For the Fiscal Year Ended

June 30, 1964

LI S SECURITIES I J

AND EXCHANGE

COMMISSION

For .ale by the Superintendent of Documents. U.S. Government Printing OBice

Wasbington D.C. 20i02 - Price 6S cents (paper cover)
u

SECURITIES AND EXCHANGE COMMISSION

Headquarters Office

425 Second Street NW.

Washington, D.C. 20549

COMMISSIONERS

January 4, 1965

MANUEL F. COHEN, 0 hairmasi

BYBON D. WOODSIDE

HUGH F. OWENS

HA~fER H. BUDGE

FRANCIS M. WHEAT

ORVAL L. DUBOIS, Secretary
LEITER OF TRANSMITfAL

SECDRITIES AND EXCHANGE CO~UnSSION

Washington, D.C. 20549

SIR: On behalf of the Securities and Exchange Commission, I have

the honor to transmit to you the Thirtieth Annual Report of the Commission covering the fiscal year July 1, 1963 to June 30, 1964, 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; Section 216 of the Investment Advisers Act of 1940,

approved August 22, 1940; Section 3 of the Act of June 29, 1949,

amending the Bretton 'Woods Agreement Act; and Section l1(b) of

the Inter-American Development Bank Act.

Respectfully,

':M.4.NUELF. COHEN,

Ohalrman.

THE PRESIDE~T OF THE SENATE,

THE SPEAKER OF THE HOUSE OF REPRESENTATIVES,

Wa8hington, D.O.

III

TABLE OF CONTENTS

p...

Commissioners and staff officers_____________________________________ XI

Regional and branch offices.________________________________________ xn

Biographies of Commissioners_______________________________________ xrn

PART I

IMPORTANT RECENT DEVELOPMENTS_______________________ 1

Special Study of Securities Markets and its implementation_________ 1

Enforcement activity; proposed revision of annual report form for

investment companies______________________________________ __ 5

Registration of new security offerings____________________________ 6

PART II

LEGISLATIVE ACTIVITIES_____________________________________ 8

PART ill

REVISION OF RULES, REGULATIONS AND FORMS___________ 11

The Securities Act of 1933______________________________________ 11

Adoption of Rule 156______________________________________ 11

Amendments to Form &-1, Form &-8 and Form 8-11__________ 12

The Securities Exchange Act of 1934_____________________________ 13

Amendments of Rules 1Ob-6 and 16b-3 and Form 10__________ 13

Adoption of Rule 11a-I-___________________________________ 13

Amendment of Rule 14a-3__________________________________ 15

Amendment to Rules 13a-15 and 15d-15 and Form 7-K_______ 16

Adoption of Rule 15c2-7 16

Adoption of Rule 15c3-2___________________________________ 18

Adoption of Rule 16b-9____________________________________ 18

Adoption of Rule 17a-8____________________________________ 19

Proposed Rule 17a-9_______________________________________ 20

Proposed Amendments to Form 8-K_________________________ 20

The Investment Company Act of 1940___________________________ 21

Amendment of Rule 3e-3___________________________________ 21

Adoption of Rule 12d-L___________________________________ 21

Amendment of Rule 17&-6__________________________________ 22

Amendment of Rule 17g-L_________________________________ 23

Proposed Amendment of Rule 20a-2_________________________ 24

PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933__________ 26

Description of the registration process____________________________ 26

Registration statement and prospectus_______________________ 26

Examination proeedure.L, , _________________________________ 27

Time required to complete registration_______________________ 28

v
VI TABLE OF CONTENTS

ADMINISTRATION OF THE SECURITIES ACT OF 1933-Con. Page

Volume of securities registered; _ _ _______________________________ 29

Registration statements filed. , , _________________________________ 31

Stop order proceedings , _____________ ____ _________________ 32

Examinations and investigations; _ _ _____________________________ 36

Exemption from registration of small issues; ______________________ 36

Exempt offerings under Regulation A________________________ 37

Suspension of exemption______ ______________ _____________ 38

Exempt offerings under Regulation B________________________ 40

Exempt offerings under Regulation E________________________ 41

Exempt offerings under Regulation F 42

PART V

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934___________________________________________________________ 43

Regulation of exchanges and exchange trading , _ __________________ 43

Registration and exemption of exehanges , ____________________ 43

Exchange disciplinary aetlonc , , _____________________________ 44

Commission inspections of the exchanges _____________________ 44

Registration of securities on exchanges; ____________ ______________ 44

Statistics relating to securities on exehanges.Lc., , __________________ 46

Number of issuers and securities____________________________ 46

Market value of securities available for trading, by calendar

year___________________________________________________ 46

Share and dollar volume and market value of stocks traded, by

fiscalyear______________________________________________ 48

Foreign stock on exchanges_________________________________ 49

Comparative exchange statistics_____________________________ 49

Delisting of securities from exohangea.c.,., _ __ _ __________ ____ 50

Delisting and trading suspension proceedings under Section 19(a) 51

Unlisted trading privileges on exchanges_________________________ 53

Applications for unlisted trading privileges____ ___ _____________ 53

Block distributions reported by exchanges________________________ 54

Over-the-counter statrsttes.., ____________________________________ 55

Reporting under Section 15(d) _________ __________________ 56

Manipulation and stabilization., ____________________________ 57

Manlpulation , _______ ______________________ ______ 57

Stabilization______________________________________________ 58

Insiders' security holdings and transactions , ______________________ 58

Ownership reports , ________________________________________ 59

Recovery of short-swing trading profits by issuer ______________ 59

Regulation of proxies , _ __________________ ___________________ 60

Scope of proxy regulation___________________________________ 60

Statistics relating to proxy statements________________________ 61

Stockholders' proposalsc. , , _________________________________ 61

Ratio of soliciting to nonsoliciting companies , _ _ __ ____________ 62

Proxy contests , ___ ____________ _____________________ 62

Investigations with respect to reporting provisions_________________ 62

Regulation of broker-dealers and over-the-counter markets_________ 63

Registration , __________________ _____ _ _ 63

Administrative proceedings; ________ ____ ____ __ 64

_
TABLE OF CONTENTS :vII

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT OF

1934-Continued Page

Decisions of particular interest- __________ _ ____________ 66

Suspension of registratiom.L,.; ______________________________ 73

Net capital rule; __ _____ ______ ______ ______________ 74

Financial statementa.; ____ ____ _______ _________ __________ 75

Broker-dealer inspections__ _____________ ____________ __ 75

Supervision of activities of National Association of Securities Dealers,

Inc________________________________________________________ 77

N ASD disciplinary actions_____ __ ______________ __ 78

Commission review of NASD disciplinary action_______________ 79

Commission review of NASD action on membership; 84

PART VI

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935___________________________________________ 86

Composition of registered holding-company systems________________ 87

Section 11 matters in active registered holding-company systems; _ __ 88

Exempt holding companies_____________________________________ 90

Financing of active registered public-utility holding companies and

their subsidiaries . ____ ___________________ 91

Competitive bidding. . 92

Protective provisions of first mortgage bonds and preferred stocks of

public-utility companies., _______________ ___________________ 93

Other matters_____ ____________________________________________ 96

Request for declaratory order _______________________________ 96

PART VII

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKR UPTCY ACT ____________________________ __ ________ 98

Summary of activities . ._ __ 99

Jurisdictional, procedural and administrative matters______________ 99

Trustee's investigat ion., ______________________________ _ __ 102

Reports on plans of reorganization_______________________________ 103

Activities with regard to allowances..c., , __________________________ 105

Intervention in Chapter XI proceedings__________________________ 107

PART VIII

ADMINISTRATION OF THE TRUST INDENTURE ACT OF 1939_ 109

PART IX

ADMINISTRATION OF THE INVESTMENT COMPANY ACT OF

1940___________________________________________________________ 110

Companies registered under the Act______________________________ 110

Growth of investment company assets , __ _ 111

Inspection and investigation program_. _ __ 112

Special staff study of investment companies_______________________ 114

Current information. _ ____ __________________________________ 116

Applications and proceedings_____ _______________________________ 116

_

_
TABLE:OF CONTENTS

PABTX

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT OF

1940~__________________________________________________________ 121

Inspection program_ 122

Administrative proeeedings., _____ _______ _____ _ 122

Registration statistics____ 124

PART XI

OTHER ACTIVITIES OF THE COMMISSION____________________ 125

Civil litigation_ 125

Criminal proceedings___________________ __ 131

Office of Program Planning_____________________________________ 136

Complaints and investigations___________________________________ 136

Enforcement problems with respect to foreign securities____________ 138

Canadian restricted list_________________________________________ 139

Section of securities violations___________________________________ 141

Applications for nondisclosure of certain information_______________ 142

Activities of the Commission in accounting and auditing____________ 142

Iri,ternational Bank for Reconstruction and Development___________ 148

Inter-American Development Bank______________________________ 150

Statistics and special studies____________________________________ 151

Issues registered under the Securities Act of 1933______________ 151

New securities offerings____________________________________ 151

Individua~' saving________________________________________ 151

Private pension funds______________________________________ 152

Financial position of corporations____________________________ 152

Plant and equipment expenditures___________________________ 152

Directory of registered companies____________________________ 152

Stock market data_________________________________________ 153

Opinions of the Commission____________________________________ 153

Dissemination of information___________________________________ 153

Information available for public inspection____________________ 154

Publications__________________________________________________ 155

Organnation__________________________________________________ 156

Personnel and financial management_____________________________ 158

PART Xli

APPENDIX-8TATISTICAL TABLES

Table 1. A 30-year record of registrations effective under the Securities

Act of 1933_____________________________________________ 165

Table 2. Registrations effective under the Securities Act of 1933, fiscal

year ended June 30, 1964_________________________________ 166

Part 1. Distribution by months_________________________________ 166

Part 2. Purpose of registration and type of security________________ 166

Part 3. Purpose of registration and industry of registrant___________ 167

Part 4. Use of proceeds and industry of registrant_________________ 168

_

_
TABLE OF CONTENTS IX

l'aet

Table 3. New securities offered for cash sale in the United States________ 169

Part 1. Type of offering________________________________________ 169

Part 2. Type of security________________________________________ 170

Part 3. Type of issuer_________________________________________ 171

Part 4. Private placement of corporate securities___________________ 172

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

securities offered for cash in the United States______________ 174

Part 1. All corporate___________________________________________ 174

Part 2. Manufacturing_________________________________________ 174

Part 3. Extractive_____________________________________________ 175

Part 4. Electric, gas and water__________________________________ 175

PartS. Raiuoad______________________________________________ 176

Part 6. Other transportation____________________________________ 176

Part 7. Communication________________________________________ 177

Part 8. Financial and real estate________________________________ 177

Part 9. Commercial and other__________________________________ 178

Table 5. A summary of corporate securities publicly offered and privately

placed in each year from 1934 through June 1964____________ 179

Table 6. Brokers and dealers registered under the Securities Exchange Act

of 1934-effective registrations as of June 30, 1964, classified by

type of organization and by location of principal office_______ 180

Table 7. Number of issuers and security issues on exchanges____________ 181

Part 1. Unduplicated number of stock and bond issues admitted to

trading on exchanges and the number of issuers involved,

as of June 30, 1964-__________________________________ 181

Part 2. Number of stock and bond issues on each exchange and

number of issuers involved, as of June 30, 1964__________ 181

Table 8. Unlisted stocks on exchanges_______________________________ 182

Part 1. Number of stocks on the exchanges in the various unlisted

categories as of June 30, 1964__________________________ 182

Part 2. Unlisted share volume on the exchanges-calendar year 1963__ 182

Table 9. Dollar volume and share volume of sales effected on securities

exchanges in the calendar year 1963 and the 6-month period

ended June 30, 1964_____________________________________ 183

Part 1. 12 months ended December 31, 1963______________________ 183

Part 2. 6 months ended June 30, 1964___________________________ 183

Table 10. Comparative share sales and dollar volumes on exchanges_____ 184

Table 11. Block distributions reported by exchanges___________________ 185

Table 12. Reorganization proceedings under Chapter X of the Bankruptcy

Act in which the Commission participated during the fiscal

year 1964_____________________________________________ 185

Table 13. Summary of criminal cases developed by the Commission which

were pending at June 30,1964___________________________ 187

Table 14. Summary of cases instituted in the courts by the Commission

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____________________________________ 188
x TABLE OF CONTENTS

Page

Table 15. Summary of cases instituted against the Commission, cases in

which the Commission participated as intervenor or amicus

curiae, and reorganization cases on appeal under Chapter X

in which the Commission participated_____________________ 188

Table 16. Indictments returned for violation of the Acts administered by

the Commission, the Mail Fraud statute (Section 1341, formerly 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

1964 fiscal year ________________________________________ 189

Table 17. Injunctive proceedings brought by the Commission which were

pending during the fiscal year ended June 30,1964_________ 201

Table 18. Proceedings by the Commission to enforce subpoenas pending

durmg the fiscal year ended June 30, 1964_________________ 216

Table 19. Actions pending during fiscal year ended June 30, 1964, to

enforce voluntary plans under Section lICe) to comply with

Section lI(b) of the Public Utility Holding Company Act

of 1935________________________________________________ 218

Table 20. Contempt proceedings pending during the fiscal year ended

June 30, 1964___ __ __ 2Ul

Part 1. Civil Contempt Proceedings_____________________________ 21!J

Part 2. Criminal Contempt Proceedings__________________________ 219

Table 21. Petitions for review of orders of Commission pending in courts

of appeals during the fiscal year ended June 30, 1964_______ 220

Table 22. Miscellaneous actions involving the Commission or employees

of the Commission during the fiscal year ended June 30, 1964_ 222

Table 23. Cases in which the Commission participated as intervenor or as

amtCUS curiae, pending during the fiscaLyear ended June 30,

1964__________________________________________________ 224

Table 24. Proceedings under the Bankruptcy Act pending during the fiscal

year ended June 30, 1964, in which the Commission participated when district court orders were challenged in appellate

courts_________________________________________________ 226

Table 25. A 31-year summary of criminal cases developed by the Commission-fiscal years 1934-1964_ _________________________ 227

Table 26. A 31-year summary classifying all defendants in criminal Cases

developed by the Commission-1934 to June 30, 1964_______ 228

Table 27. A 31-year summary of all injunction cases instituted by the

Commission-1934 to June 30, 1964, by calendar year __ 228
COMMISSIONERS AND STAFF OFFICERS

Commissioners

(As of January 1, 1965)

Term e:cpirea

June 5

1\UNUELF. CoHEN of Maryland, Ohairman______________________________ 1968

BYRON D. WOODSIDEof Virginia_______________________________________ 1967

HUGH F. OWENS of Oklahoma_________________________________________ 1965

HAMERH. BUDGEof Idaho_____________________________________________ 1969

FRANCIS l\I. WHEAT of California______________________________________ 1966

Secretary: ORVALL. DuBoIS

Executive Assistant to the Chairman: LEONARD1\1.LIEMAX

Staff Officers

EDMUND H. WORTHY, Director, Division of Corporation Finance.

ROBERTH. BAGLEY,Associate Director.

SOLOMONFREEDMAN,Director, Division of Corporate Regulation.

J. ARNOLDPINES, Associate Director.

HAROLDV. LESE, Associate Director.

WALTERWERNER,Director, Office of Program Planning.

RALPH S. SAUL,Director, Division of Trading and Markets.

IRVINGM. POLLACK,Associate Director.

PHILIP A. LooMIS, .JR.,General Counsel.

DAVIDFERBER,Solicitor.

WALTERP. NORTH,Associate General Counsel.

ANDREWBARR,Chief Accountant.

LEONARDHELFENSTEIN,Director, Office of Opinions and Review.

W. VICTORRODIN,Associate Director.

WILLIAM E. BECKER,Chief Management Analyst.

FRANK J. DONATY,Comptroller.

EBNESTL. DESSECKER,Records and Service Officer.

HARRYPOLLACK,Director of Personnel.

XI
REGIONAL AND BRANCH OFFICES

Regional Administrators

Region 1. New York, New Jersey.-Llewellyn P. Young; Jobn J. Devaney,

Associate Regional Administrator, 225 Broadway, New York, N.Y., 10001

Region 2. Massachusetts, Connecticut, Rhode Island, Vermont, New Hampshire, Maine.-Philip E. Kendrick, Federal Building, Post Office Square,

Boston, Mass., 02109

Region 3. Tennessee, Virgin Islands, Puerto Rico, North Carolina, South

Carolina, Georgia, Alabama, Mississippi, Florida, and that part of Louisiana lying east of the Atchafalaya River.-William Green, Suite 138,

1371 Peachtree Street, NE., Atlanta, Ga., 30309

Region 4. Illinois, Indiana, Iowa, Kansas City (Kansas), Kentucky, Michigan, Minnesota, Missouri, Ohio, Wisconsin.-Thomas B. Hart, U.S. Courthouse & Federal Bldg., 219 South Dearborn Street, Chicago, Ill., 60604

Region 5. Oklahoma, Arkansas, Texas, and that part of Louisiana lying west

of the Atchafalaya River, and Kansas (except Kansas City).-Oran H.

Allred, United States Courthouse, Room 301, Tenth and Lamar Streets,

Fort Worth, Texas, 76102

Region 6. Wyoming, Colorado, New Mexico, Nebraska, North Dakota, South

Dakota, Utah.-Donald J. Stocking, Room 802, Midland Savings Building,

44417th Street, Denver, Colo., 80202

Region 7. California, Nevada, Arizona, Hawaii, Guam.-Arthur E. Pennekamp, Federal Bldg., Box 36042, 450 Golden Gate Ave., San Francisco,

Calif., 94102

Region 8. Washington, Oregon, Idaho, Montana, Alaska.-James E. Newton,

9th Floor, Hoge Bldg., 705 Second Ave., Seattle, Wash., 98104

Region 9. Pennsylvania, Maryland, Virginia, West Virginia, Delaware, District of Columbia.-Alexander J. Brown, Jr., Room 300, Oourts Bldg.,

310 Sixth Street NW., Washington, D.O., 20549

Branch Offices

Cleveland, Ohio, 44!l3.-Room 1628, Standard Building, 1370 Ontario Street.

Detroit, Michigan, 48226.-Room 1500, Washington Boulevard Building,

234 State Street.

Houston, Texas, 77002.-Room 2226, Federal Office and Courts Building,

515 Rusk Ave.

Los Angeles, cane, 90028.-Room 309, Guaranty Building, 6331 Hollywood

Blvd.

Miami, Fla., 33230.-Room 1504,51 S.W., First Ave.

St. Louis, Mo., 63103.-Room 4266A, Federal Building, 1520 Market Street.

St. Paul, Minn., 55101.-Room 1027, Main Post Office and Customhouse, 180

East Kellogg Blvd.

Salt Lake City, Utah, 8411l.-Room 8440, Federal Building, 125 South State

Street.

XII
COMMISSIONERS

Manuel F. Cohen, Chairman

Chairman Cohen was born in Brooklyn, N.Y., on October 9, 1912.

He holds a B.S. degree in social science from Brooklyn College of the

College of the City of New York. He received an LL.B. degree,

cum laude, from Brooklyn Law School of St. Lawrence University in

1936, and was elected to the Philonomic Council. He is a member of

the New York bar. In1933-1934 he served as research associate inthe

Twentieth Century Fund studies of the securities markets. Chairman

Cohen joined the Commission's staff as an attorney in 1942 after

several years in private practice, serving first in the Investment

Company Division and later in the Division of Corporation Finance,

of which he was made Chief Counsel in 1953. He was named Adviser

to the Commission in 1959 and in 1960 became Director of the Division

of Corporation Finance. He was awarded a Rockefeller Public Service A ward by the trustees of Princeton University in 1956 and for a

period of 1 year studied the capital markets and the processes of capital formation and of government and other controls in the principal

financial centers of Western Europe. In 1961, he was appointed a

member of the Council of the Administrative Conference of the United

States and received a Career Service Award of the National Civil

Service League. From 1958 to 1962 he was lecturer in Securities Law

and Regulation at the Law School of George Washington University

and he is the author of a number of articles on securities regulation

published in domestic and foreign professional journals. In 1962,

he received an honorary LL.D. degree from Brooklyn Law School.

He took office as a member of the Commission on October 11, 1961, for

the term expiring June 5, 1963, and was reappointed for the term

expiring June 5, 1968. He was designated Chairman of the Commission on August 21, 1964. .

Byron D. Woodside

Commissioner Woodside was born in Oxford, Pa., in 1908, and is a

resident of Haymarket, Va, He holds degrees of B.S. in economics

from the University of Pennsylvania, A.M. from George Washington

University, and LL.B. from Temple University. He is a member of

the bar of 'the District of Columbia. In 1929 he joined the staff of

the Federal Trade Commission, and in 1933, following the enactment

of the Securities Act of '1933, was' assigned to the Securities Division

of that Commission which was charged with the administration of

xrn
XIV COMMISSIONERS

the Securities Act. Commissioner 'Voodside transferred to the Securities and Exchange Commission upon its establishment by the Securities

Exchange Act of 1934. In 1940he became Assistant Director and in

1952Director of the Division (now Division of Corporation Finance)

responsible for administering the registration and reporting provisions of the Securities Act, Securities Exchange Act, the Trust Indenture Act of 1939, and, in part, the Investment Company Act of 1940.

For 14 months commencing in May 1948,he was on loan to the Department of the Army and assigned to duty in Japan as a member of a

five-man board which reviewed reorganization plans of Japanese

companies under the Occupation's decartelization program; and beginning in December 1950, he served 17 months with the National

Security Resources Board and later with the Defense Production Administration as Assistant Deputy Administrator for Resources Expansion. He took office as a member of the Securities and Exchange

Commission on July 15, 1960,for the term of officeexpiring June 5,

1962,and was reappointed effective June 5, 1962,for the term expiring

June 5, 1967.

Hugh F. Owens

Commissioner Owens was born in Muskogee, Oklahoma on October 15, 1909, and moved to Oklahoma City in 1918. He graduated

from Georgetown Preparatory School, 'Vashington, D.C., in 1927,

and received his A.B. degree from the University of Illinois in

1931. In 1934, he received his LL.B. degree from the University

of Oklahoma, College of Law, and became associated with a Chicago

law firm specializing in securities laws. He returned to Oklahoma

City in January 1936,to become associated with the firm of Rainey,

Flynn, Green and Anderson. From 1940to 1941,he was vice-president

of the United States Junior Chamber of Commerce. During World

War II he achieved the rank of Lieutenant Commander U.S.N.R.

and served as Executive Officerof a Pacific Fleet destroyer. In 1948,

he became a partner in the firm of Hervey, May and Owens. From

1951 to 1953, he served as counsel for the Superior Oil Company in

Midland, Texas, and thereafter returned to Oklahoma City, where

he engaged in the general practice of law under his own name. He

also served as a part-time faculty :member of the School of Law

of Oklahoma City University. In October 1959, he was appointed

Administrator of the then newly enacted Oklahoma Securities Act

and was active in the work of the North American Securities Administrators, serving as vice-president and a member of the executive

committee of that Association. He took office as a member of the

Securities and Exchange Commission on March 23, 1964,for the term

expiring June 5, 1965.
COMMISSIONERS xv

Hamer H. Budge

Commissioner Budge was born in Pocatello, Idaho, on November 21,

uno. He attended the College of Idaho, Caldwell, Idaho, and received an A.B. degree from Stanford University, Palo Alto, California, majoring in political science, and an LL.B. degree from the

University of Idaho in Moscow, Idaho. He practiced law in the

city of Boise, Idaho, from 1936 to 1950, except for 3th years in the

United States Navy (1942-1945), with final discharge as Lieutenant

Commander, United States Naval Reserve. He was elected to the

Idaho State Legislature and served three sessions as representative

from Ada County; assistant Republican floor leader two sessions;

and majority floor leader one session. He was first elected to the

82nd Congress on November 7,1950, and represented Idaho's Second

Congressional District in the United States House of Representatives

during the 82nd, 83rd, 84th, 85th, and 86th Congresses. In the

House, he was a member of the Rules Committee, Appropriations

Committee, and Interior Committee. During the period 1961 until

his appointment to the Commission, he was District Judge in Boise.

A member of the Idaho and American Bar Associations, he has been

admitted to practice before the Supreme Court of Idaho and the

Supreme Court of the United States. He took office as a member

of the Securities and Exchange Commission on July 8, 1964,for the

term of officeexpiring June 5, 1969.

Francis M. Wheat

Commissioner 'Wheat was born in Los Angeles, California, on February 4, 1921. He received an A.B. degree in 1942 from Pomona

College, in Claremont, California, and an LL.B. degree in 1948 from

the Harvard Law School. At the time of his appointment to the

Commission, Commissioner 'Vheat was a member of the Los Angeles

law firm of Gibson, Dunn & Crutcher, with which he became associated

upon his graduation from law school. His practice was primarily in

the field of corporation and business law, including the registration of

securities for public offering under the Securities Act of 1933. He has

been active in bar association work, including service as Chairman

of the Committee on Corporations of the Los Angeles County Bar

Association and Chairman of the Subcommittee on Investment Companies and Investment Advisers, Committee on Federal Regulation

of Securities, American Bar Association (Banking and Business Law

Section). He also has written or co-authored articles on various

aspects of the securities business and its regulation, both under Federal

and state law. He took officeas a member of the Commission on October 2, 1964,for the term expiring June 5, 1966.

PART I

IMPORTANT .RECENT DEVEWPMENTS

Special Study of Securities Markets and its Implementation

Fiscal year 1964, which marked the 30th year of the Commission's

existence, and the months that followed was a period of extraordinary,

even historic, significance for the Commission, the parts of the nation's

economy which are concerned with the issuance and trading of securities, and, of course, public investors.

Shortly after the beginning of the year, the final two portions of

the Report of the Special Study of Securities Markets were transmitted

to Congress," The Special Study and the Report, constituting the

most thorough examination of the securities markets since the early

1930's, have already had far-reaching consequences. Even while the

study was still in progress, it stimulated an extensive self-examination by various segments of the securities industry, most notably the

self-regulatory agencies, which resulted in a number of improvements

in the rules and practices of those agencies. Secondly, the Report

provided a foundation for the far-reaching legislative proposals submitted by the Commission to Congress in June 1963, which, with certain modifications, were enacted into law in August 1964. This legislation (the "Securities Acts Amendments of 1964") is summarized

in Part IT of this Report and referred to at appropriate points elsewhere in the Report,"

The 1964 Amendments represent the most significant statutory

advance in Federal securities regulation and investor protection since

1940. Inthe main, they eliminate the differences in reporting requirements between issuers of securities listed on the exchanges and the

larger issuers whose securities are traded over the counter, allow the

self-regulatory agencies and the Commission to raise standards for

1For a summary of the contents of the Report, see the 29th Annual Report, pp. 1-3.

The Report Is avallable from the'Superintendent of Documents, Govemment Printing

OfIlce, WashingtOn, D.C., 20402, as H. Doc. No. 95 of the 88th Cong., 1st Sess. Pt. I:

$2.25, Pt. II: $3.50, Pt. III: 50 cents, Pt. IV: $3.75. The letters of transmittal and the

Study'S eonelustons and spec1ficrecommendations are set forth IIia summary volume, Pt. V:

55 cents.

A more extended summary and dlscus~lon of the legislation Is contained In Securities

Act Release Np~4725 (September 15, 1964).

757-903--65--2 1

"

•
2 SECURITIES AND EXCHANGE COMMISSION

entry into the securities business, and strengthen the Commission in

dealing with broker-dealers and their employees. The legislation

was strongly supported in principle by representatives of the securities

industry and by others affected by it, and it benefited from extensive

hearings by the Congress which permitted a thorough consideration

of all of the issues involved. In signing the measure, the President

stated: "The law signed today should further strengthen the securities

markets and public confidence in them. Industry and government

have worked together in the writing of these laws. Industry and

government will work together in making these measures succeed."

A number of changes in the Commission's rules have already been

effected or proposed to implement the new legislation or to conform

the rules to it. One important area still to be implemented relates

to the Commission's new authority to prescribe qualification standards

and standards of conduct for those registered broker-dealers who are

not members of a registered securities association. The Commission

is now gathering more precise and fuller information as to the persons

and firms affected and assessing the regulatory needs and problems

which may be anticipated.

Significant progress has been made in the way of administrative

action by the Commission and the self-regulatory agencies in implementing the recommendations of the Special Study Report. This is,

of course, a continuing process, and what is referred to herein as

prospective action may well be accomplished fact by the time this

Report appears in print. In one of the principal areas also dealt

with in the Amendments, qualification standards applicable to members and their employees have been tightened by the self-regulatory

agencies. Proposed amendments to the Commission's net capital rule

establishing for the first time a minimum net capital for broker-dealers

were submitted to the industry on an informal basis for comments;

comments have now been received and the proposal will be considered

by the Commission before it is officially published for comment.

The Commission's staff has devoted considerable effort to assisting

the self-regulatory groups in the formulation of effective rules governing selling practices. Primary emphasis was placed on supervision

of salesmen by the principals of broker-dealer firms. The New York

Stock Exchange (NYSE) adopted a new supervision rule in the

spring of 1964. The Board of Governors of the National Association

of Securities Dealers, Inc. (NASD) has approved a package of rules

which set out in detail members' responsibilities for supervision,

maintenance of certain records and handling of discretionary accounts.

As of October 1964,these rules were submitted to the NASD membership for adoption. At the same time increased attention is being paid
THIRTIETH ANNUAL REPORT 3

by the self-regulatory agencies to inspections of brokerage firms and

enforcement of selling practice rules. The NYSE, American, and several regional exchanges have adopted new rules and interpretations

with respect to advertising and investment advice. The NASD

Board of Governors has adopted a comprehensive interpretation with

respect to these matters. And the Commission's staff has drafted

comparable rules applicable to investment advisers which will be

submitted informally to the industry for comment in the very near

future.

Two of the areas which were studied in great depth by the Special

Study and were subjects in its Report of recommendations for extensive changes were the activities and responsibilities of floor traders

and specialists on the exchanges. These recommendations in turn

gave rise to extended discussions between members of the staff and of

the New York and American stock exchanges, culminating in the

adoption, on June 2, 1964, of Rule lla-1 under the Exchange Act,"

the first Commission rule ever adopted relating to floor trading, and

the announcement, on September 24, 1964, of proposed Rule llb-1

relating to specialists.' Briefly, the purpose of Rule lla-1 is to eliminate the abuses which the Commission found in floor trading on the

two major exchanges. The new provisions require that traders must

have substantial capital and they are subjected to high performance

standards, various conditions designed to eliminate or minimize possible conflicts with public customers, and other restrictions intended

to channel their trading for beneficial purposes." Upon the effectiveness of the rule, about 30 traders became registered on the NYSE, as

compared with an estimated 300 persons who engaged in floor trading

in recent years.

The proposed specialist rule, which also applies only to the two

large New York exchanges, forms an integrated regulatory program

together with rules which have been adopted by those exchanges

and which will take effect concurrently with the effectiveness of Rule

Llb-L It contains three major parts. The first part would require

the exchanges to have adequate rules in certain areas. Thus, for the

first time the exchange rules would have to impose an affirmative obligation on specialists to utilize their capital as dealers to assist in the

maintenance of a fair and orderly market, and the proposed exchange

rules so provide. Additionally each exchange would have to establish

adequate minimum capital amounts for specialists and provide effective methods of surveillance of specialist activities. Finally, the exSecurities Exchange Act Release No. 7330.

Securities Exchange Act Release No. 7432.

For further discussiou of this rule, see p. 13, infra.

•

•

•
4 SECURITIES AND EXCHANGE COMMISSION

changes would be required to have rules on the brokerage responsibilities of specialists. Among the changes adopted by the exchanges are

rules designed to assure that specialists' brokerage customers receive

the best possible prices available and that the specialist does not give

himself preferential treatment over his own customers. The second

part of Rule llb--1 would establish a procedure by which the Commission can review and disapprove new exchange rules relating to specialists if the Commission finds that they are inadequate to achieve the

purposes described in the rule or are inconsistent with the public

interest or the protection of investors. The Commission, of

course, would retain the authority contained in Section 11 of the Exchange Act to adopt its own rules regulating the conduct of specialists

if that becomes necessary. The third part of Rule llb--1 would permit

the Commission to commence proceedings directly against a specialist

in certain cases where an exchange has failed to do so or its action has

been inadequate.

Turning to the over-the-counter markets, a new Rule 15c2-7 requires dealers entering quotations in a system such as the "sheets" of

the National Quotation Bureau to disclose whether they are acting

as correspondents, or have entered into some other financial arrangements with other dealers, and the identity of the latter. This information is to be revealed in the published quotations by symbol, number

or otherwise. The rule should improve significantly the reliability of

the wholesale quotations system and make it more informative," Extensive consideration is also being given by the Commission and the

NASD to revisions of the retail quotations system.

During the 1964 fiscal year, the qpmmission established an Office of

Regulation within its Division of Trading and Markets, one of whose

primary responsibilities is to oversee the operations of the self-regulatory agencies. In pursuit of that goal, the Office has conducted continuing inspections of various operations of the exchanges and the

NASD. Furthermore, the new Rule i7a-8, requiring the exchanges

to file with the Commission reports of newly proposed rules, enables

the Commission to be aware, on"a continuing basis, of developments in

an exchange's policies and to offer the exchange, at an early point, the

benefit of its views." Important steps have also been taken by the

self-regulatory agencies, particularly the NASD, to effect organizetional changes in line with the. views expressed in the Special Study

Report. ,

The above are only some of the many steps.already taken or under

active consideration as a result of the Special Study and its Report, , 1

For further discussion of this rule, see p. 16, -infra.

T This rule is discussed on p, 19, In!ra.

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THIRTIETH ANNUAL REPORT 5

Enforcement Activity: Proposed Revision of Annual Report Form for

Investment Companies

Although the Commission's attention during the 1964fiscal year was

focused to a considerable extent on the implementation of the Special

Study's recommendations, its day-to-day enforcement activities, designed to combat fraudulent and other illegal practices in securities

transactions, continued at a vigorous level. Details regarding the

various aspects of these activities will be found in the appropriate

parts of this Report. Among other things, 50 cases were referred to

the Department of Justice for criminal prosecution during the year.

On the civil side, 84 injunctive and related enforcement proceedings

were instituted by the Commission in the Federal courts. And 458

investigations of securities transactions involving possible violations

of the anti-fraud or other provisions of the securities acts were instituted. A substantial number of formal administrative proceedings

were instituted with respect to broker-dealers and investment advisers-1l9 broker-dealer proceedings and 9 investment adviser

proceedings.

The Commission's inspection program under the Investment Company Act of 1940, which has proceeded at a steadily accelerating pace

since its inception in 1957,resulted in a record total of 146 inspections

during the 1964 fiscal year. Even at that rate, however, each of the

617 so-called "active" registered investment companies would be inspected only once every 4.2 years. To place the inspection program

even on a 3-year cycle would require additional personnel and entail

other related expenses. Italso takes time and expense to train inspectors, many of whom must necessarily be new recruits, to achieve a high

degree of proficiency. The Commission has proposed expansion of its

inspection program because of its proven value.

Even under an expanded inspection program, certain investment

companies inevitably require closer or prompter scrutiny. Because

of this and the continued growth in the number and size of investment

companies, the Commission considered that the public interest and the

protection of investors would be served by strengthening the annual

report filed by investment companies, and accordingly it published a

proposal, shortly after the end of the fiscal year, to revise the present

Form N-30A-1, which is the current annual reporting form for all

registered management investment companies except those which issue

periodic payment plan certificates and small business investment companies licensed as such under the Small Business Investment Act of

1958.s

• Investment Company Act Release No. 4026 (August 4,1964).
6 SECURITIES AND EXCHANGE COMMISSION

The proposed form, which emerged from some 2 years of drafting

and redrafting by the staff, with the benefit of discussions and correspondence with committees representing the investment company

industry and the accounting profession, is designed to provide better

disclosure to the investing public and to channel more effectively the

Commission's inspection program. The form, either as published for

comment or as it may be modified prior to adoption, should also serve

to focus attention of the investment companies and their management

more sharply on the prohibitions and requirements of the Investment

Company Act and thus provide a significant measure of self-regulation.

Registration of New Security Offerings

The 1964 fiscal year saw a slight increase over the previous year in

the number of registration statements filed, but a substantial increase

in the dollar amount involved. A total of 1,192 statements was filed

during the year for securities with an aggregate offering price of $18.6

billion, as compared to 1,159statements and $14.7billion the preceding

year.

In the course of the fiscal year, the Commission published an extensive guide containing numerous policies and practices of its Division

of Corporation Finance with respect to the disclosures required by the

Securities Act of 1933 and the rules thereunder in connection with the

filing of registration statements under the Act," Itis expected that the

publication of these policies and practices will not only be of assistance

to registrants and their counsel and accountants in the preparation

of registration statements, but also that it will relieve the staff of the

Commission of the necessity for commenting on these matters in respect of such statements.

The Commission and its staff are constantly striving to reduce the

time required to process registration statements, without, of course,

diminishing the thoroughness of the examination procedure. During

the year, there was a further significant reduction. Thus, with respect

to registration statements which became effective during the year (excluding certain investment company filings), the median number of

days elapsing from the date of filing to the date of the staff's letter of

comment was 16, as compared with 27 the previous year; and the

median time from filing to effective date was 36 days as compared to 52

days the year before. A total of 1,121 statements in the amount of

• Securities Act Release No 4666 (February 7, 1964).
THIRTIETH ANNUAL REPORT 7

$16.9 billion became effective during the year. The chart below

portrays the dollar volume and number of registrations with respect

to securities which became registered during the fiscal years 1935

through 1964.

SECURITIES EFFECTIVelY REGISTERED WITH S.E.C.

Dollors Boilions 1935 1 964

20 I

DOLLAR VOLUME

16

12

8

4

15

10

5

o

1935 40 45 50

(Flscol Yeors)

55 60

05-4566

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PART II

LEGISLATIVE AcrIVITIES

During the fiscal year 1964, Congressional hearings were completed

on the Commission's proposals for amendment of the Federal securities

laws. Hearings had previously been held in the United States Senate

before a Subcommittee of the Committee on Banking and Currency,

immediately prior to the close of the fiscal year 1963,and during those

hearings the broad purposes of the legislation were strongly endorsed

by all segments of the securities industry. S. 1642,the Senate bill embodying the Commission's proposals, was passed by the Senate on

July 30, 1963 and referred to the House of Representatives. A Subcommittee of the Committee on Interstate and Foreign Commerce,

House of Representatives, held hearings for a total of 13 days on S.

1642 and two companion bills, H.R. 6789 and H.R. 6793.1 After the

close of the fiscal year, S. 1642 was passed by the House with certain

amendments agreed to by the Senate, and was enacted as Public Law

88-467 on August 20, 1964. With some exceptions, the legislation as

enacted was closely similar to the Commission's original proposals.

The Commission's legislative proposals were based upon the Report

of the Special Study of Securities Markets 2 and had two major purposes. The first was to improve investor protections in the over-thecounter markets, primarily by extending to investors in a significant

portion of the securities traded in those markets the fundamental

protections which had been afforded generally only to investors in

securities listed on a national securities exchange. Under the legislation as proposed by the Commission, the registration, periodic reporting, proxy solicitation and insider reporting and trading provisions

of the Securities Exchange Act of 1934 were to be extended to overthe-counter companies having more than 750 shareholders (500 share1These identical bllls had been introduced on ;rune 4, 1963. S. 1642 was introduced

(by request) by Senator A. Willis Robertson, Chairman ot the Senate Committee on Bank.

ing and Cnrrency; H.R. 6789 was introduced by Representative Oren Harris, Chairman ot

the Committee on Interstate and Foreign Commerce, House ot Representatives; H.R. 6793

was introduced by Representative Harley O. Staggers, Chairman ot the Subcommittee on

Commerce and Finance ot the Committee on Interstate and Foreign Commerce, House ot

Representatives.

For a summary ot the Report ot the Special Study ot Securities Markets, see the Com.

mission's 29th Annual Report, pp. 1-3.

8

•
THIRTIETH ANNUAL REPORT' 9

holders at a subsequent date) and more than $1,000,000in assets. Companies meeting these standards would be required to file a registration

statement containing material 'information regarding their businesses

and to keep such information current by periodic reports; security

holders whose proxies are solicited would be furnished with a proxy

statement containing adequate and accurate information; and corporate "insiders" would be required to report their transactions in the

securities of such companies and would be liable for short-swing trading profits in the securities of their company. Certain classes of companies were exempted from these requirements. The Commission's

proposals in this area were embodied in Public Law 88-467, but were

modified by the Congress to exempt also insurance companies which

meet certain specified requirements.

The second purpose of the Commission's proposals was to strengthen

the qualification standards for entrance into the securities business

and to make more effective the disciplinary controls of the Commission

and the rules of industry self-regulatory organizations over securities

brokers and dealers and persons associated with them. Under the

Commission's proposals registered securities associations were to be

required to adopt rules, subject to Commission approval, establishing

standards of training, experience and competence for members and

their employees and to establish capital requirements for members. In

addition, all over-the-counter broker-dealers would have been required

to be members of a registered securities association in order to bring

them within the self-regulatory scheme. Public Law 88-467 did not

embody the latter proposal, but provides instead that if a brokerdealer is not a member of a registered securities association, the

broker-dealer and all natural persons associated with the brokerdealer must meet such specified and appropriate standards with respect to training, experience and such other qualifications as the

Commission finds necessary or desirable. Public Law 88-467 includes

the Commission's other proposals in this area, including modification

of the statutory scheme for disciplining violators so as to permit action

directly against an individual; provision for the imposition of intermediate sanctions against a broker-dealer, such as temporary suspension or censure; and clarification of the authority of a national securities association to act directly against offending individuals.

In connection with Congressional consideration of the Commission's

legislative proposals, members of the Commission testified before a

Subcommittee of the House Committee on Interstate and Foreign

Commerce on November 19 and 20, 1963 and on February 18 and 19,

1964. In addition Chairman Cary testified on March 5, 1964 before

the House Committee on the District of Columbia in favor of H.R.
10 SECURITIES AND EXCHANGE COMMISSION

9419, a bill to provide for the regulation of the sale of securities in

the District of Columbia and the licensing of persons engaged in that

activity," On June 23, 1964 Chairman Cary also testified before the

Subcommittee on Census and Government Statistics of the House

Committee on Post Office and Civil Service in connection with the

Subcommittee's inquiry into the reporting and paper work requirements of the various Governmental agencies. During the fiscal year

the Commission analyzed a total of 31 bills and legislative proposals

submitted by Congressional Committees or the Bureau of the Budget.

3 The bill was enacted into law on August 30, 1964, as Public Law 88-503.
PART III

REVISION OF RULES, REGULATIONS AND FORMS

Several new rules were either adopted or proposed during the 1964

fiscal year as a direct result of recommendations made in the Report of

the Special Study of Securities Markets. In addition, the Commission maintains a continuing program of reviewing its rules, regulations and forms in order to determine whether any changes are appropriate. Certain members of the staff are specifically assigned to this

task, but changes are also suggested, from time to time, by other members of the staff and by persons outside of the Commission who are

subject to the Commission's requirements or who have occasion to

work with those requirements in a professional capacity, such as

underwriters, attorneys and accountants. With a few exceptions

provided for by the Administrative Procedure Act, proposed new

rules, regulations and forms and proposed changes in existing

rules, regulations and forms are published in preliminary form for

the purpose of obtaining the views and comments of interested persons, including issuers and various industry groups, which are given

careful consideration.' The changes which were made during the

fiscal year as well as those proposed changes which were published in

preliminary form and were pending at the end of the year are described

below.

THE SECURITIES ACT OF 1933

Adoption of Rule 156

During the fiscal year, the Commission adopted Rule 156 which

defines as "transactions by an issuer not involving a public offering"

in Section 4(1) of the Securities Act of 1933, transactions which are

exempted from the Investment Company Act of 1940 by Rule 3c-3,

recently adopted thereunder."

1The rules and regulations of the Commission are published In the Code of Federal Regulations, the rules adopted under the various acts administered by the Commission appearIng In the following parts of Title 17 of that Code:

Securities Act of 1933, pt. 230.

Securities Exchange Act of 1934. pt. 240.

Public Utility Holding Company Act of 1935, pt. 250.

Trust Indenture Act of 19lW, pt. 260.

Investment Company Act of 1940, pt. 270.

Investment Advisers Act of 1940, pt. 275.

Securities Act Release No. 4627 (August 1,1963).

11

•
12 SECURITIES AND EXCHANGE COMMISSION

Rule 3e-3 exempts from the provisions of the Investment Company

Act transactions by any insurance company with respect to certain

group annuity contracts with employers or their representatives covering at least 25 employees and providing for the administration of

funds held by such companies in one or more so-called "separate accounts" established and maintained pursuant to state law. It has

boon represented to the Commission that because of the variety and

complexity of such contracts, they must be separately negotiated with

employers who retain expert advisers, are fully informed in the matter and are in 'aposition to fend for themselves.

The new rule under the Securities Act provides that transactions

of the character referred to therein shall come within the rule only

if the transaction is not advertised by any written communication

which, insofar as it relates to a separate account group annuity contract, does more than identify the insurance company, state that it is

engaged in the business of writing such contracts and invite inquiries

in regard thereto. The rule provides, however, that the limitation on

advertising shall not apply to disclosure made in the course of direct

discussion or negotiation of such contracts.

It should be noted that the rule provides an exemption only from

the provisions of Section 5 of the Act and does not afford any exemption from the anti-fraud provisions of the Act.

Amendments to Form 8-1, Form S-8 and Form 8-11

The Commission announced during the fiscal year that it had under

consideration amendments to Forms S-l, 8-8, and S-11 believed to

be necessary and appropriate in view of changes made by the Revenue

Act of 1964 in the provisions of the Internal Revenue Code relating

to stock options eligible for special tax treatment. (See Section 221

of the Revenue Act of 1964, Public Law 88-272, 78 Stat. 19).3 These

changes limit the types of stock options which are to receive favorable

tax treatment; they eliminate the term "restricted stock options," except with respect to options which have already been granted or may

be granted pursuant to existing plans or contracts; and they designate

other tax-favored options as "qualified" or as options granted pursuant

to "employee stock purchase plans."

The three forms, which are used for the registration of securities

under the Securities Act, require the furnishing of certain information

regarding options to purchase securities. The proposed amendments

were designed to make these forms consistent with the Internal Revenue Code as amended, i.e.,' to provide for all tax-favored options the

Securities Act Release No. 4686 (April 21, 1964); Securities Act Release No. 4690

(May 12, 1964).

•
THIRTIETH ANNUAL REPORT 13

same exemptive or other favorable treatment as had been extended to

the previous tax-favored options.

Subsequent to the close of the fiscal year, the proposed amendments

were adopted.'

THE SECURITIES EXCHANGE ACT OF 1934

Amendments of Rules 10b-6 and 16b-3 and Form 10

In view of the changes made by the Revenue Act of 1964 in the provisions of the Internal Revenue Code relating to stock options eligible

for special tax treatment, as previously described," the Commission

announced during the fiscal year that it had under consideration the

adoption of amendments to Rules 10b-6 and 16b-3 and Form 10 under

the Securities Exchange Act of 1934, which would conform those rules

and the form to the changes in the Code."

Form 10 is used for the registration of securities on a national securities exchange. Rule 10b-6- makes it unlawful for certain persons

participating or expecting to participate in a distribution of securities,

including the issuer of the securities involved in such distribution, to

purchase any such security, or any security of the same class or series,

until completion of their participation in the distribution, subject to

specified exceptions. Paragraph (e) of the rule exempts from its

provisions certain distributions pursuant to stock option plans. Rule

16b-3 provides an exemption from the insider trading provisions of

Section 16(b) for the acquisition of stock options pursuant to a plan

meeting specified conditions.

The proposed amendments were adopted subsequent to the close

of the fiscal year,"

Adoption of Rule lla-l

During the fiscal year, the Commission adopted a new Rule 11a-l a

under Section 11 of the Exchange Act to limit or restrict floor trading

on national securities exchanges. The rule provides that no member

of a national securities exchange may, while on the floor of such exchange or other premises made available for the use of members generally, initiate any transaction in any security traded on the exchange

for any account in which he has an interest or in which he is vested

with more than the usual broker's discretion, unless the transaction

Securities Act Release No. 4718 (August 27, 1964). Corresponding amendments were

made to Form 10 and Rules 10b-6 and 161>-3under the Secnritles Exchange Act of 1934.

See p. 12, 8upra.

Securities Exchange Act Release No. 7298 (April 21, 1964) ; Securities Eschange Act

Release No. 7815 (May 12,1964).

1Securities Exchange Act Release No. 7403 (August 27,1964).

Securities Exchange Act Release No. 7380 (June 2,1964).

-

•

•

•

•
14 SECURITIES AND EXCHANGE COMMISSION

comes under specified exemptions or conditions. An important exemption relates to transactions effected in conformity with a plan

adopted by an exchange designed to eliminate floor trading activities

not beneficial to the market, provided such plan is approved by the

Commission.

The propriety of floor trading by members has been a highly controversial subject over the years and was one which particularly

concerned Congress in 1934in its consideration of the Exchange Act.

Although early drafts of the legislation contemplated. a complete prohibition of the practice, the statute as finally enacted included in

Section 11(a) a broad grant of authority to the Commission to prescribe such rules and regulations as it might deem necessary to either

regulate or prevent floor trading by members. The Commission in the

past preferred not to adopt its own rules but relied instead upon rules

adopted by the exchanges to control floor trading. Experience demonstrated, however, and studies by the Commission confirmed, that

regulation by the exchanges was not effective and in many respects

misdirected. Floor traders retained their significant and unwarranted

private trading advantage in the market without contributing any corresponding benefit to public investors, continued to concentrate their

activities in the more active stocks where member trading is least

needed, continued to accentuate price movements and frequently interfered with the orderly execution of public brokerage orders by delaying

their consummation or by adversely affecting the price at which they

are executed. Rule 11a-1 and the exchange plans adopted pursuant to

it are intended to provide a comprehensive system for the regulation of

floor trading.

Both the Xew York Stock Exchange and the American Stock

Exchange have adopted floor trading plans which have been approved

by the Commission and declared effective." The regional exchanges

have been granted exemptions from the provisions of the rule.

The NYSE and AMEX plans are essentially identical and provide

for an exemption from the floor trading prohibition for a new member

category known as the "registered trader." These members will be

required to meet capital requirements over and above the capital required for other member activities and will be required to pass an

examination on the rules and requirements applicable to registered

traders. They will be prohibited from executing' brokerage orders

and floor trading in the same security during a single trading session,

will be compelled by a series of new rules to conduct their business

Securities Exchange Act Releases No 7330 (June 2, 1964) and No. 7374 (July 23,

1964), respectively.

•
THIRTIETH ANNUAL REPORT 15

in a way calculated to contribute to the orderliness of the market

and will be prohibited from engaging in transactions which would have

a disruptive effect upon the market. Finally, they will be required

to yield priority, precedence or parity to public orders. The Commission anticipates that the net effect of Rule lla-l and these exchange plans will be to restrict floor trading to a small group of

professional dealers whose activities will be of maximum assistance

to the public in the execution of orders on the exchange.

Amendment of Rule 14a-3

Rule 14a-3 relates to the information to be furnished to security

holders in connection with the solicitation of proxies. It provides,

among other things, that where the management of an issuer solicits

proxies for an annual meeting of security holders for the purpose of

electing directors, its proxy statement shall be accompanied or preceded by an annual report to such security holders containing such

financial statements for the last fiscal year as will in the opinion of

management adequately reflect the financial position and operations

of the issuer. During the fiscal year, the Commission adopted certain

amendments to the rule.lO

The amended rule requires the inclusion of consolidated financial

statements of the issuer and its subsidiaries in such annual reports to

security holders if such statements are necessary to reflect adequately

the financial position and results of operations of the issuer and its

subsidiaries. However, in such cases the individual financial statements of the issuer may be omitted.

Compliance with the requirements for financial statements filed with

the Commission is not required, but any material differences between

the principles of consolidation or other accounting principles and

practices, or methods of applying accounting principles or practices,

applicable to such statements and those reflected in the report to security holders must be noted and the effect thereof reconciled or explained in such report. Provision is made, however, for the omission

of details and for suitable condensation in the financial statements

included in the report to security holders, provided this does not

under the circumstances result in the presentation of misleading

financial statements.

The 'amended rule provides that the financial statements included

in reports to security holders shall be certified by independent public

or certified public accountants, unless certification is not required in

annual reports filed with the Commission or the Commission finds

that certification would be impracticable or would involve undue effort

10 Securities Exchange Act Release No 732<l (May 26,1964).
16 SECURITIES AND EXCHANGE COMMISSION

or expense. The amended rule also includes certain other minor

changes.

Amendmentto Rules 13a-15 and 15d-15 and Form 7-K

Rules 13a-15 and 15d-15 require certain real estate companies to

file quarterly reports with respect to distributions to shareholders.

Form 7-K is the form prescribed for such reports. During the fiscal

year, the Commission adopted certain amendments to Rules 13a-15

and 15d-15 and Form 7-KP

The rules as amended require the .filing of quarterly reports on

Form 7-K by real estate investment trusts and by real estate companies which as a matter of policy or practice make distributions to

shareholders from sources other than current or retained earnings.

Other real estate companies are required to file reports with .respect

to quarters in which a distribution is made from a source other than

current or retained earnings. The amended rules provide :for the

filing of reports not-more than 60 days after the end of the .fiscal

quarter to which they relate except that the report for the last quarter

of the .fiscalyear must be filed not more than 120 days after the close

of the .fiscal year. Prior to the amendment the quarterly reports

were required to be .filedwithin 45 days after the close of the quarter.

The extension of the period for filing reports for the .first three

quarters should provide adequate opportunity for the collection of

information called for by the report by issuers holding numerous

properties. The extension of the period for filing the report for the

fourth quarter should provide opportunity for reflecting in the information reported any year-end adjustments made in connection with

the annual audit of the issuer's accounts or otherwise.

Form 7-K has been amended to eliminate the two-column reporting

previously required and to clarify the language of the items. In

particular, the form has been amplified to provide directions for treatment of minority interests, mortgages received on the sale of property

and businesses acquired during the period covered by the report.

