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of persons enumerated in paragraph (3), (5), (6), or (7), which issuer is controlled by such company within the meaning of section 2(a) (9).”

SEC. 7. Subsection (c) (9) of section 3 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(9) Any company (A) which is subject to regulation under the Interstate Commerce Act: Provided, That this exception shall not apply to a company which the Commission finds and by order declares to be primarily engaged, directly or indirectly, in the business of investing, reinvesting, owning, holding, or trading in securities; or (B) whose entire outstanding stock is owned or controlled by a company excepted under clause (A) hereof: Provided, That the assets of the controlled company consist substantially of securities issued by companies which are subject to regulations under the Interstate Commerce Act."

SEC. 8. Paragraph (10) of subsection (c) of section 3 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(10) Any company with a registration in effect as a holding company under the Public Utility Holding Company Act of 1935: Provided, That such registered company has not been exempted pursuant to section 3 of that Act."

SEC. 9. Paragraph (13) of subsection (c) of section 3 of the Investment Company Act of 1940, as amended, is amended by striking out "conditions of section 165 of the Internal Revenue Code, as amended" and inserting in lieu thereof "requirements of section 401 of the Internal Revenue Code of 1954, as amended".

SEC. 10. Paragraph (1) of subsection (b) of section 5 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(1) 'Diversified company' means a management company which meets the following requirements: At least 75 per centum of the value of its total assets is represented by cash and cash items (including receivables), Government securities, securities of other diversified investment companies, and other securities for the purposes of this calculation limited in respect to any one issuer to an amount not greater in value than 5 per centum of the value of the total assets of such management company and to not more than 10 per centum of the outstanding voting securities of such issuer."

SEC. 11. Paragraph (1) of subsection (a) of section 6 of the Investment Company Act of 1940, as amended, is amended by striking out “Alaska," and "the Philippine Islands,".

SEC. 12. Paragraph (2) of subsection (b) of section 8 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(2) a recital of the investment policy of the registrant, which may, if it desires, make appropriate reservations of freedom of action for the protection of investors, in respect of (A) the extent to which it intends generally to invest in bonds or other obligations, preferred stocks, common stocks, or any one or more of any class or type of securities; (B) objectives as to income, preservation of capital, or capital appreciation, if registrant represents that it will place emphasis on any one or more of such objectives: (C) the extent of investments to be made in issuers operating in particular geographical areas, if registrant represents that its investments will be so limited; (D) investment in companies for the purpose of exercising control or management; and (E) matters, not enumerated above or in paragraph (1), which the registrant deems matters of fundamental policy and elects to treat as such;".

SEC. 13. Subsection (a) of section 10 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"SEC. 10. (a) After one year from the effective date of this title, no registered investment company shall have a board of directors more than 60 per centum of the members of which are persons who are investment advisers of, affiliated persons or stockholders of an investment adviser of, or officers or employees of, such registered company or who are principal underwriters of, or persons contolling such registered company, investment adviser, or underwriter, or affiliated persons of such underwriters or affiliated persons (other than solely as directors of controlling or controlled persons of such registered company, investment adviser, or underwriter, or shall have a board of directors more than 80 per centum of the members of which are the persons mentioned above and regular brokers of the company or affiliated persons of such brokers."

SEC. 14. Subsection (f) of section 10 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(f) No registered investment company shall knowingly purchase or otherwise acquire, during the existence of any underwriting or selling syndicate, any security (except a security of which such company is the issuer) a principal underwriter of which is an officer, director, member of an advisory board, investment adviser, or employee of such registered company, or is a person (other than a company of the character described in section 12(d) (3) (A) and (B), Commission for the protection of investors. If a registered company) of which any such officer, director, member of an advisory board, investment adviser, or employee is an affiliated person, unless in acquiring such security. such registered company is itself acting as a principal underwriter for the issuer. The Commission, by rules and regulations upon its own motion or by order upon application, may conditionally or unconditionally exempt any transaction or classes of transactions from any of the provisions of this subsection, if and to the extent that such exemption is consistent with the protection of investors." SEC. 15. Subsection (h) of section 10 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(h) In the case of a registered management company which is an unincorporated company not having a board of directors, the provisions of this section shall apply as follows:

