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(A) "Shares issued by any open-end investment company (mutual fund) registered with the United States Securities and Exchange Commission which primarily invests in U.S. securities. (The Securities and Exchange Commission is a permanent agency of the United States government which carefully regulates the securities industry in the U.S.) [Emphasis in original.]

(B) "Securities issued by any publicly-owned corporation in the United States principally engaged in the management and/or distribution of open-end investment companies.

(C) "Obligations of the United States or Canadian governments, or cash and time deposit certificates issued by any bank or trust company having a net worth in excess of US $5,000,000. (Such investments are often intended for periods when unusal market conditions occur and Management considers that a defensive position is indicated. At such times, Management will emphasize conservation of principal and will maintain sufficient cash balances to permit the purchase of additional holdings at more favorable prices.)"

(ii) Without stating that the investment policy had been changed since April 1, 1964, and without identifying or explaining the reasons and purposes for, and the effects of, the changes, the prospectus of FOF dated May 3, 1965 states the investment policy of FOF as follows:

(A) "-Shares issued by any open-end or closed-end investment company registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940. (The Securities and Exchange Commission is a permanent agency of the United States government which regulates the securities industry in the U.S.) [Emphasis in original.]

(B) "Securities issued by any company engaged in the management and/or distribution of such investment companies.

(C) "Obligations of the United States or Canadian governments, or time deposit accounts in a recognized bank or trust company.' (iii) The prospectus of FOF dated May 3, 1965 does not disclose

(A) that the changes made in transforming paragraph (i)(A) into paragraph (ii) (A) above among other things—

(1) permit FOF to invest in securities issued by registered investment companies, but not registered under the Securities Act, with the consequence that during the period from April 30, 1965 to October 12, 1965, $10,000,000 of the assets of FOF were in fact invested in unregistered securities of The York Fund, Inc., a newly organized investment company controlled by IOS, which owns 45% of the York Management Company, Ltd., the investment adviser of The York Fund, Inc.; and

(2) permit the assets of FOF to be invested in shares of registered investment companies which are primarily engaged in investing in non-United States securities.

(B) that the changes made in transforming paragraph (i) (B) into paragraph (ii) (B) above permit the assets of FOF to be invested in securities of companies "engaged in the management and/or distribution of such companies" which are not publicly-owned, under circumstances where IOS controls and owns a substantial interest in such companies.

(C) the changes made intransforming paragraph (i) (C) into paragraph (ii) (C) above

(1) permit the assets of FOF to be held in time deposits as an integral, continuing, non-defensive element of its investment purposes; and

(2) permit the assets of FOF to be invested in any bank or trust company, so long as it is a "recognized" (by whom, and upon what criteria, is unstated) bank or trust company, even though the "bank or trust company" has a net worth of less than $5,000,000 under circumstances where IOS wholly owns, controls, and directly or indirectly has interests in banks which under these terms will be eligible to receive time deposits from FOF.

(iv) Since the prospectus of FOF dated May 3, 1965, the investment policy of FOF has been changed to permit it now to invest in securities issued by Canadian investment companies not registered with the Commission, under circumstances where IOS wholly owns I.O.S. of Canada, Ltd., which wholly

owns Regent Advisers (1963) Ltd., a Canadian company which manages and underwrites Regent Fund, Ltd., a Canadian investment company which is not registered with the Commission.

e. The prospectus of FOF, the prospectus for the IOS Investment Program for the accumulation of interests in FOF, and the periodic reports of FOF do not disclose the extent to which IOS dervies revenues from its operations relating to FOF. In particular:

(i) The semi-annual report of FOF dated June 30, 1965 indicates, in a statement of net assets made a part thereof, that included in the assets of FOF as of that day was "cash, including interest-bearing deposit accounts of $38,400,000," in the total amount of $46,367,600. Note 6 of the financial statement states in relation thereto :

"Interest-bearing deposit accounts may be maintained by or for the Fund in recognized banks or trust companies: Although I.O.S., Ltd. (S.A.), distributor of the Fund, directly or indirectly has interest in or controls eligible financial institutions, as of June 30, 1965, no deposits have been made in such institutions."

