United States Senator Daniel K. Akaka (D-Hawaii) has introduced legislation to provide greater disclosure and transparency of mutual fund fees and costs for the 95 million American investors who have invested a significant portion of their financial security in mutual funds. The Mutual Fund Transparency Act of 2003, introduced by Senator Akaka, Senator Peter Fitzgerald (R-Illinois) and Senator Joe Lieberman (D-Connecticut), would strengthen board independence and enhance the transparency of financial relationships.

"Public confidence in mutual funds will not recover if funds continue to employ different sets of rules for large and small investors, engage in ethical misconduct, and enrich themselves at the expense of shareholders," Akaka said. "The transgressions brought to light underscore the absence of effective oversight by the boards of mutual fund companies. This legislation will strengthen board independence and enhance the transparency of financial relationships. The American investing public deserves nothing less."

"I am pleased to join Senator Akaka today in introducing legislation that is an important step on the road to reform. It would increase transparency and mutual fund board independence – two steps that are desperately needed to protect investors' hard-earned savings," Fitzgerald said.

"Mutual funds hold the nest eggs, the retirement savings, and the college funds for many of America's working families," Lieberman said. "In a very real sense, they are investments in the American dream. We must act now to restore integrity to the mutual fund industry and ensure that the investors' trust is not misplaced."

The Mutual Fund Transparency Act:

• Mandates that a confirmation notice be provided to investors by brokers - The bill requires brokers to disclose in writing, to those who purchase mutual company shares, the amount of compensation the broker will receive due to the transaction, instead of simply providing a prospectus. 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.

• Requires that brokerage commissions be counted as an expense - Consumers often compare the expense ratios of funds when making investment decisions. However, the expense ratios fail to take into account the costs of commissions in the purchase and sale of securities. Therefore, investors are not provided with an accurate idea of the expenses involved. Currently, brokerage commissions have to be disclosed to the SEC, but not to individual investors. Brokerage commissions are only disclosed to the investor upon request. This bill strengthens brokerage commission disclosure provisions and ensures that commissions will be included in a document that investors actually have access to and utilize. This bill also creates a powerful incentive to reduce the use of soft dollars – the bundling of services or products into brokerage commissions. If commissions are disclosed as an expense, the use of soft dollars will be reflected in the higher commission fees and overall expenses. This will make it easier for investors to see the true cost of the fund and compare the expense ratios of funds.

• Promotes Mutual Fund Governance - The bill strengthens the definition of who is considered to be an independent director. It also requires that mutual fund company boards have 75 percent of their members considered to be independent. To be considered independent, shareholders would have to approve them. It also prohibits the board from making decisions that require a vote of a non-independent director. In addition, a committee of independent members would be responsible for nominating members and adopting qualification standards for board membership.

• Requires Portfolio Manager compensation disclosure - The bill requires the SEC to develop rules to disclose the compensation of individuals employed by the investment advisor of the company to manage the portfolio of the company and their ownership interest in the company.

"The abuses that have been brought to our attention make it clear that the boards of mutual fund companies are not providing sufficient oversight," Akaka said. "To be more effective, the boards must be strengthened and more independent. Investment company boards need an independent chairman and independent directors in a dominant presence on the board.

"Providing accurate information for investors is our paramount aim. Consumers deserve accurate information on expense ratios that accounts for the costs of commissions in the purchase and sale of securities. Currently, brokerage commissions have to be disclosed to the SEC, but not to individual investors. Brokerage commissions are only disclosed to the investor upon request. Our bill puts teeth into brokerage commission disclosure provisions and ensures that commissions are in a document that investors actually can use. It also creates a powerful incentive to reduce the use of soft dollars. Mutual fund companies often pay higher commissions in order to obtain other products and services, typically research on stocks. If commissions are disclosed, the use of soft dollars will be reflected in the higher commission fees and overall expenses. This will make it easier for investors to see the true cost of the fund and compare the expense ratios of funds."

The legislation is supported by the Consumer Federation of America, Fund Democracy, Consumer Action, U.S. Public Interest Research Group, Consumers Union, and AARP.