.

?

•

.Twelfth Annual Report

of the

Securities and Exchange ,-

Commission -

Fiscal Year Ended June 30, 1946

UNITED STA.TES

GOVERNMENT PRINTING OFFICE

WA.SBINGTON : 1947

-
II

SECURITIES AND EXCHANGE COMMISSION

Central Office

18th and Locust Streets

Philadelphia 3, Pa.

COMMISSIONERS ,

Ganson Purcell, Chainnan

Robert E. Healy

Rohert K. McConnaughey

Janies J. Caffrey

Richard B. McEntire .. Orval L. DuBois, Secretary

•

•
LETTER OF TRANSMITTAL

SEOUlUTIES AND Exo~GE Co:MmSSION,

PhiladeZphia 3, r«,Jomuary 1]7,1947.

Sm: I have the honor to transmit to you the Twelfth Annual Report of the Securities and Exchange Commission, in accordance with

the provisions of Section 23 (b) of the Securities Exchange Act of

1934, approved June 6, 1934, Section 23 of the Public Utility Holding

Company Act of 1935, approved August 26, 1935, Section 46 (a) of

the Investment Company Act of 1940, approved August 22, 1940, and

Section 216 0:[ the Investment Advisers Act of 1940, approved August

22,1940.

Respectfully,

JAMES J. CAFFREY, Ohairmom.

THE PREsIDENT OF THE .sENATE,

THE SPEAKER OF THE HOUSE OF REPRESENTATIVES,

Washington, D. O.

nI

•

ROBERT -E. HEALY

1883-1946

Robert E. Healy was appointed by the ..President as one of the original

members of the Securities and Exchange Commission, and assumed the

duties of that office on July 2, 1934. _By virtue of three successive

reappointments he held that office until his death on November 16,

1946.

To his duties he brought a wealth" of knowledge and wisdom, a staunch

Integrity, an impeccable sense of fairness, and a boundless, untiring

devotion. These qualities made him, inevitably, a powerful influence

in the shaping and administration of the laws administered by the

Cohimission,

His forceful expression of the principles that guided his decisions

established a tradition deeply respected by all who knew him. He

leaves more than one man's burden to be borne by those who remain.

Itwould have been his will that we carryon, in spite of his loss, the

tasks which still lie before us. .

His was a spirit that recognized no limit to friendship. To the young

people, whom he especially loved, he was particularly anxious to give

help and encouragement. Inall who knew him he inspired a deep and

lasting affection. -. .-

We have resolved to memorialize herein our sorrow at his passing and

. to record our deep sympathy for the members of his family.

James J. Caffrey

Robert K. McConnaughey

Richard B. McEntire

Edmond M. Hanrahan

v

•

;'" ~~... ....

z- >::-i", ~_'

-

__ =

TABLE OF CONTENTS

Fore~ord

Commissioners, Staff Officers and Regional Administrators

PART I

ADMINISTRATION OF THE SECURITillS ACT' OF 1933 Registration of Securiti~ under the Act

The Volume of Registered and Exempted Flotations Total of registratioDS

Volume of stocks and bonds

~~~~:J~:====~===================================== Cost of flotation -,

~~~~~~~========================================

Volume of all ne~ issues :

Statistics of Securities Registered under the Act_~

Disposition of registration statements

Comparative number of registration statements filed

ExeDlption from Registration under the Act

Exempt offerings under Regulation A-_r

Exempt offerings under Regulation A-M

Exempt offerings under Regulation B

Confidential written reports' under Regulation B

on and gas investigatioDS

Disclosures Resulting from Examination of Registration Statements __ Il)junction ActiODSInstituted under.the Act

