’WPC5 Źf&ĀĮTŖx²ŽĀPļ Ę­…§\ļÆyGŲfÅ`§åŻ’ś¼ā"m÷ ¬ŗ!E¬Xū\å.DĒ5\ å“ÕIĪåÕ£Č p&b>Ŗ^ÓPŁN†µ/„8üy_×< "ć(¬ŗhģ¦5ŃB ¤Ī|¾mĄŗ{įŗėm6ā\JCsuą¾¤Ū»†kŒ,6ōÅĮŖ(ĄŠ>oöJ³hl¦„$E!§õ9JD óS¾Q‚|ē;³ģz"Ø֍Ä5ą¹łn‹Żē„CÅ!l(®¼EĢ†5®×ŽŸ‚…męēäŅJvŅ’Ó÷%ŖŅ)QTŻŻŅŒt8Ņķ,z,Ģ!‡'“k£|+Ÿaj±ž!V\ÄGKŖłõ³®˜ų„/˜×` pvW—ų ĢtgÜų¤¢¼ųŃĢć4ļ&VO\F„ŅDČ ¢Lsõ|4AęĆuCĖž×jć‚q0iEQ4nWģ=!Ŗ„¦~u\ˆŁ] ‚6‚ß3D›ęėĢ}Ō&’µēhÜūŽ»ƒ!Ė7r#9@“z¢Z#bUA©Š — ©„QHõō!½łšššLi0ŲŪ±čV=UKXžŖ[“ŒĒŸÅyŠ‡‘>FŽNL\:NŖNž®ŽŪĆ ^››d{ZRz­Xq% ‚ #ĮšUN[ %© 0:Æ^ éwõ4ł  m˜HP DeskJet 820C Series Printer,(,,,,,(0(ÖĆ9 Z‹6Times New Roman RegularX(üœ$””ŌUSUS.,Ō„Œ¤* ŪZl*INVEST~$M3|x’U‹’ĄĄĄŻ ƒüœ!ŻŌUSUS.,ŌŻ  ŻŌ_ŌInvestment€Companies€and€Investment€AdvisersŠ ° ŠSpring€2001Š œģ ŠProfessor€Steve€BradfordŠ ˆŲ ŠĢÓ  Óņ ņŌ‡°:µ°XXŌFINAL€EXAM€ANSWERSŌ#†XżgX°°:µŪ#Ōó óŠ `° ŠÓ  ÓĢĢą  ąYour€preliminary€grade€for€each€question€appears€on€your€blue€book.€€These€grades€areŠ  ` Šcalculated€on€the€usual€Law€College€grading€scale€(9=A+€to€0=F).€€Your€overall€score€wasŠ ü L Šcalculated€by€computing€a€weighted€average€of€all€eight€questions,€with€the€weight€for€eachŠ č 8  Šquestion€determined€by€the€amount€of€time€recommended€for€that€question.€€Thus,€Question€1Š Ō$  Šcounts€for€50/205€of€the€overall€average,€Question€2€counts€for€40/205,€Question€3€counts€forŠ Ą  Š50/205,€and€Question€4€counts€for€65/205.Š ¬ü  ŠĢą  ąThe€average€score€for€each€question€and€for€the€exam€as€a€whole€were:Š „Ō  ŠĢÓ  ÓQuestion€1€€€€€€€€€6.91€(High€9;€Low€4)Š \¬ ŠQuestion€2€€€€€€€€€€6.45€(High€9;€Low€4)Š H˜ ŠQuestion€3€€€€€€€€€5.23€(High€9;€Low€4)Š 4„ ŠQuestion€4€€€€€€€€€6.27€(High€9;€Low€3)Š  p ŠĢOverall€Average€€€€€€€€6.21€(High€8.44;€Low€3.88)Š ųH ŠÓ  ÓĢą  ąI€have€attached€copies€of€sample€answers.€€These€answers€are€not€perfect,€but€they€coverŠ Š  Šall€of€the€important€issues.€€The€attached€answers€Ō_ŌŌ_ŌŌ_ŌdoŌ_Ō€not€necessarily€represent€the€š šcorrectššŠ ¼  Šanswers.€€Some€issues€could€be€argued€either€way;€if€the€answer€contains€a€conclusion€withŠ Øų Šrespect€to€such€an€issue,€it€is€merely€how€I€would€resolve€the€issue.€€If€you€adequately€supportedŠ ”ä Šyour€conclusion,€you€were€not€penalized€for€a€conclusion€contrary€to€mine.Š €Š ŠĢą  ąI€hope€the€attached€answers€give€you€sufficient€feedback€concerning€what€I€was€lookingŠ X Ø Šfor.€€Feel€free€to€drop€by€if€you€want€to€discuss€the€exam€with€me.€€The€best€procedure€is€to€dropŠ D!” Šoff€your€exam€and€make€an€appointment€to€discuss€it€after€Iššve€had€a€chance€to€reread€it.Š  0"€ ŠÓ  Óņ ņQUESTION€ONEó óŠ ° ŠÓ  ÓĢĢą  ąThe€term€š šinvestment€adviseršš€is€defined€in€section€201(a)(11)€of€the€Investment€AdvisersŠ tÄ ŠAct€of€1940.€€The€definition€has€two€parts.