Rule N-6C-5---- Exempts from the prohibitions of Section 17 (a) Nov. 4, 1940 any transaction between a registered com- Rule N-6C-6----- As amended, provides a temporary exemption Nov. 29, 1940 from Section 19 (dealing with information to accompany dividend payments) until Rule N-6C-7---- Provides a temporary exemption upon speci- Jan. 2, 1941 Rule N-6D-1---- Sets out the type of information which shall be Nov. 1, 1940 included in any application for an order pur suant to Section 6 (d) concerning exemp- Rule N-8A-1. ... Prescribes Form N-8A for use as the notifica- Oct. 22, 1940 tion of registration pursuant to Section 8 (a). (See discussion, supra at p. 9.) Rule N-8B-1----- Permits registered companies to file recitals of Feb. 14, 1941 policy under the Act prior to the filing of the detailed registration statement pursuant to 8 (b). Rule N-8B-2 Prescribes Form N-8B-1 as the form of detailed May 23, 1941 registration statement for management investment companies. (See discussion, supra at p. 9.) Rule N-8C-1. . Sets out the circumstances under which infor- May 23, 1941 mation filed pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934 may be used in lieu of information otherwise required in Form N-8B-1. (See discussion, supra at p. 10.) Rule N-10F-1. Exempts upon specified conditions certain un- Feb. 26, 1941 unless such companies act as principal un- Rule N-13A-1. Sets out certain conditions under which a com- Aug. 6, 1941 pany registered as non-diversified which had Rule N-15A-1---- Exempts from a requirement of Section 15 (a) May 2, 1941 and (e) (that advisory contracts shall be approved by a majority of the outstanding voting securities) any advisory contract of a person not otherwise affiliated with the registered company where the fees for such service are relatively small. (See discussion, supra at p. 7.) Rule N-17A-1. Exempts from the prohibitions of Section 17 (a) Feb. 26, 1941 (1) any transaction falling within the pro visions of Rule N-10F-1. Rule N-17F-1 States the conditions under which registered Nov. 1, 1941 management companies may maintain their portfolio securities and similar investments Rule N-17F-2 States the conditions under which registered Aug. 15, 1941 Rule N-19-1_ Sets out the information which must accom- Mar. 1, 1941 pany dividend payments by management com panies to stockholders and methods of deter mining the sources from which such pay- Rule N-19-2 Provides, for the calendar year 1941, a method Mar. 1, 1941 of disclosure of the sources of dividend pay ments in lieu of that required by N-19-1. Rule N-20A-1 Blankets solicitations of proxies, consents, and Nov. 1, 1940 authorizations with respect to any security issued by a registered company under Regu- Rule N-23C-1--- Sets up the conditions under which a registered Mar. 4, 1941 closed-end company of a certain type may Rule N-30A-1---- Requires, in effect, that annual reports to the Jan. Commission must be filed by registered com- Rule N-30B2-1 Requires to be filed with the Commission Jan. copies of any reports to stockholders which 2, 1941 2, 1941 Rule N-30D-1... Requires reports to be transmitted by regis- Jan. 2, 1941 tered management companies to stockholders at least semi-annually and prescribes the information which such reports shall contain. (See discussion, supra at p. 10.) Rule N-30D-2. Requires reports to be transmitted by certain Jan. 2, 1941 registered unit trusts to shareholders at least semi-annually and prescribes the information which such reports shall contain. (See discussion, supra at p. 10.) Rule N-30F-1... Prescribes Form N-30F-1 for initial statements Nov. 16, 1940 of beneficial ownership of securities of registered closed-end companies to be filed by the persons specified in Section 30 (f) with certain exceptions. (See discussion, infra at p. 235.) Rule N-30F-2... Prescribes Form N-30F-2 for statements of Nov. 16, 1940 changes in beneficial ownership of securities of registered closed-end companies to be filed by the persons required to file Form N-30F-1. (See discussion, infra at p. 235.) Rule N-30F-3---- Exempts from the requirements of Section 30 (f) Apr. 16, 1941 securities held by certain classes of persons, including those held in estates, by guardians and receivers. Rule N-45A-1... Provides that certain information (concerning May 23, 1941 the names and addresses of dealers distributing the securities of a registrant) supplied by open-end management companies in the registration statements shall be the subject of confidential treatment and made available to the public only under prescribed conditions. Part II ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF 1940 The Investment Advisers Act of 1940 requires the registration of investment advisers, that is, persons engaged for compensation in the business of advising others with respect to securities. The Commission is empowered to deny or revoke registration of such advisers if they have been convicted