§ 80b-5. — Investment advisory contracts.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC80b-5]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2D--INVESTMENT COMPANIES AND ADVISERS
SUBCHAPTER II--INVESTMENT ADVISERS
Sec. 80b-5. Investment advisory contracts
(a) Compensation, assignment, and partnership-membership provisions
No investment adviser, unless exempt from registration pursuant to
section 80b-3(b) of this title, shall make use of the mails or any means
or instrumentality of interstate commerce, directly or indirectly, to
enter into, extend, or renew any investment advisory contract, or in any
way to perform any investment advisory contract entered into, extended,
or renewed on or after November 1, 1940, if such contract--
(1) provides for compensation to the investment adviser on the
basis of a share of capital gains upon or capital appreciation of
the funds or any portion of the funds of the client;
(2) fails to provide, in substance, that no assignment of such
contract shall be made by the investment adviser without the consent
of the other party to the contract; or
(3) fails to provide, in substance, that the investment adviser,
if a partnership, will notify the other party to the contract of any
change in the membership of such partnership within a reasonable
time after such change.
(b) Compensation prohibition inapplicable to certain compensation
computations
Paragraph (1) of subsection (a) of this section shall not--
(1) be construed to prohibit an investment advisory contract
which provides for compensation based upon the total value of a fund
averaged over a definite period, or as of definite dates, or taken
as of a definite date;
(2) apply to an investment advisory contract with--
(A) an investment company registered under subchapter I of
this chapter, or
(B) any other person (except a trust, governmental plan,
collective trust fund, or separate account referred to in
section 80a-3(c)(11) of this title), provided that the contract
relates to the investment of assets in excess of $1 million,
if the contract provides for compensation based on the asset value
of the company or fund under management averaged over a specified
period and increasing and decreasing proportionately with the
investment performance of the company or fund over a specified
period in relation to the investment record of an appropriate index
of securities prices or such other measure of investment performance
as the Commission by rule, regulation, or order may specify;
(3) apply with respect to any investment advisory contract
between an investment adviser and a business development company, as
defined in this subchapter, if (A) the compensation provided for in
such contract does not exceed 20 per centum of the realized capital
gains upon the funds of the business development company over a
specified period or as of definite dates, computed net of all
realized capital losses and unrealized capital depreciation, and the
condition of section 80a-60(a)(3)(B)(iii) of this title is
satisfied, and (B) the business development company does not have
outstanding any option, warrant, or right issued pursuant to section
80a-60(a)(3)(B) of this title and does not have a profit-sharing
plan described in section 80a-56(n) of this title;
(4) apply to an investment advisory contract with a company
excepted from the definition of an investment company under section
80a-3(c)(7) of this title; or
(5) apply to an investment advisory contract with a person who
is not a resident of the United States.
(c) Measurement of changes in compensation
For purposes of paragraph (2) of subsection (b) of this section, the
point from which increases and decreases in compensation are measured
shall be the fee which is paid or earned when the investment performance
of such company or fund is equivalent to that of the index or other
measure of performance, and an index of securities prices shall be
deemed appropriate unless the Commission by order shall determine
otherwise.
(d) ``Investment advisory contract'' defined
As used in paragraphs (2) and (3) of subsection (a) of this section,
``investment advisory contract'' means any contract or agreement whereby
a person agrees to act as investment adviser to or to manage any
investment or trading account of another person other than an investment
company registered under subchapter I of this chapter.
(e) Exempt persons and transactions
The Commission, by rule or regulation, upon its own motion, or by
order upon application, may conditionally or unconditionally exempt any
person or transaction, or any class or classes of persons or
transactions, from subsection (a)(1) of this section, if and to the
extent that the exemption relates to an investment advisory contract
with any person that the Commission determines does not need the
protections of subsection (a)(1) of this section, on the basis of such
factors as financial sophistication, net worth, knowledge of and
experience in financial matters, amount of assets under management,
relationship with a registered investment adviser, and such other
factors as the Commission determines are consistent with this section.
(Aug. 22, 1940, ch. 686, title II, Sec. 205, 54 Stat. 852; Pub. L. 86-
750, Sec. 7, Sept. 13, 1960, 74 Stat. 887; Pub. L. 91-547, Sec. 25, Dec.
14, 1970, 84 Stat. 1432; Pub. L. 96-477, title II, Sec. 203, Oct. 21,
1980, 94 Stat. 2290; Pub. L. 100-181, title VII, Sec. 703, Dec. 4, 1987,
101 Stat. 1263; Pub. L. 104-290, title II, Sec. 210, Oct. 11, 1996, 110
Stat. 3436.)
Amendments
1996--Subsec. (b)(4), (5). Pub. L. 104-290, Sec. 210(1), added pars.
(4) and (5).
Subsec. (e). Pub. L. 104-290, Sec. 210(2), added subsec. (e).
1987--Pub. L. 100-181 completely revised and expanded provisions on
investment advisory contracts, changing structure of section from a
single unlettered paragraph to one consisting of four subsections
lettered (a) to (d).
1980--Pub. L. 96-477 provided that par. (1) of this section was not
to apply with respect to any investment advisory contract between an
investment adviser and a business development company so long as the
compensation provided for in such contract did not exceed 20 per cent of
the realized capital gains upon the funds of the business development
company and such business development company did not have outstanding
any option, warrant, or right issued pursuant to section 80a-60(a)(3)(B)
of this title and did not have a profit-sharing plan.
1970--Pub. L. 91-547 substituted reference to section ``80b-3(b)''
for ``80b-3'' of this title in first sentence, redesignated as second
sentence former third sentence, designating existing provisions as cl.
(A) and adding cl. (B) and items (i) and (ii) and provision respecting
compensation based on asset value of company or fund under management
averaged over a specified period in relation to investment record of an
index of securities or such other measure of investment performance
specified by Commission rules, regulations, or orders, inserted third
sentence provision respecting point from which compensation is to be
measured, substituted in fourth, formerly third, sentence ``paragraphs
(2) and (3) of this section'' for ``this section'' and in definition of
``investment advisory contract'' the words ``account of another person
other than an investment company registered under subchapter I of this
chapter'' for ``account for a person other than an investment company''.
1960--Pub. L. 86-750 substituted ``unless exempt from registration
pursuant to'' for ``registered under''.
Effective Date of 1970 Amendment
Amendment by Pub. L. 91-547 effective on expiration of one year
after Dec. 14, 1970, see section 30(1) of Pub. L. 91-547, set out as a
note under section 80a-52 of this title.
Transfer of Functions
For transfer of functions of Securities and Exchange Commission,
with certain exceptions, to Chairman of such Commission, see Reorg. Plan
No. 10 of 1950, Secs. 1, 2, eff. May 24, 1950, 15 F.R. 3175, 64 Stat.
1265, set out under section 78d of this title.
Section Referred to in Other Sections
This section is referred to in section 80a-60 of this title.
