Appendix — Investment Company Institute v. Camp
Supreme Court brief1971
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(i)
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1969
No. 843
INVESTMENT COMPANY INSTITUTE, et al.,
Petitioners,
Vv.
WILLIAM B. CAMP, Comptroller of the Currency,
and
FIRST NATIONAL CITY BANK,
Respondents.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
PR GUNN nn cena cur eebe sadecekesdtcuwancee 1
Proceedings in the District Court
for the District of Columbia
Civ. Action No. 1083-66
Complaint for declaratory judgment and injunctive and other
___ PERTOCTECUTTCLTRT CELL TT Te ee ee
Wastngton O C THIEL PRESS 202 393.0625
(ii)
Affidavit of Robert L. Augenblick in support of Plaintiff's
Motion for Summary Judgment.....................
Affidavit of John R. Haire in Support of Plaintiffs’ Motion
raidlcomesce: joc... ret CU ra Pane Cen ea
Affidavit of Joseph E. Welch in support of Plaintiffs’ Motion
en NI ee
Affidavit of Stuart F. Silloway in support of Plaintiffs’
Motion for Summary Judgment.....................
Affidavit of Adron P. Trantum in support of Plaintiffs’ Motion
for Summary Judgment
Affidavit of James F. Fitzpatrick in support of Plaintiffs’
Motion for Summary Judgment.....................
Exhibit No. 1 to Fitzpatrick Affidavit .................
Exhibit No. 4 to Fitzpatrick Affidavit .................
Exhibit No. 6 to Fitzpatrick Affidavit .................
Exhibit No. 7 to Fitzpatrick Affidavit .................
Exhibit No. 8 to Fitzpatrick Affidavit ................. |
Exhibit No. 9 to Fitzpatrick Affidavit .................
Exhibit No. 10 to Fitzpatrick Affidavit .................
Exhibit No. 12 to Fitzpatrick Affidavit .................
Exhibit No. 13 to Fitzpatrick Affidavit .................
Exhibit No. 14 to Fitzpatrick Affidavit .................
Exhibit No. 15 to Fitzpatrick Affidavit .................
Exhibit No. 16 to Fitzpatrick Affidavit .................
Exhibit No. 17 to Fitzpatrick Affidavit .................
Defendant’s Cross-Motion for Summary J udgment and
Opposition to Plaintiffs’ Motion for Summary Judgment
Affidavit of William B. Camp in support of Defendant’s Cross-
Motion for Summary Judgment.....................
Affidavit of Robert I. Hoguet, Jr., in support of Defendant’s
Cross-Motion for Summary Judgment ................
Opinion denying Motion by Defendant for Summary Judg-
ment and Granting Motion by Plaintiffs for Summary
PE 6% SERRE OEE A ORT EN See One OER a
(iii)
Motion of First National City Bank for Leave to Intervene as a
I Sk eae eS at a ee eee bed a 6 be
Affidavit of Robert I. Houget in support of First National
City Bank’s Motion for Leave to Intervene and Motion
SEE Sap bak ceeenenenawesct oS #4 eaves
Answer of First National City Bank, Intervenor, to
PE GE awed bea ahe baste he ee eed sees
ne Oe PE TY GF sive kn wscewees ce we eta We een
et Ge as 6 a a kb O08 6 8 0's ee me
Notice of Appeal (William B. Camp, Comptroller) .........
Notice of Appeal (First National City Bank) .............
Proceedings in the United States Court of Appeals
for the District of Columbia Circuit
Nos. 21,661, 21,662
PE. i. 44 nkg tbe b kak O86 06 6s Reed 6S oa ee eae
EN SevesebecUGS SEOCEE RE SEDECS Sa Weak Aa Owe
Order denying Petition for Rehearing...................
Proceedings in the Supreme Court of the
United States, October Term 1969
No. 843
Order granting Petition for Writ of Certiorari .............
ee SESS SRR Sa RE zany
l
DOCKET ENTRIES
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
Civil Action No. 1083-66
Investment Company Institute, by Dorsey Richardson,
its President; Investors Diversified Services, Inc; Inves-
tors Management Company, Inc.; Hugh W. Long &
Company, Inc.; Wellington Management Company; and
Wellington Company, Inc.
Plaintiffs,
v.
James J. Saxon, Comptroller of the Currency,
Defendant,
and
First National City Bank,
Intervenor.
Date Proceedings
1966
April 25 Complaint filed
April 25 Complaint and summons issued to U.S. Attor-
ney for the District of Columbia
April 25 Summons and Complaint issued to Attorney
General
April 26 Service effected upon U.S. Attorney for the
District of Columbia
April 27 Service effected upon the Attorney General
July 18 Answer of Defendant James J. Saxon
ee EERIE LOT
July 18 Case calendared
Nov. 30 Motion by Plaintiffs for summary judgment
Nov. 30 Memorandum in support of motion for sum-
mary judgment
Nov. 30 Affidavit of Robert L. Augenblick in support
of Plaintiffs’ motion for summary judgment
Nov. 30 Affidavit of John R. Haire in support of Plain-
tiffs’ motion for summary judgment
Nov. 30 Affidavit of Joseph E. Welch in support of
Plaintiffs’ motion for summary judgment
Nov. 30 Affidavit of Stuart F. Silloway in support of
Plaintiffs’ motion for summary judgment
Nov. 30 Affidavit of Adron P. Trantum in support of
Plaintiffs’ motion for summary judgment
Nov. 30 Affidavit of James F. Fitzpatrick in support of
Plaintiffs’ motion for summary judgment with
exhibits
1967
April 4 Cross-motion of Defendant for summary judg-
ment and opposition of Plaintiffs’ motion for
summary judgment
April 4 Affidavit of William B. Camp in support of
Defendant’s cross-motion for summary judgment
April 4 Affidavit of Robert L. Hoguet, Jr., in support
of Defendant’s cross-motion for summary judg-
ment
June 6 Reply memorandum of Plaintiff
June 28 Reply memorandum of Defendant
June 28 Supplemental affidavit of James F. Fitzpatrick
in support of Plaintiffs’ motion for summary
judgment with exhibits
June 29 Hearing on Plaintiffs’ motion for summary
judgment and Defendant’s cross-motion for
summary judgment
arts
SAT LO ES LOE GEL STE EOD IE BG LEONE LPI LOE EEE LS FALSE DEER EROS PTE Pere es
atti ~ Ae GR =? ~ me * = OP Me a a
_——a
Sept. 27 District Court Opinion denying Defendant's
motion for summary judgment and granting
Plaintiffs’ motion for summary judgment
(McGarraghy, J.)
Oct. 10 Defendant’s motion for stay pending appeal
Oct. 13 Motion of First National City Bank to intervene
as defendant
Oct. 13 Affidavit of Robert L. Hoguet, Jr., in support
of First National City Bank’s motion to
intervene
Oct. 23 Plaintiffs’ opposition to motion of First
National City Bank to intervene
Oct. 24 Plaintiffs’ opposition to motion for stay and
to Defendant Saxon’s proposed order
Nov. 9 Memorandum granting motion of First National
City Bank to intervene and limiting it to the
purpose of prosecuting an appeal from the
judgment (McGarraghy, J.)
Nov. 9 Judgment of the District Court (McGarraghy, J.)
Nov. 9 Order staying judgment pending ultimate dis-
position of any appeal taken, provided the
Comptroller shall not authorize any national
banks to commence operation of a managing
agency collective investment fund (McGar-
aghy, J.)
Order granting motion of First National City
Bank for leave to intervene as a party defend-
ant (McGarraghy, J.)
Notice of appeal by Intervenor from judgment
of Nov. 9, 1967
Notice of appeal by Defendant from judgment
of Nov. 9, 1967
UNITED STATES COURT OF APPEALS FOR THE
Jul. 11
Nov. 27
1969
June 21
July 1
Aug. 15
Nov. 6
Nov. 12
Nov. 18
1970
Mar. 23
4
DISTRICT OF COLUMBIA CIRCUIT
Nos. 21,661, 21,662
Order consolidating for the purpose of decision
the instant case with the National Association
of Securities Dealers v. Securities & Exchange
Commission
Hearing in Court of Appeals
Judgment of the Court of Appeals (Per curiam)
Opinions of the Court of Appeals (Bazelon, C.
J.; Miller, Burger, JJ.)
Order denying petition for rehearing
Order denying motion for stay of mandate and
ordering immediate issuance of mandate (Per
curiam)
SUPREME COURT OF THE UNITED STATES
No. 843
Petition for Writ of Certiorari filed
Order staying mandate pending final disposition
(Black, J.)
Order granting Petition for Writ of Certiorari
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
INVESTMENT COMPANY INSTITUTE
By Dorsey Richardson, Its President
61 Broadway
New York, New York
INVESTORS DIVERSIFIED SERVICES, INC.
Investors Building
Minneapolis, Minnesota
INVESTORS MANAGEMENT COMPANY, INC.
Westminster at Parker
Elizabeth 3, New Jersey
HUGH W. LONG & COMPANY, INC.
Westminster at Parker
Elizabeth 3, New Jersey
WELLINGTON MANAGEMENT COMPANY
1630 Locust Street
Philadelphia, Pennsylvania
WELLINGTON COMPANY, INC.
1630 Locust Street
Philadelphia, Pennsylvania,
Plaintiffs
v. Civil Action No.
JAMES J. SAXON 1083-66
Comptroller of the Currency
Office of the Comptroller of
the Currency
Fifteenth and Pennsylvania Avenue
Washington, D.C.,
Defendant
a TSO eye TOS eye AAAs Neat el sh a OTE ee AER
i
6
COMPLAINT FOR DECLARATORY JUDGMENT
AND INJUNCTIVE AND OTHER RELIEF
(Filed April 25, 1966)
Plaintiffs, by their attorneys, bring this action against the
above-named defendant and allege:
Jurisdiction and Venue
1. This is a civil action for a declaratory judgment and
injunctive and other relief. It arises under Sections 16, 20,
21 and 32 of the National Banking Act of 1933, as amended,
(herein referred to as “the Glass-Steagall Act”), codified in
Sections 24, 377, 378 and 78, 12 U.S.C., respectively, as
well as under Section 92(a), 12 U.S.C. This Court has juris-
diction under the provisions of 12 U.S.C. § 1331; the De-
claratory Judgment Act, 28 U.S.C. § 2201-02: the Ad-
ministrative Procedure Act, 5 U.S.C. § 1009; and the District
of Columbia Code, Sections 11-305 and 11-306. Venue is
established under the provisions of Section 1391(b) and
1391(e) (1), 28 U.S.C. There exists between each plaintiff
and the defendant an actual controversy, justiciable in
character, in respect of which plaintiffs require a deter-
mination of their rigts by this Court. The amount in contro-
versy exceeds $10,000.
Parties
2. Plaintiff Investment Company Institute (herein referred
to as the “Institute”) is an unincorporated association,
having its principal place of business in the City, County
and State of New York. At the time of the commencement
of this action, Dorsey Richardson was the President thereof.
It is a national association having as its members 174 open-
end investment companies, and their 87 investment advisers
and 78 principal underwriters. Open-end investment com-
panies are commonly referred to, and will herein be referred
to, as “mutual funds.” The Institute is suing in a represen-
tative capacity for all its members which will be injured ir-
reparably by the illegal acts here complained of. The great
majority of its mutual fund members is engaged in the
;
business of issuing and offering for sale redeemable secu-
rities which represent an undivided interest in the portfolio
of securities owned by the fund. Each mutual fund mem-
ber is registered as an open-end investment company with
the Securities and Exchange Commission (herein referred to
as the “SEC”’) under the Investment Company Act of 1940
(herein referred to as “the 1940 Act”); and the securities
issued by each member fund are registered with the SEC
under the Securities Act of 1933 (herein referred to as
“the 1933 Act”). Together, the mutual fund members of
the Institute have assets of over $36 billion (being about
94% of the assets of all mutual funds in the United States)
and have approximately 3.5 million shareholders. Each of
the investment adviser members of plaintiff Institute is,
pursuant to the contractual arrangements required by
Section 15 of the 1940 Act, engaged in the business of
regularly furnishing to one or more mutual fund members
advice with respect to the desirability of investing in, pur-
chasing. or selling securities, or is empowered to determine
what securities shall be purchased or sold by such mutual
fund. Each of the principal underwriter members of plain-
tiff Institute is, pursuant to the contractual arrangements
required by Section 15 of the 1940 Act, engaged in the
business of purchasing from one or more mutual fund
members its securities for distribution or, as agent for such
mutual fund, selling or having the right to sell the securities
of such fund to a dealer or to the public or both.
3. (a) Plaintiff Investors Diversified Services, Inc., an In-
stitute member, is incorporated under the laws of the State
of Minnesota and has its office and principal place of busi-
ness at Minneapolis, Minnesota. It acts as investment adviser
and principal underwriter, pursuant to Section 15 of the
1940 Act, to the following open-end investment companies:
Investors Mutual Inc.; Investors Stock Fund, Inc.; Investors
Variable Payment Fund, Inc.; and Investors Selective Fund,
Inc., all of which are Institute members. There are more
than three-quarter million investors in these open-end
investment companies residing throughout the United States.
a
8
Securities of each of these open-end companies are offered
for sale and sold throughout the nation, and a substantial
number of such shares are offered for sale and sold in the
City and State of New York.
(b) Plaintiff Investors Management Company, Inc., is
incorporated under the laws of the State of New Jersey and
has its office and principal place of business at Elizabeth,
New Jersey; pla. «tiff Hugh W. Long & Company, Inc.., is in-
Corporated under the laws of the State of Nevada and has
its office and principal place of business at Elizabeth, New
Jersey. Both are Institute members. Pursuant to Section
1S of the 1940 Act, Investors Management Company, Inc.,
acts as investment adviser, and Hugh Long & Company acts
as principal underwriter, to the following open-end invest-
ment companies currently engaged in issuing and selling
their shares, all of which are Institute members: Fundamental
Investors, Inc.; Diversified Investment Fund, Inc.: and Di-
versified Growth Stock Fund, Inc. There are more than
250,000 investors in these open-end investment companies
residing throughout the United States. Securities of each
of these open-end companies are offered for sale and sold
throughout the nation, and a substantial number of such
shares are offered for sale and sold in the City and State of
New York.
(c) Plaintiffs Wellington Management Company and Wel-
lington Company, Inc., are both incorporated under the
laws of the State of Delaware and have their offices and
principal places of business at Philadelphia, Pennsylvania.
Both are Institute members. Pursuant to Section 15 of the
1940 Act, Wellington Management, Inc., acts as investment
adviser, and Wellington Company, Inc., acts as principal
underwriter, to the following open-end investment com-
panies currently engaged in issuing and selling their shares,
both of which are Institute members: Wellington Fund,
Inc., and Windsor Fund, Inc. There are more than 375,000
investors in these open-end investment companies residing
throughout the United States. Securities of both of these
open-end companies are offered for sale and sold through-
9
out the nation, and a substantial number of such shares are
offered for sale and sold in the City and State of New York.
4. Defendant James J. Saxon is the Comptroller of the
Currency (herein referred to as the “Comptroller”) and is
charged by law with administrative and regulatory authority
with respect to national banks. His official residence is
Washington, D. C. He is sued in his individual Capacity as
a result of certain acts here described which were taken in
excess of his statutory authority.
5. The purpose of this action is to secure a declaratory
judgment, with appropriate injunctive and other relief, that
(i) those provisions of the Comptroller’s Regulation 9, 12
C.F.R. § 9.18, which permit banks to establish and operate
collective investment funds composed of monies deposited
with the bank as managing agent (such collective investment
funds herein referred to as “bank investment funds”) which
are functionally identical to mutual funds, and those actions
of the Comptroller in approving the application of First
Nationai City Bank of New York, a national bank and
member of the Federal Reserve System with its office and
principal place of business in the City and State of New
York (herein referred to as “the Bank”), to operate such
a bank investment fund under these regulations, are unlaw-
ful inasmuch as they were taken by defendant Comptroller
in excess of his Statutory authority and in violation of
Sections 16, 20, 21 and 32 of the Glass-Steagall Act which
prohibit commercial banks from engaging in the securities
business and (ii) that the approval of the Bank’s plan is il-
legal and in excess of the Comptroller’s Statutory authority
in that such approval permits activity which is prohibited
by Section 92(a), 12 U.S.C.
Claim For Relief Based Upon
Glass-Steagall Act
6. The Glass-Steagall Act, enacted in 1933 and amended
in 1935, was enacted in substantial part to separate and
divorce commercial banks from the securities business.
Section 21 of the Act, a criminal section, prohibits
eR ER Ks cata RSS ER eS ea SR See
——
10
commercial banks from engaging in the business of issuing,
underwriting, selling or distributing securities, with certain
exceptions not relevant here. Section 16 provides that
national banks cannot deal in equity securities, except for
purchases and sales made solely upon the order and for the
account of customers, and that national banks cannot under-
write any issue of securities. Section 32 prohibits officers
and directors of member banks of the Federal Reserve
System from serving in similar capacities with any enterprise
primarily engaged in the issue, underwriting, sale or distri-
bution of securities. Section 20 provides that no member
bank shall be affiliated, as defined in the banking laws,
with an organization principally engaged in the issue, flota-
tion, underwriting, sale or distribution of securities. The
Comptroller’s regulations and action complained of here
authorize activity in direct violation of these prohibitions
and are thereby in excess of the Comptroller’s statutory
authority.
7. Upon information and belief, after one year following
the passage of the Glass-Steagall Act, and to date, no bank
has operated a bank investment fund. The Glass-Steagall
prohibitions have consistently been administered to restrain
mutual funds from creating interlocking relationships with
commercial banks.
