- (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.
The charter documents or fundamental policy adopted by an investment company shall include a prohibition of any of the following investment practices or activities:
Note: Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.
History
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).