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10(c) of the act and would permit a collective fund for managing agency accounts, maintained by a bank, to have only one director who is not an interested person of the bank. It extends to such collective funds, which would be required by section 12(d) of the bill to operate on a no-load basis, the same treatment accorded by section 10(d) of the act to no-load funds managed by investment advisers who are principally engaged in the investment supervisory business. The amendment would also exempt such funds from section 10(a) of the act, which requires that 40 percent of those persons performing the functions of directors be persons who are not officers or directors of, or otherwise affiliated with, the bank managing the fund. This amendment would also exempt such funds from section 10(b)(3) of the act, which provides that at least a majority of the board of directors of an investment company shall be persons who are not affiliated with any investment banker.

Under section 10(a) of the Investment Company Act, an investment company is required to have 40 percent of its board of directors consist of persons who are unaffiliated with the company's investment adviser. Under section 10(d), however, mutual funds which operate on a noload basis and meet certain other conditions are permitted to have only one member of the board of directors who is unaffiliated with the investment adviser. Since it is expected that bank collective funds will be operated on a no-load basis, they should be accorded the same treatment as section 10(d) provides for no-load funds. The amendment, therefore, permits a bank collective fund for managing agency accounts operated on a no-load basis to have a board of directors which includes only one director who is not an interested person of the bank.

SECTION 9(b), AMENDING SECTION 17(g)—CUSTODY OF ASSETS OF BANK

COLLECTIVE FUNDS FOR MANAGING AGENCY ACCOUNTS

Section 9(b) of the bill would amend section 17(g) of the Investment Company Act to permit an officer or employee of a bank collective fund for managing agency accounts to have access to assets of the fund held in the custody of the bank if such access is "solely through position as an officer or employee of a bank.”

SECTION 12(d), ADDING NEW SUBSECTION 22(h)—PERMITTING BANKS

TO ENGAGE IN CERTAIN INVESTMENT COMPANY ACTIVITIES

Section 12(d) of the bill would add a new subsection 22(h) to the act to make it clear that no provision of law prohibits a bank from creating or operating a registered investment company which is a collective fund for the investment of managing agency accounts and for funding direct investments by individual members of the public. Such a fund, however, would be required to issue its securities at no sales load and must comply with applicable regulations of the Comptroller of the Currency.

This section would also allow banks to participate in the underwriting, distribution, and sale of securities issued by registered investment companies for sale through such banks if the securities are sold at a price which does not include a sales load. At present, there may be some doubt as to whether banks may engage in such activities except as an accommodation to their customers. This section is intended to remove any such doubt.

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SECTION 27(a) ADDING NEW SUBSECTIONS 27(a) (13) AND (14) TO THE

SECURITIES ACT-DEFINITIONS "INSURANCE COMPANY" AND "SEPARATE ACCOUNT"

Section 27(a) of the bill would add to the Securities Act a new subsection 27(a)(13) of the act defining the term "insurance company's and a new subsection 27(a)(14) of the act defining the term "separate account” established and maintained by an insurance company. The definition of the term "insurance company” is substantially the same as the definition of the term in section 2(a)(17) of the Investment Company Act. The definition of the term "separate account” is substantially the same as the definition of the term in section 2(4) of this bill. (The description of section 2(4) of the bill discusses the definition of the term "separate account.") These new paragraphs are added to the Securities Act to provide a definitional base for the exemption from the act for interests or participations in certain separate accounts provided under proposed section 27(b) of the bill.

SECTION 27(d) ADDING NEW SUBSECTION 25(b) OF THE SECURITIES ACT-GRANT OF JURISDICTION TO FEDERAL BANKING AUTHORITIES

Section 27(d) of the bill would add new subsection 25(b) to the Securities Act to grant jurisdiction to the Federal banking authorities over interests or participations in collective trust funds maintained by banks for funding plans (known as H.R. 10 plans). Such collective trust funds must meet the requirements for qualification under section 401 of the Internal Revenue Code which cover employees, some or all of whom are employees within the meaning of section 401(c)(1) of the code. Section 27(b) of the bill would exempt from the registration requirements of the act interests or participations with respect to corporate plans which meet the requirements for qualification section 401 of the code, but not interests or participations with respect to H.R. 10 plans. Rather than subject such interests or participations with respect to H.R. 10 plans to the jurisdiction of the Commission, section 27(d) of the bill would subject them to the jurisdiction of the banking authorities.