j>ARTII

ADMINISTRATION OF 1934 OF THE SECURITillS EXCHANGE ACT

Regulation of Exchanges and Exchange Trading

Registration of exChanges

1 Value and volume of traWng------r------------------------- ~c~ge mem~hip

~~~J~~~~~~~======:=~===================~======== Regulation pf the distribution of publicly offered securities

Registration of Securities on Exchanges

Purpose and motive of registration of securities on exchanges Examination of applications and reports

Ne~ Rules and amendments of Forms for registration under the 'Act

Rule X-13A-6~uarterly reports by certain companies __ Rule X-12A-4-Temporary exemption from Section 12 (a) of certs.in securities of banks . Amendments to Forms lo-K and I-MD

'Amendments to Forms 12-K and 12A-K

Proceedings under Section 19 (a) (2)

Temporary suspensions of securities from trading pursuant to Section 19 (a) (4) and Rule X-15C2-2

Stat~tiCB of,securities registered on exehangea.; Security .,1:ransactionsof Corporate Insiders

Number of o~ership reports filed during year

Solicitations of Proxies, Consents. and Authorizations

m

Page

xm

xv

1

1

2

2

3

3

3

4

4

5

5

.5

5

6

6

7

7

7

7

9

9

10

13

15

15

15

15

16

16

16

17

17

17

18

19

19

21

21

22

22

22

23

23

25

26

- _

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_ h h _

_

_

_

_

_

_

_

_

_
ADMINISTRATION OF THE SECURITIES EXCHANGE ACT

OF 19M-Continued- Unlisted Trading Privileges

On registered exchanges------------------------------------ On exempted exehangea; ,

Applications for unlisted trading privileges-------------------- Ohanges in securities admitted to unlisted trading privileges Delisting of Securities from Exchanges

Securities delisted by application __ :. _ Securities delisted by certification

Securities removed from listing on exempted exchanges--------- Securities Exempted from Registration

, Exempted securities removed from exchange trading

Temporary exemption 'of substituted or additional securities

Stabilizat}on a~d ManipuI~tion , '_-: ~: ManIpulatton

StabilIzatIon !!a~ginvestigations--------~---------------~-7----~-

Regulation of Brokers and Dealers :.. .: .: Registration :.

Brcker-Dealej inspections -::. Administrative proceedings

Superv}si!ln. of NASD ac~ivity

DISCIplinary proceedings ---r--

Cemmission review of disciplinary action or denial of member- , sbip

C~mmission ac~ion on petitions-for approval of or continuation InmembershIp :. :..

Registered representative rule :.-= _ Litigation under the Act ~_'

Civil actions instituted by the Commission : :.

,.

l'

a'

vm CONTENTS

"'--

Page

27

27

28

28

28

29

29

30

30

30

_30

31

31

31

32

32

33

33

33

34

36

36

36

37

38

39

42

PART III

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935______________________________________ -45

Summary of Activities________________________________________ . 45

InteW:~:a::~P:r~:~-~~:~-~t~~~~~~~~~~~~~o~-~~~========:.. :: Divestment and simplification '-_____________________ 46 Summary ~_:..___ 48

Interpretatio~ of Section ll ; ~___ 49

Status of .Integrative Program-20 MaJor SystelnB 1 50

1. Electric Bond and Share Company_______________________ 50

2. ThEj North American Company__________________________ 53

3. The United Gas Improvement Company -___ 54

4: The Commonwealth & Southern COrporation -'____ 55

5. Cities Service COmpany :______ 56

6. Associated Gas and Electric Company .___________ 57

7. Standard Power and Light Corporation-8tandard Gas and ElectricCoInpany __~_________________________________ 60

8. Columbia Gas & Electric Corporation____________________ 61

9. Niagara Hudson Power Corporation______________________ 62

10. International Hydro-Electric System.:.:.-__________________ 63

11. The Middle West Corporation ..:___________________ 64

12. The United Light and Railways Oompany '___________ 65

13. Anwrican Water Works and Eleotric Company, Inc________ 67

14. Engineers Public Service Company,'; :.______________ 68-

15. The lJnitedCorporation________________________________ 68

16. Midland Realization Company- and Midland Utilities

Company- ~--_------ .:__r: ;.____ _ 69

17. New England Public Service Company .; :.. -. 70

18. Federal Water and Gas Corporation __-'-_:________________ 71

19. Ogden COrporation .::. :.- .:. 72

20. LOng Island Lighting Company 7 .,_______________ .73

~-

_

~ _

_

_

_

_

_

_

_ __ ~ _

- _

_

_

_

-

_

--- ---- -- - - -- __

_

~ _

~--- _

_

-

•

~

__~ -
CONTENTS IX

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935-Continued .l:'age

Regulation of Security Issues___________________________________ 73

Volume of financing________________________________________ 73

COmpeUtivebidding_______________________________________ 74

Exemption from Rule U,;.50 ~_________________________ 76

Protective provisions for senior securities_____________________ 76

ExempUons from the Provisions of the Act 7______ 77

Cooperation between the Securities and Exchange Commission and StateCommissiopS ~____________________________________ 78

PART IV

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANK- RUPTCY ACT, AS AMENDED 81

Summary of. Activities_ _ ____ _____ ___ ____ 81

Commission's functions under Chapter X l_ 81

The Commission as a Party to Proceedings_______________________ 82

Problems in the administration of the estate, 83

Activities with respect to allowances_________________________ 86

Institution of Chspter-X Proceedings and Jurisdiction of the Court., , 88

Plans of Reorganization under Chapter X_________________________ 89 Consumlll8tionofplan ~________________________ 91

-Advisory Reports______________________________________________ 91

PART V

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939_ 95

Statistics of Indentures Qualificd________________________________ 95

PART VI

ADMINISTRATION OF OF THE 'INVESTMENT COMPANY ACT 1940 ,;. =____ 97

Summary of Ac'tivities .:____________________ 97

New Rules under the Act____ 98

Adoption of Rule N-17D-L .:___________________ 98

Adoption of Rule N-28B-L:._______________________________ 99

Statistics Relating to Registered Investment Companies____________ 99

Civil Actions Instituted under the AcL '_____________ 100

PART VII

ADMINISTRATION OF 1940 ~_~ OF THE 'INVESTMENT ADVISERS ~____________ ACT 101

RegistrationStaUstics ~______________________________________ 101

PART VIII, .. OTHER ACTIVITIES OF THE COMMISSION UNDER THE VARIOUS STATUTES

The' Commission in the COurts :

CODlplaints~ndInvestigation--~:------------------------------- ~~~gs~====================================== Activities oBhe Commission in Accounting and Auditing

Reconversion to peacetime activities and new registrants

Developments in the field of accounting principles and proce-

'De~I:&~~is-i~the fteici-ofauditingpm~ti~s-and-pi~f~{o"iJal f, conduct :

103

103

103

108

111

112

113

116

119

~

__~

~

_

~

~ _

_

_

_

_
OTHER ACTIVITIES OF THE COMMISSION UNDER THE

, VARIOUS STATUTES-Continued

Statistics and Special Studies CapitalIOarkets

Savingstudy

Financial position of corporations

Survey of AIOerican listed corporations

InvestIUent coIOpany data

Stock market statistics

Opinion~:~i:~~~~e~~:=:======~====================~============ VVritingOffice Publications

Public releases

Otherpublications

Informatfon Available for Public Inspection Publichearings

Personnel

Fis~affairs

Confidential TreatIOent of Applications,. Reports, or Documents

Oompliance with the Acbninistrative Procedure Act

The CoIOIOission's Study of Unregulated Securities and its Reeom- IOendation to Congress

VolUIOe of Informal Interpretative Assistance

International Financial and Economlc Matters

1

-;;

'.'\

X' CONTENTS

Page

120

120

121

121

122

122

123

123

123

123

124

124

125

125

126

126

127

127

128

129

132

133

PART IX

APPENDIX-BTATISTICAL TABLES

Table 1. Registrations under the Securities Act of 1933 fully effective

during the fiscal year ended June 30, 1946: Part 1. Distribution by months ,__ 137

Part 2. Breakdown by method of distribution and type of security

Qf the volume proposed for cash sale for account of. the

issuers______________________________________________ 137

Part 3. Purpose of registration and industry of registrant___________ 138

Table 2. Classification by quality and size of new issues). exclusive of investment trust issues, registered under the Beourities Act of

1933 for sale to the general public through investment bankers

during the fiscal years 1944, 1945, and 1946:

Part 1. NUIOber of issues and aggregate value_____________________ 139

Part 2. Compensation to distributors____________________________ 140

Table 3. New securities offered for cash sale in the United States: , Part 1. Type of offering ,_____________________ 141

Part 2. Type of security :______________________________ 142

Part 3. Type of issuer__________________________________________ 1~

Part 4. Private placements of corporate securities 144

Table 4. Proposed uses of net proceeds from the sale of new corporate

securities offered for cash sale in the United States:

Part 1. All corporate___________________________________________ 146,

Part 2. Industrial_____________________________________________ 147

Part 3. Public utility L 148

Part 4. Railroad______________________________________________ 149

Part 5.. Real estate and financial________________________________ 150

Table 5. Brokers and dealers registered under Section 15 of the Securitie~ Exchange Act of 1934-Effective registrations as of

June 30, 1946, classified; by type of organization and by location of principal office -__________ 162

Table 6. Special offerings effected on national securities eichanges for

fiscal year ended June 30, 1946____________________________ 153

Table 7. Market value and volume of sales effected on securities ex- ehangea: . Part 1. On all registered exchanges ll_________ 154

Part 2. On all exempted exchanges______________________________ 155

Table 8. Round-lot stock tran,sactions effected on the New York

Stock Exchange for the accounts of members and non- members, weekly, July 2, 1945-June 29, 1946_______________ 156

---------- _

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

~-------

= .______
Pap

CONTENTS

. . Table 9. Round-lot and odd-lot stock transactions effected on the New . York Curb Exchange for the accounts of, members and non- members, weekly, July 2, 1945-June 29, 1946__=c _

Table 10. Odd-lot stock transactions effected on the New York Stock

Exchange for the odd-lot accounts of odd-lot dealers, specialists, and customers, weekly, July 2, 1945-June 29, 1946

Table lOA. Round-lot transactions 'for nonmembers' margin accounts on the ~archNew York Stock Exchange, by weeks, December 7,1942- 9, 1946

Table 11. Basic forms used by issuers in registering securities on national

securities exchanges and, for each form, the number of se- curities registered and issuers involved as of June 30, 1945 and June 30, 1946

Table 12. Classification by industries of issuers having securities registered on national securities exchanges as of June 30, 1945 and June 30, 1946

Table 13. Number and amount of securities classified a~ording to basis for

admission to dealing on all exchanges as of June 30, 1946

Table 14:

Part 1. Number and amount of securities classified according to the

number of registered exchanges on which each issue ap- pears as of June 30, 1946

Part 2. Registered issues classified according to whether or not they are also admitted to unlisted trading on other registered exchanges as of June 30, 1946

Part 3. Unlisted issues on registered exchanges classified according to

whether or not they are also registered on other registered exchanges-as of June 30, 1946

Part 4. All issues classified according to whether they are available for , trading on single or several registered exchanges as of June 30, 1946

Table 15. Number of issuers having securities admitted to dealing on all

exchanges as of June' 30, 1946, classified according to the

basis for admission of their securities to dealing

Table 16. Number of issuers having stocks only, bonds only, and both

stock and bonds, admitted to dealing on all exchanges as of

June 30, 1946

Table 17. Number of issuers and securities, basis for admission of securities

to dealing, and the percentage of stocks and bonds, for each

exchange, admitted to dealing on one or more other exchanges as of June 30, 1946

Table 18. Number of.. issues admitted to unlisted trading pursuant to

Clauses 2 and 3 of Section 12 (f) of the' Securities Exchange Act of 1934 and volume of transactions therein

Table 19. Reorganization cases instituted under Chapter X and Section

77B in which the Commission filed a notice of appearance and

in which the Commission actively participated during the

fiscal sear ended June 30, 1946:

Part 1. Distribution of debtors by type of industry

Part 2. Distribution of debtors by amount of indebtedness

Table 20:"

Part 1. E1Eictricutility properties divested by registered holding com- panies, July 1,1945, to June 30,1946

Part 2. Gas utility properties divested by registered" holding com- panies, July 1, 1945, to June 30,1946

Part 3. Non-utility properties divested by registered holding com- panies, July 1, 1945, to June 30, 1946

Table 21. Utility and other properties subject to divestment under Section

11 (b) (1) orders outstanling as of June 30, 1946

Table 22. Public utility holding companies subject to dissolution or . liquidation and subsidiaries subject to divestment under

Section 11 (b) (2) orders-outstanding as of June 30, 1946

Table 23. Number of applications and declarations received and disposed ._ of during the fiscal year ended June 30, 1946, under the Public Utility Holding Company Act of 1935

XI

158

160

162

164

164

165

166

166

166

166

161

167

168

169

170

170

171

173

174

176

180

184

_

~

~ ~ _

_

_

" -

' _

_

_

_

_

_

~ _

_

_

_

_

_

~ _

_

_

_
Table 24. Cases instituted by the Commission under the Secunties Act of

1933, the Seourities Exchange Act of 1934, the Public Utility

Holding Company Act of 1935, the Investment .COmpany Act

of 1940, and the Investment Advisers Act of 1940

Table 25. Cases instituted against the Commission and cases in which the . Commission was permitted to intervene :. __

Table 26. Injunctive proeeedlngs brought by Commission,. under the

Securities Act of 1933, the Securities Exchange Act 9f 1934,

the Public Utility Holding Company Act of 1935, the Investment Company Act of 1940, and the Investment AdviS!lrs Act

(If 1940, which were pending during the fiscal year ended June 30, 1946

Table 27. Indictments returned for violation of the Acts administered by . the Commission, the mail-fraud statute (Sec. 338, Title 18,

U. S. C.), and other related Federal statutes (where the

Commission took part in the investigation and development . of the case) which were pending during the fiscal year ended' June 30, 1946 ; .:

Table 28. Petitions for review of orders of Commission under the Securities

Act of 1933, the Securities Exchange Act of 1934, and the

Pubde Utuity Holding Company Act of 1935, and the Investment Company Act of 1940, pending in circuit courts of appeals during the fiscal year ended June 30, 1946

Table 29. Contempt proceedings pending during the fiscal year ended

June 30, 1946: _" . Part 1. 'Civil contempt proceedings :. Part 2. Criminal contempt proceedings

Table 30. Actions against the Comm1Ssion or employees of the Commission

to enjoin enforcement ..under'the Acts administered by the

Commission, fiscal year ended June 30, 1946 .

Table 31. Cases {other than reorganization cases under Chapter X) in . which the Commission participated as intervener or as amicU8

curiae, pending dming the {iscal year ended June 30, 1946 .Table 32. Actions to enforce voluntary plans under Section 11 (e) to

comply with Section 11 (b) of the Holding Company Act of1935 :.

Table 33. Proceedings by Commission, pending during the fiscal y~r

ended June 30, .1946, to enforce subpena under the Becuricles

Act of 1933 and the Securities Exchange Act of 1934

Table 34. Reorganization proceedings in which the <{ommission partici- . pated <luling the fiscal year ended June 30, 1946

Table 35.. Actions under Section 11 (d) of the Public Utility Holding

Company Act of 1935 to enforce compliance with Commission's order issued under Section 11 (b) of that Act

t

,

'.

xu CONTENTS

185.

185

186

190

197

202

202

202

203

207

209

210

2J3

_

~~ _

_

_

_

_

~ _

_

~~__ _

_

' _

_
-.

FOREWORD

This review of the Commission's activities for the fiscal year ending

June 30, 1~4~, was prepared, pursuant to law, for the information of

the Congress. It.is a factual report, and is in general limited to the

activities for the fiscal year covered. The Commission's Tenth Annual :Report contained a broader historical statement, and reference

to the Tenth Annual Report should be made for a more adequate survey of the first.decade of the Commission's operations. ~-1iherecent Congressional election has brought to the Congress many

new members. We hope tllat this annual report will help to acquaint

them with the work of the Commission. The report indicates the

broad scope of the Commission's concerns under the various laws

administered by it and the significance of the policies embodied in

those laws. The fields regulated by the ComIDlSSIOnare complex and

they are at the heart of the financial life of the American economy.

The key to the most effective regulation in this field is to carry out the

policies of the law with a minimum of interference with the normal

operations of the facilities of securities distribution and trading.

A reading of the report will indicate the extent to which the Commission has adjusted its methods to achieve that aim. While the

number of forms provided under the various acts may seem, at first

glance, to result in complexity, the forms are, in reality, the result of

constant adjustment to achieve simplicity and to minimize the burdens

of those called upon to comply with the laws. The endeavor is 'always

to find that-method of administration which is most suitable and least

burdensome to the particular individual or company affected.

The report describes instance after instance showing the effort of

the Commission to bring the policy of the Congress into play with as

much cooperation as possible with those concerned. The Commission's method of procuring corrections in registration statement'S by

conference and negotiation rather than by formal proceedings is an

example of this. The particular care exercised in conducting trading

_investigations so as to cause, the minimum of disruption and embarrassment is another example. While, to the layman, many of theCommission's rules providing for exemptions and exceptions may appear to be complex and difficUlt to follow, they are the careful product

'of adjustment to the practical needs of the financial community.

The Commission has broad powers to bring about the geographical

inf.egration and corporate simplification of holding company systems.

There are many ways in which such a far-reaching program may be

effected. The dietation of plans by the Commission and their involuntary enforcement by the courts (which is one of the methods

provided' for under the Public Utility Holding Company Act) is one

way. ' Another way is to indicate the Commission's findings as to the

end results required by the Act and to leave wide latitude for the proposal of voluntary plans of compliance by the, companies affected.

The Commission has chosen the latter route. While many of the inXlII

-
XIV FOBEWORD

tricate problems dealt with by the Commission under the Public

Ut.ility Holding qompany A~t might have been disposed of more

quickly by adoptmg harsh measures for enforcmg involuntary

. changes, the Commission has consistently considered that fairer and J

more feasible results can be achieved by encouraging and assisting

voluntary compliance. ' Evident throughout the report is the constant concern of the Commission to keep open the channels of communication between itself

and those with whom it deals. In terms of time and manpower spent

the ;ren~tiQn of informati;on, advice, and help to other.gov:ernmental

bodies, interested compames and members of the public. bulks large.

As indicated in this report and in prior reports of the Commission the

formulation of important administrative policies is, wherever possible,

achieved through cooperation and consultation with those 31fected.

The Commission regards itself as having been charged with a

public trust in the.adininistration of the_ policies of the law, Its

facilities are always available to those who seek information about

its work. Itapplies to itself the principle of full disclosure embodied

in all the statutes it administers. '

-

•
Co:HmsBIONERS, STAFF OFFIOEBB, AND REGIONAL An:MnusTRATORS

• • Term elllp(r" CoDlDU88I0ner8 June 6- Ganson Purcell * 1941

Robert E. Healy ** .:_________________ 1951

Robert Ie. ]dCCOIUlaughey________________________________________ 1949 J8lDes J. Oaftrey_________________________________________________ 1950

Richard B. ]dcEntire- ..:_____________________________________ 1948

Beeretary : Orval L. DuBois.

*Mr. Purcell resigned as of the close of business on June 80, 1946, being succeeded as Chairman by Mr. Caffrey. Mr. Edmond M. Hanrahan, of New York, was appointed to the

vacancy created by Mr. Purcell's resignation •• Deceased, November 16, 1946.

Staff Officers I

Baldwin B. Bane, Director, Corporation Finance Division.

:Milton H. Cohen, Director, Public Utilities Division.

James J. Treanor, Jr., Director, Trading and Exchange Division.

Roger S. Foster, Solicitor.

William W. Werntz, Chief Accountant.

Herbert B. Cohn, Executive Assistant in Charge of Opinion Writing Office.

Walter C. Louchheim, Jr., Adviser on Foreign Investments.

Hastings P. Avery, Director, Administrative Division.

Philipp L. Charles, Director of Personnel.

James J. Riordan, Budget Officer.-

Regional ~dministrators

Zone 1-Peter T. Byrne, Equitable Building (Rm. 2(06), 120 Broadway,

New York, N. Y.

Zone 2-Paul R. Rowen, Post Office Square Building (Rm. 606), 79 Wlk

Street, Boston, ]dass.

ZOne 3-Willlam Green, Palmer Building (Rm. 415), Forsyth ahd ]darietta

Streets. Atlanta, Ga.

Zone 4-Charles J. Odenweller, Jr., Standard Building (Bm. 1608),_1310

Ontario Street, Cleveland, Ohio.

Zone 5-Tbomas B: Hart, Bankers Building (Rm. 630), 105 West Adams

Street, Chicago, Ill. , Zone &-Oran H. Allred, New Federal Building, Tenth and Lamar Streets,

Fort Worth, Tex. .

Zone 7-John L. Geraghty, ]didland Savings Building (Rm. 822).444 Seventeenth Street, Denver. Colo. . Zone 8-~oward .A. Judy, 625 ]darket Street (Rm. 1301), 625 ]darket Street,

San Francisco, Calif.

Zone 9-Day learr,1411 Fourth Ave. Building (Rm. 810), Seattle, Wash.

Zone lo-William]d. ]dalone, O'Sulliv8Q Building (Rm. 2410), Baltimore, Mil.

xv

•

_ •

•

'

~
:: --- .

, PART I

ADMINISTRATION OF THE SECURI'hES ACf OF 1933

The main, objectives of the Securities Act of 1933,.as amended, are

to provide for full disclosure by means of registration statements and

prospectuses of pertinent information regarding securities publicly

offered for sale through Interstate commerce or through the mails and

to prevent misrepresentation, deceit, and other fraudulent practices

in the sale of securities. The Act does not confer upon the Commission the power to approve or pass upon the merits of any security.

Even though the act does not insulate investors against risk, it does

make available to them informati0Il:. with which to gage the risk.

~GISTRATION OF'SECURITIES UNDERTHE SECURITIES ACf OF 1933

, To achieve the end of full and fair disclosure of the material facts

regardiiig. securities offered for sale to the public in interstate commerce or by the use of the mails, the Act provides that, with certain

. exceptions, before securities may be so offered or sold, a registration

statement must be filed with the Commission and must become effective. Each registration statement must be filed on the particular

form prescribed by the Commission as appropriate to the type of

security'proposed to be offered. .

The registration statement, which becomes a public document once

it is filed, is designed to set forth all the material facts with regard

to the company and its securities which are to be sold. This required

information includes, for" example, statements with regard, to the

character, size, and profitableness of the business; its capitalization;

the purpose of the financing; options outstanding against securities

of the issuer ; the remuneration of officers and directors; bonus and

profit-sharing arrangements; underwriters' commissions; and pendmg or threatened legal proceedings. Certified financial statements

must also be included in the registration statement proper. In addition, the Act provides as an integral part of the registration procedure

that the issuer must furnish to investors a prospectus setting forth

in convenient form the basic or more important material contained ,in the registration statement. .

The. fact that a registration statement has been filed" or that it has

.been examined by the Oommission's staff,. or that it is in effect, does

not-imply any appraisal by the Commission of the merits of the securityas an investment. The Securities Act does not authorize the Commission to pass judgment upon the soundness of any security covered

by a.registration statement, Actually, the statute makes any representation to the contrary a-criminal offense. Thus, in administering

the Act, the Commission does not direct the :flow or capital or try to

do so, although, of course, the requirement that registrants disclose

the truth concerning security :flotations may very well affect their - - ..

722108-47-2 1

-~~ - -

-
2- SECURITIES AND EXCHANGE COMMISSION

public reception. In short, as pointed out in the heacfuote to this

chapter, the basic policy of the Act is not to attempt to protect the

investor by insulating him from risk but to make available to him the

information with which to gage the risk. Itfollows that, under the , Act, even speculative or apparently unsound issues may be registered

and sold to the public provided the whole truth is told.

One of the Commission's most important functions is to examine

these registration statements for compliance with the statutory standards of full disclosure and to obtain amendments necessary to correct

deficiencies discovered thereby before permitting the registration

statement to become effective. The work of examining registration

statements has to be accomplished with maximum dispatch, since the

Act provides that the registration statement shall, ordinarily, become

effectiveon the twentieth day after it is filed. The filing of an amendment to the registration statement starts the period of delay running

anew, unlessthe amendment is filed with the consent of or by the order

of the Commission. In that event the running of the original 20 days

is not interrupted. The Commissionmay, in its discretion, accelerate

the effective date of the registration statement, having due regard to

the adequacy of relevant information available to the public and with'

due regard to the interests of investors. The purpose of the 20-day

waiting period is to give the public an opportunity to absorb the

information in the prospectus or registration statement before making

a commitment that would otherwise need to be made in hasta.or

ignorance.

The Commission has endeavored-Iri many' ways to adapt its procedures to the accustomed practice of businessmen and distributors of

securities insofar as this adaptation'is consistent with the intent of

the Congress and the protection of investors. A notable example is

the "letter of deficiency" which the Commission sends to registrants

as promptly as possible after the statements are filed to advise them

of any material misstatements or omissions. Registrants are thus

afforded an opportunity to file correcting. amendments -before the

statements become effective. Another informal procedure which has

proved exceptionally useful is the prefiling conference in which representatives of registrants and underwriters discuss problems in connection with proposed filings with the Commission's staff so as to de- . termine in advance what types or methods of disclosure would be

necessary under the circumstances of the particular case. As a result

of such informal advisory assistance rendered in an effort to simplify

the registration procedure in every practicable way consistent with

the public interest and the protection of investors, 1946was the fifth

consecutive fiscal year inwhich it has not been necessary for the Commission to issue a single order under the Act to prevent or.suspend the

~~ectiveness of any registration statement. ,

THE VOLUME OF REGISTERED AND EXEMPTED FLQTATlONS"

Total of Registrations /

The aggregate volume of securities effectively registered under the

Securities Act of 1933-during the 12months ended June 30,1946, was

-
TWELFl'H ANNUAL REPORT 3

$1,013,280,000,1 the greatest amount in any fiscal year since the passage

. of the Act and very substantially greater than the previous high of

$4,851,465,000 in the 1931 fiscal year. Of this total registered, securities to be sold for cash amounted to $5,895,840,000, of which about . nine-tenths, 'or $5,423,593,000, was registered for the accounts of the

issuers of the securities (primary distributions). The amount to be

sold' for cash which was registered for the accounts of others than

issuers, $472,248,000, was the greatest amount ever registered for secondary cash distribution in any fiscal year and more than twice the

previous high of $189,722,000 in the 1941 fiscal year.

Volume of Stoeks"and Bonds

I Of all securities registered to be sold for cash for the accounts of

issuers, the volume of stocks was $2,321,324,000 and the volume of

bonds and other credit instruments was $3,102,269,000. The volume

of bonds and other credit instruments was only slightly less than

toe previous high of $3,153,226,000 registered in the 1~~6 fiscal ye.ltr.

Although stocks accounted for the smaller part of seeurities registered

for cash sale; E!Ie increase in stock registrations over previous years

was substantially greater than the increase in bonds and other credit

instruments over recent years. The volume of stock registrations was

more than two and one half times greater than the $863,363,000 registered in the 1945 fiscal year and almost double the previous high of

$1,208,520,000 in the 1937 fiscal year. The volume of' equity securities

. other than preferred stock registered for cash sale, $1,330,625,000t was

'in itself greater than the previous high for all stocks to be sold for

cash; and the volume of preferred stocks to be sold for cash, $990,699,-

000, was in' itself greater than the total of all stocks registered by

issuers tor cash sale in the 1945 fiscal year.

Types of Issuers

Of all new issues registered to be sold for cash, an eXtremely high

amount was registered by manufacturing companies. The $1,750,-

152,000 so registered by this group was substantially greater than the

previous high of $1,195,349,000 in the 1936 fiscal year. Transportation

and communication companies registered $964,795,000 of new issues

to be sold for cash, more than 80 percent greater than the $529,516,000

of such registrations in the 1937 fiscal year. Finance and investment

companies registered $902,344,000 of new issueS to be sold for cash;

almost 40 percent greater than the previous high of $649,475,000 of

such registrations ill the 1937 fiscal year. Only the volume of new

issues registered to be sold. for cash by electric, gas~ and water companies, $1,496,860,000, failed to exceed the previous high of such. registrations by these companies, $1,499,419,000 in the 1936 fiscal year, but

only by ~ess than $3,000,000.

Methods of Sale

J Iri.vestment bankers were Iused for the distribution of 96 percent,

$5,195,861,000, of the volume of all securities registered for primary

1Tbis volume was dlst:r1buted oveJ' 661 statements covering I,OIG issues. Although the

dollar v~lume rellre&ents a new high, both the number of statements and the number of

1ssues were less than the peak of 840 statements and 1,266 issues in the fiscal year 1937. . 'The number of statements represented in these statlstles, 661, dift'ers from the 663 given .in the table on p. 6, due to dift'erencell in the classificatiou as to time of elfectiveness of

issues which beCame elfective subject to further amendment •. See footnote 2 to Appendix Table 1 for details.

-
4 SECURITIES AND EXCHANGE COMMISSION

;-

cash distribution. Eighty-two percent, $4,445,915,000, involved commitments by bankers to purchase for resale and 14 percent, $749,952,000,

Commitments to use their best efforts. Registrants planned to sell 4

_ percent, $227,726,000, directly to Investors." _-

Cost of Flotation

The cost of flotation of securities registered for primary cash distributiont as reported in the registration statements for such securities,

amounted to 5.3 percent of the aggre~te dollar volume of such securities. .A further break-down of. this 5.3 percent indicates that 4.8

percent was to be paid as commissions and discounts and 0.5 percent

for all other expenses incidental to the flotation of the securities, including all costs relative to registration .. .A study of the portion of

aggregate gross proceeds paid as commissions and discounts to investment bankers on securities registered for sale to the general public

through such bankers reveals a downward trend in recent. years, as

may 00 noted from the table below: S

Compensation peroent of gross proceeds

- Year ended :Bonds Preferred Common Year ended :Bonds Preferred Common

lune30 stock stock looe30 stock stock

------ 1939________________ 2.0 6.4 16.9 1943________________ 1.7 3.6 9.? 1940________________ 1.9 7.2 16.4 1944._______________ Lo 3.1 8.1 1941._______________ 1.8 4.1 14.4 1940. _______________ 1.3 3.1 9.3 1942________________ 1.0 4.1 10.1 1946._______________ .9 3.1 8.0

Comparable statistics to reveal the trend prior to 193!) are not at

present available . .A trend similar to that noted in the chart may be

noted with respect to bonds, subdivided on the basis of the investment

risk involved.' .

Unregistered Issues .;rInaddition to the $5,424,000,000 of securities registered for primary

. cash distribution, some $2,497,000,000 of unregistered new corporate.

securities are known to have been offered for cash sale by Issuers

during the fiscal year, counting only offerings in excess of $100,000.

Issues under the jurisdiction of the I. C. C. (mostly rails) accounted

for $1,317,000,000 of the total of unregistered issues; privately placed

issues for $991,000,000; new issues of bank secuzities for $74,000,000;

and intrastate offerings for $4,000,000. The balance of $112,000,000'

consisted of securities offered in issues between $100,000 and $300,000

under Regulation .A, as amended effective May 21, 1945. During the'

fiscal year under review there was an almost continuous', rise in the

volume of Regulation .A offerings. In the final month of the.fiscal

year alone there were 83 such issues with an aggregateo:ffering price.

of $18,000,000.11

See Appendix Tables 1 through !l for a more detailed break-.down of the dollar volume

of Securities Act registrations. This table does not include investment trust issues, whose costs are not reported on a hasis comparable to that of other Issues, . '. . Compare part 2 of Appendix Table 2 with Appendix Table 2, part 2, in the. Eleventh'

and Ninth annnal reporJs. . . See page "1 for a more detailed discussion of Regulation A o1fers. ..

•

:

• - •

• - •
TWELFl'H ANNUAL REPORT 5

Excluding open-end issues offered on a continuous basis (mainly

by investment companies) the volume of all new issues of corporate

securities offered for cash sale in iss~u~ of ~ore than $100,000 ~uring

_the'12 months ended Jnne 30, 1946, including both those registered

and unregistered, was $7,124,000,009. - -

NewCapi~

The amount of proceeds from securities flotations applicable to

expan~onof fixed and working capital aggregated $1,557,000,000.

Thi.s is' the highest volume of new capital financing from securities

in fifteen years and compares with the recent peaks of $1,196,000,000

in the 1937 fiscal year and $862,499,000 in the 1942 fiscal year. Industrial and miscellaneous companies accounted for more than 80 percent

of the new money financing. Flotations by utilities and railroad companies _were m'ainly for the purpose of refunding outstanding

obligations,

Re1inancing

The volume of .refinancing through new issues of. securities reached

a record high of $5,160,000,000, due m great part to the fact that many

corporatiosis took advantage of certain features of the tax laws-and of

the low level of interest rates to reduce their interest and fixed dividend costs," In addition, many corporations retired outstanding securities with cash from sources other than proceeds from the sale of

new issues, such as treasury cash and bank loans, so that the aggregate

volume of fixed income securities is estimated to have declined.

Volume of All New Issues

The addition of noncorporate to corporate issues brings the volume

of.all new issues of securities offered for cash sale in the United States

-during the 1946fiscal year to $35,948,000,000. The bulk of this volume

consisted of long-term United States Government securities. The

volume of such securities, $27,258,000,000, was, however, the lowest

volume of offerings by the Federal Government in 4 years. The

amounts of securities offered for sale by other noncorporate issuers

were: $928,000,000 by states and municipalities; $608,000,000 by Federal Land Banks ; $30,000,000 by foreign governments; and approxi-

-mately $500,000 by miscellaneous nonprofit organizations,"

S~tistics of ~urities Registered Under the Securities Act of 1933

- A& shown below, the Commission last year received and examined

752 registration statements under the Securities Act of 1933. This

was the largest number of registration statements filed in any year

since 1937. As noted, the aggregate dollar value of the securities

covered by these registration statements exceeded $7,000,000,000,

which' is the greatest amount fQr. any year since the passage of the

Act in. 1933.s .

'See..Appendix Table 4 for statlstlcs1Jl greater detail as to the use of net proceeds from

the ilale of cO~rate t1ecnrltles.

:-!'See,~ppendix Table 3 for a more detailed statistical break-down of the volume of all

securIttes 111l'eredIn issues-of more than $100,000 for cash sale In the United States, IncludIng noucorpo.rate as well as corporate and registered as well as unregistered, but exclUding those with terms to'matlJrlty Dot longer than a year and open-end issues oll'ered on a con- .. tltniOus balifs by--Inv~ent companies. . . , , IIFor further data see "Volume of registered and exempted lIotations," hereIn at p. 2.

-

• • •

_
6 SECURITms AND EXCHANGE COMMISSION I

Disposition of registration 8tatement8

Statements PrIor to 101y 101y 1, 1945,to Total as of

1, 1946 lU:~;~, lune SO,1ll4{\

Flled =__________________________________ 5,820 752 6,572

Etrectlve-nd c______________ 4, 680 663 16,934113 Withdrawn-net -______________ 1'/17 36

Under es or refusal orders-net_______________________ 182 0 182 ~:=-1~:~: ~:::::::::::::;:::::::::::::::::: ~~_:::::::::::::::: ----;--------i36

Dollar Pallle of ,ecurltiu Filed :_ $32, 352, 878, 630 fl,401, 260, 809 $39,754, 139,439'

Fullyetrective .___ 28, 569,975,765 7,073,280,397 35,643,256,162

I Two statements which were e1Iectlveprior to 1uly 1, 1945,were withdrawn during the 1Isca1 year ended

lune SO,1946.

NOTllS.-'l'here were also tiled and examined during the past 1Isca1 year 2,807amendments to registration

statements, at which amendments 1,342were cIassi1Ied as material amendments tiled betore the etrective

date ot the registration ststements eoneemed, 523as material amendments tiled a!tsr such e1Iectlve date,

and 942purely formal amendments 1IIedfor the purpose of delaying the ststntory etrectlve date of the regf&o tration ststements. . In addition, 1,318sets of supplemental prospectus materjal. not cIassi1Iedas amendments to registration

statements, were tiled during the J;:i: comply with Role 800(b) or Section 10 (b) (1) of the ~ct, or for

the purpose of showing material occuniDg after the commencement of the olJerlng. There were also received during the year 436annual and 260quarterly rellOrts tiled by certe!n registrants

pursuant to Section 15 (d) ofthe Securities Exchange.Act of 1934. Oompanfea registered as investment com- panies under the Investment Company Act of 1940accounted for 82 of these annual reports and all of these

qlllll'terly reports. I

It may be helpful to call attention to the striking increase involume:'

of registration statements which the Commission's depleted wartime and post-war-staff must currently process. To that end there is

recapitulated below the number of registration statements originally

filed ineach fiscal year or other convenient period since the ;eassage of

the .Act, along with the corresponding dollar value of securities covered

thereby.

Comparative number Of registration 8tatements filed, and corresponding value of

securities involved, tor 8pecittetl periods since enactment of tke oEJecuritiesAct

of 1988

Period Number of Aggregate dol- ststements Jar value of securities

101y 1, 1933-Angust 31,1934 (14months, under Federal Tmd,e Commlssion) __ September I, 1934-lune 30, 1935(First 10months under Securities and Ex- change Commission)

FIscal year: 1936

1937 : - --- ------ ------.------

1938

1939 - ---. -- - --- -----------------.-- 1940 c 1941. -_ - - --- - -------

1942 .

194:1. 11144 - - - - -_ - ------- ---- 1946

1946 - - --------:- -----

1,093 $1,381, 882, 278

«0 I, 591, 094, 120

781 4, 793, 658, 010 967 6,srt,160, 848 459 2,375, 437, 934 376 2,723,010, 963

338 1,906,84l, 248

337 3,412,087,1'/17 235 I, 825, 43ll, 469

~- 959,826, 793

1,774, 316, 982

400 4, 182, 726, 108

762 7,401, 260, 809

These progressive annual increases in the number of registration

statements filed in each of the past three fiscal years, compared to the

next preceding year, measure 63 percent in 1944,80 percent in 1945,

and 88 percent in 1946. .At the same time, the value of securities

covered by the statements was also increasing PY. the sta¥geriPg

~

•

'

-

_

• • - ------- -------- _

• __-------- ----------------- -------- ------

__• - _

• • -- ---------------------

- __ ----- ------ ---------------------

• ---
-:

TWELFTH ANNUAL REPORT 7

amounts of 85 percent, 141 percent, and 77 percent, respectively. As

indicated above, the number of these statements filed during the 1946

fiscal year was the greatest since 1937, while the dollar amount of securities involved reached by far the greatest total for anyone of the

13 years that the Securities Act of 1933 has been in effect, exceeding

by 38 percent the previ?u~ high in 1931.

EXEMPTION FROM REGISTRATION UNDER THE SECURITIES

ACT OF 1933

Section 3 (b) of the Act empowers the Commission, by Rule and

Regulation, subject to such terms and conditions as it might prescribe,

to exempt from registration issues of securities where the aggregate offering price to the public of such securities does not exceed $300,000.9

The law permits the Ooramission to provide exemptions onlY'when it

deems that enforcement of the Act is not necessary in the public interest

and for the protection of investors by reason of the small amount involved or the limited character of the public offering.

Under this Section, the Commission has adopted Regulation A, a

general exemption for small issues; Regulation A-R, a special exemption for notes and bonds secured by first liens on family dwellings ;10

Regulation A-M, a special exemption for assessable shares of stock for

mining companiesi Regulation B, an exemption for fractional undivided mterests in oil or gas rights; and Regulation B-T, an exemption

for interests in oil royalty trusts or similar types of trusts or unincorporated associations. .

The availability of an exemption under any' of these Regulations

does not include any exemption from civil liabilities under Section 12

or from criminal liabilities for fraud under Section 11. In order to

ensure the proper enforcement of these Sections, the conditions for the

availability of the exemptions provided by these Regulations, with the

exception of Regulation A-;R, include the requirements that certain

minimum information be filed with the Commission and that disclosure

of certain information be made in sales literature.

Exempt Offerings Under Regulation A

Last year a marked increase occurred in the number and dollar

amount involved in public offerings under the general exemption provided by Begulation A. For example, the number of letters of notification received and examined pursuant to Regulation A more than

doubled from the 578 of the preceding year and reached a total for

the 1946 fiscal year of 1,348. At the same time a much more striking

increase occurred in the aggregate offering price of the securities

involved which jumped from $38,848,893 in 1945 to $181,600,155

during the past year. It seems reasonable to attribute a very large

part of this increase to the raising of the maximum limitation for a

permissible exempt offering to $300,000. Included in these offerings

were 69 letters of notification, with an aggregate offering price of

The maximum amount was originally $100,000. Six weeks before the beginning of the

1946 fIscal'Ye&rCongress amended this Section to raise the maximum amount of $300000

The Commissioon promptly amended Its Reguistlon A, elfeetlve May 22, 1045, to provide certain exemptions for issues up to $300,000

Inasmuch as no reports or 1Illngs are required under this regulation, no statistical data as to ita application and use are avallable.

-

-

•

• •'"
8 SECURITIES AND EXCHAN.~E _~OMMISSION .

$8,158,833, relating to oil and. gas leases and securities of companies

engaged in various phases of the oil and gas business. .

This number of filings has placed an unprecedented load on th~

staff of experts maintained by the Commission to examine such filings.

Under Regulation A, letters of notification must be filed at least 54ays '.

prior to the first day when the securities are to. be offered f~r sale, . in order to permit the CommISSIOn'sstaff to examine the material and

to check its files for other pertinent information about the company.

and persons involved. In addition, sales literature must similarly be

filed before its use. Such filings must be made in the appropriate

regional office, which examines the material, primarily to determine

whether any violations of the antifraud provisions of the Act are

indicated and to ascertain that proper compliance has. been made

with the Rules applicable to the exemption claimed. If any de--

ficiencies are discovered in the filing, the offeror of the securities is

informed, by letter or telephone, in order to prevent any violation of

the Act or the provisions of the Regulation. . . ,

In addition to the initial examination by the regional office, the

material filed is reviewed -by a staff of experts at the Commission's

central office. Such review involves a search for pertinent information in the Commission's extensive files and an .examinasion to determine whether the exemption 'of the Regulation is applicable in the

particular case and whether the information filed discloses any violations of any of the Acts administered by the Commission. The results

of this review are made available promptly to the regional office

involved. During the 1946 fiscal year .1603 such reviews were sent to

regional offices. .'

As a further step in the administration of Regulation A, the staff

at the central office of the Commission informs the proper authorities'

in the States in which' the securities are to be offered of the fact that

the offering is to be made, and gives such authorities certain pertinent

data. A weekly report of letters of notification filed under this Regulation is compiled and mailed to interested persons, including the'

proper authorities in all the States and the regional offices -0£ the

Commission. This report includes information as to the name of the

issuer of the securities; the offeror; the principal underwriter; the

. date the letter of notification was filedJ the dollar. amount of the'offering and the number of shares being ottere~; the type of security being

offered; and the States ill which the offering IS to be made, .

Exempt Offerings Under Regulation A-M

The Commission received and examined during the year a total of

five prospectuses covering an aggregate offering price of $154,380 for

assessable shares of stock of mining corporations conditionally exempt

from registration pursuant to Rule 240 of Regulation A-M. , .

Exempt Offerings Under Regulation B

Pursuant to Regulation B, which provides for the conditional exemption from registration of fractional undivided interests inoil or gas

rights where the aggregate offering price does not exceed $100,000, the

Commission last year received and examined 173 offering sheets; and

214 amendments to such offering sheets, 'with respect to which- the

following actions were taken: .

-
TWELFTH -ANNUAL REPORT 9

Various Actions on Filings Under ReguZation B

Temporary suspension orders- (Rule 340 (a) ) '__________ (is

Orders termlnating proceedings after amendment -=________________ 49

Orders consenting to withdrawal of offering sheet and terminating proeeedtng., 11

Orders terminating effectiveness of offering sheet (no proceeding pendlng)___ 20

Orders-consenting to amendment of offering sheet (no proceeding pending) 74

Orders eonsentlng to withdrawal of offering sheet (no proceeding pending) 7

Total Orders 224

Confidential Writll;ln Reports of Sales Under Regnlation B

The Commission also received and examined during the year 2,698

confidential written reports required 'pursuant to Rules 320 (e) and

322 (c) and (d) of Regulation B concerning sales made by- brokerdealers or offerors to investors and by dealers to other dealers. This

total consisted of 2,409 reports on Form 1-G and 289 on Form 2-G,

representing sales in the aggregate of $1,001,981 and $582,634, respectively. If.examination of these reports indicates that a violation of the

law may have occurred, the Commission makes appropriate investigations and, in instances where the facts are deemed to warrant it, appropriate action is taKen. ,_

Oil and Gas Investigations

-Among the investigations conducted by the Commission during the

fiscal year to determine whether certain transactions had been effected

in violation of Sections 5 (requiring registration) or 17 (prohibiting

fraudulent sales) of the Securities Act of 1933 or Section 15 of the

Securities Exchange Act of 1934 (regulating the conduct of brokers

and dealers), a total of 147 involved oil and gas investments. Apart

from the 1,500 letters written and 600 personal and telephone conferencesheld during the year by the staff of the Commission's central office

engaged in work involving oil and gas securities, the engineers and

geologists- assigned to that specialized staff prepared 91 technical

memoranda or valuation estimates, and also conducted scores of conferences illthe oil and gas producing regions and other locations in the

field, as a part of the Commission's oil and gas investigation activity.

Eight of these investigations were closed during the year so that 139

were pending at the end of the year. A summary of these investigations is tabulated below:

Oil and gas investigations

Prellml- Informal Formal Total nary

PendlDg at lone W.l945 ._. ._ 28 64 28 120 Openedluly 1.1945 to lone 30. 1946: - New cases _. 7 20 Z1 Transferred from prelimlnary or lnformaL -_ ...------ 3 6 9

--- Total number of cases to be accounted for. .~---------. 35 87 34 156

41- .. Olosed_ _. '_' 4 8 Transferred to informaL -;: 3 _. 3

i=rr;tl~~~~94ti.~:==::=~==:==~=== =========.; .; ======: 6 --'---'30- 6 28 81 t39

.: As an illustration of the results achieved- in certain of these investigations; it may be noted that the persons concerned in four cases were

-

__ ___•• _•••••• ______• ___ ••••• ______

___• _____•______• __•_________________ •_____=__

______•__________

__

•______•_____•••• _____••____________•' __ ___•______ = =

•• __• • ' • • ______________________ _____________ __••

_______

__•• ____

-

•
10 SECURITIES .AND ~CHANGE, COMMISSION

enjoined from violating the registration or fraud provisions of the

Securities Act of 1933; in three other cases the facts developed by

the Commission were referred to the Department of Justice for criminal prosecution; and indictments were returned in two additional

cases. Moreover, convictions were obtained in three additional cases

which led to the following sentences: (1) George A. King and Erling

L. Wernes, imprisonment of 30 months and 1year and 1day, respectively; (2) FranR V. Raymond, imprisonment for 1year and 1day'

and fine of $10,000; and (3) 9. Milton Smi~h1 imprisonment for 6

months and suspended execution of an additional 2-year sentence

during which he IS to be on probation.

New Rule Adopted Under the Securities Act of 1933

. The only additional Rule promulgated under the Securities Act of

1933 during the 1946 fiscal year was the one adopting the 4O-hour

workweek recommended for Federal agencies by the President.

DISCLOSURES RESULTING FROM EXAMINATION 'OF REGISTRATION

STATEMENTS

The staff of the Commission makes prompt and intensive study of

registration s,tatements in order,.by conference, to procure neces~ar:Y

amendments ill advance of effectiveness of such statements. Because

of the extent of this work the Commission has not needed to resort,

in recent years, to the stop-order proceeding. Several typical examples

of inadequacies found in registration statements and of corrective

steps taken will be found in the following brief case histories.

Inside Dealings With Afiiliated Con1panies

A registrant disclosed that it had entered into an arrangement.

whereby all of its goods were sold through two affiliated companiesa general sales company which was owned and controlled by officers

of the registrant and a specialty sales company which was owned and

controlled by the wives of such officers. The terms of the contracts

were such as to assure the sellinz companies a profit. Upon the

Commission's insistence that, in audition, proper disclosure be made

of the advantages secured by the officers and their wives at the expense

of the registrant through these contracts, all such contracts were

canceled and all profits which had accrued to the selling companies

were restored to the-registrant. . I

Effect of Issuance of Warrants

Inorder to apprise any prospective investor of the unfavorable effect upon any investment he might make, as a-result of the distribution

of warrants issued to the underwriters and promoters evidencing the

right to subscribe to 60,000 shares of stock, the Commission requested

and obtained the following disclosure in a registration statement:

For the life of the Warrants the Underwriters, and the Promoters, so long as any of them own any of the Warrants issued to them, will have at no cost, except as part payment of underwriting commissions and personal service contracts,

the opportunity to profit at the expense of other stockholders from any rise. in

the market for th~ Common StoclCof the Company above the prices at wblch such

Warrants may be exercised; the Company.presently has no need for additional

working capital in excess of the amount to. be realized from the sale of the Stock

oJrered hereby; such Warrants were issued at the request of the Underwriters

-

-
'TWELFTH AI'fNUAL REPORT 11

in -connectionwith the underwriting and at the request of the Promoters in

consideration of their entering into employment contracts with the Company

described herein; at any time when a substantial amount of the Warrants may

be outstanding, the Companymay be deprived of favorable opportunities to pro- cure additional equity capital through the sale of Common Stock if it should

be neededfor the purposes of the business; at any time when the holders of Warrants mtght,be expected to exercise them, the Companymight be able to obtain

equity capital if it needed capital then, by pUblicsale /}fa new offering of Com- mon Stock on terms more favorable than those provided for by the Warrants.

Any price paid to an Underwriter for a Warrant or any price paid to an UnderWJ:iterfor a share of Common Stock in excess of the Warrant exercise price

may be ~eem~ to be an underwriting discount or commission.

Previous Violations of the Securities Act

Pursuant to an investigation by the Commission, it was ascertained

that a company currently filing a registration statement had previously

sold $430,000 of stock in violation of the Securities ~t of 1933. Disclosure of this violation, together with the rights of purchasers to

rescind such purchases or to sue for damages, was required in the

registration statement the company filed under the Securities Act. As

a consequence of this required disclosure, stockholders forced the company to repurchase securities representing an aggregate price. of

$102,000 plus interest. .

Investment Position of Pub~c Contrasted With That of Promoters

In order to disclose in summary fashion certain essential features

of a particular offering, the staff of the Commission requested the

placing of an introductory paragraph at the beginning of the prospectus disclosing that, upon completion. of the financing, the public

would have paid $1,852,500, or $19.50 per share, for a 23.2 percent

interest in the company whereas three promoters would have paid

$25,000, or 8 cents per share, for a 76.8 percent interest in the company.

It was further disclosed in this introductory paragraph that in the

last 3 years the company had earned the following per share: 6 cents

(loss), 21. cents and 35 cents and that the book value of the shares

to, be offered at $19.50 would, after the receipts of the proceeds by the

company, amofmt to $1.09 per share.

Position of Investor in Foreign Corporation

The Commission required a Mexican corporation to disclose in a

prominent place in the prospectus that (1) the articles of incorporation of the company provided, as required by Mexican law, that every

person other than a Mexican who acquires an Interest or share in a

company shall be deemed to be a Mexican with respect to such interest

or participation and agrees not to invoke the protection of his govern-

-ment under penalty of forfeiting such interest or share to the Mexican

government in case of breach of such. agreement; and (21 the company knows of no provision of law in the United States which by its

terms sub~ects the company, a Mexican corporation, and its nonresident directors and officers and' the nonresident experts named in

the prospectus, to the jurisdiction of the courts in the United States;

and (3) the enforcement in the United States by investors of claims

under the Securities Act of 1933 against the company and such directors, officers, and experts as are not residents of the United States

may therefore be difficult or perhaps impossible.
12 SECURITIES AND EXC~NGE COMJ4:ISSION

Significance of Contingent Liability

A company which was manufacturing its principal product: With,:

out.having first obtained a license from the owner of the patent covering a basic device embodied therein disclosed the fact that it had not.

secured such license but failed to disclose the possible disastrous results

which would follow from institution of suit by the patent holder. By

amendment required to the registration statement, the company, whose

total capital, reserves, and surplus aggregated less than $2,000,000,

disclosed that while it was unable to state exactly the amount of its

liability for such damages, it estimated that its liability for infringement to date would amount to approximately $232,000; and that.!

moreover, any judgment upholding the validity of the patent WOuld

unquestionably result in an injunction against the continued use of

the device' by th~ company, thus requiring modification and possibly _

abandonment of further manufacture .of the. product in question.

Losses During Reconversion Period

A company whose peacetime business COnsistsof the manufacture of

personal type airplanes reported earnings of $52,000 for the. year 1945.

Upon inquiry by the Commission as to the costs of reconverting and

entering into peacetime business, the statement of earning for 1945 was

revised to show that although the company earned approximately

$600,000 in the first 8 months of 1945 from war business, it had lost

approximately $550,000 in the last 4 months of 1945 while it was converting to peacetime operations. It was further disclosed that losses

were continuing in 1946. • MisleadiDg Title of Security Revised

A registrant proposed to describe the securities to be offered as

"second" mortgage 4 percent noncumulative income bonds." . This

title was considered by the Commission to be misleading, for the reason that the obligor actually promised to pay only 2_percent per

annum, and would pay an additional 2 percent only ln the sole .disere.

tion of its Board of Directors. In addition, all "income,." as that term

is generally understood; was not available for 1?ayment of the original

2 percent of interest, for the reason that the indenture 'provided IQr

the deduction of a fund for capital improvements in arriving at the .

amount available for. interest. The title of the securities was accordingly changed, as disclosed in an amendment to the registration state- .-

ment, to read "second mortgage noncumulative contingent interest

bonds," and this title was-furtner qualified at the same time by placing

a summary of the interest provisions on the. facing page of the

prospectus.

Stock Watering

The ''watering of stock" in its original sense is almost a forgotten

term. However, the issuance of stock at prices which bear little or

no relationship to the issuer's book values .and earning power accomplishes the same purpose. A case.in point is a New York corporation

which filed a registration statement covering 450,000 shares of _common stock and 120,000 stock purchase warrants. This company had

100,000.shares of common stock, 10 cent par value, outstanding, w~ch

-

-
TwELFTH ANNUAL REPORT 13-

were recapitalized immediately prior to the filing of the registration

statement into.9oo,000 shares of common stock, 10 cent par value, the

new authorized capitalization being 1,500,000 shares. The offering

to the public of 450,000 shares of common stock was made at a price

of $6 per share, or an aggregate offering price of $2,700,000. In this

connection it is interesting to note that although tOe shares 'were to .

be sold to the public at $6 per share, a few months prior to the offering

one of the organizers and principal stockholders sold the equivalent

of 207,000 of the recapitalized shares at an average price of approximately 30 cents per share to a company identified with the registrant

itt the time of the offering, The aggregate book value of the company's outstanding stock prior to the public offering was approximately $283,00(}. Based on the price at which the public was asked

'to purchase, i.e., at $6 per share, the 900,000 outstanding snares owned

by the insiders would have an aggregate value of $5,400,000, an

amount exceeding the aggregate boek value by approximately

$5,117,000. Thus it will be seen that on a liquidating basis some

$1,700,000 (>fthe $2,700,000 contributed by the public as a result of the

offering at $6 per share would go toward swelling the book value of

the outstanding stock held by insiders from about 31 cents to $2.21

per share.

It should also be noted that the offering at $6 per share was accomplished without even the support of past earning power. For each

of the 3 years prior to the public offering the company's earnings,

based on its capitalization of '900,000 shares, were from a very small

fraction of 1 cent per share to 2* cents per share. The company

recognized that to realize a normal return on its capitalization after

the J>ublic offering; its sales would have to increase from the maximum

-of $2,600,000 achieved in 1945 to in excess of $16,000,000, and that

such sales were not a reasonable expectancy in the near future.

In the registration statement as originally filed, the above facts

were either obscured or omitted. Information regarding other circumstances, such as the company's dependence on substantial borrowed

capital, the issuance of warrants to underwriters and insiders, the

existence of competition with larger organizations having much

greater resources, the company's reliance upon rented rather than.

owned.facilities, and its performance 'of only limited functions (since

the products were to be obtained from outside sources and distributed

through independent distributors), was also omitted or not adequately

presented. Only after several amendments did the prospectus achieve

clear and adequate disclosure. .

INJUNCTION ACTIONS INSTITUTED UNDER THE SECURITIES

ACT (}F 1933

The Commission's enforcement activity under the Securities Act

of 1933 is concerned generally with the prevention of fraud in the

sale of securities and obtaining compliance with the full disclosure

requirements of the registration process, Data with respect to civil

cases and appellate proceedings instituted under that Act, including

a brief discussion of all civil proceedings commenced or pending during the past fiscal year and their status at the close of the year, are

included in Appendix Tables 24, 26, and 29.

\ .

-

-
,

I 14 \ SECURITIES AND EXCHANGE COMMISSION

I

Section 5 of the act requires registration where securities are offered

to the public," Section 17 (a) makes unlawful the use of any mis-

_representations or fraudulent schemes in the sale of securities. A sub-"

stantial part of the Commission's litigation activities Involves

injunctive actions to restrain violation of these Sections. For exainple,

in 8.E. O. v. JOM Wight, M ondakota Development Oompany, et oJ,.,12

8. E. O. v, Ohemioal Researoh. Fo'lJlJUtation,Inc. and Robert E, Oa:rrOU,13

and 8. E. O. v, James F. M O'l"l'issey, 14 the Commission obtained final

judgments enjoining the defendants from violating the registration

and fraud provisions. ,

In S. E. O. v. G1'eat Western Gold & 8ilver Mines Corporation;

Walter H. Moore, et al.r and~. -E. O. v, A. E. Blakesley, et dIlUJ.,18

the Commission obtained final judgments enjoining the defendants

from making false and misleading statements regarding the content

and value of ore in the mining properties and the use of the proceeds

received in the sale of stock.

In S. E. O. v. Olaude D. Adams, et .01.,17 S. E. O. v. 'A. D. Beck,18

8. $. 0. v. Paul J. Hunt/9 and 8. E. '0. v. Bob Burch,20 the Commission

obtained final judgments restraining further violations of the registration provisions of the Securities Act. In8. E. O. v. Milton E. P'tiJIuer,n

the Commission obtained an injunction restraining the defendant

from violating the registration provisions in the- sale of pre-organization subscriptions and promissory notes.

II Certain ezemptfons are set forth'in Sees. 11and 4 of the Act. 0> U. S. District Court, Montana, Sept. 20, 1945. False and misleading statements regard- . \

ing the number and productive capacity of Mondakota's gas producing wells, the acreage

under lease and the value of its leases and the assets and the prices at wbich stock would be

sold in the future. .. U. S. District Court, Delaware, Sept. 11, 1945. False and misleading statements regard. ing the company's financial status, value of its seeurtttes, its dividend record and the sue. cess of its operations. Following the Commission's investigation, defendants were con- victed on July 2, 1945, of violations of the fraud section of the Securities Act and Sec. 215

of the Federal Criminal Code (mail fraud) and Carroll was sentenced to 2 years' imprison- ment to be followed by 11y_ears probation. u U. S. District Court, N. D. (Fort Worth division), Texast Dec. 19, 1945. False and misleading Ijjatements regal-dlng the extent of defendant's leasenoldings, a "doodle-bug" device

claimed by defendants to be unerringly capable of detecting oU in commercial quantities, and the opinions of an expert coneerriirig the prospects of finding 011. u U. S. District Court, Colorado, Mar. 11 1946. .. U. s. District Court. N. D~..northern division, IDlnois, Oct. 28, 1945 •• U. S. District Court, New m.ex1co,June 4, 1946. 18U. S. District Court, N. D., Texas, Mar. 14, 1946. :Ill U. S. District Court, W. D.• northern dlvialon, Washington, Feb. 18. 1946. As an oft'-

shoot of this case, the Commission obtained an order in the same district on Aug. 12, 1946,

adjudging the defendant guilty of criminal contempt in violating the terms of the,jndgment. 10 U. S. District Court, N. D., Fort Worth division, Texas, Nov. 8, 1945. On Jan. 281 1944,

the Commission obtained a final judgment in the U. S. District Court, W. D., Lomsiana,

against The Bob Burch Company, Inc., and Bob Burch, enjoining them from violating the

fraud provisions in the sale of their securities . .. U. S. District Court, W. D., Washington, Nov. 19, 1945.

~

•

- ~

- •
PART n

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT

OF 1934.

The Securities.Exchange Act of 1934 is designed to eliminate fraud,

manipulation, and other abuses in the trading of securities both on

the organized exchanges and in the over-the-counter markets, which

together constitute the nation's facilities fbr trading in securities;

to make available to the public information regar~ the condition

of corporations whose securities are listed on any national securities

exchange; and to regulate the use of the Nation's credit in securities

trading, The authority to issue rules on the use of credit in securities

transactions is lodged in the Board of Governors of the Federal Reserve System, but the administration of these rules and of the other

provisions of the Act is vested in the Commission.

REGULATION OF EXCHANGES AND EXCHANGE TRADING

Registration of Exchanges

The number of exchanges registered with the Commission as national securities exchanges and the number of exchanges exempted

from such registration remained the same during the fiscal year; the

numbers were 19 and 5 respectively.

Each exchange is required to keep its registration or exemption

statement .uP to date by filing appropriate amendments or supplements reflecting all changes occurring in its constitution, rules, trading practices, and organization. A total of J13 such amendments or

supplements were filed by the exchanges during the year, each of

which was studied and analyzed for its effects upon the public interest

and its compliance with the relevant regulatory provisions. While

the nature of the changes reported in this manner varied considerably,

the more important included adoption by New York Stock Exchange

and New York Curb Exchange of rules designed to regulate floor

trading; adoption. of a delisting rule by Salt Lake Stock Exchange;

adoption by St. Louis Stock Exchange of rules to permit and regulate

odd-lot trading in unlisted securities and of a rule to permit member

firms to make or participate in secondary offerings of listed securities

off the exchange; adoption of amendments to rules of Cincinnati

Stock Exchange to permit issuance of limited memberships; and

adoption by Los Angeles Stock Exchange and San Francisco Stock

Exchange of rules requiring members and member firms to reportwith respect to substantial options relating tQ securities dealt in on

. their respective exchanges.

Value and Volume of Trading

Tra~ on registered. securities exchanges during the fiscal year

1946had an aggregate value of $20,377,690,000as shown in Appendix

Table 7. This lWire compares with $15,160,875,000it). the preceding

12 months. Stock trading had a value of $18,934,952,000in the 1946

15

•
16 SECURITIES AND EXCHANGE COMMISSION

period, as against $13,141,773,000 in the 1945 period; The volume of

stock trading in the 1946 fiscal year was 826,777,000 shares as compared with 595,133,000 a year earlier.

Exchange :&Iembership

As of the close of the fiscal year, according to Commission records,

2,880 individuals and 1,045 firms (sole proprietorships, partnerships,

and corporations) were full or associate members of one or more of

the registered exchanges, excluding the Board of Trade of the City of

Chicago, which is primarily a commodities exchange. These figures

represent an increase of 40 individuals and 70 firms over the previous

year.

Disciplinary Actions

In connection with the Commission's investigatory activities, the

exchanges have been requested to report to the Commission all cases

of disciplinary action which they take against their members for

violations of the Securities Exchange Act of 1934, any Rule or Regulation thereunder, or of any exchange rule. During the fiscal year, five

exchanges reported taking such action against a total of 39 members,

member firms, partners-or employees of member firms, These disciplinary aetions included fines ranging from $100 to $5,000 in 17

cases with total fines imposed aggregating $24,750; a 6-month_suspension from membership in 2 instances; the cancelation or suspension of registration of 11 registered representatives of member firms j

the suspension of 2 specialists; and the warning and reprimanding of

8 individuals and firms. One of. the specialists who ras suspended

was also fined in cOllnection with the violation involved.

The disciplinary actions were occasioned by violations of various

exchange rules, principally those regarding minimum rates of commission, margin trading, floor trading, handling of orders, partnership agreements, registered representatives, and specialists, The

two members who were suspended from membership were alleged to

-have accepted and executed a customer's order to buy a sufficient

amount of a "designated stock to cause the last transaction therein

on a given day to be above a stated price. Itwas the consensus of the

exchange authorities that the execution of this order resulted in an

improper increase in the price of the stock involved. '

Special Offering Plans

Rule X--=10B-2 permits special offerings of blocks of securities on

national securities exchanges where sucli o1ferings are effected pursuant to a plan filed with and declared effective by the Commission.'

'No new special, offering plan became effective during the year; the

plans of the seven exchanges mentioned in our last annual report,

"which had previously been declared effective, remained in effect .

1RUleX-IOB-2 Is In general designed to prevent the stimulation of the exChange market

with respect to securities of given issuers while there Is pending a djstributlon of any securities of snch Issuer. In recognItlon- of the fact that special ,commissions.might be

paid to broken; acting for purchasers under plans providing for adequate safeguards' to Investors and the public the Commission adopted Rule X-IOB-2 (d) (1). 'This Rule permits special commissions to be paId to such brokers pursuant to plans 1I1edwith the Commission

and permitted by the Commission to become effective, having due regard to tl!tl-pn!lJlc Interest and the protection of investors. One of the basic requirements provided in the RUle

Is that such specIal commissions can be paId only with respect to securities as to which adequate information is available under the various Acts administered b>:the Commission.

~

-

,
TWELFTH ANNUAL REPORT 17

throughout the year. The San Francisco Stock Exchange was the only

exchange to file an amendment to its plan, such amendment being

declared effective by the Commission on August 17, 1945. This amendment entitles brokers and dealers who had been approved by that

exchange f()r preferred rates of commission to 25 percent of the special'

commission prevailing in special offerings.

Special offerings on registered exchanges in the 12 months ended

June 30, .1\)4(;accounted for sales of 622,629 shares of stock against

1,115,201 shares in the preceding 12 months. Special commissions

amounted to approximately $340,000 as compared with $626,000 a

year earlier. Offerings on the New York Stock Exchange accounted

fox 586,726 shares of the 622,629 shares total sold in special offerings

on all exchanges having effective plans in the fiscal year 1946. Further

details are given in Appendix Table 6.

Regulation or the Distribution of Publicly Offered Securities

On April 16, 1946,the Trading and Exchange Division recommended

the adoption of a rule pursuant to Section 15 (c) (2) of the Securities

Exchange Act of 1934 which would curb certain practices of some

underwriters and selling group members with respect to securities

being publicly offered, These persons wi~hh~ld ?r d.ivet:t substantial

portions of their allotted shares from public distribution in the underwriting and thereafter sell them to the public at prices substantially

above the offering price. specified in the prospectus. A study conducted by the Division in conaection with the proposed rule had shown

such practices to be wide~read and had indicated, moreover, that the

withholding of shares from distribution frequently contributed to an

artificial rise in the market price. The proposed rule was circulated

among the trade for comment and suggestions and was under consideration. a.t the end of the year.

REGI$TRATION OF SECURITIES ON EXCHANGES

Purpose and Nature of Registration of Seeurities on Exchanges

Inorder to make available currently to investors reliable and comprehensive information regarding the affairs of the issuers of securities

listed and registered on a national securities exchange, Sections 12 and

13 of the Securities Exchange Act of 1934 provide for the filing with

the Commission and the exchange of an application for registration

and annual, quarterly, and other periodic reports, containing certain

specified information. Such applications and reports must be filed

on the Forms prescribed by the Commission as appropriate to the

particular type of issuer or security involved, which Forms are designed to disclose pertinent information concerning the issuer, its

capital structure and that of its affiliates; the full terms of its securities, warrants, rights, and options; the control and management of

its affairs; the remuneration of its officers and direc~_r~;. and financial

data, including schedules breaking down the more signincant accounts

reflected therein, .

. Jn genera}, the Act provides that an application for registration

shall become effective 30 days after the receipt by the Commission of

t_h~u~xch.ange's certification of approval thereof, except where the

-.~:" 1221D8-4'l~

-

-
18 sECU!UTIES AND EXCHANGE COMMISSION

. Commission determines that it may become effective within a shorter

period of time. It is unlawful under the statute for any member,

broker, or dealer to effect any transaction in any security (other than

an exempted security) on any national securities exchange unless

registration is effective as to the security on such exchange.

Examination of Applications and Reports

All applications and reports filed pursuant to Sections 1.2and 13

of the Securities Exchange Act of 1934 are examined by the Commission to determine whether accurate and adequate disclosure has been

made of. the information required by the Act and the Rules and Regula-

.tions thereunder, This examination does not involve an appraisal and

is not concerned with the merits of the registrant's securities. When

the examination discloses that material information has not been

furnished in accordance with the requirements, or that sound principles and procedures have not been followed in the preparation and

presentation of financial statements, the registrant,is so advised by

letter, or in conference with its representatives, and any necessary

correcting amendments are obtained and examined in the same manner

as the originally filed documents. Where the examination discloses

omissions which are clearly of an immaterial nature, particularly in

connection with periodic reports under Section 13 of the Act, the registrant may merely be notified thereof by means of a letter containing

suggestions which should be followed in the preparation and filing of

future reports, without insistence upon the filing of an amendnient

to the particular report in question .•

The examination of an application for registration is made as

promptly as possible after it is filed in order that any material deficieneies may be brought to the attention of the registrant and the

exchange before registration becomes effective in accordance with the

provision of the statute. While the basic period available for this

purpose is 30 days, it was necessary to complete the examination last

year of an increasing proportion of all applications filed within considerably less time, inasmuch as the Commission issued requested

orders accelerating the effective date of registration in a considerable

number of cases. For example, except for the applications filed with

respect to securities issued in connection with stock split-ups and

stock dividends and the like-of which there was a phenomenal increase last year accounting for approximately half of all applications

filed and in connection with which a temporary exemption from registration is generally available-acceleration was requested last year

with respect to approximately 90 percent of the applications for

regis~abon. .

Since a registrant's annual report is required to be filed within 120

days after the close of the fiscal year of the registrant, and because of

the fact that approximately 80 percent of all registrants have fiscal

years corresponding to the calendar year, there is filed with the Commission a peak load of more than 2,000 annual reports at or about the

end of April each :year. Consequently, it is always necessary to spread

the work of examining these anual reports over the ensuing months:

While current reports should be examined during the month. in which

they are filed, and such was done prior to the war, there has been such

a phenomenal growth in the volume of work flowing into the Com-
TWELFTH ANNUAL REPORT .19

mission, which has not .been coupled with a corresponding increase in

personnel, that-there has necessarily arisen in recent years a growing

backlog of current reports, as well as annual reports, that must be

held in suspense for appropriate examination. This acute manpower

situation has been aggravated during the past year particularly by the

fact that more than 5,000 current reports were received during the

past fiscal year, nearly double the number of such reports (2,752)

received in the 1945 fiscal year. Further, it is estimated that the number of such current reports to be received in the current 1947 fiscal

year will increase still further to It total of something like 7,500. The

chief reason for this pronounced increase arises from the adoption on

July 23, 1945, of the Commission's Rule designated X-13A-6A requiring the filing of quarterly reports by certain companies engaged

in war groduction (see discussion appearing at pp. 11-12 of the Com-

.mission s Eleventh Annual Report), and the adoption in substitution

therefor of a new Rule on March 28,1946, designated Rule'X-13A-6B,

providing for the filing of quarterly reports by .certain listed companies. An explanation of this substitute Rule appears below.

New Rules Under the Securities Exchange Act of 1934 I 1

Rule X-13A-6B-Quarterly reports by certain companies: The

Commission announced on March 28, 1946, the adoption of a reporting

program providing for the disclosure to investors and the public of

current information as to the volume of business being done by most

issuers having securities registered on a national securities exchange.

At the same time the Commission announced the recission of Rule

X-13A-6A and paragraph (f) of Rule X-13A-6. . Under the provisions of the new rule, designated X-13A-6B, and

the revised Item 11 of Form 8-K, most issuers filing annual reports

pursuant to the requirements of Rule X-13A-1 will be required to file

quarterly reports on Form 8-K, setting forth the dollar amount of

sales or other gross revenues during the fiscal quarter. A report must

be filed not later than 45 days after the close of each fiscal quarter

beginning after December 31, 1945, or not more than 45 days after

the effectIve date of the new Rule~whichever date is the later. Issuers

previously filing reports under Bule X-13A-6A begin immediately

to report under the new Rule so as to provide a continuous series of

reports as to such companies. Insurance companies, investment companies, common carriers, and public-utility companies are exempted

from the requirements of the new Rule due to the nature of' their

business and because, in the case of most listed public-utility companies, many' Federal and State regulatory agencies to which such

companies are generally subject presently require the filing of more

extensive information on at least as frequent a basis.

Prior to adoption, comments upon drafts of the proposed new rule

and of the amended Item 11 of Form 8-K were obtained from technical and professional associations, governmental agencies, national

securities exchanges, individual companies, attorneys, and many other

interested persons. Effect was given in the new Rules to a number

of the suggestions received. A minority of those commenting on the

proposed Rule, however, expressed varying degrees of doubt as to the

desIrability and feasibility of the proposed reporting program. For

this reason it was decided to make, .public the following statement
20 SECURITIES AND EXCHANGE COMMISSION

..

by the Commission outlining briefly the more important objections

raised by those opposed to the program and the reasons for adopting

the new Rule: , ,

Section 13 (a) (2) of the Securities Exchange Act of 1934 requires every

issuer of a security registered on a national securities exchange .to file ,"such

annual reports, . . and such quarterly reports, as the Commission may prescribe." Pursuant to this subsection Rules. calling for the filing of annual reports were adopted-shortlr after the efl'ective date of the Act. Rules were later adopted

calling for current reports on Form 8-K whenever any of c-ertain special events

occurred during the year. Since that time the problems involved in the requiring

of regular quarterly operating reports bave been under study from the point

of view of both the usefulness of such reports to investors and their feasiliil,ity

in the light of contemporary business and accounting practices.

We have now concluded to initiate a regular quarterly reporting program

applicable to most issuers having- securities listed on a national securities exchange. Under the new rule, a company is required to furnish quarterly information as to the sales or other gross revenues derived from its operations.

However, companies which regularly publish or distribute to stockholders quarterly financial statements or reports containing at least the above information

may comply with the Rule merely by filing copies of such published reports as

an exhibit to Form 8-K The information called for is not required to be certified by independent public accountanig,

As a result of extended study of The problem and of tqe ebmments received

from those to whom preliminary drafts of the program. were sent, we are of

the opinion that companies should furnish investors and the public with regular

interim information as to their operations. We are inclined to believe, more- .

over, that it would be desirable to obtain at quarterly intervals a condensed income statement showing not only gross revenues but also net income before and

after Federal income taxes together with any nonrecurring items of income or

costs and losses. Of an unusual size even though certain of the items could only

be arrived at by the use of reasonable estimates or on .the basis of certain

assumptions. It appears, however, that a substantial number of listed com- panies-do not now have their accounting and reporting practices so organized as to be in a position to make the determinations necessary to furnish reason-:

ably reliable data of this character on'a quarterly basis. Accordingly, we have

determined for the present merely to require information as to sales or other

gross revenues. On the other hand, companies customarily preparing more

detailed information will be able to satisfy the requirements of the rule by filing

copies of their regular quarterly statements or reports. .

Objection to the program has been made on the ground that the required

information as to sales or. other gross revenues may be uninformative or misleading due to the seasonal nature of a business or to unusual events of the

quarter. Somewhat s.imilarly it is claimed that tbe information called for is

useless since changes in sales volume may not be accompanied by a comparable

change in gross or net profits, partleularly for short periods or during periods

when business conditions are unsettled. Although such difficulties clearly ,exist

in varying degrees depending upon the type of company, we feel, to the contrary,

that reports of sales volume when taken in conjunction with other known information as to the business and as to business' generally will be of substantial

usefulness. ,Among other things, for example, the information being required

should at the present time provide an index of the extent to which a company

has been able to reenter clvilian markets or to maintain in the postwar P.6riod

its wartime volume of civilian business. It is also our view that such information will aid in the formation and exercise of an informed investment

judgment based on other available information as to the general nature' of the

operations of the company, its plans and prospects for the future, its position

with respect to other companies in the same industry, and many other factors

which afl'ect the financial success of a business.

Where in a partlcular case ali Issuer feels that its report as to S1lIesor other

gross revenues may not be representative because or- the seasonal nature of

the bnsiness or for other reasons, there are, of .eourse; a number of possible

procedures that may be utilized. In the ease of a seasonal business, an appro~

priate statement of th~ nature of..tJl,e business could be glven.. ,In addition; it

would be appropriate and desirable to furnish -along with the ..report for tl)e

particular quarter comparable ~. for the same quarter 01: the llrevloUs year

J

~<

;~"

•

-

'"
TWELFTH ANNUAL REPORT 21

or for the 12 months period ending with the current quarter. Likewise. if in a particular case it is felt that sales or other gross revenues standing alone

are Inadequate because not indicative of the trend in gross or net profits. the

report coul(l include an appropriate explanation of the special circumstances, or

there could be substituted a more complete though stilI condensed form of

income statement such as is now regularly being published or sent to stockholders by many issuers.

The other principal objection was that the program imposed an unreasonable

burden on reporting companies. As to the very large numbers of issuers now regularly issuing quarterly statements, we do not believe that the furnishing

of the required information, either directly or by means of copies of the regular

reports. involves any substantial burden. As to other companies. we feel that

any added burden involved in compiling the n,ecessary information as to sales

or other gross revenues is more than outweighed by the benefit to investors and

the. public of interim data as to a listed company's operations. Finally. if under

the circumstances of an unusual case it is impracticable to furnish the necessary

information within the prescribed time, or if the required information is neither

known nor available to the issuer. attention is directed to paragraphs 6 and 7

of the general instructions to Form 8-K which provide for special procedures

in such cases.

It may be noted that shortly after the close of the fiscal year, on

July 12, 1946, Rule X-13A-6B was amended so as to exempt from the

Rule in addition companies primarily engaged in the production of

raw cane sugar or other seasonal single-erop agricultural commodity

since such producers will ordinarily have no sales in two or more of

their fiscal quarters. The staff has, however, been directed to study

the 'possibility of requiring such companies to furnish at appropriate

intervals-other significant mformation as to the progress of the operations of such companies.

Rule X-12A-1, Temporary EXemption From Section 12 (a) of Certain Securities of Banks

. The Commission announced on December 5, 1945, an amendment to

Rrile X-12A4. The previous Rule temporarily exempted from registration under the Act securities of banks as to which temporary registration expired on June 30, 1935, securities issued in exchange for or

resulting from a modification of' any securities of banks exempted

from registration by the Rule, and common stock issued as a stock

dividend on stock of the same class exempted from registration by

the Rule. The amendment enlarges the third category of exempt se7'

curities by providing that any additional shares of common stock

(whether issued as a stock dividend or otherwise) shall be exempt

under the Rule if the issuer has common stock of the same class so

exempted from registration. The amendment also removes from the

Rule any reference to securities of bank holding companies since the

exemption -of such securities under the Rule has expired.

Amendment 1,0 Fol'Jlllllo-K and I-MD ,

The Commission on May 22, 1946, amended annual report Forms

1o-K'and I-MD so as to secure a current restatement of the general

character of the business in which registrants and their subsidiaries

are engaged. This restatement was rendered desirable because of the

major changes in many businesses as a consequence of war activities

or occurring In the process of reconversion to peacetime activities.

M9reover, in many cases changes not individually significant have

occurred over a period of years the cumulative.effect of which had

-

'

~
22 SECURITIES AND ExCHANGE COMMISSION

been a substantial change in the general character of the business of a

registrant and its subsidiaries or in one or more of the major lines of

the business. The amendment requires the restatement only for the

fiscal year ending on or after December 31, 1945. Where registrants

had already filed their reports or are about to do so, extensions of time

for furnishing the additional information may be applied for.

Amendment to Forms 12-K and 12A-K

The Commission announced on February 19, 1946 (Securities Exchange Act Release No. 3787), the adoption of minor amendments to.

its annual report Forms 12-K and 12A-K (prescribed for companies

required to file annual reports with the Interstate Commerce Commission or the Federal COmmunications Commission). The purpose

of these changes was to revise the selected schedules so as to conform

to certain changes made in Form A of the Interstate Commerce Commission for tlle year ended December 31, 1945: I

Proceedings Under Section 19 (a) (2)

Section 19 (a) (2) of the Securities Exchange Act of 1934 authorizes

the Commission, after appropriate notice and opportunity for hearing,

to deny, suspend the effective date of, suspend for a period not exceeding 12 months, or to withdraw the registration of a security if

the Commission finds that the issuer of such security has failed to

comply with any provision of the Act or the rules and regulations

thereunder.

Two proceedings under this Section were pending at the beginning

of thel.ear. During the year two additional proceedings were institute , one for alleged inaccuracies in annual reports of the issuer,

and the other for failure to file the required annual reports. The

registration of the securities of one issuer was ordered withdrawn

during the year for failure to file the required annual reports. At

the end of the fiscal year, two proceedings were still pending.

Temporary Suspensions of Securities From Trading Pursuant to Section 19

(a) (4) and R~e X-15C2-2 '-

Section 19 (a) (4) authorizes the Commission summarily to suspend trading in any registered security on any national securities

exchange fora_period not exceeding 10 days where the public interest

so reqUIres. Where the reason for a suspension under Section 19 (a)

(4) is to prevent fraudulent, deceptive, or manipulative acts or practices, Rule X-15C2-2'concurrently prohibits over-the-counter trading

by brokers and dealers. During the year two securities were suspended from trading on exchanges pursuant to these provisions.

In the first case, the common stock, $1 par value of. Red Bank

Oil Co. was suspended fr0!9-trading on the New York (fu;b Exchange.

That security was then the subj8Qt of stop-order proceedings under

the Securities Act of 1933 and delisting proceediiigs under Section

, 19 (a) (2) of the Securities' Exchange Act of 1934. The Suspension

was occasioned by the uncovering of iriformation which raised a serious,

question relating to the independence of the accountants who had prepared financial statements previously :filed with the Commission by

the issuer. After the secunty had been suspended for several10-day

periods, the Conuriission found that the financial statements had

'
TWELFTH ANNUAL REPORT 23

not' in fact, been ]?roperly prepared and pursuant to its' powers

under Section 19 (a) (~) of the Securities Exchange Act, suspended

the security from trading on the New York Curb Exchange for a

period not to exceed 12 months pending final disposition of other

matters at issue in the proceedings.2

. The second suspension under Section 19 (a) (4) involved the

common stock, $1 par value, of Interstate Home Equipment Co., a

company which was in an advanced stage of liquidation. A suspension of trading on the New York Curb Exchange and the Chicago

Board of Trade was ordered when it appeared that a sudden spurt ill

the market price of the security had carried the price far above the

maximum amount which the stockholders could expect to receive upon

completion of the liquidation. The suspension was continued in

effect by further orders until current financial statements, which had

been in preparation, were released to the public, and was then lifted.

Thereafter the exchanges upon which the security had been traded

elected to suspend trading on their own floors and they subsequently

removed the security from listing altogether. With the lifting of

the Commission's suspension, however, trading became permissible

over the counter,"

StatistiC;S of Securities Registered on Exchanges

At the close of the fiscal year, 2,188 issuers had 3,585 security issues

listed and registered on national securities exchanges. These securities consisted of 2,552 stock issues aggregating 2,440,707,313 shares, and

1,033 bond issues aggregating $17,800,893,052 principal amount.

During the year the following applications and reports were filed in

connection with the listing and registration of securities on exchanges:

Applications for registration of securities ~_______________________ 668

Applications for "when-issued" trading_________________________________ 77

Exemption statements for short-term warrants__________________________ 80 Annual reports 2,029

Ourrentreports ~= 5,048

Amendments to applications and annual and current reports.: 1,295

Annual reports of issuers having securities listed only on exempted . exchanges ~_________________________________ 86

Appendix Tables 6 through 17 contain a considerable amount of

detailed statistics concerning securities registered on exchanges.

SECURITY TRANSACTIONS OF CORPORATE INSIDERS

The security ownership reports prescribed in three of the Acts

administered by the Commission have as their main objective to furnish public security holders with information as to the trading of

insiders in the equity securities of their companies The statutory requirement for the filing of these reports recogniZes the fiduciary capacity of corporate insiders. .

These ownership reporting req~irements were provided first by

"The proceedings and the suspension under Section 19 (a) (2) were still In effect at the

close of the fiscal year. However, the expiration of the summary suspension orders under

Sectlou 19 (a) (4) automatically removed the prohIbItion against over-the-counter tradIng under Rule X-15C2-2. Red Bank OU Co., SecurIties Exchange Act 'Releases, Nos, 3742

and 3770. . InterBtate Home EquiPment 00., Secllritles Exchange Act Release No. 3766.

Civil liability for the return of.profltll"'on short-term trading In equity securities Is also

provided for. The reporting requfrements not only act to deter such trading but also aid tn the enforc:ement of the civil liabilities. .

~

~

•

•
24 SECURITIES AND EXCHANGE COMMISSION

Section 16 (a) of the Securities Exchange Act of 1934. Under that

Section every person who is an officer, or director or principal stockholder (i.e., a person who is, directly or indirectly, beneficial owner nf

more than 10 percent of any class of registered equity security) of an

issuer which has any class of equity security listed and registered on

a national securities exchange must file with the Commission and the

exchange an initial report disclosing the amount of every class of

equity security of the issuer of which he is directly or indirectly the

beneficial owner, and a report for each month thereafter in which any

purchase, sale, or other change in such ownership occurs. Under the

corresponding provisions of Section 17 (a) of the Public Utility Holding Company Act of 1935,every officeror-director of a registered holding company is under the duty to file with the Commission reports

disclosing his direct and indirect beneficial ownership of every class

of security of the registered holding company and its subsidiary

companies, as well as all subsequent changes occurring therein, Later,'

when the Investment Company Act of 1940was passed, it contained in

Section 30 (I) the requirement that every officer, director, principal

security holder, member of an advisory board, investment adviser and

affiliated person of an investment adviser of a registered closed-end

investment company shall in respect of his transactions in any securities of such company (other than short-term paper) be subject to 'the

same duties and liabilities as those imposed by Section 16 of the

Securities Exchange Act of 1934. The Commission has adopted appropriate Rules in order to avoid any unnecessary duplication in the

filing of ownership reports which are required by more than one of

these Acts. I

Each of these statutes provides that, for the purpose of preventing

the unfair use of inside information, any profit realized by these

corporate insiders from certain short-term transactions shall 'be recoverable by the issuer or by a security holder in its behalf if it

fails or refuses to bring suit to recover within 60 days after request

or fails diligently to prosecute the same thereafter. Itis incorrect to

suppose that these latter provisions have the capacity to prevent

insider tradin~. They merely provide that, for the purpose stated,

any profit the Insider realizes from a so-called "short-swing" transaction (specifically, any purchase and sale or any sale and purchase

within any period of less than 6 months) in securities of his company,

shall be recoverable by the company. At the same time, it is undoubtedly correct to say that the successful operation of these ownership reporting requirements has appreciably reduced the amount of

such short-term trading by corporate insiders. It might be noted that

since the constitutionality of the profit-recoverability feature of Section 16 was determined by the court in Smoloue v. Delendo Oorp.".136

F. (2d) 231 (C. C. A. 2, 1943), oert, den., 320 U. S. 751 (1943), certain

other civil actions for the recovery of such insider profits have been

instituted; II and it may also be pointed out that in several instances

corporate insiders have informed the Commission' fhat they have

voluntarily paid over to their companies profits realized by them from

such trancactions. '

G See the section herein on "The Commission !lthe Courts, '\ ~t p. 103,
TWELFTH ANNUAL REPORT 25

The number of ownership reports filed on the various forms in

accordance with the existing statutory requirements and examined by

the Commission during the past fiscal year is set forth below:

Number of o~ship reports of ot/lCers,directors, principal security holders,

and certain other at/Uiated persons filed and e3Jaminedduring the fiscal year

endedJune 90, 1946

Description of Report'

SeCurities Exchange .Act of 1934: 7'otal

Original reports-Form 4, 14,321; Form 5, 835; Form 6, 1,809 16,965

