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by us will no longer be necessary to effectuate the provisions of Section 11 (b) of the Act.

We have concluded, in the light of this new proposal, that it is appropriate to postpone hearing reargument on the plan of Virginia, and to postpone, pending our further order after such reargument, any action with respect to court enforcement of the plan.

By the Commission: (Chairman Purcell and Commissioners Healy, Pike, and O'Brien) Commissioner McConnaughey not participating.

15 S. E. C.

[No. 1981]

IN THE MATTER OF

THE EQUITY CORPORATION

AMERICAN GENERAL CORPORATION

File No. 812-337. Promulgated December 31, 1943

(Investment Company Act of 1940-Section 17 (b))

EXEMPTIONS.

TRANSACTIONS BETWEEN AFFILIATED PERSONS.

Proposed transaction involving the purchase and sale of securities between registered investment companies, affiliated persons of each other, held to meet the standards of Section 17 (b) of the Investment Company Act of 1940.

APPEARANCES:

Patrick J. Griffin, Jr., of the Corporation Finance Division of the Commission.

R. S. Elliot, Jr., for the applicants.

FINDINGS AND OPINION OF THE COMMISSION

The Equity Corporation ("Equity") and American General Corporation ("American") have filed a joint application pursuant to Section 17 (b) of the Investment Company Act for an

1 Section 17 (a) reads as follows:

Sec. 17. (a) It shall be unlawful for any affiliated person or promotor of or principal underwriter for a registered investment company (other than a company of the character described in Section 12 (d) (3) (A) and (B), or any affiliated person of such a person, promoter, or principal underwriter, acting as principal

(1) knowingly to sell any security or other property to such registered company or to any company controlled by such registered company, unless such sale involves solely (A) securities of which the buyer is the issuer, (B) securities of which the seller is the issuer and which are part of a general offering to the holders of a class of its securities, or (C) securities deposited with the trustee of a unit investment trust or periodic payment plan by the depositor thereof;

(2) knowingly to purchase from such registered company, or from any company controlled by such registered company, any security or other property (except securities of which the seller is the issuer); or

(3) to borrow money or other property from such registered company or from any company controlled by such registered company (unless the borrower is controlled by the lender) except as permitted in Section 21 (b).

(b) Notwithstanding subsection (a), any person may file with the Commission an application for an order exempting a proposed transaction of the applicant

1

order exempting from the provisions of Section 17 (a)1 of said Act a transaction in which Equity proposes to sell and American proposes to purchase 195 shares of common stock (representing 13 percent of the outstanding securities) of First York Corporation ("York").

After appropriate notice a public hearing was held before a trial examiner. The Commission having considered the record in this matter makes the following findings:

York is registered under the Act as a closed-end, nondiversified, management investment company, while Equity and American are registered as closed-end, diversified, management investment companies. As of September 30, 1943, the assets of Equity were valued at $19,622,592 and the underlying asset value of the securities of American held by Equity amounted to $10,049,746. As of the same date the net worth of American was $22,714,978. Equity's holdings of American represented approximately 59 percent of the outstanding voting securities of American. Equity also owns approximately 13 percent of the outstanding voting securities of York. American owns the remaining 87 percent of the outstanding voting securities of York. Equity, American and York, therefore, are affiliated persons of each other as defined by Section 2 (a) (3) of the Act, 2 and the proposed transaction between Equity and American is prohibited by Sections 17 (a) (1) and 17 (a) (2) of the Act unless exempted from such prohibition pursuant to the provisions of Section 17 (b).

Although the proposed transaction is prohibited by Section 17 (a) of the Act, Section 17 (b) requires us to grant an exemption from the provisions of Section 17 (a), provided we find that: (1) the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned; (2) the transaction is consistent with the policy of each registered investment company concerned as stated in its registration statement and

2 Sec. 2.

from one or more provisions of that subsection. The Commission shall grant such application and issue such order of exemption if evidence establishes that(1) the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned;

(2) the proposed transaction is consistent with the policy of each registered investment company concerned, as recited in its registration statement and reports filed under this title; and

(3) the proposed transaction is consistent with the general purposes of this title. (a) When used in this title, unless the context otherwise requires-... (3) "Affiliated person" of another person means (A) any person directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding voting securities of such other person; (B) any person 5 per centum or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; (C) any person directly or indirectly controlling, controlled by, or under common control with, such other person; (D) any officer, director, partner, copartner, or employee of such other person; (E) if such other person is an investment company, any investment adviser thereof or any member of an advisory board thereof; and (F) if such other person is an unincorporated investment company not having a board of directors, the depositor thereof.

reports filed under the Act; and (3) the transaction is consistent with the general purposes of the Act.

