§ 80a-28. — Faceamount certificate companies.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC80a-28]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER I--INVESTMENT COMPANIES
Sec. 80a-28. Face-amount certificate companies
(a) Issuance or sale of certificates
It shall be unlawful for any registered face-amount certificate
company to issue or sell any face-amount certificate, or to collect or
accept any payment on any such certificate issued by such company on or
after the effective date of this subchapter, unless--
(1) such company, if organized before March 15, 1940, was
actively and continuously engaged in selling face-amount
certificates on and before that date, and has outstanding capital
stock worth upon a fair valuation of assets not less than $50,000;
or if organized on or after March 15, 1940, has capital stock in an
amount not less than $250,000 which has been bona fide subscribed
and paid for in cash; and
(2) such company maintains at all times minimum certificate
reserves on all its outstanding face-amount certificates in an
aggregate amount calculated and adjusted as follows:
(A) the reserves for each certificate of the installment
type shall be based on assumed annual, semi-annual, quarterly,
or monthly reserve payments according to the manner in which
gross payments for any certificate year are made by the holder,
which reserve payments shall be sufficient in amount, as and
when accumulated at a rate not to exceed 3\1/2\ per centum per
annum compounded annually, to provide the minimum maturity or
face amount of the certificate when due. Such reserve payments
may be graduated according to certificate years so that the
reserve payment or payments for the first certificate year shall
amount to at least 50 per centum of the required gross annual
payment for such year and the reserve payment or payments for
each of the second to fifth certificate years inclusive shall
amount to at least 93 per centum of each such year's required
gross annual payment and for the sixth and each subsequent
certificate year the reserve payment or payments shall amount to
at least 96 per centum of each such year's required gross annual
payment: Provided, That such aggregate reserve payments shall
amount to at least 93 per centum of the aggregate gross annual
payments required to be made by the holder to obtain the
maturity of the certificate. The company may at its option take
as loading from the gross payment or payments for a certificate
year, as and when made by the certificate holder, an amount or
amounts equal in the aggregate for such year to not more than
the excess, if any, of the gross payment or payments required to
be made by the holder for such year, over and above the
percentage of the gross annual payment required herein for such
year for reserve purposes. Such loading may be taken by the
company prior to or after the setting up of the reserve payment
or payments for such year and the reserve payment or payments
for such year may be graduated and adjusted to correspond with
the amount of the gross payment or payments made by the
certificate holder for such year less the loading so taken;
(B) if the foregoing minimum percentages of the gross annual
payments required under the provisions of such certificate
should produce reserve payments larger than are necessary at
3\1/2\ per centum per annum compounded annually to provide the
minimum maturity or face amount of the certificate when due, the
reserve shall be based upon reserve payments accumulated as
provided under preceding subparagraph (A) of this paragraph
except that in lieu of the 3\1/2\ per centum rate specified
therein, such rate shall be lowered to the minimum rate,
expressed in multiples of one-eighth of 1 per centum, which will
accumulate such reserve payments to the maturity value when due;
(C) if the actual annual gross payment to be made by the
certificate holder on any certificate issued prior to or after
the effective date of this chapter is less than the amount of
any assumed reserve payment or payments for a certificate year,
such company shall maintain as a part of such minimum
certificate reserves a deficiency reserve equal to the total
present value of future deficiencies in the gross payments,
calculated at a rate not to exceed 3\1/2\ per centum per annum
compounded annually;
(D) for each certificate of the installment type the amount
of the reserve shall at any time be at least equal to (1) the
then amount of the reserve payments set up under subparagraphs
(A) or (B) of this paragraph; (2) the accumulations on such
reserve payments as computed under subparagraphs (A) or (B) of
this paragraph; (3) the amount of any deficiency reserve
required under subparagraph (C) of this paragraph; and (4) such
amount as shall have been credited to the account of each
certificate holder in the form of any credit, or any dividend,
or any interest in addition to the minimum maturity amount
specified in such certificate, plus any accumulations on any
amount or amounts so credited, at a rate not exceeding 3\1/2\
