Mr. BOREN. Mr. Chairman. Mr. COLE. Mr. Bunker, I have had presented to me by one of my colleagues of the House suggestions of a constituent of his embodying two suggested amendments: One is to add subsection (e) to section 20, dealing with proxies, voting trusts, and circular ownership, and the other expressing opposition to section 37, dealing with larceny and embezzlement, on page 139 of the bill, I think it is. Will you look at the language of this amendment and state for the record whether this matter was before your group at the time you agreed upon it? Mr. BUNKER. Whether this particular amendment was before our group? Mr. COLE. Yes. Mr. BUNKER. Yes; I will be glad to. Mr. COLE. Who is this gentleman with you? Mr. BUNKER. Mr. Jaretzki, our counsel. Mr. JARETZKI. Is that agreeable? Mr. COLE. Perfectly; I just wanted to know who you are. Mr. BUNKER. Mr. Cole, Mr. Jaretzki knows all about this. Frankly I know nothing about circular ownership. It has never interested me, and Mr. Jaretzki has been down here during the last 3 weeks cooperating in the drafting of this proposed bill, and if it is agreeable I think that Mr. Jaretzki could give you a more competent answer. Mr. COLE. Mr. Jaretzki, are you going to testify later? Mr. JARETZKI. Yes, sir. Mr. COLE. Suppose that we just hold this, then, until that time. I want to clear it up. Mr. JARETZKI. Yes, sir. Mr. COLE. That is all, Mr. Bunker? Mr. BUNKER. Yes, sir. Mr. COLE. All right, Mr. Bunker, we thank you. to give me a copy of the agreement? You are going Mr. BUNKER. Yes, sir; that is the May 13 agreement of principles. Mr. COLE. Yes. Mr. BUNKER. That is the only thing that you have asked for, is it not? Mr. COLE. Yes. I would like to have the original which went out to the industry. Mr. BUNKER. Yes, sir. ciples. Mr. COLE. Very well. That was the May 13 agreement of prin Mr. BUNKER. Yes, sir. Thank you. I will see that you get one. (Memorandum referred to appears in the hearings of June 14, 1940.) Mr. COLE. Mr. Quinn. STATEMENT OF CYRIL QUINN, VICE PRESIDENT AND DIRECTOR OF TRICONTINENTAL CORPORATION, NEW YORK, N. Y. Mr. QUINN. Mr. Chairman, my name is Cyril Quinn. I am a vice president and director of the Tri-Continental Corporation and of the four investment companies that are associated with it. My address is New York City. I would like to second what Mr. Bunker has said and I would like to add this word. During the hearings before the Senate committee I appeared as one of Mr. Bunker's group, representing the closed-end companies. I appeared in opposition to certain sections of the bill and discussed in some detail the various technical provisions of some of it. I would like to say that the bill now before you, in my opinion, is a good bill. It is a workable bill in that the rules under which the industry will have to operate are clear and explicit, which I think is a requirement of any proper regulatory bill. I think it is a reasonable bill in that, while it sets up certain safeguards, it still leaves the management freedom of action in meeting the responsibility of handling the funds that are entrusted to it. I think also that it will be an effective bill in that certain practices in the past which have existed are safeguarded against, and certain desirable practices which many companies are now following are now required of all companies. Therefore, I would like to make clear to you, sir, my support of the bill as it stands at the present time. Mr. COLE. Where is your office? Mr. QUINN. New York City, sir. Mr. QUINN. Thank you. Mr. COLE. Mr. Raymond McGrath. Is Mr. McGrath here? Mr. BUNKER. I think that Mr. McGrath is not here just at the moment, Mr. Chairman. Mr. COLE. Mr. Bellamy, of the National Bond & Share Corporation. Mr. BUNKER. Mr. Bellamy is not present. He represents the National Bond & Share. Mr. Macdonald is present. STATEMENT OF RANALD H. MACDONALD, VICE PRESIDENT AND DIRECTOR OF THE NATIONAL BOND & SHARE CORPORATION, NEW YORK, N. Y. Mr. MACDONALD. My name is Ranald Macdonald. I am a vice president and director of the National Bond & Share Corporation. Mr. COLE. Of New York? Mr. MACDONALD. New York. It is a smaller investment company, with assets between $7,000,000 and $8,000,000, and its directors are members of the firm of Dominick & Dominick. Our company is a closed-end company. Its stock is listed on the New York Stock Exchange and it has only one type of stock outstanding-common stock. The statement that we have to make on this bill, as it stands now, is very short; merely to the effect that we believe that this bill is entirely workable as it is now drawn and