mission advised the chairman of the subcommittee that they believed it might be possible for them to reach a common ground in an agreement on the scope and provisions of the bill. The chairman encouraged them in this endeavor and as a result of their cooperative efforts a substitute bill (S. 4108) was drafted and submitted to the Senate on June 6, 1940. On June 12, 1940, Congressman William P. Cole introduced the substitute bill (H. R. 10065) in the House.22 STUDY CONDUCTED FOR THE TEMPORARY NATIONAL ECONOMIC Insurance. COMMITTEE During the past fiscal year the Commission completed the study of life insurance which it conducted for the Temporary National Economic Committee pursuant to Public Resolution No. 113 of the 75th Congress. Public hearings based upon information assembled through field investigation and questionnaire returns were held intermittently from August 1939 until March 1940. During the months of August and September, testimony was taken before a special subcommittee of the Temporary National Economic Committee on the subject of industrial insurance, a form of life insurance sold primarily to low-income fam ilies. This testimony included a historical and statistical summary of the industrial insurance business and a review of the activities of many principal companies operating in the field. Among other matters considered were the cost of industrial insurance, the methods by which it is sold, the various types of policies offered, and the resulting distribution of insurance among policyholders. To supplement these hearings the Commission undertook, in cooperation with the Work Projects Administration, a survey of the insurance holdings of certain low-income families residing in the greater Boston area. Detailed schedules were completed by WPA enumerators for over 2,000 families and in this manner information was obtained for the first time concerning family holdings of industrial insurance, the amount of income being spent for various types of insurance, and the relation between types of coverage and economic status. Public hearings were also held before the Committee with respect to the activities of officers and directors for personal gain and reinsurance and rewriting activities of promoters. In this connection, the history of the several companies which failed during recent years and the various factors which led to these failures were explored in detail. Testimony was also taken on the subject of sales and agency practices. In February and March of 1940 the final insurance hearings, deal 2 On August 22, 1940, the Investment Company Act of 1940 and the Investment Advisers Act of 1940 were approved by the President. ing with the operating results and investments of the 26 largest legal reserve life insurance companies, were held. These hearings dealt primarily with the activities of the companies during the period from 1929 to 1938 and their experience with various lines of business including annuities and disability insurance. Funds available for I investment and investments made were analyzed as were the assets and liabilities of the companies. Detailed studies of various types of investments such as policy loans, collateral loans, bonds and stocks, farm and urban mortgages, and real estate were made and the company policies in calculating reserves and surplus were considered in detail. Net cost studies for principal types of policies at representative ages were presented as part of this general study. To provide the basis for these hearings on operating results and investments, comparative statistics, based upon replies to two investment questionnaires, were prepared by the Commission's staff. During the entire period of investigation from November 14, 1938, to February 10, 1940, the Commission's field representatives examined approximately 30 life insurance companies located in the east and middle west sections of the country. The staff of the Commission has completed two reports. One entitled "Families and Their Life Insurance," to be printed as Monograph No. 2 of the Temporary National Economic Committee, covers the results of the special survey made in cooperation with the Work Projects Administration. The other, to be printed as Monograph No. 28, is an overall report on the insurance study based upon public hearings and information obtained through questionnaires or other reliable sources. As of June 30, 1940, these reports had not been released by the Temporary National Economic Committee. Testimony on the subject of life insurance taken before the Temporary National Economic Committee has been printed and may be purchased at nominal cost from the Superintendent of Documents, Washington, D. C. This testimony is contained in Parts 4, 10, 10-A, 12, 13, and 28 of the Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-sixth Congress, third session, pursuant to Public Resolution No. 113 (Seventyfifth Congress). Investment Banking. Certain aspects of investment banking were also presented in public hearings before the Temporary National Economic Committee in December 1939, and January 1940. The scope of the testimony was restricted to the following fields of inquiry: (1) the manner in which the investment banking processes have been adjusted to conform with the provisions of the Banking Act of 1933; (2) the extent to which concentration exists in the industry; and (3) the manner in which business is negotiated between underwriters and issuers and among underwriters. Testimony relating to the foregoing subjects was presented by witnesses representing the principal investment banking houses, several corporations, and the Commission. This testimony appears in Volumes 22, 23, and 24 of "Investigation of Concentration of Economic Power," Hearings Before the Temporary National Economic Committee. A report on the problems incident to financing small business enterprises prepared at the direction of the Committee was submitted by the Commission on June 10, 1940. The report embodies a survey of the following regions which represent a wide variety of economic conditions: Fall River, Massachusetts; Scranton-Wilkes Barre, Pennsylvania; Detroit, Michigan; Omaha, Nebraska; Birmingham, Alabama; Dallas-Houston, Texas; Denver, Colorado; Seattle, Washington; and Portland, Oregon. In addition to these field studies, the report includes a statistical analysis of the available data on the problems of the smaller business enterprises. This report is contained in Monograph No. 17, "Some Problems of Small Business," published by the Temporary National Economic Committee. REPORTS OF OFFICERS, DIRECTORS, AND PRINCIPAL STOCKHOLDERS General Purpose and Scope of Reporting