or to any company controlled

by such business development company, unless such sale in-

volves solely (A) securities of which the buyer is the issuer, or

(B) securities of which the seller is the issuer and which are

part of a general offering to the holders of a class of its securi-

ties;

(2) knowingly to purchase from such business development

company or from any company controlled by such business de-

velopment company, any security or other property (except se-

curities of which the seller is the issuer);

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105 Sec. 57 INVESTMENT COMPANY ACT OF 1940

(3) knowingly to borrow money or other property from such

business development company or from any company con-

trolled by such business development company (unless the bor-

rower is controlled by the lender), except as permitted in sec-

tion 21(b); or

(4) knowingly to effect any transaction in which such busi-

ness development company or a company controlled by such

business development company is a joint or a joint and several

participant with such affiliated person in contravention of such

rules and regulations as the Commission may prescribe for the

purpose of limiting or preventing participation by such busi-

ness development company or controlled company on a basis

less advantageous than that of such affiliated person, except

that nothing contained in this paragraph shall be deemed to

preclude any person from acting as manager of any under-

writing syndicate or other group in which such business devel-

opment company or controlled company is a participant and re-

ceiving compensation therefor.

(e) The provisions of subsection (d) of this section shall apply

to the following persons:

(1) Any person (A) who is, within the meaning of section

2(a)(3)(A), an affiliated person of a business development com-

pany, (B) who is an executive officer or a director of, or general

partner in, any such affiliated person, or (C) who directly or in-

directly either controls, is controlled by, or is under common

control with, such affiliated person.

(2) Any person who is an affiliated person of a director, of-

ficer, employee, investment adviser, member of an advisory

board or promoter of, principal underwriter for, general part-

ner in, or an affiliated person of any person directly or indi-

rectly either controlling or under common control with a busi-

ness development company (except the business development

company itself and any person who, if it were not directly or

indirectly controlled by the business development company,

would not be directly or indirectly under the control of a person

who controls the business development company).

For purposes of this subsection, the term ‘‘executive officer’’ means

the president, secretary, treasurer, any vice president in charge of

a principal business function, and any other person who performs

similar policymaking functions.

(f) Notwithstanding subsection (d) of this section, a person de-

scribed in subsection (e) may engage in a proposed transaction de-

scribed in subsection (d) if such proposed transaction is approved

by the required majority (as defined in subsection (o)) of the direc-

tors of or general partners in the business development company

on the basis that—

(1) the terms thereof, including the consideration to be

paid or received, are reasonable and fair to the shareholders or

partners of the business development company and do not in-

volve overreaching of such company or its shareholders or part-

ners on the part of any person concerned;

(2) the proposed transaction is consistent with the inter-

ests of the shareholders or partners of the business develop-

ment company and is consistent with the policy of such com-

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106 Sec. 57 INVESTMENT COMPANY ACT OF 1940

pany as recited in filings made by such company with the Com-

mission under the Securities Act of 1933, its registration state-

ment and reports filed under the Securities Exchange Act of

1934, and its reports to shareholders or partners; and

(3) the directors or general partners record in their min-

utes and preserve in their records, for such periods as if such

records were required to be maintained pursuant to section

31(a), a description of such transaction, their findings, the in-

formation or materials upon which their findings were based,

and the basis therefor.

(g) Notwithstanding subsection (a) or (d), a person may, in the

ordinary course of business, sell to or purchase from any company

merchandise or may enter into a lessor-lessee relationship with any

person and furnish the services incident thereto.

(h) The directors of or general partners in any business devel-

opment company shall adopt, and periodically review and update

as appropriate, procedures reasonably designed to ensure that rea-

sonable inquiry is made, prior to the consummation of any trans-

action in which such business development company or a company

controlled by such business development company proposes to par-

ticipate, with respect to the possible involvement in the transaction

of persons described in subsections (b) and (e) of this section.