SECTION 28(a), AMENDING SECTION 3(a)(12) OF THE SECURITIES EX

CHANGE ACT-EXEMPTIONS FOR CERTAIN BANK COMMON AND COLLECTIVE TRUST FUNDS AND INSURANCE COMPANY SEPARATE ACCOUNTS

Section 28(a) of the bill would expand the definition of the term "exempted securities' in section 3(a)(12) of the Securities Exchange Act to include interests or participations in certain bank common trust funds, certain bank collective funds, and certain insurance company separate accounts. The language of this amendment is identical with that of the amendment of section 27(b) in this regard, and the description of section 27(b) of the bill discusses the scope of the exemption language. As with other securities exempted under section 3(a)(12) of the act, the amendment would not exempt any brokerdealer dealing in such interests or participations from liability under the antifraud and antimanipulative provisions of section 15(c) of the act and would not exempt any person purchasing or selling such interests or participations from liability under section 10 of the act. SECTION 28(b), ADDING NEW SUBSECTION 3(a)(19) OF THE SECURITIES

EXCHANGE ACT-DEFINITION OF INVESTMENT COMPANY, AFFILIATED PERSON, INSURANCE COMPANY, AND SEPARATE ACCOUNT

Section 28(b) of the bill would add a new subsection 3(a)(19) to the Securities Exchange Act which provides that the terms "investment company,

" "affiliated person," insurance company," and "separate account have the same meaning as in the Investment Company Act. (Section 2(4) of the bill would add the definition of the term "separate account” to the Investment Company Act, and the description of section 2(4) of the bill discusses that definition.)

SECTION 28(c), ADDING NEW SUBSECTION 12(g) (2) (H) OF THE SECURITIES

EXCHANGE ACT-EXEMPTION FOR CERTAIN BANK COMMON AND COLLECTIVE TRUST FUNDS AND INSURANCE COMPANY SEPARATE ACCOUNTS

Section 28(c) of the bill would add new subsection 12(g) (2) (H) to the Securities Exchange Act to exempt from the registration requirements of section 12(g) of the act certain bank common trust funds, and certain bank collective trust funds. Certain insurance company separate accounts issuing interests or participations with respect to corporate plans which meet the requirements for qualification under section 401 of the Code, including plans (known as “H.R. 10 plans") which cover employees, some or all of whom are employees within the meaning of section 401(c)(1) of the Code would also be exempt under this proposed section. Bank collective trust funds issuing interests or participations with respect to "H.R. 10 plans" would be made subject to the jurisdiction of the Federal banking authorities under section 28(d) of the bill. Insurance company separate accounts issuing interests or participations with respect to "H.R. 10 plans" would be required to register such interests or participations with the Commission as required in the Securities Act as amended by section 27(b) of the bill. In view of this fact and in view of the fact that such separate accounts would be subject to the reporting requirements of section 15(d) of the Securities Exchange Act, it is not necessary nor appropriate to require these separate accounts to be registered under section 12(g) of the Securities Exchange Act. Registration under the Securities Exchange Act would have subjected these separate accounts to the proxy requirements and insider trading provisions. However, there are generally no voting privileges provided for in connection with such interests or participations, and such interests or participations are not traded in the general securities market.

SECTION 28(d), AMENDING SECTION 12(i) OF THE SECURITIES EXCHANGE

ACT-GRANT OF JURISDICTION TO FEDERAL BANKING AUTHORITIES

Section 28(d) of the bill would amend section 12(i) of the Securities Exchange Act to grant jurisdiction to the Federal banking authorities over interests or participations in collective trust funds maintained by banks for funding plans (known as “H.R. 10 plans”) which meet the requirements for qualification under section 401 of the Internal Revenue Code and which cover employees, some or all of whom are employees within the meaning of section 401(c)(1) of the Code.

Section 28(c) of the bill would exempt from the registration requirements of section 12(g) of the act issuers of interests or participations with respect to corporate plans which meet the requirements for qualification under section 401 of the Code, but not of interests or participations with respect to "H.R. 10 plans.” Rather than subject these interests or participations with respect to “H.R. 10 plans” to the jurisdiction of the Commission, section 28(d) of the bill would subject them to the jurisdiction of the banking authorities. This amendment would transfer the Commission's functions with respect to such interests or participations under sections 13 and 15(d) of the act to the Federal banking authorities.