we believe that the bill should be passed, and hope that it will be passed. Mr. COLE. Are you the Mr. Macdonald referred to in a letter addressed to me under yesterday's date over the signature of Mr. Starkweather, chairman, Federal legislation committee of the Investment Bankers Association? Mr. MACDONALD. I am. Mr. COLE. I asked Mr. Starkweather if he wanted to appear at the hearings today or tomorrow and he wrote me this letter which I will insert in the hearings at this point. (The letter referred to is as follows:) INVESTMENT BANKERS ASSOCIATION OF AMERICA, The Honorable WILLIAM P. COLE, Jr., New House Office Building, Washington, D. C. DEAR MR. COLE: Thank you for your letter of the 11th, advising me that hearings on the investment trust bill, S. 4018, will be held before your subcommittee on Thursday morning, June 13. As I advised you over the telephone, the Investment Bankers Association has followed the investment trust legislation with great care and was prepared to testify before the Senate Committee on Banking and Currency. However, by the time these hearings had progressed for a few days it became apparent that substantial changes would have to be made and in view, also, of the very complete case presented by the investment trust business itself, we decided not to introduce testimony at that time. Since that time we understand that a complete agreement has been reached on a new bill, which presumably is the one referred to in your letter, between the Securities and Exchange Commission and the committee representing the investment trust business. The committee of this association which follows investment trust matters has been in constant touch with the progress of these negotiations and is in entire accord with the results reached. Mr. Ranald H. Macdonald, chairman of our investment companies' committee, will be in Washington for the hearings tomorrow morning and will, no doubt, be in touch with you. Very truly yours, JOHN K. STARKWEATHER, Mr. COLE. All right, Mr. Macdonald, is that all? Mr. COLE. I see that the letter supports the bill. Mr. MACDONALD. This letter supports the bill, and while we have not had a formal meeting of our entire committee, due to the fact that the members are located in different parts of the United States, I have had enough information about the opinions of various members of the committee; members of the board of governors, and members of the association, to feel that they are in accord with the opinion that I have just expressed in behalf of the National Bond & Share Corporation and favor the passage of this bill. Mr. COLE. I wrote to Mr. Starkweather, because I saw quite a lot of him last year during the consideration of the indenture bill. Mr. MACDONALD. Yes, sir; I know that. Mr. COLE. And he asked to be notified about this. I hape I have not overlooked anyone whose name was in my files, as wanting notice of the hearing. Mr. MACDONALD. Mr. Starkweather is chairman of the Federal legislation committee of the Investment Bankers Association. Mr. COLE. Yes. Is that all? Mr. MACDONALD. Yes, sir. Mr. COLE. All right, sir. Thank you. Mr. MACDONALD. Thank you. Mr. COLE. Mr. McGrath. Mr. BUNKER. He is not here, and I will speak for him. He has asked me to speak for him to the extent of saying that the bill has his wholehearted endorsement. Mr. COLE. That is, Mr. Raymond McGrath, General American Investors Co., Inc.? Mr. BUNKER. That is right. He has authorized me to speak for him. I am very familair with his idea, right up to the last minute, and his opinions. Mr. COLE. Now, we have the open-end company group. I will take you gentlemen in any order you wish to appear. STATEMENT OF PAUL CABOT, REPRESENTING STATE STREET INVESTMENT CORPORATION, BOSTON, MASS. Mr. CABOT. My name is Paul C. Cabot, and I am one of the organizers and vice president of the State Street Investment Corporation of Boston, which we started in 1924. The original bill as it was presented to the Senate did not, except in one minor instance, affect the operations of my particular company. I felt, therefore, that I was in the position of being at least unbiased in criticizing that bill; but I felt very strongly that the bill as originally drawn would be a mistake for the industry and the people in general. The present revised bill which you have before you, I think is an excellent one, and I am heartily in favor of it. In the past there have been a great many abuses that have been brought to your attention by the reports of the Securities and Exchange Commission. It is my considered opinion that this bill will eliminate, or at least largely