per centum per annum compounded annually;
(E) for each certificate which is fully paid, including any
fully paid obligations resulting from or effected upon the
maturity of the previously issued certificate, and for each
paid-up certificate issued as provided in subsection (f) of this
section prior to maturity, the amount of the reserve shall at
any time be at least equal to (1) such amount as and when
accumulated at a rate not to exceed 3\1/2\ per centum per annum
compounded annually, will provide the amount or amounts payable
when due and (2) such amount as shall have been credited to the
account of each such certificate holder in the form of any
credit, or any dividend, or any interest in addition to the
minimum maturity amount specified in the certificate, plus any
accumulations on any amount or amounts so credited, at a rate
not exceeding 3\1/2\ per centum per annum compounded annually;
(F) for each certificate of the installment type under which
gross payments have been made by or credited to the holder
thereof covering a payment period or periods or any part thereof
beyond the then current payment period as defined by the terms
of such certificate, and for which period or periods no reserve
has been set up under subparagraph (A) or (B) of this paragraph,
an advance payment reserve shall be set up and maintained in the
amount of the present value of any such unapplied advance gross
payments, computed at a rate not to exceed 3\1/2\ per centum per
annum compounded annually;
(G) such appropriate contingency reserves for death and
disability benefits and for reinstatement rights on any such
certificate providing for such benefits or rights as the
Commission shall prescribe by rule, regulation, or order based
upon the experience of face-amount companies in relation to such
contingencies.
At no time shall the aggregate certificate reserves herein required by
subparagraphs (A) to (F) of this paragraph, be less than the aggregate
surrender values and other amounts to which all certificate holders may
be then entitled.
For the purpose of this subsection, no certificate of the
installment type shall be deemed to be outstanding if before a surrender
value has been attained the holder thereof has been in continuous
default in making his payments thereon for a period of one year.
(b) Asset requirements prior to sale of certificates
It shall be unlawful for any registered face-amount certificate
company to issue or sell any face-amount certificate, or to collect or
accept any payment on any such certificate issued by such company on or
after the effective date of this subchapter, unless such company has, in
cash or qualified investments, assets having a value not less than the
aggregate amount of the capital stock requirement and certificate
reserves as computed under the provisions of subsection (a) of this
section. As used in this subsection, ``qualified investments'' means
investments of a kind which life-insurance companies are permitted to
invest in or hold under the provisions of the Code of the District of
Columbia as heretofore or hereafter amended, and such other investments
as the Commission shall by rule, regulation, or order authorize as
qualified investments. Such investments shall be valued in accordance
with the provisions of said Code where such provisions are applicable.
Investments to which such provisions do not apply shall be valued in
accordance with such rules, regulations, or orders as the Commission
shall prescribe for the protection of investors.
(c) Certificate reserve requirements
The Commission shall by rule, regulation, or order, in the public
interest or for the protection of investors, require a registered face-
amount certificate company to deposit and maintain, upon such terms and
conditions as the Commission shall prescribe and as are appropriate for
the protection of investors, with one or more institutions having the
qualifications required by paragraph (1) of section 80a-26(a) of this
title for a trustee of a unit investment trust, all or any part of the
investments maintained by such company as certificate reserve
requirements under the provisions of subsection (b) of this section:
Provided, however, That where qualified investments are maintained on
deposit by such company in respect of its liabilities under certificates
issued to or held by residents of any State as required by the statute
of such State or by any order, regulation, or requirement of such State
or any official or agency thereof, the amount so on deposit, but not to
exceed the amount of reserves required by subsection (a) of this section
for the certificates so issued or held, shall be deducted from the
amount of qualified investments that may be required to be deposited
hereunder.
Assets which are qualified investments under subsection (b) of this
section and which are deposited under or as permitted by this
subsection, may be used and shall be considered as a part of the assets
required to be maintained under the provisions of said subsection (b).
