SECURITIES AND EXCHANGE COMMISSION ill ANNUAL 33 REPORT For the Fiscal Year Ended June 30th SECURITIES AND EXCHANGE COMMISSION Headquarters Office 500 North Capitol Street Washington, D.C. 20549 COMMISSIONERS MANUEL F. COHEN, Chairman HUGH F. OWENS HAMER H. BUDGE FRANCIS M. WHEAT RICHARD B. SMITH ORVAL L. Dnlsors, Secretary u For sale by the Superintendent of Documents. U.S. Government Printing Office Washington. DC. 20402 - Price 50 cents (paper cover) SECURITIESAND EXCHANQECoxmse.10~ Washington, D.C., January 15,1968 SIR: On behalf of the Securities and Exchange Commission, I have the honor to transmit to you the Thirty-Third Annual Report of the Commission covering the fiscal year July 1,1966 to June 30, 1967, in accordance with the provisions of Section 23(b) of the Securities Exchange Act of 1934, as amended; Section 23 of the Public Utility Holding Company Act of 1935; Section46 (a) of the Investment Com- pany Act of 1940; Section 216 of the Investment Advisem Act of 1940; Section 3 of the Act of June 29,1949, amending the Bretton Woods Agreement Act; Section Il(b) of the Inter-American Development Bank Act; and Section 11(b) of the Asian Development B~nkAct. Respectfully, MANUELF. COHEN, Chaim'n. THE P~IDENTOF THE SENATE, / THESPEAKER OF THE HOUSEOF REPRESENTATIVES, Washington, D.C. m TABLE OF CONTENTS Page Commissioners and staff offleers; ____________________________________ XI Regional and branch offiees; , _______________________________________ XII Biographies of Commlssionera, ______________________________________ XIII INTROD UCTION___ ____________ ______ __ ___ ___ _______ XVII PART I IMPORTANT RECENT DEVELOPMENTS_______________________ 1 Mutual fund report and legislative proposals______________________ 1 Mutual fund management and its cost_______________________ 2 Sales charges generally _____________________________________ 3 The front-end load_________________________________________ 3 Capital gains distributions__________________________________ 3 Disqualification of individuals from association with an invest- mentcompany__________________________________________ 4 Breach of fiduciary duty _______ ________ ________ _____ 4 Insider trading in portfolio seourities..; _______________________ 4 Fund holding companies____________________________________ 5 Disinterested directors; ____ ______ __________ ______ _____ 5 Transfer of investment advisory contracts____________________ 5 Other mattera.c., , _________________________________________ 5 Other developmenta., , _________________________________________ 6 Take-over bid bill_ _ __ ____ __ _ ___ __ 6 Broker-dealer financial reports., _____________________________ 7 Commission level and structure., _ _ _ ___ _____ 8 Automation of market facilities______________________________ 8 Review of exchange rules regarding off-board trading.; _________ 9 PART II OPERATION OF THE SECURITIES ACTS AMENDMENTS OF 1964___________________________________________________________ 10 Extension of disclosure requirements to over-the-counter securities; __ 10 Exemptions from registration___________________________________ 11 Securities of insurance companies____________________________ 12 Securities of foreign Issuers., __ __ _______ ________ 13 Regulation of broker-dealers who are not members of registered se- curities association.c.,.; _ _____ _________ _____ 15 Proceedings to obtain compliance with Securities Exchange Act regis- tration or reporting requirementac., , __ ______________ 18 Disciplinary action against broker-dealers and their associated persons, 19 Summary suspension of over-the-counter trading__________________ 19 v VI TABLE OF CONTENTS PART III Page FULL DISCLOSURE OF INFORMATION ABOUT THE ISSUERS OF SEC URITIES_ ______ ____ _ 21 Disclosure in connection with public offerings_____________________ 21 Type of information included in registration statement_________ 22 Proposed sbort form for registration of securities of certain Issuers; 23 Simplification of prospectuses., _ __ ___ __ ____ 24 Staff examination of registration statements____ _______________ 24 Time required to complete registration., ______________________ 25 Statistics regarding registration statements filed., ______________ 25 Statistics regarding securities registered; _ _ _ __________________ 27 Stop order proceedings; _ ___ __________________ 30 Examinations and investigations_____________________________ 31 Exemption from registration of small issues_______________________ 31 Exempt offerings under Regulation A________________________ 32 Reports of aales; __ ___ ___ ____________ 33 Suspension of exemption________________________________ 33 Exempt offerings under Regulation B________________________ 34 Reports of sales, __ ___ _____ _____________ 34 Exempt offerings under Regulation