€€Both€parts€of€the€definition€require€that€the€activity€beŠ `° Šdone€š šfor€compensationšš€and€š šas€part€of€a€regular€business.šš€€The€first€part€of€the€definition€usesŠ L œ Šthe€phrase€š šengages€in€the€business,šš€but€the€SEC€has€indicated€that,€in€spite€of€the€differentŠ 8 ˆ Šwording,€the€business€requirements€should€be€interpreted€the€same.€€Release€No.€IA„1092.Š $ t ŠĢą  ąBond€clearly€meets€the€compensation€requirement,€at€least€as€to€everything€directlyŠ ü L  Šconnected€to€the€class.€€Any€economic€benefit€suffices,€Release€No.€IA„1092,€and€he€is€paid€forŠ č 8  Šhis€duties€in€connection€with€his€class,€whether€or€not€he€teaches€primarily€because€he€likes€to€doŠ Ō$  Šit.€€The€students,€who€receive€the€advice,€if€any,€do€not€pay€Bond€directly,€but€the€payment€doesŠ Ą  Šnot€have€to€come€directly€from€the€Ō_ŌadviseesŌ_Ō.€€ņņŌ_ŌHaukŌ_Ō,€Ō_ŌSouleŌ_Ō€&€Ō_ŌFasaniŌ_Ōóó.€€Bond€might€argue€that€he€isŠ ¬ü  Šnot€compensated€for€his€after„class€advice,€so€those€activities€cannot€make€him€an€investmentŠ ˜č  Šadviser.€€However,€Bond€clearly€sees€this€as€part€of€his€teaching€function,€so€it€probably€shouldŠ „Ō  Šnot€be€severable€from€his€other€activities.Š pĄ ŠĢą  ąThe€second€requirement€is€that€Bond€be€engaged€in€the€business€of€advice.€€šš€202(a)(11).€Š H˜ ŠBond€is€primarily€a€broker,€but€advice€need€not€be€oneššs€full„time€job,€or€even€oneššs€principalŠ 4„ Šactivity,€as€long€as€the€activity€occurs€with€some€regularity.€€Release€No.€IA„1092.€€Bond€teachesŠ  p Šthe€class€on€a€regular€basis.Š  \ ŠĢą  ąThe€final€requirement€of€the€basic€definition€is€that€Bond€offer€investment€adviceš!šeitherŠ ä4 Šš šadvising€others€.€.€.€as€to€the€value€of€securities€or€as€to€the€advisability€of€investing€in,Š Š  Špurchasing,€or€selling€securitiesšš€or€issuing€or€promulgating€š šanalyses€or€reports€concerningŠ ¼  Šsecurities.šš€€Bond€appears€to€fall€within€the€first€part€of€the€definition.€€Even€if€his€classroomŠ Øų Šdiscussion€does€not€mention€particular€securities,€he€clearly€advises€his€students€about€theŠ ”ä Šdesirability€of€different€types€of€investments,€including€securities.€€That€kind€of€categorical€adviceŠ €Š Šis€sufficient€to€make€one€an€investment€adviser.€€ņņŌ_ŌHaukŌ_Ō,€Ō_ŌSouleŌ_Ō€&€Ō_ŌFasaniŌ_Ōóó.Š l¼ ŠĢą  ąBond€appears€to€come€within€the€general€definition€of€š šinvestment€adviser.šš€€However,€aŠ D!” Šcouple€of€exceptions€to€that€basic€definition€might€apply.Š 0"€  ŠĢą  ąSection€202(a)(11)(C)€excepts€any€broker€or€dealer€if€the€advisory€services€are€š šsolelyŠ $X" Šincidental€to€the€conduct€of€his€business.šš€€Bond€is€a€broker,€but€the€exception€does€not€applyŠ ō$D # Šbecause€the€teaching€is€clearly€separate€from€what€he€does€as€a€broker.