Said Note 6 and said semi-annual report omit to disclose that as of the date or dates prior and subsequent to June 30, 1965 substantial amounts of cash of FOF were deposited with a financial institution which extends a line of credit to Investors Overseas Bank, Ltd., a wholly-owned subsidiary of IOS located in Nassau, the Bahamas, the business of which is lending money to investors, at 6% to 6% interest per annum, in order to finance their acquisition of IOS Investment Programs for the accumulation of interests in FOF. (ii) The semi-annual report of FOF dated June 30, 1965 indicates that FOF's portfolio included as of that date 501,743 shares of The York Fund, Inc., an investment company with total net assets of $4,491,500 as of that date. The cost of the FOF investment in The York Fund, Inc. is indicated as $5,050,000 and its "quoted market" value as of June 30, 1965 is indicated to be $4,500,600. The semi-annual report dated June 30, 1965 describes The York Fund, Inc. as follows:

"The York Fund, Inc. Organized in April 1965 as a registered investment company under the U.S. Investment Company Act of 1940, Fund shares are currently available only to The Fund of Funds, the 'founderinvestor.' Its charter permits maximum flexibility in both rising and declining markets. Compensation of the management group is solely on a performance basis. It is hoped that York Fund, with its flexible approach will, over the long term, stay among the industry leaders." [Emphasis in original.]

Said description omits to disclose:

(A) The "founder-investor" of the fund is not FOF. While FOF is the sole "investor" in The York Fund, Inc., IOS rather than FOF is its "founder." IOS owns 45% of the outstanding stock of York Management Company, Ltd., located at 119 rue de Lausanne, Geneva, Switzerland. the management company of The York Fund, Inc.

(B) Under its investment advisory and management services contract with The York Fund, Inc., York Management Company, Ltd. will receive investment advisory fees computed as the sum of

"(a) 10% of the excess of realized and unrealized securities gains over realized and unrealized securities losses (reduced by the excess, if any, of such losses over such gains in the immediately preceding year), and

"(b) 10% of the net interest, dividends and other income of the Registrant, less

"(c) all amounts which the adviser is required to reimburse Registrant for operating expenses, salaries of officers and employees, directors' fees and office expenses."

(C) The acquisition cost of the 501,743 shares of The York Fund, Inc. owned by FOF included a sales charge (1%), all or substantially all of which has been paid to IOS as the broker-dealer for the buyer (FOF). (iii) Interests in FOF are offered for sale by means of participations in the IOS Investment Program. The types of investment programs offered to investors under the IOS Investment Program include a "Capital Accumulation Program with Insurance Protection" (CAPINS). The prospectus of the IOS Investment Program dated March 1, 1965 described CAPINS as a plan by which investors are able "to assure completion of all unpaid insured Investment Units in the event of death." [Emphasis in original.] This is done by the

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deduction from each investor's payment under CAPINS of an insurance permium paid over to the International Life Insurance Company (S.A.) of Luxembourg (ILI). ILI is described in the IOS Investment Program prospectus dated March 1, 1965 as a company which "has issued a renewable term, group-creditor life insurance policy to Investors Overseas Services on the lives of those investors participating in CAPINS Program." Said prospectus omits to disclose that 75% of the stock of ILI is beneficially owned by IOS.

(iv) The prospectus of FOF dated May 3, 1965 at page 6 thereof states with regard to the cost of purchases of securities for the portfolio of FOF (A) "The cost of the Fund with respect to each transaction will generally be at the minimum rate established by most mutual funds (or securities brokers or dealers, in the case of closed-end fund and management company shares), and may not exceed an aggregate total of 1% during any calendar year. If the total cost of all transactions involves costs to the Fund in excess of 1% (including transfer taxes), Investors Overseas Services, exclusive distributor of the Fund, has agreed to pay such excess." [Emphasis in original.]

(B) Said prospectus further states, at page 17 thereof "As exclusive distributor of the Fund's shares, Investors Overseas Services will retain a portion of the Fund of Funds acquisition charge. The purchase and sale of securities for the Fund's portfolio will normally be placed through Investors Overseas Services as the investment dealer of record. and IOS will share in customary charges, if any, relevant to such transactions. IOS reserves the right to accept or reject all Applications for the purchase of Fund shares and Programs." [Emphasis in original.] Said statements omit to disclose that the "portion of the Fund of Funds acquisition charge" retained by IOS generally totals 75% of the total acquisition charge.

f. The prospects of FOF dated May 3, 1965 contains a section entitled "How To Redeem Fund Shares." Said section states in part that redemptions may be suspended in the event

"(ii) the Securities and Exchange Commission of the United States government has by order permitted such suspension. . . ." Said statement implies that FOF acknowledges that it is subject to regulation by the Commission, when in fact it is not registered pursuant to the Investment Company Act, a fact which is not disclosed.

g. Other inadequate or inaccurate statements of a similar object and purport were made in the offer and sale of interests in FOF and participations in the IOS Investment Program relating to FOF.