E________________________ 35 Exempt offerings under Regulation F________________________ 35 Continuing disclosure requirements______________________________ 36 Registration of securities on exchanges_______________________ 36 Registration of over-the-counter seeurities., ___________________ 36 Periodicreports___________________________________________ 37 Proxy solicitations..c ; , __ _________ ________ 37 Scope and nature of proxy regulation____________________ 37 Proposed amendments to proxy rules and information rules; 38 Statistics relating to proxy and information statements_____ 39 Stockholders' proposala.c.,., __ _____________ __ ___ 40 Ratio of soliciting to nonsoliciting companies______________ 40 Proxycon~ts________________________________________ 41 Insiders' security boldings and transactions___________________ 41 Ownership reports; ___ ____ _____ _________ 41 Recovery of short-swing trading profits___________________ 42 Investigations with respect to reporting and proxy provisions., _ _ 42 Accounting and auditing matters___ _______ ____ ___ ___ 42 Opinions of Accounting Principles Board_____________________ 44 Reporting by foreign Issuers., __ ____________ ______ _____ 44 Reporting by diversified companies., __ __ ___ ___ __ 45 Other current developments_________________________________ 45 Resignation of accountant from practice before commission_____ 46 Civil litigation involving disclosure matters_______________________ 47 Criminal prosecutions involving disclosure violations_______________ 48 Exemption for securities of international banks____________________ 50 International Bank for Reconstruction and Development_______ 50 Inter-American Development Bank__________________________ 52 Asian Development Bank .__ __ ______ _ 53 Trust Indenture Act of 1939____________________________________ 53 TABLE OF CONTENTS VII PART IV Page REGULATION OF SECURITIES MARKETS______________________ 55 Regulation of exchanges________ ___ _________ _____ 55 Registration and exemption of exchanges_____________________ 55 Review of exchange rules and prooedures., ____________________ 55 NYSE commission rate schedule-Kaplan v. Lehman Bros______ 56 Inspections of exchsngea.L; , _________________________ 56 Statistics relating to securities traded on exchanges________________ 57 Number of issuers and securities_____________________________ 57 Market value of securities available for trading________________ 57 Volume of securities traded; ___ __ _______________ 58 Foreign stocks on exchanges________________________________ 59 Comparative exchange statistics_____________________________ 59 Block distributions reported by exohanges; ___________________ 62 Unlisted trading privileges on exchanges______________________ 62 Delisting of securities from exchanges____________________________ 63 Over-the-counter trading in stocks listed on exchanges_____________ 65 Statistical studies_________ ___ ___ _________________ 66 Issues registered under the Securities Act of 1933______________ 67 New securities offerings____________________________________ 67 Individuam' savings________________________________________ 67 Private pension funds, __________________________ ____ 67 Stock trading of financial institutions, ___________ __ ___ 68 Financial position of eorporationa.c., , _______________ ______ 68 Plant and equipment expenditures___________________________ 68 Directory of registered companies_____ _________________ __ 68 Stock market data____ __________ ___________________ __ 68 PART V CONTROL OF IMPROPER PRACTICES IN SECURITIES l\1ARKETS___ ________ __ __ ______ ___ __________ __ 70 Regulation of broker-dealer and investment adviser practices______ 70 Registration, financial responsibility, record maintenance and financial reporting requlrements., ____________ _____ 70 Registration__________________________________________ 70 Capital requirements with respect to broker-dealers________ 71 Financial reports of broker-dealers.L; , _ ____ ________ 71 Detection of improper practices______________________________ 72 Public complaints_________ _ ___ __________ ___ 72 Inspections___________________________________________ 72 Section of securities violations___________________________ 73 Use of computer for name searches______________________ 73 Investigations_____________________________________________ 74 Imposition of sanctlona.c .; __ ____________ ________ _ 75 Administrative proceedinga, ____ ___ _______________ 75 Civilproceedings______________________________________ 82 Criminal proeeeution.L, , __________ _____________________ 83 VIII TABLE OF CONTENTS CONTROL OF IMPROPER PRACTICES IN SECURITIES MARKETS-Continued Regulation of broker-dealer and investment adviser practices-Con. Page Supervision of activities of National Association