.Amended reports-Form 4, 806; Form 5, 25; Form 6, 42____________ 873

Public Utility Holding Company Act of 1935: , Original reports-Form U-17-1. 80; Form U-17-2, 347____________ 427

Amended reports-Form U-17-1, 2; Form U-17-2, 18_______________ 20

Investment Company Act of 194.0: Original reports-Form N-30F-1, 210; Form N-30F-2, 977_________ 1,187

Amended reports-Form N-30F-1, 2; Form N-30F-2, 76 ~__ 78

19,550

Form 4 is used to report changes in ownership: Form 5, to report ownership at the time

any equity securities of an issuer are first listed and registered on a national securities

exchange; and Form 6. to report ownership of persons who subsequently became officers,

directors,lIr principal stockholders of such an issuer, under Section 16 (a) of the Securities

Exchange Act of 1934: Form U-17-1 is used for initial reports and Form U-l'1-2 for reports of changes in ownership of securities. under Section 17 (a) of the Public Utility Holding Company Act of 1935; and Form N-30F-J is used for initial reports and Form N-30F-2 for

reports of changes in ownership of securities under Section 30 (f) of the Investment Company Act of 1940.

The total of 19,550 reports filed during the 1946 fiscal year represents an increase of 18 percent over the number filed during the

preceding year, and is greater than the total filed in any of the- -. preceding 7 years. During the past 12 years 252,261 reports have

been filed by more than 39,000persons subject to the ownership reporting requirements. Most of these reports were filed without the

necessity of' any action by the Commission, and in relatively few

instances' has more than a simple reminder to the reporting person

been necessary to secure the filing of the required reports.

The Commission's staff engaged in the work of examining these

reports for compliance with the statutory requirements has need, as.

a practical administrative matter, to examine currently a wide variety

of collateral sources of information available to the Commission.

Amo~ the more important 'of these sources are applications for

registration of securities, annual' reports, and quarterly and other

current reports filed by issuers pursuant to the Securities Exchange

A.ct of 1934; registration statements and prospectuses filed by issuers

under the Securities Act of 1933; notifications of registration; registration statements, and annual supplements filed by registered holding companies' under the Public Utility Holding Company A.ct of

1935; notifications of registration, registration statements, annual

reports and quarterly reports filed by registered closed-end investment companies under the Investment Company Act of 1940; preliminary and definitive proxy soliciting material filed by issuers,

under the Securities Exchange Act of 1934, the Public Utility Hold-

!JIg Company Act of 1935 and the Investment Company Act of 1940;

letters received from issuers; and the current publications of certain

daily,week1y, quarterly and other periodic financial news services.

•
26 SECURITIES AND EXCHANGE COMMISSION

It is inevitable, in view of the volume of security ownership reports

which are received by the Commission-a volume which presently!

averages about 100 reports each work day-that many questions involving the interpretation or application of the reporting requirements to particular situations are presented daily to the Commission's

staff. Many such questions relate to indirect beneficial ownership of

securities held by the reporter's spouse or other member of his intimate

family group, his so-called holding company, or a personaLtrust in

which he has some interest. But the problems extend also to a great

variety of other phases of the requirements. Consequently, a considerable portion of the time of the examining section assigned to this

work is spent in rendering informal administrative interpretations of

the applicable statute or rules as they may relate to the particular facts

and circumstances presented; in answering personal, telephone, and

correspondence requests for advisory assistance as to the simplest

method of preparing necessary forms; and in explaining the scope

of the items of information contained in the forms. Of the 4,223

outgoing letters which originated last year in the examining section

in charge of these ownership reports, it is estimated that one-half

contained such informal advisory assistance afforded in particular

cases, while during the same period hundreds of telephone and

personal inquiries seeking such help were also given appropriate

attention.

The security ownership and transaction reports on all Forms are

available for publio inspection as soon as they are filed at the headquarters office of the Commission, and reports on Forms 4, 5 and 6

may likewise be inspected also at the particular exchange with whichan additional copy of each report relatmg to the issuer concerned must

be filed. For the purpose of making the information contained in all

reports more readily accessible to interested investors, the Commission

compiles and publishes such information in a monthly Official Summary of Security Transactions and Holdings which is widely distributed among mdividual investors, newspaper correspondents and

press services, and other interested persons. Copies of these summaries are also available to the public at each regional office of the

Commission and each national securities exchange.

SOLICITATION OF PROXIES, CONSENTS, AND AUTHORIZATIONS

Under three of the'Acts it administers-Sections 14 (a) of the Securities Exchange Act of 1934) 12 (a) of the Public Utility Holding

Company Act of 1935 and 20 t a) of the Investment Company Act of

1940-the Commission is authorized to prescribe rules and regulations

concerning the solicitation of proxies, consents, and authorizations in

connection with securities of the companies subject to those Acts.

Pursuant to this authority the Commission has 'adopted Regulation'

X-14, which is desigued to protect investors by requiring the disclosure of certain information to them and by affording them an opportunity for active participation in the affairs of their company.

Essentially, this Regulation makes unlawful any solicitation of any

ProXY2 consent or authorization which-is false or misleading as to any'

material fact or which omits to state any material fact necessary to

make the statements already made not false or misleading. Under

-
TWELFTH" ANNUAL REPORT 27 • the Regu!ation it is necessary, in general, that each person solicited be

furnislied such information as will enable him to act intelligently

upon each separate matter in respect of which his vote or consent is

sought. The proxy rules set forth in this Regulation also contain provisions whiCh enable security holders who are' not allied with the

management to communicate with other security holders when the

management is soliciting proxies. In the Comnussion's view the develbpment of these Rules has already contributed distinctly to a revitalization of the democratic process in the conduct of corporate

affairs.'

Stat.istically, it may be noted that last year the Commission received

and examined under Regulation X-14 both the preliminary and definitive material required with respect to 1,670 such solicitations as well

as "fo~ow up" material employed in 390 instances.

UNLISTED TRADING PRIVILEGES ON EXCHANGES s

On Registered Exchanges

.As of June 30, 1946, 965 stock issues were admitted to unlisted trading on the registered exchanges. Of these, 569 issues were fully listed

ana registered on exchanges other than those on which unlisted trading

privileges existed and 396 issues had only an unlisted trading status

so far as the registered exchanges are concerned,"

The 396 issues having only an unlisted status aggregated 374,597,021

shares, or about 13.2 percent of the entire 2,832,452,776 shares admitted

to trading on the registered exchanges. 316 of the issues were on

New York Curb Exchange only, 13 were on that exchange and one or

another of the exchanges outside of New York, and 67 were on the

latter exchanges only. 296 of the issues were of domestic corporations, 70 were of Canadian corporations, and 30 were .American depositary receipts for shares of foreign issues. Reported trading

volume in the 396 issues for the calendar year 1945 was 54,271,815

shares, consisting of 43,191,756 shares traded in domestic issues,

8,083,380 in Canadian issues and 2,996,679 in the .American depositary

receipts, and amounting to about 7.1 percent of the total share volume

traded on these exchanges .

..As of June 30,1946,132 bond issues were admitted to unlisted trading on the registered exchanges. Of these, 16 issues were fully listed

and registered on exchanges other than those on which unlisted trading

privileges existed and 116 issues had only an unlisted trading status.

The 116 issues aggregated $1,155,904,721 principal amount and were

practically all on New York Curb Exchange. _

The decline inthe aggregate of stock and bond issues admitted only

to unlisted trading has continued in accordance with the expectation

of Congress, as mentioned annually in these reports. Most of the net

reduction of 37 stock issues during the past fiscal year was occasioned

by retirement of preferred stocks and by the listing and registration

,of previously unregistered issues or their successors. The net reduc1n7 An f!%8.JDpleof one type of regulatory problllP1 presented under the pro~ rules Is found 8. E. O. v. PratlBamerica, discussed herein at p, 106.

T 8bFor comprehensive data with respect to the status of Issues on exchanges, see Appendix ales 11 thru 18.

p Of the,396 Issues, 9 were also llsted upon exempted excluUiges.
28 SECURITIES AND EXCHANGE COMMISSION

tion of 33 bond issues followed largely upon the pr9gress made hy

utility holding companies in adjusting their capital structures a:~

suant to integration proceedings under the Public Utility' Hol .

Company Act of 1935.

- ~n Exempted Exchanges

As of June 30, 1946, 42 stock issues and 1 small bond issue were

admitted to unlisted trading on the exempted exchanges. Of the

stocks, 5 issues were also listed and registered on one or another of

the registered exchanges and 1 issue was admitted to unlisted trading

on a registered exchange. The residue consisted of 36 issues aggre--

gating 5,652,140 shares, all but 1 issue among these being on the

Honolulu Stock Exchange, as was the $140,000 bond issue previously

mentioned.

Applications for Unlisted Trading Privileges ,0

During the fiscal year applications filed pursuant to Clause (2) of

Section fs (f) of the Act were granted permitting unlisted trading on

the Boston Stock Exchange with respect to 22 issues;-Chicago Stock

Exchange, 18 issues; Cleveland Stock Exchange, 8 issues; Philadelphia Stock Exchange, 15 issues; Pittsburgh Stock Exchange, 11 issues;

and St. Louis Stock Exchange, 4 issues. _All of the applications

granted were for stocks. All application of the Pittsburgh Stock

Exchange with respect to one stock issue was denied.

Applications filed pursuant to Clause (3) of Section 12 (f) of the

Act were granted during the year to Chicago Stock Exchange and New

York Curb Exchange with- respect to common stock of the United

Light and Railways Co., subject to certain terms and conditions."

Changes in Securities Admitted to Unlisted Trading Privileges

Whenever a security admitted to unlisted trading privileges is

changed only with respect to its title, maturity, interest rate, par value,

dividend rate, or amount authorized or outstanding, its privileges are

retained on condition merely that the exchange notify the Commission, pursuant to Rule X-12F-2 (a), of the change occurring in the

security promptly after learning of it. During the year numerous

such notifications were received from the exchanges, :

In the event, however, that changes more comprehensive than those

enumerated above are effected. in an unlisted security, unlisted trading

privileges in the altered security may be continued only if the Commission finds, upon application by the exchange pursuant to Bule

X-12F-2 (b), that such altered security is substantially equivalent to

the security previously admitted to such privileges. During the year

applications filed pursuant to this Rule were granted. with respect to 1

bond issue on New Orleans Stock Exchange, 1 stock issue, on Los

Angeles Stock Exchange, 10 st-ockissues 8JId 1 bond issue on New York

Curb Exchange, and 1 stock issue on San Francisco Stock Exchange.

In addition, New "¥ork Curb Exchange was permitted to withdraw

10 For a discussion of Section 12 (f). pursuant to which uulist~ trading pr1vileg~ ~e granted. see Tenth Annual Report, Jlap;es 58-60. , n The Unltea Light ana RaihoallB 00., SecurU;ies Exchange .Act ,!teIease No. 3788.. ,

•

-

-

-

'"

-

- - ~
TWELFTH ANNUAL REPORT 29

applications involving 4 stock issues upon being advised by the Commission that the applications would be denied,

DELISTING OF SECURITIES FROM EXCHANGES

Securities Delisted by Application

Section 12 (d) ot the Act defines the Commission's powers with respect to applications by an issuer or an exchange to remove securities

fr-om listing and registration on an exchange. It provides that a

security may be withdrawn or stricken from listing and registration

in accordance with the rules of the exchange and upon such terms as

the Commission may deem necessary to impose for the protection of

investors.

Pursuant to this Section and in accordance with the procedure prescribed by Rule X-12D2-1 (b), 3 issues were delisted upon application

of their issuers and 12 issues were delisted upon application of exchanges during the fiscal year. Inthree instances the same issue was

delisted from two exchanges upon their respective applications so

that the total delistings, including this duplication, numbered 18. In

each of these cases the application was granted without the imposition of any terms upon the delisting. Of the three issues delisted

upon application of issuers, one remained listed and. registered on

another exchange, one had become very closely held WIth only a few

shares in public hands and with no exchange activity in recent years,

and the issuer of one was in course of dissolution.

During the year the Commission considered the application of

Suburban Electric Securities Company' to withdraw its preferred

and-common shares from listing and registration on the Boston Stock

Exchange. The application was granted subject (1) to the condition that the withdrawal should not become effective until after the

applicant had submitted the delisting proposal to its shareholders

and obtained their consent, and (2) to certain other conditions relating to adequacy of disclosure in the event the securities in question

were withdrawn: from listing and registration."

This was the third occasion on which the Commission had imposed

material terms upon the granting of a delisting application; the first

two such cases were those of Shawmut Association and The Torrington Company, each of. which had applied to withdraw its common

stock from listing and registration on the Boston Stock Exchange."

The terms imposed in these three cases were similar to the extent that

the assent of shareholders to the proposed delisting was riuired,

although the precise terms of each in this respect differed. n the

SUbu:rban case the terms required that solicitation of shareholders'

assents be made by the applicant within 30 days from the date of

issuance of 'the Commission. order granting the application. Moreover,-the order required consent by two-thirds of the company's comU Sflburban Electric Securitlll8 Oompanv, Securities Exchange Act Releases Nos. 3822

and 3829 .. For a'discusslon ot the two previous cases see Eleventh Annual Report, p. 19. Doring the fiscal year the Commission dismissed the applications of Shawmut Association, The

TOlrrlBgtonCompany and Suburban upon being advised that each had determined not to 30Iclt Its shareholders' consent to the proposed dellst~.

'.

•
30 SECURITIES AND EXCHANGE COMMISSION

mon and preferred shareholders and by the holders of two-thirds of

the shares of each class. Furthermore the terms in the S'libwrban

case provided, in the event delisting of the securities became effective,

(1) that prior to purchasing any of its shares the applicant should

furnish the seller with a statement st-ating that the applicant was the

purchaser and setting forth specified information relevant to its securities, as well as a consolidated balance sheet, itemized surplus statement, and profit and loss statement of the applicant and its subsidiaries

as of specified date, and (2) that the applicant should mail to the

Commission a copy of the financial statements intended to be furnished to security holders lis mentioned above prior to the use of

such statements and also mail to the 'Commission a monthly statement

.setting forth certain specified information relative to the number of

its own shares that it had purchased. These latter ternis were imposed in view of the fact that the Commission found financial statements issued by Suburban to its shareholders in the past had not set

forth the status of the trust clearly or in accordance with sound accounting principles and that Suburban had been engaged in a consistent program of buying in its own shares from public holders while

members of the management, familiar with the company's affairs

and prospects, retained their shares, in effect using the company to

increa.se their relative percentages of its outstanding securities.

Securities Delisted by Certification

Under Rule X-12D2-2 (a) an exchange may remove from listing

and registration, upon certification to the Commission, securities

which have been paid at maturity, redeemed or retired in full, or which

have become exchangeable for other securities. During the year 444:

issues of 310 issuers were delisted upon certification by exchanges

under this Rule. Some of these issues were delisted from more than

one exchange; total delistings, includin~ these duplications, numbering 510. In many instances successor ISSUesof those delisted under

this Rule were subsequently listed and registered on the exchanges.

Rule X-12D2-1 (d) provides that an exchange may remove any

security from listing and registration if trading therein has been

terminated pursuant to a rule of the exchange requiring such termination whenever the security becomes listed and admitted to trading on

another exchange. Pursuant to this Rule, six issues of -six issuers

were delisted from New York Curb Exchange when they became listed

and registered on New York Stock Exchange.

Securities Removed From Listing on Exempted Exchanges

The listing of a security upon an exempted exchange may be terminated upon the filing by an exempted exchange of an appropriate

amendment to its application for exemption. Four exempted. exchanges filed such amendments during the year, terminating the listing

of six issues of flve'issuers,

SECURITIES EXEMPTED FROM REGISTRATION

Exempted Securities Removed From Exchange Trading

During the ;year 13 issues of 8 issuers which had' been previously

admitted to exchange trading under a temporary exemption Hom Sec-

~
TWELFTH ANNUAL REPORT 31

tion 12 (a) of the Act pursuant to Rules X-12A-l, X-12A-2 or

X-12A-3 were removed from such trading by action of the exchanges

involved. The reasons for these removals were that one issue had

been paid at maturity; two had been called for redemption; two

had had no exchange activity for many years; the three issuers of the

remaining eight issues were involved in reorganizations as a result

of which these issues had either been eliminated or become exchangeable for other securities which were not admitted to exchange trading.

Temporary Exemption of Substituted or Additional Securities

Inorder to provide continuity of exchange trading in cases where

securities previously listed or admitted to unlisted trading privileges

have come to evidence other securities, Rule X-12A-5 affords to such

securities a temporary exemption from the registration requirements

of Section 12 (a) of the Act to the extent necessary to render lawful

the effecting of transactions therein on the exchange.

Notification of the admission to trading under this Rule with respect

to 144 issues of 127 issuers were received from the various exchanges

during the year. In some instances the same issue was admitted to

trading on more than one exchange, so that the total admissions to

such trading, including these duplications, numbered 181. These

figures include many instances in which the Rule was utilized to permit

exchange trading in additional shares of stock resulting from the

numerous stock split-ups and stock dividends which occurred during

the year.

STABILIZATION AND MANIPULATION

Manipulation

Inits administration of the provisions of the Securities Exchange

Act of 1934 relating to the manipulation of securities markets, the

Commission's policy is to attempt to detect manipulative practices at

their inception, before the public has been harmed. At the same time,

it seeks to avoid interfering with the legitimate functioning of the

securities markets. In brief, the Commission's investigations in this

area take two forms. The "flying quiz," or preliminary investigation,

is designed to detect and discourage incipient manipulation by a

prompt determination of the reason for unusual market behavior. If

a legitimate reason for the activity is uncovered, the case is closed. If

more extended investigation seems required, a formal order is sought of

the Commission under which members of the staff are empowered to

subpena pertinent material and take testimony under oath. These

formal investigations often cover substantial periods of time, and

trading operations involving large quantities of shares are carefully

scrutinized.

, The Commission keeps confidential the fact that any security is under

Investigation so that the market in the security may not be unduly

affected or reflections be unfairly cast upon individuals or firms whose

activities are being investigated. As a result, the Commission occasionally receives criticism for failing to investigate situations when, in

fact, it is actually engaged in an intensive investigation of those very

matters.
32 .SECURITIES AND EXCHANGE COMMISSION

A. tabular summary with respect to the Commission's trading in- .

vestigation follows:

8

8

- Trailing investigations Fo"nal . Flying inf1utiquiZze8 gations

Pending June 30,1945 163, 28

Initiated July 1, 1945 to June 30, 194.6 2ST 11

Total to be accounted for -' ..: 450 39

.'

Changed to formal investigations_________________________________ 11 Ciosed or completed 1 194

Total disposed Of , .: :.. 205

Pending June 30, 1946 245 31

1Includes reference of cases to the Department of Justice or to a national securities

exchange.

Stabilization

During the fiscal year ended June 30, 1946,the Commission continued

the admmistration of Rules X-17A-2 and X-9A6-1. Bule X-17A-2

requires the filing of detailed reports of all transactions incident to

offerings in respect of which a registration statement has been filed

under the Securities Act of 1933 where any stabilizing operation is

undertaken to facilitate the offering. Rule X-9A6-1 governs stabilizing transactions in securities registered on national securities .exchanges, effected to facilitate offerings of securities so registered, in

which the offering prices are represented to be "at the market" or at

prices related to market prices.

Of the total registration statements filed during the 1946 fiscal year,

about two-thirds, or 504,contained a statement of intention to stabilize

to facilitate the offerings covered by such registration statements. Because of the fact that a registration statement sometimes covers.more

than one class of security, there were 660 offerings of securities in

respect of which a statement was made, as required by Rule 827 under

the Securities Act, to the effect that a stabilizing operation was eon"

templated. Stabilizing operations were actually conducted to facilitate 96 of these offerings. In the case of bonds, public offerings of

$188,195,000 principal amount were stabilized. Offerings of stock

issues aggregating 18,797,323 shares and having an aggregate estimated public offering price of $515,548,900 were also stabilized, In

connection with these stabilizing operations, 9,154 stabilizing reports

were filed with the Commission during the fiscal year. Each of these

reports has been analyzed, thereby enabling the staff. to determine

whether the stabilizing activities were lawful.

To facilitate compliance with the Commission's Rules on stabilizing

and to assist issuers and underwriters to avoid violation of the statutory provisions dealing with manipulation and fraud, many confer:'

ences were held with the representatives of such issuers and underwriters and many written and telephone requests were answered. .A. '

total of 2,118 letters and memoranda of such conferences and telephone

requests and memoranda to the regional offices of the Oommission

were written in connection with the administration and enforcement

of the stabilization and manipulation statutory provisions and regulations.. _

=

•

-
TWELFTH ANNUAL REPORT 33

Registration of brokers and dealers under Section 1!J (b) of the Securities

EIIJchange Act of 19S4, fiscaZ year ended June SO, 1946

Etrective registrations at close of preceding fiscal year 4,046

Etrective registrations carried as inactive_____________________________ '93

Registrations placed under suspension during preceding fiscal year______ 1

Applications pending at close of preceding fiscal year____________________ I 20

Applicatio~ filed during fiscal year____________________________________ 644

~otal- 4,801

, ,

applications withdrawn during year__________________________________ 13

Registrations withdrawn during year_________________________________ 482

egistratlons canceled during year~____________________________________ Registrations denied during year . 1

Registrations revoked during year :._______________________________ '8

Regtstratlona.effeetlve at end of year 4,132

Registrations effective at end of year carried as inactive_________________ '80

Applications pending at end of year___________________________________ 43

Total 4,804

1Registrations are carried on in~ctive status' because of inability to locate registrants despite careful inquiry. Thirteen such registrations were canceled, withdrawn, or restored to active status during the year. One registration, under suspension at the close of the 1945 fiscal year, was revoked

during the 1946 fiscal year.

Broker-Dealer Inspections

Broker-dealer inspections, undertaken pursuant to Section 17 of the

Securities Exchange Act for the purpose of determining ,whether

registrants are in compliance with the requirements of law, totaled

,603 during the 1946 fiscal year. Infractions, which were discovered

in about one-third of these inspections, were of varying degrees of

seriousness.

Seventeen inspections revealed unsatisfactory financial conditions

requiring immediate corrective action or continued surveillance. In

134 inspections, the reports revealed transactions at prices at such

variance with prevailing market prices as to raise some question as . to fair treatment of customers. .In 108 inspections, the reports con-

. tained information indicating noncompliance with the provisions of

Regulation T relating to ilie extension of credit. In36 inspections,

questions were raised concerning improper hypothecation and commingling of customers' securities and use of customers' free funds.

In 25 inspections, it was discovered that, firms took secret profits in

~ency: transa~tions by misrepresenting the prices at which orders had

~n executed,

722108-47---4

~

=

~

_

~

•
34 SECURITIES AND EXCHANGE COMMISSION

Whenever infractions are discovered, efforts are made to determine

whether they are the result of carelessness or represent a policy of indifference or wilfulness on the part of the responsible management.

The Commission has continued its 'established policy in calling

minor infractions to the attention of the firm at the time of the inspection so that corrective measures may be taken immediately. Sub-

'sequent check-ups are then made in order to determine whether the

promised corrections have been effected. In some instances, however,

the infractions are of serious nature, requiring further inquiry or

investigation. During the 1946 fiscal year, 39 inspections resulted in

inquiry or investigation beyond the scope of the inspection.

Administrative Proceedings

A summary of the administrative proceedings of the Commission

with respect to brokers and dealers is given below.

Record of broTcer-deaZerproceedings ana proceeilmgs to suspend or empeZtrom

membership in a nattona; securities association instituted pursuant to Sections

15(b) and 15A Of the Soouritics E:DChanueAct of 1934

Proceedings on revocation of registration pending at beglnnlng of fiscal year_ 2

Proceedings on revocation of registration and suspension or expulsion from

NASD pending at beginning of fiscal year________________________ 5

Proceedings ordered during year on revocation of registration :.. 6

Proceedings ordered during year on revocation of registration and suspension or expulsion from NASD --______ 4

Proceedings ordered during year on denial of registration ~-.::-- 5

Proceedings ordered on question of terms and conditions on withdrawal of registration ~_________ 1

Total__________________________________________________________ 2B , -- Bevoeatlon dismissed, proeeedln registration.. and and membership eonttnued; to ...... r suspend from NASD U1.

Denial proceedings dismissed on withdrawal of appllcation_____________ 2.

llegistrations denied__________________________________________________ 1

llegistrations revoked_________________________________________________ 8:

Registrations revoked and firms expelled rrom NASD______________________ " Firms suspended from membership in NASD ' .:.. .

Revocation proceedings pending at end of fiscal year____________________ 2 ' Revocation proceedings and proceedings to expel or suspend from NASD

pending at end of fiscal year________________________________________ 4

Denial proceedings pending at end of fiscal year 2

ProceediBgs of pending on questlpn of terms and conditions on withdrawal' reg!stration ~__________________________________________ 1

Total --------------~-______ 23

Among those proceedi~s resulting in revocation of registration

was the action against Omtora Oompany, Ino., of WashingtOn, D. C.

The transactions upon which the Commission made its findings were

between the firm and two of its customers, elderly women to whom

the firm owed :fiduciary duties, and involved considerable crosstrading between their accounts. Intransactions with these customers,

the firm habitually confirmed as principal.and at a profit to itself. The

Commission concluded that the firm, under the duty to act as a broker

for these two customers, had obtained secret profits in effec~ cross

transactions between customer accounts as principal, and haa. willfully violated the antifraud provisions of Section 11(~) of the Securities Act and Sections 10 (b) and 15 (c) t1) of the Securities ~change ',"

- ~------

~

~

~-- __

'
TWELFl'H ANNUAL REPORT 35

Act. The' Commission emphasized that, under all the circumstances

of the case, the riskless character of tlJ.etransactions was itself evidence of an agency relationship. The firm had the complete trust and

confidence of the customers; it solicited them to buy specific securities

which it recommended; it knew that these securities were not in inventory and that it would have to go into the market to obtain them

to fill orders; it knew also that it could obtain the securities without

any risk of its own funds. The Commission held that under all of

the circumstances the firm was under the duty to act as agent for the

customer in the absence of explicit and informed consent to the firm's

acting as principal.

In a case of considerable interest to underwriters and securities

dealers generally, the Commission suspended from membership in the

NASD for a period of 10 days, beginning March 16, 1946, the New

York firm of Van Alstyne, Noel &1 00. upon a finding that the firm

had willfully violated Section 5 (a) (1) of the Securities Act of 1933.

On December 14, 1945, approximately a month and' a half prior to

the filing of a r~gistration statement, this firm entered into arrangements WIth Andrew J. Higgins, President of Higgins, Inc., for the

underwriting of 900,000 shares of common stock of Hi~gins, Inc.

Having completed the formation of a so-called "underwritmg group"

consisting of itself and 74 dealers throughout the country, the firm

on or about January 10, 1946, completed the formation of a selling

group consisting of about 160 dealers throughout the country and

allotted specific amounts of shares to these latter dealers, who in

turn allotted shares to their customers .. A registration statement

covering this issue of securities was finally filed on J anuary 30, 1946,

some 20 days after the formation of the selling group. The Commission found, on these admitted facts, that there had been a sale

of Higgins common stock prior to its effective registration. In reaching this conclusion, the Commission considered that clause of Section . 2 (3) of the Securities Act which excepts "preliminary negotiations

or agreements between an issuer and any underwriter" from the definition of "sale." The' firm's activities, however, were found to have

exceeded mere negotiations with underwriters and to have involved

sales to members of the selling group and to members of the public.

Commenting on the Congressional :uitent to outlaw offers or sales

to selling group members prior to the effective date of the registration

,statement, the Commission also pointed out that a prohibition against

making "offers to buy" had been expressly included in the l?rohibition

of Section 5' (a) (1) for the specific purpose of preventmg underwriters from discnminating against dealers who did not make offers .

to buy between the period of the filing of the registration statement

and its effective date.

After prolonged proceedings, the Commission on January 22, 1946,

issued its findings and opinion and ordered revocation of the registration of Norris &1 Hirshberg, Ino., of Atlanta, Ga. The Commission found that in fixing prices which were unaffected by the operation of a free, open and competitive market without disclosing the

nature of its market, in dealing as a principal with uninformed customers and customers who had given it powers of attorney, and in

trading excessIvely for accounts as to which it had discretionary . powers, this firm bad engaged in activities which were fraudulent
36 I

SECURITIES AND EXCH~N:GE COMMISSION

and illegal under Section 17 (a) of the Securities Act of 1933 and

Sections 10 (b) and. 15 (c) (1) of the Securities Exchange Act of

1934. On April 29, 1946,.NOrris&1 llil'shberg, Inc; filed a petition

for review of the Commission's order in the United states Court of

Appeals for the District of Columbia, and on May 2, 1946, the Court

entered an order by. stipulation staying the Commission's order

pending further order of the Court. The Court conditioned its stay

order upon conformance by the firm with its stipulation. and agreement with the Commission not to engage during the pendency of the

review in acts or practices violating the. above-mentioned provisions

of the statutes. .

SUPERVISION OF NASD ACI'lVITY

The National Association of Securities Dealers, Inc., continued

to be the only national securities association registered as such with

this Commission. During the year ended June 30, 1946, membership

increased from 2,290 to 2,514, a gain of 224 members.

Disciplinary Proceedings

Final action on 19 disciplinary cases against members was reported

to the Commission by the Association in the year ending June 30, 1946.

Of these 19 cases, complaints were dismissed or withdrawn in 6 instances; in 4 cases violations were .found and the members censured;

and in the remaining 9 cases violations were found and the firms involved were fined an aggregate of $3,950 in amounts ranging in

particular cases from $1,000 to $200. In this last group of cases, collateral penalties such as censure or an agreement pledging future

observance and compliance with the rules' were sometimes also

included and, in addition, in 3 such cases costs, in varying amounts

up to $250, were also imposed on the members found to have violated

Association rules. '

During the year the Commission found it appropriate to refer, for

whatever action the asso?iation Inig~t find advisable, facts concernmg the busmess practices of 11' different member firms. Three

such cases had been pending at the beginning of the year. During

the year, final action by the association was reported to the Commission on seven such cases and seven cases were 'still in- process at

the year end.

Commission Review of Disciplinary Action or Denial of Membership

_ Section 15A (g) of the Securities Exchange Act of 1934 provides

for. review by the Commission, on application by an aggrieved party,

of .disciplinary action by' the AsSOCIationagainst any member or of

denial of membership by the Association to any broker or dealer. Four

such cases came before the Commission in the 1946 fiscal year, two of

which were decided during the year and the remaining two were

pending at the year .end. _ . .

. On August 7, 1945; the Commission by order, after hearing and

oral argument, dismissed a review proceeding brought by Tliomas

Arthur Stewart,u a member who had been found by the Association to

have violated its rules of fair practice and had been suspended from ---- . .. Thomll8 .Arthur Stewart, Securities EXchange .Act Release No. 3720 ...

-

-
TWELFTH ANNUAL REPORT 37

membership for 1 year. The Commission's opinion included findings

that Stewart had violated the Association's rules of fair practice, and

that his conduct had been inconsistent with just and equitable principles of trade ill that he had recommended to and executed for certain

customers purchases and redemptions of shares of open-end investment companies, timed in relation to dividend dates so as to obtain

~ultiple dividends, without h~ving reasonable grounds for believing

his recommendations to be suitable for such customers and without

making adequate disclosure as to (a ) the manner of determining the

prices of such shares, (b) the_effect of dividends on such prices, and

(c) the amount of selling charges included in the prices of shares

purchased by the customer. III effect, the dismissal of the review

procet;dJ!Ig affirmed the decision and the penalty imposed by the

ASSOCIation.

At the end of the fiscal year another such appeal from Association

disciplinary action was also pending before the Commission," There

was also then before the Commission a petition by Foelber-Patterson,

Inc. seeking review by the Commission of action of the Association in

denying membership to the applicant."

Commission Action on PetitioD,S for Approval of or COntinuation in Membership

Section15A (b) (4) of the Securities Exchange Act of 1934 and the

bylaws- of-the AsSociation bar from association membership persons

under specific disabilities, including those who have been expelled from

a registered securities association for violating any rule which prohibits conduct inconsistent with just and equitable principles of-trade,

unless the Commission approves or directs the admission of that person

as appropriate in the public interest. In the year here under review,

three cases came before the Commission pursuant to this statutory pro- ,

vision. One of the cases was decided during the year and two were

pending at the year end.

The Commission on May 28, 1946, after hearing, by order approved

a petition filed by the Association on behalf of John L. Godley for

approval of his application for membership." Godley had been expelled by the Association in 1942 for violations of its rules of fair

practice which prohibit conduct inconsistent with just and equitable

principles 'Oftrade, and as a consequence, was inelegible for membership unless the Commission approved or directed his membership as

appropriate in the -public interest. The matter came before the Commission after the district committee of originial jurisdiction and the

11 On ;fulY 12, 1946, the Commission issued a memorandum opinion and order identifying this case. Without considering or deciding any ot-the substantive questious raised in the

application for review, the Commission denied the motion ot the applicant, Herrick, Waddell & Co., Ine., to open the record to admit evidence of business practices adopted after the com- pletion ot transactions forming the basis of disciplinary action, holding that sucb evidence was not relevant to show whether any transactions had been In violation of the Association's

rules, See National Association of Securities Dealers, tno., District BUsiness Oonduct Oom- mittee. No. II, v, Herrick, Wadden & 00., te«, Securities Exchange Act Release No. 8881.

,1. On Sept. 4, 1946. the Commission by order set aRlde the action of the ARsociation deny- ing membership to Foelber-Patterspn, Inc .• and required the admission of the firm to mem- bershlp. The,question at Issue was whether the recent registration of Foelber-Patterson,

Inc., with the Commission as a broker-dealer removed the disqualification from membersblp reSulting .from the Commission's revocation of the broker-dealer registration of Central

Securities Corp., of Which Foelber and Patterson had been officers and directors, on Apr. 8,

1942 (see Oentral Seonrittt's Oor'1J.,11 S. E. C., 98 (1942»), In elfect, the Commission held

that the broker-dealer registration of Foelber-P{ltterson, Inc., removed the disqualUl.cation

Insotar JUt the revocation order agalnst Central Securities Corp. related to Foelber and

Pa1:teJ:llon•. ;See Poelber-pqtterson, Inc., Securities Exchange Act Release No. 8841. 17 See John L. GotlletJ, Securities Exchange Act Release No. 8823.

-

-

-

-
38 SECURITIES AND EXCHANGE COMMISSION

Board of Governors of the Association had considered his application

and recommended that the Commission admit him to membership.

At the year end, a somewhat similar petition filed by the Association

on behalf of Greene. & Company was before the 'Commission for

decision. The petition on behalf of Greene & Company asked that the

firm be continued in membership with W. F. Thompson acting as a

partner or an employee. Thompson had been expelled by the association in 1942 for violations of the rules of fair practice which prohibit

conduct inconsistent with just and equitable principles of trade. This

expulsion created a barrier to membership by any firm employing

Thompson, and made Thompson ineligible for direct membership,

absent Commission approval or direction. As in the Godley case, the

petition for Commission approval of the continuance of Greene &

Company in membership was filed by the Association after the District

Committee and the Board of Governors had considered and conditionally approved the application." .

The other pending case arose from a petition filed by Lawrence R.

Leeby for admission to membership in the Association notwithstanding

the fact that the Association had expelled him from membership ill!

1942 and that the Commission had in 1943 revoked his broker-dealer

registration. Leeby's petition requested that the Commission exercise

its administrative discretion in his favor, as far as Association membership was concerned, and it was coupled with an application for registration with the Commission as a broker.

Registered Representative Rule

The Association on July 31, 1945, filed with the Commission as

amendments to its registration statement, after requisite approval by

the Board of Governors and the membership, a series of amendments

to the bylaws and rules requiring that no member should permit any

person to manage, supervise, solicit or handle securities business, trade

in or sell securities or solicit investment advisory or investment management business, unless that person was registered with the Association as a "registered representative." Registered representatives must

agree to be bound by:the articles of incorporation, bylaws and rules of

the As!1ociation, and duly authorized rulings, orders, directions, decisions and penalties. The rules also provide that a person may. not

become registered if he is subject to an order of the Association suspending or revoking his registration or if he is subject to any of the

disqualIfications for which brokers and dealers may be refused or

discontinued in membership. However, under Section 15A (b) (4)

of the Act, the Commission may approve or direct admission into or

continuance of membership notwithstanding the member's control of

a person with a diqualification. . .

The statute does not require affirmative Commission approval before

amendments to the Association's rules may become effectlve, although

it does require the Commission to disaJ.lpFove any amendment unless it

is found to be consistent with the applicable statutory standards. In

order to give all interested parties an opportunity to be heard on the

proposed amendments, the Commission held a public hearing at which

sa On July 31, 1946, the Commission by order approved the continnation ot Greene & Company in membership with W. F. Thompson acting as either a partner or employee. See

(We6n6 (.Jpm.panll, Securlti911 :J!lxcluUlJIlAct Release No. 8886.

-

-

" • _ _
TWELFl'H ANNUAL REPORT 39

arguments were made both for and against the proposal. In an opinion dated September 19, 1945, the Commission, after a detailed exposition of the reasons for the proposed amendments and their implications, found that they were consistent with the statutory standards

and announced that it would not disapprove them."

On December 31, 1945, various members of the Association and a few

nonmembers filed a petition in the District Court for the Southern

District of New York to require the Commission to enter a formal order in connection with its determination not to disapprove the amendments, so that the petitioners might take an appeal to the Circuit

Court of .AJ>peals. After argument on a motion by the Commission to

dismiss this petition for lack of jurisdiction in the District Court,

the petition was withdrawn. Thereupon the same petitioners filed a

similar petition in the Circuit Court of Appeals for the Second Circuit,

which was denied without opinion on March 9, 1946. The Commission

took the position that the statute did.not contemplate a formal order

when the Commission failed to exercise its veto power over amendments to the Association's rules.

As a result of these amendments and because of the Commission's

residual supervisory duties, a substantial number of cases may come

before the Commission on review of action by the association in denying membership to broker-dealers employing persons who are not qualified to be registered representatives.

UTIGATION UNDER THE ACf

During the past fiscal year the Commission instituted its first actions

for injunction based solely on violation of Regulation T, the margin

regulation promulgated by the Board of Governors of the Federal Reserve System. for certain categories of broker-dealers pursuant to Section 7 (c) of the Act. Effective February 5; 1945, the Board had increased the general margin requirement from 40 percent to 50 :percent;

. effective July 5, 1945, it was increased to 75 percent; and effective January 21, 1946, it was made 100 percent. On October 16, 194~ the Commission instituted three companion actions in the United l:'tates District Court at Cleveland. OJJ.eaction was against Butler, Wick &'00., a

New York Stock Exchange member house with officesin Youngstown,

Ohio; another against Hirsch & Oo., a member firm with officesin New

York and Cleveland; and the third against two firms jointly, the S. T.

Jackson & Co., Inc., an over-the-counter firm in Youngstown, and A. E.

Masten & Co., a member house in Pittsburgh which acted as correspondent of the Jackson firm in effecting transactions on the New

York Stock Exchange. Richard C. Brown, of Youngstown, and First

Mahoning Co., an Investment company controlled by Brown, were

named as defendants in all three of the actions." The charges in

these cases are that the first three broker-dealer firms repeatedly

violated Regulation T by overextensions of credit to Brown and his investment company; that the Masten firm overextended credit directly

to the.Jackson firm, its over-the-counter correspondent, and indirectly

.. NaUotUJI .4aaoofaUofl. 01 8eOllrlUe, Dealer" 1no., Securities Exchange Act Release No.

3734. . .. 8. E. O. v. Butler Wick <E 00., Rfchat:ll O. Brown and Flr8t Mahonlno Oompany (N. D.

Ohio) ;.8. E. G. v. Hlr8ch <E OomfJlJny, Rfchard G. Brown, and Flr8t Mahonino Oompany

(N. D. Ohio); 8. E. G. v. A. E. Ma8ten <E 00., Richard G. Brown, and lI'lret Mahonlno GamlIany (N. D. Ohio).

•
40 SECURITIES AND EXCHANGE COMMISSION

through the Jackson firm to Brown and his investment company, customers of the Jackson firm; and that Brown and his investment company aided and abetted all of these violations. On November 16,.

1945,the court entered a final injunction against the Jackson firm by

default. On the same day the court entered preliminary injunctions

by consent in all three cases restraining Brown and First Mahordng

00. from inducing the four defendant firms or any other brokerdealer to effect unlawful transactions of the types alleged in the complaints. At the close of the fiscal year Brown and First Mahoning . Co. were in default of an answer, and the actions against the other

three broker-dealer firms were awaiting trial.

In Securitiee and Ewaluunge Oommission v. Patriak A. TrajyptJ.

the Commission brought suit to enjoin a broker-dealer from selling

oil royalties at prices unrelated' either to his own contemporan~us

cost or to reasonable estimates of recoverable oil. Although this doctrine is to be newly tried in the courts~ the basis thereof has been laid

in quasi-judicial proceedings before the Commission. The Commission sought at the same time to enjoin Trapp, whose broker-dealer

registration had been previously revoked for fraud in connection

with the sale of such securities, from continuing to engage in the business of an over-the-counter broker-dealer without registration, and

from selling oil royalties by means of various misrepresentations.

The case was pending at the close of the fiscal year.. I

There were two cases in which the Commission sought mandatoryinjunctions to require registered broker-dealers to permit an examination to be made of their books and records pursuant to Section 17 (a)

of the Act and the Commission's bookkeeping rules. In the first case,

Seourities and Ewahange Oommission. v. Maurice A. Sharkey, the District Court for the Western District of Washington entered a sum-

_mary judgment of mandatory injunction on December 10, 1945. In

the second case, Securitiee 0J1Ul EwahuJnge Oommission v. Nevada Oil

00.; which was pending in the District Court for the Northern District of Texas at the end of the fiscal year,22the -registrant, after refusing access to Commission investigators on several occasions, filed

an application to withdraw from registration as a broker-dealer.

Thereupon the' Commission filed its action for mandatory injunction and at the same time, in order to prevent the withdrawal of the

application from becoming automatically effective under the Como.

mission's ~ules, instituted an administrative pro~di.ne; to determine

whether WIthdrawal from registration should be conditioned upon the

company's first permitting the required examination of its books andrecords to be made. This administrative proceeding, which is thefirst of its kind ever instituted by the Commission, was likewise pending at the end of the fiscal year; the Commission had postponed the

administrative hearing in order to permit the court action to go ahead

first. . . _

One manipulation case was periding in the courts during the fiscal"

year. In Securities and Ewahange Oo'TflJlll.dl!sion v. Fra11k W. Bennett ,

and The Federal Oorp., the Commission had filed a complaint" ill the"

District Court for the Southern District of New York on June 28, 1945.

to enjoin the defendants from violating Section 9 (a) (2) of the Act:

.. D. N. Dak., complaint 11100June 12. 19.6. IS The complaint was filed on June 18, 1946.

-

•

- •
TWELFl'H ANNUAL REPORT 41

It was alleged that they had manipulated the market for the common

stock of Red Bank Oil Co. on the New York Curb Exchange while a

registration statement was pending under the Securities Act of 1933

with respect to a proposed offering of a large block of that stock "at

the market." On August 20,1945, the court denied the Commission's

motion for preliminary injunction." The Commission's evidence that

the defendants' raising of the price on the Curb from 1%, to 2 would

increase the proceeds to them of the proposed offering by approximately $100,000 was not held to be sufficient evidence of a manipulative

purpose." Instead of appealing from the denial of its motion for

preliminary injunction, the Commission decided to go to trial on the

merits, and the case was awaiting trial at the end of the fiscal year.

There were two civil actions during the year in which the C0111.-

mission obtained injunctions against various fraudulent practices by

broker-dealers. In Securities and Ewahange Oommission v. FiJrutMial

" Service, Inc., the District Court for the Southern District of Indiana,

on August 28, 1945, enjoined the defendant, a registered broker-dealer,

as well as Oscar F. Koenig, his wife, and Mrs. Mildr~d Martin, officers

and directors of the company, from soliciting and accepting funds and

orders from customers without disclosing to them that the firm was

insolvent. The defendants were enjoined at the same time from falsely

representing to customers the prices at which the firm effected purchases and sales, such misrepresentations having enabled the firm to

realize secret profits while acting as agent for Its customers," The

Commission also sought the appointment of a receiver, but the company succeeded in paying off its obligations to its customers and the , request- was denied. In the second case, Securities and Exchange

(lommiesiotiv, Gilbert M. Bates, the defendant consented to the entry

of an injunction by the District Court for the Northern District of

Iowa restraining him from engaging in various fraudulent practices

(the effecting of purchases and sales at prices not reasonably related

to the market without disclosing that fact, taking secret profits by

effecting transactions with customers at prices fixed by the defendant

while he purported to act as their agent, and violating the confirmation requirements) as well as doing business as an over-the-counter

broker-dealer without registration.

Judicial review of Commission action under the Securities Exchange Act was sought ill two' cases, both discussed elsewhere in this

report. Norris & HirslWerg, Ino., v. S. E. 0., which is pending in the

United States Court of Appeals for the District of Columbia, involves

a petition to review a Commission order revoking the petitioner's

broker-dealer registration for various violations of the antifraud

provisions of the Securities Act of 1933 and the Securities Exchange

Act of 1934.26 The second case involved the Commission's opinion

(previously discussed herein) announcing the reasons for its refusal

to disapprove .certain amendments to the bylaws of the National

Association of Securities Dealers, Inc., setting up a system whereby

employees of members have to be registered with the association 'as

62 F. SuPP. 609. . ,. Various administrative proceedings aJfect1ng the registration statements of Red Bank

Oll Co. under the Securities Act of 1933 and "the securities Exchange Act of 1934 are de-

.seribed elsewhere in this report. See p. 22, supra. __ The CoJJlDl1ssionSUbsequently revoked the firm's broker-dealer registration. Becuritlell

Exchange Act Release No. 3774 (Jan. 8, 1946) .. See pp. 811and 36.

•

• •
42 SECURITIES AND EXCHANGE COMMISSION

"registered representatives." Various 'persons sought unsuccessfully

to obtain judicial review first in the DIStrict Court for the Southern

District of New York and then in the Circuit Court.of Appeals for the

Second Circuit,"

Civil Actions Instituted Under the Securities and Exchange Act of 1934

The 1946fiscal year has witnessed a continuation of the ever-growing need to resort to the courts for injunctions under Rule X-10B-5

to protect investors. Rule X-10B-5, adopted pursuant to Section

10 (b) of the Securities Exchange Act of 1934, contains a general

prohibition against fraud illthe purchase or sale of securities through

certain channels. The violations which were enjoined during the

year generally involved combinations of situations where controlling

stockholders took advantage of investors in their companies by suppressing information relating to recent and sharp improvement ill

the volume of business, relating to increases in market value of port-s

folio securities, or other vital information. These situations are

further examples of the need for preventative legislation asked for

by the Commission in its report to the Congress of June 191 1946,

entitled "A Proposal to Safeguard Investors in Unregistered

Securities." 28 ,

Violations of Rule X-10B-5 were sometimes coupled with infractions of other Sections of the Act as well as violations of the Securities

Act of 1933. For example, in S. E. O. v. Financial Seroiee, Ino., et

o1.~2JIand S. E. O. v. Gilbert M. Bates,so the Commission obtained final

judgments enjoining the defendants from violating the antifraud

provisions of the Securities Act as well as the antifraud sections of

the Securities Exchange Act.

In S. E. O. v. Boyd Transfer and Storage 00., et 01.81the Commission obtained a judgment enjoining violations of the fraud provisions

of the Securities Exchange Act of 1934in the purchase of the securities

of the company. The case involved false and misleading statements

in the acquisition of preferred stock regarding book value, net asset

value, and net earnings of the company as well as the benefits to be

received by the management (majority common stockholders) by the

retirement of the preferred stock issues.

In S. E. O. v. Albert M. Greenfield et o1.S2 the Commission instituted

an action charging that the defendants had violated the antifraud

provisions of the Securities Exchange Act in purchasing the debentures of Albert M. Greenfield & Co. It was charged that the defendants had made misleading statements regarding the market price,

and suppressed certain information, including the fact that the net

profits during 1944 and the sharply increased profits for the first 6

months ofi 1945 of Albert M. Greerifield & Co. were sufficient to pay

"'See p. 38. a See the comments herein on that report at pp. 129 to 132.

au. S. District Court, S. D.• Evansville Division, Ind., August 28, 19411. False and

misleading statements to customers regarding prices of securities bought and sold obtain-

'ing secret profits, and the omlBsiol) to disclose insolvency whlle sollclting and accepting deposits of money and orders for the purchase and sale of securities from customers . .. U. S. District Court, N. D., Cedar Rapids Division, Iowa, March 7, 1946. Sales to and

purchases from customers of securities at prices bearing no reasonable relation to prevall- ing market prices, obtaining secret profits, falge and misleading statements to customers regarding the prices of securities bought and sold as well as the amount of the Commission.

Bates was also enjoined from violating the registration provisions of the Securities

Exchange Act. .. U. S. District Court, li'ourth Division, Minneapolis, Minn., Dec. II, 19411.

U. S. District Court, E. D., PennBYlvanla, complaint 111edNovember 7, 19411.

-

-

-

•
TWELFTH ANNUAL REPORT 43

cumulative interest for past years as well as certain noncumulative

interest obligations of the company. It was further charged that

the defendants failed to disclose the identitY' of the purchaser and

the. market value of Albert M. Greenfield & Co.'s portfolio and that

the assets attributable to each outstanding debenture were substantially in excess of the price offered. The action was dismissed on the

Commission's motion upon the filing of a stipulation between the

parties in which defendants agreed to furnish audits of books for the

years 1944 and 1945 to the indenture trustee, to furnish copies of its

certified annual reports including balance sheets.l,.profit and loss statements, and other data to debenture holders, to otter to rescind its purchases of debentures since March 27,1945, and to comply in the future

with Rule X-lOB-5.

In8. E. O. v, Joseph M. Gentile,88 S. E. O. v. Frank Oohen, American Oa:rameZOompany and R. E. Rodda Oandy 00.,84 and S. E. O. v.

Roy Irwin Mitchell 85.the Commission obtained judgments enjoining

the defendants from violating the antifraud provisions of the Securities Exchange Act in the purchase of securities.

The Gentile case involved false and misleading statements to security holders of Breck Distilled Products Corporation regarding current market price and omissions to advise security holders regarding

the existence of an agreement by Gentile to sell his stock at $6.13 per

share and their right under such agreement to dispose of their securities

at the same price.86

The Oohen case involved false and misleading information regarding the book value, current asset value, and market price of American

Caramel Company preferred stock, the control of American, the identity of the purchasers, material changes in American's business including sigiiificant increases in sales and profits and plans for the . recapitalization and reorganization of American.

The Mitchell case involved false and misleading statements to stockholders by an employee of Empire Steel Corporation regarding the

market price or value of Empire's securities and the identity of the

purchas~r. Neither Empire nor its management was involved.

II u. S. District Court, S. D•• New York, Jan. 30. 1946• .. ,U. S. District Court, E. D., PennllYlvania, Dec. 11, 1945. II U. S. DlBtrict Court, N. D.I.Eastern DivlBlon, Ohio, Aug. 6, 1945. III Gentlle has made restltutton in the approximate amonnt of $60,000 to the minority stockholders concerned.
---- --
PART m

ADMINISTRATION OF THE PUBUC UTILITY HOLDING

.COMPANY ACT OF 1935

The Public Utility Holding Company Act of 1935 was enacted for

the purpose of eliminating certain evils and abuses which the Congress

found to exist in connection with the activities of holding companies

having subsidiaries which are electric utility companies, or which are

engaged in the retail distribution of natural or manufactured gas. It

'was particularly designed to remove control of widely scattered utility

'properties from the hands of holding companies in large financial

centers and thus to afford to the operating companies the advantages of

localized management and to strengthen local regulation, This objective finds its most direct expression in Section 11 of the Act. Section

11 (b) (1) 'requires the operations of holding company systems to be

limited to one or more integrated systems and to such additional businesses as are reasonably incidental-or economically necessary or appropriate to the operation of the integrated systems. Section 11 (b) (2)

requires elimination of undue complexities in corporate structures of

holding company systems and the redistribution of voting power

among their security holders on a fair and equitable basis. The Act

provides also for the registration of holding companies (Sec. 5) ;

regulation of security transaetions of holding companies and their

subsidiaries (Secs. 6 ana. 7) ; regulation of acquisitions of securities

and utility assets by holding companies and their subsidiaries (Secs.

9 and 10); regulation of sales of public utility securities or assets,

payment of dividends, solicitation. of proxies, intercompany loans and

other intra-system transactions' (Sec. 12); control of services, sales

and construction contracts (See, 13) ; and the control of accounting

practices (Sec. 15).

SUMMARY OF ACl'lVITIES

The volume of financing involved in applications and declarations

filed under Sections 6 and 7 considered by the Commission during the

1946 fiscal year surpassed that of any previous year. The aggregate

thereof, relating principally to subsidiaries of registered holding companies; involved security issues totaling $2,375,000,000 as compared

,with $1,305,000,000 during the 1945 year. There was also a substantial

increase in the number of cases filed involving matters looking toward

compliance with Section 11 and to give effect to the Oommission's

orders thereunder.

:'Further noteworthy progress was made during the past year rin

effectuating the requirements of the Act relating to integration and

corporate simplification. During this period, registered holding CO)IlpinlBs 'disposed of nonretainable interests in 57 electric, gas, and

other subsidiary companies having total assets of appro~imately

45
46 SECURITIES AND EXCHANGE COMMISSION

$1,726,000,000.1 These inciuded 29 electric utility companies with

assets of $1,545,000,000; 8 gas utility companies with assets of

$22,000,000 and 20 other companies having assets of $159,000,000.

Section 11 orders were outstanding on June 30, 1946, requiring the

divestment of holding companies nonretainable interests in 122 subsidiary companies having aggregate assets of $3,352,000,000.

During the year the Commission instituted seven new proceedings .

directing compliance with Section 11. A summary of proceedings

instituted by the Commission under Section 11 (0) which were still

pending at the close of the fiscal year follows:

Number of proceedings_________________________________________________ 61

Number of systems____________________________________________________ 36

Number of bolding companies___________________________________________ 116

Number of subsidiary companies-_______________________________________ 692

Total assets involved $13,895,000,000

Section 11 (e) of the Act authorizes the Commission to 'approve

voluntary plans of reorganization submitted by registered holding

companies and their subsidiaries. Prior to June 30, 1946, 167 such

plans had been filed. The Commission has approved 68 of these

plans, 28 were withdrawn or dismissed, 3 were denied; and 68 were

pending before the Commission in various stages of completion.

INTEGRATION AND CORPORATE SIMPUFICATION UNDER SECTION 11

Summary of Progress

As indicated in the. Tenth and Eleventh Annual Reports of the

Commission the integration" and simplification program has undergone

three phases of development. The first phase, in which the public

utility industry was invited to offer voluntary proposals for complianc~with Secti~n 11,had a lip1i~d success, due to failure of many compames to submit plans amounting to more than the preservation of

existing systems. In the second phase, the Commission issued orders

with respect to each holding company system directing compliance

and indicating in general terms the changes which the systems must

make to meet the geographical integration requirements of Section

11 (0) (1) and the corporate simplification and redistribution of voting power requirements of Section 11 (0) (2). With the exception

of a few minor problems, this phase is now complete. The third

phase has embraced the processing of voluntary plans for reor~-

ization or recapitalization filed by nearly all of the systems looking

toward compliance with the orders issued by the Commission under

Sections 11 (0) (1) and 11 (0) (2). This phase of the integration

program has been the center of attention during the recent period.

Divestment and Simplification '-

The fiscal year ending June 30, 1946, witnessed a sharp rise in the

market prices for utility securities, particularly common stocks, This

1Included in this figure Is $894,000,000, representing assets of Pacl1lc Gas Electric

Co., Which, during the year, ceased to be a subsidiary of a registered holding company.

-

•

"
TWELFl'R ANNUAL REPORT 47

provided substantial impetus to the divestment by holding companies

of assets not retainable under the integration standards of Section 11

(b) (1).

During the year ended June 30,1946, the total consideration received

. by holding companies for their interests in subsidiaries divested and

for miscellaneous properties sold was $254,000,000 as compared with

$150,000,000 for 1945. Because of the fact that the interest disposed

of usually consisted of no more than the parent company's holdings

of common stock in the divested company, the total assets of the subsidiary company involved in the divestment are many times the consideration received.

Of particular significance among the divestments of the past year

have been the increased cash sales to underwriters for public distribution by holding companies seeking to dispose of the common stocks

of operating subsidiaries held in their portfolios. Among these sales

during the past fiscal year were the following, all of which were sold

at competitive bidding:' .

Proceeds to

Subsidiary company holding company

central Hudson Gas and Electric Oorp____________________________ $4,157,175

Pacific Gas & Electric COmpany_.:.________________________________ 27,272, 200

EloridaPovver Oorporation______________________________________ 6,445,227

Oentral Arizona Light & Power 00_______________________________ 10.432,800 , Dallas Railway & Terminal CO :________ 3, 517, 963

Oolorado central Power CO--------.---------------7---------- 1,418,769 !lidland Realization COmpany ~______________________________ 3,087,000

Scranton Electric Oompany 25,881,266

Columbus & Southern Ohio Electric 00___________________________ 38, 115, 352

Dayton Povver and Light 00 51,467,670

Tucson Gas, Electric Light and Power 00 -;___________________ 5, 558,070

Total- 177,353,992

Also of interest is the recent distribution and sale of 2,000,000

shares of Cincinnati Gas & Electric Co. common stock through issuance of rights to the common stockholders of the holding company,

Columbia Gas & Electric Corp., combined with an underwriting of

the unsubscribed shares. Proceeds to the parent company resulting

from this transaction approximated $50,000,000. A number of other

important divestments have been effected by means of distribution of

subsidiary securities to security holders of the parent company in the

form of liquidating dividends.

Prior to June 30, 1946, holding companies' nonretainable interests

in 399 subsidiaries having aggregate assets of $6,073,000,000 had been

divested. Of this number, 343 companies with assets of $4,580,000,000

are no longer subject to the Holding Company Act. Integration orders outstanding at the end of the fiscal year require additional

divestments of interests in 123 subsidiaries with total assets of $3,354,-

000,000. The following table, which was prepared from the data contained in Appendix Table 20, gives a summary of the total divestment

program from December 1, 1935, to June 30, 1946:

~
48 SECURITIES AND -EXCHANGE COMMISSION

SUMMARY-Electric, gas, and nonutilit1/ properties solil or otherwise divested btl

registered public utility holding companies, Dec. 1, 1985, to June 80, 1946

Number of companies Assets of companies divested

(000,000omitted)

Eleo-

,

Eleo- Non- Gas I Non- Total Gas Total tric utility tric ntility

- ---- -- -- -- -- -- Divuted bu athange or dWrlbutfml

of ucuritlu to 3eeuritv holder3

No longer subject to Holding Com12 8 2 22 $1,164 $418 $4 $1,586 stf:n~~~t-to--:iioldmg-Coixipany- Act 1______________________________ 8 (2) -------- 8 1,226 '0 0 1,226

DWuted bv 3ale of properlv or 3ecuri- tlu'

No longer subject to Holding Com- pany Act ,_________________________122 86 113 321 2,tn4 350 370 . 2,9lY

Still subject to Holding Company 1t3 222 25 20 ?R>7 Act 1______________________________ 32 3 48

Total divested _________________ 174 107 118 399 4,886 793 394 6,073

Partial 3ale3 of proper/V not Included Number of companies making Sale price in obOlietotale such sales

Assets sold no longer subject to the

$78 $7

'"I sus

Act ______________ 51 13 ?R> 90 Assets sold still subject to the Act___. 11 5 .1 17 11 4 1 16 TOtals_________________________ 62 18 -z7 107 --:s9 11 ~----us IBy reason of their relationship to other nmJstered holding companies. . J Northern Natural Gas CO-I. which was a subsidiary in 3 di1ferent holding company systems and itself a registered holdmg company walch had consolidated assets of $63,178,222.is not included in the above SU/J1-

mary. Lone Star Gas Corp. and Umted Light & Power Co. have disposed of their interests In Northern

Natural but it remains a subsidiary of North American Light & Power Co .

Includes all cases where total divestment was e1fected by sales or entire property to one or more than one buyer. .' In the case ofsales to more than one buyer, the company was classilled in accordance with the disposi- tion or the majority of the assets sold. . .

Yoteworthy progress has also been witnessed in the simplification.

of corporate structures and redistribution of voting power of holding

company systems under Section 11 (b) (2). Because of the fact that

in many cases dissolution of unnecessary holding companies cannot

take place until a series of involved transactions has been consummated, it is difficult to provide a precise statistical measure of the

over-all simplification which has been achieved. The following table,

however, covering the period from June 15, 1938 to June 30, 1946,

indicates the sharp reduction which has taken place in the total

number of holding companies, and utility and nonutility subsidiary

companies subject to the Holding Company Act. This reflects the

simplification which has occurred as a result of compliance with both

the geographic integration requirements of Section 11 (0) (1) and

the corporate simplification requirements of.Section 11 (0) (2).

Total Elimination CompaCO~P8- nie8 mcs Absorbed Sales. dis- E:mnp- subject

subject by mer- solutions Other to Act .

to Act geror and di- tfonsby dis Total as at

d~ consoli- vest- rule or lune30.

" peri . dation ments order 1946 --- --- --- --- ------ I=~:~~comP8Iiies:: 206 22 43 29 9 103 103

899 108 318 59 47 &2 367 Nonutilities -plus utilities other

than electric and/or gas com- 94 panics ________________________1,002 339 67 84 674 ., 428

Total companics _________ 2,107 224 700 145 140 1.209 8ll8.

IPrinclpallyaD1all utility or nonutility subsidiaries, with little or no public Interest, disposed of by various means.

•_________________

• • •

~
TWELFTH ANNUAL REPORT -49

Interpretation of Section 11

Recent inter£retations of the geographic integration requirements

of Section 11 (() (1) in the light of the definitions contained in Section 2 (at (29) have been of particular interest. In TeXlUJ Utilities

00., Holding Company Act Release. No. 6373, the Commission held

that the requirements of Section 10 precluded the acquisition of Dallas

Railway & Terminal Co. by Texas Utilities Co., a registered holding

company, in the absence of a showing of a substantial operating

relationship whicli would qualify the combination of electric and

transportation properties for retention under Section 11 (0) (1).

Two other cases contained important interpretations of the statutory limits of bigness of an integrated public utility system, as applied to electric companies. In American Gas &: Electric 00., Holdmg Company Act Release No. 6333, the Commission found that the

holding company's principal group of properties, which was known as

the Central System, constituted a single integrated public utility system within the meaning of Section 2 (a) (29). These properties, which

included gross electric utility plant of ap'proximately $443,000,000,

had gross operating revenues of approximately $102,000,000 and

served an area of approximately 901000 square miles in the States of

Michigan, Indiana, Ohio, West VIrginia, Virginia, Tennessee and

Kentucky. The Commission noted, in particular, that practically

all of the power requirements of the central ~ystem were met by

its own electric generating stations, that the Central System had

a long historical record of having been developed and operated as a

highly coordinated system under the central control of the holding

company, that interchanges of energy among the component com.-

pantes were frequent and substantial, and that it did not blanket

the entire area, inasmuch as other important electric utility companies operated in the territory. .

The Commission concluded that the Central System constituted

a single integrated system and that it did not appear to be so large

in any of the States in which it operated as to Impair the effectiveness of regulation. Further, a relatively high degree of coordination

of the system~ utility facilities and its relatively economical operation

were demonstrated. These characteristics were shown, in, part, to be

due to common control. In reaching this conclusion the important

distinction was made that the Qommission was not asked to approve

the creation of a new holding company over the Central System, but

merely to d~termine whether Section 11 (0 (1) required the status

quo to be affected .. "Tt also observed that 'the Central System approaclies the maximum size which we believe is consistent with the

standards of localized management, efficient operation and effectiveness of regulation contained ill Sections 2 (a) (29) and 11 (0) (1)."

This limitation on the size of the Central System was clarified further in a subsequent case under Sections 9 and 10 of the Act, American

Gas &Electric 00., Holding Company Act Release No. 6639, in which

the Commission denied the application of American Gas & Electric

Co. for permission to acquire the common stock of Columbus & South-

/ern Ohio Electric Co. In its opinion, the. Commission noted that

~~tion 10, ~hich gove~s extensions of control, permits a new acquisition only If the Oommission can affirmatively find that such aequi122108-;41---3

~
50 SECURITIES AND EXCHANGE COMMISSION

,

sition will tend toward the creation of an integrated system as defined

in Section 2) (a) (29). Section 10 requires disapproval of such acquisition if the Commission finds that the acquisition will "tend towards . . . the concentration of control of public-utility companies,

of a kind or to an extent detrimental to the public interest or the

interest of investors or consumers." The marked difference-between

the standards of Sections 10 and 11, the Commission stated, "inheres

in the difference between Section 11, as a compromise of the policy

of 'elimination' of holding companies otherwise than as permitted by

the Act (Section 1 (c), and the 'new acquisition' standards of Section

10, which were designed as a more restrictive check: on further growth

of holding companies and further extension of their control."

The Commission concluded that .''the acquisition of Columbus and

Southern Ohio would not be merely the addition of a spur or connecting link to the system, but would represent a major extension into new

territory which very materially and very substantially enlarges the , system," and that it would extend the system beyond the maximum

limit deemed permissible in the earlier Section 11 (b) (1) determination of whether the statue quo should be affected. _

STATUS OF INTEGRATION PROGRAM-20 MAJOR SYSTEMS - -

There follows a brief summary of the status of the major holding

company systems at the' end of the fiscal year with respect to Section 11.

A resume of previously reported accomplishments is included together

with a fuller description of the principal steps taken during the current

year.

1. ElectI:ic Bond and Share Company

The parent of this system, Electric Bond and Share Co. (Bond and

Share), controls five major subholding companies: Natibnal Power

& Light Co. (National) ; American Power & Light Co. (American);

Electric Power & Light Corp. (Electric) ; American & Foreign Power

Co., Inc. (Foreign Power); and American Gas and Electric Co.

(American Gas). ,

Bond and Share has filed Plans I, II, and ill under Section 11 (e)

of the Act, setting forth a program for the retirement of its preferred

stocks and the divestment of an remaining public utility investments

in the United States," After receiving Securities and Exchange Com--

mission and court approvals, Bond and, Share paid $30 per share as a

capital distribution on its outstanding preferred stocks and reduced

regular preferred dividends by 30 percent (subject to any adjustment

found by the Commission and approved by an appropriate court as

fair and equitable), thus consummating Plan J.8 Plan II-A was filed

in June 1946 and provided for an additional $70 per share capital distribution and the issuance of a certificate evidencing the further claim,

if any, of the preferred stockholders, the amount of such claim to be

made definite 1D a subsequent amendment to the plan.' In order to

raise the necessary cash for the capital distribution to thelreferred

stockholders, Bond and Share included as part of Plan II- the proposal to sell its holding of the common stocks of American Gas.PennHolding Company Act Release Nil. 5970.

Holding Company Act Release No. 6121.

Holding Company Act Release No. 6747.

-

-

•

-

-

-

•

•

•
TWELFTH ANNUAL REPORT 51

sylvania Power & Light Co. (Pennsylvania), Carolina Power & Light

Co. (Carolina), an.d Birmingham Electric Co. (Birmingham);

After the commencement of Section 11 (b) (2) proceedings with

respect to Bond and Share and certain of its subsidiaries," the Commission ordered National to dissolve since it served no useful function

and constituted an undue and unnecessary complexity in the ~stem,fl

and indicated to National that.prior to any disposal of its holdings of

subsidiaries their accounts and corporate structures were to conform

to the requirements of the Act with respect to distribution of voting

power and other matters," Plans to this end were filed by National

and approved by this Commission with respect to Carolina," Binningham," and Pennsylvania," The State commission in each of these

cases; either alone or in conjunction with the Federal Power Commission, ordered the elimination from the companies' property accounts

of certain write-ups (Account 107) and the elimination or amortization of acquisition adjustment items (Account 100.5).

Under the settlement approved by the Commission in May 1946,

with respect to all suits. and claims against Bond and Share by or on

behalf of National and its subsidiaries and certain former subsidiaries," Bond and Share paid National and such other companies the

amount of $750,000. This settlement was subsequently approved by

the United States District Court; and in August 1946 National distributed the common stocks of Pennsylvania, Carolina, and Birmingham pro rata to its common stockholders. Thus, Bond and Share,

which held 46 percent of National's common stock, received 46 percent

of the common stock so distributed. With respect to National's only

remaini~ subsidiaries-Memphis Generating Co., The Memphis

Street Railway Co., and Lehigh Valley Transit Co.- plans are pending for the reorganization and divestment of the first two companies,

while it is expected that a plan dealing similarly with Lehigh Valley

Transit will be filed shortly.

American and Electric, two of the other subholding companies,

were ordered to dissolve for reasons similar to those set forth for NationlCl.12 These companies carried appeals to the United States Circuit Court of Appeals for the First Circuit, which affirmed the order

.of the Commission (141 Fed. (2d) 606). The companies' petition to

the. United 'States Supreme Court for a writ of certiorari was granted

and arguments were concluded on November 16, 1945. After the death

of Chief Justice Stone, the Court directed a reargument of the case

dur~ the-fall of 1946. Certain major steps taken by Electric and

Amencan and their subsidiaries in the ov.erall process of complying

with Section 11 are detailed below:

Under a Section 11 (e) plan approved by the Commission for American in November and December 1945, American retired approximately $36,400,000 principal amount of debentures," The company

had originally proposed to. retire such debentures at 100 percent of

principal amount plus accrued interest, but it amended its plan, pursuBolding Company Act Release No. 20111.

Holding Company.Act Release No. 2962.

Holding Company Act Release No. 8896. . 8 Holding Compamy Act Releases Nos. 89911and 4146.

Holdlnlt Compamy Act Release No. 491111. . . '"Holding Compamy Act Releases Nos. 6080 and 6161. n Holding Company Act Release No. 6668 .. Holding Compapy Act,Relefll!e No. 811)0. 18Bolding Comp~ Act ReleaSe Nos. 6116 anil 62118 (Commissioner Healy dissenting).

-

•

•

•

•

•
52 SECURITIE;S AND EXCHANGE COMMISSION

ant tv the Commission's findings and opinion, to provide for the

retirement of its debentures at 110 percent of principal amount plus .

accrued interest and certain assumed debentures, noncallable until

1947, at 115 percent of principal amount plus accrued interest: The

plan, as amended, was subsequently enforced by an appropriate district court.

The Commission approved the formation by American in October

1945 of a new Texas holding company, which acquired from American

its interest in Texas Electric Service Co. and Texas Power & Light Co.

and from Electric' the latter's interest in Dallas Power & Light Co.

for a cash consideration of $17,350,000.14 The new holding company,'

Texas Utilities Co., was to be disposed of by American within 1year

from October 1945. During the fiscal year American disposed of its

interests in New Mexico Electric Service CO.15and Central .Arizona

Light and Power Co.16 Minnesota Power & Light CoP-and The Montana Power Co. underwent debt refundings, the latter company also

accomplishing an accounting reorganization."

A plan has also been filed by Electric under Section 11 (e) of the Act.

Under it Electric proposed an exchang~ offer of its holdings of the

common stock of Umted Gas Corporation for Its outstanding first . preferred stock," Thereafter, Bond and Share filed an alternative

plan, following which, in July 1946, Electric and Bond and Share

jointly filed a compromise plan." The latter plan provides for the

retirement of Electric's first and second preferred .stocks; for the

creation of a new southern electric holding company; and for the

transfer by Electric to, the new holding company of the common stocks

of Arkansas Power & Light Co., Louisiana Power and Light Co.,

Mississippi Power & Light Co. and New Orleans Public Service Co.

Electric's first and second preferred stockholders under the plan will

be offered a choice of (a) shares of United Gas Corporation, (b) shares

of the common stock of the new southern electric holding company,

or (0) cash. .Any portfolio securities not exchanged will be sold or

distributed by Electric. It is provided that, upon consummation of

all the above steps, Electric will withdraw its appeal from the Commission's dissolution order and dissolve. A compromise plan, on .

which hearings were held after the close of the fiscal year, is now ,

pending before the Commission.

A Section 11 (e) plan-approved for Utah Power & Light-Co. provided that Utah would (a) recapitalize on a one-stock basis, the holders

of the outstanding publicly held stock to receive new common stock for

their holdings, (b) pay Electric $650,000 cash, (0) release Electric

from all claims in favor of Utah or any of its subsidiaries against

Electric and assign to Electric all claims 6f Utah and its subsidiaries

against Bond and Share or its-wholly owned subsidiaries. In consideration of the foregoing, Electric surrendered to Utah for cancelation 3,000,000 shares of common stock and 2,100 shares of $7 preferred

stock having an aggregate stated value of $30,210,000.n The plan was

14 Holding Company Act Release No. 1658. ,. Holding Company Act Release No. 6281- H Holding Company Act Release No. 6179. 17 Holding Company Act Release No. 6082. 18 Holding Company Act Releases NOR.6128 and 5897. 18 Holding Company Act Release No. 6281 . .. Holding Company Act Release No.'6768. 11Holding Company Act Release No. G212 (Commissioner Healy dissenting in part).
TWELFTH ANNUAL REPORT 53

subsequently enforced by the United States District Court for the

District of Utah. As a result of the reorganization, in addition to

having its capital structure improved, Utah was separated entirely

from the Bond and Share system.

Electric has disposed of Its interests in Dallas Railway & Termiual

Co., its remaining investments now consisting of its holdings of United

Gas Corp.'s common stock and the common stocks of the four companies which are proposed to be transferred to the new Southern

Electric Holding Co.

. Proceedings on an application filed by American Gas, requesting

approval of the continuance of its Central System together with

continuance of the alleged South Jersey and Northeast Pennsylvania

systems, were consolidated with Section 11 (b) (1) proceedings instituted by the Commission in 1939. Hearings were held from time

to time in such consolidated proceedings. The Commission concluded

that properties comprising the Central System could be retained

under common control under the standards of Section 11 (b) (1) of

the Act but that other properties must be divested if such Central System were to be retained. In .April 1946, .American Gas sold at competitive bidding its holdings of the common stock of Scranton Electric

CO.,22leaving the Atlantic City Electric Co. to be divested in order

for .American Gas to meet fully the above-mentioned order.

On October 26, 1944, Foreign Power filed a plan of reorganization

under Section 11 (e) of the act in which Bond and Share joined.

Proceedings on the plan were consolidated by the Commission with

the proceedings directed to Bond and Share and Foreign Power under

section 11 (b) (2) of the .Act 23 and hearings were thereafter

held from time to time until July 8, 1946, on which date the

record in the proceedings was closed as to the necessity and fairness

of the plan. The staff of the Public Utilities Division is preparing

its Proposed Findings and Opinion for submission to the Commission,

following which the parties and participants will be given the opportunity to file counter-proposed findings and briefs, and to argue

orally before the Commission.

2. The North American Company

In Section 11' (b) (1) proceedings instituted with respect to The

North American Co. (North American}," the Commission directed

the company to confine its operations to a single integrated system

built around the Union Electric Company of Missouri. North .American appealed from the order to the United States Circuit Court of

.Appeals for the Second Circuit~ which court affirmed the order.2G

Section 11 (b) (2) proceedings have also been initiated with respect to

North American Light & Power Company (Light & Power )," a subsidiary -d101dingcompany of North .American.. '

A writ of certiorari was granted by the United States Supreme

Court 21 to review the North American case, argument having been

heard in November 1945. The Court handed down its opinion 28 on

.. Holding Company Act Release No. 6565. .. Holding Company Act Release No. 5888. 2f Holding Company Act Release No. 1960. II 188 F. (2d) 148. .. Holding Company Act Release No. 8168.

1'1818 U. S. 75o_(1948). 28- U. S. -. 66 S. Ct. 785 (1946).
54 SECURITIES AND EXCHANGE COMMISSION

....~.}~ .-<-~ _.....-.

April 1, 1946, afflrming' the decision of the Circuit Court of Appeals

and sustaining the constitut.ionality of Section 11 (b) (1). -Th~reafter, North .American filed a plan pursuant to Section 11 (e) of the

Act providing for (a) disposition of the major portion of its interests

in four principal subsidiaries, (0) the formation' of a new company

to hold the securities of the Union Electric Company of Missouri system and lllinois Power Co., and (c) the formation of a new company'

to hold miscellaneous nonutility investments and residual investments

in certain utility properties. Hearings have been held on certain

phases of the plan.

North American has continued its policy of paying common.stock

dividends in stock of Pacific Gas & Electric Co. In addition, it sold

700,000 shares of Pacific common stock in a public offering and used the

proceeds to retire its 6 percent preferred stock.29 Pacific Gas & Electric Co., as a result of North American's disposition of holdings therein,

has been declared.not to be a statutory subsidiary in the North American system. A Section 11 (e) plan was approved by the Commission

for Union Electric Co. of Missouri." Two of Union's subsidiaries

were thereby eliminated and the company's corporate structure simplified. '. .

The Commission entered an order of dissolution against Light and

Power, a subsidiary holding company of North American, but its

determination of a fair and equitable plan of dissolution has been

delayed by consideration of the disposition of claims asserted by

lllinois Power Co., a subsidiary of Light and Power. Extensive hear- ,

ings have been held on these claims and briefs and reply briefs have

been submitted.

The assets of lllinois Traction Co., a former subsidiary of Light

and Power, have been transfered to Light and Power in the course of

dissolution pursuant to the provisions of a Section 11 (e) plan) which

was approved by the Commission 31 and affirmed by the United States

District Court for the District of Maine on December 19, 1945.

3. The United Gas Improvement Company .

After Section 11 (0) (1) proceedin~ were instituted with respect to

the United Gas Improvement Co. (U. G. I.), its integrated system was

defined 1?ythe Commission as the electric properties in the Pennsylvania-Delaware-Maryland area, and orders of divestment were issued

on the basis of this interpretation.w The company appealed these

orders to the United States Circuit Court of Appeals for the Third

Circuit, which court sustained the orders." Voluntary plans under

Section 11 (e) were filed by U. G. I. and its subsidiary, Philadelphia.

Electric Oo., after argument before the court but prior to the Issuance

of its decision. The plan provided for the distribution to It G. '1:

stocJ¥101d~rs of $3Q,?OO,ooO .~ cash and. subs~tially all the .stook

hol<li;ngs ill. two of Its subSIdiarIes-Philadelphia Electric Co. and

~blic.S~rvice Corp. of New Jersey •. The plan was approved ~y the

Commission and by the common stockholders." Subsequently, U. G. I.

.. In December 1945 North American borrowed $32.000.000 from certatn ,banks at 1"-

percent interest and has nsed the proceeds, together With other fnnds, to retire its 5"- per- cent preferred stocks. The company's capitaliZation. therefore. now'consists solely of bilJlk loans and common stock. . .. Holding Company Act Release No. 5776. . , II Holding Company Act Release No. 5367.

Holding Company Act Releases Nos. 2918 and 8511. • 138 F. (2d) 1010• .. Holding Company Act Release No. 4178.

~ - ~~-~ - - - __ ~- T

-

•
TWELFl'H ANNUAL REPORT 55

distributed to its stockholders its holdings of Delaware Power & Light

Co. and subsidiaries. During the past fiscal year, U. G. I. has disposed

of its interests in three additional companies, namely, Nashville Gas

and Heating Co.," Arizona Power Corp.," and Manchester Gas CO.31

Pursuant to another Section 11 (e) plan filed on December 6, 1945

and designed to effect further compliance with the requirements of Section 11, U. G. I. exchanged, for approximately 750,000 shares of its outstanding capital stock, Its portfolio holdings of securities of four public

utility liol~ companies, namely,.AmerlCan Water Works and Electric Co., Inc., '1'he Commonwealth & Southern COr{).,Niagara Hudson

Power Corp., and Public Service Corporation of New Jersey. These

securities-had a market value at that time of approximately $23,146,- .

000. The Commission approved this plan on March 13, 1946.33 On

M;ay16,1946, U. G. I. filed adeclaration concerning the sale of its holdings of the preferred stocks of Kansas City Gas Co. and The Wyandotte County Gas Co. (subsidiaries of Cities Service Co.) to each of

these companies for a total consideration of $5,150,000. Since the

close of the fiscal year, the Commission permitted the declaration to

become effective 39and, the sale was consummated.

4. The Commonwea~th &' Southern Corpo~tion

In the Section 11 (b) (1) and (2) proceedings which were instituted and consolidated with respect to this system, the Commission

directed the Commonwealth & Southern Corp. (Commonwealth) to

reduce its outstandinz preferred and common stocks to a single class

of new common stOCK. The Commission's order was appealed by

the company to the Circuit Court of Appeals for the Third Circuit,

and affirmed by the court:1O

Commonwealth's initial plan of recapitalization provided for the

reclassification- of its stock into a new class of common stock and a

distribution of its holdings' of the common stock of' Consumers Power

Co. to Commonwealth stockholders. An amended plan was later

filed 'which proposed a change in the allocation between Commonwealth preferred and common stockholders as well as the distribution of Its holdings in its other Northern subsidiaries in addition to

Consumers Power Co. After the conclusion of hearings on the

amended plan the Commission issued its findings and opinion stating

that if the plan were amended in certain respects, it would be approved.v The requested amendments were filed' and the Commission

on June 30, 1945, entered its order .approving the amended plan,"

Among the provisions of this amended plan was the requirement that

the plan receive the affirmative vote of the holders of a majority of

each class of Commonwealth's stock before the Commission applied to

an appropriate Federal district court for an order approving and

enforcmg the plan. Following the passage of several months WIthout

the completion of arrangements for conducting tire vote contemplated

in the plan, the Commission, by order dated November 1,1945,43modi-

,. Boldlng Company Act'Release No. G896. .. Holding Company Act Release No. G882 .. Holdlng Company Act Release No. 5180 .. Holdlng Company-Act Release No. 6474.

Holding Company Act Release No. 6770. 40 184 F. (2d) 747. , .. Holding Company Act Release No. 5825. a Holding Company Act Release No. 5895 .. Boldlng Company Act Release No. 8177.

~

•

•

•

•

•
56 SECURITIES AND EXCHANGE COMMISSION

,

fied its previous order so as to approve the plan on condition that the

comJ?any delete that portion requiring a stockholders' vote. Modifications of its plan, filed by Commonwealth on November 1}, 1945,

provided for the elimination of a stockholders' vote if the Commission

would approve an extensive amendment of the plan which would

essentially alter it.

On January 24, 1946, the Commlssion issued a memorandum opinion

in which it stated that, in addition to the difficult questions of fairness

posed by the changes suggested, the complicated and confusing nature

of the modifications did not merit the scheduling of hearings. Further

proceedings were withheld for a period of 60 days to March 25, 1946, in

order to afford an opportunity to Commonwealth and to any Person

having a bona fide interest in reorganization to file a plan for compliance with the Commission's original order requiring the retirement

of Commonwealth's preferred stock through the sale or other disposi-.

tion of assets. By March 25, 1946, four plans for the recapitalization

of Commonwealth, including one sponsored by the management, had

been filed with the Commission and hearings have been scheduled to

consider these plans. - - .

5. Cities Service Company

On May 5, 1944, the Commission issued its order in the Section 11

(b) (1) proceeding involving Cities Service Co. (Cities), the top

company of a system.44 The order directed Cities to comply with

Section 11 (b) (1) by reducing the operations of its system to certain

gas distribution properties located in the midcontinent section, together with certain gas production and transmission properties. The

order, however, permitted the retention of the system's nonutility

properties if Cities should choose to comply with Section 11 (b) (1) by

disposing of all its direct or indirect interest in utility companies.

Cities elected to retain its nonutility properties, whereupon the Commission, on October 12, 1944, entered a supplemental order' providing

in substance, that Cities might dispose of its interests in utility I>roperties in lieu of complying with the provisions of the earlier order.45

Since the original order, Cities has disposed of its interest in 39 sub.

sidiaries 46 and has been engaged in a program of refinancing certain

subsidiaries preparatory to a divestment of its interest in Cities Service

Power & Light Co.

The order of May 5, 1944, also directed Arkansas Natural Gas Corp.,

a subsidiary holding company of Cities, to confine its operations to

the natural gas business and to dispose of its interests in its 'nonutility

subsidiaries. On appeal by Arkansas Natural Gas Corp., the United

States Circuit Court of Appeals for the Fifth Circuit, sustained the

order of the Commission.v Arkansas Natural Gas Corporation's

petition to the United States Supreme Court for a writ of certiorari

had been denied. Arkansas Natural Gas Oorp. v, S. E. 0., -- U. S. --, Oct. 14,1946. ,<

On August 17, 1943, the Commission ordered Cities Service Power

& Light Co. (Power & Light), a helding company subsidiary of Cities .

.. Holding Company Act Release No. 5028. 41 Holding Company Act Release No. 5350. .. Of these, 3 companies were direct subsidiaries and 36 companies were subsidiaries of

Cities Setvl~ Power & LIght Co. or ot its subsidiary holding company. Federal Light &:

Traction Co. "- "154 F. (2d) 597 (1946).

• -

_
TWELFrH ANNUAL REPORT 57

Service C~., to dispose of its interest in 43 companies, including

Federal Light & Traction Co. (Federal) and the 14 subsidiaries 01

the latter company." Since this order was issued, Power & Light

has. disposed of its interests in 36 companies and has dissolved. The

order of August 11, 1943, required that Federal confine its operations

to the electric.utllity business conducted by subsidiaries in the States

of New Mexico and Colorado, jurisdiction being reserved with respect

to certain properties in New Mexico and Arizona. On March 3, 1944,

the Commission granted Federal an option to retain as its utility

system either the properties in New Mexico and Colorado or those in

Arizona.49 Federal has disposed of all its subsidiaries except the four

companies operating entirely in New Mexico and has filed an application for the merger of such subsidiaries into one company. The

Commission, after close of the fiscal year, approved the merger/o and

it has been consummated. Federal has also filed an application for

dissolution, which application is still pending. ,

6. Associated Gas and Electric Company (now General Public Utilities

Corporation)

In1940 Associated Gas and Electric Co. (Ageco Land its subsidiary

holding company, Associated Gas and Electric Corp. (Agecorp), filed

petitions in the United States District Court 'for the Southern District

of New York for reorganization under Chapter X of the Bankruptcy

Act. Both companies were registered holding companies. The court

appointed, as trustees of Agecorp, Denis J. Driscoll and Willard L.

Thorp, who also registered as a holding company." On -August 13,

1942, the Commission issued an order pursuant to Section 11 (b) (1)

in which it directed the trustees, among other things, to dispose of their

interest in 116 companies, reserving for further consideration questions

relating to the retainability of certain other properties." By subsequent orders, seven companies were removed from this divestment

order. The trustees have divested themselves of most of the companies

cited in the order, so that as at June 30, 1946, only eight of the companies cited are still in the system. The companies which are still

retained consist of five nonutility companies, one utility holding company, and two operating utilities. Plans have been proposed, for distribution, sale or liquidation of such remaining companies.

On August 9, 1945, the United States District Court for the Southern

District of New York confirmed a comprehensive reorganization plan

proposed by the trustees, pursuant to Chapter X of the Bankruptcy

Act and Section 11 (f) of the Holding Company Act, which plan had

been approved by the Commission on April 14, 1944.53 The Circuit

Court of Appeals affirmed the order, and on October 8, 1945 the United

States Supreme Court denied a petition for certiorari. 54 The plan

of reorganization under Chapter X of the Bankruptcy Act has been