5. The prospectus of FOF dated May 3, 1965 states that its quarterly reports to investors "make maximum full disclosure of the activities of the Fund, in accordance with precedent set by U.S. securities law requirements." Said statement omits to disclose that the quarterly reports, which include semi-annual and annual reports, and the prospectus of FOF are not, in fact, in accordance with precedent set by U.S. securities laws requirements and do not, in fact, make full disclosure of the activities of FOF as above stated.

B. VIOLATION OF SECTION 17 (d) OF THE INVESTMENT COMPANY ACT AND RULE 17d-1

THEREUNDER

1. On August 28, 1964, a registration statement covering 447,000 shares of Ramer Industries, Inc. (Ramer) was filed with the Commission. As described in the registration statement, the 447,000 shares were initially to be sold by the controlling stockholders of Ramer to Messrs. Robert J. Haft, Rudolph Cohen, Howard Stamer and Mortimer B. Wolf (individual purchasers) at a price of $2.3714 per share. The individual purchasers did not have sufficient capital to acquire all of the shares, and had been unsuccessful in their attempts to obtain loans. Cowett, who at that time was general counsel and a director of IOS, and an officer and director of its subsidiary companies IIT (International Investment Trust) and IIT Management Company (S.A.), undertook to assist in the placement and acquisition of the stock. Cowett and Cornfield arranged for the individual purchasers to assign 230,000 of the 447,000 shares to be purchased by them to seven assignee purchasers. Cowett and Cornfield committed IIT to purchase 60,000 shares, and solicited Value Line, Convertible, RIC, Alexander M. Laughlin, Francis H. Cabot and Banque Privee to purchase additional shares of Ramer stock. (Alexander M. Laughlin is a partner of Jesup & Lamont, a

registered broker-dealer and New York Stock Exchange member firm to which IOS directs brokerage. Francis H. Cabot is a customer of Mr. Laughlin. Banque Privee is a Swiss bank whose wholly-owned subsidiary, Athold (S.A.), is a distributor of IOS Investment Programs for the accumulation of interests in FOF in French-speaking Switzerland.) Amendment No. 3 to the registration statement of Ramer was filed on December 1, 1964 disclosing that 230,000 shares had been assigned as follows: IIT (60,000 shares); Value Line (50,000 shares); Covertible (35,000 shares); RIC (50,000 shares); Alexander M. Laughlin (5,000 shares); Francis H. Cabot (10,000 shares); and Banque Privee (20,000 shares). The cost of Ramer shares to IIT was $3.00 per share, while the cost of such shares to each of the other said purchasers was $3.25 per share.

2. Both IIT and FOF are affiliated with and under control of IOS and, by reason of such common control, affiliates of each other. FOF owned at the time of the transaction, and presently owns, substantially in excess of 5% of the outstanding shares of each of the three registered investment company assignee purchasers, namely, Value Line, Convertible and RIC. By reason thereof, FOF was and is an affiliate of each of such companies so that IIT was and is an affiliate of an affiliate (FOF) of each of such companies, within the meaning of the Investment Company Act. Section 17 (d) of the Investment Company Act and Rule 17d-1 thereunder in general prohibit transactions in which any affiliate or any affiliate of an affiliate of a registered investment company is a joint or a joint and several participant with such registered investment company unless an application for an order permitting the transaction has been granted. No application for such an order relating to the transaction involving the stock of Ramer was filed. Accordingly, IOS, Cornfeld and Cowett wilfully violated and wilfully aided and abetted violations of Section 17 (d) of the Investment Company Act and Rule 17 CFR 270.17d-1 thereunder.

C. VIOLATIONS OF SECTION 17 OF THE EXCHANGE ACT

1. During the period from approximately May 28, 1965 to the present Investors Continental Services, Ltd. wilfully violated Section 17(a) of the Exchange Act and Rule 17 CFR 240.17a-4 thereunder and IOS, Cornfeld, Cowett and Feld wilfully aided and abetted such violations by failing to keep and preserve a communication which is required to be kept and preserved, the text of which is as follows:

“Mr. LARRY ROSEN, "Geneva.

"FEBRUARY 10, 1965.

"DEAR LARRY: This is intended simply to illustrate an additional problem created by the entire ICS-NASD situation.

"Whenever an incorrect commission statement comes into New York, whenever a letter written on ICS stationery by someone who is not an NASD registered representative finds its way into the New York office, or whenever there is any correspondence relating to any person who is not NASD approved, Hy attempts to remove such commission statement, letters, or other paper from ICS files. However, there is a strong probability that Hy will not be able to catch everything which should not be put into the ICS files. If Hy is not in the office and the matter is handled in his absence by one of the secretaries, there is an increased probability that an improper item will find its way into the ICS file. "As you know, the New York office is a very busy one. Hy attempts to do three or four jobs at once. The volume of paper work is staggering in relation to the number of personnel in the office. All of these factors only increase the danger of something slipping into the files.

