both service company and the holding company that a fair and accurate allocation of the time devoted by them to the holding company cannot be made, such payments are not consistent with the standards imposed by Section 13 ... Page 91.

TERMINATION OF PAYMENT OF COMPENSATION BY SUBSIDIARY SERVICE COMPANY

To Officers, Employees, and Directors of Holding Company

Compliance with the standards of Sections 13 (a) and (b) requires (1) either that the officers who now hold positions in both the service company and the parent holding company sever their relations with one company or the other, or that the parent company undertake to pay the entire compensation of such officers and those of their subordinates whose activities are so closely aligned therewith that a fair and accurate allocation of their time cannot be made; (2) that the service company cease paying the traveling expenses of common directors; and (3) that steps be taken to revise the directorate of the service company to conform to the standards of Section 13 (a) . . . Page 91.

WHEN A SERVICE COMPANY MAY NOT BE RETAINED

A holding company system cannot retain a service company when a large part of the business of the service company cannot be said to be reasonably incidental or economically necessary or appropriate to the operations of the utility properties to be retained by the holding company system ... Page 862.

TERMS OF COMPETITIVE BIDDING

Where applicant proposes to sell bonds and stock at competitive bidding upon the following terms: all bids to be competitive both with respect to price and terms of yield, subject to restrictions with respect thereto imposed by the state commission; any bidder or group of bidders to bid for all the bonds or for all the stock, or for both in separate bids; all bids to be several and not joint; the issuer agreeing, unless it rejects all bids; to accept that bid for the bonds and that bid for the stock which will yield the lowest annual cost of money; held, as to such provisions, in conformity with Rule U-50... Page 499.

Where invitation to competitive bidders provides that successful bidders shall pay the legal fees of counsel selected for them in advance by the issuer, held permissible in view of fact that instant case constitutes first application of Commission's competitive bidding rule and presented peculiar problems requiring extensive legal work in advance of the hearing, and that such services were performed in good faith and in large part before the application was filed with this Commission; but such duplication of counsel for the issuer and the underwriters, all selected by the issuer, is not to constitute a precedent in future cases .. Page 499.

...

9 S. E. C.

PART IV

INVESTMENT COMPANY ACT* OF 1940

AFFILIATED PERSONS AND UNDERWRITERS

INELIGIBILITY

Prior Convictions or Injunctions—Exemptions

Where disqualifying injunction was entered by consent against a principal underwriter and depositor of a registered investment company, its agents, representatives and employees and certain named individuals, and where it appears that the named individuals charged with certain illegal acts and practices have since severed their connections with such principal underwriter and depositor, and there is no evidence of misconduct on the part of the applicant since the granting of the injunction, held, it is not against the public interest or the protection of investors to exempt such principal underwriter and depositor from the provisions of Section 9 of the Act . . . Page 450.

Where disqualifying injunction was entered by consent against a principal underwriter and depositor of a registered investment company and its officers and directors, and where such principal underwriter and depositor had pleaded guilty to an indictment charging conspiracy to violate Sections 5 (b) and 17 (a) of the Securities Act of 1933 and where it further appears (1) that only certain of the salesmen employed by such principal underwriter and depositor were actually guilty of the acts and practices complained of, (2) that these acts were committed without the knowledge or consent of the individuals who are applicants herein and contrary to their express instructions, (3) that such salesmen are no longer associated with such principal underwriter and depositor, and (4) that there is no evidence of misconduct on the part of any of the applicants since the entry of the injunction, held it is not against the public interest or the protection of investors to exempt such principal underwriter and depositor and its officers and directors from the ineligibility provisions of the Act... Page 453.

Where disqualifying injunction was entered by consent against a sponsorunderwriter and its officers and directors, and where it appears (1) that only certain of the agents and distributors of the securities were actually guilty of the acts and practices complained of, (2) that these acts were committed without the knowledge or consent of the officers and directors, and contrary to their express instructions, (3) that the functions and duties of the present directors and officers have always been of an administrative nature and they have never acted as sales agents, and (4) that there is no evidence of misconduct on the part of the applicant since the entry of the injunction, held it is not against the public interest or the protection of investors to exempt the applicant and its officers and directors from the ineligibility provisions of Section 9 (a) of the Act... Page 457.

