Securities

Under the Investment Company Act of 1940 (15 U.S.C.A. § 80a et seq.), investment companies must register with the SEC unless they qualify for a specific exception. Investment companies are companies engaged primarily in the business of investing, reinvesting, or trading in securities. They may also be companies with more than 40 percent of their assets consisting of "investment securities" (securities other than securities of majority owned subsidiaries and government securities). Investment companies include "open-end companies," commonly known as mutual funds. The SEC regulatory responsibilities under this act encompass sales load, management contracts, the composition of boards of directors, capital structure of investment companies, approval of adviser contracts, and changes in investment policy. In addition, a 1970 amendment imposed restrictions on management compensation and sales charges.

Every investment company must register with the SEC. Registration includes a statement of the company's investment policy. Moreover, an investment company must file ANNUAL REPORTS with the SEC and maintain certain accounts and records. Strict procedures safeguard against looting of investment company assets. Officers and employees with access to the company's cash and securities must be bonded, and LARCENY or EMBEZZLEMENT from an investment company is a federal crime. In addition, the Investment Company Act of 1940 imposes substantive restrictions on the activities of registered investment companies and persons connected with them and provides for a variety of SEC and private sanctions.