Statement of the
Investment Company Institute

On the U.S. Securities & Exchange Commission's
Appropriations for Fiscal Year 2000

Submitted to the Subcommittee on
Commerce, Justice, State, the Judiciary &
Related Agencies of the Senate Committee
on Appropriations, U.S. Senate

March 25, 1999

The Investment Company Institute¹ appreciates this opportunity to submit testimony to the Subcommittee in support of the FY 2000 appropriations request for the U.S. Securities and Exchange Commission (SEC). The Institute would like to commend the Subcommittee for its prior efforts to assure adequate resources for the SEC.

Mutual funds are very important to middle-class Americans seeking to save and invest. Today, more than 77 million investors, in over 44 million U.S. households, own mutual fund shares. These millions of average Americans receive and deserve vigilant regulatory oversight of mutual funds. Given the importance of mutual funds to millions of investors, sufficient funding of the SEC is a priority. The Institute urges Congress to provide appropriations at a level sufficient to ensure that the SEC may fulfill its regulatory mandate.

The Administration's FY 2000 budget proposes SEC funding at a level of $363 million. The Institute supports this level of funding to sustain the SEC's operations, especially those of the Division of Investment Management, which regulates the mutual fund industry.

Adequate financial resources are essential for the SEC to continue its effective regulatory oversight of the securities markets and to carry out important investor protection and awareness initiatives. The workload of the Division of Investment Management has increased significantly due to the implementation of the SEC initiatives to improve mutual fund disclosure enacted last year: the mandatory use of plain English in mutual fund prospectuses; revised, simplified disclosure in mutual fund prospectuses; and fund "profiles," which provide essential information about a particular fund in a concise, less technical manner. These important initiatives will benefit millions of American investors.

Sufficient financial resources are also needed for special projects involving investor protection, such as the Director's Roundtable and the Year 2000 conversion project. The Director's Roundtable, held in February, explored the critical watchdog role that independent fund directors play in protecting the interests of fund shareholders. The SEC is presently working toward recommendations to strengthen the current system of fund governance based on information and insight gained from the Roundtable, and expects to promulgate rules to otherwise strengthen the role of independent directors.

The SEC has been actively engaged in the very important work of monitoring the securities industry's progress with Year 2000 compliance and has intensified its efforts in this area during the past year. The Division of Investment Management has formed an independent task force to assess the current status of Year 2000 disclosure and propose steps that the SEC should take to remedy the deficiencies. The SEC is gathering quantitative information from a large number of registrants and conducting examinations of firms that are showing unsatisfactory progress in addressing the problem. The SEC plans to continue its unprecedented efforts to increase the frequency and quality of Year 2000 disclosure made by public and investment companies to maintain investor confidence at the end of 1999.

Finally, adequate funding is essential for routine inspections of investment advisers and fund companies, and for the SEC's ongoing efforts to educate the nation's investors. The SEC has instituted several outreach programs, such as the nationwide "Facts on Savings and Investing Campaign" aimed at increasing the financial literacy of American investors. These types of programs help investors and small businesses to understand capital markets and establish realistic expectations about market performance. This is an integral part of the agency's mission to protect investors.

In order to accomplish these worthy objectives and to continue to function as an effective regulatory agency, we support SEC funding for FY2000 at the level requested by Chairman Levitt.

We appreciate your consideration of our views.

¹The Investment Company Institute is the national association of the American investment company industry. Its membership includes 7,446 open-end investment companies ("mutual funds"), 456 closed-end investment companies, and 8 sponsors of unit investment trusts. Its mutual fund members have assets of about $5.662 trillion, accounting for approximately 95% of total industry assets, and have over 73 individual shareholders.