# Appendix — Prudential Insurance Co. of America v. Securities & Exchange Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385601_1659%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1964 - **Citation:** 377 U.S. 953 ## Text _ APPENDIX A. Opinion of the Gourt of Appeals | - (Filed January, 20, 1964) By STALEY, Circuit Judge. (Gaxey, Circuit. Judge, and . gNEALON, District Jhdge, congyrring. The narrow but provoc Blive question posed by this case is whether, the Investment Company Act of 1940, 16 TSC. ¢XUa, applies to the Investment Fund resulting frog th sale of Variabie anniity contracts to members of the publics by The Pradential Isstranee Company of America. The \ Seturities atid Exchange Commission auswered thi Offered and sold by an insurance company. The case ix ‘before us on the. petition of Prudential for review of- the order of the Comission entered pursuant to thi dete munation, : —s -Though there are variations in the form of the variably annuities which Prudential proposes toself,’ their sah characteristics are not, disputed and thejr nature hagepe concisely summarized by ip Commission. ii Y page ‘, ‘ f | a : . ing his proportionate interest in this fund.’ The value of these units will tluct late, essentially depending upon the intestment results df the fund. During the annuity, cor ‘pay-ont’ period, Prudential, guarantees thapThe . . . "4 - - . . purchaser will receive in cash the varymig value of a fixed nimber @f units af monthly annuity payments, Siti ally the pay wats made by the purchasers will be plaved ina “Variable, Contract Account’ whieh. Will be managed by Prudential and be subdivided into two accounts. "Phe first, the gInvestment Fund? ae- count, will have its asse ae invested primgrily in com- “mon stocks and will: constitute the fund'in which the | purchasers hold units; is account will be dedicated | solely to Je variable aun nity contract holders ani its assets will not be subjec -to clainis of any other con- tract or poltevholdee of the company. ‘Fle second; the’ ‘Cher Assets’ accowut, qi-edministration account, will receive the amounts deducted from the purchase pay-¢ pients to cover administration expenses, sales commis- sious, and certain taxes, and to provide a surplus or reserve. for the obligath tons to purchasers contatMed in the cofitracts. Tran fers will be mad® periodically _from the Other Asseté acconnt to the Investment Hund accotmit to meet the ap Sara requirements that the assets of the laiter be eur’ 16 the vompany’s existing obligations under the vafiable contracts) Any excess over the amounts estimated to be ne eded. tor the fore going purposes may be declared as +0 calle ad‘ dividends’ whisdr will proy ide additions! Pane Units OF casi pay- ‘tnénts for the copteaet holders ; it will aiso be available” 2 sist ort the gu Tan TeCs il ‘contracts administered © Prudentiai’s: Other operations? .- Any deficiency ‘re sulting from lower “tocrtality ‘sete assumed; for ex. ample, will de met out of the general sufplus of Prudéntial, .-" -. ae ‘ Q o -and for tauxe 5. - “a oa ‘During the pay-in period a a pure haser will have the right to ternimete the contract and receive the value of alleunits credited to his account, less certain termina- “-tion ehirges. Ifa pure haser should die during the’ pay-in period, the contract is automatically terminated and his beneti¢iary is paid the greater of (1) the value of all units credite d to the purchaser's accomnt or (ii) an amount equal to the total of all pure hase payment TPs. : ‘ : “Absent death of. redemption, the payein period normally runs forat least 1) vears. Thereafter, during, the pay: -out period, the variable annuitant is entitled to receive each month the ewrrent value of a fixed numbers of units determined al the end of the pay-in - period. This number of units ts calculated on the basis ofthe number of units accumulated by the purchaser during the pay-i I period, an assumed annual invest. f ment merement of aon from dividend and interest’ “jneome, and actuarial computation which take inte account the length of the pay-out perigd anticipated in ‘light of the age and’ sex of the purchaser. and. anv cO- annuitant, The value of the. Variable unit during the pay in and pay-out periods will be determined at *% the end of each month and will fetlect the changes in the niarket vaine of the securities in the Investment Fund account: realized gains and losses, ands dividend or interest Income: Deduetions will be made for invest ment advisory and offer expenses -in an amount equal Tey Ab, {18 oe per pa ea of the vaine .ofe tie fund's issei~ . s } Prudential concedes that such eontraets have been held to: te ** of securities * within the nreaning ot the Seeutities Act 155, Securities and Exchange Commission v: Variable Annuity Life InsaraneeCo. | hereimafter called *VALIC™ 399 US. 65 (1959), and it ‘is Willing to register them under La s - * eee 7 ? > that Act. P rudential argues, however, | that the [mvestment “Company Act of 1940 specitically exeludes insurance com- panies from its seope.* The Commission agknowledged that Prudential is excluded from the Act, but held that the fund created by the sale “ot the contracts, which is to be used for investment purposes, gives: rise to a separate investinent company within the coverage of the statute, The Coumnission concluded that Prudential ix not itself ‘an investment company but, is the creator of one, and pro poses to be its, investine ut adviser and principal under- writer | . : ° 2 Insurance companies are excluded from the definition of ‘i vestment company’ -by 15 U.S.C. 3 804-366) (3). An insurances company is éarlier detined as ‘“# company’ whieh is organized as an insurance company, whose preuary and predominant business . activity is the writing of insnrance-or the reinsuriny of risks ander- written by insurance com panies ' ani which is subject -te super- ‘vision by the insurance commisiene rora similar official or agence) of a State © * *."") 15 ULS.C. $80a-2(a) (]7). . si ; : ° Z ore . . . : ° 2 The essence of the, Commission's reasoning in this praeind | is cou- * tamed in the following excerpt from its opinion : “Thus, Prudential! is not itself an imvestment company, Dei tomen it is the creator-of one—and proposes ‘to be its “iNvestinent adviser” and ‘principal underwriter.” That an exempt insiir- ance company pe sforms these funetions is irrelevant. The Act's exelusion of insurance companies is to be readily ex, plained : otherwise they would fall gyithin the statute by reason cof the investment activities Which are a necessary ingredient, ef their msurance business Where, however, an insurance company (or any other entity ) creates at fund ‘exclusively for investment. and sells equity interests in the fortunes of that fund, the exemption does vot carry over to the fund. Further - ‘more, that Prudential mas i the same contract also make, in its own name and backed by its Own assets, certain Insurance or annuity premises is alsovirrelevant. — V. ALIC held that such “s promises do not make the contract as a whole exempt as “1 surance) though mad« by the same