(d) Provisions required in certificate
It shall be unlawful for any registered face-amount certificate
company to issue or sell any face-amount certificate, or to collect or
accept any payment on any such certificate issued by such company on or
after the effective date of this subchapter, unless such certificate
contains a provision or provisions to the effect--
(1) that, in respect of any certificate of the installment type,
during the first certificate year the holder of the certificate,
upon surrender thereof, shall be entitled to a value payable in cash
not less than the reserve payments as specified in subparagraph (A)
or (B) of paragraph (2) of subsection (a) of this section and at the
end of such certificate year, a value payable in cash at least equal
to 50 per centum of the amount of the gross annual payment required
thereby for such year;
(2) that, in respect of any certificate of the installment type,
at any time after the expiration of the first certificate year and
prior to maturity, the holder of the certificate, upon surrender
thereof, shall be entitled to a value payable in cash not less than
the then amount of the reserve for such certificate required by
numbered items (1) and (2) of subparagraph (D) of paragraph (2) of
subsection (a) of this section, less a surrender charge that shall
not exceed 2 per centum of the face or maturity amount of the
certificate, or 15 per centum of the amount of such reserve,
whichever is the lesser, but in no event shall such value be less
than 50 per centum of the amount of such reserve. The amount of the
surrender value for the end of each certificate year shall be set
out in the certificate;
(3) that, in respect of any certificate of the installment type,
the holder of the certificate, upon surrender thereof for cash or
upon receipt of a paid-up certificate as provided in subsection (f)
of this section, shall be entitled to a value payable in cash equal
to the then amount of any advance payment reserve under such
certificate required by subparagraph (F) of paragraph (2) of
subsection (a) of this section in addition to any other amounts due
the holder hereunder;
(4) that at any time prior to maturity, in respect of any
certificate which is fully paid, the holder of the certificate, upon
surrender thereof, shall be entitled to a value payable in cash not
less than the then amount of the reserve for such certificate
required by item (1) of subparagraph (E) of paragraph (2) of
subsection (a) of this section, less a surrender charge that shall
not exceed 2 per centum of the face or maturity amount of the
certificate, or 15 per centum of the amount of such reserve,
whichever is the lesser: Provided, however, That such surrender
charge shall not apply as to any obligations of a fully paid type
resulting from the maturity of a previously issued certificate. The
amount of the surrender value for the end of each certificate year
shall be set out in the certificate;
(5) that in respect of any certificate, the holder of the
certificate, upon maturity, upon surrender thereof for cash or upon
receipt of a paid-up certificate as provided in subsection (f) of
this section, shall be entitled to a value payable in cash equal to
the then amount of the reserve, if any, for such certificate
required by item (4) of subparagraph (D) of paragraph (2) of
subsection (a) of this section or item (2) of subparagraph (E) of
paragraph (2) of said subsection (a) in addition to any other
amounts due the holder hereunder.
The term ``certificate year'' as used in this section in respect of
any certificate of the installment type means a period or periods for
which one year's payment or payments as provided by the certificate have
been made thereon by the holder and the certificate maintained in force
by such payments for the time for which the same have been made, and in
respect of any certificate which is fully paid or paid-up means any year
ending on the anniversary of the date of issuance of the certificate.
Any certificate may provide for loans or advances by the company to
the certificate holder on the security of such certificate upon terms
prescribed therein but at an interest rate not exceeding 6 per centum
per annum. The amount of the required reserves, deposits, and the
surrender values thereof available to the holder may be adjusted to take
into account any unpaid balance on such loans or advances and interest
thereon, for the purposes of this subsection and subsections (b) and (c)
of this section.
Any certificate may provide that the company at its option may,
prior to the maturity thereof, defer any payment or payments to the
certificate holder to which he may be entitled under this subsection,
for a period of not more than thirty days: Provided, That in the event
such option is exercised by the company, interest shall accrue on any
payment or payments due to the holder, for the period of such deferment
at a rate equal to that used in accumulating the reserves for such
certificate: And provided further, That the Commission may, by rules and
regulations or orders in the public interest or for the protection of
investors, make provision for any other deferment upon such terms and
conditions as it shall prescribe.
(e) Liability of holder to legal action for unpaid amount of certificate
It shall be unlawful for any registered face-amount certificate
company to issue or sell any face-amount certificate, or to collect or
accept any payment on any such certificate issued by such company on or
after the effective date of this subchapter, which certificate makes the
holder liable to any legal action or proceeding for any unpaid amount on
such certificate.
