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THE INVESTMENT COMPANY ACT OF 1940 Adoption of Rule 3c-3
During the fiscal year, the Commission adopted a new Rule 3c-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 Section 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 investment 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.
15 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 3la-2; Adoption of Rule 3la-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.
18 Investment Company Act Release No. 3574 (November 16, 1962).
ADMINISTRATION OF THE SECURITIES ACT OF 1933
The Securities Act of 1933 is primarily a disclosure statute designed to provide investors with material facts concerning securities publicly offered for sale by an issuing company or any person in a control relationship to such company by the use of the mails or instrumentalities of interstate commerce, and to prevent misrepresentation, deceit, or other fraudulent practices in the sale of securities generally. Disclosure is obtained by requiring the issuer of such securities to file with the Commission a registration statement which includes a prospectus containing significant financial and other information about the issuer and the offering. The registration state-/ ment is available for public inspection as soon as it is filed. Although the securities may be offered after the registration statement is filed, sales may not be made until the registration statement has become "effective." A copy of the prospectus must be furnished to each purchaser at or before the sale or delivery of the security. The registrant and the underwriter are responsible for the contents of the registration statement. The Commission has no authority to control the nature or quality of a security to be offered for public sale or to pass upon its merits or the terms of its distribution. Its action in permitting a registration statement to become effective does not constitute approval of the securities, and any representation to a prospective purchaser of securities to the contrary is made unlawful by Section 23 of the Act.
DESCRIPTION OF THE REGISTRATION PROCESS Registration Statement and Prospectus
Registration of any security proposed to be publicly offered may be effected by filing with the Commission a registration statement on the applicable form containing the prescribed disclosure. Generally speaking, when a registration statement relates to a security issued by a corporation or other private issuer, it must contain the information, and be accompanied by the documents, specified in Schedule A of the Act; when it relates to a security issued by a foreign government, the material specified in Schedule B must be supplied. Both schedules specify in considerable detail the disclosure
which should be made available to an investor in order that he may make a realistic appraisal of the company and the securities and thus exercise an informed judgment whether to buy the security. In addition, the Act provides flexibility in its administration by empowering the Commission to classify issues, issuers and prospectuses, to prescribe appropriate forms, and to increase, or in certain instances vary or diminish, the particular items of information required to be disclosed in the registration statement as the Commission deems appropriate in the public interest or for the protection of investors. The Commission has prepared special registration forms which vary in their disclosure requirements so as to provide maximum disclosure of the essential facts pertinent in a given type of case while at the same time minimizing the burden and expense of compliance with the law.
In general, the registration statement of an issuer other than a foreign government must describe such matters as the names of persons who participate in the direction, management, or control of the issuer's business; their security holdings and remuneration and the options or bonus and profit-sharing privileges allotted to them; the character and size of the business enterprise, its capital structure, past history and earnings, and its financial statements, certified by independent accountants; underwriters' commissions; payments to promoters made within 2 years or intended to be made; the interest of directors, officers and principal stockholders in material transactions; pending or threatened legal proceedings; and the purpose to which the proceeds of the offering are to be applied. The prospectus constitutes a part of the registration statement and presents the more important of the required disclosures. Examination Procedure
Registration statements are examined by the staff of the Division of Corporation Finance for compliance with the standards of accurate and full disclosure. The registrant is usually notified by an informal letter of comment of any material respects in which the statement appears to fail to conform with the applicable requirements and is afforded an opportunity to file correcting or clarifying amendments. In addition, the Commission has power, after notice and opportunity for hearing, to issue an order suspending the effectiveness of a registration statement if it finds that material representations are misleading, inaccurate or incomplete. In certain cases, such as where the deficiencies in a registration statement appear to stem from careless disregard of applicable requirements or from a deliberate attempt to conceal or mislead, a letter of comment is generally not sent and the Commission either institutes an investigation to determine whether
stop-order proceedings should be instituted or immediately institutes stop-order proceedings. Information about the use of this “stoporder" power during 1963 appears below under “Stop-Order Proceedings.” Time Required to Complete Registration
Because prompt examination of a registration statement is important to industry, the Commission endeavors to complete its analysis in as short a time as possible. The Act provides that a registration statement shall become effective on the 20th day after it is filed (or on the 20th day after the filing of any amendment thereto). Since most registration statements require one or more amendments, they usually do not become effective until some time after the original 20-day period. This waiting period is intended to afford investors an opportunity to become familiar with the proposed offering through the dissemination of the preliminary form of prospectus. The Commission is empowered to accelerate the effective date so as to shorten the 20-day waiting period where the facts justify such action. In exercising this power, the Commission is required to take into account the adequacy of the information respecting the issuer theretofore available to the public, the ease with which the facts about the new offering can be disseminated and understood, and the public interest and the protection of investors. The note to Rule 460 under the Act indicates, for the information of interested persons, some of the more common situations in which the Commission considers that the statute generally requires it to deny acceleration of the effective date of a registration statement.
During the 1963 fiscal year, 985 registration statements became effective. The number of calendar days which elapsed from the date of the original filing to the effective date of registration for the median registration statement was 52, compared with 78 days for 1,646 registration statements in fiscal year 1962, and 55 days for 1,389 registration statements in fiscal year 1961. The number of registration statements filed during fiscal year 1963 was 1,159, as compared with 2,307 and 1,830 in fiscal years 1962 and 1961, respectively.?
The following table shows by months during the 1963 fiscal year the number of calendar days for the median registration statement during each of the three principal stages of the registration process,
1 This figure excludes the 172 registration statements of investment companies filed pursuant to the provisions of Section 24 (e) of the Investment Company Act of 1940, that became effective during fiscal year 1963. The average elapsed time on these 172 statements was 20 calendar days.
These figures include 174, 201 and 156 registration statements, respectively, filed by Investment companies pursuant to the provisions of Section 24 (e) of the Investment Company Act of 1940 during fiscal years 1963, 1962 and 1961.