*The term "Act" as used in Part IV of this Digest refers to the Investment Company Act of 1940.

9 S. E. C.

ASSOCIATION OF BROKERS AND DEALERS

AMENDMENT TO RULES OF FAIR PRACTICE

An amendment to the rules of fair practice of a registered national securities association consisting of an additional rule prescribing the manner in which and the price at which members of the association may purchase, sell, and redeem securities issued by open-end management investment companies in order to insure among other things that such prices accurately reflect the current asset value of such securities held consistent with the requirements of Section 15A (b) (7) of the Securities Exchange Act of 1934, Sections 22 (a) and (b) of the Investment Company Act of 1940 and permitted to become effec tive... Page 38.

DEFINITION OF INVESTMENT COMPANY

EXCEPTED COMPANIES

Companies Primarily Engaged Through Majority Owned or Controlled Subsidiaries in an Industrial Business

Where applicant has 76 percent of its assets (exclusive of government securities and cash items) invested in four wholly owned subsidiaries and one majority owned subsidiary, each of which is engaged in furnishing aid to commerce, danking, credit, industrial, and agricultural enterprises in or relating to Palestine, and where applicant has 26 percent of its assets invested in six other Palestine operating companies similarly engaged, and in light of various other facts, held that applicant is entitled to an order declaring that it is primarily engaged through majority owned or controlled companies in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in securities ... Page 19.

A company over 97 percent of the assets of which (exclusive of government securities and cash items) are represented by its holdings of investment securities in majority owned or controlled subsidiaries engaged in the manufacture of aluminum products and which derives over 98 percent of its total income from such manufacturing subsidiaries, held in the light of these and various other factors entitled to an order declaring it to be primarily engaged in a business other than that of investing, reinvesting, owning, holding, or trading in securities through majority owned subsidiaries, and therefore excepted from the definition of “investment company" . . . Page 22.

Companies Subject to Regulation under Interstate Commerce Act

Railroad holding company not a "carrier" under Section 20a of the Interstate Commerce Act and not being subject to regulation under that Act regarding such matters as issuance of securities, interlocking directors, keeping of accounts and records, and filing of reports, etc., held, not to be excepted from the Investment Company Act as Interstate Commerce Act" within the meaning of Section 3 (c) (9) of the company "subject to regulation under the Investment Company Act ... Page 680.

Manufacturing Company Investing Surplus Funds in Securities

A company which has 46 percent of the balance sheet value of its total assets (exclusive of government securities and cash items) invested in securities but which has never held itself out as an investment company and has engaged in the business of manufacturing for 30 years deriving approximately 80 percent of its net earnings from such manufacturing activities held entitled to 9 S. E. C.

an order declaring it not to be engaged primarily in the business of investing, reinvesting, owning, holding, or trading in securities . . . Page 16.

EXEMPTIONS

Where applicant was organized and is operated essentially as a receptacle for the surplus funds of a company which is not an investment company, pending utilization of such funds for the business purposes of its parent, where the stockholders of the applicant are virtually identical with the stockholders of the related company, where applicant has never offered securities nor solicited funds from persons other than the related company held applicant is essentially a private enterprise to which it was not intended that the provisions of this Act should apply and its application for exemption from the provisions of the Act is granted ... Page 906.

Company Substantially All of the Stock of Which is Owned by a Bank Holding Company Excepted from Investment Company Act

Where 99.9 percent of outstanding securities of applicant are owned by a company excepted from the definition of "investment company" because it is a bank holding company affiliate as defined by Section 3 (c) (4) of the Act, and where applicant is subject, equally with its parent, to supervision and regulation by Board of Governors of the Federal Reserve System, where applicant will continue to offer to repurchase the publicly held .1 percent of its stock at approximate liquidating value, held that although applicant is an investment company, it may consistently with the public interest and the protection of investors be exempted from the Act . . . Page 901.

...

