(5) the activities of such companies, extending over many States, and the wide geographic distribution of their security holders, make difficult, if not impossible, any effective State regulation of such companies in the interest of investors. DECLARATION OF POLICY SEC. 2. Upon the basis of facts disclosed by the record and reports of the Securities and Exchange Commission made pursuant to section 30 of the Public Utility Holding Company Act of 1935, and facts otherwise disclosed and ascertained, it is hereby declared that the national public interest and the interest of investors are adversely affected (1) when investors purchase, pay for, exchange, receive dividends upon, vote, refrain from voting, sell, or surrender securities issued by investment companies without adequate, accurate, and explicit information, fairly presented, concerning the character of such securities and the circumstances, policies, and responsibility of such companies and their management; (2) when investment companies are organized, operated, or managed in the interest of directors, officers, managers, investment advisers, depositors, or other affiliated persons thereof, in the interest of underwriters, brokers, or dealers, in the interest of special classes of their security holders, or in the interest of other investment companies or persons engaged in other lines of business, rather than in the interest of all classes of such companies' security holders and of the public; (3) when investment companies issue securities containing inequitable, discriminatory, or anomalous provisions, or fail to protect the preferences and privileges of their outstanding securities; (4) when the control or management of investment companies is unduly concentrated, inequitably distributed, or irresponsibly held; (5) when investment companies, in keeping their accounts in maintaining reserves, and in computing their earnings and the asset value of their outstanding securities, employ unsound or misleading methods, or are not subjected to adequate independent scrutiny; (6) when investment companies are reorganized, dissolved, become inactive, or change the character of their business, or when the control or management thereof is transferred, without the consent of their security holders and without adequate public supervision; (7) when investment companies engage in manipulative or unduly speculative transactions, have excessive investments in securities or property of a speculative or unmarketable character, or by borrowing and the issuance of senior securities increase the speculative character of their junior securities; or (8) when investment companies operate without adequate assets or reserves, or attain such great size as to preclude efficient investment management and to have excessive influence in the national economy. It is hereby declared that the policy and purposes of this title, in accordance with which the provisions of this title shall be interpreted, are to mitigate and, so far as is feasible, to eliminate the abuses enumerated in this section. DEFINITION OF INVESTMENT COMPANY SEC. 3. (a) When used in this title, "investment company" means any issuer which (1) holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; or (2) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer's total assets (exclusive of Government securities and cash items) on an unconsolidated basis. As used in this subsection, "investment securities" includes all securities except (A) Government securities, (B) securities issued by employees' securities companies, and (C) securities issued by majority-owned subsidiaries of the owner which are not investment companies. (b) Notwithstanding paragraph (2) of subsection (a), none of the following issuers is an investment company within the meaning of this title: (1) Any issuer primarily engaged, directly or through wholly-owned subsidiaries, in a business or businesses other than that of investing, reinvesting, or trading in securities. (2) Any issuer which the Commission, upon application by such issuer, finds and by order declares to be primarily engaged, directly or through majorityowned subsidiaries, in a business or businesses other than that of investing, reinvesting, or trading in securities. The filing of an application under this paragraph by an issuer other than a registered investment company shall exempt the applicant from all provisions of this title for a period of sixty days. For cause shown the Commission by order may extend such period of exemption for an additional period or periods. Whenever the Commission, upon its own motion or upon application, finds that the circumstances which gave rise to the issuance of an order granting an application under this paragraph no longer exist, the Commission shall by order revoke such order. (3) Any issuer all the outstanding securities of which (other than short-term paper) are directly or indirectly owned by a company excepted from the definition of investment company by paragraph (1) or (2) of this subsection. (c) Notwithstanding subsections (a) and (b), none of the following persons is an investment company within the meaning of this title: (1) Any issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than one hundred persons and which is not making and does not propose to make a public offering of its securities. For the purposes of this paragraph, beneficial ownership by a company shall be deemed to be beneficial ownership by one person; except that, if such company is an affiliated company of the issuer, the beneficial ownership shall be deemed to be that of the holders of such affiliated company's outstanding securities (other than shortterm paper). (2) Any person substantially all of whose gross income from securities and securities transactions is derived from acting as broker and from the distribution of securities issued by other persons. (3) Any bank or insurance company; any common trust fund, as defined in section 169 of the Revenue Act of 1938; any savings and loan association substantially all the business of which is confined to the making of loans to members; or any person engaged exclusively in the business of making small loans and licensed under the laws of a State to engage in such business. (4) Any company effectively registered as a holding company under the Public Utility Holding Company Act of 1935. (5) Any company, other than a face-amount certificate company, substantially all the intangible assets of which consist of mortgages and other liens on real estate. (6) Any person substantially all of whose business consists of owning or holding oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, leases, or fractional interests. (7) Any company organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual. (8) Any voting trust the assets of which consist exclusively of securities of a single issuer which is not an