enfity and backed by t sgme assets" ; . | Da In this court, Brudential, ‘premising its argument on the insurance company exclusion, asserts that this con “struction of the statute is -inordinately. complicated, aly “struse, and Without basis in law. It asserts that the statute is plain and forecloses Coninission Jurisdiction in this ease. However, since it a conceded that. Prudential is ex cluded from the Aci, the issue is narrowed to the gine sion: of whether the Comiuuission made a pe rinissibie interpre ta tion in concluding: a the variable aunuliy pregram re sults in the creation of a separate, son-exempt investment company. Of course, in resolving this issue we Start with the premise that securities Jegisiition must be broadly con strued in order tocinsure the investing pulbilie at Pull meds ure of protection. Securities and Exehange Commission y. Capital Gains Researeh Bureau, Ine., Us, - (Dec, 0, TG3y: Seeurities and Exchange Commission v. Ralston Purina’ Co. BHI US. 118 (1955): Securities sand ‘Exchange Cotrilission vo W. J. Howey Co., 328 U.S, 293 (1946). The parties agrer: that the Barntory detinition- gontained in the fuvestment Company et of T9400 ane east in broad terms, "Phe eritical term is ‘company’, which, so far as felevant to our discussiou, is détined as ‘ta trust, a fund, orjany ere jibe of persons whe ther Ineo) porated or pot.’ to ULS.C. § SQa-2(a) (8). The Commission determined that the variable annuity contracts constitute the purchasers an ‘‘erganized group Gf persons’!; that they create a tttrust”* highd by Prudential -for these purchaser: and, more importantiy, that the separate Investment Fund resultigg from the sale of the variable annnity contracts isa **fand” Within the statutory detinition, Based upon this last decisive holding, the Com Inission ‘then coueluded that the Investment Fund is the of o “issuer! of the variable anntiity securities, and that it ts an ‘‘investment compatiy’’ subject to the Act." ~ Om this.score Prudential argues that the Act cin, yoneeed only identifiabis business entities with some ‘sort of inter- nal organization, aud that it is the only such entity in- volved in this program. Thus, it is asserted that the ,pur-’ chasers cannet be described as gun ‘organized group of persons ;*’ that the plan has so elements of: a common-law trust: and that the “fund”? referred to in the Aet means a mutual fund or any other similar entity, but not Pruden- “tial’s Investment Fond. But, a~ Mr. Justice Brennan ha- cogently. obse rved, the regulatory provisions of the Act ‘tare of particblay relevance to situations where the ine vesior is committing his funds to the hands of others on an equity basis, with’ the view cat “the tunds will be in, vested in securities and his fortunes will depend jon the _ Success of the investment.?"” VALIC, 359 U.S. at 79 ¢eon curring opinion). Furthermore, a stady of the legislatice history of the Act show-~ that Cong: "Oss Biteutionally ‘drafted’ the statutors detinitions in general terms in order to control suecli situations regardless of the legal form or structure Of the investment enterprise. " : - initigliy. it must be noted that the Committee reports + of both the Klose and the Se nate state that the Jegisilation - was drafted prine ipally on the basis of reports.submitted hy thé Securities and Exchange Commission following an extensive study of investment trusts and investment com panies undertaken at the direction of Congress. IR. Rep. No. 2630, Toth Cong, 3rd Sess. 5-6 (1940); °S. Rep. ‘No. or ° Poe ° **Issuer’’ is defined as ‘‘every person {natural person or a . company | “Who. issues Or. proposes to issue any security, or has outstanding any security which it has issued.” lo USC. § 0a-2 (a)(21). ; “Investment company’ means, inter alia, any issuer whieh ** pro- poses to engage primarily, in the business of investing: feinvesting, or trading in-securities.° 15 USC. 3 S0a-3(a) (1 . 1a eas W775, THth Cong. ord Sess. 1, (1940). The Act itself con tains.a sitnliar acknowledgment, Lo U.S.C. § S0a-T. Th significance of. sae ft reports m Ascortaining the intent of (Congress in enacting securities legislation. Was recentiy. underscored by the. Supreme Court in Securities and Ex change Commission v. Capital Gains Research Bureau, Ine. U|S. ~ (195). Among the various types of Investment Companies referred to‘in the exhaustive: report of the Commission were those involving ‘tan agency relationship between the individual contributors to the fund and the management npon whom they confer substantially a power of attorney to act as agent in the Investment.of the moKeys contribe. uted. The aronup af individual investors is not a legal entity but rather constitutes in essence a combination of distinet individual inferests. (irphasis supplied.) eis Doe. No. TOT, Foth Cong.; > Brd Sess, 24 (19595. Additionally, the report made specific “reference to an investment cot- ‘panyeknown as the ** Alexander Fund’? whieh it described as ‘merely a descriptive name given to the commingic! funds of numerous investors who employed W. Wallace Alexander as their agent to invest such funds.” Id. at 46. Similarly, in deséribing the nature o. the investmen} enter prises whieh Congress was secking to control, the House ite port quotes bron jie ‘testimony of Couuttiissioie! Teas (who stated that ** Bissentially these organizations are large liguid pools of the ‘public's saving~-entrtsied to manage ments to be invested.” IR. Rep. No. 2659, Toth Cong. dra Ness. 6 (1940): | ; fr these cifeumstanees we seject Prudential’ — ment that the broad statutory phrase *'a trust, a funad,- 7 . a . } . . . regulation was the basis for the exemption of imsSurance companies, But this tine of argument was conclusively: “reiectod by the Supreme Court in VALIC for thy reason ‘that variable annuities are ** HOD omission reasoned: ie 5 Obviotsty, if as Prudential argues, the eyemption of bank- and nisuraiee companies | had liewn intemdedd to wielude an exemption of funds set up hy such Companies, there would have been mo need to provide for the additional specitic exe mption of fund- set up by Lee. Congress thus viewed such funds, fen though usually maintained a> departments of the | bank, as separate trom the baukiig bisities=, “Lt rested this exempliot on the speere! considerations that the fund- were used for bon otide fiduciary purposes: rather thar? a- a medium for general public investment | 10a t and had only a dimited mmpact in the nivestment fund picture.” \ | | Considerations of logic and -poliey previde further support for our conclusion. The Investment Company Act of 1940 contains significant - “safeguards for the protection. ‘af those who, like the purchasers, ef vafiable annuities, invest in “seenrifies:”’ These -afeguards, characterized by “the Commission as insurimg ‘*corporate democracy,” * Ah- clude disclosure of investiuent policy. and operating prac: tices, and the regulation of fees, trading practices, and changes in investment policy, See VAL 1, 359 U.S. at 79° The mere faet that the ifvestmient program in the case at bar is under the aegis ofgan insuranee company ought not to negate compliance w ith these controis in the absence of ‘compelling ire umstances. We find ne sueh circumstances here. We have considered “the other contention- advanced by Prudenttal, but find that they are merely Variations on its insdragice. company eNXclisiow argument and: have Deen fully disposed of by, the Commission, " The order of the Commission will by: affirmed. ” A true Copy: ioe tp Teste: .