Adoption of Rule 15c2-7

The rule implements a recommendation of the Report of the Special

Study of Securities Markets designed to improve the reliability and

informativeness of the wholesale quotations system through which

dealers advertise their buying or selling interests in securities traded

over-the-counter. The "sheets" published by the National Quotation

Bureau, Inc., are the primary medium for the dissemination of Wholesale or "inside" quotations among broker-dealers in the over-theU Securities Exchange Act Release No. 7246 (February 28,1004).
THIRTIETH ANNUAL REPORT 17

counter markets. Broker-dealers use the sheets to communicate buying

and selling interests in securities by placing their names in the sheets,

together with accompanying quotations. However, if a broker-dealer

submits a quotation to the sheets on behalf of another broker-dealer,

there is no indication in the sheets that the appearing broker-dealer

is quoting a market on behalf of another. The Special Study pointed

out that the failure to differentiate in any way quotations entered for

correspondents and quotations representing multiple expressions of

the same market, prevents persons using the sheets from determining

the actual depth and activity of the market for a particular security

and the identity of the actual primary market makers for such security.

This failure to differentiate quotations entered by one broker-dealer

on behalf of another from other quotations may also result, as documented by the Special Study, in the use of the sheets for fraudulent

or manipulative purposes.

The purpose of Rule 15c2-7 is to insure that an inter-dealer quotation system clearly reveals those instances where two or more quotations in different names for a particular security represent a single

quotation or where one broker-dealer appears as a correspondent of

another. The rule requires a broker-dealer who is a correspondent

for another firm for a particular security and enters quotations in

the sheets to inform the service of the correspondent arrangement

and the identity of his correspondent. By requiring disclosure of

the correspondent, as well as of the fact of such an arrangement, the

rule permits users of the sheets to determine the identity of dealers

making an inter-dealer market for a security-a fact which may be

extremely pertinent in evaluating its marketability.

The rule also requires that where two or more broker-dealers place

quotations in the sheets pursuant to any other arrangement between

or among broker-dealers, the identity of each broker-dealer participating in any such arrangement or arrangements, and the fact that

an arrangement exists, must be disclosed. Because of the variety of

market-making arrangements between broker-dealers resulting in appearances in the sheets, the rule does not limit the type of arrangement

covered; the purpose of the rule is to cover any arrangement between

broker-dealers, such as joint accounts, guarantees of profit or against

loss, commissions, mark-ups, mark-downs, indications of interest and

accommodations.>

12 The rule was adopted shortly atter the end of.the 1lscalyear. See Securities Exchange

Act Release No. 7381 (August 6,1964).

!l'l)7~3-65-3
18 SECURITIES AND EXCHANGE COMMISSION

Adoption of Rule 15c3-2

The Special Study of Securities Markets found that many customers

of broker-dealers were unaware (1) that when they leave free credit

balances (funds which the customer has an unrestricted right to withdraw) with a broker-dealer the funds generally are not segregated

and held for the customer but are commingled with other funds of the

broker-dealer and used in the operation of his business, and (2) that

the relationship between the broker-dealer and the customer as a result

thereof is that of debtor-creditor. The purpose of Rule 15c3-2 is to

put customers on notice that free credit balances left with the brokerdealer may be used in the business and therefore may be at risk. The

rule, effective August 3, 1964, prohibits a broker or dealer from using

in his business any funds arising out of any free credit balance carried for the account of any customer unless he has established adequate

procedures pursuant to which each such customer will be given or

sent, together with or as a part of the customer's statement of account,

whenever sent, but not less frequently than once every 3 months, a written statement informing the customer of the amount due, and containing a written notice that such funds are not segregated and may be

used in the operation of the business of the broker-dealer, and that such

funds are payable on demand. The rule provides an exemption for

a banking institution supervised and examined by state or Federal

authority having supervision over banks."

Adoption of Rule 16b-9

During the fiscal year, the Commission: adopted a new Rule 16b-9

which exempts from the operation of Section 16(b) of the Securities

Exchange Act of 1934 certain transactions inwhich shares of stock are

exchanged for similar shares of stock of the same issuer.l4 Section

16(b) provides for the recovery, by or on behalf of an issuer of equity

securities registered under the Exchange Act, of short-term trading

profits realized by directors, officers and principal security holders of

the issuer. The Commission is authorized to exempt from Section

16(b) transactions not comprehended within the purpose of that

section.

The new rule exempts from the operation of Section 16(b) any

acquisition or disposition of shares of stock of an issuer in exchange

for an equivalent number of shares of another class of stock of the

same issuer pursuant to a right of conversion under the terms of the

issuer's charter or other governing instruments. The exemption is

available only if (1) the shares surrendered and those acquired in

.. SecurIties Exchange Act Release No. 7325 (May 27,1964)

.. Securities Exchange Act Release No. 7118 (August 19, 1968).

•
TlliRTIETH ANNUAL REPORT 19

exchange therefor evidence substantially the same rights and privileges

except that the shares surrendered may, in the discretion of the board

of directors, receive a lesser dividend than the shares for which they

are exchanged and (2) the transaction was effected in contemplation

of a public sale of the shares acquired in the exchange. This rule is

intended to relate only to the typical Class A and B common equity

securities.

Adoption of Rule 17a-8

During the fiscal year, the Commission adopted Rule 17a-B,I5 which

requires national securities exchanges to file reports of proposed rule

changes with the Commission prior to any final exchange adoption of

such changes. Under the Exchange Act the Commission has the

responsibility for overseeing the self-regulatory functions of national

securities exchanges. Under Sections 11, 19(b) and other sections of

the Act, the Commission has broad powers and responsibilities with

respect to the rules of such exchanges, including the power to alter or

supplement exchange rules in specified areas of exchange operations

and the power to enact its own rules in other areas if the exchanges'

rules are inadequate to protect investors and assure fair dealing.

Chapter XII of the Special Study Report concluded that the Commission's existing procedures for the review of exchange rules did not

appear to be sufficient to assure the needed continuous oversight on the

part of the Commission to enable it to discharge its responsibilities

under the Act. The Report recommended that the exchanges be

required to file all proposed rule changes with the Commission in

advance of effectiveness, as has always been required in the case of

rules of the National Association of Securities Dealers, Inc. Rule

17a-8 was adopted in response to that recommendation and is intended

to afford the Commission an adequate interval for orderly review of

new exchange rules or amendments before they become effective.

The rule provides that each national securities exchange shall file a

report of any proposed change in, or addition to, its rules not less than

3 weeks before it is submitted for any action by the membership or any

governing body of the exchange. If any substantive change is made

in the proposal after the report is filed with the Commission, a new

3-week notice is required unless the change is made to conform it to a

suggestion made by the Commission. The rule also provides that if

emergencies arise in which a report cannot be filed as provided above,

the exchange shall give the Commission as much advance notice as the

circumstances permit, together with a written statement of the reasons

why the filing of a report as required was impracticable.

]5 Securities Exchange Act Release No. 7~3 (March 3, 1964).
20 SECURITIES AND EXCHANGE COMMISSION

Proposed Rule 17a-9

During the fiscal year, the Commission staff drafted a proposed rule

and related reporting forms requiring broker-dealers to report certain

information concerning over-the-counter trading in common stocks

traded on national securities exchanges. The proposed. rule, to be

designated Rule 17a-9, was published for public comment shortly

after the end of the fiscal year.16 Itis intended to implement reoommendations of the Special Study of Securities Markets.

The Report of the Special Study describes a striking increase in the

volume of off-board trading in common stocks traded on the New York

Stock Exchange and other national securities exchanges in recent

years. But the Study found "an acute lack of data" concerning this

trading, which it described as the "third market." The Study recommended correction of this deficiency by establishment of a system for

the identification of market makers and for reporting information

concerning trading in this market.

The proposed rule and reporting forms are designed to enable the

Commission to obtain information on the third market on a continuous basis and thus keep abreast of any regulatory problems which may

develop therein. It would obtain two basic types of information:

(1) an identification of broker-dealers making off-board markets in

common stocks traded on any national securities exchange; and (2)

summaries of over-the-counter trading in common stocks traded. on the

New York Stock Exchange.

Proposed Amendments to Form 8-K

Form 8-K is prescribed for current reports filed pursuant to Sections 13 and 15(d) of the Securities Exchange Act. During the 1962

fiscal year, the Commission announced that it had under consideration

certain proposed amendments to Form 8-K and invited public comments," The amendments are designed to bring to the attention of

investors prompt information regarding matters such as the pledging

of securities of the issuer or its affiliates under circumstances that a

default will result in a change in control of the issuer, changes in the

board of directors otherwise than by stockholder action, the acquisition or disposition of a significant amount of assets otherwise than in

the ordinary course of business, interests of management and others in

certain transactions, and the issuance of debt securities by subsidiaries.

These amendments were still under consideration at the close of the

last fiscal year.

18 Securities Exchange Act Release No. 7360 (July 8, 1964).

11 Securities Exchange Act Release No. 67,70 (AprU 5, 1962).
THIRTIETH ANNUAL REPORT 21

THE INVESTMENT COMPANY ACT OF 1940

Amendment of Rule 3e-3

During the fiscal year, the Commission invited public comments on

a proposed amendment of Rule 3c-3 under the Investment Company

Act,IS and, shortly after the close of the fiscal year, the rule was

amended."

Prior to its amendment, Rule 3c-3 exempted from the Act transactions of insurance companies with respect to group annuity contracts

entered into in connection with a plan of retirement which meets the

requirements of Sections 401 or 404(a) (2) of the Internal Revenue

Code and which provides for the allocation of part or all of the

employer's contributions to a separate account established and maintained pursuant to legislation under which income, gains and losses,

whether or not realized, from assets allocated to the account were credited to or charged against that account without regard to other income,

gains or losses of the insurance company." In order to qualify for the

exemption the group annuity contract was required to provide that

the retirement benefits for covered employees would be payable in

fixed dollar amounts, i.e., the contract could not permit the retirement

benefits payable to employees to reflect or be measured by the investment results of the assets allocated to the separate account.

The rule as amended permits group variable contracts to provide for

employees' retirement benefits to be payable in varying amounts but

the benefits may vary to the extent, and only to the extent, of the

employer's contributions to the separate account. No variable benefits

are permitted in respect of the contributions of the employees. In all

other respects, the restrictions and conditions of the rule remain intact.

Adoption of Rule 12d-1

During the fiscal year the Commission invited public comments on

a proposed Rule 12d-1 under the Investment Company Act,21and after

the close of the fiscal year, the rule was adopted." Rule 12d-1 provides conditional exemptions from the provisions of Section 12( d) (3)

of the Act which prohibits a registered investment company from purchasing or acquiring any security issued by, or any other interest in

the business of, a person who is a broker, a dealer, is engaged in the

business of underwriting, or is an investment adviser of an investment

company or an investment adviser registered under the Investment

Advisers Act of 1940.

]8 Investment Company Act Rele9.lleNo. 8957 (Apr1113, 1964).

>II Investment Company Act Release No. 4007 (July 2. 19M).

OIl See 29th Annual Report. p. 18.

11 Investment Company Act Release No. 8896 (JanulU'Y 15.1964).

II Investment Company Act Release No. 4044 (September 4, 1964).
22 SECURITIES AND EXCHANGE COMMISSION

The purpose of the rule is to permit registered investment companies, under specified circumstances, to retain in, or acquire for, their

portfolios securities of companies which are directly or indirectly

engaged in the businesses referred to in Section 12(d) (3), provided

that the portfolio companies are primarily and predominantly engaged in other businesses and derive or will derive a relatively insignificant portion of their gross revenues from such businesses.

The exemption is available for securities holdings or acquisitions of

securities by registered investment companies if the portfolio company,

during each of its most recent 3 .fiscal years, derived not more than

15 percent of its total gross revenues from the specified businesses, and

if the registered investment company and all companies under the

same or affiliated management as the registered company immediately

after the acquisition do not, in the aggregate, own more than 10 percent of the total outstanding voting stock of the portfolio company.

An exemption is also available for the purchase by a registered investment company of an unlimited percentage of the securities of a portfolio company if the portfolio company, during each of its most recent3 .fiscal years, has not derived more than 1 percent of its total gross

revenues from the businesses referred to in Section 12(d) (3) of the

Act.

A registered investment company which claims an exemption must

examine its portfolio semi-annually to determine whether its holdings

are in compliance with the conditions prescribed in the rule, and, if

any holding is not, the company is required to dispose of it within

90 days.

The rule further exempts all investments by registered investment

companies, without regard to the percentage of voting securities held,

in certain types of businesses, such as small loan, factoring and financecompanies which technically might be regarded as being engaged in

a securities business.

Amendment of Rule 17a-6

During the .fiscal year, the Commission amended Rule 17a-6 underthe Investment Company Act to provide certain additional exemptions from the prohibitions of Section 17(a) of the Act.23

Prior to its amendment, Rule 17a-6 exempted from the prohibitions

of paragraphs (1) and (3) of Section 17(a) of the Act the sale of

securities or other property to, and the borrowing of money or other

property from, a registered investment company which is a small business investment company licensed under the Small Business Investment Act of 1958 (SBIC) where such transactions were prohibited

• Investment Company Act Release No. 3968 (Apr1l29, 19M).
THIRTIETH ANNUAL REPORT 23

solely because the SBIC owns, controls, or holds with power to vote,

voting securities of a small business concern to an extent that creates

an affiliation within the meaning of the Act.

The purpose of both the previous rule and of the rule as amended is

to eliminate the need to file and process applications for exemption

from Section 17(a) in circumstances in which it appears that there is

no likelihood of overreaching of the investment company and that

the transaction would not be unreasonable or unfair to such company.

The rule as amended is broader in that it extends the exemption so as

to include not only transactions to which a registered investment company, which is an SBIC, is a party, but also transactions to which

another type of registered investment company (generally referred to

as a "venture capital investment company"), or a company controlled

by such a registered investment company, is a party. The rule now

specifies certain classes of persons who have an affiliation with the

registered investment company of a character which creates the possibility of overreaching of the investment company in a transaction

involving the registered investment company and such persons. An

exemption under the rule is not available, if such a person is a party

to the transaction, or has or within 6 months prior to the transaction

had, or pursuant to an arrangement will acquire, a direct or indirect

financial interest in a party (except the registered investment company) to the transaction.

The amended rule also exempts transactions involving a registered

investment company other than an SBIC or venture capital investment company and a company controlled by or affiliated with the registered investment company, if under the standards set forth in the preceding paragraph it appears that there is no likelihood of overreaching

of the investment company, and if all the outstanding securities of

the controlled or affiliated company are beneficially owned by not more

than 100 persons.

The rule as amended deletes the requirement of the original Rule

17a-6 that the pertinent details of each transaction for which exemption is claimed under the rule shall be reported by the investment company in its next annual report to stockholders and in a report filed

with the Commission within 30 days after the end of each semi-annual

accounting period of the investment company.

Amendment of Rule 17g-1

During the fiscal year the Commission invited public comments on a

proposed amendment of Rule 17g-1,24and after the close of the fiscal

.. Investment Company Act Release No. 3922 (March 3, 1964).
24 SECURITIES AND EXCHANGE COMMISSION

year, an amended rule was adopted," Rule 17g-1 requires that each

registered management investment company provide and maintain a

fidelity bond against larceny and embezzlement covering each officer

and employee of the investment company who may have access to securities or funds of the company.

The rule as amended adds to the provisions of the prior rule requirements that the amount of the :fidelity bond be determined at least once

each year, and that the registered company shall.file with the Commission a copy of each amendment to the bond, shall inform each of its

directors of any proposed cancellation, termination or modification

of the bond, and shall furnish to such directors and to the Commission

information as to the making and settlement of claims under the bond.

In addition, the amended rule requires that each bond must provide, in substance, that if the insurance company proposes to cancel,

terminate or modify the fidelity bond, it shall so notify the registered

company and the Commission not less than 30 days prior to the

effective date of such action.

The rule also places the obligation for .filing information with respect to the making and settlement of claims under fidelity bonds on

the registered company, rather than requiring, as originally proposed,

that the bond contain provisions pursuant to which the insurance

company would furnish the information to the Commission. The

adopted rule also provides that this information shall be nonpublic

unless the Commission determines to the contrary.

Proposed Amendment of Rule 20a-2

During the .fiscal year the Commission invited public comments on

a proposed amendment of Rule 20a-2.26 The rule presently requires

that a proxy statement relating to a registered investment company

include certain information with respect to, among other things, the

investment advisory contract, ownership and control of the investment

adviser, and interests of the management of the investment company

in the investment adviser. Except where the investment adviser is

a bank, a balance sheet of the investment adviser must be included,

unless the Commission, for good cause, permits the omission of such

balance sheet. Certain information also is required with respect to

the relationship between the investment company or the investment

adviser and the principal underwriter of the investment company's

securities. Where action is to be taken by the security holders of

the investment company with respect to an investment advisory contract, information is also to be included with respect to such contract

.. Investment Company Act Release No. 4020 (July 24.,1964) .

... Investment Company Act Release No. 3931 (March 18. 1964).
THIRTIETH ANNUAL REPORT 25

and with respect to certain collateral arrangements or understandings

in connection therewith.

The effect of the proposed revision of Rule 20a-2 would be to require: (1) disclosure of information with respect to the principal

underwriter, the prospective principal underwriter and the principal

underwriting contract comparable to that now required with respect

to the investment adviser, the prospective investment adviser and the

investment advisory contract; (2) disclosure of certain financial information concerning (a) the investment company, (b) the investment advisory contract where action is to be taken by security holders

with respect thereto, and (c) the principal underwriting contract

where action is to be taken by security holders with respect thereto;

and (3) the inclusion of such financial information with respect to

both the investment advisory contract and the principal underwriting

contract if action is to be taken by security holders with respect to

either and the investment adviser and principal underwriter are the

same person or one is an affiliated person of, or an affiliated person of

an affiliated person of, the other.

This matter was pending at the close of the£scal year.
PART IV

ADMINISTRATION OF THE SECURITIES ACT OF 1933

The Securities Act of 1933is primarily a disclosure statute designed

to provide investors with material facts concerning securities publicly

offered for sale by an issuing company or any person in a control

relationship to such company by the use of the mails or instrumentalities of interstate commerce, and to prevent misrepresentation, deceit,

or other fraudulent practices in the sale of securities generally. Disclosure is obtained by requiring the issuer of such securities to file

with the Commission a registration statement which includes a prospectus containing significant financial and other information about

the issuer and the offering. The registration statement is available

for public inspection as soon as it is filed. Although the securities

may be offered for sale after the registration statement has been filed,

sales may not be made until the registration statement has become

"effective." A copy of the prospectus must be furnished to each purchaser at or before the sale or delivery of the security in order that

he may have the opportunity to evaluate the securities and make an

informed investment decision. The registrant and the underwriter

are basically responsible for the contents of the registration statement.

The Commission has no authority to control the nature or quality

of a security to be offered for public sale or to pass upon its merits

or the terms of its distribution. Its action in permitting a registration statement to become effective does not constitute approval of the

securities, and any representation to the contrary to a prospective

purchaser of securities is made unlawful by Section 23 of the Act.

DESCRIPTION OF THE REGISTRATION PROCESS

Registration Statement and Prospectus

Registration of any security proposed to be publicly offered may be

effected by filing with the Commission a registration statement on the

applicable form containing the prescribed disclosure. Generally speaking, when a registration statement relates to a security issued by a

corporation or other private issuer, it must contain the information,

and be accompanied by the documents, specified in Schedule A of the

Act; when it relates to a security issued by a foreign government, the

material specified in Schedule B must be supplied. Both schedules

specify in considerable detail the disclosure which should be made

26
THIRTIETH ANNUAL REPORT 27

available to an investor in order that he may make a realistic appraisal of the company and the securities and thus exercise an informed

judgment whether to buy the security. In addition, the Act provides

flexibility in its administration by empowering the Commission to

classify issues, issuers and prospectuses, to prescribe appropriate forms,

and to increase, or in certain instances vary or diminish, the particular

items of information required to be disclosed in the registration statement as the Commission deems appropriate in the public interest or

for the protection of investors. The Commission has prepared special

registration forms which vary in their disclosure requirements so as

to provide maximum disclosure of the essential facts pertinent in a

given type of offering while at the same time minimizing the burden

and expense of compliance with the law.

In general, the registration statement of an issuer other than a

foreign government must describe such matters as the names of persons

who participate in the direction, management, or control of the

issuer's business; their security holdings and remuneration and the

options or bonus and profit-sharing privileges allotted to them; the

character and size of the business enterprise, its capital structure,

past history and earnings, and its financial statements, certified by

independent accountants; underwriters' commissions; payments to promoters made within 2 years or intended to be made; the interest of

directors, officersand principal stockholders in material transactions;

pending or threatened legal proceedings; and the purposes to which the

proceeds of the offering are to be applied. The prospectus constitutes

a part of the registration statement and presents the more important

of the required disclosures.

Examination Procedure

Registration statements are examined by the staff of the Division

of Corporation Finance for compliance with the standards of accurate

and full disclosure. The registrant is usually notified by an informal

letter of comment of any material respects in which the statement

appears to fail to conform with the applicable requirements and is

afforded an opportunity to file correcting or clarifying amendments.

In addition, the Commission has power, after notice and opportunity

for hearing, to issue an order suspending the effectiveness of a registration statement if it finds that material representations are misleading, inaccurate or incomplete. In certain cases, such as where the

deficiencies in a registration statement appear to stem from careless

disregard of applicable requirements or from a deliberate attempt to

conceal or mislead, a letter of comment is generally not sent and the

Commission either institutes an investigation to determine whether
28 SECURITIES AND EXCHANGE COMMISSION

"stop-order" proceedings should be instituted or immediately institutes

such proceedings. Information about the use of the "stop-order"

power during 1964 appears below under "Stop-Order Proceedings."

Time Required to Complete Registration

The Commission's staff endeavors to complete its examination of

registration statements in as short a time as possible. The Act provides that a registration statement shall become effective on the 20th

day after it is filed (or on the 20th day after the filing of any amendment thereto). Since most registration statements require one or

more amendments, they usually do not become effective until some

time after the original 20-day period. The period between filing and

effective date is intended to afford investors an opportunity to become

familiar with the proposed offering through the dissemination of the

preliminary form of prospectus. The Commission is empowered to

accelerate the effective date so as to shorten the 20-day waiting period

where the facts justify such action. In exercising this power, the

Commission is required to take into account the adequacy of the information respecting the issuer theretofore available to the public, the

ease with which the facts about the new offering can be disseminated

and understood, and the public interest and the protection of investors.

The note to Rule 460 under the Act indicates, for the information of

interested persons, some of the more common situations in which the

Commission considers that the statute generally requires it to deny

acceleration of the effective date of a registration statement.

The median number of calendar days which elapsed from the date of

original filing to the effective date with respect to the 960 registration

statements that became effective during the 1964 fiscal year 1was 36,

compared with 52 days for 985 registration statements in fiscal year

1963 and 78 days for 1,646 registration statements in fical year 1962.

The number of registration statements filed during fiscal year 1964

was 1,192, as compared with 1,159 and 2,307 in fiscal years 1963 and

1962, respectively,"

The following table shows by months during the 1964 fiscal year the

number of calendar days elapsed during each of the three principal

stages of the registration process for the median registration statement, the total elapsed time and the number of registration statements

effective.

1This figure excludes the 161 registration statements filed by investment companies

pursuant to the provisions of Section 24(e) of the Investment Company Act of 1940.

which became etrective during the year. The median elapsed time with respect to these

statements was 21 calendar days.

2These figures include 158, 174 and 201 registration statements filed by investment

companies pursuant to Section 24(e) of the Investment Company Act of 1940 for fiscal

years 1964, 1003 and 1962, respectively.
THIRTIETH ANNUAL REPORT 29

Time in regi8traUon under -tbe Securities Act of 1933 btl months tluring tke

fi8ca~ year entletl June 30, 1964

NUMBER OF CALENDAR DAYS

From date of From date of From amend- original filing letter of com- ment after Totalnum- Number of Months to date of ment to data letter to ber of days registration staff's letter offilmg eftective In reglstra- statements of comment amendment date of tlOn effective' thereafter registration

IDly 1963________________________

August 21 13 6 40 st _________________________ 25 16 8 49 61 september _______________________ 23 10 8 41 55 October __________________________ November. 20 11 7 38 87 ______________________ December 20 11 7 38 55 _______________________ 20 16 7 42 79 lanuary 1964..____________________ Fehruary ________________________ 19 16 7 41 63

March. 13 23 7 43 63 __________________________

April. ___________________________ 14 12 6 32 66

May 12 11 6 29 108 _____________________________

lune _____________________________ 14 11 6 30 131 16 14 7 36 96

Fiscal 1964 for median effective registration statement _________ 16 13 7 36 960

see footnote 1 to text, supra.

VOLUME OF SECURITIES REGISTERED

During the fiscal year 1964, a total of 1,121 registrations of securities in the amount of $16.9 billion became effective under the Securities Act of 1933. These figures represent a decrease of 3 percent

in the number of statements, but an increase of 14 percent in dollar

amount of registrations over the preceding fiscal year. The chart on

page '7 shows the number and dollar amounts of reg-istrations from

1935 to 1964.

These figures cover all registrations which became effective, including secondary distributions and securities registered for other than

cash sale, such as issues exchanged for other securities, and securities

reserved for conversion. Of the dollar amount of securities registered

in 1964, nearly 88 percent was for account of issuer for cash sale, over

3 percent for account of issuer for other than cash sale, and 9 percent

for account of others, as shown below.

Accounts for whick 8ecuritie8 were registeretl under the Securities Act of 1933

during the fi8ca~ year 1964 compared with the fi8ca~ years 1963 antl 1962

1964 in Percent 1963ln Percent 1962 In Percent m1llions of total millions of total mllllons of total

--- ------ --- --- Registered for account of Issuer for cash $14,754 87.7 $11,869 80.2 $16,286 83.& sale. ____________________________________

Registered for account of Issuer for other

612 3.6 1,782 than cash sale ___________________________ 12.1 1,623 7.8

Registered for account of others than Issuer 1,464 8.7 1,139 7.7 1,738 a.o TotaL ______________________________ --- --- --- --- --- --- 16,860 100.0 14.700 100.0 19.647 100.&

•

___________________________-- __- ___
30 SECURITIES AND EXCHANGE COMMISSION

The $14.8 billion of securities offered for cash sale for account of

issuer represented an increase of $2.9 billion, or 25 percent, over the

previous year. Registration of new common stock issues aggregated

$10 billion, $2.8 billion more than in the 1963 fiscal period. The

increase in common stock registered largely reflected a $1.2 billion

issue offered to stockholders by .American Telephone & Telegraph Co.,

(a record-size issue) and a $200 million issue of the Communications

Satellite Corporation, as well as increased registrations of investment

company issues and stock options. Registrations of new bonds, notes

and debentures were only slightly higher than in the preceding year,

and accounted for $4.6 billion of the 1964 volume. Preferred stock

issues registered for account of the issuer amounted to $224 million,

somewhat lower than in 1963. Appendix Table 1 shows the number

of statements which became effective and total amounts registered for

each of the fiscal years 1935 through 1964, and contains a classification,

by type of security, of issues to be offered for cash sale on behalf of the

issuer during those years. More detailed information for 1964 is

given in Appendix Table 2.

Corporate issues to be offered immediately after effective registration amounted to $6.5 billion, an increase of $1.4 billion over the

previous year. Of the total, communication companies accounted for

$2.2 billion of issues, including the two issues mentioned above. A

larger amount was also registered by companies in the financial and

real estate group, the total being $1 billion, almost double the amount

of the preceding year. Among the other major industry groups,

electric, gas and water companies registered $2.1 billion of securities,

slightly under the 1963 total, and manufacturing companies registered

over $900 million of issues, a moderately higher amount than in the

preceding year. Registration of foreign government issues scheduled

for immediate sale decreased to $120 million from $265 million in the

preceding year, but in addition, one foreign government issue in the

amount of $400 million, planned for offering on a continuous basis

over a number of years, was effectively registered.
THIRTIETH ANNUAL REPORT 31

1964 In Percent 1D631n Percent 1962 In Percent

mlliions of total mlliiona of total mUliona of total

--- ------ --- --- Issues Q1fered for Immediate sale: Corporate: Manufacturing ________________________ $923 6.2 $844 7.1 $1,818 1L2 Extractlve ____________________________ 113 .8 141 L2 92 .6 Electric. gas and water _______________ 2,103 14.2 2,266 19.1 2,327 14.3 TransportatIon, Communicatlon ______________________

other than rallroad ___ 121 . 8 16 .1 67 .. 2, 156 14. 6 1,135 9.6 840 5.2 Financial and real estate ______________ 1,010 6.8 641 4.6 772 4.7 Trade _________________________________ Servlce _______________________________ 33 .2 88 .7 287 L8

41 .3 52 •• 111 .7 Construction and mIsc ________________ Total 14 .1 3 .0 16 .1 _______________________________ 6,515 44.1 5,086 4.2.9 6,319 38.8

Foreign government ____________________ --- --- --- ------ --- 118 .8 266 2.2 24.7 L5

Total for immediate sale ____________ --- --- --- --- --- --- 6,633 44.9 5,352 46.1 6,566 40.3

--- --- --- --- --- --- Issues olIered over an extended period ____ 8,151 651 6,616 64.9 9,721 69.7

--- --- --- --- --- --- Totel for cash sale for account of issuer _____________________________ 14, 784 100.0 11,869 100.0 16,286 100.0

Issues registered for offering over an extended period amounted to

$8.2 billion, as against $6.5 billion in fiscal year 1963, classified as

follows:

1964 in 1963 in 1002 in millions millions millions

----------------------1---------

Investment company issues: Management open-end

Management closed-end Unit investment trust.; Fare-amount certlficates

'I'otal Investment companies

Employee saving plan certlficates

Securities for emnloyees stock option plans.

Other, Including stock for warrants and options

$3,822 183

851

170 5,025

687 1,470

968

$3,50069 i.oss96 4,720

667

990

139

$4,213

309 1,258 176 5,956

672

1,314

1,879

Of the $6.5 billion expected from the immediate cash sale of corporate securities for the account of issuer in 1964, 86 percent was designated for new money purposes, including plant, equipment and working capital, 5 percent for retirement of securities, and 9 percent for all

other purposes including purchases of securities.

REGISTRATION STATEMENTS FILED

During the 1964 fiscal year, 1,192 registration statements were filed.

for offerings of securities aggregating $18.6 billion, as compared with

1,159 registration statements :filed during the 1963 :fiscalyear for offerings amounting to $14.7 billion. This represents an increase of 2.8

percent in the number of statements filed. and 26 percent in the dollar

amount involved.

Of the 1,192 registration statements filed in the 1964 :fiscalyear, 322,

or 27 percent, were :filed by companies that had not previously :filed.

registration statements under the Securities Act of 1933. Comparable

_

_

_

_

_

_

_

_
32 SECURITIES .AND EXCHANGE COMMISSION

figures for the 1963 and 1962 fiscal years were 357, or 31 percent, and

1,377, or 60 percent, respectively.

From the effective- date of the Securities Act of 1933 to June 30,1964,

a cumulative total of 24,046 registration statements has been filed

under the Act by 11,185 different issuers, covering proposed offerings

of securities aggregating over $258 billion.

Particulars regarding the disposition of all registration statements

filed under the Act to June 30,1964, are summarized in the following

table:

Number and. d.isp08ition of registration statement« filed.

Prior to July 1,1963to Total June

July 1,1963 June 80, 1964 80.1964

Beglstration Filed _____________________________________________________ statements: 22,81i4 1,192 24,046

D~tiOn: lIective (net) ________________________________________ 19,714 b 1,110 -20 805 Under stop or refusal order ________ Withdrawn 220 6 '226 ___________________________________________ 2,609 129 2,738 Pending at June 80, 1963

Pending 311 ... ... .........._--------- at June 30, 1964______________________________ ------- ...------ --_ ..---------- 278

Total _______________________________________________22,81i4 -------------- 24,046

Aggregate As dollar amount: filed (in bllllons) _______________________________________ $240.1 $18.6 $258. 7 .As effective (In bllllons) 230.7 16.9 247.6

Includes 163registration statements covering proposed offerings totaling $4,811,384,381filed by invest- ment compaules under Bectlon 24(e) ofthe Investment Company Act 011940,which permits registration by amendment to a previonsly effectIve registration statement. b Excludes 11registration statements that became effective during the year but were subsequently withdrawn; these 11 statements are counted in the 129statements WIthdrawn during the year. Excludes 2 registration statements that became effective prior to July 1, 1963,which were placed under

stop order during the year, and 17registration statements ellective prior to July 1, 1963,which were withdrawn during the year; these statements are reflected under stop orders and withdrawn, respectively,

The reasons given by registrants for requesting withdrawal of the

129 registration statements that were withdrawn during the 1964 fiscal

year are shown in the following table:

Reason for registrant's withdrawal request

Number of Percent statements of total

withdrawn withdrawn

1. Withdrawal requested after receipt of the staff's letter of comment

2. Registrant was advised that statement should be withdrawn or stop order

3. cE::ef~~~;;:: ~~~::::::::::::::::::::::::::::::::::::::::::::: ~~f;~c'i~::t'f~;go=~g~_-_~==:====:=:=::=:=:::==:===::==:==:===:::====:=: 6. Regtstrant was unable to negotiate acceptable agreement with underwriter

Total

STOP ORDER PROCEEDINGS

14

2

84

16

4

10

129

11

2

65

11

3

8

100

Section 8 (d) provides that, if it appears to the Commission at any

time that a registration statement contains an untrue statement of a

material fact or omits to state any material fact required to be stated

•

•___________________

______________________________ --- ------ ---

••_________________________________

•

-

_

_ •• _
THIRTIETH ANNUAL REPORT 33

therein or necessary to make the statements therein not misleading, the

Commission may institute proceedings to determine whether a stop

order suspending the effectiveness of the registration statement should

be issued. Where such an order is issued, the offering cannot lawfully

be made, or continued if it has already begun, until the registration

statement has been amended to cure the deficiences and the Commission

has lifted the stop order.

The following table shows the number of proceedings under Section

8(d) of the Act pending at the beginning of the 1964 fiscal year, the

number initiated during the year, the number terminated and the

number pending at the end of the year.

Proceedings pending at beginning of fiscal year___________________ 10

Proceedings initiated during fiscal year__________________________ 0

10

Proceedings terzninated during fiscal year______________________________ 6

Proceedings pending at end of fiscal year_______________________________ 4

Three of the proceedings which were terminated during the fiscal

year through the issuance of stop orders are described below:

Advanced Research Associates, Inc-s-In this proceeding, the Commission held that the company's prospectus was highly misleading

and denied a request for withdrawal of the registration statement.

The Commission found that despite certain caveats, the description of

the issuer's business in the prospectus created a misleading impression

of a company on the verge of major expansion and successful operation in the advanced electronic field in aviation, when in fact it had

sustained substantial losses in its short history and future prospects

were at best doubtful. The Commission pointed out, in this connection, that statements may be so distorted that no disclosure or caveat

is sufficient to cure their misleading nature. The Commission also

found a number of other deficiencies, including a misleading description of one of the company's products, a "Composite Transistor;" the

failure to disclose that prior sales of the company's securities, claimed

to have been made in reliance on certain exemptions from the registration provisions of the Securities Act, were in fact not exempt and

violated those provisions, thereby giving rise to contingent liabilities;

and a false statement that the certifying accountant was independent.

The Commission's conclusion that the accountant was not independent

with respect to the issuer was based on the fact that there had been a

number of transactions and associations between him and two of the

Securities Act Release No. 4630 (August 16, 1963).

757-003-65---4

•
34 SECURITIES AND EXCHANGE COMMISSION

issuer's principals or companies 'in which they had a controlling or

substantial interest.

Atlantic Research Corporation.4-The registrant, a Virginia corporation incorporated in January 1949, maintains its principal offices

at Alexandria, Virginia, and has operations at various locations

throughout the country. It is engaged primarily in research, development and manufacture in the field of solid propellant rockets. A large

portion of its sales is generated pursuant to contracts and subcontracts

for the United States Government. On July 31, 1962,registrant filed

8 registration statement covering a proposed offering of 179,000shares

of common stock for the account of certain stockholders.

Information developed by the Commission's staff in an investigation led to a suspension of trading in registrant's stock on October 10,

1962, because of serious questions as to the adequacy and accuracy of

information available to the public concerning the financial condition

of registrant. More specifically, unconsolidated financial statements

contained in registrant's annual report to stockholders for the year

ended December 31, 1961,reported profits on a parent only basis in the

amount of $1,473,192. Registrant filed reports with the Commission

covering the same period which showed a loss in the amount of

$1,066,015 on a consolidated basis.

Following the Commission's institution of stop order proceedings on

November 7, 1962, registrant entered into a stipulation in which it

waived a hearing and post-hearing procedures, and agreed that the

registration statement was inadequate and inaccurate in certain

respects and that the Commission might enter a stop order.

The Commission held that the registration statement was "marked

by numerous serious and substantial deficiencies" which "reflected a

studied pattern of corporate camouflage and concealment and of artificial market activities, all designed to present to investors and others

a fictitious picture of registrant's activities and finances," and it issued

a. stop order. One of the principal deficiencies related to the failure

to disclose registrant's relationships with certain "satellite" corporations. According to the opinion, registrant directed and completely

dominated the management. policies and activities of these companies,

which had no business activities of their own and were operated

together with registrant as one economic unit. The failure to disclose

these relationships resulted in the concealment of material aspects of

registrant's financial affairs and business operations. Moreover, the

Commission held, these satellites were in fact subsidiaries of registrant, and their financial statements should have been consolidated

with those of registrant .

• Securities Act Release No. 4657 (December 6,1963).
THIRTIETH ANNUAL REPORT 35

The Commission further found that the registration statement failed

-to disclose the true facts concerning the relationships between members of the management of registrant and certain landlord and other

companies, and the interests of such persons in transactions to which

registrant or its subsidiaries were parties. Disclosure in these respects

would have raised further questions concerning the reliability of the

financial statements in the registration statement. In addition, the

registration statement failed to disclose the commitment of substantial

amounts of registrant's capital to the acquisition of its own stock in

the open market at a critical period in the market, for the purpose

and with the effect of manipulating the market price and protecting

the pledge by registrant's chief executive of his stock.

South Bay Industries, Inc.5-Registrant was incorporated in Delaware on August 3, 1959, for the purpose of acquiring 100 percent of

the stock of two affiliated California corporations which were engaged

principally in manufacturing ground handling equipment for aircraft

and guided missiles. On December 11, 1959, it filed a registration

statement covering a proposed offering of 210,000 shares of Class A

common stock at $5 per share. The registration statement became

effective on March 23, 1960, and the offering was completed shortly

thereafter.

On the basis of a stipulation of facts, the Commission found that the

registration statement was materially deficient in failing to disclose

current adverse financial information subsequent to the date of the

most recent financial statements in the registration statement. A trial

balance prepared prior to the effective date indicated a substantial loss

for one of the subsidiaries for its latest fiscal year. Under the circumstances, the Commission stated, registrant should at least have deferred

the effective date of the registration statement until the imminent final

audit figures were available. The Commission further found that

, even aside from the trial balance, registrant's president, the underwriter, and the certifying accountant were on notice prior to the effective date that the figures in the registration statement were out of date

and that the registration statement gave no indication of registrant's

subsequent adverse financial condition.

The Commission also found, among a number of other deficiencies,

that the accountant who certified certain financial statements in the

registration statement was not in fact independent with respect to

registrant since, among other things, he and registrant's president were

. business associates in another, closely held company, and his conduct

in permitting his certification to appear in the registration statement

S Securities Act Release No. 4702 (.Juue 11,1964).
36 SECURITIES AND EXCHANGE COMMISSION

for financial statements which he knew were no longer representative

of registrant's financial condition was not compatible with

independence.

EXAMINATIONS AND INVESTIGATIONS

The Commission is authorized by Section 8 (e) of the Act to make an

examination in order to determine whether a stop order proceeding

should be instituted under Section 8(d). For this purpose the Commission is empowered to examine witnesses and require the production

of pertinent documents. The Commission is also authorized by Section 20(a) of the Act to make an investigation to determine whether

any provision of the Act or of any rule or regulation prescribed thereunder has been or is about to be violated. Inappropriate cases, investigations are instituted under this Section as an expeditious means of

determining whether a registration statement is false or misleading

or omits to state any material fact. The following table indicates

the number of such examinations and investigations with which the

Commission was concerned during the fiscal year:

Pending at beginning of fiscal year______________________________ 35

Initiated during fiscal year____________________________________ 7

42

Closed during fiscal year______________________________________________ 10

Pending at close of fiscal year_________________________________________ 32

EXEMPTION FROM REGISTRATION OF SMALL ISSUES

The Commission is authorized under Section 3 (b) of the Securities

Act to exempt, by its rules and regulations and subject to such

terms and conditions as it may prescribe therein, any class of securities

from registration under the Act, if it finds that the enforcement of the

registration provisions of the Act with respect to such securities 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. The statute imposes a maximum limitation of $300,000

upon the size of the issues which may be exempted by the Commission

in the exercise of this power.

Acting under this authority, the Commission has adopted the following exemptive rules and regulations:

Rule 234: Exemption of first lien notes.

Rule 235: Exemption of securities of cooperative housing corporations.

Rule 236: Exemption of shares offered in connection with certain transactions.

Regulation A: General exemption for United States and Canadian issues

up to $300,000.
TIDRTIETH ANNUAL REPORT 37

Regulation B: Exemption for fractional undivided interests in oil or

gas rights up to $100,000.

Regulation F: Exemption for assessments on assessable stock and for

assessable stock offered or sold to realize the amount of assessment

thereon.

Under Section 3 (c) of the Securities Act, which was added by Section 307 (a) of the Small Business Investment Act of 1958, the Commission is authorized to adopt rules and regulations exempting securities issued by a company which is operating or proposes to operate as

a small business investment company under the Small Business Investment Act. Acting pursuant to this authority, the Commission has

adopted a Regulation E which exempts upon certain terms and conditions limited amounts of securities issued by any small business

investment company which is registered under the Investment Company Act of 1940. This regulation is substantially similar to the one

provided by Regulation A adopted under Section 3 (b) of the Act.

Exemption from registration under Section 3 (b) or 3 (c) of the

Act does not carry any exemption from the provisions of the Act prohibiting fraudulent conduct in the offer or sale of securities and imposing civil liability or criminal responsibilty for such conduct.

Exempt O1lerings Under Regulation A

The Commission's Regulation A implements Section 3 (b) of the

Securities Act of 1933 and permits a company to obtain needed capital

not in excess of $300,000 (including underwriting commissions) in

anyone year from a public offering of its securities without registration, if the company complies with the regulation. Upon complying

with the regulation a company is exempt from the registration provisions of the Act. A Regulation A filing consists of a notification

supplying basic information about the company, certain exhibits, and

an offering circular which must be used in offering the securities.

However, in the case of a company with an earnings history which is

making an offering not in excess of $50,000 an offering circular need

not be used. A notification is filed with the Regional Office of the

Commission in the region in which the company has its principal place

of business.

During the 1964 fiscal year, 462 notifications were filed under Regulation A, covering proposed offerings of $89,317,615, compared with

517 notifications covering proposed offerings of $101,040,982 in the

1963 fiscal year. Included in the 1964 total were 26 notifications covering stock offerings of $3,729,642 with respect to companies engaged

in the exploratory oil and gas business, 11 notifications covering offerings of $2,734,530 by mining companies and 22 notifications covering
38 SECURITIES AND EXCHANGE COMMISSION

offerings of $3,953,05'7by companies featuring new inventions, products or processes.

The following table sets forth various features of the Regulation .A.

offerings during the past 3 fiscal years:

Ofjffl"ings unaffl" Regulation A

Fiscal year

1964 1963 1962

--- --- 'Size'$100,000 or less 126 143 100

Over $100,000 but not over $200,000 ____________________________________ 96 104 208

'Over $200,000 but not over $300,000 ____________________________________ 240 270 691

--- --- --- 462 517 I, 06l>

'Underwriters: --- = = Used _________________________________________________________________ Nat 72 108 628 used _____________________________________________________________ 390 409 637

'0jJ~ --- --- = Issnlng companies ____________________________________________________418 476 1,000 Stockholders __________________________________________________________ 39 34 24 Issners and stockholders Jointly _______________________________________ 6 7 41

Suspension of Exemption

Regulation .A. provides for the suspension of an exemption thereunder where, in general, the exemption is sought for securities for

which the regulation provides no exemption or where the offering is

not made in accordance with the terms and conditions of the regulation

'Or with prescribed disclosure standards. Following the issuance of

a temporary suspension order by the Commission, the respondents

may request a hearing to determine whether the temporary suspension

should be vacated or made permanent. If no hearing is requested

within 30 days after the entry of the temporary suspension order and

none is ordered by the Commission on its own motion, the temporary

suspension order becomes permanent.

During the 1964 fiscal year, temporary suspension orders were issued

in 35 cases, which, added to the 2'7 cases pending at the beginning of

the fiscal year, resulted in a total of 62 cases for disposition. Of these,

the temporary suspension order was vacated in 8 cases and became

permanent in 35: in 18 by Iapse of time, in 6 by withdrawal of the

request for hearing, and in 11 after hearing. Thus, there were 19 cases

pending at the end of the fiscal year.

Three of the cases disposed of during the year are summarized below

to illustrate the type of misrepresentations and other noncompliance

with the regulation which led to the issuance of suspension orders:

Trail.Aire, Inc.-The issuer, a California corporation, was engaged

in the design, rebuilding, manufacture, and sale of moving vans and

trailers. Prior to the offering in question, the owners of its principal

•• ______________________________________________________
THIRTIETH ANNUAL REPORT 39

customers (the Dean group) purchased a 50 percent interest in the

issuer for $20,000. Shares representing this interest were issued to

the attorney for the Dean group as holder of record and nominee for

the group. However, the issuer's offering circular and notification

listed the attorney as both beneficial and record holder of these shares.

This procedure was claimed to be in the issuer's interest because its

potential customers included competitors of the Dean group and it

was felt a sales problem might be created if it were publicized that the

Dean group were the major stockholders of the issuer.

The Commission, in its order permanently suspending the Regulation A exemption," stated that: "Even though the issuance of the Dean

group stock in the name of a nominee for the beneficial owners may

originally have been motivated by factors considered to be in the best

interests of Trail-Aire, when the issuer undertook to make a publie

offering of its securities, disclosure of the facts as to the true beneficial owners of controlling blocks of stock was necessary. Particularly where such owners are the issuer's principal customers, the possibility exists that the issuer may conduct its affairs in a manner to

serve their interests and to subordinate the other aspects of its business."

The Commission further stated that although there was no evidence

indicating an intent to subvert the issuer's interests as a whole, the

possibility of conflict was of vital interest to public investors, and

they had a right to a full presentation of facts which indicated its

presence and extent. The Commission concluded that the issuer's

officers "exhibited a lack of concern for the complete truth and accuracy of the material filed and used, which is incompatible with the

responsibilities of those who seek to avail themselves of the conditional

exemption provided by Regulation A."

Northeast Telecommunications, Inc.-In its Opinion and Order

permanently suspending issuer's exemption/ the Commission held,

among other things, that no.exemption.under.Begulation A..was available because the $300,000 statutory limitation was exceeded. While

the offering consisted of 300,000shares at $1 a share, under the regulation 22,000 shares previously issued or sold had to be included in. determining the aggregate offering price. These included 10,000 shares

owned by officers and directors which had been placed. in escrow, but

which, pursuant to instructions from the issuer's president, were transferred by the escrow agent to a nominee of the underwriter 7 months

prior to termination of the escrow agreement. The Commission stated

that "where, as here, the president of an issuer participates with the

Securities Act Release No. 4621 (July S. 1968).

Securities Act Release No. 4622 (July 17, 1963).

•

~
40 SECURITIES AND EXCHANGE COMMISSION

escrow agent in a breach of an escrow agreement the issuer cannot

properly claim that 'effective' provision was made (as required by

the regulation) to keep the stock in escrow. Moreover, it is immaterial that the underwriter did not sell the 10,000 shares until after the

termination of the escrow agreement." The Commission also held that

12,000 shares sold in violation of the registration provisions of the

Securities A.ct within 1 year prior to commencement of the Regulation

A. offering must be included in determining the aggregate offering

price.

Decorative Interiors, Inc.-The issuer offered its securities on a

best efforts basis through an underwriter who was a sole proprietor

whom it knew to be young, inexperienced, and financially irresponsible. When the Commission's staff began to inquire into the offering,

questions were put to the underwriter, which he refused to answer and

as to which he invoked the privilege against self-incrimination. The

Commission then issued a temporary suspension order, based on Rule

261(a) (7) which provides that an exemption may be suspended whereever "the issuer or any promoter, officer, director, or underwriter has

failed to cooperate or has obstructed or refused to permit the making

of an investigation by the Commission." At the hearing the issuer

maintained that it had not been a party to the underwriter's failure

to cooperate and asked for leave to substitute a new underwriter or to

withdraw its filing. The Commission rejected the issuer's requests,

held that the suspension must be made permanent, and said in its

opinion ;"

Since the offering was on a best efforts basis and the issuer did not intend to

return any proceedsto investors if all the shares to be offeredwere not sold, the

experience and responsibility of the underwriter were particularly important

... Under these circumstances, we think the issuer assumed whatever risks

resulted from its action inemployingthis underwriter as its agent for the public

sale of its securities. We think the record sbows not only a lack of reasonable

care on the part of the issuer in arranging for the selection of the underwriter

and the terms of the offering, bnt also a failure to beed clear warnings of the

underwriter's lack of responsibility and reliability.

Exempt Offerings Under Regulation B

During the fiscal year ended June 30,1964,242 offering sheets and

290 amendments thereto were filed pursuant to Regulation B and were

examined by the Oil and Gas Section of the Commission's Division of

Corporation Finance. During the 1963 and 1962 fiscal years, 231 and

229 offering sheets, respectively, were filed. The following table indicates the nature and number of Commission orders issued in con8 Securities Act Release No. 4661 (January 8.1964).
THIRTIETH ANNUAL REPORT 41

nection with such filings during the fiscal years 1962-64. The balance

of the offering sheets filed became effective without order.

Action taken on offering sheets flleiL finder Regulation B

FIscal year

1004 1963 1962

------ Temporary suspension orders (under Rule 34O(a»_ _. 18 25 34 Orders terminating proceeding after amendment. 8 13 9 Orders consenting to withdrawal of otlering sheet and terminating pro- ceedlng_. _. 3 4 5 Orders fixing etlectlve date of amendment (no proceeding pendlng). ______ 187 153 138 Orders consenting to withdrawal of otlering sheet (no proceeding pendlng)_ 15 12 11 Orders termlnetlng hearing. 1 ---------- ---------- Total number of orders. --- --- --- 232 'JJJ7 197

Reports of Sales.-The Commission requires persons who make offerings under Regulation B to file reports of the actual sales made

pursuant to that regulation. The purpose of these reports is to aid

the Commission in determining whether violations of laws have occurred in the marketing of such securities. The following table shows

the number of sales reports filed under Regulation B during the past

3 fiscal years and the aggregate dollar amount of sales during each

of such fiscal years.

Reports of sales under Regulation B

1004 1963 1962

Number of sales reports filed_. ._. 2,658 2,747 4, 615 .Aggregate dollar amount of sales reported ._ $2,247,259 $2,866,632 $2,921,591

Exempt Offerings Under Regulation E

Regulation E provides a conditional exemption from registration

under the Securities Act of 1933 for securities of small business investment companies which are licensed under the Small Business Investment Act of 1958 or which have received the preliminary approval

of the Small Business Administration and have been notified by the

Administration that they may submit an application for such a license.

The regulation, which is similar in many respects to the general

exemption provided by Regulation A, requires the filing of a notification with the Commission and, except in the case of offerings not in

excess of $50,000,the filing and use of an offering circular containing

certain specified information.

Regulation E provides for the suspension of exemption in particular

cases if the Commission finds that any of the terms and conditions

of the regulation have not been met or complied with.

There were no filings under Regulation E during the 1964 fiscal

year.

•••• ______• __________ _______• __• ______________

___•• ___•_____•• ________• __________________• ___• _____________

_• __________________• ______•• _________________

______• ____________• ______• ______________• __

_______ ______________•• _________•• _

______• _______________• __
42 SECURITIES AND EXCHANGE COMMISSION

Exempt Offerings Under Regulation F

Regulation F provides an exemption from registration under the

Securities Act for assessments levied upon assessable stock and for

deliquent assessment sales in amounts not exceeding $300,000 in any

one year. It requires the filing of a simple notification giving brief

information with respect to the issuer, its management, principal security holders, recent and proposed assessments and other security issues.

The regulation requires a company to send to its stockholders, or

otherwise publish, a statement of the purposes for which the proceeds

from the assessment are proposed to be used. Ifthe issuer should employ any other sales literature in connection with the assessment, copies

of such literature must be filed with the Commission.

During the 1964 fiscal year, 28 notifications were filed under Regulation F, covering assessments of $835,623. Regulation F notifications

were filed in three of the nine regional offices of the Commission:

Denver, San Francisco and Seattle. Underwriters were not employed

in any of the Regulation F assessments.

Regulation F provides for the suspension of an exemption thereunder, as in Regulation A, where the regulation provides no exemption or where the offering is not made in accordance with the terms and

conditions of the regulation or in accordance with prescribed disclosure standards.

No Regulation F filings were temporarily suspended during the

fiscal year 1964.
, ,

PART V

ADMINISTRATION OF THE SECURITIES EXCHANGE ACT

OF 1934

The Securities Exchange Act of 1934, as amended by the Securities

Acts Amendments of 1964 (enacted on August 20, 1964), provides for

the registration and regulation of securities exchanges, the registration of securities listed on such exchanges, and under new Section

12(g), the registration of securities traded over the counter whose

issuers have total assets in excess of $1 million and a class of equity

securities held of record by at least 750 persons (after July 1, 1966,

the number will be reduced to 500). It establishes, for issuers of

securities registered under the Act, financial and other reporting

requirements, regulation of proxy solicitations and requirements with

respect to trading by directors, officersand principal security holders.

