rities exchange for listing, the prospectus may be misleading if it conveys the impression that the registrant may apply for listing of the securities on an exchange or that the underwriters may request the registrant to apply for such listing. 53. Secondary Distributions "at the Market” The registration statement of Hazel Bishop Co., Inc. (File No. 2-16761) filed June 28, 1960, related to an offering "at the market" of a substantial block of securities in relation to the securities of the class outstanding by a group of 112 named selling stockholders. The Commission stated in a stop order opinion involving this offering, as follows (40 SEC 718, 735):

"In supplying registrant with much needed capital in late 1959 and early 1960, and proposing the resale of the shares thus acquired to the public, the original purchasers and their associates and transferees in fact were and are performing an underwriting function for registrant, a function normally performed by an underwriter-dealer group. However, none of the contractual safeguards designed for the protection of both buyer and seller ordinarily provided in the conventional distribution through professional underwriters and dealers are mentioned in the prospectus. The absence of any indication of these safeguards, the size of the group of selling stockholders, and various relationships among them lead us to be apprehensive that this large group of sellers may not be aware that various statutory provisions and rules which govern the conduct of underwriters and dealers will apply to them and their activities for the duration of the offering of their shares to the public."

The Commission was concerned primarily with the application of the anti-manipulative Rules 10b-2,

10b-6 and 10b-7 and their possible impact upon an "at the market" offering, and the need for prior delivery of a statutory prospectus beyond that contemplated by Rule 153.

The essential elements of this situation are the following:

(a) Registration of an "at the market" offering by selling stockholders.

(b) A substantial amount of securities to be offered in relation to the securities of the class outstanding (more than 10 percent). (c) No professional underwriter to act for the group or no conventional underwriting agreement, and

(d) The offering includes securities owned by insiders or substantial holders.

I. Where the above elements are present and there is a limited group of selling shareholders or several groups of related shareholders contractual arrangements should be entered into between the members of the respective groups and the issurer for the following purposes:

(1) To comply with the aforesaid anti-manipulation rules (namely, not to buy other securities of the same class or solicit purchases by others) until the offering by all members of the group is completed.

(2) To inform the exchange, the brokers and selling shareholders in the group when the distribution by the respective members of the group is over.

II. Where the above elements are present and there is a large group of unrelated sellers the issuer should notify such sellers of the applicable Commission rules and regulations.

III. There may be a combination of I and II above in a single registration statement.

The foregoing arrangements should be disclosed in the registration statement.

SECURITIES ACT OF 1933

Commission interpretation of section 2(10) of the Securities Act of 1933 and Rule 134 thereunder regarding the scope of the section and the rule as

they relate to shares of investment companies. The letter sets forth the limited circumstances under which references to other financial services such as banking and insurance in investment company "tombstone" advertisements would not be inconsistent with section 2(10) (b) and Rule 134.

The text of the letter follows:

You have inquired as to the Commission's current position on the scope of section 2(10) of the Securities Act of 1933 and Rule 134 thereunder as they relate to shares of investment companies.

As you know, section 2(10) (b) of the Securities Act and the rule exclude certain communications from the definition of the term "prospectus" in the first clause of section 2(10) of the Act if certain conditions are met. The Commission has recently considered this matter and determined that references to other financial services such as banking and insurance in investment company tombstone advertisements would not be inconsistent with Rule 134, in the absence of usage or circumstances which tend to transform such advertisements into selling media for the investment company or the other financial services.

I would like to make clear that the interpretation relates only to tombstone advertisements by or on behalf of investment companies. Advertisements or other notices published by banks, insurance companies or others offering other services should of course also comply with section 2(10) (b) and the rule to the extent that references are made to the shares of investment companies.

The view of the Commission is based upon the assumption that references in investment company tombstone notices otherwise complying with section 2(10) (b) and the rule would be limited to simple identification statements; for example, the statement that insurance from a specified insurance company is available in connection with purchase of fund shares. Statements which go beyond this and, for example, attempt to list or discuss the advantages of insurance or of a particular insurance arrangement would in all probability not come within this interpretation of section 2(10) (b) and Rule 134.

By the Commission.

ORVAL L. DUBOIS Secretary

SECURITIES ACT OF 1933

The increasing number of business acquisitions has led to numerous requests for relief from the requirements for certification of financial statements of the acquired businesses on the representation that it is impossible to obtain certification. When an acquiring company plans to register securities under the Securities Act the necessity for furnishing financial statements for the new business must be considered by it. Item 27 of Schedule A of the Securities Act of 1933 and Instructions 11 and 12 to Form S-1 for registration under the Act require certified financial statements for a company acquired or to be acquired. Instruction 13 of Form S-1 permits the Commission to grant relief from this requirement of certi

fication where such relief is consistent with the protection of investors. Generally, relief has been requested because no independent certified public accountant has observed the taking of inventory of the acquired company necessary for certification of financial statements for 3 years and alternative methods of verification were not available.