- s : a . Clerk of the -l nited States (Court a? A prey als for fhe Therd (re wit, - os ifa ‘APPENDIX B The Findings and Opinion and Order of the Commieston Dated January 22, 1963 - - : ay Cary, Chairnian : . ° . ea L. We are here confronted agai ‘with the question of the ‘impact of the’ Investment Company Act of JMO (0 Act”’) pen areangements arising out of the issuance of variable. annuity contracts. The contextis a request.by the Pruden- tia! Insurance Company ‘of America (¢*?rudential’’) tor an order declaring that the offér and sale of variable annuity contrat. will not subject Prudential, in whole erin part, to the Act? In a so-called alternative application, Pradentiat ‘asks, that any entity found subject to the Att be exempted from certain of if provisiotis.” Fert . Bt : t See The Variable Annuity Life insurance Company of America, “Tnvestment Company Act Release No, 2974 (February ar 1960 > The order Is requested purstiant to Sections 3(bs (2). ble 45 and 38(a) of the Act. Seetion 3(b) (2) essentially provides that an investment company shall not include any isstier which the Com- mission finds to be primarily engaged in a business or businesses other than that of Investing, reinvestitty, owning. holding er trad- ing dn securities Sectlon Sye 05) excepts an Insurance compan from the coverage of the Net. Section 3804 empowers the Com- miesion to issue rules, regulations and orders necessary or appro- priate to the exercise of its powers. i . e . Ais u sete 2 'Prudeptial was oranizest.in 1875 under the laws of New Jersey and is subject to regulation oy the New dérsey Department of Banking and Insurance. .Sitice tts organization, it has been en gaged mm writing life ani disabilits Insurayer. As 3f ‘December 31. 1960. it Kad life insurance in foree oft about #52 billion and Assets of over $16 billion Pridential is a mutual: iusurance com pany with approximately 36 million polievholders. As Prudential ‘deseribes itl A mutuaigcompany has ne owners eacept Its poliey: Vv: holders. whe have the mide power te Vote ler direc ‘TOPs and whe participate in the successful ee of the enterprise. [Iti is a non-profit finanesat iystitution whose function is te provide isUranice protection t its contract hol ders at. a price which ts, as exactly as the scienves of accountancy amd actuarial computatgon van determine, the cost of such protection to the company.’ . eke a, = a ¢ * sh o In substance, the variable annuity contracts whith Pro. dential proposes to sellto individuals provide that the pur- chasers will make monthly purchase payment» “ fixed amoynts over a period Of years (the ** pay-wi"” per ol}, the proceeds of whieh, after certain deductions, will be. se OS in a portfolio of securities. The purchaser will be credited | monthly with ‘units’? representing his proportionate av terest in this fund. The valué_of these units will fluctuate, essentially depending upor the investment results of the fund. ° During the annuity,.or ** pay- out’ period, Prudential guarantees that the purchaser will receive in eas the vary- ing value of a fixed naeeuer of units as monthly annuity , payvinents. ’ Specifically tly payments made by the purchasers will be placed ina Variable Copitraet Account” which will be managed by Prudential and be sub-divided into two ae- counts. The first. the “Investment Fund*" aecount,. will have its assets invested primarily in common stocks and will constitute the fund in whieh the purchasers’ hold Tanits; this account will be dedieatéd solely to the variable annuity contract holders:and its assets will not be subject to claim of any other. contract or policyholder of the company. The second. the ‘Other Assets”’ account, an administration account, will receii the. amounts deducted from the pur- chase payments to cover administration expenses, sale= commissions, ‘ind ¢e rtain taxes, and to provide a ig or reserve for the obligations to purchasers contained 1 the contract-.’ Transfers will be made periodically fiom the Other Asset~ account to the Investment Fund account to meet the contractuai requirements that the assets of the es : : f *The deductions tront the pure ase payments will range from” ALT: to 54.2' eof the first vear’s payments depending en the size of, the ‘patments, and ‘will be smailer in subsequent years, averas- ing Over a lO-vear period from 10.24; to L48'c. The variations in the ranges are based in*part on the ‘size of the “contract pur- chase payments s . 2 ' g loa 2 \ latter be equal fo the company 's existing obligations undes the variable contract=. Any excess over the amounts est!" mated to be needed aor the foregoing purposes. Inay be declared as so-catled **dividends”™” w hichwill prov ide addi- tional fund ufiits or cash payments ‘for the contract hotd- ers: it will also be av nila e to support the guarantees oii ‘contracts administe “iby Prudential “s other operations. us | Any deficiency resulting ‘from lower mortality than as sumed, fer example, will be met out of the general surplus ef} rudential.” , During the payin period a purchaser will have the right to terminate the contract and receive the valué of all units credited to fis account, less certain te rufination charges, Ifa pure hacer should die during the pay in period, _ the contract ix automatiGilly terminated and his beneficiary Ls paid the greater of (1) the value of all units eredited to the purchaser’s account or (1) a amount equal to the total of all pure hiase payments made. ; \phbose “nit death or redemption, the pay in period normally rups for at least 1% years. Thereafter, during the pay-out period, the variablé annuitant is, entitled to receive each month the earrent value of a fixed number of unit= deter mined at tie end of the payin period. "Phi- nutfiber of units is calculated on “the basis of the number of units ac enmulated hy the purchaser during the payin period, an As a mutual company, Pendential ordinarily would pass on to its polic) holders the benefit. of favorable mortality or expense ex- perience ; this could be done iu the Torna of reduce] premiums. — ®The actuary for Prudential testified that the deductions pro vided for in the Variabhe Annuity Contracts would be more than adequate, wn his Opinion, to satisfy the variable annuity obligations of the company. . . The purchaser may elect one of three pay-out periods: *(1) the - purchaser's’ life, (2) a Mminuneun ten-year period plus the pur cHaser’s remaining life, or (3) until the death of both the pirchaser and another designated perso. ? 