(i) Until the adoption by the Commission of rules or regula-

tions under subsections (a) and (d) of this section, the rules and

regulations of the Commission under subsections (a) and (d) of sec-

tion 17 applicable to registered closed-end investment companies

shall be deemed to apply to transactions subject to subsections (a)

and (d) of this section. Any rules or regulations adopted by the

Commission to implement this section shall be no more restrictive

than the rules or regulations adopted by the Commission under

subsections (a) and (d) of section 17 that are applicable to all reg-

istered closed-end investment companies.

(j) Notwithstanding subsections (a) and (d) of this section, any

director, officer, or employee of, or general partner in, a business

development company may—

(1) acquire warrants, options, and rights to purchase vot-

ing securities of such business development company, and se-

curities issued upon the exercise or conversion thereof, pursu-

ant to an executive compensation plan offered by such com-

pany which meets the requirements of section 61(a)(4)(B); and

(2) borrow money from such business development com-

pany for the purpose of purchasing securities issued by such

company pursuant to an executive compensation plan, if each

such loan—

(A) has a term of not more than ten years;

(B) becomes due within a reasonable time, not to ex-

ceed sixty days, after the termination of such person’s em-

ployment or service;

applicable to 90-day United States Treasury bills at the

time the loan is made;

(D) at all times is fully collateralized (such collateral

may include any securities issued by such business devel-

opment company); and

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107 Sec. 57 INVESTMENT COMPANY ACT OF 1940

(E)(i) in the case of a loan to any officer or employee

of such business development company (including any offi-

cer or employee who is also a director of such company),

is approved by the required majority (as defined in sub-

section (o)) of the directors of or general partners in such

company on the basis that the loan is in the best interests

of such company and its shareholders or partners; or

(ii) in the case of a loan to any director of such busi-

ness development company who is not also an officer or

employee of such company, or to any general partner in

such company, is approved by order of the Commission,

upon application, on the basis that the terms of the loan

are fair and reasonable and do not involve overreaching of

such company or its shareholders or partners.

(k) It shall be unlawful for any person described in subsection

(l)—

(1) acting as agent, to accept from any source any com-

pensation (other than a regular salary or wages from the busi-

ness development company) for the purchase or sale of any

property to or for such business development company or any

controlled company thereof, except in the course of such per-

son’s business as an underwriter or broker; or

(2) acting as broker, in connection with the sale of securi-

ties to or by the business development company or any con-

trolled company thereof, to receive from any source a commis-

sion, fee, or other remuneration for effecting such transaction

which exceeds—

(A) the usual and customary broker’s commission if

the sale is effected on a securities exchange;

(B) 2 per centum of the sales price if the sale is ef-

fected in connection with a secondary distribution of such

securities; or

securities if the sale is otherwise effected,

unless the Commission, by rules and regulations or order in the

public interest and consistent with the protection of investors, per-

mits a larger commission.

(l) The provisions of subsection (k) of this section shall apply

to the following persons:

(1) Any affiliated person of a business development com-

pany.

(2)(A) Any person who is, within the meaning of section

2(a)(3) (B), (C), or (D), an affiliated person of any director, offi-

cer, employee, or member of an advisory board of the business

development company.

(B) Any person who is, within the meaning of section

2(a)(3) (A), (B), (C), or (D), an affiliated person of any invest-

ment adviser of, general partner in, or person directly or indi-

rectly either controlling, controlled by, or under common con-

trol with, the business development company.

2(a)(3)(C), an affiliated person of any person who is an affili-

ated person of the business development company within the

meaning of section 2(a)(3)(A).

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108 Sec. 57 INVESTMENT COMPANY ACT OF 1940

(m) For purposes of subsections (a) and (d), a person who is a

director, officer, or employee of a party to a transaction and who

receives his usual and ordinary fee or salary for usual and cus-

tomary services as a director, officer, or employee from such party

shall not be deemed to have a financial interest or to participate

in the transaction solely by reason of his receipt of such fee or sal-

ary.

