[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR250.400]

[Page 685-686]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 250--MISCELLANEOUS INTERPRETATIONS--Table of Contents
 
Sec. 250.400  Service of open-end investment company.

    An open-end investment company is defined in section 5(a)(1) of the 
Investment Company Act of 1940 as a company ``which is offering for sale 
or has outstanding any redeemable security of which it is the issuer.'' 
Section 2(a)(31) of said act provides that a redeemable security means 
``any security, other than short-term paper, under the terms of which 
the holder, upon its presentation to the issuer or to a person 
designated by the issuer, is entitled (whether absolutely or only out of 
surplus) to receive approximately his proportionate share of the 
issuer's current net assets, or the cash equivalent thereof.''


It is customary for such companies to have but one class of securities, 
namely, capital stock, and it is apparent that the more or less 
continued process of redemption of the stock issued by such a company 
would restrict and contract its activities if it did not continue to 
issue its stock. Thus, the issuance and sale of its stock is essential 
to the maintenance of the company's size and to the continuance of 
operations without substantial contraction, and therefore the issue and 
sale of its stock constitutes one of the primary activities of such a 
company.


Accordingly, it is the opinion of the Board that if such a company is 
issuing or offering its redeemable stock for sale, it is ``primarily 
engaged in the issue * * * public sale, or distribution, * * * of 
securities'' and that section 32 of the Banking Act of 1933, as amended, 
prohibits an officer, director or employee of any such company from 
serving at the same time as an officer, director or employee of any 
member bank. It is the Board's view that this is true even though the 
shares are sold to the public through independent organizations with the 
result that the investment company does not derive any direct profit 
from the sales.


If, however, the company has ceased to issue or offer any of its stock 
for sale, the company would not be engaged in the issue or distribution 
of its stock,

[[Page 686]]

and, therefore, the prohibition contained in section 32 would be 
inapplicable unless the company were primarily engaged in the 
underwriting, public sale or distribution of securities other than its 
own stock.

[16 FR 4963, May 26, 1951. Redesignated at 61 FR 57289, Nov. 6, 1996]