consummated pursuant to an order-of the reorganization court dated

January 14, 1946.

.. Holding Company Act Release No. 4489 . .. Holding Company Act Release No. 4960. , .. Holding Company Act Release No. 6887. It On Mar. 27, 1946, the Commission issued an order declaring that the trustees have

ceased to be 1£ holding company, their resignation as trustees having become ell'ectlve pur- suant to a district court order dated Feb, 6. 1946. Holding COl/UlanyAct Release No. 6518. II Holding Company Act Release No. 8729. II Holding Company Act Release No. 4985 .. U.'8. -,66 SUD. ct. 45.

'

• -
58 SECURITIES AND EXCHANGE COMMISSION

Following the mstfrution of proceedings ~ursuant to Section 11 (b)

(2) with respect to General Gas and ElectrI<? Corp. (Gengas), a subsidiary holding company of Agecorp,55 Section 11 .(e) plans !o.r the

reorganiz~tion of Gengas were filed, and the hearings on. this plan

were consolidated WIth the Section 11. (b) (2) proceedings, On

A ugust ~2, 1944, .a revised plan ~as. file~ jointly by Agecorp. and Gengas, which provided for the distribution by Gengas of eIther cash

or securities of its subsidiaries among its public security holders,

There would remain no claims against Gengas exceJ?t those held by the

trustees of Agecorp, who would turn in their holdings and receive in

exchange an entire issue of new common stock of Gengas. This plan

was approved by the Commission on July 25, 1945.56 By orders dated

October 15, 1945 and October 22, 1945, the District Court of the

.United States for the Southern District of New York approved

and ordered enforcement of the plan. As explained below, Gengas

during 1945 disposed of all of its holdings in Florida Power Corp. by

public sale, so that at June 30, 1946, its sole subsidiary was South

Carolina Electric & Gas Corp. Following the close of the fiscal Jear

Gengas distributed its remaining holdings to the common stockholders

of its parent and dissolved.

On April 24, 1944, Gengas, Georgia Power and Light Co., a subsidiary of Gengas, and Florida Power Corp., an associate of, Georgia,

filed a joint plan proposing, among other things, the recapitalization

of Georgia. The proposarl included the donation by Florida to Georgia of $1,400,000 in cash to be used in part for the reduction of the

mortgage debt of Georgia and for a cash payment in the amount of

$150 per share in full satisfaction of the claims of the public holders

of preferred stock of Georgia for par value and arrearages. The

proposed plan of recapitalization, together with the related donation

and an issue and sale by Florida of preferred stock through competitive bidding, was approved by the Commission on January 23, 1945,.

subject to the condition that Georgia divest itself of its ice and water

properties within 1 year," The plan was approved' by the United

States District Court for the Middle District of Georgia on April 7,

1945. Subsequent to the approval of such plan, the common stock'of

Florida held by Gengas was sold at competitive bidding pursuant to

an order of the Commission granting approval to such transaction."

On September 29, 1943, the Commission instituted Section 11 (b)

(2) proceedings with .respect to Tide Water Power Co., a subsidiary of

Gengas, raismg the Issue whether the voting power of Tide Water

was fairly. and e,quitab~y distributed., ,After appropriate hearings,

the C0Ir!lIn~SIO?Issued Its order providing, !1'm~ng other things, for

a recapitalization of the company by substituting a single class of

co.mmon stock for the then outstanding classes of stock.59 Thereafter,

Tide Water filed a plan to comply with the Commission's one-stock

order." The plan was approved on December 22 1944,61subject to

reservation of jurisdiction as to the percentage of ~ew common stock

.. Holding Company Act Release No. 21148 .. Holding Company Act Release No. 5950. IT Holding Company Act Release No. 5568 .. Holding Company Act Release No. 6124. Ie Holding Company Act Release No. 5288 .. Holding Company Act Release No. 5309. 01 Holding Company Act Release No. 5512.•

•

•
TWELFTH ANNUAL REPORT 59

to be received by Gengas. On February 12, 1946, 3.5 percent of the

new common stock was allocated to Gengas."

On Marco 30, 1945, a plan of reorganization was filed by York Railways CO.,83a debtor in possession under Section 77B of the Bankruptcy Act, in a proceeding which had been pending since November

30, 1937. The plan provided for the raising of sufficient cash to pay

all public creditors and preferred stockholders the full amount of

their claims and for the Iiquidation of York Railways Co. The plan

was approved by the Commission on December 10, 1945,64 and subsequently by the United States District Court for the Eastern District

of Pennsylvania.

On September 30, 1941, the Commission instituted proceedingsunder Section 11 (b) (2) with respect to New England Gas and Electric Association (Negea), a registered holding company. After hearings were held but prior to the final order of the Commission, the

trustees of Ageco and Agecorp and a subsidiary company in the Associated system instituted proceedings in both a State and Federal court

asserting claims against Negea arising from various transactions in

the years 1930 and 1932. It appeared to the Commission that before

a determination could be made with respect to the recapitalization of

Negea, the validity and rank of the asserted claims would have to be

resolved, The Commission, therefore, instituted. further proceedings

with respect to these claims," On March 29,1945, Negea filed a plan

of recapitalization pursuant to the provisions of Section 11 (e) .68

During the course of the hearings on this plan, extended discussions

were held among the interested parties, including committees representing holders of New England debentures and first preferred shares.

These discussions resulted in the filing by New England of an amended

plan dated March ~1, 1946, which was supported by all interested

parties and the committees. The stated purpose of the amended plan

was to effectuate the provisions of Section 11 (b) (2) and the settlement of the various controversies referred to above, After hearings,

the Commission, on June 24, 1946, issued its order approving the

amended plan." By order dated July 17, 1946, the District Court

for the District of Massachusetts approved and ordered enforcement

of the amended plan.

On March 11, 1949, Associated Electric Co. and two of its subsidiaries,Pennsylvania Electric Co. and Pennsylvania Edison Co.,

jointly filed a plan pursuant to Section 11 (e) of the Holding Company

Aet under which, among' other things, the assets of Pennsylvania EdIson Co. were to be transferred to. Pennsylvania Electric Co., the bondholders of Pennsylvania Edison Co. were to receive the redemption

value of their securities, and the preferred shareholders of such company were to receive the liquidation values rather than the redemption values of their securities. On March 26, 1946, the Commission

instituted a proceeding, pursuant to Section 11 (b) (2) and other Sections of the Act, directed to Associated Electric Co. and Pennsylvania

Edison Co; and consolidated such proceedings with. the other proIII H:olding Company Act Release No. 6401 .. Bolding Company Act Release No. 11144 .. Bolding Company Act Releasee Nos. 62811 and 63116, • Bolding Company Act Release No. 4124 • .. Holding Company Act Release No. 11730.

«Holding Company Act Release No. 6729,

~

~

•

•
• 60 SECURITIES .AND EXCHANGE COMMISSION

ceedings," On June 19, 1946, the Commission approved the plan in

part by permitting the transfer of the assets and the payment of the

redemption value of the bonds to the bondholders of Pennsylvania

Edison Co. The Commission also permitted the immediate payment

of the liquidation values to the preferred shareholders of Pennsylvania Edison Co. but reserved jurisdiction to determine the additional

amountsi

if any, the preferred shareholders of Pennsylvania Edison

Co. shou d receive. One million dollars cash was deposited in escrow

by.Associated Electric Co. for such additional payment as might ultimately be determined. 69

7. Standard Power and Light Corporation-Standard Gas and Electric

Company

Section 11 (b) (1) proceedings were instituted by the Commission

with respect to Standard Power and Light Corp. (Standard Power),

Standard Gas and Electric Co. (Standard Gas) and their subsidiaries,

following which Section 11 (b) (2) proceedings were instituted with

respect to Standard Power. After subsequent hearings, the Commission issued an order requirine; the liquidation and dissolution of

Standard Power." A dissolution plan for Standard Power was approved by the Commission on February 22,1945.11

A Section 11 (e) plan filed by Standard Gas and the proceedings as

to this plan were consolidated with the Section 11 (b) (1) proceedings.

After hearings and oral argument, the Commission issued -its findings

and opinion, stating that it could not make the findings necessary for

approval of the plan." An amended plan subsequently submitted by

Standard Gas was approved by the Commission."

.A~the request o.f Standard G:as, application was ma?e ~y the ComJlllSSIOnto the United States District Court- for the DISt1'lCtof Delaware for an order of enforcement of the- amended plan. The district

court withheld approval of the plan on the basis that note and debenture holders were not being paid off in cash.

Approval was given, however, to the proposed allocation among

stockholders. The Commission, Standard Gas, and several other

parties to the proceedings appealed from the district court's decision

to the United States Circuit Court of Appeals for the Third Circuit.

The latter court's decision, rendered on September 14, 1945, reversed

the district court and upheld the Commission's finding that the

amended plan was fair and equitable to the note and debenture holders.

Subsequently, Standard Gas filed a motion with the district court

requesting an order of the court disapproving the amended plan for

recapitalization as unfair and inequitable because of changed conditions. The company's motion also Stated that it proposed first to

borrow money with which, together with treasury cash, to call the

notes and debentures and, secondly, to :payoff bank notes then outstanding by the sale of portfolio securities, Such right of Standard

Gas to call the notes and debentures was upheld in a decree of the

Uni~ed States District Court for the District of Delaware, issued on

...Holding Company Act Release No. 6511 ... Holding Company Act Release No. 6723 .. Holdine Company Act Release No. 8607. '11 Holding Company Act Release No. 56211

.. Holding Company Act Release No. 1i020.

Raiding Company Act Release No. 5430.

•

•

•

"
TWELFTH ANNUAL REPOR'!' 61

December 29, 1945, and amended January 9, 1946. The Court also

held that the securities should be called within 30 days or within such

further time as the Commissiori might grant," By order dated Febuary 26, 1946,the Commission approved the issuance and sale of bankloan notes and authorized the call and payment of the notes and

debentures."

~orthern States Power Co. (Delaware) filed its plan of liquidation

pursuant to Section 11 (e) concurrently with the Commission's institution of proceedings.pursuant to Section 11 (b) (2) and other Sections of the Act with respect to that company and each of its

subsidiaries. After extensive hearings on the original plan and proposed amendments the Commission issued an order approving the

plan, as amended, subject to certain reservations of jurisdiction."

On January 2, 1946, the Commission applied to the United States

District Court (Minnesota) for enforcement of the plan. Subsequent to this application for enforcement, but prior to the date set

-for hearing, the Coinmission received numerous objections to enforcement of the plan and received suggested amendments by stockholders

who stated that changed conditions made modification of the plan

necessary. At the Commission's request the court granted a continuance for the purpose of considering the alternative plans. Hearings have been held thereon, briefs filed, oral argument heard and the

matter is now before the Commission for decision.

Proceedings on the plan of recapitalization filed pursuant to Section

11 (e) by Southern Colorado Power Co., a subsidiary of Standard Gas,

were consolidated with those instituted by the Commission under

Section 11 (b) (2). The company's plan was approved by the Commission after the filing of certain amendments 11 and later by the

United States District Court in Colorado. A group of preferred

stockholders appealed from the district court's decision to the United

States Circuit Court of Appeals for the Tenth Circuit, which upheld

the decision of the-lower court. The Supreme Court denied writ of

'certiorari, and on June 26, 1945, the District Court for the District

of Colorado entered its order declaring the plan effective as of June

30,1945.

8. Columbia Gas & Electric Corporation

Section 11 (b) (1) and (2) proceedings which were commenced

with respect to Columbia Gas & Electric Corp. (Columbia) were , consolidated with the company's Section 11 (e) plan. Such plan

provided for the sale by Columbia Oil & Gasoline Corp., a subsidiary

of Columbia, of its interest in Panhandle Eastern Pipe Line Co.,

the transfer of its five oil and gasoline subsidiaries to Columbia, the

liquidation of Columbia Oil & Gasoline Corp., and other related

matters. The Commission's order 1S approving this voluntary plan

was affirmed by the United States Circuit Court of Appeals for the

Third Oireuit," and the United States District Court for the District

TO Holding Company Act Release No. 6385. Notice of appeal from this court order has

been ftled with the Circuit Court of Appeals for the Third Circuit by a debenture holder . .. Holding Company Act Release No. 6435 .. Holding Company Act Release No. 5745.

"Holding Company Act Release No. 4501. 18 Holding Company Act Releases Nos. 3829 and 3885. 'Ill 134 F. (2d) 822.

•

•

•
62 SECURITIES AND EXCHANGE COMMISSION

of Delaware entered its order approving the plan.so Further pro- _ ceedings were instituted by the Commission with respect to subsidiaries not included in the company's 11 (e) plan, at the close of

hearings on which the Commission issued its- findings, opinion and

order 8;l designating the properties of Columbia which might be retained and reserving jurisdiction with respect to retainability of the.

remaining properties. . A further plan filed by Columbia under Section 11 (e), providing

for its recapitalization, was opposed by. The. United Corporation,

holder of 19 percent of the voting securities of Columbia. A modified program was later proposed, sponsored by both companies, which

provided for the refunding of Columbia's debt and retirement of

Its preferred stock and for the sale of Columbia's interest in The

Dayton Power and Light Co. and The Cincinnati Gas &.Electric Co.

During the fiscal year, Columbia, in furtherance of the program

outlined above, disposed of its interest in Dayton for $51,467,670, dissolved a subsidiary, Columbia Corp., and with the proceeds of the'

sale of $22,000,000 in bank loan notes, plus treasury cash, retired

$32,000,000 principal amount of outstanding debentures. Since the

end of the fiscal year, Columbia has disposed of its interest in "Cincinnati, redeemed its preferred stocks having an ag~egate call priceof $119,848,075, retired its outstanding bank loan notes, and issued

$97,500,000 of new debentures. --

9. Niagara Hudson Power Corporation

The Commission instituted proceedings pursuant to Section 11 (b)

(2) with respect to Niagara Hudson Power Corp. (Niagara Hudson);

and its subsidiary, Buffalo, Niagara and Eastern Power Corp. (BNE),

and their subsidiary companies. A public conference was thereafter

held to explore means of resumption of dividend payments on preferred stock of the two holding companies. A plan, pursuant to Section 11 (e), was filed by' the company providing for the consolidation

of principal public utility companies with BNE, the dissolution of

Niagara Hudson, and payment in cash of all accrued 'and unpaid

dividends. The consolidation, as contemplated, was disapproved by

the New York Public Service Commission on January 21,1944.

The Commission later denied the application of BNEfor exemption

as a holding company from provisions of the act insofar as applicable

to Section 11 (b) (2). The Commission's order also required BNE to

substitute common stock for its then outstanding $1.60 cumulative

preferred; Class A and .common stocks, and the extension of appro-"

priate voting rights to its $5 preferred stock." ..

Thereafter BNE and its parent company, Niagara Hudson Power

Corp., filed separate plans pursuant to Section 11 (e) providing for

~e reorganization of BNE in order that the company might comply

WIth the Commission's order. Both plans were substailtially the same,

providing for payment of all arrearages on the first preferred stock of

BNE; the contribution by Niagara Hudson to BNE of $63,000,000

to be obtained by the former from treasury cash, the sale of portfolio

securities, and a bank loan in the amount of $40,000,000; the use of

such funds by BNE for the retirement of its second preferred stock;

so:;o F. SuPP. 965. 81 Holding Compan!.Act Release No. 5455. II: Holding Compan,r Act Release No. 5115 .

•

-

-

-
TWELFTH 'ANNUAL REPORT 63

the consolidation of BNE and three of its subsidiaries; and the reclassifieation o~ BNE's second preferred stock, Class A stock and

common stock mto new common stock. These plans were approved

by the Commission on October 4, 1945,88 and were consummated as of

November 1, 1945. During the fiscal year, Niagara Hudson disposed

of its interest in Central Hudson Gas & Electric Corp. .

10. International Hydro-Electric System

Proceedings involving International Hydro-Electric System

-"(mES) were instituted pursuant to Section 11 (b) (2) and, after

appropriate hearings, the Commission ordered mES to liquidate and

dissolye, finding that it performed no useful function." Subsequently,

the COmmission ordered that Massachusetts Utilities Associates Common Voting Trust be liquidated and dissolved and that certain other

companies be eliminated from illES.55 A stockholder and director of

IRES filed getitions in the United States Circuit Court of Appeals for

the Sixth Circuit for review of the Commission's order directing the

dissolution of IRES. This petition was dismissed, thereby sustaining

the, order of the Commission." In July 1943, D;IES notified the

Commission that, because of certain asserted claims against its former

parent, International Paper Company, it would be impossible for it to

comply with the Commission's order without the aid of court enforcement. The Commission, therefore, instituted a proceeding under

.Seotion 11 (d) to enforce compliance with its liquidation order and

the court appointed Bartholomew A. Brickley of Boston, Mass., as _

special counsel, to investigate certain transactions alleged to give rise

to a cause of action on behalf of IRES against International Paper

Company. On November 13, 1944, the court appointed Brickley as

.trustee for IDES and he has effectuated a settlement between the two

companies, which settlement was approved by the court on December

26, 1945.87

In 1944, New England Power Association and its subsidiary holding

companies filed an application for approval of a plan of simplification

of the New England Power AssociatIon holding company system for

the purpose of complying with the provisions of Section 11 (b) (2)

and with the Commission's previous order. After hearings on that

plan were completed, the company: was informally advised that the

plan would not serve to effectuate the provisions of Section 11. (b) (2)

and the Commission's previous order, whereupon the company filed an

amended plan.

After hearings had been completed, oral argument heard and briefs

filed on the amended plan, the Commission approved the plan as

amended on March 14, 1946.88 On June 7,1946, the plan was approved

by the United States District Court for the District of Massachusetts,"

Appeal from the district court's decision is now pending in the First

Circuit Court of Appeals. . .

, .. Holding Comvany Act Release No. 6108. .. Holding Company Act Release No. 8679 es Holding Company Act Release No. 4168. .. 187 F. (2d) 475. . . Notices of appeal to the Circuit Court of Appeals of the United States for the First

CIrcuit from the decree of this court approving said settlement have been 1Iled by certain

stockholders and bondholders of IRES. III Holding Company Act Release No. 6470.

-If! t1&6matter 01 New England POW6f" Assoclation. unreported (ClvU Action No. 5087).

•

-

•

' '"
64 SECURITIES AND EXCHANGE COMMISSIQN

lI. The Middle West Corporation

In connection with Section 11 (b) (1) proceedings with respect to

The Middle West Corp: (Middle West) and its subsidiaries, the

Commission ordered Middle West to sever Its relations with Its

subsidiary companies, e~cel?t Central Illinoi~ Public ~e~vic~ qo. (Cips) and Kentucky Utilities Co. (KU)!I'~d Its subsidiaries, JU~lSdiction being reserved with respect to the [oint retarnability of Oips,

KU and such interest as Middle West might obtain in Public Service

Co. of Indiana, Inc. in connection with the reorganization of Midland

United Co. and its subsidiaries,"

On May 9, 1944, a further hearing was ordered to permit the introduction of additional evidence with respect to the question of which

properties constituted the integrated system of Central and South

West Utilities Co. (Central) and with respect to the retainability of

certain other businesses. On February 16, 1945 91and July 4, 1945 92

the Commission entered its opinions and orders with respect to the

issues involved in the rehearing, finding that the major electric utility

properties of the subsidiaries of Central form a single integrated

system retainable by Central. The electric utility properties of Oklahoma Power and Water Co., a subsidairy of Middle West, were found

to constitute a part of Central's integrated system. Central was

ordered to dispose of its interest in its retail gas distribution properties as well as its interests in certain small isolated electric properties

and was further ordered to dispose of its interest in certain of its

nonutility properties. Nearly all of the nonutility properties and

all of. the isolated electric properties have been disposed of in compliance with these orders. Orders were entered by the Commission

approving refinancing of Public Service Co. of Oklahoma and Central

Power and Light CO., both subsidiaries of Central, on October 8,

194593 and December 13 1945,9~ respectively. _

Middle West acquir;d approximately 20 percent of the common

stock of Public Service Co. of Indiana, Inc., in the reorganization of

Midland United Co. and its subsidiaries and, on August 23,_1945, a

hearing was ordered concerning, among other things, the questions

reserved by the Commission in its previous order regarding the retainability by Middle West of its interests in Cips, KU, and Public

Service Co. of -Indiana, Inc. and raising issues as to the continued

existence of Middle West. Hearings have been held but are not yet

completed. On September 5, 1945, the. Commission approved the

sale of the gas and water properties of Public Service Co. of Indiana,

Inc. to Indiana Gas and Water-Co., a newly formed subsidiary, preparatory to disposal of such interest by Public Service."

Central and American Public Service Co. (American), two subsidiaries of Middle West, filed a joint application proposing a consolidation of the two companies. The Commission instituted proceedings

under Section 11 (b) (2) and ordered that the hearings on the two _

cases be consolidated. The proponents of the plan of consolidation

contended that preferred stock was necessary in the new company in

order to preserve the priorities of the holders of the prior lien and

.. Holding Company Act Release No. 4846. 81 Holding Company Act Release No. 5606. lIZ Holding Company Act Release No. 5906. osHolding Company Act Release No. 6116 . .. Holding Company Act Release No. 6296 .. Holding COlppany Act Release No. 6030.

_

•
TWELFTH ANNUAL REPORT 65

preferred stocks of Central and the preferred stock of American.

The Commission ruled that the new corporation could have only common stock.llS The respondents filed a petition for review in the United

States Court of Appeals for the District of Columbia, which upheld

the order of the Commission." Thereafter, Central and American

filed an amended plan of merger to be effectuated through the issuance

of a single class of capital stock. The plan also provided that Middle

West would distribute to its stockholders the new shares of Central

allocated to Middle West. On March 11, 1946 the plan was further

amended, primarily with respect to a proposal to sell common stock

of the merged company at competitive bidding in an amount sufficient

to retire the publicly-held preference stocks of the two companies at

their call prices, subject to the right of the holders of such stocks to

exchange their shares under specified conditions for common stock of

the new company. It was proposed that the remainder of.such stock

be issued in exchange for the publicly-held common stock and 'for

the preference and common stocks held by Middle West. The plan

was approved by the Commission on April 30, 1946,98and enforcement

was ordered on June 19, 1946 by the United States District Court for

the District of Delaware." The sale of the common stock of the

merged company at competitive bidding had not been consummated

at the end of the fiscal year.

Proceedings pursuant to Section 11 (b) (2) raised issues as to the

equitable distribution of voting power among security holders of the

North West Utilities Co. (North West) system, and also as to the

continued existence of North West, a subsidiary holding company in

the Middle West system. The proceeding was consolidated with a

plan of recapitalization of North West which had been submitted by

North West and Middle West. After hearings, the Commission held

that the proposed plan of recapitalization fell short of effectuatin~ the

provisions of Section 11 (b) and ordered that Nortli West be liquidated,' Sale by North West of its subsidiary Northwestern Public

Service Co., was' approved by the Commission on March 28, 1946.2

, Recapitalization of North West's other subsidiary, Wisconsin Power

and Light Co. (Wisconsin), was approved on October 26, 1945, preparatory to its disposal," A plan was filed by North West on April

22, 1946, proposing to distribute the common stock of Wisconsin held

by North West to the public preference stockholders of North West in

an amount, as determmed by competitive bidding, equal to the liquidating value plus accrued dividends of such preference stock and to

'distribute the balance of such common stock to its parent, Middle _West. Hearings have been held on the plan, but no decision has been

entered by-the Commission with respect thereto.

12. The United Light and Railways Company

Proceedings instituted pursuant to Sections 11 (b) (1) and (2),

with respect to The United Light and Power Co. (United Light), were

consolidated and the liquidation of United Light was ordered by the

.. Holding Company Act Release No. 3580.

136 F. (2d) 213. . .. Holding Company Act Release No. 6606 ... Oentral and 80ut1l. We-t UtuttUlB Oomf/an,,. et al. (D. C. Del., 1946), Civil Action No. 814- 1Holding Company Act Rel~e No. 4552.

Holding Company Act Release No. 6515.

Holding Company Act Release No. 6169.

722108-47--6

'" •

•

•
~'..".-: is ....,,-....::.....

~.: .t.::<' '_

66 SECURITIES AND EXCHAN:.GE COMMISSJON

"r-,

Commission under the standards of Section 11. 4:n important step

towards liquidation involved the distribution of the common stock of

The United Light and Railways Co. (Railways), to preferred 'and

common stockholders of United Light. The Commission disapproved

the distribution orginally proposed by the company but thereafter

approved the plan as amended to allow the preferred stockholders

approximately 95 percent of Railways common stock," On -June 30,

1943, Judge Leahy, of the United States District Court of Delaware,

entered an order enforcing the plan (51 F. Supp. 217) and on. April

10, 1944, the United States Circuit Court of Appeals for the Third

Circuit affirmed the order (142 F. (2d) 411). A petition for-certiorari

to the United States Supreme Court was granted on June 12, 1944

(322 U. S. 724). On January 29,1945, the Supreme Court rendered

its decision affirming the .Commission's approval of the I?lan.lI Following this decision, United Light accomplished its liquidation and

dissolution in compliance with the Commission's initial orders," Railways, which has two subsidiary holding companies, American Light

, & Traction Co. (American Light), and Continental Gas & Electric

Corp. (Continental), thus became the top holding company in the

system.

On June 2, 1945,1 the Commission issued a memorandum opinion,

concluding that the most appropriate means for achieving compliance

with its order requiring Railways to dispose of its interests in certain

subsidiaries was the liquidation and dissolution of America.n Light

and the disposition by Railways of all securities received by it in such

liquidation. To accomplish this, American Light on July 2, 1945,

filed an amended plan of liquidation and dissolution, ThIS is to be

accomplished by a retirement of its preferred stock by a cash payment

to the holders thereof and by a pro rata distribution of the remaining

assets to the common stockh.olders. This liquidation was held necessary to e:ffectmite the provisions of Section 11 (b), since the continued

existence of such company served no useful purpose. The principal

point at issue in this plan relates to the amount which should be paid ,

to the holders of the company's noncallable 6 percent preferred stock.

After hearings and oral argument the majority of the Commission

concluded that the plan providing for the retirement of the 6 l?ercent

noncallable cumulative preferred stock by payment of cash equivalent

to the liquidating preference of such stock, i. e., $25 a share, could not

be found fair in that it did not provide the equitable equivalent of the

investment value of the liquidated stock," It was held that $33 peJ,"

share would represent such investment value of the stock and -that the

plan ~ust be so amended to be fair and equitable. Before such au'

amendment was filed, changes occurred in the membership of the-Commission and a motion for a reconsideration of this point was granted,"

Reargument was heard August 27, 1946, and the matter has been taken

under advisement. ,

During the 1946 fiscal year Railways and Continental filed a

plan under Section 11 (e) proposing sale of the stock interests

Holding Company Act Release No. 4215.., . Otl8 t! 00. v. 8ecurltie8 and ElIJchaflf/e 00mml88son, 828 U. S. 624.

Holding Company Act Release No. 2686. Commissioner Healy dissented on the ground that the preferred stockholders were entitled to receive all the assets. f Holding Company_Act Release No. 5840. . Holding Company Act Release No. 6608.

Holding Company Act Release No. 6750.

-

- ~ ' -

-~_ ~ C _ >

,

_

-

•

•

•

•

•
TWELFTH ANNUAL REPORT 67'

in four companies 10 to be received by Railways upon the liquidation

of American Light. It is proposed to use these proceeds to retire

senior securities. Other divestments and retirements are also proposed, together with intrasystem adjustments necessary to comply

with the Commission's order. ' InMay 1946 Continental sold its interest in Columbus and Southern

Ohio Electric Co., represented by 744,455 shares of common stock, to

underwriters at competitive bidding. Proceeds to Continental aggregating $38,115,352 were used to retire $20,000,000 principal amount

of 1% percent secured I-year notes and the balance of the proceeds

were applied to the prepayment of its $30,000,000 principal amount of

2% percent unsecured lO-year notes,"

13. American Water Works and Electric Company, Inc.

This was the first registered holding company to file a corporate

simplification plan pursuant to Section 11 (e). The plan contemplated

no divestments of any of the utility properties or utility investments

of the system, but did provide for the elimination of several "second-

. degree" holding company relationships and for certain other intrasystem readjustments. Consummation- of the main features of the

plan was contingent upon the-accomplishment of extensive refinancing.

The Commission approved the plan, with various modifications and

reservations, holding that the applicant's interests in certain agricultural properties in California and in an officebuilding in New York

were not retainable, and that the distribution of voting power in the

system was not fair and equitable; it reserved jurisdiction with respect

to the retention of American's interest in a water subholding company

to afford it an opportunity to increase its equity therein and to recapitalize it; and also reserved for future consideration the question of

adjustments of write-ups of- system properties and investments,"

Since the date of'this order, American has sold the agricultural

properties and the office building referred to above; has voluntarily

disposed of a portion of its interests in transportation, bridge, and

water businesses; has eliminated or arranged for the disposition of

certain write-ups in the property accounts of its electric and gas

subsidiaries; and has effected some of the intrasystem adjustments

required. There are- presently pending before the Commission two

plaas to bring a major portion of the American system into conformity

wifh the requirements of Section 11. One of these plans proposes the

divestment by American of substantially all the water properties of

the system through the consolidation of these properties under a single

water works holding company whose securities would be held outside

the .American system; the other plan proposes the Iiquidation of

American itself, leaving The West Penn Electric Co. as the top holding

company for all the subsidiaries of American other than those which

are to be divested. These plans are to be followed by other plans relating to the corporate structure of The West Penn Electric Co. and

itssubsidiaries,

10 Detroit Ediso.n Co.; Madison Gas and Electric Co.; Michigan Consolidated Gas Co.;

and Mllwaukee Gas Light Co. .. 11 Holding Company Act Belease No. -6621.

~2 S. E. C. 972 (1937).

->:
.68 SECURITIES' AND EXCHANGE COMMISSION

14. Engineers Public Service Company

In Section 11 (b) (1) proceeding regarding Engineers Public Service Co. (Engineers) and its subsidiaries, the Commission ordered Engineers to dispose of its interest in Puget Sound Power & Light Co. and

The Key West Electric Co. The Commission initiated Section 11 (b)

(2) proceedings with respect to a subsidiary of Engineers, The Western

Public Service Co. (Western), a Maryland corporation." Subseqnently, the Commission approved the sale of Western's Nebraska and

South Dakota properties.> Western then redeemed its publicly held

'securities and liquidated." The Commission ordered the divestment

of the remaining properties in the Engineers system except the electric

utility properties of Virginia Electric and Power Co., allowing Engineers, however, 15 days within which to petition for leave to retain

instead the electric utility properties of Gulf States Utilities Company.16 Engineers appealed to the United States Court of Appeals

for the District of Columbia, which on November 22,1943 rendered an

opinion upholding the Commission's order in most respects but setting

it aside upon the ground that the Commission had misinterpreted the

so-called in'pidental business clause of Section 11 (b) (1). The

Court indicated also that Engineers must be given a further right to'

designate the principal integrated utility system which it desired to

retain. Both Engineers and the Commission filed petitions for writs

of certiorari in the Supreme Court of the United States. On June 5,

1944, the petitions were granted. Oral arguments were made before

the Supreme Court in November, 1945. Because of the death of Chief

Justice Stone, there was lack of a quorum of Justices and the matter

was placed on the Court's calendar for reargument during the fall of

1946. .

Engineers has divested itself of its interest in Puget Sound Power &

Light Co., The Key West Electric Co., EI -Paso Natural Gas Co., EI .

Paso & Juarez Traction Co., Baton Rouge Bus CQ.,The North Kansas

Power Co., Missouri Service Co., Savannah Electric & Power Co., and

the transportation businesses conducted by EI Paso Electric Co.

(Texas) and Virginia Electric and Power; Co.

On September 10,1945, Engineers filed a plan under Section 11 (e)

for the divestment of its interest in two of its public utility subsidiary

companies, namely, Gulf States Utilities Co. and EI Paso Electric Co.

(Texas), the two remaining subsidiaries of Engineers ordered divested

by the Commission. The plan thereafter contemplates the liquidation

and dissolution of Engineers. Hearings have been concluded on the

plan as amended. Oral argument was heard before the Commission on

September 5, 1946 and disposition of the. matter is being considered,

15. The United Corporation

Proceedings, which the Commission had instituted under Sections

1.1 (b) (1) ~nd11 (b) (2) ~thr~pecttoTheUnitedCorp. (United),

were consolidated for hearing WIth a plan filed by United under Section 11 e). In its plan,. ~ni~d proposed to reduce its holdings in

each of Its statutory subsidiaries to less than 10 percent of the outstanding voting securities and, pending such reduction, to refrain from

:1& Holding Company Releases Nos. 2897 and 2898 . .. Holding Company Act Releases Nos. 3230 and 3245. :sa For further detalls see Tenth Annual Report, p. 185. 11Holding Company Act Release No. 3196.

~
TWELFTH ANNUAL REPORT 69

voting the securities without the prior approval of the Commission.

A.fter extensive hearings, the Commission disapproved United's plan

and, pursuant to Section 11 (b) (2), ordered that United change its

existing capitalization to one class of stock and cease to be a holding

company."

On' June 27, 1944, United filed another plan pursuant to Section 11

(e) which provided for the exchange of substantially all of its holdings of the common stocks of Philadelphia Electric Co. and Delaware

Power & Light Co. (Delaware), plus cash for approximately one-half

of its outstanding preferred stock.18 The plan was subsequently

amended to provide for the exchange of only the Philadelphia Electric

Company common stock and an increased amount of cash. The plan,

as amended, was approved by the Commission on November 24, 194419

and has since been consummated.

_On January 17, 1945, United filed a plan pursuant to Section 11 (e)

providing for tbe exchange on a voluntary basis of two shares of the

common stock or Delaware and $5 in cash for outstanding shares of

United's $3 cumulative preferred stock. The plan was subsequently

amended to provide for the payment of $6 in lieu of the $5 in cash

as originally proposed. The J?lan, as amended, was approved by the

Commission on June 9, 1945; and has also been consummated.

. During the fiscal year, United disposed of a portion of its holdings

of Columbia Gas & Electric Corp. common stock ~y sales in the market

and tendered to The United Gas Improvement Co. (UGl) a portion

of its holdings of common stock of that company pursuant to the exchange plan described previously (under the heading, "The United

Gas Improvement Co."). As a result of this plan United's interest

in the common stock of UGl was reduced to approximately 8 percent of

such stock outstanding. Since the close of the fiscal year, United filed

a declaration, which the Commission permitted to become effective, to

purchase in the open market its preferred stock in an amount not to

exceed $5,000,000.

On June 12, 1946, the Commission instituted proceedings under

Sections 11 (b) (1) and 11 (b) (2) with respect to Public Service

Corp. of New Jersey (Public Service), a subsidiary of United, and

all of its subsidiaries. Since the close of the fiscal year, Public Service

filed a plan pursuant to Section 11 (e). This plan provides for the

dissolution and liquidation of Public Service upon completion of certain steps and the transfer of its assets to and the assumption of its

liabilities by its principal subsidiary.

16. Midland Realization Company and Midland Utilities Company"

On A.pril 7, 1945, the United States District Court for the District

of Delaware confirmed a modified plan of reorganization wherein

Midland United Co.-the name of Midland Realization Co. (Midland

Realization) prior to the reorganization-and Midland Utilities

Co. (Midland Utilities) were jointly reorganized." The modified

11 Roldlng Company Act Release No. 4478,

"'Roldlng Company Act Release No. 4870. It Holding Company Act Release No. 5440. .. Roldlng Company Act Release No. 5859.

See In the Matter of Midland United 00., Debtor, 58 F. SuPp. 667 (1944), tor opinion of the court approving the plan of reorganization. The FIndings and Opinion ot thtli Commission approving the pian submitted pursuant to Sec!tion 11 (I) of the Act are contained , in Holding COmPlWl Act aeIeases Nos. 5317 and 5317A (1944).

-

-

~
70 SECURITIES AND EXCHANGE COMMISSION

plan provided, among other things, that Midland Realization and Midland Utilities would merge, and that such merged company would

liquidate its assets expeditiously, On March 14, 1946, a proposed

modification of the plan was filed pursuant to Section 77B of the Bankruptcy Act and Section 11 (f) of the Holding Company Act, wherein

the requirement of the merger of Midland Realization and Midland

Utilities was to be eliminated. In lieu thereof, the liquidation of the

two companies was to be accomplished by a distribution to the public

holders of the two reorganized companies of most of the shares of

the common stock of their principal subsidiary, Northern Indiana

Public Service Co., the sale of the balance of such stock through a

public offering, and the distribution, as a liquidating dividend, of the

remaining assets consisting of treasury cash and the cash proceeds to

be realized from the sale of their interest .in the only remaining subsidiary, Indiana Service Corp. (Indiana Service)." After the close

of the fiscal year, both the Commission and the reorganization court

approved the proposed modification.

A plan of corporate simplification for Indiana Service was filed

by its parent, Midland Utilities, on October 29, 1945, under Section

11 (e) of the Act. On May 7, 1946, an amendment was filed thereto

providing for the elimination from the security structure of Indiana

Service of its existing demand notes payable to Midland Utilities.

It further provided for the elimination of the present preferred and

common stocks; the issuance of new common stock; the sale of such

new common stock to American Gas and Electric. Co., a subsidiary of

Electric Bond and Share Co.; and the distribution of the proceeds

:herefrom to Midland Utilities and the preferred stockholders of

Indiana Service. Hearings were held and the matter was pending at

the end of the fiscal year.

17. New England Public Service Company

The Commission issued a Section 11 (b) (2) order with respect to

New England Public Service Co. (NEPSCO) directing it to recapitalize on a one-stock basis or to liquidate .. Soon thereafter the company filed a plan for the stated purpose of complying with the applicable provisions of Section 11 of the ACt. One public utility company

of this system (Cumberland County Power & Light Co.) has

been eliminated by merger into Central Maine Power Co. and another

(Twin State Gas & Electric Co.) through conveyance of its properties

to Public Service Co. of New Hampshire and Central Vermont Public

Service COrp.23 On December 19, 1944, on the application of Central

Maine Power Company, the Commission approved a plan for the

divestment of Portland Railroad Co., a. nonutility: subsidiary," On

February 3, 1945 certain common stockholders filed a bill of complaint in the' Supreme Judicial Court of Maine seeking a rescission

of the sale of Portland Railroad Co. Hearings have been held and

the matter is now pending before that court.. -,

On October 25, 1944 NEPSCO filed an amended plan of reorganization.211 Subsequently, the company again amended its plan de-

.. Holding Company Act Release No. 6528.

Holding Company Act Releases Nos. 3883 and 4711. •• Holding Company Act Release No. 5506. .. Holding Company Act Release No. 5477.

•

'"
TWELFTH ANNUAL REPORT 71

leting therefrom all reference to the distribution of its interest in

its nonutility subsidiaries to its own security holders. An application was filed by NEPSCO for the approval of a plan regarding the

sale of its holdings in its industrial subsidiaries and extensive hearings

were held on this phase of the amended plan. On October 11, 1945,

the Commission approved the sale of the industrial subsidiaries tc

a banking group for a consideration of $16,500,000.26 The sale by

NEPSCO of its industrial holdings was approved by the United

States District Court for the District of Maine (Southern Division).

An unsuccessful bidder and a stockholder of NEPSCO have filed

petitions in the United States Circuit Court of Appeals for the First

Circuit for review of the Commission's order of October 11, 1945.

They have also appealed from the District Court's order: At the

end of the fiscal year proceedings were still pending in the courts with

respect to the sale of the industrial subsidiaries.

18. Federal Water and Gas Corporation

On December 31, 1942 proceedings were instituted by the Commission with respect to Federal Water and Gas Corp. (Federal) and

its subsidiaries under Sections 11 (b) (1) and 11 (b) (2). The Federal

system at that time consisted of a number of utility and nonutility

companies conducting water, natural gas transmission and distribution, manufactured gas distribution, and electric operations in a

number of widely separated States. Federal's principal subsidiary

was, and is, Southern Natural Gas Co., a registered holding company

controlling four gas utility subsidiaries in Alabama, one in Mississippi

and one in Tennessee, and directly owning and operating a natural

gas 'pipeline extending :from Texas into Georgia. Southern Natural's

utilIty subsidiaries in Mississippi and Tennessee (Mississippi Gas Co.

and Chattanooga Gas Co., respectively) were formerly controlled

directly by Federal, but were sold by Federal to Southern Natural in

June 1946 pursuant to Federal's Section 11 (e) plan." This plan also

provided, among other things, for the distribution of Federal's interest in Southern Natural to Federal's stockholders and for the elimination of Federal as a separate corporation, as to which provisions the

Commission reserved jurisdiction. The plan also provided for the

disposition by Federal of its interests in all its other subsidiary companies, provided~owever, that before disposing of its security hold

ings in Peoples water and Gas Co., Scranton-Spring Brook Water

Service Co., and New York Water Service Corp., these companies be

recapitalized. The Commission approved the latter provisions of

Federal's plan and directed that steps be taken to carry out those

provisions," In addition, Federal, Pennsylvania. Water Service Co.,

and Scranton-Spring Brook were directed to cause the elimination of

Pennsylvania Water Service Co. and the 63 inactive subsidiaries of

Scranton-Spring Brook. Federal has caused the elimination of 62

inactive subsidiaries of Scranton-Spring Brook and has disposed of

its interests in 15 companies (iri addition to the above-mentioned sales

to Southern Natural) and of the bulk of the properties of Alabama

.. Holding Company Act Release No. 6123. IT Holding Company Act Release No. 6738. 28 Holding Company Act Release No. 4118.
,72 SECURITIES AND EXCHANGE COMMISSION

Water Service Co. After extensive hearings, Federal's plan for the

recapitalization of Scranton-Spring Brook was approved by the Commission in March 1946.29 Federal is under obligation to dispose of

its holdings of Scranton's new common stock received by Federal as

a result of the recapitalization. Hearings have been completed on

Federal's plan for the reorganization of New York Water, and this

matter "isnow pending before the Commission. . Federal itself was recapitalized in 1941. One aspect of that reorganization, relating to the Commission's decision therein that officers and directors of Federal should not be permitted to profit on

securities of Federal purchased by them during the pendency of the

reorganization, was appealed to the Supreme Court, which set aside

the Commission's order and remanded it to the Commission." In

February 1945 the Commission issued its findings, opinion and order

reaffirming its previous determination. Sl This order was reversed by

the United States Court of Appeals for the District of Columbia in

February 1946,82 whereupon the Commission petitioned for a writ of

certiorari which was granted by the United States Supreme Court

in May 1946.

19. Ogden Corporation

Ogden Corporation (Ogden) is a successor corporation to Utilities

Power & Light Corp. which went.into bankruptcy in 1937. A plan

of reorganization approved by this Commission provided, among other

things, that Ogden would divest itself of all its interests in utility

companies." Section 11 proceedings were instituted with respect to

Ogden by the Commission and were consolidated with a Section 11 (e)

plan of Ogden. .The Commission approved certain provisions of

the Ogden plan and ordered Ogden to divest itself of all its interests

in public utility companies and eliminate itself as a public utility

holding company." Ogden has divested itself of its interests in

Derby Gas & Electric Corp., Missouri Natural Gas Co., The Laclede

Gas Light Co. (Laclede), and Missouri Electric Power Co., which

represent all of its interests in utility properties except those of Interstate Power Co. (Interstate) and certain residual assets of Central

States Power and Light Corp. (Central States). Preliminary to

Ogden's divestment of its interest in Laclede, the latter company

underwent a thorough-going reorganization in conformity with the

provisions of Section 11 (b) (2).85 Hearings have been held on a

plan for the reorganization of Interstate and the divestment of

Ogden's interest therein, such plan providing for the company's reorganization while leaving for later determination the question as to

whether Ogden's holdings in Interstate should be subordinated, ill

whole or in part, to Interstate's publicly held debentures and preferred stocks. Hearings are in progress on a plan for the distribution

of the remaining assets of Central States. The assets of that com-

.. Holding Company Act Releases NOB.6458, 6510, and 6602.

11318 U. S. 80. For a discussion of the Issues in this case see the Commission's Tenth

Annual Report, page 118. 01 Holding Company Act Release No. 5584 .. Ohenery OOfT). v. 8. E. G., -- F. (2d) -- (C. A. D. c: Feb. 4, 19(6). II 1\ S. E. C. 483. .. Holding Company Act Release No. '4307 . .. Holding Company Act Releases Nos. 5062 and 5071.

-

•
TWELFTH ANNUAL REPORT 73

pany, consisting principally of cash, will be distributed upon a determination of the rights of the various classes of security holders, which

involves the issue as to whether any portion of the securities of Central

States held by Ogden should be subordinated to the claims of public

security holders.

InApril 1946 the Commission granted Ogden's application regarding a general program for the acquisition for investment purposes of

nonutility securities and assets."

20. Long Island Lighting Company

On October 25, 1945, Long Island Lighting Co. and three of its

public utility subsidiary companies, Queens Borough Gas and Electric Co., Nassau & Suffolk Lighting Co., and Long Beach Gas Co.,

Inc., jointly filed a comprehensive plan under Section 11 (e) of the

Holding Company Act proposing the consolidation of the four companies, the recapitalization of the resultant consolidated company, and

the distribution of the preferred and common stocks of the recapitalized consolidated corporation to the public security holders of the

constituent companies. On November 9,1945, the Commission instituted proceedings pursuant to Section 11 (b) (2) with respect to each

of the companies and consolidated the proceedings," Testimony in

the consolidated proceedings was taken from time to time and the

hearing was closed subsequent to the end of the fiscal year.

On AJ!gust 22,1945, Kings County Lighting Co. (Kings), a subsidiary of Long Island Lightmg Co.,' filed a plan pursuant to Section

11 (e) of the Holding Company Act with respect to its recapitalization

and the redistribution .of the preferred and common stocks of the

recapitalized company among its existing stockholders. On August

27, 1945, the Commission instituted proceedings pursuant to Section

11 (b) (2) directed to Long: Island and Kings and consolidated the

two proceedings," On AprIl 17, 1946, Kings filed an amended plan

pursuant to Section 11 (e) of the Act, which the Commission consolidated with the prior proceedings," The hearing in the consolidated

proceedings was closed on June 4, 1946, and at the end of the fiscal year

the matter was pending.

REGULATION OF SECURITY ISSUES

Volume of Financing

In the fiscal year ended June 30, 1946, the Commission declared

effective 117 applications and declarations pursuant to Sections 6

and 7 of the Act, pertaining to the issuance of securities totaling

$2,374,865,967.40 For the preceding year, 71 such applications were

declared effective with respect to $1,304,522,550 of securities. The

.. Holding Company Act Release No. 6564. at Holding Company Act Release No. 6218. as Holding Company Act Release No. 601l. .. Holding Company Act Release No. 6569. .. At the beginning of the 1946 fiscal year. 96 applications and declarations under Sections 6 and 7 were pending and 259 were filed duriIig the year. Of these, 241 were declared

elfective, 7 were withdrawn and 1 denied, leaving 106 pending at the close of the fiscal year. Of the 241 elfec~ve declarations and applications, 197 pertained to security issuance, 35 to alteration of rights, and 9 to assumption of liability.
74 SECURITIES AND EXCHANGE COMMISSION

following table classifies the securities involved during the past fiscal

ye~r by type of issue:

Summary of effective security issues under Sections 6 (b) and 7 of the PubZic

Utility Holding OompanyAct of 1935" .

lulyl, 1945 to lune 30,

1946 Type ofissue

.Amount Percent . Bonds- _________________________________________ Debentures $1,063,197,000 44.8 ___________________________________________________________ .____ Notes ___________________________________________________ 36.000,000 1.6 438, srt,000 18. 6

~=~~=::::::::: ::~::::::::::::::::::: :::::: ::====:====:::::::: 418, 1!lO,000 17.6 419, 206, 067 17.6

TotaL ___________________________________________________________________ 2, 374, 865, 967 100.0

IThese figures do not include outstanding issues whose rights were altered under Sections 6 (a) (2) and 7 (e)., nor do they include guarantees of other Issues.

The past year witnessed a continuation of the heavy debt refunding

progrlPll which has been in progress for the last decade. Many

utility companies refunded for a second time, as interest rates declined to new low ground. Until J !lnuary 1, 1946, tax considerations

facilitated these refunding operations since many of the companies

were in excess profits tax brackets and could reduce their net income

subject to excess profits tax by the amount of unamortized discount

and expense and call premiums applicable to the refunded issues.

After VJ-day the prospect of termination of the excess profits tax

further stimulated these refundings, with the result that very heavy

offerings were made during the fall of 1945. In October, alone,

approximately $210,000,000 of debt security issues were approved

under Sections 6 (b) and 7.

During the year, utility bond issues were sold on the lowest interest

cost basis since the passage of the Act. For example, in February 1946,

Madison Gas and Electric Co., sold at competitive bidding $4,500,000

principal amount of 30-year, first mortgage, 2% percent bonds at an

interest cost of 2.427 percent. Sixteen bids were received for these

bonds, 15 of which provided an interest cost of less than 2.50 percent.

Other high-grade issues such as those of Gulf States Utilities Co.,

Philadelphia Electric Power Co., and Wisconsin Electric Power Co.,

involving amounts from $27,000,000 to $50,000,000, were sold at interest costs between 2.50 percent and 2.60 J?ercent. Preferred stocks were

likewise sold on a very favorable baSIS during the year, the cost of

money in some instances approaching 3.30 percent.

COMPETITIVE BIDDING

Reflecting the volume of refunding during the 1946 fiscal year as

well as the growth in dispositions of portfolio securities under Section 11, the amount of securities sold. under the competitive bidding

requirements of Rule U-50 was nearly as large as the combined volume

during the four preceding years of the Rule's history. A ,total of

83 issues amounting to $1,642,000,000 was sold during the-1946 fiscal

year, bringing the total since May 7,1941, the effective date of Rule

U-50, to $3,486,440,000, comprising 185 issues.

-

•___________________________

'
TWELFTH ANNUAL REPORT 75

.Aside from the increased number of issues submitted to competitive

bidding by reason of the influences mentioned above, the process of

competitive bidding has also been extended irr two distinct fields.

InNovember 1943, for example, the Commission considered it necessary to exempt £rom Rule U-50 the sale of $21,000,000 of Public Service

Co. of Colorado common stock because of the size of the issue and

because there were at that time few precedents for gauging public

acceptance under competitive bidding of such a common stock offering.

Prior to July 1, 1945, as a consequence, only eight issues of common

stock amounting to $47,734,000 had been sold at competitive bidding.

In contrast, the past fiscal year has seen 16 common stock issues, aggreg!lting $215,787,000, sold under Rule U-50. These issues included

$38,115,000 of Columbus and Southern Ohio Electric Co. common stock during May and $51,468,000 of Dayton Power and Light

Co. common stock in the month of June. '

A second extension in the practice of competitive bidding has

occurred in connection with exchange offers on preferred stock. In

these cases, generally speaking, the holders of the old preferred stock

are given the right to exchange their holdings for new preferred stock

and an underwriting commitment is secured to cover any unexchanged

shares; sometimes, in addition, the underwriters assist in solicitmg

the exchange of the old preferred for the new. The development of

competitive bidding in this field was based upon experience with the

refinancing of preferred stocks by a variety of methods. During the

year the Commission approved a direct exchange offer without underwriting by Cities Service Power & Light CO.,41an exchange offer

coupled with underwriting by Columbia Gas & Electric Corp.," and

a reclassification of outstanding preferred stock pursuant to a vote of

stockholders by Rochester Gas and Electric Corp. <l3 In the case of

Columbus and Southern Ohio Electric Co.,<1<1it was announced that in

future exchange offers the Commission would require as a minimum

that bids for effecting exchanges under dealer-manal:fer arrangements

should be requested at least £rom a selected group of mvestment banking or other agencies qualified to perform the services involved,"

After considerable study of the general problem of competitive bidding on preferred stock issues, the Commission in Oklahoma Gas and

Electric 00: announced its VIew that, as a matter of future policy,

preferred stock issues under the Holding Company Act. should ordinarily be submitted to competitive bidding whether or not they involve

exchange offers.<l6

certain other important developments have occurred in connection

with the maintenance of competitive conditions required by Section

12 (d) of the Act. Inthe case of Western Light &'Telephone 00.,

the Commission considered the question of whether an investment

banking firm. retained as a financial adviser by the issuer of securities

might appropriately enter the bidding for such securities." It was

concluded that any financial advisory services entailing the payment

.. Holding Company Act Release No. 5943 .. Holding Company Act Release No. 6120 .. Holding Company Act Releases Nos. 6093 and 8340 . .. Holding Company Act Release No. 6150 .. see Pennsglvanfa Power Oompany. Holding Company Act Release No. 6140, in which

this ~rocedure was followed .. Holding Company Act Release No. 6449. ff Holding Company Act Release No. G902.

-

•

•

•

•
76 SECURITIES AND EXCHANGE COMMISSION

of a fee would necessarily involve continuing obligations to the issuer

inconsistent with the role of bidder for the securities with respect to

which advice had been given. It was pointed out also that an investment banking house acting in the role of financial adviser may have

an unfair advantage over other bidders because of its early and close

association with the transaction. Accordingly, the Commission announced that investment banking firms acting in such a capacity

would be considered ineligible to bid for the securities involved.

The statutory standards regarding maintenance of competitive

conditions were also considered in the case of Standard Gas and Eleotria 00., which involved the sale of securities of a public utility subsidiary operating in Mexico." This transaction was not subject to

Rule U-50 inasmuch as the anticipated sales price was less than

$1,000,000. The Commission held that, although a transaction may be

exempt from the formal competitive bidding procedure prescribed by

Rule U-50, proper maintenance of competitive conditions within the

meaning of Section 12 (d) requires that a vendor, having solicited

invitations for bids, must follow a selling procedure designed to afford

to all interested persons a fair opportunity to make offers, and to

secure for the vendor the maximum price reasonably obtainable. Upon

a reoffering of the securities, the Commission stated its view that a

bid of "$10,500 plus the next highest bid" was not in legal effect a bid,

and cited court precedents in which bids of a similar character were

rejected as potentially destructive of fair competition. The Commission also indicated in its opinion that in the event more than one

bid were submitted by the same party or by various persons under

common control, it would reject all such bids as improper .

. In the case of Interstate Power 00., the Commission disapproved

a sale of utility assets on the ground that the procedure followed by

the vendor was prejudicial to the competitive position of a prospective

buyer, and thus failed to afford all interested persons the equality of

opportunity to bid for the property required by the "maintenance of

competitive conditions" standard contained in Section 12 (d)!9

Exemptions From Rule V-50

By the terms of Rule U-50, exemptions from the competitive bidding

procedure may be granted by the Commission under certain circumstances. Apart from the exchange of several issues of preferred stock

for outstanding shares of old preferred, as discussed above, exemptions

under Rule U-50 were granted during the past year in six instances

involving securities in the amount of $19,865,000. These exemptions

were granted, in general, because the competitive bidding process was

found to be unsuited to the circumstances of the case or unnecessary

in the light of the public interest. Inthe case of Unite~ Public Utilities Oorp., for example, an exemption was granted covering the sale

of securities to a neighboring utility company, the Commission finding

that ownership and operation of the properties by the acquiring company were in the public interest. GO

Protective Provisions for Senior Securities

In the administration of Sections 6 and 7 of the 'act, which relate

to the issue and sale of securities by registered holding companies and

.. Holding Company Act Releases Nos, 6106 and 6551. .. Holding Company Act Release No. 6516 .. Holding Company Act Release No. 6142_
I

TWELFTH ANNUAL REPORT 77

their subsidiaries, the Commission has adhered' to and further developed the policy of securing inclusion in the corporate charters of

certain preferred stock protective provisions. During the past year

these provisions have become generally standardized, providing,

among other things, that the holders of at least two-thirds of the issue

must consent to the authorization of any prior ranking stock, the

alteration of existing preferred stock provisions, and the issuance of

additional shares at a time when earnings are below a stipulated level.

Restrictions have also been placed upon the issuance or assumption of

additional indebtedness and upon the merger or consolidation of the

company with other corporations. Preferred stockholders are given

the right to elect a majority of the Board of Directors upon default of

four quarterly dividends."

As an additional means of protecting senior security holders, the

Commission has continued to insist- upon suitable restrictions on the

payment of dividends where common stock equity was considered

inadequate. For example, in the case of Western Light &: Telephone

00.52 the declarant agreed that"

If at any time the aggregate of the common stock and surplus (common equity)

Is or becomes less than 20 percent of the total capitalization, dividends on common

stock in any fiscal year shall be limited to 50 percent of net income available for

said common stock in such fiscal year and whenever such ratios shall be 20 percent

or-more but less than 25 percent, then not more than 75 percent of the earnings

accumulated during such period otherwise available for such purposes shall be

used therefor. No dividends shall be paid on common stock which will reduce

such ratio to Iess than 25 nercent.

Exemptions From the Provisions of thc Act

The renewed application of Pacific Gas and Electric CO.53 under

Section 2 (a) (8) for an order declaring it not to be a subsidiary of

The North American Co., was granted by the Commission upon finding

that a substantial change in status had occurred since the entry of its ..

order of September 10, 1941, denying, the original application."

During the intervening period the ownership of North American in

Pacific had been reduced from 17.7 percent to 5.24 percent and of two

directors of Pacific elected by North American, one had already resigned while the other was prepared to resign when the disposition

of North American's interest in Pacific had been completed.

During the past year the Commission granted exemptions to 8

holding companies under Section 3 of the Act and upon applications

under Section 5 (d) ordered that the registration of 5 holding companies should cease to be :in effect. Twenty-two small holding

companies claimed exemption from registration under Rule U-9, 24.

claimed exemption under Rule U-2 (a) and 35 subsidiary holding

companies were exempt from registration under Rule U-2 (b).

In the case of Texas Utilities Co.," the Commission had occasion-to

state that any automatic exemption available under Rule U-2 would

be terminated promptly pending adoption of protective provisions

in the preferred stock and completion of the original cost study of a

subsidiary company, thereby assuring that no procedural step could

.. Jersey Oentral Power cE LIght Co" Holding Company Act Release No, 6637. and Mononyahela Power 00., Holding Company Act Release No, 5988. .. Holding Company Act Release No. 5902. III Holding Company Act Release No. 6122. .. Pacific GaB and Electric 00., Holding Company Act Release No, 2988. afJ'd 127 F. (2d)

378,139 F. (2d) 298 CC.C. A. 9th, 1943), a1!'rJ 324 U. S. 826 (1945). , 4merlcGn Power cE LIght 00., Holding Company Act Release No, 6158,

•

~
78 SECURITIES AND EXCHANGE COMMISSION,

be used to secure an exemption contrary to the public interest or to the

interest of investors or consumers.

COOPERATION BETWEEN THE SECURITIES AND EXCHANGE

COMMISSION AND STATE COMMISSIONS .

During the past ye~r the Commission has continued its established

policy of cooperating with other Federal agencies and with State and

municipal regulatory bodies in matters of mutual interest. This is

in keepmg with the spirit and policy of the Act in which the Congress

inserted a number of specific provisions for this purpose. Reference

is made to the Eleventh Annual Report for a detailed discussion of the

principal Sections of the Act dealing with this matter.

The area of the Commission's activities in which State commissions

have the most direct interest embraces the regulation of operating

subsidiaries of holding company systems and usually relates to such

matters as the adequacy of depreciation, accounting practices, and the

removal of questionable items from property accounts. One of the

most interestmg cases in this category which came before the Commission during the past year involved a refinancing operation of the

Jersey Central Power & Light CO.56 Through the cooperative efforts

of the Federal Power Commission, the Board of Public Utility Commissioners of the State of New Jersey, and this Commission, there

resulted a successful plan whereby semor securities _of the company

were reduced, unamortized debt discount and expense on retired issues

was eliminated, and approximately $10,000,000 of excess 'Over original

costs was removed from the property account. An important factor

contributing to the feasibility of these adjustments was a capital donation of $5,000,000 by the company's .l?arent and. as a consequence of

all of the transactions, the total capitalization of the company was

reduced nearly $7,000,000. There were eight other financmg cases

during the past year in which there were helpful interchanges of views

and information with interested State commissions. 57 In one of these

cases the record of hearings before this Commission was received in

evidence at concurrent hearings before the two State commissions

having jurisdiction over the companies involved."

The volume of cases of the type described above seems to have tapered off in recent years, apparently for the reason that the major portion of the problems of this character have been disposed-of through

the combined efforts of State commissions, the Federal Power Commission, and this Commission. Furthermore, in the past few years

'there has been a substantial increase in the number of reorganization

plans filed with the Commission for the purpose of complying with the

geographic integration and corporate simplification standards of

Section 11 (b).. a ~onseque¥ce the focus of cooperative- efforts

appears to be shiftmg to integration. --

Cooperation in this type of case has touched upon a wide variety of

circumsta~ces, most of wh~ch relate to the divestment of operating

.. File No. 70-1272. IT Mountain States Power Co., File No. 70-1099; Missouri Power &: Ll~ht Co., I"Ile No.

70-1284' Milwaukee Electric Railway and Transportation Co•• File No. 70-1286; Potomac

Edison Co., File No. 10-1065; Public Service Co. ot New Hampshire, File No. '10-1230;

Pacific Power Light Co., Nortbwestern Electric Co File No. 70-1831; Alabama Power

Co., File No. 70-1226; Pennsylvania Electric Co., PennsYlvania Edison ce., File No.

70-1250. . If Pacific Power &: Light Co., Northwestern Electric Co.• File No. 70-1831.

•

•

~

'"
TWELFl'H ANNUAL REPORT 79

subsidiaries. During the past year the Commission has cooperated

with local regulatory bodies in Section 11 proceedings involving the

following companies:

Atlanta Gas Light Oo., File No. 54-131;

Central arizona Light &; Power Oo., File No. 70-1156;

Chattanooga Gas oo., File No. 70-1145;

Minneapolis Gas Light Co., File Nos. 54-68 and 59-55 ;

Potomac Ell!ctricPower Co., File No. 54-98;

Southern Utah Power Co., File Nos. 54-125 and 52-27-1;

Tucson Gas, Electric Light & Power Co., File No. 70-1263.

The Act does not contain specific provisions for cooperation between

this Commission and State commissions in Section 11 cases, but, in

Section 19 of the Act, the Commission is required to admit a,ny interested State, State- commission, municipality, or other political subdivision of a State as a party in any proceeding before It. Pursuant

to this provision, the Commission has uniformly followed the policy

of inviting interested State commissions to participate in any proceeding which may affect their work. As indicated by the above

cases, a number have taken advantage of this invitation.

PART IV.

PARTICIPATION OF THE COMMISSION IN CORPORATE

>REORGANIZATIO~S UNDER. CHAPTER X OF THE BANK~

nUPTCY ACT, AS AMENDED

Chapter X of the Bankruptcy Act, as amended ill 1938, affords appropriate machinery for the reorganization of corporations (other

than railroads) in the Federal courts. The Commission's duties under

Chapter X are, first, at the request or with the approval of the court

to act as a participant in proceedings thereunder in order to provide,

for the court and investors, independent expert assistance on 'matters

arising in such proceedings, and second, to prepare, for the benefit

new proceedings under Chapter X, one of which was filed at the reorganization submitted to it by the courts in suchsproceedings, The

Commission has no statutory right of appeal in any such' proceeding,

although it may participate in appeals taken by others.

SUMMARY OF ACfIVITIES

The Commission actively participated during the year in 104 reorganization proceedings mvolving the reorganization of 127 companies (104 principal debtor corporations and 23 subsidiary debtors),"

The' aggregate stated assets of these 127 companies amounted to

$1,975,860,000 and their aggregate indebtedness was $1,313,321,000.2

During the year, the Commission filed its notice of appearance in nine

new proceedings under Chapter X, one of -which was filed at the request of the judge and the remaining eight upon approval by the judge'

of the Commission's motion to participate. These nine new proceedings involved nine companies with aggregate stated assets of

$9,615,000 and aggregate stated indebtedness of $11,636,000. Proceedings involving 15 principal debtor corporations and 2 subsidiary

debtors were closed during the year.

At the close of the year, the Commission was actively participating

in 89 reorganization proceedings involving 110 companies (8Q.principal debtors and -21 subsidiary debtors), with aggregate stated assets

of $1,918,142,000 and stated 'indebtedness of $1,260,996,000. . . COMMISSION'S FUNCTIONS UNDER CHAPTER X

In participating in proceedings under Chapter X of the Bankruptcy Act, the role of the Commission differs .markedly from that

under the other Acts which it administers. The Commission does not

administer Chapter X. It does not initiate the proceedings, hold its

own hearings, or adopt Rules and Regulations, but acts, as the representative of investors and as an aid to the court, in a purely advisory

capacity. It has no authority either to veto or to require the adoption

""'m~l:rdlx Table 34 contains-a comple~ list of reor~anlzat1on proceedings In which the

Co on participated durlnlr the 1IsCalyear ended June 80, 1946

AppendiX Tahle 19, Parts 1 and 2, classify these debtors according to Industry andale of indebtedness.' .

722108--47----7 81

•

• •
82 ,

SECURITIES AND EXCHANGE COMMISSION

of a plan of reorganization or to render a decision on any other issue

in the proceeding. The facilities of its technical staff and its impartial recommendations are placed at the services of the judge and

the security holders, affording them the views of experts in a highly

complex area of corporate law and finance.

In order to facilitate this work of the Commission, staifs of lawyers,

accountants, and analysts have been stationed in various regional.

offices where they can keep in close touch with all hearings and rssues

in the proceedirigs and with the parties and be readily available to

the courts. At the central office of the Oommission, the Corporation

Finance Division is charged 'with the immediate supervision of the

Commission's Chapter X functions. As a party to the proceeding the

Commission is represented at all important hearings and its views on

the various problems arising in the proceeding are expressed to the

court orally or through legal or analytical memoranda. Of equal

importance is the regular participation by the Commission's staff in

informal conferences and discussions with the parties in an endeavor

to work out solutions to questions in advance of formal hearing and

argument. In this.way the Commission has often been 'able to bring

facts, arguments, or alternative suggestions to the attention of the

parties, and frequently the parties have been thereafter prompted-to

modi~ their proposed actions. In general the Commission has found

these informal discussions an effectIve means for cooperation, and of

great value in expediting the proceeding.

While the Commission as a partY in interest has a right to be heard

on all matters arising in the proceeding, it does not have the statutory

right of appeal. The Commission, however, on appropriate occasions

appears before the appellate courts when appeals are taken by others.

The Commission has participated as a party or as amicus ouriae in

many appeals involving significant legal principles of bankruptcy

reorganization law.. _

Through its nation-wide activity in Chapter X cases the Commission

has been in an advantageous position to encourage uniformity in the.

interpretation and "application of the provisions of Chapter X, and is

often called upon by parties, referees and special masters, and judges

for advice and suggestions. 'In this the Commission has been able to

extend substantial assistance derived from its experience accumulated

through participation in many cases.

THE COMMISSION AS A PARTY TO PROCEEDINGS

As a general matter the Commission has deemed it appropriate to

seek to participate only in proceedings in which a public investor

interest IS involved. As a rough, administrative guide, proceedinss are

not considered to have su:ffi.cientpublic interest to warrant Commission

participation if the amount of publicly held securities is less than

$25~OOO." But mere size is not, of course, the sole criterion. Often

the Commission has deemed it appropriate to enter smaller cases where

an unfair plan has been or is about to be proposed, where the public

security holders are not adequately represented, where the proceedings

are being conducted in violation of important provisions of th.e -A~t,

or where other facts indicate that the Commission may perform a

useful service by participating. During the past fiscal ye~, the Com-
TWELFl'H ANNUAL REPORT 83

mission intervened in several such smaller cases because it considered

that unfair plans were being proposed and violations of Chapter X

provisions were occurring.

There is a multitude of diverse questions with which the Commission

is concerned as a. party to a Chapter X proceeding. Some of the more

important matters which have arisen during the past fiscal year are

discussed in the following paragraphs.

Problems in the Administration of.ahe Estate

. The Commission has continued its policy of scrutinizing the qualifications of trustees in the light of the standards of disinterestedness

prescribed oy the statute. Since the independent trustee has the duty

of examining into the history and affairs of the debtor, ascertaining

its financial and managerial problems, and formulating the-plan of

reorganization, it is obvious that the success of the reorganization

depends Iargely upon his thoroughness and skill. In one case, the

Commission objected to the retention of a bank as trustee where its

trust officer, in charge of the reorganizationfroceeding for the bank,

was closely affiliated with the management 0 the debtor and where it

appeared that no investigation of the property, liabilities, and financial condition of the debtor, as required by Section 167 of the Act,

would be made and reported to security holders. The judge did not

sustain the objection to the retention of the trustee but did order the

trustee to comply fully with the requirements of Section 167.8

In connection with the preparation of the trustee's report, as in

other phases of the case, the Commission has continued its practice of

assisting the trustee through consultation on problems and m furnishing information. As the result of its experience in many cases, the

Commission has been in a position to render considerable help to

trustees in carrying OUt their duties, in this respect as well as others,

without usurping their functions or controlling their activities.

The importance of a thorough investigation of the debtor's affairs

by the trustee has manifested itself on many occasions during the

Commission's experience in Chapter 4: cases. In one case during the

past year, the Commission's staff discovered evidence of misconduct

on the part of the management of a company which owned an office

building and it assisted the trustee in conductmg an investigation. It

was found that the manager. and controlling officer of the debtor apparently had charged excessive management fees, used office space to

which he was not entitle-d, and debited the company for expenses which

he should have borne himself. After long negotiation a settlement

was consummated favorably for security holders and approved by the

court. In the same case, prior to the Commission's intervention, a

plan had been proposed, at the instance of the company and its management, under which bondholders. would have received common stock

and cash, equal to.30 percent of the face value of the old bonds, the

cash to be derived from the proceeds of a new mortgage. .With the

thought that the common sto«k would not have a ready market and

might not bring its true value 'if sold, and in view of the current rise

in.realty prices, the Commission urged? as preferable, the adoption of

a plan under which the property WOuld be sold at public auction at a

• ScofUllh RUes Mtiso1l8 A~8oc((lflon. Western Distrlct of Texas, San Antonio Division •

,
84 SECURITIES AND EXCHANGE COMMISSION

fair upset price. The trustee submitted this type of plan and it was

approved by the court, accepted by bondholders, and confirmed. At

the sale, the property attracted bids much higher than the upset price.'

(See page 91 on the sale of properties as a method of reorganization under Chapter X.) As a result of this sale and the settlement with the manager, bondholders will receive close to 100 cents on

\he dollar in cash for their bonds. . The competence and efficiency of management is likewise an important subject for investigation by the trustee. In a case involving a

large chain of restaurants which had suffered drastically from declining business prior to the war, the Commission endeavored to have the

court order the trustee to retain experts to make a management survey.

While the company's difficulties may have been due to causes other

than incompetence or inefficiency of management, the Commission 00-

lie-red it essential to ascertain the responsibility of management for

the plight of the company, first, because of-its effect upon a judgment

as to the earnings of the company for valuation purposes, and, second,

because of the necessity for the court to pass upon the future management of the reorganized company. Upon the trustee's assertion that _'

he would present testimony on this subject at the plan hearings, the

court denied the Commission's request."

The responsibility of the trustee for the administration of the estate

is equally as important as his duty with respect to the reorganization

plan. The Commission has taken every opportunity to emphasize this

aspect of the proceeding. In a case involving a large investment company with its major holdings consisting of the common stocks of two

subsidiary investment companies, the Commission, during the early

part of this year, urged that the speculative character of the enterprise

be reduced in the interests of 'creditors and senior security holders of

the debtor company. After conferences with the Commission and

other parties, the trustees presented a program for the 'retirement of

a large portion of the semor capital of the subsidiaries,' thereby reducing to a considerable extent the risks to the debtor's estate inherent

in a high leverage position. The Commission supported this program

before the court. The trustees obtained the approval of the court to

the program despite the opposition of a' preferred stockholders

committee,"

Responsibilities of Fiduciaries

The Commission has consistently been alert to insist upon the absolute honesty of fiduciaries in their relationship to security holders

and has urged that those in positions of trust who have deviated from

the high standards imposed upon them should bear the full consequences of their actions.

Trading in securities of a debtor by trustees, directors or other

insiders is a practice which has generally been condemned by the

cou.rts. During the fiscal.year, in a matter. in which the Commission

actively participated, this rule was applied to the directors of a

corporation in reorganization under Section 77B where they had

purchased bonds of the corporation during their inoumbsney.t The

Filth and Pierce 00 .• Northern District of Iowa, Western Division. osua« 00., S. D. N. Y.

Oentral States Electric OorJJ., Eastern District of Virginia.

In re Philadelphia c6 W/14tern Railway 00., 64 F. Supp. 738 (D. C. E. D. Pa., 1946).

•

•

•

•
TWELFTH ANNUAL REPORT 85

court held that the directors of the debtor corporation, which had

been continued in possession of its property in the absence of the

appointment of a trustee, should be limited in their claims on their

bonds so purchased to the actual cost to them. Subsequently, a settlement was negotiated and approved by the court,",

In the proceedings to reorganize Jeffrey Terrace Building Corp.

the Commission vigorously supported a petition for limitation to cost

of bonds acquired by an individual in a transaction in which that

individual cooperated in what appeared to the Commission to be a

breach of fiduciary obligations by an indenture trustee who was also

manager of the properties. Instead of attempting to secure the

maximum price for the debtor's property, in which bondholders had

the sole interest, the indenture trustee for the bondholders entered

into an agreement with the aforementioned individual. Under that

agreement the trustee was to receive a commission, the amount ofwhich would increase in proportion as the price paid for the property

by the aforementioned individual went down. Thereafter the fiducrary, acting as agent for the purchaser, induced bondholders to sell

their bonds at 50 cents on the dollar, making no disclosure of the

sale of a large block of bonds to the purchaser at 65 cents on the dollar

and not advising bondholders of his own interest in the transactions.

The court entered an order limiting the purchaser to the cost of his

bonds. Subsequently a settlement was negotiated and was approved

by the court.

The remedy of limitation to cost. is generally invoked in order to

prevent a fiduciary from profiting by his trust. On the other hand,

where the fiduciary's derelictions have caused harm to the security

holders or the estate the remedy of subordination may be pursued to

prevent the fiduciary from sharing in the assets of the estate on a

parity with these security holders. In the previous fiscal year the

Commission filed an advisory report on plans of reorganization in

proceedings involving Warner Sugar Corp. in which the Commission

recommended that the doctrine of subordination be applied. In that

report a detailed account was given of the manner in which various

banks used their domination and control of the company to advance

their own adverse interests to the detriment of public bondholders .

.It was pointed out that the banks, although occupying a fiduciary

position, did not scrupulously observe the bondholders' rights but

violated indenture provisions designed for their protection, obtained

preferential treatment with respect to various assets and engaged in

other practices to place bondholders at a disadvantage, even to the

extent of preventing bondholders from ascertaining the facts and

pursuing their appropriate legal remedies," After the filing of the

Commission's report the trustee submitted a memorandum in which

he recommended that the banks be subordinated in their claims against

the debtor.'? After hearings, a plan was filed by the trustee on December 1, 1945, under which public bondholders were to receive the full

principal amount of their bonds with interest at 6 percent from the

date of default in 1931 to the date of payment. The plan embodied

A similar result was reached in the Fifth and Pierce Oompanll case (supra), as a result

of the Insistence of the Commission, as a condition of settlement.

The report recommended that the manager of the debtor's sugar mill and plantation should be limited to the consideration he paid tor bonds acquired by him while he was actin~ in a lIduciary capacity. 18 He recommended also that the manager's claims on bonds be limited to the cost thereof.

•

•
86 SECURITIES AND JllXCHANGE COMMISSION

an offer of purchase of West Indies Sugar Corp., a large bondholder

and owner of an adjoining sugar mill and plantation. .As part of

the plan the banks and the manager were to be paid merely the principal of their bonds with no interest. Since the bonds bore a '( percent interest rate th~ plan was in effect a compromise of the issues

of subordination and limitation to cost. Under the circumstances of

the case the Commission concluded that the. compromise was fair to

the public bondholders and recommended that the plan be approved.

Thereafter the plan was approved by the court, accepted by security

holders and it has recently been confirmed by the court.

Another proceeding involving the subordination doctrine in which

the Commissiouactively participated is that of lnlarut Gas Oorp.,

American Fuel and.Power 00., et al. In that case, during the previous

fiscal_year, the Commission had participated in an appeal to the Circuit Court of Appeals for the Sixth CIrcuit from a decision by the

district court rejecting various claims of Columbia Gas and Electric

Corp. against the debtor based on bonds, debentures and stock. In

brief, the district court found, that Columbia Gas and Electric Corp.

had formulated and carried out a program to prevent Inland Gas

Corp. and its parent company, American Fuel and Power Co., togetlier with other subsidiaries, from expanding its business, primarily

through the building of a pipe line .ffom its field in Kentucky to

Detroit. The Commission urged that the district court decision rejecting the Columbia Gas claims be affirmed for the reason that

Irrespective of other grounds for rejection such as violation of.

-antitrust laws, the facts showed inequitable conduct by Columbia Gas

and Electric Corp. toward the debtor corporations which warranted

the rejection or subordination of its claims. The Commission argued

that Columbia Gas and Electric Corp. secured control of the American Fuel and Inland Gas system to destroy a threat to its competitiveposition and that Colum.bia accomplished ItS purpose. Itwas pointed

out that subordination or disallowance was particularly appropriate

because of the difficulties of recasting the history of the enterprise

so as to determine the extent of the loss suffered by the public security

holders. On October 9, 1945 the Circuit Court affirmed the District

Court judgment, modifying the decree, however, so as to 'provide for

subordinatioa of the claims and stock interests of Columbia Gas

and Electric Corp. rather than rejection" thereof." The court rested

its opinion not merely upon the existence of inequitable or illegal

conduct of Columbia Gas and Electric Corp., but upon the injury

caused the debtors and their security holders by reason of such conduct. Application for a writ of certiorari was filed by Columbia Gas

and Electric Corp. on May 29, 1946. The Commission has filed a

brief in opposition to the application.v

Activities with Respect to Allowances .

The Commission has taken an active .part in the matter of allowances to those claiming to have rendered services and incurred expenses in the proceeding. In making allowances the courts Seek to

protect the estate from exorbitant c}iarges2 while at the same time

providing equitable treatment to the applicants. The Commission

u Oolumbia Gas and Electric Corp. v, United Statf18 o{lfAerica, 1111F. (241) 461, ns F.

(241) 101 (c; C. A. 6. 19411. 1946). , U Certiorari was denied by the Supreme Court on October 14. 1946. .

_
TWELFTH ANNUAL REPORT 87

has been able to provide considerable assistance to the courts in this . matter.

The Commission itself receives no allowances from estates in reorganization and is able to J?resent a wholly disinterested and impartial view. The Commission has consistently tried to secure a

limitation of the total compensation to a!1 amount which the estate

can feasibly pay, In each case the Commission also makes a careful

study of" the a;{>plications of the various parties to the end that unnecessary duplication of services shall not be recompensed and that

compensation shall be allocated on the basis of the work done by

each claimant and of his relative contribution to the administration

" of the estate and the formulation of A plan. With these objectives

in mind the Commission may undertake- to make specific recommendations to the courts in cases in which the Commission has been a

party throughout the proceeding and is thoroughly familiar with

the activities of the various parties and all significant developments

in the .proceedings. In cases in which i~ has entered the proceeding

at an advanced stage the Commission may limit its advice to the court

without specifying 'particular amounts deemed reasonable by it.

Where the activities of an applicant for compensation have constituted inequitable conduct or where an applicant has traded in securities, directly or indirectly, in violation of the provisions of Section 249,

the Commission has urged that fees be denied. In several cases, the

Commission took the position that purchases or sales of securities by

the near relatives of a fiduciary come within the application of the

provisions Of Section 249 of the Bankruptcy Act and the rule of law

which that Section codifies. Inone case the Commission's contention

was upheld; 1.3 in two cases-it was not.> In another case the Commission opposed an applicant's contention that Section 249 does not apply

to attorneys who represent individual creditors. The Commission

pointed out that Section 249 applied in terms to attorneys and that its

purpose was to prevent a pernicious reorganization abuse-the buying

and selling of securities by persons within stated groups on the basis of

inside information_about matters such as plans, prospects of reorganization, and the value of securities; information which they were in a

strategic position to acquire and use for-their own gain. Itwas pointed

out that the case of Yowng v, Higbee 00.15 (in which the Commission

had participated) had suggested that even individual security holders

themselves assumed certain representative obligations when their activities were for the benefit of the entire estate." In another case the

Commission urged that compensation be denied to an indenture trustee

and a bondholders' committee where-the indenture trustee was acting

for arid at the instance of the committee. The district court agreed

that a conflict of interest existed between the indenture trustee and the

committee. and denied compensation to' the committee .for services

rendered up to the time of the removal of the indenture trustee. It

denied any compensation to the indentiire trustee."

"In re Alldlarnl United co., 64 F. Snpp. 399 (D. C. Del., 1946), appeal pending. U In re Penn Timber 00., D. C. Oreg. Docket No. B-23063: In re Phfladelphia and

Reading Coal and Iron o«, 61 F. Snpp. 120 (D. C. E. D. Pa., 19411),appeal disallowed by C. C,'A. May 31.1.1945. u 324 U. S.2.,. (1945). "Abrams v. 188Randolph BuUding Corp., 1111F. (2d) 3117(C. C'. A. 6. 19411). oert, den.

Sf Ritz-Oarlton Rutaurant and HlIt61 00. of Atlantio OUJ(;"60 F. Snpp. 861 (D. C. N. ;r., 1945).

-
88 SECURITIES AND EXCHANGE COMMISSION

On the other hand the Cornmission has taken the position that the

fee provisions of Chapter X contemplate a broadening of the base for ,

~a'anting allowances as a means of encouraging participation in a

j?eorgamzation proceeding by individual creditors and security holders

whose personal financial stakes are seldom sufficiently great to pay their

own counsel fees. With this principle in view the Commission is

participating in support of an applicant who was denied compensation

.nythe district court on the ground that his services were performed for

the benefit of particular claimants rather than the estate as a whole.

In an appeal from this denial the Commission urged that compensation

he granted because applicant's services aided the proceeding by bringing before the court considerations applicable to a whole class of

security holders who, in effect, were represented by the applicant."

INSTITUTION OF CHAPTER X PROCEEDNGS AND JURISDICTION OF

THE COURT

The Commission has striven for a liberal interpretation of the provisions of the Bankruptcy Act so that/the benefits of Chapter X may be

made fully available to security holders in accordance with the spirit

and intent of the statute. Inaccordance with the principle enunciated

in the Supreme Court decision in Securities and Exchange Oommission v. United States Realty and Improvement 00.,19 the Commission

has intervened during the fiscal year in a Chapter XI proceeding where

the company seeking an arrangement appears to have a substantial

class of public security holders. The Commission's views, upheld by

the Supreme Court, is that Chapter XI (relating to creditor arrangements) is not properly available to a debtor where a large public mvestor interest is involved since the provisions of Chapter XI do not

contain the safeguards necessary to protect large classes of public

security holders in the consummation of a fair, equitable, and feasible

plan of reorganization, and that such a reorganization should take

place under Chapter X.20 '

The Commission has also participated in several cases involving

the question of good faith in the filing of a petition. The Commission's

view in these cases 'was that the pendency of a prior State court proceeding was not .a bar to a Chapter X proceeding since,the prior proceedings in those cases did not contain safeguards for investors comparable with those in Chapter X. The contentions of the Commission

were not upheld by the courts, generally on the ground that it had

not been shown that the interests of security holders would not be

best subserved in the prior State court proceedingsP

The disregard of corporate entities in order to achieve a workable

plan was upheld. in the proceeding involving-Pittsburgh Railwa:ys 00.

The Commission actively supported a petition of the city of Pittsburgh

to have the court assert jurisdiction for purposes of bankruptcy reorganization over various subsidiary companies and associated companies of the debtor, which were not nominally before the court, in 01'-

11 In re Mt. Forest Fur Farms ot A.merica, tno., before the Circuit Court- of Appeals for

the 6th Circuit. 18 310 U. S. 434 (1940). .. Oarlton Ore8cent, Inc .. S. D. N. Y.

21Sheridan View 'Building Oorp., 154 F. (2d) 532 (C. C. A. 7, 1945), certiorari denied

October 8, 1945; St. Oharle8 Hotel 00., unreported opinion (C. C. A. 3, 1945), Cerlwari

denied October 8. 1945.

•
TWELFTH ANNUAL REPORT 89

der to effectuate a reorganization of the entire Pittsburgh street railway system. The Commission, pointing out the urgency of a systemwide reorganization, argtied that the separate corporate entities of the

so-called underlier companies should be disregarded under the facts of

this case where the enterprise had always been conducted 'as a unit,

operations unified, and affairs intermingled. The Circuit Court of

Appeals for the Third Circuit upheld the position of the Commission

and reversed the judgment of the district court which had denied the

city's petiti0!1.22

PLANS OF REORGANIZATION UNDER CHAPTER X

The ultimate objective of a reorganization is the formulation and

consummation of a fair and feasible plan of reorganization, Accordingly, the most important function of the Commission under Chapter

X is to aid the courts in achieving this objective.

Fairness

In appraising the fairness of reorganization plans under Chapter X

the Commission has at all times taken the position that full recognition

must be accorded claims in order of their legal and contractual priority,

either in cash or new securities or both, and that junior clairnants may

participate only to the extent that the debtor's properties have value

after the satisfaction of prior claims or to the extent that they make a

fresh contribution necessary to the reorganization of the debtor.

Hence, a valuation of the debtor is necessary to provide the basis for

judging the fairness as' well as the feasibility of proposed plans 9f

reorganization. In its advisory reports.rin hearings before the courts,

and in conferences with parties to proceedings, the Commission has

consistently stated that the proper method of valuation for reorganization purposes is primarily an appropriate capitalization of reasonably

prospective earnings.

These principles as to the recognition of priorities and as to valuation are now firmly established as a result of the Supreme Court

decisions in Oase v. Los Angeles Lumber Produots 00. Ltd.23 and

Uonsoiidated Rock Products 00. v, DuBois 24 in which the court sustained the positions urged in briefs filed on behalf of the Commission

as amioue curiae. During the past fiscal year these principles were

reiterated in an appeal before the Circuit Court of Appeals for the

Second Circuit in which the Commission actively participated. In

this proceeding, United States Realty and Improvement 00. and Trinity Buildings Oorp. 0/ New York, the district court had excluded the

preferred stockholders of Trinity Buildings Corporation from participation in a plan because the value of the debtor's assets on an earnings

basis was found to be less than the amount of creditors' claims. The

Commission urged that the district court's finding of value was

'substantially supported by the evidence and that it should be affirmed.

The circuit court sustained the position of the Commission and affirmed

the orders approving and confirming the plan of reorganization."

l!I In re Pitt8burgh RaUwal/8 00., - F. (2d) - (C. C. A. 3, 1946), eert, den. Oct. 14,

1946.. 308 U. S. 106 (1939).

312 U. S. 5:10 (1941) .. Trinitl/ Building, Oorp. Pre/erred. Stookholdera' Oommittee v. O'Oonnell, 155 F. (2d)

321 (C. C. A. 2, 1946) •.

•

-

•

'" •
90 SECURITIES AND EXCHANGE COMMISSION

In connection with the fairness of plans, the Commission, as has

been noted above, has been concerned among other matters with situations where mismanagement or other misconduct on the part of a

parent company or controlling person requires that its claims be subordinated to the claims of the public investors or where a fiduciary's

activities require that he be limited to the cost of his claims. Such

matters must be given full consideration since they form an integral

part of the concept of the "fair and equitable" plan. , The relative prosperity during recent years of many companies

undergoing reorganization has enabled a number of debtors to make

payments to creditors in cash either in part or in full. As a result,

novel questions have been raised involving creditors' rights. The

Commission, on behalf of the public investors, has participated in

many of these controversies..

The Commission has urged that partial distribution of 'cash be

made to creditors wherever possible, even though in advance of a

formal plan of reorganization. The power of the court to make'

such distribution has been upheld whenever the question has arisen.

With respect to payment in full to creditors the Commission has

in general taken the view that all the rights of creditors to interest

to the date of. payment should be observed. In one case the CoIIl

mission supported the position of debenture holders that they were

entitled to have their claim of principal and accrued interest to the

