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that all or a specified part of the amount paid will be promptly refunded if a specified number of units are not sold at a specified price within a specified time and the total amount due to the seller is not received by him by a specified date.? Proposed Rule 106-10
During the fiscal year, the Commission invited public comments on a proposed rule relating to representations concerning the sale or redemption of certain securities. The proposed rule, to be designated Rule 106-10, would provide that it shall constitute a manipulative or deceptive device or contrivance within the meaning of Section 10(b) of the Act for any person, in connection with the offering or sale of any equity security, to make any representation to the effect that (1) the offering price of such security is based upon and varies with the current value of its proportionate share of the assets of the issuer, or (2) such security is or will be redeemable at the option of the holder at a price which is based upon and varies with the current value of such proportionate share, unless substantially all of the assets of the issuer consist of cash, cash items and securities (other than mortgages and other liens on and interests in real estate) for which market quotations are readily available and which are readily marketable.
This matter has become of particular interest in connection with proposals by certain real estate investment companies to offer redeemable securities. However, the proposed rule as drafted would apply to any company seeking to offer securities in the manner or of the character described in the rule. One purpose of the rule is to prohibit the offering of securities on the basis of the value of their proportionate share of the assets of the company in cases where the nature of the company's assets is such that it is impossible to determine their value with sufficient precision to compute the offering price of the securities on that basis. The rule would also prohibit the offering of securities of a company as "redeemable” securities when the assets of the company are such that their value cannot be precisely determined for the purpose of redemption and are not sufficiently liquid to make possible their conversion into cash for the purpose of redeeming the securities.
A number of comments were received in regard to the proposed rule and the rule was being considered in the light of such comments at the end of the fiscal year. Proposed Amendments to Rules 13a-15 and 150–15 and Form 7-K
Rules 13a–15 and 15d-15 require certain real estate companies to file with the Commission pursuant to Sections 13 and 15(d) of the Securities Exchange Act quarterly reports with respect to distributions to shareholders. Form 7-K is the form prescribed for such reports. At the time of adoption of these rules and form, the Commission announced that it would consider all views and comments submitted with respect thereto by interested persons and would make such changes, if any, as it might deem necessary or appropriate in the light of such views and comments. Accordingly, after consideration of a number of comments submitted by interested persons, the Commission, during the fiscal year, invited public comments on certain proposed amendments to Rules 13a-15 and 15d-15 and Form 7-K.10
7 Securities Exchange Act Release No. 6905 (October 3, 1962). & Securities Exchange Act Release No. 6874 (August 13, 1962).
The rules as proposed to be amended would require the filing of quarterly reports on Form 7-K by real estate investment trusts and by real estate companies which as a matter of policy or practice make distributions to shareholders from sources other than current or retained earnings. Other real estate companies would be required to file reports with respect to quarters in which a distribution is made from a source other than current or retained earnings. It is proposed to amend Form 7-K to eliminate the two-column reporting now required and to clarify the language of the items of the form so as to simplify the preparation and filing of the required reports.
This matter was pending at the close of the fiscal year.
During the fiscal year, the Commission adopted regulations governing the filing of annual reports, pursuant to Section 15(d) of the Securities Exchange Act of 1934, relating to employee stock purchase, savings and similar plans.
A new Form 11-K was adopted for use in filing annual reports with respect to such plans. A new Rule 15d-21 provides that separate annual and other reports need not be filed with respect to any plan if the issuer of the stock or other securities offered to employees through the plan files annual reports on Form 10-K or U5S and as a part of such reports furnishes the information, financial statements and exhibits required by Form 11-K and if it furnishes to the Commission copies of any annual report submitted to employees in regard to the plan. A new general instruction was added to Form 10-K which specifies the procedure to be followed where an issuer elects to file information and documents pursuant to Rule 150–21.11 Proposed Rule 16b-9
Section 16(b) of the Securities Exchange Act provides for the recorery, by or on behalf of the issuer of equity securities registered on 3 national securities exchange, of short term trading profits realized by
• Securities Exchange Act Release No. 6820 (June 12, 1962). 10 Securities Exchange Act Release No. 7077 (May 16, 1963). 11 Securities Exchange Act Release No. 6857 (July 23, 1962).