(n)(1) Notwithstanding subsection (a)(4) of this section, a busi-

ness development company may establish and maintain a profit-

sharing plan for its directors, officers, employees, and general part-

ners and such directors, officers, employees, and general partners

may participate in such profit-sharing plan, if—

(A)(i) in the case of a profit-sharing plan for officers and

employees of the business development company (including any

officer or employee who is also a director of such company),

such profit-sharing plan is approved by the required majority

(as defined in subsection (o)) of the directors of or general part-

ners in such company on the basis that such plan is reasonable

and fair to the shareholders or partners of such company, does

not involve overreaching of such company or its shareholders

or partners on the part of any person concerned, and is con-

sistent with the interests of the shareholders or partners of

such company; or

(ii) in the case of a profit-sharing plan which includes one

or more directors of the business development company who

are not also officers or employees of such company, or one or

more general partners in such company, such profit-sharing

plan is approved by order of the Commission, upon application,

on the basis that such plan is reasonable and fair to the share-

holders or partners of such company, does not involve over-

reaching of such company or its shareholders or partners on

the part of any person concerned, and is consistent with the in-

terests of the shareholders or partners of such company; and

(B) the aggregate amount of benefits which would be paid

or accrued under such plan shall not exceed 20 per centum of

the business development company’s net income after taxes in

any fiscal year.

(2) This subsection may not be used where the business devel-

opment company has outstanding any stock option, warrant, or

right issued as part of an executive compensation plan, including

a plan pursuant to section 61(a)(4)(B), or has an investment ad-

viser registered or required to be registered under title II of this

Act.

(o) The term ‘‘required majority’’, when used with respect to

the approval of a proposed transaction, plan, or arrangement,

means both a majority of a business development company’s direc-

tors or general partners who have no financial interest in such

transaction, plan, or arrangement and a majority of such directors

or general partners who are not interested persons of such com-

pany.

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109 Sec. 61 INVESTMENT COMPANY ACT OF 1940

CHANGES IN INVESTMENT POLICY

. 58. ø80a–57¿ No business development company shall,

unless authorized by the vote of a majority of its outstanding vot-

ing securities or partnership interests, change the nature of its

business so as to cease to be, or to withdraw its election as, a busi-

ness development company.

INCORPORATION OF PROVISIONS

. 59. ø80a–58¿ Notwithstanding the exemption set forth in

section 6(f), sections 1, 2, 3, 4, 5, 6, 9, 10(f), 15 (a), (c), and (f),

16(b), 17 (f) through (j), 19(a), 20(b), 32 (a) and (c), 33 through 47,

and 49 through 53 of this title shall apply to a business develop-

ment company to the same extent as if it were a registered closed-

end investment company.

FUNCTIONS AND ACTIVITIES OF BUSINESS DEVELOPMENT COMPANIES

. 60. ø80a–59¿ Notwithstanding the exemption set forth in

section 6(f), section 12 shall apply to a business development com-

pany to the same extent as if it were a registered closed-end invest-

ment company, except that the Commission shall not prescribe any

rule, regulation, or order pursuant to section 12(a)(1) governing the

circumstances in which a business development company may bor-

row from a bank in order to purchase any security.

CAPITAL STRUCTURE

. 61. ø80a–60¿ (a) Notwithstanding the exemption set forth

in section 6(f), section 18 shall apply to a business development

company to the same extent as if it were a registered closed-end

investment company, except as follows:

(1) Except as provided in paragraph (2), the asset coverage

requirements of subparagraphs (A) and (B) of section 18(a)(1)

(and any related rule promulgated under this Act) applicable

to business development companies shall be 200 percent.