8. Prior to the effective date of the Glass-Steagall Act,
plaintiff Investors Management Company, Inc., was a cor-
poration organized under the laws of the State of New York
and was a wholly-owned subsidiary of Irving Trust Com-
pany, a New York state bank and member of the Federal
Reserve System. At that time Investors Management Com-
pany, Inc., was named Irving Investors Management
Company, Inc., and, among other things, served as under-
writer and investment adviser for Irving Investors Fund C.
Inc., an investment fund operated in a manner virtually
identical to the operation of present-day open-end invest-
ment companies. In consequence of the passage of the
Glass-Steagall Act and rulings of the Federal Reserve Board
made pursuant thereto, Irving Trust Company in 1934
divested itself of all of its interest in Irving Investors
Management Company, Inc., and in Irving Investors Fund
C, Inc. (the name of which was thereupon changed to In-
vestors Fund C, Inc.), and thereafter Irving Trust Company
had no further connection with the distribution of the
shares of that fund or with the management thereof. In
1954, Investors Fund C, Inc., was merged into the aforesaid
Fundamental Investors, Inc., and in 1964, plaintiff Investors
Management Company, Inc., was reincorporated under the
laws of the State of New Jersey.
9. Until 1962, the statutory authority to regulate the
fiduciary activities of national banks was vested in the
Federal Reserve Board. The Board consistently and dilimes. »
administered its authority until 1962 so as to prohibit ax»
national or member bank from offering to its customers or
to the public shares or participations in collective investment
funds solely for investment purposes and not for bona fide
fiduciary purposes.
10. In September, 1962 the statutory authority to regu-
late the fiduciary activities of national banks was transferred
to the Comptroller of the Currency. 76 Stat. 668, 12
U.S.C. § 92(a). Assertedly pursuant to such authority, on
February 4, 1963 the Comptroller issued a notice of
proposed rule-making concerning the promulgation of
revised rules which, in part, were intended to authorize the
collective investment of funds contributed to the bank as
managing agent solely for investment purposes, and not for
bona fide fiduciary purposes. The Comptroller invited
national banks and interested parties to submit comments
pertaining to the proposed regulation. Plaintiff Institute,
on behalf of its members, participated to the full degree
permitted and submitted a statement in opposition to the
proposed regulations because they permitted banks to enter
the mutual fund business, asserting in part that such activity
violated the Glass-Steagall Act. Final regulations were
adopted by the Comptroller on April 5, 1963; such regula-
tions were amended February 5, 1964.
Qs Sikes ch NRL IE SI OEY ERECT E a ee eee
ey
12
11. These regulations permitted banks to create and
operate bank investment funds which are the functional
equivalents of the mutual fund members of plaintiff Insti-
tute and permitted banks, for the first time, to offer for
sale securities in the form of participations in bank invest-
ment funds for the purpose of general investment. Under
these regulations, a bank can pool the moneys of the
investing public in a fund which will be invested in equity
and other securities, and can operate and manage such fund.
A bank investment fund will offer and issue participations
to the investing public representing undivided shares in the
collective account; these participations will be sold, distri-
buted and underwritten exclusively by a bank and its em-
ployees. An investor in a bank investment fund will have
the right to redeem his participation—i.e., to draw out his
share of the undivided assets in the fund in the form of
cash based on net asset value of the participation. In all
these particulars, the operation of a bank investment fund
authorized by the Comptroller’s regulations is indistinguish-
able in all material respects from the operation of the
mutual fund members of plaintiff Institute. The activities
of a bank and its employees in advising and managing a
bank investment fund and in distributing, selling, and under-
writing the participations in a bank investment fund are in-
distinguishable in all material respects to those of adviser
and underwriter members of plaintiff Institute.
12. Pursuant to and under the provisions of such regu-
lations, the Comptroller, on May 28, 1965, approved a plan
to operate a bank investment fund submitted by the Bank.
Such bank investment fund proposed by the Bank was
labelled a “Collective Investment Account” (herein referred
to as the “Account”’). The Bank’s Account will be operated
as a bank investment fund essentially as described in para-
graph 11. Under the Bank’s plan as approved by the Comp-
troller, the Bank will promote its Account as part of its
fiduciary activities, and Bank employees will sell, distribute,
and underwrite the participations in the Account to the
customers of the Bank and others who desire to invest in
the Account.
13
13. The Bank has publicly announced that it intends to
register its Account with the SEC as an open-end investment
company under the 1940 Act in a manner similar to the
registration of the mutual fund members of plaintiff Insti-
tute as open-end investment companies. The Bank on April
21, 1966, filed a registration statement with the SEC for
the purpose of registering the participations in the Account
as securities under the 1933 Act, in a manner similar to the
registration of the securities issued by the mutual fund
members of plaintiff Institute. The Comptroller has
announced that he has encouraged and supported the Bank’s
plan to register its Account under the 1940 Act and the
securities in the Account under the 1933 Act.
14. Notwithstanding the fact that the Bank, with the
approval of the Comptroller, intends to register its Account
with the SEC under the 1940 Act as an open-end investment
company, the Federal Reserve Board, in a formal ruling, has
erroneously held that the arrangement proposed by the
Bank to operate a bank investment fund does not violate
the prohibitions of Section 32 of the Glass-Steagall Act
against interlocking relationships because, in its view, the
Account is merely an arm or department of the bank. 30
Fed. Reg. 12836 (1965), adding 12 C.F.R. § 218.111. The
said ruling does not refer to the legality of the Bank’s plan
under Sections 16 and 20 of the Glass-Steagall Act, and it
explicitly states that the Federal Reserve Board “expressed
no position with respect to whether” the proposed activity
by the Bank, approved under the Comptroller’s regulations
here challenged, violates Section 21 of the Glass-Steagall
Act.
15. The Bank intends to commence operation of its Ac-
count in the near future and commence offering for sale
the participations in its Account to customers of the Bank
and others. Similarly, other national banks have indicated
that they plan to seek approval of plans under the Comp-
troller’s regulations here challenged to permit them to
operate bank investment funds. The Comptroller has stated
—
16
in violation of Sections 16, 20, 21 and 32 of the Glass-
Steagall Act; and
(2) this Court declare that the Comptroller’s approval
of the Bank’s plan to operate a bank investment fund under
such regulations is illegal, in excess of his Statutory auth-
ority, void, and of no effect inasmuch as it was made pur-
suant to regulations which are illegal under Sections 16, 20,
21 and 32 of the Glass-Steagall Act; and
(3) this Court declare that the Comptroller’s approval
of the Bank’s proposed plan to operate its Account is
illegal, in excess of his statutory authority, void, and of no
effect, inasmuch as it permits activity which is not permitted
by the provisions of Section 92(a), 12 U.S.C.; and
(4) this Court order that the Comptroller set aside any
portion of Regulation 9 declared illegal pursuant to prayer
(1) above and enjoin the Comptroller from authorizing any
bank to operate bank investment funds under such regula-
tions; and
(S) this Court enjoin the Comptroller from continuing
in effect any prior approval to any bank, including his ap-
proval of the Bank’s plan, which might have heretofore
permitted the operation of bank investment funds under
such illegal regulations, and to order that he set aside or
rescind any such prior approval; and
(6) that the Court grant such other and further relief as
may be appropriate.
/s/ G. Duane Vieth
/s/ James F. Fitzpatrick
/s/ Charles R. Halpern
1229 Nineteenth St., N.W.
Washington, D.C. 20036
Attorneys for Plaintiffs
i A a i ae el Sa i a ee ny
17
OF COUNSEL:
Robert L. Augenblick, General Counsel
Investment Company Institute
61 Broadway
New York, New York 10006
Arnold & Porter
1229 Nineteenth Street, N.W.
Washington, D.C. 20036
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Title Omitted in Printing]
ANSWER
(Filed July 18, 1966)
Defendant, James J. Saxon, Comptroller of the Currency,
by his undersigned attorneys, in answer to the complaint
herein, admits, denies and alleges as follows:
1. Defendant admits the allegations contained in the first
sentence of paragraph | of the complaint. Defendant denies
the remaining allegations contained in paragraph | of the
complaint, and refers the Court to the text of the various
statutes cited in paragraph | of the complaint for the terms
thereof.
2 and 3. Defendant alleges that he is without knowledge
or information sufficient to form a belief as to the truth of
the allegations contained in paragraphs 2 and 3 of the com-
plaint, except that defendant denies the allegations that the
acts of defendant are illegal and denies that plaintiff Insti-
tute or its members will be, are, or have been irreparably
or otherwise injured.
4. Defendant denies the allegations contained in paragraph
4 of the complaint, except that he admits that he is the
Comptroller of the Currency, that his official residence is
a Kane Gh EY Cee
a
18
Washington, D.C., and refers the Court to the text of the
National Bank Act, 12 U.S.C. 1 et seq., for the statutory
authority of the Comptroller of the Currency.
5. Defendant denies the aliegations contained in para-
graph 5 of the complaint, except that defendant admits that
on May 10, 1965, he gave specific approval under provisions
of Section 9.18 (c) (5) of the Comptroller’s regulations, |2
CFR 9.18(c) (5), to the establishment and operation of the
Commingled Investment Account proposed by First National
City Bank, and the Court is respectfully referred to the text
of the Comptroller’s Regulation 9, 12 CFR $9 et. seq., and
to the text of the various statutes cited in paragraph 5 of the
complaint for the terms thereof.
6. Defendant denies the allegations contained in paragraph
6 of the complaint, except that defendant admits that the
Glass-Steagall Act was enacted in 1933 and thereafter
amended, and defendant refers the Court to the text
of the various Statutory provisions cited in paragraph
6 and to the text of the Comptroller’s regulations for
the terms thereof.
7 and 8. Defendant alleges that he is without knowledge
or information sufficient to form a belief as to the truth of
the allegations contained in paragraphs 7 and 8 of the com-
plaint.
9. Defendant neither admits nor denies plaintiffs’ para-
phrasing of the Federal Reserve Act, 12 U.S.C. 248(k), as
repealed and supplemented, 76 Stat. 668 et. seq., 12 U.S.C.
92a, contained in the first sentence of paragraph 9 of the
complaint, but refers the Court to those sections for an
exact statement of the terms and provisions thereof. De-
fendant alleges that he is without knowledge or information
sufficient to form a belief as to the truth of the allegations
contained in the last sentence of paragraph 9 of the com-
plaint.
10. Defendant neither admits nor denies plaintiffs’ para-
phrasing of the Federal Reserve Act, 12 U.S.C. 248(k), as
- =.
repealed and supplemented, 76 Stat. 668 et. seq., 12 U.S.C.
92a, contained in the first sentence of paragraph 10 of the
complaint, but refers the Court to those sections for an
exact statement of the terms and provisions thereof.
Defendant denies the remaining allegations contained
in paragraph 10 of the complaint, except that he ad-
mits that on January 31, 1963, he issued a notice of
proposed rule making, published in the Federal Register
at 28 F.R. 1111; that plaintiff Institute participated to the
full degree permitted in the rule making proceedings and
submitted a statement in opposition to the proposed
regulations; that regulations were adopted by the Comptroller
of the Currency on April 5, 1963, and published in the
Federal Register at 28 F.R. 3309: and that the regulations
were amended and the amendments published in the Federal
Register at 29 F.R. 1719; and the Court is referred to the
text of the notice for proposed rule making, the regula-
tions as adopted and thereafter amended for the terms
thereof and to the statement in opposition submitted by
plaintiff Institute for the position asserted therein.
11. Defendant denies the allegations contained in para-
graph 11 of the complaint, and refers the Court to the
text of the Comptroller’s Regulations 9, 12 CFR § 9 et
seq., for the terms thereof.
12. Defendant denies the allegations contained in para-
graph 12 of the complaint, except that he admits that on
May 10, 1965, the Comptroller of the Currency gave
specific approval under the provisions of the Comptroller’s
Regulation 9 to the establishment and operation of the
Commingled Investment Account proposed by First National
City Bank, and the Court is respectfully referred to the con-
ditions of the specific approval granted by the Comptroller,
the prospectus of the Commingled Investment Account filed
with the Comptroller of the Currency by First National City
Bank in connection with its request for the approval of such
Account by the Comptroller of the Currency, and to appli-
cable statutes and regulations for the manner of operation
of said Account.
PAC ay me ternary en TORO SR BN ati A Cer RCPS RHEE Ne tarp a” TORRY ORIEN Se mL ape Le
—
20
13. Defendant alleges that he is without knowledge or
information sufficient to form a belief as to the truth of
the allegations contained in the first sentence of paragraph
13 of the complaint. Defendant denies the remaining alle-
gations contained in paragraph 13 of the complaint, except
that he admits that on April 20, 1966, registration state-
ments relating to the Commingled Investment Account were
filed with the Securities and Exchange Commission and
refers the Court to the text of the registration statements
for the terms thereof; and that on August 25, 1965, the
Office of the Comptroller of the Currency issued a state-
ment supporting and approving the plans of First National
City Bank to establish a commingled fund for agency ac-
counts and refers the Court to the text of such statement.
14. Defendant denies the allegations contained in para-
graph 14 of the complaint, except that he admits that the
Federal Reserve Board issued a ruling dated September 29,
1965, and published in the Federal Register at 30 F.R.
12836, and the Court is referred to the text of said ruling
for the terms thereof.
15. Defendant alleges that he is without knowledge or
information sufficient to form a belief as to the truth of
the allegations contained in the first two sentences of para-
graph 15 of the complaint, except that defendant admits
that First National City Bank has commenced the opera-
tion of its Commingled Investment Account, and denies the
allegations contained in the last sentence of paragraph 15
of the complaint.
16. Defendant denies the allegations contained in para-
graph 16 of the complaint, and refers the Court to the text
of the various statutes and regulations of the Comptroller
of the Currency cited for the terms thereof.
17. Defendant denies the allegations contained in para-
graph 17 of the complaint, and refers the Court to the text
of the statutes cited for the terms thereof.
18. Defendant denies the allegations contained in para-
graph 18 of the complaint, and specifically denies that there
ine
PERLE LY LY ERENT ES PET TIN NT IRI PLE MRT EEE ge
|, Se
exists in this action a justiciable case or controversy be-
tween plaintiffs and the defendant and further defendant
specifically denies that plaintiffs have Standing to maintain
this action.
19. Defendant denies the allegations contained in para-
graph 19 of the complaint.
20. Defendant denies each and every allegation of the
complaint not herein admitted, qualified, or denied.
FIRST AFFIRMATIVE DEFENSE
Plaintiffs lack standing to maintain this action.
SECOND AFFIRMATIVE DEFENSE
The Court lacks jurisdiction over the subject matter of
this action.
THIRD AFFIRMATIVE DEFENSE
The complaint fails to allege the existence of a justiciable
case or controversy.
FOURTH AFFIRMATIVE DEFENSE
The complaint fails to state a claim upon which relief can
be granted.
WHEREFORE, having fully answered, the defendant, the
Comptroller of the Currency of the United States, prays:
1. That the relief requested by the plaintiffs be denied
and that the complaint be dismissed; and
2. That the defendant be given all such other and further
relief as the Court may deem just and proper.
Respectfully submitted,
John W. Douglas
Assistant Attorney General
Harland F. Leathers
Irwin Goldbloom
Attorneys, Department of Justice
Washington, D.C. 20530
Attorneys for Defendant
ee PISS See eee ete oS
—
22
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Title Omitted in Printing]
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT
(Filed November 30, 1966)
Each of the plaintiffs moves the Court on the Complaint
fiied in this case, Plaintiffs’ Statement of Material Facts as
to which There is No Genuine Issue, and the Affidavits in
support of plaintiffs’ motion for summary judgment filed
by Robert L. Augenblick, Joseph E. Welch, Stuart F. Sillo-
way, John R. Haire, Adron P. Trantum and James F. Fitz-
patrick, for summary judgment under Rule 56 of the
Federal Rules of Civil Procedure and for the relief prayed
for in the Complaint, on the ground that there is no genuine
issue as to any material fact and that plaintiffs are entitled
to judgment as a matter of law.
/s/ G. Duane Vieth
/s/ James F. Fitzpatrick
/s/ Charles R. Halpern
1229 — 19th Street, N.W.
Washington, D.C. 20036
Attorneys for Plaintiffs
Of Counsel:
ARNOLD & PORTER
1229 — 19th Street, N.W.
Washington, D.C. 20036
23
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Titled Omitted in Printing]
AFFIDAVIT OF ROBERT L. AUGENBLICK
IN SUPPORT OF PLAINTIFFS’ MOTION
FOR SUMMARY JUDGMENT
(Filed November 30, 1966)
STATE OF NEW YORK Ss:
COUNTY OF NEW YORK
ROBERT L. AUGENBLICK, being first duly sworn, deposes
and says as follows:
1. Iam President and General Counsel of the Investment
Company Institute (herein referred to as the “Institute’’),
a plaintiff in this suit. I submit this affidavit in support of
plaintiffs’ motion for summary judgment in this action.
2. The Institute is an unincorporated association, having
its principal place of business in the City, County, and
State of New York. At the time of the commencement of
this action, Dorsey Richardson was the President thereof:
on October 6, 1966, affiant became President thereof. The
Institute is a national association, having as its members, as
of October 1, 1966, 177 open-end management investment
companies and their 88 investment advisers and 78 princi-
pal underwriters. Together, the open-end management in-
vestment companies which are members of the Institute
have assets of about $32 billion, representing about 93 per-
cent of the assets of all such companies in the United States,
and have approximately 4 million shareholders.
3. Open-end management investment companies, as de-
fined by the Investment Company Act of 1940, 15 U.S.C.
$$ 80a-3—80a-4, are commonly referred to as “mutual funds”.