(1) the provisions of subsection (a), as modified by subsection (e), shall apply to the board of directors of the depositor of such company : Provided, That where the depositor acts as investment adviser to such company, a person who is an affiliated person of the depositor only by reason of being a director thereof shall not thereby be considered to be an. affiliated person of an investment adviser of such company for the purposes of this subsection;

“(2) the provisions of subsections (b) and (c), as modified by subsection (e), shall apply to the board of directors of the depositor and of every investment adviser of such company: Provided, That where the depositor acts as a principal underwriter of securities issued by such company, a person who is an affiliated person of the depositor only by reason of being a director thereof shall not thereby be considered to be an affiliated person of a principal underwriter of such company for the purposes of this subsection; and

"(3) the provisions of subsection (f) shall play to purchases and other acquisitions for the account of such company of securities a principal underwriter of which is the depositor or an investment adviser of such company, or an affiliated person of such depositor or investment adviser."

SEC. 16. Paragraph (3) of subsection (a) of section 13 of the Investment Company Act of 1940, as amended, is amended to read as follows:

“(3) Deviate from its policy in respect of concentration of investments in any particular industry or group of industries as recited in its registration statement, or deviate from any investment policy or any other fundamental policy recited in its registration statement pursuant to section 8(b) (2) ; or”.

SEC. 17. Subsection (a) of section 17 of the Investment Company Act of 1940, as amended, is amended by striking out the clause: "(other than a company of the character described in section 12 (d) (3) (A) and (B))".

SEC. 18. Subsection (c) of section 17 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(c) Notwithstanding subsection (a) —

"(1) a person may, in the ordinary course of business, sell to or purchase from any company merchandise or may enter into a lessor-lease relationship with any person and furnish the services incident thereto;

"(2) a company described in section 12(d) (3) (A) and (B) may purchase from and sell securities or other property to the registered investment company or companies which own its voting securities or may borrow money or other property from such registered company or companies." SEC. 19. Subsection (d) of section 17 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(d) It shall be unlawful for any affiliated person of or principal underwriter for a registered investment company, or any affiliated person of such a person or principal underwriter, acting as principal to effect any transaction in which such registered company, or a company controlled by such registered company, is a joint or a joint and several participant with such person, principal underwriter, or affiliated person, in contravention of such rules and regulations as the Commission may prescribe for the purpose of limiting or preventing participation by such registered or controlled company on a basis different from or less

advantageous than that of such other participant. Nothing contained in this subsection shall be deemed to preclude any affiliated person from acting as manager of any underwriting syndicate or other group in which such registered or controlled company is a participant and receiving compensation therefor; nor shall it preclude a company described in section 12(d) (3) (A) and (B) from effecting any transaction because of the joint or joint and several participation of the registered investment company or companies which own its voting securities." SEC. 20. Subsection (f) of section 17 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(f) Every registered management company shall place and maintain its securities and similar investments in the custody of (1) a bank or banks having the qualifications prescribed in paragraph (1) of section 26(a) for the trustees of unit investment trusts; or (2) a company which is a member of a national securities exchange as defined in the Securities Exchange Act of 1934, subject to such rules and regulations as the Commission may from time to time prescribe for the protection of investors; or (3) such registered company, but only in accordance with such rules and regulations or orders as the Commission may from time to time prescribe for the protection of investors. Rules, regulations, and orders of the Commission under this subsection, among other things, may make appropriate provision with respect to such matters as the earmarking, segregation, and hypothecation of such securities and investments, and may provide for or require periodic or other inspections by any or all of the following: Independent public accountants, employees and agents of the Commission, and such other persons as the Commission may designate. No such member which trades in securities for its own account may act as custodian except in accordance with rules and regulations prescribed by the Commission for the protection of investors. If a registered company maintains its securities and similar investments in the custody of a qualified bank or banks, the cash proceeds from the sale of such securities and similar investments and other cash assets of the company shall likewise be kept in the custody of such a bank or banks: Provided, That such a registered company may maintain an operating account in a qualified bank or banks with the balance of such account or the aggregate balances of such accounts at no time in excess of the amount of the fidelity bond, pursuant to section 17(g) of the Act, covering the officers or employees authorized to draw on such account or accounts."