€€He€is€separatelyŠ ą%0!$ Šcompensated€by€a€different€employer€and€his€students€are€not€his€brokerage€clients.Š Ģ&"% ŠĢą  ąSection€202(a)(11)(B)€might€apply.€€It€excepts€any€teacher€if€the€advisory€services€areŠ ¤(ō#' Šš šsolely€incidental€to€the€practice€of€his€profession.šš€€The€SEC€staff€takes€the€view€that€thisŠ )ą$( Šexception€is€not€available€to€anyone€who€holds€himself€out€as€offering€advisory€services.€€In€thatŠ |*Ģ%) Šcase,€the€advisory€services€would€not€be€incidental.€€Release€No.€IA„1092.€€It€is€possible€that€theŠ h+ø&* Šsubtitle€of€Bondššs€seminar,€š šHow€to€Invest€Your€Money€Successfullyšš,€is€such€a€holding€out,€butŠ T,¤'+ Šprobably€not.€€Bond€is€not€separately€compensated€for€the€teaching€and€the€advising,€a€factor€inŠ @-(, Šfavor€of€finding€the€advice€to€be€solely€incidental.€€ņņŌ_ŌHaukŌ_Ō,€Ō_ŌSouleŌ_Ō€&€Ō_ŌFasaniŌ_Ōóó.€€And€the€advisoryŠ ° Šservices€do€appear€to€be€reasonably€related€to€what€he€is€teaching.€€ņņId.óó€€The€individual€cases€areŠ œģ Šnecessary€to€teach€the€techniques.€€However,€he€could€teach€investment€principles€without€usingŠ ˆŲ Šmembers€of€the€class€as€examples,€and€he€could€refuse€to€offer€individualized€advice€to€studentsŠ tÄ Šafter€class.€€In€interpreting€the€subsection€(D)€exception€for€the€press,€the€Supreme€Court€focusedŠ `° Šon€whether€the€person€was€giving€personalized€advice.€€ņņLowe€v.€SECóó.€€If€we€apply€a€similar€test€toŠ L œ Šsubsection€(B),€Bond€would€not€qualify€for€the€exception.€€A€final€question€under€subsection€(B)Š 8 ˆ Šis€whether,€as€a€part„time€teacher,€Bond€even€qualifies.€€Bond€is€primarily€a€broker,€but€subsectionŠ $ t Š(B)€talks€about€teaching€as€š šhis€profession.šš€€You€might€argue€that€it€was€meant€to€cover€onlyŠ  ` Šfull„time€teachers,€not€people€like€Bond.Š  ü L  ŠÓ  Óņ ņQUESTION€TWOó óŠ ° ŠÓoÓą@ģģ*ģąˆĢĢą  ąSection€10€of€the€Investment€Company€Act€provides€that€no€more€than€60%€of€theŠ tÄ Šdirectors€of€a€registered€investment€company,€such€as€Idiot,€may€be€interested€persons€of€Idiot.€Š `° ŠInvestment€Company€Act€šš€10(a).Š L œ ŠĢą  ąLarry,€Mo,€and€Curly€clearly€are€interested€persons€of€Idiot.€€Any€interested€person€of€theŠ $ t Šinvestment€companyššs€investment€adviser€is€an€interested€person€of€the€investment€company.€€ššŠ  ` Š2(a)(19)(A)(iii).€€Any€affiliated€person€of€the€investment€adviser€is€an€interested€person€of€theŠ ü L  Šinvestment€adviser.€€šš€2(a)(19)(B)(Ō_ŌiŌ_Ō).€€Larry,€Mo,€and€Curly€are€employees€of€Adviser,€andŠ č 8  Štherefore€affiliated€persons€of€Adviser.€€šš€2(a)(3)(D).€They€are,€therefore,€interested€persons€ofŠ Ō$  Šthe€Adviser.