previous annual reports of the Commission. Rule 133 provides in general that for the purpose of determining the application of the registration and prospectus provisions of the Securities Act, no "offer" or "sale" shall be deemed to be involved so far as stockholders of a corporation are concerned where, pursuant to the provisions of a statute or the certificate of incorporation, there is submitted to a vote of such stockholders a plan involving a statutory merger, consolidation, reclassification of securities or transfer of assets of the corporation in consideration of the issuance of securities of another corporation. The general purpose of the amendments to the rule is to make it clear that under certain circumstances securities distributed by persons receiving them in connection with such transactions may be required to be registered under the act. For example, the amended rule provides that where one company is merged into another company, a stockholder in control of the merged company who receives securities of the surviving company with a view to making a distribution of such securities to the public shall be deemed to be an underwriter and registration of the securities is required before the distribution can be made. However, registration is not required with respect to securities sold in certain brokers' transactions as defined in the rule.

In connection with the amendment of rule 133, a new Form S-14 was adopted for the registration of certain securities issued in a rule 133 transaction. This form is discussed below at p. 20.

Amendment of Rule 135

This rule, as originally adopted, provided that a notice or other communication sent by an issuer to its security holders to inform them of the proposed issuance of rights to subscribe to additional securities would not be deemed to offer any security issue for sale if such notice was sent in conformity with the rule. The principal requirements were that the notice be sent within 60 days prior to the record date, state that the offering will be made only by the prospectus and in addition contain only certain specified information necessary to inform the security holders of the forthcoming offering. The purpose of the rule was to enable an issuer to furnish certain factual information to its security holders in advance of making the actual offering.

The rule was amended during the fiscal year to permit the sending of similar notices where an issuer proposes to offer securities to its own security holders, or to the security holders of another issuer in exchange for securities presently held by them, and also where the issuer proposes to make an offering of securities to its employees or to the employees of an affiliate.*

3 23d Annual Report, p. 20; 24th Annual Report, p. 14.

4 Securities Act Release No. 4099 (June 16, 1959).

Proposed Rule Changes Relating to Assessable Stock

During the 1958 fiscal year the Commission invited public comments on a proposed new rule 136 and certain proposed amendments. to rule 140 with respect to assessable stock and the levying of assessments thereon. The general purpose of these proposals was to make it clear that the Securities Act of 1933 applies to the levying of assessments on assessable stock to the same extent that it applies to other securities. Action on these proposals was deferred pending further study of the matter. During the 1959 fiscal year the Commission published revised proposals with respect to the rules referred to and also a proposed exemption Regulation F, which were adopted shortly after the close of the fiscal year."

The new Regulation F, which provides an exemption from registration under the act for assessments and delinquent assessment sales in amounts not exceeding $300,000 in any one year, 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. This notification could be prepared in a relatively short time by any officer of the company who is familiar with the company's affairs and there is no fee or charge for its filing. The filing may be made by mailing the notification to the appropriate regional office of the Commission.

The only information which a company is required to send to its stockholders, or otherwise publish, is a statement of the purposes for which the proceeds from the assessment are proposed to be used. This information may be included in the notice of assessment given by mail or otherwise published as required by State law. If the issuer should employ any other sales literature in connection with the assessment, copies of such literature must be filed with the Commission. Proposed Rule 144

During the fiscal year the Commission invited public comments on a proposed rule relating to certain transactions by the International Bank for Reconstruction and Development. The proposed rule, to be designated rule 144, would have defined the term "transactions by an issuer not involving any public offering," in section 4(1) of the act, to include certain activities of the Bank. After the close of the fiscal year, the Commission announced that it had discontinued consideration of the proposed rule since there appeared to be no present need for it.8

* See 24th Annual Report, p. 16.

*Securities Act Release No. 4040 (Mar. 4, 1959).

"Securities Act Release No. 4121 (July 30, 1959).

Securities Act Release No. 4028 (Feb. 10, 1959) and 4161 (Nov. 30, 1959).

The proposed rule would also define the term "distribution" in section 2(11) of the act as not applying to such transactions by the bank or by any dealer who is acting on an agency basis pursuant to a written contract with the bank.

The matter was still under consideration at the end of the fiscal year.

Adoption of Rule 151

This rule defines the term "public offering" to exclude under certain conditions the offering of stock of small business investment companies to small business concerns pursuant to the requirements of the Small Business Investment Act of 1958.9

Under section 304 (d) of the Small Business Investment Act, whenever a small business investment company provides capital to a small business concern through the purchase of the latter's convertible debenture bonds, the small business concern is required to purchase stock of the small business investment company in an amount equal to not less than 2 percent nor more than 5 percent of the capital so provided, in accordance with regulations of the Small Business Administration. Those regulations specify certain minimum amounts of such stock which a small business concern is required to purchase depending upon the amount of capital which it obtains from a small business investment company through the issuance of convertible debenture bonds.