When a representation is made that certification of financial statements of acquired companies for a full 3 year period cannot be obtained and compelling and satisfactory evidence in support of such representation is furnished, the Commission considers the relationship of the following items of the acquired companies to those of the registrant (on a consolidated basis without inclusion.

of such companies) in determining whether relief from the 3-year certification requirement should be granted:

1. gross sales and operating revenues;

2. net income;

3. total assets;

4. total stockholder equity; and

5. total purchase price compared to total assets of registrant.

The above items will be evaluated as follows:

A. If none of the items exceed 10 percent, certified statements will not be required;

B. If any of the items exceed 10 percent but none exceed 25 percent, certification of the balance sheet and the income statement for not less than 6 months will be required;

C. If any of the items exceed 25 percent but none exceed 45 percent, certification of the balance sheet and the income statement for at least 12 months will be required.

D. If any of the items exceed 45 percent, certification of the balance sheet and the income statement for 3 years will be required, consistent with similar requirements as to the registrant.

In connection with any request for relief from the 3 year certification requirement the items of

information mentioned above should be furnished in tabular form, comparing the five items set forth therein of the acquired companies (individually and in the aggregate) with the registrant on a consolidated basis (without the acquired companies), with date of acquisition and other pertinent data. To the extent any of the data is not based on audit reports, the basis or lack of basis for reliance on the data should be fully stated (including the nature and method of checking the accuracy of the underlying figures).

Income statements for periods not certified shall not be combined with the certified statements if to do so would result in a qualification by the auditors on grounds of materiality.

Note. This release does not apply to the financial statements of a company to be acquired where the securities to be registered are to be offered to the security holders of that company in exchange for their securities. In such a case certified financial statements of that company shall be furnished in accordance with the requirements of the applicable regisration form.

By the Commission.

ORVAL L. DUBOIS

Secretary

SECURITIES ACT OF 1933

The Commission is publishing this release to indicate the position its staff proposes to take regarding the application of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 where registered open-end investment companies offer and sell their shares outside the United States.

This release supplements an earlier Commission release (Securities Act Release No. 4708, July 9, 1964, see p. 54) which was concerned with the applicability of the Federal securities laws where domestic corporations offer their securities outside the United States. That release was published in

response to a specific recommendation of the Presidential Task Force on Promoting Increased Foreign Investment in U.S. Corporations Operating Abroad which, among other things, recommended that registered investment companies devise methods for achieving additional foreign distribution of their shares.

On January 1, 1968, the President called for among other things, "an intensified program to attract greater foreign investment in U.S. corporate securities, carrying out the principles of the Foreign Investors Tax Act of 1966." The Commission's staff has since received numerous inquiries

from open-end investment companies and their underwriters which indicate that an increasing number of them desire to sell outside the geographic territory of the United States. Accordingly, the Commission is publishing these proposed guidelines as to the position its staff will take with respect to the applicability of the Federal securities laws in this area in order to implement further the Task Force recommendations.

The proposed guidelines in this release describe the responsibilities of U.S. issuers in connection with foreign sales of their shares. In any case of conflct with specifically applicable foreign law, the foreign law, as a general rule, would be considered as controlling.

While the views expressed by the staff as set forth in this release are those of persons who are continually working with the provisions of the statutes and rules involved and can be relied upon as representing the views of the staff, the public is cautioned that the opinions expressed in this release are not, and do not purport to be, an official expression of the Commission's views.

The Commission believes it desirable that the staff receive the benefit of comments and suggestions of members of the industry and other interested persons before these guidelines are published in definitive form. Any comments or suggestions should refer to "Guidelines on the Applicability of The Federal Securities Laws to Sales of Openend Investment Company Shares Outside the United States" and should be addressed to the Division of Corporate Regulation, Securities and Exchange Commission, Washington, D.C. 20549, on or before March 25, 1969.

I. The Applicability of the Securities Act of 1933 to Offer and Sale of Open-end Investment Company Shares Outside the United States

The registration requirements of the Securities Act apply, unless an exemption is available, to any offer or sale of a security involving interstate commerce or use of the mails. Since "interstate commerce" is defined in section 2(7) of the Securities Act to include "trade or commerce in securities or any transportation or communication relating thereto... between any foreign country and any State, Territory, or the District of Columbia," this might be construed to encompass virtually any of

fering of securities made by a U.S. issuer outside the geographic territory of the United States.

