Current through Register 2024 Notice Reg. No. 38, September 20, 2024
The charter documents or fundamental policy adopted by an
investment company shall include a prohibition of any of the following
investment practices or activities:
(a) Acquisition or retention of securities of
any open-end investment company.
(b) Except as provided in subsections (1) and
(2) of this subsection, engaging in short sales (other than sales against the
box) or margin purchases, in writing, buying or selling puts and calls on
securities, stock index futures, options on stock index futures, financial
futures contracts or options thereon, or in other investment practices which,
in the opinion of the Commissioner, are highly speculative, unless the
securities of such investment company are offered only to a limited class of
purchasers and are subject to such other sales limitations as the Commissioner
may require, including those in Section
260.140.01, and adequate
disclosure is made of the speculative nature of the security.
(1) An investment company may engage in
writing puts and calls on securities if each of the following conditions are
met:
(A) The security underlying the put or
call is within the investment policies of the company and the option is issued
by the Options Clearing Corporation.
(B) The aggregate value of the securities
underlying the calls or obligations underlying the puts determined as of the
date the options are sold shall not exceed 25% of the net assets (as determined
in Section
260.140.84) of the investment
company. However, if consistent with its plan of operations and objectives and
its advisor has demonstrated previous experience in managing portfolios
containing options on a substantial basis, there need be no limit on the
aggregate value of the securities underlying the calls and the aggregate value
of the obligations underlying the puts shall not exceed 50% of the net
assets.
(C) The securities subject
to the exercise of a call written by the investment company must be owned by
the investment company at the time the call is sold and must continue to be
owned by the investment company until the call has been exercised, has lapsed,
or the investment company has purchased a closing call, and such purchase has
been confirmed, thereby extinguishing the investment company's obligation to
deliver securities pursuant to the call it has sold. At the time a put is
written, the investment company must establish a segregated account with its
custodian consisting of cash or short term United States Government securities
equal in value to the amount the investment company will be obligated to pay
upon exercise of the put. This account must be maintained until the put is
exercised, has expired, or the investment company has purchased a closing put,
which is a put of the same series as the one previously
written.
(2) An
investment company may buy and sell puts and calls on securities, stock index
futures or options on stock index futures, or financial futures or options on
financial futures, if such options are written by other persons and if
(A) the options or futures are offered
through the facilities of a national securities association approved by the
Commissioner under Rule 260.105.35 or are listed on a national securities or
commodities exchange,
(B) the
aggregate premiums paid on all such options which are held at any time do not
exceed 20% of the company's total net assets and
(C) the aggregate margin deposits required on
all such futures or options thereon held at any time do not exceed 5% o the
company's total assets.
1.
Amendment filed 1-4-77; effective thirtieth day thereafter (Register 77, No.
2).
2. Amendment refiled 1-7-77; effective thirtieth day thereafter
(Register 77, No. 2).
3. Amendment filed 5-3-83; effective thirtieth
day thereafter (Register 83, No. 19).
4. Amendment of subsections
(b) and (c) filed 4-23-86; effective upon filing pursuant to Government Code
Section
11346.2(d)
(Register 86, No. 17).
Note: Authority cited: Section
25610,
Corporations Code. Reference: Section
25140,
Corporations Code.
