APPENDIX B COLUMBUS AND SOUTHERN OHIO ELECTRIC COMPANY Condensed income statements for the year ended Dec. 31, 1945, and 3 months ended Mar. 31, 1946, per books and per books adjusted to reflect certain operating expenses, income reductions, and preferred dividend requirements on a basis comparable to that existing at Mar. 31, 1946, and provisions for Federal taxes on a separate return basis giving effect to such adjustments • Includes $768,200 resulting from nonrecurring refinancing transactions by affiliated holding companies. No adjustment has been made in Federal taxes to give effect to 1946 tax rates. The company estimates that such adjustment, if made, would result in a reduction in taxes in the amount of $1,286,462. APPENDIX C CONTINENTAL GAS & ELECTRIC CORPORATION AND SUBSIDIARIES Condensed corporate and consolidated balance sheets as of Mar. 31, 1946 IN THE MATTER OF INDEPENDENCE SHARES CORPORATION ROBERT A. BONNER ALFRED H. GEARY FRANK C. McCOWN, JR. File Nos. 814-11, 814-12, 814-13 and 814-14. Promulgated May 13, 1946 (Investment Company Act of 1940-Sections 9 (a) and 9 (b)) AFFILIATED PERSONS AND UNDERWRITERS. INELIGIBILITY. Prior Injunctions-Exemptions. Where disqualifying injunction had been entered by consent against depositor and underwriter for registered investment company and its officers, agents, employees and sales personnel, and where averments are uncontradicted that acts complained of were committed without knowledge and consent of applicants and there is no evidence of misconduct on part of applicants since entry of injunction, held it is consistent with public interest and protection of investors to exempt such depositor-underwriter and its officers from the ineligibility provisions of the Act. APPEARANCES: Harry S. Carver and Irving Schiller, of the Investment Company Division (now Corporation Finance Division) of the Commission. Alfred H. Geary, pro se, as applicant, and as president of Independence Shares Corporation. No appearances for Robert A. Bonner and Frank C. McCown, Jr. FINDINGS AND OPINION OF THE COMMISSION Independence Shares Corporation, Alfred H. Geary, Robert A. Bonner and Frank C. McCown, Jr. have each applied to this Commission for an order pursuant to the provisions of Section 9 (b) of the Investment Company Act of 1940 exempting them from the provisions of Section 9 (a) of that Act.1 The individual applicants are 1 Section 9 (a) provides in part: "It shall be unlawful for any of the following persons to serve or act in the capacity of officer, director, member of an advisory board, investment adviser, or depositor of any registered investment company, or principal underwriter for any registered open-end company, registered unit investment trust, or registered face-amount certificate company: "(2) any person who, by reason of any misconduct, is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as 22 S. E. C.-I. C.-893 officers of Independence Shares Corporation. The applications, filed separately on November 1, 1940, requested that temporary exemptions be granted pending a final determination of the issues. By separate orders of the Commission, all issued on November 4, 1940, each applicant herein was temporarily exempted from the provisions of Section 9 (a) pending determination of the applications for permanent exemption. After appropriate notice, hearings were held before a trial examiner. The four applications involve factual and legal questions which are substantially identical, and they can be disposed of in a single opinion. Upon consideration of the records in these matters, we make the following findings. The applicant, Independence Shares Corporation, was the sponsor and principal underwriter of Capital Savings Plan Contract Certificates, Independence Trust Shares and Independence Trust Shares Purchase Plan Certificates. This Commission as plaintiff filed a bill of complaint against Independence Shares Corporation and an affiliate in the District Court of the United States for the Eastern District of Pennsylvania at the June term 1938. The individual applicants herein were not named as parties defendants. The bill alleged that the defendants had engaged in various acts and practices in violation of the provisions of Section 17 (a) of the Securities Act of 1933, and set forth in detail the acts and practices complained of. Defendants' answer denied that they had violated or intended to violate or knowingly permitted the violation of the Securities Act of 1933, but ad an underwriter, broker, dealer or investment adviser, or as an affiliated person, salesman, or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security; or "(3) a company any affiliated person of which is ineligible, by reason of paragraph (1) or (2), to serve or act in the foregoing capacities." Section 9 (b) provides: "Any person who is ineligible, by reason of subsection (a), to serve or act in the capacities enumerated in that subsection, may file with the Commission an application for an exemption from the provisions of that subsection. The Commission shall by order grant such application, either unconditionally or on an appropriate temporary or other conditional basis, if it is established that the prohibitions of subsection (a), as applied to such persoD. are unduly or disproportionately severe or that the conduct of such person has been such as not to make it against the public interest or protection of investors to grant such application." 2 The bill of complaint alleged that the defendants had violated Section 17 (a) of the Securities Act of 1933 by representing (1) That the plans were comparable to a savings bank account but paid a higher rate of interest and that moneys paid in could be withdrawn at any time. (2) By representing that a certain trust company sponsored the plan and managed the investments of moneys paid in. (3) By representing that the purchaser of a plan was guaranteed against loss and would receive $2,000 for each $1,200 paid in. (4) By misrepresenting the insurance features of the plans. (5) By failing to make proper disclosure (a) of the fees deducted from payments made and (b) the fact that the value of the securities being offered was dependent on fluctuations in the prices of the underlying securities. mitted the jurisdiction of the court and that the bill in equity stated a proper cause of action, and consented to the entry of a final decree. The court entered a decree on June 23, 1938, permanently enjoining the defendants and the officers, agents and employees thereof from any further violations of the Act. At the time the decree was entered, applicants Geary, Bonner and McCown were officers of the applicant, Independence Shares Corporation, and as such were among the "officers, agents and employees” included in the injunctive order. It appears that the injunction is of the type contemplated by the provisions of Sections 9 (a) (2) and (3) of the Investment Company Act, and that in the absence of an order under Section 9 (b) Independence Shares Corporation would be disqualified from acting as depositor or underwriter of any investment company both under Section 9 (a) (2) and, by reason of the injunction against its officers, under Section 9 (a) (3). The sole question before us now is whether there is sufficient warrant for the issuance of orders under Section 9 (b) permanently exempting the applicants from the disabilities imposed by Sections 9 (a) (2) and (3), to the extent that those disabilities arise out of the injunction to which these applications relate. The applicants deny that they knowingly condoned or tolerated any violation of law by any of the personnel of Independence Shares Corporation and there is no evidence to indicate that they had participated therein or been otherwise responsible for the representations upon which the original complaint was founded. Applicants aver, and there is no evidence to the contrary, that since the date of the final decree they have complied with the injunction and have not engaged in any of the enjoined practices. The evidence discloses no misconduct on the part of the applicants since the injunction was entered. On the contrary, there is evidence that since that date the applicants have sought to make certain that each purchaser is fully informed as to the various features of the securities offered. Registration statements under the Securities Act of 1933 covering the Independence Trust Shares and Independence Trust Shares Purchase Plans were subsequently filed and became effective, and it appears that copies of the prospectuses in connection therewith were mailed to all security holders involved. Section 9 (b) authorizes us to grant an application for exemption if it is established that the applicants' conduct "has been such as not to make it against the public interest or protection of investors to grant such application." The legislative history of the Act indicates an intent to remove the disability provided by Section 9 (a) as to a The sale of Capital Savings Plan Contract Certificates was discontinued on April 9, 1938 and no such certificates have been sold since that time. |