4 os Ww 5 . a ° l4a assume! annual investment increment of 2147 from divi- dend and interes jncome, and actuarial computations which take into account-the léngth of the pay-out period ‘antici- pated in light of the age asd sex of the purchaser and any co-annuitant. The value, of the variable unit during the. pay- in and: pay-out periods will be determined at the end. of éach month arid will reflect the changes in the market value of the securities im the -Investment Fund account, realized gains and losses, and dividend or interest inconte.” Deductions will be made for investment advisory and other expenses Lian amount equalte 0.66 per annum of the value xX} i 5 of the fund's assets and for taxes. Th guddition to the ecoutracts. described above which are to be sold to individuals, Prudential proposes to offer and sell variable group contracts as a meanssol funding ene ployee pension or profit-sharing. plans that are «ual tied under Section 401 of the Internal Revenue Code and to. organizations enumerated. tn Seetian 10) (3) of the Code” As we are presently «ealing with the problems of group plans in an administra:t ive capacity, we shall not treat “them iy thix opinion.” o on ; Ti: uw Pas é The variable annuity is a recent.creation having several facets, It raises important, new and unresolved questions * * Since the number of tuuitsto be distributed durin? -the pay-out period is calculated on the basis Of a 212) investment incremes\t assumption, a.2!o'. investment returtitis used as the base from which the actual, investment results of the fund are- medsure:| ‘That is, the value of the unité will ingrease only if the fund's . e . “. investment results are greater thay 2'o'.. The use of this factor involves increasing the number of variable units credited durtuy ae the pay-1 periad at an eVective rete of 2lo's per vear.’ * “See Rule de-3, Investment Company Act Release No 3605 (January 7. 1963), which exempts transactions of insurance eom panies from the Act with respect to certain group annuity con.’ * tracts where, among other things, benetits pavable to employees’ are fixed, loa arts P . as to the séope and interrelation of state reguiatibn of in-/ ee “surance companies and the federal regulation of investment companies. These questions are of practical importance to the imsurance aml, the investinent industries and evoke strong and conflicting opinions.-’ They are presented ‘ in a complicated form, smee ‘they involve the consideration to- ‘ gether of the different operating and regulatory languages and techniques of ‘insurance’! and ‘tinvestment’’ which have in the past appeared onlsin separate contexts?” & Kor the sake of ‘clarity these competing considerations require that’ we emphas size certajn points at the outset to avoid confusion and to eliminate possrble ‘miseanception= as to the issues and our holdin. In its argument Prudential emphas izes the value of the variable ‘annuity as @ retirement program and the import- - ance that’ if ioetguade available to the public by Tife insurance companies, It points to the striet and compre shensive regu : lation of insurarieg companies by the state of New Jersey: and the virtues of Pridential’s business histery and par- ticular form of organization, it then argues that these would fulf¥ protect dgaimst any, abuse in the issuance or maAnagemelsl of variable annuity ‘contracts. Let there be io mistake as to thes: pre mises; We here astume, for purposes of this opinion, that the merit. of Variable annuities are-as claimed by Prudential. - We shall raise ne question as to the fide “pues ot New .ler SON ‘~ rege lation of insurance companies ‘and activities, ndr as to /Prudential’s of experience or management, We alse .°° 97 agree that. Prudential, because of the predominant nature met of its insurance business, is at jusuranc, company as de tiniedd i in Seetion 2oayi17) of the Act and, as ach, exeepted fromi the detinition, of an investmen) company under Bec ° tion: Be) (3). Ali of these matters are irrelevant to the issue ~ in this proceeding and gur decision. "The true issues are clear and can be simpis variable’ ANMUItS contracts, constitute or inelude a a: ak “an ee relation . . a , ? e e e es shi ip subject to che Investme nt C ompany ast and, if so, What are the consequences ? Prudential’ relation. . ‘ The Investment Yompany, Act isin some respects wot an easy statute, bnt its essence for the purposes involved here if quite clear. The Act designates the relationships to which it applies-—most vitally hers, that of the contributor toa poal of equity ¢ capital managed and invested in see MTT: ies atchis/risk. Tt applies to such al relations “nip in w hat ever form or by whomever ere ated, it sets ertain require- . reece oa heré, thad-ultimate control .of ---—-——-- ~ poliey and mahagement bein the hands of those where funds are at risk.. Matas, St BS * a The whale historv and structure of the Act indicate tan- mistakably that, as Justice Brennan stated in Securities an? Evchange Commission. y. Variable Anniaty Life Ta- surance Co, of America (oO Valiee’’)!° its provisions “are of partiantar relevance to situations where the investor is ‘committing his funds to the hands of others on aa equits dasis, With the view that the finds will he drivested ‘in secuari- ties ane his fortune will depend pon Ate success Of the mnvwestment. apd-‘where the investor is asked to pit-hi- money ina scheme for managing it-on an equity basis, it js évident thatthe Net's contro® become vital." That i- this case, “The contracts here require Prudential to estal- = - bc ° i 1 289 TS. 65 (1959), td. at pp. 7, 80 (concurring Open ) - * ” . Fd ; --. 3 . a . » ; : ‘ . " la oo ; ‘ : lia . ¢ ' ae dish a fund to be duvested in securities for the benefit: and at the risk of purchasers of the cCOMtPacts exclusively, We hiokt that dlie varial li annuity contracts create a relationship subject to the Act and, accordingly, deny Prue, vdential’s principal application implying ‘they do not. “No quere rigid or technical application of specific provisions of the Act, our decision follows from its fundamental intent and: philosophy te provide certain’ protections to investors 1. precisely ‘such ‘liquid’ peots of the, public SAVIDES et) trusted to manaiements to begmvested’” ns that created under the contracts in the present case. Morevore, the basis and logie of the Supreme ¢ ‘oyrt! a ~ ‘ ~ - ~ ‘ . Seo 1. Doe, 476, 76th Cong. (1939) (Report 6f the Con sion? on Common Trust) Funds iM). 4-6. Regulation Fo of 1 = Federal Reserve Boatd. which ge werned common trust funds. stated yo ops the use of the common trust fund was fo ‘. the purpose Of the ‘investment. of funds “bel: d/fer true fiduciary purposes: and_ the : operation of such Commory Trust Funds as ‘investment trusts ‘for other than strict! Hiducjary prrposes: iS Sereby prohibited.” Id at 27. : - Prndential has also potted to certain deci ‘isions by es whe rem grant ed exemption from provisions of the Act fo companies engaged in insurance and real estate busii®sses whieh had outstandins face ‘amount & rtificates, (The Great American Lite Underwriters, Pay , = dnvestment Companys. Net Release No. 8070 (July 15. 