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APPLICATIONS AND PROCEEDINGS Under Section 6(c) of the Act, the Commission, by rules and regulations, upon its own motion or by order upon application, may exempt any person, security, or transaction from any provision of the Act if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Other Sections, such as 6(d), 9(b), 10(f), 17(b), 17(d), and 23(c), contain specific provisions and standards pursuant to which the Commission may grant exemptions from particular sections of the Act or may approve certain types of transactions. Also, under certain provisions of Sections 2, 3, and 8 the Commission may determine the status of persons and companies under the Act. One of the principal activities of the Commission in its regulation of investment companies is the consideration of applications for orders under the sections referred to.
During the fiscal year, 260 applications filed under various sections of the Investment Company Act were before the Commission. The sections of the Act with which these applications were concerned and the disposition of such applications are shown in the following table: Applications filed with or acted upon by the Commission under the Investment
Company Act of 1940 during the fiscal year ended June 30, 1965
Pending Closed June 30,
Definition of controlled person. 3 and 6.
Status and exemption. 7(d).
Registration of foreign investment companies. 8(1).
Termination of registration. 9, 10, 16...
Regulation of affiliation of directors, officers, em
ployees, investment advisers, underwriters and
others. 12, 13, 14(a), 15.- Regulation of functions and activities of investment
companies. 11, 25.
Regulation of securities exchange offers and reorgani
zation matters. 17
Regulation of transactions with affiliated persons.. 18, 19, 21, 22, 23. Requirements as to capital structures, loans, distri.
butions and redemptions, and related matters. 27
Periodic payment plans. 28
Regulation of face-amount certificate companies.
Some of the more significant matters in which applications were considered are summarized below:
On November 9, 1964, the Commission issued a notice and order for hearing with respect to an application of American & Foreign Power Company Inc. (“Foreign Power”) for an order pursuant to (i) Section 3(b) (2) of the Act declaring that Foreign Power is not an investment company or (ii) Section 6(c) exempting Foreign Power from the provisions of the Act. The application was occasioned by Foreign Power's sales of or contracts to sell, between 1958 and 1964, its interests in public utility subsidiaries in Argentina, Mexico, Columbia, and Brazil to the governments or government agencies of those countries largely in exchange for notes of such governments or agencies. The proceeding on Foreign Power's application was consolidated with the proceeding on an application which had previously been filed by Electric Bond and Share Company (“Bond and Share"), the majority stockholder of Foreign Power, for an order pursuant to (i) Section 8(f) of the Act declaring that Bond and Share had ceased to be an investment company as defined in Section 3(a), or (ii) Section 3 (b) (2) of the Act declaring that Bond and Share is not an investment company.
Hearings were held during which Bond and Share amended its application to include a request, pursuant to Section 6(c) of the Act, for an order exempting it from the provisions of the Act. On January 29, 1965, the Division of Corporate Regulation filed its proposed findings and conclusions and brief in support thereof recommending that the Commission deny the applications of Bond and Share and Foreign Power. On February 16, 1965, Foreign Power entered into an agreement providing for the sale of its interests in its public utility subsidiaries in Chile to an agency of the Chilean Government primarily in exchange for notes guaranteed by that Government. Following the reopening of the record of the proceedings to receive evidence with respect to that sale, reply briefs were filed by the applicants and by the Division of Corporate Regulation, and oral argument by the parties was heard by the Commission. At the close of the fiscal year the matter was pending.
On April 7, 1965, the Commission issued its opinion and order granting an application filed pursuant to Section 6(c) of the Act by Variable Annuity Life Insurance Company of America (“VALIC”), for a limited exemption from the provisions of Sections 22(d) and 27(a) of the Act.?
5 Investment Company Act Release No. 4075.
• The notice and order for hearing with respect to the Bond and Share application are contained in Investment Company Act Release No. 3940 (March 24, 1964).
* Investment Company Act Release No. 4217.
The Commission's order under Section 22(d) permits VALIC to sell group variable annuities to those employers satisfying the provisions of Section 403(b) of the Internal Revenue Code of 1954, as amended, (“Code”) at the same sales load charged employees' pension and profitsharing trusts which satisfy Section 401 of the Code and also charged tax exempt organizations enumerated under Sections 501(c)(3) and (13) of the Code. The exemption also permits variation in the sales load charged to those employers enumerated in Section 403(b) of the Code so as to increase the amount of purchase payments on behalf of any individual at any time after the first year in order that the same uniform sales load can be charged during the contract year in which the increase is made.
