the commission up to 2 percent and to cover higher legal and printing costs.

Now, if we follow the instructions in the notes and segregate actual bankers' commissions paid in connection with private sales in accordance with the rates shown in column 11-that is the last column-we find that of the total of $1,264,702 of actual costs experienced in selling the 39 issues privately, a total of $520,333.75 was paid as underwriters' commissions.

By deducting the $520,333.75 which was paid as underwriters' commissions, by deducting that figure of bankers' commissions from the total cost footed up at the bottom of column 9 of $1,264,702, we find that the costs of private placement, exclusive of underwriting commissions or bankers' commissions, total $744,368.25.

Now, column 10 shows the estimated costs of public sale; and, as you recall, the footnote tells us that in arriving at the estimated costs which would have been incurred the commissions paid were increased in each instance on the table up to 2 percent.

By taking each individual company and determining the difference between the bankers' commissions actually paid, which varied from three-eighths of 1 percent up to 1 percent, and the estimated 2-percent bankers' commission, we find additional underwriting commissions would have been involved of $1,508,446.25-roughly $1,500,000 in underwriting commissions alone.

By adding this amount to the commissions actually paid we find that included in the estimate costs of public sale is an amount for underwriting commissions totaling $2,028,780. That represents 2 percent of the $101,439,000 which was the total face amount of the bonds privately placed.

If we subtract the estimated underwriting commissions of $2,028,780 from the estimated total expense-that is column 10-of $2,966,063, we find that the estimated cost of public sale of the 39 issues, excluding underwriting commissions, would have been $937,283.

If we subtract from the estimated "public method of selling" expense figure, which I have just given you, of $937,283; if we subtract from that figure the "private method of selling" expense figure, which comes to $744,368.25, we find that the increased expense involved, according to the system's own estimates of costs of publicly placing the 39 issues, aggregates $192,914.75.

That figure is the increase in expenses other than underwriting commissions involved in placing the securities publicly rather than placing them privately.

Now, when we compare the $192,914.75 with the face amount of the 39 issues, that is, $101,439,000, we find that the increased expense is rather insignificant, considering the amount involved and the fact that it is spread over a 5-year period. For example, it means this, for each $10,000,000 of securities registered, the additional cost would be approximately $19,291; and for each $100, the cost would be ap

proximately 19 cents. Now, 19 cents for each $100 is a rather insignificant increase in cost.

The actual cost involved in the 39 private placements, excluding bankers' commissions, was approximately 73 cents for each $100. That is private placement as shown by the figures.

Registration of these issues for public sale would have added only 19 cents more to the cost at most.

Moreover, as I pointed out the other day in the figures, in connection with the figures which I gave, it is not fair to attribute the whole 19 cents to the registration process. If there were not any Securities and Exchange Commission, no Securities Act at all, there would be printing costs just the same. Even small prospectuses or dodgers as they used to call them for use in public sales would consume a substantial part of the 19 cents, and, of course, in addition to the prospectuses, if the public method were chosen, there would be printing costs and engraving costs of securities and various other costs which are involved-taxes, and fees, and what not.

Now, from the various cost studies which we have made, we have assumed that not more than one-half of this type of additional costs can fairly-that is, additional public offerings over private offerings can be attributable directly to registration costs.

Assuming then that one-half would be due to the registration processes, that would leave 912 cents additional cost attributable to registration under the Securities Act for each $100 of securities registered; 91/2 cents for each $100.

Of the $1,701,361 estimated increase in costs of selling securities publicly based on the company's own estimates, $1,508,446.25, or 89 percent of all estimated additional expense is consumed by underwriting commissions. In other words, approximately nine-tenths of all estimated expense increases for public selling is attributable directly to underwriting costs.

I have a chart here which I would like to have to illustrate this. I have here a small chart for the use of the committee, so that you may more readily follow what is on the large chart. If I may, I should like to have this chart appear in the record at this point. The CHAIRMAN. Very well.

Commissioner PURCELL. You will note from the first column on the left-hand side of this chart a depiction of the actual cost of the private sale, which is divided between underwriting expense and other expenses. The total cost is $1.24 per thousand dollars of securities.

2.00

That is divided, and these figures represented in this column are taken from the American Water Works table. That is divided showing other expenses as 73 cents and underwriting expenses as 51 cents. In the second column, the costs are increased from that to $2.92 per $100.

I was mistaken there. They increased from $1.24 per $100, to $2.92 per hundred dollars.

