tion of such company shall, upon such terms and conditions as the Commission finds and in such order prescribes as necessary for the protection of investors, cease to be in effect. The Commission's denial of any application under this subsection shall be by order.

REGISTRATION OF CERTAIN AFFILIATED PERSONS AND UNDERWRITERS

SEC. 9. (a) It shall be unlawful for any person, unless registered under this section, to serve or act in any of the following capacities for a period exceeding sixty days:

(1) as officer, director, manager, or investment adviser of or for a registered management investment company or registered face-amount certificate company;

(2) as depositor, manager, or investment adviser of or for a registered unit investment trust;

(3) as principal underwriter for a registered open-end management investment company, registered unit investment trust, or registered face-amount certificate company; or

(4) as a distributor who makes use of the mails or any means or instrumentality of interstate commerce to engage in the business of selling periodic payment plan certificates, or as a salesman for such a distributor.

(b) Any person whose registration under this section is required solely because such person is an investment adviser for a registered investment company shall be deemed registered under this section so long as such person is registered under section 204 of title II of this Act.

(c) Any of the persons enumerated in subsection (a), and any person who presently contemplates becoming such an officer, director, manager, investment adviser, depositor, principal underwriter, distributor, or salesman may be registered under this section by filing with the Commission an application for registration. Such application shall contain such information and documents, in such form and such detail, as to such person and affiliated persons of such person as the Commission may by rules and regulations prescribe as necessary or appropriate to effectuate the purposes of this title. Except as hereinafter provided, such registration shall become effective thirty days after receipt of such application by the Commission, or within such shorter period of time as the Commission may determine. Any amendment of an application filed not more than fifteen days after the filing of such application shall be deemed to have been filed with and as a part of such application. Any amendment of an application filed more than fifteen days after the filing of such application shall be deemed a new application incorporating by reference the unamended items of the earlier application.

(d) The Commission shall by order deny registration to, or revoke or suspend the registration of, an applicant under this section, if the Commission finds that such denial, revocation, or suspension is in the public interest and that—

(1) the applicant, within ten years of the issuance of such order, has been convicted of any felony or misdemeanor involving the purchase or sale of any security or arising out of the applicant's conduct as an underwriter, broker, dealer, or investment adviser, or as an affiliated person, salesman, or employee of any investment company, bank, or insurance company;

(2) the applicant, at the time of the issuance of such order, is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an underwriter, broker, dealer, or investment adviser, or as an affiliated person, salesman, or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security;

(3) the application, as amended, omits any material fact required to be stated therein; or

(4) the applicant has willfully violated section 34 (b), of this title, or that portion of section 203 of title II of this Act which incorporates the provisions of said section 34 (b).

(e) The commencement of a proceeding to deny registration under this section shall operate to postpone the effective date of registration pending final determination of such proceeding.

AFFILIATIONS INVOLVING CONFLICTS OF INTEREST

SEC. 10. (a) After one year from the effective date of this title, no registered investment company shall have a board of directors or an executive committee more than a minority of the members of which consists of

(1) affiliated persons of any one company other than such registered company; or

(2) persons who regularly act as manager, investment adviser, broker, or principal underwriter of or for such registered company, or affiliated persons of such persons.

(b) Notwithstanding subsection (a), more than a minority of the members of such a board or committee may consist of persons whose only common affiliation (except with such registered company) is with

(1) an investment company in the same investment company system with such registered company;

(2) a bank, if each such person was a member of such board or committee on the effective date of this title; or

(3) an investment adviser registered under section 204 of title II of this Act, if (A) such investment adviser is engaged in no business other than that of an investment adviser; (B) the sales load on securities issued by such registered company does not exceed 1 per centum of the price to the public; (C) such registered company has no inanager other than such investment adviser, and such investment adviser does not receive a management fee exceeding one-half of 1 per centum per annum of the value of such company's net assets averaged over the year or taken as of a definite date within the year; (D) all expenses of such registered company, excepting only taxes and brokerage expenses, are paid by such investment adviser; and (E) at least one-third of the members of the board of directors and of the executive committee of such registered company are persons other than such investment adviser or affiliated persons of such investment adviser.

(c) After one year from the effective date of this title, no registered investment company shall have as director any person who is an investment banker, a broker, or an affiliated person of an investment banker or broker, if such person is a director, officer, or manager of an investment company which is not in the same investment company system with such registered company.

(d) After one year from the effective date of this title, it shall be unlawful for any of the following persons to serve or act as investment officer or manager of a registered investment company:

(1) any officer or manager of an investment company which is not in the same investment company system with such registered company;

(2) any director or officer of a bank who was not a director or officer of

such registered company on the effective date of this title;

(3) any person who regularly acts as broker for such registered company; (4) if such registered company is an open-end management investment company, any principal underwriter therefor; or

(5) any affiliated person of any of the foregoing.

No provision of this subsection shall be construed to prohibit a person from serving or acting as investment officer, manager, broker, or principal underwriter of or for an investment company, merely because such person, though not a manager of any other investment company, is an investiment adviser of another such company.

(e) After one year from the effective date of this title, it shall be unlawful for any director or officer of a registrered investment company to serve or act as director or officer of an issuer any outstanding security of which is owned by such registered company, if-

(1) such registered company owns less than 5 per centum of the outstanding voting securities of such issuer; or

(2) such director or officer is an investment banker, a broker, or an affiliated person of an investment banker or broker.

(f) It shall be unlawful for any director or officer of a registered investment company, or any investment banker or broker of which such a director or officer is an affiliated person, to serve or act as principal underwriter for any issuer of which such registered company owns more than one-half of 1 per centum of any class of securities outstanding.