or enjoined because of misconduct in respect of security transactions. The Act also makes it unlawful for investment advisers to engage in practices which constitute fraud or deceit; requires investment advisers to disclose the nature of their interest in transactions executed for their clients; prohibits profit sharing arrangements; and in effect prevents assignment of investment advisory contracts without the client's consent. ENACTMENT AND GENERAL NATURE OF ACT The Investment Advisers Act of 1940 was enacted on August 22, 1940, largely as a result of the Commission's study of and report to the Congress on investment advisory services conducted ancillary to its study of investment trusts and investment companies pursuant to Section 30 of the Public Utility Holding Company Act of 1935. This new statute became effective on November 1, 1940. On and after that date it became unlawful for individuals or organizations to use the mails or any means or instrumentality of interstate commerce, including the facilities of any national securities exchange, in connection with their business as investment advisers, unless they were effectively registered with the Securities and Exchange Commission. The Act covers all individuals, partnerships, corporations, or other forms of organization which for compensation engage in the business of advising others, either directly or through publications or writings. as to the value of securities or as to the advisability of investing in, buying, or selling securities, or who for compensation and as part of a regular business disseminate analyses or reports concerning securities. Exempted from the provisions of the Act, however, are newspapers, magazines, and financial publications of general and regular circulation; brokers and security dealers whose investment advice is given solely as an incident of their regular business for which no special fee is charged; banks; certain bank holding company affiliates; individuals or organizations which give advice solely with reference to securities issued or 1 Report of Commission to Congress on "Investment Counsel, Investment Management, Investment Supervisory, and Investment Advisory Services," August 1939. 209 29 guaranteed by the United States or corporations in which it is interested; and lawyers, accountants, engineers, and teachers whose investment advice, if any, is furnished solely incidental to the practice of their professions. Exception from the registration requirements of this Act is provided for: (1) individuals or organizations which act as investment advisers solely for investment and insurance companies; (2) individuals or organizations all of the clients of which are residents of the State in which they do business, provided no advice is given with respect to securities traded on national securities exchanges; and (3) individuals or organizations which do not hold themselves out as investment advisers generally to the public and which have had during the preceding year less than fifteen clients. Registered investment advisers are prohibited from employing any device, scheme, or artifice to defraud any client or prospective client, or to engage in any transaction, or practice, or course of business which operates as a fraud or a deceit upon any client or prospective client. These fraud provisions are similar to those under the Securities Act of 1933 and the Securities Exchange Act of 1934. Furthermore, if an investment adviser acts as a principal for his own account in connection with the sale of any security to or purchase of any security from a client, he must disclose to such client, in writing, the capacity in which he is acting with respect to such transaction, and obtain the consent of the client to such transaction. REGISTRATION OF INVESTMENT ADVISERS Application for Registration. During the fiscal year the Commission adopted Form 1-R, the form to be used by investment advisers in applying for registration with the Commission. This application for registration requires information relating to the form of organization of investment advisers, their partners, officers, directors, controlling persons, employees, the nature of their business, the nature and scope of authority with respect to investment advisory clients' funds and accounts, and the basis of compensation for the investment adviser. Form 1--R was sent to approximately 1,400 persons. Of this number, 605 were effectively registered as at November 1, 1940. Approximately 250 claimed that they were not encompassed by the Act or that they were excepted from the registration requirements of the Act. Between November 2, 1940, and June 30, 1941, 196 additional persons became registered under the Investment Advisers Act. On June 12, 1941, the Commission effected a general check-up of the persons who failed to communicate in any way with the Commission with respect to their registration applications. As at June 30, 1941, |