(2) The asset coverage requirements of subparagraphs (A)

and (B) of section 18(a)(1) and of subparagraphs (A) and (B) of

section 18(a)(2) (and any related rule promulgated under this

Act) applicable to a business development company shall be

150 percent if—

(A) not later than 5 business days after the date on

which those asset coverage requirements are approved

under subparagraph (D) of this paragraph, the business

development company discloses that the requirements

were approved, and the effective date of the approval, in—

(i) any filing submitted to the Commission under

section 13(a) or 15(d) of the Securities Exchange Act

of 1934 (15 U.S.C. 78m(a); 78o(d)); and

(ii) a notice on the website of the business devel-

opment company;

(B) the business development company discloses, in

each periodic filing required under section 13(a) of the Se-

curities Exchange Act of 1934 (15 U.S.C. 78m(a))—

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110 Sec. 61 INVESTMENT COMPANY ACT OF 1940

(i) the aggregate outstanding principal amount or

liquidation preference, as applicable, of the senior se-

curities issued by the business development company

and the asset coverage percentage as of the date of the

business development company’s most recent financial

statements included in that filing;

(ii) that the business development company, under

subparagraph (D), has approved the asset coverage re-

quirements under this paragraph; and

(iii) the effective date of the approval described in

clause (ii);

that is an issuer of common equity securities, each periodic

filing of the company required under section 13(a) of the

Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) in-

cludes disclosures that are reasonably designed to ensure

that shareholders are informed of—

(i) the amount of senior securities (and the associ-

ated asset coverage ratios) of the company, determined

as of the date of the most recent financial statements

of the company included in that filing; and

(ii) the principal risk factors associated with the

senior securities described in clause (i), to the extent

that risk is incurred by the company; and

(D) the company—

(i)(I) through a vote of the required majority (as

defined in section 57(o)), approves the application of

this paragraph to the company, to become effective on

the date that is 1 year after the date of the approval;

(II) obtains, at a special or annual meeting of

shareholders or partners at which a quorum is

present, the approval of more than 50 percent of the

votes cast for the application of this paragraph to the

company, to become effective on the first day after the

date of the approval; and

(ii) if the company is not an issuer of common eq-

uity securities that are listed on a national securities

exchange, extends, to each person that is a share-

holder as of the date of an approval described in sub-

clause (I) or (II) of clause (i), as applicable, the oppor-

tunity (which may include a tender offer) to sell the

securities held by that shareholder as of that applica-

ble approval date, with 25 percent of those securities

to be repurchased in each of the 4 calendar quarters

following the calendar quarter in which that applica-

ble approval date takes place.

(3) Notwithstanding section 18(c), a business development

company may issue more than one class of senior security rep-

resenting indebtedness.

(4) Notwithstanding section 18(d)—

(A) a business development company may issue war-

rants, options, or rights to subscribe or convert to voting

securities of such company, accompanied by securities, if—

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111 Sec. 61 INVESTMENT COMPANY ACT OF 1940

(i) such warrants, options, or rights expire by

their terms within ten years;

(ii) such warrants, options, or rights are not sepa-

rately transferable unless no class of such warrants,

options, or rights and the securities accompanying

them has been publicly distributed;

(iii) the exercise or conversion price is not less

than the current market value at the date of issuance,

or if no such market value exists, the current net asset

value of such voting securities; and

(iv) the proposal to issue such securities is author-

ized by the shareholders or partners of such business

development company, and such issuance is approved

by the required majority (as defined in section 57(o))

of the directors of or general partners in such company

on the basis that such issuance is in the best interests

of such company and its shareholders or partners;

(B) a business development company may issue, to its

directors, officers, employees, and general partners, war-

rants, options, and rights to purchase voting securities of

such company pursuant to an executive compensation

plan, if—

(i)(I) in the case of warrants, options, or rights

issued to any officer or employee of such business de-

velopment company (including any officer or employee

who is also a director of such company), such securi-

ties satisfy the conditions in clauses (i), (iii), and (iv)

of subparagraph (A); or (II) in the case of warrants,

options, or rights issued to any director of such busi-

ness development company who is not also an officer

or employee of such company, or to any general part-

ner in such company, the proposal to issue such secu-

rities satisfies the conditions in clauses (i) and (iii) of

subparagraph (A), is authorized by the shareholders or

partners of such company, and is approved by order of

the Commission, upon application, on the basis that

the terms of the proposal are fair and reasonable and

do not involve overreaching of such company or its

shareholders or partners;