investment company. (9) Any security holders' protective committee or similar issuer having outstanding and issuing no securities other than certificates of deposit and shortterm paper. CLASSIFICATION OF INVESTMENT COMPANIES SEC. 4. For the purposes of this title, investment companies are divided into three principal classes, defined as follows: (1) "Face-amount certificate company" means an investment company which is engaged in the business of issuing face-amount certificates, or which has been engaged in such business and has any such certificate outstanding. (2) "Unit investment trust" means an investment company which (A) is organized under a trust indenture, contract of custodianship or agency, or similar instrument, (B) does not have a board of directors, and (C) issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities: but does not include a voting trust, or any trust which issues and has outstanding no securities other than short-term paper and periodic payment plan certificates. (3) "Management investment company" means any investment company other than a face-amount certificate company, a unit investment trust, or a company which issues and has outstanding no securities other than short-term paper and periodic payment plan certificates. SUBCLASSIFICATION OF MANAGEMENT INVESTMENT COMPANIES SEC. 5. (a) For the purposes of this title, management investment companies are divided, according to the securities which they issue, into open-end and closedend management investment companies, defined as follows: (1) "Open-end management investment company" means a management investment company which is offering for sale or has outstanding any redeemable security of which it is the issuer. (2) "Closed-end management investment company" means any management investment company other than an open-end management investment company. (b) Management investment companies are further divided, according to the character of their assets, their investment policy and capital structure intodiversified investment companies, securities trading companies, and securities finance companies, defined as follows: (1) "Diversified investment company" means a management investment company which meets the following requirements: (A) the value of its investment in the securities of any one issuer (other than Government securities) does not exceed 5 per centum of the value of its total assets; (B) at least 85 per centum of the value of its total assets is represented by cash items, by Government securities, and by marketable securities of issuers of which it does not own more than 5 per centum of any class of securities outstanding; (C) its portfolio turn-over during its last fiscal year did not exceed 150 per centum; (D) it has outstanding only one class of securities other than short-term paper; and (E) it does not control or own any voting security issued by any other investment company. (2) "Securities trading company" means any management investment company other than a diversified investment company, which meets the requirements o subparagraphs (A) and (B) of paragraph (1). (3) "Securities finance company" means any management investment company other than a diversified investment company or securities trading company. (c) A registered diversified investment or securities trading company which at the time of its registration meets the requirements of subparagraphs (A) and (B) of paragraph (1) of subsection (b) shall not lose its status as a diversified investment or securities trading company because of any subsequent discrepancy between the value of its various investments and the requirements of said subparagraphs, so long as any such discrepancy existing immediately after its acquisition of any security or other property is neither wholly or partly the result of such acquisition. (d) The Commission shall have authority, by rules and regulations in the public interest or for the protection of investors, to make further classifications and subclassifications of investment companies according to organization, capital structure, nature of assets, amount of assets, investment policy, character of business done, or any one or more other characteristics which the Commission deems significant and which are consistent with the definitions contained in this section. and section 4. EXEMPTIONS SEC. 6. (a) The following investment companies are exempt from every provi sion of this title except section 7 (d): (1) Any company not organized under the laws of the United States or of a State. (2) Any company organized under the laws of and having its principal office and place of business in Alaska, Hawaii, Puerto Rico, the Philippine Islands, the Canal Zone, the Virgin Islands, or any other possession of the United States; but such exemption shall terminate if any security of which such company is the issuer is offered for sale or sold, after the effective date of this title, by such company or an underwriter therefor, to a resident of any State other than the State in which such company is organized. (3) Any company for which, in a proceeding in any court of the United States or of a State, a receiver, trustee in bankruptcy, or similar officer had been appointed or elected prior to the effective date of this title, and every such officer so appointed or elected prior to the effective date of this title; but such exemption shall continue only so long as (A) the conduct of such company's business remains subject to the supervision of such court or officer thereof, and (B) such company does not sell exclusively for cash any security of which it is the issuer, except short-term paper and ordinary receiver's or trustee's certificates. (b) Upon application by any employees' securities company, the Commission shall be order exempt such company from the provisions of this title and of the rules and regulations hereunder, if and to the extent that it finds such exemption consistent with the protection of investors. In determining the provisions to which such an order of exemption shall apply, the Commission shall give due weight, among other things, to the form or organization and the capital structure of such company, the persons by whom its voting securities, evidence of indebtedness, and other securities are owned, controlled, and held, the prices at which securities issued by such company are sold and the sales load thereon, the disposition of the proceeds of such sales, the character of the securities in which such proceeds are invested, and any relationship between such company and the issuer of any such security. (c) The Commission, by rules and regulations upon its own motion, or by order upon application, may conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from any provision or provisions of this title or of any rule or regulation thereunder, if and to the extent that the Commission finds such exemption necessary