19605: Amer: ‘con Annyity Savings Assoc ation, BASEL GV! (D954). Collate rig Investment Comymiy, VOSA Jioss8 (49420) Tt argues that failure to find that those companies nad component tace-amonnt *certiticnte inves ment COMPA es 1s A precedent for not holding that the fund has to be an investisent comipaty separate from P radensia! _otever, i theses the issuance of such certifieates had , Aneer: alisconginued aid was not to be resumed, and ne other inves me nt fund interestd had been or Were to-be jawter % We dete rmined that under the eiteumstauves exemption from the Aet could be granted, subject. te appropriate conditions. dufing the period the gemain- ing face-amount certificates were being liqthielated, Thos - deter ninations afford no bagis for holding thar the propose | isxuianee of the variable annuity contracts will Net wive Tise 10 an. investment COOMDANY requsrine the protections oF the Act. - : | + . ‘s . ; Png. an Soe + , PERE a sen of its eleme nth Hite invesigpent and imsurcnee com — + ‘ponents bs specail ke it~ pre rornanee and to its ecomfire bension, dust as the fand lias beet ‘identified a, fire. ‘and Similar byents and theer invested thehds are avail- able for sueli: parposes The fund with which we are con- cerned here is not ar iysarane vommpanv: it is te éngage » exclusively un ‘i abies nt ‘and imo be advertised as sneh. ~“e@ “. wf Fe, Finally, Pa aeutsal argues that the MGBancc ee exemption Padi conti uns bya Wekkaeos which. revealed in the legislative his tory, were findgmentarto th*®*Convzressional judgment - 4o tif Vy pe Og eouipariies “which should be Txempted—a . * primiany and a ee rant Dusinesssactivity ral and a prior, regulation test and that it aMisties both. + W@ do. not’ disagree with the first test as such y but, upon fTentity- ine the finid, wechave not fond i? in th? instirance busi- ‘¢ megs, AAS tb cm second, the Supreme Court: in Valic re — geeted the argcume nt that Congress: intended to exenipt ~ regulated” “companies from the reach ‘of the Acts the company in that ease was subject to the jurisdietion.of loeal insurance authorities. Ns we st: ited earlier "gem exem ps ton of insurance Comps. ates is to be explained it {hay Sthe I- j “wise such compahigs ‘would be covered becanse of “tei “investme nt activities, a Necessary part ‘of th. ir insufance: " . business, © , wey. re ; ° eae ° Pes Accordingly, we find that thf sale by Prudesitial of the variable annuity Conk fs will result-in.a fund the Invest. tent Mind accodnt - r on will my est, reinvest or trade i un , 5 * . Py 2 .* ¢ ° ~Valic, supra, at pp. 67575 (1959 o' See text supraln.*13. oes made. dnany event, fire insurance companion. rs d . ” * ‘eates cont pre’ Section 2(aj(Z6) of the Act? The : : , ; me a Rete Deere See Section Prt a), The National, Association of | Securifies : “De alers, Ine. (** N. ASD") has» sugeested that the® Other Assets * Lepourg. over liabys “or in a minteor es Je 20a sec wiltion anil, be there fare siihjaet to the’ Acte™ the contracts which: provide for pet Pode payment, redemp- tion and undivided interests inja unit or-fand of securities, conie with@ the cls inition sof per jodie payment plan eer accent BK alse a part of dhe -investmert company.” As we have “noted, the Other Assets account —whieh may invest in securities- is an adnuistration artount which wil#hold the payments for sales ‘and administration, expenses atid iasurance surplas, U nder the? circaapstances, the Other Assets, ‘accotnt nea® not register under hel In one sense it is clear that the contract holders have an interest in the Other Assets acegunt. it is‘funds from this account whith must be transferred to the Tavestment Find to assure thrat the assets of the Fung shall be equal. Prudential’s total reserve— . annuity liabilities dndér tide variablecontracts., P restimably state Misurane? anthonities will continndusly assure that this quality is maintained. - “Aside ‘rom the reserve liability, any e din this tes belongsfte the coftract. holders any n then ‘as policy holders Bf a inutual company angi aot as ni- ie . . ad capacity vestors an an investment ®ompany. > Under Section’ 5.a}(h) of “the Net, the COMPANY Since it Issttes redeemable securities. fund is an open-end During, the pay-out per riod, the purchaser ’s status is Stnutar te thay. of an Investor Nh a closed end company, exce pt. that life continge@ies afect. the. measure and duration of his interest. Whyle the pattern oO recular tion designed for opeli-end com, MLIIES appears most ay opiate, as We did in thee Valie casi awe shall examin the reques NEUF tions in light of the Aet as e whale. ° , TR : Hy 3) Section 2(a) (20. defines “* pert “odie pavinent plan Rif ‘ate: to inG@ude. ‘any certificate, investinen? faxvined t, or other security ase pee Pee . ad Ast ey undiy nied certain specifi] securities ind of securities pi In draised Wholly or partly wath 2 a ee. . series of periodic payments by, the interest 411 providing for i representing ay the proceeds ofesnel payment... ., humber, of regulatory iwequences attach upon the ISSH ANC: perrodic: or plan ey ‘ °c exémpfion mader Seétioi H(¢) in whole.or im paftt from the specified proyisions and shall refer to the issues presented as iwolviy@ requests for exemptions. es Sectio eonditionally or nuconditionaully, from provisions of the G(c) provides that wae may wrap)! exemptions, Act “if and te the extent that suclr exemption is necessary, -or appropriate in the voblic interest and consistant with the protection of investors and the pnaposes ‘fairly intewded by the policy and prov istons” of the Acts As wagliave noted ‘on prier 0¢ ‘asions, this section was designed for excep- “tional Situations where compliance fs ‘fol riecessary to accomptish the Act's objectives aml policie S qihe thority contérred must be exereised with ahaa sag Most importantly here, we must tread lightiv. sinec.basic to Prudential’s present phan of ope ration is total Hon eompir- anee with crucial s¢ctions of the. Aet, or .o-eatled com pliange, whteh fs net such in fact, with other important sections. It is to‘these sections ‘that\we. shall first turn our . 4 : \ a aftention.: oe : Provisions Relating to Investor Contre] Uftder Ney Jersey law, the holders ‘of’ the variable an- nuity contracts. world with i ecae ‘polievboldes of Prudential? be entitled to vote oniv-eow three matters: (1) “approval of sam proposed merger of Peudential with . - i , . oy : siloelinean: : ; 8 See The Variahle Anniwty Lafe Insurance Company, Inyest- ment Company Act Release No S474. pe 7 (1960): The Créat American Life i “nede rurifers, lac., Investment Companys Act Release “No, 3070 (Juby 15.1960) ¢ American Participations, Inc, 10 SB 430, 487... 8 (1941). ee . a . ‘ s - \ : e ‘ . rs . 