ICI Pledges Prompt, Decisive Action to Advance Investor Protection and Awareness

      SEC and Mutual Fund Industry Actions Will Accomplish Congressional
   Objectives and Send a Strong Message that Investor Interests Come First

    WASHINGTON, June 18 /PRNewswire/ -- The mutual fund industry today pledged
to take specific steps to enhance mutual fund disclosure and governance
practices and called upon the U.S. Securities and Exchange Commission to take
swift regulatory action to pursue meaningful reforms to benefit the nation's
95 million mutual fund shareholders.
    "We clearly recognize the need, especially in the current environment, to
re-examine our regulatory system in order to determine if it is working as
intended, and, even if it is, to determine whether there are ways to make it
even stronger and more responsive to investor needs," Paul G. Haaga, Executive
Vice President of Capital Research and Management Company and Chairman of the
Investment Company Institute, the national association of the mutual fund
industry, told a subcommittee of the House Financial Services Committee.
    Mr. Haaga said the mutual fund industry wants to work 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.
    Haaga's remarks came during a House Subcommittee on Capital Markets,
Insurance and Government Sponsored Enterprises hearing on H.R. 2420, the
"Mutual Funds Integrity and Fee Transparency Act."  The legislation,
introduced by Congressman Richard Baker (R-LA), contains several significant
new provisions concerning disclosure and the structure and duties of mutual
fund directors.  Many of these provisions are supported by the industry and
could be accomplished promptly through SEC regulation and through expeditious
voluntary industry best practices.
    Pledging the mutual fund industry's full cooperation, Haaga called upon
the SEC to "proceed expeditiously" and take action concerning provisions in
the legislation relating to disclosure and soft dollars.
    Haaga urged the SEC to adopt rules it has already proposed that would
require fund shareholder reports to disclose the cost in dollars of a $10,000
investment in the fund, based on the fund's actual expenses and return for the
period of the report.  "We believe this proposal is superior to alternatives
that have been suggested, as it will enhance investors' understanding of fees,
and most importantly, will assist them in comparing the expenses of different
funds," Haaga said.
    Haaga also requested the SEC to address the other areas of disclosure
identified in H.R. 2420, including the structure of portfolio manager
compensation, portfolio transaction costs, revenue sharing arrangements, and
fund brokerage practices.
    Turning to soft dollars, Haaga noted that the fund industry supports the
legislation's provisions to clarify the roles of fund advisers and fund
directors concerning soft dollar and directed brokerage arrangements.  "This
is a good idea, and the SEC does not need to wait for legislation to take this
step," Haaga said.  He also said the industry supports the legislation's call
for the SEC to conduct a thorough review of soft dollar practices.  "We
believe this is one of the most important issues addressed by the bill," Haaga
said.  "We believe it is now time for a review of the rules governing soft
dollars."
    Haaga also pledged the mutual fund industry's commitment to taking
voluntary steps to enhance investor confidence and the industry's own system
of corporate governance.  For example, Haaga noted the industry supports H.R.
2420's provision to apply the standards for audit committees established in
the Sarbanes-Oxley Act to mutual funds.  Rather than wait for legislation,
Haaga said he would recommend to the Institute's Board of Governors that the
standards be adopted as an industry best practice.
    He said the fund industry agrees with legislators and the SEC that it is
inappropriate for certain relatives and individuals with material business or
professional relationships with management to serve as independent directors
of mutual funds.  "I will recommend to the ICI Board of Governors that it
adopt a best practice under which these individuals would not serve as mutual
fund independent directors," Haaga said, noting that the industry already has
adopted a similar best practice under which former employees of fund
management companies could not serve as independent directors.
    Haaga also pointed out that ICI has adopted other corporate governance
best practices relevant to many of the issues addressed in the legislation.
"Our understanding is that the vast majority of fund groups follow all of
these best practices," Haaga said.  "To ensure that their adoption is as close
to universal as possible, I will also recommend to the ICI Board that it take
further steps to urge each individual member of ICI to adopt them."
    Haaga said there are some parts of the legislation that the mutual fund
industry thinks are inadvisable.  Existing fund industry practices, such as
having lead directors and regular meetings of independent directors in
executive session, make it unnecessary to require mutual funds to have an
independent chairman of the board, as the legislation proposes.  "Not only is
it unnecessary, but having an independent chairman could actually result in a
less effective board," he said.
    Haaga also said it would be a mistake for legislation, rather than the
SEC, to dictate the specifics of how certain items should be disclosed, and in
which document they should appear.  "Congress should not inadvertently
discourage investors from viewing the prospectus as the most important
disclosure statement," he said.
    Haaga recommended that once the SEC adopts its new rules on expense
disclosure, Congress should study their effectiveness before mandating
additional disclosures, such as requiring disclosure of individualized
operating expenses, which he said would be costly and would inhibit
comparisons among funds.
    "I believe that the SEC and industry actions will accomplish most of the
objectives of H.R. 2420 and will send a message to investors that we --
Congress, the SEC and GAO, and the mutual fund industry -- intend that their
interests come first," Haaga said.

    For More Information:
    A copy of Mr. Haaga's testimony is available on the Institute's website
at: http://www.ici.org/statements/tmny/03_house_hr2420_tmny.html