terpretations by the Commission with respect to bank collective trust funds which are used as funding media for pension and profit sharing plans qualified for favorable treatment under the Internal Revenue Code. The amendments also provide treatment more equal to that of bank trusts for separate accounts maintained by insurance companies as funding vehicles for such plans. OIL AND GAS FUNDS In the area of oil and gas funds, the Senate bill would have deleted the existing exclusion from the Investment Company Act of such funds if they issued redeemable securities or periodic payment plan certificates, but would have left the exclusion intact for those oil and gas funds in which investors make only a single investment. The House version would not have altered the existing exclusion of oil and gas funds. The Commission recommended adoption of the House approach. In the course of the hearings on the mutual fund legislation, the oil and gas industry had argued that regulation under the Investment Company Act would involve difficulty in accommodating the structure contemplated by the Act with the structure adopted by the industry in order to secure favorable tax treatment for oil and gas investors. The Commission took the position that a satisfactory solution could be achieved by enactment of a regulatory statute which would provide safeguards parallelling those provided by the Investment Company Act, but which would be specifically tailored to the practices, problems and operating methods of the oil and gas funds. The House and Senate conferees determined to retain the exclusion, with the same understanding. They directed the Commission to submit a legislative proposal in this area, hopefully to be worked out in cooperation with the oil and gas industry, within eighteen months of enactment of the 1970 Act. IMPLEMENTATION OF INVESTMENT COMPANY ACT AMENDMENTS Following passage of the 1970 Act, the Commission took steps to adopt rules implementing the new provisions, rescind existing rules which had become obsolete because of the legislation, and issue explanatory releases. EXPLANATORY RELEASES Beginning in February 1971, the Commission published a series of explanatory and interpretive releases dealing with the changes Acts by the 1970 Act.23 The releases explained the effects of various of these changes, called the attention of registered investment companies and their counsel to actions which needed to be taken in order to comply with the new provisions, and rescinded certain rules and a form superseded by the amendments. ADOPTION OF RULES UNDER AMENDED SECTION 27 As described above, the 1970 Act added to Section 27 of the Investment Company Act certain rights of withdrawal and refund in connection with the sale of periodic payment plan certificates. Shortly after these amendments became effective on June 14, 1971, the Commission adopted a series of rules and related forms to implement them.24 Among other things, the rules require principal underwriters and depositors to establish and maintain funds in a segregated trust account in order to assure their ability to meet refund obligations and specify the method, form and contents of the notices required to inform certificate holders of their refund rights. REVISION OF ANNUAL REPORT FORM In May 1971, the Commission published notice of a proposal to revise Form N-1R, the annual report form for most management investment companies,25 and in October 1971 it adopted the proposal, with certain modifications.26 The revision effected changes in the items of the form consistent with the 1970 amendments. In addition, since annual reports for the fiscal year which includes December 14, 1971, will involve the reporting, in certain items, of information relating to requirements of the Investment Company Act both before and after the effective date of amendments, the form was also revised to provide a means of reporting information for the fiscal year within which the amendments become effective, STUDY OF THE POTENTIAL ECONOMIC IMPACT OF THE REPEAL OF SECTION 22(d) OF THE INVESTMENT COMPANY ACT The Committee on Banking and Currency of the United States Senate requested in its Report Accompanying the Investment Company Amendments Act of 1969 27 that the Commission review 23 Investment Company Act Releases Nos. 6336 (February 2, 1971); 6392 (March 19, 1971); 6430 (April 2, 1971); 6440 (April 6, 1971); 6506 (May 5, 1971); and 6568 (June 11, 1971). 24 Investment Company Act Release No. 6600 (July 2, 1971). 26 Investment Company Act Release No. 6748 the potential consequences to the investing public and to the mutual fund sales organizations of a repeal of the "retail price maintenance" provision of Section 22 (d) of the Investment Company Act and report its findings to the Committee. Section 22(d) precludes the sale to public investors of redeemable investment company securities which are being currently offered to the public by or through an underwriter except at a current public offering price described in the prospectus. In the spring of 1971, approximately 600 selected brokerdealers, investment companies and their principal underwriters were surveyed through questionnaires developed to elicit the information necessary to analyze the potential impact of the repeal of Section 22(d). The completed analysis will cover the potential impact on the funds themselves, principal underwriters, retail sales organizations and their salesmen, the investing public and the stock market. PROPOSED RULES REGARDING RESALES OF RESTRICTED SECURITIES The Commission has taken further steps in its efforts to bring greater clarity and certainty into one of the most difficult areas of securities law: the application of the registration provisions of the Securities Act of 1933 to the resale of securities acquired from issuers in transactions not involving public offerings ("restricted securities") and securities held by persons in a control relationship with an issuer. As discussed in the last annual report,28 the Commission published a proposed Rule 144 dealing with those matters in September 1970. A large number of comments was received in response to this proposal and a still earlier one. In light of the comments and a further re-examination by the Commission of its interpretations in this area, the Commission, in September 1971, published a revised draft of proposed Rule 144 for comment as part of a package of proposed rules. 