27 @ ° . & “another mutual iNsurance company ; (2) the amendment of Prudential’s Charter : cand? 43) the efection of 16 directors. Ine addition. to the 16 -elocted diréctors, the ‘board of Pru- dential consists of Six thembers: Appointed hy the. Chie { Justice of the Supreme Court of New Jersey and one mene. - ber, the president of the secs rik elected by-the other direc tors. The contract holders 4 may not nominate directors, "since the elected directors nomin: tte their suctessors and the appointed directors have the power to créate a gontest, i Avlitch.case a vomifating committer appointed by the New Jersey Commission. of Banking and Insurance submits a slate of nominees, ” ‘Prudential will be the pertwnanent rn- vestment adviser and “principal Underwriter to the fund. Prudential would have ws‘find this establishments oe sis stent ” with the Act. - a Fi adential’s proposals clearly cé onte mplate. in effect, a total exemption fron all’of the sections of the Aet which together express and effectuate the poliev that these at risk in ‘investment funds’ should have eimai voice ine their management dnd policy. As we have indieated throughout th@ opinion, that poliey and these seetiotfs are in large part the very essence of the Act. To grant exemptions 34 There has never been a, contest With respect ‘to Prudential s directors, Thereqre no quorum reqitgements or, solicitation of -proxies, and during the vears—}94s_ and 1959) 0.003553 . and AOE, respectively, #f Pruelential ’s policyholders: voted for the : elec tion of-dire ctors. ¢ ‘ : oe : i. — ® Se Presi dential message vetouig I. RL. 7842. 87th Cang., ‘Ist Sess. 1961», which would have permitted District of Columbia life ass companies to establish certain voting and management procedates With respect to variable annusy contracts. The Presi- de®@t pomnted out that ‘the purchaser of a variable anmmity depends largely upon the efi ieney and skill of the management in select ing and managing the underlyisg portfolio securities for the teturn upen his investment. Ho stated that the bill failed to give adequate recognition. te the basic: (pritviple. recognized in the Investngsit Company Act, that the investor have a voiee in the contret-ef Sits compant. THUR. Doc. No. 249 (September 26, 1964). Qe ” g asi r ° ea F i e- of thee 6 here oid be 1. effec. the equivalent of a total ex cemmption and contradictory te our principal holding. Speeitically the Act requires that those having’ funds at” risk in the equity sec ‘uritie s of an investment*fund elect its directors -Theldirectors, ov the holders must recur@antiy sreview the princiypal-yatde ywritihe and investment advisory arrangentents and have the power to change: of terminate them.?? ‘ flolders, must pass,on changes in’ investment poliey™ ‘and ratify the selection by the alirectors of the. iidependent auditors of the, fund." The “percentage of di rectors'of the fund whe may by aflitiated with the aici ment. adviser is suNject to strict limyts.*” The ‘effect. these: sections is not enly to plage thy power of aad in — the holders, bus to prevent its usuppation thy any Others, management or outside party, through jlong-term contract, yy otherwise: The pitt pose ix vot only to secure honesty. . 1 G sa . —— E : . “4 : 38 Sections 1h ian Is. : ee pie ao 37 Section 15. It has been -held that Section M lays down a requirement of anni! approval not merely formal, but subMtantial: * the minimum content-of which is a matter & federal law. Brown. “y. Bullock; 204 F. 2d 4135421. (CA. 2 4961; " 28"Seetion, 13. : “3° Section 32 (a Section 10.0 One of the conditions as to which (Congress vx presed its concern Was the management of investment companies : in the interest-ef auavestient advisers. underwriters and other: - - affilhated*persons rather that in the interest oD TIS ser Tite. fehl To guard against recurrance.of this evil, a Keystone provision of the statute reqfiges that a board of directors be so constituted as » *to provide an inde per tdent check upon ‘Mranagement’’. Section 10 o4 the Act specities that, except for cer tain *° ‘at least) 40 per cent of the directors of a registered, investment company must be Lena who are’ neither officers yor employees of the compan, and are unaffiliated witlr its investment adviser.’ Fundamental Livcstors, Inc.. Investment Company Act -Release No, 3595p. 5 (December 27, 162 , no load’ * companies, ? * > ; ; . ge e . Ps . , : a 4 5 . . \ : . . * : OY tl ed Pay - ro. ‘ te : ws ¥ > , Ste | Pe ® i Fa we - Z = o and objective ‘wisdom’ : jr AOD sr to make git separately responsive to the wishes and jndgment of those 2? Whis «f ye nd upotw its Fesults. 9 os k I tudential states **¢ ‘ontrol of, and responsibility. for, the atfairs of the investment Fund ard the variable. contracts . . e proposed to be issued will be vested in th @ompany’s. Board, of Directors. The-fnvestment Fund Wii not Have and conlel not’ have a management structure apart from the com panv’s: Accordingly, if, oe that The. directors of -the. company may ‘be regarded asthe directors of ‘the Invest- ° _ment Fund..." It states that be contract rolders will, as policyholders, liave ‘one vote’each for directors of Pre- denjtral. If proposes that its directors may for-the pur--. “ Othe’ fr sections reitffore e. ‘the’ mandat te of the Act that security’ . holder representation ahd: participation are to.be provided and safe- guarded, Shameholder approval is required when the issuance of additional shares might dilute the value of outstanding shares. Section 23(b) (2). Compliance with our proxy pnles is reqgired and voting trusts are prohibited wRh ” respect to an investment company's securities. Sections 20a) Cb’: Additional provisions . of the Act, Tor example Sections 12(d 1) and :20(¢\. and (Deo which prohibit crosseand circular ein. are directed to rg elimination of other devices througix’ whic ‘ho’, . . publie investors are effectively denied, in many inafapices, any real participation in the management of their companies." Seu.-Rep. No.-1775, 76th” . Cong, 3rd Sess. p. 7 (140). The ** Findings and Deelaration of Policy’ contained in Section 1(b; of the Act state that the national — interest and. the interest of investors are adversely affeeted\ “PD “42) when investment companies are organized, operated, managed, or their portfalio securities are selected, in the interest of directors, oftivers, investment. advisers, depositors, or other affiliated persons. thereof, in the interest of underwriters, brakers, ov dealers, in the. interest of, special: classes of their -security holders, of in the interest of other ‘nvestment companies or persons enkaved in other lines of business, ‘rather than in the*interest ef all classes of such ‘companies security holders”: and ‘(4° when the’ contro) of investment companies #8 unduly cagieentrated through pyramid-: ing or inequitable ‘methods of control, or is inequitably distributed sor wher investment _ companies are manage: d_ by irresponsible — “persons.” es . Ps lies = P Lal ¢ . - .) “ qs ? . e: : rs ee . edit ; eae : i Sone a pases of Section 10 he considered rae ws of the fit It says that the fund will not fiave an independent Vest. ment aclyi mer, but. its Bo: urd will de ‘te rniune the investine it. poliey of the tuned. a? x Ae ; ~ substantial compliance with either the le ‘titer or the spirit of . the Net. In effect, P rudential proposes to keep to itself the ; - sfrower to designate, in perpetuity, the management, pohey, and operations of the fund. ‘The vifriable Annuity ¢ontract holders will vote’ for the Qanagers of their assets only in -- (Snjunetion