Requirements. In order to make available information as to the amount of securities owned by persons closely identified with the management or control of enterprises, and changes occurring in their holdings, every person who is an officer, director, or principal stockholder (i. e., a person who beneficially owns, directly or indirectly, more than 10 percent of any class of registered equity security) of an issuer having any class of equity security listed and registered on any national securities exchange is required, under Section 16 (a) of the Securities Exchange Act of 1934, to file with the Commission and the exchange an initial report showing the amount of every class of equity security of the issuer which he owns beneficially, directly or indirectly, and a report for each month thereafter in which any purchase, sale, or other change in such ownership occurs. Under the corresponding provisions of Section 17 (a) of the Public Utility Holding Company Act of 1935, every officer or director of a registered holding company must file with the Commission reports disclosing his direct and indirect beneficial ownership of all securities of the registered holding company and its subsidiary companies, as well as all changes occurring therein. Volume of Reports. The following tabulation discloses the number of reports filed in accordance with these requirements and examined by the Commission during each of the past two fiscal years, and indicates that comparatively little change occurred in the volume thereof during the last year. Reports of officers, directors, and principal stockholders filed and examined Of the 16,305 original reports filed last year under the Securities Exchange Act of 1934, 14,215 were monthly reports on Form 4 reflecting purchases and sales and other current changes occurring in the amount of equity securities beneficially owned; 392 were initial reports of such stockholdings required to be filed on Form 5, where the issuer for the first time secured registration of any equity security on a national securities exchange; and 1,698 were initial reports of such holdings required to be filed on Form 6 by each additional person who became an officer, director, or principal stockholder. In connection with the initial reports filed on Forms 5 and 6, it might be pointed out that a majority of the 2,090 persons who thus commenced reporting during the past year did so without the necessity for any action by the Commission. However, it was necessary to call the reporting requirements to the attention of 716 of these persons, before obtaining their necessary reports. Information as to the identity of persons who fail to comply with the requirements of the statute in filing reports is obtained by the Commission from a wide variety of sources; such as, for example, applications for registration of securities, annual reports, current reports, and proxy statements filed by issuers pursuant to the Securities Exchange Act of 1934; registration statements filed by issuers under the Securities Act of 1933; notifications of registration and annual supplements filed by registered holding companies under the Public Utility Holding Company Act of 1935; letters received from issuers; and the current releases of certain commercial daily, weekly, and quarterly financial news services. At the close of the past fiscal year, the security ownership reporting requirements of Section 16 (a) had been operative for more than 5 years, and those of Section 17 (a) for more than 4 years, during which time an aggregate of nearly 150,000 original and amended reports were filed by more than 29,000 persons. Notwithstanding the large number of reports and persons involved, there has been practically no necessity for any formal action by the Commission in order to secure the filing of these reports. 273226-41- -13 Examination Procedure. Where an original report discloses upon examination any material incompleteness, inconsistency, or inaccuracy, a letter is sent to the person reporting, calling attention to the deficiency and an amended report is obtained. The amended report is subjected in turn to the same examination procedure as the original report. There are, of course, a number of cases in which it appears that the deficiency in the report is essentially immaterial and that the purposes of the statute would not be served by insisting upon the filing of an amended report. It is the practice in these cases merely to inform the reporting officer, director, or principal stockholder of the nature of the deficiency in the currently filed report and request his cooperation in the proper preparation of any additional report which may be required of him in the future. In addition to the large number of letters calling attention to deficiencies appearing in reports, numerous letters were written to officers, directors, and principal stockholders, and conferences were held with them and their representatives, in order to assist them in complying with the reporting requirements of the statute. Publication of Security Ownership Reports. Reports made by officers, directors, and principal stockholders on Forms 4, 5, and 6, and by officers and directors on Forms U-17-1 and U-17-2, are available for public inspection at the offices of the Commission in Washington, D. C., and reports on Forms 4, 5, and 6 may also be inspected at the particular exchange with which an additional copy of each report relating to the issuer concerned must be filed. In order to make the information contained in these reports more readily available to the public, the Commission compiles and publishes such information in a semimonthly Official Summary of Security Transactions and Holdings which is widely distributed among individual investors, newspaper correspondents, and other interested persons. Copies of these summaries are also available at each regional office of the Commission and each national securities exchange. REGIONAL OFFICES Approximately one-third of the Commission's entire personnel is stationed in its 14 regional and subregional offices. The regional offices of the Commission are located at Boston, New York City, Atlanta, Cleveland, Chicago, Fort Worth, Denver, San Francisco, and Seattle. The Cleveland office has a permanent suboffice in Detroit; Chicago has permanent suboffices in Minneapolis and St. Louis; San Francisco has a permanent suboffice in Los Angeles; and the Oil and Gas Unit of the Registration Division has a permanent suboffice in Tulsa. These offices have since their inception been the first line of enforcement of the various laws administered by the Commission. Nearly all the investigations of stock frauds and viola |