or appropriate in the public interest and consistent with the protection of investors. (d) If, in connection with any rule, regulation, or order under this section exempting any investment company from any provision of section 7, the Commission deems it necessary or appropriate in the public interest or for the protection of investors that certain specified provisions of this title pertaining to registered investment companies shall be applicable in respect of such company, the provisions so specified shall apply to such company, and to other persons in their transactions and relations with such company, as though such company were a registered investment company. TRANSACTIONS BY UNREGISTERED INVESTMENT COMPANIES SEC. 7. (a) No management investment company or face-amount certificate company, unless exempted from the provisions of this subsection pursuant to section 6 or effectively registered under section 8, shall directly or indirectly-- (1) offer for sale, sell, or deliver after sale, by the use of the mails or any means or instrumentality of interstate commerce, any security or any interest in a security, whether the issuer of such security is such investment company or another person; or offer for sale, sell, or deliver after sale any such security or interest, having reason to believe that such security or inter、st will be made the subject of a public offering by use of the mails or any means or instrumentality of interstate commerce; (2) purchase, redeem, retire, or otherwise acquire or attempt to acquire, by use of the mails or any means or instrumentality of interstate commerce, any security or any interest in a security, whether the issuer of such security is such investment company or another person; (3) control any investment company which does any of the acts enumerated in paragraphs (1) and (2); (4) engage in any business in interstate commerce; or (5) control any company which is engaged in any business in interstate commerce. The provisions of this subsection shall not apply to transactions of an investment company which are merely incidental to its dissolution. (b) No depositor or trustee of or underwriter for a unit investment trust, unless such trust is exempted from the provisions of this subsection pursuant to section 6 or effectively registered under section 8, shall directly or indirectly (1) offer for sale, sell, or deliver after sale, by use of the mails or any means or instrumentality of interstate commerce, any security or any interest in a security of which such trust is the issuer; or offer for sale, sell, or deliver after sale any such security or interest, having reason to believe that such security or interest will be made the subject of a public offering by use of the mails or any means of instrumentality of interstate commerce; (2) purchase, redeem, or otherwise acquire or attempt to acquire, by use of the mails or any means or instrumentality of interstate commerce, any security or any interest in a security of which such trust is the issuer; or (3) sell or purchase for the account of such trust, by use of the mails or any means or instrumentality of interstate commerce, any security or interest in a security, by whomever issued. (e) No promoter of a proposed investment company, and no underwriter for such a promoter, shall make use of the mails or any means or instrumentality of interstate commerce directly or indirectly, to offer for sale, sell, or deliver after sale, in connection with a public offering, any preorganization certificate or subscription for such a company. (d) No investment company, unless organized under the laws of the United States or of a State, and no underwriter for a company otherwise organized, shall make use of the mails or any means or instrumentality of interstate commerce, directly or indirectly, to offer for sale, sell, or deliver after sale, in connection with a public offering, any security of which such company is the issuer. REGISTRATION OF INVESTMENT COMPANIES SEC S. (a) Any investment company organized under the laws of the United States or of a State may register for the purposes of this title by filing with the Commission a notification of registration, in such form as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. An investment company shall be deemed to be registered upon receipt by the Commission of such notification of registration. (b) It shall be the duty of every registered investment company to file with the Commission, within such reasonable time after registration as the Commission shall fix by rules and regulations or order, an original and such copies of a registration statement, in such form and containing such of the following information and documents, as the Commission shall by rules and regulations or order prescribe as recessary or appropriate in the public interest or for the protection of investors: (1) a description of the investment and management policies and of the business done and to be done by the registrant, including a designation of (A) the class and subclasses of investment company, as defined in or pursuant to sections 4 and 5, within which the registrant falls and within which the registrant proposes to operate in the future; (B) the activities other than investment in which the registrant is engaged and proposes to engage, such as trading, underwriting, acting as investment adviser, and participating in or influencing the management of companies outstanding securities of which are held by the registrant; and (C) the characteristics, amounts, and relative amounts of securities and other assets which the registrant has acquired and proposes to acquire in the course of its business; (2) the information and documents which would be required to be filed in order to register under the Securities Act of 1933 all securities which the registrant is authorized to issue; and 3 additional pertinent information and documents regarding the registrant, affiliated persons thereof, and underwriters therefor. c' In lieu of filing information and documents required pursuant to paragraph 2 of subsection (b), any registrant which has filed a registration statement under the Securities Act of 1933 or the Securities Exchange Act of 1934, which registration stateldent is currently effective, may file— I such copies of such registration statement or portions thereof, and pes of reports theretofore filed by the registrant pursuant to section 15 of the Securities Exchange Act of 1934, as the Commission shall designate by rules and regulations or order; and a report containing such current information and documents, regardof the matters included in such registration statement and reports, as the muniissan shall prescribe by rules and regulatiers or crder as Lecessary or prate the public interest or for the protection of investors. Whenever the Commission, cn its own motion or upon application, finds |