Statement of the
Investment Company Institute

On the U.S. Securities and Exchange Commission's
Appropriations for Fiscal Year 2003

Submitted to the Subcommittee on
Commerce, Justice, State, the Judiciary and
Related Agencies
Committee on Appropriations

U.S. House of Representatives

April 17, 2002

Investment Company Institute
1401 H Street, N.W.
Washington, DC 20005

The Investment Company Institute¹ appreciates the opportunity to submit testimony to the Subcommittee concerning the FY 2003 Appropriations request for the Securities and Exchange Commission (SEC). The Institute would like to commend the Subcommittee for its past efforts to assure adequate resources for the SEC.

Mutual funds are an integral part of the U.S. economy and have become one of America's primary investment vehicles. More than 88 million investors in over 55 million U.S. households own mutual fund shares today and, since 1990, the percentage of U.S. retirement assets held in mutual funds has more than tripled. Moreover, most mutual fund investors are ordinary Americans; the median household income of fund shareholders is $62,100. These millions of average Americans deserve continued vigilant regulatory oversight of mutual funds. For this reason, sufficient funding of the SEC should be a priority. The Institute therefore urges Congress to provide appropriations at a level sufficient to ensure the SEC's ability to fulfill its regulatory mandate.

The Administration's FY 2003 budget proposes SEC funding at a level of $466.9 million. As SEC Chairman Pitt noted in testimony before this Committee, this proposed funding level provides the SEC with a "zero-growth" budget, including no resources for an increase in SEC staff and no new money to fully implement pay parity at the SEC. Increased financial resources are essential for the SEC to continue its effective regulatory oversight of the securities markets and to carry out important investor protection initiatives.

Many of these investor protection initiatives are of great importance to mutual funds and their shareholders. They include, among other things, developing and adopting rule amendments to improve disclosure in mutual fund shareholder reports and to modernize the mutual fund advertising rules; conducting inspections of investment advisers and fund companies, including inspections for compliance with anti-money laundering requirements under the USA PATRIOT Act; and processing in a timely manner exemptive applications and no-action letter requests by mutual funds, which are necessary for funds to operate efficiently and to provide innovative products and services to investors.

These initiatives, and others, are integral to fulfilling the SEC's mission of protecting investors, including the millions of Americans who invest in mutual funds, and maintaining the integrity and efficiency of the nation's securities markets. However, as discussed in a recent General Accounting Office study examining the operations of the SEC, the SEC's ability to fulfill its mission has become somewhat strained due, in part, to imbalances between its workload and staff resources. This, in turn, has contributed to delays in rulemaking and processing exemptive applications, as well as bottlenecks in the examination and inspection area.

In order to address these problems, we believe it is crucial that SEC employees be compensated at a level comparable to their counterparts at other federal financial regulatory agencies. Given the growth of the U.S. securities markets over the last several years, the disparity in pay levels between those who regulate our securities markets and those who regulate commercial banks is a striking anachronism. We therefore call upon Congress to budget the resources necessary to fund the pay parity provisions that were included in the Investor and Capital Markets Fee Relief Act, which was approved overwhelmingly by both Houses of Congress and signed into law by President Bush in January. Implementation of pay parity will enable the SEC to continue to attract and retain qualified and dedicated staff.

We appreciate your consideration of our views.

¹The Investment Company Institute is the national association of the American investment company industry. Its membership includes 9,024 open-end investment companies ("mutual funds"), 485 closed-end investment companies and six sponsors of unit investment trusts. Its mutual fund members have assets of about $6.920 trillion, accounting for approximately 95 percent of total industry assets, and over 88.6 million individual shareholders. The Institute also represents the interests of investment advisers. Many of the Institute's investment adviser members render investment advice to both investment companies and other clients. In addition, the Institute's membership includes 338 associate members which render investment management services exclusively to non-investment company clients. A substantial portion of the total assets managed by registered investment advisers are managed by these Institute members and associate members.