At the bottom of that column is shown the same actual expenses as were experienced in the private sale, $0.73. Also is shown in the third column, the actual underwriting expense in the private sales as is shown in the first column. Added to that are the two other elements of additional expense, the top block being additional underwriting expense of $1.49, as estimated by the company, and the second and smallest block being additional other expenses of 19 cents, as I have described it, and I have also said that it was fair only to allocate a half of that to expenses of registration under the Securities Act.

Now, in order to determine whether the table which the American Water Works presented reflects resasonable estimates, we compared them with the actual registration experiences of companies in the American Water Works System who have registered and sold securities publicly. This comparison shows us two things: First, that the estimates by the system of the expenses in the table are high, based on the system's own experience and expenses with registration, and are high also when compared with the expenses of other large companies of a similar type.

And secondly, we found that the implication was that the American Water Works and its subsidiaries had chosen to finance privately because of excessive registration and other costs, was incorrect, according to our information.

Companies in the American Water Works System have filed with the Commission 14 registration statements for the purpose of registering securities which totaled $134,633,248. That is exclusive of exchange offers which total just under $35,000,000.

Of the 14 statements, 13 have become effective and the actual amount proposed for sale to the public, aggregating $128,923,248, was slightly greater than was sold privately in the 39 issues carried on this table. This has seemed to us interestng because it shows that during the same period in which the company was selling some securities privately, it also was registering with the Commission for the purpose of selling securities to the public.

Of these 13 issues which became effective, 1 became effective in 1934, 3 in 1935, 3 in 1936, 1 in 1939, 4 in 1940, and 1 in 1941.

The company follows a policy of financing both privately and publicly. Obviously, the expense of registration has not been a deterrent to public financing in the case of these issues.

Our studies show that in the 13 issues sold to the public, the total cost of flotation amounted to $2.56 for each $100 of securities, of which $1.97 went to the underwriters and 59 cents covered all other expenses.

That is carried in column 3 of the chart which I have given you. In this connection it should be noted that the actual registration experience by companies in the American Water Works System shows lower costs than the estimates reflected in the table, as to actual experience in private placement.

The estimated expenses of a public offering, according to the table, amounts to $2.92, compared with $2.56 which was their actual experience for each $100 of securities which they did sell publicly.

The registration experiences of the American Water Works System companies show $1.97 of underwriting expenses, whereas the estimates in the table involved $2 of underwriting expense for each $100 of securities sold. That comes fairly close.

The actual experience of the company in registration has been that all other expenses aggregates 59 cents for each $100 of securities, whereas the table estimates 92 cents per $100 to cover these other expenses.

I would like to point out that the Commission always has been concerned about the seeming high expenses incurred by certain companies, as compared to other companies, in the registration process. We have found great differences. For instance, 7 years ago one of our analysts prepared a memorandum comparing the costs reflected in a statement filed by Edison Electric Illuminating Co. of Boston with the much higher costs shown in the registration statement filed by American Water Works for a smaller issue. The comparison shows that in a $15,000,000 cash offer in 1934 of convertible collateral trust bonds, by American Water Works, the expenses excluding underwriting fees, but including $50,000 for underwriters' out-of-pocket expense, paid to underwriters, aggregated $285,600, while in a $35,000,000 note issue of the Edison Electric Illuminating Co. of Bostonan issue twice as large or over twice as large as the issue put out by the American Water Works-$35,000,000 note issue of the Edison Electric Illuminating Co. of Boston in 1934, the expenses were only $100,000 as compared with $285,000.

A second $20,000,000 coupon note issue by Edison Electric Illuminating Co. of Boston in 1934 was sold with expenses of but $60,000. The underwriting commissions were excluded in each case.

A comparison of the break-down in expenses is interesting in these cases. The American Water Works issue for instance involved the payment of $90,000 for legal services on a $15,000,000 issue, whereas the $35,000,000 Edison Electric issue involved legal services of but $7,500, and the same is true of the $20,000,000 issue.

The accounting services for the $15,000,000 Water Works issue were $72,000. The accounting services for the two issues, $35,000,000 and $20,000,000 of the Edison Electric were $20,000, in the case of the $35,000,000 issue, and $12,000 in the case of the $20,000,000 issue.

The company stated that in the preparing of registration statements, accounting and other expenses in connection with the registration statement total $20,000 in the $35,000,000 issue and $12,000 in the $20,000,000 issue.

There are various other interesting comparisons, such as no underwriters' out-of-pocket expense in the case of the Edison Co. issues, but $50,000 in the case of the American Water Works issue, and so on down.