€€šš€2(a)(19)(B)(Ō_ŌiŌ_Ō),€and€therefore€interested€persons€of€Idiot.€€šš€2(a)(19)(A)(iii).€€ThisŠ Ą  Šis€60€percent€of€Idiotššs€board,€so€Idiot€violates€section€10€if€either€of€the€other€two€directors€is€anŠ ¬ü  Šinterested€person.Š ˜č  ŠĢą  ąŌ_ŌWaxitŌ_Ō€does€not€appear€to€be€an€interested€person€of€Idiot.€€His€only€connection€to€Idiot,Š pĄ ŠAdviser,€and€Underwriter€is€his€position€on€Idiotššs€board.€€That€alone€does€not€make€him€anŠ \¬ Šinterested€person€of€Idiot.€€šš€2(a)(19)(A),€proviso€at€end,€(aa).€€Therefore,€Idiot€violates€sectionŠ H˜ Š10€only€if€Builder€is€an€interested€person.Š 4„ ŠĢą  ąŌ_ŌHristoŌ_Ō€is€not€an€interested€person€solely€because€of€his€board€position.€€šš€2(a)(19)(A),Š  \ Šproviso€at€end,€(aa).€€He€has€no€other€direct€ties€to€Idiot,€Adviser,€or€Underwriter,€but€he€has€anŠ ųH Šindirect€connection€that€might€make€him€an€interested€person.Š ä4 ŠĢą  ąŌ_ŌHristoŌ_Ōššs€stepfatherššs€employer€owns€28%€of€Idiotššs€voting€stock.€€Employer€is€anŠ ¼  Šinterested€person€of€Idiot€because€he€is€an€affiliated€person€of€Idiot.€€šš€2(a)(19)(A)(Ō_ŌiŌ_Ō).€€EmployerŠ Øų Šis€an€affiliated€person€of€Idiot€because€he€controls€Idiot.€€šš€2(a)(3)(C).€€Ownership€of€more€thanŠ ”ä Š25%€of€a€companyššs€voting€securities€creates€a€presumption€of€control€Ō_ŌrebuttableŌ_Ō€only€by€an€SECŠ €Š Šorder.€€šš€2(a)(9).Š l¼ ŠĢą  ąFranz€might€also€be€an€affiliate€of€Idiot.€€Two€persons€under€common€control€are€affiliatedŠ D!” Špersons.€€šš€2(a)(3)(C).€€Employer€controls€Idiot,€so€if€Employer€also€controls€Franz€by€Ō_ŌvirtureŌ_Ō€ofŠ 0"€  Šthe€employment€relationship,€Franz€and€Idiot€are€under€common€control.€€Franz€is€a€member€ofŠ #l! ŠŌ_ŌHristoŌ_Ōššs€immediate€family,€which€includes€a€š šspouse€of€a€parent.šš€šš€2(a)(19),€definition€at€end.€€IfŠ $X" ŠFranz€is€an€affiliate€of€Idiot,€Ō_ŌHristoŌ_Ō,€as€a€member€of€his€immediate€family,€is€an€interested€person.€Š ō$D # Ššš€2(a)(19)(A)(ii).€€Thus,€everything€turns€on€whether€Employer€controls€Franz.Š ą%0!$ ŠĢą  ąEmployer€clearly€has€power€over€Franz,€his€employee,€but€the€presumption€is€that€aŠ ø'#& Šnatural€person€is€not€a€controlled€person,€and€that€presumption€is€Ō_ŌrebuttableŌ_Ō€only€by€an€order€fromŠ ¤(ō#' Šthe€SEC.€€šš€2(a)(9).€€Since€there€is€no€such€order,€Franz€and€Idiot€are€presumed€not€to€be€underŠ )ą$( Šcommon€control,€so€Franz€is€not€an€affiliate€of€Idiot,€and€Ō_ŌHristoŌ_Ō€therefore€is€not€an€interestedŠ |*Ģ%) Šperson€of€Idiot€under€šš€2(a)(19)(A)(ii).Š  h+ø&* ŠÓ  Óņ ņQUESTION€THREEó óŠ ° ŠÓ  ÓĢĢņ ņSection€12(d)(1)€violationsó óŠ tÄ ŠĢą  ąSection€12(d)(1)(A)€applies€to€the€Beta€purchase€because€a€registered€investmentŠ L œ Šcompany€(Beta)€is€acquiring€a€security€issued€by€another€investment€company€(Alpha).