THE TERMS OF THE PROPOSED TRANSACTION

Equity and American propose a transaction in which Equity will sell and American will purchase 195 shares of York common stock, which represent 13 percent of the outstanding securities of York, at a price equal to 13 percent of the net asset value of York determined as of the date our order in this proceeding is issued.

York was organized under the laws of Delaware in 1937 by Equity and American, its only stockholders, to provide a means for the investment of a portion of the funds of these corporations in securities of so-called "special situation companies."

Financial statements for York are included in Exhibit B to the application. A condensation of the balance sheet for York as of September 30, 1943, as certified by Arthur Andersen & Co., is as follows:

Cash

FIRST YORK CORPORATION
Balance sheet at September 30, 1943

Assets

Accounts and dividends receivable and interest accrued

General market securities, at market quotations

Investments in subsidiary companies, at fair value as deter

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$1,007, 019. 88

17, 425. 50 6, 176, 855. 62

Liabilities and capital

Due for securities purchased; accrued expenses
Contingency reserve

Common stock, $20 par. Authorized 2,000

shares; outstanding 1,500 shares Capital surplus (after $145,000 dividends) Undistributed profits and income (deficit) Unrealized appreciation:

General market securities

Excess of "fair value" over cost of
Southeastern Shipbulding Corpora-

tion

30,000.00 7, 357, 342.86 (161, 657.81)

1, 543, 049. 55

1,748, 070. 75

8, 949, 371. 75

5, 537. 15 50,000.00

125, 100.00 8, 893, 834. 60 8,949, 371. 75

The purchase price of the 195 shares of York's common stock is to be 13 percent of York's net assets determined, as of the date our order is issued, in the following manner: (1) Cash, accounts receivable, dividends receivable, and accrued interest are to be included at the amounts shown by the accounts of York; (2) general market securities are to be valued at market quota

tions; (3) investments in subsidiary companies are to be valued, as determined in good faith by the board of directors of York at the end of the fiscal quarter preceding the issuance of our order. Liabilities are to be deducted at the amounts shown by the accounts of York.

A determination that "the terms of the proposed transaction, including the consideration to be paid or received, are reasonable and fair," necessarily involves a determination of the reasonableness of the valuations assigned to York's assets. We think it clear that the methods of valuing cash, receivables and general market securities are reasonable and fair. 3 However, the valuations assigned to the investments of York in subsidiary companies require further examination.

A

(1) NATIONAL POSTAL METER COMPANY, INC. ("NATIONAL”) York owns stock which represents 56.51 percent of the total voting power of National Postal Meter Company, Inc., while International Business Machines Corporation owns stock which represents 33.83 percent of the voting control of National. balance sheet of National as of September 30, 1943 and statements of income and surplus are attached as Appendix A. The following table summarizes information furnished by the applicants as to the cost of York's investment in National, its equity in the net assets of National, and the amount at which the investment was carried in York's statements at the end of each quarter since September 30, 1941:

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The investment has been carried at amounts representing "fair value, as determined in good faith by the board of directors" and had been reduced to $500,000 at June 30, 1943. Between June 30, and September 30, 1943 the amount was increased to $1,000,000, and this increase accompanied an increase in net assets due to substantial earnings. However, these earnings may be adversely affected by renegotiation proceedings.

A summary of operating results for the 5 years and 9 months ended September 30, 1943 follows:

3 See Section 2 (a) (39) of the Act for the statutory standards of "value."

4 The investment of International Business Machines Corporation in National Postal Meter Company, Inc. was made as of July 25, 1941. During the same year Mr. Charles R. Ogsbury. formerly director and vice president of International Business Machines Corporation, was elected director and president of National. Mr. T. C. Campbell, general manager of the Electromatic Typewriter Division of International Business Machines Corporation, is also a direc tor of National.

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