This Act is designed to regulate those entities whose primary occupation is investing in and trading securities, especially those whose securities are made available to investors. The Act requires these entities to reveal their investment policies, as well as their financial condition, to investors – both at the initial sale of securities and at regular intervals thereafter. Other information that should included in these disclosures includes the entity’s organizational structure, operations, and investment objectives.
The Act does not give the SEC authority to supervise these entities or rate the quality of their investments – only to ensure that they are disclosing the required minimum amount of information to investors.
The Act goes beyond the basic information reporting requirements to also prohibit investment entities from significantly changing their investment policies or entering into management contracts without shareholder approval. Furthermore, anyone guilty of securities fraud is prohibited from becoming an officer of an investment entity, while brokers, underwriters, and investment bankers are prohibited from forming a majority of its Board of Directors. Finally, investment entities are prohibited from cross-ownership of each other’s securities.