Securities Lawyer's Deskbook
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The
Investment Company Act of 1940





Section 20 -- Proxies; Voting Trusts; Circular Ownership


  1. Prohibition on use of means of interstate commerce for solicitation of proxies. It shall be unlawful for any person, by use of the mails or any means or instrumentality of interstate commerce or otherwise, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security of which a registered investment company 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.

  2. Prohibition on use of means of interstate commerce for sale of voting-trust certificates. It shall be unlawful for any registered investment company or affiliated person thereof, any issuer of a voting-trust certificate relating to any security of a registered investment company, or any underwriter of such a certificate, by use of the mails or any means or instrumentality of interstate commerce, or otherwise, to offer for sale, sell, or deliver after sale, in connection with a public offering, any such voting-trust certificate.

  3. Prohibition on purchase of securities knowingly resulting in cross-ownership or circular ownership. No registered investment company shall purchase any voting security if, to the knowledge of such registered company, cross-ownership or circular ownership exists, or after such acquisition will exist, between such registered company and the issuer of such security. Cross-ownership shall be deemed to exist between two companies when each of such companies beneficially owns more than 3 per centum of the outstanding voting securities of the other company. Circular ownership shall be deemed to exist between two companies if such companies are included within a group of three or more companies, each of which--

    1. beneficially owns more than 3 per centum of the outstanding voting securities of one or more other companies of the group; and

    2. has more than 3 per centum of its own outstanding voting securities beneficially owned by another company, or by each of two or more other companies, of the group.

  4. Duty to eliminate prior existing cross-ownership or circular ownership. If cross-ownership or circular ownership between a registered investment company and any other company or companies comes into existence upon the purchase by a registered investment company of the securities of another company, it shall be the duty of such registered company, within one year after it first knows of the existence of such cross-ownership or circular ownership, to eliminate the same.


Legislative History


Aug. 22, 1940, ch 686, Title I, § 20, 54 Stat. 822; Dec. 4, 1987, P.L. 100-181, Title VI, § 614, 101 Stat. 1262.

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