Virtually all mutual funds are engaged in the business of
continuously issuing securities which represent an undivided
interest in the fund’s assets. Most mutual funds are corpo-
—
24
rate in form and the securities issued by them usually con-
sist of capital stock. There are, however, a number of
mutual funds in a variety of noncorporate forms, and the
securities issued by some of them are variously denominated
as “beneficial interests,” “participating agreements,” and
the like. The proceeds from the sale of the securities issued
by the fund are invested in a portfolio of securities of var-
ious kinds, in accordance with the stated investment policy
of the particular fund. Some funds invest primarily in se-
curities offering current income; others concentrate on long-
term growth securities; still others specialize in particular
industries or classes of securities; and many offer various
combinations of objectives. The shareholder in a mutual
fund is entitled at any time to redeem his interest, usually
at net asset value, or in a few cases upon payment of a
modest charge. To facilitate this redemption privilege, as
well as to establish a price at which new shares are being
offered, the value of a share in a mutual fund is calculated
regularly, typically twice daily, on the basis of the market
value of the securities held by the fund. This continuous
process of redemption would restrict and contract the size
of the mutual fund unless it continuously issued and offered
new securities for sale. Virtually no shares in mutual funds
are traded from one investor to another, and there is no
significant trading market for such shares. In almost all
cases, shareholders in mutual funds desiring to obtain cash
for their shares redeem them with the issuing company.
4. The securities issued by most mutual funds are of-
fered to the public at a price which includes a sales com-
mission (or sales load). There are, in addition, a significant
number of mutual funds whose shares are sold with no
sales commission charged. Such funds are frequently called
“no-load” mutual funds. The mutual fund members of the
Institute include 23 “no-load” funds.
5. The activities of mutual funds are under the control
of a board of directors or board of trustees. Directors and
trustees are elected annually by the vote of a majority of
the fund’s outstanding voting securities. Mutual funds usu-
ETI I ae NE NOS FN RS
25
ally contract with an outside investment adviser for in-
vestment advice and other management services, and with
a principal underwriter for the distribution of the fund’s
shares, pursuant to the statutory pattern established by the
Investment Company Act of 1940, 15 U.S.C. § 80a-15, et
seq.
6. The investment adviser of a mutual fund furnishes ad-
vice to the fund with respect to its investment portfolio and
the securities it should buy, hold, and sell. In some cases,
the adviser itself is empowered to purchase and sell securi-
ties for the fund. Typically, the investment adviser also
furnishes other supervisory and administrative services to
the mutual fund. The investment adviser receives compen-
sation for its services, usually in the form of a fee based on
the total value of the assets being managed. Plaintiffs, In-
vestors Diversified Services, Inc., Investors Management
Company, Inc., and Wellington Management Company, all
serve as investment advisers to a number of mutual funds,
and each of said plaintiffs and all the mutual funds they
serve are members of the Institute.
7. The principal underwriter of a mutual fund is engaged
in the business of selling and distributing the securities issued
by the fund to the investing public through brokers or
dealers, or directly through the underwriters’ own salesmen,
or both. The principal underwriter either purchases the
securities issued by the fund for resale or acts as agent for
the fund in distributing the securities. Except in the case
of a no-load fund, the principal underwriter receives a fee
for its services, usually in the form of a portion of the sales
commission included in the selling price of the shares issued
by the mutual fund. Plaintiffs, Investors Diversified Ser-
vices, Inc., Hugh W. Long & Company, Inc., and Wellington
Management Company, all serve as principal underwriters
for a number of mutual funds, and all those plaintiffs and
the mutual funds they serve are members of the Institute.
8. Each of the 177 mutual fund members of the Insti-
tute is registered with the Securities and Exchange Commis-
——_—_—e WE RRESSE RN A AS ST terra ee TIO WER Orig NRE ELNINO ENS
——
26
sion under the Investment Company Act of 1940. The
activities of the mutual funds and their relationships with
affiliated persons and others are all subject to detailed sup-
ervision and regulation under that Act. The investment
advisers and principal underwriters for each mutual fund,
including the investment advisers and principal underwriters
who are plaintiffs herein, perform their services for the
mutual funds they serve pursuant to contracts, the terms,
execution and continuation of which are subject to the
provisions of Section 15 of the Investment Company Act,
15 U.S.C. § 80a-15.
9. The securities issued by each of the mutual fund
members of the Institute are registered with the Securities
and Exchange Commission pursuant to the Securities Act
of 1933. All such securities are offered to the investing
public by means of a prospectus which is initially filed with
the Securities and Exchange Commission under the Securities
Act as part of the registration statement for the securities to
which the prospectus relates. See, for example, the following
prospectuses for the sale of mutual fund shares:
Prospectus dated January 5, 1966 for Investors M utual,
Inc., one of the mutual funds for which plaintiff, Investors
Diversified Services, Inc., acts as principal underwriter. (Ex-
hibit 1).°
Prospectus dated April 1, 1966 for Fundamental Investors.
Inc., one of the mutual funds for which plaintiff, Hugh W.
Long & Company, Inc., acts as principal underwriter.
(Exhibit 2).
Prospectus dated April 1, 1966, supplemented November
1, 1966, for Wellington Fund, Inc., one of the mutual funds
for which plaintiff, Wellington Management Company, acts
as principal underwriter. (Exhibit 3).
“This Exhibit and all other Exhibits herein referred to are annexed
to the Affidavit of James F. Fitzpatrick, filed in support of plaintiffs’
motion for summary judgment in this action.
aE a Di RR A A a ek ke ae a ta etal i ae Reso a
27
10. Since the passage of the Investment Company Act
of 1940, the mutual fund business has enjoyed a period of
substantial growth and active competition. During that
period, the number of mutual fund members of the Insti-
tute has grown from 68 to 177, as of October 1, 1966; the
number of shareholder accounts in mutual funds has grown
from about 296,000 to 7,500,000; and the total investment
by the public in such funds has grown from approximately
$448,000,000 to $32,000,000,000. A broad variety of in-
vestment plans are available to the investing public, and the
many mutual funds operating throughout the country are
in vigorous competition. As of October 1, 1966, it is esti-
mated that at least 1 million or about 25 percent, of the
estimated 4 million mutual fund shareholders had holdings
of $10,000 or more.
11. Prior to 1962, the statutory authority to regulate
the fiduciary activities of national banks was vested in the
Federal Reserve Board. Under its regulations and rulings,
national banks were not permitted to operate a commingled
fund as a general investment median. In September 1962,
authority to regulate fiduciary activities was shifted to the
Comptroller of the Currency, 76 Stat. 668, 12 U.S.C. § 92a.
Shortly thereafter, the Comptroller issued a notice of pro-
posed rule-making, concerning the promulgation of regula-
tions which would permit banks to maintain collective
investment funds as investment media and to offer shares
in such funds to the public. In response to the Comptrol-
ler’s invitation, the Institute submitted a statement opposing
these regulations. On April 5, 1963, the Comptroller issued
revised Regulation 9 effecting the proposed change. The
regulation was amended by the Comptroller on January 31,
1964. 12 C.F.R. $9.18.
12. On May 10, 1965, the Comptroller approved the
plan submitted by First National City Bank of New York
(“First National City”) for the establishment and operation
of a collective investment fund, called the Commingled In-
vestment Account, under Regulation 9. On August 25,
>... ; RRMA DTS MIRA EONS WAL ER A os ny wR SIN ee anes Ey here
—
28
1965, the Comptroller issued a statement that Regulation
9 would be amended to provide general authorization for
other banks to establish funds similar to the fund created
by First National City. At the time of the approval of
First National City’s plan, and to date, no state bank sub-
ject to the laws of the state of New York has Operated a
collective investment fund as a general investment medium.
13. On April 20, 1966, First National City registered its
Commingled Investment Account with the Securities and
Exchange Commission pursuant to the Investment Company
Act as an open-end management investment company. On
the same date, First National City filed a registration state-
ment with the Securities and Exchange Commission pursu-
ant to the Securities Act of 1933 for the purpose of regis-
tering the securities to be issued by its Commingled
Investment Account. The registration statement concerning
those securities became effective on June 14, 1966. Since
then First National City has offered and sold to the invest-
ing public the securities issued by the Commingled Invest-
ment Account by means of the prospectus for First National
City’s Commingled Investment Account, dated June 14,
1966. (Exhibit 12).
14. By his promulgation of Regulation 9 and his ap-
proval of the plan submitted by First National City for
its Commingled Investment Account, the Comptroller has
authorized national banks to enter the securities business
in direct unlawfui competition with the mutual fund
members of the Institute and in direct unlawful competition
with their investment advisers and principal underwriters.
15. The Glass-Steagall Act of 1933 contained a number
of provisions designed to separate commercial banking from
the securities business, Ch. 89, 48 Stat. 162 (1933). The
Federal Reserve Board has statutory authority to administer
Section 32 of the Glass-Steagall Act, 48 Stat. 194 (1933),
as amended, 49 Stat. 709 (1935), 12 U.S.C. § 78 (1964),
which prohibits an officer, director, or employee of a na-
tional bank or other bank which is a member of the Federal
29
Reserve System from serving in a similar capacity in a com-
pany primarily engaged, among other things, in issuing
stocks, bonds, or similar securities. The Federal Reserve
Board has ruled on a number of occasions that mutual
funds are primarily engaged in issuing securities within the
meaning of Section 32 of the Glass-Steagall Act. Accord-
ingly, the Board has on several occasions rejected requests
by the Institute and by some mutual funds that bank of-
ficers or directors be permitted to serve on the board of
directors of mutual funds.
16. The Bank-sponsored collective investment funds,
which are permitted under Comptroller’s Regulation 9, are
virtually identical in function and structure to mutual funds.
The SEC has recognized this and has insisted that all bank
mutual funds must be registered under the Investment Com-
pany Act and that all participations in such funds must be
registered as securities under the Securities Act of 1933.
The Comptroller has sanctioned and encouraged such funds
and such securities to be so registered with the Securities
and Exchange Commission.
17. The collective investment funds authorized by Re-
gulation 9, and exemplified by First National City’s Com-
mingled Investment Account, are identical to existing
mutual funds in the following respects, among others: they
are registered as open-end management investment compa-
nies with the Securities and Exchange Commission under
the Investment Company Act; participations in them are
registered as securities under the Securities Act of 1933;
they are in the business of continuously issuing such securi-
ties; the proceeds of the sale of such securities are brought
together and invested in the portfolio of securities owned
by the fund.
18. The rights acquired by an investor in a_bank-
sponsored collective investment fund such as First National
City’s Commingled Investment Account are identical to the
rights of an investor in a mutual fund in the following re-
spects: the investor has an undivided interest in the fund’s
~<a
30
portfolio of securities; the investor has the right to redeem
his securities in the fund at any time, i.e., to withdraw his
share of the undivided assets in the fund in cash based on
net asset values; investors annually elect a board of direc-
tors to oversee the affairs of the fund and, specifically, to
decide whether the contract of the investment adviser
should be renewed.
19. The potential customers who will be offered partici-
pations in a Bank-sponsored collective investment fund, in-
cluding the potential investors in First National City’s fund,
are all potential customers for shares in the mutual funds
issued by the mutual fund members and sold by the prin-
cipal underwriter members, of the plaintiff Institute.
20. The large-scale entry of banks into the mutual fund
business would have an adverse effect on what is now an ef-
ficient and highly competitive industry. Total sales volume
for the year 1965 for all Institute members was approxi-
mately $4.4 billion. The distribution of these sales was
such that no single mutual fund member of the Institute
sold as much as 9 percent of the total. In New York State
during the same year, Institute members sold approximately
$567 million of mutual fund shares.
21. On information and belief, First National City has
approximately 160 branches in New York City and the
surrounding areas in New York State. Each such branch
is an Outlet for the securities issued by the Bank’s Commin-
gled Investment Account. Virtually every branch bank of-
ficer will be, in effect, a mutual fund salesman.
22. On information and belief, First National City is
soliciting sales of participations in its Commingled Invest-
ment Account in New York State and elsewhere, in compe-
tition with members of the Institute, by mailing the
Prospectus for its Commingled Investment Account (Exhi-
bit 12) with a solicitation letter (Exhibit 14) to its
customers.
23. Despite the prohibition contained in the Glass-
Steagall Act of 1933, 48 Stat. 162, as amended, codified
BLASER NEE EN IOS NTT SN HATS APATITE REMIT RI OS EAN pees
31
in 12 U.S.C., other large banks in New York City and else-
where will inevitably enter the mutual fund business,
following the lead of First National City, unless the relief
requested by plaintiffs is granted.
24. Institute members, in their attempts to sell the
shares issued by the mutual fund members of the Institute,
will be faced with increasing direct and unlawful competi-
tion from banks—competition which cannot fairly be met
in the market-place since banks are in a position to use lists
of their depositors and other customers to solicit sales. Such
depositors and customers will daily be present in large num-
bers on the bank’s premises to conduct banking business.
Entry by banks into the mutual fund industry will, I believe,
create unlawful competition and will result in substantial
economic injury to the lawful business of the members of
the Institute.
/s/ Robert L. Augenblick
[Jurat Omitted in Printing]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Title Omitted in Printing]
AFFIDAVIT OF JOHN R. HAIRE IN SUPPORT
OF PLAINTIFFS’ MOTION FOR
SUMMARY JUDGMENT
(Filed November 30, 1966)
STATE OF NEW er ae
COUNTY OF UNION
JOHN R. HAIRE, being first duly sworn, deposes and says
as follows:
1. I am a director of Investors Management Company,
Inc., and a director of Hugh W. Long and Company, Inc.,
—
32
both plaintiffs in this action. I submit this affidavit in sup-
port of plaintiffs’ motion for summary judgment herein.
2. Plaintiff Investors Management Company is incorpo-
rated under the laws of the State of New Jersey and has its
office and principal place of business at Elizabeth, New
Jersey. Plaintiff Hugh W. Long & Company is incorporated
under the laws of the State of Nevada and has its office and
principal place of business at Elizabeth, New Jersey. Pur-
suant to the requirements of Section 15 of the Investment
Company Act of 1940, 15 U.S.C. § 80a-15, Investors Man-
agement Company acts as investment adviser, and Hugh W.
Long & Company acts as principal underwriter, to the fol-
lowing open-end investment companies (hereinafter called
“mutual funds”): Fundamental Investors, Inc.; Diversified
Investment Fund, Inc.; and Diversified Growth Stock Fund,
Inc. Investors Management Company, Hugh W. Long &
Company, and each of the said mutual funds are members
of the plaintiff Investment Company Institute.
3. Each of the said mutual funds is engaged in the busi-
ness of continuously issuing and offering to the public re-
deemable securities which represent an undivided interest
in the portfolio of securities owned by the fund. The
activities of these funds are conducted, and their relation-
ships to their principal underwriter and investment adviser
are established, pursuant to the requirements of the Invest-
ment Company Act of 1940 under the jurisdiction of the
Securities and Exchange Commission.
4. There are more than 250,000 investors in the said
mutual funds. Securities of each fund are offered for sale
and sold throughout the nation by independent broker-
dealers who purchase such shares from Hugh W. Long and
Company as principal underwriter. As of June 30, 1966,
the total assets of the three funds were approximately $1,-
510,000,000. During the first nine months of 1965, about
77.4 percent of the dollar volume of new sales were in
amounts of $10,000 or more. .
: PRE REPRAOT AUER CREM UR se
PRS RIN GAMO TSH IRR REY Ma RAE tee CNBC INARE BI Ga Re MSDS STREET ARE PRG HT RORY INR
33
5. In 1965, shares of these three mutual funds having
a total combined value of approximately $15,486,000 were
sold in New York State. During the first six months of
1966, such total sales were approximately $8,900,000 in
New York State.
6. As is set forth in detail in the Affidavit of Robert a
Augenblick, filed simultaneously herewith, the bank-operated
collective investment funds authorized by Regulation 9 of
the Comptroller of the Currency, and exemplified by the
Collective Investment Account of First National City Bank
of New York, are virtually identical in function and struc-
ture to mutual funds of the type which Investors Manage-
ment Company and Hugh W. Long & Company serve. By
permitting national banks to establish and Operate such
funds, and permitting such banks and their employees to
offer and sell the securities issued by them, the Comptroller
has permitted banks to enter the securities business in di-
rect, unlawful competition with existing mutual funds and
their investment advisers and principal underwriters, includ-
ing Investors Management Company, Hugh W. Long &
Company, and the mutual funds they serve. Moreover, by
authorizing First National City Bank of New York to create
its Collective Investment Account, and to offer and sell se-
curities issued by such Account in the City and State of
New York, the Comptroller has permitted that Bank and
its Account to engage in direct, unlawful competition in
that City and State with Investors Management Company,
Hugh W. Long & Company, and the mutual funds they
serve. The direct, unlawful competition authorized by the
Comptroller’s regulations and subsequent rulings will ad-
versely affect the business of Investors Management Com-
pany, and Hugh W. Long & Company, in the City and State
of New York and throughout the country.
/s/ John R. Haire
[Jurat Omitted in Printing]
LH xe eee
34
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Title Omitted in Printing]
AFFIDAVIT OF JOSEPH E, WELCH IN
SUPPORT OF PLAINTIFFS’ MOTION
FOR SUMMARY JUDGMENT
(Filed November 30, 1966)
STATE OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
JOSEPH E. WELCH, being first duly sworn, deposes and
says as follows:
1. Iam President of Wellington Management Company,
a plaintiff in this action. On October 31, 1966 Wellington
Company, Inc., which was also a plaintiff in this Action,
was merged into Wellington Management Company. I sub-
mit this affidavit in support of plaintiffs’ motion for sum-
mary judgment herein.
2. Plaintiff Wellington Management Company is incorpo-
rated under the laws of the State of Delaware and has its
office and principal place of business at Philadelphia, Penn-
sylvania. Pursuant to the requirements of Section 15 of the
Investment Company Act of 1940, 54 Stat. 812, 15 U.S.C.