With respect to Section 27(a), the Commission's order permits VALIC to charge, in the sale of its variable annuities to pension trusts, a sales load of up to 12.08 percent in each of the first 6 contract years, 5.5 percent in each of the next 6 contract years, and 2 percent each year for the remainder of the accumulation period. Under the order, the total cumulative deductions for sales load will be less at any point over the life of such contracts than the maximum cumulative deductions permitted by Section 27(a), namely, 50 percent the first year and uniform rate thereafter.
On June 2, 1965, the Commission granted an application filed under Section 6(c) of the Investment Company Act by Investors Diversified Services, Inc. (“IDS”), and its wholly-owned subsidiary, Investors Accumulation Plan, Inc. (“Plan Company”). Plan Company proposed to offer periodic payment plan certificates for accumulation of shares of Investors Stock Fund, Inc., a registered open-end diversified management investment company. IDS acts as investment adviser and underwriter for Investors Stock Fund, Inc., and will act as underwriter for the securities offered by the Plan Company. The Commission's order permits the deduction of sales loads on periodic payment plan certificates at the rate of 20 percent of payments during the 1st year, 18 percent during the 2nd and 3rd years, 7 percent during the 4th year and 4.2 percent thereafter. Over the course of the plan the sales load would be 8 percent of aggregate payments. The total cumulative deductions for sales load will be less at any point of time over the life of such contracts than the maximum cumulative deductions permitted by Section 27(a).
During the fiscal year, Amoskeag Company (“Amoskeag”), a registered closed-end, nondiversified investment company organized as a trust, submitted to the Commission a plan of reorganization and requested, pursuant to Section 25(b) of the Act, that the Commission render an advisory report in respect to the fairness of the plan and its
* Investment Company Act Release No. 4261.
effect upon the two classes of security holders of Amoskeag. The plan called for the transfer of the assets of the trust to a newly created corporation, in exchange for all of the debentures and common stock to be issued by the new corporation; the transfer of the debentures of the new corporation or cash to the preferred shareholders of the trust; the transfer of the common stock of the new corporation to the common shareholders of the trust; and the liquidation of the trust. It was proposed for the following stated reasons: (1) the new corporation would have perpetual existence in contrast to the limited term of the trust; (2) the trust form of organization deprived management and counsel of the relative legal certainty and flexibility of operation available to corporations; (3) dividends on preferred shares were not deductible by the trust for Federal income tax purposes (in the opinion of counsel, interest paid on the proposed debentures would be deductible); and (4) holders of preferred shares would have the election of receiving in cash the full liquidation preference of $100 per share plus accrued dividends for their holdings, which would be in excess of the over-the-counter market bid quotations for the shares ranging from 82 to 95 during the 5 years 1960 to 1964, inclusive.
In its advisory report issued May 20, 1965, the Commission concluded that, on the basis of a comparison of the rights and financial attributes of the preferred and common shares of the trust with those of the debentures and common stock of the new corporation, the terms of the plan were within such limits of fairness as would justify its submission to the security holders of Amoskeag for their consideration. The Commission pointed out, however, that it had no statutory power to approve or disapprove the plan, and that in no sense was the report to be deemed a recommendation, endorsement or approval of the plan.
REVISION OF RULES, REGULATIONS AND FORMS During the fiscal year Rules 3c-3 and 179-1 were amended and Rule 12d-1 was adopted. The amendments and adoption, respectively, of these rules were noted, and their provisions discussed, in the 30th Annual Report of the Commission.10 The proposed amendment of Rule 20a-2 relating to certain financial and other information to be disclosed in proxy statements of registered investment companies was also discussed in the 30th Annual Report where it was noted that the amendment was pending. 11 The proposal was withdrawn during the past fiscal year.12
Investment Company Act Release No. 4250.
30th Annual Report, pp. 21–24. " 30th Annual Report, pp. 24–25.
Investment Company Act Release No. 4152 (January 25, 1965). But see fn. 4, p. 112, supra.
Adoption of Rule 2a-4
During the fiscal year the Commission adopted Rule 2a-4, which defines the term “current net asset value” as used in the Act with reference to redeemable securities issued by a registered investment company.13 Under the rule, portfolio securities for which market quotations are readily available are to be valued at current market value, and other securities and assets are to be valued at fair value as determined in good faith by the board of directors of the registered company. The rule also provides that changes in holdings of portfolio securities or in the number of outstanding shares of the registered company shall be reflected no later than the first calculation on the first business day following the trade date or date of change. Under the rule, expenses, including any investment advisory fees, are to be included to the date of calculation; dividends receivable are to be included to date of calculation either at ex-dividend dates or record dates, as appropriate; and interest income and other income are to be included to date of calculation. The rule also provides for interim determinations of current net asset value between calculations made as of the close of the New York Stock Exchange on the preceding business day and the current business day so as to reflect any change.
18 Investment Company Act Release No. 4105 (December 22, 1964).