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Wednesday, June 18, 2003

Action on Baker Bill Set for Mid-July

Reported by Sean Hanna, Editor in Chief

Rep. Richard Baker plans to move on his mutual fund legislation in Mid-July. The Republican from Louisiana revealed his timetable during hearings this afternoon on the The Mutual Funds Integrity and Fee Transparency Act of 2003 (H.R. 2420).

Baker chairs the Capital Markets Subcommittee of the House Finance Committee. The legislation, which was introduced last week, is intended to increase disclosure around fees and expenses within the fund industry and to clarify the role of directors.

He told regulators testifying at today's hearings that they should submit their ideas to the subcommittee before the July Fourth holiday weekend. Among those testifying were the SEC's Paul Roye and the GAO's Richard Hillman.

Hillman made clear that his agency's priority is to press for more visible disclosure of fees.

"The real issue we have with disclosure is its placement," Hillman testified. "If disclosures were made on statements we feel that they would have maximum impact." He believes that disclosures made in prospectii are mostly overlooked by investors.

The SEC's Roye, though, emphasized the form of disclosure rather than its placement. He said that the Commission's goal with its recommendations is to "demystify" fees and expenses levied by funds. Roye did admit, though, that at some level of detail disclosure might not make a difference to investors.

"It may not be so important to know the actual dollar amount that portfolio managers are paid," he admitted. "You know what the management company is being paid by the funds. What is important is to know the incentives."

Meanwhile, Paul G. Haaga, Jr., executive vice president and director of Capital Research and Management Company, told the panel that the trade group would like to work with the SEC and lawmakers on most issuers covered by the legislation. He said the cost of complying with the revenue sharing disclosures would be negligible.

He did point out that requiring fund firms to disclose expense information on shareholder statements would be difficult for advisor-sold funds.

"We do not print statements. In our case we sell our funds through broker-dealers and 401(k) plan administrators. In turn they print and mail the statements to shareholders," he explained.

Haaga also opposed the portion of the bill that would require the chair of the fund board to be an independent director.

"An independent chair is unnecessary. Most matters that come before boards do not involve conflicts of interest," he explained. When conflicts do present themselves, the matter can be referred to a special committee, he added. Furthermore, he noted that operating companies do not face this requirement, nor is such a requirement being contemplated.  

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