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Nonadvisory expenses covered by the advisory fees of 100 mutual funds.
Nonparticipating whole life insurance policy issued to male aged 32..........
Number of funds with net sales or net redemptions of own shares in latest
fiscal year-

NYSE monthly investment plan account versus mutual fund accumulation
plan account cost comparison of investment alternatives as a percent of
total amount invested..

Partial list of new issues of bonds of local governments underwritten in
1966 by regional investment banking firms to finance schools, water,
sewers and other public facilities...
Payments made by a sample of contractual and voluntary plan participants
initiating plans in 1956, for Wellington Fund, Inc., and United Accumu-
lative Fund, as percent of number of 1956 payments...
Payments made by a sample of contractual and voluntary plan participants
initiating plans in 1956, for Wellington Fund, Inc., and United Accumu-
lative Fund, on spread payment basis...... -

Page

220

120

286

108

640

481

482

Payments made by a sample of contractual and voluntary plan participants initiating plans in 1956 for Wellington Fund, Inc., and United Accumulative Fund..

480

285

104

850

Percent range of investment performance for 169 mutual funds...
Proportion of gross underwriting income, large-small broker dealers.
Quinby & Company, Inc....

Registered investment companies with investment advisory contracts
providing for fees based on realized or unrealized capital gains or related
to a market index....

Regular brokerage account versus mutual fund account cost comparison of investment alternatives as a percent of net asset value per year.... Response rates by mailing sequence, survey of early redeemers of mutual fund contractual plans..

Results of investing in common stock mutual funds compared to the results of investing in the diversified closed-end investment companies listed on the NYSE for the 10-year periods ending December 31, 1962-December 31, 1966___

Sales charge patterns among 254 mutual funds, 1966...

Sales of mutual funds by method of distribution as a percent of June 30,
1966 assets, July 1966-June 1967..

Sales of mutual funds by method of distribution, July 1966-June 1967
Selected investment media, 1940-66 amounts, at year end..
Selected investment media, 1940-66, annual change...

Selected investment media, 1940-66, year to year, percent change.
Statement of position of Investment Company Institute with regard to
certain amendments to the Investment Company Act of 1940 and the
Investment Advisers Act of 1940 proposed in S. 1659.

Statistics on accounts making payments of only 1 to 36 and 1 to 12..
Steps in advisory fee rate schedules and resulting adivsory fee and expense
ratios of externally managed mutual funds with June 30, 1966 net assets
of $100 million and over..

112

108

492

109

306

121

121

93

94

94

311

456

Ten-year contractual accumulation plan $100 per month-
Ten-year, $25-per-month plan (maximum payments, $3,000) –.

Survey of payment persistency sample of accounts initiated in 1956,
Wellington Fund_ _

Summary of IBA position on proposed amendments in S. 1659 (SEC mutual fund recommendations), June 22, 1967.

12

611

483

119

Total compensation, 14 mutual fund advisory organizations compared
with 117 corporations outside the mutual fund industry.
Unaffiliated directors, list of, submitted by Senator Percy.

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MUTUAL FUND LEGISLATION OF 1967

THURSDAY, AUGUST 3, 1967

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,
Washington, D.C.

The committee met, pursuant to recess, at 10:08 a.m., in room 5302, New Senate Office Building, Senator John Sparkman, chairman of the committee, presiding.

Present: Senators Sparkman, Proxmire, Williams, McIntyre, Bennett, and Percy.

The CHAIRMAN. Let the committee come to order, please.

Our first witness is Mr. Robert M. Gardiner.

Mr. Gardiner, I will ask you to give the names and connections of those who accompany you. Will you please, do that, for the record?