date of commencement of the Chapter X proceeding treated as an

aggregate claim and to receive interest on such aggregate claim from

the commencement of the proceeding up to. the date of payment.

The Commission urged that the aggregate claim of principal and interest accrued at the inception of the proceeding was in the nature of a

judgment against the estate which carried interest on the full amount

of the judgment to the date of payment. The reason for the rule is

the fact that the BaDkruptcy'Act necessarily restrains creditors from

pursuing their usual remedies by way of judgment and execution in

order to avoid preferential treatment and forced liquidation and to

assure equality of participation in the assets.

The purpose of the stay of suits against the debtor is only to prevent the exercise by creditors of their procedural remedies and the stay

should not be utilized to affect the substantive rights which would

attach upon the acquisition Of a judgment. By' treatin~ creditors'

claims as judgments in computing the amount of the claims, those

substantive rights are preserved and the debtor, and its stockholders

do not gain an advantage over their creditors. The district court

sustained the Commission's position in this ,case.26 ,. ,

Feasibility

Although the representatives of security holders frequently regard

the fairness of the plan as their :principal concern, the provisions of

the statute and the protection of investors' interests require also that .

the plan be feasible. To be feasible, a reorganization must be eeonomically 'Sound and workable. 'It must not hamper future operations or lead to another reorganiZation. The extent to which current

reorganizations are attributable to lack of feasibility in previous reor-

,. In re Realty A88ornatu, Becurltlu Corp., 66 F. supp: 416 (D. C. S. D. N.' x; 1846).

appeal pending.

-

-

'
TWELFTH ANNUAL REPORT 91

ganizations is indicated by the fact that numerous Chapter X proceedmgs involved compani~ which had already undergone reorganization

in equity receivership pi'Qceedings or under Section 77B of the Bankruptcy Act. In order to avoid a similar record as to Chapter X cases

some years hence, with its attendant expense and injury to investors,-

the Commission gives a great deal of attention to the factors affecting

feasibility. In this connection, -the Commission is particularly concerned with the adequacy of working capital, the relationship of

funded debt and capital structure to property values, the adequacy

of corporate earning power in relation to interest and dividend requirements, and the effect of the new capitalization upon the company's

prospective credit. .

In recent years the Commission has encountered difficulties because

the" parties are disposed to base values and capital structures upon

inflated war earnings, either because they overlook the extent to which

earnings are inflated or hope such earnings will continue long enough

to permit debt to be scaled down to manageable proportions. Another

obstacle to the formulation of feasible plans in the current period of

high tax rates is the reluctance of investors to scale down debt and

thereby lose the deduction for interest payments.

Sale Plans

The increase in value of properties of corporations in reorganization

has been particularly evident in the real estate field. In a number of

these cases the Commission has felt that a sale of the property would

be more beneficial for creditors than a plan involving exchange of

securities. The legal basis for plans involving sales is derived from

Section 216 (10) of Chapter X and has been affirmed in several cases.

In the leading case of In re Lorraine (]{JlftleApartments Buildilng

Oorp., 1M., the Commission was an active participant in supporting

the power of the Chapter X court to approve a plan providing for a

sale of all of the debtor's property,"

Consummation of Plan

The Commission also gives its attention to the drafting and preparation of corporate charters, by-laws, trust indentures, and other instruments which are to ~vern the internal structure of the reorganized

debtor. The Commission strives to obtain the inclusion of various

provisions in these instruments which will assure to the investors a

maximum of protection, adequate information with regard to tht

enterprise, and a fair voice in the management. The Commission has

generally opposed the control device of "a voting trust except when its

use has been justified by the special circumstances of the case and,

when adopted, the Commission has sought to have the voting-trust

agreement contain ~ppropriate provisions in the interests of the

investors, __

ADVISORY REPORTS

. Although the preparation of an advisory report is not the major

part of the activity of. the, Commission in any particular easel such

reports, because of their WIde distribution, form one of the primary

"In nl Lorraine olUne Apartments Building Oorp.,Inc., 1.49 F. (211) 55 (C. C. A. 7, 1945),

eert: den. October fl. 19'5.

-

"
92 SECURITIES AND EXCHANGE COMMISSION

means of contact between the Commission and the public inChapter X

matters. Generally speaking, an advisory ~e'port is prepared only

in connection with a proceeding involving significant problems and a

relatively large company in which the investing public has a

substantial interest.

Even though the Commission does not file a formal advisory report,

it does, in all cases in which it is a participant, advise the court of its

opinion with respect to any plan of reorganization under consideration

by the court. . After the trustee has filed a plan, the customary procedure calls

for a-hearing at which this plan and any other plans that may have

been proposed are considered. At this stage of the proceeding, the

attorneys representing the Commission are concerned primarily with

getting into the record sufficient data (1) to enable the judge to decide whether any proposed plan is worthy of consideration and (2) to

supply the factual basis for the report of the Commission. 1£ the

judge finds one or more of the plans worthy of consideration, it 'or

they may be referred to the Commission for report.

An advisory report provides the court with an expert independent

appraisal of the plan indicating in detail the extent to which, in the

opinion of the Commission, it meets, or fails to meet, the standards

of fairness and feasibility. After the report is filed and copies are

made available to the parties who have appeared at the proceedings,

the judge considers the approval, modification, or disapproval of the

plan. If.the judge approves the plan, it goes to the security holders

for acceptance or rejection accompanied by a copy of the judge's opinion and a copy of the report of the Commission, or a summary thereof

prepared by the Commission. The report of the Commission, therefore, while not binding, aids both the judge and the security holders

in determining whether or not to approve a plan.

During the fiscal year the Commission prepared a formal advisory

report and a supplemental advisory report with respect to plans of

reorganization in proceedings involving Ohicago Railways 00.,

Ohicago Oity Railway 00., Oalwmet and South Ohicago Railwa'l/ 00.,

and Ohicago Rapid Transit 00. In its advisory report the Commission

concluded that the plan proposed by the city of Chicago, pursuant

to which the city was to bid for the Chicago surface lines' traction

properties a minimum price of $75,000,000, was not fair, but could

.ve made fair if the city waived its claim to a $5,21>0,000"City Compensation Fund," if it permitted the constituent companies to retain

net earnings up to the date of actual transfer of the properties, and

if the proceeds of the sale were reallocated among security holders

along lines suggested by the Commission in order to satisfy the

absolute priorities doctrine. The Commission also concluded that the

upset price ?f $12,162,500 for th~ properties of Chicago Rapid T~ansit

Co. was fair. Thereafter the plan was amended by the Chicago

Transit Authority, as assignee of the city of Chicago, so as to adopt

substantially the recomm,endations of the Commission's advisory report. In a supplemental report the Commission concluded that the

amended plan was fair. The plan has been approved by the court,

accepted by security holders and confirmed. _Appeals have been taken

by certain junior security holders from the order of approval and Confirmation and they are presently pending. .
TWELFTH ANNUAL REPORT 93

The Commission also prepared a formal, advisory report with respect to a plan of reorganization in the proceeding involving The

Rocky Mountain Fuel 00. The Commission took the view that the

plan was feasible and would be fair if it were amended to disclose

to bondholders the-extent of the powers of the new board of directors.

The plan was amended in accordance with the Commission's suggestion and approved by the court.

The plan of reorganization in the latter case provided that certain

bondholders, who had not assented to a prior voluntary plan for

reduction in interest rate and extension of maturity of the bonds,

should be paid an amount in cash equal to the reduced interest payments which had been made to assenting bondholders for a number

of years before the Chapter X proceeding. This provision was intended to accord equal treatment to the holders of both assented and

nonassented bonds because it was felt that such treatment was proper

and equitable. In its advisory report the Commission approved the

proposed treatment, pointing out that under the terms of the indenture, under the applicable State law, and under general equitable principles the assenting bondholders should not be subordinated to nonassenting bondholders but that, on the contrary, the plan was fair

and equitable in providing for parity of treatment of all bondholders.

Certain nonassenting bondholders appealed from the orders approving

and confirming the plan, contending that they were entitled to a priority over assenting bondholders as to principal and interest. The

Commission supported the plan before the circuit court, which affirmed the orders approving and affirming the plan of reorganization."

"Scherk v. Newton (In "0 Rocky Mountain Fuel 00.), 152 F. (2d) 747 (C. C. A. 10,

1945).

,

PART V

ADMINISTRATION OF THE TRUST INDENTURE ACT

OF 1939

The Trust Indenture Act of 1939 outlaws the exculpatory clauses

used in the past in trust indentures underlying corporate debt securities. Many of these clauses eliminated liability of the trustee for misconduct to such an 'extent that the word "trustee" was -meaningless as

applied to indenture trustees. The Act is designed to insure that the

trustee will act in the interest of the bond or debenture owners and to

insure his complete independence of the issuer and the underwriters.

To secure 'its objectives, the Act requires that bonds, notes, debentures,

and similar debt securities publicly offered for sale, sold, or delivered

after sale through the mails or in interstate commerce, except as specifically exempted by the Act, be issued under an indenture which

meets the requirements of the Act and has been duly qualified with the

Commission. The provisions of the Securities Act of 1933 and the

Trust Indenture Act of 1939 are so integrated that registration pursuant to the Securities Act of 1933 of securities to Deissued under a trust

indenture is not permitted to become effective unless the indenture

conforms to the requirements expressed in the Trust Indenture Act

of 1939, and such an indenture is automatically "qualified" when registration becomes effective as to the securities themselves. An application for qualification of an indenture covering securities not required

to be registered under the Securities Act of 1933, which is filed with

the Commisson under the Trust Indenture Act of 1939, is 'processed

substantially as though such application were a registration statement filed pursuant to the Securities Act of 1933. - ,

Statistics of IiIdentures QoaIijed

The number of indentures filed with the' Commission during the

year for qualification under the Trust Indenture Act of 1939, together

with the disposition thereof and the amounts of indenture securities

involved, are shown in Tables I and II below and the totals in

Table ill.

TABLE I.-Indentures fUed in connection with regi8tratwn statements

under the Securitiel} Act of 19S3

Number Amount oj otJering

Indentures pending at ;rune 30, 1945 '-___ 19 $467, 718, 500

Indentures filed during the year -' 122 2, 754, 000, 800

Total to be accounted for 141

Indentures qualified__________________________________ 123

Principal amount reduced by amendment;

Indentures deleted by amendment or witbdrawn_______ 5

Indentures pending at ;rune 30, 1946___________________ 13

Total accounted for 141

3,221,719.300

2,900,189,000

5,825,000

42,000,000

274,205,300

8,221,719,800

95

-

_
96 SECURITIES AND EXCHANGE COMMISSION

Indentures pending at June 30, 1945________________________ 3

Indentures filed during the year 10

TABLE n.-Applications filed for qualitkations of indenture8 covering securities

not required to be regi8tered under the securtue« Act Of 1933

Amount Number of offering

$4,330,500

83,938,158

Total to be accounted for:- 13

Indentures qualified 13

Indentures pending at J!1ne 30, 1946______________________ 0

Total accounted for 13

88,268.658

88,268,658

88,268,658

TABLE IlL-TotaZ number ot indenture8 (iZed under the Trust Indentut"e Act ot

1939 Number

Indentures pending at June 30. 1945________________________ 22 Indentures filed during the year 132

Total to be accounted for 154

Indentures quallfied 136

Principal amount reduced bJ' ameudment.,

Indentures deleted by amendment or withdrawn______________ 5

Indentnres pending at June 30, 1946________________________ 13

Total accounted for 154

Amount Of offering

$472,049,000

2,837,938,958

3.309.987,958

2.988.457.658

5,325,000

42,000,000

274.205,300

3,309.987.958

During the year the :following additional material relating to trust

indentures was pled and examined for compliance with the appropriate

standards and requirements:

5 indentures as to which the Commission, under its authority granted by the

Public Utility Holding Company Act of 1935, applies the standards of the Trust

Indenture Act of 1939 as a measure of the provisions of an indenture although

such indentures may be exempted from the Trust Indenture Act;

151 trustee statements of eligibility and qualification under the Trust Indenture Act of 1939;

51 amendments to trustee statements of eligibility and qualification.

118 Supplements S-T, covering special items of information concerning indenture securities registered under the Securities Act of 1933;

51 amendments to Supplements S-T;

41 application for findings by the Commission relating to exemptions from

special provisions of the Act;

300 annual reports of indenture trustees pursuant to Section 313.

For a discussion of certain problems under the Trust Indenture

Act dealt with by the courts during the fiscal year see the comment

infra, at p. 105 on Oontinental Bomk ana T1'U8t00. v, First National

Petroleum-Trust;

~

_
PART VI

ADMINISTRATION OF THE INVESTMENT COMPANY ACT

OF 1940

The Investment Company .Act of 1940 requires the registration and

provides for the regplation of investment companies, which are, generally, companies engaged primarily in the business of investmg,

reinvesting, owning, holding, or trading in securities. The Act requires, among other things, disclosure of the finances and of the investment policies of these companies, to afford investors full and complete information with respect to their activities; prohibits such companies from changing the nature of their business or their investment

policies without the approval of the stockholders; bars persons guilty

of security frauds from serving as officers and directors of such companies; prevents underwriters, investment bankers, and brokers from

constituting more than a minority of the directors of such companies;

requires management contracts in the first instance to be submitted to

security holders for their approval; prohibits transactions- between

such companies and their officers and directors and other insiders

except on the approval of the Commission; forbids the issuance of

senior securities of such companies except in specified instances; and

prohibits pyramiding of such companies and cross ownership of their

securities, The Commission is authorized to prepare advisory reports. upon plans of reorganizations of registered investment companies upon request of such companies or 25 percent of their stockholders and to institute proceedings to enjoin such plans if they are

grossly unfair. The .Act also requires face-amount certificate companies to maintain reserves adequate to meet maturity payments upon

their certificates. '

Summary of Activities

During the past year the Commission in its administration of the

.Act concerned itself primarily with the disposition of the applications

filed pursuant to various provisions of the Act, There were 70 such

applications pending at the beginning of the year and 90 additional

ones filed during the year; 100 were disposed of in the course of the

year, and 60 were pending at its close. These applications are classified below, together with an indication of the-disposition made of them.

It should be, noted that the detailed figures in this summary are not

totaled for the reason that some applications involved more than one

section of the Act,

97

722108-47-8
.98 SECURITIES AND EXCH4NGE COMMISSION

Nature ana aiSposition of various applications f/,led unaer the Investment

Oompany Act ot 1940-f/,8caZ year 1946

- Number Filed Number

Section of tbe Act under which application was filed pending during Disposed 'Ofduring pending

at June year at June

30, 1941i year 3O,1~

2 (a) (9)•. Determination of question of controL._._ .• 4 2 5 withdrawn_.: 1

3 (b) (2) .. Determlnatlon that applicant is not an 4 5 J granted .

investment company. 1 withdrawn 7

6 (b) ----Emrcloyees' security company exemr.tions .. ....... ii- 2

-i6'gmntecC::===== 2 6 (e). . Var ous exemptions not speeineal y pro- 25 16 vided for by other sections of the act. 1 denied ... _.

3 wtthdrawn.; •.

6 (d); •.... Exemption for small closed-end investment 1 .. .r. --.. -_ ..-_ ..---_ ..........- 1 companies offering securities m mtrastate commerce.

8 (t) _.Determinatlon that a registered investment 10 19 17 granted ..• .... 8 company has ceased to be an investment 3 withdrawn •.•... company.

9 (b) Exemption of ineligible persons to serve as 37 ---~-.....- 11 granted .. 13 officers. direetors, etc. 13 dismissed •..••.. 10 (t).... _.Exemption of certain underwriting trans. 3 2 granted . 1 actions.

11 (a)"h--A~l:::1 of terms of proposed security ex- 2 -----.-- 1 dismissed, .. .. _. 1

offers. 17 (b); Exemption for proposed transactions be- 5 28 Iligranted, .. ._ 16 tween investment company and affiliates. 1 dismissed ... .. _. 1 WIthdrawn .• 17 (d) Approval of certain bonus, profit-sharing, 14 11granted 2 and pension plans. 1 withdrawn •. .

23 (c) (3)._ Terms under which closed-end investment 1 10 1 granted, ••. 1

company may purchase its outstanding

securities.

New Rules Adopted Under Investment Company Act of 1940

Adoption of Rule N-17D-l: On February 6, 194:6,the Commission

adopted a new rule under the Investment Company Act of 1940 J;.egarding bonus, profit-sharing and pension plans provided by reg-.

istered investment companies and theii controlled companies for directors, officers and other affiliated persons. The rule provides that

prior to the submission of any such plan to security holders for approval, or if not so submitted prior to the adoption thereof, an application regarding the plan shall be filed with the .Oommission and

the Commission be given 10 days to scrutinize the plan and determine

whether or not a hearing should be held thereon. The purpose of

the rule is to protect registered investment companies and. their controlled companies and the security holders of such companies against

contributions to such plans on an unfair and inequitable basis. The

rule provides that the Commission will, in passing upon such applications, be guided by the standards contained in the various pertinent

Sections of the Act. .» ,

The type of situatiou-which Rule N-17D-l was designed to meet

is illustrated by the following case: The management of a group of

closely affiliated investment companies proposed that each investment

company in the group adopt an " 'employees' incentive profit-sharing

plan and trust." The proposed profit-sharing plan provided that

each investment company should contribute the lesser of (a) 15 percent of the available profits of the investment company or (b) an

amount which represented three times the contributions made by

officers or employees. This latter amount was to be cumulative, provided that in any 1 year the investment company should not contribute

more than 15 percent of its available p:ofits. The employee eontri-

••• _____• ___

______

••

__ __ __ __•

__ ___ -

•••• __

•••• ___ ____ __

• ---------- __ ____ __

_

••••• __ __

_

____ ______ ---------- _________

___ ______
TWELFTH ANNUAL REPORT 99

bution,~ fixed at an amount each employee might elect which would '

'Constitu'U not less than 2 percent nor more than 5 percent of the

salary received by such employee during the year in which the contribution' was made. The proposed profit-sharing plan made no provision for the payment of dividend arrearages prior to contributions

to th.e profit-sharirig ,plan, although at least one of the investment

companies involved had dividend arrearages outstanding on its preferred stock. The plan also permitted officers and employees to include unrealized gains on securities as "profits" for the purpose of

calculating the company's contribution to the plan. After consideration of the provisions of Rule N-17D-l, the management determined

not to submit the proposed profit-sharing plan to the Commission

under the Rule, and the plan accordingly was abandoned.

Adoption of Rule N-28B-l: On June 7, 1946, the Commission

adopted an additional rule under the Investment Company Act of

1940 which authorizes real estate loans partially or wholly guaranteed under the Servicemen's Readjustment Act (the so-called GI bill)

as qualified investments for face-amount certificate companies. Such

companies are authorized to invest only in investments of a kind

which life insurance companies are permitted to invest in under the

provisions of the Code of the District of Columbia, and such other

investments as the Commission may authorize as qualified investments. Insurance companies are not authorized by the Code of the

District of Columbia to invest in Ioans guaranteed under the GI bill

but are so authorized by the GI bill itself. The effect of the new rule

is to extend a similar authorization to face-amount certificate

companies. .

Statistics Relating ~oRegistered Investment Companies

At the beginning of the year, 366 companies were registered as investment companies under the Act. During the year 13 additional

companies became registered,' while the registration of 18 companies

was terminated and there remained 361 companies registered at the

close of the year. The assets of these 361 companies aggregated approximately $3,750,000,000. The comparative number of documents

filed under the Act during 1945 and 1946 fiscal years and certain

other relevant statistics are shown below:

Registered investment companies Ji'iBcal year

18f6 19f6

366 371

13 14

18 19

361 366

13 14

12 8

31 26

213 235

26 41

780 768

no 671

Number of registered investment companies: Beginning of year. Ilegistered during year

Terminations of registrations during year

Number of companies registered at end o~year

Notj.ficationsof reglstration Ilegistration statements

Amendments to registration statements Annual reports

Amendmentsto annual reports Quarterly reports

Periodic reports containing financial statements to stockholders__ J.=teportsof repurchases of securities by closed-endmanagement

companies 110 Copies of sates literature 1,752

:Applicationsfor exemptionfrom various provisions.9f the AcL___ 71

134

1,489

41

~ _

_

_

_

~ _

_

_

_

_ ' _

~-------------------------- __----
100 SECURITIES AND EXCHANGE COMMISSION

Registered investment companies-Continued

Applications for>determination that appltcant has ceased to be an investment company

Amendments to applications

Total applications: Pending at beginning of year ~led during year

J)isposed Df during year

Pending at end of year

F~alllear

19(". 1945

19 18

45 35

70 70

90 59

100 .59

60 70

Civil Actions Instituted under the Investment Company Act of 1940

In S. E. O. v. Diversified Fund Oorp., Humberto Moreno, et al.l

the Commission obtained a judgment enjoining Moreno from acting

as trustee of Diversified Fund Shares, a trust fund registered as an

investment company and sponsored by Diversified Fund Corp. Diversified Fund Corp. was also enjoined from serving or acting as investment adviser, principal underwriter or depositor of Diversified

Fund Shares. A, receiver was appointed for the assets of both the

trust fund and the sponsor corporation to hold the property and assets

of the corporation subject to the order of the court for liquidation

and distribution.

1U. S. D. C., N. M., April 29, 1946. The complaint charged defendants Moreno and

Diversified Fund Corp. with gross abuse of trnst in that they failed to comply with appli- cable provisions of the Investment Company Act of 1940 in suspending the right of redemp- tion and in restricting the transferability of securities issued by the corporation, in failing to have its securities verified by independent public accountants, and in falling to maintain

and preserve records regarding transactions with the trustee of Diversi1led Fund Shares.

_

_

_

_

~ _

_
PART VB

ADMINISTRATION OF THE INVESTMENT ADVISERS

ACT OF 1940

The Investment Advisers Act of 1940 requires the registration of

investment advisers: persons engaged for compensation in the business of advising others with respect to securities, The Commission

is empowered to deny registration to or revoke registration of such

advisers if they have been convicted or enjoined because of misconduct in respect of security transactions or have made false statements

in their applications for registration. The Act also makes it unlawful

for investment advisers to engage in practices which constitute fraud

or deceit; requires investment advisers to disclose the nature of their

interest in transactions executed for their clients; prohibits profitsharing arrangements; and, in effect, prevents assignment of investment advisory contracts without the client's consent.

Investme.nt advisers' registration statistics, year ended June 30, 1946

Effective registration at close of preceding fiscal year :__________ 780

Applications pending at close of preceding fiscal year 9

Applications filed during fiscal year .,.___________ 139

928

Registrations canceled or withdrawn during year_______________________ 61

Registration denied or revoked during 'year 1

_"pplications withdrawn during year___________________________________ 1

Registrations effective at end of year__________________________________ 853

AilPUcations pending at end of year____________________________________ 12

In a proceeding brought by the Commission against Investment

Registry of America, Ina. for the revocation of its registrations as a

broker-dealer and investment adviser, the Commission branded as

"outright and crude" some of the frauds Committed by this firm as a

broker-dealer in transactions with its customers, and revoked its reg-:

istration as a broker-dealer upon a finding that the firm's practices

violated the anti-fraud provisions of the Securities Act of 1933 and the

Securities Exchange Act of 1934. The practices involved taking secret

profits and using customers' free securities. The connection between

such frauds on customers and the devious methods deliberatelv employed by its officers and directors to extricate the firm from and. conceal its financial difficulties was underscored by the Commission.

The firm was also in the business of investment adviser and manv

of its customers had agreed to pay the firm a fee for its "selection" of

securities for their portfolios. This fee was 5 percent of the purchase

price, or less if so reduced by agreement. The firm, however, by

taking secret and unauthorized profits, made charges to these customers

as high as 9 percent, concealing these excessive charges by putting

101
-'

102 SECURITIES AND EXCHANGE COMMISSION

on its confirmation slips the phrase, "Includes I. R. A. charges," a

device held by the Commission to be plainly misleading and obscure.

The firm's application for registration as an investment adviser stated,

in part, that the firm gave unbiased investment advice to clients and

that its contracts provided for a maximum fee of 5 percent for the

selection of securities, representations patently false. The Commission found that the firm had, by failing to amend its application,

willfully violated Section 207 of the Investment Advisers Act and

revoked its registration as an investment adviser. -
PART vm

OTHER ACTIVITIES OF THE CO~SSION UNDER

VARIOUS STATUTES

THE COMMISSIQN IN THE COURTS

CivilP~g8

A complete list of all instances in which the Commission appeared

before a Federal or State court, either as a party or as amicus curiae,

during' the fiscal year, and the status of such cases at the close of the

year, IS set forth in Appendix Tables 19 and 24 to 34:.

Summarizing' these tables it appears that at the beginning of the

fiscal year 18 injunctive and related enforcement proceedings instituted by the Commission were pending before the courts, in connection

with fraudulent and other illegal practices in the sale of securities,

26 additional proceedings were instituted during the year, and 22

cases were disposed of, ,?O that there remained 22 of such proceedings

pending at the end of the year. In addition.jhe Commission participated in a large number of reorganization cases,' in 24 proceedings

in the district courts under Section 11 (e) of the Holding Company

Act, and in 12 suits as amioue curiae to advise the court of its views

regarding the construction of provisions of statutes administered by

the Commission which were involved in private law suits. The Commission also participated in 50 appeals, exclusive of those involved

in reorganization proceedings. Of these, 28 came before the courts

on petition for review of administrative-orders, 5 were appeals in

actions brought by or against the Commission, 4: were appeals from

orders entered pursuant to Section 11 (e) of the Public Utility Holding

Company Act, and 13 were miscellaneous appeals.

The issues before the courts related chiefly to apparent or threatened

violations of the Securities Act of 1933 and the Securities Excha~e

Act of 1934:,to applications to carry out voluntary plans of compliance with the corporate integration and simplification provisions of

the Public Utility Holding Company Act of 1935, to the fairness and

feasibility of plans of reorganisation, and to constructions of the

,Trust Indenture Act and Investment Company Act. Most of these

cases have been discussed in detail in other portions of this report in

.conneetion with the particular statute under which the action originated. There will be discussed below certain of the significant decisions of general application and interest, which have not been

treated elsewhere-in the report, including the amicus curiae cases.

During the year the Supreme Court decided, in S. E. O. v. H owey,2

that a contract for the sale of land devoted to the cultivation of citrus

f[0ves, when coupled with a contract to service the groves, was an

investment contract," and therefore constituted a security within

the meaning of the Securities Act of 1933. The defendant, wlio sought

,; See p, 81, .upra. . , 66 Sup. Ct. 1100 (1946).

103

-
104 SECURITIES AND EXCHANGE COMMISSION

to secure public investment in this enterprise without complying with

. the registration provisions of that Act, was enjoined from doing so.

The case, though it dealt. with only 0I!e ~ype of si~u.ationiis nevertheless of vast importance III the Commission's administration of the

Securities Act. It upholds the Commission's power to reach investment schemes involving securities which are masked under a variety

of forms-such as :purported sales of commodities and realty.

S. E. O. v, Penfield 00. of Oalifornia,s now pending before the

Supreme Court on petition for certiorari, illustrates, irrespective of'

the issues presented by that petition, a difficulty which the Commission may encounter as a law enforcement agency owing to the time involved in the necessary steps for judicial enforcement and review of

administrative subpenas. While the Penfield litigation is still pending, the enforcement problem it presents merits full treatment herein.

The extensive litigation there involved related to the Commission's

efforts to examine certain documents in the course of an investigation

into the sale of securities alleged to have been made by means of untrue statements of material facts and without registration. Under

the Securities Act the Commission is authorized to issue subpenas "for

the :purpose of all investigations which, in the opinion of the Commission, are necessary and proper for the enforcement of this title."

It has similar broad powers of Investigation and subpena under other

statutes administered by it. These statutes thus contemplate inquiries by the Commission into possible criminal violations similar to those

which a grand jury would otherwise have to undertake. This parallel

to the grand jury function has been recognized by the Supreme Court.

Nevertheless, as illustrated in the Penfield case, there is always danger

that litigation delays may prevent the completion of an administrative investigation in time to permit prosecution before the statute

of limitations has become a bar. We do not, of course, wish to suggest that the Federal courts are unaware of the problem.'

The order and supplemental orders directing the investigation were

issued May 14, 1942~February 8, 1943, and April 8, 1943. The first

subpena duces tecum issued by the Commission was ignored and the

Commission was obliged to apply to the district court for an enforcement order. A.s a result of the disclosures revealed under this subpena, the supplemental orders were entered expanding the Commission's investigation and a new subpena duces tecum was served upon

one of Penfield's officials, requiring the production of specified items

contained in Penfield's books and records. Since Penfield also refused to comply with this subpena, the Commission was again obliged

to resort to a Federal district court for its enforcement. The district

court issued its order directing compliance with the subpena on June

1,1943. An appeal followed to the Ninth Circuit Court of Appeals,

which affirmed the action of the district CO~'f Def~ndaD;t then petitIOned to the Supreme Court for and was denied certiorari. In spite

"- F. 2d -, 15 U. S. Law Week 2050 (1946).

See B. E. O. v. Vacuum Oan Oo., F. (2d) (C. C. A.. 7, 1946), where the court sum- marily dismissed au appeal tram a subpena entorcement order characterizing It as "clearly without merit," and "taken tor delay only." See also the various recent decisions at the

Supreme Court dealing with the scope, as distinguished tram the time tactor, of judicial review at administrative aubpenas Which have Indicated that a relevant Inquiry wUl not be

curtailed by attempts to tryout first In court the very Issues at tact which It ISthe purpose at the administrative Inquiry to determine. As Mr. Justice Frankfurter stated In Oobbledwk

v, U. 8., 309 U. S. 323, 325 (1940), "to be e1fectlve, judlclal admlnlstratlon must not be

leaden-tooted,"

~ • - -
TWELFTH AN¥UAL REPORT 105

of the judicially recognized lack of merit in the contentions advanced

by defendant the subpena was not obeyed, even after the mandate

was spread upon the record of the district court. Consequently, on

January 24, 1945, the Commission instituted civil contempt proceedings against the. defendant. While this litigation was in progress,

it was deemed necessary in view of the statute of limitations problem

to submit the case to a grand jury prior to completion of the investigation and the Penfield Company and several of its officials were,

indicted," , .

Due to the pendency of this indictment the court, in the contempt

proceeding, expressed doubt as to whether the Commission was entitled to obtain the evidence requested until after the conclusion of

the criminal trial because that evidence might be used by the Government. Accordingly, the court postponed determination of the issue.

'The matter finally was heard on July 2, 1945, on which date the

defendant was adjudged to be in contempt. The court, however,

refused to grant a remedial decree calculated to coerce production of

Penfield's books and records. Instead it ordered defendant to "pay

a fine of $50, and stand committed until paid." Since such an order

did not enable the Commission to obtain access to the documents, an

appeal was taken. The circuit court reversed, ordering the entry of a

coercive decree, and the petition for certiorari takes exception to , that decision. Thus, more than 4 years after the original order of

investigation the Commission still seeks access to the documents it

needs for its investigation.

The scope of the injunctive power granted in Section 36 of the

Investment Company Act was subjected to judicial review in Aldred

In'IJestment Trust v. S. E. 0.6 In that case a securities broker and

some associates purchased the equity in a registered investment trust

for a nominal sum-at a time when outstanding debentures were almost

'three times the market value of the securities in the -portfolio and

proceeded to manage -the trust for their personal profit. They invested a large portion of the funds in a speculative enterprise, a race

track, and installed themselves as officers of both the trust and the

race track at excessive salaries. Upon application of the Commission

the broker and his associates were enjoined from continuing in the

management of the trust and a receiver was appointed.

In the first case to involve a construction of provisions of the Trust

Indenture Act, Oontinental Bank ill Trust 00. of N. Y. v. First

National Petroleum Trust.'. the Commission filed a brief omicue

curiae expressing its interpretation of the Sections involved. The

action was brought by an indenture trustee against the issuer to recover certain items of alleged overdue interest and certain charges

and expensesincident to the action alleged to be owed by the issuer.

The issuer set up as an affirmative defense the fact that the holders of

a majority in principal amount of the debentures had directed the

plaintiffs not to bring suit before July 1, 1947, and that Section 316 of

the Trust Indenture Act, which had served as the basis for one of the

provisions of the indenture, permitted the vote of a majority of debenture holders to determine when suit for these items could be brought.

The indictment ultimately was dismissed all to several of the defendants; the remaining defendants were acquitted. "151 F. (2d) 254 (C. C. A. I, 1945). eert, denied. 326 U. S. 795 (1946). 1_ F. SuPP. P946)."

-
106 SECURITIES AND EXCHANGE COMMISSION

The Commission took the view that a proper construction of Sections

31~~317arid 318of the Trust Indenture ~ct prohibited !J?eimpairment

of the right of a debenture holder to recerve payment of mterest unless

(1) 75 percent of the debenture holders consented to a postponement in

the payment', and (2) a provision of the.indenture stated that such a

postponement might be so obtained. The court entered judgment for

the plaintiff, sustaining the Commission's construction of the statute,

and finding there was neither the requisite 75 percent consent to the

postponement of payment nor a provision in the indenture authorizing

the granting of such consent. . Two actions during the year involved a construction of Section 14

(a) of the Securities Exchange Act of 1934. In one, 8. E. O. v, TraruJamerica, 8 the Commission brought suit to restrain the defendants

from using proxy materials obtained. as a result of solicitations which

.did not include proposals which a minority stockholder, 'pursuant to

the Securities Exchange Act and the Rules promulgated thereunder,

desired to bring before the annual meeting. The minority stockholder

sought amendments to the corporate bylaws and resolutions (1) to

permit the stockholders to amend the bylaws at any annual meeting

without the requirement that such proposed amendments be contained

in the corI?orati.on's not.ice of m~tin~; ~2) to cause !l~ual meetings

to be held in San FranCISCO,'California, instead of WIlmmgton, Delaware; 9 (3) to cause auditors to be elected by the stockholders and a

representative of the auditors last chosen to attend the annual meeting;

and (4) to require that an account of the proceedings at annual meetings be sent to all stockholders. The district court permitted the

proxies to be used for the election of directors on condition that the

meeting be adjourned to a subsequent date when such other matters

as it might decide were proper subjects for action by the security

holders would be considered. 'In the final judgment subsequently

issued the court sustained the right of the minority stockholder to

have the notice of the annual meeting include his proposal to amend

the bylaws insofar as independent public auditors were concerned and

enjoined the management from violating Section 14 (a) of the Securities Exchange Act and proxy Rules X-14A-7 and X-14A-2 thereunder

in any respect. After the close of the fiscal year, cross appeals' were

taken from the judgment of the-court to the Third Circuit Court of

A ppeals. In the other action which arose under Section 14 (a) , Wyatt

v. Armstr07l.fl,lO the New York Supreme Court sustained the Commission's contention that a proxy solicitation was defective which did

not disclose that the directors elected had agreed prior to the solicitation to resign in favor of another slate of candidates. .

Although, for the most part, the Acts administered by the Commission incorporate specific statutes of limitation, the nghts which

these Acts create sometimes give rise to equitable remedies for

which no limitation. is prescribed. ~t had been decided, in

Guaranty Trust 00. v, York,ll that when a State-created equitable

action was instituted in a Federal court, due to the diversity of citizen-

'ship of the parties, the statute 'of limitations prescribed by the State

was to be applied. In HoltmlJerg v; A'l"TTlbreah:t,ntheQ?~~Qn

-Civil Action No. 861, Untted States Dtstrlct Court for the Dlatrlct of Delaware."

'l.The management voluntarll)- amended the bylaws to co~ply ~l! this, xil\oposaL 59 N. Y. Supp. (2d) 502 (1945). , ,_ . u326 U. S. 99 (1945). . n327 U. S. 892 (1946). .

-

-

-
-,

TWELFTH ANNUAL REPoRT 107

appeared be~ore the Supreme Court as amicue curiae to urge that when

the jurisdiction of the Federal court is based upon a federally-crea.ted

equitable right, the broader Federal doctrine should be applicable,

which provides that where a party has been injured by fraudulent

conduct, the bar of the statute of Iimitations does not begin to run

until the fraud is discovered. The Supreme Court, sustaining the

Commission, ruled that federally-created equitable riglits of action

could not be barred, irrespective of State statutes of limitation, where

delay in bringing suit was attributable to the fraud of the defendants.

Four cases which were litigated during the period covered by

this report concerned constructions of Section 16 (b) of the Securities

Exchange Act of 1934. Under this Section any profit secured by

officers; directors, and principal owners of equity securities in corporations registered on a national securities exchange as a result of purchases and sales of their corporation's securities within a 6-month

period, inures to the benefit of the corporation. The actions, as the

statute contemplates, were instituted by private litigants. However,

the Commission appeared in each case as amicus curiae to urge that

construction of the Section which it deemed best effectuated the intention of Congress in enacting the legislation. In one case, American Di8tilling 00. v. B.rown,1.8 the New York Court of Appeals refused to assume jurisdiction over the action on the ground that Section 27 -of the Securities Exchange Act conferred jurisdiction over

actions arising under that act upon the Federal courts only. This

was in accord with views expressed by the Commission. The two other

cases, Kogan v, Schiulte 14 and Pa:rk &: Tilford v. Schulte 15, involved

the conversion of preferred stock into common stock by a controlling

stockholder within 6 months of a sale of common stock by him. In

both cases the Commission contended that the conversion was a purchase within the 'meaning of Section 16 (b). The district court so

heldt and at the same time reaffirmed the constitutionality of that

Section upon the authority of Smolouie v. Delendo, 136 F. (2d) 231

(C. C. A. 2, 1943), oert. denied, 320U. S. 751. Kogan, a minority stockholder, was denied intervention in the Park &: Tilford case by the

district court but the-circuit court reversed this action." The Commission filed a memorandum in this case supporting the right to

intervene on the ground that there existed a community of interest

between the corporation and the defendant, an owner of a substantial

number of its shares, which might militate against a completely

adversary action.

In the other case, Grata v, OlaJughton,u which is still pending in

the district court. the defendant contested the venue of the actIOn~

which was 'laid ill the place -where the transactions occurred, and.

the Commission filed a memorandum in support of that venue. It

WJl.S the view of the Commission that the statute should be construed

to J?rovide as many alternative choices of venue as could reasonably

be-Implied from the language of the Act in order that the express

P\U'P0se of-Congress, ''to prevent" insider profits, might be realized.

Otherwise' a'stockholder might be faced with the burden and expense 1 ,_' ,-

11295 N. Y. 86 (1946).

1<61 F. SUDP. 604 (S. D. N. Y.• 19411). U CivU Action No. 28-458, United States District Court for the Southern District of New

York. An appeal is pendinll: to the Circuit Court of Appeals. U DecIsion without opinion rendered Mar. 23. 1946. Case No. 28-458 CC.C. A. 2. 1946). 1'1ClvU action No. 35-410. United States District Conrt for the Southern. District of

New York.

-

• • , ~

'

-
108 SECURITIES AND EXCHANGE COMMISSION

of litigating his cause of action in a forum distant from and unrelated to the place where the significant acts or transactions occurred.

Criminal Proceedings

The statutes administered by the Commission provide for the transmission of evidence of statutory violations to the attorney general

who, in his discretion, may institute appropriate criminal proceedings.

As a matter of practice, the Commission, largely through its ten regional offices, thoroughly investigates suspected violations and, in

cases where the investigation appears to disclose a foundation for

criminal proceedings, prepares detailed reports of investigation which

are forwarded to the Attorney General. When it is decided to institute

criminal proceedings, the Commission assigns such of its employees as

have participated in the investigation to assist in the preparation of

the case for presentation to the grand jury, in the conduct of the trial

and in preparing briefs on appeal. Parole reports on offenders convicted also are prepared by members of the Commission's staff. Where

the investigation discloses violations of statutes other than those administered by the Commission, reference is made to the appropriate

Federal or State agency.

Up to June 30, 1946, in criminal cases developed by. the Commission,

indictments against 2,449 defendants have been obtained in 380 cases.

In the cases disposed of, convictions were obtained against 1,205 defendants. During the past year 15 indictments have been returned

against 45 defendants. Convictions IS were obtained against 32 defendants in 16 cases during the year."

In the criminal appeals decided during the past year judgments of

conviction were affirmed as to 14 defendants." One appeal was voluntarily withdrawn. There were no reversals of convictions.

The status of all criminal cases pending during the past fiscal year

is set forth in Appendix Tables 24 and 25.21 Some of the cases prosecuted during the past fiscal year are described below.

The types of fraud cases encountered during the past year are

extremely varied. These include fraud in the promotion of new

businesses and inventions; unlawful practices on the part of corporate officers; various frauds by broker-dealers; fraudulent whiskey

warehouse receipts promotions; failure to keep books and records as

prescribed by the statutes; and the filing of false financial statements

and annual reports with the Commission.

Charges of fraud and unlawful conduct on the part of brokerdealers figured prominently in the cases prosecuted during the year.

Among such cases was U. S. v. W. R. Hempstead and 00., et 01. (D.

R. I.) where it was charged, inter alia, that the company and three of

its officerssolicited and accepted customers' orders for the purchase and

sale of securities and deposits of money and securities without disclosing that the company was insolvent. The indictment also charged

that the defendants hypothecated the said securities and converted the

proceeds to their own use and benefit," A somewhat similar case was

developed by the Commission in U. S. v. Ed'lDin PaUl Woodman, et til.

(D. Mass.) resulting in a guilty plea by the two defendants involved

18 Including pleas of guilty or nolo contendere. 2J} Two of these cases are still open as to other defendants ...These appeals involved a total "offour cases. .. Appendix Table 29, part 2, relates to criminal contempt proceedings.

AIl defendants therein were eonvicted.

-

-

• •

'"
TWELFTH ANNUAL REPORT 109

at the conclusion of the trial U. S. v. M amwell and 00., Ino., et al.

(D; Mass.) involved the unauthorized pledging of customers' securities, the forgery of customers' checks, the forgery of signatures to assignments of customers' securities, and the printing and sale of spurious stock certificates and debentures,"

In U. S. v: Oharles J. Oallanan (D. Mass.) conviction was obtained

lor the conversion of customers' securities, the filing of false reports

with the Commission, and the failure to keep books and records as

required by Section 17 (a) of the Securities Exchange Act of 1943 and

the rules thereunder prescribed by the Commission as necessary and

appropriate .for the protection of investors. U. S. v. Glen J. Hildebrand (S. D. TIL).also involved the failure by a broker-dealer to keep

books and records as required by the Commission's rules, and resulted

in a plea of guilty.

Another broker-dealer case pending during the year was U. S. v.

Florida Bond and Share, t-«, et a. (S. D. Fla.). The indictment in

that case charged fraud predicated upon the sale of securities to uninformed customers at prices not reasonably related to the prevailing

market prices, without appropriate disclosure. After the close of the

fiscal year, on July 11, 1946, convictions were obtained against four of

the five defendants named in the indictment."

l}I U. S. v. Arthur Edwin Daye (S. D. Fla.) conviction was obtained

on a charge that defendant, representing himself to be a broker-dealerin securities, obtained securities from customers for the purpose of sale,

thereafter selling the same and converting the proceeds." A somewhat

similar fraud was charged in U. S. v. Arthur Briscoe Wilson (N. D.

TIl.) where a securities salesman converted to his own use the proceeds

of the sale of customers' securities, the possession of which he had

obtained through false representations."

A substantial number of the cases pending during the past fiscal year

involved charges of fraud in connection with the sale of interests in oil

properties. These were U. S. v. Frank V. Raynwnd (D. Md.) ; 27 U. S.

v. O. Milton Smith (S. D. N. Y.); 28 U. S. v. Norman Benson, et at.

(W D. Wis.) ; 29 U. £. v. Herman L. Schuh, et al. (E. D. Va.) ; 30 U. S. v,

Thomas P. Mulvaney, et oJ. (S. D. Iowa) ;31 and U. S. v. 8.tanley

etal.(S.D.N.Y.).32 . .

In the Raymond case' defendant was charged with employing 'the

"Ponzi" type of swindle, paying the purchasers of interests moil

lands purported "return~" on their investmen~ without disclosing tll,at

such funds were not derived from the operation of the properties but

in fact were a portion of the monies which the investors had paid to the

defendant.

A fraudulent "switch" scheme was alleged in U. S. v. Mark A. Freema:n, et al. (N. Div: E..D. TIL) which involved transactions in whiskey

.. One defendant pleaded guilty; the remaining two defendants were fonnd gullty after

trial.- .. Thi8 marks the third successful prosecution based on this type of fraud. Others were U. 8. v. Otto B. Dagg, et al. (W. D. Wash. 5.943), and U. 8. v, Guaranty Underwriters, Ino., et aI. (So D. FIB. 1944). as The indictment charged violation of the mall fraud statute (215 Federal Criminal Code).

Defendant pleaded nolo contendere, and was sentenced to 3 years' imprisonment . .. Defendant pleaded gnilty . .. Defendant pleaded guUty. .. Smith was sentenced to 6 months and placed on probation for 2 years npon expiration of sentence. Indictment nolle prossed as to other defendants.

"Benson was sentenced to 3 years' Imprisonment . .. Rending.

lI1Pendlng

.• Pending.•
110 SECURITIES AND EXCHANGE COMMISSION

warehouse receipts, The indictment charged that the owners of

whiskey warehouse receipts were induced to exchange them for bottling contracts with a corporation which defendants had organized.

It was charged that defendants had represented that the whiskey

could be bottled, rectified and sold for the investors, for which the

corporation would receive only a small fee, whereas in fact the defendants sold or hypothecated the warehouse receipts and converted

the-proceeds to their own use.S8 U.8. v. Frank L. Ryan. et al, (E. D.

N. C.) also involved fraud in whiskey warehouse receipt transactions, 84

An indictment charging violations of 'Section 10 (b) of the Securities Exchange Act of 1934 and Rule X-10B-5 thereunder, as well as

the mail fraud statute (Section 215 of the Federal Criminal Code) was

returned during the past year in U. S. v. Edgar M. Griswold (N. D.

Ohio) . It was charged that Griswold had defrauded various persons, principally tavern owners, in transactions relating to the stock

of a prominent distilling ~ompan:y. Whiskey purchase rights were

attached to the stock. Griswold, It was alleged, represented to purchasers that the stock would be worthless after the whiskey rights were

exercised and that it could not be retained by the purchasers after

such exercise. According to the indictment, Griswold, by virtue of

these false representations and his failure to disclose that the stock

had a market value of not less than $24 a share after exercise of~the

whiskey rights, was enabled .to obtain the stock for his own use and

in fraud of the original purchasers thereof. The case is now pending.

A "front money" scheme in which persons desirous of obtaining

capital for the financing of new businesses were defrauded was involved in U. S. v. Ooie O. Walker (N. D. Texas). It was charged

that Walker devised a scheme to defraud persons who could be induced

by false representations to.turn money over to him upon his promise

to arrange for the organization of corporations and to assist such

persons in the sale of the stock of such corporations whim organized.

Defendant was convicted on his plea of nolo contendere.

A conviction for fraudulent misrepresentations in connection with

the promotion of a new business was obtained in U. 8. v: Federal FyrEx, et al. (S. D. N. y.).Si'Also, during the past fiscal year a conviction was obtained in U. S. v. Liggett &; Myer8 Tobacco 00., et al.

(E. D. Pa.), for the making of false and ~~sleading statements in reports required to be filed under the Securities Exchange Act of 1934.

The indictment 'charged willful concealment in annual reports filed

under Section 13 of facts relating to the existence of a profit-sharing

plan for certain officers and employees of the company' other than

the president and vice presidents. The corporation was fined $10,000

upon its plea of nolo contendere.

Fraud by officersin connection with the management of a corporation was involved in the indictment returned in U. 8. v. Alfred 'Epstein; et al, (E. D. Mich.) 86which case is now pending.

In a number of cases Canadian mining company stocks were sold

to residen~ of the United States by persons residing in Canada who

.. Defendant-Freeman found guilty after trial and 'sentenced to 5 years; appeal pending.

Jury di6agreed as to five other defendlUlts who later withdrew their-pleas of not guUty and

pleaded nolo contendere. One defendant found not guilty on nolo .contendere plea. .Verdlct of not Inl1lty directed as to one other defendant. . . '.' II Four defendants eonv1ete<t. . .... . .' .. One defendant pleaded guilty and was sentenced to a term of 4 years' Imprisonment.

Two other defendants were aCQuitted. ; .:' .. The indictment charged violation of S'ect1on 215 of the Federal Criminal PMIe. (Mafl Fraud Statute). .'

~
TWELFTH ANNUAL REPORT -111

operate from. across the border without compliance with the statutes

of Uris country. The Commission has been cooperating with the State

Department and the Department of Justice in efforts to secure a

treaty with Canada- which would permit extradition of persons violating the Federal and State securities laws. The treaty was ratified

in the United States Senate in April 1942 but to date it has not been

ratified -by the Canadian Parliament. Numerous cases of this type

have been the subject of investigation by the staff of the Commission.

Indietments.have been obtained in-a number of these cases.

The criminal appeals decided -during the past fiscal year were:

U.8. V.Hugh J. Oarruiher«, 152 F. (2d) 512 (0. C. A. 7, 1945), cert,

denied, 66 S. Ct. 805 (1946), in which judgment oi conviction on

charges of fraudulent sales of securities of an alleged fraternal and

educational association was sustained; Frank Mansfield, et al v. U. 8.,

155 F. (2d) 952 (C. C. A. 5, 1946), where the court sustained the convictions of 11 defendants for fraud in the sale of interests in oil properties; U. 8. Y. George A. Earnhardt, et al., 153 F. (2d) 472 (C. C.'A. 7,

1946), oert, denied, 66 S, Ct. 1350 (1946), in which conviction on a

similar charge was sustainedj-and Zeszee G. Bowen v, U. 8., 153 F. (2d)

747 (C. C. A. 8,1946), cert. denied, 66 S. Ct, 980 (1946), sustaining a

conviction for fraud in the sale of securities in a new small

manufacturing enterprise.

COMPLAINTS AND INVESTIGATIONS

The Commission received during the year 7,669 items of mail concerned with alleged securities VIolations. This correspondence is

classified administratively as "complaint enforcement" correspondence.

This material constitutes one of the Commission's important sources

of information concerning possible securities violations, while investigations made by the Cominission's staff and contacts maintained with

other governmental (Federal, State, and local) or private agencies

provide additional sources of such mformation. Where it appears

on the basis of any such data that any securities violation may have

occurred, the Commission conducts appropriate investigations by

means.of correspondence or the assignment of cases to field investigators 19 ascertain the facts of the particular case. The extent of these

investigatory activities of the Commission during the past lear, under

the Securities Act of 1933, the Securities Exchange Act 0 1934, Sections 12 '(e) and, (h) of the Public Utility Holding Company Act of

1935, the Investment Company Act of 1940, and the Investment Advisers Act of 1940, is reflected in the followmg table:

-IntJe8tigations Of securities violations 1

Preliminary' Docketed Total

Pending at June 30,1945________________________________________ 189

opelled New 1-1-45 eases to 6-30-46: --___________________ 156

Transferred from prellmlnary

Total number of casesto be acoounted for_._-------------- 3«

701

237

'.20

958

690

392

20

1,302

OlOl!lld

Tnmslened to docketed n_.

Pending atJune. 30. 1941l

6620 123

258 835

189

20 1,093

I These InVBStlgations of securities vioJatlona lnclnde tjle on and gas InVll8tlgation$ which are separately

tabulated and dJscnBsed InPart I of this report. , >

InvestIgations CllIl1'ied on throngh oorrespondenoe and limited lle1d work; .

I Investigations assigned to lle1d InVllBtlgatolB.

•

•

---------------- ----- --- ------- --------------

'__• ~ • - --- -- ----- ---- " _

~---------------

_

' • ~
112 SECURITIES AND EXCHANGE COMMISSION

To assist its continuing enforcement and registration activities, and .

to provide a further means of preventing fraud in the purchase and

sale of securities, the Commission has established a securities violations file, consisting of a clearing house of information concerning

persons who have been charged with violations of various Federal

and State securities statutes. This clearing house' has been kept

up-to-date during the past year, as in preVIOUSyears, through the

cooperation of the United States Post OfficeDepartment, the Federal

Bureau of Investigation, parole and probation officials, State securities commissions, Federal and State prosecuting attorneys, police

officials and other public agencies, members of the National Association of Better Business Bureaus, Inc., and members of the United

States Chamber of Commerce. By the end of the past fiscal year the

Commission had assembled in these files data concerning an aggregate

of 46,924 persons against whom Federal or State action had been

taken in connection with securities violations. During the past year

alone additional items of information relating to 3,706 such persons

were added to these files, including information concerning 1,146

persons not previously identified therein.

The extensive use made of this clearing house of information is

suggested by the fact that during the past year the Commission

received, in connection with its maintenance, 2,394 "securities violations" letters or reports (apart from those mentioned above which are

classified as "complaint enforcement") and dispatched 2,915 communications in turn to cooperating agencies. -'

ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING

The preparation, filing and, in some cases, other publications of

financial statements for the information of the investing public and of

the Commission is a fundamental requirement under the Securities

Act of 1933,the Securities Exchange Act of 1934, the Public Utility

Holding Company Act of 1935, and the Investment Company Act of

1940. To ensure the adequacy and reliability of such statements the

Commission is given, under each of these Acts, broad authority in

matters of accounting-including important :functions with respect

to the basis, form, and content of financial statements. In those

areas where specific rules arid regulations as to the methods' of

accounting to be followed are neither practicable nor desirable, guides

are found in accounting principles which have been recognized as

sound by professional accountants generally. In this area chief reliance for the protection of investors and the public therefore rests

largely in the administrative determination of the applicable accounting and auditing principles and procedures properly to be followed

in the preparation of financial statements.

This large segment of the Commission's accounting activities presupposes constant contact and cooperation between the Commission

and representative professional bodies and, in those cases where the

accounting issue is of considerable importance and has wide application, may result in the publication of Accounting Series Releases. It

would be difficult to express in quantitative terms the extent of the

Commission's treatment of accounting questions by these administrative means. However, a very large portion of the time of the accounting staff is spent in the discussion of such cases with registrants and
TWELFTH ANNUAL REPORT 113

their accounting and Iegal advisers. In addition, there is an overgrowing volume of inquiries as to propriety of particular accounting

practices being made by accountants, and by companies not presently

subject to any of the Acts administered by the Commission, who wish

to ascertain the Commission's policy in such matters and thus utilize

and apply the Commission's experience to the facts of their own case.

'The organization of the accounting staff of the Commission is

especially designed to facilitate informal consideration of accounting

matters. The Chief Accountant acts as the Commission's chief adviser

and consulting officer on accounting matters and has general supervision over the establishment and execution of Commission policy with

respect to accounting and auditing principles or practices. He is assisted directly by an assistant chief accountant and, in addition, an

assistant chief accountant is assigned to and directly responsible for

the examination of financial data and other accounting work in the

three operating divisions, namely, the Corporation Finance Division,

the Trading and Exchange Division, and the Public Utilities Division.

The majority of accounting problems arises as a result of examination of financial statements received. Where the examination of the

statements reveals that the rules and regulations of the Commission

have not been complied with or that applicable accounting principles

have not been followed, the examining division directs the attention

of the registrant to the deficiencies by letter. These letters of comment

and the correspondence or conferences that follow continue, as in the

past, to be a most convenient and satisfactory method of effecting corrections and improvements in financial statements. . \

Reconversion to Peacetime Activities and New Registrants

The past fiscal year has seen the cessation of hostilities and the lifting of wartime censorship and secrecy restrictions as they affected the

publication of financial information. The effect on financial reporting

of the termination of war contracts and the reconversion of business

to a peacetime basis was anticipated in the last annual report. That

report discussed the adoption in July 1945 of a program of quarterly

reporting of dollar amounts of sales and unfilled orders showmg separately sales made pursuant to war contracts. At the same time

immediate reports were required in the event of the termination of a

war contract the uncom~leted portion of which amounted to over 20

percent of the registrant s total sales for the previous fiscal year. This

program was designed to keep investors and the public abreast of

vital changes in the volume of business during the period of transition

from war production to peacetime operations."

The end of the war early in this fiscal year and the termination of

war contracts led to the recission of this reporting program and to

the adoption of a general program of quarterly reports of the volume

of business being done by most issuers having securities registered on

national securities exchanges." Prior to adoption, preliminary drafts

of the proposed new rule and report form were modified to reflect

comments obtained from technical an"d professional associations, governmental agencies, national securities exchanges, individual companies, public accountants, attorneys, and many other interested persons.

31 Securities Exchange Act Release No. 3718, July 23. 19411. as Securities Exchange Act Release No. 3808. :March 28. 1946.

722108-47-9
114 SECURITIES AND EXCHANGE COMMISSION

Of particular interest is the adoption of the suggestion that if the

registrant publishes or issues to its stockholders a quarterly report

containing the information required by the new rule, such report may

be substituted for information called for in the form prescribed.

Initially insurance companies, investment companies, common carriers,

and public utilities were exempted by the rule. Following discussions

with representatives of the sugar industry at the close of the fiscal year

the rule was amended 89 to exempt companies primarily engaged in the

production of raw cane sugar or other seasonal single-crop agricultural commodity since such producers ordinarily have no sales in two

or more of their fiscal quarters.

An important problem of the current year which was forecast in

our last annual report involves the proper disposition of war reserves

and the treatment of war costs, losses, and expenses recognized during

the year. Throughout the year extensive consideration was given by

corporation and public accountants as well as the Commission to the

question of the extent to which 'current repairs and maintenance, strike

expenses, inventory losses, loss on war facilities, and plant reconversion

expenses might properly be charged back against war profits, thus

relieving the current income account. In view of the wide diversity in

opinion as to the proper treatment of such items, the problems were

submitted for comment to a large and representative group of registrants, professional and technical associations, financial services,

accountants, attorneys, and others concerned. A substantial majority

concurred in the staff proposal to deal with the problem during this

transition period by requiring a specific form of disclosure in the

financial statements.

The rule adopted w therefore required that where war items are

excluded from the income account and carried directly to. surplus or

reserve accounts, the net aggregate amount so excluded IS to be set

forth following the net income for the period. The nature, amount,

and treatment of such items, including the tax effect of the treatment

employed, is to be explained. In addition, appropriate disclosure is

required of any substantial war Items included in the income statement. Finally, a statement is required of the principle followed in

classifying particular items as attributable to conditions arising out

of the war or its termination.

A second major problem arising from war conditions was precipitated. by the President's termination on September 29, 1945, of the

period for the tax amortization of war facilities. For tax purposes,

emergency war facilities acquired after December 31, 1939, under

certificates of necessity could be amortized over a 60-month period or

less if the President declared the emergency ended prior to the elapse

of 60 months. The result has been that many companies have kept

their books on this tax basis and as of September 30, 1945, wrote

their emergency facilities down to zero. For assets not largely

amortized this resulted in a substantial amortization charge in 1945,

often for facilities having continuing usefulness for peacetime operations. If this procedure is followed in the preparation of general

financial statements, one result is that subsequent balance sheets .may

be viewed as understated because of the omission of substantial and

.. Announced In Securities Exchange Act Release No. 3832, July 12, 1946. fO Accounting Series Release No. M, !larch 80, 1946.

,
TWELFTH ANNUAL REPORT 115

useful assets. At the same time postwar earnings will fail to include

a~y charges for the use of these assets, and to that extent may be

VIewed as overstated. This problem is being actively debated in

business and professional accounting circles and is the subject of continuing study and research on the part of the Commission.

Another development has been an almost unprecedented flood of

registration statements for the sale of securities to the public. Elsewhere in this report it is noted that over 750 registration statements

were filed during the fiscal year. Many of these were for companies

~ith previous .r~gistration experience taking advantage of current low

interest and dividend rates to refinance their bond and preferred stock

issues. Many companies, however, were seeking new capital for the

first time since the enactment of the Securities Act of 1933 and in

other cases security holders in closely held enterprises were seeking

to sell part of their holdings to the public. Even in the first group

experienced accounting executives and public accountants with extensive experience with financial statements filed with this Commission encountered unique and controversial accounting problems

largely of a war or reconversion origin. Of the latter group many

had never before been subject to the financial reporting standards of

a stock exchange or of a securities commission; hence, "both the companies and in many cases their independent public accountants had

to face many new problems.

Mention has been made in previous reports of the' extensive use

of informal conferences and correspondence as a means of dealing

with difficult accounting and auditing questions. These administrative procedures have long proved extremely effective as a means- of

arriving at solutions of novel or complex questions since they afford

an opportunity not only to arrive at a mutual understanding of the

facts but also to work out a solution properly protective of investors'

interests and agreeable to all involved. In the case of new registrants

these conferences have been particularly useful in advance of filing as

a means of obtaining compliance with sound accounting and dis-

.elosure principles, thus avoiding deficiencies and delay when the filing

is made. Because of their importance to the efficient administration

of the Securities Acts, it is appropriate to describe two typical informal

procedures of this kind. ' The' first illustration is a case which involved the propriety of a

company's method of apportioning against income the. loss in useful

value of its fixed assets. The company followed an inventory and

retirement method. While agreeing that the method had long ago

been discredited among industrial companies generally (among public

utility companies in more recent years), this industrial company contended that the method was appropriate under the particular facts of

its case. After the initial correspondence four conferences were held,

at three of which the company's independent public accountants were

present. The Commission, after careful examination of the facts and

of the contentions presented in a written memorandum from the company adopted the staff recommendation that depreciation methods

be required in lieu of the inventory-retirement method, because the

latter in fact resulted in an improper determination of profits as

between years and in an overstatement of balance sheet assets. In order

to allow the company ample time in which to make the change-over,

r
116 SECURITIES AND JjlXCHANGE COMMISSION

the company was permitted to give effect to the revision in its statements of the following year.

A second illustration involved the treatment of a stock dividend.

Inthe company's application, filed with the New York Stock Exchange

and with the Commission, for the registration of the necessary shares,

the company indicated that this dividend would be charged against

earned surplus at a per-share amount, stated in the application, representing the fair value of the shares to be issued. Later, in an amended

application, the amount per share of the charge against earned surplus

for the dividend was changed to a lesser amount represented by the

par value of the shares. The staff advised the company that applicable

accounting principles required a charge against earned surplus in the

amount of the fair value of the shares. However, in the company's

annual report filed shortly thereafter the accounting treatment to

which the staff had objected was followed. Moreover, the rerort of the

independent public accountants accompanying the company s financial

statements contained an explicit exception to the company's failure to

account for the dividend at fair value rather than the lower par value

figure. The company was again requested to change its accounting

treatment of the transaction, but declined to do so. After reconsidering its position and reviewing the case in detail, the staff again advised

the company that the annual report should be amended in accordance

with its earlier recommendations and those of the independent

accountants. Failing this, the staff indicated it would consider the I

report false and misleading and would accordingly recommend that

appropriate formal action be taken by the Commission to determine

whether the company had failed to comply with the provisions of the

Securities Exchange .Act and the rules and regulations thereunder.

Following this interchange of views the statements were amended

without resorting to formal action..

Developments in the Field of Accounting Principles and Procedures

Certain developments in the field of accounting principles and procedures arising out of war conditions and reconversion to peaceful

pursuits have been mentioned in preceding paragraphs. An associated problem, the proper treatment of corporate income taxes, was

of/articular importance due to the existence of high wartime rates

an numerous differences in accounting treatment of substantial items

in determining taxable income and income for financial reporting

purposes. Extended discussions of this subject of "tax reductions"

or so-called "tax savings" which were in progress' at. this time last

year between the Commission and representatives of professional

accounting societies and others were concluded and the Commission's

opinion was published as Accounting Series Release No. 53.41 This

opinion "In the Matter of 'Charges in Lieu of Taxes'" contains an

extensive discussion of the Commission's views as to the procedures

to be followed in accounting for reductions in income taxes as a result

of premiums and expenses incurred in refunding bonds, substantial

loss sustained on the abandonment of properties, and the taking of

accelerated amortization on emergency war facilities.

This opinion dealt with a practice which had been growing up

for some time, a practice tolerated by some accountants and sincerely

.. November 16, 1945.
TWELFTH ANNUAL REPORT 117

advocated by others, pursuant to which the current income account

is charged, under the heading of income taxes or charges in lieu of

income taxes, not only with the actual amount of income taxes expected to be paid by the company but also with an additional sum

equivalent t? the reduction in taxes bI:ought. a~out by unusual circumstances ill a particular year. ThIS additional charge against

income is, in most .cases, offset eithe~ by a credit to surplus or. by

utilizing the reduction for some special purpose such as eliminating

a portion of unamortized discount on bonds. The amount of the

estimated reduction has been colloquially termed a "tax saving" and

the general problem. loosely referred to as the "treatment of tax

savings." The principal conclusions announced in the opinion were

that:

1. The amount shown as provision for taxes should reflect only actual taxes

believed to be payable under the applicable tax laws;

2. The use of the caption "charges or provisions in lieu of taxes" is not acceptable;

3. If it is determined, in view of the tax effect now attributable to certain transactions, to accelerate the amortization of deferred charges or to write off

losses by means of charges to the income account, the charge made should

be so captioned as to indicate clearly the expenses or losses being written

off.

During the year, efforts were continued Iookirig to a solution of a

perennial accounting issue-whether there are CIrcumstances under

which certain items of income, expense, or loss may justifiably be excluded from the computation of net income as shown by the profit

and loss statement and carried directly to earned surplus. Accountants have not yet agreed upon any general principles as to the proper

way of identifying such items and disposing of them. Nevertheless,

depending on the treatment of particular items of a nonrecurring or

unusual nature as between income or surplus, it is possible to vary

reported earnings within very wide limits, thus making intelligent

analyses and comparisons difficult and sometime impossible. A staff

study of charges and credits made directly to earned surplus, supplementing and extending earlier studies, reconfirmed the complete lack

of consistency in the treatment of surplus entries as between companies, between accountants, between the same company's reports for

different years, and between reports certified by the same accountants.

In addition, a round table discussion to consider the subject was

sponsored by the Commission and was attended by representatives of

accounting organizations and others interested in the problem. The

results of these studies have been made available to members of professional accounting groups specially interested in the problem and

a free exchange of Ideas between the staff and these groups has been

a feature of the past year. A summary of the results of the current

year's study was published in "The New York Certified Public Accountant." 42 It is believed that definite progress has been made

toward a more uniform treatment of these perplexing items.

Consideration of proposals for a thorough revision of the accounting requirements applicable to' management investment companies

as laid down in Article 6 of Regulation SoX was advanced considerably durin~ the year. A restatement of Article 6 incorporating many

of the recommendations of the National Association of Investment

.. William W. Werntz and Earle C. King, "An Analysis of Charges and Credits to Earned

Surplus," September 1946.\
118 SECURITIES AND EXCHANGE COMMISSION

Companies and of the American Institute of Accountants was published accompanied by a comprehensive discussion of the proposals

and explanation of remaining points of difference between the Commission's staff and outside commentators. Announcement was made

on May 22, 1946, that a public conference would be held by the Commission on July 9, 1946t to consider the revised proposals." All

interested persons were invited to attend or to file any comments

desired. It may be noted that the procedure followed in the consideration of these important amendments to the Commission's accounting rules conformed substantially to that required by Section

4 of the Administrative Procedures Act which became law June 11,

1946,and, as to rule making, is effective September 11, 1946.

Other examples of the Commission's practice of discussing particular problems with specialists in various fields include a conference

with representatives of the New York Society of Security Analysts on

the subject of financial data secured by the Commission. Further,

attention was given to financial reporting by mining corporations and

a helpful conference was held with the American Institute of Accountants' subcommittee on mine accounting.

On June 20, 1946, the Commission announced that it had submitted

to Congress a report 44 recommending the extension of certain protective features of the Securities Exchange Act of 1934 to unregistered

corporations having at least $3,000,000 in assets and at least 300

security holders. The report contains studies of stockholders reports

of unregistered companies, the principal, if not the only" source of

public information as to the financial affairs of such companies. The

study disclosed that in practically every case the statements failed to

disclose information that is of considerable significance to investors.

Frequently, such companies failed to make public a full set of financial statements. In many cases, the available financial statements were

deficient as to the form and content of the balance sheet and income

statement and failed to make adequate disclosures in footnotes. In

some instances, it appeared that improper or unsound accounting

principles had been followed. The study showed that in 90 percent _ of the cases the statements were certified by public accountants.

An important conclusion of the Commission as expressed in the

report was that whatever a certifying: accountant's personal views

may be about the necessity or desirability of disclosure, it was apparent in the cases studied that management policy was the factor which

determined the nature of the annual report and that unless accountants

can point to legal requirements as to the extent of disclosure they are

often unable to insist on a position contrary to that of the management. The Commission further concluded that accountants need and

should have the support of the Commission's accounting regulations,"

It was noted that a similar finding with respect to the position of

accountants in Great Britain was made by a committee of the Board

of Trade investigating the need for amendments to the Companies

Acts,"

to Accounting SerIes Release No. 55, May 22, 1946. •• "A Proposal to Safeguard Investors In Unregistered SecurIties," announced In Securities

Exchange Act Release No. 3828, June 20. 1946. , .. See the stock dIvidend illustration above •• Report of the Committee on Company Law Amendment, Board oC Trade, Great .Britain

(1945) 54.

•
TWELFTH ANNUAL REPORT 119

Several cases involving the use of inadequate or deliberately false

financial statements with the effect of working a fraud on investors

were considered by the Commission during the year. In the Matter of

Su1nurban Electric Seawrities OO.~7 is a sequel to the case reported in

this section of last year's report. That case reported an action taken

to. force the registrant to correct grossly inadequate financial statements. The current case dealt with a request for withdrawal of the

registrant's securities from listing and registration. It seemed clear

that the inadequate financial information furnished to stockholders

prior to the intervention of this Commission assisted the management

in a program of repurchase of the company's senior securities while the

management retained its own holdings of all classes of securities. The

terms imposed for withdrawal from listing and registration and for

the continuance of the repurchase program included a vote by stockholders who had first to be furnished with company and consolidated

balance sheets, itemized surplus statements, and profit and loss statements conforming to generally accepted accounting principles, as of a

time within the past 12 months.

In the case of Albert M. GTeenfield & 00.,48 an unregistered company,

public investors had been sold long-term debentures which after business reverses and interests defaults sold in the over-the-counter market

at a considerable discount. In the spring of 1945, after a substantial

improvement in financial conditions due to the war, the company

through an affiliate (a relationship unknown to the investors) purchased some of the debentures at much less than their book value.

Investigation disclosed that the debenture holders were consistently

denied mformation but were referred to the indenture trustee who in

turn was repeatedly denied audited financial reports required under

the trust indenture. The Commission's court action was withdrawn

after the company agreed to have its books audited by a representative

firm of accountants, to furnish copies of the .auditors' reports to the

trustee, and to furnish debenture holders audited reports in a form

satisfactory to the Commission. The company also was required to

offer to rescind all debenture repurchase transactions since the

initiation of the program in March 1945.

Two cases in which broker-dealer registrations were revoked included elements similar to the cases just presented. In one ~9 of the

cases material misrepresentations with respect to a company's financial condition assisted in inducing stockholders to sell their holdings

to agents of officers of the company. In this case the officers knew

-that the business was in a better condition than represented. In

the other case, the company publicly offered and sold its preferred

stock without disclosure that statements and figures in the prospectus

used in connection with the sale were based on false, fictitious, and

misleading bookkeeping entries and on assets of doubtful value."

Developments in the Field of Auditing Practices and Professional Conduct

Last year we reported on a case in which a certified public accountant failed to perform a satisfactory audit of the books of a securities

broker-dealer. This field of auditing and reports of public account-

.. Securities Exchange Act Release No. 3822. .. Litigation Releases No. 302. Nov.'7 ....945. and No. 333. Apr. 3. 1946. .. Securities Exchange Act Release No. 3716. •• Securities Exchange Act Release No. 3772.
120 SECURITIES AND EXCHANGE C~MISSION

ants required by our Rule X-17A-5 has caused us some concern during

the past year. The two cases mentioned in the preceding paragraph

contained evidence of unsatisfactory work by public accountants.

Examination of reports filed during the year and correspondence

conducted in connection with some of the reports also indicate that

many broker-dealer audits are performed by accountants unfamiliar

with the Commission's requirements and apparently not well-versed

in the general requirements of up-to-date auditing procedure as set

forth in publications of the American Institute of Accountants and

.elsewhere, A thorough discussion of the problem was had with

representatives of the American Institute of Accountants following

which plans were made to undertake a program of education in an

effort to improve the work done in this special field. A general

editorial calling attention to the problem in very strong. ter:ms was

published in the Journal of Accountancy in June, 1946.51

Inanother field of business a case was considered by the Commission

in which it was found that the auditor was not independent and the

. audits made were not in accordance with generally accepted auditing'

standards applicable in the circumstances. 52 The record in the case

revealed that the accounting firm in question had certified the financial

statements of the registrant over a 5-year period. In one of those

years, the accountant engaged the treasurer and bookkeeper of the

registrant to do the detailed auditing work including the preparation

of working papers. In the other years, the detailed auditing work was

done by a member of the accountants' staff who did not make that

critical and objective examination which is the obligation of an independent accountant and in particular he failed to investigate

adequately transactions between the registrant and its parent and

affiliates and to disclose that substantial amounts of the receivables

and payables were due from or to the parent and affiliates. In four

of the years no adequate review of the auditing work was made either

by the head of the certifying firm or by a certified public accountant

who was engaged to review the working papers and to sign the report.

Itwas also found that the business relations of the head of the accounting firm and the president of the registrant were so intimate as to

preclude any independent approach to the audit. '

STATISTICS AND SPECIAL STUDIES

Capital Markets

The Commission, during the fiscal year ended June 30, 1946, continued to compile and analyze statistics on the volume and characteristics of offerings and retirements of securities; the distribution of and

the changes in ownership of securities among different groups of institutional, corporate, and individual holders; and various other

aspects of capital markets statistics. Figures were released monthly

showing the volume of all new issues of securities known to have been

offered within the United States for cash sales in amounts of more than

$100,000,together with break-downs comparing the amounts of registered and unregistered issues, indicating the type of exemption; public

offerings and private placements; bonds, preferred stocks, and common

stocks; corporate and noncorporate issues; and the net proceeds inG1 "A Warning to Auditors," June 1946, p. 447. .. Rea Bank Oil 00., Securities Exchange Act Release No. 3770.

_
TWELFTH ANNUAL REPORT' 121

•

tended for refunding' and for expansion of plant and equipment and

working capital of each principal industrial group. Additional

break-downs of the dollar volume of securities registered under the

Securities Act of"1933 were released regularly showing the amounts

registered for exchange, conversion, etc., as well as for cash sale; the

volume of secondary as well as primary distributions; the amounts

offered through investment bankers and directly by the issuers; the

volumes expected to be absorbed primarily by the general public, by

security holders, and by other special groups; and the distribution by

investment banking firms of underwriting commitments and syndicate management activities. Some of these statistics have been summarized in Tables 1 through 4 of the Appendix to this report.

Inaddition to information published on the capital markets, many

special adaptations of the basic data were made to problems met in

the day-to-day operations of the Commission and to questions raised

by other governmental agencies and by members of Congress. During

the year a detailed study was made and a report prepared for internal

purposes on new issues $100,000to $300,000in size exempted from

registration under the Securities Act as a result of the amendment to

Regulation A effective May 21, 1945. At the close of the fiscal year,

several r~:eorts were in preparation including an analysis of the extent

and significance of underwriters' speculative compensation (options,

etc.), long-term bank loans as a substitute for public offerings, and

private placements. Other studies planned for the next fiscal year

are a comprehensive analysis of the cost of flotation of securities, an

intensive study of the expenses involved in registration under the

Securities Act, an investigation of the successof flotations of registered

issues, a study of offerings to stockholders and by stockholders, including bail-outs, an analysis of the comparative experience of investors in registered and nonregistered issues, and a study of the

characteristics of investors in new securities.

Saving Study

The Commission continued its series of quarterly releases on the

volume and composition of saving by individuals in the United States.

These releases show the aggregate volume of individuals' saving, that

is, the increase in their assets less the increase in their liabilities,

exclusive of gains or losses from revaluation of assets. The figures

also show the components contributing to this total, such as changes in

securities, cash, insurance, consumers' indebtedness, and consumers'

durable goods.

Financial Position of Corporations

The series of quarterly releases on the working capital position of all

United States corporations, exclusive of banks and insurance companies, was continued. These releases show the principal components of

current assets and current liabilities and an abbreviated analysis of

the sources and uses of corporate funds. In addition semiannual

supplementary tables were released showing a detailed break-down of

current assets and liabilities for various industry and size groups of

corporations registered with the 'Commission. Itis intended in subsequent reports to present more detailed data on the sources and uses

of corporate funds, including a few additional income account and
122 SECURITIES AND EXCHANGE COMMISSION

balance sheet items, thus giving an up-to-date analysis of the financial

condition of corporations as well as a complete picture of the volume

\ and composition of corporate saving.

InDecember 1945, the Commission, together with the Department

of Commerce, inaugurated a series of quarterly releases on the plant

and equipment expenditures by United States businesses other than

agriculture. Shortly after the close of each quarter, these releases

present industry totals on the actual capital expenditures of that

quarter and anticipated expenditures for the next two quarters. It

is intended in future reports to present additional data showing more

detailed classifications of industry groups and a size-of-company

break-down. These data provide a useful index of present and future

activity in the capital goods industries and capital markets and a

valuable barometer of business activity in general.

Survey of American Listed Corporations

During the past fiscal year, the Commission again released for public and Government use statistical data filed with the Commission by

registrants under the Securities Exchange Act of 1934 and the Securities Act of 1933. These data are summarized in a series of reports

.known as the "Survey of American Listed Corporations" showing individual data for each company as well as industry totals for 1,546

registered companies. One of these series of reports, "Data on Profits

and Operations, 1943-1944," was completed in the fiscal year. Principal items furnished in these reports on profits and operations are annual data on sales, costs and/or operating expenses; operating profits;

net profit before and after income taxes; depreciation, depletion, etc.;

maintenance and repairs; selling, general and administrative expenses; and return on net worth before and after taxes. Each of these

companies' reports also shows data before and after renegotiations

of all contracts, the amounts and effects of "carry-backs" of taxes and

data on termination of contracts whenever reported. A summarization of data on profits and operations for the period 1936-1944, inclusive, was also publicly released. These data for registered corporations, both on an individual company and industry basis, are

. currently being carried through 1945.

Under Rule X-13A-6A, termination of war contracts and quarterly

reports of registrants' total sales, war sales, and unfilled war orders

at the begfuning and at the end of each quarter were reported to the

Commission. These data were made public weekly in a series of releases. Summarization of these data was also released showing complete industry totals for the second, third, and fourth quarters of the

calendar year 1945. Under a new Rule, X-13A-6B, the majority of

registrants with the Commission are required to furnish quarterly

sales figures, and these data will be released each quarter as to both

individual companies and industry groups.

Investment Company Data

Data for- closed-end and open-end management investment companies were compiled and released quarterly showing purchases and

sales of their own stocks and bonds and changes in their portfolios

and in their principal asset items. '
/

TWELFTH ANNUAL REPORT 123

Brokers and Dealers

During the past fiscal year, a study was made of the financial condition of 3,029 registered brokers and dealers reporting under Rule

X-17A-5. The study showed their cash, aggregate indebtedness and

net capital, customer's free credits, bank loans and firm securities,

exempt and nonexempt, from which the ratios of the firms' cash to

free credit balances, the firms' nonexempt securities to net capital and

aggregate indebtedness to net capital are computed. This analysis

was made for Commission use. A more detailed study of the resources and liabilities of these brokers and dealers is now in preparation for the current fiscal year.

Stock Market Statistics

The Commission continued to publish indexes of weekly closing

prices of common stocks on the New York Stock Exchange; the

monthly market value and volume of sales on registered and exempted

securities exchanges; daily and weekly round-lot stock sales on the

two New York Exchanges, including short sales, weekly round-lot

stock transactions on the New York Stock Exchange for accounts of

members and nonmembers, weekly round-lot and odd-lot transactions.

on the New York Curb Exchange for accounts of members and nonmembers, and daily odd-lot stock transactions on the New York Stock

Exchange for odd-lot accounts of odd-lot dealers and specialists. A

number of these series are presented in appendix tables.

Special Studies

The Commission's staff continued its studies on various aspects of

trading in securities, including floor trading, margin trading, purchases and sales of domestic securities for foreign account, purchases

and sales of security options, and general research on exchange rules

and practices.

War Activities

As a continuation of the Commission's war activities, several members of the staff were loaned to various war agencies and committees

for special economic investigations in Germany and Japan.

OPINION WRITING OFFICE-FORMAL OPINIONS

The Opinion Writing Office prepares drafts of the Commission's

formal opinions in contested cases arising under the Securities Act

of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of

1940. This Office has also been assigned the additional functions of

joint responsibility with the Solicitor's office in dealing with the problems raised by the Administrative Procedure Act and responsibility

for the preparation of compilations of annotations of the various

statutes administered by the Commission. It is contemplated that

these annotations will include reference to all Commission opinions,

to significant court decisions and to other relevant material and will

be prepared so that they may, when completed, be made available to

the public. The work of this office is done by a group of attorneys
280

698

68

12

10

3

124 SECURITIES AND EXCHANGE COMMISSION

under the direction of the Executive Assistant to the Commission who

serves as Head of the Office, an Assistant Head, and Supervising

Attorneys.

While engaged in the preparation of opinions, the attorneys are

completely Isolated from persons actively participating in the proceedings. It is an invariable rule that the attorney assigned to prepare an opinion must not have had any connection with any previous

phase of the case with respect to which the opinion is to be prepared.

After hearings have been held, and after consultation with the Commission, an attorney in this Office analyzes the entire record and

prepares a draft of the formal opinion in accordance with the Commission's instructions. In most cases he also prepares a narrative

abstract of the record. Commission experts are from time to time

consulted on technical problems arising in the course of the preparation of the opinion, but these experts are never individuals who have

participated in the preparation of the case or testified at the hearing.

When the draft of the opinion and the abstract of the record have been

completed, they are submitted to a supervising attorney, who reviews

the entire case and, in conjunction with the drafting attorney, 'revises

the draft. The revised draft is then submitted to the Assistant Head

and the Executive Assistant to the Commission and, thereafter, to the

Commission. After further discussion, the opinion may be modified,

amended, or completely rewritten in accordance with the Commission's

instructions.

Inaddition to the foregoing, the Opinion Writing Officealso assists

the operating divisions in the preparation of opinions in uncontested

cases and assists the officeof the Solicitor in the preparation of appeals

taken from formal decisions prepared by the Opinion Writing Office.

The Commission, during the past year, issued over 200 formal opinions under the Securities Act of 1933,the Securities Exchange Act of

1934,the Public Utility Holding Company Act of 1935,the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the

Investment Advisers Act of 1940. Some of the more significant

opinions are commented upon herein under the discussions of the

various statutes administered by the Commission.

PUBLICATIONS

Public Releases

During the past' fiscal year the releases issued by the Commission

included 68 under the Securities Act of 1933; 220 under the Securities

Exchange Act of 1934; 852 under Public Utility Holding Company

Act of 1935; 125 under the Investment Company Act of 1940; and 3

under the Investment Advisers Act of 1940. .In addition, three releases were issued concerning the Commission's activities in corporate

reorganizations and one release was issued under the Trust Indenture

Act of 1939. , The following is a partial classification by subject matter for the past

fiscal year:

Findings, opinions and orders

Orders, exeluding those with findings and opinions Reports on court actions

Statistical data ------------

