Thank you, Mr. Chairman. I appreciate your conducting this hearing today and thank you for your leadership on the issue of mutual fund reform. I look forward to continuing to work with you, Mr. Chairman, along with our colleagues on the Senate Banking Committee, in enacting meaningful legislation intended to protect investors.

Mr. Chairman, I have found the betrayal of trust of mutual fund investors by fund companies and brokers appalling because mutual funds are investment vehicles that the average investor relies on for retirement, savings for children's college education, or other financial goals and dreams. In one example directly related to workers and retirees in the State of Hawaii, Putnam Investments had been responsible for managing $440 million for the State of Hawaii's Employees Retirement System, which administers retirement and survivor benefits for over 96,000 State and county employees in Hawaii, before the company was fired due to the late trading abuses that one of our witnesses, Mr. Scannell, helped to bring to the attention of regulators.

Today's hearing will provide an opportunity to closely examine the hidden financial relationships between mutual fund companies and brokers. For example, shelf-space payments and revenue-sharing agreements between mutual fund companies and brokers present conflicts of interest that must be addressed. Brokers also compile preferred lists which highlight certain funds, which typically generate more investment than those left off the list. It is not clear to investors that the mutual fund company also may pay a percentage of sales and or an annual fee on the fund assets held by the broker to obtain a place on the preferred list or to have their shares sold by the broker. Brokers have conflicts of interest, some of which are unavoidable, but these need to be disclosed to investors. Without such disclosure, investors cannot make informed financial decisions. Investors may believe that brokers are recommending funds based on the expectation of solid returns or low volatility, but the broker's recommendation may be influenced by hidden payments. Mutual fund investors need to know the amount of compensation the broker will receive due to the transaction, instead of simply providing a prospectus. The bottom line is that the prospectus fails to include the detailed relevant information that investors need to make informed decisions. Mutual fund investors deserve to know how their broker is being paid.

I am also concerned that although consumers often compare the expense ratios of funds when making investment decisions, they are not getting a realistic view of the true expenses of the mutual fund. The expense ratios fail to take into account the costs of commissions in the purchase and sale of securities. Brokerage commissions are only disclosed to the investor upon request in the Statement of Additional Information. Brokerage commissions must be disclosed in a document and in a format that investors actually have access to and utilize.

Mr. Chairman, I want to take a moment to commend the Securities and Exchange Commission (SEC) for its proposals intended to improve the corporate governance of mutual funds and to increase the transparency of mutual fund fees that investors pay. The SEC has recently proposed rules to require an independent chairman for mutual fund boards, an increased percentage of independent directors to 75 percent, and a confirmation notice so that investors will be able to know how their broker gets paid in mutual fund transactions. These provisions mirror those in the Mutual Fund Transparency Act of 2003, which I introduced along with Senator Fitzgerald and Senator Lieberman in November, in order to restore public trust in the mutual fund industry. I am pleased that the Commission has taken these and other actions to protect the 95 million American investors who have invested a significant portion of their financial security in mutual funds. I am encouraged by the steps taken by the SEC and I look forward to the implementation of many of their proposed reforms. However, legislation is still needed to codify several of these proposals and to bring about additional changes so that comprehensive reform of the mutual fund industry is achieved.

For working Americans, mutual funds are an important investment vehicle that offers diversification and professional money management. We must restore the trust of investors in mutual funds and I look forward to today's discussion on what needs to be done to accomplish that essential goal.

Thank you, Mr. Chairman.