SECTION 27(c), AMENDING SECTION 3(a)(5) OF THE SECURITIES ACT

UPDATING EXEMPTIONS FOR SECURITIES ISSUED BY SAVINGS AND LOAN ASSOCIATIONS

Section 27 (c) of the bill would amend section 3(a) (5) of the Securities Act to conform the exemption from registration under the Securities Act for securities issued by savings and loan associations and similar institutions with the exemptive language found in section 12(g) (2) (C) of the Securities Exchange Act. Initial issues or secondary distributions of securities by savings and loan associations have always been exempt from registration under the Securities Act by virtue of section 3(a) (5). The exemption now refers to savings and loans "substantially all the business of which is confined to the making of loans to members.” The quoted language amounts to an obsolete definition applicable to savings and loan associations under the "old” tax definition, which itself was changed by the Revenue Act of 1962. The amendment is designed to maintain this exemption, but to update it for all savings and loan associations which are "supervised and examined by State or Federal authority having supervision over any such institution." The reference in section 3(a)(5) to the Revenue Act of 1932 has also been updated.

SECTION 27(b), AMENDING SECTION 3(a)(2) OF THE SECURITIES ACT

EXEMPTION FOR CERTAIN BANK COMMON AND COLLECTIVE TRUST FUNDS AND INSURANCE COMPANY SEPARATE ACCOUNTS

Section 27(b) of the bill would amend section 3(a)(2) of the Securities Act to exempt from the registration provisions of that act interests or participations in certain bank common trust funds, certain bank collective trust funds, and certain insurance company separate accounts. As with other securities exempted under section 3 of the act, the amendment would not exempt the securities from the antifraud provisions of section 17.

The proposed amendment would exempt from the registration provisions of the act interests and participations in the traditional common trust funds maintained by banks as investment vehicles for the assets held by the bank in a bona fide fiduciary capacity. This is identical to the exemption for a "common trust fund or similar fund” in section 3(c)(3) of the Investment Company Act. This exemption is limited to interests or participations in common trust funds maintained by a bank for the collective investment of assets held by it in a bona fide fiduciary capacity and incident to a bank's traditional trust department activities; it would not exempt interests or participations in bank funds maintained as vehicles for direct investment by individual members of the public.

The amendment would also exempt from the registration provisions of the act interests or participations in collective trust funds maintained by banks for funding certain stock-bonus, pension, or profitsharing plans which meet the requirements for qualification under section 401(a) of the Internal Revenue Code. In effect, the amendment would exempt interests or participations in connection with corporate pension or profit-sharing plans which meet the requirements for qualification under section 401(a) of the Code, but not interests or participations in connection with such plans (known as “H.R. 10 plans”) which cover employees, some or all of whom are employees within the meaning of section 401(c)(1) of the Code. The exemption is limited to interests or participations in those bank collective trust funds maintained for the funding of employees' stock bonus, pension, or profitsharing plans and not as vehicle for direct investment by individual members of the public.

The amendment would further exempt from the registration provisions of the act interests or participations in separate accounts maintained by insurance companies for funding certain stock-bonus, pension, or profit-sharing plans which meet the requirements for qualification under section 401 of the Code. As in the case of bank collective trust funds, the amendment, in effect, would exempt interests or participations in connection with corporate plans which meet the requirements for qualification under section 401 of the Code, but not interests or participations in connection with such plans (known as “H.R. 10 plans") which cover employees within the meaning of section 401(c)(1) of the Code and not interests or participations in connection with plans which meet the requirements for qualification under section 403(b) of the Code.

The amendment does not exempt interests or participations issued by either bank collective trust funds or insurance company separate accounts in connection with “H.R. 10 plans,” because of their fairly complex nature as an equity investment and because of the likelihood that they cou'd be sold to self-employed persons, unsophisticated in the securities field. However, the amendment would grant the Commission authority, by rule, regulation, or order to exempt such interest or participations to the extent that the Commission shall determine this to be necessary or appropriate in the public interest.

Part C—Portfolio Transactions

SECTION 9(c), ADDING NEW SECTION 17(j)—INSIDER TRADING IN

INVESTMENT COMPANY PORTFOLIO SECURITIES

Section 9(c) of the bill would add a new subsection (j) to amend section 17 of the act which would prohibit insider trading in securities held or to be acquired by a registered investment company, in contravention of such rules and regulations as the Commission may adopt to define fraudulent, deceptive, and manipulative practices and to prescribe means reasonably necessary to prevent such practices. The section also would provide the Commission with specific authority to adopt rules with respect to minimum standards for codes of ethics

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