~~~~ie:e~;;==========~==================================

_

_ ~ _
TWELF'I'H ANNUAL REPOUT 125

Other Publications

Bound volume 12 of Decisions and Reports of the Commission (Sept. 1, 1942 to

Mar. 31, 1943).

(Bound volumes 1 to 12 of Decisions and Reports of the Commission may be

purchased from the Superintendent of Documents, U. S. Government Printing

Office,Washington, D. C., a price list of which will be furnished upon request.)

Tables of Decisions and Reports covering period Jan. 1, 1943 through Mar. 31,

1946.

Twelve monthly issues of the Official Summary of Security Transactions and

Holdings of Officers, Directors and Principal Stockholders.

The 11th Annual Report of the Commission.

List of Securities Traded on Exchanges under the Securities Exchange Act

of 1934, as of December 31, 1945, together with Supplements thereto.

Judicial Decisions, Volume II, Part 2.

Security Issues of Electric and Gas Utilities, 1935-45.

Financial Statistics for Electric and Gas Subsidiaries of Registered Public

Utility Holding Companies.

Registered Public Utility Holding Company Systems.

Working Capital of 1,290 Registered Corporations, December 1939 to December 1944.

Working Capital of 1,228 Registered Corporations, December 1939 to June

1945.

Survey of American Listed Corporations, Balance Sheet Data, Parts I, 2, and 3.

Survey of American Listed Corporations, Data on Profit and Operations, Parts

I, 2, 3, and 4.

A Proposal to Safeguard Investors in Unregistered Securities, recommending

amendments to the Securities Exchange Act of 1934.

(A complete list of the tJommission's publications, the Rules of Practice or

the Guide to Forms will be sent upon request made to the office of the Commission in Philadelphia, Pennsylvania.)

INFORMATION AVAILABLE FOR PUBLIC INSPECTION

The Commission maintains public reference rooms at the central

office in Philadelphia, Pennsylvania, and in its regional officesin New

York City and Chicago, Illinois.

Copies of all public information on file with the Commission, contained in registration statements, applications, reports, declarations,

and other public documents, are available for inspection in the public

reference room at Philadelphia. During the past fiscal year 2,634

persons visited this public reference room seeking such information.

In addition to providing facilities for personal inspection of registered public information, there were received in the public reference

room.thousands of letters and telephone calls from persons requesting

registered information. (This does not include requests for copies

of releases, forms, publications, etc.) Through the facilities provided

"for the sale of copies of public registered information, 2,701 orders,

involving a total of 209,478 pages, were filled. .

In its New York Regional Office located at 120 Broadway, facilities

are provided for the inspection of certain public information on file

with the Commission. This includes copies of (1) applications for

registrations of securities on all national securities exchanges, except

the New York Stock Exchange and the New York Curb Exchange,

together with copies of annual reports, supplemental reports and

amendments thereto, and (2) annual re'ports filed pursuant to the provisions of Section 15 (d) of the Securities Exchange Act of 1934, as

amended, by issuers having securities registered under the Securities

Act of 1933, as amended. During the past fiscal year 13,831 persons

visited the New York public reference room, and more than 6,900

•

-
126 SECURITms AND EXCHANGE COMMISSION

telephone calls were received from persons seeking- registered public

information, copies of forms, releases and other material.

In the Chicago regional office, located at 105 West Adams Street,

copies of applications for registration of securities on the New York

Stock Exchange and the New York Curb Exchange, together with

copies of all annual reports, supplemental reports, and amendments

thereto, are available for public inspection. During the fiscal year

ended June 30, 1946, 3,533 members of the public visited this public

reference room, and approximately 1,500 telephone calls were received

from persons seeking registered public information, forms, releases,

and other material of a public nature.

Inaddition to the material which is available in the New York and

Chicago public reference rooms, there are available in each of the

Commission's regional offices copies of all prospectuses used in public

offerings of securities effectively registered under the Securities Act

of 1933, as amended. Duplicate copies of applications for registration

of brokers or dealers transacting business on over-the-counter markets, together with supplemental statements thereto, filed under the

Securities Exchange Act of 1934, and duplicate copies of applications

for registration of investment advisers and supplemental statements

thereto, filed under the Investment Advisers Act of 1940, are 'available

for inspection in the re~onal office having jurisdiction over the zone

in which the registrant s principal office IS lbcated. Also, inasmuch

as letters of notification under Regulation A exempting small issues

of securities from the registration requirements of the Securities Act

of 1933, as amended, may be filed with the regional office of the Commission for the region in which the issuer's principal place of business

is located, copies of such material are available for inspection at the

particular regional officewhere filed.

In the Commission's San Francisco and Cleveland regional offices,

in which are provided complete facilities for registration of securities

and qualification of indentures, copies of registration statements and

applications for qualifications of indentures filed at those offices are

available for public inspection.

Copies of all applications for permanent registrations of securities

on national securities exchanges are available for public inspection at

the respective exchange upon which the securities are registered.

PUBLIC HEARINGS

The following statistics indicate the number of public hearings

held by the Commission from July 1, 1945, to June 30, 1946: .

Securities Act of 1933________________________________________ 4

Securities Exchange Act of 1934______________________________ 39

Public Utility Holding Company Act of 1935__________________ 131

Trust Indenture Act of 1939__________________________________ 0

Investment Advisers Act of 1940------------------------,------ 1

Investment Company Act of 1940______________________________ 56

PERSONNEL

As of June 30, 1946, the personnel of the 'Commission consisted of

5 Commissioners and 1,176 employees (694 males, 487 females), 325

of whom were assigned to the field offices.

During the past fiscal year, 212 former employees who were separated from the military service under honorable conditions were

'
TWELFTH ANNUAL REPORT 127

restored to the staff of the Commission in an active duty status.:

During this period, the names of three former employees were

dropped from the rolls of the Commission by reason of their death

while in the military service.

FISCAL AFFAIRS

Appropriation title , Amount Obligation Unobllgated balance

~~~i:g ~d eb~gi:= .: .: .: .: =:=:::=:::::: ::= $4,651,200 $4,650,646 $liM43,000 41,671 1,329

Total ••..•.. __.. _... _____. ____.. ___.•. _•........ ___. __.. 4,694,200 4,692,317 1,833

Working fund advanced to Securities and ElCchange OommisSion by Foreign

Economic Administmtion to cover cost of services rendered by the Oommission

Amount Expended Unexpended avallable

Working fund, Securities and Excbange Commlssion •.•.. $94,244 $10,234 $84,010

Receipts tor the fiscaZ year 1946 1

Oharacter of fee Amount

Fees for registration of securities $706, 625. 78

Fees under Trust Indenture AcL_________________________________ 1, 100. 00

Fees from registered exchanges__________________________________ 362, 238. 45

Fees from sale of photo duplicates________________________________ 16,875.42

~iscellaneous__________________________________________________ 6,592.37

Toial 1,093,43~02

1This money must be turned into the general fund of the Treasury of the United States

and is not available for expenditure by the Commission.

CONFIDENTIAL TREATMENT OF APPLICATIONS, REPORTS, OR

DOCUMENTS

Under the Securities Act of 1933, the Securities Exchange Act of

1934,the Public Utility Holding Company Act of 1935,the Investment

Company Act of 1940, and the Investment Advisers Act of 1940, .confidential treatment may be granted, upon application by

registrants, to information contained in reports, applications, or documents which they are required to file. Under the Securities Act of

1933the Commission has adopted Rule 580,which provides that information as to material contracts, or portions thereof, will be held

confidential by the Commission if it determines that disclosure would

impair the value of the contracts and is not necessary for the protection

of investors. The other four statutes referred to are, in general, without specific restriction in this respect and empower the Commission to

hold confidential under certain conditions any information contained

in any reports required to be filed under those statutes. Disclosure of

information confidentially filed under the latter statutes is made only

when the Commission determines that disclosure is in the public

interest.

Although registrants may seek judicial review of decisions by the

Commission adverse to them, no petitions for such judicial review

were filed in any of these cases durrng the past fiscal year.

-

= === = ========= =

___••
128 SECURITIES AND EXCHANGE COMMISSION

The following table indicates the number of applications received

and acted upon during the past year, together with the number pending

at its close:

AppUcations for confidential treatment-fiscal year ended June 30, 1946

Number Number Number

Act under which filed pending Number Number denied pending

July I, received granted or with- June 30,

1945 drawn 1946

Securities Act of 1933 ,_________________________ 3 57 49 8 3 Securities Exchange Act of 1934 24 87 74 14 23

TotaL ___________________________________ Zl 144 123 22 26

I These figures represent applications filed under Rule 580. I These figures represent apphcatrons filed under Rules X-24B-2 and X-13A-6B.

COMPLIANCE WITH THE ADMINISTRATIVE PROCEDURE ACT

On June 11, 1946, Congress passed the Administrative Procedure

Act (Public Law 404, 79th Cong., 2d sess., 60 Stat. 238), the stated

purpose of which is "to improve the administration of justice by

prescribing fair administrative procedure." This Act is applicable

to most Federal administrative agencies, including this Commission.

Among other things, it contains requirements respecting the ;publication of information; prescribes procedures to be followed In the

adoption or revision of rules; specifies various procedural steps in the

adjudication of cases, including the separation of prosecutory and

investigatory functions from decisional functions in certain defined

types of cases and the issuance of intermediate decisions by subordinate

officersand final decisions by the a~ency; definesthe status iurd powers

of examiners and other hearing omcers; and deals with the right and

scope of judicial review.

The Commission's existing organization and procedures in certain

respects afford greater procedural safeguards to all interested persons

than is required under the procedures specified in the Act, and the

passage of the Act does not appear, therefore, to require any substantial change in the Commission's organization or any major modifications of the essential features of the Commission's present practice.

The present procedure has been designed to afford a satisfactory

solution of the particular procedural problems arising under those

statutes. Descriptions of the Commission's organization and procedures have been made public, adequate notice of and opportunity

for the presentation of views on proposed rules and for partieipation

in other Commission proceedings is provided, due publicity is given

to all official acts of the Commission affecting members of the public,

and advisory and interpretative services are rendered to persons to

assist them in complying with the requirements of the statutes. In

order to insure maximum impartiality in the preparation of the Commission's decisions, the Commission has maintained a separate Opinion

Writing Office,herein described, responsible directly to the Commission and functioning independently of any other divisions of the Commission's staff, to assist the Commission in preparing findings and

opinions in 'contested cases and in other caseswhere a separation of the

decisional function from the prosecutory function is desirable.

-

• ______________

-

-
TWELFTH ANNUAL REPORT 129

However, the Commission took several steps as a result of passage

of the Act. Although some of these steps post-date the period covered

by this report, we have deemed it important to comment on them

herein. A study of the Act and its legislative history as they relate to

existing Commission practice was undertaken and led to the drafting

of revised Rules of Practice which were adopted by the Commission III time to become effective September 1, 1946, the date on which most

of the provisions of the Act became effective.53 It is expected that this

study will continue and that later changes in the Commission's procedures may be made in the event further problems arise under the

Act and in the light of any judicial interpretations which may be

issued. .

Section 3 of the Act requires publication in the Federal Register of

certain information not heretofore published therein. Incompliance

with that requirement, the Commission prepared and published a

detailed description of its central and field organization and of the

methods by which persons may secure information and make submittals and requests; 54 a description of informal and other procedures employed by the Commission and its staff,55and a description

of the various forms prescribed by the Commission under the several

statutes it administers." Also prepared for publication is a compilation of interpretative opinions, issued under the several stat-

'utes administered by the Commission for the guidance of the public."

While it is not clear that publication in the Federal Register of interpretative opinions of this kind is required by the Act, the Commission considers such publication may be helpful to the public and that

it falls within the spirit of the act. Itis also contemplated that any

future interpretative releases of this nature will also be submitted for

publication in the Federal Register.

THE COMMISSION'S STUDY OF UNREGULATED SECURITIES AND ITS

RECOMMENDATIONS TO CONGRESS

On June 19, 1946,the Commission forwarded to Congress a recommendation for amending Section 12 of the Securities Exchange Act of

1934 so as to close certain gaps in the pattern of investor protection

established by that Act and by other legislation administered by the

Commission. The amendment proposed by the Commission would

extend to investors in the larger unregistered corporations the same

benefits as to financial information, informative proxy-soliciting materials, and protection against trading by corporate insiders as are

now enjoyed by investors in the securities of registered corporations.

Accompanying the proposed amendment was a U8-page report, based

on a study made by the Commission, containing case histories and

other illustrative material in support of the Commission's conclusion

that abuses in unregulated securities are in some respects as great

.. The Commission's revised Rules of Practice. effective Sept. 11. 1946. and applicable to proceedings instituted after that date, were published in the Federal Register on Sept. 11,

1946. (11 Federal ReJrlster 177A-723.) .. This description was published in the FederBl Register on Sept. 11, 1946. (11 Federal

Rel!'ister 177A-718.) "'This description was pnblished in the Federal Register on Sept. 11, 1946. (11 Federal

ReJdster 177A-729.) . .. This description was published in the Federal Register on Sept. 11, 1946. (11 Federal

Rel!'ister 177A-730.1

iI'This compilation was published in the Federal Register on Sept. 27, 1946. (11 Federal

Register 10912 et 8eq.)

722108-47-10
130 SECURITIES AND EXCHANGE COMMISSION

as anything the original Securities Exchange Act was designed to

abolish. The Commission's proposed legislation was introduced by

Representative Lea, chairman of the House Committe on Interstate

and Foreign Commerce, as H. R. 7151, and was recommended by the

President for earnest consideration by the Congress (House Doc.

No. 682, 79th Cong.). The text of the Commission's report, "A Proposal to Safeguard Investors in Unregistered Securities," was printed

as a House Document (House Doc. No. 682, 79th Cong.). However,

the bill was not submitted until the closing weeks of the session, and

Congress adjourned without having taken any action on it.

Certain vital protections for investors are available respecting the

publicly-held securities of many of the large corporations of the

country either because they are listed on national securities exchanges

or because the companies involved are subject to the Public Utility

Holding Company Act of 1935 or the Investment Company Act of

1940. As to these securities there are available much basic data about

the companies involved and issuers must file periodic reports with the

Commission as to their financial condition and earnings. These reports are public information; they provide the investor with the basis

for a rational appraisal of the value of securities and for an intelligent decision as to whether to buy or sell. Without such information,

securities trading tends to be a gamble, and the investor is at the mercy

of insiders exploiting inside sources of information. As the House

Interstate Commerce Committee stated in 1934, "There cannot be

honest markets without honest publicity. Manipulation and dishonest practices of the market place thrive upon mystery and

secrecy." G8 Under the Securities Exchange Act of 1934, the Public

Utility Holding Company Act of 1935, and the Investment Company

Act of 1940 the security holder is assured also that when his proxy is

solicited he will be fully informed about the matters to be raised at the

stockholders' meeting, and that he will be able to present his own

proposals through use of the proxy machinery. In addition, there

are certain protections against trading abuses by corporate insiders.

Officers, directors and principal stockholders may not sell short the

securities of their own company, must file public reports of their

trading in such securities, and are accountable to the company for

profits made in trading in the securities of the company within any 6-

month period.

These provisions are contained in Sections 12, 13, 14, and 16 of the

Securities Exchange Act, and in cognate provisions of the Holding

Company Act and the Investment Company Act. They are not applicable in any degree to unregistered securities, with the result that,

as revealed in special studies conducted by the Commission and discussed in its report, many of the old evils still persist.

The Commission found, for example, in a sample group of the larger

type of unregistered company, that 50 percent of the balance sheets

released to the public were materially deficient :from the viewpoint of

the information needs of the investor. Some 13 percent of the companies did not even issue income statements. Yet all these companies

had substantial numbers of public stockholders. The proxy-soliciting

practices of unregistered companies were found tYEical of the pre-1934

era. Photocopy reproductions in the Commission s report show solici-

.. H. Rep. No. 1383, 73rd Cong., 2bd Sess. (1934) 11.
TWELFTH ANNUAL REPORT 131

tations unaccompanied by disclosure even of the names of the persons

whom the proxy agents intended to elect as directors, blank check

authorizations to the proxy agents to ratify anything done in the past

and to vote for anything which conceivably could come up at the

meeting. In some cases the entire announcement to the stockholder

was set forth on the back of an ordinary post card.

To illustrate the practical effect upon the investor of such practices,

the Commission presented in summary form sixteen case histories

showing how in instance after instance unscrupulous promoters or

insiders have exploited investor ignorance to rille corporate treasuries

and to buy and sell securities on the basis of information obtained in

the course of their fiduciary duties at rates highly advantageous to

themselves. A pattern typical of the war and postwar periods consists of (1) extraordinary earnings by the company, (2) failure to

disclose such earnings to public security holders, and (3) purchase

of the holdings of the public investor by corporate insiders, sometimes

upon the open market without disclosure of the identity of the purchaser. Most such cases, the Commission observed, have involved

unregistered securities. And while cases of this character are within

the scope of the antifraud provisions of the securities legislation administered by the Commission, comparatively few can be reached in

this manner. As the Commission noted in its report, prevention of

such frauds through appropriate legislative safeguards is needed.

Many of the larger corporations, or their securities, are already,

registered under one or another of the statutes administered by the

Commission. However, a substantial number of large corporations

and important issues of securities are not. Nor does this appear to be

the result of any express design on the part of Congress. The original

Securities Exchange Act was intended to provide safeguards for investors in unregistered securities similar to those enjoyed by investors

in registered securities under Sections 12, 13, 14, and 16 of the Act. For

reasons stated in our report, the achievement of this objective was not

feasible in the early days of the Act, and a modification of the statute

was effected to conform to existing conditions. However, Congress

never abandoned its program of providing safeguards for investors in

unregistered securities, end in a series of enactments since 1934 has

taken concrete steps in that direction. Thus a 1936 amendment to the

Securities Exchange Act extended the reporting requirements of that

act to all new securities issues of substantial size, whether or not the

securities involved were listed on exchanges. The Public Utility

Holding Company Act of 1935 and the Investment Company Act of

U)40 contained provisions substantially similar to the reporting,

proxy-soliciting, and insider-trading features of Sections 12, 13, 14,

and 16 of the Securities Exchange Act. The Trust Indenture Act

of 1939 marked a further extension of reporting requirements. And

public reports in some measure similar to those filed with the Commission are required under other statutes of companies subject to the

jurisdiction of such agencies as the Interstate Commerce Commission,

the Federal Power Commission and the Federal Communications.

Commission.

The piece-meal development of the protective scheme has left a series

of gaps, and the Commission's report stated that these gaps should

now be filled, at least as to the larger corporations. The amendment
132 SECURITIES AND EXCHANGE COMMISSION

recommended by the Commission to Congress would make the provisions of Sections 12, 13, 14, and 16 of the Securities Exchange Act of

1934 applicable to the securities of all corporations having assets of at

least $3,000,000and at least 300 security holders. Exemptions would

be available for banks, for mutual insurance companies, for public

and charitable corporations, for corporations substantially all the

securitiea of which are held within a single State, and for certain other

categories. According to the Commission's estimates, some 1,500

companies which are not already registered would be subject to the

proposed amendment, and some 500 of these are already filing reports

with other public 'agencies which are comparable in their basic aspects

to those required by the Commission. The rule-making powers of the

Commission would be ample to prevent needless duplication of effort.

In its report the Commission discussed also the nature of the burdens that the amendment would place upon the companies affected.

It observed that Tittle or no administrative effort is required for

compliance with the proxy and insider-trading provisions. As to

the reporting provisions, companies which, do not file reports with

the Commission and which do not file comparable reports with other

agencies could in most instances meet the reporting requirements

without assuming any significant accounting burdens. The studies

of sample companies conducted by the Commission and discussed in

its report reveal, for example, that some 85 percent of the companies

. in the class which would be covered by the proposed legislation already

have their financial statements certified by public accountants. The

information that would be required is already on the books of most of

these companies, and the only question is whether it shall be made

available to their security holders and to the investing public.

The Commission noted that one beneficial effect of its proposed

program on the over-the-counter market would be that dealers in the

over-the-counter market, like the investor, would have the tools with

which to select securities on a truly informed basis. Dealers might

also expect to benefit to the extent that uniform reporting requirements would tend to decrease such private placements as may be

motivated by a desire to avoid the disclosure provisions applicable

to public offerings under the Securities Act of 1933.

VOLUME OF INFORMAL INTERPRETATIVE ASSISTANCE

Attention is called throughout this report to the amount of informal

interpretative and advisory assistance which the Commission furnishes to the public in connection with the various Acts administered

by the Commission. This assistance is generally furnished by the

staff directly concerned with the problem presented or charged with

the responsibility for examining material filed with the Commission.

The Officeof Chief Counsel of the Corporation Finance Division, however, maintains an interpretative unit staffed with lawyers who are

available for aid as to the many problems which arise under the

various acts administered by the Commission.

As further illustrating the very considerable volume of such assistance necessarily rendered by the staff to registrants and other

interested parties concerned with the day-to-day regulatory work performed by the Commission, it may be noted that during the past year

-
TWELFTH ANNUAL REPORT 133

the interpretative unit established in the Office of Chief Counsel of

the Corporation Finance Division alone received and gave appropriate

assistance in response to a total of 4,547 letters requesting such aid

with regard to a great variety of the functions assigned to the jurisdiction of that particular division. In addition, assistance was given

in many hundreds of conferences held by the lawyers of this unit with

members of the public, either in person or over the telephone.

INTERNATIONAL FINANCIAL AND ECONOMIC MATI'ERS

At the request of other agencies concerned with foreign economic

policy, the Commission has participated in various activities connected

with the field of international finance, both as to the problems directly

involved in such matters and as to domestic affairs which reflect themselves in foreign economic policy. To this end the Commission had,

during the war years, loaned members of its staff to other agencies

and to the Army for specific assignments in foreign countries, the last

of which was the recent survey of the Japanese Zaibatsu.

Further, the Commission has appointed representatives to various

committees engaged in formulating and executing United States international economic policy. Among these are the Foreign Investment Policy Committee and the Committee on Private Monopolies

and Cartels (which are both subcommittees of the Executive Committee on Economic Foreign Policy) and the Staff Committee and

other committees of the National Advisory Council on International

Monetary and Financial Problems. The Commission also appoints

two representatives to the Federal Committee on International

Statistics.

In the course of its operations, the Commission maintains a survey

of various aspects of these markets and makes this information available to such other agencies, either through its representatives on the

committees mentioned above or through its adviser on foreign investments. Further, the Commission makes or participates in special

studies to aid other agencies concerned with foreign economic and

financial problems. Ithas done so with respect to the debt status of

foreign countries applying for credit; the appraisal of the credit status

of foreign countries in the private capital market; the external interest rates of foreign borrowers and their effect on private investors;

and a study of foreign laws with respect to securities and investments.

Indicative of the Commission activities is the present participation

of the Commission in connection with the rendition of assistance and

advice to the United States Executive Directors of the International

Bank for Reconstruction and Development with respect to the effect

of domestic laws and domestic markets on the flotation of its bonds

and the bonds of foreign countries guaranteed by the bank. With

respect to registration statements filed by foreign corporations and

governments seeking capital in the domestic market, the Commission

maintains, through its adviser on foreign investments, facilities for

liaison with other 'gove~ent agencies having jurisdiction of the

problems involved, and for rendering of such aid and advice as it

might be called on to give.

"

PART IX

APPENDIX

STATISTICAL TABLES
..

J
TABLE 1 -Registration8 tinder the Seooritie8 Act of 1989 ftlll1/ eiteotice dr/rillg,

the fiscaZ year ended June SO, 1946

PaT I.-DISTRIBUTION BY MONTHS

[Amounts inthousands of dollarsj !

All effectively registered Proposed for sale for account of

issuers

Year and month

Number of N':'~~~f Amount Number of Number of Amount statements statements issues

1945 - July ______________________. ___ AUgUst 63 76 842, 156 50 60 720.044

35 39 163, 566 17 20 132,593 september _. October 44 62 700,000 35 42 508,397 _. November 82 114 1,046,739 69 84 829,181 20 31 143,686 17 24 112, 028 December 41 55 470,692 35 42 384.251

19.jB January 43 98 412,223 36 82 344,312

r:~~========:======:=:=:: 38 63 129,163 31 43 85,030 60 90 591,931 49 70 450,922 Aprll

May 84 117 726,878 66 81 522, 649 84 163 882,206 69 118 669,272 June 87 128 ll64, 051 70 89 664, 912

Total fiscal year 1946 2661 1,015 7,073,280 544 760 5,423,593

PART 2.-BREAlCDOWN BY METHOD OF DISTRIBUTION AND TYPE OF SECURITY

OF THE VOLUME PROPOSED FOR CASH SALE FOR ACCOUNT OF THE ISSUERS

[Amounts in thousands of dollars]'

Type of security

Method. of distribution and

grOUP to whom offered Secured Unsecured Preferred Common Other All types bonds bonds stock stock types ,

All methods of distribution _______ 5,423,593 1,432, 177 1,478,119 990,699 1,028,071 494,528

To generalpuhlic 4,767,365 1,430,194 1,471,496 777,223 619,317 469,135 To secnrlty holders __. ________ 622,057 ~----..._--- 6,223 212,020 386,999 16,810 To other special grOUps ___•. __ 34,171 1,983 400 1,451 21,755 8,1i83

Through Investment bankers _____ 5,195,867 1,428,333 1,476,819 981,639 825,945 483,232

By purchase and resale _______ 4,445,915 1,428,333 1,475,842 967,903 556,899 16,938

To general public., _______._ 4,006,526 1,428,150 1,470,562 762,167 345,518 128 To security holders _________ 437,159 ------183- 5,280 205,736 209,333 16,810 To other special groups _____ 2, 231 ------------ --------.--- 2,048 ---.------ \ On best efforts basis 749,952 976 13,636 269,046 466,294 ---------- To general publIc ___________ 739,298 ----- ....--- 933 10,856 261,215 466,294 To security holders 10,334 ---------- 43 2, 750 7,541 ---------- To other special groups _____ 320 .-----.----- 30 290

By Issuers. ._ 227,726 3,843 1,300 9,160 202,126 11,296

To general public _____________ 21,541 2,043 --------000- 4,200 12,584. 2,714 To sectl\ity holders, . _________ 174,565 '--"1;800- 3,639 170,125 ----.----- To other special grOUps 31,620 400 1,421 19,417 8, Ii83

See footnotes at end of table.

137

______________•• ________

______• ____• ______ ______• _______• ______ ____• _______________

____ • _____=-_________

_____________________ •

_______• ______• ____• _____ __•• _____• ___• _________• __ ___• ____• _____________• ___

•• __

___• _________

___• ______

______• __

___•• ________________

__• ____

~--------- ----------
188 SECURITIES AND EXCHANGE COMMISSION

:ga;~~gs: ~ ~~Fi""~'~"..4

, I

~~~~~~~~~~g~~~~~g~~~!~~m~=~~!~! ~ C'i ...t _*' ,..;-

~~~~?J;~~

8...t:tit:ticQ

''0

CD

=" I::

:.:::

I::

0

""<I0:.

....

g-

.,

!:!

;s

....

""

., Eo<

Z

""!:! -< .,

.. Eo< e '" ., .... ;", 0

r<l

g

.;;~

~>< ....

Eo<

... '" - .. P'ff ;s

"" .... .g

A'a

., Z-< 'tl

'1;;lz~

;",06

=::8:5

.::!.-< .s Cl:>

Cl:> Eo<

0:.'"

....8 0

'O'~IZt

0

r<l

'"0 "I:: Po<

., P t"I;l Po<

., I

':5 ..;

.. t; PI

< "l:l Po< e

;:l

..

;:

.s

.,

E

b.,

I. ....

iii

III

<

E-l

~g~~~~~~~g~~~~~~i~~~~l~~~~g

~

~

~

~

~

~~

~

'" '"

~

~

~ ~

~

~

~ ~

~

~
TWELFrH ANNUAL REPORT

:s~~~~~~~~~~~s~~~!

~~~~~ig~~~ ~~~~~~~

-- .. c~~~~~~~~~~~~~~~oo~

:55 :55 :S? :Si1:Si1 :Si1;g9~ I :l"--... ~t-... .. :0 ... ~o...: :12S...oo..~C'Q_

..... ,,,.,. .CC> I~ 'C1 '''"'''00

: : :CO: :CQ::~ C'Q

OOQ~ONO_O~O~oo~.""""~

:~~~~:~~~:~i~~s~~ i~~~i~~~l~j~~~i O~~~""""~O""""~~O~O_C'QCI~=

/

139

~~ I _

,
140 SECURITIES AND EXCHANGE COMMISSION

:t-

;0

:co:~~a:> :C'I:lC":ll'-C")

\~

:~~~~~ -00 :_00 __ :0

~O""'lOOC") 1~lOc-:PQO

t-=oi:=oi :aO~o:!!oo

:U:/:-: ,..... ;C't lU') :eo

:a:~~C")~ 'CXllOt-CXl .....

:_C'1"l:t'OOC"':l :,..ici...tioOcQ

~~~":~~ :- 0

:t--: :t: :"l:t' :~

'oo~ ....

~~oci :::06

,

:c: :u:~ :~ :C':lc:?

,

:~~~c:~ :~Ci.C'I:loo('r)

,

,

. ,

, ,

,

, , I I I I I

~ Ij~ -~ ~j] o I Cl'lo. ,_O'Jo , ..... 0'}

'd : :~='t:t: :"'=-d :I-f;::: OlO ,,$-< Ol~' _,,$-< >=:0 ,,$-< .. "'~ ,~ .. ~'~ .. oo~ ,~ ~~~1~~ ~!~~~~!~

:~~~~~~~~~~~~~~~~~ :__ ~. ~t-_o __ ~~o

:~~~~

:~IOt--('I) -:-~cq

:~~~ .~1C'4 :_~C'4c:Cl_

8~s"SS

0"'

o

~~~~~~

.....

'

~
TWELFTH ANNUAL REPORT 141

I I

I » ~~~~~g~8~:g~ga""t-QOLO~cq ""'l".Or--o ..... ~~~~~5i!: ,-.c _ OO\Q"'~o)~ ~~~_t--

1 ~~~~~~~~~~~i ~~~g~~ It:l... ...:~~O~

0

t~~ ('QOOC(lt-;:::~

I a ,,-

I ee '" e

.c" '" ~g"''''oo",~",o",,,,~ ~QO~SO 05;0000

0.

\

".

I gj .. LO.~eqe;~ ~~('Q

'" El -'" g~~~fi~~t-" tt5... .rr ",'

.:: .... " '" 0", "''''

I

.. ",$l P:: I

I t~

'0 O~!~~E~~oo~~000000 o~oooo

I e

.8 r-:~ci"':-.i"';~- ;:!~ .,;

I $l co co .... ;:::

"" I '" I

I I ~~~g~rag~S~~~oe-:4""1f'leqOO ~o~o~i

.8"" 0"'0 '"'''' ... ., j "=~.Qt-=~~ei ,..;g~ .,

11 "'''' I I .t:ll:l

ti5 ",0

....

ec 1

°

, I ;;: I a I I oooooooooo~8 ~~~E~~ g~!8~~ I:: ee 00

::J '" I ('1');:' C'i",u;.acO~ ~~~~:i~ ...... " .... e ,8 ° I ':S oS 0. c a ro I '0 ... .s 0 '0 e> I ., z ;g .. '" g3~~!~?2~~~~~~~fi~f2t; ~06~~~~ .... ;l. o_ooecOOC") Ot-C":l_O:Ce-.