(g) No registered investment company shall purchase or otherwise acquire any security a principal underwriter of which is a director, officer, or manager of such company, or is an investment banker or broker of which such a director, officer, or manager is an affiliated person, unless

(1) in acquiring such security such registered company is itself acting as a principal underwriter for the issuer; or

(2) such security was first offered to the public by the issuer or by or through an underwriter more than one year prior to such acquisition.

(h) Any reciprocal arrangement for the purpose of evading the provisions of subsection (d) or (f) shall be deemed a violation of this title by the persons concerned, and if such arrangement is known to the registered investment company concerned, a violation of this title by such company.

(i) In the case of a registered management investment company which is an unincorporated company not having a board of directors, the provisions of this section, instead of applying to such company and affiliated persons thereof, shall apply, respectively, to every depositor or manager of such company and to affiliated persons of such depositor or manager.

RECURRENT PROMOTION OF INVESTMENT COMPANIES

SEC. 11. (a) It shall be unlawful for any promoter of a registered investment company organized on or after March 1, 1940, to serve or act as director, officer, manager, investment adviser, depositor, trustee, or principal underwriter of or for such company, if within five years such person, or any company of which such person was then an affiliated person, has been a promoter of another investment company.

(b) It shall be unlawful for any promoter of a registered investment company organized on or after March 1, 1940, to serve or act as investment adviser of or principal underwriter for such company if at the same time such person, or any company of which such person is an affiliated person, is serving or acting as officer, manager, investment adviser, depositor, or principal underwriter of or for another registered investment company.

(e) No registered investment company (other than a face-amount certificate company) shall issue any security (other than short-term paper) representing an interest in or claim against only a class of the issuer's assets, unless such class of assets was created, and securities representing interests exclusively in or claims exclusively against such class were offered and sold to the public prior to March 1, 1940.

In

(d) Upon application by a registered investment company, or by a promoter of a registered investment company or of a proposed investment company, the Commission shall by order conditionally or unconditionally exempt such company or promoter from a provision or provisions of this section, if the Commission finds that such exemption is consistent with the purposes of this title. considering such application the Commission shall give due weight to the organization and practices of the company concerned, the history and practices of any promoter concerned, the history and practices of the investment companies with which such promoter has been associated, and the possibility that the granting of such application will subject such company or promoter to conflicting duties or interests.

FUNCTIONS OF INVESTMENT COMPANIES; FORMATION OF INVESTMENT COMPANY

SYSTEMS

SEC. 12. (a) It shall be unlawful for any registered investment company

(1) to purchase any security on margin or credit (except such short-term credits, necessary for the clearance of transactions, as the Commission may designate by rules and regulations or order);

(2) to participate on a joint or a joint and several basis in any trading account in securities;

(3) to effect a short sale of any security, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors; or

(4) to act as a dealer in or distributor of securities of which it is the issuer, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

(d) No registered investment company organized after March 1, 1940, and no principal underwriter for such a company, shall make a public offering of securities of which such company is the issuer, unless

(1) such company has a net worth of at least $100,000; or

(2) such company has previously made a public offering of its securities, and at the time of such offering had a net worth of at least $100,000.

COMPENSATION OF MANAGEMENT; MANAGEMENT AND UNDERWRITING CONTRACTS SEC. 15. (a) After one year from the effective date of this title, it shall be unlawful for any person regularly to serve or act as officer, director, manager, investment adviser, or employee of any registered investment company, unless such person's compensation from such company is determined on one or more of the following bases, and no other:

(1) a definite sum of money per year, month, or other definite period; (2) a sum of money representing a definite percentage of such company's income from interest and dividends during a definite period; or

(3) a sum of money representing a definite percentage of the value of the net assets of such company as of a definite date or averaged over a definite period.

(b) After one year from the effective date of this title it shall be unlawful for any person regularly to serve or act as manager or investment adviser of a registered investment company, except pursuant to a written contract with such company, approved by the vote of a majority of the outstanding voting securities of such company, which contract

(1) precisely describes all compensation to be paid thereunder;

(2) by its terms expires not later than two years from the date of its execution, and is renewable thereafter only by the specific approval annually of the board of directors or the security holders of such registered company; (3) provides, in substance, that it may be terminated at any time, without the payment of any penalty, by the board of directors of such registered company or by vote of a majority of the outstanding voting securities of such company on not more than sixty days' written notice to the manager or investment adviser; and

(4) provides, in substance, for its automatic termination in the event of its assignment or attempted assignment by the manager or investment adviser.

(c) After one year from the effective date of this title, it shall be unlawful for any principal underwriter for a registered open-end management investment company or registered unit investment trust to offer for sale, sell, or deliver after sale any security of which such company is the issuer, except pursuant to a written contract with such company which

(1) by its terms expires not later than one year from the date of its execution, and is renewable thereafter only by the specific approval annually of the board of directors or of the security holders of such registered company;

and

(2) provides, in substance, for its automatic termination in the event of its assignment or attempted assignment by such underwriter.

(d) It shall be unlawful for any registered investment company having a board of directors to enter into or perform any contract or agreement, written or oral, whereby a person undertakes regularly to serve or act as manager, investment adviser, underwriter, or broker for such company, unless the terms of such contract or agreement have been approved by a majority of such directors, exclusive of any director who is himself a party to such contract or agreement or who is an affiliated person of such a party.

(e) If any registered investment company, or any company controlled by or under common control with such a company, is serving or acting, or proposes to serve or act, as manager or investment adviser of another company or companies in the same investment company system with such registered company, the Commission shall require, by such rules and regulations or orders as it finds necessary or appropriate in the public interest or for the protection of investors, that such manager or investment adviser serve such other company or companies at cost, and that such cost be equitably allocated between and among such registered company and such other company or companies.