However, because the Commission traditionally has taken the position that the registration requirements of section 5 of the Securities Act are primarily intended to protect U.S. investors, the Commission announced in Securities Act Release No. 4708, see p. 54, that it will not take any action for failure to register securities of U.S. issuers distributed outside the territory of the United States to foreign nationals even though use of jurisdictional means may be involved in the offering, so long as the distribution is effected in a manner which would result in the securities coming to rest outside the United States. Thus, the Commission will not insist upon registration of securities subject to such offerings under the Securities Act.

Foreign offerings of shares of open-end investment companies are, of course, significantly different from foreign offerings of securities of other domestic issuers. Open-end investment companies as opposed to industrial companies and closed-end companies offer their shares on a continuous basis, pursuant to a currently effective registration statement. Since such companies are therefore constantly "in registration" with respect to the shares they sell in the United States, a requirement that they also register shares which are intended for sale in foreign countries would not impose a significantly greater burden or expense upon them. Indeed, it appears that the predominant industry practice has been to register with the Commission open-end investment company shares offered to foreign nationals outside the United States and to offer such shares by means of prospectuses and sales literature which are substantially identical to those used to offer shares in the United States. In some cases, these prospectuses have been translated into the principal native language of the foreign country in which the shares are offered. In addition, underwriters of open-end investment companies enter into sales contracts which require foreign distributors to use substantially the same prospectuses and the same sales literature as are used in the United States.

These industry practices appear to be in the public interest. They also serve to furnish the foreign investor with the kind of information which the Task Force Report found to be lacking. The Task Force Report stated, with respect to offers

by United States corporations generally, that most foreign investors outside the United States encounter difficulty in obtaining information about such corporations and their securities and that personnel of foreign banks and brokerage firms who deal directly with foreign investors often have little knowledge of such securities or of U.S. market procedures. These Task Force findings appear to be equally true with respect to open-end investment companies.

Use of a Prospectus

Accordingly, the staff believes that issuers of open-end investment company shares offered and sold to foreign nationals outside the United States should register such shares under the Securities Act and conduct such offerings by means of a prospectus which does not differ materially from the prospectus used in the United States. The staff recognizes, of course, that the prospectus should be adapted to the particular foreign country where the offer is being made. Thus, disclosures included in the prospectuses used in the United States, such as discussion of U.S. tax laws, may be deleted where inappropriate in a prospectus delivered in foreign countries. Conversely, disclosures specifically designed for the citizens of a particular foreign country should be added to the prospectus where appropriate.

Furthermore, the prospectus used in any foreign country should be printed either in the language of the country or where sales are insignificant in a widely-used language appropriate for that country, such as French, German, Spanish or Italian. (This is on the assumption that it would not be feasible to print the prospectus in the native language of countries where sales are insignificant.) If an English language version of a prospectus used for sales in any foreign country differs from the English language version of the same company's prospectus used in the United States, 25 copies of it should be filed with the staff pursuant to Rule 424 (c) of the Securities Act, together with 25 copies of a statement designating what material has been added and/or deleted. If the prospectus used in any foreign country differs in any respect from the prospectus used in the United States, and it is printed in a foreign language only, copies of it should not be filed, but 25 copies of an English-language translation should be filed with the

staff pursuant to Rule 424 (c) of the Securities Act, together with 25 copies of a statement desig nating what information has been added and/or deleted. Where English language translations of two or more foreign language prospectuses are identical, no more than 25 copies of such Englishlanguage translation should be filed. Each copy of the English-language translation of the prospectus should be properly identified as a translation and should have affixed to it a written representation by representatives of management of the investment company that the translation is accurate and complete.

Advertisements

To the extent feasible Rule 134 under the Securities Act should be adhered to in connection with advertisements in foreign publications which are used in the offer of open-end investment company shares to foreign nationals outside the United States. However, the Commission staff is aware that the laws of other countries relating to securities advertisements may be less restrictive than Rule 134 and that business practice in this area may vary from that in the United States. Therefore, problems of compliance with Rule 134 should be brought to the attention of the staff. Sales Literature

The staff believes that it is the responsibility of the issuer to take steps to insure that sales literature used in the offer of open-end investment company shares to foreign nationals outside the United States generally conforms with the Commission's Statement of Policy. Contracts with foreign distributors and dealers should provide for supervision of sales literature by the issuer. If sales literature printed in the English language which is used in any foreign country differs in any material respect from the sales literature used in the United States, three copies of the full text should be filed with the Commission pursuant to section 24(b) of the Investment Company Act, together with three copies of a statement designating what information has been added and/or deleted. If sales literature printed in a foreign language only which is used in any foreign country differs in any material respect from the sales literature used in the United States, three copies of such sales literature and of an English-language translation of the full text should be filed with the Commission pur