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(3) to make contracts;
(4) to sue and be sued, complain, and defend in any court of law or equity;

(5) by its board of directors, to appoint such officers and employees as may be deemed proper, define their authority and duties, fix their compensation, require bonds of such of them as it deems advisable and fix the penalty thereof, dismiss such officers or employees, or any thereof, at pleasure and appoint others to fill their places;

(6) to adopt bylaws regulating the manner in which its stock shall be transferred, its officers and employees appointed, its property transferred, and the privileges granted to it by law exercised and enjoyed ;

(7) to establish branch offices or agencies subject to the approval of the Board ;

(8) to acquire, hold, operate, and dispose of any property (real, personal, or mixed) whenever necessary or appropriate to the carrying out of its lawful functions;

(9) to act as depository or fiscal agent of the United States when so designated by the Secretary of the Treasury;

(10) to operate in such Federal Reserve district or districts or Territories or possessions of the United States as may be specified in its articles of incorporation and approved by the Board; and

(11) to exercise the other powers set forth in this title and such incidental powers as may be reasonably necessary to carry on the business for

which the company is established. (e) The board of directors of each national investment company shall consist of nine members all of whom shall be elected annually by the holders of the shares of stock of the company.

CAPITAL-STOCK PROVISIONS

SEC. 202. (a) Each company organized under this title shall have a paid-in capital and surplus equal to at least $5,000,000 before it shall commence business. In order to facilitate the formation of national investment companies, each Federal Reserve bank is hereby authorized, notwithstanding any other provisions of law, to invest in the shares of stock of one or more such companies formed by any Federal Reserve bank under section 201 hereof, but with a view to the ultimate disposal of such stock to banks and other private investors as herein provided. Each Federal Reserve bank which forms a national investment company shall invest in shares of stock of such company in an amount equal to at least $5,000,000, or an amount which, when added to the amounts, if any, of shares subscribed by other Federal Reserve banks, member banks, nonmember banks, financial institutions, corporations, partnerships, or other persons, shall equal the sum of $5,000,000. In no event shall any Federal Reserve bank invest in shares of national investment companies if as a result thereof it will hold an amount of such shares aggregating more than 2 per centum of the aggregate amount of the combined capital and surplus of all its member banks, or $5,000,000 whichever is the greater.

(b) The shares of stock in any national investment company shall be eligible for purchase by member banks of the Federal Reserve System, nonmember banks, financial institutions, corporations, partnerships, or other persons. Each member bank is hereby authorized, notwithstanding any other provision of Federal law, to acquire and hold an amount of such shares equal to not more than 2 per centum of the capital and surplus of such member bank. Upon the demand of any such eligible purchaser, a Federal Reserve bank which holds shares of stock in a national investment company shall, with the approval of the Board, including approval as to price, sell to such eligible purchaser all or a portion of such shares.

(c) The aggregate amount of shares in any such company or companies which may be owned or controlled by any stockholder, or by any group or class of stockholders may be limited by the Board; and no one stockholder, other than a Federal Reserve Bank, shall at any time, without the approval of the Board, own or control more than 10 per centum of the total outstanding shares of any such company.

BORROWING POWER

SEC. 203. Each national investment company shall have authority to borrow money and to issue its debentures, bonds, promissory notes, and other obligations under such general conditions and subject to such limitations and regulations as the Board may prescribe, but in no event shall any such company issue obligations which would cause the amount outstanding at any one time to exceed the amount of its capital stock and surplus.

ELIGIBLE ENTERPRISES

SEC. 204. The Board, after consultation with the Secretary of Commerce, shall promulgate standards to determine the eligibility of business enterprises for the purposes of this title. In promulgating such standards, which may differ according to the 15 es of financing or other relevant factors, the Board shall give consideration to

(a) the polic es set forth in section ;
(b) the criteria set forth in section 603; and

(c) the extent to which such enterprises have reasonable access to facilities for credit and equity financing.