directors, officers and principal security holders of the issuer. The Commission is authorized to exempt from Section 16(b) transactions not comprehended within the purpose of that Section. During the fiscal year, the Commission invited public comments on a proposed new Rule 16b-9 which would exempt from the operation of Section 16 (b) certain acquisitions of shares of stock in exchange for similar shares of stock of the same issuer.12
The proposed rule would exempt any acquisition of shares of stock of an issuer in exchange for an equal number of shares of another class of stock of the same issuer pursuant to a right of conversion under the terms of the issuer's certificate of incorporation, for the purpose or in contemplation of a public sale which in fact occurs. The exemption would be available only if the shares surrendered and those acquired in exchange therefor evidence the same rights and privileges except that the shares surrendered may, in the discretion of the board of directors, receive a lesser cash dividend than the shares for which they are exchanged. The exemption would be further conditioned upon there being no other acquisitions of securities of either class within 6 months before or after the exempted transaction. The exemption would apply to any such acquisition occurring either before or after the effective date of the rule, except that it would not affect judgments rendered prior to the effective date. 13 Proposed Amendments to Form 8-K
Form 8-K is the form prescribed for current reports filed pursuant to Sections 13 and 15(d) of the Securities Exchange Act. During the 1962 fiscal year, the Commission announced that it had under consideration certain proposed amendments to the form and invited public comments.14 The amendments are designed to require prompt reporting of material changes affecting a company or its affairs when
appears that they are of such importance that reporting should not be deferred to the end of the company's fiscal year. The amendments relate to matters such as the pledging of securities of the issuer or its affiliates under such circumstances that a default will result in a change in control of the issuer, changes in the board of directors otherwise than by stockholder action, the acquisition or disposition of significant amounts of assets otherwise than in the ordinary course of business, interests of management and others in certain transactions, and the issuance of debt securities by subsidiaries. This matter was still under consideration at the close of the year.
12 Securities Exchange Act Release No. 7058 (April 11, 1963).
13 The proposed rule was adopted shortly after the end of the fiscal year. Exchange Act Release No. 7118 (August 19, 1963). 14 Securities Exchange Act Release No. 6770 (April 5, 1962).
THE INVESTMENT COMPANY ACT OF 1940 Adoption of Rule 3c-3
During the fiscal year, the Commission adopted a new Rule 3e-3.15 The rule exempts from the provisions of the Act transactions of insurance companies with respect to certain group annuity contracts providing for the administration of funds held by an insurance company in a separate account established and maintained pursuant to legislation which permits the income, gains and losses, whether or not realized, from assets allocated to such account to be credited to or charged against such account without regard to other income, gains or losses of the insurance company.
It is contemplated that employers would make payments to such accounts as a means of accumulating the funds required to discharge their obligations under pension plans to provide their employees with annuities in fixed-dollar amounts upon their retirement. It is also contemplated that the assets allocated to such a special account would be invested free of the usual restrictions applicable to investment by insurance companies in common stocks. Under the type of pension contract which would utilize such special accounts, the risk of market fluctuation of equities occurs only during the accumulation period and is on the employer. The annuity which will be provided for a retired employee is not affected by market fluctuations.
Although the insurance companies may not be acting as trustees, the arrangements for utilization by employers of such special accounts maintained by insurance companies would be similar to arrangements excepted from the definition of investment company pursuant to Seetion 3(c) (13) of the Act, relating to accounts maintained by bank trustees for the investment of funds which employers have set aside to meet their obligations under qualified pension plans.
The exemption provided by the rule is available only if the following requirements are met: the pension plan must meet the qualification requirements of Section 401 of the Internal Revenue Code or the requirements for deduction of the employer's contribution under Section 404(a) (2) of the Code whether or not the employer deducts the amounts paid for the contract under such Section; must cover at least 25 employees as of the plan's initiation date; must not provide for payment of retirement benefits measured by the inrestment results of the assets allocated to the segregated account; and must not permit the allocation to the separate account of any payment or contribution by employees.
18 Investment Company Act Release No. 8605 (January 7, 1968).
Amendment of Rule 30d-1
The Commission also adopted certain amendments to Rule 30d-1 under the Investment Company Act of 1940.16 This rule relates to reports required to be furnished to stockholders of management companies pursuant to Section 30(d) of the Act.
Paragraph (a) of the rule previously required the first report of a registered management company to be made as of a date not later than the close of the fiscal year or half-year first occurring on or after December 31, 1940. Since that date no longer has any significance, this provision has been amended to provide that the first such report shall be made as of a date not later than the close of the fiscal year or half-year first occurring on or after the date on which the company's notification of registration under the Act is filed with the Commission.
Another amendment to paragraph (a) provides that, with certain exceptions, reports shall be mailed to stockholders within 45 days (rather than within 30 days, as previously required) after the date as of which the report is made. The procedure for securing an extension of time in certain cases has also been simplified.
Paragraph (b) of the rule has been amended to provide expressly that the financial statements included in such reports for the company's fiscal year shall be certified by independent public accountants. The rule has been consistently construed to require such certification and the amendment merely makes the requirement explicit. Amendments to Rules 3la-1 and 31a-2; Adoption of Rule 31a-3
Rules 31a-1 and 31a-2, which relate to the records to be maintained and preserved by registered investment companies, certain majorityowned subsidiaries, and other persons having transactions with registered investment companies, were amended during the fiscal year to prescribe with greater specificity and detail the records of securities transactions required to be kept, and to require the keeping of certain memoranda and documents not previously required. At the same time, a new Rule 31a-3 was adopted, which sets forth certain requirements in circumstances where the records specified in Rules 31a-1 and 31a-2 are prepared or maintained by others on behalf of the person required to maintain them.
16 Investment Company Act Release No. 3574 (November 16, 1962). 17 Investment Company Act Release No. 3578 (November 28, 1962).