ment, and profit and loss statement, conforming to generally accepted accounting principles, as of a time within the past twelve months." In order to simplify enforcement, our order will require that Suburban mail to us a copy of the original statements intended to be furnished to selling security holders in connection with repurchases pursuant to the order no later than five days in advance of their use, and not later than five days in advance of their use, a copy of all amendments thereof.

By the Commission (Chairman Purcell and Commissioners McConnaughey and Caffrey), Commissioners Healy and McEntire not participating.

APPENDIX I

To the Shareholders of Suburban Electric Securities Company. From the Securities and Exchange Commission.

Your management has asked the Securities and Exchange Commission for permission to remove your company's shares from the Boston Stock Exchange. The Commission has granted that proposal

28 Rule X-10B-5, adopted by the Commission pursuant to Section 10 (b) of the Act, provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange

(1) to employ any device, scheme, or artifice to defraud;

(2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

(3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

Section 10 (b) and this rule will remain operative with respect to repurchases by Suburban even if its securities should be delisted.

In our view, the terms we have here imposed are no more than a restatement of the duties imposed, in the context of this case, by the Act and the rule.

The attitude of the investor is shown in the following excerpt of a letter sent by a Suburban shareholder to us in connection with this application and placed in the record:

The listing on the Boston Stock Exchange represents an open market for the stock of this company and the stockholders look to this market for the valuation of their shares. Were these securities to be stricken from the list traded in on the Exchange it would result in an over the counter market which would without doubt be difficult to find and it would give the company a great advantage over the public in the matter of purchasing shares.

Every so often the company offers to purchase shares from stockholders at a price seemingly below the market on the exchange and without the guide of Exchange quotations, so-called cheap stock could easily find its way into the hands of the company.

As I understand the situation the company owes considerable in back dividends to its stockholders and no doubt at some time in the future it will call in the balance of the 2d preferred stock as it did the 1st preferred stock some years ago. This company contracted with its stockholders to cumulative dividends of 4 percent per annum and until that contract is complied with in full I feel that no special concessions should be granted to it. The Securities and Exchange Commission was set up to protect the public investor and the delisting of this security, would, in my opinion, be of great harm to the interests of the stockholder.

on condition that shareholder approval is obtained and on condition that the company will make certain disclosures to you if it buys back your shares. The conditions will be stated more fully later on in this statement. This is a summary of the findings and opinion which the Commission wrote when it granted the management's application. You can get a full copy of the Commission's decision by writing to the Commission at 425 Second Street NW., Washington 25, D. C. You are also being given a proxy statement prepared by the management of your company in connection with its proposal to remove the shares. The Commission believes that you should know something about its decision while you are making your mind up on how to vote on the management's proposal to withdraw.

Your management said to the Commission that the prices of its preferred and common shares on the Boston Stock Exchange are too high. Later it admitted that it thinks that only the common stock is too high, and that if the common stock were removed from the Exchange the price of the common stock would go down. In the opinion of the Commission the evidence did not sustain this contention.

Your management said to the Commission that maintaining the shares on the Exchange did not warrant the trouble and expense of preparing reports to the Commission. The evidence showed that this work was done by the treasurer of your company who spends between one and two weeks at this work and uses outside help at an expense of $100 to $150 per report.

Your management said that the information about the company which would interest you could be gotten from the Department of Public Utilities of Massachusetts. However, the record shows that the Department of Public Utilities of Massachusetts is not given certain information which is required to be given to the Securities and Exchange Commission. If the shares are withdrawn from the Exchange the law administered by the Commission will not operate to require the following information: Annual reports covering the remuneration of your management and its contractual relationships with the trust, and including financial statements on a company and consolidated basis, which are certified by independent public accountants; quarterly reports of gross operating revenues; current reports of current material changes in financial position or business practices; and full and accurate disclosure in proxy solicitations of the basic facts underlying proposed action for which proxies are sought. Also, you will not have available, pursuant to Federal law, information about the trading of your trustees and officers, and holders of more than 10 percent of your company's preferred or common shares. Nor will your company have an automatic right under the Federal law

to recover any profits such persons make in short-term trading in securities of the trust.

At present you have available to you the facilities of an exchange for trading in your Suburban Electric shares as well as the facilities of securities houses who deal with you or for you off the exchange. Removing the securities from the Exchange leaves you only the second type of facility. In the exchange market you have available published information about the numbers of shares traded and the prices at which they are traded.

REPURCHASE PROGRAM

Since 1934 your company has been buying back its second preferred stock. By the end of 1944, 21,198 preferred shares had been bought back, at an average price of $25.15 per share. Each preferred share has an involuntary liquidation preference of $100 and accumulated arrearages which have risen to $63.67 as of the end of 1944. $541,059 has been spent by your company in buying this stock. Members of your company's management have, by and large, held on to the second preferred stock which they own personally. By buying in shares held by other people with your company's money their proportionate share of the ownership of the company becomes larger. Members of your company's management owned, on December 31, 1944, about 3,780 preferred shares out of a total of about 10,000 and 21,745 common shares out of a total of about 50,200. The management may decide to buy back common stock as well as preferred with company funds. This would further increase its proportionate personal interest in

the trust.

The Commission found that financial statements sent to you in the past by the trust have not set forth the status of the trust clearly or in accordance with sound accounting principles. It found an instance in which your management took advantage of the ignorance of a shareholder to pay him less than current prices for shares, and an instance in which your management paid more than current prices to one of the trustees for his shares.

In order to assure that shareholders' wishes will be reflected in management action and in order to insure that management deals fairly with shareholders in buying back the trust shares if the securities are removed from the Exchange the Commission imposed the following conditions:

1. The proposal to withdraw the shares must be accepted by vote of two-thirds of outstanding preferred and two-thirds of outstanding common shares, and also by two-thirds of the holders of each class.

2. Before making a purchase of its own shares, the trust must provide the seller the following information: (a) a statement that the trust is the purchaser; (b) the price at which the last repurchase was consummated and the date and number of shares involved in that transaction; (c) the number of common and preferred shares (enumerated separately) originally issued, the number still outstanding and the number held by every trustee and officer of the trust; (d) a balance sheet, itemized income statement, and a profit and loss statement of the trust and a consolidated balance sheet, itemized surplus statement, and profit and loss statement of the trust and its subsidiaries, conforming to generally accepted accounting principles, as of a time within the past twelve months.

Attached hereto are copies of the balance sheets, itemized surplus statements and income statements filed as part of the trust's annual report to the Commission for the year 1945, the latest date for which such filings have been made with the Commission.

SUBURBAN ELECTRIC SECURITIES CO.

Balance Sheet (reflecting the changes in accounting procedures adopted in 1944)

Investments in subsidiaries:

Capital shares-at cost-(eliminated in con

solidated balance sheet), schedule III. 1,003, 988. 95

Notes-at cost (eliminated in consolidated

Current liabilities: Accrued Federal and State income taxes__Other liabilities: Unclaimed dividends and unredeemed stock certificates..

$36, 169. 42

891. 25

• Notes receivable from the Middlesex and Boston Street Railway Company in the amount of $1,500,000 are secured by bonds of said company having a par value of $1,160,000.