(ii) such securities are not transferable except for

disposition by gift, will, or intestacy;

(iii) no investment adviser of such business devel-

opment company receives any compensation described

in section 205(a)(1) of title II of this Act, except to the

extent permitted by paragraph (1) or (2) of section

205(b); and

(iv) such business development company does not

have a profit-sharing plan described in section 57(n);

and

rants, options, or rights to subscribe to, convert to, or pur-

chase voting securities not accompanied by securities, if—

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112 Sec. 61 INVESTMENT COMPANY ACT OF 1940

(i) such warrants, options, or rights satisfy the

conditions in clauses (i) and (iii) of subparagraph (A);

and

(ii) the proposal to issue such warrants, options,

or rights is authorized by the shareholders or partners

of such business development company, and such

issuance is approved by the required majority (as de-

fined in section 57(o)) of the directors of or general

partners in such company on the basis that such

issuance is in the best interests of the company and its

shareholders or partners.

Notwithstanding this paragraph, the amount of voting securi-

ties that would result from the exercise of all outstanding war-

rants, options, and rights at the time of issuance shall not ex-

ceed 25 per centum of the outstanding voting securities of the

business development company, except that if the amount of

voting securities that would result from the exercise of all out-

standing warrants, options, and rights issued to such com-

pany’s directors, officers, employees, and general partners pur-

suant to any executive compensation plan meeting the require-

ments of subparagraph (B) of this paragraph would exceed 15

per centum of the outstanding voting securities of such com-

pany, then the total amount of voting securities that would re-

sult from the exercise of all outstanding warrants, options, and

rights at the time of issuance shall not exceed 20 per centum

of the outstanding voting securities of such company.

(5) For purposes of measuring the asset coverage require-

ments of section 18(a), a senior security created by the guar-

antee by a business development company of indebtedness

issued by another company shall be the amount of the max-

imum potential liability less the fair market value of the net

unencumbered assets (plus the indebtedness which has been

guaranteed) available in the borrowing company whose debts

have been guaranteed, except that a guarantee issued by a

business development company of indebtedness issued by a

company which is a wholly-owned subsidiary of the business

development company and is licensed as a small business in-

vestment company under the Small Business Investment Act

of 1958 shall not be deemed to be a senior security of such

business development company for purposes of section 18(a) if

the amount of the indebtedness at the time of its issuance by

the borrowing company is itself taken fully into account as a

liability by such business development company, as if it were

issued by such business development company, in determining

whether such business development company, at that time,

satisfies the asset coverage requirements of section 18(a).

(b) A business development company shall comply with the

provisions of this section at the time it becomes subject to sections

55 through 65, as if it were issuing a security of each class which

it has outstanding at such time.

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113 Sec. 63 INVESTMENT COMPANY ACT OF 1940

LOANS

. 62. ø80a–61¿ Notwithstanding the exemption set forth in

section 6(f), section 21 shall apply to a business development com-

pany to the same extent as if it were a registered closed-end invest-

ment company, except that nothing in that section shall be deemed

to prohibit—

(1) any loan to a director, officer, or employee of, or general

partner in, a business development company for the purpose of

purchasing securities of such company as part of an executive

compensation plan, if such loan meets the requirements of sec-

tion 57(j); or

(2) any loan to a company controlled by a business devel-

opment company, which companies could be deemed to be

under common control solely because a third person controls

such business development company.

DISTRIBUTION AND REPURCHASE OF SECURITIES

. 63. ø80a–62¿ Notwithstanding the exemption set forth in

section 6(f), section 23 shall apply to a business development com-

pany to the same extent as if it were a registered closed-end invest-

ment company, except as follows:

(1) The prohibitions of section 23(a)(2) shall not apply to

any company which (A) is a wholly-owned subsidiary of, or di-

rectly or indirectly controlled by, a business development com-

pany, and (B) immediately after the issuance of any of its secu-

rities for property other than cash or securities, will not be an

investment company within the meaning of section 3(a).