Sec. 80a-15, Wellington Management Company acts as in-
vestment adviser and principal underwriter, to the following
open-end investment companies (hereinafter called “mutual
funds”): Wellington Fund, Inc. and Windsor Fund, Welling-
ton Management Company and each of the said Mutual
funds are members of the plaintiff Investment Company
Institute.
3. Each of the said mutual funds is engaged in the busi-
ness of continuously issuing and offering to the public
redeemable securities which represent an undivided interest
in the portfolio of securities owned by the fund. The ac-
tivities of these funds are conducted, and their relationships
to their principal underwriter and investment adviser are
35
established, pursuant to the requirements of the Investment
Company Act of 1940 under the jurisdiction of the Securi-
ties and Exchange Commission.
4. There are more than 375,000 investors, residing
throughout the United States, in the said mutual funds.
Securities of each fund are offered for sale and sold through-
out the nation. As of June 30, 1966, the total assets of the
two mutual funds were approximately $2,017,000,000.
During February, 1966, about 56.5 percent of the dollar
volume of new sales were in amounts of $10,000 or more.
5. In 1965, shares of the said mutual funds having a
total combined value of approximately $24,990,000 were
sold in New York State. During the first six months of
1966, such total sales were approximately $8,691,000 in
New York State.
6. As is set forth in detail in the Affidavit of Robert L.
Augenblick, filed simultaneously herewith, the bank-operated
collective investment funds authorized by Regulation 9 of
the Comptroller of the Currency, and exemplified by the
Collective Investment Account of First National City Bank
of New York, are virtually identical in function and struc-
ture to the Wellington Fund and Windsor Fund. By permit-
ting national banks to establish and operate such funds and
permitting such banks and their employees to offer and sell
the securities issued by them, the Comptroller has permitted
banks to enter the securities business in direct unlawful
competition with existing mutual funds and their invest-
ment advisers and principal underwriters, including Welling-
ton Management Company, and the mutual funds it serves.
Moreover, by authorizing First National City Bank of New
York to create its Collective Investment Account, and to
offer and sell securities issued by such Account in the City
and State of New York, the Comptroller has permitted that
Bank and its Account to engage in direct unlawful compe-
tition in that City and State with Wellington Management
Company and the mutual funds it serves. The direct un-
lawful competition authorized by the Comptroller's regula-
tions and his subsequent rulings will adversely affect the
——e use
Pee ee
———
36
business of Wellington Management Company in the City
and State of New York and throughout the country.
/s/ Joseph E. Welch
[Jurat Omitted in Printing]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Title Omitted in Printing]
AFFIDAVIT OF STUART F. SILLOWAY IN
SUPPORT OF PLAINTIFFS’ MOTION
FOR SUMMARY JUDGMENT
(Filed November 30, 1966)
STATE OF MINNESOTA
COUNTY OF HENNEPIN
STUART F. SILLOWAY, being first duly sworn, deposes
and says as follows:
1. I am President and a director of Investors Diversified
Services, Inc. (“IDS”), a plaintiff in this action. I submit
this affidavit in support of plaintiffs’ motion for summary
judgment herein.
2. IDS is incorporated under the laws of the State of
Minnesota and has its office and principal place of business
at Minneapolis, Minnesota. It acts as investment adviser and
principal underwriter, pursuant to the requirements of Sec-
tion 15 of the Investment Company Act of 1940, 15 U.S.C.
§ 80a-15, to the following open-end investment companies
(hereinafter called “mutual funds”): Investors Mutual, Inc:
Investors Stock Fund, Inc.; Investors Variable Payment
Fund, Inc.; and Investors Selective Fund, Inc. IDS and
each of the said mutual funds are members of the plaintiff
Investment Company Institute.
37
3. Each of the said mutual funds is engaged in the busi-
ness of continuously issuing and offering to the public re-
deemable securities which represent an undivided interest
in the portfolio of securities owned by the fund. The ac-
tivities of these mutual funds are conducted, and their
relationships to IDS as principal underwriter and investment
adviser are established, pursuant to the requirements of the
Investment Company Act under the jurisdiction of the Se-
curities and Exchange Commission.
4, There are more than three-quarter million investors,
residing throughout the United States, in the mutual funds
served by IDS. Securities of each fund are offered for sale
and sold throughout the nation. As of June 30, 1966, the
total assets of the four mutual funds were approximately
$5,173,000,000. During 1965 about 46.3 percent of the
dollar volume from new customers were in amounts of
$10,000 or more.
5. In 1965, shares of the four mutual funds served by
IDS having a total combined value of approximately $24,-
187,000 were sold by IDS in New York State. During the
first six months of 1966, such sales totaled approximately
$18,218,000 in New York State.
6. As is set forth in detail in the Affidavit of Robert L.
Augenblick, filed simultaneously herewith, the bank-
operated collective investment funds authorized by Regula-
tion 9 of the Comptroller of the Currency, and exemplified
by the Collective Investment Account of First National City
Bank of New York, are virtually identical in function and
structure to mutual funds of the type which IDS serves and
the shares of which IDS sells. By permitting national banks
to establish and operate such funds, and permitting such
banks and their employees to offer and sell the securities
issued by them, the Comptroller has permitted banks to
enter the securities business in direct unlawful competition
with existing mutual funds and their investment advisers and
principal underwriters, including IDS and the four mutual
funds it serves, Furthermore, by specifically authorizing
POTN TTI Ae EEE OCT A LTS NAT hy ROR EAD
a
38
First National City Bank of New York to establish and op-
erate its Collective Investment Account and to offer and
sell securities issued by such Account in the City and State
of New York, the Comptroller has permitted that Bank to
engage in direct unlawful competition in that City and State
with IDS and the four mutual funds it serves. The direct
unlawful competition authorized by the challenged regula-
tion and subsequent actions of the Comptroller will
adversely affect the sale by IDS of the shares issued by the
four mutual funds it serves in the City and State of New
York and throughout the country.
/s/ Stuart F. Silloway
{[Jurat Omitted in Printing]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Title Omitted in Printing]
AFFIDAVIT OF ADRON P. TRANTUM IN
SUPPORT OF PLAINTIFFS’ MOTION
FOR SUMMARY JUDGMENT
(Filed November 30, 1966)
STATE OF NEW JERSEY
SS:
COUNTY OF UNION
ADRON P. TRANTUM, being first duly sworn, deposes and
says as follows:
1. Iam Senior Vice President of Investors Management
Company, Inc., a plaintiff in the above-entitled action. |
submit this affidavit in support of plaintiffs’ motion for
summary judgment herein.
2. Investors Management Company throughout its history
has had several changes in its corporate name and has been
reincorporated on several occasions. I have been employed
a ene ee
39
by the company under its various names since September
18, 1929.
3. On June 16, 1934, the date on which the provisions
fo the Glass-Steagall Act, 48 Stat. 184, 12 U.S.C. § 78, be-
came effective, plaintiff Investors Management Company,
Inc. was named Irving Investors Management Company, Inc.,
and was a wholly-owned subsidiary of Irving Trust Company,
a bank chartered by the State of New York and a member
of the Federal Reserve System. Irving Investors Manage-
ment Company was then engaged in the business of provid-
ing services to investment companies. Among its activities,
it served as underwriter and investment adviser to Irving
Investors Fund C, Inc.
4. Irving Investors Fund C, Inc. was a corporation of a
type similar to that generally classified today as an open-
end investment company or mutual fund. It issued to in-
vestors shares representing an undivided interest in a pool
of securities. The investor could redeem such shares at any
time based on the net asset value of his shares at the time
of redemption. A substantial number of the shares in this
fund had been offered and sold to the customers of Irving
Trust Company by the bank and its officers.
5. In October, 1934, Irving Trust Company divested it-
self of the capital stock of its wholly-owned subsidiary, Ir-
ving Investors Management Company, and thereby also
disposed of its entire interest in Irving Investors Fund C.
Thereafter, Irving Trust Company had no further connection
with the distribution of the shares of that fund or with the
management thereof. In a letter dated October 5, 1934,
Robert C. Effinger, President of Irving Investors Manage-
ment Company, announced to the participants in several
funds, including Irving Investors Fund C, that this decision
of Irving Trust Company had been made “(i)n consequence
of certain provisions of the Banking Act of 1933 and recent
rulings of the Federal Reserve Board made pursuant thereto
... A true copy of said letter is attached hereto as Ap-
pendix A.
(nalts aes
PISA NCIIES A BON A ee pil aia a
NES RA ata ib DAS iS 5 a Aes iy bs 5
; .
6. After divestiture by Irving Trust Company, the cor-
porate name of Irving Investors Management Company, Inc.
was changed on several occasions and the company was re-
incorporated several times. Its present name is Investors
Management Company, Inc., and it is now incorporated
under the laws of the State of New Jersey.
7. On December 17, 1934, the name of Irving Investors
Fund C, Inc. was changed to Investors Fund C, Inc. In
1954 Investors Fund C, Inc. was merged into Fundamental
Investors, Inc., one of the mutual funds for which Investors
Management Company, Inc. now serves as investment ad-
viser.
/s/ Adron P. Trantum
{Jurat Omitted in Printing]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
[Title Omitted in Printing]
AFFIDAVIT OF JAMES F. FITZPATRICK IN
SUPPORT OF PLAINTIFFS’ MOTION
FOR SUMMARY JUDGMENT
(Filed November 30, 1966)
THE DISTRICT OF es
COLUMBIA
JAMES F. FITZPATRICK, being first duly sworn, deposes
and says as follows:
That annexed to this affidavit are true and correct copies
of the following documents:
Exhibit 1. Prospectus for Investors Mutual, Inc., dated
January 5, 1966.
Exhibit 2. Prospectus for Fundamental Investors, Inc.,
dated April 1, 1966.
Exhibit 3.
Exhibit 4.
Exhibit 5.
Exhibit 6.
Exhibit 7.
Exhibit 8.
Exhibit 9.
41
Prospectus for Wellington Fund, Inc., dated
April 1, 1966, supplemented November 1, 1966.
Statement of the Comptroller of the Currency,
dated August 25, 1965.
Notification of Registration filed by Commin-
gled Investment Account of First National City
Bank with the Securities and Exchange Com-
mission pursuant to the Investment Company
Act of 1940, including Exhibit No. 1 thereto.
Registration Statement of Commingled Invest-
ment Account of First National City Bank
(Form N-8B-1), filed with the Securities and
Exchange Commission April 20, 1966, which
incorporated exhibits, including the documents
designated Exhibits 7, 8, 9, and 10, described
immediately hereafter.
Specimen of Participant’s Certificate issued
upon admission to First National City’s Account
(filed as Exhibit 4(a) to the Account’s Regis-
tration Statement under the Investment Com-
pany Act and as Exhibit C-1 to the Account’s
Registration Statement under the Securities Act
of 1933, Form S-5).
Specimen of Participant’s Certificate upon par-
tial termination of participation in First Na-
tional City’s Account (filed as Exhibit 4(b)
to the Account’s Registration Statement under
the Investment Company Act and as Exhibit
C-2 to the Account’s Registration Statement
under the Securities Act of 1933, Form S-5).
Management agreement between the Account
and First National City Bank (filed as Exhibit
5 to Account’s Registration Statement under
the Investment Company Act and as Exhibit
D to the Account’s Registration Statement
under the Securities Act of 1933, Form S-5).
42
Exhibit 10. Underwriting agreement between Account and
First National City Bank (filed as Exhibit 6 of
the Account’s Registration Statement under the
Investment Company Act and as Exhibit E to
the Account’s Registration Statement under the
Securities Act of 1933, Form S-5).
Exhibit 11. Amendment No. | to Registration Statement,
under the Investment Company Act, of Com-
mingled Investment Account of First National
City Bank, filed May 23, 1966.
Exhibit 12. Prospectus for Commingled Investment Account
of First National City Bank, dated June 14,
1966.
Exhibit 13. Notice of Annual Meeting of Participants and
Proxy Statement for Commingled Investment
Account of First National City Bank, dated Oc-
tober 14, 1966.
Exhibit 14. Solicitation letter of First National City Bank
for participation in Commingled Investment
Account undated.
/s/ James F. Fitzpatrick
[Jurat Omitted in Printing]
ROI oe EEE ET FES PEL SRLS A RA ILE POG EAT TS EMAL TI OS
43
of Columbia]
FILED
NOV 30 1966
ROBE! ii. SicanviS, CLERK
WCHSHAS
MUTUAL, INC.
PROSPECTUS / January 5, 1966
[Exhibit 1 to Affidavit of James F. Fitzpatrick Civ. Act.
No. 1083-66 United States District Court for the District
Investors Mutual, Inc. is a mutual investment
fund, with net assets now in excess of
$2,900,000,000, invested in a prudently
selected, diversified portfolio of securities,
balanced among bonds, common stocks and
preferred stocks.
Shares of the Company are distributed
by Investors Diversified Services, Inc., or-
ganizer and investment manager of the
Company. This firm, founded in 1894, now
manages over $5,500,000,000 in market
value of investment securities for investment
companies whose securities are held by
more than 900,000 investors.
The shares are offered to the public at
their net asset value, ordinarily determined
daily, plus a maximum sales charge of 8%
of the public offering price. The sales charge
is reduced on a graduated scale for sales
involving large amounts as more fully de-
scribed in numbered section 14 of this pro-
spectus. Asset value varies with the fluctua-
tions in the market value of the securities
owned by the Company.
THESE SECURITIES HAVE NOT BEEN AP-
PROVED OR DISAPPROVED BY THE SE-
CURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
SERIES AA
TABLE OF CONTENTS
References are to numbered sections unless otherwise noted
44
Custodian
Directors and Principal
Diversification .
Dividends
Dividends, Reinvestment
Financial Statements .
Illustrations of Assumed Investment
Investment Policies
Investment Restrictions .
Management Fees .
Marketability
Miscellaneous .
Portfolio, Management o
Portfolio, Securities in .
Remuneration and Fees .
Sales Charge
Shares, Distribution of .
Shares, Offering Price of .
_ Shares, Redemption of .
Systematic Investment Plan .
Systematic Pay-Out Options .
Taxation.
Transfer of Investments .
.
t Programs .
Investors Diversified Services, Inc.. . . . 20
er
ae
eee es y:
. 4, 6(b), 11
5, 3,9
7(a), 9
. Pages 24 thru 46
. 10
4, 6, 11
. mM
ee
7(b), 16
mm
. 2, 4, 6(b), 11, 18
. Pages 29 thru 46
15, 18
. 14, Front Page
14, 15
. 14, Front Page
. 7(b), 16
5
ke eee
14(b), 22(g)
. 7(c), 12
Investors Mutual, Inc. does not authorize or assume responsibility for any information
or representations regarding Investors Mutual, Inc. other than those contained in this
or in any
thereto, or in any
| sales material
prospectus,
authorized by the Company for use in connection with the sale of its stock.
INVESTORS MUTUAL, INC.
| MINNEAPOLIS
About the Prospectus
vestment needs.
(CAREFULLY.
invesrors Mutuvai- Wee is tr?
Investors Mutual, Inc. is a company which in-
ests its money primarily in the securities of American
ises. In other words, it is an investment com-
ny Of, as it is sometimes known in investment
rms, a “mutual fund.” Its purpose is to provide
ersons having varying amounts of money to invest,
h a way to combine their investment funds and,
brough the medium of one security, share in the
wsiness Of a large number of companies within dif-
y'avestmen? Morwoege mene
. }
a]
$F
45
MINNESOTA
is Prospectus has been prepared to give you the material facts about Investors Mutual, Inc., so that you
intelligently decide whether or not an investment in this Company is the kind which will best fit your
‘ these pages you will find facts and figures concerning the Company; its operating results; its investment
ictions and policies; and the rights and privileges of its shareholders. WE URGE YOU TO READ IT
ferent industries.
Because it invests not only in the common stock
of such companies but also in preferred stocks and
bonds, it is known as a “balanced mutual fund.”
These investments are not fixed. As explained
later, they are chosen, supervised and changed on
the recommendation of Investors Diversified Serv-
ices, Inc. This company is, by contract, the invest-
ment manager of the fund.
Investors Diversified Services, Inc., the Fund's
panizer, sponsor and investment manager, was ¢s-
lished in 1894. It manages investments for five
pen-end investment companies, for its own account,
for the accounts of its subsidiary companies. It
s a large staff of investment specialists with many
tars of experience in investment management. It
intains extensive facilities for financial and eco-
pic research and analysis. Analysts trained in spe-
ized fields (such as public utilities, railroads, oils,
‘s a SRT RE. See ate
PEER RES DOTA, Bg HN
chemicals, etc.) are continually studying and evaluat-
ing the companies in which investments are made or
contemplated. Visits to production and cperating
centers of these companies and “on the spot” talks
with their managers are part of the system upon which
the analysts base their reports and recommendations.
Shareholders of Investors Mutual, Inc. have the
benefit of these comprehensive management services.
Whether a person has enough money to buy a few
or many securities, he very probably does not have
BLP TAIT ee IR A Np gp ET
the time, experience and knowledge necessary to de-
cide properly which securities are best to buy, when
to buy or sell them, and at what prices. Seasoned in-
vestment management helps to solve this perplexing
problem by supplying the services of an organization
of trained and skilled specialists who make invest-
ments their life work and devote full time to dealing
with the many aspects involved in the investment
of money. By pooling the funds of many thousands
of investors throughout the nation, the Company is
able to provide the average investor, on a reasonable
basis, with services and facilities which at one time
only wealthy investors and large estates could afford.
These services are paid for by a management fee to
Investors Diversified Services, Inc. as set forth in
section 18.