The Act also provides for the registration and regulation of national

securities associations and of brokers and dealers doing business in the

over-the-counter market, contains provisions designed to prevent

fraudulent, deceptive and manipulative acts and practices on the exchanges and in the over-the-counter markets and authorizes the Federal Reserve Board to regulate the use of credit in securities transactions. The purpose of these statutory requirements is to ensure the

maintenance of fair and honest markets in securities transactions

on the organized exchanges and in the over-the-counter markets.

REGULATION OF EXCHANGES AND EXCHANGE TRADING

Registration and Exemption of Exchanges

As of June 30, 1964, 14 stock exchanges were registered under the

Exchange Act as national securities exchanges :

American Stock Exchange

Boston Stock Exchange

Chicago Board of Trade

Cincinnati Stock Exchange

Detroit Stock Exchange

Midwest Stock Exchange

National Stock Exchange

New York Stock Exchange

Pacific Coast Stock IDxchange

Philadelphia- Baltimore-Washington

Stock Exchange

Pittsburgh Stock Exchange

Salt Lake Stock Exchange

San Francisco Mining Exchange

Spokane Stock Exchange

43
44 SECURITIES AND EXCHANGE COMMISSION

Richmond Stock Exchange

Wheeling Stock Exchange

Four exchanges were exempted from registration by the Commission

pursuant to Section 5 of the Act:

Colorado Springs Stock Exchange

Honolulu Stock Exchange

Exchange Disciplinary Action

Each national securities exchange reports to the Commission disciplinary actions taken against any member, member firm, or person

connected therewith, for violation of any rule of the exchange, of the

Securities Exchange Act of 1934, or of any rule or regulation thereunder. During the fiscal year 9 of the 18 exchanges reported 121 such

actions, including imposition of fines ranging from $50 to $17,500 in

46 cases, with total fines aggregating $63,000; the suspension from

membership of 17 individuals and 7 member organizations; the expulsion of 6 individual members and 3 member organizations; and censures of 59 member organizations and individuals. Various other

sanctions were imposed against registered representatives and other

employees of member firms including the required re-examination of

a number of prospective employees of member organizations.

Commission Inspections of the Exchanges

The Commission is charged with the responsibility for the oversight of the national securities exchanges. Incarrying out its duties

in this regard and as part of its expanding program in this area, 9

inspections of the New York and American Stock Exchanges were

made during the fiscal year. The major areas inspected included the

exchange regulatory programs with regard to the financial responsibility of member firms; disciplinary actions; floor surveillance; and

the handling of public complaints. In addition, general inspections

were made of the Pacific Coast Stock Exchange, Midwest Stock Exchange and Spokane Stock Exchange.

REGISTRATION OF SECURITIES ON EXCHANGES

Unless a security is registered on a national securities exchange

under the Securities Exchange Act or is exempt. from such registration it is unlawful for a member of such exchange or any broker or

dealer to effect any transaction in the security on the exchange. In

general, the Act exempts from registration obligations issued or guaranteed by a state or the Federal Government or by certain subdivisions

or agencies thereof and authorizes the Commission to adopt rules and

regulations exempting such other securities as the Commission may

find necessary or appropriate to exempt in the public interest or for
THIRTIETH ANNUAL REPORT 45

the protection of investors. Under this authority the Commission has

exempted securities of certain banks, certain securities secured by

property or leasehold interests, certain warrants and, on a temporary

basis, certain securities issued in substitution for or in addition to listed

securities.

Pursuant to Section 12 of the Exchange Act, an issuer may register

a class of securities on an exchange by filing with the Commission and

the exchange an application which discloses pertinent information

concerning the issuer and its affairs. Information must be furnished

regarding the issuer's business, its capital structure, the terms of its

securities, the persons who manage or control its affairs, the remuneration paid to its officers and directors, and the allotment of options,

bonuses and proft-sharing plans, and financial statements certified

by independent accountants must be filed as part of the application.

Form 10 is the form used for registration by most commercial and

industrial companies. There are specialized forms for certain types

of securities, such as voting trust certificates, certificates of deposit and

securities of foreign governments.

Section 13 requires issuers having securities registered on an exchange to file periodic reports keeping current the information furnished in the application for registration. These periodic reports

include annual reports, semi-annual reports, and current reports. The

principal annual report form is Form 10-K which is designed to keep

up-to-date the information furnished in applications filed on Form

10. Semi-annual reports required to be furnished on Form 9-K are

devoted chiefly to furnishing mid-year financial data. Current reports on Form 8-K are required to be filed for each month in which

any of certain specified events have occurred. A report on this form

deals with matters such as changes in control of the registrant, important acquisitions or dispositions of assets, the institution or termination

of important legal proceedings and important changes in the issuer's

capital securities or in the amount thereof outstanding. Under the

1964: Securities Acts Amendments, the above requirements will be

applicable to issuers registered under new Section 12(g).

The following table shows the number of reports filed during the

fiscal year pursuant to Section 13 of the Exchange Act and those filed

under Section 15(d) of the Act by issuers obligated to file reports by

reason of having publicly offered securities registered under the Securities Act of 1933. As of June 30, 1964:,there were 2,930 such issuers,

including 290 that were also registered as investment companies under

the Investment Company Act of 1940. The table also includes the
46 SECURITIES AND EXCHANGE COMMISSION

number of annual reports, quarterly reports and reports to stockholders filed by issuers subject to the reporting requirements of Section

30 of the Investment Company Act.

Number ot annual and other periQdic report8 filed by iesuer« under the Securitie8 JJJaJchangeAct ot 1934 and the Inoeetment OompanyAct ot 1940 duringthe fi8cal year ended June 30, 1964

Number of reports filed by

Listed Over-the- Issuers ISSUers counter filing Total Type of reports filing Issuers reports reports

reports filing under sec- filed under reports tion 30 of

section under Investment

13 Section Company

15(d) Act

Annual reports on Forms IG-K, N->lOA-l, etc ____________ 2,334 2,146 521 5,051 Semiannual reports on Form 9-K ________________________ 1,961 1,691 ----~------- 3,65:t Current reports on Form 8-K 4,361 3,059 ---_ .. ..--- 7,410 Quarterly reports on Form 7-K __________________________ 34 260 ------------ 294 Quarterly reports on Form N->lOB-I. _____________________ ------------ ------------ 280- 280- Reports to stockbolders (Section 3O(d» ___________________ ------_ ..-.._- ------------ 1,496 1,496

Total reports filed_ ----..------------ --------------- 8,730 7,166 2,297 18,183'

STATISTICS RELATING TO SECURITIES ON EXCHANGES

Number of Issuers and Securities

As of June 30, 1964, a total of 2,467 issuers had 4,076 securities listed

on registered securities exchanges, of which 2,879 were stocks and

1,197 bonds. Of these totals 1,389 issuers had 1,611 stock issues and

1,115 bond issues listed and registered on the New York Stock Exchange. Thus, 56 percent of the issuers, 56 percent of the stock issuesand 93 percent of the bond issues were listed on the New York Stock

Exchange.

During the 1964 fiscal year, 138 issuers listed on registered securitiesexchanges for the first time, while the registration of the securities of

88 issuers were terminated. A total of 269 applications for registration

of securities on an exchange was filed during the 1964 fiscal year.

Market Value of Securities Available for Trading, by Calendar Year

The market value on December 31, 1963, of stocks and bonds, both

listed and unlisted, admitted to trading on one or more stock exchanges

in the United States was approximately $561 billion.

____________________________ ---
TIDRTIETH ANNUAL REPORT 47

Nwnberof Market value

Issues Dec. 31, 1963 (millions)

Stocks: New York Stock Exchange ______________________________________________ American 1,572 $4l1,318 Stock Exchange _______________________________________________ 1,003 26,130 Exclusively on other exchanges__________________________________________ 466 4,269

Total stocks ___________________________________________________________3,041 441,717

Bonds: New York Stock Exchange ______________________________________________ American 1,185 117,909 Stock Exchange _______________________________________________ 84 1,194 Exclusively on other exchanges__________________________________________ 24 136

Total bonds ___________________________________________________________1,293 119,239

Total stocks and bonds ________________________________________________ 4,334 660,956

The New York Stock Exchange and American Stock Exchange

figures were reported by those exchanges. There was no duplication

of issues between them. The figures for all other exchanges were for

the net number of issues appearing only on such exchanges, excluding

the many issues on them which were also traded on one or the other

of the New York exchanges. The number and market value of issues

as shown excluded those suspended from trading and a few others for

which quotations were not available. The number and market value

as of December 31, 1963, of preferred and common stocks separately

was as follows:

Preferred stocks Common stocks

Number Market value Nwnber Market value

(millions) (m\lllons)

Listed on registered exchanges_________________________ All other stoCks G______________________________________ 542 $9,317 2,281 $418,003 46 489 172 13,908

588 9,806 2,453 431,911

G Stocks admitted to unllBted tradlng privDeges only or solely listed on exempted exchanges.

The 3,041 preferred and common stocks represented over 9.8 billion

shares, of which over 9.3 billion were included in the 2,823 issues listed

on registered exchanges.

The New York Stock Exchange has reported aggregate market

values of all stocks listed thereon monthly since December 31, 1924,

when the figure was $27.1 billion. The American Stock Exchange

has reported December 31 totals annually since 1936. Aggregates

for stocks exclusively on the remaining exchanges have been compiled

as of December 31 annually by the Commission since 1948.
48 SECURITIES AND EXCHANGE COMMISSION

Value of atookft on 6:cohang6a, 'in. billWnB of dollara

5

2

New York American Exclusively

December 31 Stock Stock on other Total' Exchange Exchange Exchanges

1936____________________________________________

1937____________________________________________ $59.9 $14.8 ----_ .._--_ ......... $74.7

1938____________________________________________ 38.9 10.2 ----_ ..._------ ... 49.1 47.5 10.8 .....---_... .. 58.3 1939____________________________________________ 1940 46.5 10.1 ---------_ .. ..... 56.6 41.9 8.6 --------- ..---- 60. 1941____________________________________________ 35.8 7.4 ---_ ...._------- 43. 1942____________________________________________ 1943 38.8 7.8 46.6 47.6 9.9 ---_ ........._---... 57.5 1944____________________________________________

1945____________________________________________ 55.5 11.2 ........... _------- ...... 66.7 73.8 14.4 ----_ .._------- 88.2 1946____________________________________________ 1947 68.6 13.2 ---_ ....... 81.8

68.3 12 1 ---------$3:ii- 80.4 1948____________________________________________ 67.0 11.9 81.9 1949____________________________________________ 76.3 12.2 3.1 91.6 1960____________________________________________ 93.8 13.9 3.3 111.0 1951____________________________________________ 1952____________________________________________ 109.5 16.5 3.2 129.2 120.5 16.9 3.1 140.5 1953____________________________________________ 117.3 15.3 2.8 135.4 19M ____________________________________________ 1955____________________________________________ 169.1 22.1 3.6 194.8

207.7 27.1 4.0 238.8 1956____________________________________________

1957____________________________________________ 219.2 31.0 3.8 254. 0 195.6 25.5 3.1 224.2 1958____________________________________________ 276.7 31. 7 4.3 312.7 1959____________________________________________ 307.7 26.4 4.2 338.4 1960____________________________________________ 307.0 24.2 4.1 335.3 1961. ___________________________________________ 387.8 33.0 5.3 426. 2 1962____________________________________________ 1963____________________________________________ 345.8 24.4 4.6 374.2

411.3 26.1 4.3 441.7

Total values 1936-47mcluslve are for the New York Stock Exchange and the American Stock Exchange only.

Share and Dollar Volume and Market Value of Stocks Traded, by Fiscal Year

The aggregate market values of all stocks available for trading on

all exchanges as of June 30 annually, and the volume of shares actually

traded on the exchanges inyears ended June 30, have been as follows:

lune30 Volumes in years to June 30

values

(bIllions)

Share volume Dollar volume

1955__________________________________________________________ 1956___________________________________________________________ $222.8 I, 324, 383, 000 $36,878,540,000

1957 250.0 I, 217.1l3.~,000 36, 226,682, 000

1958__________________________________________________________ 262.0 1,210,807,000 32, 929, 671, 000

1959__________________________________________________________ 257.9 1,209,274, 000 30, 862, 129, 000

1960 __________________________________________________________ 337.6 I, 806, 810, 000 51, 577,195, 000

1961__________________________________________________________ 327.8 1, 456, 919, 000 47,795,837,000

1962 381.0 I, 971, 508, 000 57,029,271, 000

1963. 330.0 I, 796, 810, 000 58, 348, 768, 000

1964 414. 0 I, 700, 456, 000 54, 369, 863, 000 493.5 2, 099, 765, 000 73,243,469,000

The June 30 values were as reported by the New York Stock Exchange and as estimated for all other exchanges. Volumes included

shares, warrants and rights. Tables 9 and 10 in the appendix of this

Annual Report contain comprehensive statistics of volumes on

exchanges.

Aggregate market values over the years are not strictly comparable,

since they do not indicate what part of the change is due to factors

such as new listings, mergers into listed companies, and removals

from listing.

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________________________________________ • _______________

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THIRTIETH ANNUAL REPORT 49

Foreign Stock on Exchanges

The market value on December 31, 1963, of all shares and certificates

representing foreign stocks traded on the stock exchanges was about

$14.3 billion, of which $11.5 billion represented Canadian and $2.8

billion represented other foreign stocks. The market values of the

en! ire Canadian stock issues were included in these aggregates. Most

of the other foreign stocks were represented by American depository

receipts or American shares, only the outstanding amounts of which

were used in determining market values.

Foreign stocks on exchanges

Canadian Other Forclgn Total December 31, 1003

Issues Value Issues Vnlue Issues Value

Exchnnl(c' New York ________________ 13 ss, 038, 211, 000 13 $2,039,334, ()()() 25 $7,077,545. noo Amonc In _________________ 73 6,415,70 ()()() 33 773. 068. 000 106 7, 188,84<;.ono Others only _______________ 1 6n,OOO 3 13,41\9,000 4 14. 142,tOO

Total ___________________ 8i 11,454,669,000 49 2,825,871,000 135 14, 280, 532, 000

The number of foreign stocks on the exchanges has declined somewhat in recent years, owing principally to a reduction on the American

Stock Exchange from 152 in 1956 to 106 in 1963. Trading in foreign

stocks on the American Stock Exchange has fallen from 42.4 percent

of the reported share volume in 1956, to 14.9 percent in 1963. Trading

in foreign stocks on the New York Stock Exchange represented 3.4

percent of its reported share volume in 1956, and about 2 percent in

1l:>63.

Reported volumes in foreign shares during calendar year 1963 included about 31 million Canadian and 16 million other foreign shares

on the American Stock Exchange and about 10 million Canadian and

13 million at her foreign shares on the New York Stock Exchange.

While the share volume on the American exceeded that on the New

York Stock Exchange, it would appear that in view of higher average

share prices, the latter exchange had a greater dollar volume in foreign

shares.

Comparative Exchange Statistics

In recent years, the number of stocks listed on the New York Stock

Exchange has increased moderately, while the aggregate number of

stocks available for trading exclusively on the other exchanges has

declined, On the American Stock Exchange there has been a small

loss of issues since 1962.

'M7-903-6~1l

"
50 SECURITIES AND EXCHANGE COMMISSION

Net number of stocks on ea;changes

New York American Exclusively Total stocks

June 30 Stock Stock on other on

Exchange Exchange exchanges exchanges

1940___________________________________________ 1,242 1,079 1,289 3,610 1945____________________________________________ 1,293 895 951 3,139 1950____________________________________________ 1,484 779 775 3,038 1955____________________________________________ 1,543 815 686 3,044 1960____________________________________________ 1,532 931 555 3,018 1961____________________________________________ 1,546 977 519 3,042 1962____________________________________________ 1963____________________________________________ 1,565 1,038 493 3,091

1,579 1,025 476 3,080 1964____________________________________________ 1,613 1,023 463 3,099

Since 1948, aggregate values of stocks listed on the New York Stock

Exchange have represented an increasing proportion of total share

values on all the exchanges.

Share values on ei1Jchanges, in percentages

December 31

1948

1950

1955_.

1960.

1961.

1962.

1963_.

New York Amenean Exclusively Stock Stock on other Exchange Exchange exchanges

81.81 14 53 366 84.50 1252 2.98 8698 11 35 1 67 91.56 722 122 91. 02 774 124 92 41 652 1 07 93.12 5.91 0.97

The ratio of share volume on the regional exchanges to the total on

all exchanges has continued to decline over the years. However, the

regional exchange percentage of dollar volume has increased slightly.

In the following presentation, shares, warrants and rights are included.

Annual data since 1935 are shown in appendix table 10 in this Annual

Report,

Annual sales of stock on ei1Jchanges

Percent of share volume Percent of dollar volume Calendar year

New York American All other New York American All other

1940 75.44 13.20 11.36 85.17 7.68 7.15 1945 65.87 21.31 12.82 8275 10.81 6.44 1950 7632 13.54 10.14 85.91 685 724 1955 ._. ._ 6885 19.19 11.96 86 31 698 671 1960.

1961. 68.48 22.27 9.25 83.81 9.35 684

1962 64.99 25.58 9.43 8244 1071 685 71 32 20.12 856 811.32 6.81 6.87 1963 12 94 1884 8.22 85.19 752 7.29 1st 6 months, 1964.. 73.92 18.07 8.01 82.75 9.46 7.79

DELISTING OF SECURITIES FROM EXCHANGES

Applications may be made to the Commission by exchanges to

strike any securities or by issuers to withdraw their securities from

listing and registration on exchanges pursuant to Rule 12d2-2 under

_

• • •• _ • _

• • _ •• _ • • _ • __•

_________________• _________

______• __________• _________ _________________•• ___• ____ __________ • _____ _____ ______________•___________ ___________________• ______ ____________________• ______

__• ________________________

••• _________
THIRTIETH ANNUAL REPORT 51

Section 12(d) of the Securities Exchange Act. During the fiscal year

ended June 30, 1964, the Commission granted applications by exchanges and issuers to remove 56 stock issues and 24 bond issues from

listing and registration. Since 3 stocks were each delisted by two

exchanges, there was a total of 59 stock removals. The number of

issuers of stock involved was 48. The removals were as follows:

Applications filed by: ~ew '(ark Stock Exchange

American Stock Exchange

Boston Stock Exchange

Cincinnati Stock Exchange

]didwest Stock Exchange

National Stock Exchange

Pacific Coast Stock Exchange

Philadelphia-Baltimore-Washington Stock Exchange

Salt Lake Stock Exchange

San Francisco Mining Exchange Issuer

Sloe'" Bondi!

11 23

13

1

3 _

!cl

1

9 _

4 1

1

5

2

Total 59 24

In accordance with the practice in recent years, nearly all of the

delisting applications were filed by exchanges. The two applications

granted issuers during the year removed from the American Stock

Exchange a Canadian stock with little trading volume and the stock

of a domestic company which had incurred substantial losses.

The New York Stock Exchange delisted 21 bonds and debentures of

German state, municipal and corporate issuers. On March 25, 1964,

the Exchange adopted new delisting rules and criteria with respect to

lack of earnings, limited distribution of securities and insufficient

market value of outstanding stock and publicly held shares.

Delisting and Trading Suspension Proceedings Under Section 19(a)

Section 19(a) (2) authorizes the Commission to suspend for a period

not exceeding 12months, or to withdraw, the registration of a security

on a national securities exchange if, in its opinion, such action is

necessary or appropriate for the protection of investors and, after

notice and opportunity for hearing, the Commission finds that the

issuer of the security has failed to comply with any provision of the

Act or the rules and regulations thereunder. Of the two proceedings

under Section 19(a) (2) pending at the beginning of the fiscal year,

one was terminated during the year, and no additional proceedings

were instituted during the year.

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52 SECURITIES AND EXCHANGE COMMISSION

In Precision Microwave Oorporation 1the Commission found that a.

Securities Act registration statement, incorporated by reference in the

issuer's application for registration of its common stock on the American Stock Exchange, contained false and misleading financial information, including a material understatement of liability for sales commissions, a material overstatement of work-in-process, and distorted

comparative sales and earnings figures. It further found that the

accountant's certificate was false and misleading because he did not

follow generally accepted auditing procedures and was not in fact

independent, having employed the office manager and accountant of

the issuer's major subsidiary, who was responsible for maintenance of

books and records reviewed during the audit, to assist him in the audit.

The issuer had subsequently filed and submitted to stockholders an

annual report for a more recent period which included financial statements audited by different accountants, but thereafter receivership

proceedings and proceedings under Chapter XI of the Bankruptcy Act

had been instituted with respect to the issuer, following which required

reports were not filed. The Commission (in addition to issuing a.

stop order with respect to the registration statement) concluded to

suspend the exchange registration of the stock for 60 days, with the

proviso that if within 30 days the issuer filed reports containing correct

up-to-date financial information and disclosing the status of the court

proceedings and the extent of the present holdings and relationship to

the issuer of the official principally responsible for the falsification of

the financial information, and such reports presented II satisfactory

basis for permitting the resumption of trading, the suspension would

be terminated, but otherwise the exchange registration would be withdrawn. No reports were filed by the company and the registration of

its stock was withdrawn."

Section 19(a) (4) authorizes the Commission summarily to suspend

trading in any registered security on a national securities exchange

for a period not exceeding 10 days if, in its opinion, such action is

necessary or appropriate for the protection of investors and the public

interest so requires. During the 1964 fiscal year the Commission used

this authority with respect to three companies. At the end of the

fiscal year two suspensions remained in effect. A new Section 15 (c) (5)

enacted as part of the 1964 amendments provides the Commission

with authority summarily to suspend over-the-counter trading in any

security for a period not exceeding 10 days if, in its opinion, the public

interest and protection of investors so require.

1Securities Exchange Act Release No. 7319 (May 22, 1964)

Securities Exchange Act Release No. 7377 (July 23,1964).

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TIDRTIETH .A1-.TNUALREPORT 53

UNLISTED TRADING PRIVILEGES ON EXCHANGES

Stocks with unlisted trading privileges which are not also listed and

registered on other exchanges continued to decline in number, from

168 on June 30, 1963 to 140 on June 30, 1964. The American Stock

Exchange accounted for 24 of the 28 removals. The balance of the

removals were accounted for by the Chicago Board of Trade, the

Honolulu Stock Exchange, and the Pacific Coast Stock Exchange.

The distribution of unlisted stocks and share volumes therein among

the exchanges is shown in appendix table 8. The statutory provisions

regarding unlisted trading were amended in several respects after the

close of the fiscal year by the Securities Acts Amendments of 1964.

The reported volume of trading on the exchanges in stock with only

unlisted trading privileges for the calendar year 1963, was about

20,121,000 shares or about 1.1 percent of the total share volume on all

the exchanges. About 93 percent of this volume was on the American

Stock Exchange while three other exchanges contributed the remaining

7 percent. The share volume in these stocks on the American Stock

Exchange represented 5.6 percent of the total share volume on that

Exchange.

Unlisted trading privileges on exchanges in stocks listed and registered on other exchanges numbered 1,637 on June 30, 1964. The

volume of unlisted trading in these stocks, for the calendar year H)63,

was reported at about 62,258,000 shares. About 15 percent of this

volume was on the American Stock Exchange in stocks listed on regional exchanges, and about 85 percent was on the regional exchanges

in stocks listed on the New York or American Stock Exchanges.

While the 62,258,000shares amounted to less than 4 percent of the total

share volume on all the exchanges, they constituted substantial portions of the share volumes on the leading regional exchanges, as reflected in the following approximate percentages: Boston 79 percent;

Philadel phia- Baltimore-Washington 72 percent; Cincinnati 68 percent; Detroit 61 percent; Pittsburgh 54 percent; Midwest 32 percent;

and Pacific Coast Stock Exchange 32 percent.

Applications for Unlisted Trading Privileges

Applications by exchanges for unlisted trading privileges in stocks

listed on other exchanges, filed pursuant to Rule 12f-1 under Section

12(f) of the Securities Exchange Act, were granted by the Commission

during the fiscal year ended June 30, 1964,as follows:
54 SECURITIES A-.1\I"DEXCHANGE COMMISSION

Value

Number

Stock exchange: 01 stocks

Philadelphia-Baltimore- Washington, _____________________________ 35

DetroiL_________ _ _ _ __ 20

Midwest__________________ _ _ ___ _ _ __ 15

Boston_______________________________________________________ 13

Pacific Coast__________________________________________________ 4

Pit~burgh----------------------------------------------______ 2

89

BLOCK DISTRIBUTIONS REPORTED BY EXCHANGES

The usual method of distributing blocks of listed securities considered too large for the auction market on the floor of an exchange is to

resort to "secondary distributions" over the counter after the close of

exchange trading. Secondary distributions, as reported since 194:2,

reached a peak of $926,514,294 during the calendar year 1961, and

totaled $814,983,600 during 1963. During the first 6 months of 1964

there were 71 secondary distributions aggregating $698,667,735 or 85.7

percent of the total for the entire year 1963.

In an effort to keep as much as possible of block business on their

floors, Special Offering Plans were adopted by leading exchanges commencing in 1942, and the somewhat more flexible Exchange Distribution Plans commencing in 1953. Special offerings have virtually disappeared, while the number of Exchange distributions has grown.

The largest number of Special offerings was 87 in 1944, with $32,454,000

aggregate value. In 1962, there were only 2 offerings and in 1963,

there were none. In 1963, there were 72 Exchange distributions with

a total value of $107,498,026, a new high both in number and value.

Block distributions of stocks reported by exchanges

Number I Sh~ In I Shares sold I

12Months Ended December 31, 1963

Special 0 fferlngs

Exehnnge Dlstrlhutlons

Secondary Distributions

Special 0 fferinlZS

Exchange Dlst n buttons

Secondary Dlstnbutlons

01 0 I 0 I 0 72 3,090,016 2,892,233 $107,498,026

100 18,204,018 18,937,935 814,983,600

6 Months Ended June 30, 1964

01 0 I 0 I 0 32 1,438,568 1,304,018 53,916,892

71 13,704,641 14,258,185 698,667,735

Details of these distributions appear in the Commission's monthly Statistical Bulletins. Data for prior

years are shown In Appendix table 11 In tlns Annual Report.

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THIRTIETH A.:l\TNUALREPORT 55

OVER-mE-COUNTER STATISTICS

Based on information obtained from standard securities manuals

and from reports to the Commission, there were, as of December 31,

1963, approximately 4,400 stocks of domestic issuers with 300 holders

or more, possessing an aggregate value of about $98.8 billion, which

were quoted only in the over-the-counter market. They included

$26.7 billion in bank stocks, $25.3 billion in insurance stocks, and $46.8

billion in industrial, utility, and other miscellaneous stocks. The

computation does not include securities issued by registered investment companies.

Over-the-counter stocks of domestic issuers referred to in the teet, as of

December 81, 1968

Stocks Issuers Market values

Reporting pursuant to section 15(d): Miseellaneous ______________________ 1,794 1,628 $25,480, 159,000 Insurance . HI 136 8,517,200,000

Reporting for other reasons .• Miseellaueous . 141 109 4, 940, 700, 000

2,076 1,873 38, 938, 059, 000 Not reporting to the Comrmssion: M iscellaneoua.; •.. . 1,348 1,284 16, 360, 546, 001 Insurance . 213 208 16,851,500,00) Banks _. . 774 773 26,683,700,00)

2,335 2,265 59, 895, 746, 000

TotaL . . _. . 4,411 4,138 98, 833, 805, 000

These companies have other ISSues listed on stock exchanges.

In addition to the stocks mentioned above, there is a large number

of actively quoted stocks of companies whose coverage by the standard

securities manuals is generally limited to brief announcements of the

circumstances of the offerings. Their number was in excess of 1,000

on December 31, 1963, at which time they constituted about 29 percent of the actively quoted stocks in the National Quotation Bureau

services. These stocks may be presumed to have over 300 holders

each. In addition, there is an indeterminate number of stocks with

over 300 holders for the most part issued by small companies, which

are inactively quoted or not publicly quoted. As far as can be ascertained, they are for the most part stocks of small companies.

A comprehensive view of the number of securities quoted over the

counter at anyone time is afforded by data supplied by the National

-Quotation Bureau, which is the principal publisher of over-the-counter

•________________________ ______________ _______________________• ____________

________________________•________•________•___

_____ _____•• __________ ___________________ __• ________• _____• __• ______ _• _____________________ _____• ________• ______• ________• ______ ______________

___• ___________________ ________ _________ _______

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56 SECURITIES AND EXCHANGE COMMISSION

quotations in the United States. The following table shows the number of stocks quoted in the daily service and the corresponding aggregate number of dealer listings, as reported for a day around January

15th annually.

Number of stock« and dealer li8ting8 at about January 15

1960

1961

1962

19t13

1964

Stocks.

6,551

6,918

8,127

8,177

8,028

Dealer Ilstlngs

25,950

2'1,270

30, OW

34,4R2

34,289

The number annually since 1925 Is shown on p, 72 of our 26th Annual Report (1960).

About half of the stocks show substantial concentration of dealer

listings, including both bids and offers. Many of the remainder are

quoted only on the bid side, indicating sporadic dealings. Some are

listed on domestic or Canadian stock exchanges.

Reporting Under Section 15(d)

Issuers reporting pursuant to Section 15(d) of the Securities Exchange Act continued to increase in number notwithstanding the numerous reductions occasioned by listing on the exchanges or absorption

into other companies by purchase of assets or mergers. The number

of such issuers increased from 2,647 on December 31,1962 to 2,730 on

December 31, 1963. The issued stock of 1,823 of these companies had

a $39.2 billion aggregate market value at the end of 1963. The remaining 907 issuers included partnerships, voting trusts duplicative

of listed shares, stock purchase and employees savings plans, companies with only bonds in public hands, registered investment companies, and numerous issuers for whose shares no quotation was available, including a considerable number registering in 1963, but not

offering their shares until 1964.

As amended by the 1964 Amendments, Section 15(d) no longer requires registration statements filed under the Securities Act to contain an undertaking to comply with the reporting requirements of

Section 13 of the Exchange Act under certain circumstances. That

Section now automatically requires issuers filing registration statements to file reports under the Exchange Act during the year a registration statement becomes effective and thereafter if they have 300 or

more security holders. Issuers required to register under Section

12(g) will be required to file reports by virtue of being so registered.

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TffiRTIETH ANNUAL REPORT

Issuers reporting under Section 15(d) as ot December 81, 19684

57

Stocks Issuers Market Values

Over the counter: M Iscellaneous _______________________________________________ 1,794 1,628 $25,480, 150,000 Insurance ___________________________________________________ Foreign _____________________________________________________141 136 8,517,200,000

34 31 2, 117, 700, 000

On stock exchanges: 1,060 1,705 36, 115, 110,000

Mrseellaneous _______________________________________________ 25 24 766, 200. 000 Insurance ___________________________________________________ Foreign _____________________________________________________ 2 2 1,140,600,000 2 2 1,226,000,000

20 28 3, 132,800.000

TotaL ____________________________ 1,098 1,823 I 30,247,919,000

Includes only Issuers with stocks for which quotations were available.

These Issuers had stocks With only unhsted trading privileges on exchanges They also had 20 stocks

aggregating $8r.7million which were traded only over the counter. ThIS amount has been included In

the over-the-counter computation of market values above.

MANIPULATION AND STABILIZATION

Manipulation

The Exchange Act describes and prohibits certain forms of manipulative activity in any security registered on a national securities exchange. The prohibited activities include wash sales and matched

orders effected for the purpose of creating a false or misleading appearance regarding the trading volume or market for a security; a

series of transactions creating actual or apparent active trading in

a security or raising or depressing its price, for the purpose of inducing purchases or sales of such security by others; circulation of information concerning market operations conducted for a rise or a decline

in the price of a security; and the making of any materially false or

misleading statement regarding a security for the purpose of inducing

purchases or sales. The Act also empowers the Commission to adopt

rules and regulations to define and prohibit the use of these and other

forms of manipulative activity in any security registered on an exchange or traded over the counter.

The Commission's market surveillance staff observes the tickertape

quotations of securities listed on the New York Stock Exchange and

on the American Stock Exchange, the sales and quotation sheets of

the various regional exchanges, and the bid and asked prices published

by the National Daily Quotation Service for about 6,000 unlisted securities to observe any unusual or unexplained price variations or

market activity. The financial news ticker, leading newspapers, and

various financial publications and statistical services are also closely

followed.

In order to simplify recordkeeping and for other reasons it was

decided that as of December 31, 1963,the "quiz" type of trading investigations would be discontinued and such cases assigned a standard

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58 SECURITIES AND EXCHANGE CO:MMISSION

case number. Such investigations are, and hereafter will be, included

in the table entitled "Investigations of possible violations of the Acts

administered by the Commission," which will be found under the

heading COMPLAINTSANDINVESTIGATIONSin Part XI of this Report.

However, 54 trading quizzes were pending at the end of the 1963 fiscal

year, and 36 others were initiated prior to the change in policy, making a total of 90 such quizzes open at some time during the fiscal year.

Only 35 of these remained open at the end of the fiscal year, 39 having

been closed and 16 converted into investigations.

IVhen a public distribution of securities is to be made. the markets

in such securities are also closely watched to make sure that the price

is not unlawfully raised prior to or during the distribution. During

the fiscal year, 1,121 registered offerings, with a total offering price

of $16.9 billion, and 462 offerings exempt from registration under Section 3(b) of the Securities Act, with a total offering price of $89 million, were so observed. In addition, 232 other offerings, such as secondary distributions and distributions of securities under various

plans filed by the exchanges, with a total offering price of $1,284 million were also kept under surveillance.

Stabilization

Stabilization involves open-market purchases of securities to prevent or retard a decline in the market price in order to facilitate a

distribution. It is permitted by the Exchange Act subject to the restrictions provided by the Commission's Rules 10b-6, 7 and 8. These

rules are designed to confine stabilizing activity to that necessary for

the above purpose, to require proper disclosure and to prevent unlawful manipulation.

During fiscal year 1964 stabilizing was effected in connection with

stock offerings totaling 38,358,692 shares having an aggregate public

offering price of $1,397,159,991 and bond offerings having a total

offering price of $235,434,000. In these offerings, stabilizing transactions resulted in the purchase of 788,712 shares at a cost of $27,972,-

490 and bonds at a cost of $2,837,165. In connection with these

stabilizing transactions, 6,483 stabilizing reports, showing purchases

and sales of securities effected by persons conducting the distribution ..

were received and examined during the fiscal year.

INSIDERS' SECURITY HOLDINGS AND TRANSACTIONS

Section 16(a) of the Securities Exchange Act is designed to prevent

the unfair use of information by directors, officersand principal stockholders by giving publicity to their security holdings and transactions.
TEITRTIETH )L~AL REPORT 59

and by removing the profit incentive in short-term trading by them in

securities of their company. Such persons by virtue of their position

may have knowledge of the company's condition and prospects which

is unavailable to the general public and be able to use such information

to their personal advantage in transactions in the company's securities.

Provisions similar to those contained in Section 16 of the Act are also

contained in Section 17 of the Public Utility Holding Company Act

of IV35 and Section 30 of the Investment Company Act of IV40.

Ownership Reports

Section 16(a), as it read during the fiscal year, required every person

who was a direct or indirect beneficial owner of more than 10 percent

of any class of any equity security (other than an exempted security)

which was registered on a national securities exchange, or who was a

director or officer of the issuer of such securities, to file reports with

the Commission and the exchange disclosing his ownership of the

issuer's equity securities, and to keep such information current.

After the close of the fiscal year, the Securities Acts Amendments

of IV64 expanded the scope of Section 16 so as to apply to insiders connected with issuers which are required by Section 12(g) to register

securities traded over the counter with the Commission.

All ownership reports are available for public inspection as soon

as they are filed at the Commission's office in Washington and those

relating to securities registered on an exchange may also be inspected

at the exchanges where copies of such reports are filed. In addition,

for the purpose of making the reported information available to

interested persons who may not be able to inspect the reports in person,

the Commission summarizes such information in a monthly "Official

Summary of Security Transactions and Holdings," which is distributed by the Government Printing Office on a subscription basis.

During the fiscal year, the number of ownership reports filed with

the Commission reached an all-time high of 44,631 (6,573 initial statements of beneficial ownership on Form 3 and 38,058 statements of

changes in beneficial ownership on Form 4). This represents an increase of 2,924 over the 41,807 reports filed during the 1963 fiscal year.

Recovery of Short-Swing Trading Profits by Issuer

In order to prevent insiders from making unfair use of information

which may have been obtained by reason of their relationship with a

company, Section 16(b) of the Securities Exchange Act, Section 17(b)

of the Public Utility Holding Company Act, and Section 30(f) of the

Investment Company Act provide for the recovery by or on behalf of
60 SECURITIES AND EXCHANGE COMMISSION

the issuer of any profit realized by insiders from certain purchases

and sales, or sales and purchases, of securities of the company within

any period of less than 6 months. The Commission has certain exemptive powers with respect to transactions not comprehended within

the purpose of these provisions, but is not charged with the enforcement of the civil remedies created thereby.

REGULATION OF PROXIES

Scope of Proxy Regulation

Under Section 14(a) of the Securities Exchange Act, Section 12(e)

of the Public Utility Holding Company A.ctof 1935,and Section 20(a)

of the Investment Company Act of 1940, the Commission has adopted

Regulation 14 requiring the disclosure in a proxy statement of pertinent information in connection with the solicitation of proxies by companies subject to those statutes in order that shareholders will be able

to make decisions intelligently in regard to corporate affairs. The

regulation provides, among other things, that when the management

is soliciting proxies, any security holder desiring to communicate with

other security holders for a proper purpose may require the management to furnish him with a list of all security holders or to mail his

communication to security holders for him. A security holder may

also, subject to reasonable prescribed limitations, require the management to include in its proxy material any appropriate proposal which

such security holder desires to submit to a vote of security holders.

Any security holder or group of security holders may at any time

make an independent proxy solicitation upon compliance with the

proxy rules, whether or not the management is making a solicitation.

Certain additional provisions of the regulation are applicable where

a contest for control of the management of an issuer is involved.

Copies of proposed proxy material must be filed with the Commission in preliminary form prior to the date of the proposed solicitation.

Where preliminary material fails to meet the prescribed disclosure

standards, the management or other group responsible for its preparation is notified informally and given an opportunity to correct such

defects prior to the distribution of the proxy material to stockholders.

The Securities A.cts Amendments of 1964 extend the proxy solicitation requirements to those companies required to be registered under

Section 12(g) of the Act, and grant authority to the Commission to

promulgate rules and regulations requiring an issuer to send information to security holders even though a proxy solicitation is not

made, and requiring broker-dealers to transmit proxy material to

customers.
TEITRTIETH ~~AL REPORT 61

Statistics Relating to Proxy Statements

During the 1964 fiscal year, 2,530 proxy statements in definitive

form were filed under the Commission's Regulation 14 for the solicitation of proxies of security holders; 2,513 of these were filed by management and 17 by nonmanagement groups or individual stockholders.

These 2,530 solicitations related to 2,310 companies, some 220 of which

had more than one solicitation during the year, generally for a special

meeting not involving the election of directors.

There were 2,274 solicitations of proxies for the election of directors,

248 for special meetings not involving the election of directors, and

8 for assents and authorizations for action not involving a meeting of

security holders or the election of directors.

In addition to the election of directors, the decisions of security

holders were sought through the solicitation in the 1964 fiscal yea!"

of their proxies, consents and authorizations with respect to the following types of matters :

Mergers, consolidations, acquisitions of businesses, purchases and sales of

property and dissolutions of companies______________________________ 186

Authorizations of new or additional securities, modifications of existing

securities, and recapitalization plans (other than mergers, consolida- tions, etc.) -_______ 300

Employee pension and retirement plans (including amendments to existing plans)_________________________________________________________ 60

Bonus or profit-sharing plans and deferred compensation arrangements

(including amendments to existing plans and arrangements)__________ 49

Stock option plans (Including amendments to existing plans)___________ 243

Stockholder approval of the selection by management of independent auditors ------------_ 949

Miscellaneous amendments to charter and by-laws, and miscellaneous

other matters (excluding those involved in the preceding matters.)_____ 662

Stockholders' Proposals

During the 1964 fiscal year, a total of 211 proposals submitted by

45 stockholders were included in the proxy statements of 125 companies, pursuant to Rule 14a-8 of Regulation 14.

Typical of such stockholder proposals submitted to a vote of security holders were resolutions relating to amendments to charters

or by-laws to provide for cumulative voting for the election of directors, limitations on granting stock options and their exercise by key

employees and management groups, sending a post-meeting report

to all stockholders, changing the place of the annual meeting of stockholders, and the approval by stockholders of management's selection

of independent auditors.

A total of 58 additional proposals submitted by 40 stockholders

were omitted from the proxy statements of 36 companies in accord-
62 SECURITIES AJ.'lD EXCHANGE COMMISSION

ance with Rule 14a-8. The principal reasons for such omissions and

the number of times each such reason was involved (counting only

one reason for omission for each proposal even though it may have

been omitted under more than one provision of Rule 14a-8) were

as follows:

Reason for Omission of Proposals

Number

1Vithdravvn by proponent_____________________________________________ 18

Not a proper subject matter under state lavv___________________________ 15

Related to the ordinary conduct of the company's business_______________ 6

Concerned a personal grievance against the company____________________ 6

Not timely submitted_________________________________________________ 5

Involved substantially the same matter as one previously proposed______ 2

Reason for proposal deemed misleading_______________________________ 1

Management had included a similar proposaL_________________________ 1

Company omitted the proposal and stated that in its opinion the proposal

was not a proper subject matter____________________________________ 1

Statement constituting amendment of management proposaL___________ 1

Amounted to solicitation of proxies___________________________________ 1

Converse of management's proposaL__________________________________ 1

Ratio of Soliciting to Nonsoliciting Companies

Of the 2,467 issuers that had securities listed and registered on national securities exchanges as of June 30, 1964, 2,343 had voting securities so listed and registered. Of the latter group, 1,987, or 85

percent, solicited proxies under the Commission's proxy rules during

the Ulf}4fiscalyear for the election of directors.

Proxy Contests

During the 1964 fiscal year, 18 companies were involved in proxy

contests for the election of directors. A total of 225 persons, both

management and nonmanagement, filed detailed statements as participants under the requirements of Rule 14a-l1. Proxy statements in

12 cases involved contests for control of the board of directors and

those in 6 cases involved contests for representation on the board.

Management retained control in 7 of the 12 contests for control

of the board of directors and lost control in 1 contest, and 4 contests

were still pending as of June 30,1964. Of the 6 instances where representation on the board of directors was involved, management retained all seats in 5 instances, and in the remaining case the opposition

won 1 place on the board.

INVESTIGATIONS WITH RESPECf TO REPORTING PROVISIONS

Section 21(a) of the Act authorizes the Commission to make such

investigations as it deems necessary to determine whether any person

has violated or is about to violate any provision of the Act or any

rule or regulation thereunder. The Commission is authorized, for
TEITRTIETH~AL REPORT 63

this purpose, to administer oaths, subpoena witnesses, compel their

attendance, take evidence and require the production of records. In

addition to the investigations undertaken in enforcing the anti-fraud,

broker-dealer registration, and other regulatory provisions of the Act,

which are discussed in Part XI of this Report under "Complaints

and Investigations," the following investigations were undertaken

in enforcing the reporting provisions of Sections 12, 13, 14 and 15(d)

of the Act and the rules thereunder, particularly those provisions

relating to the filing of annual and other periodic reports and proxy

material:

Investigations pending at beginning of the fiscal year____________ 27

Investigations initiated during the fiscal year____________________ 8

35

Investigations closed during the fiscal year____________________________ 10

Investigations pending at close of the fiscal year_______________________ 25

REGULATION OF BROKER-DEALERS AND OVER.THE-COUNTER

MARKETS

Registration

Section 15(a) of the Securities Exchange Act of 1934 requires the

registration of all brokers and dealers who use the mails or instrumentalities of interstate commerce to effect or induce transactions in

securities in the over-the-counter market. Brokers and dealers conducting an exclusively intrastate business or dealing only in exempted

securities, commercial paper, commercial bills or bankers' acceptances

are exempt from registration. The 1964Amendments added a Section

15(a) (2) which permits the Commission to exempt broker-dealers or

classes of broker-dealers, either unconditionally or upon specified terms

or conditions, from the requirement of registration.

The following tabulation reflects certain data with respect to registrations of brokers and dealers during the fiscal year ended June 30,

1964.

Effective registrations at close of preceding fiscal year 5,482

Applications pending at close of preceding fiscal year___________________ GO

Applications filed during fiscal year___________________________________ 442

Applica ttons denied__________________________________________________ 6

Applica tions withdra wn______________________________________________ 10

Registrations wi thdra wn_____________________________________________ 914

Registrations cancelled_______________________________________________ 62

Registrations revoked________________________________________________ 78

Registrations suspended 2

Effective registrations at close of year 4,871

Applications pending at close of year__________________________________ 35
64 SECURITIES AND EXCHANGE COMMISSION

Administrative Proceedings

Sections 15(b) and 15lA) of the Exchange Act were amended in

several significant respects by the Securities Acts Amendments of

1964. 'Whereas under prior law the Commission could not proceed

directly against an individual associated with a broker-dealer firm,

but could take disciplinary action solely by proceeding against the

firm, the Act, as amended, permits such direct action. The Commission may censure an associated person, may suspend or bar him from

being associated with a broker or dealer, and may suspend or bar

him from being associated with a member of a registered securities

association. The sanctions which may be imposed against a brokerdealer now include censure and suspension of registration (for up to

12 months), in addition to the previously available sanctions of denial

or revocation of registration and expulsion or suspension from a registered securities association or national securities exchange.

A sanction may be imposed upon a broker-dealer under Section

15(b) if, after notice and opportunity for hearing, the Commission

finds that such sanction is in the public interest and that the brokerdealer, or any person associated with such broker-dealer, is subject to

one or more of the specified statutory disqualifications. A direct

sanction against an associated person may be imposed where the

Commission finds that it is in the public interest and that such person

has committed or omitted any act or omission which would be a basis

for the imposition of a sanction if such person were a broker-dealer.

The statutory disqualifications, which have been enlarged by the 1964

Amendments, include the following:

(1) wilfully false or misleading statements in an application for

registration or other report required to be filed under the Exchange

Act;

(2) conviction within the previous 10 years of a felony or misdemeanor which involved the purchase or sale of securities; arose out

of the conduct of business as a broker-dealer or investment adviser;

involved embezzlement, fraudulent conversion, or misappropriation

of funds or securities; or involved violation of the provisions of the

United States Code dealing with various frauds and swindles committed by use of the mails, telephone, telegraph, radio or television;

(3) injunction by a court of competent jurisdiction against engaging in certain practices related to the securities business;

(4) wilful violation of any provision of the Securities Act of

1933, the Exchange Act, the Investment Advisers Act of 1940 or the
THIRTIETH ANNUAL REPORT 65

Investment Company Act of 1940 or any of the Commission's rules

or regulations thereunder;

(5) wilfully aiding or abetting another person in a violation of

the Federal securities laws or rules and regulations thereunder or

failing reasonably to supervise other persons who commit such

violations; and

(6) employing a person barred or suspended from being associated with a broker-dealer.

Section 15A of the Exchange Act as amended empowers the Commission to suspend or expel a broker-dealer from membership in a

registered securities association or to suspend or bar any person from

being associated with a member, upon a finding of violation of the

Federal securities laws or any rule or regulation thereunder. The

National Association of Securities Dealers, Inc. ("NASD"') is the

only such association. Section 19(a) (3) of the Act gives the Commission power to take similar action against members of national

securities exchanges.

Set forth below are statistics with respect to broker-dealer proceedings instituted by the Commission during fiscal year 19G4:

Proceedings pending at beginning of fiscal year:

l1evocation proceedings___________________________________________ 41

Revocation proceedings also raising issue of suspension or expulsion

from NASD or exchange_______________________________________ 87

Denial proceedings_______________________________________________ 11

Total proceedings pending at beginning of fiscal year______________ 130

Proceedings instituted during fiscal year:

l1evocation proceedings___________________________________________ 48

Revocation proceedings also raising issue of suspension or expulsion

from NAS]) or exchange________________________________________ 66

Denial proceedings_______________________________________________ 5

Total proceedings instituted_____________________________________ 119

Total proceedings current during fiscal year______________________ 2::;8

Disposition of proceedings:

Revocation Proceedings:

Registra tion revoked_____________________________________________ 35

]Registration canceled_____________________________________________ 1

Dismissed on withdrawal of registration___________________________ 22

Proceedings dismissed and registration continued in effecL_________ 2

Total_________________________________________________________ 60

757-90~--65----6
66 SECURITIES AND EXCHANGE COMMISSION

Revocation proceedings also raising issue of suspension or expulsion

from NASD or exchange:

Regist ra tion revoked_____________________________________________ 31

Regtstration revoked and firm expelled from NASD__________________ 12

Suspended for a period of time from NASD________________________ 5

Dlsmissed on withdrawal of registration___________________________ 16

Registra tion canceled_____________________________________________ 3

Proceedings dismissed and registration continued in effecL__________ 4

Total 71

Denial Proceedings:

Registra tion denied______________________________________________ 6

Dismissed on withdrawal of application____________________________ 1

Proceedings dismissed and registration permitted to become effective__ 1

Total 8

Total proceedings disposed oL__________________________________ 139

Proceedings pending at end of fiscal year:

Revocation proceedings___________________________________________ 29

Revocation proceedings also raising issue of suspension or expulsion

from NASD or exchange________________________________________ 82

Denial proceedings_______________________________________________ 8

Total proceedings pending at end of fiscal year____________________ 119

Total proceedings accounted for_________________________________ 2;;8

Decisions of Particular Interest

It is not feasible to summarize in this Report each of the many

decisions rendered by the Commission in administrative proceedings

with respect to brokers and dealers. However, several cases of unusual interest or significance, including some which involved procedural questions, are set forth in some detail in the following paragraphs:

On the basis of findings that they willfully violated the registration

and anti-fraud provisions of the securities acts, the Commission revoked the broker-dealer registrations of Gearhart &1 Otis, Inc. and

111cOoy ill Willard, expelled the former firm from membership in the

National Association of Securities Dealers, Inc., and found the principals of each firm causes of the action taken against their respective

firms," The Commission found that the respondents participated

in the distribution of a control block of stock of Air America, Inc.,

which was not registered, that both firms were underwriters, and that

• Securities Exchange Act Release No. 7329 (June 2, 1964).
TF.URTIETHA~~~~AL REPORT 67

their sales were therefore not exempt from registration. The Commission further found that in the offer and sale of Air America equipment trust certificates through Gearhart & Otis as underwriter, an

.offering circular was used which was misleading in that, among other

things, it failed to disclose the company's precarious financial condition. In holding that Gearhart & Otis and ita principals willfully

violated the anti-fraud provisions in this connection, the Commission

noted that Gearhart was intimately familiar with all significant developments relating to Air America, that Otis was familiar with cer-

.tain facts not properly disclosed in the offering circular, and that in

.any event the firm, as underwriter, and its principals owed a duty to

.the investing public to exercise reasonable care to assure the substantial

accuracy of the offering circular. W'illiam D. McCoy, who was presi-

.dent of Air America as well as a partner of McCoy & 'Willard, and who

played a leading role in the preparation of the offering circular, was

also held to have wilfully violated the anti-fraud provisions.

Among additional violations found with respect to Gearhart & Otis

and its principals was a willful violation by Gearhart of Section 7 of

the Securities Act (which specifies the information to be included in

a Securities Act registration statement) in causing National Lithium

<Corporation to file a misleading and inadequate registration statement.

The Commission noted that Gearhart, who signed the registration

statement as a director and as attorney-in-fact for other directors, was

primarily responsible for the terms of the cor-tract leading to the

creation of the company and was more familiar than anyone else with

the facts relating to its promotion and preliminary financing. Itheld

that as a director, and within the areas of his special knowledge, he

was accountable for the deficiencies in the registration statement; and

that as to those areas in which he did not have special knowledge, and

'where statements by an expert were not involved, he had a duty to make

a reasonable investigation regarding the accuracy and adequacy of the

information contained in the registration statement.

In J.A. Winston & 00., Ino.; the Commission revoked the registration of the Winston firm and found its principal officialscauses of the

revocation, on the basis of findings that the respondents wilfully violated the anti-fraud provisions of the securities acts. The Commission

found that in the sale of stock of Gob Shops of America, Inc., respondents engaged in high-pressure sales tactics including the making of

"Optimistic and flamboyant statements with respect to, among other

things, the financial condition and future prospects of the issuer, which

statements had no reasonable basis in fact. Respondents argued that

• Securities Exchange Act Release No. 7337 (June 8.1964).
68 SECURITIES AND EXCHANGE COMMISSION

any misrepresentations were made in good faith in reasonable reliance

on information supplied to them by the issuer's officials. The Commission noted, however, that respondents did not see or request any

current financial statements, and that the information assertedly given

to them was of a general and unsubstantiated nature and did not provide a reasonable basis for the representations made by respondents.

The Commission further found that respondents violated the antifraud provisions by selling securities at prices not reasonably related

to prevailing market prices. It reaffirmed that in the absence of

countervailing evidence, a dealer's own contemporaneous cost is the

best evidence of current market price, and noted the fact that the registrant purchased securities from other dealers at prices around such

other dealers' bid in the "sheets," thus demonstrating that the high

asked quotations were not, as claimed, reliable evidence of prevailing

market prices.

In R. J. Hayes &: Oompany, Inoorporated.: the Commission denied

the application for registration of a broker-dealer, whose president,

Ralph J. Hayes, had wilfully violated the anti-fraud and registration

provisions of the securities acts while employed as a salesman by

another broker-dealer. His employer was the underwriter of a "hot

issue" and Hayes, contrary to his employer's instructions not to purchase shares for his own account, opened fictitious accounts with the

employer and with other firms and purchased and resold at a profit,

shares of the "hot issue." The Commission found that his conduct

constituted a fraud on his employer and the other firms.