SEC. 21. Paragraph (2) of subsection (f) of section 18 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(2) 'Senior security' shall not, in the case of a registered open-end company include a class or classes or a number of series of preferred or special stock each of which is preferred over all other classes or series in respect of assets specifically allocated to that class or series: Provided, (A) That such company has outstanding no class or series of stock which is not so preferred over all other classes or series; or (B) that the only other outstanding class of the issuer's stock consists of a common stock upon which no dividend (other than a liquidating dividend) is permitted to be paid and which in the aggregate represents not more than one-half of 1 per centum of the issuer's outstanding voting securities; and (C) that such company files a recital of policy in respect of each class or series in accordance with the provisions of section 8(b) (1) and (2) of this title. Notwithstanding the provisions of section 13 (a), a change or deviation in policy in respect of any class or series of preferred or special stock shall be authorized solely by the vote of the holders of a majority of the stock of each such class or series."

SEC. 22. Subsection (d) of section 20 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(d) If on the effective date of this title cross-ownership or circular ownership exists between a registered investment company and any other company or companies, it shall be the duty of such registered company, within five years after such effective date, to eliminate such cross-ownership or circular ownership. If at any time after the effective date of this title cross-ownership or circular ownership between a registered investment company and any other company or companies comes into existence upon the purchase by a registered investment company of the securities of another company or upon the purchase by a company controlled by the registered investment company of the securities of such registered company or another company, it shall be the duty of such registered company, within one year after it first knows of the existence of such crossownership or circular ownership, to eliminate the same."

SEC. 23. Subsection (b) of section 23 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(b) No registered closed-end company shall sell any common stock of which it is the issuer at a price below the current net asset value of such stock, exclusive of any distributing commission or discount (which net asset value shall be determined as of a time within forty-eight hours, excluding Sundays and holidays, next preceding the time of such determination), except (1) in connection with an offering to the holders of one or more classes of its capital stock; (2) with the consent of the holders of a majority of its common stock; (3) upon conversion of a convertible security in accordance with its terms; (4) upon the exercise of any warrant outstanding on the date of enactment of this Act or issued in accordance with the provisions of section 18(d); or (5) under such other circumstances as the Commission may permit by rules and regulations or orders for the protection of investors."

SEC. 24. Subsection (b) of section 28 of the Investment Company Act of 1940, as amended, is amended to read as follows:

"(b) (1) It shall be unlawful for any registered face-amount certificate company to issue or sell any face-amount certificate, or to collect or accept any payment on any such certificate issued by such company on or after the effective date of this title, unless such company has, in cash or qualified investments, assets having a value not less than the aggregate amount of the capital stock requirement and certificate reserves as computed under the provisions of subsection (a) hereof. As used in this subsection, 'qualified investments' means investments of a kind which life insurance companies are permitted to invest in or hold under the provisions of the Code of the District of Columbia as heretofore or hereafter amended, and such other investments as the Commission shall by rule, regulation, or order authorize as qualified investments. Such investments shall be valued in accordance with the provisions of said Code where such provisions are applicable. Investments to which such provisions do not apply shall be valued in accordance with such rules, regulations, or orders as the Commission shall prescribe for the protection of investors.

"(2) The assets which such company is required to have under paragraph (1) of this subsection in an amount equal to the certificate reserves required under subsection (a) hereof shall not include at any time

"(A) preferred stocks, or similar senior securities which are stocks, in an amount more than 25 per centum of the certificate reserves; and "(B) common stocks, or similar equity securities, in an amount more than the aggregate of

"(i) 10 per centum of the certificate reserves ; plus

"(ii) an amount equal to 100 per centum of that portion of the stockholders' equity in the company which is represented by assets consisting of cash or qualified investments; plus

"(iii) an amount equal to 100 per centum of that portion of the stockholders' equity in the company which is represented by assets consisting of cash, or qualified investments other than common stocks or similar equity securities:

