[Congressional Record Volume 151, Number 64 (Monday, May 16, 2005)]
[Senate]
[Pages S5221-S5224]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. AKAKA:
  S. 1037. A bill to require disclosure of financial relationships 
between brokers and mutual fund companies, and of certain brokerage 
commissions paid by mutual fund companies; to the Committee on Banking, 
Housing, and Urban Affairs.
  Mr. AKAKA. Mr. President, I rise today to introduce the Mutual Fund 
Transparency Act of 2005. Mutual funds are vital investment vehicles 
for middle-income Americans that offer diversification and professional 
money management. Mutual funds are what average investors rely on for 
retirement, savings for children's college education, or other 
financial goals and dreams.
  I was outraged by the widespread abuses in the industry. Ordinary 
investors were being harmed due to the greed of brokers, mutual fund 
companies, and institutional and large investors. That is why I 
introduced the Mutual Fund Transparency Act in November 2003 with my 
colleagues Senator Fitzgerald and Senator Lieberman.
  I want to thank the Chairman of the Securities and Exchange 
Commission, SEC, William Donaldson, for his courageous leadership. 
Chairman Donaldson has demonstrated a commitment to bring about reforms 
that better protect investors. I applaud the SEC's enforcement and 
regulatory efforts in addressing weaknesses and abuses in the mutual 
fund industry.
  The SEC has adopted several reforms that mirror provisions found in 
my original Mutual Fund Transparency Act. In July 2004, the SEC adopted 
reforms requiring mutual funds, with certain exemptive rules, to have 
an independent chairman and ensure that 75 percent of their board 
members are independent.
  Although the SEC has undertaken a number of impressive reforms, I 
have chosen to reintroduce a modified version of my original bill to 
further strengthen the independence of boards, make investors more 
aware of the true costs of their mutual funds, and prevent several key 
reforms from being rolled back. It is also important to legislatively 
address areas where the SEC needs additional statutory authority. 
Legislation is needed to ensure that the increased independence rule 
applied universally among mutual funds.
  My bill includes a number of provisions intended to strengthen mutual 
fund boards. It will require that mutual fund boards have independent 
chairmen and that 75 percent of their directors be independent. My bill 
strengthens the definition of who is considered an independent director 
and requires independent directors to be approved by shareholders. 
These steps are necessary to strengthen the ability of mutual fund 
boards to detect and prevent abuses of investor trust.
  My bill will also increase the transparency of the complex financial 
relationships between brokers and mutual funds in ways that are both 
meaningful and easy to understand for investors. Shelf-space payments 
and revenue-sharing agreements between mutual fund companies and 
brokers present conflicts of interest that must be addressed. 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 for solid 
returns or low volatility, when the broker's recommendation may be 
influenced by hidden payments. This legislation will require brokers to 
disclose in writing the amount of compensation the broker will receive 
due to the transaction, instead of simply providing a prospectus. 
Currently, the prospectus fails to include the detailed relevant 
information that investors need to make informed decisions.
  The SEC has requested comments on a proposal to require a 
confirmation notice, as well as increased point-of-sale disclosures, to 
provide investors with more information about broker conflicts in 
mutual fund transactions. The SEC is reviewing comments on its 
proposal, and studying other possibilities. I have included a point-of-
sale disclosure requirement in my legislation that was absent in the 
prior bill. In my bill, investors would have to be provided with the 
amount of differential payments and average fees for comparable 
transactions. My legislation also requires that confirmation notices be 
provided for mutual fund transactions, which will include how their 
broker was compensated.
  To further increase the transparency of the actual costs of the fund, 
brokerage commissions must be counted as an expense in filings with the 
SEC and included in the calculation of the expense ratio. Consumers 
often compare the expense ratios of funds when making investment 
decisions. However, the expense ratios fail to take into account the 
cost of commissions in the purchase and sale of securities. Therefore, 
investors are not provided with a complete and accurate idea of the 
expenses involved with owning that fund. Currently, brokerage 
commissions are disclosed to the SEC, but not to individual investors. 
Right now, brokerage commissions are only disclosed to the investor 
upon request. My bill puts teeth into brokerage commission disclosure 
provisions and ensures that commissions will be included in a document 
that investors have access to and can utilize.
  The inclusion of brokerage commissions in the expense ratio creates a 
powerful incentive to reduce the use of soft dollars. Soft dollars can 
be used to lower expenses, since most purchases using soft dollars do 
not count as expenses and are not calculated into the expense ratio. 
There have been calls for the prohibition of soft dollars. This is a 
recommendation that needs to be further examined. My bill provides an 
alternative, which is an incentive for funds to limit the use of soft 
dollars by identifying them as expenses. If commissions are disclosed 
in this manner,