In 1962, the Commission had issued an order suspending Amos

Treat &: Co., Ino., from membership in the National Association of

Securities Dealers, Inc., for 12 months, pursuant to an offer of settlement. During the 1964 fiscal year, the Commission issued its findings

and opinion in the case." It found that in the sale of securities of

three different issuers, the firm's salesmen made various misrepresentations. With respect to one offering, as to which the registrant

was managing underwriter, the Commission held that since the firm

and its officers had actual knowledge that the issuer's financial condition, as reflected in the registration statement, was deteriorating, they

should have exercised due diligence to ascertain current financial information, required its inclusion in the registration statement, and disclosed such information to the persons to whom they recommended

the stock and made optimistic representations. The Commission

again emphasized the responsibility of an underwriter to make a reasonable investigation into the issuer's business and the accuracy and

Securities Exchange .Act Release No. 7102 (Jnly 18.1963).

Securities Exchange .Act Release No. 7341 (June 11. 1964).

•

•
THIRTIETH ANNUAL REPORT 69

.adequacy of the information contained in the registration statement.

In A. T. Brad & Oompany,7 the Commission, pursuant to an offer

-of settlement submitted by the registrant and Albert T. Brad, a gen-

-eral partner, and a stipulation and consent submitted by Martin Lesser,

a former partner who was in charge of the firm's Washington, D.C.

office, found that the respondents wilfully violated the registration

and anti-fraud provisions of the securities acts in connection with the

offer and sale of unregistered shares of stock of Agricultural Research

Development, Inc. (AGR). Among other things, Lesser arranged

with a controlling person of AGR to place substantial amounts of

AGR stock in an account with registrant and to sell substantial

amounts to Lesser, for the purpose of distributing and trading in such

stock. During the distribution, registrant purchased shares and

placed quotations in the "sheets" at increasing prices and engaged in

a telephone campaign to sell AGR stock. Respondents were also

found to have wilfully violated the record-keeping and credit extension provisions under the Securities Exchange Act. In imposing a

40-day suspension from membership in the National Association of

Securities Dealers, Inc., on registrant, as contemplated by the offer of

settlement, rather than a more severe sanction, the Commission consid-

-ered a number of mitigating factors cited by the firm and Brod.

Among other things, they asserted that Lesser initially acted with

respect to the AGR stock without Brod's knowledge, and disobeyed

subsequent instructions to discontinue transactions in such stock; that

registrant had discontinued its relationship with Lesser, closed the

Washington office,and arranged for restitution to customers who had

purchased AGR stock; and that steps giving reasonable assurance of

future compliance had been taken.

In Aircraft Dynamw8lnternational Oorp.,s the Commission found

that a broker-dealer firm, while acting as underwriter for a stock offering pursuant to Regulation A, committed various wilful violations of

the securities acts, and it revoked the firm's registration and expelled

it from membership in the National Association of Securities Dealers,

Inc. In the course of the offering, the firm's salesmen made various

misrepresentations and employed other "boiler-room" techniques.

The Commission held, among other things, that the firm's president

and sole stockholder was responsible for the management of the business even if, as asserted, he did not take an active part in it. It further held that the sales manager was a participant in the violations,

-even if he himself did not offer or sell any of the stock, since by virtue

of his position he assumed responsibility for the supervision of the

'Securities Exchange Act Release No. 1139 (September 11.1963).

• Securities Exchange Act Release No. 7113 (August 8. 1963).
70 SECURITIES AND EXCHANGE COMMISSION

salesmen, and the misrepresentations resulted from his failure to

exercise that responsibility.

In Fred L. Carvalho, doing business as Capital Investment Oompany,9 a salesman and public relations consultant for the registrant

prepared a brochure used in the sale of securities, which, among other

things, contained false and misleading projections of sales and earnings of the issuer and of the market price of the securities. The Commission rejected the salesman's defense that the financial data regarding the issuer had been supplied by the registrant, stating that "in the

light of his own unsuccessful attempts to obtain current information

directly from [the issuer] and his lack of knowledge of the company's

status and affairs, his employment of data deliberately chosen from

various sources to present a misleading and deceptive sales appeal

having no basis in fact was clearly fraudulent." The Commission:

also rejected the salesman's claim that he was not acting in the capacity of an employee when performing public-relations functions and

that therefore no findings could be made against him. It noted that

he was actively involved in the mailing of the brochure, was paid a

weekly salary although he did not engage in sales during the period

in question, and had no other place of business, and concluded that he

was in fact an employee. The Commission revoked registrant's

broker-dealer registration and found the salesman a cause of the

revocation.

In Shiels Securities, lnc.r the registrant and certain associated

persons artificially inflated the price of securities by manipulative

practices. Among other things, the registrant's president and controlling stockholder, who was also president and controlling stockholder of the issuer, caused the latter to declare a dividend during

an offering of its securities through registrant as underwriter even

though it had inadequate earned surplus; and following the completion of the offering, the registrant, which was the only dealer actively

trading in the issuer's securities, purchased securities at prices which

it arbitrarily fixed at successively higher levels. In addition, registrant further wilfully violated the anti-fraud provisions of the

securities acts by selling the securities to customers at successfully

higher prices without disclosing that the price had been artificially

raised, and at excessive mark-ups, and by making materially false

and misleading statements in connection with the offer and sale of

the securities. The Commission concluded that it was in the public

interest to revoke registrant's registration.

Securities Exchange Act Release No. 7129 (August 29,1963).

,. Securities Exchange Act Release No. 7339 (June 11, 1964).

•
THIRTIETH ANNUAL REPORT 71

Advanced Research Associates, Inc.ll was a consolidated proceeding consisting of stop order and Regulation A suspension proceedings

under the Securities Act of 1933,'2 and broker-dealer proceedings

with respect to four broker-dealers. Two of these, The First 'V ashington Corporation and 'Villiams, 'Vidmayer Incorporated, had been

organized by Don F. Widmayer and Richard N. Williams. The

Commission found that First 'Vashington, Widmayer and Williams,

among others, wilfully violated the registration provisions of the Securities Act in the sale of a large quantity of securities issued by Polytronic Research, Incorporated. Certain claimed exemptions, including those provided by Regulation A, the so-called "private offering"

exemption, and the exemption provided by Rule 133 under the Securities Act, were held not to be available. The Commission further

found that First Washington, aided and abetted by Widmayer and

Williams, manipulated the market in Polytronic stock, by engaging

in activities which inflated and maintained the market price of the

stock at artificially high levels, failed to disclose such facts to purchasers and bid for and purchased Polytronic stock while engaged

in a distribution of such stock; and that "Widmayer and Williams were

responsible for fraudulent statements in brochures regarding Polytronic which were distributed to First Washington's customers and

for fraudulent representations by salesmen of that firm, and caused

Advanced Research to file a false and misleading registration statement. The Commission revoked the registrations OT the two firms

and found Widmayer and Williams each a cause of such action.

The Commission addressed itself to the problem of unwarranted

delay in the disposition of administrative proceedings in Herbert

!lapp, doing business as Webster Securities OompanyY In that case,

where it was alleged that registrant had failed to file required financial

reports and was subject to two injunctions, when the hearing examiner

arrived in New York City from W"ashington to convene the hearings

as scheduled, counsel for the registrant advised him that he had just

been retained solely to request an adjournment, but that he expected

to represent registrant. The examiner granted a 10-day adjournment. Ten days later he again traveled to New York to reopen the

hearings. At the reconvened hearings, both registrant and his counsel were present, but counsel requested a further adjournment, stating

that registrant, because he had been ill with "flu", had been unable to

reach counsel until that day. The hearing examiner granted a 2-

hour adjournment, and denied requests for a further adjournment.

U Securities Exchange Act Release No. 7117 (August 16, 1963).

U The stop order proceedings are discussed at page 33, 8upra.

13 Securities Exchange Act Release No. 7243 (February 14, 1964).
72 SECURITIES AND EXCHANGE COMMISSION

The Commission upheld his denial and his refusal to reopen the hearings for the presentation of evidence in defense and mitigation. Noting its continuing concern with the problem of delay in the disposition

'Of administrative proceedings, the Commission stated that "Repeated

adjournments granted pursuant to belated requests by neglectful

parties not only cause undue interference with the hearing examiner's

responsibilities and frustrate our efforts to avoid excessive delays, but

unfairly deprive parties in other proceedings of an expeditious

hearing."

In J. H. Goddard & 00., Ino.,14 the Commission denied a motion

to dismiss the proceedings and to dismiss allegations of violations of

Rule lOb--6 under the Exchange Act. With respect to the motion to

dismiss the proceedings, the Commission rejected the claim that the

institution of public rather than private proceedings denied movants

due process. Itstated that under the Exchange Act, the determination whether a proceeding shall be public or private rests in the discretion of the Commission, and it noted that in these proceedings there

was a substantial public interest in the subject matter of the hearings;

that certain allegations were already a matter of public record; and

that public proceedings not only apprise investors of possible causes

of action against broker-dealers prior to the running of the statute of

limitations, but also enable them to institute such actions promptly

before witnesses become unavailable. With respect to the second part

of the motion, the Commission rejected the claims that Rule lOb--6

was so vague as to be violative of the due process clause, and that interpretation or revision of the rule in these proceedings would contravene the Administrative Procedure Act.

The principal question presented in Siltronics, Ino:" was the admissibility in evidence against certain broker-dealer respondents of

the record of prior consolidated proceedings to which they were parties

and which had been terminated as to them without prejudice to the

institution of new proceedings. In the prior proceedings, these respondents had claimed that under Am08 Treat d!J 00. v, S.E.O.16 termination was required because of participation in the proceedings by

a Commissioner who had served as director of an operating division

-during its investigation of a stock offering by Siltronics, Inc. Although respectfully disagreeing with that decision, the Commission

had terminated the proceedings. Thereafter, without the participation of the Commissioner in question, the Commission had instituted

new proceedings based on the same and other charges, and had con-

.. Securities Exchange .Act Release No. 7821 (llfay 22, 1964).

:Ill SecuritIes Exchange .Act Release No. 11110(September 80,1963)

.. 306 F 2d 260 (C..A.D.C., 1962).

•
THillTIETH A1I.TNUAL REPORT 73

solidated them with the prior proceedings against those respondents

who had not requested termination.

The Commission held the prior record admissible, rejecting the contentions that, under the Treat case, a special "taint" attached to that

record and that certain evidentiary requirements were not met. The

Commission noted that no action by it had affected the evidentiary

record. As to the second argument, the Commission pointed out that

the rules of evidence in jury trials have no strict application to administrati ve proceedings; that there had been full opportunity for crossexamination as to those charges made in both proceedings, and that as

to new charges, the staff's proposal to recall necessary witnesses at

Government expense would fulfill the requirement for such opportunity; and that it was not a material objection to admissibility of the

prior record that the witnesses might be available.

The Commission also denied motions by certain of the respondents

to dismiss or to sever the new proceedings, based on the assertion that

improper ex parte communications may have taken place between the

Commission and the staff in connection with the termination of the

prior proceedings and institution of the new proceedings, with respect

to the inclusion of additional charges, the consolidation of the new

proceedings with the unterminated proceedings and the offer in evidence of the record of the prior proceedings. The Commission pointed

out that following termination, when it considered the institution of

new proceedings and consolidation, it was no longer acting in an adjudicatory capacity with respect to the respondents as to whom the

proceedings had been terminated, and the separation-of-functions requirements of the Administrative Procedure Act were therefore not

applicable.

Suspension of Registration

Section 15 (b) of the Securities Exchange Act authorizes the Commission to suspend a broker-dealer's registration pending final determination as to whether registration should be revoked. In order to

suspend registration, the Commission must find, after notice and

opportunity for hearing, that suspension is necessary or appropriate

in the public interest or for the protection of investors. The registrations of two broker-dealers were suspended during the past fiscal year

on the basis of such findings," The entry of a suspension order is of

course not determinative of the ultimate issue whether registration

should be revoked.

11 Financial Oounsellors, Ino., SecurIties Exchange Act Release No. 7296 (April 22,

1964) and Albion Securities Oompany, Ine., SecurlUes Eschange Act Release No. 72lS~

(March 4. 1964).
74 SECURITIES AND EXCHANGE CO:MMISSION

Net Capital Rule

The basic purpose of Rule 15c3-l, promulgated by the Commission

under Section 15(c) (3) of the Exchange Act, is to safeguard funds

and securities of customers dealing with registered broker-dealers.

This rule, commonly known as the net capital rule, limits the amount

of indebtedness which may be incurred by a broker-dealer in relation

to its capital. It provides that the "aggregate indebtedness" of a

broker-dealer may not exceed 20 times the amount of its "net capital"

.ascomputed under the rule.

Ifit appears from an examination of the reports filed by a registered

broker-dealer with the Commission, or through inspection of its books

and records, that the ratio is exceeded, the Commission normally

notifies the broker-dealer of the deficiency and affords an opportunity

for compliance. Unless the capital situation is promptly remedied,

injunctive action may be taken by the Commission and in addition

proceedings may be instituted to revoke the broker-dealer's registration. During the past fiscal year, violations of the net capital rule

were charged in 19 injunctive actions and in 24 revocation proceedings

instituted against broker-dealers.

Registered broker-dealers who participate in "firm commitment"

underwritings must have sufficient capital to permit the participation

provided by the underwriting contract without impairing the capitaldebt ratio prescribed by the rule. For the protection of issuers and

customers of the broker-dealer, the Commission's staff carefully analyzes the latest available information on the capital position of the participants to determine whether they will be in compliance with the rule

upon assumption of the new obligations involved in the underwritings.

Acceleration of the effective date of registration statements filed under

the Securities Act will be denied where underwriting commitments

may engender violations of the net capital rule by any participating

underwriter. A participant found to be inadequately capitalized to

take down his commitment is notified and given an opportunity to adjust his financial position to meet the requirements of the rule without

reducing his commitments. If he is unable to meet such requirements,

he must decrease his "firm commitment" until compliance with the rule

is reached. If necessary he may have to withdraw from the underwriting or participate on a "best efforts" basis only.

As a result of recommendations of the Special Study of Securities

Markets, the Commission is presently in the process of formulating

a proposed rule which would establish minimum net capital requirements for broker-dealers.
Financial Statements

TillRTIETH A:r..TNUALREPORT 75

Rule 17a-5 under Section 17(a) of the Exchange Act requires registered broker-dealers to file annual reports of financial condition with

the Commission. Such reports must be certified by a certified public

accountant or public accountant who is in fact independent, with

certain specified limited exemptions applicable to situations where

certification does not appear necessary for customer protection. Under certain circumstances member firms of national securities exchanges

are exempt from the necessity of certification and an exemption is

available for a broker-dealer who, since his previous report, has limited

his securities business to soliciting subscriptions as an agent for issuers,

has transmitted funds and securities promptly, and has not otherwise

held funds or securities for or owed monies or securities to customers.

Also exempt is a broker or dealer who, from the date of his last report,

has confined his business to buying and selling evidences of indebtedness secured by liens on real estate and has carried no margin accounts,

credit balances or securities for any customers.

After his registration, a broker-dealer's first financial report must

reflect his condition as of a date between the end of the 1st and 5th

months after the effective date of the registration. All reports must

be filed within 45 days after the date as of which the report speaks.

Through these reports the Commission and the public may evaluate

the financial position and responsibility of broker-dealers. The financial report is one means by which the staff of the Commission determines whether the registrant is in compliance with the net capital rule.

Failure to file the required reports may result in the institution of

revocation proceedings. However, it is the policy of the Commission

first to advise the broker-dealer of his obligations under the rule and

to give him an opportunity to file the report.

During the fiscal year 4,503 reports of financial condition were filed

with the Commission compared to the 1963total of 5,197.

Broker-Dealer Inspections

Section 17(a) of the Exchange Act provides for regular and periodic

.inspections of registered broker-dealers. During the fiscal year the

number of such inspections totaled 1,422. The inspection device is a

most useful instrument in protecting investors and detecting violations of the Federal securities laws. The inspection, among other

things, determines a broker-dealer's financial condition, reviews his

pricing practices, evaluates the safeguards employed in handling

customers' funds and securities, and determines whether adequate and

.:accurate disclosures are made to customers.
76 SECURITIES AND EXCHANGE COMMISSION

The Commission's inspectors also determine whether brokers and

dealers are keeping books and records as required by the Exchange

Act and the Commission's rules thereunder and are conforming to the

margin and other requirements of Regulation T of the Federal Reserve

Board. Inspectors also look for excessive trading or switching in

customers' accounts. Inspectors frequently find evidence of the sale

of unregistered securities or of fraudulent practices such as use of

improper sales literature or sales techniques,

When inspections reveal that a broker-dealer is violating the statutes

or rules, the action taken depends on the type of violation and its effect

on the public. The Commission does not take formal action as a

result of every infraction discovered. Inspections frequently reveal

inadvertent violations which are discovered before becoming serious

and before customers' funds or securities are in danger. 'When no

harm has come to the investing public the registrant is generally

informed of the violations and advised to correct the improper practices. If the violation appears to be wilful and the public interest is

best served by formal action against the broker-dealer, the Commission will institute appropriate proceedings.

The table below shows the types of infractions uncovered by the

inspection program during the fiscal year:

Number

Type oJ brokers

Financial difficulties________________________________________________ 136

I1ypothecation rules__________________________________________________ 38

Unreasonable prices in securities purchases and sales________________ 62

Regulation T of the Federal Reserve Board____________________________ 119

"Secret profit"_______________________________________________________ 13

Confirmation and bookkeeping rules__________________________________ 850

Other________________________________________________________________ 424

Total indicated violations 1,642

The National Association of Securities Dealers, Inc., and the principal stock exchanges also conduct inspections of their members, and

some states have inspection programs. Each inspecting agency conducts inspections in accordance with its own procedures and with particular reference to its own regulations and jurisdiction. Inspections

by the Commission are primarily concerned with the detection of violations of the Federal securities laws and the Commission's regulations.

The inspection programs of the self-regulatory agencies and of the

states afford added protection to the public. The Commission and

certain other inspecting agencies coordinate their inspections to avoid

duplication and to obtain the widest possible coverage of brokers and

dealers. Agencies now participating in this coordination program
TEaRTIETH ~AL REPORT 77

include the New York Stock Exchange, the American Stock Exchange,

the Boston Stock Exchange, the Mid west Stock Exchange, the Pacific

Coast Stock Exchange, the Philadel phia- Baltimore- Washington Stock

Exchange, the Pittsburgh Stock Exchange, and the National Association of Securities Dealers, Inc. Itis hoped that even closer coordination may become possible in the future as recommended by the Special

Study of Securities Markets. This coordination, however, does not

preclude the Commission from inspecting any broker-dealer that has

also been inspected by another agency, and such inspections are made

whenever reason therefor exists.

SUPERVISION OF ACfMTIES OF NATIONAL ASSOCIATIONOF

SECURITIES DEALERS, INC.

Section 15A of the Securities Exchange Act of IV34 provides for the

registration with the Commission of national securities associations

and establishes standards for such associations. The National Asso-

.ciation of Securities Dealers, Inc. (NASD) is the only association

registered under the Act.

The Act contemplates that such associations will serve as a medium

for the cooperative self-regulation of over-the-counter brokers and

-denlers, Their rules must be designed to protect investors nnd the

public interest, to promote just and equitable principles of trade and

to meet other statutory requirements. They are to opernte under the

general supervision of the Commission which is authorized to review

disciplinary actions taken by them and other decisions which affect

the membership of members, or of applicants for membership, and to

consider all changes in their rules. The Securities Acts Amendments

-of 1V64 significantly changed several statutory provisions regarding

registered securities associations. Such associations are now required

to adopt appropriate standards regarding the training, experience

and other qualifications of members and persons associated with members; to have rules designed to produce fair and informative quotations

of over-the-counter securities; and may bring disciplinary action

directly against individuals associated with members.

In adopting legislation permitting the formation and registration

of such associations, Congress provided an incentive to membership

by permitting such associations to adopt rules which preclude n member from dealing with a nonmember, except on the same terms and con-

-ditions as the member affords the investing public. The NASD has

adopted such rules. Accordingly, membership is necessary to the

profitable participation in underwritings and over-the-counter trading

since members may properly grant price concessions, discounts and

'similar allowances only to other members. Loss or denial of member-
78 SECURITIES AND EXCHANGE COMMISSION

ship due to expulsion or suspension or other ineligibility due to a

statutory disqualification, or to failure to meet standards of qualification established in NASD rules, thus imposes a severe economic

sanction.

At the close of il.e fiscal year NASD membership was 4,158, reflecting a net decrease of 506members during the year. This decrease was

the result of 270 admissions to and 776 terminations of membership.

During the year the registered representative population, which generally includes all partners, officers, traders, salesmen and other persons employed by or affiliated with member firms in capacities which

involve their doing business directly with the public, declined by

9,540 to stand at 77,835 at June 30, 1964. This shrinkage was the

result of 8,175 initial registrations, 10,966 reregistrations and 28,681

terminations of registrations during the year.

In addition to its review of NASD rules and disciplinary actions,

the Commission established during the year a program for periodic

inspections of the Association's national and district offices. In fiscal

1964, the Commission staff conducted its first two district inspections

which covered a broad range of subjects including surveillance and

enforcement of association rules of conduct, the dissemination of quotations for local newspaper publication, and the organization of

district business conduct committees.

NASD Disciplinary Actions

The Commission receives from the NASD copies of its decisions in

all disciplinary actions against members and registered representatives. In general, such actions are based on findings that the respondents violated specified provisions of the NASD's Rules of Fair

Practice. 'Where violations are found the NASD may impose one or

more sanctions upon a member, including expulsion, suspension, fine

or censure. If an individual who is not a member is involved, his registration as a representative may be suspended or revoked, he may be

suspended or barred from being associated with all members, and he

may be fined or censured. Under Section 15A(b) (4) of the Exchange

Act and the NASD's by-laws, no broker-dealer may be admitted to or

continued in NASD membership without Commission approval, if he

has been suspended or expelled from NASD membership; has been

found to be a cause of certain sanctions imposed on a member; is subject to certain sanctions imposed by the Commission or a national securities exchange; or permits a person to associate with him who is

subject to one of the above disqualifications, whose registration is suspended or has been revoked, or who is suspended or has been barred

from associating with member firms.
TEURTIETH ~AL REPORT

During the past fiscal year the NASD reported to the Commission

its final disposition in disciplinary complaint actions against 405

member firms and 372 registered representatives. With respect to 73

members, complaints were dismissed on findings that allegations of

violations had not been sustained." In the remaining cases violations

were found and some penalties were imposed on 332 members and 342

registered representatives or other individuals.

The maximum penalty of expulsion from membership was imposed

on 73 different members and 16 members were suspended from membership for periods ranging from 15 days to 2 years. In many of these

expulsion or suspension cases, substantial fines were also imposed. In

194 cases the principal penalties imposed were fines ranging from

$25 to $10,000. In 48 other cases the only sanction imposed was censure, although censure was often a secondary penalty imposed where

a fine was the principal penalty imposed.

Various penalties were also imposed on registered representatives

found in violation of the NASD's rules. The registrations of 132

representatives were revoked and 43 had their registrations suspended

for periods ranging from 15 days to 2 years. In addition, 13 other

individuals whose registrations were not revoked were found to have

been the causes of the expulsion of 13member firms and in one instance

the cause of a I-year suspension of a member. Allegations of violations against 30 representatives were dismissed on findings that no

violation had occurred.

Commission Review of NASD Disciplinary Action

Section 15A(g) of the Act, as amended, provides that disciplinary

actions by the NASD are subject to review by the Commission on its

own motion or on the timely application of any aggrieved person.

This Section also provides that the effectiveness of any penalty imposed by the NASD is automatically stayed pending Commission

review, unless the Commission otherwise orders after notice and opportunity for hearing. Section 15A(h) of the Act defines the scope

of the Commission's review. If the Commission finds that the disciplined party engaged in or omitted such acts or practices as were

found by the NASD, that such acts, practices, or omissions to act are

in violation of such rules of the association as have been designated in

the determination, and that such conduct was inconsistent with just

18 The majority of the cases where allegations against members were dismissed Involved

misuse of customers' and/or firm securities or funds by a representative under such circumstances that the member could not have known of or prevented such Impropriety.

Association procedures did not, In this period, permit complaint action directed solely

against a registered representative but required the naming of the employer-member as a

respondent even though It was abundantly clear that the member was blameless.
80 SECURITIES AND EXCHANGE COMMISSION

and equitable principles of trade, the Commission must dismiss the

review proceedings unless it finds that the penalties imposed are excessive or oppressive, having due regard to the public interest, in which

case it must cancel or reduce such penalties. At the beginning of the

fiscal year, 23 review proceedings were pending before the Commission; during the year 17 additional petitions for review were filed,

decisions were issued in 18cases, three petitions were withdrawn prior

to determination, and 1D petitions were pending at the year end.

In its review of association disciplinary actions, the Commission

issued several significant decisions during the year involving applications of the NASD mark-Up policy.

In an important decision reviewing and reappraising the standards

for determining the fairness under the NASD's mark-up policy of

prices charged by broker-dealers, the Commission sustained the

NASD's findings that Naftalin ill 00., Inc. charged unfair prices in

its sale of stock to customers and thus violated the NASD's Rules of

Fail' Practice." While sustaining the NASD findings of violations,

the Commission reduced the penalty imposed against the firm from

expulsion to a 20-day suspension from NASD membership, and the

penalty against George E. Clark, a registered representative, from

revocation of registration to a 20-day suspension. The Commission

affirmed the NASD's censure of the firm and Clark and fines of $4,500

and $1,000, respectively, and found Neil T. Naftalin, president of the

firm, a enuse of the fiI'm's suspension.

The NASD had found that the Naftalin firm as principal made 85

sales of Dnrox of Minnesota, Inc., stock to customers at prices ranging

from 2% to 3%, and that such prices represented mark-ups of up to

28.5 percent over same-day costs and an average mark-up over cost on

all sales of 17.9 percent. Such prices were found by the NASD to be

in contravention of its Rules of Fair Practice which state that a

member "shall observe high standards of commercial honor and just

and equitable principles of trade" and require that where a member

sells a security for his own account to his customer the price must be

fair, taking into consideration all relevant circumstances, including

market conditions, the expense involved, and the fact that the member

is entitled to a profit.

Respondents contended that there were no violations because the

firm's retail prices were identical with telephone quotations obtained

prior to each sale from another dealer who was making a market in

the stock. The Commission found, however, that the other dealer's

telephone quotations were regularly subject to negotiation and there.

111 Securities Exchange Act Release No. 7220 (Janna1710.1964).
THIRTIETH ANNUAL REPORT 81

fore not reliable as a test of prevailing market price and that the firm's

actual, contemporaneous costs were representative, and the best evidence, of the actual market in the Durox stock. The Commission

stated:

We note that the NASD mark-up policy expressly states that "[i]n the

absence of other bona fide evidence of the prevailing market, a member's own

contemporaneous cost is the best indication of the prevailing market price."

The use of contemporaneous cost as an appropriate base upon which to compute

mark-ups in retail transactions, "absent countervailing evidence," has frequently

been recognized in our decisions and has been affirmed by the courts. This rule

merely reflects a recognition of the fact that the prices paid for a security by a

dealer in actual transactions closely related in time to his sales are normally

a highly reliable indication of the prevailing market price. And the rule applies

Whether or not a dealer has a position in the security, unless it can be shown that

the dealer's contemporaneous cost is not representative of the market price prevailing at the time of his sales. [Footnotes omitted]

The respondents urged various considerations in mitigation of the

penalties assessed against them. They asserted, among other things,

that they acted in good faith, that any violations of the NASD rules

were unintentional and due to lack of experience, the violations having

occurred in the first few months of the firm's existence, aad that'the

deficiencies were promptly corrected when called to their attention and

did not recur. Respondents further urged that while some sanction

may have been warranted, the firm was now a thoroughly responsible,

professional and reputable concern, with qualified and trained personnel, which was worthy of continuing in the securities business, and that

the public interest did not require or warrant expulsion, but at most

a short suspension. Because of the mitigating circumstances, including the extensive efforts of the firm to remedy its initial shortcomings

and to develop a qualified organization, equipped with adequate facilities and staffed by well-trained or experienced personnel, the Commission concluded that reduced sanctions were appropriate in the

public interest.

In another case involving findings by the NASD of excessive markups, the Commission sustained the NASD's action expelling General

In'IJesting Oorporation. from membership and revoking the registration

of Ralph De Pasquale, its president, as a registered representative."

The NASD found that the firm charged mark-ups ranging between

12.5 percent and 37.5 percent in 83 principal sales transactions. In 43

transactions the mark-ups were computed by the NASD on the basis

of the firm's same-day cost, and in the remaining transactions on the

basis of representative asked quotations in the National Quotation

:JO Securities Exchange Act Release No. 7316 (May 15. 1964).

757-903-65-7
82 SECURITIES AND EXCHANGE COl\WISSION

Bureau's daily sheets. The Commission rejected applicants' contention that with respect to 73 transactions involving 5 security issues

the NASD should have computed mark-ups on the basis of the firm's

own inside offer because the firm was the primary market maker,

maintained a large inventory, and dominated the market in these

securities, and the quotations of other dealers appearing in the sheets

were unrealistic because these dealers were primarily interested in

selling to the firm at its higher bid price.

While noting the problems pointed out by the Special Study of

Securities Markets as to the proper base for calculating mark-ups

with respect to retail sales by a sole or dominant market-maker, the

Commission observed that if, as applicants contended, the firm was

the primary market maker and dominated the market, to allow the

firm to compute mark-ups on the basis of its own inside offer "when

other firms are offering at wholesale prices lower than the firm's inside

offer would make a sham of the protection intended by the NASD

proscription that a member shall not charge unfair prices in principal

transactions with customers." The Commission also noted that the

evidence did not appear to support applicants' contention that other

dealers were primarily selling to the firm and that, in any event, applicants had not contended that the quotations of other dealers were not

bona fide prices at which they were willing to trade with other brokers

and dealers. Applicants' contentions that their mark-ups were justified in view of the risk assumed in maintaining an inventory and the

expenses incurred in selling these securties through extensive solicitation efforts were rejected by the Commission, which stated that "such

factors do not justify retail prices higher than those at which the

same securities are generally available to investors through other dealers who operate inthe same market."

In J. A. Winston &: Oo.,lno.,21 another mark-Up case, the NASD

found that the firm effected 131retail sales of Atlas Credit Corporation

Class A stock and 563 retail sales of Atlas Class B stock at mark-ups

over its same-day cost of purchases from other dealers which averaged

26.5 percent and 33.5percent for each class,respectively.

Respondents contended, among other things, that mark-ups in the

Class B stock should have been computed on the basis of the firm's

cost of purchases from retail customers, representing the large majority of its purchases, rather than on the lower cost of purchases from

other dealers, and, as to the Class A stock, that they properly effected

their retail sales at a price equal to or below the high independent

asked price quoted in the "sheets." The Commission noted that the

a Securities Exchange Act Release No. 7334 (June ri. 1964).
TEaRTIETH ~AL REPORT 83

Winston firm throughout the period in question had virtually complete

control over purchase and sale prices, as well as supply and demand,

of the Class B stock; that it was buying from other dealers at its own

bid prices which it maintained below its retail purchase prices; and

that, although it had a short position during most of the period, it was

in a position to cover that position merely by adjusting its bid or by

shifting the emphasis on retail solicitation from the sale to the purchase side. Under these circumstances, the Commission concluded

that "there is little value in basing a determination of unfair pricing

on a comparison or percentage relationship between resale prices and

cost or any other single factor; it is more meaningful clearly to examine

the prices actually charged in light of the surrounding circumstances

and to determine whether those prices were fair." On the basis of the

relevant factors, including the fact that "market" in the context of a

pricing problem generally refers to the inter-dealer market, and the

arbitrary pricing of the Class B stock above the independent market

for the Class A stock, the Commission sustained the NASD's conclusion that the prices charged were excessive.

'Vith respect to the Class A stock the Commission noted that "the

great preponderance of numerical quotations on the offered side and

the firm's ability consistently to make purchases . . . from other

dealers at prices below the quoted asked prices, make it clear that the

quotations were regularly subject to negotiation and therefore not

reliable as a test of the prevailing market price." It concluded that

under the circumstances the firm's same-day cost in purchases from

dealers was the best evidence of the inter-dealer market. In response

to respondents' contention that the spread between their purchase

and sale prices was not inconsistent with NASD-sponsored retail

quotations on other securities published in newspapers, the Commission stated that "the difference, alone, between the bid and asked

quotations cannot properly be treated as a measure of what is a fair

or reasonable mark-up over contemporaneous cost."

The Commission also found that respondents wilfully failed to

register 141 salesmen and "contact men." Itsustained the penalties

imposed by the NASD of expulsion of the firm from membership

and revocation of the registration of its principals.

In a proceeding involving mark-downs, the Commission sustained

action by the NASD imposing a fine of $500 against Thill Securitiee

Oorp. based on its findings that the firm purchased securities from

customers at unfair prices in violation of the NASD Rules of Fair

Practice."

.. SecuritIes Exchange Act Release No. 7342 (June 11, 1964).
84 SECURITIES AND EXCHANGE COMMISSION

In its decision the Commission disagreed with the position of the

NASD that the best indication of the prevailing market price against

which to measure the prices paid customers was the price realized

by the firm in same-day resales to other dealers. Since the securities

were not low-priced or speculative in nature, and had a competitive

market and possessed a narrow spread between bids and offers, the

Commission found that contemporaneous bid quotations obtained

by the firm from dealers making the market were acceptable evidence

of the prevailing market price. Based on such concurrent bids, the

mark-downs ranged between 5 and 6 percent in eight transactions,

between 4 and 5 percent in five transactions, and between 2 and 4

percent in tour transactions. The Commission determined that it

was "not prepared to disagree" with the NASD's conclusions that "in

'Our experience industry practice does not warrant such mark-downs

in the circumstances presented, even with the rendition of extraordinary service to customers."

Commission Review of NASD Action on Membership

As previously noted, Section 15A(b) of the Act and the by-laws

of the NASD provide that, except where the Commission finds it

appropriate in the public interest to approve or direct to the contrary,

no broker or dealer may be admitted to or continued in membership

if he, or any person associated with him, is under any of the several

disabilities specified in the statute or the by-laws. A Commission

order approving or directing admission to or continuance in association membership, notwithstanding a disqualification under Section

15A(b) (4) of the Act, or under an effective association rule adopted

under that Section or Section 15A(b) (3), is generally entered only

after the matter has been submitted initially to the association by

the member or applicant for membership. The association in its

discretion may then file an application with the Commission on behalf

of the petitioner. A broker-dealer, however, may file an application

directly with the Commission either with or without association sponsorship. The Commission reviews the record and documents filed

in support of the application and, where appropriate, obtains additional relevant and pertinent evidence. During the year eight such

petitions were filed; five were approved; 28 one was disapproved as

discussed below; and two were pending at the end of the year.

The Commission disapproved a petition by the NASD that a member firm be continued in membership with Edgar R. D'Abre in its

employ." The transactions giving rise to D'Abre's disqualification

.. Securities Exchange Act Releases Nos. 7168 (November 8, 1963) ; 7192 (December 12,

1963) ; 7249 (l\farch 2,1964) ; 7265 (Marcb 9, 1964) ; and 7297 (April 24, 1964) .

•• Securities Excban!,:eActltelease No. 7213 (January 9, 1964).
THIRTIETH Al',"'::\'UAL REPORT 85

occurred in 1959, when D' Abre opened two accounts in a fictitious

name and allocated shares of "hot issues" to those accounts, realizing

profits of $6,000 therefrom over a period of several months. When

questioned by his then employer, he fabricated a credit report on the

nonexistent customer but his explanation was unacceptable to the

firm and he was discharged in August 1959. Following a hearing,

at which D'Abre presented an elaborate explanation, an NASD District Business Conduct Committee concluded that the accounts were

in fact D'Abre's, characterized his explanation as "preposterous,"

found that D' Abre had effected transactions in those accounts without

the consent or knowledge of his employer, and revoked his registration

as a registered representative.

Shortly before the decision was issued, D'Abre had obtained employment as a salesman for another firm; and thereafter proceedings

were instituted before the NASD to determine whether the newemployer should be continued in membership with D'Abre as an employee. Subsequently, an NASD application for approval of such

continuance was remanded by the Commission 25 which expressed concern as to D'Abre's appreciation of "the professional obligation to his

employer and to the public that further participation in the securities

field entails." After further hearings and consideration by the

NASD, the latter renewed its application for approval.

In denying the second application the Commission stated, in part:

The violations of NASD rules committed by D'Abre were of a serious nature,

involving not only "free riding," but the manufacture over a period of several

months of fictitious accounts and records and a false credit report, for the purpose of deceiving his employer and concealing violations of the restrictions upon

transactions in new issues. This misconduct was compounded by D'Abre's concoction and presentation of false explanations to the NASD and his persistent

failure to disclose the true facts. Only the pressure created by our remand and

tbe ensuing beariDg...finallYcaused D'Abre to admit that the accounts were fictitious and to state that be regretted his violation of the trust that had been

reposed in him. It was only after some prompting that he admitted his profit

motivation in maintaining the accounts. He stated that absent our remand and

subsequent bearing, be probably would never bave acknowledged the facts. Tbat

he made no further denials of bis improprieties after the first District Committee decision or that he believed that the Committee members probably knew he

had lied to them, cannot excuse his continued lack of candor.

The Commission concluded that these circumstances clearly demonstrated D'Abre's "unreliability and his lack of understanding of his

obligation to his employer, to the District Committee, to the Board

of Governors of the NASD and to the securities industry."

.. Securities Exchange Act Release No. 6821 (June 8, 1962).
PART VI

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING

COMPANY ACT OF 1935

In administering the Public Utility Holding Company Act of 1935

the Commission regulates interstate public-utility holding-company

systems engaged in the electric utility business and/or in the retail distribution of gas. The Commission's jurisdiction also extends to natural gas pipeline companies and other nonutility companies which

are subsidiaries of registered holding companies. Although the matters under the Act dealt with by the Commission and its staff embrace

a variety of intricate and complex questions of law and fact generally

involving more than one area of regulation, briefly there are three

principal regulatory areas. The first covers those provisions of the

Act, contained principally in Section 11(b) (1), which require the

physical integration of public-utility companies and functionally related properties of holding-company systems and those provisions,

contained principally in Section 11(b) (2), which require the simplification of intercorporate relationships and financial structures of holding company systems. The second covers the financing operations of

registered holding companies and their subsidiaries, the acquisition

and disposition of securities and properties, and certain accounting

practices, servicing arrangements and intercompany transactions.

The third includes the exemptive provisions of the Act, the provisions

covering the status under the Act of persons and companies, and those

regulating the right of a person affiliated with a public-utility company to acquire securities resulting in a second such affiliation. Matters embraced within this last area of regulation come before the Commission and its staff frequently. Many such matters do not result in

formal proceedings and others are reflected in such proceedings only

in an indirect manner when they are related to issues principally under

one of the other areas of regulation.

The Branch of Public Utility Regulation of the Commission's

Division of Corporate Regulation performs the principal functions

under the Act. It observes and examines problems which arise in

connection with transactions which are or may be subject to regula86
THIRTIETH ANNUAL REPORT 87

tion under the Act and discusses such problems with interested persons

and companies and advises them as to the applicable sections of the

Act, the rules thereunder and Commission policy with respect thereto.

Questions are raised with and problems presented to the staff daily.

These include questions raised by security holders and problems presented by companies contemplating transactions which require the

filing of an application or declaration, particularly financing operations and the acquisition and disposition of securities and properties.

This day-to-day activity includes prefiling discussions and conferences,

in person and by telephone, with company representatives and with

other persons where the matter under consideration affects their interests. In those instances where formal proceedings are held, members

of the staff actively participate in hearings and often aid the Commission in the preparation of its decision on a particular matter. The

staff continually reexamines the status of exempt companies, examines

the annual reports filed with the Commission and those sent to stockholders and must keep abreast of new technical developments in the

electric and gas industry, including the use of atomic energy as a source

of power.

COMPOSITION OF REGISTERED HOLDING-COMPANY SYSTEMS

At the close of the fiscal year there were 24 holding companies registered under the Act. Of these, 18 are included in the 16 remaining

holding-company systems which are herein classified as "active registered holding-company systems," 2 of the 18 being subholding companies in these active systems.' The remaining 6 registered holding

companies are of relatively small size and are excluded from the active

holding-company systems," In the 16 active systems there are 84

electric and/or gas utility subsidiaries, 41 nonutility subsidiaries, and

12 inactive companies, or a total, including the 18 parent holding companies, of 155system companies. The following table shows the number of holding companies and the number of subsidiaries (classified

as utility, nonutility, and inactive) in each of the active systems as

of June 30, 1964, and the aggregate assets of these systems, less valuation reserves, as of December 31, 1963.

1The two subholdlng companies are The Potomac Edison Co., a subsidiary of .Allegheny

Power System, Inc., and Southwestern Electric Power Co., a subsidiary of Central and

South West Corp.

These holding companies are .American Gas Co.; British .American Utilities Corp.;

Colonial Utilities Corp. ; K1nzua 011& Gas Corp. and Its subholdlng company, Northwestern

Pennsylvania Gas Corp. ; and Standard Gas & Electric Co.

•
------ 

88 SECURITIES AND EXCHANGE COMMISSION 

Classifloation 01 oompodes as oj Jme SO. 1964 

Solely Re@ Electrlo Aggregab 

regig tered and/or ~~~m 

tared hold. gss NO^. 1n- ~otd-sets lea 

Liystem hold- ing- utility uti~~tyactiw wm- vduitlon 

ing oper- sub- sub. corn- panles mervsat wm- ating sldl- sldi- panles Dm 31, 

panles aries arles 1861- pamas eon>-


-------(thousands) 

I. Allegheny Power System. Ine........ 1 1 13 6 2 23 $662 ZBa 

2. Amariean Electrlo Power Co., 1no.... 1 0 12 8 2 23 1,724:460 


3.AmerieanNaturalOesCa ............ 1 0 2 4 0 858 1W 


4. Central and Southwest Corp, ....... 1 1 4 1 1 818:116 


6. Columbia Oa system, Inc.,The..... 1 0 11 8 I 21 1.4W.OB7 

8. Co~didatsdNatural Gas c o........ 1 0 4 3 0 s 8%W2 


7. Delaware Power B light Co......... 0 1 2 0 0 3 2lS,m3 


8. Esstern Utllitle~ Associates ........... 1 O 4 0 2 7 117 776 


8. cenernl public ~tllitles carp........ 1 0 6 3 0 10 1.118:847 


10. Middle South Utilitle~, Ino........... 1 0 6 I a 10 8m.m 


11. ~stionalFuel a- c o................ 1 0 3 6 0 9 244 747 


12. ~ew 1 0 14 1 o 16 rada19 ~nplnnd Electric system ........ 
 13. ohio ~dison co...................... 0 1 3 0 0 4 748.884 


14. Phlla.lelphia Electlio Power c o...... 0 1 1 D 1 3 a? am 

16. Southwn Co.. The ................... 1 0 6 2 0 8 1.869:871 


16. Utah Power & Light Co .............. 0 1 1 0 0 2 315.786


--__--- - ~ubtotak.......................... 12 B 80 42 12 162 1265Sr674 


~es:Adjustment to elirnlnatp duplica 

tlon In onunt resulting lmtn three corn- peniss beingsubsldlarier In twosystemr and two wmpmles being suhsldiarles 

in three ayrtems* ..................... 0 0 -6 -1 0 -7 ............ Add: Adlustmant toindude thessetsol 

thore rive Ialntl owned subsidia(1es
 and to remove tKe parent companws' 
 investmemts there10 which are included 


in tbe system asses sbo.8 .............................................................. 300,082 

Total companies and wets in ss tive systems ...................... 12 6 84 41 12 155 14858.758


. Reprrsentr the consolidated assets, less vnluation reserves, of each system ss reported to tbt Corn. 

mission on Form U58 for the genr 1963. . ~i~e~e RVB oompblnies are ~~?chb~ttorn 
 power co., Ino. andwindsor Power Haose Coal Co., whth are indirect ~?hsidiaries oi~~er~can EI~~~TL? power co., ~ne.
and ~llegheny Power System, Inc.: Ohlo 

vslrey Eioctnc Gorp. and its subsi0lary, ~ ~ d ~ ~Electric ~ ~ Carp.. x whioh e ~ are owned t ~ 37.8 ~ pereant $ ~ by ~merlean ~leemcPomr CO. 1nc. 16.5percent by ohlo ~disaiiCo. 12.5 pereect by Allegheny Powe smtem 1°C. atid 33.2 percent b{ othb companies: and The ~rkiahomd C?p, wbsh Is omed 32 pemnt by csnLal +;a ~oilth~ert carp system, 34pereent b~~iddle 
 south utihtles, 1x0.systemmd 34 percent by an eloetnc utility mmpuly not associated with areklstered system. 


SECTION 11 M4TTJ3RS IN ACTIVE REGISTERED HOLDING-COMPANY 

SYSTEMS 

On October 10,1963, a publ~c hearing was held on Step 2 of a plan 

filed, pursuant to Section ll(e), by Eastern Utilities Associates 

("EU-4")proposing the sale of all the outstanding common stock of 

Valley Gas Co., to the shareholders of EUA, and to the public common 

stockholders of Blackstone Valley Gas and Electric Co. ('<Blackstone"), a subsidiary of EUA and the owner of all the outstanding 

common shares of Valley Gas Co. On March 3,1964, the Commission 

issued its Findings and Opinion and OrderS approving Step 2 and, 

upon the request of EUA, an application for an order enforcing the 

plan was filed with the U.S. D~strict Court for the District of Rhode 

Island. Following a hearing, at which a public stockholder of Blackstone appeared in opposition to the plan, the court approved Step 2 

*Holding Company Aot Belease No. 16020. 
THIRTIETH ANNUAL REPORT 89

of the plan by order dated July 14, 1964.4 Upon its consummation, the

separation of the gas utility properties from the EUA system will

have been completed. Prior proceedings in this matter are discussed

at page 109of the 27th Annual Report.

In its Order of February 20, 1958, pursuant to Section l1(b) (1),

permitting retention by New England Electric System of all its electric properties," the Commission reserved jurisdiction to determine

whether the system's gas properties were retainable under that Section

of the Act. After further proceedings the Commission, on March

19, 1964, issued its Findings and Opinion and Order directing New

England Electric System to divest itself of all its interests in its gas

properties," New England Electric System has filed a petition to review this order in the Court of Appeals for the First Circuit. At the

close of the fiscal year the case was pending before the court.

The Commission has held, with court approval, that the existence of

publicly-held minority interests in the common stock of subsidiary

companies of registered holding companies constitutes an inequitable

distribution of voting power requiring the elimination of such minority interests under Section 11(b) (2). Through appropriate proceedings under the Act the Commission has heretofore ordered the elimination of public minority interests in most of the registered

holding-company systems, but the problem remains in several others.

During fiscal 1964,Allegheny Power System, a registered holding company, filed a plan, pursuant to Section 11(e) of the Act, proposing the

elimination of a 4.8 percent public minority interest in the common

stock of its subsidiary company, West Penn Power Company, through

the exchange of 1.7shares of Allegheny Power's then $5 par value common stock for each share of publicly-held West Penn common stock.

The proposed exchange would involve the issuance of Allegheny's new

common stock with an aggregate market value of approximately

$15,600,000 as of June 30, 1964.1 Public hearings on the plan were

held during fiscal 1964; following the close of the fiscal year, the Commission approved the plan,"

In the Matter of Valley GaB00., et at (D.R.I., Civil Act No. 2685).

See 38 S.E.C. 193.

Holding Company Act Release No. 15035.

Dnring the pendency of the plan each share of Allegheny's $5 par value common stock

was reclassified Into two shares of $2.50 par value common stock. Thus, the exchange

ratio became 3.4 shares of Allegheny stock for each share of West Penn stock. Holding

Company Act Release No. 15038 (March 27,1964).

Holding Company Act Release No. 15145 (November 13, 1964). Other holdlng-eompany

systems In which a minority interest problem exists, and as to which no proceedings have

been proposed by the systems or instituted by the Commission, are The Columbia Gas System, Inc., Eastern Utilities Associates. and New England Electric System. The minority

Interests of the last-named holding-company system are confined to several of the gas utility

SUbsidiaries, a question as to the retalnabll1ty of which, as noted above, Is pending before

the court of appeals.

•

•

•

•

•
90 SECURITIES AND EXCHANGE COMMISSION

A Section 11(b) (1) problem still exists as to whether Middle South

Utilities, Inc. may, through its subsidiary company, New Orleans

Public Service, Inc., retain its interest in the gas and transportation

properties of that subsidiary company together with the system's

electric properties. The electric properties of the Middle South system

have heretofore been found by the Commission to constitute a single

integrated public-utility system. On January 10, 1963, a bill was

introduced in the Congress (H.R. 742, 88th Cong., 1st Sess.) providing,

in effect, that New Orleans Public Service, Inc. shall not be required

to dispose of its gas or transportation properties pursuant to any

provision of the Public Utility Holding Company Act of 1935. At the

close of fiscal 1964, the House Committee on Interstate and Foreign

Commerce, to which the bill was referred, had taken no action thereon;

and no proceedings have been instituted by the Commission."

EXEMPT HOLDING COlUP ANIES

A "holding company" is defined by Section 2(a) (7) (A) of the Act

to mean any company which owns or controls 10 percent or more of

the outstanding voting securities of an electric or gas public-utility

company. Section 3 (a) of the Act provides that the Commission shall

exempt any holding company (and its subsidiary companies, as such)

from the duties and obligations of the Act if the company meets one

or more of the exemptive standards set forth in that Section, unless

the Commission finds that the exemption would be detrimental to the

public interest. Such exemption may be granted by the Commission

by order upon application, or (as to certain types of exemption) may

be claimed by the holding company by the filing in "good faith" of a

statement pursuant to Rule 2 promulgated by the Commission under

Section 3. At the close of the fiscal year statements submitted by a

total of 55 holding companies under Rule 2 were on file with the Commission. Every initial Rule 2 statement and each annual statement

renewing the claimed exemption is carefully examined by the Commission's Division of Corporate Regulation to ensure that the claimant

is entitled to its asserted exempt status under Section 3(a). In addition, six applications for exemption orders under Section 3 (a) were

pending at the beginning of fisca11964, and five additional applications

were filed during the fiscal year. The Commission issued orders grantNo further action was taken during fiscal 1964 with respect to certain Section 11(b)

problems of several other registered holding companies referred to at page 104 of the 27th

Annual Report.

•
TffiRTIETH ANNUAL REPORT 91

ing exemptions to five of the applicants during fiscal 1964; 10 and

after the close of the year two additional exemption orders were

issued.v

Exempt holding companies are nevertheless subject to the provisions

of Section 9(a) (2) of the Act, which prohibits them from acquiring

as much as 5 percent of the voting stock of any other public-utility

company unless the acquisition has been approved by the Commission

under Section 10. During the fiscal year, Cincinnati Gas & Electric

Company (which claims exemption under Rule 2 as "predominantly a

public-utility company") applied for and was granted authority to

acquire the outstanding voting securities of two neighboring gas

utility companies.>

FINANCING OF ACTIVE REGISTERED PUBLIC-UTILITY HOLDING

COMPANIES AND THEIR SUBSIDIARIES

Pursuant to authorizations granted by the Commission under Sections 6 and 7 of the Act, nine registered holding-company systems

issued and sold for cash to the public and to financial institutions 21

issues of long-term debt and capital stocks aggregating $400 million 13

in the fiscal year 1964.14 Seventeen of these issues were sold for the

purpose of raising new capital. Of the remaining four issues, three

were entirely or in part for the purpose of refunding $38 million

principal amount of outstanding debt securities carrying higher rates

of interest and one was for the purpose of refunding $6 million par

value of preferred stock carrying a higher dividend rate.

The following table presents the amounts and types of securities

issued and sold for cash by registered holding companies and their

subsidiaries during fiscal 1964 :

10 The Oonsumers Gas 00., Holding Company Act Release No. 14956 (October 17, 1963) ;

Penn Fuel Gas, Inc. (reaffirmation of previous exemption order), Holding Company Act

Release No. 14958 (October 21, 1963) ; Oonnecttout Light and Power 00. and New Englantl

Power 00., Holding Company Act Release No. 14968 (November 15, 1963) ; Aluminum Oompany of America, Holding Company Act Release No. 15078 (May 21, 1964).

11 Oontinental Oan 00., Inc. and Ooa;Newsprint, Ino., Holding Company Act Release No.

15107 (August 5. 1964).

12 Holding Company Act Release No. 14993 (January 3,1964).

18 Debt securities are computed at their principal amount, preferred stock at par value

or at price to the company If no par value stated, and common stock at o1ferlng price

.. The active systems which did Dot sell stock or long-term debt securities to the public

are: Central and South West Corporation; Consolidated Natural Gas Company; Delaware

Power & Light Company; National Fuel Gas Company; Ohio Edison Company; Philadelphia Electric Power Company; and Utah Po wer & Light Company.

•
-- 

92 SECURITIES AND EXCHANGE COMMISSION 

BeOUriticb lanued and mZd for wah to the public and lIuandaZ inntttuttona W 

reg6etered holding cornpants8 and their 8ubnidlarie8. flecot year 1984 

[In millions] 

Holding mmpany syatem 

Msghtmy Power System, Ins.: Potomao Edison 

Cmnpsn The...................................... SIB .................................... 
 Amerfoan %lsclrio Pawex Company. Inc.: Indiana & 

MWgan EWia Co ................................ 45 .................................... 
 American Nstmsl Om CO.: 

Mi~hlg~n Con$olidstedOm Co.................... 
 ao ....................................
 Miohlpho WLamnrh Plpelloe Co................... 0 60 .................................... 
 Columbia Om System Inc. The. .................................. ........................ 
 Easlern Utilities dss&tes. Brmktan Edeon Co ...... ............ $6 ............ 
 Opnerd PubilcUtilities Corp.: Jersey Central Power 8 

Light CO......,:,............................... ........................ 
 Mlddle South Utllltles. Ino.:Louisiana Power b. Llgbt Co ............................................. 25 .................................... 
 NBW England Electno System: Mas~aohmettsElectric Co ......................... 10 .................................... 
 N-ganstt Eleotrl~ Co ........................... .................................... 
 New England Power Co ........................... 10 ............ 10 ............ 
 Southern Comwg. The:.............................. ........................ $= 


Aiabama Power Co ................................ 29 ............ 0 ............ 
 Wgis Power Co .................................. ............ 7 ............ 
 Mlssmippi Power Co.............................. 10 .................................... 