"As you are probably aware, the ICS files are always open to complete examination by the NASD or SEC. One improper paper in the file, if discovered, could lead to a complete investigation of the entire workings of ICS. Such an examination would include, in all probability, a review of all correspondence coming into the office over a protracted period. Since the correspondence in any period of three or four or five days is bound to include at least one damning letter, you can see that the results could be disastrous.

"I do not mean to panic everybody involved by this letter and my letter of even date. I can ask no more than that each person involved do his part in cutting down the extent of our obvious violations.

Best regards,

cc: Bernard Cornfield.

Hy Feld.

EMC: AW."

"2. IOS wilfully violated Section 17(a) of the Exchange Act and Rule 17 CFR 240.17a-7 thereunder and Cornfeld, Cowett and Cantor wilfully aided and abetted such violations in that said persons failed to furnish to the Commission, upon demand, at its principal office in Washington, D.C., true, correct, complete, and current copies of certain books and records specified in a demand made upon IOS, by letter of the Commission dated November 29, 1965, relating to transactions effected by IOS with or for customers who are citizens or nationals of the United States, which books and records IOS is required to make, keep current, and preserve pursuant to Rules 17 CFR 240.17a-3, 17 CFR 240.17a-4 and 17 CFR 240.17a-7 under the Exchange Act.

D. WITH RESPECT TO THE QUESTION OF THE PUBLIC INTEREST:

1. IOS made, and caused Value Line, Convertible and RIC to make, in the prospectuses included in their respective registration statements, statements concerning the benefits received by IOS from Jesup & Lamont, a registered brokerdealer and a member of the New York Stock Exchange, in connection with the allocation of brokerage to Jesup & Lamont by such investment companies, as more fully set forth below.

a. IOS has requested or directed certain registered investment companies, the shares of which have been purchased for the portfolio of FOF, to effect securities transactions for their own portfolios with, or to cause a portion of the brokerage commissions on such transactions to be given-up to, certain broker-dealers designated by IOS. The principal broker-dealer so designated by IOS since July 1963 has been Jesup & Lamont, a registered broker-dealer and New York Stock Exchange member firm. As of May 1965, Jesup & Lamont had realized gross commissions as a result of such directed brokerage and givee-ups in excess of $1,500,000.

Under these circumstances:

(i) Jesup & Lamont has furnished to IOS research, investment advisory and investment banking services, and Schroeder Boulton, a partner of Jesup & Lamont, has agreed to and has become a member of the board of directors of The York Fund, Inc., a registered investment company all the stock of which is owned by FOF and the management company of which is controlled by IOS.

(iii) Mrs. Gloria Martica Clapp, the registered representative employee of Jesup & Lamont who is credited by that firm with all commissions received by or given-up to the firm as a result of the designations made by IOS, has arranged for the deposit with Fiduciary Trust Company, Ltd., Nassau, the Bahamas (Fiduciary), of most of the more than $750,000 paid to her as of May 1965 by Jesup & Lamont, as her share of the brokerage commissions on all business directed to it or give-ups paid to it at the request of IOS. Fiduciary, in turn, has transferred substantial sums of money to banks controlled by IOS or to banks which have material banking relationships with IOS.

(iii) Mrs. Clapp and her husband, Samuel F. Clapp, directly and indirectly through J. H. Crang & Co., (Nassau) Ltd., have assisted IOS in obtaining work entry permits for its salesmen to permit them to sell the IOS Investment Program in Nassau, the Bahamas.

(iv) Samuel F. Clapp, directly and indirectly through Fiduciary and J. H. Crang & Co. (Nassau) Ltd., assisted in the procurement for IOS of subscribers to its IIT investment advisory service, "International Economic and Market Reports," at a subscription price of $2,500 per month ($30,000 per year) per subscription. These subscribers have paid to IOS substantially in excess of $100,000.

(v) Samuel F. Clapp has arranged for financial institutions to deposit more than $7,000,000 with banking institutions controlled by IOS or in which IOS has an interest.

(vi) Samuel F. Clapp, a member of the Bar of Massachusetts, directly and indirectly through Fiduciary, has provided IOS and its affiliated companies and persons with legal advice and a variety of other valuable services relating to the business affairs of IOS.

(vii) Samuel F. Clapp has introduced IOS, and caused IOS to be introduced, to persons with whom IOS or various of its subsidiaries have enjoyed valuable relationships.

b. Cowett, as the representative of IOS, made statements to Value Line, Convertible and RIC for the purpose of having such statements set forth in the prospectus of each, as follows:

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