(f) Optional right to paid up certificate in lieu of cash surrender
value
It shall be unlawful for any registered face-amount certificate
company to issue or sell any face-amount certificate, or to collect or
accept any payment on any such certificate issued by such company on or
after the effective date of this subchapter, (1) unless such face-amount
certificate contains a provision or provisions to the effect that the
holder shall have an optional right to receive a paid-up certificate in
lieu of the then attained cash surrender value provided therein and in
the amount of such value plus accumulations thereon at a rate to be
specified in the paid-up certificate equal to that used in computing the
reserve on the original certificate under subparagraph (A) or (B) of
paragraph (2) of subsection (a) of this section, such paid-up
certificate to become due and payable at the end of a period equal to
the balance of the term of such original certificate before maturity;
and during the period prior to maturity such paid-up certificate shall
have a cash value upon surrender thereof equal to the then amount of the
reserve therefor; and (2) unless such face-amount certificate contains a
further provision or provisions to the effect that if the holder be in
continuous default in his payments on such certificate for a period of
six months without having exercised his option to receive a paid-up
certificate, as herein provided, the company at the expiration of such
six months shall pay the surrender value in cash if such value is less
than $100 or if such value is $100 or more shall issue such paid-up
certificate to such holder and such payment or issuance, plus the
payment of all other amounts to which he may be then entitled under the
original certificate, shall operate to cancel his original certificate:
Provided, That in lieu of the issuance of a new paid-up certificate the
original certificate may be converted into a paid-up certificate with
the same effect; and (3) unless, where such certificate provides, in the
event of default, for the deferment of payments thereon by the holder or
of the due dates of such payments or of the maturity date of the
certificate, it shall also provide in effect for the right of
reinstatement by the holder of the certificate after default and for an
option in the holder, at the time of reinstatement, to make up the
payment or payments for the default period next preceding such
reinstatement with interest thereon not exceeding 6 per centum per
annum, with the same effect as if no such default in making such
payments had occurred.
The term ``default'' as used in this subsection shall, without
restricting its usual meaning, include a failure to make a payment or
payments as and when provided by the certificate.
(g) Application of section to company issuing certificates only to
holders of previously issued certificates
The foregoing provisions of this section shall not apply to a face-
amount certificate company which on or before the effective date of this
chapter has discontinued the offering of face-amount certificates to the
public and issues face-amount certificates only to the holders of
certificates previously issued pursuant to an obligation expressed or
implied in such certificates.
(h) Declaration or payment of dividends
It shall be unlawful for any registered face-amount certificate
company which does not maintain the minimum certificate reserve on all
its outstanding face-amount certificates issued prior to the effective
date of this chapter, in an aggregate amount calculated and adjusted as
provided in this section to declare or pay any dividends on the shares
of such company for or during any calendar year which shall exceed one-
third of the net earnings for the next preceding calendar year or which
shall exceed 10 per centum of the aggregate net earnings for the next
preceding five calendar years, whichever is the lesser amount, or any
dividend which shall have been forbidden by the Commission pursuant to
the provision of the next sentence of this paragraph. At least thirty
days before such company shall declare, pay, or distribute any dividend,
it shall give the Commission written notice of its intention to declare,
pay, or distribute the same; and if at any time it shall appear to the
Commission that the declaration, payment or distribution of any dividend
for or during any calendar year might impair the financial integrity of
such company or its ability to meet its liabilities under its
outstanding face-amount certificates, it may by order forbid the
declaration, distribution, or payment of any such dividend.
(i) Application of section to certificates issued prior to effective
date of section
The foregoing provisions of this section shall apply to all face-
amount certificates issued prior to the effective date of this
subsection; to the collection or acceptance of any payment on such
certificates; to the issuance of face-amount certificates to the holders
of such certificates pursuant to an obligation expressed or implied in
such certificates; to the provisions of such certificates; to the
minimum certificate reserves and deposits maintained with respect
thereto; and to the assets that the issuer of such certificate was and
is required to have with respect to such certificates. With respect to
all face-amount certificates issued after the effective date of this
subsection, the provisions of this section shall apply except as
hereinafter provided.
