of the Commission staff and an authorization to the custodian of such books and records to make them so available.

Renumbering of Rules Under Sections 15(b) and 15A and Amendment of Rules 15A12-1, 17a-5, and 19a3-1 to Conform

Prior to the Securities Acts Amendments of 1964, Section 15 (b) consisted of 4 unnumbered paragraphs. As a result of those amendments the Section now consists of 10 numbered paragraphs. Therefore, the Commission renumbered its rules under Section 15(b) to identify the specific numbered paragraph of that Section to which each rule primarily relates. In addition, to avoid confusion the Commission renumbered the rules under Section 15A by changing the initial lower case letter "a" in the designation of each of those rules to the upper case letter "A." The Commission also amended renumbered Rule 15A/2-1 and Rules 17a-5 and 19a3-1 so that the references in those rules to the renumbered rules under Section 15(b) reflect the new designation of such rules.28

Amendment of Rule 16a-2

An amendment to Rule 16a-2 adopted during the fiscal year, relating to the method of computing percentage ownership under Section 16(a) of the Act (the insider reporting provision), was described in the 31st Annual Report.20

Proposed Amendment of Rule 16a-6

During the fiscal year the Commission invited public comments on a proposed amendment of Rule 16a-6 to require the reporting of certain additional transactions under Section 16 (a) of the Act.30 These would include the acquisition or disposition of any put, call, spread, straddle or other option or privilege, the pledge, including the hypothecation, of a security or the release of a security from a pledge, and the loan of a security or the repayment of such a loan.

Amendment of Rule 16b-3

Rule 16b-3 exempts from Section 16(b) of the Act (providing for the recovery of "short swing" trading profits realized by insiders) acquisitions of shares of stock (other than stock acquired upon the exercise of an option, warrant or right) by an officer or director pursuant to a stock bonus, profit sharing, retirement, incentive, thrift, savings or similar plan, if such plan meets the conditions specified in the rule. The rule also exempts the acquisition of a "qualified" or a "restricted" stock option pursuant to a qualified or a restricted stock

28

Securities Exchange Act Release No. 7700 (September 10, 1965). "See pp. 80-81.

30 Securities Exchange Act Release No. 7794 (January 20, 1966).

option plan, and a stock option pursuant to an "employee stock purchase plan" as defined in the rule.

An amendment was adopted during the fiscal year which under certain conditions excludes from the phrase "exercise of an option, warrant or right" an election to receive a cash award, payment of which is to be deferred until after termination of employment, in stock.31

Amendment of Rule 16b-6

Rule 16b-6 provides an exemption from Section 16 (b) for long-term profits arising from the disposition in certain transactions of securities within 6 months after the purchase of such securities through the exercise of an option or similar right acquired more than 6 months before its exercise or pursuant to the terms of an employment contract entered into more than 6 months before its exercise.

During the fiscal year, the Commission amended the rule to provide that the exemption shall also be available where the security acquired through the exercise of the option or right is disposed of in a transaction involving the transfer of the issuer's assets to a third person which is controlled by the issuer of the securities to be received in the exchange. In such case, "control" is to be determined by the definition in Section 368 (c) of the Internal Revenue Code of 1954.32 Amendments of Rules 16b-8 and 16b-9

During the fiscal year the Commission invited public comments on proposed amendments to Rules 16b-8 and 16b-9,33 and, after consideration of the comments received and further consideration of the matter, adopted amendments to those rules.3

34

The amended Rule 16b-8 provides that the acquisition and disposition of equity securities pursuant to the deposit or withdrawal of such securities under a voting trust or deposit agreement are exempt from the operation of Section 16 (b) of the Act, subject to certain conditions. It requires as a condition to the exemption that substantially all of the assets held under the voting trust or deposit agreement immediately after the deposit or immediately prior to the withdrawal consist of equity securities of the class deposited or withdrawn.

The amended Rule 16b-9 provides an exemption from Section 16 (b) for the conversion of an equity security into another equity security of the same issuer, provided that no more than 15 percent of the value of the security received at the time of the conversion is received or paid in cash or other property other than the convertible security given in

"Securities Exchange Act Release No. 7776 (December 23, 1965).

83 Securities Exchange Act Release No. 7717 (October 1, 1965). Securities Exchange Act Release No. 7750 (November 18, 1965). "Securities Exchange Act Release No. 7826 (February 17, 1966).

exchange. The amended rule does not apply to the exercise of an option to purchase a security.