€€Beta€isŠ 8 ˆ Šthe€acquiring€company€and€Alpha€is€the€acquired€company.€€This€does€not€violate€subsectionŠ $ t Š(d)(1)(A)(Ō_ŌiŌ_Ō)€because,€after€the€acquisition,€Beta€only€owns€2.5%€of€Alphaššs€stock,€less€than€theŠ  ` Š3%€limit.€€It€does€violate€subsection€(d)(1)(A)(ii).€€The€question€indicates€that€the€loan,€for€halfŠ ü L  Šthe€purchase€price,€is€3%€of€the€value€of€Betaššs€total€assets.€€Thus,€the€entire€purchase€price€is€6%Š č 8  Šof€the€value€of€Betaššs€total€assets,€exceeding€the€5%€cap€in€subsection€(d)(1)(A)(ii).€€This€doesŠ Ō$  Šnot€violate€subsection€(d)(1)(A)(iii)€because€the€aggregate€value€of€all€investment€companyŠ Ą  Šsecurities€owned€by€Beta€is€only€6%€of€the€value€of€its€total€assets;€Beta€owns€no€otherŠ ¬ü  Šinvestment€company€securities.Š ˜č  ŠĢą  ąSection€12(d)(1)(B)€also€applies€here€because€Alpha,€a€registered€open„end€investmentŠ pĄ Šcompany€(the€acquired€company)€is€selling€its€securities€to€Beta,€another€investment€company€(theŠ \¬ Šacquiring€company).€€This€does€not€violate€subsection€(d)(1)(B)(Ō_ŌiŌ_Ō)€because€Beta€only€owns€2.5%Š H˜ Šof€Alphaššs€voting€stock,€below€the€3%€limit.€€However,€Alpha€does€violate€(d)(1)(B)(ii).€€Prior€toŠ 4„ Šthe€sale,€other€investment€companies€owned€8%€of€Alphaššs€voting€stock.€€Adding€Betaššs€2.5Š  p Špercent€purchase,€the€acquiring€company€(Beta)€and€other€investment€companies€own€10.5%€ofŠ  \ ŠAlphaššs€outstanding€voting€stock.Š ųH ŠĢą  ąSection€12(d)(1)(c)€does€not€apply€to€this€transaction€because€Beta€is€not€acquiring€theŠ Š  Šsecurities€of€a€closed„end€investment€company.€€Alpha€is€an€open„end€company.Š ¼  ŠĢņ ņSection€17€violationsó óŠ ”ä ŠĢą  ąAlpha€and€Beta€are€second„tier€affiliates.€€Adviser€is€an€affiliated€person€of€both€Alpha€andŠ l¼ ŠBeta€because€it€is€their€investment€adviser.€€šš€2(a)(3)(E).€€Therefore,€Alpha€and€Beta€are€affiliatedŠ X Ø Špersons€of€an€affiliated€person,€and€subject€to€section€17(a).Š D!” ŠĢą  ąAlpha€violated€section€17(a)(1)€because€it€knowingly€sold€a€security€to€Beta,€a€registeredŠ #l! Šinvestment€company.€€Beta,€the€buyer€is€not€the€issuer€of€the€securities€it€purchased,€so€(a)(1)(A)Š $X" Šdoes€not€apply.€€Alpha,€the€seller,€is€the€issuer€of€the€securities,€but€(a)(1)(B)€does€not€applyŠ ō$D # Šbecause€this€is€not€part€of€a€general€offering€to€Alphaššs€existing€security€holders.€€SectionŠ ą%0!$ Š(a)(1)(C)€clearly€does€not€apply.