CONTENTS

Statement of the chairman__

Letter of transmittal from the Securities and Exchange Commission

Press release from Securities and Exchange Commission regarding S. 1659_

Analysis of the bill (S. 1659) prepared by the Securities and Exchange

Commission:

Introduction..

Cross reference tables___

Part A: Management and Its Cost

Statutory standard of reasonableness for management compensa-

tion (sec. 8 of the bill) __

1. The scope of the standard.

2. Application of the standard....

Page

V

1

VII

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3. Enforcement of the standard (sec. 28 of the bill)

11

Statutory prohibition against burdensome transfers of manage-

ment relationships (sec. 8(e) of the bill)

12

Statutory right of intervention (sec. 23 of the bill).

13

Part B: Sales loads..

Sales load limitations (sec. 12 of the bill).

Contractual plans (sec. 16 of the bill)..

13

13

15

Maximum sales charges on face-amount certificates (sec. 17 of

the bill).

16

Deletion of sales charge in exchange of series shares (sec. 6 of the

bill).

Part C: Portfolio transactions__

Distribution of long-term capital gains (sec. 11 of the bill).

Part D: Fund holding companies...

Part E: Strengthening independent checks on investment company

management..

Insider trading in investment company portfolio securities (sec.

9(b) of the bill)__

Preventing the creation and enlargement of fund holding com-

panies (sec. 7 of the bill).

Adding the term "Interested person" (secs. 2, 5, 8 (c), and 18 of

the bill)_

Part F: Administrative and other proceedings..

Providing for administrative action against certain persons

serving investment companies (sec. 4 of the bill) –

Enjoining branch of fiduciary duty (sec. 20 of the bill).

Part G: Coverage.

Requirement of good faith in application for exemption from all

provisions of the act (sec. 3(a) of the bill).

Modification of exclusion for companies engaged in factoring,

discounting, and real estate business (sec. 3(b)(2) of the bill) _ _

Deletion of exclusion for company 90 percent or more of whose se-
curities are those of certain single issuers (sec. 3(b) (3) of the
bill)___

Clarification of exemption for holding company registered under

Public Utility Holding Company Act of 1935 (sec. 3(b)(4) of

the bill)__

Modification of exclusion for companies holding oil, gas, or other

mineral royalties (sec. 3(b) (5) of the bill) –

Modification of definition of senior security (sec. 10 of the bill)__

III

19

21

24

24

25

26

26

27

27

27

Analysis of the bill (S. 1959)-Continued

Part H: Management-shareholder relationships..

Definition of investment adviser (sec. 2(c) of the bill)

Attendance at directors' meetings (sec. 8(c) and 18 of the bill)..
Assignment of advisory and underwriting contracts (secs. 8(a)
and 8(b) of the bill)___

Cash assets included under bank custody (sec. 9(a) of the bill). –
Reorganization standards (sec. 14 of the bill)..

Substitution of underlying investments of unit investment trust
(sec. 15(a) of the bill).

Transmission to the commission of papers filed in shareholder

actions (sec. 19 of the bill)..

Part I: Formal__.

Change in reference to another statute which has been amended

(sec. 2(a) of the bill).

Deletion of superfluous reference and renumbering (sec. 3(b)(1) of

the bill)___

Updating reference to Internal Revenue Code (sec. 3(b)(1) of the

bill)....

Correcting inconsistency in prohibiting persons from serving as

directors of investment company (sec. 5(c) of the bill) __

Elimination of outdated reference and section (sec. 8(c) and 8(d)

of the bill)_

Deletion of language required by proposed amendments (sec. 12(d)

of the bill).

Updating of a statutory reference (sec. 13 of the bill).

Clarification of commission rulemaking power under the act (sec.

21 of the bill)

2. Removal of exemption for advisory contracts with invest-

ment companies (sec. 26 of the bill).

Updating statutory reference (secs. 22 and 23 of the bill).

Part J Amendments to the Investment Adviser Act of 1940.

Exemptions from provisions of the act (secs. 25, 26, and 27 of the

bill)...

1. Removal of exemptions for investment advisers to invest-

ment companies (sec. 25 of the bill).

3. Commission exemptive authority (sec. 27 of the bill) -

Strengthening disciplinary controls over investment advisers

(secs. 24 and 25 of the bill).

1. Definition of person associated with investment adviser

((sec. 24 of the bill).

2. Requirement for jurisdictional proof (sec. 25(c) of the

bill)___

Part K: Effective dates (sec. 28 of the bill).

Comparative print showing changes in the law which would be made by

the bill...

38

Copy of the bill (S. 1659).