'" ... I " E~~~~~~~~~~~ ig~~~~~g~~~~ '" .~'" ee .... " ., r;.. gj 0gj eir:.e-i"'cQr:~~g:ig ,..; --~:! ...;~...; ......_- e r;.. 0 "'- 0. .. I '" 0 -5 »0 , ... r;.. .s Eo<

0

I ~~g~$a~~~~~~~~~~b6~

"

, I

-e '" '" 8 00000'0_ ....

... >< 8 eOu:)c6'....;...;~C"ioo)g~...: g~~~g~ 1 "" .8

I

~~8~:8~~~;;:o-:g 0 $l Cf)""('Q"' --_ .... ..:C't..,.- co """ '" I :-5 ..

'" '0 I ... ... ;! .8 '" '" I <ococoCOCO_('Q ....~oo ....to ~s~Sl~~ ~8~~~~

:a ., gj, ~g55~~~~:g~~55~ ..

I

~~g~gg~~~~~~g~~~8ti ~~~g~~ g ,£: QOCl:l'Of'...-l'-:t'''1l

~....;-....:~r£lQ~f$Q) ...t-='ei..;aO ei"';"';ci .. :::- ................. 0 -.lQl.Q~

__ ...-l...-l __

I :;;: I

ril

>'l

III

-<

Eo<

.;

-5 :0

'" .:: 0

a .... '0

." ec 0

" ;;:: .. -: "" .. '"" '" .... .,

>< ~cO~~~~~~~:~~ '"It>

c:bSQ)Q)Q) Q)Q)C1Q)~C1 .2: .................... -......... ----- ~cP~U)C)~cPCPcPCPQG) , 0

flflflnfl~fl~flflfl s

...,~~t_:.~...,...,t_:...,...,~J_;, 0

2.£.£.£.££.£.£2222 I :~ : ...;

, .8 , ,

" iiisHi;g~i~!~~ ',8,8 ~~: : ell

.................................. - .... --- \~'Sj88 :;;~.gJ : : <1J

»»h»I>ol»»»»»»» » ...!.se B ",.Q:;;;: 1»<1>

.,..,

'3'3'3'3'3'3'3===== .....,............,..,t"~..., ;E!~~oz~ ~~::;l~~

~~~

~ ~

~

~

~~

~ ~

~ ~

'" ~ ~

~ ~ ~ ~ "'

~ ~

~ ~ ~ ~ ~~~~~~ ~ ~~~~~~ ~

~ ~

~ ~

~ -

~

~

... '

•• "
142 SECURITIES AND EXCHANGE COMMISSION

I ~~S}s~i~~~~~i

I

;!~~~8*tli!~:i~f~~ ......... ..-011................. CQCO.-l

....

............ ............ ....-

,

,

,

I':

, ,

- : e: : : : ~dS I'

oiJ:::i :

=~:a~~ ~""::s<oi!i ...

,

,-.

I I , ,

,

, , , , , , ., . ., I' ......... : :ZJ2X

:~8.8e8

~6G3S:8

~~£'~ZA

t

o

!

g

z

I

i

l5

o

1< """'

•

•

~ ~
TWELFT:J;r ANNUAL REPORT 143

'0

Q)

::l

:p

0

0

J

co.,

13

ro

.",

.,

r .-;:

s ;:;l

0

'" ., Il:: '0 oS J<l

p

.!: t1.l

t1.l ., ... ::l

r;., 0

CO 0 -e o<e J<l .a Pol

<> :>< .. 8 !!

I. e .., l>o

:l .. '"l t, Pol

c 'i

.! 10

";t

..

OS

.,

<>

co

51

I

et:l

III

-<

E-l

. s""'. 8f;~~i~gi~!8~~o~eooo OQiOQOQ

ta:S'g ....

a"oli, tfici':s"ci~cD"r.Oci Cl'd -~s:lO

J<l "I'l

aE!~ SH2~~~S~e~g~~ ee~~ec> OQO=OQ

,

QfDai ";~!'.,;t~.,.r m:?!~g- .,;~

~~a

'gc ~~~~~~!!~s~~ $~1UI~l$ ~~i~~~ "% ~~~i~H!~g$~i!~t~~Ii;fJ i=!~~t=!!~ e0 lOa ..; ...... ....i' ,..t

e- o

e~~i s~~H~~~~~~;~~iioooo~ O~O~OQ

"

<l

0

Z C)~~~ 8<t:!i:i1i!i~:i"""'~~ l€ :! !i 'i~::l ... .. [;.,,,lll,, '" <:::.e,

~lIiEl....J ~.,$:a- ~$~!~~~S~~~S~~~~s~~~8iH~~

~~lil""lil"'''' "E cG p. .E! fi:i=~~~:::g"";~1i~~~~g~ ~~~~rJ~

plOc3 a.a ~$l

.cC'Qf8 .......~.... N

....oc(....crt"f.Q~~s~~ ... .~... e,

'" ~s~~~~~a~~g8i~s~~~i~s~ij~ c;~e ~;!~gggl~$~~ i~~:!iiit ......... "08e ~ii~c£~ 8 ....o.,;....,;.,;.o!i1g~l2!i ..; .......

0; ~~ii~~~!~~~~~~~sf!~~ ~1iH:H~~~

!~~ :i~~g~~~:8~~~~~.o~2!iClf~ ~u)~~~~

~,J3 ,

~~~~~iiS~~~8~~n~e8 ~~~~g~ :a a~~;~~~~~!~! ~t~~$' cQg~t~g Il:: ...... ...........

~=~~~i:l~~H~~~~~~!~ii f;1~si~ ~t' 0 "'-::l'S :;~ig~~~g~!8~~ ~~gf~t~ ~~P!~~~

e- o Pol::l ....... "';...4'P"'4- "';-ci

0

~:g~~~g~~H~85:i18 ~~~~12~ ~~!~~&l

::l ~*~~~~~~~~g~ ~'~!ag;f!!~!~~5 ...... ... ......

'" !~ir;8S~~~~~~s!~ss~~~~S~12 Ole "Oe 8 ~~~~~gf~~E~t{~~i~~~~~~s~~i

8 .cl')....... ~ci"(I)...t .. ... 1'1 I • I , , • I I

. , I

I I I I •• I I I • I I I •• I I I",. I

I I I 1'1 fl. I 1111 I 1 , ., • 11' I , I I I 1 • I I I •••

I! 111111111 ,

I I I I I 1

1 , 1'1 .. , I I I 1'1 . . .. I I I 1'1 .. , I , I I I .. , 1 I I I I

•• I I I • . ., r I I I ,

I I I I I .. , ,.Q ••• I.

. . .,

-g I I I • I •• I I • , I 1'1'1

.. , 1'1 I I • I • I I , , I I I I

. : : : : : : : : : : : : 1'1. I .. ,

a 1 I , I .. , • I • I ,

"', ... .Q~..:;~~..:~..J~";.o I I , . '" • • , I I . ... s Sl",Sl Sl c£c£c£ c£c£ 1'1'

I , •• e:: , .. ............ -.........-_ ................ , .. G)G)O»G.lc:;lO»~G)G.lG)cpG) • I , ••

, I

ssssesssssss I I I I , I I I , I

, I I •• I. I 1'1

Mt-)~..,io't"'~"'''''''''~M • I I • I I I • I • I

.E.s.s.ss.ss.sssss • I •• I I

:..: :...: I

:i i : :: iii~sliJs~i~ii~ .'"..e ":.0."'~ ........ ,.... ...................................... ~lji~1 ~~~~~l>o~~l>o~~~

~~~OZt:l ...

i~~~~ '"'~< ...

~

~ ~

~ ~~ ~

~

~

~ ~

" ~

~ ~

~ ~

~

~

~ ~

~

~ ~ ~

~ ~

~

~ ~

~ ~

~ ~ ~ ' •• •

•

•

•

•

•

' •

•

•

•• ~ " •

"'" ~ t

" •

•

~

~ ' •• ••

~~~~~~~~~~~~
144

"C:l

Q)

;:l

l'::

:;;:

l'::

0

0

J CfJ

r.l

00 E::

.... e t>

0

] r.l

CfJ

r.l .!!!

"0 Eo< -e «: "0

'" III

:S 0 0::

.. ... 0 '"

'"

0

'" 0 '5 0; "" 00 .E 0 -<:: CfJ e>

Eo< 21 <;) Z .. r.l

;:;l gj

'l:l r.l

'" 0 .. «: 't:l

..:l c

00 r.l '" Eo<

.. «: £1 ..

;$ >.... <;)

..'"

;0 I

...

I .. cQ

f'l

M

I'l

<

Eo<

SECURITIES AND EXCHANGE COMMISSION

~s ~~~sO~8iO~!i~888g18 0000°8

.t-CO",,", 00.-4

-" ~::f~ o)~ ... .. ... ci'.-4 .. ... ..co-..; .,.; .. 0::

-.. ~.Cf:l

~J3

~'8

I ..

I o~~~fJ~~!gS~~OOQ~OO O!OOO~

'0

so

.. ;:!";it-=~oi'~aQ~~i~ e

I - :;

~. iil ,

"0 I ~~S~1il~~8~~~~~~i~~~o~~m~~ '" I 0.

>. = ~:2:igfi~~"~"fi~~"igcir:~t;"~ ~~~sf",- Eo< ;

£ 1

f")~~ -_C'Q

z -I '" I

d I ~~~~E~8~~Si~~g:;8~~~ ~~*~~~

.5 I ~~Egf~~~f{~~a~t~f~gfgf~ gs"gg~IQ"

r:l

I -e

0::

I .... I

, ~i~gg~~~~~~~~~o1n~~~r~H~~~

J:l ~"'C'1"'(f) oocfuSC'i'r-:'ottS -- .-4-.,;-t/S C"t... ttS~ ..ct)cict)

" -<'>

..::- .s -;:: CfJ

'"gj"

'0

8'd

I 0 ~~8~8~~~~~si~&i~~~~ ~~~!~ 0. ~=rtj >. ~~~i~~iilsf~~"~"i a~f~!r~~g~-<igF!~g- Eo< "'.... ~eg

0::'" I 0- I !Xl I

, ~~~~~~g~i:~~~ 8::::~"8~

£~ I _'OC":l"lIfUQC"f •• =~-I""" "0 g;"~"~"~~~~~~~"g ~~~s"~":g" ~"!igfi€~~ ~e -'" - 0.8

I -., -- <c.

I r: ,

I

I ,

I

I ,

,

.J:l 1

, ,

" , 0

I e ... 't:l , '" 0::

I . .. . , , ,

>< I

, , , , , , , , ,

I aQtD~~~o"';~!~.o~ , ,

I g;:g;:g;:",1:lCl:Cl:Cl: Cl:",

I ------------ Q:>QQ:>QQ<l)Q)I1>(D(I)I1>Q

I aaaaElaaaaUg , , , . , ~...,~...,~..,..,..,..,..,..,.., .. , s.sss.sSS.s.sSSB :~:~J •• I I

~~~i~~a:~~~i~I :.0 k.o.! :~ 1 i

I :-s,8se 1:' .. , ,

------------ ~!.s0;8 ~ 2-e= I».i 1»1»>'1»>'>'1»1»1»1»1»1»

'3'3'3'3'3'3'3'3'3'3'3'3 ~~~~ZAgog.. ~ a ...,..,..,.., .....,..,..,..,...,..,"" ... "":=;!< ...

_ ~~ ~ ~

~

~

~

~

~ ~ __

~ ~

~ ~

~ "

~

~

~ ~ ~ ~

~ ~

~ ~ ~

~ ~ ~

~ ~

~

~

~ ~

~

~

~ ~

~~~~~~

~
TWELFTH ANNUAL REPORT '145
146 SECURITIES AND EXCHANGE COMMISSION

-'

-'

~~fe~~H~~~~~a~

C"5' .... _~_ C"f-.:tl-

, ,

:

i! :

aeild ' :

... 1<t::!l41.<l ...

~~8~!~~~~8~~

gi~~~!~~~Jf~~ ....

8~~~~~5~s~~~

fi~gf~~~!£~~~~~ et:rC'i ...; .... cf.-t- .... ~..Q

~~~~~~~~~~~~

~~

~~~~~
TWELFTH -ANNUAL REPORT 147

s~~~~~~~H~~~~~~~~s~~~:g~g~

(OCQ .....r-.ooo

g::r5i~g;!t:~;f~~gf~=~e-i~"';eO O.... tCoot--='C'i .-4.-4_ C'Q

$g~gHi;!~~~~:g~ :!:;::f8~~~

COt-OO&Q.-4l'- ~~~s~~

f[~~ei~~:i~gK~:{ .o~~o;ttSaQ __ .-4.-4('1') ~_CO~ .-4 !.i~s"'~~~

~~l:g~~ga8ga~ ('I')CQ~'<tlCQl.O

~~~i8~~

;::"liti~~~"gigt~~ .. ~"'ffl ... .. uS ...;~t-=cQ .-4 .-4 P"1 ... .,~~ /

g~~:;:~:gt;~~~8~ coot-~CQO

_'-.:tIC'Q~'O~~_t-.OOl'ooO) ~S;~gffSC;; ~;rlS8~ .. .. ... .. .. ~"goo-~"~"~ g~~-=-~-~"

~~~~~~Hi~~~~s~~~:s~5 :g~i~~~

~~gs~"'gflg~~~~:f 8~~f~~g ('0)_ r-I ..... r:"~~~~! .... ....

~~~!~~i~i:~~~~;~8~~~~5~~~ gt~~g$~~~gg~OC1J-~.o"<tl-ttS ('I')-"';6~r:..: (I')('I')~cr.>P""I_ 'O:l"_'o:t'&Q~&Q

~~g~~~~~~~~~OlQ(qcoo_

~;;~~O~ g~~~~~

~:f~"'~"'~~£~ggr~~"'~~.f~ eq"c:;"J6 o::o"t--CQ" ~"'ltI".:rhO IoQ ~"~-f2"~-re"!"

8~H~8a~~~;~i~ ~;'I;"8gj::: ce'O:l"C"':l COcq0 ~:!l""tlO~

~"'~g~!~~~~"!~Sfg~-~3:-~-~~g;;"!~~ ~.

~~~~~~~~f2~~~ r-, 0.0 C'l .-lelO ee

t.:lCQQO_O..-fO<o:t<COt-f.O ~~~~f8~ ~~f;j~~£;

~-~~g~~~~~~~~~~~~ ~~~Efffgf&-~~~~S~~~ ~. "";c.1-

,

~f8~~8a~r;&Hg~i :g""""''''~ (I)~g~~CD gHS~~~8

!~~~~gg~g~gac-~~~-~ft!~~;~~~ -~ ~. .,...(c.1~

, , , , . . , , ,

, , , , ,

~~~~~s:g~;ii~~ ~~~~~~-~~:::~~... .., cPQC)q)QC,)Qr:.,}CDCtla>Q i[ , i[ aa'aaaaaaaaaa

~~"""~"""t-),,,,"""""I-:l"''''' , 000000000000 ~+;o~~~~~~ :~ :J : :::': , . , ~U)tOr..OOGbO_c.1M<o:t<LO I 1.8 J.8,8 g;~~~~m~C£2C~~C£ 1::''" , .•.

-_I""'I_~----~-- :+>s .. ss ~2~J : :

'3'3'3'3"3'3'3'3'3'3'3'3

»»»»»»»»»»»1» ~~~2~A

::'~8.g~!l E~~Y~ ~""::s< ,:; """""""""t-)""""""J""""""""Joo,..,'"

~~~~~~ ~~ _

_

~-~~~~~~~~~~~

~~~~~~

~~

~~~ .....
148

-e

Cl)

::l

l::

:;s

l::

C

0

.,

I

e'"

CiS

't:l

;5

'5'"

....

e.,

-<e

ee

e..,

...

-e

'"

c

., .,

... .

;-;: >< " 8 ;:;

0 ... ... '" ;:!

<> ... ... '" 8 0

co p '" ..,

e 0 '"c ... d ... ., <:> III ::s fl. p 0 ... .::: <:> +> <> I oS 51 ,.;

'" ... +>'" "0- " '" .. '"

0

a

'"

co

'5'"

<:>

.::.

co

-e

'"

'"

..,

e

...

fl.

-I:: '"

"0-

co'";s

't:l

'"

co

<:>

fl.

e

d:

I

s

SECURITIES AND EXCHANGE COMMISSION

~H!S~H!gga;~~~C05\081:1 OC':lOO""lflOO

.. ", .;jS",ao>_ ~a

.:::'" .,'" ~ci~"'; ..... "'ooriCQ-oOo)ooo) _c ~cci'~aQ"'; ,; .. 0

0""

=3

<""

I o~~~~~~H~~~~Hi""14~N_~"II1't ""~"'''' ... f:: ..... 2S~&3~~~ ;:!;""/ll8lO",,

8~ig-c6'~!gf g-...:-...;~~-~ _"~-g;c;~~

~o.." '" - ... ","

...

,

rT' ~:e=~~~~8~~~~ oogs~~~ o0;l~~~ , c,.J"e..; ~r:.QCf:j" .::rd'r:O-4 c:) .....-t: CQ:":I_on'"d"C'Q ..... ''If'I ;!s lil I .c

'" 0

E

.0 ~~~~=~~~g!~~NOOOC'lC'QIf:> gO_(N~_ ~C":I ..... et:lOc:"l

'" '" ......... O"'!lC'Qcq '"d":;~~gs~ p:; -e

E;.~~~g~~-~~~~~ ~~~s:r:;f~ ld"g;rgg~ei '"'" -CQIQ ..... _0>_

-g -- .... -" r-:C'i ::l

I

~gtH~~~&J~~g;~;::~ "'f"e.oc:>et:lo..

d>~ ~oo~ ....._'Oi:tOO('()~_C\lCQ ~~fC~:::~ .. ", ~~~~~g!~~~~~ eio"';coiu:)"t-"" C"t_-Q~r:ri"'; ~s o ...t--C"':lQOO 'Ot'C"':lt-C'Q_C":I

0°

C':l_C"':llt) .....

-...- I _-.....r .....---,..; _-C"i"

8-=.. OOCQ'O:I'C'I')~CD-.ttOO"""OO __ ""'-OCQ-O co at) N C'H,e0

~- t;~~<::~~~~~~~~ tC..,.~ot-~

C'1_'O:I''O:I'lt)C\I

.Q~"'oo"~o-s~cir:Os;::fs'" .; -:'N"

.."" ~gJ

I>. "," ~g81~~:gs~s~&!~~e'Q_~o_ 35lO0lO-~

s ~2t~~&3~ "'II''o:t'lC ;~ r-c ee ec

0 ~~;i~t::tg~sr-:g-a ...;.,..: ~~g t:f)~o;

8 ..

~"3

'" -",

Z ~'"

~~~!~~i~~!=ij "''''-12-~ eq_eqr--OCf)

QI>. ~~~tO~~ ~oo~~oog ~'" g-~~":itgg~$i~~r2 .Q'C'i .. .. ...;~~~

-=.. 0

- 0>'"

08

8

N

~i~i~;~~~~~~C't;Ioot--~o_ tOCiC'HOCOO~~~S;~ ~;8C:;~~

"'''' !~~~~~!~~!~~ ~E~~~~f -;$ ~~te~gf~ ..0 -...- 02

-- --- -re-1-- E-<""

~"

0'" ~~sHil~~~~~~~~ ~:g;jS12oo'" e-1_o'o:t'~ ~~~si~ bOQ ..'" g~~~i~ggg~~f£~~~gi~~fi~g~"~ ei'.-4" .-4....-4....-4... ....r~... / -...- 8""

I , , ,

, ,

~I I , , , , , , , , , ,

I , I I I I I I I I I

0

~~~!~!i~~~~!. a

.1

______ .-4 .... ____

.., '" "" g~~g~~~~ggg~ . , ,

'" , ..

.. ~....,Jooo,....,....,to_)..,....,~Jooo,~...., . , ill S.s.sS.s.s.s.s.s.s.s.s :t :J,.: . ., . , ><

I

~U)ce~~O~_N('IQ;aQ I I.e ,~c» :~ :

~~~~~!_S5~~~~:~ a as-S ~e-5 : : : 1>.1>.1>.1>.1>.1>.1>01>.1>.1>.1>.1>. r:.6l,21.g: 8 =.e ....;:~~ "3"3='3='3'3'3'3'3'3'3 '3 =' g.~ 0 Q,}

...,t-oa~....,~....,..,.,..., ... ...,~ ...<alOZA ~.&:~~ ...

~ _

~

~~ '"

~ _ •

~ _

~

~ ~ ~

~

~ ~~~~~~

~ ~

~ ~~ ~~~ ~ ~~

~ ~ ~

~ ~ ~

~

~ ~ ~ ~ ~ ~

~

~ ..

"''''

~~

' •

~ ~ ~

~

~
TWELFTH ANNUAL REPORT 149

~oooeo~ooooo 000000 000000 ,

oOf2ooo8°ooo~ ooo~eo 000000

CQ- ",,- ""

~~OOQC'lo:.oooo_ ooo~oo _00 -CO? t... 0i:0ooo r--O"ll" ~o ....

":C"I-~" 00- ~- ::'I:l~_ 1"""1

,

FH~S&,;i'!M~~~g'l~~

"<l"OOO~I.t:I~C'JOOOCl~O

:!:~~~o;

~""N~ 1_ 0f2~~~g

~~~=~~-~~~s-g~f eiri"~oo

a.r--t=l_ ...:" ~~g~~- <','"

~~~~~~i~!~~~"'1'00 '0 0)0 'Of<

a~~~ o~~~~~

....; "'fII4-"'; "';u;,-N- ""':-U'SlO-r---"':_- C'f,.,;oci' ... ~~g~~- S::C:~-~~~"'fII4~o)~~ C'JI-CC_ .... "''''

~og8°S5ooo000 000000 000000

N'SOOQ ...,.

e-fo;

~fJ~~~~i2~~~~~ ;t~;J;~o~

I""_r--I"- 1_ ~~~~~i.1

ci~~~~Fl~~~-~-~~ ...;o~~ ... £"";"';"';"':0 '"

•

~~~~t:~i2~~~~~~e:;~~offS

t--_r--r-- 1_ .~~~~fJ~

;;~~gf~g~~~;i~~ _"OM ...<t5 ..................

'" c_ ..... _r--~

~ffH~~~~~~~g~~ ~g~8°~ e-.ll'-lO~I-_

(00)"" ~;:l;[';Sl~Cb

~g~g~~~E~~~fiiiii~ -£ er..:r-:u5 "'fII4-

- "'''' ;!;~o:.t-M

~-

~~8~H.~~~~~~88N""'e.oCCO~ ~O_NNC'l

~e-:oQ)OOC'JO g'lco;~;:l; 0 OHOQ)OHf)

.......... _---_ ..... - ~ir€~ ",- ~(:D

~~5S'01'Sg:~~:=:~~C'; ..... _~r_oo ....co~_t:O cC~g~~~ - "''''

,

:

u-,;~~~oo~~~.~~

~H!!~!;~~~!~~

G,)<tIQ;lC:>C:>QC:>(OjQQ~a> "" SSESEssEssga ~1-,1-,1-,1-,1-,1-,~Jooo,~I-:l"" :

SSS3.sSES££E:£ :~ :~~ '. ~ss~~s~ia;a;~~, :.c"':,Q:~ ,~

>. ....

:t;S.8S~ Cl3'

P"'f""_

~e-a- : :

.a:a-a~~:a~~:a~.a:a ,:.a.e£~ =s.c ....;:>,~

...,~....,..,....,...,...,..,..,t-t~..., '3..,<woZA ~"'O'" ~~~~.:;

~

'"

~-

~~

~

~

~

~~ ~

~~ ~

"'"

~

'" ~~

'" ~ ~

~ ________ " ' "

"

'"
150 SECURITIES AND EXCHANGE COMMISSION

.... O~~~~

<'<""" ,....1.Q'

OO~O~~

_00

r: ...

~;::~~~~ '"'fIC"ICOlC __

.......r--"'ar~~

o~0t!0~ '" ... -.:flo. ,...; ci

f@~~~O~

~-.-j. C"I"' ..

: :

~0r2tO~O:;CiOO~i,.;

, ,

,', , , I I I , , I , , ,

~~t;~~~~5;!~~~~ '0

~~8lS~8~~8~~8 c es cs c c ss es ss 1-a""""~"'I-:1"''''''''''''''"":'''' s.s.s.s,Sss.s.s.s.s.s

ss~sam~~~~~~ ............. ..-1 ....... ......

~

'"

'"

~

•

~~~~~~~~~~~~

~ """"

"""''''''''''''''' __

~~~~~~~~~~~~
TWELFTH ANNUAL REPORT 151

~~~~~~~~=~~:~~~~~~~~8~O~~~~~~N ~--

~QOO~~~g~~~~~~~~~~~~~~~O~~QO~~O

.....; ci .....;

, ~~~~~~~~~~~~~o~~~~~~~E~~9~~~~= ~__ ~___ _OO~~

~~~E~~~~~~~~~~SS~~~~8~OOg~~~~~~ M M ci .....;

o

]

~~~~oo~~~~~~=~~~g~~~s~~~~o~~o

'"

~

~ ~ ~ ~

~

~ ~

~ - ~ ~
152 SECURITIES AND EXCHANGE COMMISSION

,

,

.

,

:

o ' .bS 3

z

~:

0' ><:

:

z:

.. :

.a:

't:l' =' '0:

tj:

"'50

Eo<

~

"'"

~

~

~ ~

~
TWELFTH ANNUAL REPORT 153

•

TABLE 6.-Special offerings effected on nationaZ securities exchanges for fiscal

year ended June 30, 1946

Number of shares Aggre- Number of offerings by Value gate duration

of special Num- shares com- Exchange ber In sold mis.. Termi- Others Not

made origi- Sub. (thou- sion nated termi- ternnnal scribed Sold sands or (thou. ill 15 nated nated

olIer dollars) sands of minutes same same dollars) day day

--------------- ------ ------ ------ Ali exchanges:

Total_ .. __.. ____..•...•. 49 657,360 653,657 622,629 21,673 340 15 23 11 Completed ...... 40 511,838 555,158 524,130 18,013 ')$7 15 23 2 Not completed ..• .. 9 145,522 98,499 98,499 3,660 53 0 0 9 Chicago Stock Exchange: Total .••.............• _. 5 19,713 20,298 20,013 446 8 3 2 0 Completed, .. _.• _.. 5 19,713 20,298 20,013 446 8 3 2 0 Not completed ..... 0 0 0 0 0 0 0 0 0

New York Curb Exchange. Total ... _......... _•..•. 1 4,800 3,690 3,690 126 2 0 0 1

Completed, ......•. 0 0 0 0 0 0 0 0 0 Not completed. ... _. 1 4,800 3,690 3,690 126 2 0 0 1

New York Stock Exchange: Total •... _...... _... _.. _ 40 620,647 616,969 586,726 20,625 321 9 21 10

Completed •........ 32 479,925 522,160 491,917 17,091 270 9 21 2

Not completed ..•.. 8 140,722 94,809 94,809 3,534 51 0 0 8

San FranciscO Stock Ex.

change: TotaL ____._.. __•....... 3 12,200 12,700 12,200 476 9 3 0 0

Completed ..• ...•. 3 12,200 12,700 12,200 '476 9 3 0 0

Not completed •..•. 0 0 0 0 0 0 0 0 0

•• _ _

_

_
154 SECURITIES AND EXCHANGE COMMISSION

TABLE 7.-Market value and volume of sales effected on securities elDchanges for

fiscal year ended June 3011946

PARr I.-ON ALL REGISTERED EXCHANGES

[In thousands]

Stocks 1 Bonds' Rights and war- rants Total

Exchange market

value Market Num- Market Principal Market Numberot ber ot value shares value amount value units

--- --- ---

All registered exchanges DoUars DoUars Dollars Dollars Dollars

20,377,690 18,934, 952 826, 777 1,358,920 1,784, 465 83,818 40,993 Baltimore Stock Exchange 7,337 5,585 207 1,752 1,919 Boston Stock Exchange 216,080 216,019 5,384 47 36 14 6 Chicago Board of Trade 315 315 48 0 0 -.------ Chicago Stock Exchange 349,276 349,141 12,985 16 11 119 127 Cmelnnati Stock Exchange 12,397 12, 325 386 0 0 72 20 Cleveland Stock Exchange 23,183 23.181 708 0 0 2 16 Detroit Stock Exchange 67,369 67,369 6,565

Los Angeles Stock Exchange 120,979 120,802 15,843 0 0 177 153 New Orleans Stock Exchange 4,569 4,565 172 4 4 (.) 2 New York Curb Exchange 2, 364, 518 2,211,973 177,277 95,095 111,603 57,450 18, 523 New York Stock Exchange 16,778,914 15,492,694 516,093 1,261,066 1,670,110 25,154 21,800 Phtladelphra Stock Exchange 140,258 140,249 5,044 7 6 2 3 Pittsburgh Stock Exchange 30,390 30,383 3,938 7 6 ---------. St. Louis Stock Exchangc 8,667 8,346 299 321 258 -.---.---- Salt Lake Stock Exchange 11,006 11,006 47,246 -.-------. -.-------- San Francisco Mmmg Exchange, 2,772 2,772 14,670 San Francisco Stock Exchange 232,419 231,397 13,923 , 253 181 769 341 Standard Stock Exchange 4,420 4,420 5,946 ------352- .._---- Washmgton Stock Exehanga., 2,821 2,410 43 331 59 2

Break-down offiscal year totals by months

19~ 8, 974 July 1,109,300 993,342 44, 441 106,984 104, 213 5,119 August. 1,045,313 940,043 38,991 101,994 143,293 3,276 709 September ••••. _. ._._ 1, 194, 694 1,103,441 44,845 89,387 120,572 1,866 1,489 October_. .. .••. _._... _. ._ 1,711,488 1,585,893 72, 869 122,343 172, 496 3,252 2,106 November .• .. ... .... _._ 1,934, 140 1,791,082 100,557 137,749 192,680 ~, 309 5,914 December ._. ...•.••• 1,883,966 1,732, 774 82, 740 138,498 185,652 12,694 4,328

1946 9,381

&l?~~~~ 2, 538, 376 2, 363, 635 107,560 165,360 217,071 5,349

2,047,557 1,923,527 88,490 117,243 154,582 6,787 2, 373

1,578, 912 1,475:503 58,377 98,956 121,413 4,453 1,826 April ..... ... . 1,976,636 1,253,382 68,128 107,506 131,595 15,748 4,253

May ... ..... ........ ...... 1,864,187 1,768, 087 68, 140 89,462 107,065 6,638 2, 373 June ...•. ._.•. .. ..•••• 1,493,121 1,404,243 51,639 83,438 97,833 5,440 5, 154

See footnotes at end of table.

---

__~_______

_______ ---------- -------- __________

__________ ---------- _________ ______

_______ __________ ---------- ---------- ---------- -------- _____

____ _______

______ ____

-------- ______

________ -------- _______ ---------- -------- ---------- ---------- -------- ___ ________ -- ___

______________________________ __________________________

______•___ __ _____ _ __ ___ ____ _ _ _____________

___••_ == ~_= = = =_________ = == = ~ ~ == ~ ___ ~ = ~ =~ ___ _ ___ _______ __ __
TWELFTH ANNUAL REPORT 155

TABLE ,7.-Market value and volume of sales effected on securities exchanges for

fiscal year ended June 30, 1946-Continued

PART2-0N ALL EXEMPTED EXCHANGES

[In thousands)

Stocks 1 Bonds' Rights and warTotal rants

Exchange market

I value Market Num- Market Principal Market Numvalue ber of value amount value her of shares units

---- ---- ---- --- Dollars Dollars Doll<zrs DoUars Doll<zrs All exempted exchanges __________ 14,767 14,739 1,698 28 26 ---------- -.------ ---- ---- ------- Colorado Springs Stock Ex- change _________________________ 586 586 947 ---------- ----._-. Honolulu Stock Exchange 8,874 8,846 526 28 26 Minneapolis-St. Paul Stock Ex- change _________________________ 4,348 4,348 213 --------0- ------- ... -------- Richmond Stock Exchange 635 635 8 0 Wheeling Stock Exchange 324 324 4 --------.- ------.-.-

Break-down of !JscIll year totals by months

19J,5 July ______________________________ 1,078 1,078 147 0 0 ---------- -------- August + 891 891 102 0 0 ----.-.- September _______________________ October 1,082 1,067 73 15 14 ----.--._. -------- __________________________

November 1,183 1,172 119 11 10 ----.----- -------- _______________________ December 1,283 1,282 266 1 1 ---------- -------- ________________________ 1,065 1,065 210 0 0 ---------- --------

1946 January __________________________ 1,966 1,966 168 0 0 ---------- -------- February _________________________ March 1,332 1,331 172 1 1 -.-------- -------- ___________________________ 1,499 1,499 157 0 0 ---------- ------.-

tf:~:::::::::::::::::::::::::: 1,264 1,264 137 0 0 ---------- -------- 1,166 1,166 91 0 0 .--------- ---_._-- June _____________________________ 958 958 56 0 0 -~------.- --------

I "Stocks" includes voting trust certificates, American depositary receipts, and certificates of deposit for

stocks.

2 "Bonds" ineludes mortgage eertiflcates and certlficates of deposit for bonds, and excludes U. S Government bonds since March 18, 1944. 2 Five hundred dollars or less.

NOTE.-Value and volume of sales effected on registered securities exchanges are reported in connection

with fees paid under section 31 of the Secunties Exchange Act of 1934. For most exchanges the figures repre- sent transactions cleared during the calendar month. Figures may differ from comparable figures ill the Statistical BuUetin due to revision of data by exchanges For earlier data see tbe Eleventh Annual Report 01 the Cornmrssion, p. A-17; the Tenth Annual Report, pp. A-19 and A-20; tbe Ninth Annual Report, p A-16, the Eighth Annual Report, p. A-9; the Seventh Annual Report, pp. 288-295; the Sixth Annual Re- port, pp. 27&-283; the Fifth Annual Report, pp, 222-227; the Fourth Annual Report, pp, 166-1i1; the Third Annual Report, insert facing p. 156; the Second Annual Report, Insert Iaemg p. 116, and the First Annual

Report, pp. 87-91.

________ ---------- --------

_______ ---------- -------- ________ ---------- --------

_________ ________________ ----------
156 SECURITIES .AND EXCHANGE COMMISSION

.,

;s'"

,.Q

.,

l::

0

e

e

<0

...

sc

,.Q

s'"

'(;'

.:g

;:!

0

'"

'"

e

'":S

...

"'<0 '"

~"<I-

"0> is.....

~~.';;

1:

"C:'"

., "';:: -5l O;:! '0 ~r ."

'0

~'<:l

... "<1-

0

;>~ to

"' ..... :S

;::

0

'"i3'"

.,

-cc

<:

¥

-...

-ce

u

0

-;

s

.:

;:!

0

1t:I:)

Iil

..:l

III

<

ig~s~~~S~~~~a~~~~g~~!E~s~~ ~..

~~.~.~~~~~oo~~~oooooo~~=~~~

1" I I I I I I , I I I I I I I I I I

", I I , , , I , , I I I I I I I I

I I I I I I I' , I I ,., I I I

I' I , , I I If' I I I , I I I I

! ! Ill: ! iii: ! ! : ! iii iii :: f : : : ..: : : : . : : : : : :"": : : :: : I I I I I I I I I I I I I I I I ,

'"q- I I I I I I I I I I I I , I I I' ,

C) I I I I I , I I I I I I I I I I

I I I I I I I I I I I I I I I I I ,

I I I I I I , I , I I I .,

: : : : : ! ! :~eO~~~: : ; :eQS~~~et)~gi~

: ! : :Jd~~~~!!$~~~~$!$~ttst~

:~~~~~~~88888~~~~8888a~~~a

~~~~~~~~~-=-=-=-=QQQQSS888

'3~~~~««~~~~~ooooZZZZQQAQA

•

~

~

~

~

~

~-

~

~

~

=

~ ~~ -=

~~

~

~

~

~

~

~~.~.~.~~~~

S;~8=~~m~~~~sa8;~~~i~~~~i~ ~••

• •

•• •

•• • • '" •

• • •• t

...... • •

'"

• • • • '

- • • ••

• • • • • """

~~~~~~~~=~=~~~~~****~~~~QOQ
TWELFTH ANNUAL REPORT 157

____ ...4

~~~g~S~g:s~~~~!~~g~~i~~~~~

-- -- --
158

i.,

..0

ii::

.,

l::

Q

<::l

'"

'"....,

..0

;:

.,

l::

'B'

'"l:i

;::l

c

'"

e'"

.,

':S

...

.,

<0:.

;::

e

i3<o

..0

... 0;-

6~ 'UI .:c~

... ;:1

~r

;:l~ -

0

-e

<=l

.,~ '"rg

':5." 0

-"

to Q..,

.,;:;;

~":~

'~

Q

...

't!

t:l

..

e

.:c

'".s

..

]

I

Q

-e

e

.sI

;::l

Q

I

l"l

..:l

III

<

E-l

SECURITIES AND EXCHANGE COMMISSION

.

I 00000000000000000000000000

., ...

... <=l- 0 00 -" :g.!S" III

iil@~ III 3

I

~~~~~~~~~~~~~~~~S~g~~~g~~~

~~s 0 ...... - ------- ...S Eo< "'0" ~5g '$ I 'tl ... ~~~~~~~~~~~~ffi8m~~~~~~~~~8~

~a ol", ..... ---.....---~- P-<.g

., I .

I ~~.~~OO_OO~~~~.~~_~Q~~OO_~OO~~ <=l t: ....-I ___ ..... ...... __

0- 0

~~(r) -"III

~d '"

I III 30 ~~E~~!;~~~~R~~~~~~S~~G~~~~ ,.; ~~~~~~~~~~~~~M~~M~~ "''''S

"'i"',.c: 00" 0

Eo< ---

I -;l"'"

ga" .. Olgj

'~ ~~~~~s~~~~~~~~~S~~~~8~~g~~

P-<.g --- MMM~~~~~~M.~~ ~ri~~

.

I ~~~~__ ~~~~~~~~~~oo~ocoo~_~~_

t: € ..... 0

"''' -" .35 III

Oil::

I lllo ... Ul ~~~~~~~~~~~~~~~~~E~ij~~~~~~ ~'g s r; ........ Eo<

.t:I ... oS 0'" S ",-

I 0 0.6 ~~~~~~~~~~~~~~~~8~~~~~~~~~

S

- I P-<-" 0 0

!l

I

.

I <=l ... c:qlQ_-~c:q-- _~lQ~_~~~O~~~~~. _C":l __ __ ::s '" ...

0 s 8 go -" 0 --" III

'" "t ... 0

"'''' I Ul 3

I :: "'- ... ~g~~~~~~~~~a~~~~!sE~~~~~~~ ... ~'g 8 0

oS +oI~l;; Eo<

...- '" ",'"

I

:5:5 ~~~~~~~~~~~~~~~~~~~~g~~~~~ 0 0

III P-<1l -- " 0

.;..c=oo I

.

I ... ~oo~~~~~~oo~~~~~~~~~~~~~~~~~ ... °a.2"t:1 ... 0 0

... ~.rlo '" -" 1 'tl CIJ~S 0 Ul

@ C;8Ea '"

\ I 0 ","''' <£l

<l{j E 3c S3~S~~~~~E~~E~~~~~~~~~~~~5 .gOa) Eo< ~tJa

lll<=l;>.

~gJ I g-o

...:J'5 ~=~s~=~~~~~S~~g~~~~~~~~

P-<~ I E-t~ 0

... ...

I .. ~~~~oo~~~~~~~~~~~~~~~~~~~~~ 0

'" 'tl", <£l

U 3

I 0 ~~g~8~~~~~~8~~~~~~~~~g~~~~

---- -' ~~~~~~~~~~~~=~~~ri~~ Eo<

. ;>.

'"

""

...

.a , ."

'"<£l

'" "" . 0 , 'tl I I I I , I I I I

<=l ",.,.,," 0 I Ii. :~oO~~~ I I :M~~~JaJ~gigi .l4 ! ! j !~d~~$$~$~~~~~~2~$$2~$~ 0

"

I ~~~~!~~~~~~g~$2$$gg~gsssse --~-oooo>~»B8~88~~~~~~~~~~~~~88g8zzzZ~A~Q~

~

~

~

~

~

~~~

~ ~ ••

-- --~~-~ '" ~ ~

~ ~

~~ ~~

~

~ ~

'" ~~ '"

~ ~~ ~~

~ ~ ~~

~

~

~

~

~

~ ~

~

~

~

~ ~ •

~ "

~ ~~~~ ~~~
TWELFTH ANNUAL REPORT 159

00000000000000000000000000

~~~;~~~~~~~~~~~sE~~~~~E~~~ ~~~~~~~~~~~~~~~~~~ri~~~~~~~

~~~~~~~~~~~i~~~~~~~g~~~~~~

~~~~~~~~~~~~~~~~~~~~~~~~~M

~~~s=~~~~~~~~~~~~~~~~~~S

€ S

8~~S~gg~~S~~~~~~~~~~~~a~~~

~~~~~.~~~ri~d~~~d~dN~~N~~~~

, ,

,

f

, ,

, I I I I I

!~CJ :NOS~ , I I I I I •• : • I ,: I'

\Q'"""'"""~>.>.>.>a I I~CQO I I I I I I

>.>.>.>a"'''' M~e:tl-~~ ~d 1

:a~:a:a~~~~~~~~~=-~~~~~~~oo~~~ ~=~~...~",~~~e~e====~~~>'~~~~Q aaa~~~~~~~~~~~~~~~~~gg88E ~~~~~~~~~~~~~<~.«~~~~~~~~~

'" '"I • I , I I

"

I I
160 SECURITIES AND EXCHANGE COMMISSION

~!;~ff5~S;~~ ,t...CQ_t--_oo_t-

~~gE~~~~

~gttfi~";g~:i

~~g~~~~~ ~-....;-rC'i.-4""';"';

,

.

,

,

,

.,

,

. I I

!j~ :~~:egi IQ_-~~~>-~

~~~~aa:':'

:':':':'22""

=;::3::S0..c,Q~Js

~~~~&:&:&:&:

~~H~&;ig~~

~~fJ~~g~~

O""OOeilaoo.ot-

~ga;~~~~~

""';ri.Q""1'-~"'.cQri

-~~i:1~~~~;;

gf~fig~glgf~

,

, . , o. ,

,

~E~~~~~8~~E~~~~~~~~~!~~~~~

~~~~~~~~~Eg~~~g~~g~~g~~5~~ . - .... ......... - - -_..... ---

~~~~~;~g~~~~~~~8~5~~~~~~~~

~~~~~g~Q~~~~~~~~~~~d~~~~~~

, ,

:~:

,

,

, , , , ,

, , , , , , . , , , ..I I I I I I

.., , I I I I I , , ,

I : • : : I I :....:oo~~g: : I • :co)~~~.JaJ~~gi

~l:;~=~~~~22~~~~~]~22~~2~$ ~~~~~~~~~~e~~2$22~~~~aaaae ~~~~&~~&~~S~~oooo»»88888

~~~~~~~~~~~~~2282~~~ZAAAAA

~~S~~;~~~~g~;~~S~~~~8~~g~8

~~tgti~~~g~g~~~~~~~~i~~~~~~

~~~~i8!~~~~~~~g~~i~~~~~8~E

~~~~~~~~~~~~~~~~8i~~~g~~~~ ~~~N~-~~OO~O~~~_O~~~~~OOO~~O

~~~~~~g~~~g~~~~~g~~~~~g:~~

~~~~~~~~

"

o • """ ' •• • ••
TWELFTH ANNUAL REPORT 161

~!g~~~S~~~~~!~~~~S ~~~~~~~~~~~~~~N~~~

,

,

'I:, ,< ,: . , . , , ,

, I I I I I

I I I I

'~~ ,::1: llli!l I I I I I

I: : I I I J I:

I I. I' I I I I I I I I I'

:~ : : :": : : : : : : : ~~~~~~:~~~~~~~~~~~

~~~~~RRRR~~~~~~~~~ ~~~~~««~~~~~~~~~ 722108-47--12

~~~~~
162 SECURITIES AND EXCHANGE COMMISSION

..................... ............... __ ..... _--

~~~~;~~~~~~~~~g~~g2~~~

~~.~~~~~~~.....t~.....t~.....t~~~~~~~

g~~~~~~~~~~~~~~~~~~~~~

crS~.~~~~~~~.....tH.....t.....t.....t~~~~~~~

~~~~~~~~~~~N~~~~~~~~~~N~~~~~~

~~~~~~~~~~~~g~~~~g~~a~~~~~~~~

-"

0 I I I , I I , I , I I , I I I , I I I , I

, , I , I I I I I I I I I I I I I I I I

~~~i~~Jd~~~~~~g~~~~~d~~

>.>.bObCbCbC..;...;...;...;."." .~~~~dodd

~~~~~~~~~~22222zzZZAAAA

~~~8~~~~~~~~~~~~~~~~~~~

~~~~~~~g~~~gt~~~g~~~~g~ ~crS.....t.....t .....I~.....I.....t.....t ~.....t.....tei~

~~~~~~~~E

r:cfe:iffgigg::f

C<:lCQr-..C'Qi_~OOQ:lO

_-"';.....1 "';C'fcQcQeicrS

.....t~~~.....t~,..;...;,..;...;rl...;.....t...;~~~~~~~~...;~...;~...;...;...;~~~~...;~

I I' I I I , I

, , I I I , I

~~~~~o!S~g

»»ddddc.i

o 00 0 C%)/V<::,)C%) a;)

ZZZZAAAAA

s~~~~~~~~

~~~~~gff;n~'~

.....t...-l~.,..(.....tC'icOCQ-eiei"

dl

I

I!

I

I

l~ ~g~~~~~$~~!~~~~~~E~~$

g~~sg~tg~~~t~~~~~~~~~

~~~~~~~s~~~~~~~ss~~~~~

~~~~~g~~~i~!~~~~~~~g~~~~~

~~~~~~~~~E~~~~~~~~g~~~~~g

~~~~~~~~~~~~

o , • •

• ••

_

~~~~8~~~~~~~S~~~g8~~~~~~8~~g~~~~~~

~~~~g~~~~g~~~~;~~~~~~~~~g~~ig

••
TWELFTH ANNUAL REPORT 163

"I0)

.....

..;

.,

">~

.,

.,s

;:"

..c

.,~

<:ll

I:e

<>0

...

;l

.,

:S"O

1:<1'

0::>

~:EI:~

;:lo

I 80;:;/ .c: 1:* r£ sc .,,"1-

... 0) "' ..... l:: O)~

~">

... .,

..c

l::

.,

;:

I:c

I:

...

.;;

">

I:0

.'"

1:l e

">

<:l

<>0

I:

;:l eI<2,

.....

I'l

..:l

III

-<

I ~~~~~~~t;~H~

.. ~~it~g~~~~~ ::!l Cll "';N~...i...4

~g

28So Sl Sf gj g .g ~~g~~~gf~~~ tl z Po< ..;etr~

"" I,~

,

'"

"" 0' I ~. I'

IIIIIII

,IIIII,I

~~sh~~o~~~~

... 0..c.c.c.c":":

.s

I

I

I ~~~~H:;~~~~~ ill

.. ijgg~igf~~~~ I ,S.s eo "";C'icici"';tiei"";"';...1

1:tEl

.08 '" So '" ",,, gj S

<l .g 0Z tl ...1e"ie-ie-i"';l:icoQci~...1 I Po< I 0 0

""'"

""s I'

IIIIIII

!

?5

IIIIIII

... ~J~~~Jctl~~&i '"

'" tiP:t:o=P:~dQQc.ld OOOO~Q;lQ,)lVQ,) I oZZZZ~~~~~ I I a~~~~~~~~~ I 1;; '" ~~~~g~g~~g ~!l I

..

Cll

I ...i ....... ...i~...;~ci,..;ei I ,O~ I :J I $;l2fi~~~~fio~ ~" '" I lQCOC":l':DC'Q"I:I'l"l:tlr-.,g:l) S OJ

<l 0

.g g~~~it~~~~~ !:l

z

I Po< "';-"';.-4...4";"';ci...i"';- II , ,

'0

'"

I

,

,, '0 , : : : : : : : :

::

'$

I ~~...!aJ~~~~~~

i;: ~~iiiii~~~ -«air1j~~~ooo I j

~~~~~~~~~8 '" '1i! I I ., ~"'o.o...ici'aSrxS.or: " I 0; I _~g~CS:;~~~~ ::!l Cll ~~."';"';"';"';...1

,O@ Sl ~" S gj

I ~~~~*:=~~~~

'8

I <l 0 g~it~~~~~!~ Z " etr..;"<t' ..~..;...i,..;...1 ...i I Po<

'0

I .,

'0

<l

I .,

III,I•I•,,

'$

,,,II

a::~~g~~c::1~~=

~'

I CD CDQQ>.>.>.>.bilbi> II ~~~~~gg~~~

-= ~~

~~~~~~~~~~~

''''~~~~~~~

~

~

~~~~~~~~~~ , •

~

't

~ ~~~~~~~~~~

~

~~~~~~~~~~

~~~~~~~~~~ • ' ••

'"

~

~ '"

~~

~ '"~ J

'"

~

~~

'"~

••I••

~
164 SECURITIES AND EXCHANGE COMMISSION

TABLE ll.-Basic forms usea b1Iissuers in registering securities on national

securities exchanges ana, for each form, the number of securities regiSterea ana issuers involvea as of June 90, 19J,5,ana June SO,1946

As ofJune 30, 1945 As of June 3O,~1946

Form Description Securities Issuers Securities Issuers

registered mvolved registered Involved

7 Provisinnal application where no 'other form is prescribed

10 General corporations 11 Unincorporated issuers

12 Carriers making reports to the Interstate Com- merce Oommission and communication com- panies making reports to the Federal Communi- canons Commission

12-A Carriers m receivership or bankruptcy making

reports to the Interstate Commerce CommiSSion

and communication compames In receivership or bankruptcy making reports to the Federal Commumcations Commission

13 Insurance compames other than life and title insurance companies

14 Oertificates of deposit issued j)y a committee

15 Incorporated Investjnsnt companies 16 Voting trust certlficates

17 Unincorporated Investment companies

18 Foreign governments and pohtical subdivisions thereoL

19 American certificates issued against foreign certifi- cates

20 Stocks offoreign private issuers

21 Bonds offoreign private issuers

22 Issuers reorganized In insolveney proceedings or their successors

23 Successor issuers other than these succeeding in- solvent issuers

24 Bank holding companies

Totais

8 2,346

22

552

81

10

33

75

21

8

253

8

1

77

90

86

4

3,675

6 1,638

13

.168

17

10

20

47

18

5

82

7

1

46

53

54

4

12,189

;

9

2,309

22

527

67

10

30

71

19

7

248

9

1

77

82

99

5

3,592

7 1,65013

100

15

10

18

45

17

5

81

8

1

46

54

58

5

2, 193

I Includes two ISSuershaving secunties registered on two basic forms and one issuer having securities

registered on three bssie forms. Net number of issuers having securities registered is therefore 2,185. 2 Includes three issuers having securities registered on two basic forms and one issuer having securities

registered on three basic forms. Net number of issuers having securities registered is therefore 2,188

TABLE 12.-CJlassiflcation by industries of issuers haVing securities registerea on national securities exchanges as of June 90, 19J,5,ana June SO,1946

Number of Issuers

Industry As.ofJune 30, As ofJune 30,

1945 1946

Agriculture . _._. . 7 8 Beverages (breweries, distilleries, etc.}________________ 44 47

Building and related companies (including lumber, bnlldlng materials, and construction) . _____________________________________ 82 83 Ohemicals and allied products . 81 80 Financial and mvestment companies (investment trusts, fire Insurance, eto.), 126 124 Food and related prodncts, __________•_______________ •_________•__________. 106 107 Foreign governments and political subdivtsions. ______. ___.• _______________ 80 79 Forelgnlrivate issuers other than Oanadian and Cuban _____________________ 54 54 Iron an steel (excluding machinery) ________________________________ .___ 68 69 Machinery and tools (excluding transportation equipment} __________________ 167 173 Merchandismg (cham stores, department stores, etc.}________________________ 157 161

g!N~E~~~~~::::::::::=:::::::::::::::::::::::::::::::::::::

24 22

218 2:D 63 70

gil ~fldJ:: :;~sdiStribiitiiig~~~: .: :=:::~:::::::::::::::::::::::::::~::=:::: 53 51

39 37 Paper and paper products. _________________________________ 37 37

Real Printing, publishing, and allied Industries., _________________________________ 2Al 20 estate . . 22 19 Rubber and leather products (tires, shoes, etc.}_____________________________ 32 32

Services (including advertising, amusements, hotels, restaurants, ete.) _______ 42 41 Textiles and related products ____________________________ , ___________________ 61 63 Tobacco products 18 18

Transportation and communlcation (railroads, telephone, radio, etc.}________ 275 266 Transportation equipment , ________________ . 175 178 Utillty holding companies (electric, gas, and water} _____.. _________________ 41 39 Utillty holdlnlit-operatlng companies (electric, gas, and water} ______... ______ 14 14 Utillty operat g (electric, gas, and water}_. •• 79 74

Totals. ___________________________________ -._--- ------. ------. -.- ---- 2, 185 2, 188

_

• _

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_

_ •

-

___ _________•_______________________•_____________________

•______________________

________________ •_______ _____________________ •___ _______•___________

•_______________

____________________•_______________________________ ____•______

_______________________ •_________________ •____•____________

_____• •__ _______________________ •

______________________________•

•
TWELFTH ANNUAL REPORT 165

TABLE lS.-Number and amount 01 8ecuritie8 cZa88ifiea according to bas~ tor

admis8ion to deaZing on aZZel1Jchange8as ot June 30, 1946

. Stocks

Basis for admISSion to dealing Column II Column IT'

/ Number of Number of Issues shares Issues shares

Registered; _________________________________________ 2,552 2,440,707,213 2,552 2,440,707,213 Temporarily exempted trom regfstration ____________ '35 17,148, 542 35 17,148, 542 AdIUltted to unlisted trading privileges on registered exchanges _________________________________________ 965 I, 738, 593, 455 396 374,697,021 Listed on exempted exchanges _______________________ 135 100, 922, 924 87 28,036, 680 Admitted to unlisted trading privileges on exempted exchanges. ________________________________________ 42 10,919,454 36 5,652, 140

Total stock issues and number of shares ad- ---..----

, mltted to d6l\llng on all exchanges --.-- 3,106 2,866,141,596

Bonds

Issues PnnCIpal Issues Prinerpal

amount amount

Registered __________________________________________ '1,033 $17,800,893,052 '1,033 $17,800, 893, 052 Temporarily exempted from reglstration ____________ a 21 274,628,447 121 274,628,447 Admitted to unlisted tradmg privileges on registered exehanges, ___________________________________ ____ 132 1,583,921,521 116 1,155,904.721 tsted on exempted exchanges _______________________ 7 21,447,000 7 21,447,000 dmltted to unlisted trading privileges on exempted exchanges. ________________________________________ I 140,000 1 140,000

Total bond issues and principal amount ad-

- mltted to dealing on all exchanges ___________ ---------- ---------------- 1,178 19,253,013,220

L

A

I The purpose of col. I is to show the number and amount ofsecurltJes admitted to dealing under the various bases for adrmssion of securities to dealing on exchanges under the act. Each seeurity IS counted once

under each basis CorIts <illmlssion to dealmg. For example, if a security Is registered on one or more than one

exchange and also unlisted on one or more than one exchange, such security Is counted once under "regis.

tered" and once under "admitted to unlisted trading privileges on registered exchanges." This column

Is not totaled because of such duphcations . The purpose of col. II IS to show the unduplleated total of all securities admitted to dealmg on all ex. changes. Each security is counted only once, and the elimination of duplications contained in col. I Is made , in col. IT in the order III which the various bases Cor adnnssion to dealing IS given. For example, oC the 965 stock issues shown in col. I as unhsted on registered exchanges, 569 are also registered, leavtng the 396 shown in col. II; oCthe 135 stock issues shown In col. I as listed on exempted exchanges, 39 are registered and 9 are nnlisted, leaving the 87 shown in col. II; and of the 42 stock ISSues shown In col. I as unlisted on ex.

erupted exchanges, 5 are also registered and lis also unlisted on a registered axchange.Ieavlng the 36 shown

III col. IT. Of the 132 bond issues shown In col. I as unlisted on registered exchanges, 16 are also registered,

leaving the 116 shown In col II. I Includes certain securities resulting from modifications of previously listed securities, securities oC certsln banks, and securities oC certaIn issuers In bankruptcy. These seeuntles have been exempted from

registration upon specified terms and condltrons and for stated periods pursuant to rules and regulations

ofthe Commission under the act. ._

Includes eight bond issues III pounds sterling In the amount oC £28,202,609. This amount has been ex•.

cluded Crom the principal amount In dollars shown above

~

•

___________ ---------- -----------

•

•
166 SECURITIES AND EXCHANGE COMMISSION

TABLE 14

PART I.-NUMBER AND AMOUNT OF SECURITIES CLASSIFIED ACCORDING TO THE

NUMBER OF REGISTERED EXCHANGES ON WHICH EACH ISSUE APPEARS AS OF

JUNE 30, 1946

Stocks Bonds

Issnes Shares Issues Principal

. amount

I. Registered on 2 or more exchanges and unlisted on 2 or more exchanges _______________________ 91 496, 106, 313 0 0 2. Registered on 2 or more exchanges and unlisted on 1 exchange ________. ________________________ 70 101, 692, 186 1 $65, 287, 500 3. Registered on 2 or more exchanges ______________ 355 233,006,465 69 2, 025, 776, 800 4. Registered on I exchange and unlisted on 2 or more exchanges _______________________________ 154 538, 294. 485 0 0 5. Registered on 1 exchange and unlisted on 1 ex- change. _. . 254 227. 903, 400 15 362,~300 6. Registered on 1 exchange ___________,_. ______. __ 1,628 843,704,314 1148 15,347, ,452 7. Unlisted on 2 or more exchanges ______________._ 13 34,725,767 0 0 8. Unlisted on 1 exchange 383 339, 871, 254 116 1, 155, 904, 721 9. Temporarily exempted on 1 exchange ___________ 33 15,606,901 17 211, 772, 197 10. Temporarily exempted on 2 exchanges. _________ 2 1,541,641 4 62,856,200

2,983 2, 832, 452, 776 1,170 19, 231, 426. 220 I

PART2.-REGISTERED ISSUES CLASSIFIED ACCORDING TO WHETHER OR NOT THEY

ARE ALSO ADMITTED TO UNLISTED TRADING ON OTHER REGISTERED EXCHANGES AS OF JUNE 30, 1946

Stocks Bonds

s Shares Issues Principal

amount

I, 076, 710, 779 1,017 $17,372,876,252

9 1,363, 996, 434 16 423, 016, 800 52 2,440,707,213 1,033 17,800, SlI3,052

3 ,';5.9 1.5 2.4

•

Registered only (part I,lmes 3 and 6) .________ 1.983

Registered and adrmtted to unlisted trading (part 1,lines I, 2. 4, 5) ._. ._. ._. .____ 56

All registered ISSUeson registered exchanges .____ 2,5

Proportion of registered issues also admitted to un- hsted tradIng-In pereent , ._. .____ 22

Issue

PART 3.-UNLISTED ISSUES ON REGISTERED EXCHANGES CLASSIFIED ACCORDING

TO WHETHER OR NOT THEY ARE ALSO REGISTERED ON OTHER REGISTERED

EXCHANGES AS OF JUNE 30, 1946

Stocks Bonds

Issues Shares Issues Principal

... amount

Unlisted only (part 1,lines 7 and 8). ___. ___________ 396 374,597,021 116 I, 155. 904, 721 Unlisted and registered (part I,lines I, 2.4,5) .. ____ 569 I, 363, 996, 434 16 428,016, 800 All unIlsted Issues on registered exchanges. ____. ____ 965 I, 738, 593, 455 132 1,583,921,521

Proportion of unlisted Issues which are also regis- tered-m percent. . 59.0 78.5 12.1 27.0

PART 4.-ALL ISSUES CLASSIFIED ACOORDING TO WHETHER THEY ARE AVAILABLE

FOR TRADING ON SINGLE OR SEVERAL REGISTERED EXCHANGES AS OF JUNE 30.

1946

Stocks Bonds

Issues Shares Issues Principal

amount ---- Availahle for trading on single exchanges (part 1,

A =~j:o~ moi-;;ihan-oii;;6iccliange-cp8i-T i;-aiI 2,044 I, 199, 182, 469 1,083 16,714, 776, 370

lines but 6, 8, 9) __________________________________ 939 I, 633, 270, 307 87 2,516,649,800 All Issues on registered exchanges. __________________ 2,983 2, 832, 452, 776 ,1,170 19,231,426,220

Proportion avallable for trading on more than one exchange-In percent 31.5 57.7 7.4 13.1

_

____ ______________• ________________

___• _____________________

__• __

___________ ________• ______• ____

_____________________• _______
TWELFTH ANNUAL REPORT 167

TABLE 15.-Number of issuers having securities admitted to dealing on aU eechanges as at June 80, 1946, classified according to the basis for admission of

their securities to dealing

Basis of admission of securitIes to dealing

Colurnn Lt Column III

Number of Number of

issuers issuers ---- I

Registered ________________________________________________________ 2,188 2,188 Temporarily arempted from registration _____________________________________ 45 25 Admitted to unlisted trading privileges on registered excbanges_____________ Listed on exempted exchanges _______________________________________________ 908 3M 116 74 Admitted to unlisted trading privileges on exempted excbanges______________ 40 35

Total number of issuers having seeurlties admitted to dealing on all excbanges ------.~._---- 2, 676

1The purpose of column I is to show the number of issuers having securities admitted to deahng under

the various bases for the admission ofsecurities to dealing under the Act. Each issuer IScounted once under

each basis for admission of Its securities to dealing. For example, an Issuer having securities registered on one or more exchanges and also admitted to unlisted trading privileges on one or more exchangesIs counted once under "registered" and once under "admItted to unlisted trading privileges on registered exchanges." This column is not totaled because of such duplications. I Tlie purpose of column II Isto show the unduplleated total number ofIssuers having seeurines admitted to dealing on all exchanges. Each issuer is counted only once, and the elumnatrons of the duplications in

column I Ismade in the order inwhich the venous bases for admISSIOnofseeunties to dealing ISgiven. For

example, of the 45issuers shown in column I as having securities temporarily exempted from registratron also have seeurities registered, leaving the 25 shown In column II; of the 008Issuers shown in column I as having' securities admitted to unlisted trading privileges on registered exchanges 552also have securities

registered and 2also have seeurities ternporanly exempted from registration.Ieavtng the 3Mshown Incolumn

II; ofthe 116issuers shown In column I as having securities listed on exempted exchanges 33also have seeuritiesregistered and 9aIsohavesecuritiesBdnntted to unJisted trading privileges on registered exchanges,leaving the 74 shown- in column II; and of the 40 issuers shown In column I !IS having secuntles admitted to unhsted

trading privileges on exempted exchanges 4 also have seeurtnes registered and 1also has secuntIes admitted to unlisted trading privileges on a registered exchange, leaving the 35shown in column II.