29 The proposed rule is designed to implement the disclosure objective of the Securities Act and would also operate to inhibit the creation of public markets in securities of issuers concerning which adequate current information is not available to the public. In essence, the rule would permit holders of restricted securities and persons in a control relationship with the issuer to sell, after a two-year holding period designed to assure that the seller 28 36th Annual Report, pp. 9-10. has held the securities at risk, limited amounts of securities through brokers without registration, provided adequate public information about the issuer is available. Sellers of the securities will benefit from the greater certainty of clear-cut objective standards—a 2-year holding period and the availability of public information-which will replace the subjective "state of mind" and "change in circumstances" tests presently in effect. The adequate information condition is deemed to be met if the issuer is subject to the reporting requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 and has filed all reports due within the past 90 days. Under a companion proposal to amend the annual and quarterly report forms,30 issuers filing such reports would be required to state whether all required filings within the preceding 90 days had been made, so that sellers will know whether Rule 144 is available for their use. If an issuer is not subject to these reporting requirements, there must be publicly available specified information concerning the issuer. In order to prevent substantial blocks from coming into the market at one time which may result in wide swings in the market price, the revised rule would permit the sale of a maximum of 1 percent of the outstanding stock of an issuer in any six-month period. The securities must be sold in "brokers' transactions" within the meaning of Section 4 (4) of the Securities Act. There can be no solicitation of buy orders by the broker or the seller of the securities, and the broker can receive only the usual and customary broker's commission. When the securities to be sold will exceed 500 shares or other units or the aggregate sale price will exceed $10,000, a notice of the proposed sale must be filed with the Commission at least 10 days prior to the sale. If the securities are not sold within 90 days after the notice is filed, an amended notice must be filed before any further sales are made. In a related action, the Commission invited comment on a proposed new Rule 237 providing certain exemptions from registration under the Securities Act.31 The proposal reflects the Commission's recognition that noncontrolling persons owning restricted securities of issuers which do not satisfy all of the conditions of proposed Rule 144 might have difficulty in selling those securities due to circumstances beyond their control. Rule 237 is designed to avoid unduly restricting the liquidity of such investments. 30 Securities Exchange Act Release No. 9331 (September 10, 1971). Under the proposed rule any person satisfying the conditions of the rule would be permitted to offer securities up to one percent of the amount of the class outstanding or $50,000, whichever is less, during any twelve-month period, reduced by the amount of any other sales pursuant to an exemption under Section 3(b) of the Act or Rule 144 during the period. The conditions would include the following: The seller has owned and fully paid for the securities for at least five years; the issuer is a domestic organization which has been actively engaged in business as a going concern for at least 5 years; the securities are sold in negotiated transactions otherwise than through a broker or dealer; and the seller must file a notice of intention to sell securities under the rule. Another related proposal is to amend Regulation A so as to allow noncontrolling shareholders to sell limited amounts under that Regulation without having such offerings counted against the $500,000 maximum available to the issuer.32 DISCLOSURE BY DEFENSE CONTRACTORS In May 1970, the Commission received from its staff a report of an extensive private investigation authorized to determine if Lockheed Aircraft Corp. and certain of its officers and directors had made inadequate disclosures and engaged in illegal insider trading in connection with the cost history of Lockheed's C-5A contract. Based on this report and other evidence which the staff presented to the Commission, it was decided that enforcement action would not be taken against Lockheed. The Commission instead determined that a broader inquiry should be made into the entire area of defense contracting so that specific industrywide financial disclosure standards might be established. Accordingly, on June 4, 1970, the Commission ordered a public inquiry, pursuant to Section 21 (a) of the Securities Exchange Act of 1934, into the disclosure practices of defense contractors. As a part of this public investigation of disclosure practices, 50 of the nation's largest defense contractors received a written questionnaire directed to their current accounting and financial reporting practices. The staff also took on the record testimony from representatives of certain companies and their independent auditors. It is anticipated that the facts adduced in this inquiry will provide a basis for improving disclosure by defense contractors, through the issuance of specific guidelines to registration under |