§80a–12 Functions and activities of investment companies

Summary

Makes it illegal for registered investment companies to do certain risky trading or ownership moves unless the SEC sets rules that allow them. They may not buy securities on margin except short-term credit needed to clear trades. They may not join other people in a trading account or make short sales, except when taking part in an underwriting. Open-end funds generally cannot act as their own distributor except through an underwriter, unless they meet a special rule. Stops a diversified fund from taking on underwriting commitments if, right after doing so, the total of those commitments plus the fund’s investments in companies where it owns more than 10% of the voting stock would be more than 25% of the fund’s total assets. Limits how much one investment company can buy of another’s securities: an acquiring company (and companies it controls) may not, after buying, own more than 3% of the acquired company’s voting stock, or have acquired-company securities worth more than 5% of the acquirer’s assets, or have all such investment-company securities worth more than 10% of the acquirer’s assets. There are matching limits on open-end companies and sellers, and a 10% voting-stock limit for closed-end companies when related funds share the same adviser. Lists several exceptions and special rules. Buying securities received as dividends or in approved reorganizations is allowed. Purchases can be allowed when the depositor or principal underwriter is a registered broker-dealer and other conditions are met about voting and about the security being the only investment. A small-ownership exception applies if, right after buying, no more than 3% of the issuer is owned by the buyer and affiliates and the buyer has not offered shares with a sales load over 1½% after January 1, 1971. Funds in the same group may buy shares of each other under limits about what the buyer may hold, what fees are charged, and the acquired fund’s policies. The SEC may value assets as close to the purchase time as reasonably possible, may join issuers in enforcement actions, and may exempt people, securities, or transactions if it finds that doing so serves the public interest and protects investors. Also bars a fund from buying more than 10% of an insurance company’s voting stock unless it already owned at least 25% at the time of purchase. Funds may not buy securities of brokers, dealers, underwriters, or investment advisers unless those firms are corporations owned by one or more registered investment companies and are mainly in the underwriting or distribution business. Special rules let funds invest in a single underwriting-type corporation under tight limits (only one class of common stock, no more than 5% of the fund’s assets, and that corporation’s paid-in capital and surplus not over $100,000,000). Face-amount certificate companies may form up to two similar companies and hold their stock within set dollar-based limits. The SEC can allow larger insurance-company purchases if it finds they help the insurer’s financial condition; state insurance regulators’ powers are not affected.