with approximately 17 million. policyholders who do not share their Interests. Furthermore, there 1s no “provision for the minimum “Tamber “FH unatftiliated directors "required by SeeHon 0. These arrangements are not con- sistent with the purposes of the Net to endow fuhd. holders 3 with the exclusive right to eleet their represents atives through w hom their rights. ancl iiterusts c an pe pursue vl! Moreover. the - protections: of Section 1, designed te ‘inake effective shareholder control oyer the. management of theér investment funds and thre public distribution of shares, are particularly greeded under the variable annuity con- tract. = Here the vestor’ = fortunes are: ‘dependent upon, the results of investment management not, only while be . may redeem his interest but also during the pay-out wher ov 7. hee Be longer free to terminate hit in vestment. ce Tie meena heomens Pend ses. — Tos | y57 \ Where in, denying a request for exerption from the i fay dress Sec 16 -and 1s, we note doa potential conthet of interest existed ims between the management and spopSor of the fund. See. also [x; Le stors pi« rersified Services, Lue, [ive stiment om paiy ‘Ac t Release : No. CATA April 2 27, 1962 rs ; , 3 Seg lteariuss “befpre. aus QQ tte ha Senate (Committee og : Banking. and Curreney on 3. 0 580, 76th Cong., Brd Sess. (19401, pp. D533, where a ( OmmisSSION spokesman st ie. .. if the stock- hoélders ‘or th e “hoard of direc tors are_ Jinpllinael-eiee-tho- TNR . s —— ae oe i ne Rt, uney ought to have a right*to terfninate the int ranagemeit *. ‘eontract.”” i es : Aes a ; . . ? ‘ Et. - Prndential’s proposals on these foints-do not L approach « . e . . . ’ £a : ri 0,5 aad \ e . 2 . x ee ae hav eS as rudential would be the permanent mvestmert adviser and principal underw riter of the fund. It is ne answet to these - problqms that 7 “the contract holders. are free to dispose: 6f- their dnterests and seek a “similay investment undey adifferent manasement. So may Any share! older of anv investment - company: Aside frem the burden of sales loads, and Sther costs, invelved in trans: ferring envestments,-it iclear that the Act does not regard ailienability as 2 proper substitute for the investors right to. a-management of hts choice, Moreover, to the varialge anfiuity holder, this recourse is substantially limited sinep he is locked ite his investment during the pay-out period by the very nature of the contract.) Finally. Prudential has argued that, under its particular _form of organization and un aer New ‘Jersey law, it cannot comply with these fasic sections-of the Act. It appears to us too early td be ‘certain that ways might: not. be found to acc complish something approachiig¢ recognition of the Act’s policies, This Commission is not docttinaire in providing some ‘flexibility through exemptions. futther, as earlier noted, accommodation by the) states may in all probability be anticipated to facilitate legitimate expansion of the busi- ness of insuranee companies. Under any, cireumstanees dif- ficdities under exisfing New Jersey law de not justify stich’ broad exemptions as are requested here, particularly siitee |. they nrust be equally: available tH insurance aE EE in‘all AU states. 2 rudéntia! doubts the-meeessity, or gre actical . ‘value, of these protision= of, the statute. We do ne accept ; - Saminsky Vv. Abbot, ADel Ch. September 18-1961), No, 1324. x But in the final analysis, it-is not decisive of the issues here that a hol ling that these contragts ate subject to. the Federal Acts might. require; some modification in the business of issuihg ther. Since these contracts are in fagt covered by the Acts, there can be no reason wht their issuers should be able to carry ou the SBvestme nt bupiness i ina Way which C OngEeSs has forbidden.” ’ Valic,.. supra, at pp. 92, 93 (eone urring opinion® -¢ » gel Ss ie: ‘ ‘ a 3 the dealin ations of these suggestions: but jn-any évent it t. 3ia . oa. é 2 % . , « , a not fer Prudential oy this Conunission to neglect polici ies SO. ‘central to” the Act. Accordingly, we deny the specifically requested exemp- - tions from Sections 16 and 32. We farther ‘hold that the tums proposed form of organization conflicts withthe re- quirements of numerous sections of the Act dealing with investor control, ‘such ws Sections 10, 13 and b5. , Adljust- ‘more than 60" days after’ prese ntatic nents weld have to be made so as to-render effective ‘the rights preseribed by those sec tion’—exemptions here w ould: aisobe inappropriate: . . ‘ ° s We now, turn brie fly to Cue other exemption samen “made by P rudential. These are, of course, almost meaning-- Jess in in the context of ‘the structure presented here.” We . shall, kaueivex , express ont: views or exereise our ower too indicate what further compliances das be requived:-" Provisions Rslatiog to to Redemption’ aha he "ad 152 “Prudential seek kygexemption from Section 27(¢) (1), which/ Fequires periodic payment plan. certificates to be redeem able secprities™ and from Section 22(ey, which pret its the postponement of payment, upol tedemption 69/ such’ ‘securities for more than 7. days after tender of theAccurity tor bare er ‘The proposed contracts limit Mdemptisn ine a number of wavs which rin gountey to tiese prohibi- lrons; rR NE ta noir-redeemability during’ the pay-out period, excepms prov ide anniety “payments, and a 36-month paarposeers process daring th pay in. ggrod. “ #9 Section 2(a) | BIL defines ‘rede emiah security under the te ris of whach th é older is entitled, to ree eive. ‘upon presentation tothe issuey or Its dlesignees : approximate ly: his preportionate share of the pssner 57 net assets or the eakh equivalent. e © The three- Year payment per foal is required by. New Jersey baw: N.4J. Star. ANN. € 17354-5484 500.0 Tf the value of the units is tes thar $1,000, paymest will b of the comtract for redemp- tion: ee 4 Pd o . . . » consider the adequaey- and , > % e e Ruerd rae ; J . *. - . 4 oF . 6 ‘ : aC aa See. Ses not justified: by Prudential’s 5 asserted itéaiee ‘to encourage regularity of payments and.te prevent speculation ‘in fund units and has no reasonable relationship to services ren- derey. °U nder these. cireumstances, we conclude that the ‘ requested exemption should, not be granted. -- * % ; -e\ ge Lae pipes Other Requested Exemptions | i 3 =~ L. Section 30f ad ) and heute 30d-1 . . OP rudential requests ‘ex cemptione from Section 30(a) and | -* Tide 30d-1, Those provisions would require the fund to ’ fufnish to the variable eontract holders, ‘at Jeast: semi- annuafly, a report which, among other things, contains. staterfents in the nature of a balance sheet and income , statement and shows changes iinet Assets, the unit ‘ales -and dividends for the eurrent, and past three years and _ whether thie divide nds were from’ net income or apit tal gains,a list of securities owned and their value,-and the > persons. |.” a ys Mea jae a Prudential: proposes to-end annually a report conform- ink to the abovy requirements, | in lieu ‘of a semicannual.. . report, however, Prudential proposes, as required under — 4 remuneration