STATEMENT OF ROBERT M. GARDINER, CHAIRMAN OF THE BOARD OF GOVERNORS, NATIONAL ASSOCIATION OF SECURITIES DEALERS; ACCOMPANIED BY ROBERT L. CODY, CHAIRMAN, INVESTMENT COMPANIES COMMITTEE; S. WHITNEY BRADLEY, GOVERNOR AT LARGE; RAY MOULDEN, DIRECTOR, INVESTMENT COMPANIES DEPARTMENT; JAMES RATZLAFF, SECRETARY, INVESTMENT COMPANIES COMMITTEE; LLOYD DERRICKSON, GENERAL COUNSEL; AND RALPH BURGESS, CHIEF ECONOMIST Mr. GARDINER. Yes, sir. Thank you, Mr. Chairman.

I am Robert M. Gardiner, chairman of the NASD Board of Governors and president pro tempore of the association since August 1. I am also managing partner of Reynolds & Co. in New York.

My colleagues with me today are, on my right, Robert L. Cody, chairman of the Association's Investment Companies Committee and vice president of the American Fund Distributors, Inc., in Los Angeles; on my left is S. Whitney Bradley, the NASD governor-at-large, representing the mutual fund industry on our board and a senior vice president of Eaton & Howard, Inc., in Boston.

On Mr. Cody's right are Ray Moulden, director of our investment companies department and to his right, James Ratzlaff, secretary of our investment companies committee.

On Mr. Bradley's left are Lloyd Derrickson, the association's general counsel, and Ralph Burgess, our chief economist.

Our organization has appeared on numerous occasions before this committee, and rather than take up valuable time with the introductory details concerning the history, functions, and activities of the NASĎ and its self-regulatory responsibilities, particularly in the area of mutual funds, I would like to skip that portion of this statement which

is designated as "supplement one" and simply submit it for the record and background information of members of the committee.

The CHAIRMAN. It will be included in the record.

By the way, you understand, of course, that all of your statements and the attachments will be printed in the record.

Mr. GARDINER. Yes, sir.

(The supplement referred to above appears at p. 568.)

Mr. GARDINER. However, there are a few statistics in this supplement that I think will indicate the deep interest of our members and their employees in the proposed mutual fund legislation you now have before you.

First, most of our 3,600 members sell mutual fund shares as part of their product mix which may also include over-the-counter stocks, listed securities, municipal, industrial, and government bonds, as well as participation in new-issue underwriting and distribution.

These 3,600 NASD members, including approximately 600 New York Stock Exchange member firms, employ 92,000 registered representatives or salesmen. These registered representatives are subject to varying training programs and study in the field and must demonstrate their knowledge and understanding of all phrases of the securities business before they are allowed to serve the public.

The approximately 37,000 of these salesmen who work on a parttime basis must meet the same requirements established by the NASD for those individuals devoting full time to the securities business.

About 1,000 NASD members concentrate virtually exclusively in the retail sale or wholesale distribution and underwriting of mutual fund shares, and a large number of the other 2,600 firms consider mutual fund shares as key merchandising items in their total sales effort.

About 80 percent of all mutual fund shares sold in the United States last year were sold by NASD members.

In proceeding, I would like first to direct our comments on this complex mutual fund legislation to certain proposals that the association finds constructive and therefore supports, at least in principle.

The association agrees in principle with the proposals contained in sectons 7 and 11 of S. 1659, but has reservations about the manner in which these are drafted.

Section 7, which would prohibit the formation or continued operation of "fund holding companies," represents a change that was originally suggested to the SEC by this association.

We are very much concerned about the dangers to public investors. which are implicit in the concept of open-end investment companies whose policy is to invest wholly or largely in the shares of other openend investment companies, and we have taken steps several months ago to adopt an interpretation of NASD rules in this regard.

There is a need for effective legislaton, but we believe section 7 may go too far, in that it would appear to preclude ownership by an investment company, whether open- or closed-end, of shares of any other investment company of any type.

For example, the potential pressures on fund managers of large redemptions is not present when an open-end company, in an effort to obtain long-term managed diversification, such as in the specialized foreign securities field, purchases shares of a close-end company that invest abroad.

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