(1) Notwithstanding subparagraph (A) of paragraph (2) of subsection
(a) of this section, the reserves for each certificate of the
installment type shall be based on assumed annual, semiannual,
quarterly, or monthly reserve payments according to the manner in which
gross payments for any certificate year are made by the holder, which
reserve payments shall be sufficient in amount, as and when accumulated
at a rate not to exceed 3\1/2\ per centum per annum compounded annually,
to provide the minimum maturity or face amount of the certificate when
due. Such reserve payments may be graduated according to certificate
years so that the reserve payment or payments for the first three
certificate years shall amount to at least 80 per centum of the required
gross annual payment for such years; the reserve payment or payments for
the fourth certificate year shall amount to at least 90 per centum of
such year's required gross annual payment; the reserve payment or
payments for the fifth certificate year shall amount to at least 93 per
centum of such year's gross annual payment; and for the sixth and each
subsequent certificate year the reserve payment or payments shall amount
to at least 96 per centum of each such year's required gross annual
payment: Provided, That such aggregate reserve payments shall amount to
at least 93 per centum of the aggregate gross annual payments required
to be made by the holder to obtain the maturity of the certificate. The
company may at its option take as loading from the gross payment or
payments for a certificate year, as and when made by the certificate
holder, an amount or amounts equal in the aggregate for such year to not
more than the excess, if any, of the gross payment or payments required
to be made by the holder for such year, over and above the percentage of
the gross annual payment required herein for such year for reserve
purposes. Such loading may be taken by the company prior to or after the
setting up of the reserve payment or payments for such year and the
reserve payment or payments for such year may be graduated and adjusted
to correspond with the amount of the gross payment or payments made by
the certificate holder for such year less the loading so taken.
(2) Notwithstanding paragraphs (1) and (2) of subsection (d) of this
section, (A) in respect of any certificate of the installment type,
during the first certificate year, the holder of the certificate, upon
surrender thereof, shall be entitled to a value payable in cash not less
than 80 per centum of the amount of the gross payments made on the
certificate; and (B) in respect of any certificate of the installment
type, at any time after the expiration of the first certificate year and
prior to maturity, the holder of the certificate, upon surrender
thereof, shall be entitled to a value payable in cash not less than the
then amount of the reserve for such certificate required by clauses (1)
and (2) of subparagraph (D) of paragraph (2) of subsection (a) of this
section, less a surrender charge that shall not exceed 2 per centum of
the face or maturity amount of the certificate, or 15 per centum of the
amount of such reserve, whichever is the lesser, but in no event shall
such value be less than 80 per centum of the gross payments made on the
certificate. The amount of the surrender value for the end of each
certificate year shall be set out in the certificate.
(Aug. 22, 1940, ch. 686, title I, Sec. 28, 54 Stat. 829; Pub. L. 91-547,
Sec. 17, Dec. 14, 1970, 84 Stat. 1426; Pub. L. 100-181, title VI,
Secs. 620, 621, Dec. 4, 1987, 101 Stat. 1262.)
References in Text
For the effective date of this subchapter, referred to in subsecs.
(a), (b), (d), (e), and (f), see section 80a-52 of this title.
For the effective date of this chapter, referred to in subsecs.
(a)(2)(C), (g), and (h), see sections 80a-52 and 80b-21 of this title.
For the effective date of this subsection, referred to in subsec.
(i), as the day upon expiration of 6 months after Dec. 14, 1970, see
section 30(3) of Pub. L. 91-547, set out as a note under section 80a-52
of this title.
Amendments
1987--Subsec. (a)(2)(B). Pub. L. 100-181, Sec. 620, substituted
``paragraph'' for ``subsection''.
Subsec. (d)(2). Pub. L. 100-181, Sec. 621, inserted ``of'' before
``subsection (a)''.
1970--Subsec. (i). Pub. L. 91-547 added subsec. (i).
Effective Date of 1970 Amendment
Amendment by Pub. L. 91-547 effective on expiration of six months
after Dec. 14, 1970, see section 30(3) of Pub. L. 91-547, set out as a
note under section 80a-2 of this title.
Transfer of Functions
For transfer of functions of Securities and Exchange Commission,
with certain exceptions, to Chairman of such Commission, see Reorg. Plan
No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat.
1265, set out under section 78d of this title.
Section Referred to in Other Sections
This section is referred to in sections 80a-2, 80a-6, 80a-12 of this
title.