said: to directors, Officers,” and certain, other we New dersey.law, to traysmit within two months after the — . iniversary date of eaeh contract & report containing, for contracts imthe pay-in. period, the nunftber of units accumu- - lated uinder the contract, including any resulting from the ; Se spree of divisible sprplus, and, the unit value as of the antriversary date. F ‘contracts im the pay-out state, ‘the report.will show the number of ynits in each annuity payment and the current: unit value. ; ‘Prudential argues that the semi-annual repprt would impose unnecessary expense upon the contract holderes ie: -_—— Or scribed in Section 97 (a) 1), or be “ypeonscionable or ar grossly. ex- cessive’” as- proseribed by Seetion ik gd) Construed as an admin- istrative charge. it could ‘exceed * ‘‘reasonable amount.’” the . standard of Section 27( ay () dD). | Spe - a » f . -#la .: a / \ ‘i "ALISO the éther tv re ports supply the information: neces- sary .e an inte lige at exercise of it seeurity holder’s right : tor sell ¢ r redeem pis sec arity. ‘It further -contends. that Rau eat Fert would, tend to ereate thezerroneows im- pression that thie -ariable annuity conte act is, aul appropriate - fiedium for short ter m speculation, aS : Section 30(d) was “designed with specific F regard to cur-,, ine’ the evil§ thai resulted from the failure to give im +. vestors full information”! ‘The variable’ ‘annuity. contract holdey ts, as Was been seen, im-a similar position to, that-of am investor in a conventional investment company and he the. same needs for the information prescribed | by the Act’.” and the Ruje. The legislative history indicates that there was a balancing of these needs against the expense involved in a semi-annual reporting rang Congress ress Ived the ques- - tion. in favor of / requiring such rey orty. Accordingly, we deny tlie - ich d exeniption, ‘ r 3 * . es Sections mai B), 17(f) and 2706) ?) is $7(a)(3) to’ permit deduction of salef loads” which differ’ proportionately in. Various periods. These differences, aé- ordaig to Prudential, result from reductions ‘im eoritmis-/ sions to, ik selling agents after: the first vear- i ; *% 7 pereentage ‘dedueted | from each pure hase payment afte the first year for sales ‘oad, administrative eXpenses, a at Section 1(b) (1) recites th at ‘investors ape aiversely. -affected _ when they “purchase, pay for, exthange, regetvy dividends wiih _ thes. anil the cirentastances, “poligies. and finane ‘jal repsonsipil: ty 0 xbte, refrain from. voting, sell, of ‘surrender securities issued “bp investment: companies. ‘without sien wate, accurate, and: ‘explicit, in-. formation, fairly prese ted concerning the charagter of Ach seouri such ¢ompantes anid their mahagement ‘Senate AMearihes Before Subecinmittee of Committee on} Banik — dnd Curreney: on S. B50, THth Cong., 3rd Sess. (1940), pp. 302-303. . an Exemption is rejnested from the provisions of Sectidn ‘s - Cire ump tances ibe requested exemption should’be granted. Pn . | 42a, fo oe a : a, : : = . * ier’ taxes’ ana additions to. surplus 1 18 constant, with any decrease in the. sales load being offset hy d corresponding ° iiérease in additions to surplis. We agree-that under the “Hy water, We reserve jurisdiction with respect ‘to the’ reasqnab Heness of chirgeS tor administr ative expenses. I xehiptions is also ues Wn Section: 17(f) and of Rule 17h2' wit h require that scenrities of a registered | in-s vestment company he deposited in at bank for safekeeping Bhd access to them be lithite d to né ore than 3 authorized persons. Pradential pr oposes: to kee ‘p the funds securities in its vaults and to authorize aceess by a mhaxiinim of twenty persons ."Prude nti ‘safekeeping facilities, the procedures for access, and the supervision. of these matters which is of provided appeay to aiford adequate safeguards against un- os anthorized’ remoyal of or pe qud make it- apngongate to crant this exemption.° oe . A further exempiien ix iS oe permit Prude ntial 1 to hild the proceeds from the fier | ofthe variable annujty eon- tracts instead of depositing them with a bank or etstodian Sus required by Section 27(¢)(2). In the light of Pru- “ef . ro ‘.8 ° » ; . : . ‘dential’s position jn relation to the contracts and the exist- ing supervision and inspection of pts funds, we grant this Mp0 a5 Zz ake . . An “appropriate order will i issue, Commissioners Woonsinr, Cones and) Warrsry join in’ this decision; C ommissioner: FREAR was absent agit did not participate, . - Pen, * | Orvan L. Dv Bots Orval L. DuBois - . ¢ ‘ Secretary shat Gy ; > _»{ SEAT] wo Sata eo ao | ° ZA a - — : Declan Status and tenia jill Denying Ex smpfions CNITED STATES OF AMERICA BEFORE TP : SECURITIES ANI EXCHANGE COM MISSIC.N? . . ey s at 2° . ° Sanuary 22, 1963 “3 / In the. Matter. of pee licrvacn © ew . ; ral oi t Pri, Pre ‘DENTIAI IxstRaNCcE COMPANY AP AMERICA ied ile. Xo, 812-1380 +. » dnvestipen! Company Ag of 1940 ; The” Prudential Insiiranee Company of Ameriva ‘. Pru- de ntial’’?) having filed fn application epee tO Up. In. cestment Company sAgt of 2940 (°° Act” requesting an order (2) declaring that Tie proposed oiter and sale of Prudential of certain variable Tins. « eontraets will got resvlt imagy inve tment company subject to the Aet becaee Prudential’ is the issuer Of sick contracts and is excepted from the cadinetion of an investment company, or, alterna: tively, (2) exemmpune Aa. proposed ‘nineorporated rund: whieh will, be created jursnant to such eontracts trom comp later with vi arious provi islOns of the Act; Hearings having been held on said applieftion after ap: Spropriate notice, Prypore ad findings and briefs having been ‘filed by the pa irties and participants im the proceedings, ancl the ommission having heard oral argument, and-having | ‘this day issvied its Findings arid Qpinon, on the basis of such KF ‘indings and Opinion; .° +. ; ‘ a Irs oRpERRD thr it die request: ( f Prudential that it. he declared the issuer Af. the Lean variable ¢ nity. GOn- tracts and that ny investment company subject to the - Act is the issuer, "be, and it hereby is, denied. » Ip is FURTHER ORDERED that the appliedbion. be, and hereby ix, denied to the extent that exemption is sought on. ‘ . “” a- it 44a hehalt “of the nningorporated investment fund” created ont f the proeeeds of the sale of the proposed variable ann “3 . contracts from’. a Ante ay The provisions of Sections 7(2) and 7(b) pro-, hibitinye certain transaciions by unreggisteréd imvest- ment COMpanies ; A ae b) The provisions of Sections J6(a) and: 32(b), S and relating to voting rights in the eleetioti of directors + | antl with respect toccontraets with.investment advisers and undefvriters and the employment of independent accountants. ; c °) provision ‘ Prudential’s vaults and authorize access by a maximum, of 20 persons. yi ; ¢ * . . os Orval bs Du Bots c -@rval LL. Duboi= Sccretarit 3 ) SEAL | Senta i : : ¥ - \ . - ~ e. . e as ° me ° \ ‘ . e ¢£ ° 2 e . r ' ° ‘ 2 € wa . 8 e . - . e Ld --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385601_1659%3A3. Public record. Not legal advice.