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under which such purchases are made must assure that the lower price is justified by the quantity actually purchased and that adjustments will be made if required. In each of these instances, the inclusion of shares of other mutual funds is permitted if the same principal underwriter is involved.
The rule, however, requires uniform prices to individual investors and prohibits quantity discounts to groups of individuals, except in the case of a family unit. A trustee or other fiduciary may obtain a
a quantity discount for a single trust estate of which there are more than one beneficiary, but quantity discounts may not be allowed on the aggregate of sales to a trustee or representative acting for more than one account or more than one trust. The rule specifically provides that the term “any person” shall not include a group of individuals whose funds are combined directly or indirectly for the purchase of shares, whether jointly or through a representative or agent of the group. The rule in this respect reflects a stricter interpretation than prior Commission views under which quantity discounts had been extended to trustees, custodians, or agents acting on behalf of members of an organization.
The rule permits sales at reduced prices to tax exempt organizations, following Commission decisions in the past granting such exemptive treatment. Sales at net asset value or with a lower load are also permitted to be made to officers, directors, and employees of the investment company, its underwriter and investment adviser, but written assurance must be given that the purchases are for investment purposes and that the securities will not be resold except through the usual redemption or repurchase procedure. Sales to employee pension or benefit plans are included within the exemption afforded by the rule.
With respect to the reinvestment of distributions the rule permits the limitation of reinvestment privileges to participants in a systematic investment or dividend reinvestment plan provided all shareholders are offered the opportunity to participate in the dividend reinvestment plan at any time. All stockholders must be notified of the availability of the dividend reinvestment privilege once each year by a statement in the annual report or other document.
The rule has been helpful in stabilizing the pricing methods of the mutual funds. The need for individual exemptive orders has been substantially eliminated, thus lightening the burdens on the companies and the Commission to that extent. The provisions of the rule are, of course, subject to review by the Commission, and specific applications for relief may still be submitted.
Adoption of Form N-5-Registration Form for Small Business Investment Companies
As previously indicated, the new Form N-5 is a combination form which enables a small business investment company to register under the Investment Company Act pursuant to section 8(b) and at the same time to register securities for a public offering under the Securities Act of 1933 by means of a single registration stateIf 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 also be used for that purpose.
Supra, p. 19.
ADMINISTRATION OF THE SECURITIES ACT OF 1933
The Securities Act of 1933 is designed to provide disclosure to investors of material facts concerning securities publicly offered for sale by use of the mails or instrumentalities of interstate commerce, and to prevent misrepresentation, deceit, or other fraudulent practices in the sale of securities. Disclosure is obtained by requiring the issuer of such securities to file with the Commission a registration statement and related prospectus containing significant information about the issuer and the offering. These documents are available for public inspection as soon as they are filed. The registration statement must become "effective,” however, before the securities may be sold to the public. In addition the prospectus must be furnished to the purchaser at or before the sale or delivery of the security. The registrant and the underwriter are 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 a prospective purchaser of securities to the contrary 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. When a registration statement relates, generally speaking, 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 available to an investor in order that he may make an informed decision 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 information required to be disclosed in the registration statement, as the Commission deems appropriate in the public interest or for the protection of investors.
In general the registration statement of an issuer other than a foreign government must set forth 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 financial statements certified by independent accountants; underwriters' commissions; payments to promoters made within 2 years or intended to be made; acquisitions of property not in the ordinary course of business, and the interest of directors, officers and principal stockholdlers therein; pending or threatened legal proceedings; and the purpose to which the proceeds of the offering are to be applied. The registration statement of a foreign government must contain comparable information in regard to the underwriting and distribution of the securities being registered, the natural and industrial resources of the country, its revenues, obligations and expenses, a description of the securities being registered, and similar matters. The prospectus constitutes a part of the registration statement and presents the more important of the required disclosures. Examination Procedure
The staff of the Division of Corporation Finance examines each registration statement for compliance with the standards of accurate and adequate disclosure and usually notifies the registrant by an informal letter of comment of any material respects in which the statement appears to fail to conform to those requirements. The regisrant is thus afforded an opportunity to file a curative amendment. In addition, the Commission has power, after notice and opportunity for hearing, to issue a “stop order” suspending the effectiveness of a registration statement. In certain cases, such as where a registration statement is so deficient as to indicate a willful or irresponsible failure to make adequate disclosure, no letter of comment is sent and the Commission either institutes an investigation to determine whether stop-order proceedings should be instituted or immediately institutes stop-order proceedings. Information about the use of this stop-order power during 1959 appears below under "Stop Order Proceedings.” Time Required to Complete Registration
Because prompt examination of a registration statement is important to industry, the Commission completes its analysis as promptly as possible. Congress provided for 20 days in the ordinary case between the filing date of a registration statement or of an amendment thereto and the time it may become effective. This waiting period is designed to provide investors with an opportunity to become familiar with the proposed offering. Information disclosed in the registration statement is disseminated during the waiting period by means 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 facility with which investors can understand the nature of and the rights conferred by the securities to be registered, and their relationship to the capital structure of the issuer, 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 believes that the statute generally requires it to deny acceleration of the effective date of a registration statement.
The number of calendar days which elapsed from the date of filing to the effective date of the median registration statement with respect to the 925 1 registration statements that became effective during the fiscal year ended June 30, 1959, was 28. The number of such calendar days in the 1958 and 1957 fiscal years was 24 and 23, respectively.
These 28 calendar days for the median registration statement in the 1959 fiscal year were divided among the three principal stages of the registration process as follows: (a) from the date of filing the registration statement to the date
of the staff's letter of comment, 17 days; (b) from the date of the staff's letter of comment to the date of
filing the first material amendment after such letter, 6 days;
and (c) from the date of filing the first material amendment after
the staff's letter of comment to the effective date of registration, 5 days. Holidays as well as Saturdays and Sundays
are included in these numbers of days. The increase in elapsed time is a reflection of the substantial increase in the number of registration statements filed, as indicated below, and of the fact that a large number of these statements related to new or unseasoned ventures which required relatively more time and effort in making an appropriate review.
VOLUME OF SECURITIES REGISTERED
Securities effectively registered under the Securities Act of 1933 during fiscal 1959 totalled $15.7 billion, 5 percent less than the record
1 Does not include 149 regitsration statements of investment companies filed and effective as amendments to previously effective registration statements pursuant to section 24 (e) of the Investment Company Act of 1940. The number of calendar days elapsed from the date of filing to the effective date of registration of the median (average) of these 149 registration statements was 22.