investigative hearings to determine whether a stop order should issue. Following these hearings and prior to the effective date of the registration statement the Commission instituted stop order proceedings. Prior to the institution of the stop order proceedings, the registrant filed an application for withdrawal of the registration statement which was denied by the Commission. The registration statement contained a lengthy and optimistic discussion of the uses and markets for the minerals in the registrant's leasehold. The Commission found this statement materially misleading, among other things, because it was not based upon any factual engineering or market survey. The Commission found that the registration statement was also misleading for failure to disclose prior unsuccessful attempts to develop the property leased by the registrant and for failure to fully and adequately disclose the proposed use of the proceeds of the offering, the compensation to underwriters and the interests of management in transactions with the registrant. Moreover, the registration statement failed to indicate clearly that the management would receive 660,000 shares of the registrant's stock for $25,000, whereas the public would be asked to pay $1,500,000 for 750,000 shares. Other deficiencies included the failure to disclose the provisions of the lease and the obligation to pay unusually high royalties, and the failure to set forth clearly in one place the speculative feature of the registrant's business and securities. The Commission issued a stop order suspending the effectiveness of the registration statement.2 Diversified Oil and Mining Corporation.-This company was organized as a spin-off from Shawano Development Corporation and engaged principally in the acquisition of interests in and the operation of oil and gas properties. It filed a registration statement covering a proposed public offering of 2,500,000 shares of $1 par 6 percent convertible, noncumulative, preferred stock, and warrants to purchase at $2 per share 500,000 shares of the company's 10 cent par common stock. The securities were to be offered in units of 25 shares of preferred stock and 5 warrants at a price of $25.50 per unit. The statement of matters to be considered at the hearing in a stop order proceedings challenged the adequacy and accuracy of the information disclosed in the registration statement in numerous respects, including information given with respect to the proposed plan of distribution, the use of the proceeds, the description of the business and securities of the registrant, transactions with the promoters and possible liabilities for the previous sale of unregistered securities. Prior to the commencement of the hearing, the registrant submitted a stipulation in which it waived a hearing and the post-hearing procedures provided for in the Commission's rules of practice and con 2 Securities Act Release No. 4050 (Apr. 27, 1959). sented to the entry of an order suspending the effectiveness of the registration statement. Thereafter, the Commission issued an order suspending the effectiveness of the registration statement.3 Fort Pierce Port & Terminal Company.-This company was organized in 1956 primarily for the purpose of acquiring harbor front property at Fort Pierce, Fla., to be developed and operated as a deepwater port facility. The company filed a registration statement covering a proposed public offering of 2,138,500 shares of its $1 par common stock at $1.25 per share. The company's properties, consisting of 3,000 feet of harbor front and certain other properties on nearby Causeway Island and on the mainland, were acquired by promoters of the company (including Joseph C. Mackey, board chairman, and H. A. Ramsey, president) with the intention of selling them to the company. The promoters' cost was $155,000 in cash and the assumption of mortgages aggregating $608,750. The properties were transferred to the company at an appraised value of $1,838,500, the company assuming the $608,750 of mortgages and issuing $1,229,500 par value of stock to the promoters. Subsequently, the company acquired 64.4 acres of submerged lands from the State of Florida for $3,220. Various references in the prospectus to the appraised value of the company's properties were questioned by the Commission's staff including the $430,000 appraised value of the property acquired from the State of Florida for $3,220. According to the staff there appeared to be a lack of adequate basis for the values determined by the appraisal. The properties acquired from the promoters were carried in the company's balance sheet at the appraised valuation ($1,838,250) contrary to generally accepted accounting principles, and the prospectus failed to contain proper disclosures with respect, among other things, to (1) the competitive traffic situation in relation to the port development project, including the results of a study of the facilities made in 1957 by the U.S. Army Engineers; and (2) the speculative feature of the proposed offering. The Commission instituted stop order proceedings with respect to the registration statement.* Prior to completion of the proceedings, the company filed an application for withdrawal of the registration statement. In its application the company conceded "certain inaccurate statements of material facts and certain omissions of material facts" and agreed that correction would be made in any new registration statement which might be filed by the registrant, although the company stated that it did not intend to proceed with its stock offering at that time. The Commission concluded that withdrawal would not be inconsistent Securities Act Release No. 3971 (Oct. 2, 1958). with the public interest and the protection of investors and consented to the withdrawal of the registration statement.5 Funeral Directors Manufacturing and Supply Company. This registrant was organized in Kentucky in 1954 for the purpose of manufacturing plastic grave vaults and plastic and aluminum caskets. It filed a registration statement covering a proposed offering of 199,907 shares of the registrant's common stock at $100 per share. The registration statement represented that registrant owned no property but that, depending on the success of the offering, it intended to purchase or construct warehouses and plants and factories. The Commission found that the registration statement contained material misstatements and omissions of material facts with respect to the state of the development work necessary to effect volume production of the registrant's products and failed to disclose the length of time it would take to effect full production. The registration statement also failed to list two officers employed by the registrant and stated that the remuneration to be paid registrant's officers had not been determined or authorized when, as a matter of fact, such remuneration had been authorized and the registrant had incurred a substantial contingent indebtedness to its officers. The registration statement also stated that there were no agreements to recompense any promoter for past or future services when, in