The table does not include securities issued and sold by subsidiary 

companies to their respective parent holding companies, issuances of 

short-term notes to banks, portfolio sales by 'any of the system companies, or securities issued for stock or assets of nonaffiliated companies. These issuances and sales also required authorization by the 

Commission except in the case of the issuance of notes having a maturity of 9 months or less where the aggregate amount does not exceed 

5 percent of the other securities of the company. Such exception is 

provided for by Section 6(b) of the Act. 

Competitive Bidding 

All of the 21 issues of securities sold for caqh in fiscal 1964, as shown 

in the preceding table, mere offered for competitive bidding pursuant 

to the requirements of Rule 50 promulgated under the Act. 

During the period from May 7, 1941, the effective date of Rule 50, 

to June 30,1964, a total of 884 issues of securities with aggregate value 

of $13,127 million were sold at competitive bidding under the rule. 

These totals compare with 231 issues of securities with aggregate value 

of $2,371 million which have h'een sold pursuant to orders of the Commission granting exceptions from the competitive bidding requirements of the rule under paragraph (a) (5) there~f.'~ Of the total 

mParagra~h(a) (5) of Rule 60 pravfdes for erceptlon from the CompetltITe bbldlng 

reqnlrementa of the rule where the Commisslan flnds auch bidding is not necessary or 

appropriate under the partleular ehoomatanees of the indivldud ease. 
THIRTIETH A.~AL REPORT 93

amount of Securities sold pursuant to orders granting exceptions under this paragraph, 12&issues with Il- WtaJ value of $1,888 million were

sold by the issuers and the balance of .10~ issues with a dollar value

of $483million were portfolio sales. .Of the 126 issues sold by issuers,

70 were in amounts of from $1 to $5 million and two bond issues were

in excess of $100million each.16

PROTECTIVE PROVISIONS OF FIRST, MORTGAGE BONDS AND

PREFERRED STOCKS OF PUBLICUTiLITY COMPANIES

Statements of policy were adopted by the Commission in 1956 codifying the standards to which provisions covering first mortgage bonds

and preferred stocks issued under the Act must conform for the protection of investors in such securities," Prior to 1956 these standards

had been established by the Commission on a case-by-case basis. In

passing upon the issuance of first mortgage bonds and preferred stocks

under the Act, the Commission examines the applicable mortgage

indentures and charter provisions to ensure a continuing substantial

conformity with the codified standards of the respective statements

of policy. Such conformity has been uniformly required except

where, in particular circumstances, deviations from the statements of

policy are clearly justified.

During the fiscal year, applications or declarations were filed by

public-utility companies subject to the Act with respect to 14 first

mortgage bond issues involving an aggregate principal amount of

$241,525,000, and 5 preferred stock issues with a total par value of

$34million.

The statement of policy with respect to first mortgage bonds requires, among other things, that dividends or other distributions to

common stockholders be limited so as to preserve an "equity cushion"

beneath the claims of the bondholders. This requirement was adequately provided for in the indentures covering the 14 bond issues

as filed or as a result of informal discussions between the Commission's

staff and representatives of the issuers.

Since the bulk of bondholders' security consists of mortgaged depreciable plant and equipment, the statement of policy for bonds also

requires the periodic renewal and replacement of such property so as

to preserve the book value of the underlying security. This requirement, in substance, obligates the issuing company to provide for new

property additions (or, alternatively, to deposit cash or outstanding

11 OhIo Valley Electric Corp., a $S60 JIIJ11foJ;l .e; and Unlted au Corp., a $118 mIWoD

1sIIue. l'Holding Company Act Release NOB. 18UllJ LV.). :ur, 19118) and 18108 (Jl'eb. 16, 1918)

as to first mortgage bonds aDd preferrj!d sto~ks. rllAlpectlvely.
94 SECURITIES AND EXCHANGE COMMISSION

bonds with the trustee) in an amount which, over the estimated useful

life of the mortgaged depreciable property, will maintain the original

book cost of the mortgaged property, The statement of policy requires that the mortgage indenture express the periodic renewal and

replacement obligation as a' percentage of the book cost of the mortgaged depreciable property, but where existing indentures express the

provision on some other basis (usually, as a percentage of operating

revenues), such alternate. provision is permitted to remain unchanged

if the issuer can satisfactorily demonstrate to the Commission that

the existing provision affords substantially the same protection as that

based on a percent-of-property basis. To ensure observance of

this standard of the statement of policy, the Commission's staff conducts a continuous study of the depreciation requirements of the various issuers subject to the Act.

Of the 14 bond issues with respect to which applications or declarations were filed during the fiscal year, the indentures of 13 expressed

the renewal and replacement provision as a percentage of depreciable

property deemed adequate by the Commission. The remaining issue

(bonds of a pipe line company) provided for a 100 percent amortization of the issue over its life through the operation of a cash sinking

fund, and accordingly no renewal and replacement provision was

deemed necessary for the protection of the bondholders.

With respect to the five preferred stock issues as to which applications or declarations were filed during the fiscal year, the existing

charter provisions of all but one were in substantial conformity with

the statement of policy for preferred stock; and as to the remaining

issue, conformance with the statement of policy was effected through

conditions imposed by order of the Commission."

In accordance with its long-standing policy under the Act, the Commission has continued to require that bonds and preferred stock sold

by registered holding companies and their subsidiaries be fully refundable at the option of the issuer upon reasonable notice and that

any redemption premium be reasonable in amount. During fiscal year

1964, as previously noted, three issuers 19 subject to the Act took advantage of the refunding privilege and prevailing favorable market

conditions to refund outstanding bonds at lower interest rates; and

one issuer 20 refunded a preferred stock issue at a lower dividend rate.

The annual interest. savings on t~e three bond issues refunded aggre18 Alabama Power Oompany, Holding Company Act Release No 15065 (May 6, 1!l64).

10 Michigan Wisconsin Pipe Line Co.; Jersey Central Power & Light Co. ; and Brockton

Edison Co .

.. Brockton Edison Co.
THIRTIETH ANNUAL REPORT 95

gated $254,328; 21 and the annual dividend savings on the preferred

stock issue refunded were $30,160.22 Had the outstanding issues been

nonrefundable or severely restricted as to refundability, such savings

could not have been effectuated."

Continuing studies made by the Commission's staff for fiscal year

1964 with respect to electric and gas utility bond issues sold at competitive bidding, whether or not subject to the Act, indicated that the

presence or absence of a restriction on free refundability has not

affected the number of bids received by an issuer at competitive

bidding or the ability of the winning bidder to market the bonds. "The

29th Annual Report, at pp. 85-86, noted that the data for fiscal.year

1963 with respect to such ability on the part of the winning bidder

were at variance with the data for prior fiscal years. That same report, at the pages referred to, contains a summary of the results of an

examination of all electric and gas utility bond issues (including

debentures) sold at competitive bidding between May 14, 1957, and

June 30,1963, by companies subject to the Act as well as those not so

subject. This study was extended to include fiscal year 1964.

During the period from May 14, 1957 to June 30, 1964, a total of

466 electric and gas utility bond issues, aggregating $10,401.9million

principal amount, was offered at competitive bidding. The refundable issues numbered 350 and accounted for a total of $6,601.5million,

while the nonrefundable issues-all being nonrefundable for a period

of 5 years, except one which was nonrefundable for a period of 7

years-numbered 116 and totaled $3,800.4 million principal amount.

The number of refundable issues thus represented 75.1 percent of the

total number of issues, while, in terms of principal amount, the refundable issues accounted for 63.5 percent.>

The weighted average number of bids received on the refundable

issues for the period was 4.72, while on the nonrefundable issues it was

4.19. The median number of bids was 5 on the refundable and 4 on

:n Based on the cost of money applicable to (a) the refunded Issue, computed on the

redemption price and coupon rate, from date of redemption to date of maturity, less that

of (b) the new Issue, computed on the price received by the company and the coupon rate,

to date of maturity. .

2:l Based on excess of "yield" of refunded Issue (ratio of dollar dividend rate to redemption price) over "yield" of new Issue (ratio of dollar dividend rate to price received 'by

company).

23 The significance of the refunding priVilege, both as a matter of conformity with the

standards of the Act and as a matter of practical finance, was discussed at some length

In the 24th Annual Report. at pp. 130-131

.. During fiscal year 1964, a total of 411bond Issues was offered, a~~rpgatlng $1.146.5

million principal amount, consisting of 34 refundable Issues totaling $1170.5million and 12

nonrefundable i.'UM totaling $476 million. The number of refundable ISSIICS repr-e-errted

73.9 percent of all the Issues, while, In terms of principal amount, the refundable Issues

accounted for 58.5 percent.

•
96 SECURITIES AND EXCHANGE COMMISSION

the nonrefundable issues," With respect to the success of the marketing of the bond issues, an issue was considered to have been successfully marketed if at least 95 percent of the issue was sold at the syndicate price up to the date of termination of the syndicate. On this

basis, 69.4 percent of the refundable issues were successful, while 65.5

percent of the nonrefundable ones were successful. 26 In terms of

principal amount, 66.1 percent of the refundable issues were successful,

while 63.4 percent of the nonrefundable ones were successful." Ex-

..M!nsion of the comparison to include the aggregate principal amounts

«.n ~es which were sold at the applicable syndicate prices up to

the termination of the respective syndicates, regardless of whether a

particular issue met the definition of a successful marketing, indicates

that 86.0 percent of the combined principal amount of all the refundable issues were so sold, as compared with 82.2 percent for the

nonrefundable issues," These aggregate statistics, as well as those

relating to fiscal year 1964 noted in the margin, support the Commission's policy of requiring free refundability of utility bond issues

subject to the Act.

OTHER MATrERS

Request for Declaratory Order

On May 26, 1963, a hearing was held with respect to an application

filed by Pacific Northwest Power Company ("PNPC"), pursuant to

Section 5(d) of the Administrative Procedure Act, for a declaratory

order requesting a determination as to when, in the construction of

a proposed hydroelectric plant at an estimated cost of approximately

$~60 million, the company would become an electric utility company

within the meaning of Section 2(a) (3) of the Act. PNPC's common

stock is owned equally by Pacific Power and Light Company, Montana Power Company, Washington Water Power Company, and Portland General Electric Company. At such time as PNPC becomes an

electric utility company within the meaning of the Act, its sponsoring

00mpanies become holding companies and, unless exempted, must

register 'as such and comply with the requirements of the Act. On

February 5, 1964, the Federal Power Commission granted a license to

-During IIscal year 1964, the weighted {l.Tet'Ilftnumber of bids was 5.41 on the refund.

abIes and 4.17 on the nonrefnndables. whUe the 1Ile4fan number of bids was 6 on the

retnndables and 4.50 on the nonretnndable8

.. Dnring tlscal year 1964, 52.9 percent of the refundable lsBneswere successful, as against

50 percent for the nonrefundables .

., Durme flseal year 1964. In terms of principal amount. 45.6 percent of the retundableR

w..r.. suee...sf'nl. n~auatnst 42.0 percent for the nonrefundables .

.. Durtnz fiRcal year 1964. the applicable percentages were 78.5 percent for the refundnhl..s and 758 percent for the nonrefundables

•
THIRTIETH ANNUAL REPORT 97

PNPC for construction and operation of the plant after a hearing in

which the grant of the license was contested by certain public-urility

districts. On March 3, 1964, this Commission issued a memorandwn

opinion and declaratory order, pursuant to Section 2(a) (3) of the Act

and Section 5 (d) of the Administrative Procedure Act, declaring

that PNPC will not become an electric utility company within the

meaning of Section 2(a) (3) at least prior to the time at which the

grant of the license by the Federal Power Commission has become

final, either by the expiration of the appeal period in respect thereof,

or, in the event of an appeal, by the final determination of the appellate courts affirming the grant.29 The Commission expressly indicated

that it was not then making a final determination as to the point in

PNPC's development at which it would become an electric utility

company under the .Act.

.. Paciflo Northwest Power 00., Holding Company Act Release No. 111026.
PART VII

PARTICIPATION OF THE COMMISSION IN CORPORATE REORGANIZATIONS UNDER CHAPTER X OF THE BANKRUPTCY ACT

The Commission's role under Chapter X of the Bankruptcy Act,

which provides a procedure for reorganizing corporations in the U.S.

district courts, differs from that under the various other statutes which

it administers. The Commission does not initiate Chapter X proceedings or hold its own hearings, and it has no authority to determine any

of the issues in such proceedings. The Commission participates in

proceedings under Chapter X in order to provide independent, expert

assistance to the courts, the participants, and investors in a highly

complex area of corporate law and finance. It pays special attention

to the interests of public security holders who may not otherwise be

represented effectively.

"Where the scheduled indebtedness of a debtor corporation exceeds

$3 million, Section 172of Chapter X requires the judge, before approving any plan of reorganization, to submit it to the Commission for its

examination and report. If the indebtedness does not exceed $3

million, the judge may, if he deems it advisable to do so, submit the

plan to the Commission before deciding whether to approve it. "Where

the Commission files a report, copies or a summary must be sent to

all security holders and creditors when they are asked to vote on the

plan. The Commission has no authority to veto or to require the

adoption of a plan of reorganization.

The Commission has not considered it necessary or appropriate to

participate in every Chapter X case. Apart from the excessive administrative burden, many of the cases involve only trade or bank creditors

and few public investors. The Commission seeks to participate principally in those proceedings in which a substantial public investor

interest is involved. However, the Commission may also participate

because an unfair plan has been or is about to be proposed, public

security holders are not represented adequately, the reorganization

proceedings are being conducted in violation of important provisions

of the Act, the facts indicate that the Commission can perform a useful

service, or the judge requests the Commission's participation.

98
TEITRTIETH ~AL REPORT 99

The Commission has lawyers, accountants and financial analysts

in its New York, Chicago and San Francisco regional offices,who are

engaged actively in Chapter X cases in which the Commission has

filed its appearance. Supervision and review of the regional offices'

Chapter X work is the responsibility of the Division of Corporate

Regulation of the Commission, which, through its Branch of Reorganization, also serves as a field office in cases arising in the Atlanta and

Washington, D.C., regional areas.

SUMMARY OF ACTIVITIES

In fiscal year 1964, the Commission continued to maintain a high

level of activity under Chapter X. During the year, the Commission

entered its appearance in 14new proceedings involving companies with

aggregate stated assets of approximately $72 million and aggregate

indebtedness of approximately $70 million. These proceedings involved the rehabilitation of corporations engaged in various businesses

including, among others, real estate and mortgage investments, vending

machine manufacture and distribution, operation of hospitals and

hotels, and manufacture of chemicals and electronic components.

During the year the Commission was a party in a total of 93 reorganization proceedings, including the new proceedings.' The stated

assets of the companies involved in these proceedings totaled approximately $794million and their indebtedness totaled approximately $748

million. The proceedings were scattered among district courts in

30 states and the District of Columbia, as follows: 15 in New York;

10 in California; 9 in Florida; 6 in Illinois; 5 each in Kentucky and

Michigan; 4 in Oklahoma; 3 each in Iowa, North Carolina, New Jersey, and Pennsylvania; 2 each in Arizona, Colorado, Montana, Maryland, Nevada, Texas, and 'Vashington; and 1 each in the District of

Columbia, Arkansas, Louisiana, Kansas, Ohio, Mississippi, Tennessee,

New Mexico, Connecticut, Wyoming, 'Vest Virginia, Virginia, and

Utah. Proceedings involving 6 principal debtor corporations were

closed during the year. Thus, at the end of the year the Commission

was participating in 87 reorganization proceedings.

JURISDICTIONAL, PROCEDURAL AND ADMINISTRATIVE MATfERS

In Chapter X proceedings in which it participates, the Commission

seeks application of the procedural and substantive safeguards to which

all parties are entitled. The Commission also attempts in its interpretations of the statutory requirements to encourage uniformity in

the construction of Chapter X and the procedures thereunder.

1Appendix table 12, infra, contains a complete list of reorganization proceedings In

which the Commission was a party during the year.
100 SECURITIES AND EXCHANGE COMMISSION

In Beehive Security Th'ioift & Loan,2 the district court granted the

Commission's motion to enjoin a committee organized by a former employee of the debtor from soliciting funds from public investors. The

Commission stressed, among other things, the dangers inherent in a

committee's private assessment of public investors in light of the

abuses prevalent in equity receivership proceedings prior to the reforms of Chapter X.

In Oertified Oredit Oorpo'i'ation,3 a committee was organized by

certain of the debtor's former officers and directors and other stockholders to represent debentureholders and preferred stockholders in

the proceedings. Some of the officer members were defendants in a

class suit brought by other investors under Section 10(b) of the Securities Exchange Act of 1934. Funds to defray expenses were solicited

by the committee and were turned over immediately to its counsel

who also represented defendant officers in the class suit. The Commission moved to disqualify the committee because of a conflict of

interest and to compel a return of the funds solicited. Prior to a decision, the committee, pursuant to a stipulation, disbanded and agreed to

return all funds collected.

InJoe N eiocomer Finance Oompany,4 a debentureholdors' committee

was enjoined, on motion of the Commission, from further soliciting

contributions from public investors, and the funds already collected

were ordered held in escrow pending a ruling on their disposition.

In Goebel Brewing Oompany," an order entered on the Commission's

motion permanently restrained further solicitation of funds, approved

the committee's accounting which showed that most of the solicited

funds had been returned to investors, and reserved jurisdiction with

respect to a small amount previously disbursed until a hearing on

allowances. In(Ioemo Oapital, Inc.,6 the committee voluntarily agreed

to return the funds collected.

In Maryvale OOmJlJ1lUnityHospital, lnc.,r the debtor, a charitable

organization, objected to the filing of an involuntary Chapter X petition contending that, since under Section 4b of the Bankruptcy Act a

charitable corporation may become a voluntary but not an involuntary

bankrupt, the court did not have jurisdiction to approve the involuntary petition under Chapter X. In supporting the petition, the Commission urged that Section 4b was inapplicable to Chapter X, since

Section 126 of that Chapter permits creditors to file a petition against

D.C. Nev., No. LV 982.

S.D. Ohio, No. 31984.

, D.C. Colo., No. 34452.

E.D. Mich., No. 64-209.

N.D. TIL, No. 3880.

T D.C. Ariz., No. B-9352-Phx.

•

•

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•
THIRTIETH ANNUAL REPORT 101

a "corporation," defined in Section 106(3) as any corporation "which

could be adjudged a bankrupt .... " The Commission also urged

that Section 4b was intended to prevent liquidation in bankruptcy of

a charitable corporation against its will, while Chapter X is designed

for the financial rehabilitation, not the liquidation, of the debtor corporation. The court overruled the objection, and by order, without

opinion, approved the petition.

In General Eoonomics 007'p07'atiun,S the same Chapter X trustees

were appointed for the debtor and for its subsidiaries. Certain stockholders of one subsidiary, General Economics Syndicate, Inc. ("Syndicate"), moved to disqualify the trustees for this subsidiary on the

ground that they were not disinterested within the meaning of Section

158 since they were also trustees for the parent and for another subsidiary against which Syndicate had possible claims. The Commission

urged that a common trusteeship for the parent and subsidiaries was

appropriate for the efficient administration of the estates; that such

common trusteeship was contemplated by Section 129 which permits a

subsidiary to file a Chapter X petition in the parent's Chapter X

proceeding; and that separate trustees should not be required in the

absence of a showing, on a complete record, that an actual and substantial conflict existed. The district court denied the stockholders'

motion, and the court of appeals affirmed on the basis of the arguments

advanced by the Commission." The opinion of the court of appeals

stated that its affirmance would not bar a similar motion in subsequent

stages of the proceedings if a conflict in fact developed.

In Fleetwood Motel Oorporationd" a landlord appealed from the

district court's order denying his petition for possession of leased

property on "Whichthe debtor had built a motel, its sole asset, at a cost

of $1,500,000. The lease provided for its termination upon the filing

of a bankruptcy petition. While Section 70b of the Bankruptcy Act

declares such a forfeiture provision enforceable in bankruptcy, and

Finn v, MeiglUPn, 325 U.S. 300 (1945) had held this provision applicable in Chapter X proceedings, the court of appeals as urged by the

Commission, affirmed, stating that". . . the question of enforceability

of such a covenant is separate and distinct from the question whether

enforcement in a particular case would be consistent with other provisions of the Bankruptcy Act." The court held that it would be inequitable to permit the landlord to secure possession of the debtor's

principal asset as a result of the forfeiture and thereby defeat any p08-

8 S.D.N.Y., No. 68-lHJ18.

Katz v. KI18helmer, 321 F. 2'4 638 (C.A. 2, 1964).

10 D.C.N.J., No. B-109-60.

•
102 SECURITIES AND EXCHANGE COMMISSION

sibility of a reorganization of the debtor in which the public had a

substantial investment.P

In Goebel Brewing Oompany/2 the trustee recommended court approval of an offer to purchase substantially all of the debtor's assets.

The court ordered the offer rejected, agreeing with the Commission

that a sale which is tantamount to a liquidation should be made only

pursuant to a plan. Subsequently, another offer for substantially all

of the assets was incorporated in a plan which the court approved and

confirmed. In The Sire Plan, Inc.,t3 the district court, over Commission objection, authorized the trustee to sell real estate and a sevenstory steel structure thereon, owned by one of the debtor corporations.

The court of appeals affirmed on the ground that a sale pursuant to a

plan was not required for a partially constructed building, which the

district court had found a "wasting asset." 14

In Hughes Homes, Inc.,t5 the district court denied a motion of the

parent's trade creditors that the separate corporate entities be disregarded and their claims be treated on a parity with the publicly

held debentures of the subsidiary corporations. Committees for debentureholders and the Commission had opposed the motion. The trade

creditors have appealed."

In Doctor's Hospital, Inc.,17 the debtor had sold to the public over

$1,600,000 of bonds, and, as a nonprofit corporation, its bond issue was

exempt from the provisions of the Trust Indenture Act of 1939. The

debtor was reorganized as a for-profit corporation, which assumed the

bonds with substantial modification of their terms. The reorganized

company at first asserted that the assumption of the bonds under the

plan did not involve a "sale" which required compliance with the Trust

Indenture Act of 1939 but subsequently submitted the indenture for

qualification.

TRUSTEE'S INVESTIGATION

A complete accounting for the stewardship of corporate affairs by

the old management is a requisite under Chapter X. One of the primary duties of the trustee is to make a thorough study of the debtor

UNo. 14661, C.A. 3, Angust 6, 1964.

12 E D. MIch., No. 64-209.

:Ill S.D.N Y., No. 63 B 140.

t< Mintzer v. Joseph, 332 F. 2d 491 (C.A. 2,1964).

1lSD.C.Mont., No. 3114.

,. In ItR decision of September 21, 1964. the court of appeals affirmed, stating ... that

the subsidIaries were operated as separate entities, that on balance the parent corporation

was the beneficiary of the corporate Interrelationship, that the objecting creditors did not

rely upon the credit of the subsidIaries and were benefited rather than prejudiced by the

way in which the subsidiaries were operated, that there was no frand or overreaching

attributable to" the subsidiaries and that ••. there was no unjust enrichment ot

debenture holders" of the subsidiaries. Anaconda Building Materials Co. v. Newland,

336 F. 2d 625 (C.A. 9, 1964).

17 S.D. Iowa, No. 30-992.

"

"
THIRTIETH ANNUAL REPORT 103

to assure the discovery and collection of all assets of the estate, including claims against officers, directors or controlling persons who may

have mismanaged the debtor's affairs. The staff of the Commission

often aids the trustee in his investigation.

In Automatic TVasher Oompany,ts the court ordered, on petition of

the trustee, which the Commission supported, that the stock interests

of Bankers Life & Casualty Company and of Bellanca Corporation

(presently Olson Brothers, Inc.) should be subordinated to the extent

of $1.50 per share of the publicly held stock of the debtor. Subordination was based upon wrongful transactions when each of these companies was the dominant stockholder of the debtor. Both companies

have appealed."

In Equitable Plan Oompa;ny,20 the court authorized the trustee to

accept $600,000in settlement of an action against Manufacturers-Hanover Trust Co. The trustee had alleged, inter alia, that the bank improperly permitted Lowell M. Birrell and others to appropriate substantial sums from the debtor's bank accounts.

In Swan-Finch Oil Corporationr? the trustees settled their action

against Manufacturers-Hanover Trust Co. for $837,500,and Manufacturers withdrew its claim of $8,300 against the debtor for services

rendered as transfer agent. In their action the trustees alleged that

Manufacturers, as depository, transfer agent and custodian for SwanFinch, had, through negligence, aided and abetted Lowell M. Birrell

in the illegal distribution of Swan-Finch stock.22 The settlement of

the claim of Equitable Plan Company against Keta Gas & Oil Company, a subsidiary of Swan-Finch, provides that Equitable be paid

$87,500 in cash and retain 10.8 percent of the outstanding common

stock of Swan-Finch. The trustees also settled for $25,000 Keta's

counterclaim against Doeskin Products Co., Inc., which has withdrawn

its substantial claim against Swan-Finch.

REPORTS ON PLANS OF REORGANIZATION

Generally, the Commission files a formal advisory report only in a

case involving a substantial public investor interest and presenting

18226 F. Supp. 834 (S.D. Iowa, 1964).

18 Bankers Life d; Casualty 00., et al. v. Kirtley, C.A. 8, Nos. 17,711 and 17,712. For

other recoveries In this reorganization proceeding, see 29th Annual Report, pp. 90-91-

.. S.D. Calif., No. 86,096-T.

n S.D.N.Y., No. 93046.

.. In their suit which Is pending against the American Stock Exchange and others, the

trustees obtained a settlement of $17,500 from William P. Holfman & Co., one of the

defendants, who allegedly aided Birrell In the distribution of unregistered Swan-Finch

stock through the use of "dummy" accounts. The trustees' action against the other defendants Is still pending.

For other settlements and suits In the Swan-FInch reorganization, see 29th Annual

Report, p, 91.
104 SECURITIES AND EXCHANGE COMMISSION

significant problems. When no such formal report is filed, the Commission may state its views briefly by letter, and authorize its counsel

to make an oral or written presentation to amplify the Commission's

views. During this fiscal year the Commission published one formal

advisory report.28 The Commission conveyed its views to the court

on 13 other plans, on some by oral statement of its counsel at the hearing, and on the others by letter and supporting memoranda."

The formal advisory report relates to Bevis Shell Homes, Ino..

which prior to the Chapter X proceeding was engaged in the construction and sale of shell homes. The plan is predicated in part on the

possibility that the reorganized company may resume construction of

shell homes or may acquire other types of operating companies under

a program of general diversification.

Itprovides for the retirement of secured indebtedness of over $5 million, held by institutional investors, out of proceeds to be realized

from the liquidation of mortgages and houses in inventory. For the

outstanding publicly-held debentures, totaling about $2 million principal amount, the reorganized company would issue new debentures

of the same principal amount, with interest reduced from 9 to 5 percent, and without compensation for past accruals of interest. The

plan provides for the initial issuance by the reorganized company of

about 1.5 million shares of common stock, 10 cents par value per share,

of which 80 percent is to be distributed to the holder of a note for

$1.1 million which was subordinate to the debentures, and the balance,

together with warrants, is allotted to the publicly-held common stock.

The Commission's report stated that the proposed building and

diversification programs "are too vague and conjectural to be considered as a source of value or earnings for the reorganized company,"

and, insofar as predicated thereon, the plan is not feasible and, in fact,

it "contemplates that these aspects of feasibility are not to be determined by the court but are to be deferred for decision by the management of the reorganized company," after the plan is consummated.

The report further stated that it is not appropriate "under the auspices

of the court to effect a public distribution of securities whose market

prices may reflect in large measure uninformed or speculative appraisals of the conjectural possibilities to which, on this record, no credence

:!3 Bevis Shell Homes, tnc., Corporate Reorganization Release No. 213 (May 25, 1964).

Bzura Ohemical 00., Inc. and Bzura, Inc., D.C.N.J., No. B-831-62; Dill/ert's Quality

Supermarkets, Inc., E.D.N.Y., No. 62-B-920 ; Doctors' Hospital, tnc., S.D. Iowa, No. 30-992;

Bquitable Enterprises, M.D. Fla., No. 4047-T; Frank Fehr Brewing 00., W.D. Ky., No.

27672; General Economics Oorporation, et al., S.D.N.Y., No. 63-B-618; Goebel Brewing

oo., E.D. Mich., No. 64-209; Joe Newcomer Finance (Jompany, D.C. Colo., No. 34452;

The Kentucky Jockey Club, W.D. Ky., No. 22988; Scranton Oorporation, M.D. Pa., No.

11338; Shawano Development Oorporation, D.C. Wyo., No. 3163; Southern Enterprise

Oorporation, S.D. Tex., No. 2M8; St. John's View Sites, S.D. Calif., No. 142854-TC.

"'
THIRTIETH ANNUAL REPORT 105

can be given." Treating the plan as essentially a liquidation of present

assets, the report also concludes that the plan is not fair and equitable

since the debentures are not accorded full contractual right to interest,

and since it provides participation for junior interests, including

stockholders."

In TUT Trailer Fe'!'1'Y,lna.,26 as reported previously;" the district

court approved and confirmed an internal plan of reorganization,

overruling objections by the Commission and the stockholders' committee. On appeal by the committee, which was supported by the

Commission, the court of appeals postponed ruling on the issues on

appeal, with the exception of the issue whether a plan may be confirmed which contemplates that the trustee will become president of

the reorganized company." It held that the law does not preclude

the employment of the trustee by the reorganized company. Itstated,

however, that the trustee would not be disinterested "... if the proponents of a plan assured him of emoluments and security rather than

merely nominating him for approval by the court and subject to the

usual control of the Board of Directors."

ACTIVITIES WITH REGARD TO ALLOWANCES

Every reorganization case ultimately presents the difficult problem

of determining the allowance of compensation to be paid out of the

debtor's estate to the various parties for services rendered and for

expenses incurred in the proceeding. The Commission, which under

Section 242 of the Bankruptcy Act may not receive any allowance from

the estate for the services it renders, has sought to assist the courts in

protecting debtors' estates from excessive charges and at the same

time in allocating compensation equitably on the basis of the claimants' contributions to the administration of estates and the formulation of plans. During the :fiscal year 205 applications for

compensation totaling about $5.4 million were reviewed. Two applications raised the question whether an allowance is barred because of

a conflict of interest.

InSt. Jolm's View Sites,29 attorneys for holders of deeds of trust

on the debtor's properties :filed a series of suits for damages and other

relief. Prior to the Chapter X proceeding, these attorneys secured

a purchaser for the properties and thereafter the Chapter X proceeding was initiated apparently as the means for effectuating the sale

.. After the close of the fiscal year, the court approved the plan, the statutory acceptances

were obtained, and the plan was confirmed. Bevis Shell Homes, Ine., :M.D.Fla., No. 4204-

T-Bk .

.. S.D. Fla., No. 8659 :M Bk.

29th Annual Report, pp. 91-92.

JIl Protective Oommittee, etc. v. Anderson, 884 F. 2d 118 (C.A. 5, 1964).

S.D. Calif., No. 142854-Y.

'"

•
106 SECURITIES AND EXCHA.1IfGECOMMISSION

and conveying clear title to the purchaser. By separate contract the

purchaser was required to pay these attorneys $10,000 as additional

compensation for services to be performed in the Chapter X proceeding. This agreement was not disclosed to the court until sometime

after confirmation of the plan of reorganization pursuant to which the

properties were sold to the purchaser. The attorneys requested a fee

of $184,500, and the Commission recommended a fee of $75,000 less

the $10,000for an estimated 5,000hours of compensable services before

and during the Chapter X proceeding. Subsequently, the Commission filed a memorandum stating that the contract with the purchaser

gave rise to a conflict of interest; that under Woods v. Oity Nationai

Bank &: Trust 00., 312 U.S. 262, 268 (1941), a conflict of interest is

a bar to any allowance; and that some courts have indicated that in

special circumstances a conflict of interest may be ground for reduction of an allowance. The special master recommended the full

amount requested but, on exceptions filed by the Commission, the district court allowed $100,000.

In Windermere Hotel 00mpany,30 the Commission recommended

that the attorneys for the plan proponent who was the purchaser of

the property of the estate should be denied compensation because

the interests of their client were adverse to the interests of the estate

and of the bondholders who received the net proceeds of the sale. The

court, however, awarded the attorneys compensation in the amount

recommended by the special master whose report, adopted by the

court, concluded that any conflict was practically eliminated since

the property was sold at public auction in excess of its appraised

value, and the plan proponent had dealt at arms-length with the

trustee."

In Hudson &: Manhattan Railroad 00mpany,32 in which the Commission submitted its recommendations in the previous fiscal year, the

district court rendered its decision awarding, exclusive of interim

allowances, final allowances totaling $1,162,000to groups of 30 applicants who had applied for compensation totaling $2,441,000.33 The

Commission had recommended allowances totaling $1,183,000. The

district court stated that it " ... has, in accordance with the policy

laid down by the courts, given great weight to the recommendations

of the Securities and Exchange Commission as being an independent

agency." The court also stressed the need for economy in the allowance of fees, stating: "In granting allowances in a situation such as

this it is impossible to make allowances commensurate with fees

.. D.C.N.D. rn., No. 60 B 8818.

at This decision Is contrary to the Woods case, suprlJ, and London v. Snyder, 163 F. 2d

621 (C.A. 8,1947)

.. S.D.N.Y., No. 90460.

.. 224 F. Supp. Slli (S.D.N.Y., 1963).

•
THIRTIETH ANNUAL REPORT 107

which would be received in ordinary matters. Just as some of the

creditors of the debtor had to take some loss, so the attorney and

'Committees participating in the proceeding cannot be expected to be

paid what they would be paid by an ordinary client." 34

Counsel for one of the committees requested an allowance of $93,000,

computed on the basis of $50 per hour for partners and $20 per hour

for associates. The court, agreeing with the Commission's recommendation, allowed $50,000,stating that the hourly rates proposed by

the applicant were "... inappropriate for compensable services in a

Chapter X proceeding." The court denied another applicant's re-

-quest for $6,000 and allowed $4,000. The Commission had not objected to this application because the request was small but the court

said that it did not believe "... that applications for high allowances

should be approved merely because they constituted a 'small request'."

The court disallowed several applications, as recommended by the

Commission, because of the bar under Section 249. That Section was

held applicable to counsel for certain bondholders, where one of the

firm's partners, as co-executor of his father's estate, had sold bonds of

the debtor held in the estate and both partners of the firm were to share

in the proceeds of the estate." However, the court awarded an allowance to co-counsel for the same bondholders in an amount recommended by the Commission, stating: "The Court agrees with the conclusion of the SEC that there was not that degree of intimacy among

counsel that would call for this Court to bar compensation to co-counsel

as well. ... "

Of eight applications for leave to appeal, the courts of appeals

granted two, which the Commission had supported, and these appeals

were pending at the close of the fiscal year.

INTERVENTION IN CHAPTER XI PROCEEDINGS

Chapter XI of the Bankruptcy Act provides a procedure by which

debtors can effect arrangements with respect to their unsecured debts

under court supervision. Where a proceeding is brought under that

'Chapter but the facts indicate that it should have been brought under

Chapter X, Section 328 of Chapter XI authorizes the Commission to

make application to the court to dismiss the Chapter XI proceeding

unless the debtor's petition is amended to comply with the requirements of Chapter X, or a creditors' petition under Chapter X is filed.

In Oanandaigua Enterprises Oorporation,36 the debtor and its subsidiary, Finger Lakes Racing Associates, Inc., which operate a horse

.. Id. at 825.

.. See also In the Matter of Ohamber of Oommerce of the Oity ot Newark, New Jer8ev,

D.C. N.J., No. B-73-60, summarized in 28th Annual Report, p, 101-

.. W.D. N.Y., No. Bk-631954.
108 SECURITIES AND EXCHANGE COMMISSION

race track in the Finger Lakes region of New York State, proposed

an arrangement under which they would issue new '{ percent noncumulative income debentures in exchange for the '{ percent fixed

interest debentures held by the public. The new debentures would

not have a sinking fund but would contain a more favorable convertible feature. The debtor's two classes of stock, 30 percent of which

is owned by the debtor's officers and directors, would not be affected.

The Commission's motion under Section 328 stated, inter alia, that the

provisions of the proposed arrangement raised substantial questions as

to fairness and equity with respect to the publicly-held debentures,

which required the application of the procedural and substantive

safeguards found only in Chapter X. The court denied the Commission's motion, and the Commission has appealed."

Motions under Section 328 were filed by the Commission and were

granted in BarOhris Oonetruotion. Corporation. 38 and Hydrocarbon

Ohemioalsc Inc," In the BarOhris case the debtor amended its petition to comply with Chapter X. In the Hydrocarbon proceeding the

debtor similarly amended its petition after it withdrew its appeal from

the order granting the Commission's motion. In Ooast Investors.

lne.,40 the debtor, after argument, consented to an order granting the

Commission's motion and filed an amended Chapter X petition.

In American Trailer Rentals Oompany,41 discussed in the 29th

.Annual Report (p. 95), the district court's order denying the Commission's motion under Section 328 was affirmed by the court of

appeals," and the Supreme Court granted the Commission's petition

for a writ of certiorari." In Orumpton Builders, Ine.44 and American

Guaranty Oorporationi" both summarized in the 29th Annual Report

(pp. 95-96), the Commission appealed from orders denying its Section 328 motions. These appeals have been argued and are pending

ior decision." The Commission, by leave of court, withdrew its

motion in Taste Freez Industries, Lnc:" after the receiver in the

Chapter XI proceeding had disposed of a major part of the debtor's

business.

17 B.E.O. v. Oanandaigua Enterprl,eB Oorporatlcm, C.A. 2, No. 29012.

sa S D.N.Y., No. 62B761.

.. D C.N J., No. B-743-63 .

.., W.D. Wash., No. 53448.

41 D C. coio., No. 33276.

4J B.E.O. v. American Trailer Renta~ 00., 325 F. 2d 41 (C.A. 10, 1963).

f$ B.E.O. v. American Trailer Renta18 00., October Term 1964. No. 85

.. M D. Fla., No. 6342-T

.. D.C. R.I., No. 63Bl1

.. B.E.O. v. Orumpton BuilderB, tnc., C.A. 5, No 20712; B.E.O. v. American Guarantll

Oorp., C.A. I, No. 6223.

41 N.D. m., No. 84.93.

•

•

•
PART vm

ADMINISTRATION OF THE TRUST INDENTURE ACf OF 1939

The Trust Indenture Act of 1939 requires that bonds, notes, debentures and similar securities publicly offered for sale, 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 Act requires that indentures to be qualified include

specified provisions which provide means by which the rights of

holders of securities issued under such indentures may be protected and

enforced. These provisions relate to designated standards of eligibility and qualification of the corporate trustee to provide reasonable

financial responsibility and to minimize conflicting interests. The

Act outlaws exculpatory provisions formerly used to eliminate all

liability of the indenture trustee and imposes on the trustee, after default, the duty to use the same degree of care and skill "in the exercise

of the rights and powers invested in it by the indenture" as a prudent

man would use in the conduct of his own affairs.

The provisions of the Trust Indenture Act are closely integrated

with the requirements of the Securities Act. Registration pursuant

to the Securities Act of securities to be issued under a trust indenture

subject to the Trust Indenture Act is not permitted to become effective

unless the indenture conforms to the requirements of the latter Act,

and necessary information as to the trustee and the indenture must be

contained in the registration statement. In the case of securities

which, although exempted from the registration requirements of the

Securities Act, are not exempted from the requirements of the Trust

Indenture Act, the obligor must file an application for the qualification of the indenture, including a statement of the required information concerning the eligibility and qualification of the trustee.

Indentures filed under the Trust Indenture Act of 1989 during the fiscal year

ended June 30, 1964

Num~er .Ag!m'gate

1l1ed amount

Indentures pending June 30, 1963 27 $3P7. 558, 500 Indentures filed during fiscal year 169 4, 212, 840, 552

TotaL 196 4,610,399,052

Disposltlon during fiscal year:

~~:~:~ ~~J~:~tb';:-"me'-;dm-;'iii or-wjt~idiiiWii==:===:====:====:======= 164 4, 061, 924, 272

9 90,01:6,500

Indentures pending June 30, 1964 ._ 23 458,378, 280

TotaL ._. 196 4,610,399,052

109

________________• ___________________• _______ ___________________________________ • ____• __

_________________________________________________________• ____• __

_________• ______•• ____• ____• ____ • _____

______• ____• ____• __• _____• ___•• __________•• ____• ____• __ _______
PART IX

ADMINISTRATION OF THE INVESTMENT COMPANY ACT

OF 1940

The Investment Company Act of 1940 provides for the registration.

and regulation of companies primarily engaged in the business of investing, reinvesting, owning, holding, or trading in securities. The.

Act, among other things, requires disclosure of the finances and investment policies of such companies; prohibits changing the nature of

their business or their investment policies without shareholder approval; regulates the means of custody of the companies' assets; requires management contracts to be submitted to security holders for

approval; prohibits underwriters, investment bankers, and brokers

from constituting more than a minority of the directors of such companies; and prohibits transactions between such companies and their

officers, directors, and affiliates except with approval of the Commission. The Act also regulates the issuance of senior securities and

requires face-amount certificate companies to maintain reserves adequate to meet maturity payments upon their certificates.

The securities of investment companies which are offered to the

public are also required to be registered under the Securities Act of

1933 and the companies must file periodic reports. Such companies

are also subject to the Commission's proxy rules and closed-end companies are subject to "insider" trading rules.

COMPANmS REGISTERED UNDER THE ACf

As of June 30, 1964,there were 731 investment companies registered

under the Act, including 72 small business investment companies, Of

this total, 617 were "active" companies, whose assets had an

aggregate market value of approximately $41.6 billion. Compared

with the corresponding totals at June 30, 1963, these figures represent

an overall increase of approximately $5.6 billion in the market value

of assets, while the number of registered companies increased by four.

The classification of the registered companies and the respective approximate market values of the assets in each category as of June 30,

1964, are shown in the table on p. 111.

110
TmRTIETH ANNUAL REPORT 111

Number ofrezistered companies Approxunate

market value

of assets of

active

Active Inactive. Total companies

(rmlnons)

Management 0rc;;n-end------------------------- 337 28 365 $29,878 Management c osed-end________________________ 166 42 208 7.900 Unit investment trust __________________________ 107 41 148 2,856 Face-amount cert1tlcate________________________ 7 3 10 978

TotaL ___________________________________ 617 114 731 41,612

"Inactive," as used herem, refers to registered companies which, as of June 30, 1964,were in the process of being hquidated or merged, or which have otherwise gone out of existence and remain registered only until such time 8.~ the Comnnssion issues orders under Section 8(f) of the Investment Company Act ter- minating their regtstrations Durmg the year, one company changed Its classification from closed-end to open-end.

The approximately $2,856,000,000 of assets of the 107 "active" registered unit investment trusts includes approximately $2,406,000,000

of assets of 54 registered unit investment trusts which invest in securities of other registered investment companies, substantially all of

which are of the open-end type.

During the fiscal year, 52 new companies, including 2 small business

investment companies, registered under the Act while the registrations of 48 companies, including 1 small business investment company,

were terminated. The classification of these companies is as follows:

Registered Registration during the ternnnated

fiscal year during the

fiscal year

~=~:~ ~I::~~d::::::::::::::::::::::::::::::::::::::::::::::::::::: 27 13

Unit 15 24 Investment trust _______________________________________________________ 10 11

TotaL ___________________________________________________ 52 48

GROWTH OF INVESTMENT COMPANY ASSETS

The following table illustrates the striking growth of assets of investment companies over the years since the enactment of the Investment Company Act:

•

•

•

• •

--- ___________
112 SECURITIES AND EXCHANGE COMMISSION 

Number of investment mmpaniea registered under the Inveetment Company dot 

and their estimated aggregate aasets, in round amounts, at the e& of each 

fiscal year, 1941 tliIrough 1964 

Nwnbar of companies E~tlrnsted 

~lscalsearended June 30 

'I.,,.I.,c~L~\L :O ~n.-,rewets mfl.ers the ~ l 01cnow ~..:.lritiir 89 "<:I N.JIVAI ~ppcaeiation. 19.v urr r tll~~tmtion. ti,? i&mtmmt Con>~,ulrLnnullt~reported ,hat dump ih? OIeal yaar ruled June3.. 

1901.1tx ,qrn<i~I inrmtnant c~nlpatlymembrr. n~lnn-rmcICIandr~pr~rntro::tit" b.~ltolihrm,lwtrg.

had net taI8~01I&IJ soeuriricsalnalrnllng to 61,171 mULlon. 

INSPECTION AM) INVESTIGATION PROGRAM 

During the fiscal year 1964 a total of 146 investment company inspections was completed pursuant to the statutory authority conferred on 

the Commission by Section 31 (b) of the Investment Company Act. 

This represented a 76.5 percent increase over the 84 inspections of the 

fiscal year. ~heseinspections were planned and supervised 

bv the Branch of Inspections and Investigations which was established 

d;ring fiscal 1963in the Division of Corporate Regulation. 

In furtherance of the Investment Company Act training program 

for staff members, short seminars on Investment Company Act problems and inspection techniques were conducted by members of the 

Branch of Inspections and Investigations at the regional offices in 

Denver, Seattle, Fort Worth, and Atlanta. A longer course was conducted at the Washington Regional Office in view of the expectation 

that increased responsibility for the investment company inspection 

program will be delegated to that office. 

A large number of the inspections disclosed violations not only of 

the Investment Company Act but also of other statutes administered 
THIRTIETH ANNUAL REPORT 113

by the Commission. Although violations of the Investment Company

Act which were uncovered were frequently of a relatively minor nature

and were quickly corrected when called to the attention of the company involv-ed, a number were more serious in character. These included inadequate arrangements for safekeeping of the investment

company's portfolio securities or failure to observe the safekeeping

procedures which had been established. In several instances, the

fidelity bonds maintained by the investment company pursuant to

Section 17 (g) of the Act were found to be inadequate in relation to

the company's assets. In one instance it was found that the investment company did not in fact maintain an office at the address given

in its prospectus as its head office, and that its books and records were

being kept outside the United States. The inspections also disclosed

several situations in which the procedures for pricing shares for purposes of purchase or redemption were not in conformity with the

statute or the company's prospectus. Several instances were found in

which investment company shares were not redeemed within the

required statutory period. The inspections further exposed a number

of instances in which transactions violating Section 17 of the Act were

effected by affiliated persons.

Largely as an outgrowth of information obtained during the inspections, 33 private investigations were commenced during the fiscal

year; and, on the basis of the facts obtained, five civil actions seeking

injunctions, involving six investment companies, were instituted by

the Commission. Two of these actions sought to enjoin further

activity by unregistered investment companies,- The complaint in

one case (Max J.Royer) alleged violation of the proxy filing requirements of the Act, while in the other matter (Midland Basic'; the complaint sought the appointment of a trustee and injunctions against

two of the company's officers and directors for serving in those capacities while permanently enjoined by court order, in violation of Section

9 (a) of the Act. In connection with this matter, a subpoena enforcement action was instituted," In S.E.O. v. Oontinental Growth Fund,

Ino.,3 the complaint alleged, among other things, conversion, failure

to maintain a fidelity bond, unlawful transactions with affiliated persons, and sale of shares at other than the current public offering price.

In S.E.O. v. Fleetwood Seourities Oorporations: which involved a unit

18.B.a. v. MaID J. Royer, Business Deo, aorp., et al., Ctv. Act. No. IP 63~--834 (S.D.

Jnd., .July 2, 1963) ; 8.B.a. v. Midland Basic, Inc., et al., Clv. Act. No. 64-275 (Dlst, S.D.,

March 5,1964) . 8.E.a. v, Midland Trust, tno., Clv. Act. No. Misc. (Dlst. S.D., March 27, 1964).

a 63 Clv. No. 2252 (S.D.N,Y., .July 30, 1963) .

64 Clv. No. 1317 (S.D.N.Y.. Apr1l29, 1964).

17'57-903--65-9

•

•
114 SECURITIES AND EXCHANGE COMMISSION

investment trust which had abandoned its duties as a depositor, the

appointment of a receiver was requested. And in E.E.a. v. James J.

Ling, et 01.,5 the complaint alleged, among other things, that affiliated

persons of Electro-Science Investors, Inc., had entered into transactions with that investment company amounting to gross abuse of

trust.

Settlements beneficial to shareholders of investment companies were

obtained in two instances. In one, the investment company's president

had, in effect, converted substantial sums due to failure of the bank

which was custodian of the fund's assets to exercise minimal standards

of custodial care. The settlement resulted in the return of approximately $220,300to the company." In the other instance, the principal

underwriter and investment adviser for two registered investment

companies had received substantial brokerage commissions on portfolio transactions which could have been executed directly without

the payment of commissions, and transactions involving affiliated persons had been effected in violation of Section 17. As a result of administrative proceedings brought against the principal underwriter

and investment adviser, a settlement was effected by which more than

$400,000was returned to the two investment companies.

As a consequence of the training courses and the experience gained

by participation in inspections and investigations, a number of the

various regional officesof the Commission have assumed an increased

responsibility in the inspection program as well as in the processing

of formal investigations under the Investment Company Act.

SPECIAL STAFF STUDY OF INVESTMENT COMPANIES

During fiscal year 1963 the Wharton School of the University of

Pennsylvania submitted to the Commission its Study of Mutual Funds,

which the Commission in turn submitted to the Committee on Interstate and Foreign Commerce, House of Representatives.' The Study,

based on responses to questionnaires, constitutes the most comprehensive analysis of the mutual fund industry since the Commission's study

made prior to the adoption of the Investment Company Act of 1940.

It analyzes the growth, organization and control, investment policy

and performance of open-end investment companies (popularly known

as mutual funds), their impact on securities markets, the extent of

control of portfolio companies, and the financial and other relationships of mutual funds with their investment advisers and principal

underwriters.

No. CA-3-447 (N.D. Tex., February 24,1964).

See S.E.C. Litigation Release No. 2973 (June 23,1964).

H. Rep. No. 2274 (87th Congo2d sess.).

•

•

•
THIRTIETH ~AL REPORT 115

As the Commission stated in its transmittal letter, many of the comments in the Study raise questions of broad policy whether some of the

practices and patterns which originated in an earlier time and under

different conditions and which have become conventional within the

broad tolerances of the 1940 Act should be reconsidered. The study

draws attention to the potential for divided loyalties arising from the

typical structure of the industry under which a significant part of the

funds' activities is performed by affiliated organizations such as advisers, underwriters, and brokers, who control or are represented on

the boards of directors of the funds. Questions are also raised as to

the relationship, or lack of relationship, between, on the one hand, the

growth, size and performance of mutual funds, and, on the other hand,

sales commissions, other sales incentives, advisory fees and costs of

operation of the mutual funds and of the advisers, including fees

charged by advisers to other clients. The Study comments upon the

role of and in general questions the effectiveness of "unaffiliated" directors of the typical mutual fund.

In forwarding the Study to the Congress, the Commission stated

that it would be premature to attempt an evaluation of the conclusions

in the Study, but that it was apparent that the Commission's rules

under the 1940 Act and indeed some of the provisions of the statute

itself might require reassessment. The Commission accordingly directed its staff to conduct a detailed evaluation of the Study with a view

to making such recommendations as may seem appropriate," This

evaluation in which members of the staff of the Division of Corporate

Regulation were engaged throughout fiscal 1964 includes a review of

the structure and operations of the investment company industry generally, and a reassessment of the provisions of the Investment Company Act and the Commission's rules and regulations thereunder.

The Special Study of Securities Markets considered certain aspects

of the investment company industry not covered by the Wharton

School Study, namely, sales techniques, the adequacy of training and

supervision of salesmen, "contractual" or "front-end load" plans for

the purchase of investment company shares and the possible use of

inside information with respect to portfolio transactions by those

closely affiliated with investment companies. The conclusions and

recommendations of the Special Study in these areas are contained

in Chapter XI of the Special Study Report," transmitted by the Commission to the Congress early in fiscal 1964. In one of the areas

covered, that of contractual plans, the Special Study's Report suggested that the Commission recommend legislation amending the Act's

«r«. at pp. VI-VII.

• H. Doc. No. 95, pt. 4, p. 212 (88th Cong., 1st Sess.).
116 SECURITIESAND EXCHANGE COMMISSION 


provisions relating to such plans, that consideration be given to the 

abolition of any future front-end load or, if it should be concluded 

that abolition was not called for, that the legislation should both 

substantially limit the amount and method of application of any such 

load and prohibit the offering of front-end load contractual plans 

without the simultaneous offering of a level-load voluntary plan.I0 

During fiscal 1964 the Association of Mutual Fund Plan Sponsors 

submitted to the Commission a statement in reply to the findings and 

recommendations of the Special Study regarding contractual plans. 

At the end of fiscal 1964 the Commission had this reply under 

consideration. 

It is expected that the staff study will be completed during fiscal 

1965, and that the staff's analysis, together with the reports of the 

Wharton School and of the Special Study of Securities Markets, will 

aid the Commission in determining whether to submit recommendations to the Congress for amendment of the Investment Company Act 

and what action, if any, should be taken to strengthen the rules and 

regulations under the Act. 

CURRENT INFORMATION 

The Commission's rules promulgated under the Act require that 

the basic information contained in notifications of registration and in 

registration statements of investment companies be kept current, 

through periodic and other reports, except in cases of certain inactive 

unit trusts and face-amount certificate coml;anies. The following 

reports and documents were filed during the 1964fiscal year: 

A n reports ....................................................... 521 

Quarterly pot.................................................... 280 

Perlodic reports to stockholders (containing financial statements)-------.. 1,496 

Copies of sales literature __-...__--.--.---------

1,965 

The foregoing statistics do not reflect the numerous filings of revised 

prospectuses by open-end investment companies and unit investment 

trusts making a continuous offering of their securities. These prospectuses, which must be checked for compliance with the Investment 

Company Act, are required to show material changes which have occurred in the operations of the companies since the effective dateof the 

latest amendments on file. 