Proposed Amendments to Forms 3 and 4

During the fiscal year, the Commission announced that it had under consideration the proposed revision of Forms 3 and 4 which are used for reporting security holdings and transactions pursuant to Section 16(a) of the Exchange Act, Section 17 (a) of the Public Utility Holding Company Act of 1935 and Section 30 (f) of the Investment Company Act of 1940.35 Form 3 is prescribed for initial statements of beneficial ownership and Form 4 for reporting changes in such ownership.

Among other things, the amended forms would require the reporting person to list his Social Security or I.R.S. Employer Identification number, in order to provide a ready means of identification in connection with the Commission's automatic data-processing program. Amended Form 4 would provide that the price per share be reported with respect to securities bought or sold for cash, and that, with respect to securities purchased or sold otherwise than in the open market, the name and address of the seller or purchaser be given.

Proposed Amendments to Form 8-K

Certain proposed amendments to Form 8-K which were described in the 31st Annual Report 36 were still under consideration at the close of the fiscal year.

Amendments to Forms 10, 12, 10-K and 12-K

During the fiscal year, the Commission adopted certain amendments to the instructions contained in Forms 10, 12, 10-K and 12-K.37 In general, the amendments relax previous requirements with respect to the disclosure required regarding the number of holders of non-transferable employee stock options and increases and decreases in such options.

Amendments to Forms 16 and 16-K

Certain proposed amendments to Forms 16 and 16-K were described in the 31st Annual Report.38 During the fiscal During the fiscal year, the Commission adopted the revised forms in the form in which they were published for comment with the exception of one change relating to the manner in which the registration statement or annual report should be signed.3

39

35

Securities Exchange Act Release No. 7795 (January 20, 1966). * See pp. 81-82.

37 Securities Exchange Act Release No. 7799 (January 21, 1966). 38 See p. 83.

Securities Exchange Act Release No. 7713 (September 28, 1965).

The revised forms provide that the document shall be signed by all of the voting trustees or by any lesser number which will legally bind all the trustees. If it is signed by less than all of the trustees it must include an opinion of counsel as to the authority of the person signing to bind the others.

Proposed Revisions of Form X-17A-5 and Minimum Audit Requirements

Proposed revisions of Form X-17A-5 (the form for the annual financial report required to be filed by brokers and dealers under Rule 17a-5) and of the minimum audit requirements under Rule 17a-5 were announced by the Commission during the year.40 The proposed changes of the form are designed to strengthen it by expanding and clarifying the requirements, especially for the benefit of the smaller broker-dealers who may have difficulty in preparing the present form. The proposed revision of the minimum audit requirements would emphasize (1) that the purpose of the audit is to enable the accountant to express an opinion on the effectiveness of the internal control and procedures for safeguarding securities as well as on the financial questionnaire, and (2) that the requirements are a minimum only and should not be interpreted as limiting or permitting the omission of any other audit procedure which may be necessary under the circumstances. "Securities Exchange Act Release No. 7683 (August 23, 1965).

ADMINISTRATION OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

In administering the Public Utility Holding Company Act of 1935 the Commission regulates interstate public-utility holding-company systems engaged in the electric utility business and/or in the retail distribution of gas. The Commission's jurisdiction also extends to natural gas pipeline companies and other non-utility companies which are subsidiaries of registered holding companies. Although the matters under the Act dealt with by the Commission and its staff embrace a variety of intricate and complex questions of law and fact generally involving more than one area of regulation, briefly there are three principal regulatory areas. The first covers those provisions of the Act, contained principally in Section 11(b) (1), which require the physical integration of public-utility companies and functionally related properties of holding-company systems and those provisions, contained principally in Section 11(b) (2), which require the simplification of intercorporate relationships and financial structures of holding-company systems. The second covers the financing operations of registered holding companies and their subsidiaries, the acquisition and disposition of securities and properties, and certain accounting practices, servicing arrangements and intercompany transactions. The third includes the exemptive provisions of the Act, the provisions covering the status under the Act of persons and companies, and those regulating the right of a person affiliated with a public-utility company to acquire securities resulting in a second such affiliation. Matters embraced within this last area of regulation come before the Commission and its staff frequently. Many such matters do not result in formal proceedings and others are reflected in such proceedings only in an indirect manner when they are related to issues principally under one of the other areas of regulation.

COMPOSITION OF REGISTERED HOLDING-COMPANY SYSTEMS

At the close of the fiscal year there were 26 holding companies registered under the Act. Of these, 21 are included in the 18 holdingcompany systems which are herein classified as "active registered holding-company systems," 3 of the 21 being subholding utility operat