DEFINITION OF “SELL” AND “PURCHASE”

STATUTORY MERGERS

Upon request for an expression of the Commission's opinion as to its jurisdiction under Section 17 (a) of the Act over a proposed statutory merger of two noninvestment company affiliates of a registered investment company, held that the words "sell" and "purchase" as used in Section 17 (a) do not include mergers of the kind proposed and that, consequently, the Commission has no jurisdiction over the proposed merger . . . Page 241.

DISTRIBUTION, REDEMPTION, AND REPURCHASE OF REDEEMABLE SECURITIES

RULES OF REGISTERED NATIONAL SECURITIES ASSOCIATION

An amendment to the rules of fair practice of a registered national securities association consisting of an additional rule prescribing the manner in which and the price at which members of the association may purchase, sell, and redeem securities issued by open-end management investment companies in order to insure among other things that such prices accurately reflect the current asset value of such securities held consistent with the requirements of Section 15A (b) (7) of the Securities Exchange Act of 1934, Sections 22 (a) and (b) of the Investment Company Act of 1940 and permitted to become effective. . . Page 38. SUSPENSION OF REDEMPTION RIGHTS IN CONNECTION WITH LIQUIDATION OF COMPANY

Where an open-end investment company has determined to liquidate its assets and dissolve, held, that the company may suspend the right of redemption of its outstanding securities until its assets have been converted into cash and all debts, expenses, taxes, etc., have been paid or provided for, and that the company

may, during this conversion period, make proportionate distributions on account of principal to all security holders ... Page 860,

EXEMPTIONS

Where the assets of an investment company have been and will continue to be obtained either directly from the New York agency of an European bank or by the use of funds loaned it by the agency, and where there has been no public offering of securities by the company, and where there is no known American interest in said agency or bank, and where the portfolio securities of the company are generally restricted to the type held by banks, and in the light of other facts; held that the applicant be granted an exemption from all of the provisions of the Act under Section 6 (c) for a period not to exceed 1 year, provided that applicant will not be relieved from the provisions of the Act if the operative facts are changed ... Page 220.

ACQUISITION OF SECURITIES BY REGISTERED INVESTMENT COMPANY

A registered closed-end investment company offered subscription warrants for the purchase of common stock of an insurance company, shares of which are already in its portfolio, upon the same basis as all other stockholders, and having an officer and director who is a principal underwriter of the stock thus offered, held entitled to an order exempting it from the provisions of Section 10 (f) of the Act... Page 5.

INVESTMENT ADVISORY CONTRACT

Approval by Registered Investment Company's Shareholders

Where it appears that the management and policies of an investment advisez will remain the same after the transfer of one-third of such investment adviser's outstanding shares, a new investment advisory contract on terms identical with an existing contract between such adviser and a registered investment company will be exempted under Section 6 (c) of the Act from the provisions of Section 15 (a) of said Act insofar as such new contract requires the approval of the investment company's stockholders on or before November 1, 1941, provided that such new contract is submitted to the shareholders of the investment company for their approval at their next annual meeting . . . Page 645. PURCHASES OF STOCK FROM AFFILIATED PERSONS BY AN INVESTMENT COMPANY ACTING AS AGENT FOR CONTROLLED COMPANY

Where a registered investment company acting as agent for a controlled company secures an option to purchase from an affiliated person certain shares of preferred stock of another affiliated person at a price which is within the range of prices at which the stock is sold on the New York Stock Exchange at the time of the option agreement and which option is a step in a plan to reorganize an affiliated person of the investment company and where such option is secured to enable the affiliated person to be placed in a position to eliminate the dividend arrearages on its preferred stock within a period of 2 years, and where the record indicates arm's length bargaining on the part of the parties to the option, held, the terms of the proposed option including the consideration to be paid are reasonable and fair and do not involve overreaching on the part of any person concerned... Page 1023.

REGISTRATION STATEMENT AND REPORTS COMPANY HOLDING STOCK OF SINGLE COMPANY AND SUBJECT TO SECURITIES EXCHANGE ACT OF 1934 Where the activities of an investment company are and will be confined exclusively to holding stock of a single affiliated company which stock may be