Allocation of Brokerage on Fund
Portfolio Transactions
Investors Diversified Services, Inc., the Com-
pany’s investment manager, now manages Over
$5,500,000,000 in market value of investment secur-
ities for the investment companies whose securities
it distributes, including Investors Mutual, Inc. This
large scale operation permits the investment man-
ager, in connection with portfolio transactions of
the fund companies handled through brokers, to
obtain the maximum in the way of the services and
facilities offered by leading investment brokerage
houses. The investment manager normally places
purchase and sale orders for most New York Stock
Exchange common stocks through one member house
(Scheffmeyer & Co.) which receives a fixed fee pay-
able out of aggregate commissions. This firm distrib-
utes brokerage commissions to a large number of
member firms (currently around 50 firms), in a fashion
designed to obtain the best price and execution, as
directed by the investment manager in a manner which
seeks to give recognition to those member firms
which are capable of rendering services and which,
over time, do provide serv: es to the investment
manager over and above the bare brokerage function
although this is not an absolute standard since some
business may be distributed solely on the basis of
46
point of any individual Fund investor.
the best business judgment of the investment mang’
The distribution of such brokerage business jis de
mined from time to time by the investment mar
and reviewed by the Board of Directors of the F
The distribution is made with a view to 0
the maximum usefulness from the firms handi;
portfolio transactions. Such services may be in
of contributions made by such firms’ research
in supplementing, aiding, or otherwise helping the 1
search activities of the investment manager. ref
of direct placements, wire services, quotations,
tistical and economic data and reports, and other x
vices which large brokerage houses can and do ren
to important buyers and sellers of securities wit
extra charge. The only compensation paid these b
ers is the prescribed brokerage commissions for
such stock exchange transactions which would hav
be paid by the funds in any event. Brokerage comm
sions paid by the Fund totaled $2,319,940 for
fiscal year ended September 30, 1965.
The Fund’s investment manager has organi
subsidiary corporation, IDS Securities Corpora
(“IDSS”) for the purpose of engaging in the b
age business. Effective August 31, 1965 IDS «
admitted as a member firm of the Pacific Coast
Exchange. As a member of that exchange, IDS
ceives brokerage from transactions executed on
exchange. Use of the services of IDSS by the f:
must be consistent with the objective of obts
best price and execution. The Fund’s investment
ager has confirmed to the Fund that an amount
to any net profit which IDSS may realize from ©
actions attributable to the Fund from all sources
be credited to the Fund, not less often than
as a reduction of the amounts otherwise due &
vestors Diversified Services, Inc. under the inves
advisory and services agreement between it a
Fund. A net profit of {55,053 attributable to t
tions of the Fund was realized during the three m
ended November 30, 1965. No representation is
that any future benefit which may accrue to the!
from such reduction will be significant from the
aa 5
PEATE IE EEE PR NE Pre
PLE DLYEI SEO
a
47
Condensed Financial information
PER SHARE INCOME AND CAPITAL CHANGES
(for a share outstanding throughout the years)
(Adjusted for 2-for-1 steck split on April 26, 1956)
Fiscal years ended
September » 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965
ee ae ee $40% $41 $41% $41 $424 $.43 $4444 $444, $45% $4714
Operatingexpenses . 2. 2... OS 04% 04% 05% 05% 06 .06 OSA O8% 04%
A ee ee 35% =.36%~—i7 35% 37 37 384% 38% 4% 42%
Dividends from net income... . . 35% 3% WH 3544 36% j37% 38% 239 40% 42%
Capital Chenges
Net asset value at beginning
Tee ee $9.08 $9.11 $8.55 $9.72 $10.18 $10.00 $11.58 $9.95 $11.35 $12.22
Net realized and unrealized
profits (or losses) on
Pet hs ke eM SO 184% (.48) 1.28% 684% (10%) 1.74% (1.28%) 160% 1.11% .32%
Distributions from realized
OS ee ISA O7H™_—s«d2M%_——sd22MH—CsiCi«COT C=C .20 244% .28%
Net asset valueatend of period . . . 9.11 8.55 9.72 10.18 10.00 11.58 9.95 11.35 12.22 12.26
Ratio of operating expenses to
average net assets 0.54% 0.54% 0.54% 0.53% 0.53% 0.54% 0.52% 0.50% 044% 0.38%
Ratio of net income to average
EE A 4 es 8 ke 3.87% 4.03% 4.13% 3.40% 3.62% 3.34% 345% 3.53% 344% 3.530%
Number of shares outstanding
oe eee 104,715 116,890 125,301 138,565 150,448 159,255 172,740 191,987 214,535 239,927
(000 omitted)
4 investment Objectives and Policies
Objectives sought by the Company are: (1) to
provide a reasonable return on its shareholders’ in-
vestments; (2) to preserve the value of these invest-
ments; (3) to aim at long-term appreciation possibil-
ities on an investment rather than a speculative basis.
Because virtually all securities fluctuate in market
price and corporate earnings and dividends vary from
year to year, it is impossible for the Company to as-
sure its shareholders that these objectives can be
realized at all times. However, to attain them, the
Management exerts every effort to maintain a bal-
anced portfolio by varying the proportions of bonds,
preferred stocks and common stocks which are ap-
praised in the light of security values and long-term
economic trends. Under certain conditions a major
portion of the Company's assets may be invested in
equity securities such as common stocks. And there
may be times when the Company will assume a de-
fensive position by investing a large part in securities
such as fixed interest-bearing bonds and preferred
stocks with established dividend rates. The present in-
tention of the management is that generally the Com-
pany will have not more than 75% of its investments
in common stocks and not less than 25% in bonds,
preferred stocks and short term notes.
At September 30, 1965, investments, taken at
market value, were distributed as follows: short term
notes 2.30%, bonds 27.19%, preferred stocks
6.70% and common stocks 63.81%.
Investments are not concentrated in any one in-
48
dustry or group of industries but are varied accord-
ing to what is judged advantageous under different
economic conditions. The portfolio is diversified by
investments in a cross section of business and indus-
try and frequently numerous companies within an
industry, in an effort to reflect a representative pattern
of American enterprise. Thus this “balance” of in-
vestments, plus the broad diversification, tends to
reduce the risk of market fluctuation and to provide
& reasonably reliable source of income for share-
holders. The Company does not intend to act as un-
derwriter, invest in real estate, purchase and sell
commodities or commodity contracts, make loans to
other persons (except by the purchase and sale of
Dividends and Capital Gains Distributions
on a long-term basis. However, in order to pres
the full benefit of managerial judgment, the Ox»
pany reserves freedom of action with respect to px.
folio turnover and may sell any security regardks
of the length of time it may have been held. The Coe |”
pany does not engage in short term trading as sui|
|S =
The Company was organized in January, 1940
and since December 3ist of that year it has paid a
quarterly dividend to its shareholders. On September
29, 1965 the Company declared its 100th consecutive
quarterly dividend. Its income has varied in amount
and as a result the amount of dividends paki to its
shareholders has varied. See section 3.
The Company presently intends to continue its
policy of distributing, as dividends to shareholders
im each year, substantially all of its investment income
less operating expenses. Dividend checks are ordinan-
ly mailed to reach shareholders about the 14th of
January, April, July and October. These dividends
are payable to shareholders of record on or about the
last business day of the previous month. The fiscal
year-end dividend will be augmented by distributions
from realized capital gains when available.
A regulated investment company which meets cer-
tain diversification of assets and source of income
requirements (prescribed by the internal revenue
code) is accorded conduit or “pass through” treat-
ment if it distributes to its shareholders at least 90
per cent of its taxable income (exclusive of net
long-term capital gain); i.c., it will be taxed only on
the portion of such income which is retained. A
shareholder receiving a distribution of such ince
from a regulated enemas compute Gata hil
receipt of ordinary income in the 7
his gross income for federal tax purposes and se
shareholder is eligible to include it in computing &
dividend received exclusion and the intercorpons
dividend deduction.
As to capital gains distributions, to the :
that a regulated investment company distribute th)
excess of net long-term capital gain over its net shor
term capital loss, such capital gain is not taxable ef
the company but is taxable to the shareholder «7
long-term capital gain. Such capital gains distnty
tions do not qualify for the computation of the dv
dend received exclusion or the intercorporate avy
dend deduction.
Approximately 24% of the net asset value of &}
shares of Investors Mutual, Inc., as of September ¥
1965 represents unrealized appreciation. Net pe
on the sale of securities when realized and distribux
(actually or constructively) is taxable for federal»
come tax purposes as capital gain. If the net as
value of shares were reduced below a shareholder
cost by such a distribution it would be a retum
investment though taxable as stated above.
a
49
Features of the Investment
b - NATURE OF INVESTMENT
Investors Mutual, Inc. is a mutual, open-end,
i management investment company owned
its shareholders. Each share represents a pro-
interest in the assets of the Company. The Com-
y has only one class of stock. All shares are
have equal rights and are redeemable
ps explained in section 16. As of September 30, 1965,
were 239,926,645 shares outstanding owned by
429,985 shareholders.
(b) DIVERSIFICATION
Diversification is considered a basic virtue of an
investment company because it tends to reduce in-
herent market risks by spreading investments among
many carefully selected securities. In operating the
Company as a “balanced” fund, and in line with its
current appraisals of economic conditions, the man-
. intends to invest its assets in varied propor-
pons of bonds, preferred stocks and common stocks,
with not more than 75% in common stocks.
Within such general classification of types of se-
curities, the Company intends to diversify its invest-
ments in the following manner:
(1) Diversification as to types of enterprises.
(2) Diversification as to individual companies
within these enterprises.
(3) Geographical diversification.
The list of investments starting on page 29 illus-
trates how this policy of diversification is currently
applied by the Company.
(c) FLUCTUATION OF ASSET VALUE
The asset value of the shares varies with the daily
market value of the securities owned by the Com-
pany and may be more or less than the investor's
cost. As explained in sections 14 and 16, the shares
are ordinarily redeemable at asset value, and are
sold at asset value plus a maximum distribution
charge of 8% of offering price.
Privileges Extended to Shareholders
(2) DIVIDENDS AND CAPITAL
GAINS REINVESTED
The Company at the present time offers its share-
holders the privilege of reinvesting the dividends or
capital gains distributions they receive on their shares
in additional shares of the Company, without paying
another sales charge. See section 9.
(b) MARKETABILITY
Under ordinary circumstances, shares may be re-
deemed for cash at any time. Any shareholder may
wm in his shares to the Company and receive the
aset value per share (which may be more or less
than his cost) calculated at the close of business on
the first full business day upon which the Company
meeives the holder's endorsed stock certificate and
written request for redemption of his shares. This
privilege (and certain limitations thereon) is more
fully explained in section 16.
(c) INVESTMENTS IN FUNDS
INTERCHANGEABLE
Perhaps sometime in the future a shareholder may
want to change his investment in Investors Mutual,
Inc. to shares in another type of fund. Under the
present policy of the Company, as discussed later in
section 12, he is privileged to transfer his investment
at net asset value to investments in shares of In-
vestors Stock Fund, Inc., Investors Selective Fund,
Inc. or Investors Variable Payment Fund, Inc., and
he does not have to pay a sales charge for this service.
50
8 Systematic Investment Plan
Provision is made for a simple means of ac-
cumulating shares systematically through the Com-
pany’s “Systematic Investment Plan.” Under this plan,
the investor makes an initial cash investment, fol-
lowed at regular intervals by further payments in
convenient amounts. With each additional payment,
additional shares, the number of which is determined
by the then public offering price, are purchased for
his account. The investor may decide whether to
make these purchases monthly, quarterly or at any
other stated interval and may discontinue payments
at any time without penalty. All dividends and capital
gains distributions received on shares may be rein-
vested without sales charge towards the accumulation
of more shares (see section 9). The Fund reserves
the right to discontinue or alter the plan at any time.
This plan of purchase is simply a designation by
the applicant of the times at which he intends to make
further investments in shares of Investors Mutual,
Inc. He is not obligated or required to make any
single purchase pursuant to his expressed intention.
By adopting a plan, however, he establishes for him-
self a program by which he proposes to acquire at
stated intervals as many shares of the Fund as each
payment when made will then purchase at the then
public offering price.
The plan contemplates the regular investment at
fixed periods of an equal number of dollars in the
shares of the Fund. Since the shares fluctuate in
value this investment of an equal number of dollars
has the effect of causing the investor to buy more
shares when prices are low and fewer shares when
they are high. The investor will, of course, incur a
loss if he discontinues his plan and redeems his
Dividend Reinvestment Plan
shares when the market value of his shares j
than his cost thereof, Accordingly, in Selec
plan he should take into consideration his
ability to continue the plan through periods ¢
security market price levels. He must also
that the plan of itself does not assure a prt
Protect against loss of value in declining maria
The plan is not an option, warrant or nek
purchase additional shares and each payment fy
vestment under the declared plan is a separa:
Plication subject in each instance to acceptan:
rejection by the issuer. As shares are acquired
the plan, the purchaser becomes entitled to all
of a shareholder upon the shares he has
as of the date his original payment and each
sequent payment are received and accepted b
Company. As each payment is made and :
the Company gives the shareholder the proper
for all of his shares or fractional shares so
upon its books ui record. No certificate will be
until the registered shareholder asks for it o
Company at its own election issues a certificar
either case, the Company may include in suc
tificate the entire number of shares owned bs
shareholder. Shares purchased pursuant to the
are identical with all other shares of the C
(whether or not a certificate has been issued
them) and have all rights, including dividend,
dation and redemption rights. The shares are |
paid outstanding shares or fractional shares, Al
any part of the shares acquired under the
whether or not a certificate has been issued
may be redeemed at any time by the owner »
plained in section 16.
Any shareholder may, by means of his written
authorization, appoint Investors Diversified Services,
Inc. (IDS) as his agent to receive cash dividends paid
by the Company on his shares and to reinvest them
for him in more shares of the Company at their asset
value. No additional charge is made for this service.
as soon as it is received by IDS at its offices in
neapolis, Minnesota. Only those dividends
after receipt of this authorization will be reinve
Distributions of securities profits may be rein
separately at net asset value (see section 7(a) ).
51
He may cancel his authorization at any time by nate the agency at any time by written notice to the
stifying IDS, in writing, that he no longer wants it to shareholdier.
t as his dividend reinvestment agent, Upon receipt Any diividends or distributions received by an in-
his letter, his agreement will be ended, unless the vestor shortly after a purchase of shares by him will
ice is received between a dividend record date have the effect of reducing the net asset value of his
a dividend payment date. In that case, the ter- shares by’ the amount of the dividends or distributions.
ination will become effective immediately follow- Furthermore, such dividends or distributions, although
the next dividend payment date after the notifi- in effect @ return of capital, are subject to taxes.
ation is received. IDS reserves the right to termi-
a LMR VAL eer dee: Song pening CRE ETRE TEE AR
——
52
10 illustrations of Assumed Investment Programs
——.
MLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN INVESTORS MUTUAL, INC.
with Capital Geins Distributions Reinvested in Additional Sheres
The chart below covers the period from April 16, 1940 (inception of the fund) to September 30, 1965
RECORD OF INCOME
Dividends Paid from Investment income
(Taken in Cash and Not Reinvested)
$45,000 oo
40,000 —_____
SS ee ee ee ee ee ee ee Ge
$294 $478 $427 11 $426 $295 $457 $522 $568 $644 $625 $773
35,000 ———_
30,000 +————_
25,000 +————_
20,000 RECORD OF PRINCIPAL
15,000 ———____Cost of Investment
April 16, 1940
10,000 A A
Initiel
5,000 |
Volve
$9,200
1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951
VALUE OF > gap wer we — rae to i v0. reas '
ecquired Mrough
investment of $10,000. . $8,739 $7,874 $7,994 $9,375 $10,542 $11,563 $11,392 $11,081 $10,461 $10,687 $11,906 $12,833
VALUE OF SHARES received
Garogiens leontete) 7S 161 «215 646 1,200 1,485 = 2,084 2,191 2,272 2,405 2,821 3,398
TOTAL VALUE . . . . $8,814 $8,035 $8,209 $10,021 $11,642 $13,049 $13,476 $13,272 $12,733 $13,092 $14,727 $16,231
Initial net asset value is the amount received by the fund after deducting from the cost of the investment the sales comm
sion as described in the prospectus.
No adjustment has been made for any income taxes payable by stockholders on reinvested capital gains distributions. The
dollar amounts of capital gains distributions reinvested in additional shares were: 1940—$74; 1941—$93: 1942—$51; 198
oe
Pays A
os Nae
ita a a AR, Sat A Be UR le
53
This period was one of generally rising common stock prices. The results a pnarennsand
shown should not be considered as a representation of the dividend income atta
or capital gain or loss which may be realized from an investment made in $18,936
the fund today. :
lve
ee ces ee es ee a
P Frcs $759 $793 $880 $914 $923 $909 $961 $982 $1,023 $1,080 $1,148 $1,232 rc = ts
Value of
Reinvested Capital
Goins Distributions
$13,484
umulative Value of
ital Gains Distributions
rinvested in Shores
) j Value of
1 j | Original Shores
$22,553
} '
| |
1!
