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House Committee Passes Amended Version of Fund Industry Legislation

Washington, DC, July 25, 2003 - The House Committee on Financial Services recently approved an amended version of H.R. 2420, the “Mutual Funds Integrity and Fee Transparency Act of 2003.”

Background
H.R. 2420, introduced by Congressman Richard Baker (R-LA) in March, addressed a number of issues related to industry practices including fund costs, governance, and audit practices; and contained several significant provisions concerning disclosure and the structure and duties of mutual fund directors. In testimony before the House Capital Markets Subcommittee earlier this year, Institute Chairman Paul G. Haaga noted that many of these provisions are supported by the industry and could be accomplished promptly through SEC regulation and through expeditious voluntary industry best practices.

The bill that was approved by the Committee changes or eliminates several provisions. Key changes to the bill include:

  • The requirement that mutual funds have an independent chairman of the board was deleted; the requirement that two-thirds of a fund’s board be independent was retained.
  • The requirement to disclose expenses on an individualized basis was changed to require disclosure of the estimated amount of the operating expenses borne by shareholders based on a standardized investment of $1,000.
  • The requirement to disclose portfolio transaction costs was deleted and replaced with a requirement that the SEC issue a concept release on the issue.

The Committee also approved an amendment that addresses a number of issues, including, among others:

  • transparency of mutual fund costs,
  • fund directors’ and advisers’ obligations regarding certain distribution and soft-dollar arrangements, and
  • audit committee requirements.

ICI Position
The mutual fund industry recognizes the need, especially in the current environment, to re-examine our regulatory system to determine if it is working as intended. The industry also remains committed to working with members of Congress, the SEC, and GAO to identify the best ways to restore investor confidence and help individuals make well-informed investment decisions. The Institute believes the SEC can, through its current rulemaking authority, accomplish most of the policy objectives contained in the legislative proposal.

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