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.

(e) 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 interest 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.

(c) 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. 8. (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 necessary 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 statement is currently effective, may file

(1) such copies of such registration statement or portions thereof, and such copies of reports theretofore filed by the registrant pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934, as the Commission shall designate by rules and regulations or order; and

(2) a report containing such current information and documents, regarding the matters included in such registration statement and reports, as the Commission shall prescribe by rules and regulations or order as necessary or appropriate in the public interest or for the protection of investors.

(d) Whenever the Commission, on its own motion or upon application, finds that a registered investment company has ceased to be an investment company, it shall so declare by order and upon the taking effect of such order the registra

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 manager 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 investment 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.

(c) 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.