1] |
| | | | | | | | |
M6 $12,391 $14,976 $16,702 $16,759 $15,734 $17,885 $18,731 $18,404 $21,300 $18,315 $20,890 $22,476 $22,553
683 3,708 4727 5658 6,053 5882 6,992 7,906 7,970 9,659 9,242 11,092 12,615 13,484
829 $16,099 $19,703 $22,360 $22,812 $21,616 $24,877 $26,637 $26,374 $30,959 $27,557 $31,982 $35,091 $36,037
—$402; 1944—$368; 1945—$276; 1946—$623; 1947—$163; 1948—$204; 1949—$84; 1950—$141; 1951—$358; 1952—-
$256; 1953—$183; 1954—$245; 195S—$387; 1956—$382; 1957—$194; 1958—$310; 1959—$582; 1960—$203; 1961—
$435; 1962—$936; 1963—$554; 1964—$680; 1965—$826. Total $9,010. If capital gains distributions had not been re-
invested, total dividends from investment income for the period would have been $14,500, total capital gains distribution
$6,856, and total value of investment $22,553 at September 30, 1965
s om
t
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN INVESTORS MUTUAL, INC
with bath Dividends from Investment Income and Capital Gains Distributions Reinvested in Shares
The table below covers the period from April 16, 1940 (inceptior of the fund) to September y |
1965. This period was one of generally rising common stock prices. The results shown should ny |
be considered as a representation of the dividend income or capital gain or loss which may be x
alized from an investment made in the fund today. }
NUMBER OF SHARES
COST OF SHARES VALUE OF SHARES (To nearer full shore ome!
trot [eat ‘a : ome | he
ye tare | ment” | Rem
ment , yo By
Invest | "through | including Instnty of Capital | Sub-Total | ment we Sian | of Capital
ment Reinvest- — Acquired Gains of Income | Value 4 lg
Income | Reinvest | income Distribu Dividends Acquired | pistribu- | Dividers
a ted | oy! tions (cumula- trons (cumua
Annual income (cumula- tive) (cumula tive)
Dividends tive) tive)
The total cost figure represents the initial cost of $10,000, which includes a sales commission of 8% as described ®t
Prospectus, plus the cumulative amount of income dividends reinvested without sales charge. The dollar amounts of a
ins distributions, reinvested in shares, also without sales commission were: 1940--$74; 1941—$100; 1942—$38: i
74; 1944—$451; 1945—$349; 1946—$814; 1947—$222; 1948—$288; 1949$125: 19S0—$219; 1951—$583; %
$436; 1953—-$325; 1954—$454; 1955—$745; 1956—$761; 1957—$403; 1958—$669; 1959—$1,303; 1960—$470; |
$1,042; 1962—$2,319; 1963—$1,422; 1964—$1,803; 1965—$2,268. Total—$18,177.
No adjustment has been made for any income taxes payable by shareholders on capital gains distributions and incom
dends reinvested in shares. ‘
“Fiscal Years ended December 31, 1940-45; Fiscal Years ended September 30, 1945-1965.
** Adjusted for 2-for-1 stock split 4/26/56.
Ba laa Ne RE ee eR EL ee aeant unet gina eae
> $110,000
_ 100,000
95,000
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 IN
INVESTORS MUTUAL, INC. , 90,000
with beth Dividends from | In and Capital Geins Distributions come
Reinvested in Shores 4 P
The chart below covers the period from April 16, 1940 (inception { 90,000
of the fund) to September 30, 1965. This period was one of generally
rising common stock prices. The results shown should not be con- _ —
sidered as a representation of the dividend income or capital gain an
or loss which may be realized from an investment made in the fund : ers
today. | 65,000
_, 60,000
. 55,000
cost VALUE . 50,000
‘ c Valve of Shores Purchased . 45,000
Cost of Shores Purchased r through Reinvested 4
; Fsroigh hacome <> ” Income Dividends i |
Dividend Reinvestment | _ 48,000
S = Valve of Initio! Investment
Cost of Shores }
Purchased with > « Volue of Copita!l Goins | . 35,000
Initiel Investment Distributions Reinvested |
in Shores _ 30,000
|
Cost of Initial | . .. 25,000
Investment ; | t
April 16, 1940 ; | ail _, 20,000
$10,000 uidddy WL AL i ee
iT | | |
Initial HA sme . ? H r .~ 10,000
| |p| Net 5,000
} Asset s 4 ¢
| Volve . : ’ 7
$9,200
1940 "41 ‘42 "43 44 "45 ‘46 '47 "48 ‘49 "SO ‘ST ‘52 'S3 'S4 ‘SS ‘56 'S7 'S8 ‘59 ‘60 ‘61 ‘62 ‘63 ‘64 ‘6S
Fiscal Years Ended December 31, 1940-1944; September 30, 1945-1965
Initial net asset value is the amount received by the fund after deducting from the cost of the investment the sales commis-
sion of 8% as described in the prospectus. Income dividends and capital gains distributions were assumed to have been
reinvested in additional shares at net asset value. There is no sales commission charged for such reinvestment.
No adjustment has been made for any income taxes payable by shareholders on capital gains distributions and income divi-
dends reinvested in shares.
NOTE: See table on preceding page for dollar amounts represented by this chart.
5s 7
— $135,900
“7 130,000
ILLUSTRATION OF A CONTINUOUS INVESTMENT PROGRAM + 125,000
IN INVESTORS MUTUAL, INC.
a 120,000
in terms of en Assumed initial Investment of $1,000 and Subsequent invest-
ments of $100 Per Month with both Dividends from Investment ae 115,000
Income end Capite! Gains Distributi Rei d in Sheres
4 110,600
The chart below covers the period from April 16, 1940 (inception
of the fund) to September 30, 1965. This period was one of generally 105,000
rising common stock prices. The results shown should not be con-
sidered as a representation of the dividend income or capital gain _ =—
or loss which may be realized from an investment made in the fund al 95,000
today. A program of the type illustrated does not assure a profit or
Protect against depreciation in declining markets. “ 90,000
4 85,000
4 80,000
- 75,000
— 70,000
cost VALUE
Cost of Shores Purchosed Volue of Shores Purchased E = 65,000
through Income <@ through Reinvested n |
Dividend Reinvestment Income Dividends a 60,000
Valve of Initial and |
Monthly Investments | ra 35.088
Cost of Shores Purchased | | | _._ Value of Copitol Goins | 4 50,000
with Initiol Investment Distributions Reinvested | |
end Monthly Investments in Shares D } 7 45,000
] | 40,000
| 35,000
f | aia 30,000
' x
Cost of Investment | oar 4 25,000
April 16, 1940 i in jee
$1,000 | in ' 4 a: .
ik bs 4 15,000
| 7
iM. anit 4 10,000
| i miboidy
ih } te on 5,000
Lil 1 | i 0
1940 "41 "42 "43 "44 "45 "4G '47 “48 “49 “SO °S) ‘52 'S2 ‘Se 'SS “SE 'S? ‘SO 'S8 GO 61 62 69 Ga 65
Fiscal Years Ended December 31, 1940-1944; September 30, 1945-1965
Total cost for each year represents the initial investment of $1.000 plus the cumulative total of monthly investments
$100 per month plus the cumulative amount of income divid ends reinvested The cost for shares purchased with initial
monthly investments includes sales commissions Starting at 8% and graduated downward as described in section |! ¢
the prospectus. No sales commission is charged for reinvestment of any income dividends or Capital gains distr: butions
No adjustment has been made for any income taxes payable by shareholders on capytal gains distributions and income dv
dends reinvested in shares.
NOTE: See table on following page for dollar amounts resresented by this chart
57
ALUSTRATION OF A CONTINUOUS INVESTMENT PROGRAM IN INVESTORS MUTUAL, INC.
iibens of an A d Initial t of $1,000 and Subsequent investments of $100 Per Month with both Dividends
from investment income end Capital Geins Distributi Rei d in Sheres
Rable below covers the period from April 16, 1940 (inception of the fund) to September 30, 1965. This
was one of generally rising common stock prices. The results shown should not be considered as a
ntation of the dividend income or capital gain or loss which may be realized from an investment
in the fund today. A program of the type illustrated does not assure a profit or protect against de-
tion in declining markets.
COST OF SHARES VALUE OF SHARES yo ape r tegnnnr fl
: Cumulati no (C) (A) hesered ©
TE Total | Aver (A) through Purchased Acquired | through |Purchased
Shares | Total of Cost Acquired | Reinvest- through Year- Reinvest-| through
Purchased | Initial and Includi Cumu ment Sub. Reinvest Total end |initial and} ment | Reinvest-
through | Monthly |eeinvested| lative | Initial and] of Capital} Toy, | ment | Joi of Capital] ment
Reinvest- | invest. [Reinvested) | pe, Gains of Income Share | Invest- | Gains Jot income
ment | ments | pvtengs| Share] Invest- | Distribu- Dividends Value** Distribu
ot Income widends | Cost**] ments tions (cumula (cumula- | tions
“0 | 41,590 | 31,500 | 73,090} 6.73} 50,904 | 27,017 | 77,921 55,231 133,152] 12.26} 4,153 |2,204 | 4,506
| | 37,150 | 30,300 | 67.450) 6.64 49,593 | 23.912 | 731505 50,608 |124,113] 1222} 4.060 11,958 (3s fo
}iotal cost figures represent the initial investment of $1,000 plus the cumulative total of monthly investments of $100
oo plus the cumulative amount of income dividends reinvested. The cost for shares purchased with initial and
y investments includes sales commissions starting at 8% and graduated downward as described in section 15 of the
. No sales commission is charged for reinvestment of any income dividends or capital gains distributions. Year
aset values include the value of shares purchased by reinvestment of the following dollar amounts of capital gains dis-
: 1940—$14; 1941—$31; 1942—$25; 1943—$242; 1944—$272; 1945—$232; 1946—$595; 1947—$176; 1
b. 1949—$114; 1950—$211; 1951—$589; 1952—$457: 1953—$354; 1954—$510; 1955—$856; 1956—$895; 1957—
, ioe S818; 1959—$1,618; 1960—$592; 1961—$1,332; 1962—$2,998; 1963—$1,859; 1964—$2,382: 1965—$3,023.
20,924.
adjustment has been made for any income taxes payable by shareholders on capital gains distributions and income divi-
& reinvested in shares.
al Years ended December 31, 1940-45; Fiscal Years ended September 30, 1945-1965.
usted for 2-for-1 stock split 4/26/56
———— we PETRIE EE Swe aE Ai
ee ote a Ra Te eee eee ee
58
1] Investment Restrictions
The Company observes certain investment re-
strictions which may not be changed without stock-
holder action and which provide among other things
that the Company:
(1) Shall not purchase securities on margin or
sell short;
(2) Shall not invest more than 5% of the gross
assets of the Company taken at cost in securities of
any one corporation;
(3) Shall not acquire more than 10% of the out-
standing voting securities of any one corporation;
(4) Shall not borrow money or property except as
a temporary measure for extraordinary or emergency
purposes. The Certificate of Incorporation limits bor-
rowing to 10% of the gross assets of the Company
taken at cost;
(5) Shall not invest more than 5% of the total
assets of the Company in securities of companies
which have a record of less than three years’ con-
tinuous operation, including predecessor companies;
(6) Shall not sell any of its shares at less than
asset value;
(7) Shall not purchase securities of an investment
trust or an investment company except in the open
Free Transfer of Investments
market where there is no profit to a sponsor or dea
thereof other than customary brokerage;
(8) Shall not buy from or sell to any officer ~
director of Investors Diversified Services, Inc., of ¢
the Company, any property or any security othe:
than securities issued by the Company;
(9) Shall not make any loans to any of its office
or directors, or to any firm or syndicate of whic
any such officer or director is a member, or to ay
association or corporation of which any of the Cor.
pany’s officers or directors is an officer or a directo,
or in which the officers and directors of the Compan
directly or indirectly hold an aggregate interest ¢
ten per cent (10%) or more; nor shall it loan ay
part of its assets to Investors Diversified Servics,
Inc., or any officer or director of that company;
(10) Shall not pledge, mortgage, or hypotheca
the assets of the Company, taken at market valu
to an extent greater than 15% of the gross assets ¢
the Company taken at cost. ;
The Company is also subject to restrictions und ;
the provisions of the Investment Company Act ¢
1940, particularly as to transactions with certain ¢}
filiated persons and underwriters, changing of certa}>
investment policies recited in its registration stat.
ment, and the investment of its funds in cera}
specified types of companies.
areas
pave
2 Investors Diversified Services, Inc. acts as the
underwriter and investment manager for Investors
Mutual, Inc., Investors Selective Fund, Inc., Investors
Stock Fund, Inc., and Investors Variable Payment
Fund, Inc. (these open-end, diversified investment
companies being included in what is frequently re-
ferred to as the “Investors Group”). The shareholders
of these companies (each of which differs from the
others as to investment policies and purposes) have
the privilege of transferring without sales charge their
investments in shares of one or more of the companies
into investments in shares of any of the other com-
panies at respective net asset values. In the case of
Investors Selective Fund, Inc., there are certain re-
strictions regarding transfers from that Fund as ex-
plained in the prospectus of that Company.
This privilege is not an option or right to purchase
such securities but is a privilege permitted under the
present policy of each of these companies. This pol-
icy may be discontinued, cancelled or changed by
any of the respective companies at any time. The
privilege of transferring investments will be extend}
by the present managements of the respective com}
panies in the absence of objection by regulatory.
authorities and provided shares of the respecte’
companies are available and may lawfully be sos}
sued in the jurisdiction in which any shareholic
wishing to exercise this privilege resides, or until &}
privilege, in the opinion of the managements of
respective companies, imposes an unwarranted af
unreasonable burden or hardship on the respects
companies.
The transfer of investment is effected by author
specified company. For federal income tax purpox
of the shareholder redemption of the shares bey
transferred is ordinarily the equivalent of a
of the shares. The company receiving the transfer:
investment will deliver a current prospectus and
receiving a signed receipt therefor will issue its
at asset value.
Custodianship of Assets
59
13 Portfolio securities and cash of the Company
are deposited, under a custodian agreement, with the
Bank of Delaware, of Wilmington, Delaware. This
institution maintains custody of all securities and
Offering Price of Shares
cash of the Company so deposited but otherwise
performs no managerial or policy-making functions
for the Company.
14 (a) Shares of the Company are offered at
their public offering price at the close of business
[as defined in sub-section (j)] on the day upon which
the application and payment are received at the prin-
cipal place of business of the Company. If these are
not received prior to the close of business, the shares
are issued at the public offering price as of the close
of business on the next succeeding full business day.
If the day upon which the application and payment
are received at the principal place of business of the
Company is not a full business day, the price of the
shares is computed as of the close of business on the
next succeeding full business day.
(b) The asset value is computed as of the close
of trading on the New York Stock Exchange in ac-
cordance with sound accounting practice and in the
manner authorized by the Board of Directors, as
follows: Securities listed on national securities ex-
changes are valued on the basis of the closing sale
each day, or if no sale is made, at the mean of the
closing bid and asked prices of such securities. Secur-
ities not listed or traded on a national securities ex-
change, but for which market quotations are readily
available, are valued at market value as defined in
the Certificate of Incorporation. Securities having no
current market price are valued at fair value as de-
termined in good faith by the Board of Directors.
Dividends declared but not received are accrued on
the ex-date of such dividends. Interest on bonds not
traded “flat” is accrued daily. All cash and receivables
and current payables are carried at their face value.
The investment advisory and services fee, which com-
prises the entire management and operating expense
of the Company, is accrued daily. No taxes are
accrued on unrealized appreciation since the Com-
pany has elected to meet the requirements of Sections
851-855 of the federal Internal Revenue Code and
intends to distribute to stockholders any capital gains
realized. See section 22(g). From the total value of
the assets are deducted the total outstanding liabilities
(exclusive of capital stock and surplus accounts) in-
cluding all reserves and estimated accrued expenses.
The resulting net worth is divided by the number of
shares outstanding to determine the asset value per
share of capital stock.
—_— = ILI PPE LEN RF OBIS EIS EINE NEL AL IOS ELE OILS ILE GEL NAIIIG
(c) Computation of the public offering price of
shares of capital stock of the Company is illustrated
below:
Net assets at September 30, 1965
as per Statement of Net Assets
(Page 24) . . $2,940,769,421
Divided by number of shares out-
standing September 30, 1965 239,926,645
Asset value of a share of capital
stock . $12.257
Plus 8% * of public offering price . 1.063
Public offering price caceeanieeii
($12.257 ~ 92] . . » oe
*Sales Charges are graduated as follows:
Per Cont
of Public
Amount of Application Offering Price
Teens. es Oe
$15,000 to $19,999 1”
$20,000 to $24,999
$25,000 to $49,999
$50,000 to $99,999 .
$100,000 to $199,999 2%
$200,000 to $399,999 . . . . .. 2
$400,000 to $699,999 1%
yo a ee es |
(d) The above graduated sales charges will apply
investment of the same shareholder (and to the extent
that such shares are still registered in his name) is
$15,000 or more; for example, if a shareholder had
previously purchased and still held shares for which he
had paid $10,000 and made a subsequent purchase of
$6,000, the sales charge applicable to this latter pur-
chase would be 742%. If such shareholder after his
initial purchase (shares still held by him) had made
an application for an additional $11,000, bringing his
aggregate investment to $21,000, the sales charge on
the latter purchase would be 7%. Shares held in
the name of the spouse of the purchaser or in the
name of a child of the purchaser under 21 years of
age will be treated for purposes of this section as
being registered in the name of the purchaser. Re-
invested dividends and reinvested capital gains distri-
butions (see sections 7 and 9) are included in deter-
mining the aggregate amount invested, although no
sales charge is made for such reinvestment.
(e) The foregoing paragraph is applicable to a
trustee or other fiduciary purchasing securities for a
single trust estate or single fiduciary account (includ-
ing a pension, profit-sharing, or other employee ben-
efit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code).
(f) Since Investors Diversified Services, Inc. is
also the principal distributor for shares of Investors
Stock Fund, Inc., Investors Selective Fund, Inc., In-
vestors Variable Payment Fund, Inc. and Investors
Inter-Continental Fund, Inc., the graduated scale of
sales charges applicable in the manner stated above
will apply to purchases by any of the persons enumer-
ated in (d) or (e), above, of shares representing
a combination of the five Funds or an addition to
the aggregate holdings in those companies. For ex-
ample, if an investor had purchased and still held
shares of Investors Stock Fund, Inc. for which he paid
$15,000, and he made a purchase of shares of Inves-
tors Mutual, Inc. in an amount of $6,000, the rate of
sales charge applicable on this latter purchase would
be 7%, as shown in the foregoing table. There is a
different graduated scale of sales charges with re-
spect to Investors Selective Fund, Inc.