APPLICATIONS AND PROCEEDINGS 

Under Section 6(c) of the Act, the Commission, by rulesand regulations, upon its own motion or by order upon application, may exempt 

'"As to the Comrnlssfon's olears with respect to thls recommendation, see id, pt, 5, 

P. 15. 

---- 

TFIIRTIETH ANNUAL REPORT 117 

any person, security, or transaction from any provision of the Ad if 

and to the extent that such exemption is necessary or appropriate in 

the public interest and consistent with the protection of investon and 

the purposes fairly intended by the policy and provisions of the Ad. 

Other Sections, such as 6(d), 9(b), 10(f), 17(b), 17(d), and 23(c), 

contain specific provisions and standards pursuant to which the Commission may grant exemptions from particular sections of the Act or 

may approve certain types of transactions. Also, under certain provisions of Sections 2,3, and 8 the Commission may determine the status 

of persons and companies under the Act. One of the principal activities of the Commission in its regulation of investment companies is the 

consideration of applications for orders under the sections referred 

to. 

During the fiscal year, 245 applications filed under various sections 

of the Investment Company Act were before the Commission. The 

sections of the Act with which these applications were concerned and 

the disposition of such applications are shown in the following table: 

Applications Pled with or acted upon nu the Commlasion under the Investment 

Company Act of 1940 durlng the fiscal year ended June SO, 1964 

8edlons SubjectInvolved 

a................Definltlan 01 oontrouedpenoo...................... 6 2 7 


3 snd 0.......... St~tuand exemption............................... 8 19 


7y)- .... ROglstrat~~nofforeign investment mmpaai~........ 1 0 
 8 0 ........... Termination ol Registration......................... 
 8, lo. 18.......... RagUL4Uon of affiliatloas of d-tors omom em- 0 6 a
 ~iouw, investment sdv-, und&mitpsj'and 

others 

12,13,14(a), 15.. Regulation of foncttons and activitlss ofinvsshoent 10 8 11 7 OompBnles 

11,'M ............ Regulation 01 securlty exchange offers and rempanl- a 1 a 1
 zation mstters 17............... Regulationoftransaetlona wzth amlisted persons .... 19 62 61 80 


Is, 19.21, Z,23.. Reqlurements sa to o~pitalstructures loans disM 8 11 la 7 butlons and redemptions sod relsdd matisrs 

20,30............ Pro11es, rsports, and other'dowmsnts reviewed for 1 0 0 1 oom Lianoe 

n............... peno&o payment plans.. ......................... o 1 o 1 


28............... ~egulatim offaeeamrnntmtmo~te oompsnies..... a 2 2 2 


Total......................................... 103 142 145 MO 


Some of the more significant matters in which applications were 

considered are summarized below : 

On June lS, 19.964, the Commission issued notice" that 

Industrial Fund, Inc. and Financial Industrial Income Fund, Inc. 

("the funds"), two open-end investment companies, and Financial 

Programs, Inc. ("Programs"), had filed an application under Section 

6(c) for an order exempting them from the provisions of Section 15 

of the Act to the extedt that that section might be deemed to prevent 

U Investment Company dft Release No. 8997. 
118 SECURITIES AND EXCHANGE COMMISSION

Programs from serving as investment adviser of and principal underwriter for the funds.

Prior to the filing of the application, the Division of Corporate

Regulation had conducted a private investigation, as a result of

which it concluded that the investment advisory and principal underwriting contracts between Programs and the funds had been assigned,

and therefore terminated, on or about January 2, 1964, as a result

of the execution of certain contracts for the sale of approximately

87 percent of the voting and nonvoting stock of Programs, and the

occurrence of certain related events.

Wbile the application did not concede the validity of the Division's

position with respect to the assignment of the investment advisory

and underwriting contracts, it proposed a basis for compromise of

the matter involving the acceptance by Programs, subject to approval

of the shareholders of the funds, of reduced fees based on the cost

of rendering advisory and underwriting services for the period from

January 2, 1964, to the date of the requested order. Shortly after

the close of the fiscal year the application was granted by the

Commission."

As noted at p. 106 of the Commission's 29th Annual Report, on

December 19, 1962, Randolph Phillips, a stockholder of Investors

Mutual, Inc. and other registered open-end investment companies for

which Investors Diversified Services, Inc. ("IDS") (also a registered

investment company) serves as investment adviser, filed an application under Section 2(a) (9) of the Act requesting a determination

that Bertin C. Gamble, Gamble-Skogmo, Inc., and General Outdoor

Advertising Company, acting collectively (referred to in the application as the "Gamble Group") , either alone or in concert with John

D. Murchison, Clint W. Murchison, Jr. and others (referred to as

the "Murchison Group"), had acquired control of Alleghany Corporation ("Alleghany"), and of IDS, about 47.5 percent of whose voting securities were owned by Alleghany. On January 2, 1963, the

Commission ordered that a hearing be held with respect to these questions of control." On February 15, 1963, IDS filed an application

under Section 2(a) (9) seeking determinations that (a) Murchison

Brothers; (b) Allan P. Kirby, Sr.; (c) Kirby and certain associates;

and (d) Murray D. Lincoln and/or companies controlled by or as12 On JUly 8, 1964, the Commission Issued Its Memorandum Opinion and Order (Investment Company Act Release No. 4009) granting the exemption sought by the application,

conditioned on the approval by the shareholders of the funds of the modified payments by

the funds to Programs. The Commission's opinion noted that the order dId not "constitute authorization for the proposed payments or approval of the amounts thereof" but

was "intended only to remove a possible statutory bar to consummation of tbe proposed

compromise."

18 Investment Company Act Release No. 8604.
THIRTIETH ANNUAL REPORT 119

sociated with him, controlled Alleghany and that Alleghany controlled

IDS. This application was consolidated for purposes of hearing with

the Phillips application." The hearings in these consolidated proceedings were concluded in September 1963, and in June 1964, the

hearing examiner filed a recommended decision in which he determined, among other things, that the Gamble Group did not "control"

Alleghany or IDS, as asserted by Phillips. Exceptions to the recommended decision were filed after the close of the fiscal year.

Hearings were reopened on an application originally filed in 1961

by International Bank, an Arizona corporation, for an order declaring, pursuant to Section 3(b) (2) of the Act, that it was not an investment company." Although the Commission granted the application,

it rejected applicant's contention that a company which owns securities as an incident to the operations of its majority-owned subsidiary

and of its controlled companies is not "in the business" of owning and

holding such securities and is therefore not an investment company

within the definition of Section 3(a) (3) of the Act. The Commission held that the section's applicability is not limited to situations

where securities are held "merely as investments." However, the

Commission concluded that applicant was primarily engaged in noninvestment businesses and entitled to the order sought since (a)

approximately two-thirds of applicant's total assets were represented

by noninvestment businesses engaged in by it directly, through

majority-owned subsidiaries, and through controlled companies conducting the business of banking, and (b) over two-thirds of its net

income was derived from such businesses."

During the fiscal year, Townsend Oorporation of America ("TCA"),

and Townsend M anaqement Corporation ("TMC"), both registered

closed-end investment companies, sought an exemption pursuant to

Section 17(b) of the Act, and approval pursuant to Section 23( c) (3),

with respect to transactions incident to a plan of merger of TCA,

TMC and Resort Airlines, Inc., all of which are affiliated companies.

The plan grew out of a proceeding instituted by the Commission in

the U.S. District Court for the District of New Jersey, in which the

Commission alleged violations by TeA, TMC and certain controlling

individuals of various provisions of the Act and sought injunctive

relief and an order requiring that action be taken to effectuate compliance with the Act.n The district court took possession of TCA

and TMC for the purpose of enforcing compliance, enjoined the defendants from violations of the Act, appointed an interim board of

.. Investment Company Act Release No. 3637 (February 20, 1963).

15 See 27th Annual Report, pp. 150-151, for a prior reference to this matter.

,. InternationaZ Bank, Investment Company Act Release No. 3986 (dune 4, 1964).

17 H.E.G. v. Townsend Gorp. 01 America, et aZ.,Civ. Act. No. 336-61 (D.N.d.).
120 SECURITIES AND EXCHANGE COMMISSION

directors to carry out the terms of its decree, and ordered that TCA

and T.MC, among other things, file with the Commission a plan of

merger of TeA, T.MC and Resort Airlines, Inc.1s After a hearing,

the Commission found, subsequent to the close of the fiscal year, that

the terms of the merger plan were reasonable and fair and did not involve overreaching, that the transactions were consistent with the

policies of the companies and the general purposes of the Act, and

that the purchases by TCA and T.MC of securities of which they were

the issuers were to be made on a basis which would not unfairly discriminate against the holders of the classes of securities to be purchased. Accordingly, it granted the relief requested." Upon the

issuance of its order, the Commission, as had been directed by the district court, applied to that court for an order approving and enforcing

the plan of merger.

18 The proceedings are descrIbed in greater detaIl In the CommIssIon's 27th Annual

Report for the fiscal year ended June 30, 1961, at pp. 153-4.

III Investment Company Act Release :'iro.4045 (September 2, 1964).
PART X

ADMINISTRATION OF THE INVESTMENT ADVISERS ACT

OF 1940

The Investment Advisers Act of 1940 establishes a pattern of regulation of investment advisers similar to that contained in the Securities Exchange Act with respect to the conduct of brokers and dealers.

With certain specified exceptions, the Act requires persons engaged

for compensation in the business of advising others with respect to

securities to register with the Commission, and requires investment

advisers to conform to statutory standards designed to protect the

public interest. The Act prohibits fraudulent conduct, and authorizesthe Commission to define, and prescribe means reasonably designed

to prevent, fraudulent, deceptive or manipulative acts or practices.

Pursuant to such authority, the Commission has adopted a Rule

(206(4)-1) relating to advertising practices, which, among other

things, proscribes the use of testimonials, circumscribes permissible

references to past recommendations and the use of graphs and charts,

and prohibits the use of false or misleading statements. Under another Rule (206(4)-2), an investment adviser who has custody or

possession of the funds or securities of clients must segregate them,

maintain them in the manner provided in the rule and comply with

certain other conditions.

The Act prohibits an inv-estment adviser from basing his compensation upon a share of the capital gains or appreciation of his client's

funds, and prohibits the assignment of investment advisory contracts

without the client's consent. Advisers are also required to make, keep

and preserve books and records in accordance with the Commission's

rules and the Commission is empowered to conduct inspections of

such books and records.

Investment advisers who violate any of the provisions of the Act

Or of the rules thereunder are subject to appropriate administrative,

civil or criminal remedies. With respect to administrative remedies,

the Act provides, in Section 203(d), that the Commission shall deny,

revoke, or suspend for not more than 12 months, the registration of

an investment adviser if it finds that such action is in the public interest

and that the investment adviser or any partner, officer, director or

121
122 SECURITIES AND EXCHANGE COMMISSION

controlling or controlled person of the investment adviser is subject

to a specified disqualification. These disqualifications include wilful

misstatements in an application or report filed with the Commission,

the existence of a conviction or injunction based on or related to specified types of misconduct, wilful violation of any provision of the Securities Act, Securities Exchange Act or Investment Advisers Act or

any rule or regulation thereunder, or aiding and abetting any other

person's violation of such provisions, rules or regulations. In addition, the Commission may seek injunctions to restrain violations of

the Act and may recommend criminal prosecution by the Department

of Justice for fraudulent misconduct or wilful violation of the Act or

the Commission's rules thereunder.

Inspection Program

During fiscal 1964, 239 inspections of investment advisers were completed by the Commission's staff (as compared to 219 the preceding

year) . These inspections disclosed a total of 182 indicated violations

of the Act and the rules and regulations promulgated thereunder, as

reflected in the following table:

Violation8 Noted in Investment Advi8er Inspection Report8-Fiscal Year 1964

Books and records deficienL_________________________________________ 69

Registration application inaccu.'rate__________________________________ 43

False, misleading, or otherwise prohibited advertising__________________ 24

Improper "hedge clause" a 12

Failure to provide for nonassignability in investment advisory eontraet.L; 11 Others 23

Total indicated violations_______________________________________ 182

"Hedge clauses" used in literature distributed by investment advisers generally state

in substance that the information furnished is obtained from sources believed to be

reliable, but that no assurance can be given as to its accuracy. A clause of this nature

may be improper where the recipient may be led to believe that he has waived any right of

action against the investment adviser.

Administrative Proceedings

The Commission instituted revocation proceedings against seven

investment advisers during fiscal year 1964 and initiated two proceedings to determine whether applications for registration should be

denied. During the year, it revoked the registrations of six advisers

and denied one application. At the close of the fiscal year 13 revocation proceedings and 1 denial proceeding were pending. Those proceedings concluded during the year included the following:

Anne Oaseley Robin and Ben Robin; doing business as The Profitmaker '-The Commission found, on the basis of stipulated facts, that

1Investment Advisers Act Release No. 149 (September 10, 1963).

•
THIRTIETH ANNUAL REPORT 123

Anne Robin, a registered investment adviser, violated the Act by

failing to disclose in her registration application or by amendment

that Ben Robin, her husband, exercised a controlling influence

over the business. It further found that the Robins circulated

misleading advertisements which represented that "The Profitmaker," a weekly market letter published by them, was staffed by

trained and experienced securities analysts and experts, and that each

stock discussed in the market letter had the potential of advancing

100 percent within a year. In addition, the Commission found that

respondents engaged in fraudulent conduct by publishing an unverified and in fact false tip that a manufacturer, whose stock they recommended, had just received a large government contract. The Commission stated that advisers must meet the same "high degree of care

required to insure accurate and adequate representations concerning

securities discussed in printed advisory material distributed by a

broker-dealer," and that if anything the deception was enhanced

rather than dissipated by the use of a qualification at the end of the

market letter that "information in this letter is not guaranteed but

is gathered :from sources we believe to be accurate." Revocation of

registrant's registration was found to be in the public interest in view

of the serious violations found.

Justin Federman Stone 2-The Commission :foundthat in the course

of a publicity campaign designed to gain subscribers for Stone's advisory service, misrepresentations were made concerning the acceptance of the service by institutional investors. In addition, misleading

statements were made to the effect that Stone's :formula employed

"miracle working computer-type techniques" resulting in "uncannily

correct anticipation of market trends," and that the profitable results

of the system had been proven by "exhaustive" tests. In concluding

that Stone violated the anti-fraud provisions of the Act, the Commission noted that the publicity material conveyed the :falseimpression

that the advisory service provided an accurate mathematical device

:for determining when to buy and sell which had been proven by extensive tests and was widely acclaimed by experienced securities specialists

and institutions. Stone's contention that the violations were attributable to his public relations counsellor and therefore not wilful was

rejected, the Commission finding that Stone knew of and made no

serious attempt to correct the misrepresentations and failed to meet

his responsibility to comply with the Act. The Commission concluded

that it was in the public interest to revoke Stone's registration .

• Investment Advisers Act Release No. 1113(November 26, 1963).
124 SECURITIES AND EXCHANGE COMMISSION

Registration Statistics

At the close of the fiscal year 1,613 investment advisers were registered with the Commission. The following tabulation contains other

statistics relating to registrations and applications for registration:

Investment Adviser Registrations-Fiscal Year 1964

Effective registrations at close of preceding year 1,564

Applications pending at close of preceding year________________________ 26

Applications filed during year_________________________________________ 273

Registrations cancelled or withdrawn during year______________________ 209

Registrations denied or revoked during year___________________________ 7

Applications withdrawn during year 12

Applications pending at end of year__________________________________ 22
PART XI

OTHER ACTIVITIES OF THE COMMISSION

CIVIL LITIGATION

The several statutes administered by the Commission authorize the

Commission to seek injunctions against continuing or threatened violations of such statutes. Such violations may involve a wide range of

illegal practices, including the purchase or sale of securities by fraud,

and the sale of securities without compliance with the registration

requirements of the Securities Act. The Commission also participates

in various other types of proceedings, including appearances as amicus

curiae in litigation between private parties where it is important that

its views regarding the interpretation of the statutes be furnished to

the court.

At the beginning of fiscal year 1964 there were pending in the

courts 121 injunctive and related enforcement proceedings instituted

by the Commission to prevent fraudulent and other illegal practices in

the sale or purchase of securities. During the year 84 additional proceedings were instituted and 104 cases were disposed of, leaving 101

such proceedings pending at the end of the year. In addition the

Commission participated in a number of corporate reorganization

cases under Chapter X of the Bankruptcy Act, in 6 proceedings in the

district courts under Section 11(e) of the Public Utility Holding Company Act; and in 7 miscellaneous actions. The Commission also participated in 49 civil appeals in the U.S. courts of appeals. Of these, 17

came before the courts on petitions for review of administrative

order, 12 arose out of corporate reorganizations in which the Commission had taken an active part, 12were appeals in actions brought by or

against the Commission, 1 was an appeal from orders entered pursuant

to Section 11(e) of the Public Utility Holding Company Act, and 7

were appeals in cases in which the Commission appeared as amicus

curiae. The Commission also participated in 8 appeals or petitions

for writs of certiorari before the U.S. Supreme Court resulting from

these or similar actions.

Complete lists of all casesin which the Commission appeared before

a Federal or state court, either as a party or as amiou« curiae, during

the fiscal year, and the status of such cases at the close of the year, are

125
126 SECURITIES AND EXCHANGE COMMISSION

contained in the appendix tables. TIllS section describes a few of the

more noteworthy cases, not including, however, cases arising under the

Public Utility Holding Company Act or Chapter X of the Bankruptcy

Act; cases arising under those statutes are discussed in the sections of

this report dealing with such statutes.

In J. I.Oase 00. v. Borak,t the Supreme Court, accepting the views

urged by the Commission as amicus curiae, held that in a private suit

based upon alleged violations of Section 14(a) of the Securities Exchange Act and the proxy rules thereunder a Federal district court has

jurisdiction to grant "all necessary remedial relief" and is not limited

to the granting of "prospective" or declaratory relief as was held in

Dann v. Studebaker-Packard 00rp.2 Noting that the purpose of Section 14(a) "is to prevent management or others from obtaining authorization for corporate action by means of deceptive or inadequate

disclosure in proxy SOlicitation," the Court held that "it is the duty

of the courts to be alert to provide such remedies as are necessary to

make effective the congressional purpose." The Court also rejected

the contention that a stockholders' derivative action may not be

brought under the proxy rules, thereby implicitly overruling the

decision in Howard v. Furst,3 and indicated that the private right of

action under the proxy rules may not be frustrated by such state law

"hurdles" as security-for-expense statutes.

During the fiscal year, the Court of Appeals for the Third Circuit,

in The Prudential, Insurance Oompany of America v. Securities and

Exchange 00mmission,3& affirmed an order of the Commission 3b declaring that the "Investment Fund" resulting from the proposed sale

of variable annuity contracts by Prudential would be an investment.

company required to be registered under the Investment Company Act

of 1940, notwithstanding the fact that Prudential, as an insurance

company, was excepted from the coverage of the Act. The court upheld the Commission's determination that the variable annuity contracts would constitute the purchasers thereof an "organized group of

persons," that such contracts would create a "trust" held by Prudential for the purchasers and that the separate Investment Fund would

be a "fund," all within the meaning of those terms as contained in the

statutory definition of "company," and that the Investment Fund

would be the "issuer" of the contracts for Investment Company Act

purposes. It rejected arguments, among others, that the term "fund"

referred only to recognizable business entities, that the existence in

2375 U.S. 901 (1964). Earlier stages of the litigation in this case are discussed in

the 29th Annual Report, P. 118.

• 288 F. 2d 201 (C.A. 6, 1961)•

238 F. 2d 790 (C.A. 2,1956).

Sa 326 F. 2d 383 (1964), cert, den. 84 S. Ct. 1629 (1964).

b Investment Company Act Release No. 3620 (Jan. 22,1963).

•

•
TIDRTIETH ANNUAL REPORT 127

the Act of a specific exemption for common trust funds showed that

regulation under the Act was imposed on an institutional rather than

functional basis, and that the exemption for insurance companies was

based upon the existence of adequate state regulation. The court

concluded by stating that "the mere fact that the investment program in the case at bar is under the aegis of an insurance company

ought not to negate compliance with [safeguards provided by the Act

for investors in securities] in the absence of compeling circumstances."

Two cases, Hersh v. Securities and Exchange Commission. 4 and

Lite v. Securities and Exchange Oommission,5 arose from an order

issued by the Commission revoking the broker-dealer registration of

J. Logan & Co., expelling the company from membership in the National Association of Securities Dealers, Inc., and finding that various

officers and employees of the company, including Hersh and Lile, were

each a cause of the revocation and expulsion." The Commission found

that the company, aided and abetted by Hersh and Lile, had engaged

III the practices of "churning" its customers' accounts and of "switching" securities back and forth between customers. The company had

induced its customers to place complete reliance on it and its salesmen

to act in the customers' best interests and had then taken gross advantage of the customers' trust and confidence by generating excessive

transactions in their accounts and by recommending the purchase of

a security to one customer while simultaneously persuading another

customer to sell the same security, all in complete disregard of the

financial welfare or investment aims of the customers, the objective

being rather to produce brokerage fees and profits for the company and

its salesmen. The Court of Appeals for the Ninth Circuit, holding

that the findings as to Hersh were supported by substantial evidence,

affirmed the order as to him on the basis of the opinion of the Commission. The court dismissed Lile's petition for review on the ground

that it lacked jurisdiction over the subject matter by virtue of Lile's

failure to urge before the Commission any of the objections raised

in his petition.

In its motion to dismiss Lile's petition for review, the Commission

had urged, as an alternative ground for dismissal, that the court lacked

jurisdiction by virtue of Lile's failure to file his petition within 60

days after the "entry" of the Commission's order, as required by

Section 25 (a) of the Securities Exchange Act. The court rejected

that argument on the ground that the Commission does not maintain

a court-type docket from which the precise date of the "entry" of its

orders can be determined. The court apparently construed the Com325 F. 2d 147 (C.A. 9,1963).

324 F. 2d 772 (C.A. 9, 1963).

Securities Exchange Act Release No. 6848 (July 9, 1962).

•

•

•
128 SECURITIES AND EXCHANGE COMMISSION

mission's Rules of Practice as requiring that such a docket be maintained. To avoid the uncertainty created by the Lile decision, the

Commission subsequently amended its Rules of Practice. 7

In three cases this year, Securities and EaJchange Oommission v.

Bill Willoughby Ooin Eeehanqe, et al.,8Securities and EaJchange Oommission v, Space Oity Investments, Inc., et al.,9 and Securities and

Exchange Oomonission. v. Oomstook Ooin 00., et al.,10 the Commission

sought injunctions against violation of the registration provisions of

the Securities Act of 1933 in the offer and sale of investment contracts

and certificates of interest and participation in profit-sharing agreements issued in connection with coin investment programs. The

defendants had solicited funds from investors, agreeing to use the

funds in the purchase and sale of coins and to share the profits derived

therefrom with the investors. The defendants in all three cases consented to the entry of permanent injunctions.

The Commission filed a complaint against Oontinental Growth

Fund, Ino., et al.,l1 an investment company registered as such with

the Commission, and certain of its officers and directors, seeking to

enjoin the individual defendants from continuing to act as officers

and directors on the ground that they had been guilty of gross misconduct and gross abuse of trust. The Commission also asked for the appointment of a receiver for the firm's assets. The complaint charged,

among other things, that Richard C. Jacobs, a promoter of the Fund

and its former president and director, embezzled $69,000of the Fund's

monies through a scheme by which he caused the Franklin National

Bank as custodian to disburse monies for sham stock purchases by the

Fund. The complaint also alleged that Jacobs caused the Fund to

deviate from its stated investment policy, that the directors permitted

the Fund to operate without a fidelity insurance bond to protect the

Fund against larceny and embezzlement and without necessary books

and records, that the net asset value at which it sold and redeemed its

shares was improperly computed and that Jacobs sold securties to

the Fund in violation of the Investment Company Act. The court

appointed a receiver for the assets and property of the Fund and the

remaining issues were pending at the close of the year.

The Commission filed a complaint against James J. Ling, Royce B.

iJlc/{inley, and Joseph F. McKinney, former officers or directors, and

Paul E. Brodrick, the present treasurer of Electro-Science Investors,

Ino., 12 an investment company registered as such with the Commission.

7 Securities Act Release No. 4613 (March 5, 1964).

• S D. Calif., No. 64-384-JWC, CCH Fed. Sec. L. Rep. , 91,355 •

S D. Tex., No. 64-H-253.

tu D. Nev., No. 1682, CCH Fed. Sec. L. Rep. "J 91,414.

11 S.D.N.Y. 63 Civ. 2252.

:2 N.D. Tex., No. CA-3--447.

•
TIDRTIETH ANNUAL REPORT 129

The complaint alleged, among other things, that Ling, with the assistance of the other defendants, took personal advantage of a corporate

opportunity of the company to purchase and resell a large block of common stock of Tamar Electronics Industries, Inc., and that he realized

substantial personal profits from the transaction which rightfully

belonged to the investment company. The complaint seeks an order

directing the defendants to account for and return such profits to the

company and also seeks an injunction, pursuant to Section 36 of the

Investment Company Act of 1940, preventing any of the defendants

from serving in specified capacities for a registered investment

company.

In Securities and Eeohamqe Oommission v. United States Diversified Industries (lorporation: Jack Yetman and Leonard James,13 the

district court issued a mandatory injunction directing the defendants

to file with the Commission an annual report of the company for the

year ended December 31, 1961. The common stock of the company

was registered on the Pittsburgh Stock Exchange, a national securities exchange, until February 16,1962,when it was delisted. The fact

that the stock was delisted was held not to relieve the company of the

obligation to file an annual report covering the last year during which

the stock was still listed.

Gilson v. Ohook Full O'Nuts Oorporation. 14 was an action by a

stockholder and his attorney seeking allowance of attorney's fees

out of a fund paid to Chock Full O'Nuts Corporation by certain

of its officers and directors in settlement of suits instituted against

them by the corporation to recover "short-swing" trading' profits pursuant to Section 16(b) of the Securities Exchange Act. According to

the complaint, the stockholder's attorney had investigated possible

liability of the insiders to the corporation under Section 16(b) and

then had made demand on the corporation on April 10, 1962,that suit

be instituted by May 31, 1962,as the statute of limitations would otherwise expire on June 2, 1962. After the corporation replied on April

16, t962,. that its preliminary investigation indicated that no violations had occurred, the stockholder's attorney prepared a complaint,

On May 31, 1962,however, the corporation commencedactions against

the insiders, resulting in the settlement. The district court granted

defendant corporation's motion to dismiss, ruling that the awarding

of attorneys' fees is limited to situations where the recovery to the

corporation under Section 16(b) has resulted from a suit successfully

prosecuted by the stockholder. IS

13 S.D.N.Y., No. 63 Clv. 3317.

1< 331 F. 2d 107 (C.A. 2, 1964).

15 224 F. Supp, 234 (S D.N. r., 1963).

757-903--65----10
130 SECURITIES AND EXCHANGE COMMISSION

A panel of the Court of Appeals for the Second Circuit, agreeing

with the views expressed in a brief of the Commission filed as amious

curiae, reversed." After granting the corporation's petition for rehearing en bane, the full bench reversed the district court and held

that an attorney who did "considerably more than simple preparation of the statutory request to the corporation to sue" was entitled to

fees from the corporation after its successful suit. The court emphasized, however, that it was not deciding the question whether a stockholder's attorney is entitled to compensation from a corporation where

he has done "nothing more than find a claim for the recovery of 'shortswing' profits under Section 16(b) ... which the corporation then

successfully brings at the stockholder's request." 17

In Levitt v. Johnson/8 a stockholder of an investment company,

Fidelity Capital Fund, Inc., brought a derivative action on behalf of

himself, the Fund, and other similarly situated stockholders of the

Fund against the Fund's directors, its corporate investment adviser,

and its corporate underwriter. The complaint alleged inter alia

(1) that the investment advisory fees had been and would continue

to be "grossly excessive, unreasonable and illegal and out of proportion to the value of the services rendered" by the adviser and were a

"waste and gift of the Fund's assets," in violation of Section 37 of the

Investment Company Act and (2) that because of the degree of affiliation of the directors of the Fund with the directors of the adviser and

the underwriter, the contracts and agreements for advisory and underwriting services, and all renewals and extensions thereof, were made

in violation of Sections 10(a) and 10(b) of the Act and were thus null

and void under Section 47 of the Act. The complaint stated that

demand had not been made upon the directors of the Fund to bring

this action, since they were to be named as defendants, nor had demand

been made upon the stockholders, since that was assertedly unnecessary

and futile for the reason, among others, that there were more than

48,000 stockholders scattered all over the United States and that to

require demand upon these stockholders to take action would cast an

unconscionable financial burden upon the plaintiff and would involve

the conduct of a proxy fight entailing prohibitive expenses.

Motions to dismiss the complaint were filed by the defendants on

the ground, inter alia, that the complaint failed to state a claim upon

which relief could be granted. The District Court for the District

of Massachusetts found that Rule 23(b) of the Federal Rules of Civil

Procedure had been complied with but dismissed the complaint for

1.326 F. 2d 246 (1964).

,. 331 F. 2d at 108--109 (1964).

lB 334 F. 2d 8Ui (C.A. 1, 1964).
THIRTIETH ANNUAL REPORT 131

failure by plaintiff to plead compliance "with the strict Massachusetts

rule as to prior demand upon his fellow shareholders in Fund." 19

.!nappeal was taken from the district court's dismissal of the complaint and the Commission filed a brief amicus curiae in support of

the appellant. The Commission took no position on the merits of the

case. On July 8,196,1"the court of appeals, in vacating the judgment

of the district court, held that demand upon the other stockholders of

the Fund in the circumstances of this case would be a "pointless or,

alternatively, impossibly burdensome act [and] ... should be excused." The court also held that the "strict Massachusetts rule" of

demand upon stockholders would conflict with the broad declaration of

policy contained in Section 1(b) of the Act; it is therefore "the type

of hurdle that the Investment Company Act .•• forbids."

During the fiscal year the Commission was granted leave to participate amicus curiae in lJliller v, General Outdoor Advertising Oorp.,

et al.,20 a case involving the question of the applicability of Section

16(b) of the Securities Exchange Act of 1934to transactions involving

the acquisition of options to purchase and sell securities of a class

registered on a national securities exchange. The complaint in this

case had alleged that the defendants and the Murchison Brothers, a

partnership, had entered into a so-called agreement of put and call,

whereby the defendants acquired the right to purchase from Murchison Brothers and Murchison Brothers acquired the right to sell to

the defendants certain shares of common stock of Alleghany Corporation, and that within a 6-month period the defendants entered into a

contract to sell the stock, thus giving rise to liability for profits under

Section 16(b). An appeal was taken from the order of the district

court granting defendants' motion for summary judgment." The

Commission filed a brief amicus curiae urging that the agreement of

put and call constituted a purchase of the Alleghany common stock

by the defendants against which a sale within a 6-month period could

be matched for the purpose of determining liability under Section

16(b) . At the end of the fiscal year the appeal was still pending.

CRIMINAL PROCEEDINGS

The statutes administered by the Commission provide that the Commission may transmit evidence of violations of any provisions of these

statutes to the Attorney General, who in turn may institute criminal

proceedings. Where facts ascertained as a result of an investigation

by a regional office of the Commission or at times its headquarters

'0222 F. Supp. 805 (D. Mass. 1964) .

.. C.A. 2, No. 28781.

21 223 F. SuPP. 790 (S.D.N.Y., 1963)
132 SECURITIES AND EXC1';IANGE COMMISSION

office appear to warrant' criminal prosecution, a detailed report is

prepared. After careful review by the General Counsel's Office,the

recommendations of the regional officeand the General Counsel's Office are considered by the Commission, and if the Commission believes

criminal prosecution is appropriate the case is referred to the Attorney General and to the appropriate U.S. attorney. Commission employees familiar with the case generally assist the U.S. attorney in

the presentation of the facts to the grand jury, the preparation of

legal memoranda for use in the trial, the conduct of the trial, and the

preparation of briefs on appeal.' .

During fiscal year 1964 the Commission referred 50 cases to the

Department of Justice for prosecution. In the course of the year,

39 indictments were returned against 95 defendants in cases referred

prior to and during the fiscal year, 2 criminal contempt actions were

filed, and 93 convictions were obtained in 46 cases, while convictions

were affirmedin 12cases.

From 1934, when the Commission was established, until June 30,

1964,3,408 defendants have been indicted in the U.S. district courts

in 811 cases developed by the Commission and 1,774 convictions.have

been obtained." The record of convlct{on'sobtained and upheld in

completed cases is over 84 percent for the 30-year life of the

Commission."

As in prior years, the majority of the criminal cases prosecuted

involved the offer and sale of securities by fraudulent representations

and other fraudulent practices. These activities included high-pressure long-distance telephone "boiler-room" frauds, conversion of customers' funds and securities by broker-dealers or their salesmen,

frauds involving the sale of securities by new as well as established

businesses, and fraudulent securities sales in connection with the

promotion of insurance companies, mortgage companies, oil and gas

and other mining ventures, and other types of enterprises. It is not

feasible to describe individually' each 6f the many criminal matteis

pending during the fiscal year; 24 however, two of the landmark criminal prosecutions "Whichoccurred during the year are discussed below.

On February 16, 1964, after 5% months of trial, Joseph Abrams,

Sidney Albert and Richland Securities, a corporation controlled by

Abrams, were found guilty by a jury of violating the registration

.. This figure does not Inclnde convictions In criminal contempt actions.

:13 For a condensed statistical summary of all criminal cases developed hy the Comrnls-

"Ion from fiscal 1934 through fiscal 1964. see Appendix table 25. Table 26 contains a

summary based on classlficadon of the defendants ,

.. Appendix table 16 contains a list of all criminal cases developed by the Commission

which WE're pending durlrur the yenr and In which Indictments have been returned, and

the status of each case. Table 13 Is a summary of criminal cases developed by the Commission which were pending as of June 30, 1964.
THIRTIETH ANNUAL REPORT 133

provisions of the Securities Act of 1933 by offering and selling unregistered stock of Automatic Washer Company (United States v.

Abrams, et al.).

In late 1955,defendants Abrams and Albert gained control of Automatic Washer Company by causing a corporation which they controlled to purchase 330,000 shares of Automatic Washer stock at a

price considerably below the market price. Thereafter, they caused

Automatic 'Yasher Company to issue large blocks of stock to themselves and companies which they controlled in exchange for assets of

little value. In this manner defendants obtained a total of 1,585,000

shares out of a total issued and outstanding of 2,155,594. At the trial

it was proved that over 950,000of the shares acquired by the defendants were sold to the public, commencing in January 1956, and continuing through October 1956. In addition, during the period Abrams

and Albert distributed their Automatic stock on the Midwest Stock

Exchange, the price rose from $3 in December 1955, the date they

obtained control, to $9 in March 1956.

These convictions were obtained in spite of the fact that the defendants attempted to conceal their unlawful sales by utilizing many of

the devices that have been frequently employed to avoid the full disclosure requirements of the registration provisions of the Securities

Act. For example, the defendants distributed a large number of

shares to the public by permitting banks and brokerage houses to sell

out Automatic 'Yasher shares pledged by the defendants as collateral

for loans which they had no intention of repaying. The defendants

also attempted to disguise the distribution of their control stock by

initially making purported "private sales" to various friends and

relatives who acted as nominees or conduits. Although the shares so

sold were immediately resold to the public, the defendants claimed that

since they had made private placements to these "investors" they were

not engaging in a public distribution of the stock. Finally, defendant

Abrams also attempted to rely on a so-called "change of circumstances"

as justification for the resale of the stock he had purchased from

Automatic Washer Company.

The conviction of the defendants is significant in demonstrating

that unscrupulous promoters cannot evade the registration requirements of the Securities Act by spurious reliance on exemptions from

those requirements, and thereby deprive the investing public of full

disclosure concerning the affairs of the issuer and its management.

The convictions of Roy B. Kelly, Cecil V. Hagen, Milton J. Shuck

and Gulf Coast Leaseholds, Inc., in United States v. Van Allen, et al.,

are also significant. These defendants, nine other individuals, and

eight corporations were charged with violating and conspiring to
134 SECURITIES A...""DEXCHANGE. COMMISSION

violate the anti-fraud and registration provisions of the Securities Act

of 1933 and the mail and wire fraud provisions of Title 18 of the U.S.

Code in connection with the offer and sale to the public of Gulf Coast

Leaseholds, Inc., stock.

Evidence adduced during the trial showed that Gulf Coast Leaseholds, Inc., was a small and unprofitable oil company controlled by

Hagen and Kelly. InSeptember 1954, after unsuccessfully attempting

to obtain an underwriter for a Gulf Coast Leaseholds stock offering,

Hagen and Kelly were introduced to John Van Allen. Although Van

Allen's Lichtenstein investment company, Brandel Trust, had only

$20.80 in its bank account, he agreed to have it purchase 750,000 shares

of Gulf Coast Leaseholds stock for approximately $1,300,000.

Using Brandel Trust as a conduit, Van Allen began distributing

Gulf Coast Leaseholds stock to the American public even before the

deal was closed, using the proceeds from these sales to take delivery of

each successive block of stock from Hagen and Kelly. Facilitated by

the dissemination of false and misleading information furnished by

Hagen and Kelly, the distribution of the 750,000 shares to the public

was completed by September 1955, at prices ranging up to $15 a share.

When the deal was closed the previous year the stock had been selling at

between $1.25and $1.50per share.

Subsequently, Kelly and Hagen caused $2 million of Gulf Coast

Leaseholds debentures to be issued to Van Allen. However, these

debentures which were convertible into common stock at the rate of $8

a share could not be resold until after November 17,1956, because they

were purportedly purchased for investment and bore a restrictive

legend. Accordingly, the defendants, in order to maintain the market

above the conversion price until that time, were forced to purchase

Gulf Coast Leaseholds stock on the open market. This stock was

resold to investors through two boiler-rooms owned by the defendant

Shuck. The experienced salesmen employed by Shuck utilized every

high-pressure device to induce unwary investors not only to purchase

this stock, but to hold it, thereby reducing the floating supply of stock

on the market.

Eight of the defendants pleaded guilty before or during the trial

and others were severed for trial. The trial, which began in November

1962, and continued until August 8, 1963, produced a transcript containing nearly 18,000 pages of testimony and over 1,000 exhibits. On

October 8, 1963, the court sentenced the defendants to imprisonment

totaling 7% years and $130,000in fines.

In addition to the 93 convictions obtained during the fiscal year,

30 convictions were affirmed by appellate courts in 12 cases. A number of the opinions affirming these convictions are extremely significant
TmRTIETH ANNUAL REPORT 135

to the Commission's enforcement program. Early in the fiscal year the

Court of Appeals for the Second Circuit, in United States v. Ross,2S

affirmed the convictions of Howard Ross and Paul Gordon, salesmen

for Kimball Securities, a "boiler-room" operation. The court rejected

the contention of one of the salesmen who made misrepresentations to

a customer, that he was warranted in relying on the information

about the issuer given to him by his employer. Itnoted that even the

few days during which the salesman had been employed prior to his

misrepresentations were enough to "teach anyone ... exactly what

was going on," and that the literature regarding the issuer prepared

by his employer "was suspicious on its face to anyone with the slightest

financial knowledge."

Shortly after the affirmance in United States v. Ross, the Court of

Appeals for the Ninth Circuit, in Farrell v. United States." affirmed

the convictions of David and Oliver Farrell for violations of the securities fraud, mail fraud and conspiracy statutes in connection with the

sale of discounted trust deeds and mortgages issued by Los Angeles

Trust Deed & Mortgage Exchange. The affirmance culminated one

of the Commission's most intensive investigations and prosecutions involving fraudulent mortgage and trust deed promotions. Among

other things, the court ruled that whether various instruments or investment programs were securities under the Securities Act was to be

determined under Federal law and on the basis of what the defendants

represented them to be.

During the fiscal year the final chapter in the prosecution involving

the longest trial in the history of Federal criminal law was closed.

The convictions of Virgil D. Dardi, Robert B. Gravis, Charles Rosenthal and Charles Berman were affirmed by the Court of Appeals for

the Second Circuit, in United Stateev, Da1'di.27 The Court rejected the

contention, that the length of the trial (11 months) was prejudicial,

stating that: "A multi-defendant stock fraud case, as involved as this

one, usually necessitates the delving into many financial transactions.

Those who participate in such transactions do not supply the government with a simple and clear picture. The picture, even as a jig-saw

puzzle, only comes into vision by the assembling of hundreds of

curiously shaped parts, each piece seemingly having' no identity until

it is fitted into and made a part of the whole."

Finally, the Court of Appeals for the Second Circuit also afflrmed

the convictions of Martin Benjamin, an attorney, Bernard Howard,

an accountant, and Milton Z. Mende in United States v. Ben}amin.2S

25 312 F. 2d 61 (C.A. 2, 1963), cert, den. 375 U.S. 894 (11'163).

OIl 321 F. 2d 409 (C.A. 9, 1963), cert. den. 375 U.S. 992 (1004).

27 330 F. 2d 316 (C.A. 2, 1964).

J8 328 F. 2d 854 (C.A. 2, 1964), cert den. 377 U.S. 900 (1964).
136 SECURITIES AND EXCHANGE COMMISSION

The court noted: "This appeal concerns another of those sickening

financial frauds which so sadly memorialize the rapacity of the perpetrators and the gullibility, and perhaps also the cupidity, of the

victims. Itis unusual in that the vehicle, American Equities Corporation, owned nothing at all-and, in a happier sense, in that the SEC

was able to nip the £raud quite early in the bud." With respect to

Benjamin and Howard, the court emphasized that "in our complex

society the accountant's certificate and the lawyer's opinion can be

instruments for inflicting pecuniary loss more potent than a chisel or

the crow-bar ... Congress equally could not have intended that men

holding themselves out as members of these ancient professions should

be able to escape criminal liability on a plea of ignorance when they

had shut their eyes to 'what was plainly to be seen or represented a

knowledge they knew they did not possess."

OFFICE OF PROGRAM PLANNING

The Office of Program Planning was established during the fiscal

year. A primary responsibility of the Officeduring its first year was

to assist and advise the Commission in the implementation of the

recommendations of the Special Study of Securities Markets. To this

end the Office participated, in coordination with other Commission

Offices and Divisions, in the legislative effort which culminated in the

Securities Acts Amendments of 1964,in the drafting and evaluation of

various rules which were proposed and/or adopted by the Commission,

and in counseling with the self-regulating agencies on rules adopted

by the latter. In the latter area, the Officedevoted particular attention

to the standards applicable to selling practices, market literature and

written investment advice. It began an analysis of the over-thecounter market for listed securities with a view toward measuring the

impact and effect of trading in listed securities off the national securities exchanges. Toward the end of the fiscal year the Office began

preparations for studies to examine problems involved in securities

distributions, and analysis of broker-dealer economics.

COMPLAINTS AND INVESTIGATIONS

Each of the Acts administered by the Commission specifically authorizes investigations to determine whether violations of the Federal

securities laws have occurred.

The nine regional offices of the Commission, with the assistance of

their respective branch offices,are chiefly responsible for the conduct

of investigations. In addition, the Officeof Enforcement of the Division of Trading and Markets of the Commission's headquarters office

conducts investigations dealing with matters of particular interest or
THIRTIETH AJ.'mUAL REPORT 137

urgency, either independently or assisting the regional offices. The

Office of Enforcement also exercises general supervision over and

coordination of the investigative activities of the regional offices. Its

staff examines and analyzes the investigative findings and recommendations of the regional officesand recommends appropriate action to

the Commission.

There are available to the Commission several sources of information

concerning possible violations of the provisions of the Feredal securities laws. The primary source of information is complaints by members of the general public concerning the activities of certain persons

in securities transactions. The Division of Trading and Markets and

the regional officesgive careful consideration to this information and,

if it appears that violations of the Federal securities laws may have

occurred, an investigation is commenced. Other sources of information which are of assistance to the Commission in carrying out its

enforcement responsibilities are the national securities exchanges, brokerage firms, state and Canadian securities authorities, better business

bureaus, the National Association of Securities Dealers, Inc., and

various law enforcement agencies.

It is the Commission's general policy to conduct its investigations

on a confidential basis. Such a policy is necessary to effective law

enforcement and to protect persons against whom unfounded or unconfirmed charges might be made. The Commission investigates many

complaints where no violation is ultimately found to have occurred.

To conduct such investigations publicly would ordinarily result in

hardship or embarrassment to many interested persons and might

affect the market for the securities in question, resulting in injury to

investors with no countervailing public benefits. Moreover, members

of the public would have a tendency to be reluctant to furnish information concerning violations if they thought their personal affairs would

be made public. Another advantage of confidential investigations is

that persons under suspicion of having violated the law are not made

aware that their activities are under surveillance, since such awareness

might have the effect of frustrating or obstructing the investigation.

Accordingly, the Commission does not generally divulge the result of a

nonpublic investigation unless it is made a matter of public record in

proceedings brought before the Commission or in the courts.

When it appears that a serious violation of the Federal securities

laws has occurred or is occurring, a "case" is opened and a full investigation is conducted. Under certain circumstances it becomes necessary for the Commission to issue a formal order of investigation which

appoints members of its staff as officers to issue subpoenas, to take

testimony under oath and to require the production of documents.
138 SECURITIES AND EXCHANGE COMMISSION

Usually this step is taken when the subjects of the investigation and

others who may be involved are uncooperative and it becomes necessary to use the subpoena power to complete the investigation of the

case.

During the past year 142 formal orders were issued in connection

with investigations handled through the Division of Trading and

Markets. In addition, there were 14 formal orders issued upon the

recommendation of the Division of Corporate Regulation and 12

upon the recommendation of the Division of Corporation Finance.

The latter Division conducts certain investigative work in connection

with the processing of filings under the Securities Act of 1933 and the

Securities Exchange Act of 1934.

When an investigation has been completed and enforcement action

appears appropriate, the Commission may proceed in one of several

ways. Itmay refer the case to the Department of Justice for criminal prosecution. The Commission may also, when appropriate, institute civil proceedings for injunctive relief to halt further violations

of law. In that event a complaint is filed in the appropriate U.S.

district court and the case is presented by a member of the Commission's staff. Finally, if the case is one where the Commission has the

power to institute administrative proceedings, that avenue may be

chosen as the most appropriate under the circumstances.

The following table reflects in summarized form the investigative

activities of the Commission during fiscal 1964:

Investigations of possibZe violations 01 the acts administered btl the Oommission

Total

Pending June 30, 1963________________________________________________________________________ 1,081 New cases 458

Total ._. ._____________ I, 539

Closed. ._ 612

Pending at June 3D, 1964 927

ENFORCEMENT PROBLEMS WIm RESPECT TO FOREIGN SECURITIES

The unlawful offer and sale of Canadian securities in the United

States remained at a very low level in fiscal 1964. For the most part,

the cooperation of Canadian officials and segments of the Canadian

securities industry with the Commission has been very good.

The recent trend toward an increase in fraudulent promotions from

the Bahamas and Panama continued during fiscal 1964. In dealing

with these problems, the Commission is experiencing considerable

success with the new and simplified procedures for obtaining foreign

postal fraud orders. The success of this program is due in large measure to the continuing cooperation of the Post Office Department.

• • • • • __

• • •__ • • __

• • • • ____

• • • • • __
TEURTIETH ~AL REPORT 139

The Commission is still hampered by jurisdictional problems, including the status of the Supplementary Extradition Convention with

Canada,"

The Commission continues to maintain its Canadian Restricted

List, which consists of Canadian companies whose securities the

Commission has reason to believe are being, or recently have been,

distributed in the United States inviolation of the registration requirements of the Securities Act of 1933. The list and supplements thereto

are issued to and published by the press, and copies are mailed to all

registered broker-dealers and are available to the public. As a practical matter, most United States broker-dealers refuse to execute

transactions in such securities.

Five supplements and a revised cumulative list were issued in fiscal

1964. Reflecting the more effective enforcement activities here and

in Canada, it was necessary to add only two names to the list during the

year, compared with seven names added in fiscal 1963, 9 in fiscal 1962,

47 in fiscal 1961, and 82 in fiscal 1960. A total of 117 names was deleted during the year, following compliance with established procedures. The number of names on the list as of June 30, 1964, was

139,the smallest in several years.

The current list, as of September 30, 1964,follows:

CANADIAN RESTRICTED LIST

Abbican Mines, Ltd.

Adonis Mines, Ltd.

Alaska Highway Beryllium Venture

Alouette Mines, Ltd.

Anuwon Uranium Mines, Ltd.

Ambassador Mining Developments,

Ltd.

Americanadian Mining & Exploration

Co., Ltd.

Anthony Gas and Oil Explorations,

Ltd.

Associated Livestock Growers of Ontario

Atlantis Industrial Development Oo.,

Ltd.

Autofab, Ltd.

Ava Gold Mining Co., Ltd.

Barite Gold Mines, Ltd.

Bayonne Mine, Ltd.

Bengal Development Corp., Ltd.

Black Crow Mines, Ltd.

Blue Spring Explorations

Bonwitha Mining Co., Ltd.

Burbank Minerals, Ltd.

Cable Mines and Oils, Ltd.

Caesar Minerals, Ltd.

Cameron Copper Mines, Ltd.

Canol Metal Mines, Ltd.

Canford Explorations, Ltd.

Cartier Quebec Explorations, Ltd.

Central and Eastern Canada Mines

(1958), Ltd.

Centurion Mines, Ltd.

Consolidated Exploration & Mining

Co., Ltd.

Consolidated Woodgreen Mines, Ltd.

Crusade Petroleum Corp., Ltd.

Day jon Explorers, Ltd.

Devonshire Mining Co., Ltd.

Devonshire Mining Syndicate

Dolmac Mines, Ltd.

Dominion Fluoridators, Ltd.

Dominion Granite and Marble, Ltd.

Elk Lake Mines, Ltd.

Explorers Alliance, Ltd.

Fairmont Prospecting Syndicate

Federal Chibougamau Mines, Ltd.

Foreign Exploration Oorp., Ltd.

20 See 26th Annual Report, pp 202-203 for a description of some of tbese problems.
140 SECURITIES AND EXCHANGE COMMISSION

CANADIANRESTRICTED LIST-eontinned

Fort Hope Grubstake, The

Franksin Mines, Ltd.

Gasjet Corp., Ltd.

Genex Mines, Ltd.

Georay Prospecting Syndicate

Golden Algoma Mines, Ltd.

Guardian Explorations, Ltd.

Haitian Copper Mining Corp., Ltd.

Hallmark Explorations, Ltd.

Ibsen Cobalt-Silver Mines, Ltd.

International Claim Brokers, Ltd.

Irando Oil and Exploration, Ltd.

Jack Haynes Syndicate

Jaylac Mines, Ltd.

Kater! Mining Co., Ltd.

Keele Industrial Developments, Ltd.

Kelkirk Mines, Ltd.

Kelly-Desmond Mining Corp., Ltd.

Kenilworth Mines, Ltd.

Kennament Development Corp., Ltd.

Key West Exploration ce., Ltd.

Kimberly Copper Mines, Ltd.

Kipwater Mines, Ltd.

Kordol Explorations, Ltd.

Korich Mining Co., Ltd.

Kukatush Mining Corp.

Kuskokwim Grubstake

Ladysmith Explorations, Ltd.

Leader Mining Corp., Ltd.

Mack Lake Mining Oorp., Ltd.

Maple Leaf Investing Corp., Ltd.

March Minerals, Ltd.

Marian Lake Mines, Ltd.

Marpoint Gas & Oil Corp., Ltd.

Megantic Mining Corp.

Merrican International Mines, Ltd.

Midas Mining Co., Ltd.

Mid-National Developments, Ltd.

Milmar-Island Mines, Ltd.

Milldale Minerals, Ltd.

Mina-Nova Mines, Ltd.

Missile Metals and Mining Corp., Ltd.

Monarch Asbestos Co., Ltd.

Montclair Mining Oorp., Ltd.

Nationwide Minerals, Ltd.

Natto Mining Co., Ltd.

New Campbell Island Mines, Ltd.

New Hamil Silver-Lead Mines, Ltd.

New Mallen Red Lake Mines, Ltd.

New Surpass Petrochemicals, Ltd.

Norbank Explorations, Ltd.

-:North Lake Mines, Ltd.

North Tech Explorations, Ltd.

Northport Mineral Explorers, Ltd.

Nu-Gord Mines, Ltd.

Nu-World Uranium Mines, Ltd.

Olympus Mines, Ltd.

Outlook Explorations, Ltd.

Peace River Petroleums, Ltd.

Prestige Lake Mines, Ltd.

Rambler Exploration Co., Ltd.

Regal Mining & Development, Ltd.

Revere Mining Corp., Ltd.

Roberval Mining Corp.

Rockroft Explorations, Ltd.

Rothsay Mines, Ltd.

St. Anthony Mines, Ltd.

St. Lawrence Industrial Development

Corp.

Ste. Sophie Development Corp.

St. Stephen Nickell\lines, Ltd.

Sastex Oil and Gas, Ltd.

Savoy Copper Mines, Ltd.

Bleo Mining Corp., Ltd.

Sinclair Prospecting Syndicate

Strathcona Mines, Ltd.

Sturgeon Basin Mines, Ltd.

Success Mines, Ltd.

Sudbay Beryllium Mines, Ltd.

Tabor Lake Gold Mines, Ltd.

Taiga Mines, Ltd.

Territory Mining Oo., Ltd.

Trans-Leduc Oils, Ltd.

Trans Nation Minerals, Ltd.

Trans-Oceanic Hotels Corp., Ltd.

Trenton Petroleum & Minerals Corp.,

Ltd.

Triform Explorations, Ltd.

Triform Explorations (B.C.), Ltd.

Tumac Mining & Developme,nt Co.,

Ltd.

Turbenn Minerals, Ltd.

Turzone Explorations, Ltd.

Tyndall Explorations, Ltd.

Upper Ungava Mining Corp., Ltd.

