$9,608,000,000, or 97.6 percent of total new issues, both corporate and noncorporate. Among corporate securities, public-utility issues ranked first of the industry groups with $1,517,000,000, or 50.7 percent of total corporate offerings. Industrial issues amounted to $968,000,000, or 32.4 percent of the total, while rail and other issues amounted to $505,000,000, or 16.9 percent. Corporate securities privately placed aggregated $980,452,000, equal to 32.8 percent of all corporate offerings. 13 This compared with $807,342,000, or 34.1 percent of all corporate issues in the 1940 fiscal year. Corporate private placements in the 1941 fiscal year included $586,805,000 of utility issues, $281,451,000 of industrial issues and $112,196,000 of rail and other issues. The principal use of estimated net proceeds of $2,931,000,000 raised from total corporate issues during the fiscal year was for repayment of indebtedness and retirement of preferred stock, $2,132,000,000, or 72.7 percent of total net proceeds, being intended for that purpose. This included 65.3 percent for repayment of funded debt, 2.7 percent for payment of other debt, and 4.7 percent for retirement of preferred stock. New money purposes accounted for $768,000,000, or 26.2 percent of total net proceeds, consisting of $600,000,000 for plant and equipment and $168,000,000 for working capital. The remainder of $31,000,000, or 1.1 percent of net proceeds, was applied to miscel laneous other purposes. Underwriting participations.-During the fiscal year ended June 30, 1941, the revised series of statistics of underwriting participations was continued on a quarterly and annual basis. The amount of participations in underwritten registered issues, classified by type of security, was shown for each of the 50 largest New York City firms and the 50 largest firms outside of New York City. The amount of issues managed, also classified by type of security, was shown for each of the 20 leading firms in and outside of New York City. These basic data make possible an analysis of the distribution of underwriting business, insofar as registered securities are concerned, among the various investment banking firms.14 Cost of flotation.-In March 1941 the Commission issued a report entitled "Cost of Flotation for Registered Securities 1938-1939," submitted to it by the Research and Statistics Section of the Trading and Exchange Division. This report, which included approximately 100 pages of text, tables and charts, presented detailed statistics regarding the cost of flotation for issues registered under the Securities 13 Includes issues sold directly to ultimate investors by competitive bidding in the following amounts, by fiscal years: 1935, $2,906,000; 1936, $23,917,000; 1937, $87,935,000; 1938, $21,560,000; 1939, $39,268,000; 1940, $50,523,000; and 1941, $97,366,000. 14 Statistics of underwriting participations for the three months ended September 30, 1940, were presented in Statistical Series Release No. 488; for the calendar year 1940 and for the 3 months ended December 31, 1940, in Statistical Series Release No. 536; for the 3 months ended March 31, 1941, in Statistica! Series Release To, 558; and for the 3 months ended June 30, 1941, in Statistical Series Release No. 597. Act during the calendar years 1938 and 1939. The analysis of cost of flotation was broken down according to type of proposed offering, type of security, major industrial group, size of issue, size of issuer and type of underwriting contract. All data were shown separately for the two cost components-compensation to distributors and expenses. Additional statistics were presented covering the various items included in expenses. In all of the statistical break-downs, figures were shown separately for bonds, preferred stock, and common stock. These detailed statistics were continued for the calendar year 1940 in Statistical Series Release No. 572. Security characteristics.-A comprehensive report on the characteristics of issues effectively registered under the Securities Act of 1933 for the combined 4-year period 1937-40, as well as for each year, was published in May 1941 in Statistical Series Release No. 568. This report contained for the first time a detailed text analysis of security characteristics. Particular attention was called to provisions for periodic retirement in the case of bonds and preferred stocks and to voting rights in the case of preferred and common stocks. The availability of data for the 4-year period also made possible a study of changes in basic security provisions during a considerable part of the period in which the Securities Act was operative. Sales of unseasoned issues.-In June 1941 the Commission issued a report entitled "Sales Record of Unseasoned Registered Securities. 1933-1939," which was submitted to it by the Research and Statistics Section of the Trading and Exchange Division. Included in this report were approximately 30 pages of text, tables, and charts. The study covered only those issues registered under the Securities Act of 1933 which were deemed to be unseasoned in character. It was based on questionnaire returns from 757 companies covering 849 issues with registered amount of $409,204,000. Major emphasis was placed upon the ratio of the amount actually sold to the amount registered, Detailed break-downs of this sales ratio were made by type of concern (new venture or going concern), type of security, major industrial group, size of issue and size of issuer. Information also was presented on cost of flotation based on actual sales experience. The report was intended primarily to serve as a further contribution toward an understanding of the broad problem of small scale financing. EXEMPTION from regISTRATION UNDER SECURITIES ACT Revision of Regulation A. In a substantial revision of its procedures and rules in connection with the exemption from registration under the Securities Act of 1933 of offerings not in excess of $100,000, the Commission repealed its former Rules 200 to 210, inclusive, and, effective December 9, 1940, substituted a simplified Regulation A, consisting of a single integrated exemption, contained in Rules 220 to 224, which in many respects substantially broadens the availability of the exemption with respect to all such issues other than those relating to oil and gas interests. Section 3 (b) of the Securities Act of 1933 gives the Commission the power, under such rules and regulations as it may deem necessary in the public interest and for the protection of investors, to exempt from the registration requirements of the Act security issues up to and including $100,000. Heretofore, the Commission has given a total exemption on issues up to $30,000. As to other issues not in excess of $100,000, an exemption has been available only upon varying terms and conditions, such as the compliance with the laws of the States in which the securities were sold, or the use of a prospectus containing certain specified information. The former Rules 202 to 210 were rescinded effective January 1, 1941. During the 6 months from July 1, 1940, to December 31, 1940, proposed stock offerings (other than those of companies engaged in the oil and gas business) accounted for the filing of 46 prospectuses under the old Rule 202, representing a total offering price of $3,765,000, and 73 letters of notification under the old Rule 210, involving a