(g) In addition, the reduced sales charges reflect-
ed under sub-section (c) are also applicable to the
aggregate amount of purchases made by any of the
persons enumerated above within a thirteen months
period pursuant to a written statement of intention
provided by the principal distributor, which includes
provisions for a price adjustment depending upon
the actual amount purchased within such period, pro-
vided that the purchases aggregate not less than
$50,000 and the investor still owns the shares at the
end of the period. This is not an option, warrant or
right to purchase additional shares and there is no
penalty upon either party if the intention is not fulfilled.
As an example of how this reduced sales charge
See ee eee ee with
his application for $10,000, a written statement of
ie.
60
his intention to invest a total of $50,000 at varioy
times during the next succeeding thirteen months. Oy
his initial investment of $10,000 he would pay ;
sales charge of 8%. Thereafter he invects an ad
ditional $10,000, bringing his total holdings
$20,000. On the latter investment he would pay th
sales charge applicable to holdings of $20,000,
7%. This method would continue on his other
purchases during the period according to the sched-
ule in sub-section (c), and with the last investment
for the period he would receive an adjustment on his
total purchases (still held by him) of $50,000 for
the difference between the respective sales charges
paid and the 4% sales charge applicable on th
$50,000 aggregate investment. In other words, he
would receive the same benefit of the 4% sales
charge as though he had made the $50,000 inves
ment in a single purchase. Further, should it develop
that his aggregate purchases during the period exceed
the $50,000 originally specified by an amount suff-
cient to qualify for an additional quantity discount
(for example, should his actual purchases equal
$100,000), he would receive the same benefit as
though he had specified the larger amount in his
original statement of intention.
(h) Officers, directors, employees and sales repre-
sentatives of the distributor or of the Company (and
any trust, pension, profit-sharing or other benefit plan
for such persons) may be permitted to purchase shares
of the Company at net asset value, provided that such
purchases are made upon the written assurance of the
purchaser that the purchase is made for investment
purposes and that shares so acquired will not be resold
except through regular redemption by the Company.
(i) The bylaws of the Company provide that dur-
ing any period in which the sale of shares issued by
the Company shall be discontinued, the Board of
Directors, in arriving at asset value for redemption
purposes, may deduct from the value of the assets
an amount equal to the brokerage commissions, trans-
fer taxes and charges, if any, which would be pay-
able on the sale of all securities in the portfolio of
the Company if they were then being sold. The pur-
pose of this provision is to distribute these charges
over all outstanding shares if redemptions continue
when no further sales are being made.
(j) A “full business day” is defined as a day with
respect to which the New York Stock Exchange is
open for business, and with respect to which th
actual time of closing of such Exchange is that time
which shall have been scheduled for such closing i
advance of the opening of such Exchange. The “close
‘of business” is defined as the time of closing of th
New York Stock Exchange.
re
—
61
Distribution of Shares
Since the inception of the Company, its shares
we been distributed exclusively by Investors Diver-
fed Services, Inc. (IDS), of Minneapolis, Minne-
ta, pursuant to distribution agreements, the most
cent of which is dated April 6, 1963 and reexecuted
» October 31, 1963. Applications for shares of the
ompany are solicited by representatives of the dis-
ibutor and submitted to the Company for acceptance
r rejection.
IDS receives, in full payment for its services as
stributor of the shares of Capital Stock of the Com-
any, a fee equal to the difference between the
nount received with each application and the asset
alue of the shares sold pursuant to such application,
termined as stated in section 14 which also gives
¢ present rate of the distribution fee. IDS received
Redemption of Shares
during the fiscal year ended September 30, 1965,
distribution fees amounting to $20,276,818, out of
which it allowed commissions of $13,990,881 to its
sales representatives and paid other expenses inci-
dental to and in connection with the distribution and
sale of the Company's Capital Stock.
During the period of the distribution agreement
IDS will pay certain expenses in connection with the
issuance and sale of the Company's securities, as spe-
cified by the agreement. The agreement provides that
it shall continue in effect from year to year after April
6, 1963 provided such continuance is approved an-
nually by the Board of Directors of the Company or
by a vote of the majority of the outstanding shares of
the Company. The agreement may be terminated by
either party upon sixty days’ written notice.
(a) By express provision in the Company’s
ertificate of Incorporation, the registered holder of
pares of the Company has the right to require the
‘company to redeem his shares. The redemption is
complished by delivering to the Company at its
rincipal place of business the stock certificate and a
ritten request for redemption in form satisfactory
) the Board of Directors. There is no redemption
harge. Redemption of all or any part of shares for
hich a certificate has not been issued may be effected
y a written request signed by the registered owner
nd directed to the Company.
(b) The redemption value of shares will be the
sset value calculated as of the close of business (as
fined in section 14(j) ) on the day of receipt of the
urendered stock certificate or request at the Com-
aay's principal place of business. If the day of sur-
ender of the certificate or request is not a full busi-
ess day, then the asset value for the purposes of
redemption will be calculated as of the close of busi-
ess on the next succeeding full business day.
The method of calculating the asset value of shares
sshown in section 14(b). For a change in the
nthod of calculating redemption value if the sale
i shares of the Company is discontinued, see section
4(i). The market value of securities in the Com-
aay’s portfolio is subject to daily fluctuations, and
asset value will fluctuate accordingly. The amount
shareholder will receive on redemption of his shares
uy be more or less than the price paid therefor,
ee
aie aio Hs
aE ae eT
depending upon the market value of the portfolio
securities at the time of redemption. The Company
presently pays the redemption value in cash as soon
as the amount is determined. Payment may not be
deferred for a period exceeding seven days except
during a period of emergency.
(c) During any period of emergency, the Board of
Directors, in its discretion, may suspend the compu-
tation of asset value for the purpose of issuing or
redeeming its shares, may suspend the acceptance of
payments from the holders or owners of any of its
securities for the acquisition of additional shares of
the Company, and may suspend the obligation of the
Company to redeem stock.
A period of emergency is defined to be:
(1) A period during which the New York Stock
Exchange is closed for other than customary week-
end or holiday closings, or during which trading on
the New York Stock Exchange is restricted;
(2) A period during which disposal by the Com-
pany of securities owned by it is not reasonably prac-
ticable or during which it is not reasonably practicable
for the Company fairly to determine the value of its
net assets; or
(3) Such other periods as the Securities and Ex-
change Commission, pursuant to the provisions of
the Investment Company Act of 1940, may by order
declare as an emergency period or periods.
etn ee a ar ea tw i
6
a
,
+
7 Systematic Pay-out Options
The Company makes available to its share-
holders, without additional charge, periodic withdrawal
Or pay-out options designed to meet the differing ob-
jectives of shareholders. The cost of administering
them is, pursuant to contract, borne by Investors Di-
versified Services, Inc. (IDS), the Fund's investment
manager and distributor. These pay-out options con-
template the liquidation of the shareholder's holdings
of Fund shares, and amounts received during the pay-
Out period will represent a combination of principal
and ificome. Dividends and capital gains distributions
made to the Fund's shareholders must be reinvested
at met asset value in additional shares of the Fund
by investors who select a systematic pay-out plan.
Option |. Variable pay-out over a stated number of
years by monthly, quarterly, or annual redemptions of
shares—for the shareholder who desires to spread the
pay-out of his holdings over a fixed number of years
on a basis that will tend to be reasonably responsive
to changes in the purchasing power of the dollar.
This option provides a method of periodic (month-
ly, quarterly, or annual) redemption of shareholdings,
including shares, if any, created by reinvestment of
dividends and realized capital gains during the pay-
out period, over the number of years specified by
the owner. It is designed to produce payments to the
shareholder from period to period which will vary
with the performance of the Fund (i.e., will vary with
changes in the market value of the securities in the
Fund portfolio). Obviously, it is impossible to give
any assurances of the extent, if any, to which these
variations will match changes in the purchasing power
of the dollar. Under this option all shares will be re-
deemed and the shareholder's investment entirely
liquidated by the end of the specified number of years.
The number of years and the payment frequency will
be those specified by the shareholder at the time he
elects the option. The number of shares redeemed to
make each payment will be calculated by dividing the
total shares then available (including such shares, if
any, as have been added from time to time through re-
investment of dividends and realized capital gains dur-
ing the pay-out period) by an appropriate variable pay-
ment factor. The only purpose served by the variable
payment factor is to determine the number of shares to
be redeemed. The dollar amount of cach payment will
depend both on number of shares redeemed and asset
value per share at the time payment is made.
Option 2. Variable pay-out by monthly, quarterly, or
annual redemptions of a stated number of shares each
period until all shares are redeemed. The payment fre-
quency and number of shares will be specified by the
shareholder in his request for pay-out option >
length of time over which payments will be mak
depend upon the total number of shares owned,
ing such shares, if any, as have been added from
to time through reinvestment of dividends and
capital gains during the pay-out period.
Option 3. Pay-out by monthly, quarterly, or an,
redemptions of shares to provide a specified &
amount each period until all shares are redeen
The payment frequency and dollar amount of &
payment will be specified by the shareholder »
request for pay-out option.
To elect one of the options, the shareholder
make written request on or before the date he »
payments to begin. The option elected will remar
effect unless subsequently changed at the requ
the shareholder. While there is no minimum a
amount requirement for opening a systematic pa
plan, a limitation on the availability of these om
is that each payment under Option 3 shall be nos
than $50 and that the initial payment (and th
payment after a request for change would be
effective) under either Option | or Option 2 shw
not less than $50. These pay-out options have ¥
designed to meet the needs of most shareholder
are in a form that IDS can handle expeditious)
at reasonable cost. If a shareholder wishes av
pay-out method or methods the procedure set «
section 16 will be followed, with the shareholder >
ing a separate written request for each redempalj
To meet situations presently unforeseen, the Com
reserves the right to alter or discontinue any sx
atic pay-out plan elected by any shareholder ax
discontinue the availability of any such plans ¢
future. The purchase of shares in a mutual |
either occasionally or pursuant to a systematic i
ment plan, at the same time as a systematic pe
plan is in effect with respect to the same or am ©
fund would normally be disadvantageous to ©
vestor because he would be paying a sales load
amount being invested at the same time as he ®
be withdrawing money on which he had alread)
a sales load. Mutual funds distributed by IDS wi
accept applications for fund shares made pursuit
a systematic investment plan while a systematc
out plan is in effect with respect to any o
funds. However, isolated or occasional investmem
a non-regular basis may be accepted. Attention s
called to the fact that if withdrawals by an
under a systematic pay-out plan are in excess 0
rent dividend income from his shares, he will ™
and may ultimately exhaust his principal.
63
] Remuneration and Fees
Investors Diversified Services, Inc. (IDS) pays counsel and professional consultants employed by it
or reimburses the Company for the entire remunera- provided they are reasonable in amount.
tion of all directors and officers of the Company. The agreement requires that IDS, among other
During the fiscal year ended September 30, 1965, things, provide the Company with investment re-
IDS received $10,438,087 as fees under the invest- search and advice and make specific investment rec-
ment advisory and services agreement with the Com- ommendations, subject to the direction and control
pany as described below. of the Board of Directors, the i
IDS has acted as investment adviser of the Com- and the officers of the Company. It will remain in
pany since the Company's inception. On October 15, effect until September 30, 1966, and may continue
1964 the present investment advisory and services from year to year thereafter, provided such continu-
agreement was approved by stockholders of the Com- ance after September 30, 1966 is specifically approved
pany and entered into on that date. The present agree- at least annually (1) by vote of the Directors of the
ment provides for a graduated scale of fees equal on Company and by vote of a majority of the directors
an annual basis to 50% on the first $350 million of who are not parties to such agreement or affiliated
average net assets, 47% on the next $300 million, persons of any such party or (2) by vote of a majority
44% on the next $250 million, .41% on the next of the outstanding voting securities of the Company.
$250 million, 38% on the next $250 million, 35% Such a majority vote is defined in the Investment
on the next $250 million, .32% on the next $250 Company Act of 1940 as 67% or more of the voting
million and .30°% on all assets in excess of $1.9 securities present at a stockholders’ meeting, if more
billion. The agreement also provides for a flat reduc- than 50% of such outstanding shares are present or
tion of $170,000 a year ($14,166.67 monthly) from represented by proxy, or more than 50% of the out-
the fees computed in accordance with that scale. standing voting securities, whichever is less. The
The advisory and services fee is payable monthly agreement also provides that it may be terminated
but is calculated daily on the basis of net assets at without penalty by either party on 60 days’ written
the close of business each day. notice, provided that such termination on the part of
The agreement provides that all expenses of the the Company is approved either by the Board of
Company will be absorbed by IDS except (a) the Directors or by a vote of a majority of the outstanding
fee under the agreement, (b) contractual expenses Voting securities of the Company as defined above,
relating to the sale and distribution of the Company's nd that it will terminate automatically in the event
~ shares, (c) certain taxes, and (d) broker's fees on the Of its “assignment” by IDS as defined in such Act.
purchase and sale of assets. In addition, the agree- Reference is also made to section 15 for a state-
ment provides that IDS shall pay or reimburse the ment as to sales charges received by IDS, as distrib-
Company for legal fees and expenses of outside utors of shares of the Company.
19 Officers and Directors
The directors and executive officers of the Company are listed below, together with information
which includes their principal occupations during the past five years.
Harold K. Bradford*
1000 Roanoke Building Chairman of the Board, President and Director, Investors Mutual, Inc., Investors
Minneapolis, Minn. Selective Fund, Inc., Investors Variable Payment Fund, Inc., Investors Stock
Chairman of the Board of Fund, Inc. and Investors Inter-Continental Fund, Inc. (formerly Ltd.).
Directors and President
Retired; Mr. Clark served as President of Investors Diversified Services, Inc.
W. Grady Clark from July, 1960 to February, 1963 and thereafter as Chairman of the Board of
I ae that Company until he retired at the end of 1964. He is a Director of Investors
Nvestors Building eda : : ; :
Mi ie, Mina Diversified Services, Inc., Investors Syndicate of America, Inc., Investors Syndi-
a oli F cate Life Insurance and Annuity Company, Investors Mutual, Inc., Investors
Director Selective Fund, Inc., Investors Stock Fund, Inc., Investors Variable Payment
Fund, Inc. and Investors Inter-Continental Fund, Inc.
*Member of Executive Committee
—
64
President Emeritus, The Citadel, the Military College of South Carolina. Directo:
Gen. Mark W. Clark Investors Mutual, Inc., Investors Selective Fund, Inc., Investors Stock Fund, Ine.
U. S. A., Retired Investors Variable Payment Fund, Inc., Consolidated Foods Corp. and Dayco Cor.
Charleston, S. C. Pee carn rior to his retirement from active duty with the Army, General Ch,
p mending ne other things, Chief of Staff of the Army Ground Forces and on
John C. Cornelius* Retired executive vice president of and now senior consultant to the advertising
Bank Building ‘rm of Batten, Barton, Durstine & Osborn Mr. Cornelius is a Director of jy
Minneapolis, Minn. vestors Mutual, Inc., Investors Selective Fund, Inc., Investors Stock Fund, Ine.
Di Investors Variable Payment Fund, Inc., Investors Inter-Continental Fund, In
Rexall Drug & Chemical Company, Red Owl Stores, Inc. and Doughboy Industri«
Lewis L " Retired as Vice President of Cargill, Inc. in 1964; now a Director, member ¢!
1104 Roanoke Bidg. Executive Committee and Consultant to Chicago Great Western Railway. Dine.
Minneapolis, Minn. tor, Investors Mutual, Inc., Investors Stock Fund, Inc., and Investors Selectin
Director Fund, Inc.
Randall F. Fullmer Partner in the law firm of Burgess, Fullmer, Parker & Steck, Cleveland, Ohic
1140 Terminal T, Mr. Fullmer, a Director of Investors Mutual, Inc., Investors Selective Fund, Ine,
e wer Investors Stock Fund, Inc. and Investors Variable Payment Fund, Inc., is also a
Cleveland, Ohio Director of the Bulkley Building Company, Director of and Counsel for Duplex
Director Manufacturing and Foundry Company.
Laurence M. Gould Geologist. President Emeritus, Carleton College. Mr. Gould is a Director of In
Tucson, Ariz. vestors Mutual, Inc., Investors Selective Fund, Inc., Investors Stock Fund, Ine
Director and Investors Variable Payment Fund, Inc.
Frederick L. Hovde .
Purdue Universi President, Purdue University. Mr. Hovde is a Director of Investors Mutual, Inc,
Lafa a Investors Selective Fund, Inc., Investors Stock Fund, Inc., Investors Variable
yette, : Payment Fund, Inc., General Electric Company and Inland Steel Company.
5 ; Partner in law firm of Nixon, Mudge, Rose, Guthrie & Alexander, New York,
Richard M. Nixon N. Y., 1963 to present. From January 1, 1961 to January 1, 1963 Counsel to law
20 Broad Street firm of Adams, Duque & Hazeltine, Los Angeles, California. Vice President of
New York, N. Y. United States from 1953 to 1961. Mr. Nixon is a Director of Investors Mutual,
Director Inc., Investors Selective Fund, Inc., Investors Stock Fund, Inc., Investors Vari-
able Payment Fund, Inc., and Harsco Corporation.
Robert C. Reed
339 E. Foster Place Personal investments. Director of Investors Mutual, Inc., Investors Selective Fund.
Lake Forest, Ill. Inc., Investors Stock Fund, Inc. and Investors Variable Payment Fund, Inc.
Services, Inc., Investors Syndicate
“ Insurance and Annuity Company.
800 Investors Building Mr. Silloway was President of the investment banking firm of Harriman, Ripley
. is, Mina. & Co., Inc. until September, 1963 and then a partner of Brooks, Harvey & Co.
