U65 CONTENTS Hon Robert E. Healy Securities and Exchange Commission_ David Schenker, Securities and Exchange Commission_ Henry J. Simonson, Jr., National Securities and Research Corpora- 83 Warren Motley, Gaston, Snow, Hunt, and Rice_ 95 INVESTMENT TRUSTS AND INVESTMENT COMPANIES THURSDAY, JUNE 13, 1940 HOUSE OF REPRESENTATIVES, INTERSTATE AND FOREIGN COMMERCE, The subcommittee met at 10 a. m., in the committee room, Hon. H. R. 8935 was introduced March 14, 1940, by Nr. Lea, of California. A companion bill, S. 3580, was introduced, at the same time in the Senate by Senator Wagner. Since that time the State Committee on Banking and Currency held extensive hearings on S. 3580, a companion measure to H. R. 8935, with the result that S. 4108 was reported on June 6 by the Senate Committee on Banking and Currency. In order to have that bill before us in House form also, (with the approval of Mr. Lea,) I introduced yesterday the same bill in the House, which is H. R. 10065. It is upon all of these bills that the hearing before this subcommittee will be held. I think that the committee will be more interested in the last two bills I mentioned, which present the views of the Senate Committee on Banking and Currency and with which we understand the industry is in agreement. (The House bill is as follows:) [H. R. 10065, 76th Cong., 3d sess.] A BILL To provide for the registration and regulation of investment companies and investment advisers, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, TITLE I-INVESTMENT COMPANIES FINDINGS AND DECLARATION OF POLICY SEC. 1. (a) 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 found that investment companies are affected with a national public interest in that, among other things— (1) the securities issued by such companies, which constitute a substantial part of all securities publicly offered, are distributed, purchased, paid for, exchanged, transferred, redeemed, and repurchased by use of the mails and means and instrumentalities of interstate commerce, and in the case of the numerous companies which issue redeemable securities this process of distribution and redemption is continuous; 1 (2) the principal activities of such companies-investing, reinvesting, and trading in securities- are conducted by use of the mails and means and instrumentalities of interstate commerce, including the facilities of national securities exchanges, and constitute a substantial part of all transactions effected in the securities markets of the Nation; (3) such companies customarily invest and trade in securities issued by, and may dominate and control or otherwise affect the policies and management of, companies engaged in business in i terstate commerce; (4) such companies are media for the investment in the national economy of a substantial part of the national savings and may have a vital effect upon the flow of such savings into the capital markets; and (5) the activities of such companies, extending over many States, their use of the instrumentalities of interstate commerce and the wide geographic distribution of their security holders, make difficult, if not impossible, effective State regulation of such companies in the interest of investors. (b) 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 financial responsibility of such companies and their management; (2) when investment companies are organized, operated, managed, or their portfolio securities are selected, in the interest of directors, officers, 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; (3) when investment companies issue securities containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding securities; (4) when the control of investment companies is unduly concentrated through pyramiding or inequitable methods of control, or is inequitably distributed, or when investment companies are managed by irresponsible persons; (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, 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; (7) when investment companies by excessive borrowing and the issuance of excessive amounts of senior securities increase unduly the speculative character of their junior securities; or (8) when investment companies operate without adequate assets or reserves. 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 conditions enumerated in this section which adversely affect the national public interest and the interest of investors. GENERAL DEFINITIONS SEC. 2. (a) When used in this title, unless the context otherwise requires-(1) "Advisory board" means a board, 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. |