15 U.S.C. § 80a–26 — Unit investment trusts

(a) A principal underwriter for, or depositor of, a registered unit investment trust cannot sell any security the trust issued — other than short-term paper — except by surrendering it to the trustee for redemption, unless the trust's governing instrument (its trust indenture, custodianship agreement, or similar document) does all of the following: (1) Names one or more trustees or custodians, each a bank, and requires each to keep at all times at least $500,000 in combined capital, surplus, and undivided profits. A bank that publishes reports of condition at least annually, as its law or regulator requires, can use the figures from its most recently published report for this purpose. (2) States, in substance, that during the trust's life, the trustee or custodian — if not otherwise paid — may charge the trust's income (or its principal, if no income is available) for the fees and expense reimbursement the instrument provides; that no charge or collection can be made except for services already performed or expenses already incurred; that no payment to the depositor, an underwriter, or an affiliated person or agent of either, can count as an expense the trustee or custodian is allowed (except a reasonable fee, capped at whatever amount the SEC prescribes, for bookkeeping and other administrative services normally performed by the trustee or custodian itself); and that the trustee or custodian must hold all securities and other property the trust's funds are invested in, all funds held for investment, all equalization, redemption, and other special funds of the trust, and all income and proceeds from them — segregating and holding all of it in trust, subject only to the charges allowed above, until it is distributed to the trust's security holders. (3) States, in substance, that the trustee or custodian will not resign until either (A) the trust has been completely liquidated and the proceeds distributed to security holders, or (B) a successor trustee or custodian meeting the same bank qualifications has been named and has accepted the role. (4) States, in substance, that the depositor or its agent will keep a record of each security holder's name and address, and the shares issued by the trust that they hold, so far as that information is known; and that whenever a security is deposited with the trustee to substitute for a security a holder has an interest in, the depositor or its agent will, within five days of that substitution, deliver or mail the holder a notice identifying the securities removed and substituted, and specifying which of the holder's shares are affected. (b) After consulting the federal banking agencies (as defined in section 1813 of title 12) and considering their views, the SEC may adopt rules, and issue orders, consistent with protecting investors, setting the conditions under which a bank — or a person affiliated with a bank — that is itself affiliated with a principal underwriter for, or depositor of, a registered unit investment trust may still serve as trustee or custodian under subsection (a)(1). (c) It is illegal for a depositor or trustee of a registered unit investment trust that holds a single issuer's security to substitute a different security for it unless the SEC approves. The SEC must approve the substitution if the evidence shows it is consistent with protecting investors and with the purposes this subchapter is meant to serve. (d) If a trust indenture, custodianship agreement, or other instrument under which a registered unit investment trust's securities are issued does not meet subsection (a)'s requirements, it is treated as meeting them anyway if the depositor and the trustee or custodian sign a separate written contract or agreement that embodies those requirements, and three copies of that contract or agreement are filed with the SEC. (e) Whenever the SEC has reason to believe a unit investment trust is inactive and that liquidating it serves the interest of its security holders, the SEC may file a complaint seeking the trust's liquidation in the federal district court for any district where a trustee of the trust lives or has its principal place of business. A copy of the complaint must be served on every trustee of the trust, and notice must be given to other interested persons in whatever manner and at whatever times the court directs. If the court determines that liquidation serves the security holders' interests, it must order the liquidation and, after paying necessary expenses, order the proceeds distributed to the trust's security holders in a manner and on terms that appear equitable to the court. (f) (1) Subsection (a) does not apply to a registered separate account that funds variable insurance contracts, or to the insurance company sponsoring that account, or to its principal underwriter. (2) Even so, it is illegal to sell such a variable insurance contract unless: (A) all 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 the insurance company assumes, and the insurance company says so in the contract's registration statement, starting on whichever comes earlier of August 1, 1997, or the earliest effective date of a registration statement or amendment for the contract after October 11, 1996; and (B) 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; (ii) files with the insurance regulator of its home state an annual statement of its financial condition showing combined capital and surplus (for a stock company) or unassigned surplus (for a mutual company) of at least $1,000,000, or whatever other amount the SEC prescribes by rule as necessary or appropriate in the public interest or for investor protection; and (iii) is, together with its registered separate accounts, supervised and periodically examined by that state's insurance authority. (3) For purposes of paragraph (2), "fees and charges" includes all fees and charges imposed for any purpose and in any manner. (4) The SEC may issue rules to carry out paragraph (2)(A).