Ver-Million Gold Placer Mining, Ltd.

Vimy Explorations, Ltd.

Western Allenbee Oil and Gas Oo.,

Ltd.

Windy Hill Mining Corp,

Wingdam & Lightning Creek Mining

ce., Ltd.

Yukon Prospectors' Syndicate
THIRTIETH ANNUAL REPORT 141

SECTION OF SECURITIES VIOLATIONS

As a part of its enforcement program, the Commission maintains a

Section of Securities Violations whose purpose is to aid the detection

and prevention of fraud in securities transactions. The Section maintains files which provide a clearinghouse for other enforcement agencies for information concerning persons who have been charged with

or found in violation of various Federal and state securities statutes.

The information contained in these files is kept current through the

cooperation of various governmental and nongovernmental agencies,

including the U.S. Post Office Department, The Federal Bureau of

Investigation, parole and probation officials, state securities authorities, Federal and state prosecuting attorneys, the National Association

of Securities Dealers, Inc. (NASD), better business bureaus and

chambers of commerce. At the end of the fiscal year the files contained information concerning 71,740 persons or firms against whom

Federal or state action had been taken in connection with securities

violations. During the year items of information concerning 8,599

persons or firms were added, including information as to 3,062 persons

or firms not previously identified in these records. A total of 9,538

names was deleted, since the information concerning them was believed

to be obsolete.

The Section issues and distributes to officials of cooperating law

enforcement and other agencies in the United States and Canada a

quarterly securities violations bulletin containing information received

during the period concerning alleged and actual violators and showing

new charges and developments in pending cases. The bulletin includes

a "wanted" section listing the names of persons wanted on securities

violations charges, and references to bulletins containing descriptive

information regarding them. It also includes a section reporting

NASD disciplinary actions which resulted in the expulsion or suspension of an association member, or in the revocation or suspension

of the registration of a representative of a member. This section of

the bulletin identifies the ..disciplined member or representative and

briefly describes the NASD's findings,

Extensive use is made of the information available in the files of

the Section of Securities Violations by regulatory and law enforcement officials. Each year numerous requests are received for special

reports on individuals, in addition to the information supplied by the

quarterly bulletin. During the fiscal year the Commission received

and disposed of 3,174 "securities violations" letters or reports and dispatched 733 communications to cooperating agencies. .
142 SECURITIES AND EXCHANGE CO:MMISSION

APPLICATIONS FOR NONDISCLOSURE OF CERTAIN INFORMATION

The Commission is authorized under the various Acts administered

by it to grant requests for nondisclosure of certain types of information which would otherwise be disclosed to the public in applications,

reports or other documents filed pursuant to these statutes. Thus,

under paragraph (30) of Schedule A of the Securities Act of 1933,

disclosure of any portion of a material contract is not required if the

Commission determines that such disclosure would impair the value of

the contract and is not necessary for the protection of investors. Under

Section 24(a) of the Securities Exchange Act of 1934, trade secrets

or processes need not be disclosed in any material filed with the Commission. Under Section 24(b) of that Act, written objection to public

disclosure of information contained in any material filed with the

Commission may be made to the Commission which is then authorized

to make public disclosure of such information only if in its judgment

such disclosure is in the public interest. Similar provisions are contained in Section 22 of the Public Utility Holding Company Act of

1935 and in Section 45 of the Investment Company Act of 1940. These

statutory provisions have been implemented by rules specifying the

procedure to be followed by applicants for a determination that public

disclosure is not necessary in a particular case.

The number of applications pending and the action taken on them

during the year are set forth inthe following table:

Applications tor nondisclosure during 1964 /l8cal year

Number Number Number pending Number Number denied or pending

July 1, received granted withdrawn June 30, 1963 11164

Securities Act of 1933 G ____________________ 3 28 24 5 2 Secuntles Exchange Act of 1934 b __________ 7 37 33 8 3 Investment Company Act of 1940 ,________ 3 20 19 1 3

Totals _______________________________ 13 85 76 14 8

G Filed under Rule 485. b Filed under Rule 24b-2

Filed under Rule 458-1.

ACTIVITIES OF THE COMMISSION IN ACCOUNTING AND AUDITING

The several Acts administered by the Commission recognize the

importance of dependable informative financial statements which

disclose the financial status and earnings history of a corporation or

other commercial entity. These statements, whether filed in compliance with the requirements under those' statutes or included in other

material available to stockholders or prospective investors, are indispensable to investors as a basis for investment decisions. The Congress, cognizant of the fact that such statements lend themselves

•

•
TEaRTIETH ~AL REPORT 143

readily to misleading inferences or even deception, whether or not

intended, included express provisions in the various Acts with respect

to financial information required to be disclosed. Thus, for example,

the Securities Act requires the inclusion in the prospectus of balance

sheets and profit and loss statements "in such form as the Commission

shall prescribe" 30 and authorizes the Commission to prescribe the

"items or details to be shown in the balance sheet and earnings statement, and the methods to be followed in the preparation of accounts ... " 31 Similar authority is contained in the Securities

Exchange Act,32 and even more comprehensive power is embodied

in the Investment Company Act 33and the Public Utility Holding

Company Act.34

Pursuant to the broad rulemaking power thus conferred with respect

to the preparation and presentation of financial statements, the Commission has prescribed uniform systems of accounts for companies

subject to the Holding Company Act ;35has adopted rules under the

Securities Exchange Act governing accounting for and auditing of

securities brokers and dealers; 36and has promulgated rules contained

in a single comprehensive regulation, identified as Regulation S-X,31

which governs the form and content of financial statements filed in

compliance with the several Acts. This regulation is supplemented by

the Commission's Accounting Series Releases, of which 99 have so far

been issued." These releases were inaugurated in 1931 and were

designed as a program for making public from time to time opinions

on accounting principles for the purpose of contributing to the development of uniform standards and practice in major accounting questions. The rules and regulations thus established, except for the

uniform systems of accounts which are regulatory reports, prescribe

accounting principles to be followed only in certain limited areas. In

the large area of financial reporting not covered by such rules, the

Commission's principal means of protecting investors from inadequate

financial reporting, fraudulent practices and overreaching by manage80 Sections 7 and 10 (a) (Schedule A, pars. 25. 26).

11 Section 19 (a) .

.. Section 13(b)

.. Sections 30, 31.

N Sections 14, 15.

.. Uniform System of Accounts for MutUal Service Companies and Subsidiary Service

Compaules (effective August 1, 1936); Uniform System of Accounts for Public Utlllty

Holding Companies (ell'ectlve J"anuary I, 1937; amended ell'ectlve J"anuary 1, 1943;

revised November 24, 1959). (Accounting Series Release No. 84.)

.. Rule 17a-5 and Form X-17 A-5 thereunder.

87 Adopted February 21, 1940 (Accounting Series Release No. 12) ; revised December 20,

1950 (Accounting Series Release No. 70).

.. Releases 98 and 99 were Issued during the yesr, the former being an Interpretation

of the recordkeeplng rules as applied to broker-dealer underwriters of Investment company shares and the latter dismissing proceedings under Rule 2(e) of the Commission's

Rules of Practice against an accounting firm.

•
144 SECURITIES AND EXCHANGE COMMISSION

ment is by requiring a certificate of an independent public accountant,

based on an audit performed in accordance with generally accepted

auditing standards, which expresses an opinion as to whether the

financial statements are presented fairly in conformity with accounting principles and practices which are recognized as sound and which

have attained general acceptance.

The Securities Act provides that the financial statements required

to be made available to the public through filing with the Commission shall be certified by "an independent public or certified accountant." 39 The other three statutes permit the Commission to require

that such statements be accompanied by a certificate of an independent

public accountant," and the Commission's rules require, with minor

exceptions, that they be so certified. The value of certification by

qualified accountants has been conceded for many years, but the requirement as to independence, long recognized and adhered to by

some individual accountants, was for the first time authoritatively

and explicitly introduced into law in 1933. Under the Commission's

rules, an accountant who is qualified to practice in his own state is

qualified to practice before the Commission unless he has entered into

disqualifying relationships with a particular client, such as becoming

a promoter, underwriter, voting trustee, director, officer, employee, or

stockholder; 41 has demonstrated incompetence or subservience to

management; or has engaged in unethical or improper professional

conduct."

The Commission endeavors to encourage and foster the independence

of the accountant in his relationships with his client so that he may

better be able to perform the service to the public contemplated by

the Congress in the various Acts administered by the Commission.

Because of his special status and responsibility, the accountant has a

unique opportunity to be a leader in raising standards of investor

protection. The financial statements provide the key information

both in the distribution and trading of securities. The work of the

accountant in their preparation and publication is vital. Independent accountants lend authority to management's representations by

their opinions as experts, and they operate as a check on management

in assuring that the financial data are fairly presented in accordance

with generally accepted accounting principles.

The Commission is vigilant in its efforts to assure itself that the

audits which it requires are performed by independent accountants;

30 Sections 7 and lOra} (Schedule A, pars. 25, 26) .

•• Securities Exchange Act, Sec. 13{a} (2)\; lnv~stment COmplUlY Act, See. 30{e):

Holding Company Act, Sec. 14.

U See, for example, Rule 2-01 of Reg. S-X.

'" 8M Rule 2(e) of Rules of Practice.
THIRTIETH ANNUAL REPORT 145

that the information contained in the financial reports represents full

and fair disclosure; and that appropriate auditing and accounting

practices and standards have been followed in their preparation. In

addition, it recognizes that changes and new developments in financial

and economic conditions affect the operations and financial status of the

several thousand commercial and industrial companies required to file

statements with the Commission and that accounting and auditing

procedures cannot remain static and continue to serve well a dynamic

economy. The Commission's accounting staff, therefore, studies the

changes and new developments for the purpose of establishing and

maintaining appropriate accounting and auditing policies, procedures

and practices for the protection of investors. The primary responsibility for this program rests with the Chief Accountant of the Commission, who has general supervision with respect to accounting and

auditing policies and their application.

Progress in these activities requires continuing contact and consultation between the staff and accountants both individually and through

such representative groups as, among others, the American Accounting Association, the American Institute of Certified Public Accountants, the American Petroleum Institute, the Financial Analysts

Federation, the Financial Executives Institute, and the National Association of Railroad and Utilities Commissioners, as well as many

Government agencies. Recognizing the importance of cooperation in

the formulation of accounting principles and practices, adequate disclosure and auditing procedures which will best serve the interests of

investors, the American Institute of Certified Public Accountants, the

Financial Analysts Federation and the Financial Executives Institute appoint committees which maintain liaison with the Commission's

staff.

The Commission on its part has authorized its Chief Accountant to

continue to serve as a member of an advisory committee to the Accounting Principle Board of the American Institute of Certified Public

Accountants. This committee has been serving as adviser to the Institute's Director of Research who has been engaged in making an inventory of accounting principles and practices recognized by the

accounting profession and currently in use. The work on this inventory is nearing completion and will be published soon by the Institute.

The Chief Accountant has also served on a somewhat similar committee of the American Accounting Association.

The many daily decisions to be made which require the attention of

members of the Chief Accountant's staff include questions raised by

the operating divisions of the Commission, the regional offices, and

757-903-<65--11
146 SECURITIES AND EXCHANGE COMMISSION

the Commission itself. As a result of this day-to-day activity and the

need to keep abreast of current accounting problems, the Chief Accountant's staff continually reexamines accounting and auditing principles and practices. From time to time members of the staff are

called upon to assist in field investigations, to participate in hearings

and to review Commission opinions insofar as they pertain to accounting matters.

Prefiling and other conferences with officials of corporations, practicing accountants and others are also an important part of the work

of the staff. Resolution of questions and problems in this manner

saves registrants and their representatives both time and expense.

The 1964 amendments to the securities acts will bring into contact with

the Commission many heretofore "unregulated" companies. Undoubtedly, in many cases, the accountant will be a primary bridge

between the issuer and the Commission. The accountant will be called

on to advise on the establishment of systems and controls which will

promote the most effective and comprehensible form of compliance.

A little foresight can avoid many unnecessary, and possibly embarrassing, problems. For example, when it is contemplated that a company

will have to register in the future-as when the shareholder limit

under the 1964 amendments drops to 500 after about 2 years-the

appropriate internal controls should be established now to avoid potential problems which might preclude the issuance of an unqualified

certificate.

Many specific accounting and auditing problems are found in the

examination of financial statements required to be filed with the Commission. Where examination reveals that the rules and regulations

of the Commission have not been complied with or that applicable

generally accepted accounting principles have not been adhered to,

the examining division usually notifies the registrant by an informal

letter of comment. These letters of comment and the correspondence

or conferences that follow continue to be a most convenient and satisfactory method of effecting corrections and improvements in financial statements, both to registrants and to the Commission's staff.

Where particularly difficult or novel questions arise which cannot be

settled by the accounting staff of the divisions and by the Chief

Accountant, they are referred to the Commission for consideration

and decision.

Difficulties often arise in connection with initial filings because

accountants and other advisers who serve the registrant have not had

any prior experience with the Commission. Insome cases these persons have not familiarized themselves with the rules and regulations

of the Commission-particularly the instructions as to financial state-
THIRTIETH ANNUAL REPORT 147

ments required by the forms, the rules relating to independence of the

certifying accountant, and those relating to the form and content of

financial statements as set forth in Regulation S-X. In an effort to

improve this situation several members of the accounting staff of the

Commission participated in a course on filings with the Commission,

at the invitation of the sponsor, the American Institute of Certified

Public Accountants. This course, first offered in 1963, has been given

in Chicago, Los Angeles, Milwaukee, New York, San Francisco, Washington, D.C., and elsewhere. In addition the Chief Accountant and

other members of the staff have addressed accounting groups in many

cities on the financial reporting requirements of the securities acts.

This work is continuing and it is believed should facilitate the adjustment of companies becoming subject to those acts for the first time as

a result of the 1964 amendments of the Securities Exchange Act

of 1934.

During the year the Office of the Chief Accountant devoted considerable time to the various aspects of the 1964 amendments, and in

response to a specific request of the Sub-committee on Commerce and

Finance of the Committee on Interstate and Foreign Commerce, House

of Representatives, prepared a memorandum on H.R. 6789 and H.R.

6793 which was included in the record on those bills. This memorandum set forth what the Commission understands to be some of

the areas of accounting where alternative practices could produce

materially different results under generally accepted accounting principles and included a statement as to the Commission's policy with

respect to financial reporting.

The staff of the Chief Accountant's Office and the staff of the Office

of Program Planning had several conferences during fiscal 1964 with

representatives of the New York Stock Exchange for the purpose of

securing information necessary for a better understanding of the

Stock Exchange's commission rate structure and leveL As recommended by the Special Study," the Income and Expense Report developed by the Exchange was reviewed to determine whether that

report could be revised to be more useful as a basis for studies by this

Commission and the Exchange.

Representatives from the Chief Accountant's Office,the New York

Stock Exchange, and its consultants Price Waterhouse & Co., and the

two odd-lot member firms conferred and made field investigations

for the purpose of determining how the recommendation of the Special Study to the effect that "The New York Stock Exchange should

recognize and meet its responsibility to regulate odd-lot differentials"

.. Report of Special Study ot Securities Markets of the Securities and Exchange Commission, 88th Cong., 1st Sess., H. Doc. No. 95, pt. 2, p. 349.
148 SECURITIES AND EXCHANGE COMMISSION

should be implemented.v These persons studied the operating methods and financial data of odd-lot dealers for the purpose of developing

a financial report which will reflect the income and expenses of the

odd-lot functions of brokers and dealers in this area of the securities

market.

Conferences were held between members of the Commission's staff

from the Division of Trading and Markets, certain regional offices,

and the Office of the Chief Accountant and representatives of the New

York and Midwest Stock Exchanges, and representatives of the American Institute of Certified Public Accountants, to consider a proposed

revision of Form X-17A-5, the annual report of financial condition

required to be filed by certain brokers and dealers pursuant to Section

17 of the Securities Exchange Act of 1934. This form is being revised

to meet changing conditions and practices in the securities industry

and expanded and clarified for its use by small brokers and dealers

not fully familiar with stock exchange practices.

Cooperation between the Office of the Chief Accountant and the

Division of Corporate Regulation resulted in a proposed new rule

and a proposed revision of annual report Form N-30A-1 under the

Investment Company Act of 1940.45 The proposed new rule, Rule

2a-4, defines procedures to be followed in the periodic calculation of

the net asset value of any redeemable security issued by a registered

investment company for the purposes of distribution, redemption,

and repurchase of such redeemable security. The proposed revision

of annual report Form N-30A-l which is filed with the Commission

by registered management investment companies will require an accountant, in addition to certifying the financial statements in such

reports, to assume varying degrees of responsibility as to the fair

presentation of information presented in many other items, e.g., asset

coverage of senior securities, portfolio turnover rates, and with respect to items in the minutes relating to financial matters.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVEWPMENT

Section 15 of the Bretton Woods Agreements Act, as amended, exempts from registration under both the Securities Act of 1933 and the

Securities Exchange Act of 1934, securities issued, or guaranteed as

to both principal and interest, by the International Bank for Reconstruction and Development. The Bank is required to file with the

Commission such annual and other reports with respect to such securities as the Commission shall determine to be appropriate in view of the

special character of the Bank and its operations and necessary in the

.. Thid., p. 202.

.. The annonncement of these proposals was made shortly after the close of the fiscal

year.
TffiRTIETH ANNUAL REPORT 149

public interest or for the protection of investors. The Commission

has, pursuant to the above authority, adopted rules requiring the Bank

to .file quarterly reports and also to .file copies of each annual report

of the Bank to its Board of Governors. The Bank is also required to

file reports with the Commission in advance of any distribution inthe

United States of its primary obligations. The Commission, acting

in consultation with the National Advisory Council on International

Monetary and Financial Problems, is authorized to suspend the exemption at any time as to any or all securities issued or guaranteed by the

Bank during the period of such suspension.

During the Bank's last .fiscal year ending June 30, 1964, the Bank

made 37 loans totaling $809.9 million, compared with a total of $448.7

million last year. The loans were made in Algeria, Chile (two loans) ,

China, Colombia (two loans), Costa Rica, Denmark, Ecuador, EI

Salvador, Ethiopia, Finland, Iran, Japan (two loans), Liberia, Malaysia (two loans), Malta, Mauritius, Mexico, New Zealand (two

loans), Nigeria, Norway, Pakistan (three loans), Peru (two loans),

Portugal (two loans) , Spain, Thailand, Tunisia, Venezuela, and Yugoslavia. This brought the total number of loans to 386 in 73 countries

and territories and raised the gross total of commitments to $7,931.3

million. By June 30, as a result of cancellations, exchange adjustments, repayments and sales of loans, the portion of loans signed still

retained by the Bank had been reduced to $5,191.9 million.

During the year the Bank sold or agreed to sell $173.3 million principal amounts of loans, compared with sales of $273.3 million last year.

On June 30, the total of such sales was $1,778.6 million, of which all

except $69 million had been made without the Bank's guarantee.

On June 30, the outstanding funded debt of the Bank was $2,491.8

million, reflecting a net decrease of $27.4 million in the past year.

During the year, the funded debt was increased by $104.5 million

through the private placement of a $100 million United States dollar

bond issue and the delivery of $4.5 million of bonds which had been

subject to delayed delivery arrangements. The debt was decreased by

$131.9 million as a result of the maturing of the equivalent of $107.8

million of bonds and of sinking fund and purchase fund transactions

amounting to $24.1 million.

During the fiscal year the following 17 countries became members of

the Bank: Algeria, Burundi, Cameroon, Central African Republic,

Chad, Congo (Brazzaville), Congo (Leopoldville), Dahomey, Gabon,

Guinea, Kenya, Malagasy Republic, Mali, Mauritania, Rwanda, Trinidad and Tobago, and Uganda. Subscribed capital amounted to

$21,186 million on June 30, 1964.
150 SECURITIES AND EXCHANGE COMMISSION

INTER-AMERICAN DEVELOPMENT BANK

The Inter-American Development Bank Act, which authorizes the

United States to participate in the new Inter-American Development Bank, provides an exemption for certain securities which may be

issued by the Bank similar to that provided for securities of the International Bank for Reconstruction and Development. Acting pursuant to this authority, the Commission adopted Regulation lA, which

requires the Bank to file with the Commission substantially the same

information, documents and reports as are required from the International Bank for Reconstruction and Development. The Bank is

also required to file a report with the Commission prior to the sale of

any of its primary obligations to the public in the United. States.

During the year ended June 30, 1964,the Bank made 22 loans totaling the equivalent of $119,977,000from its ordinary capital resources,

bringing the gross total of loan commitments outstanding at June 30,

to 89, aggregating $413,509,123. During the year, the Bank sold or

agreed to sell $6,273,524in participations in the aforesaid loans, all of

such participations being without the guarantee of the Bank. The

loans from the Bank's ordinary capital resources were made in Argentina, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Guatemala, Mexico,Peru, and Uruguay.

During the year the Bank also made six loans from its Fund for

Special Operations totaling the equivalent of $7,610,000,bringing the

gross total of loan commitments outstanding at June 30, to 39, aggregating $126,521,687. Participations in five loans in the aggrega.te

amount of $1,645,058were sold during the year without the guarantee

of the Bank. The Bank made 17loans during the year from the Social

Progress Trust Fund, which it administers under an Agreement with

the United States, aggregating $38,435,000,bringing the gross total

of loan commitments outstanding at June 30, to 81, aggregating

$386,347,000.

During the year the Bank made its second sale of its primary obligations in the United States with a public issue of dollar bonds.in the

amount of $50million.

The outstanding funded debt of the Bank on June 30,1964, was the

equivalent of $149,193,548,composed of $125 million resulting from

two sales of dollar bonds and Italian lire equivalent to $24,193,548

resulting from the sale of bonds in Italy in April 1962.

The subscribed ordinary capital of the Bank on June 30,1964, was

the equivalent of $813,160,000, of which $431,580,000 represented

callable capital.
THIRTIETH ANNUAL REPORT 151

STATISTICS AND SPECIAL STUDIES

During the past fiscal year the Officeof Statistical Studies (formerly

Branch of Economic Research) continued its regular work in connection with the statistical activities of the Commission and the overall

Government statistical program under the direction of the Office of

Statistical Standards, Bureau of the Budget.

The statistical series described below are published in the Commission's Statistical Bulletin and in addition, except for data on registered

issues, and on corporate pension funds, current figures and analyses

of the data are published in quarterly press releases.

Issues registered under the Securities Act of 1933

Monthly statistics are compiled on the number and volume of registered securities, classified by industry of issuer, type of security, and

use of proceeds. Summary statistics for the years 1935-64 are given

in Appendix Table 1 and detailed statistics for the fiscal year 1964

appear in Appendix Table 2.

New Securities Offerings

This is a monthly and quarterly series covering all new corporate

and noncorporate issues offered for cash sale in the United States.

The series includes not only issues publicly offered but also issues

privately placed, as well as other issues exempt from registration

under the Securities Act such as intrastate offerings and railroad securities. The offerings series includes only securities actually offered

for cash sale, and only issues offered for account of issuers. Annual

statistics on new offerings for recent years as well as monthly figures

from January 1963,through June 1964, are given in Appendix Tables

-3,4,and 5.

Estimates of the net cash flow through securities transactions are

prepared quarterly and are derived by deducting from the amount of

estimated gross proceeds received by corporations through the sale of

securities the amount of estimated gross payments by corporations to

investors for securities retired. Data on gross issues, retirements and

net change in securities outstanding are presented for all corporations

and for the principal industry groups.

Individuals' Saving

The Commission compiles quarterly estimates of the volume and

composition of individuals' saving in the United States. The series

represents net increases in individuals' financial assets less net increases in debt. The study shows the aggregate amount of saving and

the form in which the saving occurred, such as investment in securities,

expansion of bank deposits, increases in insurance and pension reserves, etc. A reconciliation of the Commission's estimates with the
152 SECURITIES AND EXCHANGE COMMISSION

personal saving estimates of the Department of Commerce, derived in

connection with its national income series, is published annually by

the Department of Commerce as well as in the Securities and Exchange

Commission Statistical Bulletin.

Private Pension Funds

An annual survey is made of private pension plans other than those

administered by insurance companies, showing the flow of money into

these funds, the types of assets in which the funds are invested and the

principal items of income and expenditures. A new quarterly survey

has been initiated in cooperation with certain large bank trustees and

corporations to obtain quarterly figures on pension fund assets and

stock transactions, and similar figures are being collected from property and casualty insurance companies. This information is to be

combined with statistics on investments of other financial intermediaries, and it is planned that the data will be published in the current

fiscal year.

Financial Position of Corporations

The series on the working capital position of all United States corporations, excluding banks, insurance companies and savings and loan

associations, shows the principal components of current assets and

liabilities, and also contains an abbreviated analysis of the sources

and uses of corporate funds.

The Commission, jointly with the Federal Trade Commission, compiles a quarterly financial report of all United States manufacturing

concerns. This report gives complete balance sheet data and an abbreviated income account, data being classified by industry and size of

company.

Plant and Equipment Expenditures

The Commission, together with the Department of Commerce, conducts quarterly and annual surveys of actual and anticipated plant and

equipment expenditures of all United States business, exclusive of

agriculture. After the close of each quarter, data are released on actual

capital expenditures of that quarter and anticipated expenditures for

the next two quarters. In addition, a survey is made at the beginning

of each year of the plans for business expansion during that year.

Directory of Registered Companies

The Commission annually publishes a listing of companies required

to file annual reports under the Securities Exchange Act of 1934. In

addition to an alphabetical listing, there is a listing of companies by

industry group classified according to The Standard Industrial Classification Manual.
THIRTIETH ANNUAL REPORT 153

Stock Market Data

The Office of Statistical Studies regularly compiles statistics on

the market value and volume of sales on registered and exempted

securities exchanges, round-lot stock transactions on the New York

exchanges for accounts of members and nonmembers, odd-lot stock

transactions on the New York exchanges, special offerings and secondary distributions. Data on round-lot and odd-lot trading on the two

New York exchanges are released weekly. The other statistical data

mentioned above, as well as these weekly series, are published regularly

in the Commission's Statistical Bulletin.

OPINIONS OF THE COMMISSION

Administrative proceedings under the statutes administered by the

Commission and under its Rules of Practice generally involve a hearing before a hearing examiner and culminate in the issuance of an

opinion by the Commission. Under a modified procedure adopted

during the :fiscal year and applicable to proceedings initiated on or

after August 1, 1964, the Commission will adopt the hearing examiner's

decision if Commission review is not sought or if the Commission does

not deem it appropriate to review that decision.

In the preparation of its opinions, the Commission, or the individual

Commissioner to whom a case may be assigned for the preparation

of an opinion, is generally assisted by the Office of Opinions and

Review (fonnerly Office of Opinion Writing). This Office is directly

responsible to the Commission and is completely independent of the

operating divisions, consistent with the principle of separation of

functions embodied in the Administrative Procedure Act. Where the

parties to a proceeding waive their right to such separation, the operating division of the Commission which participated in the proceeding

may assist in the drafting of the Commission's decision.

The Commission's opinions are publicly released and are distributed

to the press and to persons on the Commission's mailing list. Inaddition, they are printed and published periodically by the Government

Printing Office in bound volumes entitled "Securities and Exchange

Commission Decisions and Reports."

DISSEMINATION OF INFORMATION

As indicated elsewhere herein, a wealth of :financial and other information is contained in the registration statements and reports :filed

with the Commission, which are public documents available for inspection by investors and other interested persons. Much of this information finds its way into securities manuals and other :financial publications. Various activities of the Commission serve to augment the public
154 SECURITIES AND EXCHANGE COMMISSION

dissemination of financial and other information filed with the Commission and that reflected in decisions issued by and other actions of

the Commission.

To facilitate the public dissemination of this information, the Commission publishes a daily "News Digest" containing a resume of each

proposal for the public offering of securities for which a registration

statement is filed, as well as a summary of each order, decision or rule

issued or other action taken by the Commission. Thus, during the year,

the Digest included a. report on each of the 1,039 registration statements filed with the Commission (not including investment company

filings which added additional securities by way of amendments toprevious filings) ; and it also included summaries of the 8$9 orders,

decisions, rules and other actions of the Commission. It also summarized 300 releases announcing injunctive and other enforcement

actions of the Commission. The Digest is made immediately available

to the press; and it also is reprinted and distributed by the Government Printing Office, on a subscription basis, to some 2,565 investors,

securities firms, practicing lawyers and others. The Commission also

makes a more limited distribution of the full text of its decisions and

other actions.

Through public discussions by individual members of the Commission and staff officers,including addresses before professional, business

and other groups and participation in panel discussions, the Commission also seeks to promote a better understanding of the provisions

of the laws it administers and the rules promulgated thereunder, thus

facilitating compliance therewith.

Information Available for Public Inspection

The many thousands of registration statements, applications, declarations, and annual and other periodic reports filed each year are

available for public inspection at the Commission's principal officein

Washington, D.C. Inaddition, copies of recent reports filed by companies having securities listed on exchanges other than the New York

Stock Exchange and the American Stock Exchange, and copies of

current reports of many nonlisted companies which have registered

securities for public offering under the Securities Act, may be examined in the Commission's New York Regional Office; and recent

reports filed by companies whose securities are listed on the New York

and American Stock Exchanges may be examined in the Commission's

Chicago Regional Office. Moreover, there are available for examination in all regional offices copies of prospectuses relating to recent

public offerings of securities registered under the Securities Act; and

all regional officeshave copies of broker-dealer annual financial reports
THIRTIETH ANNUAL REPORT 155

and Regulation A letters of notification filed in their respective

regions. Reports of companies whose securities are listed on the

various exchanges may be seen at the respective exchange offices.

In order to facilitate a wider dissemination of financial and other

information contained in corporate reports filed with the Commission

under the Federal securities laws (an objective strongly urged by the

Special Study Report), the Commission has arranged to take standing orders, on an experimental basis, for photocopies of Form 1D-K

annual reports filed. This service may be extended later to other

reports, depending upon public reception and the experience gained

in supplying copies of annual reports.

Under the existing contract with a printing company for the reproduction of material in the Commission's public files in response to

requests of members of the public, photocopies may be obtained at a

reduced cost of 0.08 cent per page for pages not exceeding 81;2"by 14"

in size. The detailed per-page prices are given in Release No. 34-7351

which may be obtained from the publications unit of the Commission.

The charge for each certification of any document by the Commission

is $2.

So that corporate reports may be more readily available for examination by interested members of the public, the Commission also has

made arrangements for the Form 10-K annual reports to be placed on

open shelves in the public area of its public reference room in Washington, D.C., thus making these reports available for immediate inspection. There are presently three coin-operated photocopiers in the

public reference room to enable visitors to make immediate reproductions of reports at a cost of 25 cents per page. (The New York

Regional Officehas a similar machine.)

Each year many thousands of requests for photocopies of and information from the public files of the Commission are received by the

public reference room in Washington, D.C. During the year 5,132

persons examined material on file in the Washington, D.C. officeand

several thousand others examined files in the New York and Chicago

regional offices. Over 18,268 searches were made for individuals requesting information and approximately 2,164 letters were written

with respect to information required.

PUBLICATIONS

In addition to the daily News Digest, and releases concerning Commission action under the Acts administered by it and concerning litigation involving securities violations, the Commission issues a number

of other publications, including the following:
156 SECURITIES AND EXCHANGE COMMISSION

Monthly:

Statistical Bulletln.s

Official Summary of Securities Tral1S!lctions and Holdings of Officers, Directors and Principal Stockholders. a

Quarterly;

Financial Report, U.S. Manufacturing Corporations (jointly with the Federal Trade Oommlsston).«

Plant and Equipment Expenditures of U.S. Corporations (jointly with the

Department of Commerce).

New Securities Offerings.

Volume and Composition of Individuals' Saving.

Working capital of U.S. Corporations.

Annually:

Annual Report of the Commission. a

Securities Traded on Exchanges under the Securities Exchange Act of 1934.

List of Companies Registered under the Investment Company Act of 1940.

Classification, Assets and Location of Registered Investment Companies

under the 1940 Act./)

Corporate Pension Funds.

Directory of Companies Filing Annual Reports.«

Other Publications ;

Decisions and Reports of the Commission. a

Securities and Exchange Commission-Its Functions and Activities.

A StUdy of Mutual Funds (by The Wharton School).a

Report of Special Study of Securities Markets.a

ORGANIZATION

The Commission's staff consists of attorneys, security analysts,

accountants, engineers, investigators and administrative and clerical

personnel.

During the fiscal year, certain organizational changes were effected

pursuant to recommendations of the Special Study of Securities

Markets.

In July 1963, a new Office of Program Planning was established

to assist the Commission in reviewing and formulating policy and of

coordinating activities in the implementation of the Special Study's

recommendations. This work involves, in coordination with other

Commission offices and divisions, changes in the rules, regulations and

policies of the Commission and self-regulatory agencies; recommendations for legislation; proposals for modifications of industry practices;

and procedures for gathering and analyzing economic data about the

securities markets.

In October 1963, the Division of Trading and Exchanges was renamed the Division of Trading and Markets, and its functions were

Must be ordered from the Superintendent of Documents, Government Printing OfBee.

Washington, D.C., 20402-

b This document is avsnabte in photocopy form, at a current cost of $10.32 plUlJpostage.

Purchasers are billed by the printing company which prepares the photocopies.

•
SECURITIES AND EXCHANGE C

THC COMMISSION 

THE SECRETARY 

I 

THE OFFICE DC TRE DIVIUOH 01 THE DlV

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158 SECURITIES AND EXCHANGE COMMISSION

realigned to implement the recommendation contained in the Report

of the Special Study that the Division be so organized and staffed

that it might more adequately oversee the operation of the self-regulatory agencies, examine on a continuous basis changing market circumstances and regulatory needs and appraise the adequacies of existing

regulatory measures. Inaddition, the Report recommended that the

Division's research activities be expanded so that greater emphasis

be given to the compilation, analysis and, where appropriate, publication of data concerning certain aspects and developments in the trading markets. As reconstituted, the Division consists of six unitsthe Offices of Chief Counsel, Criminal Reference, Enforcement, Regulation, Special Proceedings, and Statistical Studies.

Another change effected during the year involved the transfer of

the Section of Machine Tabulation from the Officeof the Comptroller

to the Office of Records and Service. This change was made in contemplation of the installation of a computer during fiscal year 1965,

which is to be operated by the staff of that Section.

PERSONNEL AND FINANCIAL MANAGEMENT

Highlights of the Commission's personnel program in fiscal 1964

included (1) increased activities designed to curb grade escalation, (2)

the addition of an important fringe benefit in the form of accident

insurance, (3) the conduct of OPERATION SCAN under the incentive awards program, (4) participation in the Federal government's

program for hiring mentally retarded persons and (5) the continuation of after-hours training of employees.

In the 6 years from 1958 to 1963, the average grade in the Commission rose from 8.8 to 9.1. This is a 3.4 percent increase as compared

with a 12.5 percent increase for all agencies. Similarly, the number

of positions in grades GS-13 through GS-18 increased only 10 percent

as compared with an increase of 59 percent for all agencies. Although

no significant or unwarranted rise in the grades of its positions was

found, the Commission instituted measures to control upgradings

which could not be fully justified. As of June 30, 1964, the average

grade was 9.2.

All employees were offered complete accident insurance coverage at

group rates under the Securities Commission Accident Plan (SCAP)

adopted in June 1964. This plan is offered as an employee service at

00 cost to the Commission. Employees pay the total cost of premiums

and deal directly with the insurance company or its agent on a private

transaction basis. The plan is particularly attractive to employees

who perform considerable officialtravel.
TffiRTIETH ANNUAL REPORT 159

OPERATION SCAN was launched in April 1964 in an all-out

effort to spur all Commission employees to propose and devise new

ways to improve job performance and to suggest ways to improve

methods, reduce costs, increase productivity, and save man-hours.

Members of the Commission sent a letter to each employee urging

wholehearted participation in the program. Chairman John W.

Macy, Jr., of the Civil Service Commission in a letter to the Chairman

stated:

My congratulations to you and your associates for this imaginative

response to the President's call for an intensified effort aimed at encouraging employee ideas for cutting costs and increasing efficiency during

this Tenth Anniversary year of the incentive awards program. We plan

to bring this program to the attention of other agencies.....

The Commission was one of the first Federal agencies to employ a

qualified mentally retarded person under the special appointing authority approved by the Civil Service Commission. The young man

entered on duty as a messenger on February 17, 1964 and he has performed satisfactorily.

Formalized training in the work of the Commission continued to be

emphasized by several of the divisions and offices. The Division of

Trading and Markets conducted its Third Annual Seminar on Investigative Techniques and Trial Practice in the spring of 1964. Eight

after-hour sessions were conducted. A highlight of the Seminar was

a mock administrative hearing held in the court room of the United

States Court of Military Appeals.

The Commission's General Counsel, Philip A. Loomis, Jr., received

a Career Service Award from the National Civil Service League in

April 1964. He is the third employee to be accorded this honor.

Andrew Barr, Chief Accountant of the Commission, received the 1964

Alpha Kappa Psi Foundation Award. Frederick Moss, Chief, Office

of Special Proceedings, Division of Trading and Markets, was a semifinalist for one of 10 Arthur S. Flemming Awards presented annually

to outstanding young men in the Federal Service.

During the period April 15, 1963 through June 30, 1964, 130 members of the staff received an additional within-grade salary increase

in recognition of high quality performance. These awards are authorized by Section 702 of the Classification Act of 1949, as amended by

the Salary Reform Act of 1962.

Cash awards totaling $5,700 and certificates of merit were presented

to 48 employees at the Commission's Eighth Annual Service and Merit

Awards Ceremony, held in October 1963.
160 SECURITIES AND EXCHANGE COMMISSION

The following comparative table shows the personnel strength of

the Commission as of June 30, 1963 and 1964:

1une 30, 1964 1une30, 1963

COmmlssioners__________________________________________________________ 4 •

Staff:

=~~~~~~===================================:============ 848 861

527 522

Total staff_________________________________________________________ 1,375 1,383-

Orand total _______________________________________________________ 1,379 1,388.

The table on page 161 shows the status of the Commission's budget

estimates for the fiscal years 1960 to 1965, from the initial submission

to the Bureau of the Budget to final enactment of the annual appropriation.

The Commission is required by law to collect fees for registration

of securities issued, qualification of trust indentures, registration of

exchanges, and sale of copies of documents filed with the Commission,w

The following table shows the Commission's appropriation, total

fees collected, percentage of fees collected to total appropriation, and

the net cost to the taxpayers of Commission operations for the fiscal

years 1962, 1963, and 1964:

Percentage of

FeeS collected

fees collected Net cost of

Year Appropriation to total appro- Commlssion

priation operations (percent)

1962____________________________________ 1963____________________________________$11,412,500 $3,422,403 30 $7,990,097

1964____________________________________13,261,700 2,533,986 19 10,727,714

13,937,500 3,106,213 22 10,831,287

.. Principal rates are (1) ;ioo of 1 percent of the maximum aggregate price of securities

proposed to be o1fered but not less than $25; (2) ;Mo of 1 percent of the aggregate dollar

amount of stock transactions. Fees for other services are only nominal.
THIRTIETH ANNUAL REPORT 161

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PART XII

APPENDIX

STATISTICAL TABLES

'TABLE I.-A so-sea» record. of regi8trationa effective untler the Securltiea Act

of 1988

1985-1964-

[Amounts In millions of dollars]

For cash sale for account of Issuers Number Fiscal year ended June 30 of All regisstate- tratlons Bonds, Preferred Common ments ! Total de ben tures, stock stock and notes

1935

1936__________________________ 284 $913 $686 $400 $28 $168 1937__________________________ 689 4,835 3,936 3,153 252 531

1938__________________________ 840 4, 851 3,635 2,426 406 802

1939_ 412 2,101 1,349 666 209 474

1940 344 2,579 2,020 1,593 109 318

1941. 306 1,787 1,433 1,112 110 210

1942 __________________________ 313 2,611 2,081 1,721 164 196 1943 __________________________ 193 2,003 1,465 1,041 162 263 lll«__________________________ 123 659 486 316 32 137

1945 __________________________ 221 1,760 1,347 732 343 272 1946__________________________ 340 3,225 2,715 1,851 407 456

1947__________________________ 661 7,073 5,424 3,102 001 1,331

1948 __________________________ 493 6,732 4,874 2,937 787 1, 160

1949__________________________ 435 6,405 6,032 2,817 637 1,678 1950__________________________ 42ll 6,333 4,204 2,795 326 1,083

1951__________________________ 487 5,307 4,381 2,127 468 1,786

1952__________________________ 487 6,459 5,169 2,838 427 1,004 1953 __________________________ 635 9,600 7,529 3,346 851 3,332

1964__________________________ 693 7,607 6,326 3,093 424 2,808

1955__________________________ 631 9,174 7,381 4,240 531 2,610

1956 779 10,960 8,277 3,951 462 3,864

1957__________________________ 006 13,096 9,206 4, 123 539 4,644

1958 876 14, 624 12,019 6,689 472 6,858

1959__________________________ 813 16,400 13,281 6, 857 427 6,ll98

il960 1,070 16,657 12,095 6,265 443 6,387

1,426 14,357 11,738 4,224 253 7,260 1961. _. _______________________ 1962__________________________ 1,550 19,070 16,260 6,162 248 9,850

1963__________________________ 1,844 19,647 16,286 4, 612 253 11,621

1964 1,157 14,700 11,869 4,372 270 7,227

1,121 16,860 14, 784 4, 564 224 10,006

I Statements registering American Depositary Reeeipts sgamst outstandIng foreign securities es provided

.by Form 8-12 are Included .

For 10 months ended Jnne 30, 1935.

165

•_________________________

• ________________________ __________________ • _______

______________• _________

_______________________ • __

_______________________ • __

__ • _______________________

__ • ________________• ______

•
166 SECURITIES AND EXCHANGE COMMISSION

TABLE 2.-RegUitrations effective under the Securities Act 011938, fiscal year

ended June 30, 1964

PART I.-DISTRIBUTION BY MONTHS

(Amounts in thousands of dollars ']

All registrations Proposed for sale for account of Issuers 2

Totals 3 Corporate' Year and month Number Number of state- of Amount ments issues 3 Number Number

of Amount of Amount ISSues 3 issues 2

1969 July ______________________ 101 124 $1,025,116 102 $915,035 43 $423,591 August. __________________ 81 90 1,140,204 77 1,071,562 34 359,683 September _______________ 63 75 622,065 59 533,601 27 269,628 October __________________ 96 105 1,032,018 87 949,416 46 640,171 November _______________ 66 82 958,113 62 553,676 37 281,906 December ________________ 91 112 956,564 83 846,223 38 452,728

1961, J anuary __________________ 80 91 1,729,859 76 1,293,416 36 397,777 February ________________ Marcb 75 83 2,753,498 68 2,643,197 27 1,526,71S ____________________

Aprll 82 97 1,422,294 78 1,293,942 42 356,296 _____________________ 142 162 1,933,936 137 1,768,349 39 415,91S May ______________________ 137 158 1,720,259 127 1,542,324 48 564.971 June _____________________ 107 145 1,565,824 112 1,372,969 56 825,656

---- Total, fiscal year 1964______________ '1,121 1.324 16.859,751 1,068 14,783,709 473 , 6,515,044

PART 2.-PURPOSE OF REGISTRATION AND TYPE OF SECURITY

(Amounts in tbousands of dollars ']

Type of security

Purpose of reglstration All types

Bonds, de- Preferred Commou

bentures, stock stock! aud notes 1

All registrations (estimated value) __________________ $16,859,751 $4,668,381 $261,522 $11, 929, 848

For account of Issuer for casb sale ______________ 14.783,709 4,553.572 224,154 10,005,984

For immediate offering ,___________________ 6.632,684 3,983,713 217,915 2,431,065

Corporate ,_____________________________ 6,515,044 3,866,073 217,915 2,431,055

Offered to: General public _________________ 4,518,807 3,683,308 207,790 627,709 Security bolders ________________ 1,884,444 180,870 8,625 1,694,949 Otber special groups ___________ lll,792 1,895 1,500 108,398

Foreign governments ___________________ 117,640 117,640 0 0

For extended casb sale and other Issues 3___ 8,151,025 569,858 6,238 7,574,928

For account of issuer for otber tban cash sale ___ 612,299 27,745 28,985 555,569

For account of otber tban issuer ________________ 1,463,743 87,064 8,383 1,368,296

For cash sale _______________________________ Otber 1,316,596 81,545 1,687 1,233,365

147,147 5,519 6,697 134, 931

See footnotes at end of part 4 of table.

_________________• ____________________
THIRTIETH ANNUAL REPORT 167

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PART2.-TYPE OF SECURITY

[Estimated gross proceeds In thousands of dollars 'J

Calendar year or month

All types ofsecurities Bonds, debentures, 

All Issuers Corporate Noncorporate All Issuers Corporate 

1959 _. 31,074,208 9,748,069 21,326,139 28,515,908 7,189,769 

196('-- ______________________________________ 27,540,560 10,153,980 17,386,580 25,467,927 8.081,346 

1961.._. 35,527,314 13,164,644 22,362,670 31,782,472 9,419,80

1962 29,956,043 10,704,562 19,251,482 28,220,575 8,969.09

1963._. _____________________________________ 31,616,257 12,236,646 19,379,611 30,251,937 10,872,32

1911:1 January ______________________________ 2,707,983 694,811 2,013,172 2,606,118 592,9t

February _____________________ . ____________ 2,165,557 642,317 1,523,240 2,071,612 548,37

March. ___. ___________________ .__________ 2,830,358 1,363,267 1,467,091 2,739,610 1,272,51

tfa~~:=:::::=::::::::: =::::::=:: =::::::: =:: 2,927,100 1,048,532 1,878,568 2,710,545 831,97

2,782,609 1,339,626 1,442,982 2,687,287 1,244,30

June. __ ___________________________________ . 5,054.258 1,245,784 3,808,473 4,941,652 1,133,17

July 2,088,890 809,752 1,279,139 1,988,990 709,85

August. .. . 1,979.903 755,669 1,224,234 1,879,997 655,76

September. ___________________ .. , _____., __, 1,672,985 870.628 802,358 1,586,236 783,87

October . . . . 2,977,153 1,116,210 1,860,943 2,852,450 991,50

November. ________________ . 2,117,461 891,071 1,226,391 1,957,982 731,59

December . 2,312,000 1,458,981 853,020 2,229,456 1,376,43

196~ January . 2,481,622 984,792 1,496,830 2,360,195 863.36

February _. _. 2,021,741 709,557 1,312,185 1,933,441 621,25

March. 2,121,183 804,966 1,316,217 2,030,534 714,31

t!~r:=== =:==

4,930,045 2,234,345 2,695,700 3,558,524 862,82

2,267,101 1,155,478 1, 111,623 2,119,363 1,007,74

3,056,492 1,461,203 1,595,290 2,686,137 1,090,84

See footnotes at end of part 4 of table.

•• ____________________________________

___•____' ______________________•• ___

•••• ____________________________________

•____

______•________________________________ •• ______________________ _____ • "

__•_________________________ ____ ___• ___________ ••• ___•• __________•__ ___________

•••• ___ ___________________________ _______• ___•• _________________ _______•• ___________________________

=== == == == ==== == ====== ==== === ==
TABLE3.-New seourities odered for cash sale 4n th

.PART3.-TYPE OP ISSUE

[Eststlmstedgross prooeedsIn thousands 

Corporate 

Cdwdar 

,'ear or- Ele~tric. Othor Financial 

Totd mr. Mmufsc. E~Bc-~SS,and Rd. trm. 0-u- snd real 

?path porste tua ti% wter road ports- nlcation etnte' 

tlon 

__I______

782,829 717 101 1 852 808 

1959.......... 9,748 MY 2 07% 820 161,398 3 257,790 173 913 

19w........~. lo 1Pd986 $162 419 246 692 a861 215 211.244 597 256 1a(8.810 tbiP.619 

1061.......... 13'14 644 4 076.871 258'259 033 486 l8d 193 513'712 1'823'958 21333: 171 

1882.......... 1i7@4,562 8:24d3ffl i8~:367 225:529 34d809 1:302:523 1:892.808 

2B::821 481,268 534269 1,W4, $23 3,119,757 

19W.......... 12,236.6M 3,5U,lQl 214, I32 2, E% 219 


1985 


125,807 %, 521 

JbnUBw~..... 694,811 142,'XS 17,010 161,385 29,388 89,039 

Fern.... 642 317 228 358 24 421 146,633 13,885 10,W RS.826 113.81R 

Maroll....... 1ad%? 8301% 381'&3+ 118 161 43 401 1W 175 46,449 m.852 

April:........ 1:048:532 77,673 357,180 22d709 

155:JB2 161% 433:887 10:694 2S:IZB n.391 274 451 

May......... 1,339,638 247,548 2,683 283,W 88.808 

rune......... 1,245,784 238.776 Q027 413.442 77,180 45.401 68,140 ~5:048 

Snly.......... 809 752 329,788 3,702 191,399 20 0% 8 855 82,241 %3 156 

279361 13645 128,788 8:dl 28'370 97,108 1d801 

Ad....... 75i689 16067 39,734 358,368 

septembr... sm.628 2.~148~ do55 7~,y76 50,582 

Ootober...... 1,116 ZlO 247,326 18:237 Zi7,653 17,228 9,843 16, 154 rM1 447 

November... 891:071 225 570 17 W 174 172 27 167 57. 107 16.112 344'801 

December.... 1,458,548* 530:P18 m:111 4$5m 77,211 65,282 425:892 

1804 


185,712 137,W 30,170 09.W 159,035 335,218 

Jmwy...... 984,782 X,1M 112,719 

February .... 7G9.557 127,708 1O,121 161,365 34.717 125,031 81.3M 

March....... 804966 104,965 30 892 194 732 33 835 7 147 35,557 328,295 

ApdL........ 2234,345 195,187 45:026 118:SZZ 17:510 53:403 l.WX77 270.801 

214884 13 665 5W 828 25 278 101 072 27 335 231,185 

May......... 1155 478 4% 582 

Jam......... i481:ZEQ 373.7% 16651 276861 14475 2~8:884 


888 lmtnotes at end of part 4 of table. 
172 SECURITIES AND EXCHANGE CO:MMISSION

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•
THIRTIETH ANNUAL REPORT 173
174 SECURITIES AND EXCHANGE COMMISSION 

~dgm4. ~ropoaed ubes oj net grooeeda from the aaze of new oorpwate sewrltiss 

offwed for cash in the United Btates 

PAR* 1.-ALL OORPORATE 


[Amounts in thousands 01 dollars 11 


almdaryy or Proweds New money Retire- Other ment of pum- math TO~SIF.O~ ~otalnst ~otalnew plant and workbg securities 

--

proeoeclr I proceeds s money equipment captal

_______--

10SB................ 8 748 869 9 525 631 8 577 764 6 W1 152 2 483 612 134M8 814.319 


196, ............... 1(153:880 8:8~3:118 6765:240 5:561:567 3:096:673 270 784 6% 755 


13 184 644 12 885 48s 1o.715. 487 7,412, 114 3 am 683 w'ue I 881 672 
 1881................ 754.1~ 1'586'743
 1852................ Id7~:562 10: 5dm0 8 240 013 5 651 790 2'658.223 


1883................ 12.236, 646 12,080, 867 8:882:659 5:4~:616 3:588:044 1,527.637 1:660:110 


1885 

694, 811 889,386 502, 301 378.138 I84 563 71 682 49 887 
 januarg............ 128:781 36856 146:288
 Febmary........... 642, 317 531, 452 448, 217 319, 458 


Maroh 1,348, 895 1,055, S35 755, 408 3W, 126 204, 822 88, 438 
 ............. 1,353, 207 1% N6 118 318 
 $fl ............... 1,048, 532 1 C34 as4 sn.888 528, 6ls 2%. 451 


a ............... 1,838,626 1:322:757 828,853 487, 844 332 la, u9, 250 73:~ 


1,245, 784 1,230, 452 W.178 611, 886 271:lS 216, 878 230 295 
 June............... 214, 257 120, 922 88'83
 Jdy............... 808, 752 797 307 587, 872 873, 515 


744:~~ 658, 231 269 281 286, 940 301, 258 71.~8
 August............. 755, 868 67 W1
 8eptemher......... 870, 828 862 051 728, 988 3733483 356, 515 ~1~81 

OctobBr~........... I,116 210 1,101.058 812 358 368, 347 W,018 88'273 108 420 


Norember 891:071 879, 215 608'290 351, 257 252 033 66524 212:401
 ......... 423:888 29:8117 318, 313 
 D8oemher.......... 1,458, 981 1,444, 478 1.088:229 674, 241 


I884 

1 - .......... 984, 792 872 308 344, 622 412, 622 372, MI 42 5% 86.093 


Fsbmary.......... 708.557 7Ol:534 522, n8 328 6$2 1% Og7 16:515 162 350 


Much............. 8M 966 785, 164 576 8M ~(7811 336, MI 4,Q48 761960 


A81............... 2, 234:345 2,214. 776 2, 094'488 1,788, 477 586.022 37 173 dl04 


ay............... 1,155. 478 1,140, 828 Ed238 661.728 281.5W 711845 114848 


Jane............... 1,451, 203 1,441, 314 1,282, 185 719, S65 572, 321 63.M BB, OM) 


PLBT2.-MANUFAOTUBINO 

1858................ 2, 072820 2,011, a06 1,684, 071 863, 708 88.862 70.418 266 815 


1860................ 2.152, 418 2,076, 261 1,710, 743 844 632 765, 111 18,821 286: 196 


1881................ 4.076, 671 8 877 356 3 010 744 1 821 381 1,183, 363 286 641 679. 811 


am ................ 3,249, 364 3: 1861% $128:725 1:1u:471 887, a54 zz7:a% 828 €07 


1883................ 3,643, 191 3,602, 721 2,696, 2€0 1.446, 888 1,149, 911 180, 288 7161~ 


I#@ 

January........... 142.266 138, 892 105814 W.5U 4 a Ip91.5 


February.......... 228,8-58 115,581 146, 841 8,675 5'670 74.178 


arch ............. 630 a38 6za.m WB.M 389, 574 146.7M SI~W 3'E 
 apru .............. Is6:saz le 847 108, 018 65 0% 43 wt 4~ 


~ag ............... 247, 548 U<BU 195.233 38:8ja 15s:a51 z9.11a a0:818 


Jons............... 238, 776 236.652 188, 718 62, 93 126.788 9, 676 

Joly................ 38 788 32S.M UO.456 115, 032 124, 424 23, fil 
 %g
 m'a~ n5.a~ 231, s4 18ass1 1% 084 3 288 10,158.
 A ............. 48 874 
 Beptember......... 28f48E 264.414 188, 181 148, 068 40:124 &4 


October ............ 247, 826 244, 8gl 186.942 78.576 87, 367 5 f65 78:m 


November........ 225.570 186, 069 88, 767 83, 302 8:244 30.706 


Deesmber.......... 530, 816 305, 817 188, 496 107.329 %866 ma986. 