TABLE 16.-Number of issuers having stocks onlY, bonds only, ana both stock and

bonds, admitted to dealing on aU exchanges as ot June 80, 1946

Classification Number of Percent of

ISSuers total issuers

1. Issuers having only stocks admitted to trading on exchanges______________ 2,116 79.1

2. Issuers having only bonds admitted to trading on exchanges______________ 316 11.8

3. Issuers having both stocks and bonds admitted to trading on exchanges. __ 244 9.1

Total Issuers.L. , -. --._ -. -. 2,676 100.0

4. Issuers having stocks admitted to trading on exchanges (classification 1 plus 3) .l . ._ -. 2,360 88.2

6. Issuers having bonds admitted to trading on exchanges (classification 2

plus 3)._ ._. ._ -. -. _. --. ",' -. -. 560 ~.9

•____•_____

•

___•_______________________________________________________

~

_______•• ____ ____----- ------••- __--- --------

___ ________________________ _______- ___----_---____------------

•••• _ ___•_______ - -- ---_------ -------•• -- ----- -
168 SECURITIES AND EXCHANGE COMMISSION

T~~e~;in::~~~e~h~f :;'~:::a;:dor8c::c~~edn~at~n~~~ ;o~1t!::a~~n~~h~e;;:.it/:d~

mUted to dealing on one or more other eeciumpe« as of June 90, 1946

StOCks = ... Bonds = ... °11 °11 ",,'" ",,'" ",0 ",0

i!e~ '" CD "'OCD N arne of exchange ::l

!l j R X U XLXU :S~ :S~ = ....0 R X U XLXU = ....0 3 3 3 gOe> OJ g0e>

Eo<° Eo< ° Eo< ° Po<

~-~ e

Eo< Po<

~-~ 62 58.1 19 8 362 82 9 26

30 56 7 1

Baltrmore______________ 60 89 37 2 23

Boston_________________ 321 388 135 1 226 Chicago Board of Trade 28 31 25 5

Chicago Stock Ex- change_______________ 275 343 275 9 38 322

ClliclnnatL___________ 64 85 71 1 9 81 Cleveland______________ 84 96 68 28 96

Colorado Spnngs'_____ 14 14 14 14

DetroiL_______________ 148 158 102 56 158 Honolulu ,_____________ 88 102 58 37 95

Los Angeles____________ 188 217 125 3 83 211

We~6~feo~;~_t:_~_~~~: ~: ---21 ----2 15

New York Curb_______ 7971,002 437 2 421 860 New York Stock 1,210 2,3111,342 9 1,351

Philadelphia___________ 440 530 65 5 410 480 Pittsburgh_____________ 111 126 56 68 124 Richmond ,____________ 20 26 25 25

St. LOUls_______________ 47 66 58 1 4 63

Salt Lake______________ 94 95 89 1 5 95 San Francisco Mlning__ 42 42 42 42

San Francisco Stock.c.; 271 334 165 5 150 320

~okane--------------- 31 33 22 11 3

40

3 ashington, D. C_____ 33 49 31 9 Wheeling 1_____________ 20 22 19 3 22

27 48.1

26 638

1 0.0

65 5 10 11 21 42.9

33.3 3 1____ 4 100.0

gI: ~ :::: :::: :::: :::: :::~ :::: :::::: 81.0

25.3 6 1 7 0.0 84.8 6 6 100 0 60 0

17.6 1____ 3 4 25.0

26.5 20 2 120 142 8.5

51. 6 958 11 969 7.8 96.7 50 50 66.0

78.2 2 2 0.0

16.0 1 1 0.0 33.3 3 3 66.7 09.5

14 3

72 5 13 1 14 100.0 30 3

17.5 9 9 33.3 45 5

1 Exempted from registration as a national securities exchange.

R-reglStered; X-temporanlY exempted from regrstratron; U-admitted to unlisted trading privileges on a registered exchange, XL-hsted on an exempted exchange; and XU-admitted to unlisted trading privileges on an exempted exchange.

~ ~ ~~~

_ _

_ _

_ _

_

_ _

---- __~~ ~ ~

_

_ _

---- _ _

_

_
TWELFTH ANNUAL REPORT 169

TABLE 18.-Number of i8sues admitted to unlisted trading pur.suant to Otauses

2 and 3 of Section 12 (f) of the Secur'ities Eicchange Act of 1931, and t'olltme

of transactions therein 1

[Stock volumes in shares, hond volumes in dollars of pnncipal amount]

Number of issues Pcrcent of Aggregate Volume total 1945 volume on volume reported each reported for

Admit- Remam- for the exchange In the calendar

ted mg calendar stocks and years

total 6-3G-46 year I945 honds 1937-1945

respectively inclusive

StockS pursuant to Olause 2: Boston Stock Exchange . 61 , 57 380,096 7.5 2,413,262 Chicago Stock Exchange .. .. 38 37 1,683,654 13.6 5,555,273 Cincinnati Stock Exchange .. . 9 9 73.679 21. 7 488,318 Oleveland Stock Exchange -e, 28 28 128,351 18.7 449,608 Detroit Stock Exchange .... 43 41 639,425 10.6 1,976,739 Los Angeles Stock Exehange., ...... . 40 39 712,719 54 2,388,056 New York Ourb Exchange. 5 5 1,278,180 0.8 2,916,525 Philadelphia Stock Exchange .. ... 87 '84 428,977 90 1,259,455 Pittsburgh Stock Exchange. .... 56 <50 204,701 6.7 959,712 St. Louis Stock Exchange ..... .• 4 64 0 00 0 Salt Lake Stock Exchange, ... ...... 1 1 6,088 002 28,608 San FrancIsco Stock Exchange .... .. 29 628 617,215 6.4 1,391,330 Wheeling Stock Exchange .• ..... 6 f3 1153 67 14,830 ---- TotaL ...................... ... '407 386 6,153,438 19,841,716 Stocks pursuant to Olause 3: Ohleago Stock Exchange ... 1 1 0 00 0 New York Curb Exchange .. 7 7 95,740 0.06 415,505

---- Total stockS .......... . ...... 415 '394 6,249,178 ----_._------- 20,257,221

---- Bonds pursuant to Olause 2: New York Curb Exchange ... 3 1 $916,000 0.5 $11, 370, 000 San Francisco Stock Exchange .... 1 1 1,354,500 98. I 1,429,500 Bonds pursuant to Clause 3'

New YorE: Curb Exchange .• ........ 41 20 7,217,000 41 108,053,000

---- Total honds ..... ...... •. '°45 22 $9,487,500 ----;--------- $120,852,500

I For enactment of Clauses 2 and 3 and procedure thereunder, see Tenth Annual Report under "Unhsted

Trading Privileges on Securities Exchanges" For volumes reported in each of the years 1937 through 1944,

see Eleventh Annual Report Appendix Table 18.

Only odd-lot trading Is permitted in 6 of these issues . Only odd-lot tradme Is permitted in 1 of these ISSUes. < Only odd-lot tradmg Is permitted in 3 of these issues.

Only odd-lot trading Is permitted in these 4 issues. 6 San Francisco Stock Exchange figures Include San FrancISCO Curb Exchange figures prior to the 1938

merger. r Wheeling Stock Exchange Is an exempted exchange. All other exchanges shown are registered exchanges . Twenty-one of these Issues had been removed to June 30, 1946, tbe 21 Issues accounted for 176,293 shares

of the total reported trading volume. , ThIS figure includes duplications arising from admission of various Issues to unlisted trading on more

than one exchange. The net number of issues admitted as of June 30, 1946was 223 pursuant to Olause 2 and

7 pursuant to Clause 3. ID Twenty-three of these issues had been removed to June 30, 1946, principally on account of redemptions; the 23 issues accounted for $44,527,000 of the total $120,852,500 prmcipal amount of trading shown In the table.

_____ ________•

_ ______••

_

_

_____ ____

_____ _____

______ ____

__ ___________

___ __ ___ ___

______

__

__

_____

__ -------~------

_________ __

__________

__ __

_________

____

__

__ ______

•

•

•

•
170 SECURITIES AND EXCHANGE'COMMISSION

TABLE 19.-Reorganization cases instituted under Ohapter X and Section 77B in

which the Oommission ff,led a notice of appearance and in which the Oommission actively participated during the fiscal year ended June 30, 1946

PART I.-DISTRIBUTION OF DEBTORS BY TYPE OF INDUSTRY

Number of debtors Total assets Total indebtedness

Industry Amount Percent Amount Percent Principal Bubsldi- (thousands of grand (thousands of grand ary of dollars) total of dollars) total

--- ---- ----- Agriculture ___________________________ 1 180 166 (I)

Mming and other extractive __________ 7 5 128,824 6.5 89,813 6.8 Manufacturing _______________________ 7 zt,Il2 1.4 18,346 1.4 Financial and investment _____________ 7 2 101,013 5 I 59,461 4.5 Merchandising ________________________ I 2,106 . I 1,292 . I Real estate ____________________________ 52 2 257,810 13.0 263,570 201 Oonstruenon and allred _______________ I 9,108 .5 4,734 .4 Transportation and communication ___ II 7 380,855 19.3 339,574 25.9 Service _______________________________ 6 25,623 1.3 13,529 1.0 Utilities: light, power, and gas ________ II 7 1,043, 229 52.8 522,836 39.8

Grand total., ___________________ 104 23 1,975.860 1000 1,313,321 100.0

PART 2.-DISTRIBUTION OF DEBTORS BY AMOUNT O~' INDEBTEDNESS

Number of debtors Total indebtedness

Range of indebtedness (dollars)

Principal Subsidiary

Amount

(thousands Perccnt of of dollars) grand total

263 (I)

1,890 0.2

4,892 .4 12,586 1.0 'fl,480 2.1 22,41)5 1.7

79,747 6 I

71,984 5.4

216,722 165

101,307 7.7 774,045 589

1.313,321 100.0

I

I

l!

23

4 2

7 4 8 4 11 6

19 1 7 2 20 _

9

13

2

4

104 Grand total

Less than 100,000

100,000-249,999

250,()()()-499,999 /.. 500,()()()--999,999

1,000,000-1,999,999

2,000,000-2,999,999

3,OOO,()()()-4,999,999 _

S,OOO,OlJO-9,999,999

10,000,000-24,999,999

25,OOO,()()()-49,999,999

Over 50,000,000

1 Less than 0.05 percent.

Appre>xImately $800,000,000 assets and $400,000,000 of liabilities were accounted for by Associated G8ll 8< Electric Co. and its subsidiary, Associated Gas 'Electnc Corp.

•

_

_

_

_

_

_

_

_

_

_ •

_

•

'"
TWELFTH ANNUAL REPORT 171

..

o 0

'q

!~

.ci

8 88 ~ g g~ ~ ci &Q

8 8 1l'J" 0< 0

«> ...

I

I

I

I.

I'

I

I

I

I

I

I

I

I

I

I

I

~'g~ I fIltl a

3:6~ "''''-/

8"O~ I

I

I

I

I

I

I

I

I

~

~

'"

~ ~

_
172 SECURITIES AND EXCHANGE COMMISSION

l'-k t-"

> > »

Z Z ~ g

s'

;

cQ

o

Z

I tg

" .~~ ,

,~

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I »

l

.g 0

.

I ci:~r:: I ~o:C I 00=

I ~~p I =.;jal

I p~~

.200

I ~'g ..

P-t co s

l~~ lil< e

..

..

<

Po<

~~

~ ~ ~ ~ ~ ~ ~ ~

'"

'II

[
TWELFTH ANNUAL REPORT 173 = "

'0

;:fg

gg

q -<q

co co &OI.Q

1'0" r!S ;!:~

ci0i

::;1A ci5

oQ

s

gf ... $

J:, 1l i;J 1l

" '" '" '" '" <l> <l>

:E :E :E s .s

;:;

3

3

. 1l 1l 8~ <l>

'" <l> " :c 'd'" :c s

,

i;J ~1l i;J i;J

'" ... >.";; <l> ... ::s ".. '" t::~ .s " '"

" <l>.- .5i

"''' ;:; .5i e.s? 0

Il<

0

oQ oQ oQ <0 <0 ." ... ... ... ... !Ii ... ;:: ;:: ;:: ;:: ;:: .0 ..; '" '" ... ... ... i >. >. .. >.

'3 '3 '" '"

o

'" -< ell ::;1

0

."

8

-

s0

,.:

8... ..;; 00 .0 ee

-;;0 -'" <l> ~bil ..

" 0", .d "'" oS 2jO ~o Eo< e- o 1;1", - ",'d .; 0'" 0

"'iii .9 "'>. ... " .>l "'... ~'d ",'t: " .. 2/ " '.8 -1l oS::s e", ",.!!l ",0 0

S 'd '" Slr.1 t ~{1 2/ SE 'd 0

.sr.: ee

,d.fl '" "''''

q c'd ::sell 0"" :&8 .."" .. oi e- cS '" oS ,gE ,g a><: oS;'" '" 11 ~8 8 '" 3 "21 .. 0

'"

~

~

~~

~

~

~

~

~

~~

~~

~~~~

~~~

~

~

~ ~~

~

~

~

~

~

~

~~

~

~~

'"~

~

~~

~ ~~

~ "'''' ~ ~ ~ ~ ~ '"
174 SECURITIES AND EXCHANGE COMMISSION

~ ~ s

.0

..,-

,

, .

~~~fj g~~ s

g~g~~~~~~ cticQ.QaQ .-I ('f)

:::

= =

8 8 ~- g

of

, d: Oeo 0

1::0 :

~il8 .= .... ~S~

lP.:lli::

~:a

"'~8

e::l'" .. ;g ~e::r3

a

-e

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

I

"''0- I ~<t)~ I

~u,I

-;;.e;:g

-s:::.g I 80", 1

o

o

o o

o

~ ~

~ ~

o

o

~

~
TWELFTH ANNUAL REPORT 175
176 SECURITIES AND EXCHANGE COMMISSION

;

g

;,:

o

Z

,

:

:d

'0,~

'bI)

'"::a

:gj

!i::

,

, I : I

I : 8 I

1'1 :>S : :~g I

IO_be

:~B.8 , :~::'Io~ :r.:l:a~o

ig;;~~

:~~~~ I

;!:....

,

, i~_ ' ,0. , I I If'oo I' , :c:. I I

I ':~

,

,

, , , ,

, ,

, ,

, , ,

:~ I

~g:~ :8 :1=

:8 :51 I

d,1l

::.6 :B :

, , ..

:~:

:~

:E;'

,., , :~ I

:";j

::;

'0

:>'1

:~100 '«I

:~,~:~l~

... ICI$

:< ;0

I~OOCOr-o-

:~~~~~

:C»cQcQ.coo

:~~8lOg

i:g"tti

,

, , , ,

, ,

, , , , , , , ,

,

I cod

I :::~

:o~J I

:°>'10

1~Cl(t~ I

:~104 : IClSG.l0 I.e:

:~~OldE-o

_:]i~B.9 J

06~Z",,"'0

0>'11=

~gjlilS~'f;

"E:ooCQ"Ej'Ot

liliillll'g<w

CIJ~3o~~

-!!<OAOO

p

1'1

..I'

, ,

, , ,

,

, ,

:8

dog

o 0 :c;.~ ~o8:;~

lJEs~!

raj~f;~

",r.:l&~~

~~ooo

:iO~~~ oij;p.,p:;

ti~g.~i t;:<Aali::

8

~

'

"

~

~

~~~~~

~

~

~

- ... ~

~

"

~~

~
TWELF'l',H ANNUAL REPORT 177

~ ~ ~ «<Ii ~ i! ~ ZZZ

!i~;i

.

,

.

,

,

.,

,

,

,

, , ., ,ao

"t:l 'ao i:il :0

!i~

, :,g ':1-0

:..lilll i~~1!:

.,

,

.,

....,

. . , . , , ., , , , , , . , , , . , ., ,

. 'co , I

'"CJ I I

ig I I

:0: I. I: I : ci : co

:.a :t:G a : :; :B~Ci,g.!3 . 5t

:~ge..!! g!..!! 1~::::_.!llI=Q)Q

:... ~>O ....E-oA

, , , .. ..

Ha : :!5' I

,~ . :.s I

:~

,ao

''0

~a !

:oa :'" :~,g~~ I as as'Cf,c

:~:bi :02 '00 :::;!

,

,

.,

,

,

..

.,

,

.,

,

,

,

,

.,

,

,

,

., ,

: = ~ :gCOO

l"ij IQ)-~

:::;!::;!o

.,

...,

...

,!

!r; ,

..,

.,

,

. , . : :~

:~~

:I:i.S

'88 i8.. ro1.aii

_'0 :B

.

,

.

,

,

.......,

,

.

, , . .. , , , , , , , .. , , . . , , , .. .. , . , . , , . , , , , .

_

~

..'l:c>~ iIi fiI fiI

.,

,

.,

...,

,

,

..,

:. :~: , , ,

:~~

:>e~ :~m.. I> ., iZ~

. . , , , , . . , . ,"" ,'I. :~:58

:""8 '8 .. :8,a

:~~ ::a-9

''0 !II :~!

:,88

ao ao

!I!:I!:

"

' t

•

" ~ : : •

'"

'

,

~ ~~~

-
178 SEcuRITms AND EXCHANGE COMMISSION

, .

, , ,

, , ,

.,

., ,

, . . . .

, . , , ,

, ,

I I I It

, . , I' I I I

I I I ,

, ,

: ! i 1 ::

, , . , , I I

I I I I ,

I I I I I

I I I'

I I I I I

I I I I I

I I I I I

, I I I I I

I I I I

I I I I I I

I I I I I I

I I I I I I

0'

I-I

, .0 .. , I I I I I

I 1'1

j ,.; !

., .,. 1'1'

, '0 , , , ..I I ,

, ,

:': : I

, , , . . . ,

., , , ., , . , ,

. , , .

I:: , , I I I

:.:og :.8 : :ceS~~ :ot:.s:l8o I_~-~$.e

:@::a:>~i=l

I" I I I , , , I I I I' I I I I I I I I I I

I I 1'1 I I I , , , I r I I I I 1.,

, I I I I I

I I I I I I 1.,

. I I I I I ,

I I I I I I

I I I I I I

I I I , I I I , ,

I I I 'I

. 'Q

~:::::: I I I , I I ,. , I I •• I

I I I I I

, , I' I , . . , , . I I I , I

, , 1 f

~: i ; : : I I I I

. , I I I I

I .'C I

: I:~ : I :1=. I I

1'1 ..... I

:.8 : : : cd I

:~~~rn~ :"5

:~~~gt5si~

![;~:;SA@~

~:

.,:'

tel

.;'

~:

.....

1>0

I

s

I • f •

'

j

: : I

" ' "

f

' f • •

: t

•

•

l " " " l

•

~ •

'"' ••

•

~-
179

,co

..

, 'co, - I :~

:C'i'

...,

'CO

:ce-

:-

.,

.,

.

,

.,

,.

.

.

.

,

,

.

.,.

,

,

,,

, ,_,II

:,8::I

: ~~~B;II:

II

: (;;lEE :.g c) I ~jj:;i :~ P:/il/ilP:O :0

.........

Cl:CI:Cl:

.........

1tS'at5'_'"

...... CO

ttiloo

<AA ""''''

,,,

, .. . , , ,

..... ,

0"

"

:i

,== '8

...,

, ... 0'"

,0

I

TWELFTH ANNUAL REPORT ,

..,

.,,

,,,

,,

,

...,

,,,

,

r,

0'

,,0

:~

H~.'".=.'":l<l :

,,

,,

.

.

, 0' , .

.

,

,,0

,,

0'

~S

:fI

:~J

rS~ '0'<::

l~~

:00

, t-

,

l:;

:l€0' , ~:

CO

.

.,

::

,

,

,,

,,

,,

.

,

,,,.

. :05

r~om

:!

:.!l

i~

.co

:~

'0

:....

~~

t

o

,

o

,

o,

"'

~~~~

~

o

"

•

o

•

o

,

:
180 SECURITIES AND EXCHANGE COMMISSION

I 'I I

I ..... ""1'1

ii~I!!i1 iii!! j ! ro : : : I : : : : : : :

. , , . ,.... I ,:m

: : ., ,~

: I ~:

; .

I I I , ,

1" I

I I I

. , , . , . , I If , , I I I'

, , I I I I

, I I I I I I

, I ••••

1'1 I fl' I I I I' I I

1.1 I".,

f ••

, t f

, ~~

....

t • •
TWELFTH ANNUAL REPORT 181

..

.

.

..

,

.,

, : : I :

.. . .. . . . ... , . I It

:s I ::

I t I ::R i! i i I I I 1m ,_ t I I I

OOOOG)O~OOOOO

"''''''''''J:l'''~''''''''''''''' I I I 'c::I I I

I I I IG) I I I I I I

: : : :E-t :P04 I I I I I I I I I

I~

:t: I I I

~! :~

!a !-l~ lJ: I I :j~ : :8. llj i I

I I '.,..;. 4) I til> I I

: : i-!ca :~~ :.5 : :

: :gaJgcPC) :'d : : : :::CQ~~~B :~ : :

:~~~~~jl i~ : :

tl :8."~8.~CIl :tl'i . G).src~bU'Jb:npG)O : ... Col t:: Co) :d .....-J:1 I

Sl : l!! 'I1.!!ll!!.!!l '11~ l8iHI Il:i :E-o....lf.~E-oI"l>-l .. P:P:o

..

.

I~

I : : : I :t: I I 11 ::& I :~ d I : d 1a : I :~~::~:I;: : : leas I I .:e I

I I :1: ... cPt:: ~s: I I , .: :8.& :~& :l-es:i I : I I lD,)fO '\:IU'J .2..,9 , I I I ;E1e :.ge :~-- I I : :~5!!~~e! I~A~ss~~a ~::~:,"~:.'~ .tLUjU~ o...... lPU'J ...~]m~ lrill"ll"iE-oI"lE-o E-o

.

...

.

.

.

.

.,

....... . . ... . I: I ., , ..

. . . . . 'CO

::E! :- :

: :~J:! ! ::go81,,; ... : :R,dm-ari:ooo

.!~J:l .. J:l~~~ i~z~~~ .

..

: :

~: J:l !:a:

8:

... :

o

.. :

....

.... .

.

..

.

. L~ : ! ~1: :

:a : I

~. I

,~

. :~~:a

::~ .~~e

:~~~~~dl

:j!!~::!l~~~ lt3z zzz

,

,

.

.

..

:~

:l!!

:.s:fIJ , .g~.g

i~i

........ . . ... : :

co :1'-- : CD .. 0

:a: : CO IfQ I

IQ II'- I

CD :ce: :

:~ : ..0

! 1

! i ......

sli

ti ::!l ...~

~

~~

~~ ~ • ...

~ f

•

'" •

: : : : :

•

• I I • I I

f

~

• l ~

l ~ t

~~ -- ~ ~

•

~

~ ,

•
182 SECURITIES AND EXCHANGE COMMISSION.

, , . , 0' . O. I I ,

I I If

! : : i !

0'

...0

:c& : 0- I :~

:Q-O

:~ I '::S oS

:~

:-c ..:

:::1.5 ::I

e i l-ci.g~~ "'::I.!!i::lZo =z ~ftJO~cd.scd

~1il.E2l

~~S~~ .:1

0'

0

00

00

00

0'

00

,

,

,

00

...

,, , v.l _00"" .Eo

:=::

.... :

I~ I 181

00>

:-

00

,

, ,

,

~.~ I

a:a :a I

:~: , :~:

~.;~oo.;~ 0

~~~~-C::~~ I

z~z : :~z

0

o

0'

0

.

,

0

I I I I

,

, ,

, I I I

I I I I

:~.g.g

i~i 1

• , o o o 0 o •• o • o o o o o

o

o

~

o I

o

o ~ •

o ~ o ~

o " 0

~ '

0

~~ ~

o , o o o •

o o o o ,
TWELFTH ANNUAL REPORT 183

.. -I

.,.

'E'"

s

0 ~"o~"~r:! 'Cl

.s

I .A 1»"' ..

..

g '3 g"

A ........ .... <

~t'i~ ... i!!!

:a !,_.c ~",,~~~

oaf~

~g~Q

.. ... "'1'" ~!!;s:z f!.fjlil.., ...;'cDC'it-=C'i 0"'1;; OOlOt"oo_lQ

~Zi .-4

t'oot"oo .-4l;'Q

flSo 0<'" -'" A ... -- , , , ,

.

.,

,,

,

.,

:0::: :0: I:

:moe: I» ~g~8

:

g 0~Q) ....

Po ~p~-a

:

a ... P-t~

I

8

e S'l'O'O:

.. c8!gg': .s

'0 ~g~l1~ .goo ~:

P1'g~£~

I

~"g'E0

Jln~ OOooP

"". 00

:!:

<D8

S" ",,- '0

'E

,

g

, .s ,.., '0 ,., 'E ,,, 0 , o:l

'"

, '" ,. ,Q , e ,, " ! .l:l

.!l := g ., Po '" a Po 8

..

.s I» .l:l

c;;

o:l

'Cl '0

..

j ..

.s

.5l

oS E-o '"

,

,,

,

,,,

:.i,

,

:!:

:,:,:,

:II

:.:

;:;

I':

I:: I: : .. : : :~

c! :"0 Er: :.E o .=

!';!;

=o la'0 C) ,C) ., ,., ~ 1~

IJI

..,

I I'

•I •• :!l:••

~

~~~

~ ~~~

~~~

~

~~

~~

~

_

~~

~

~

~

~

~
1~ SECURITIES .AND EXCHANGE COMMISSION

TABLE 28.-Number 01 applications and tlec'larati0n8 r6981tnJd ana d18P08ed01

d.uring the fi8CfJZ 1Iear 6nd.ed June 80,19.6, und.er the Public UtiUt1l HoldIng

Oompan1l-Act 011985 \

. Number Number Number

Section and description pen~at Number disposed pendlngat

beginning of 1Iled close of fiscal year . of l!scllJ year

Sections 2 and &-Exempt!ons from provlslons of the act ___________________________________________ 82 31 18 lit Sections 6 and 7-Issnance and sale of secoritles. alteratiOlis of rights, assumptions of llabllity _____ 00 259 249 106

section I~AcqulsltioD ofseciJrlties or other IIS98ts__ iiI '1 l3t 55 section 11&:)-~ mstttuted __________.____ 63 8 1I2

section 11 e)-P1anll for t e s1m~IiftC8tlonof regls- tered holding companies or au Sldiarles thereof.._ 64 21 17 68 Beetion 11 (f)-Reorganlmtion under Sectwn 77B of the Bankruptcy Act: __________________________ 6 0 4 2

8ectl0n.~11 (g) and 12 (e)-80llcltatlons of consents to transactrons _________________ 14 44 44 14

section 12 (b) and Rule U-45-Loans. extensions . credit. donations and capital contributions 8SSOCiatecompantes, 17 39 38 18

Section 12 (0) and Rnle U-4&-Payment or divi- dends out of capital or unearned surplus __________ Iii 34 28 21 Section 12 (0) and Rnle U-42-AcquiSltlon. retire- ,

meat and redemption of secnntles by lssUer______ iiI 1M 143 1I2

Sections 12 (d), 12 If) and rnles U-43, U-44-Sale of secunties and ntility assets 91 308 279 13) Section la-Ber,-Ice company regulation ____________ 14 0 4 10

Total 1i14 1,024 966 572

' -

-

____• • •___________

~

•____________________________

- _______________________

•• _____••_______________________________
TWELFl'H ANNUAL REPORT 185

Cl Cl .. .. ::!: lili ... ~~CCl

Iil:aa3: . +J i"~

c;

:II:! l;;; .. ..

... E 8"&';.1 ... -'C'3 .sill...... ~~s

(""'\ f c>

Q Cl . ... ... ~4'1

~U!

...

-oc ..... 1"- !IJjli

r t .. ... ;!; o '" "&;.~ -",'3 Sli! ...... 0",0 rcC3-

I~s~ .. .. '" '" <:i

_.e~ ..." .21+:-;: >.

~.s""~

!~]'C! I Cl Q WI co ;; 'Cl ..... ~.9c=a~-1 S'E.S'lilC>

~8.

I~J~~ Q Q Q ... ;: ... _atllJsg"

!]~M

:1:1 Q Q 00 .. ... .. . ..e"~ i",aJ:l......

8.'0

I~g! l;;; .. ... ::l... 3$S;

0.s lS.'3 e- ... ., I' 0

i~-a :8 :~g il$ i <:::lJ:l.g Orl!j 't:l' . !5.2 ~~Co)~ :0: 0

~: '2< Il:

8 :~£l 0'01J~ : . ,Q:H~ S."'~"£lft . .,

0

lXl~.aj l> ~Io~ mo ! .. ';5'O .... Soo 0 : . I ...~~aR.! fS~~1;l: .

0 , 2 -~oC>...s~~..i:0

0

'0 ..0 ~Q.!5s.cl : ,

~~131J ~,Qo !~.. d ,

. i

! ,

~=;<~t;'g~ ~.t'as .

r

,

1;1S!i~l~8)il0

0

e- o

. ..e.gl:L .. "'::II>0_ ,

o><S::lO eso . ° i ~o£li~ oUgO ;.!!c;.::Io,Q.205~m'O ~Q~-i"==.!!2 I

a~:5i.8.~.c~ilr~!.li e-

.2rJJ~i.2i::'!=-' 0 a '13 '13 -,:ooS<::i\0 -<I < llo.-

II' ""f& . ..e~! i-g ...... ~!'S

., I:!

~!~ si~~- e:.czs

Ifi~! i -",'" o1!~~

E-tC3~cP

n- ij-'"

iP~ o 0 E-t'C:S~

I~s~ -EIs--

~ai..3 e-- ...

~~-"'! I

8"'~~'"

i.S'c13gli ... C> o~..e",!)

e- "'...

1~'iJ-g! "''C... ::lC=J:ld'

'ii'i~~':

~.s'C"'~

II - "":~

i~~'"

8.'0

l~s~::ll) i:!:: ... oj'&a' e- ...

~

- • ~

-

- ~

~ ~

~

"' ~

~~

• ~ ~ ~

~ ~

~ ~ ~

-

~

~~

~
186 SECURITIES AND EXCHANGE COMMIS~ION

...

...

...........

J

'''c&

'"

.

.....,

..

J ... '"

......,

........

!

III

~.

...., . , , .....

J ~ ! a

~1

::;;

,

.,

.

.

,

,

. e : 't:l 1

g ... s

1.0 I !~

~

~

~

~ ~

~ ~ ~

~ ~

~

~

~

~
TWELFrH ANNUAL REPOR'l' 187

1l

o

.. ... ...

~!

",'"ci

..

..,

.

...

.

,

oi

-;

, . , . , : : , , ca 'CO ... -; ~"', i ~8

j i

II

,

10i

]f~... .g,

'3 ~ !J:l. = &: :a -

Ii!

~~j

,

;f

!

I

.

i

o

:=

o

'c'

s

z

~ ~

~

~

~

~ ~

~

~ ~
188 SECURITIES AND EXCHANGE COMMISSION

.

....

j

Q~

.........

....

!

!

..

.......

ai

........

...

.

..

I

~

- ~

~ ~

~
TWELFTH ANNUAL 1U!lPORT

. . -3 : . .. . . :gi~ .

. . """,.. . . fi~2: .

.. . 8~-2 . i "d~- -J ... ... ee "".... '" ~I'I"" l8 eas~ S

.~'Ci g ~s~ ., ... 8"'J ,; g al.... ...

III III

:01 i ... .,

... co co .... .... .... 00

.... ,; -J i

A'" 0 ::;t 0

.

. 'S..!. 'l; 'l; . ...A :2 .

I . Be .

.. .I!lJ!l . AI A . I"l

e~ .; e.l!l . e ;l ",01'1 2~ ~.2 g ~.e:i -.d

ZSI> giii !So

::;t III Z

.... ... .. 0

.... ....

. . .! .. . . ... . . o . . .. 0; ~. .. 1'1 . .a8 ° . h ....... ::s :

I

Cl 0; _0

ai6~ -so ...,0 o ~o<J O..,a"':' 0

~J -I'IE-

=S! I»

'2", ; ~g !:J..2500

~:e III° """'" ... ,.; I'IE-

~11 ::l

olll

><

189

~~ ~

~

~

~

~ ~ ~

~

~

~ ~ •

-~

_

•

~ ~ ~
190 SECURITIES AND EXCHANGE COMMISSION

... co

.

,

J co

,

,

.

1

t

o

""
TWELFTH ANNUAL REPORT 191

, , ... . . . . , . ,

o

i ~ 1 -..

...........

i

Ii

co co

, , , . , , . . . . . . . . . . .. , . , .,

!1
192 SECURITIES AND EXCHANGE COMMISSION

,

..

......,

.....

...

c;

e

z

~
TWELFTH ANNUAL REPORT 193

i! ~ R" ...

,

,

,

,

,

.

1

... ..

......,

.

,

..

.;

I

...

...

~ ~ ~
...

194 SECURITIES AND EXCHANGE COMMISSION
TWELFTH ANNUAL REPORT- 195

~8f

t- t

::g

,

, , , ,

, . ..

.

; :

ij

... co ... ..

,

:

i ~: AJi ....

IiiI... ...

.,

.

,

g

e

l

p:

ai

P

~ ~

~

~ ~

~

~
196 SECURITIES AND EXCHANGE COMMISSION
'I , TWELFTH ANNUAII REPoRT , i97

i i

0

0 0

I

CD CD

a a

e t

'Cl Co

::J go

! tzl III

't;; .s .s

J .. .. .s .s 'tl 'tl 'tl ::I ::I ::I

p., '" p.,

eo !! '"

... 1Cf~' aO ... 13 ~.g Cl) .;

ea

0 roo roo Cl

I

. . . 0

. . . 0 . . 0

. 0

. 0

. 0

. . . . . . . .; . . :

1 .c ...

=

Xl roo roo roo

. &f. .. ci . 08 0 0

. .. ...0 e- ::I ...

.c'" i~ 0

toltol >

toli 0 Cl)

:I ~..;. ~tol 0

;~ I ~ll o~ o~ Ilop., Ilo~ St Z IQIll

i~ ..

II ci~

~! s:: i~ .e

< < It!

~ ~ ~ ~ ~

~ ~ ~ ~ ~

~

~ -

~

~ ~ ~

~~ ~~ ~ ~~

~~

~ ~~
198 SECURITIES AND EXCHANGE COMMISSION ;

.-

,

,

..,

,

.

.

.,

,

,

,

Ii«-

..

,

..,

,

...,

,

:,

~.

'"

~.

,.:i

:!

~I

.

....,

..

..,

..,

!

1o

,

..

,

,

,

.,

..

.

,

,

,

i

'0

...

.....

.......

]

Ii«

•

~ ~

"'

~
, TWELFTH ANNUAL REPORT

0

0

CD

S

f

""

::l

Ul

.s

od od od ..

.s 't:l 't:l

<=

6 0 '"'"

199

o

.

..

.

.

.

.£lEo<

~!

Ef

..........

.

1 .......

8

I

a

-<

..

.

1

~

~ ~ ~ ~ ~

~

~ ~ o

o

o

o

~

o

~

~
.., .., ! .... s 3:

... !

R !if !if

g i 0 ., ... to 0

, . . .. . . . . . , . . . '- , . . . . , . . . "j . . . ., . . . . . . . . .; -

1 d

1 .

, T

~& /..0 0.sl ~~:a ~a "'r<l ..0 t.90

~"" ~"" u"" . ~.;

~1iI'; iii,; !%loB 0';

II<'S 1I<;:a ~o ~o {loP .!il

i

OO 'l:~0 1$1"" b't'''':' so!!; !.j ,!I = .u8 ~8~ ~: r<l .. ---81» ~:.=

:2t~ :2"~ .s .c:io i!~ - oi's ... eil; 0~'8 , 000. o ~ Olll<~ -;~~ 0l511e -;;;t

g~ ==0 1~;s8 g;s~ w w W liQ

SECURITIES .AND EXCHANGE ~OMmsSION

i i .

is ° 0 0

I

.,

S., '0 IS. < ::I ::I '" 0

a to to 0

! .s .s .s , .. J ! ..,;

""=., .,= J - II< II< II< 0 .

200

~

~

~

~

~ ~

~

""

•

~~
TWELFl'H ANNUAL REPORT

i ! ! .. .. <"I

.... ...

00' .r =! .r =! <"1-

... ... t i .. i ... CD

8 p.

Z A ... A '"

'" . . . . 0

. . . . . . . . S 0

. . . . . . . . . . 1 . . . . . . . . . . . . . . . 0

. . . . . . . . . . . . . . o . . . . . . . . Cl . I ...

1- 1 -1 'tl .,; " I <l 1:

i ;;

'" '" A

old! !

j, I . old il .

0

iii 0

. Jl o~ . r<I

p.< CD .. . €l old .CI 0

il..,,:. t- o a

I . a glici !

! _ °

! o~

0' e :.c s ..... eo p:;

i!~ Po Po .CI

Po j8 <l

0°old '!..; :&,; .g, .CI~

.... "0 "''5 .s" 1.C1 j; . :ge.- oe. 'tl ~= '5l& sSt: 'j8 18 j arZ ~o CD <

201

~ ~ ~

~

~ ~ ~

~

~ •

~~
202 SECURITIES AND EXCHANGE COMMISSION

I -s~u '''~CD '~HlCD~ :a ~ ~--5~ -5 ..:l::S'g~ o 8,e 0 .. -~!> gji~~ C> '0r:~~.ec;...<:.;2

"''''Ag ." p,~~ 0

-'tl o ~l=I*Qc:r~:; g'" 8 o~ c'1:S< ~Q :; ... ::S~'CD 'tlil'tl.E.O~'Qgll"~ '" rJ:a .!!l8~", a_as~ I8 ~ai° ..:;;:E~ .ElCD'tlP,i CDO.!!l.. 0

~~~=6 c.cP.c "t:S "'Co~

<'EU ~.@ ~S~ s !>oiS~ a

'o~.B f£ o.c .. g 2lc; e~ Ioil

~_r:Ie= ~~~[jg~,gO ".;~ <l- CD$ 0 0 CD"", CD~e", [j~l>ttalil 10-5~0 ~bg- f.Q .'O'Eco ~bC'O~

~~. ~~~!>o!>~g.El~$

?:" ~o~J i~~~~~~i~~ CD ~'i~ ~C) ti:~~' :&_1=1- CD:Z:OU~~p.~ c; CD~~ 0=", .p,go'tlsp, 1:<= =. .."'..... 10.'" p,a 8 10. 'o!!'O! a'O'C- CD t:;).o,J:).... as

I 05.0e~ o"3.s a~'C(P.s8

'" ... do~~'E~m Q,'l-o cc"C"" ..q:j0Q)-

I ~S'..s !ita ... ~i!l::l1js. OCDg~ 'tl~80'" .~ .. "'~ bO=~~ -< ts ai=~~~~ ~~"C

-a8!>1j ~a£lil.@.E~~l5.g

'g a Eo:: +0' ~i.a'= s as ~,g~ ;gage g~ =bt:oo~f,!J'J. ",,s"'-,; -=CD';:'~~5 .8'tll!l'g .......= o ......... "t:l:g Qoco;=:- CD CD::s- ~e-~~ "coap. ~~woi

;;; g~ "8~i ~.E.~&>< .. ~.!:: &32-lt 0 po ..cot: J..o ~O'

:s o::s S3 ='oO',g-Ciio.r:I::s ~:(c.9

r:~°NCl:l_f'E-8.c~ ... cP ......~~d s:I_-_8~ =cPss

Q

Z1:~~~~ as~ os g S.E bG.g~"S

~<-..e fi>S-~a~tt.s.e~a

'E~~~.s'E.s~~.Eo;aJ3g.~.g

0 0

..•°

1

." ... ",CD ;;; ~:grj 21i

CD Jj", g 10. ..... ... .. c; ".. ,

j ,

, .. , 'tl ,

,

ii' ,

, A ..

~8 , Sf ,

.. 'tl

2l IS.. go

'" ~il'" - ,c'tl

~I ,

lil , l>

C> := <' 0

i 'tl

'tl a

'" .,,; 0

CD c; 'tl

Cil si d

0 10.

Cl .El...: 'tl

'" ::s~ Cl

I

1: .. p., J~ g

m. p.,

CD ~o e::

-a~ "'<l 10.0

'l$.i3~ e~ Boe CD'" "''3 CD<nil gp, =Q)~ .o~

8~-::S:;Cili

~~.o~.s ..~_e .... ~~-:~1i;:f

13:a~~.eQ)bQ "''8=:g'O~.E ;~a!]...,~

'a CP<_ Q) .,C

.cA <l~,c~ CD

.8'i°::ao~'5

~::I. =00'-' O~~&Q~7J'aI <l_ "'<1:'3 p,~ 't't::~p04...2a

"go~~:eg

~~~=E~.g~

~o""" ~"Or:."C 1ii",(;<g'tl~ .t:n~~ 'Q &1g$o'O~~

~'C~ -~:~

'tl""g~i .. 8

~;i:_":1lg.8 £t:t=-=-~

CD't1~'05°Cl5

gj!>'01:l~~S

5<l-S<;:l,g:s~

~"'s'tl'" ~c;e;.s~'5

v.l!=l-"":~~"o~

.£:3":8'2=° C,lcclo,evo.g.e

'3o"':~r-~~ ::1=; 8~~.s

.E~~'O.E>bO

g::~~i~~ .:;:a~E "i)g~~P4~G3

p., <

."

...

;;;

C'f ..,r

:a

::s .....

c; c;

II II

j :E. .,<l

A~ A~

S.!!!' S.El CDil CD~ is] i~

- -

, . , ,

, , , , , , ,

. .!i ,

1

::a

!i

):ll

l'l

.g

...

g

p.,

CD

j c;

'" j

l'll'lgjdl

.2.E:oz

Jj~~CD

e g" 13';:", s:l 0 10004

0-0$ Q)@gm

5fiti-

~~-g .. ~ll!jCD

~~Cil~

~8g:l s:l--

I ~-=~.si

.;J-EQ)J9~ c; oo£Sj~

i .. a :>'13'"

t ..,c'tl.El 'ECD<lSj Z °i~~~

aS08.El;

.E'i:S-.

-ig:~~

&f~"SS3

e~aJ3

roj,s~ <l'tl '",

.9"'~ -ca 0 Kl-g

ii8A~ p.,

dl

:;g,

.Elil cor ,

s;

~p,

II c;

j

!.. i.

"'~ A~

aig 0

s>< 'tl CD~ 2l -5",

gz

'"

.~

'"8ll!!

I c;,s

a :-

c; -"1il,s CD j; z <I"

1A

,sgj

• ~ ~

~ ~ ~

'" '" = ~ ~ ~ ~

~

~ ~ ~

~ ~ __

- ~ ~

~ ~~~ ~~~

_~

" ~

~~ = -

~

~~

'" ~ ~

~~ ~ ~

~

'" ~ "

~

~

~~

~ ~ ~ ~

- ~

~

~

~ ~

~ ~

~

~~ ~
TWELFTH 'ANNUAL REPORT 203

!i

o

o

-o

mz.

.0 . s , ":.0 ,

. "CI: . ... , . od .;;.z s ~i

"'Ill .;

.;'" 'Ct

tlli '" 0 ... "'" z .. Cf CD ....

i~~~oi ..

" .::: 0 0_ .. 0 o.!::g-zliJ. 't>.,;

~QIll",,,, =.E ~;; ...... J:j. ..S~~:: "'::>l J!lZ "'.. 0 13'0 Q. ~!z~~ .... .Q

>t~_O Q Q.~. Ill'III .";000 . =0 .~ Z III0 P

'Gi13 ~_l I

...0"'= ....0 ~gsO~ 0= "'0 bIl'" ~~~g .Ell! ...-g ",2<:J!I S~ "'0

~- "b ;jE-o~~

;j::lglP:l

~'gca :Sts~.c;

~'5"'", .... i~ . <=~..2~ f!13~' ";JXl~fj =I'<lij ",U .g~", ~cio&::: t:: ..; 0 .

~ '" ~

~

~

~ •

~ '

~

~~

~

~~ ~~~

~~~
204 SECURITIES AND EXCHANGE COMMISSION

...

I , 0

11 .. .s .,; .,; ..; tll III0 A

6 II< 0

I !~~*~i~l!il ~~~iiijp~:8ei;tl~!~~~~igJ~l I ~og -oo=~ 0 -=~ f ~~a~~~~i2~ ~~l~i~i:~~~:2~~S ~~~ ~~i~~~~ i.....9~~ r:l ,,<:1,0 ~:l "'JlIl~~-C1~ 13a~ =,101~-

I

8j~~~~~lt~ ~;~~~~~g~;~i~2!~ ~~ij~ii~~j "'iJo~~=~~2 ...,0 i~ 8~m ~=~ j ~~~~~:~~A j~~~I~!i~1~j8~~~ ]~~-~2~~i~

I

~~~1~~~~~~R~~i!~~~!~!Aa !&~~~~g I' Ui!~J~n~fiU!~!iJ~~f;!ii! i~~i~II~!!

j Qj~~Q~I~l~.a Q~O~ ~~~4 ~= coS ~~=o= ~ ~ =~?~a~~ = Z...~!~~~~~~..93"'~~~db~J~s ~b~~ ...~"'o- g.so .g,O-'" ...~ ~,<:I"'13'" ... co = ~~~c8~i g~~ ~:~~~~~is8e!]~~~:i~~ ~~~lAt~~ -e

ili!i~~i!.II1ii:"iJ!iiljii~illJ~J!~!!~j to8

iE J=~ ~ =~0=~~ ..~'o8-j~~="~ ~ ~ oelll~S ~ ,O~

~i~~~li~~~i:8si~~~~,i!~~~~~~!$~&~~~~l~~~

I

~~A~~[g~a~jts~~:f8a&~j!~8~ii~j1Jai~!~£2~~0 .g ~- ...~o ...~~o ~~'" ...e~.i "'1 ~~,O~ ~~-~ !=..;~~~.9BB~.w~ifPO~s:I!:; =.a~CPi., g'O~ :~104a~ ~~ CD'g~Q ~~~=~~~Ja:~~~~1l<83:~S~~i~-gi83e8:s~~s'o~~~g~ :<~~~~a~o8.~~~:~~~~s~= co~eg~~e~~gm~~~i~~

o A m m

I , .. . '" , 0' m . ,

s ,

a

<C.

!Xl-~~!

I» g, -ai!!l

... -< I"i_

..:

6 = 0 8 o. i

!; 0

i ~--:> 0 ~. ->- ... ... --:> iz iz ] 0

0 .!l'" Ai AQ A.

.A 0

~e aiai tll.o .0- .~ .~ p p p l:i

i~o~ .F.Q ~..!.~~ Z . ...w~! . ce1:~~ ll:

Eotl; <~ iil'8~,ea~o 'Cii~ _~ -< II< '2 ...

i>-~..:l~ ~==~"'.Cl=':.., . I i~~ ..~lil ...

n ... ~z~~i ~:a~~z~

folGl 0 .... !XlC;Z,;:~ A ...,<:I~~!~

I~~~ ~~~It:U :sj

81:: ~Oi ~i'0.1 . l.sa~~~ !~. ~8tl_~. oS ~8.,;aa' .!I.!I ~h-<o <13 ]0 .80 lD 0...,

~~~~!iS~j~~i~~~~1!ilijl~~j~i~;

-

- ~

~ ~

~- ~ --- ~ ~~

~~

- ~ ~ ~ -~

~

~ ~ ~- - ~

~

~

~

~ ~ ~ ~ ~ ~ ~ ~ ~ - ~ ~

~

~ ~

~

~

~

~ ~~ ~ ~~ ~

~ ~~

~
TWELFTH .ANNUAL REPORT

... ... .... .s .s .,; a 00 00 lR :a a a ,g a .. .. .. Poo Poo 0 Poo

. a .: . . : i Po . < , . !...:. .., : ! a . Ii .. -l'.; ~. J

S!: =i ::=~ -'" .,;

-2S :a,.; Ii .... Ilot ::s- ::s 0"

... ;, .. . ... 0.... !!- -'3 !!

8Q 0 "1: o.°

~'lS s~ 10

"""" b <a li~

.=I';; .=IZ -~ .=IZ Al: ':c:i ':c:i .::ij °cc

CCA CCui 1i.! Gllai

.~Il .~ 0.... .~

p p 0 p

~d

o,a

.... .. cae ,,; os A "0 .. s: ":,0 g..: ta a . .. g:,'iil a~ '":i:! Pool: 0.... "S~ '2E-< "s . .~~ 1!" ~$ Il<o .s

,Sl 0 EO'3

,lS51il 0..; o!:lll :5cc -a .: cc

'i' .... SZ&:: ::s< ~Ilot .. :1< fi Aoi

205

•

~

~

~~ •

•

~~ ~ ~

~

~~ ~~ • ~~
206 SECURITIES .AND ,EXCHANGE COMMISSION

I

c;

a

5 .. .. CQ .,;'

s:l s:l J I Il<" 0

~~=c;~~~~~~ig]~~~~i~~i~~~~~ c;:~e~~~~g~ :!~~&s~~~~g~~B ~~~~~~~=~g~~g~~~~~~~e~z

~~~o~f~~~~-t5e ~Q~~~ _- _a! ~ ~am~~~~~g~~~a~ ~O_~ 0a - _ ~ago~~g~=t ~~ Q~~Z

I ~~~ge~~~~~~~~8 ~O"'+=1 ... ce IOs=;::rn ~ii~s~~a~~iil

C'O g'lbOoWl;i"CO &'"''tS :S~S~=~~~ .c +=> ... -0.- ...'0 --~~~~E~~~bOO-S ~B:~bOo~aa~g~S ~~~g~~~c ~o='C~~~~_~f~~; ~~'Cb~Si&D~ ~Srn ~ce~rn~~£S~_ COBt~~!5~~3gNA ~!af!~~~~~!g~~ l~~~~~~~~S~

~~~~~s=~~s~~~ ~=J~~~~~~~a~S~ ~~s~~g~_a= ~~:~~~i~!i1~i ~8-" s:l8- ~~~~!~~i~~~~~! o_,,~ 88-- ;~g!i~i~~:! -0 ~~~~~SSS~8~~s~~Z~~;g~o ~~~~Jtfg~a;6]~~~

0; t!~£~~oli~ii~i ~A~lj~~il~~~~~ !:~~~~~

s:l ~~~=~~~~~~~S~~ ~~!:~g~~i~g~~i i!;~~~!~~j~ '"

s:l ~08~i~~~2~~5~a ~~~8~iioE~~~ ~~£a~~:~~j5 >.

... ~~~~~~~=:~~~:S !~O~ a~B~~~8 ~~~~s8~g~~~

s ]~O~~~~~~~8~~~ ~8ga~~8~~~~ .. ~85~~~~~"'~~ SfS~~;~~s~~~gg ~~B!jt~8~3~f~~ ~S~;fsa~~~~

8i~~j~~5~~~~i~ ~~!S:~~~~~~~~~mi~~~~~8~1~g

~~~oOiS~~~~g~~ ~~~fggj~~:i~ii~.~~J~~~~~~

I ..~s:lI»::l.e:~o_"',Q~gj~~ a,Q~8~gjlil '<~gj";;"'8i~"'<i0~88Jg '.sO 8~-~08 o~~Q-_ ~~~~~~w~~=~a~=2~o~~8 .SM

s:l~~O~~~gj.s~~o~ s:l~~gA8s:l~0~~~"'S~ ...~~gg"=i'~~ $<SS=-~t o~~ ~~~o~~~~ ~~~S ~~f~ i~Q~1~

!J!1!il~jiiill~1I!liil~lil~f!1!liljil]~~~ ... 0

. , ... . . :' . . . . . . . . . . 00

.,; .::

....

sa <> sa- c l%l ... .,.

" Ii ,;

0

::iI :z;

-- .- -- 1::

0 "

0

o~ 0 0

1i :Sr~ El

b::il 0 .:!l 0

I ~Q 8A rIl

- J OO:i oo~

I .~ .~ p p :i

I

a il- ~ttC - I>

.. 8~ 'iii 0

~.s ~B

I ,; ~..: i<

'El " . ::iii I>-

" s:l~ ~< -,

8 a~ 008 :z; ca :- CQO

,,0 "'- oce 1i\g~ gil ~o ~a;CIS l:l::il~

~o 'ao

p- l:l "

~ ~

~

~ ~~

~

~ ~ ~ - ~~

~

~ ~

~

~

~

-

~ ~ ~ ~

~

~ ~

~~

~~ • ~

~

-

~

~ ~ -- ~~
TWELFTH ANNUAL REPORT 207

.., .., ..... !!~!~~!! '0 fQ COlO

!! ...... ,,>C,'

...... ....... ,...~ ......... !!~~ 00' ::!f ~;! ";:f~E:iFi;; ...:~.. ~. ,Q": .. ~":i

z "'2 ::s ::SA ~~0::S~::S z::s .=;.=;::So

. . , . .. . . . . . .. , . , . . . . . . . . , , , . . . . . . . :.~ L~:l I

, . . . . ,

. . . q:l , I I I ,

. . : :~~~: :'Sj~ .U j .. "':rl

Z II i!~~~~ ::s::S i.g.g~

A .2l.2lAAAA AA ~UA

<Ii A'" AA"'''' AA<Ii<li<li~ <Ii~ ::S::S::S<li

. . . , , ...... ;a,: . . . :~ : . , ,

, .

, .. . ~: . , ::: : . . . . , "'iii 8~ . :'a . . . oil" ... . ,'" . :iiI . .. ,

810

~J h;~. . .. . _0 .. "'<ll0l0

. :'0.90 ~i .,0: ...:-: 0

0 0 :...;~e: , 8Bs8 .. I

P;4 8~888: '0 .dj~t tl~ :0 ll~U.5!o .. ~<llr1J ;4 ~lil ~'C bO :.c, .. .., ..,:alil~ Sl ;J~ .ifJi2i2jl~ 0-

014 "::l~-g Ii! ::I~ 0., .. ::i~..,~9 0I::i ;oP<P< 0 ;aO",,,,~p .so "':/ 0'O't1'O

p "'''' ::It-Un '5 .. ~U:a :alii ~i3rtlrtlO~ "'''' I .. ", .siJl~~ Eo<Cl iiIiiI 01::1 .. 0'i!14 .!!l'" j~~~ '" J:lb Uiin 014

a a <l<l <l ..

<ll ...; CQ..'" Q~~~OO =.c

>:lEo< ~zzz

~~ ~~

~ ~ ~~ ~~~~

•

~ -

'

' •

"

~ '

~ '

~ ~ ~

~ ~~~~

~
208 SECURITIES AND EXCHANGE COMMISSION

~!

wS:Si~.. . . . ... . , . ....

. :

i i

l!l :

C :

-l j

c:l

... . . . . . . . . . . . . . . . . . . . ;::..i . .. 'iii 0

~ J l~

Po<

~j

, . .. ... , .... . 1:

~f.;

Ililc:l

. .. . . . . .. . . . . . , . .. . .. ...

:fZ s~ J ~Q

~ ~::i

!!!

il- ::::::

. ..;:i ! 0)1

~~ ~

~

~ ~ '"

~ ~
TWELFTH ANNUAL HEPOR'll

:!. .,c."f cD •• 'tf ~"t:", .. !e~~g~~~e ~~f~e g~ « o~~ a~

go f~ .£ll'<c. J,l~t:I'<c. ::s

o ~tQ l'l0 l!;:;la 0'".a 8';. !e~ E~ 2o~~s ~~1~8~Egi8:.~g'8~~ M m ~=~~Q g i~ e~< ].;~~~ 2Sl'<

~l!l~ofOnCl "'~ ~Cl ~..,. ~.;::s~~0~~~ 0~~~~S8~ ~Q~~ ~o Q

I

mg ..s ~Cl:S8.gj~::Soogj g~'E S::S! <...c~~ ~~oo~ ~go o s= ... q) =Q G>:Q 0:g.Cc

'a ~~~~~~~~S &~~SS 3 < a .s.@~~'ES;g l!~ p, ""a ...a o~ o::s~.. S fO~~~~d~~ ~m~ BB~ tQ 'E0E"~l:ia;8.&g~~$! -E~03 ~~i~~~~f~gQ~i~ g~~ ~~$~~~.0'0 ..tQ'O kt! o~s..,~ .. ...~~c""'" ~$~ ="""tXl gw::S' 4)-CD "CJ ~8~~-~<~i ~~E~- ~e8~::S . ::s...~lil ....80 0 -.00 P. ..-t"'1o-)~ Cc ,.-.4 CD

~~f OO~~CD~CD~ ~CD~CD~~ CD m~~~O ~~m=_-

;:;l ~8~~8SS "'~'tlS"::s~8 CD_ =I-)"t::l CD J::l~CD t).2 8~ VJ ~.s~;a gt313 t/i);a

~!~~f~B<S8~eo~~8~~~

000 ,,

,

, cl ., ;l '5 , £ .£l 11 13 .. .. .. gs'il '" '" '" '" ",,,

'a --:~ e ~'" .0'" ~. 81 81~ tQ '"g gc:t eo '"

.."" '" .£l03

~i aO .0

Ii ..: .0 .sa ..q < , '5 -0

gj~ .E t;;g ., 0;0 , A.ej . ~'il

:n: .; ::sf f~ ~,g ~o p:'; ::s :5:; oC,£l 0

go is

< tQ

Z

'O:l ... ... ...c '" E.g

Z~

,, .;

,. ai ,

a

, ::: . :a Gil ol "" -d 0 ::s

o!! ;:s "0

.g

$

Q

0

0

0

::ll 'il

0 os ! 1 .a

III

I -el Eo< .>

209

'122108-4'1--15

~~~~ ~~~

~~

•~ ~~

~~

~~~~ ~~

~~~ ~~~

-

~~

~ ~~~

~

~~

~

~~

~~~

~~~

~~ ~~ ~~

~

~

~~~

~~

~

~

~~ '" ~

'"

~

~

~

~~

~

~~

~

~~

~

~~

~

~

~

~

~

~~
210 SECURITIES AND EXCHANGE COMMISSION
TWELFTH ANNUAL REPORT 211

,

0

i : : : : : l : : : 1.1 : ! : u i i : :J : : lJ : ! ! : ! : lJ : ! : !J ! 1 !J : !.J ! l : : ! ooooooooodo~ge~o~ooos~ogo~ogooooo~5ooo~goo~~omooood

: : : : : : : : : : :"s':; :~ LS : : :~~ :.g .s :~ : : : : :..s.g : : :~~ : :2~ :$ : : : : : : : : : : : : : : : :I-I~ :~ :1-"'4 :,.::;~ :~ :t-i-4 :~ :Io"-I~ : : :""" ..... : :'"'"'~ :~ : : : : :

~U':IIt:l~C")~""CCl\OCO"o.C~ 1.... C"':lC":l~IQO)"'''d'4C'lCO~O-'e<:I '~:_COlQO(O~t--.Q)IQNOOt--.'"':tIOO IO""O~

m~C£~~~~;g;~;~gs .... 1""'1 ......... .... .............. :;a;Cb&i~aa;a:ct8Sd;a;;;a; .......... ,_:~ :;~~~gs;;g"3gs&$a;gsg,;g;~ ._ ............ ........ ...... :;;;;~ 0-4

IQ.......... -:-:O~O ..~O) ...........;....;O) :";cOoei,..i_"'oOaQcO"';OoO''''; : lei' !";I.6&6"';"';ooci'!::io-ia:)d-0 : -or-: ... ..... ~o~..... .....~~ N~NN 00 ON-N~ C'l~,~C'l-C'lC"':l_OC'l_N~

Li~.b~ ~i~~"ri ~:.gli~.g~.g~~~d g~~::~:~~~g~..~.gig~.g.gb~:dg~~ <o~o~~~~~o<~~ :~<z~z~ZZ~~ZA~~ :i~ :~«A<~A~A~~~~~ :~~~~

m~;~~~i~~~~ss .-l ,..-I_ .-l :~~a;m~~~a;~~~~~~ ..... ..... 1i ._ !~~~~a~~~a~a~~~ ;~~~~.....

~~g=~~~~~~~~~d~~~g~g~g~~~~~gJJ~d~~~~.oo~~~i~~ci~J~~~~ ..:...;..;,,; e> G)"O '. > .. ~. Q .'t::J"'C' Q"C Q .~ ..;>.'C Q.

g13';~~asg.d~~f:lt)S :.g~t)gt).go~agoga!i: :~ :9~g~a"3gg.~~~.g~d :gggS, AO~o~~ro~~o<o~ :~<o~O~ZZ<~ZA~< :i~ :~<~A<~Aro«~~~~ :A~~< 0 0 . , 00 0 00

j'! ;

P:i : : : ; : :~ : :~ ; ! i : : :~ : : ! l~i : : i : i~: l~ : :~ :~ jp:l iP=i : : : : : : : : t!. 'oooooc::r!.o I~ '0 'ddor!. 'ooc:t!. 'ooooor!.c: tr!.c:....;J. 'r.!.."lr!. 'r!.c:ooo '000

0.d : : : : : : d :.ci d..d :..c : : : d.ci : : : d.ei : : : : : (,) :..d d :.c: d.c 0..t:ld..d &:,) :.ci : : :

~o : : : 1 :81 :oc7lo :0 : 1 :~o : : :JJo : : : : :al :081 :or110a5oaloJJ : : : :0 : : :

~~~~~~~~~~~g~~~~&~~~~&~~~g~~~~~~~&~~~~g~~~&~~g~~~~

o

o , ,

: : : : : :

__ • _ __ '

~ ~ ~~~ -~~

~ ~ ~

__ .......... t r : ,

•• ~ • ••• • •• •••• ~ • •

,

•

'

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ : : :

:
212 SECURITIES AND EXCHANGE COMMISSION

cqcq~::J:~CI)"'~fC-gg~~

~~~OH7JaC£(£~~QtbC£

---------- ..... -- ~;ii!iig&fg:ioo.,;~~~i

.g;e;i~ s clog g :5.b~:; ~.:;~;:,;.:;~~A<.:;O;:,;<~
TWELFTH ANNUAL REPORT 213

l!l

-:.;

<;; ..

<l

Pol

'd >a~ l. ~'C,1~~..bll-g-a g:;-3'2 ~~.E st>

CO S~.S~S ~o -g oi ~'E.Q 8:

0 c.~

~~~cP'sl::°~ClS.Ei~:;~ ...s.c 0 ce l:lo"d ~Q.} ee ... .0

GSJ~ ~~8 Q.E.~'(j 0"";>

::-;8~:ai.s:.E5g=ag~

.... b09S~c..if"'CIu+a Et~~

~.Etio-~g.s~"3~EC; ~~:a~.s'":'C li; 0 Ct.l .. 8. ...g.s l!t~'" 1»1;j,~.s'C'C cPa):; ~"'":l:: tc::lS",~

'"

s~.:;"~~~t1a~~~~0

::~~ g<.Q~- -6.: ....j

'0" ~"':~-~

..&;a~oagr~ C13"""o-u8s::Ul ._fIl = t: c.cq ~e8.1-t ~"d dod

~-3'~8:S-~-Z~-SA~ .<l ~~~~~~~~-d~~ .~ 'C _~-tpo-a~~.s"d""ca~1 <l

as= cP~'t: ~d "0 ~"dCfi'g ~< ~~;;~~:3~~g.~-:70~O gn~-;;.sE~~e>a~e~~

z ~8gj:g~~Os !Z~g-: ~"';<l'C ....g-"'a .....~:l1 a-E ......~ ~i'C g8~

oS: g'::~1a go .. ......ocq'O .......t:I_ c.b.OCl). a~IJ)-l:: "'~~Ba:ce_s:::I c;O.c.- a::::1.,e: 0 C1S~ 'd~ aOE.l~g;s S-ic;~ E! <l 8~..9-a~l:l~_g~=~ 1»",1» Jjl» -.s0~.

.o:Sa !~e.ese~~ca

g'O arcs 8~~ &~B:g3 8 ~o s g.b.:l.8

-<

ee

...

:=: :;:;<'1

JHl :=:S- .. ~a ::I

-<..... .!!l .. 1i~

<;;0

aso

a1 'C

::;l"

I

'0 I»

.. c; z 15 .. ;;13 as",

e-"'~ 1:100

...

o

~

'"

~~

~~

~~~~

~

~

~

""

~

~

-~~

~~

~

~~ ~~

~~~ ~~~~

~~

~

"''''

~~

~~ ~~ ~~ ~ ~

~~

~

~~

~

~

~

'"~~

~