New Mutual Fund Legislation Proposed

Washington, DC, November 10, 2003 - Senator Daniel K. Akaka (D-HI), the Ranking Member of the Subcommittee on Financial Management, the Budget, and International Security of the Senate Committee on Governmental Affairs, recently introduced S.1822, the “Mutual Fund Transparency Act of 2003.”

Background
Among other things, S. 1822 would establish new disclosure and independence requirements, and commission studies on financial literacy and on fund advertising. Specifically, S. 1822 would:

• direct the SEC to adopt rules requiring brokers to disclose in writing to customers who purchase mutual fund shares the amount of compensation received or to be received by the broker in connection with the transaction;
• direct the SEC to adopt rules requiring disclosure of fund brokerage commissions, both as an aggregate dollar amount and as a percentage of assets;
• require 75 percent of a fund’s board to be independent and to require that the chairman of the board be independent;
• require a fund board’s independent directors to form a committee comprised solely of independent directors with responsibility for selecting nominees for election to the board and adopting qualification standards for the nomination of directors;
• expand the definition of “interested person” in the Investment Company Act; and
• direct the SEC to adopt rules requiring funds to disclose the structure of, or method used to determine, portfolio manager compensation, as well as portfolio managers’ ownership of fund shares.

In addition, S. 1822 would require several studies to be completed within one year after enactment of the act, including:

• a study by the SEC of whether the best interests of mutual fund investors would be served by the creation of a Mutual Fund Oversight Board that has inspection, examination, and enforcement authority over mutual fund boards, is funded by assessments against fund assets, the members of which are selected by the SEC, and has rulemaking authority;
• an SEC study of the financial literacy of mutual fund investors; and
• a study by the Comptroller General of the United States on mutual fund advertising.

Related Links

Sections of this website are dedicated to the Institute’s work in several areas covered by S. 1822—fund disclosure, directors and fund governance, fund fees and expenses, investor education, and market and investment adviser issues.