1961 


y ............ 1U 712 163 2U 180 087 18,878 €0, 108 lf.214 1&914 


Februsry.......... 127:708 lg625 107:888 34, 725 73, h2 2 758 : 15.m 


Mar& ............. 164.9U 163, 361 125, 933 88, 411 37, 522 l7:(08 8.019 


AprU .............. 196, I87 181,m 159 472 1M.712 54760 6 921 26,462 


May............... 21%ES.4 nJ,Ogl 142:185 94, 257 47, 827 10: 081 


June............... ', 373, 726 310, 453 295,298 195, 318 88, 981 88,888 3% 


Bee fwhlotes at end 01tsbls. 
TIIIRTIETH ANNUAL REPORT 175 

T~BL.4-Propoeed uses of net groceeda from the sale of new omporate seaurlt(es offered for oaah in the United BtatebContinued 

PlBT 3-EXTEACTIVE 

[Amountsin thoarands ardollars 11 

Prmeds NBWmoney oalendar ye- m Retire- Other 

1969

1880

8 6

................ 

................ 


................ 


month I 

..... 

1082 .........-.----
 1983................ 


116 126 .......... 0 17. 928 

..... 0 .............. 56 20,416 
 ................ 0 7W 
 ............ 0 0 


8eptember......... W 1W 


OeMber........... 0 4, 328 


NauemLmr........- 0 838 


Dscomber.......... 667 0 0 


1984 

January............ 0 J0,314 


February.......... 0 447 


March............. 0 8.281 


April............... 0 0 


May...........-... 0 478 


lone............... €&a 2.290 


PA%=4 --ELECTRIC. OA8 AND WATER 

19~s................ 

xsec............... 

1881................ 

1962................ 

1983................ 

3.257. 780 z,sr~.z~s 

3.m2.485 

2825 367 

2. 688.319 

3x4. 080 iamals 

2:083.702 

2 785 657 

2:633:888 

~OSBBU 

~0~5'569 

2. 761.363 

2.172, 885 1.811, 668 

3 ~ 2'6~4,058 

d1a424 

2.118. 80~ 

1.838. 811 

19.8~ 

81, m 

18 839 

43'156 

7l:124 

~ 1 15. 250 

51 170 

106:1sa 

4U.m 

68S.M 

~azm 

~587 

110. I56 

15S.491 

26. 721 

1865 

Jaouary............ Pebmsry .......... March ............ A$L .............. 

ay............... June............... JU~Y............... An@ ............. Beptember......... oewer........... 

181, 8% 

146 533 

161: 161 

133.837 

283. 064 

413.442 

181. am 

121.786 

74876 

n7.m 

178.932 

144 146 

l57:718 

427,733 

278.7M 

409, W7 

1% 974 

122:~~ 

78 162 

n4:217 

113.651 

114, 891 

97. 064 

341.169 

221, 087 

214 813 1~6.m

2% 

la415 

70, 410 

1%557 

96.866

341.018 

2q700

218. 373 

1m.366 

81 .IS 

77 808 

19d61a 

?;%98 

0 

a 

a136 

0 

3;

6654 

3% 

179. 484 

m.0~0 

22, 197 

248 

346 

0 

0 

880 

1, 179 

10,E40 

633 

6, 118 'a 

November......... December.......... 174.172 

263, 111 

172, 233 

198,810 

130. 4M 

1W?W 

1344M 

W47W 0 I. 943 

5W 

1.267 

1884 

Jmom............ February.......... arb............. A .............. Msy............... June............... 

137.088 

161.856 

184.732 

173 522 

0d827 

210:851 

2% 

182 681 l70:862 

494 882 

267:384 

101.7M 

154, 451 

173.m 

14l.188 

433,884 

263,357 

101. 573 

IS4434 

W%667 

14l.288 

433.884 

W.357 

181 

17 

? 

0 

0 

sela 

4, 278 

3% 

53 347 

d7WI 

1.341 

718 

918 

10. 130 

7, 431 

248 

see footnotes at end of table. 
176 SECURITIES AND EXCHANGE COMMISSION 

TABLE4.-Pcop08ed ~8eaof net proceeds from the sale of new corporate seourttiea 

ofered for oaah in the UN4ted Btatea-Continued 

PABT 6.-RAILROAD 

[Amounts h thousands ar &oUamll 

-

Proceeds New money 


cdendar year or Rstira Other 


month v ment 01 purpases 

Tots1grass Total net Total new Plant and Worming securltles 

....... 

pmcseds a proceeds 8 mmey equipment ospltal 

1959................ 173. 813 172.244 172, 244 169, 314 2, 930 0 0 


1980................ 211 244 209 146 174.435 174.W 0 34, 861 9 


1.1~ 

1882................ 226, 629 228:sa 1~8:659 12 871 1s no s:ans 198I................ 1m:193 1781ao7 148 786 148 834 n.nl 7 zao 


1e~:~88 

1983................ 431, 288 427, 299 322, 820 312, 478 10:~ 81:823 22, 816 

lsSJ 

January ........... 29 898 29 164 29 164 29 151 0 0 0 


pebruBry.......... la'835 ~'771 13:771 in^ o o 0 


March.............. 43: 401 43:~ 43'080 0 0 0 


A riL .. 10 694 10 807 10'~ 0 0 0

&..::I.. 8s'~ ad878 23'236 28'235 0 59 743 0 

............... n:~en 76.418 4i811 41:611 o 12: 15% zz.0~6 


July................ 28, CC6 25, 703 25:783 20 912 4, 886 0 0 


August............ 8, 401 8.328 8, 328 d328 0 0 0 


mptemba......... £0,582 80, 994 41, gO? 41.887 0 8 DBb 0 


Odober............ 17 228 17 072 16280 16 Za0 0 1:M2 0 


~~ve~ber ......... n'167 
 zd 944 26 914 d84~ o o o

De-ber .......... 43:628 43:~ 43:067 37:801 6.M 0 0 


18S4 

January............ 30 170 29, 885 29, 886 

0 

0 0 

0 o 

0 


ail17 ~1457 


M .............. n'm n:o33 


FemW........... 84 457 3% n' 833 o 0 o 


P I............... 17:510 47.086 3% 47'085 0 0 0 


ay................ 25,218 26.1W 25100 25'1~ 0 0 0 


June .............. 2., 288 22.m 22, 088 29h 0 0 0 


Paav 6.-OTHER TRANSPORTATION 

1865 

Jan ............ 89. 839 89. 718 69.718 69.m 488 0 0 


Fehruary.......... 18. W8 18 1@2 14. 380 14. 187 164 8 1.728 


March............. 1M.176 88:a 89.933 99, 632 401 0 0 


AzL .............. B. 128 22. 868 22, 968 22.953 0 0 0 


y ............... 77.673 77, 286 75.916 3. 716 0 1. 3a8 


June............... 46, 401 44. 882 44. 745 2E 2, 608 0 137 


July................ 8.855 8, 784 8.7- 8.M IBL 0 0 


Aogurt............. 28,370 16. 972 238 0 11,430 

September......... 19.067 0 0 I,6% 
 october............ 9843 9, 183 8. 733 8. 580 I73 0 0 


be^......... 67:im 248 64,UB 62, 641 I, 307 o 2, wo 


December.......... 77, ZX 78 6 75 991 71, 817 3. 214 1,497 0 


.. 

8ee Ioabotps at end of table. 
THIRTIETH ANNUAL REPORT 177

TABLE 4l.-Proposed uses of net proceeds from the sale of new corporate securities

offered tor cash in the United States-Continued

PART 7.-COMMUNICATION

[Amounts in thousands of dollars ']

Proceeds New money Calendar year or Retlre- Otber month r men! of purposes Total gross Total net Total new Plant and Working secunnes proceeds a proceeds 3 money equipment capital

1959________________ 717,101 707,265 702,959 701,347 1,612 113 4,192 1960________________ 1,049,810 1,036,460 1,031,659 1,022,870 8,790 682 4,119 1961________________ 1,833,958 1,817,518 1,396,463 1,384,641 11,822 382,219 38,837 1962________________ 1,302,528 1,287,059 1,210,695 1,208,506 2,189 11,364 65,000 1963________________ 1,094,423 1,081,304 606,938 594, 909 12,029 3M,763 118,603

1965 January ____________ 126,807 125,274 124,232 124,232 0 0 1,042 February __________

March, 68,826 68,089 08,089 68,089 0 0 0 _____________ 46,449 46,041 42,900 42,900 0 3,141 0 Aprn.; _____________ May 72,391 71.145 20,370 20,370 0 0 50,774

357,180 353,981 92,111 91,127 984 261.796 74 Jnne _______________ 66.140 65,426 56,204 55,804 350 7,722 i.eeo July 92.241 90,760 73,200 73,200 0 4,b54 12,906 August, ____________ 97,108 96,222 24,317 23.823 493 71,350 554 September _________ 39.734 39,609 38,638 37,652 986 647 324 October ____________ 46.154 44,306 39,676 30,792 8,884 3,508 1,123 November _________ 16,112 15,757 11,610 11,408 202 2,692 1,455 December __________ 65,282 64,694 15,591 15,462 129 252 48,851

1964 .Jannary .___________ 159,035 157,096 154,091 139,925 14,166 304 2,700 February __________ 84,353 83,185 22,623 22,326 297 337 60,225 March______________ 35,557 34,718 10,682 10.682 0 1,218 22,819 ApnL ______________ May 1,385,377 1,377,862 1,360,478 1,354,704 5,774 421 16,963 ________________ 27,335 26,844 24,844 24,497 348 0 2,000 June _______________ 268,884 263,493 255,438 161,588 93,850 5,248 2,807

PART 8.-FINANCIAL AND REAL ESTATE

5

908

5

5

1

7

068

1959________________ 1,852.906 1,807.390 1,568,99'l 300,592 1,268,398 6,116 232,28 1960________________ 2,524 619 2,472,229 2.143,135 267.586 1.875,549 71.366 257.728 196L _______________ 2,333.477 2,270,103 2.051,126 523,198 1,527.928 22,446 196.53 1962________________ 1,892.608 1,847,668 1,509.131 372,129 1,137.002 22.519 316,01 1963________________ 3,119,757 3,077,846 2,388,320 438,276 1,950,044 144,458 545,

1965 January ____________ 93.521 91,367 73,863 17.075 66.788 596 16, February __________ Marcb 113,918 109,893 60.4Sg 16,382 44,106 370 49.03 _____________ 29'l.852 288,663 165.105 62.932 102.173 105,226 18.331 ApnL _____________

May 274.451 271,645 254,793 52.275 202.518 798 16.054 _______________ 225.709 221.589 166,4211 26.242 140.1'!4 9.341 45.821 June _______________ 285.048 281.150 142.844 28.488 114.356 4,845 133.461 July ________________ 93,156 90,662 73,738 13,547 60192 1,893 IS, August _____________ 160.801 158,303 143,583 19,292 124,291 3,748 10,971 September .. _______ 358.358 355,099 336,960 35,995 300 964 6.949 11,191 October ____________ 453.447 447,391 427,175 24,195 402.980 1.104 19,062 November _________ 344,604 340.455 162,749 26,908 135,841 3.521 174,18 December __________ 425,892 421,629 380,597 114,947 265,650 6,016 35,016

1964 January ____________ 335,218 332,871 307,551 26.661 280,890 740 24,580 February __________ March 112,719 111,434 101,989 17,780 84.209 1,289 8,156 _____________ 329,285 325,450 298,186 23,064 275.121 3,695 23,569 ApnL _____________ May 270,361 267,980 249.864 50 870 198,994 3.457 14,659 _______________ 231. 785 227.117 215.664 14,893 200,771 1,435 10,017 June. ______________ 458,582 452,572 397,412 50,220 347,192 13,219 41,941

see footnotes at end of table.

757-903-65-13

_______• ________

__________• _____
178 SECURITIES AND EXCHANGE COMMISSION

TABLE 4.-Proposed usesof net proceed.sfrom the sale of new corporate securities

offered. for cash in the United. 8tates-Continued

PART 9.-eOMMERCIAL AND OTHER

[Amounts In thousands of dollars I]

Proceeds New money

Calendar year or Retlre- Other month' ment of purposes

Total gross Total net Total new Plant and Working securities proceeds I proceeds I money equipment capital

1959________________ 719,314 685,374 525,963 273,483 252,480 15,328 144,082 19611-_______________ 611,705 683,860 437,378 132,604 304,774 21,194 125,288 1961- _______________ 934,889 891,900 710,619 266,395 444,224 34,688 146,593 1962________________ 659,429 631,006 505,739 192,061 313,678 27,502 97,765 1963________________ 632,287 619,768 499,574 186,860 312,715 54,289 65,905

1965 January ____________ 34,497 33,807 29,861 5,799 24,062 1,581 2,365 February __________ March 29,866 29,223 24,640 7,966 16,674 1,178 3,405 _____________ 79,859 78,936 62,007 17,377 44,631 4,119 12,810

tfa~~~~:::::::::::: 62,544 60,998 41,937 14,179 27,758 12,191 6,870

61,950 59,542 53,306 21,887 31,419 1,713 4,523 June _______________ 36,771 35,782 29,708 7,695 22,012 2,944 3,130 July _______________ 64,607 63,776 56,745 33,725 23,020 4,134 2,897 August _____________ 44,797 44,025 35,159 8,361 26,799 6,674 2, 191 September _. _______ 30,760 30,136 23,994 12,186 11.807 3,843 2,299 October ____________ 46,322 45,4i2 41,545 9,761 3J.784 3,5J3 413 Novernber , , _______ 29,096 28,743 21,089 9,541 11.549 4,834 2,820 December __________ 111,218 109,329 79,584 38,384 41,200 7,563 22,182

196. January ____________ 33.754 32,771 24,111 9,820 14,291 1,4J5 7,245 February 52.343 51,613 36, 631 19,151 17,480 2,329 12,653 M arch _____________ 19,052 18,879 16, 362 7,535 8,827 1,228 1,288

tfa1-:::::::::::::: 63,958 62,249 55,704 13,930 41,775 164 6,38138,833 38,217 24.233 11,594 12,1>38 1,417 12,567 June 32,636 31,793 29,104 12,358 16, 745 I 410 2,279

I Slight discrepancies between the sum of figures m the tables and the totals shown are due to rounding. I For earlier data see 25th annual report. I Total estimated gross proceeds represent the amount paid for the securities by Investors, while total estlmate1 net proceeds represent the amount reeerved by the issuer after payment of compensatron to distributors and other costs of flotation.

_______ • __

___• ___________
THIRTIETH ANNUAL, REPORT 179

~~~~g~~SS~~gi~g~~~~~;~~~~~~~~~i ~~~~~~~~~~~~~~~~~~~N

~~~~~~~~g~~~8~8~~i~~8=~~~~~~~~~ ~ri~~~~~ ~~riNNci~ciriri~~~~~ri~~~~~

~~~~E~~~!~~~E~S~;~~~g~~~~~S~~~~ ~~~~~~~~~~~~ci~ci~~~~~

~~~~~~~~~~=o~o=~ __ o~~o~~~~~~~~~

~~oo~~g~gg~~~~~~~~~~~~~~~g~~~~g~

~~~~oo~ooa~~~~~=~~o~~~~~~=~~~~~~~

~~Q~~~~g~~~~~~gg~~~~~~~~~g~gg~~

~i~~~~s~~~~~~~g~i~~~~!~~~g~!8~g ~~~~~~~~~~~~~~oo~~oo~~~

~~SS~~!~gg~~~~~~~i~~~~88~~~~8~~ ~~~ri~~~ ~~~~~~~~~~~~~oo~ooo~...

s~~~~~~~~~~as~~s~~g~~~ig~~~~~S~ ~~~~~~~.~ri~ri~ri~~~~~N

I

,o~.~-~~~~~~~~~~~~~~~~~g~~~~a~~~ _r-tC"lI:f:l_C"I

I

i

..

~

~~~~~~~

~ ••

~
180 SECURITIES AND EXCHANGE COMMISSION 

TABU6.-Brolcers and deaters reglatered under the Securities Ellchange Act of 

1954'-efectiwe registrations as of June 80, 1964, cla8sLfied by type of organ& 

zatim and by locatiolz of principal ofice -

/ Number afmglstrants 
TffiRTIETH ANNUAL REPORT 181

TABLE 7.-Number ot issuers and security issues on exchanges

PART 1.-UNDUPLICATED NUMBER OF STOCK AND BOND ISSUES ADMITTED TO

TRADING ON EXCHANGES AND THE NUMBER OF ISSUERS INVOLVED, AS OF JUNE

30,1964

Total Issuers Status under the Act I Stocks Bonds stocks Involved and bonds

Registered pursuant to Section 12 (b), (c), and (d) _____ 2,879 1,197 4,076 2,467

Temporarily exempted from registration by Commis- slon rule _____________________________________________ 10 3 13 7 Admitted to unlisted trading prrvileges on registered exchanges pursuant to Section 12(f) __________________ 128 20 148 116 Listed on exempted exchanges under exemption orders of tbe Comnnsslon. _______________________. __________ 69 7 76 56 Adnutted to unlisted trading privileges on exempted

exchanges under exemption orders of the Commission_ 13 0 13 13

TotaL ___________________________________________ 3,099 1,227 4.326 2,659

I Registered' Section 12(b) of the Act provides that a security may be registered on a national securities

exchange by the Issuer filing an application with the exchange and with the Commissron containing certain

types of specified Information. section 12(c) authorizes the Commission to require the submission of infor- mation of a comparable character IfInIts judgment information specified under Sectlon 12(b) Is inapplicable

to any specified class or classes of Issuers section 12(d) provides that If the exchange authoriues certify to the Commtssion that the security has been approved by the exchange for listing and registratlon, the registration shall become effective 30 days after the receipt ofsuch certifleation by the Oomnussion or within such shorter period of time as the Oomrmssion may determine Temporarily exempted These are stocks of certain banks and other securltles resulting from merger

eonsolidattons, etc, which the Commisslon has by published rules exempted from registratlon under specified condltlons and for stated periods. Admitted to unlisted trading; privileges Section 12<0 provides, In effect. that securities which were

admitted to unlisted trading prlvrleges on Mar. 1. 1934 (I e .• without applleatlons for ltstlug filed by the Issuers). may continue such status. Additional securities may be granted unlisted trading \,rlVlleges on

exchanges ouly If they are listed and registered on another exchange or the Issuer is subject to the reporting

requirernents of the Act onder section 15(d).

Listed on exempted exchanges Certain exchanges were exempted from full registration under Section 6 of the Act because of the Iimrted volume of transactions. The Commtssion's exemption order specifies tbat

securities which were listed on the exchange at the date of such order may continue to he listed thereon, and that thereafter no addittonal securltles may be listed except upon compliance with section 12 (b), (c), and

(d).

Unlisted on exempt exchanges: The Commission's exemption order specifies that securities which were

admitted to unlisted trading privileges thereon at the date of such order may contmuc such pnvtleges, and

that no additional seeunues may be admitted to unhsted trading privileges except upon complianee with

section 12(f)

PART 2.-NUMBER OF STOCK AND BOND ISSUES ON EACH EXCHANGE AND ~UMBER

OF ISSUERS INVOLVED, AS OF JUNE 30, 1964

Stocks Bonds

Exchanges Issuers

R X U XL XU Total _R_I~ U XL Total

Amerlcan 972 873 1 149 1,023 64 1 21 86 Boston 411 64 2 363 419 10 .._---- ----.- 10 Chicago Board of Trade _______________ 9 6 ------ 3 ------ ------ 9 ------- ------ ------ ------ ------ ClnclnnatL 151 34 1 121 156 10 1 11 Colorado Springs _____ 11 ------- ------ --100- Detroit. 11 ------ 11 ------- ------ ------ ------ ------ 293 102 2 300 Honolulu. 49 46 13 59 -----.- 7 7 Midwest. 463 381 1 130 512 14 ------ 14 N attonal, 11 12 12 New York Stock 1,389 1,611 2 1,613 1,115 2 1,117

Pacific Ocast., 535 366 4 231 ------ ------ 601 25 ------ ------ ------ 25 Phlla -Balto-Wash_- 579 175 6 485 666 52 ._---- 52 Pittsburgh 110 39 78 117 1 1 Rlchmond ____________ 15 25 25 Salt Lake 67 65 ------ 3 ------ ------ 68 ------- ------ ------ ------ ------ San Francisco Mlnlng_ 31 31 31 Spokane 25 22 Wheeling. ------ 6 28 ------- ------ ------ ------ ------ 13 ------J------ 11 3 14 --.-.- .. I

,

Symbols: R-registered; X-temporarily exempted; U-admitted to unlisted trading privileges: XLlisted on an exempted exchange; XU-admitted to unlisted trading prtvileges on an exempted exchange.

NOTE.-Issues exempted under Section 3(a)(l2) of the Act, snch as obligations of the UoSo Government,

tile states and cltles, are not Included In this table.

0

_____________ ________________ ------ ------ ------

------ ------ ------

__________ ------ ------ ------ ------ ______________ ------- ------ ------ ------ ------ ____________ ------- ------ ------ ------ ____________ ------ ------ ------ ------ _____________ ------ ------ ------ ------ ------- ------ ------ ------ ------ _____ ------ ------ ------ ------ ------

____= ------ ------ ------ ------ ___________ ------ ------ ------ ------ ------ _____________ ------ ------ ------- ------ ------ ------ ------

______________ ------ ------ ------ ------- ------ ------ ------ ------ ____________ ------- -------~------ ------ -----
182 SECURITIES AND EXCHANGE COMMISSION 

PABT 1.-NUMBER OF BTOCK9 ON THE EXCHANGE8 IN THE VABIOUB UNLIBTED 

CATEGORIE8 A8 OF JUNE 30,18841 

.......................... 

I Bowd of Trade ......... CLn&u - .................... ......................... I 

Unilsted only 2 

ErOhsngs 

Pm2.-UNLISTED SHARE VOLUME ON THE EXCHAN(IEB--CALENDAR YEAR 186a 

Listed and registered on another exchange 

Ciaom 1 I Ci-3 I Clsussl 1 Clam2 I Claw34 

1 LCr M l~~l tu8Jer h~sdlllp "L'nLISCed Tralllo Mvlle on Exrhwlrb.'' V,lul!~rs pue as reported by the SIU:~ .ICI.BUPI or other n.1, inirlg weon*+anb lur oxeelreof rlilae inshon-te, rl lhts 8 The est,.gs,rl<r ir* mrdlrlc ro Claws 1. 2, snd 3 or Section 12 r, of rile Earurit!?s F!xchangc Act, as tn 

DRIE~ orlor 10 the ISM nlnendmcnts 

IDsipaoation of lsn<es anwig &changes bring8 the figures to more than the actd number of issues Losaissd. 

Bl~hsnge 

Amedcan ........................ Boston .......................... Chicago Bmd ofTrade ......... CincLaoatl - ..................... Detroit .......................... Honolulu..-~~~ .................. Midwest. ....................... PC Cot .................... PhUa.-Bait.-Warh ............... Pittaborgh ...................... Salt Lake ........................ B$k~oksne ......................... heeling ........................ 

Total ...................... 

U&ted only a Llsted snd registered on another exchange 

Clause 1 

6 857 827 

Claw 1 

18,701,495 0 

0 

0 

0 

88,185 

0 

453,888 

0 

0 

0 

868,676 

0 

20,103,261 

Clam 3 

17.W 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

7 

Clao~e 2 

3 1M) 7W 

Cla-3, 

1O.W 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

10, ,880 

2:;rirzo a:159:7a 

0 

435 810 

0 

0 

6,137,750 

6,~,300 

217,360 

0 

l4? 

20,462,366 

4 059,863 

0 

14 US943 

1d370 614 

<on8:4% 

213, $43 

0 

211p214 481 

4l.775402 
THIRTIETH ANNUAL REPORT 183

TABLE 9.-Dollar 'VOlume and 8hare volume of 8ale8 effected, on 8ecuritieS ee- change8 in tlie calendar year 1968 and, the 6-month period, ended, June 30,

196" PART 1.-12 MONTHS ENDED DECEMBER 31, 1963

[Amounts In thousands)

Bonds Stocks Rights and warrants Total

dollar

volume Dollar Principal Dollar Share Dollar Numvolume amount volume volume volume her of units

-- Registered exchanges _____ 66,157,485 1,740,458 1,653,777 64,313.920 1.838,359 103.107 40,949

American __________________ --- 4, 917.837 72,925 67,457 4,755, 286 336, 261 89,626 18,044 Boston _____________________ 270,504 0 0 270.477 5,505 27 46 Clucago Board of Trade ____ 0 0 0 0 0 0 0 CmcmnatL ________________ 40,856 87 112 40,768 834 1 4 Detroit _____________________ 334,893 0 0 334,883 8, 775 10 38 Midwest ___________________ 1,755,705 (.J (.J 1,755,659 43,773 46 35 N ational ___________________ 408 0 0 408 389 0 0 New York _________________ 56,564,379 1.667,283 1,586,041 54,886,501 1,350,885 10,595 20,923 Pacific Coast _______________ 1,542,511 68 67 1,539.647 51,293 2,796 1,844 Phlla.-Balt.- Wash __________ 685,875 95 100 685, 774 15,701 6 15 PIttsburgh _________________ 33,368 0 0 33,368 796 0 0 Salt Lake __________________ 4, 766 0 0 4,766 13,802 0 0 San Francisco ______________ 256 0 0 256 4,856 0 0 Spokane ___________________ 6,127 0 0 6,127 5.490 0 0

--- Exempted exchanges _____ 21,055 9 10 20,980 1,208 66 282

--- Colorado Springs __________ 84 0 0 84 415 0 0 Honolulu __________________ 20,207 9 10 20,132 771 66 282 Richmond _________________ Wheeling 390 0 0 390 9 0 0 __________________ 374 0 0 374 13 0 0

PART 2.-6 MONTHS ENDED JUNE 30, 1964

o

o

o

64

63

o

o

058

12

8

o

9

6

Bonds Stocks Rights and

warrants

Total

dollar

volume Dollar Principal Dollar Share Dollar Num- volume amount volume volume volume her of

units

--- Registered exchanges ____ 39,859,731 1,559,364 1,402,277 38,103,922 1,057,326 196,445 68,

Amerlcan __________________ Boston _____________________ 3,660,921 37.673 36,616 3,514,702 194,809 108,546 8,6

159,912 0 0 159,330 3,035 582 27 Chicago Board of Trade ____ 0 0 0 0 0 0 Clncinnati _________________ Detroit 23,769 26 33 23,736 442 7 3 _____________________

Mldwest 251,524 0 0 251,423 6, 141 101 4 ___________________ 1,163,170 0 0 1.151.125 25,239 2,045 1,01 N ational ___________________ 157 0 0 157 172 0 0 New York _________________ 33.223,562 1,520,900 1,364,804 31,627,600 778,094 75,062 54.183 Paclftc Coast _______________ 927,472 86 86 919,754 27,206 7,632 2,7 Phlla.- Balt.- W ash __________ 429,541 679 738 426,392 9,947 2,470 1,1

~~tt'la~::::::::::::=:=: 24,267 0 0. 24,267 570 0 1,589 0 0 1,589 4,298 0 San Francisco Mlnlng _____ 262 0 0 262 3,415 0 0 Spokane ___________________ 3,586 0 0 3,586 3,958 0 0

Exempted exehanges, ____ 9,121 8 7 9,113 557 0 0

Colorado Springs. __________ 42 0 0 42 215 0 0 Honolulu __________________ 8,366 8 7 8,358 326 0 Rlchmond ________________ Wheeling 528 0 0 528 13 0 __________________ 186 0 0 185 3 0

NOTlI:.-Data on the value and volume of securities sales on the registered exchanges are reported Incon- nection with fees paid under Section 31 of the Securities Exchange Act of 1934. Included are all securities

sales. odd-lot as well asround-lot transactions, effected on exchanges except sales of bonds of the U.S. Govern. ment which are not subject to the fee. Comparable data are also supplied by the exempted exchanges.

Reports of most exchanges for a given month cover transactions effected during the calendar month, but

the reports may be of transactions cleared during the calendar month. Clearances generally occur on the fourth business day after that on which the trade was effected. Figures are rounded and will not necessarily add to the totals as shown Less than 600. • •
184 SECURITIES AND EXCHANGE COMMISSION 
THIRTIETH ANNUAL REPORT 185 

TABLE 12.-Reovganization proceeding8 under Chapter X of tke Bankruptcy Ad 

I% which the Commiaaion partloipoted durlnfl the tisoal year 1964 

I 

and 

Debtor 

Rld 
186 SECURITIES AND EXCHANGE COMMISSION

Petition

approved Debtor District Court Petition filed

TABLE 12.-Reorganization proceecUng8 under Ohapter X of the BankruptCfl Act

in which the Oommi88ion participated daring the :/i8caZyear 1964-Continued

Seeurlties

and

c~;~~J~D notice of

appearance

filed

D.D.C .•... .. E.D.N.C .. __._

N.D.Okla._ •. E.D. M1ch .

S.D. W. Va

W.D. Okla; , .. N.D. Callf __.• N.D. ill .

D. Mont. ..

S.D. Calif ..• __

M.D. Pa D. Wyo .. .

S.D.N.Y .•.

E.D. Ky.

E.D. Mich E.D. Ky .

W.D. Ky._ .. __

E.D. N.C..• __ W.D. M1ch .• _. E.D. Tenn•.__ S.D. N.Y_._ .. E.D. La __..•. D. Ariz •..

June 19, 1962 Juiy 6,1962 July 24. 1962 Mer. 18, 1958 May 29,1958 Mar. Zl,I96S

Oct. 9.1962 Oct. 10, 1962 Nov. 26,1962

se~t. 26, 1960 Sept. 27,1960 Nov. 3,1960

Fe . Zl,1962 Apr. 25,1962 June 5,1962

May 17,1962 May 17,1962 J uiy 12, 1962

July 29,1969 July 29,1959 Aug. 13,1959

Sept. 19,1963 Sept. 20, 1963 Dec. 14, 1963 July 17,1963 July 17,1963 Aug. 8,1963

Apr. 30,1966 May 1,1966 May 23,1966

Jan. 24,1964 Jan. 24. 1964 Feb. 12,1964

June 1,1961 June 3,1961 July 28, 1961

Jan. 17,1963 Jan. 18,1963 Mar. 4,1963=

Jan. 16,1964 Disrmssed .... Jan. 17,1964

Aug. 11, 1954 Dec. 14, 1954 Jan. 7,1955

Sept. 8,1961 Sept. 15,1961 Oct. 19, 1961

Jan. 31,1964 Jan. 31,1964 Feb. 14,1964

Mar. 17,1964 Mar. 18, 1964 Mar. 18,19M

Oct. 14,1936 Nov. 1,1936 Mar. 28,1939

Mer. 17, 1959 Mar. 18,1959 Mar. 2O,195~ Oct. 25,1936 Nov. 1,1935 Mar. 28.193~

Dec. 9,1959 Dec. 9,1959 Jan. 18,1960

Nov. 6,1959 Nov. 5,1959 Nov. 9,195~

Apr. 23,1964 May 13,1964 June 9, 1964

June 16,1962 June 16,1962 July 26,1962

Apr. 22,1957 Apr. 22,1957 May 2,1957

Oct. 16, 1957 Feb. 26, 1958 Oct. 24,1957

Aug. 1,1963 May 11,1964 Sept. 11, 1963

Oct. 31,1960 Oct. 31,1960 Nov. 9,1960

Nov. 6,1959 Nov. 5,1959 Nov. 9,195~

Apr 17,1961 Apr. 17,1961 May 22,1961

May 11,1961 May 11,1961 May 12,1961

May 7,1963 May 7,1963 July 2,1963=

Apr. 26,1963 Apr. 26,1963 May 2,1963=

Nov. 2,1962 Nov. 2,1962 Dec. 3,1962

May 6,1958 May 6,1958 June 9,1958 June 13,1960 June 13,1960 June 13,1960

Aug. 13,1962 Aug. 13,1962 Aug. 13,1962

Mar. 26,1963 Mar. 26,1963 May 3,1963

Dec. 9,1963 Dec. 9,1963 Feb. 3,1964

Apr. 3,1959 Apr. 3,1959 Apr. 16,1959

Apr. 3,1959 Apr. 13,1959 May 2O,195~

Feb. 16,1963 Feb. 16,1963 Feb. 18, 1963

Mar. 4,1963 Mar. 4,1963 Apr. 30,1963

Oct. 31, 1958 Nov. 3,1958 June 18, 1960

July Zl,1962 July Zl,1962 Aug. 23, 1962

May 19,1960 June 22, 1960 Oct. 31, 1961 July 6,1962 July 6,1962 Aug. 20, 1962

July 19,1956 sept. 10,1956 Sept. 7, 1966

Jan. 2,1958 Jan. 2,1958 Jan. Zl,1958 Dec. 28, 1962 Jan. 2, 1963 Feb. 27, 1963

July 26,1962 July Zl,1962 Sept. 13,1962

Nov. 30,1962 Nov. 30,1962 Nov. 30,1962

Oct. 25, 1948 June 21, 1949 Jan. 3,1949

June Zl,1957 Nov. 15,1957 Nov. 25,1957

May 10,1961 May 10,1961 May 10,1961

Apr. 8,1963 Apr. 29,1963 May Zl,1963

June 17,1963 June 24, 1963 Sept. Zl,I963

Sept. 14, 1961 Oct. 9,1961 Oct. 17, 1961

Oct. 30, 1961 Nov. 9,1961 Feb. 21, 1962

Apr. 1,1963 Apr. 8, 1963 Apr. 9,1963

July 31,1961 Sept. 15, 1961 Sept. 15, 1961

Sept. 13, 1960 Oct. 12, 1960 Oct. 24, 1960

Mar. 21, 1962 Mar. 21, 1962 Mar. 23,1962

Eqmtable Enterpnses, Inc •. _ . . M.D. FIe _ Equitable Plan Co.' ...• _._ _. . S.D. Cehf..

Fehr Brewing Co., Frank; _._______ W.D. Ky

Fleetwood Motel Corp .. _. D.N.J . Flora Sun Corp (6 subsidiaries). __ _. S.D. FIe._. __. Florida Southern Corp.' ... .•• . ..•...•. do

Food Town, Inc.' •.......• _. •......... D. Md GFE Industries, Inc.; ....•. _. S.D. Iowa •• _.

General Economics COrp.I._._ S.D.N.Y. General Stores Corp.' ._._. ._ S.D.N. Y ._

Goebel Brewmg Co '. __._. __ _. . E.D. Mich .

Great American Development Co ......• W.D. Tex_ .... Guaranty Trust Deed Corp .....•. _•••.•. _. D. Utah. _

Hotel St. George Corp .••.•........ _.•• E.D.N.Y .• __.

Hudson ell Manhattan Railroad Co' •• S.D.N.Y •• _._ Hughes Homes, Inc. (4 subsidiariesj L, •• D. Mont. . .

Human Relations Research Foundation S.D. CaliL (4 subsidiaries) I

Hydrocarbon Chemicals, Inc. (6 sub- D.N.I. ••

sidraries) I.

Inland Gas Corp.' _._. ._.

F.L. Jacobs Co._ •. .•••....• .. ...• .

Kentucky Fuel Gas Corp .•..•.. _._ •..• _._._

Kentucky Jockey Club, Ine., The .. __.• _.•. Klrchofer ell Arnold, Inc., •.. . •..•....

Kish Industnes, Inc _•.. _ _ .

Leeds Homes, Inc (52 subsidiaries) ....• __. Liberty Baking Corp ._ •. __.. _.. .• _.•• _

Magnolla Park, Inc ... __......•............•

Maryvale Commumty Hospital, Inc ... .••.

Mason Mortgage & Investment Corp. (3

subsidiaries). _. ".'.'._""_"' .. '_' .. Morehead City Shipbuilding Corp , , .•...•. H. H. Mundy Corp. (1 subsidiary) __... Muskegon Motor Specialtres Co __ _•.••

Nevada Industrial Guaranty Co. (1 sub- sidiary)\I .... •. _._ •. ._._ D. Nev

Joe Newcomer Fmance Co ..•........... D. Colo .

New-Kanawha Industrial Corp. (1 subp:;~etr;;ieum.cfo.~.itic~( . Pickman Trust Deed Corp._._ .. _._ .....• __

Precisron Transformer Oorp., ......• _.. _..•

Prt!d!,n~lal D1versl1led Services (4 sub- stdlaries) .•.... ..••.... ...•.. ._ •...

Rlmak Electronics, Inc. (1 subsidiary) 1•• _.

Scranton Corp, The (3 subsidisnes) ... •. Shawano Development Corp •... ...• _.

Sire Plan, Inc, The (13 subsidlariesj

Sire Plan Management Corp., The (4 sub- sidiaries, 1 affiliate) ..•• _. . . .• .. do._.

Southern Enterprise Corp. (1 subsidiary)., _ S.D. Tex. __•..

Southwest Factories, Inc.'._._ ...•...... _.•. W.D. Okla. _ Southwest Foundation Inc _ D. N. Mex .. __

St. John's V18W sitea., ..• _ _._ ...• _ S.D. CaliL . Stardust, Inc.' .... _...•. .....•• __.....•. D. Nev _. _ .

Swan.Fmch Oil Corp. (1 subsldiary)._ ... __ S.D.N.Y_ •.•• _ Taylor International Corp. (1 subSldiary).. S.D. Fla

Tele-Trouics Co.' The .•.•. __ RD. Pa ..•• _. Tenex, Inc. (1 subsldiary)_._ _._ S.D.N.Y. ..

Thud Avenue 'I'ransit Corp. (6 subsidi- aries) '_ '._' __ __ _•. _.....• __ _. __.do ..• _ .

TMT Trailer Ferry Inc. (4 subsidianes) S.D. FIe .• __•.

Townsend Growth Fund, Inc •..... ••.... S.D.N.Y ••.... Trans-Umted Industries, Inc_._ .....•.• _... D. Conn ..... _

'I'rt-State Petroleum Inc •.......• _.. S.D. CaliL_ .. Trustors' Corp. ._._._ .....• __. N.D. Calif. __.

Twentieth Century Foods Corp. ..... E.D. Ark .. ..

Vmca Corp ...• _._ ..••.... E.D. Mich ••..

;:~d~~If:£~~f'6'o.•:~::::::::::::::::::.~:~cio~~~~::: Yuba Consolidated Industries, Inc N.D. Calif .• __

I Oommlssion filed notice of appearance in fiscal year 1964.

2 Reorganization proceeding closed during fiscal year 1964.

, Plan has been substantially consummated but no final decree has been entered because of pending

matters.

_

_

_

_ __ • __

_

__•• __ __•__

•• _

• _

_ _ ••

_ •

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__••• __ __ ••• _

~~~~~~~~~ ••• _

_ __ _ _•• __•

__ •••••• _

i , ••• _.

• __ __ _

_

_

_

_

_
T~IRTIETHANNUAL REPORT 187 

T w 13.-8ummw of arimVnaZ mes dm'eloped ay the Uomm&aionwhich mm 

etta pendin@0t J ~ SO,B 1964 

umber of such defendants as to whom rases are still 

Pendlng rsferred to Department of 

lustid in the Mgear: 1839.............................. 


1838.............................. 


1940.............................. 


1841.............................. 


1842...... 
 1943.............................. 


la44.............................. 
 1945.............................. 


.............................. 


Tow........................... 


8UMbL4RY 

Total ems ending 1 153 ~otsldeleofants ~...~~:II:::I:I::III:I~I~~~I~~:~:III~II~IIIIIIIIIIIIII 759 
 Total delendsnts ss to whom o- are pending 1.................................................... 610 

1 5 or 111s<Ic.ro .,I 111.1 Rsesl yau. ~~.dlelmenu L+ llvl ,n W!. r.curnrl nr to 214 ~rowwldeIerrlal.~i

I I * 1 I . I I Jut. Chew nrt rrflror i <,:.Is in the rwu~lital?ttuool lolrb at tho bolt)~nclfh,tai.,.. 1 'rlns II;UI~sLw 1::1cll.4esRve delrn~l..c.tr0,. 61 pul nlio l.drc Lern rn orwd ru rot.r.etionr in culumo 3. 
188 SECURITIES AL'l"DEXCHANGE COMMISSION

'TABLE 14,-Summary of cases i1l8tituted in the courts 'by the Commission under

the Securities Act of 1933, the Securities E:cchange Act of 1934, the Public

-Utility Holding Company' Act of 1935, the Investment Company Act of 1940,

-and. the Investment AdVisers Act of 1940

Total Total Cases Cases Cases Total Cases ceses cases pending pending instituted cases closed instituted closed at end at end during pending during Types of cases up to end up to end 011964 011963 1964 during 1964 011964 011964 fiscal fiscal tIscal 1964 fiscal fiscal fiscal year year year fiscal year year year year

------------------------ Actions to enjoin violations of the ahove Acts _______________ 1,350 1,254 101 114 76 100 94 Actlons to enforce subpoenas

under the Secunttes Act and the Secunties Exchange Act __ 98 93 5 7 8 15 10 ActIOns to carry out voluntary

plans to comply with Section l1(h) 01 the Holding Com- pany Act _____________________ 146 140 6 6 1 7 1 Miscellaneous actions ___________ 60 46 11 5 10 15 4

------------ ------------ ---- Total ____________________ 1,654 1,533 123 132 95 227 109

TABLE 15.-Summar'y of cases instituted against the Commission, cases in which

the Commission participated as intervenor or amicus curiae, and reorganization cases on appeal under Chapter X in which the Commission participated

Total Total Cases Cases Cases Total Cases

cases cases pending pending lnstrtuted cases closed

mstituted closed at end at end dunng pendmg durmg

Types 01 cases up to end up to end of 1964 of 1963 1964 during 1964

of 1964 of 1964 fiscal fiscal fiscal 1964 fiscal

fiscal fiscal year year year fiscal year

year year year

---- -------- ---- --------

Actions to enjoin enforcement

of Becunttes Act, Securities

Exchange Act and Pubhe

Utthty Holdmg Company

Act with the exception of

subpoenas Issued by the Cornrmssion ________________ 66 59 6 6 1 7 1

ActIOns to enjoin enforcement of or compliance with subpoenas Issued by the Com- mISSIon ______________________ 10 10 0 0 1 1 1

Petitions for review of Commission's orders tJy Courts of

Appeals under the vanous

Acts adrrurnstered by tbe Oornmlssion _________________ 264 259 5 12 6 18 13

Miscellaneous actions against the Comrmssron or officers of the Commission and cases in whICh the CommISSIOn

partrcipated as intervenor or amiCUS curiae ________________ 213 249 24 14 15 29 5 Appeal cases under Ch. X ill

which tbe Commission partie- Ipated ________________________ 199 188 12 7 7 14 2

Total ____________________ -------- ---- ---------------- 812 765 47 39 30 69 22
THIRTIETH ANNUAL REPORT 189
190 SECURITIES AND EXCHANGE COMMISSION

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TABLE 24.-Proceeding8 under the BankruptC1/ Act pending during the /iBcal year

ended June 80, 1964, in which the Oommis8ion participated when district court

orders were challenged in appellate court»

Name of case and U.S. Court of

AI!lJCals

AmerIcan Guaranty Oorp., debtor;

In re Seeurrtles and Exchange

Commission, appellants Harry

H Burton, receiver et al., appellees (1st Cireurt).

American T'ratler Rentals Co.,

debtor; In re Securities and Exchange ComIDlSSlOn, appellants

(10th Olrcuit);

I

Automatic Washer Co., debtor,

Securrties and Exchange CommisSIOn, appellee. (8th Olreurt)

Crumpton Builders, Inc, debtor: In re Seeurrtles and Exchange

Comnussion, appellants (5th

Crrourt)

Fleetwood Motel Corp, debtor,

In re Seourrties and Exchange

Commission, appellants (3d Circult).

GFE Industries, Inc. debtor;

Lester M Entm and Joseph

Waters. dba Lester M. Entin

ASSOCIates,appellants v. John C.

Stevens, trustee and Securllies and Exchange Commlsslon. (8th

Oircutt)

Hudson &: Manhattan Railroad

Co. In re debtor. (2d Circuit)

Hughes Homes, Inc. et al., debtors;

John N. Newland, trustee, Beeurtties and Exchange CommisSIOn, appellees (9th Crrr ult),

Hydrocarbon Chemicals, Inc. In re debtor; Securities and Exchange

Comrmsslon, appellees. (3d CIr- cuit)

Klsh Industries, Inc In re debtor.

secunnesand Excbange Oomn-i-- ston, appellee (2d Clreurt, 6th

Circuit).

Muskegon Motor Specialties Co.,

debtor; International trmon

Umted Automobile, Aircraft and Agricultural Implement Workers of America, AFL-CIO, and Its

local 1272, Voluntary Unlncorporated Associations, appellants

(6th Crrcult).

Shawano Development Oorp.,

debtor; SecuritIes and Exchange

Commission, appellee, supportIng a~ants(10th Circuit).

T¥t~ pro~trv~~o~:itit~~~:

Independent Stockholders of

TMT Trailer Ferry, Inc.,.appel- lant v, C. Gordon Anderson as

trustee, appellee (5th Circuit),

Nature and status of case

Notice of appeal tiled by Commission from the order of Sept. 11, 1963,

denying tbe motion of Commission to dISIDlSSthe debtor's petition

for rellef under Chapter XI of the Bankruptcy Act. Order entered

June 8, 1964, granting motion for authority to seek drstnbutron.

Pending.

NotIce of appeal tiled by Commission from tbe order entered May

20, 1963. denying the motion of Commission to dismiss the debtor's

pelitlon for relief under Chapter XI of the Bankruptcy Act on the

ground that any proceedtng for the rehabilitation of the debtor

under the Bankruptcy Act should have been brought under Chapter X of that Act. CA-IO affirmed the order of district court denyIng Commission's motion to dISIDlSS proceedtngs. Petition for

writ of oertrorarl filed Feb. 12, 1964, and granted Mar. 23, 1964.

Pending.

Notices of appeal filed by Olson Brothers, Inc., and Bankers Life and

Casualty Co from the order entered Feb 17, 1964, dtrectmg that

Bellanca Bankers "shall not share m any of the assets of the debtor

upon Hquidation of said assets until all other shareholders have

receIved Inredemption of their stock a sum equivalent to $1 50 per

share." Pending

N otlce of appeal tiled by Oommtssion from that portion of the order

entered May 14, 1963, denying the motion of Commission to dlsrmss

the proceedings under Chapter XI of the Bankruptcy ACt. Pending. NotIce of appeal filed by Joseph F. Bradway from the order on Landlord's Petition and Trustee's Counter PetItion for Review entered

July 26, 1963, whIch order affirms orders of the Referee m Bankruptcy dated May 14, and Nov. 21, 1962. COIDIDlSSlontiled brief

Jan. 31, 1964. Pending.

Notice of appeal flied by Lester M. Entin and Joseph Waters dba

Lester M. Entin Associates, from the "Order Authonzing Sale"

entered Mar. 1, 1963, and from the "Recommended Order AuthorizIng Sale of PrIvate Brands and Order Granting Stay" filed Dec.

17, 1962 and from the "Order Authcnzmg Sale of Pnvate Brands DIvision of Debtor entered Mar. 4. 1963. Opinion rendered affirm- Ing the orders entered Mar. 1 and Mar. 4,1963. Closed.

ThIs appeal Is filed from the order of tbe district court, dated Jan. 17,

1964, granting and denying final allowances of eompensauons,

Pendtng.

Notice of appeal flied by Aneeonds BuIldtng Materials Co, the

M &: L Supply Co., and tbe Bllllngs Sash & Door Co. from an

order entered Dec. 9, 1963, classlfymg creditors of Hughes Homes,

Inc. and Its wholly owned subsidiarIes An appeal was also taken

from Ftndings of Fact and Conclusions of law entered Sept 6, 1963,

pursuant to whIch the classification order was entered pending, Consolidated with CIvil Action No. 19027. Pending

Appeals flied by debtors and the CredItors Comnuttee from an order of the distrIct court granting Commission's motion made under

Sec 328 of the Bankruptcy Act to dismiss a Chapter XI prooeedlng.

Order entered Mar. 13, 1964, dlsmlssmg the appeals. Closed.

These appeals arise out of the orders entered May 13, 15, and 21, 1964,

transferring the proceeding from the USDC, SDNY. appointing a

trustee, and setting various administrative procedures In motion. Appeal dismissed In CA41. Appeal still pending In CA-2.

'I'his action arises out of a question whether or not the distrret court

has discretion to refuse to compel the trustee of a corporation In

reorganization under Chapter X of the Bankruptcy Act to submIt to arbitratton a claim for vacation pay arising out of a previously

expired collective bargaining agreement wIth a defunct subdivision

of the debtor corporation. Petition for wrIt of certIorari flIed

May 27, 1963. Pending.

Appeal flied from an order entered In Chapter X proceedings in- volving Shawano Development Corp,. which order adjudicated

the debtor a bankrupt and appointed a receiver. Pending.

Appeal filed July 11,1962, by the Protective Committee for Independent Stockholders of TMT Trailer Ferry Inc., from "OpInIon and

Order on Valueticn and Insolvency" of the Hon. Emett C. Choate.

Appeal taken by Committee from the order conllrmmg the plan of reo-gamzatton entered Feb. 14, 1963. Order entered July 18,.1963,

consolidating appeals Nos. 20563, 2OWO and 20659. OpinIon

rendered June 8, 1964, reversing and remanding the consolidated

cases for further proceedings. PetItion of CommissIon for rehearing

filed June 25,1964. Pending.

_
THIRTIETH ANNUAL REPORT 227 

Tams 24-Proceedings under the Baalrmptcy Act pending du7ing the Rsoal Vear 

ended Jme SO, 1964, .In zohioh th.e Commission participated when disdrict court 

orders were obazlenged in appelhte courts-Oontiuued 

ofcaseand U.8. court of ~stureand status of cn~e 


Appeas 
 ~ame 

united star Oompanias, Ine.. et Notioo of appeal filed by Commisrion fmm that portion of theprder 

21. dobtors~sp~elioes;~n re entered on ~er. 22 1963, denying the motion of the Commi~slon to 

sLvrities ~rohengeCorn- dismiss the under chapter XI of the Bankruptcy Aot. 

mission, &p ~llants (6th Cirouit). Pending. 

wales Gorp., debtor; hpponl filed in No.14126 from the order of the district court epwered 

aartense ~a~er ~ll~soh, et a]., ~eb.8, 1R61,enjom~ng ap eliants Cram :'proceedlog or,mtmuing 

u. xnthan orh he, in any rwmer,' w~th tLir suate admn. co.mm,ssion filed a 

trustee ot a,., appsllees (7th rnonxorsndum m support of the motion of rrrtam bondholders M 

circuit'). dismnks the appeal, May 21,1903. Pending. 
----- 

----- 

228 SECURITIES AND EXCHANGE COMMISSION 

TAELE26.-A 	 31-year aummu olU88ifuinV all defmdmta in Wminal caeea deeeloped by the Cwmi8aiolz--19S4 to June $0, 1984 

Number BT 

to whom NumM as Number Number Number 	 -8 were to whom indloted convlotsd acquitted 	 dlsmisssd ews are onmotion pending of U.8. 

sttmeys 

Registered brokerdealers I (iocludingwio. 

eipals of such firms)..................... 638 316 13 127 .* Employeesolsuahrogisteredbrok81de~Lers. 275 127 I@ 82 72 Permns h general securities buslnm but not asrezistered broker-dealers (ineludes 

prjnolpsls and employee4 ............... 836 415 66 276 79 All others 8 ................................ 1.769 m 218 a79 220 


Total................................ 4408 1,774 366 844 4% 


1 Includes persons re istered at or prior to time of indictment. 

The persons referred to in this ooiu?n, while not engaged in a senernl businessin securities, ware almost 

~vltho~t exceptirn prcseeuted tm vialetlans of law involving seourities transactions. 

TABLE27.~8	 81-year a1MnWy of all injclnotion oases lnatitlrted by the Corn. 

'mdaaion--1934 to June SO, 1964, by calendar year 

Calendar Yea. 

1961......................................... 


1952......................................... 


1963......................................... 


ITbese oolumns show disposition ofessesby year of disposition and do not neaessarlly mfleot the dimosltion of me-s shown sshavlng been indituted in the same years. Inclodes26.w which mad twicein thlgmlomn beososeinjunctionsag ioIB same carps wereain dpreat gears. 
THIRTIETH ANNUAL REPORT 229

TABLE 27.-..4. S1-year summary of all injunction cases instituted by the Commission--1934 to June SO,1964, b1l calendar vear-Continued

SUMMARY

Cases Defendants

4,525

4,525

3,417

289

819

Actions mstrtuted

Injunenons obtained .Acnons pending Other disposrtions !

TotaL

1,349

1,198

36

115

1,3491

1 Includes 43 defendants In 13 cases In whieh Injuncnons have been obtamed as to 46 co-defendants.

'Includes (a) actions drsmissed (as to 718 defendants), (b) actions discontmued, abated, abandoned,

stipulated or settled (as to 63 defendants); (c) actions m which Judgment was demed (as to 34 defendants);

(d) actions ill which prosecution was stayed on stipulatron to diseontmue misconduct charged (as to 4 defendants) .

e.s, 'OVERN"ENT PRINT'NG orrlCIIIf'1

_

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_

_