LOANS AND INVESTMENTS

SEC. 205. (a) Each national investment company shall have authority to make or ad loans with or without security to business enterprises which are eligible under this title, or to purchase obligations of such enterprises. Such loans, purchases, or other acquisitions may be made either directly or in cooperation with banks or other lending institutions, through agreements to participate or by the purchase of participations, commitments to purchase, or otherwise, as the company may determine.

(b) Each national investment company shall have authority to acquire, and to resell to the issuer or to others, the income debentures or bonds, common or preferred stocks, or other capital shares of business enterprises eligible under this title.

AGGREGATE LIMITATIONS

SEC. 206. Without the approval of the Board, the aggre ate amount of obligations and securities acquired and for which commitments may be issued by any national investment company under the provisions of this title which exceed the sum of $300,000 for any single enterprise shall not exceed 3313 per centum of the combined capital and surplus and maximum indebtedness of such national investment company authorized by this title.

EXEMPTIONS

SEC. 207. (a) The loans of any national banking association which are acquired by any national investment company, in the making of which such company participates, or for any part of which a commitment to purchase is issued hereunder shall not be subject to the limitations on real-estate loans prescribed in section 24 of the Federal Reserve Act, as amended.

(b) Section 3 of the Securities Act of 1933, as amended, is hereby amended by inserting at the end thereof the following new subsection (c):

"(c) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a national investment company under the Small Business Act of 1950, if it finds, having regard to the purposes of that Act, that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors."

(c) Section 304 of the Trust Indenture Act of 1939 is hereby amended by adding the following new subsection (e) :

(e) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a national investment company under the Small Business Act of 1950, if it finds, having regard to the purposes of that Act, that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors.”

TAX PROVISIONS

SEC. 208. (a) Section 361 (a) of the Internal Revenue Code is amended by inserting before the word “registered” the following: "chartered under the Small Business Act of 1950 as a national investment company or is”.

(b) Section 361 (b) (1) of the Internal Revenue Code is amended by inserting immediately after the words “90 per centum” the following: “(75 per centum in the case of a national investment company chartered under the Small Business Act of 1950)”.

(c) Section 361 (b) (3) of the Internal Revenue Code is amended by changing the semicolon immediately preceding the word “and” at the end thereof to a period and inserting after such period the following: "If the Board of Governors of the Federal Reserve System determines that it is necessary and appropriate to accomplishment of the purposes of the Small Business Act of 1950 that any national investment company be exempt from the requirements of this subparagraph, it shall certify such determination to the Secretary of the Treasury and, in such event, the limitations prescribed in this subparagraph shall not apply :".

(d) Section 362 of the Internal Revenue Code is amen:led as follows:

(1) By amending the first paragraph of subsection (b) thereof to read as follows:

"(b) METHOD OF TAXATION OF COMPANIES AND SHAREHOLDERS.-In the case of the regulated investment company which distributes during the taxable year to its shareholders as taxable dividends other than capital gain dividends an amount not less than 90 per centum of its net income for the taxable year (in the case of a national investment company, increased by the amounts described in subsection (c)(3) (iv) of this section, and decreased by the amounts described in subsec. tion (c) (5) (ii) of this section) computed without regard to net long-term and net short-term capital gains, and complies for such year with all rules and regulations prescribed by the Commissioner, with the approval of the Secretary, for the purpose of ascertaining the actual ownership of its outstanding stock :".

(2 By adding thereto a new subsection (c) to read as follows: "(c) NATIONAL INVESTMENT COMPANY RESERVE.

(1) RESERVE GENERALLY.--A regulated investment company which is a national investment company may, under regulations prescribed by the Commissioner, with the approval of the Secretary, establish and maintain a reserve subject to the limitations provided in this subsection.

(2) LIMITATION ON RESERVE.--The amount of the reserve shall not at any time exceed the lesser of (i) 50 per centum of the invested capital of the company as defined in paragraph (7) of this subsection, or (ii) the accumulated earnings and profits determined as of the close of the taxable year.