(2) Notwithstanding the provisions of section 23(b), a busi-

ness development company may sell any common stock of

which it is the issuer at a price below the current net asset

value of such stock, and may sell warrants, options, or rights

to acquire any such common stock at a price below the current

net asset value of such stock, if—

(A) the holders of a majority of such business develop-

ment company’s outstanding voting securities, and the

holders of a majority of such company’s outstanding voting

securities that are not affiliated persons of such company,

approved such company’s policy and practice of making

such sales of securities at the last annual meeting of

shareholders or partners within one year immediately

prior to any such sale, except that the shareholder ap-

proval requirements of this subparagraph shall not apply

to the initial public offering by a business development

company of its securities;

(B) a required majority (as defined in section 57(o)) of

the directors of or general partners in such business devel-

opment company have determined that any such sale

would be in the best interests of such company and its

shareholders or partners; and

the directors of or general partners in such business devel-

opment company, in consultation with the underwriter or

underwriters of the offering if it is to be underwritten,

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114 Sec. 64 INVESTMENT COMPANY ACT OF 1940

have determined in good faith, and as of a time imme-

diately prior to the first solicitation by or on behalf of such

company of firm commitments to purchase such securities

or immediately prior to the issuance of such securities,

that the price at which such securities are to be sold is not

less than a price which closely approximates the market

value of those securities, less any distributing commission

or discount.

(3) A business development company may sell any common

stock of which it is the issuer at a price below the current net

asset value of such stock upon the exercise of any warrant, op-

tion, or right issued in accordance with section 61(a)(4).

ACCOUNTS AND RECORDS

. 64. ø80a–63¿ (a) Notwithstanding the exemption set forth

in section 6(f), section 31 shall apply to a business development

company to the same extent as if it were a registered closed-end

investment company, except that the reference to the financial

statements required to be filed pursuant to section 30 shall be con-

strued to refer to the financial statements required to be filed by

such business development company pursuant to section 13 of the

Securities Exchange Act of 1934.

(b)(1) In addition to the requirements of subsection (a), a busi-

ness development company shall file with the Commission and sup-

ply annually to its shareholders a written statement, in such form

and manner as the Commission may, by rule, prescribe, describing

the risk factors involved in an investment in the securities of a

business development company due to the nature of such com-

pany’s investment portfolio and capital structure, and shall supply

copies of such statement to any registered broker or dealer upon

request.

(2) If the Commission finds it is necessary or appropriate in

the public interest and consistent with the protection of investors

and the purposes fairly intended by the policy and provisions of

this title, the Commission may also require, by rule, any person

who, acting as principal or agent, sells a security of a business de-

velopment company to inform the purchaser of such securities, at

or before the time of sale, of the existence of the risk statement

prepared by such business development company pursuant to this

subsection, and make such risk statement available on request.

The Commission, in making such rules and regulations, shall con-

sider, among other matters, whether any such rule or regulation

would impose any unreasonable burdens on such brokers or dealers

or unreasonably impair the maintenance of fair and orderly mar-

kets.

LIABILITY OF CONTROLLING PERSONS

;

PREVENTING COMPLIANCE WITH

TITLE

. 65. ø80a–64¿ Notwithstanding the exemption set forth in

section 6(f), section 48 shall apply to a business development com-

pany to the same extent as if it were a registered closed-end invest-

ment company, except that the provisions of section 48(a) shall not

be construed to require any company which is not an investment

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115 Sec. 65 INVESTMENT COMPANY ACT OF 1940

company within the meaning of section 3(a) to comply with the pro-

visions of this title which are applicable to a business development

company solely because such company is a wholly-owned subsidiary

of, or directly or indirectly controlled by, a business development

company.

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