California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 2 - Corporate Securities › Article 4 - Standards for the Exercise of the Commissioner's Authority › Subarticle 8 - Investment Companies › Section 260.140.85 - Prohibited Investments

Current through Register 2024 Notice Reg. No. 28, July 12, 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.