Minneapolis, , mortgage bankers, until July, 1964 when he became President of Investors Diver
Director sified Services, Inc. Director, Investors Mutual, Inc., Investors Stock Fund, Inc.
Investors Selective Fund, Inc., and Investors Variable Payment Fund, Inc.
* Member of Executive Committee
George E. MacKinnon
1000 Roanoke Building
General Counsel and
Vice President
George A. Mahon
Buildi
Minneapolis, Minn.
Vice President
Norman B, Waag
Investors Building
Minneapolis, Minn.
Vice President
Robert S. Ersted
1000 Roanoke Building
Minneapolis, Minn.
65
Lawyer in Minneapolis since 1929; Assistant Counsel Investors Syndicate 1929-
1942; Minnesota State Representative 1934-1942; U. S. Navy 1942-1946; Member
of Congress 1947-1948; U. S. District Attorney—Minnesota 1953-1958; Special
Assistant to U. S. Attorney General 1960; General Counsel and Vice-President
of Investors Mutual, Inc., Investors Selective Fund, Inc., Investors Stock Fund,
Inc., Investors Variable Payment Fund, Inc. ana Investors Inter-Continental
Fund, Inc. (formerly Ltd.) 1961 to date.
Vice President, Investors Diversified Services, Inc., Investors Syndicate of Amer-
ica, Inc., Investors Mutual, Inc., Investors Selective Fund, Inc., Investors Stock
Fund, Inc., Investors Variable Payment Fund, Inc., and Investors Inter-Conti-
nental Fund, Inc.
Vice President, Investors Diversified Services, Inc., Investors Syndicate of Amer-
ica, Inc., Investors Mutual, Inc., Investors Selective Fund, Inc., Investors Stock
Fund, Inc., Investors Variable Payment Fund, Inc. and Investors Inter-Conti-
nental Fund, Inc. Director, Investors Syndicate of America, Inc. and Investors
Syndicate Life Insurance and Annuity Company.
Mr. Ersted became Secretary and Treasurer of Investors Mutual, Inc., Investors
Selective Fund, Inc., Investors Stock Fund, Inc., Investors Variable Payment
Fund, Inc., Investors Inter-Continental Fund, Inc. (formerly Ltd.) in June 1962.
During the preceding five years he was a practicing lawyer in Minneapolis.
I\ Certain Information Concerning Investors Diversified Services, Inc.
>Y investors Diversified Services, Inc. (IDS), the the incumbent IDS officer occupying the position of
prestment adviser and distributor for the Company, Vice President-Sales of IDS without ample advance
as outstanding 4,395,905 shares of Class A Com- notice to the President of the Company and the fullest
pon Stock and 11,490,800 shares of Class B Com- consultation with him regarding the change and as
pon Stock, both classes having equal per-share voting to the suitability of the proposed replacement, and
ights. Alleghany Corporation (Alleghany), 350 Park they will not promote and they will use their best
avenue, New York, N. Y. owns beneficially 495,815 efforts to avoid any change being made with respect
hares of Class A Common Stock and 6,295,360 to the present policies of IDS involving the sale of
hares of Class B Common Stock, constituting shares of the Company, or the use of the IDS sales
275% of the outstanding voting stock of IDS, and force in connection with or in relation to such sales
pving it control of IDS within the meaning of the ‘ and which will affect the offering or sale of shares
investment Company Act of 1940. Allan P. Kirby, of the Company, or in the present operating policies
1? DeHart Street, Morristown, N. J. owns beneficially of the Investment Department of IDS as they relate
4,084,813 shares (approximately 40.52%) of the to the Company, without ample advance notice to
putstanding Common Stock of Alleghany. Mr. Kirby and the fullest consultation with the President of the
nd certain associates have stated to the Company Company. The President of the Company has stated
hat they will not promote and that they will use that in such event he would in turn consult with the
heir best efforts to avoid any change being made in Board of Directors.
; See of Officers and Directors
On December 15, 1961, the directors of the Insofar as indemnification for liabilities arising un-
Company passed a resolution providing for the in- der the Securities Act of 1933 may be permitted to
emnification by the Company, to the extent per- directors or officers of the Company pursuant to the
nitted by law, of past and present officers and di- above resolution, or otherwise, the Company has been
eclors against expense incurred by them in connection advised that in the opinion of the Securities and Ex-
vith the defense of any legal action in which they are change Commission such indemnification is against
nade parties by reason of their office. In the opinion public policy as expressed in the Act and is, therefore,
{ counsel for the Company, concurred in by counsel unenforceable. In the event that a claim for indem-
ot IDS, such expense if payable by the Company nification against such liabilities (other than the pay-
nay be recoverable by the Company from IDS. ment by the Company of expenses incurred or paid
by a director or officer of the Company in the suc-
cessful defense of any action, suit or proceeding) is
asserted by such director or officer in connection with
the securities registered, the Company will, unless in
the opinion of its counsel the matter has been settled
66
by controlling precedent, submit to a court of a.
propriate jurisdiction the question whether such in-
demnification by it is against public policy as er.
pressed in the Act and will be governed by the fina
adjudication of such issue.
(a) Shares of stock issued by the Company
are all of one class, designated Capital Stock, with a
par value of $.50 per share. All shares are fully
paid, non-assessable and transferable, with equal
rights to earnings, dividends and assets. All shares
have equal voting rights. Shares may be issued as full
or fractional shares. Each fractional share has the
same rights, including voting rights, which are pro-
vided for a full share but in the proportion which a
fractional share bears to a full share. The shares
have cumulative voting rights when voting upon the
election of directors.
(b) Annual and semi-annual financial reports of
the Company are mailed to each shareholder. The
Company's financial statements as of the close of
each fiscal year (September 30th) are examined by
a firm of independent certified public accountants.
The accounting firm of Peat, Marwick, Mitchell &
Co., Minneapolis, Minnesota, has for a number of
years been selected for this purpose.
(c) The Board of Directors of the Company, at
its discretion, may require the payment of a fee not
exceeding $1.00 for each new stock certificate issued
by the Company as a result of transfers or assign-
ments, or as the result of lost, stolen, mutilated or
destroyed certificates, or in connection with any spe-
cial service by request, by a shareholder requiring
the issuance of a new certificate, in addition to the
payment of any lost instrument bond premiums, and
federal or state taxes required to be paid in connection
therewith.
(d) Investors Mutual, Inc. was incorporated on
January 18, 1940 under the laws of the State of
Nevada. Its principal offices are located in Minne-
apolis, Minnesota. Its charter provides for perpetual
existence.
(e) As of September 30, 1965, officers and di-
rectors of the Company, as a group, owned less than
1% of the outstanding Capital Stock of the Company.
(f) The Company operates as a mutual diversified
investment fund of the open-end type and has reg-
istered as such under the federal Investment Company
Act of 1940. This registration does not involve super-
isi of management or investment practices or
(g) In order to minimize federal income taxes, th
management of the Company intends to conduct is
business and Investors Diversified Services, Inc., its
investment manager, intends to make recommends.
tions and approvals as to investments, so that the
Company may meet the requirements of Section
851-855 of the federal Internal Revenue Code. The
Company has met such requirements for the pas
fiscal year.
(h) Investors Diversified Services, Inc. (IDS) acs
as principal underwriter and investment adviser for
Investors Mutual, Inc., Investors Stock Fund, Inc,
Investors Selective Fund, Inc., and Investors Variable
Payment Fund, Inc., open-end investment companies
Investors Syndicate of America, Inc., a subsidiary
IDS, issues face-amount certificates. IDS is the sok
underwriter (distributor) for Investors Accumulatios
Plan (IAP) which offers long term investment pre-
grams in the form of periodic payment Plan Cent.
icates for the accumulation of shares of Investor
Stock Fund, Inc. Other subsidiaries include Investor
Syndicate Title & Guaranty Company, an issuer of in-
stallment and fully paid participation certificates in the
state of New York, Investors Syndicate Life Insurance
and Annuity Company, IDS Securities Corp.. |:
member of the Pacific Coast Stock Exchange), and
Investors Accumulation Plan, Inc., sponsor of IAP
(i) Keogh Act. For those self-employed individuas
who wish to purchase shares of the Fund in con
junction with the Self-Employed Individuals Ta
Retirement Act of 1962 (the Keogh Act) there s
available from the distributor a Custodial Accoun!
Agreement and a sample Profit-Sharing Plan. The
Custodial Account Agreement provides that Investor
Diversified Services, Inc. (which is also the distrib
utor) furnishes custodial services as required by such
Act. For such services it will receive a service fe
of $10.00 for each calendar year or portion thereo!
payable by the Employer named in the Custodid
Account Agreement. The amount of the service fe
may change from time to time as a result of negotie-
tions between Employer and Custodian. For further
details, including the right to appoint a success
custodian, see the Custodial Account Agreement an
Plan.
67
Prat, Marwick, MircuHe ct & Co.
CERTIFIED PUBLIC ACCOUNTANTS
ACCOUNTANTS’® REPORT
The Board of Directors and the Shareholders of Investors Mutual, Inc.:
We have examined the statement of net assets and capital stock and
surplus, and the schedule of investments in securities of Investors Mutual,
Inc. as of September 30, 1965 and the related statements of income, realized
gain on investments, unrealized appreciation of investments, and surplus
for the three years then ended. Our examination was made in accordance with
generally accepted auditing standards, and accordingly included such tests
of the accounting records and such other auditing procedures as we considered
necessary in the circumstances. We secured direct confirmation of the securities
owned at September 30, 1965 from the custodian depositary.
In our opinion, such financial statements and schedule present fairly
the financial position of Investors Mutual, Inc. at September 30, 1965 and
the results of its operations for the three years then ended, in conformity
with generally accepted accounting principles applied on a consistent basis.
PEAT, MARWICK, MITCHELL & CO.
Minneapolis, Minnesota
October 22, 1965
—_— Se eR ey ee ee RE CTT ISTE Fes A NT EP
bi bn) aad pos
68
INVESTORS MUTUAL, INC.
September 30, 1965
Statement of Net Assets and Capital Stock and Surplus
—
Assets
Investment in securities—at market value—
Schedule |:
Total—representing value of net assets
applicable to outstanding capital stock
Net asset valve per shore of outstanding capital stock
Cost
Common stocks:
Affiliated company . . . . . . .$ 6,437,254 $ 6,435,000
... Lit eee 1,841 ,006,260
Preferred stocks ee 190,735,688 194,008,566
SER ie ee a gs eR: ge > -e 785,292,680 787,206,437
Short-term notes . ae 66,434,630 66,434,630
a eas lll 2,895,090,893
Cash in banks:
On demand deposit . : 5,616,349
Time deposits and interest thereon 29,697,091
Receivable for investment securities sold 152,687
Dividends and accrued interest receivable . 15,670,655
Total assets .
Liabilities (note 1)
Payable for investment securities purchased $ 2,843,466
Payable for sales charges . eee 1,723,567
Accrued investment advisory and services fee. 891,221
Total liabilities . oe Sree cae
Net assets applicable to shares of outstanding capital stock
Capitol stock and surplus
Capital stock—authorized 350,000,000 shares of $.50
par value per share; outstanding 239,926,645 shares $ 119,963,322
Surplus, per Statement D:
Paid-in surplus 2,128,560,891
Undistributed net income . ee ee 1,544,158
Undistributed net realized gain on investments (deficit) (395,525)
Total capital stock and surplus — $2,249,672,846
Unrealized appreciation of investments, per Statement C 691,096,575
$2,946, 227,675
5,458,284
$2,940, 769,42!
$2,940, 769,42!
$ 12.257
See accompanying notes to financial statements.
MUTUAL, INC.
69
STATEMENT B
Net income.
Net reolized gain on investments, per Statement C .
increase in unrealized appreciation of investments
for the year, per Statement C
Three yeors ended September 30, 1965 1965 1964 1963
income
Cash dividends on stocks:
On investments in affiliates 8 286,000 $ 286,000 $ 240,160
Other . 66,593,518 61,102,653 55,808,336
Interest . 40,735,267 30,987,347 24,293,534
Other income (note 2) . 35,554 625,529 12,707
Total income . 5 107,650,339 S 93,001,529 $ 80,354,737
Expenses (note 2)
Investment advisory and services fee . $ 10,438,087 $ 10,431,136 $ 9,472,155
Custodian fee i ae 4 _ 181,375
Dividend checks and shareholders’ notices and
reports _ - 122,969
Postage . —_ 158,676
Directors’ fees . — —_ 49,350
Audit fees — — 14,880
Other expenses . _ a 80
Total expenses . . $ 10,438,087 $ 10,431,136 $ 9,999,485
Percentage of total expenses to
total income . ee: 9.7% 11.2% 12.4%
- $97,212,252
. $ 67,227,940
$ 82,570,393
$ 70,355,252
$ $0,715,497 $ 37,625,137
- $ 6,402,016
$ 169,286,979 $ 244,457,679
Se accompanying notes to financial statements.
years _ .
WARE PAT RAR RIT epee tet em aS
dP OOS earn tree aryapc eee
70
Three years ended September 30, 1965 1965 1964
196)
Realized gain on sales of investments
STATEMENT OF REALIZED GAIN ON INVESTMENTS
Proceeds from sales of investments:
Securities of affiliates . 2 2 2. 2. . .g§ — $s — $s
U.S. Government obligations . . . . |. 3,447,500 5,362,500 f
Short-termnotess . . . ......, 538,196,102 371,$23,770 we
Other securities. 2. 2. 2). . . . . . (246,584,628 166,553,959 _ Wis
Total proceeds from sales of investments $ 788,228,230 $ $43,440,229 $4735
Cost of investments sold:
Securities Of affiliates . 2 2... . . .g$ = $s — $s
U.S. Government obligations . . . . . 3,447,500 5,362,500 3
WEN Pe ey g 538,196,224 371,524,343 267 aes
6 ek et wt 198,052,516 115,837,889 165,52
Total cost of investments sold . . . . § 739,696,240 $ 492,724,732 $ 436.29
Realized gain (loss) on sales of investments:
Securities of affiliates 2. 2. 2. 2 2. . (gg) ~ $s — $
U.S. Government obligations . . . . . — _
cmerttemmnom . ww kk kkk (122) ($73)
OU ss Se a es a 48,532,112 ___ 50,716,070 MANS
Total realized gain on sales of investments . S$ 48,531,990 s 50,715,497 S 37,68
Reolized gain on exchanges of investments
Value of investments acquired through exchanges. $ 37,113,078 $ 2,920,168 $ 94
Cost of investments released through exchanges. 18,417,128 ___ 2,920,168 9 Ab
Realized gain on exchanges of investments . $ 18,695,950 s — s_
Net realized gain on investments (note3). . . . . . § 67,227,940 $50,715,497 $ 376
Appreciation at beginning of the year. . . . . . . § 684,694,559 $ 515,407,580
Appreciation at end of the year eos Ti ea 691,096,575 684,694,559
Increose for the yeor (mote!) . . . . . . . |, $ 6,402,016 $ 169,286,979
STATEMENT OF UNREALIZED APPRECIATION OF INVESTMENT
See accompanying notes to financial statements.
a
ELIT RI LO RS oe A a i be had
71
STATEMENT D
Three years ended September 30, 1965 1965 1964 1963
PAID-IN SURPLUS
Balonce at beginning of the yeor . . $1,827,486,185 $1,567,434,783 $1,360,652,262
Addition
Proceeds of sales 34,499,678, 30,253,304 and
25,469,412 shares of capital stock, respectively
(note 2), less $.50 a share credited to capital stock 409,525,818 348,094,343 272,261,590
Total . $2,237,012,003 $1,915,529,126 $1,632,913,852
Deduction
Redemption value of 9,107,757, 7,705,298 and
6,222,595 shares of capital stock, respectively,
less $.50 a share charged to capital stock : 108,451,112 88,042,941 65,479,069
Bolonce at end of the year . . $2,128,560,891 $1,827,486, 185 $1,567,434,783
UNDISTRIBUTED NET INCOME
Bolonce at beginning of the year . S$ 1,349,849 $ 1,155,071 $ 1,626,696
Net income for the year, per Stotement 8. : 97,212,252 82,570,393 70,355,252
Total . $ 98,562,101 $ 83,725,464 $ 71,981,948
Dwidends paid in cash (note 4). - 97,017,943 be 82,375,615 70,826,877
Balonce at end of the year (note 1) . § 1,544,158 $ 1,349,849 $s 1,155,071
Net realized gain on investments prior to
beginning of the yeor. . .
Distributions to shareholders prior t
beginning of the year . .
Balance ot beginning of the yeor
Net realized gain on investments for the yeor,
per Statement C
ae
Dividends paid in cash (note 4).
Bolonce at end of the yeor .
- $ 310,299,396
310,559,823
(260,427)
‘ 67,227,940
. $ 66,967,513
. 67,363,038
_$ (395,$25)
UNDISTRIBUTED NET REALIZED GAIN ON INVESTMENTS (DEFICIT)
$ 259,583,899 $ 221,958,762
259,880,870 222,168,318
$ (296,971) $ (209,556)
$0,715,497 37,625,137
$ 50,418,526 $ 37,415,581
$0,678,953 37,712,552
$ (260,427) $s (296,971)
See accompanying notes to financial statements.
RAL EOE ERE TENG ATMEL Aes
PRP ELF EO
INVESTORS MUTUAL, INC.
Notes to Financial Statements
72
1. Income Taxes:
Since the Company met the requirements of sections 851-855
of the Internal Revenue Code for the three years ended Sep-
tember 30, 1965 and intends to continue to meet such require-
ments and to distribute taxable income to shareholders in
amounts which will avoid or minimize income taxes, no provi-
sion is made for income taxes on undistributed net income or
unrealized appreciation of investments.
2. Investment Advisory and Services
Fee and Sales Charges:
Under the agreement in effect prior to April 6, 1963 the
investment advisor
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