The new rule provides that a public offering of capital stock of a small business investment company is not deemed to be involved where the offer or sale is made in connection with the purchase of debenture bonds from a small business concern pursuant to the requirements of the Small Business Investment Act, the amount of stock involved is the minimum required by that act and the regulations thereunder in connection with the particular transaction, and the stock is acquired by the small business concern for investment and not with a view to its distribution.

Amendment of Rule 434A

This rule permits the use of summary prospectuses which omit in part or summarize information set forth in the more complete prospectus required to be used in connection with the offering and sale of securities. Summary prospectuses may be used in the form of newspaper advertisements, circulars, etc. as a screening device to locate persons interested in receiving a copy of the complete prospectus. The rule was amended during the fiscal year to permit the use of summary prospectuses by a larger group of issuers.10 The rule as previously in effect permitted the use of summary prospectuses only by

See Securities Act Release No. 4033 (Feb. 13, 1959). 10 Securities Act Release No. 4094 (June 11, 1959).

registrants which file reports under sections 13 and 15 (d) of the Securities Exchange Act of 1934. The amended rule permits the use of summary prospectuses by certain other registrants which do not file such reports but which meet certain standards as to size, earnings, and the publication of reports.

Adoption of Regulation E

The Commission during the fiscal year adopted a new regulation, designated Regulation E, which 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 ap plication for such a license." The new regulation, which exempts issues not in excess of $300,000 from registration under the act, was adopted pursuant to the new section 3 (c) which was added to the Securities Act by section 307(a) of the Small Business Investment Act.

Regulation E is similar in many respects to the general exemption for certain securities, other than those of investment companies, provided by Regulation A. It 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. In general, information is required in the offering circular as to the business and investment policies of the issuer, its management and its financial condition. The financial statements required must be prepared in accordance with generally accepted accounting principles and practices but need not be certified by independent public accountants. Provision is made for the suspension of an exemption in a particular case if the Commission finds that any of the terms and conditions of the regulation have not been met or complied with.

Adoption of Form N-5

During the fiscal year the Commission adopted a new form, designated Form N-5, for the registration under the Securities Act of 1933 of securities to be issued by 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.12 This form is also to be used for the registration statements of such companies filed pursuant to section 8(b) of the Investment Company Act of 1940,

"Securities Act Release No. 4005 (Dec. 17, 1958).

12 Securities Act Release No. 4004 (Dec. 17, 1958),

The new form is a combination form which enables a small business investment company to register under the Investment Company Act of 1940 and at the same time to register securities for a public offering under the Securities Act of 1933 by means of a single registration statement. If a company has already registered under the Investment Company Act, the form may be used for subsequent registration under the Securities Act. If a company desires to register under the Investment Company Act prior to registering securities under the Securities Act, the form may be used for this purpose also.

Adoption of Form S-14

In connection with the adoption of amendments to rule 133,13 the Commission also adopted a new Form S-14.14 This form is designed to provide a simplified registration procedure for securities issued in a rule 133 transaction where such registration is required and where the issuer has solicited proxies under the Commission's proxy rules with respect to such transaction. The form provides that the prospectus may consist chiefly of the information set forth in the proxy statement supplemented by the necessary underwriting and distribution data and pertinent information regarding developments in the registrant's business subsequent to the rule 133 transaction.

THE SECURITIES EXCHANGE ACT OF 1934

Adoption of Rule 16b-8

The Commission during the fiscal year adopted a new rule under section 16(b) of the Securities Exchange Act of 1934.15 This section of the act provides that profits obtained by certain holders of the stock of a listed company from purchases and sales, or sales and purchases, of any equity securities of such company (other than exempt securities) within any 6-month period may be recovered by the company or by any security holder on its behalf.

The new rule, designated rule 16b-8, exempts from section 16(b) under certain conditions the receipt from an issuer of shares of stock having general voting power and registered on a national securities exchange upon the surrender of an equal number of shares of stock of the same issuer which do not have such voting power and are not so registered, where the transaction is effected pursuant to the provisions of the issuer's certificate of incorporation for the purpose of making an immediate sale of the shares so received.

The conditions of the rule, briefly summarized, are that the person so receiving such shares is not an officer or director of the issuer or a person who was a beneficial owner immediately prior to the transaction of more than 10 percent of a registered equity security of the

13 Supra, p. 15.

14 Securities Act Release No. 4115 (July 16, 1959).

15 Securities Exchange Act Release No. 5921 (Mar. 30, 1959).