15 U.S.C. § 80a–27 — Periodic payment plans

(a) It is illegal for a registered investment company that issues periodic payment plan certificates, or for its depositor or underwriter, to sell one if any of the following is true: (1) the sales load is more than 9 percent of all payments due on the certificate; (2) more than half of any of the first twelve monthly payments (or their equivalent) is deducted for sales load; (3) the sales load deducted from one of those first payments is proportionately larger than the load deducted from another of those payments, or the load deducted from a later payment is proportionately larger than the load deducted from another later payment; (4) the first payment is less than $20, or a later payment is less than $10; (5) the company is a management company, and the certificate's proceeds, or the securities they're invested in, carry management fees — other than reasonable administrative-service fees of the kind described in section 80a-26(a)(2)(C) — above whatever reasonable amount the SEC prescribes, whether payable to the company or to its investment advisers; or (6) the company is a unit investment trust holding securities issued by a management company, and the trust's depositor, underwriter, or an affiliated person of either, is to receive from that management company or its affiliated person a fee tied to payments on the certificate that exceeds whatever reasonable amount the SEC prescribes. (b) If it appears, on application or otherwise, that smaller companies face relatively higher operating costs, the SEC — to make due allowance for that, consistent with the public interest and investor protection — may grant a company or class of companies appropriate qualified exemptions from the sales-load limits in subsection (a)(1), (2), or (3). (c) It is also illegal to sell a periodic payment plan certificate unless: (1) the certificate is a redeemable security; and (2) all payments made on it, except amounts deducted for sales load, are deposited with a trustee or custodian meeting the bank qualifications section 80a-26(a)(1) requires for unit investment trust trustees, held under an indenture or agreement that contains, in substance, the protections section 80a-26(a)(2) and (3) require for unit investment trusts. (d) Even if subsection (a) is satisfied, it is illegal to sell a certificate unless it lets the holder, at any time within the first eighteen months after issuance, surrender it and receive in cash: (1) the value of the holder's account, plus (2) an amount from the underwriter or depositor equal to whatever part of the sales load charged exceeded 15 percent of the holder's total gross payments. The SEC can require underwriters and depositors to maintain whatever reserves it deems necessary so they can carry out these refund obligations. (e) For a certificate sold subject to subsection (d), the company, depositor, or underwriter must, in writing: (1) tell any holder who has missed three or more payments about their right to surrender the certificate under (d) — within thirty days after fifteen months have passed since the certificate was issued; or, if the holder instead misses one or more payments sometime after that fifteen-month point but before eighteen months have passed, give this notice any time before the eighteen-month point; and (2) tell the holder (A) the value of the holder's account as of the date the notice was given, and (B) the amount the holder is entitled to under (d). The SEC can make rules on the method, form, and content of this notice. (f) For a periodic payment plan other than one where the sales load deducted from any payment does not exceed 9 percent of that payment, the custodian bank must mail every certificate holder, within sixty days after the certificate is issued, a statement of the charges to be deducted from the certificate's future payments, and a notice of the holder's right of withdrawal as described in this section. Within forty-five days after that notice is mailed, the holder may surrender the certificate and receive in cash: (1) the value of the holder's account, plus (2) an amount from the underwriter or depositor equal to the difference between the total gross payments made and the net amount actually invested. The SEC can make rules on the reserve requirements underwriters and depositors must meet to carry out these refund obligations, and on the method, form, and content of the required notice. (g) Instead of being governed by subsections (a) and (d), a registered investment company issuing periodic payment plan certificates may elect, by written notice to the SEC, to be governed by subsection (h) instead. (h) Once a company makes that election, it is illegal for the company, or its depositor or underwriter, to sell a periodic payment plan certificate if: (1) the sales load is more than 9 percent of all payments due; (2) more than 20 percent of any single payment is deducted for sales load, or the average deducted across the first forty-eight monthly payments (or their equivalent) is more than 16 percent; (3) within any of four payment groups — the first through twelfth, thirteenth through twenty-fourth, twenty-fifth through thirty-sixth, or thirty-seventh through forty-eighth monthly payments (or their equivalents) — the sales load deducted from one payment is proportionately larger than the load deducted from another payment in the same group, or the load deducted from any later payment is proportionately larger than the load deducted from another later payment; (4) the sales-load deduction on the part of a payment that exceeds the certificate's required minimum monthly payment is higher than the sales load that applies to payments made after the first forty-eight monthly payments or their equivalent; (5) the first payment is less than $20, or a later payment is less than $10; (6) the company is a management company, and management fees on the certificate's proceeds (other than reasonable administrative fees under section 80a-26(a)(2)(C)) exceed whatever reasonable amount the SEC prescribes; or (7) the company is a unit investment trust holding a management company's securities, and its depositor, underwriter, or an affiliated person of either, is to receive from that management company or its affiliate a fee tied to payments on the certificate exceeding whatever reasonable amount the SEC prescribes. (i) (1) This section does not apply to a registered separate account that funds variable insurance contracts, or to the sponsoring insurance company and its principal underwriter, except as provided in paragraph (2). (2) It is illegal to sell such a contract unless (A) the contract is a redeemable security, and (B) the insurance company complies with section 80a-26(f) and any SEC rules issued under it. (j) (1) Effective 30 days after September 29, 2006, and subject to subsection (i), it became illegal (A) for a registered investment company to issue any periodic payment plan certificate, or (B) for that company, its depositor, its underwriter, or any other person to sell one. (2) This ban does not alter, invalidate, or otherwise affect any rights or obligations — including redemption rights — under a periodic payment plan certificate that was issued and sold before that 30-day deadline.