total offering price of $4,818,000. At the same time stock offerings of oil and gas companies accounted for the filing of 3 additional prospectuses under the old Rule 202, representing an aggregate offering of $121,980, and 10 additional letters of notification under the old Rule 210, representing a total offering of $587,500. The new simplified procedure does not require the use of a prospectus in any case. To avail itself of the exemption, a domestic issuer will need only to send to the nearest regional office of the Commission a letter notifying that office of its intention to sell, together with any selling literature it may plan to use. This letter of notification need contain only such information as the name of the company, the name of the underwriters, the title of the issue to be sold, and a brief summary of the intended use of the proceeds. The issuer can give this notice, at its option, either through an informal letter or through the use of a three-page form which has been adopted by the Commission for the issuer's convenience and which will be supplied on request. This optional form is designated as Form S-3b-1. Where the issuer nevertheless chooses to use a prospectus, the regulation indicates certain skeleton information to be included therein. A broadened exemption is available in several important respects under the new regulation. For example, the Commission takes a new position as to future sales of the securities of the same issuer. Heretofore, the Commission's rules have been such that, if the offering was a part of a larger financial program, involving the future sale of additional securities of the same class, the exemption was not available. The new regulation specifically states that the exemption is available even if "it is contemplated that after the termination of the offering an offering of additional securities will be made." This will apply in tances, among others, where issuers wish to make annual offerings of already outstanding securities for such purposes as employees' participation plans. In such instances, where the offering is not over $100,000, the exemption will be available. Furthermore, the exemption is now available to issuers and their controlling stockholders even though each may wish to offer $100,000 under Regulation A within a single year. Heretofore, in such instances, a registration statement has been necessary. The new regulation shifts the Commission's administrative emphasis from the disclosure requirements of the Act to the fraud prevention provisions. The examination procedure which has been followed in the past has been abandoned. While the use of a prospectus is no longer required, any selling literature which is employed must be forwarded to the appropriate regional office for its information. The new regulation is administered from the regional offices under the usual supervision from Washington. It is believed that the shifting of this activity to the regional offices will further simplify any problem of compliance with the Act by issuers needing relatively small amounts of capital. Regulations B and B-T. Regulations B and B-T, also adopted by the Commission pursuant to Section 3 (b) of the Securities Act of 1933, provide conditional exemptions from registration for fractional undivided interests in oil or gas rights and interests in an oil royalty trust or similar type of trust or unincorporated association, where the amount of the offering does not exceed $100,000. During the past fiscal year, 1,048 offering sheets, together with 673 amendments, were filed and examined, pursuant to Regulation B, representing an aggregate offering price of the securities covered thereby in the approximate amount of $23,642,637. In addition, one prospectus representing an aggregate offering price of $45,000 for securities proposed to be offered thereunder was filed pursuant to Regulation B-T. A temporary suspension order was entered under Rule 380 (a) with respect to the latter prospectus. The following list indicates the number of actions of various kinds taken by the Commission with respect to these filings: Various actions on filings under Regulations B and B-T Temporary Suspension Orders (Rule 340 (a)) – 171 132 24 Orders Terminating Effectiveness of Offering Sheet (No Proceeding 43 Temporary Suspension Orders (Rule 380 (a)) Orders Consenting to Withdrawal of Offering Sheet (No Proceeding Orders Consenting to Amendment of Offering Sheet (No Proceeding 423 61 1 Efforts to Protect Investors in Oil and Gas Leases. The Commission has for some time been confronted with problems arising out of the sale of oil and gas leases. Certain persons engaged in this business have maintained that a sale or assignment of an oil or gas lease on a specific property did not constitute under any circumstances the sale of a security. The Commission had an opportunity during the past year to state its position in this matter in connection with a registration statement filed in a specific case. Briefly, the Commission took the position in that case that assignments of 5-year term oil and gas leases, in parcels of not less than 5 acres, constitute investment contracts and therefore securities within the meaning of Section 2 (1) of the Securities Act of 1933, where it is contemplated that purchasers will buy the assignments in the expectation that they will increase in value as the result of drilling operations which have been started and are intended to be resumed; where the assignor is to pay for the drilling operations and is to be reimbursed for any sums thus expended from the proceeds of the sale of the assignments; and where the assignor has a reversionary interest in the central drilling block. As a result of an investigation conducted by the Commission during the year in connection with an oil and gas lease promotion, several persons were convicted on charges arising out of violations of the fraud provisions of the Securities Act of 1933. In addition, conferences were held with officials of one of the principal oil producing States, and plans were made for closer cooperation between the Commission and such State authorities to facilitate consideration of problems arising in the sale of oil and gas leases. It is anticipated that this cooperation will offer a substantially greater degree of protection to those members of the investing public who may desire to invest in this type of security. Oil and Gas Investigations. During the past year investigations were conducted in a total of 284 cases involving oil and gas properties or proposed offerings of oil and gas securities. These investigations, which arose largely out of complaints received by the Commission, were primarily conducted to ascertain whether transactions in the oil and gas securities were effected in violation of Sections 5 or 17 of the Securities Act of 1933. However, in some of the cases, facts and circumstances were developed indicating violations of Section 15 of the Securities Exchange Act of 1934. Of the 284 investigations, 148 had been disposed of and 136 were pending at the close of the fiscal year. As a result of these investigations, the persons concerned in 6 cases were enjoined from violating the registration or fraud provisions of the Securities Act of 1933, and in 9 cases, involving approximately 25 persons, the facts were referred to the Department of Justice for criminal prosecution. |