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The orderly gradation of the depreciation from under 40 percent for the Aa, or the highest rated stocks, with a triple weight, to about 90 percent for the B and Caa, with a single weight of one, clearly suggests that the more seasoned securities of investment merit had a higher survival ratio than those of low investment standing. The depreciation in the nonrated stocks approximates the shrinkage in the Baa rated equities, confirming the opinion conveyed earlier herein, that they contained a large number of stocks, which in 1929 had a fairly high investment standing.

The correspondence between the ratings and the capital conservation is thus incompatible with the popular notion of Wall Street critics that in 1929 everybody's judgment was no good and all valuations worthless. While the Ba group

turned out to be somewhat better than Baa stocks, the fact remains that the rating ranges to which we accorded a weight of one, experienced a decline double that of the groups with a weight of three. The depreciation was inescapable, because of the economic and monetary events of the American and world major depression and deflation on the greatest scale that we and the world at large had previously experienced, with attendant debt repudiation, currency devaluation, and all around scaling down of capital values.

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List of common stock recommendations as of Sept. 30, 1929, converted into an unmanaged portfolio for the period end 1929 through end 1935, weighted in accordance with their investment rating and adjusted for capital changes

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Senator WAGNER (chairman of the subcommittee). Will you proceed, please, Mr. Quinn?

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STATEMENT OF CYRIL J. C. QUINN, VICE-PRESIDENT, CONTINENTAL CORPORATION AND PARTNER OF J. & W. SELIGMAN & CO., NEW YORK CITY

Mr. QUINN. Thank you, sir.

Senator WAGNER. Mr. Quinn, you represent the Tri-Continental system?

Mr. QUINN. Mr. Chairman, I should like to begin by explaining that I am a vice president and director of Tri-Continental Corporation and of the four other investment companies that are associated with it. I am also a member of the firm of J. & W. Seligman & Co.

Like Mr. Bunker, in my discussion I shall confine myself to only the closed-end companies. I am not going to talk about open-end companies, unit-certificate companies, or those other types of companies with which I am not familiar.

I am proceeding on the assumption that you are not interested in generalities, neither are you interested in any extended discussion of the detailed, technical draftsmanship of the bill-although I must say that in some sections it is rather ambiguous, in a few sections it is rather contradictory, and in many places it is so vague that it is very difficult to comment successfully upon it.

I assume that what you really are interested in is in knowing what is our position with respect to regulation-that is the first thing; second, what sections I think are in the bill that should not be in itthat is the second thing; third, what, as a person with some practical experience, I think of the way that some principles with which we agree have been worked out, in those cases where we disagree with the manner of working them out.

In other words, I am proceeding on the assumption-and this is confirmed by the way the bearing has gone that you welcome an honest and sincere attempt to help you gentlemen work out workable and reasonable regulations.

Let me cover the first point, as to my position with regard to regulation.

Senator HERRING. Mr. Chairman, I wonder if Mr. Quinn cannot address the Secretary, and then we shall all hear better, down here, and I think you will hear just as well, will you not?

Senator WAGNER. Yes, of course. Incidentally, I do not want to be critical at all; I know we all do it; but if we could refrain as much as possible from conversation, we shall all be helped very much.

I am as much guilty of that as anyone.

Senator HUGHES. I wonder if the Senator would not be in a better position up here at this end of the table.

Senator HERRING. I can hear all right; I am just thinking about some of the rest.

Mr. QUINN. I am sorry.

If I may readvert to our position with respect to regulation, Senator: In 1937, we, like Mr. Bunker, appeared at a public hearing of the S. E. C. in connection with the investigation and hearing on our companies. That was part of the general investigation of all investment companies. The chairman of the companies I represent at that

time stated that he felt some measure of governmental regulation of investment companies was desirable; he said he felt that if it was done on a proper basis, it would result in benefits to the holders of investment-company securities and to the public.

That was our position then, and that is our position now.

I might add that the statement of policy, which contains certain specific recommendations and certain general recommendations about what a proper regulatory bill ought to be, was sent out to all the shareholders of the companies. Some 40,000 shareholders got that statement at that time.

Now I come to the second question which I think you are interested in: That is, What parts of the present bill do I think have a proper place in a sound regulatory bill?

Mr. Bunker has set down certain principles. I shall try to elaborate those somewhat and to tie them in to the specific bill under discussion. I must add, however, that these things which I think should be in a regulatory bill, I think should be there in principle. I say that because I think there are many reservations with respect to the way in which they are put in there.

However, in principle I think a proper regulatory bill should contain (1) a provision for the registration of investment companies; (2) a provision for classification and subclassification of investment companies, although I think that the classifications used in this particular bill are illogical and absolutely misleading. I refer to the fact, for instance, that a company is called a trading company, for instance, because it has senior securities outstanding which has nothing to do with whether or not it is a trading company. However, that is a further detail.

The third point that I have in this connection is I think a proper regulatory bill should contain provisions requiring the approval of stockholders for any change in fundamental policy. However, this is not a subject which is easy of solution; and Mr. McGrath, another one of our group, will later explain to the committee some of the difficulties encountered in this respect, under the provisions of this bill.

Fourth. I agree that there should be a prohibition against short sales and participations in pools or similar accounts.

Fifth. I think there should be prohibition against any direct sales or purchases of securities or other property between the investment companies on the one hand and their officers, directors, sponsors, and 10 percent shareholders, on the other hand. I say "10 percent, because that is the rule laid down in the other laws as to the person who has to report his holdings. This should not, of course, prevent the payment of salaries, management fees, and customary charges for agency services; and you will also hear from some other gentlemen, who are going to appear later, that a flat prohibition of this kind has certain disadvantages to particular companies. I think you gentlemen ought carefully to consider their viewpoint in connection with that.

Sixth. I think there ought to be requirements for adequate representation on boards of directors of persons independent of the management or sponsors.

Seventh. I think there ought to be a prohibition on loans by investment companies to officers, directors, or sponsors.

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