“(3) CHARGES TO RESERVE.—The reserve shall be charged as of the end of the taxable year (whether or not such charge produces a minus amount in the reserve) with the following:

“(i) the net capital loss for the taxable year determined under section 117 (a) (11);

“(ii) the net operating loss for the taxable year, determined under section 122 (a);

“(iii) the Federal income taxes attributable to the amount added to the reserve under paragraph (5) of this subsection; and

“(iv) such amount as may be necessary by reason of the limitation provided in paragraph (2) of this subsection. “(4) MANDATORY ADDITIONS TO THE RESERVE.—There shall be added to the reserve as of the close of the taxable year the following:

“(i) an amount equal to the excess of the net capital gain for the taxable year computed without regard to section 117 (e) (relating to capital loss carry-over) over the net capital gain for the taxable year; and

“(ii) an amount equal to the excess of the net income for the taxable year computed without regard to section 23 (s) (relating to the net

operating loss deduction) over the net income for the taxable year. (5) DISCRETIONARY ADDITION TO THE RESERVE.-In any year in which an amount (other than the amounts described in paragraph (4) of this subsection) is added to the reserve, the company shall, in the computation of net income for the purposes of this section be allowed

“(i) a deduction from net income equal to such amount of the addition to the reserve as does not cause the aggregate amount of the reserve (including such addition) to exceed 20 per centum of the invested capital of the company as defined in paragraph (7) of this subsection; and

“(ii) the dividends received credit provided in section 26 (b) but such credit shall not exceed 85 per centum of the portion of amounts added to the reserve under this paragraph which is not deductible from net income under the preceding clause of this paragraph.

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“(6) REDUCTION OR TERMINATION OF RESERVE.—In the event of a reduction or termination of the reserve in connection with a partial or complete liquidation of the company (or of any company to which the reserve has been transferred in an exchange upon which gain was not recognized by reason of section 112) the gain realized by a stockholder upon any such liquidation shall, to the extent of the pro rata share of the reserve, be considered as gain from the sale or exchange of property held for less than six months.

"(7) INVESTED CAPITAL.--For the purposes of paragraph (1) of this subsection the term “invested capital” means the sum, determined as of the close of the taxable year, of—

“(i) the amount of money or property (included in an amount equal to its unadjusted basis without regard to the value of the property as of March 1, 1913, except that if such basis is a substituted basis, it shall be adjusted, with respect to the period before the property was paid in, by an amount equal to the adjustments proper under section 115 (1) for determining earnings and profits) previously paid in for stock, or as paid-in surplus or as a contribution to capital, reduced by the amount of distributions not out of earnings and profits in the year of distribution and not out of accumulated earnings and profits; and

“(ii) the amount of the outstanding indebtedness (not including interest) of the company which is evidenced by a bond, note, bill of exchange, debenture, certificate of indebtedness, mortgage, or deed of trust, except that indebtedness not represented by a bond or debenture shall not be included in excess of an amount equal to the average daily amount of indebtedness not so represented which was outstanding during the

taxable year.” (e) Each national investment company established under this title, including its franchise, capital, reserves and surplus, its income, its real property, its tangible and intangible personal property, its obligations (both as to principal and income derived therefrom), shall be subject to taxation, in the same manner and to the same extent as a State-chartered institution of similar character by any State, county, municipality, or local taxing authority or by any Territory, dependency, or possession of the United States: and its real property shall be subject to special assessments for local improvements.

MISCELLANEOUS

SEC. 209. (a) Wherever practicable the operations of a national investment company shall be undertaken in cooperation with banks or other financial institutions, and any servicing or initial investigation required for loans or acquisitions of securities by the company under the provisions of this title may be handled through such banks or other financial institutions on a fee basis.

(b) Each national investment company may make use, wherever practicable, of the advisory services of the Federal Reserve System and of the Department of Commerce which are available for and useful to industrial and commercial businesses, and may provide consulting and advisory services on a fee basis and have on its staff persons competent to provide such services. Subject to the supervision and direction of the Board, any Federal Reserve bank is authorized to act as a depository or fiscal agent for any company organized under this title. Such companies may invest funds not reasonably needed for their current operations in direct obligations of, or obligations guaranteed as to principal and interest by, the United States.