fact, registrant was indirectly indebted to a promoter, who was the president of the registrant, for accrued rents, utilities, and services. A post-effective amendment to the registration statement not only failed to correct the previously existing deficiencies but was itself deficient in additional material respects. At the close of the case presented by the Commission's staff, the registrant admitted that the disclosures made in the registration statement and in the post-effective amendment were inadequate and that material events and changes which had occurred since the statement became effective were not disclosed in the post-effective amendment. The registrant consented to the issuance of a stop order by the Commission. Industro Transistor Corporation. The registrant was organized in New York in December 1953 and engaged in the manufacture and sale of transistors. It filed a registration statement in 1958 covering a proposed public offering of 135,000 shares of 10-cent par value common stock and, in addition, 36,000 transferable 5-year warrants for the purchase of 1 share of common stock per warrant and the 36,000 shares of common stock subject to such warrants. Proceedings were instituted to determine whether a stop order should issue sus Securities Act Release No. 3960 (Aug. 27, 1958). • Securities Act Release No. 4071 (Apr. 23, 1959). pending the effectiveness of the registration statement. Among the deficiencies found to exist are those described below. The prospectus failed to contain an adequate and accurate statement with respect to the volume of the registrant's production, the amount of sales to the customers listed in the prospectus, the registrant's competitive position in the industry and the nature of its sales and distribution arrangements. The financial statements included in the prospectus were not prepared in accordance with the Commission's requirements and good accounting practice. For example, sales returns were not shown as a deduction from sales but were treated as purchases of raw material. The income statement showed a net profit from operations for a 4-month period of over $17,000 whereas, if it had been properly prepared, it would have shown a substantial loss. The prospectus failed to disclose that the compensation of the underwriter included the difference between the exercise price of the 36,000 warrants which the underwriter was to receive and the market price of the stock. The prospectus was also misleading in stating that the underwriter was to pay 1 cent for each warrant, whereas it does not appear that any arrangement was made for such payment, in addition, the prospectus failed to state the possible adverse effect upon the registrant and its security holders of the granting of warrants to the underwriter and to certain other persons, and to state adequately and accurately the purposes for which proceeds from the sale of the securities were to be used. The Commission issued a stop order suspending the registration statement shortly after the end of the fiscal year. Subsequently, the registrant amended the registration statement to make appropriate disclosure in accordance with the Commission's decision and the Commission lifted its stop order, thus permitting the registration statement to become effective. Managed Funds Incorporated. The registrant, an open-end management type investment company registered under the Investment Company Act of 1940, was organized under the laws of Delaware in 1946. The promoters were Hilton H. Slayton, Hovey E. Slayton, and Thomas W. Ruth. Hilton Slayton was president and a director, and Hovey Slayton was a vice president and a director, of the registrant. The registrant filed a registration statement under the Securities Act of 1933 in 1954 and subsequently registered additional securities by amendment as permitted by section 24 (e) of the Investment Company Act. The Commission instituted proceedings under the Securities Act to determine whether a stop order should issue suspending the effectiveness of the registration statement. * Securities Act Release No. 4116 (July 17, 1959). Securities Act Release No. 4120 (July 24, 1959). The proceedings developed the fact that although Slayton Associates, Inc., all of the voting stock of which was owned by Hilton and Hovey Slayton, was under contract with the registrant to act as its investment advisor and had been paid for such services, it had entered into a contract with Stephen M. Jaquith, a registered representative of a brokerage firm, under which Jaquith was to perform the services of investment advisor for the registrant. For his services, Jaquith and his firm received substantial compensation in the form of commissions on securities transactions. A portion of these commissions were, at the direction of Hilton Slayton, credited to two other individual's, one his brother-in-law and the other a director of the reg istrant and the Slayton's former attorney. This contract with Jaquith was not disclosed in the registration statement nor had it been approved by the stockholders of the registrant as required by the Investment Company Act. The record showed that the board of directors gave scant attention to the management of the registrant; made no effort to be informed concerning registrant's policies and whether such policies were being followed; made no decisions concerning purchases and sales of portfolio securities and generally permitted the registrant to be managed by the Slaytons without consultation with or approval by the board as a whole. None of this was disclosed in the registration statement. The prospectus represented that the operations of the registrant were under the supervision and direction of its board of directors and failed to point out that the Slaytons were assuming the functions of the board of directors in directing the operations of the registrant. The prospectus represented that the principal objective of the registrant was capital growth, that such investment policy would result in normal turnover of portfolio securities and that dividends would be paid quarterly based on the receipt of income or profits on securities held. These representations were materially misleading since the registrant did not follow the stated policies but instead followed the policy of investment for the purpose of providing a flow of cash to its stockholders at a high uniform rate and engaged in a policy of excessive portfolio turnover. The prospectus was also misleading in failing to disclose that the registrant's policy of realizing capital gains for the purpose of making quarterly distributions to shareholders was deleterious to the position of the shareholders in several respects. First, it required a high rate of portfolio turnover which resulted in the payment of large amounts of brokerage commissions and the payment of higher prices on the repurchase of identical securities immediately after their sale. Second, it further reduced the invested capital of shareholders who reinvested their distributions, since a sales load was charged on such reinvestment. Third, it did not take into consideration whether proper |