Š Ģ&"% ŠĢą  ąBeta€did€not€violate€section€17(a)(2)€because,€although€it€purchased€a€security€from€aŠ ¤(ō#' Šregistered€investment€company,€they€were€securities€of€which€the€seller,€Alpha,€is€the€issuer,€soŠ )ą$( Šthey€fall€within€the€parenthetical.Š |*Ģ%) Šą  ąą ` ąą ø ąĢą  ąThe€loan/guaranty€transaction€could€violate€sections€17(a)(3)€[a€violation€by€Beta,€theŠ T,¤'+ Šborrower]€and€17(a)(4)€[a€violation€by€Alpha,€the€lender],€if€Alphaššs€guarantee€of€Betaššs€loan€isŠ @-(, Štreated€as€lending€by€Alpha€to€Beta.€€In€effect,€since€the€bank€would€not€make€the€loan€withoutŠ ° ŠAlphaššs€guarantee,€Alpha€is€lending€its€credit,€based€on€its€property,€to€Beta.€€However,€sectionŠ œģ Š17(a)(4)€is€not€effective€until€May€12,€2001,€so€it€does€not€apply.Š ˆŲ ŠĢą  ąThis€transaction€could€also€be€covered€by€section€17(d),€as€implemented€by€Rule€17d„1.€Š `° ŠGiven€the€guaranty€by€Alpha,€the€loan€from€the€bank€to€Beta€could€be€a€joint€transaction€betweenŠ L œ Šan€investment€company€and€its€second„tier€affiliate.€€None€of€the€exceptions€appear€to€apply.€Š 8 ˆ ŠRule€17d„1(d)(5)€doesnššt€apply€because€Beta€is€a€participant€in€the€joint€enterprise€and€BetaššsŠ $ t Šinvestment€adviser€falls€within€(5)(Ō_ŌiŌ_Ō)(a),€making€Beta€fall€within€5(Ō_ŌiŌ_Ō)(e),€as€an€affiliated€person€ofŠ  ` Šthe€foregoing.€€Beta€probably€does€not€fall€within€(e)(1)€because€Beta€is€not€just€the€registeredŠ ü L  Šinvestment€company€covered€by€Rule€17d„1,€but€also€the€affiliate€of€Alpha,€another€registeredŠ č 8  Šinvestment€company€covered€by€the€rule.€€In€addition,€Beta€is€committing€more€than€5%€of€itsŠ Ō$  Šassets,€in€violation€of€5(ii).Š Ą  ŠĢą  ąNeither€Alpha€nor€Beta€appear€to€have€violated€section€17(e).€€Neither€is€acting€as€anŠ ˜č  Šagent€or€broker€for€the€other€in€connection€with€the€purchase€or€sale€of€any€property€or€securities.Š  „Ō  ŠÓ  Óņ ņQUESTION€FOURó óŠ ° ŠÓ  ÓĢĢĢą  ąDOS€is€an€investment€company,€but€UNO€probably€is€not.Š `° ŠĢņņIs€UNO€an€Investment€Company?óóŠ 8 ˆ ŠĢą  ąTo€be€an€investment€company,€UNO€must€be€an€š šissueršš.€€šš€3(a)(1).€€UNO€clearly€is€anŠ  ` Šissuer.€€As€a€corporation,€it€has€outstanding€shares.€€ņņSeeó󀚚€2(a)(22).€€And€it€is€a€person,€ššŠ ü L  Š2(a)(28),€because€a€corporation€is€a€company.€€šš€2(a)(8).Š č 8  ŠĢą  ąUNO€clearly€falls€within€the€basic€definition€of€š šinvestment€companyšš€in€sectionŠ Ą  Š3(a)(1)(C)€of€the€Investment€Company€Act.€€It€is€in€the€business€of€š šowningšš€or€š šholdingšš€theŠ ¬ü  Šsecurities€of€DOS€and€the€manufacturing€companies.€€The€stocks€it€owns€clearly€are€securities.€€ššŠ ˜č  Š2(a)(36).€€They€are€š šinvestment€securitiesšš€because€they€are€not€Government€Ō_ŌsecuritieesŌ_Ō€and€theŠ „Ō  Šcompanies€UNO€owns€are€neither€employeesšš€securities€companies€nor€majority„ownedŠ pĄ Šsubsidiaries.