mitigate, those abuses that have been present in the past and I hope that you will act favorably upon it. Mr. COLE. All right, sir. STATEMENT OF WILLIAM TUDOR GARDINER, REPRESENTING INCORPORATED INVESTORS, BOSTON, MASS. Mr. GARDINER. Mr. Chairman, my name is William Tudor Gardiner, chairman of Incorporated Investors, an open-end, management-type company in Boston, with redeemable shares and assets of around $40,000,000. Mr. COLE. You are former Governor Gardiner. Mr. GARDINER. Yes, sir. I would like to say a word about the need for this type of legislation. The more consideration I gave to the matter, the more important it seemed to me that there should be some such legislation as this. Essentially, the investment-company industry involves the gathering together of cash and negotiable securities for management, and that facilitates a wrongful use if management falls into unscrupulous hands; if the managers are dishonest, unscrupulous, or even selfish, there can come great harm to the stockholders. As to the form of this legislation, I must confess that at one time it appeared to me desirable if a simpler bill could be produced, but careful study satisfied me that the task can in no way be further simplified than it has been done in this bill. The legislation must cover a great variety of investment companies, and that is one of the reasons for the length of this bill. As some of the questions by the chairman, Mr. Cole, this morning indicated, publicity is a great regulating force; but in the case of complex corporate structures and practices, I think it is plain that publicity is not enough. This bill, I believe, covers the situation adequately, and without undue restriction on legitimate business. I would like to urge upon the committee the fact that many manhours of work have gone into this piece of legislation. It has been a great demand on the time of many representatives of this industry. We most earnestly hope that this matter will have your prompt consideration and that the action of the Congress may be favorable, so that the industry can carry on its other work. Mr. COLE. Governor, it pleases me, as well as the rest of the committee, to hear statements such as we have heard here this morning, and to find an important industry like this and the Securities and Exchange Commission getting together as they have. It is a highly technical piece of legislation. This committee likes to see such results as this bill presents. There was a day when the industry did not think they could approach, let alone try to get together with the Securities and Exchange Commission, but during the last year or two they have been finding that they are human, just like the rest of us, and trying to do a good job. If I thought the Securities and Exchange Commission deserved the criticism we hear from some sources I would not be a party to trusting it with the important and new jurisdiction this bill confers. Mr. GARDINER. That is true, Congressman, and I would like to add to that that the extensive studies carried on on the subject by the Commission were very helpful in collecting information about this industry that is scattered throughout the country, and a great many of us worked with the Commission in that study. Mr. COLE. All right, sir. Thank you. Mr. GARDINER. Thank you. STATEMENT OF MAHLON E. TRAYLOR, PRESIDENT OF MASSACHUSETTS DISTRIBUTORS, INC., BOSTON, MASS. Mr. COLE. We will hear Mr. Traylor. Mr. TRAYLOR. Mr. Chairman, my name is Mahlon E. Traylor. I am president of the Massachusetts Distributors, Inc., of Boston, the sponsor company for Massachusetts Investors Trust, Supervised Shares Inc., and Boston Fund, Inc. These are funds with assets aggregating more than $100,000,000. Mr. COLE. Why is it that all of the open-end companies apparently come from Boston; is there something peculiar about that section of the country that accounts for that? Mr. TRAYLOR. The open-end industry started in Boston, Mr. Cole. I want to mention one or two points. Mr. COLE. Are they confined now to that section of the country? Mr. TRAYLOR. No, there are open-end companies, a number of them in New York; one or two in Chicago, and one or two on the coast, and a number in Boston. Mr. COLE. Mr. Traylor, I am going to have to ask you to suspend again for a few minutes in order that we may answer a call of the House. Mr. TRAYLOR. May I just go on record as saying that I endorse this bill. Mr. COLE. Is that all you had to say? Mr. TRAYLOR. I was going to mention a few points in connection with the selling end, but it is not necessary to mention them in detail. 239571-406 |