NU Online News Service, Nov. 20, 2003, 10:40 a.m. EST ? Washington
Mutual fund reform legislation approved overwhelmingly by the House of Representatives represents only the first step toward the goal of protecting mutual fund investors, a cosponsor of the legislation says.
“This bill is a substantive first step toward reinforcing bedrock ethical principles of the marketplace and restoring investor confidence, but there is still more work to be done, particularly in light of growing support for greater independence of fund boards and chairmen,” says Rep. Richard Baker (R-La.).
Baker, who chairs the House Financial Services Subcommittee on Capital Markets, says he will work with the Senate to develop the strongest possible reform bill.
Baker’s legislation, H.R. 2420, which was passed by a 418-2 vote, would mandate increased disclosure and transparency of mutual fund costs and reform mutual fund governance.
Under the legislation, mutual funds would have to disclose estimated operating expenses based on a hypothetical $1,000 investment, disclose soft dollar arrangements and revenue sharing agreements, and explain portfolio turnover rates in a way that makes it easier for investors to compare funds.
Mutual funds also would have to disclose policies and procedures on proxy voting, the structure of portfolio manager compensation and any holdings fund managers have in the funds they manage.
As for corporate governance, H.R. 2420 would require that two-thirds of all board directors be independent.
In addition, the legislation would bar the same person from managing both mutual funds and hedge funds.