(c) The Board is authorized to prescribe regulations governing the operations of national investment companies and to carry out the provisions of this title in accordance with the purposes of this Act. Each national investment company shall be subject to examinations made by direction of the Board by examiners selected or approved by the Board, and the cost of such examinations, including the compensation of the examiners, may in the discretion of the Board be assessed against the company examined and when so assessed shall be paid by such company. Every such company shall make such reports to the Board at such times and in such form as the Board may require.

(d) The Secretary is authorized to advise and assist in promoting national investment companies.

(e) Each national investment company is authorized to act as agent for the Secretary when so designated by him pursuant to section 108 of this Act, in granting and administering insurance under title I of this Act.

(f) Should any national investment company violate or fail to comply with any of the provisions of this title or of regulations prescribed hereunder, all

of its rights, privileges, and franchises derived therefrom may thereby be forfeited. Before any such company shall be declared dissolved, or its rights privileges, and franchises forfeited, any noncompliance with or violation of this title shall, however, be determined and adjudged by a court of the United States of competent jurisdiction in a suit brought for that purpose in the district or Territory in which the principal office of such company is located, which suit shall be brought by the United States at the instance of the Board or the Attorney General.

(g) Whenever in the judgment of the Board any person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of this title or of any regulation thereunder, the Board may make application to the proper district court of the United States, or the United States courts of any Territory or other place subject to the jurisdiction of the United States, for an order enjoining such acts or practices, or for an order enforcing compliance with such provision, and such courts shall have jurisdiction of such actions and upon a showing by the Board that such person has engaged or is about to engage in any such acts or practices a permanent or temporary injunction, restraining order, or other order shall be granted without bond.

(h) Any national investment company may at any time within the two years next previous to the date of the expiration of its corporate existence, by a vote of the shareholders owning two-thirds of its stock, apply to the Board for approval to extend the period of its corporate existence for a term of not more than thirty years, and upon approval of the Board as provided in section 201 hereof such company shall have its corporate existence extended for such period unless sooner dissolved by the act of the shareholders owning two-thirds of its stock, or by an Act of Congress or unless its franchise becomes forfeited as herein provided.

(i) Nothing in this Act or in any other provision of law shail be deemed to impose any liability on the United States or on any Federal Reserve bank with respect to any obligations entered into, or stocks issued, or commitments made, by any company organized under this title.

TITLE III-AMENDMENTS TO RECONSTRUCTION FINANCE

CORPORATION ACT

LOANS TO ENCOURAGE SMALL BUSINESS

SEC. 301. (a) Subsection (a) of section 4 of the Reconstruction Finance Corporation Act, as amended, is hereby amended by renumbering paragraphs “(2)”, “(3)”, and “(4)” thereof “(3)”, “(4)”, and “(5)”, respectively, and inserting therein the following new paragraph :

“(2) To make loans to any small-business enterprise (as determined pursuant to section 603 of the Small Business Act of 1950, and the classifications established thereunder) which is a worthy credit risk but does not have adequate collateral, either directly or in cooperation with banks or other lending institutions through agreements to participate or by the purchase of participations, or otherwise, for the purpose of meeting the credit requirements of such business enterprise : Provided, That management abilities, potential earnings, and other factors deemed pertinent by the Corporation afford a reasonable expectation that the loan will be

repaid.” (b) The second sentence of paragraph (1) of section 4 (b) of the Reconstruction Finance Corporation Act, as amended, is hereby amended by striking cut “(2), and (3)” and inserting in lieu thereof “(3), and (4)”.

(c) Subsection (c) of section 4 of the Reconstruction Finance Corporation Act, as amended, is amended by striking out “(a) (4)”, “(a) (3)”, and “(a) (2)” and inserting in lieu thereof “(a) (5)”, “(a) (4)”, and “(a) (3)”, respectively.

AVAILABILITY OF OTHER FINANCING

SEC. 302. The first sentence of paragraph (1) of section 4 (b) of the Reconstruction Finance Corporation Act, as amended, is hereby amended to read as follows:

“No financial assistance shall be extended pursuant to paragraphs (1), (2), (3), and (4) of subsection (a) of this section, unless the financial assistance

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