€€šš€3(a)(2).€€These€securities€constitute€100€percent€of€its€assets,€so€UNO€clearlyŠ \¬ Šmeets€the€40€percent€test€of€3(a)(1)(C).Š H˜ ŠĢą  ąThe€section€3(b)(1)€exception€to€the€basic€definition€does€not€help€UNO€because€it€has€noŠ  p Šwholly„owned€subsidiaries€and€it€is€a€holding€company€without€any€direct€operations.€€SectionŠ  \ Š3(b)(2)€is€also€of€no€help.€€DOS€is€presumed€to€be€a€controlled€company€because€UNO€owns€25%Š ųH Šof€its€voting€stock.€€šš€2(a)(9).€€However,€even€if€DOSššs€business€is€not€investing€in€or€owningŠ ä4 Šsecurities,€DOS€accounts€for€less€than€5%€of€the€value€of€UNOššs€total€assets,€not€enough€toŠ Š  Šestablish€a€primary€business.€€Thus,€it€would€be€futile€to€seek€an€SEC€order€under€section€3(b)(2).Š ¼  ŠĢą  ąThe€section€3(c)(1)€exception€will€not€help€UNO€because€it€has€more€than€100€beneficialŠ ”ä Šowners.€€However,€UNO€is€probably€excepted€from€the€definition€of€š šinvestment€companyšš€byŠ €Š Šsection€3(c)(7).€€All€of€its€shareholders€are€š šqualified€purchasersšš€because€they€all€are€individualsŠ l¼ Šwho€own€not€less€than€$5€million€in€investments.€€šš€2(a)(51)(A)(Ō_ŌiŌ_Ō).€€Nothing€in€the€questionŠ X Ø Šindicates€that€UNO€is€making€or€proposing€to€make€a€public€offering€of€its€securities,€so€the€basicŠ D!” Šrequirements€of€the€exemption€are€met.€€šš€3(c)(7)(A).€€Nothing€else€in€section€3(c)(7)€appears€toŠ 0"€  Šdisqualify€UNO,€so€it€is€not€an€investment€company.Š #l! ŠĢņņIs€DOS€an€investment€company?óóŠ ō$D # ŠĢą  ąTo€be€an€investment€company,€DOS€must€be€an€š šissueršš.€€šš€3(a)(1).€€DOS€is€an€issuer€forŠ Ģ&"% Šthe€same€reason€UNO€is.€Š ø'#& ŠĢą  ąDOS€does€not€appear€to€be€actively€engaged€in€trading€securities,€so€section€3(a)(1)(A)Š )ą$( Šdoes€not€apply.€€However,€section€3(a)(1)(C)€may€apply.€€DOS€clearly€is€in€the€business€ofŠ |*Ģ%) Šowning€or€holding€securities.€€The€Apple,€Cod,€and€Yogurt€stocks€are€securities,€as€are€theŠ h+ø&* Šgovernment€treasury€bonds.€€ņņSeeó󀚚€2(a)(36).€€The€SEC€also€maintains€that€certificates€of€depositŠ T,¤'+ Šare€securities€for€purposes€of€the€Investment€Company€Act.€€ņņSeeóó€ņņMerrill€Lynch,€Pierce,€Ō_ŌFennerŌ_Ō,Š @-(, Š&€Smith,€Inc.óó€€Apple€and€Cod€are€both€majority„owned€subsidiaries€so€their€stock€is€notŠ ° Šš šinvestment€securities.šš€€šš€3(a)(2)(C).€€(Neither€is€an€investment€company,€so€(c)(Ō_ŌiŌ_Ō)€and€(c)(ii)€areŠ œģ Šnot€a€problem.)€€The€treasury€bonds€are€also€not€investment€securities;€they€are€governmentŠ ˆŲ Šsecurities,€šš€2(a)(16),€so€they€are€excluded€by€3(a)(2)(A).€€The€CDššs,€since€they€are€federallyŠ tÄ Šinsured,€may€also€be€government€securities.