Provided, however, That where the company has outstanding separate series of certificates and the assets applicable to the reserve requirements of one or more of such series are maintained separately, then the limitations in (A) and (B) (i) above shall be computed separately on the basis of the required certificate reserves for the outstanding certificates in each series or group of series for which assets are maintained separately; and the permissible amounts computed pursuant to the limitations stated in (B) (ii) and (B) (iii) above shall be allocated in accordance with the company's discretion but in no event shall the aggregate amount of common stocks, or similar equity securities, exceed 30 per centum of the required assets for each series or group of series for which assets are maintained separately. There shall be no limitation as to the type of securities in which assets in an amount equal to the minimum capital stock requireemnt are invested, other than the requirement of paragraph (1) of this subsection as to qualified investments. As used in this subsection 'stockholders' equity' means the amount of the company's assets less the amount of the indebtednes of the company and its certificate and other reserves."

SEC. 25. Subsection (a) of section 43 of the Investment Company Act of 1940, as amended, is amended by striking out "sections 239 and 240 of the Judicial Code, as amended" and inserting in lieu thereof "section 1254 of title 28, United States Code”.

SEC. 26. Section 44 of the Investment Company Act of 1940, as amended, is amended by striking out "sections 128 and 240 of the Judicial Code, as amended, and section 7, as amended of the Act entitled 'An Act to establish a court of appeals for the District of Columbia', approved February 9, 1893" and inserting in lieu thereof "sections 1254, 1291, 1292, and 1293 of title 28, United States Code".

SEC. 27. This Act shall become effective upon its enactment: Provided, however, That, as to companies which were registered prior to that time the effeetive date of the amendments to sections 5, 8(b)(2), and 18(f)(2) shall be six months thereafter. The provisions of section 28(b)(2) shall not apply to any series or group of series of face-amount certificates which were registered under the Securities Act of 1933 prior to the enactment of section 28(b) (2) in any case where the registered face-amount certificate company has outstanding separate series of face-amount certificates and the assets applicable to the reserve requirements of such series are maintained separately.

SECURITIES AND EXCHANGE

COMMISSION-COMPARATIVE

PRINT OF PROPOSED

AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940

(Deletions in brackets, additions in italic)

Section 1 would amend paragraph (1) of section 2(a) of the Investment Company Act of 1940, as amended, as follows:

"(a) When used in this title, unless the context otherwise requires—

"(1) 'Advisory board' means a board, committee or group, whether elected or appointed, which is distinct from the board of directors or board of trustees, of an investment company, [and which is composed solely of persons who do not serve such company in any other capacity,] whether or not the functions of such board are such as to render its members 'directors' within the definition of that term, which board has advisory functions as to investments but has no power to determine that any security or other investment shall be purchased or sold by such company, but shall not include a board, committee or group composed solely of directors, officers and employees of such company and investment advisers and officers, directors, partners or employees of any investment adviser of such company, or any of them."

Section 2 would amend paragraph (11) of section 2(a) of the Investment Company Act of 1940, as amended, by adding a new paragraph to be designated as paragraph (11A), as follows:

"(11A) Depositor' means any person who has promoted or is promoting an investment company not having a board of directors, or his successor, or who has administrative functions relating to such company, including the power to eliminate or substitute portfolio securities under the instrument of organization of such company but does not include a person whose functions as a depositor have been assumed by a successor, or a trustee or custodian of such company designated in accordance with the provisions of section 26 of this title."

Section 3 would amend paragraph (35) of section 2(a) of the Investment Company Act of 1940, as amended, by adding a new paragraph to be designated as paragraph (35A), as follows:

"(35A) 'Share of stock' means any security similar in nature to an equity security."

Section 4 would amend paragraph (37) of section 2(a) of the Investment Company Act of 1940, as amended, as follows:

"(37) 'State' means any State of the United States, the District of Columbia, [Alaska,] Hawaii, Puerto Rico, [the Philippine Islands.] the Canal Zone, the Virgin Islands, or any other possession of the United States."

Section 5 would amend paragraph (7) of subsection (c) of section 3 of the Investment Company Act of 1940, as amended, as follows:

"(c) Notwithstanding subsections (a) and (b), none of the following persons is an investment company within the meaning of this title:

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"(7) Any company [primarily engaged] substantially all of whose business. directly or through majority-owned subsidiaries, consists of [in] one or more of the businesses described in paragraph (3), (5), and (6), or [in] one or

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