€€šš€2(a)(16)€(š šGuaranteed€as€to€principal€or€interest€byŠ `° Šthe€United€Statesšš).€€However,€the€remaining€investment€securities€(Yogurt€stock)€still€constituteŠ L œ Šmore€than€40%€of€the€value€of€DOSššs€total€assets€exclusive€of€Government€securities€and€cashŠ 8 ˆ Šitems.€€DOSššs€total€assets,€exclusive€of€Government€securities,€are€$40€million;€the€value€of€theŠ $ t ŠYogurt€stock€is€$25€million,€over€half€of€that€total.€€Thus,€DOS€is€within€the€general€definition€ofŠ  ` Šinvestment€company€in€section€3(a)(1)(C).Š ü L  ŠĢą  ąSection€3(b)(1)€does€not€help€DOS.€€DOS€owns€95%€of€Appleššs€voting€stock,€so€Apple€isŠ Ō$  Ša€wholly„owned€subsidiary.€€šš€2(a)(43).€€But€DOS€has€no€direct€operations€and€Apple€accountsŠ Ą  Šfor€only€18.2%€of€DOSššs€total€assets€and€20%€of€DOSššs€income,€not€enough€to€establish€primaryŠ ¬ü  Šbusiness.Š ˜č  ŠĢą  ąSection€3(b)(2)€also€does€not€help.€€Apple€and€Cod€are€both€majority„owned€subsidiaries,Š pĄ Ššš€2(a)(24),€so€they€fit€within€section€3(b)(2)(A).€€There€are€no€controlled€companies,€since€theŠ \¬ Špresumption€is€that€less€than€25%€ownership€does€not€establish€control,€šš€2(a)(9),€and€DOS€ownsŠ H˜ Šonly€10%€of€Yogurtššs€stock.€€Together,€Apple€and€Cod€account€for€only€27.3%€of€DOSššs€totalŠ 4„ Šassets€and€25%€of€its€income,€not€enough€to€establish€primary€business.€€Thus,€DOS€is€unlikely€toŠ  p Šobtain€an€order€under€section€3(b)(2).Š  \ ŠĢą  ąThe€section€3(c)(7)€exception€does€not€help€DOS€because€its€investors€are€not€all€qualifiedŠ ä4 Špurchasers.€€If€the€average€value€of€their€total€assets€is€only€$2€million,€there€is€no€way€they€canŠ Š  Šown€$5€million€in€investments.€€ņņSeeó󀚚€2(a)(51)(A)(Ō_ŌiŌ_Ō).Š ¼  ŠĢą  ąSection€3(c)(1)€also€does€not€help.€€DOS€has€only€76€shareholders€and€it€does€not€appearŠ ”ä Što€be€making€or€proposing€a€public€offering,€so€it€appears€to€fit€within€section€3(c)(1).€€However,Š €Š Šbeneficial€ownership€by€a€company,€such€as€UNO,€is€not€counted€as€a€single€beneficial€owner€ifŠ l¼ Šthe€company€owns€10€percent€or€more€of€the€voting€securities€and€is€an€investment€company,€orŠ X Ø Šwould€be€an€investment€company€but€for€the€section€3(c)(1)€or€3(c)(7)€exceptions.€€šš€3(c)(1)(A).€Š D!” ŠUNO€owns€25%€of€DOSššs€stock€and,€as€previously€shown,€UNO€would€be€an€investmentŠ 0"€  Šcompany€but€for€the€section€3(c)(7)€exception.€€Thus,€we€look€through€UNO€and€count€each€ofŠ #l! Šits€150€shareholders€as€a€beneficial€owner€of€DOS.€€šš€3(c)(1)(A).€€This€gives€DOS€225€beneficialŠ $X" Šowners€and€removes€it€from€the€section€3(c)(1)€exception.€€Therefore,€DOS€is€an€investmentŠ ō$D # Šcompany.