[[Page S5222]]

the use of soft dollars will be reflected in the higher commission fees 
and overall expenses. This makes it easier for investors to see the 
true cost of the fund and compare the expense ratios of funds.
  Some may argue that this approach gives an incomplete picture and 
fails to account for spreads, market impact, and opportunity costs. 
However, the SEC has the authority to address the issue further if it 
can determine an effective way to quantify these additional factors. My 
bill does not impose additional reporting requirements that would be 
burdensome to brokers. It merely uses what is already reported and 
presents this information in a manner meaningful to investors.
  Another important provision in my bill requires the SEC to conduct a 
study to assess financial literacy among mutual fund investors. This 
study is necessary because any additional disclosure requirements for 
mutual funds will not truly work unless investors are given the tools 
they need to make smart investment decisions.
  Mr. President, my legislation will ensure that mutual fund boards are 
independent and that investors are provided with more relevant and 
meaningful disclosures from which they can make better informed 
choices. I look forward to continue working with my colleagues and the 
SEC to better protect investors.
  Mr. President, I ask unanimous consent that the text of the bill 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1037

         Be it enacted by the Senate and House of Representatives 
     of the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

         This Act may be cited as the ``Mutual Fund Transparency 
     Act of 2005''.

     SEC. 2. DISCLOSURE OF FINANCIAL RELATIONSHIPS BETWEEN BROKERS 
                   AND MUTUAL FUND COMPANIES.

       (a) In General.--Section 15(b) of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78o(b)) is amended by adding at the 
     end the following:
       ``(13) Confirmation of transactions for mutual funds.--
       ``(A) In general.--Each broker shall disclose in writing to 
     customers that purchase the shares of an open-end company 
     registered under section 8 of the Investment Company Act of 
     1940 (15 U.S.C. 80a-8)--
       ``(i) the amount of any compensation received or to be 
     received by the broker in connection with such transaction 
     from any sources; and
       ``(ii) such other information as the Commission determines 
     appropriate.
       ``(B) Revenue sharing.--The term `compensation' under 
     subparagraph (A) shall include any direct or indirect payment 
     made by an investment adviser (or any affiliate of an 
     investment adviser) to a broker or dealer for the purpose of 
     promoting the sales of securities of an open-end company.
       ``(C) Timing of disclosure.--The disclosure required under 
     subparagraph (A) shall be made to a customer not later than 
     as of the date of the completion of the transaction.
       ``(D) Limitation.--The disclosures required under 
     subparagraph (A) may not be made exclusively in--
       ``(i) a registration statement or prospectus of an open-end 
     company; or
       ``(ii) any other filing of an open-end company with the 
     Commission.
       ``(E) Commission authority.--
       ``(i) In general.--The Commission shall promulgate such 
     final rules as are necessary to carry out this paragraph not 
     later than 1 year after the date of enactment of the Mutual 
     Fund Transparency Act of 2005.
       ``(ii) Form of disclosure.--Disclosures under this 
     paragraph shall be in such form as the Commission, by rule, 
     shall require.
       ``(F) Definition.--In this paragraph, the term `open-end 
     company' has the same meaning as in section 5 of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-5).''.
       (b) Disclosure of Brokerage Commissions.--Section 30 of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-29) is amended 
     by adding at the end the following:
       ``(k) Disclosure of Brokerage Commissions.--The Commission, 
     by rule, shall require that brokerage commissions as an 
     aggregate dollar amount and percentage of assets paid by an 
     open-end company be included in any disclosure of the amount 
     of fees and expenses that may be payable by the holder of the 
     securities of such company for purposes of--
       ``(1) the registration statement of that open-end company; 
     and
       ``(2) any other filing of that open-end company with the 
     Commission, including the calculation of expense ratios.''.

     SEC. 3. MUTUAL FUND GOVERNANCE.

       (a) Independent Fund Boards.--Section 10(a) of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-10(a)) is 
     amended--
       (1) by striking ``shall have'' and inserting the following: 
     ``shall--
       ``(1) have'';
       (2) by striking ``60 per centum'' and inserting ``25 
     percent'';
       (3) by striking the period at the end and inserting a 
     semicolon; and
       (4) by adding at the end the following:
       ``(2) have as chairman of its board of directors an 
     interested person of such registered company; or
       ``(3) have as a member of its board of directors any person 
     that is an interested person of such registered investment 
     company--
       ``(A) who has served without being approved or elected by 
     the shareholders of such registered investment company at 
     least once every 5 years; and
       ``(B) unless such director has been found, on an annual 
     basis, by a majority of the directors who are not interested 
     persons, after reasonable inquiry by such directors, not to 
     have any material business or familial relationship with the 
     registered investment company, a significant service provider 
     to the company, or any entity controlling, controlled by, or 
     under common control with such service provider, that is 
     likely to impair the independence of the director.''.
       (b) Action by Independent Directors.--Section 10 of the 
     Investment Company Act of 1940 (15 U.S.C. 80a-10) is amended 
     by adding at the end the following:
       ``(i) Action by Board of Directors.--No action taken by the 
     board of directors of a registered investment company may 
     require the vote of a director who is an interested person of 
     such registered investment company.
       ``(j) Independent Committee.--
       ``(1) In general.--The members of the board of directors of 
     a registered investment company who are not interested 
     persons of such registered investment company shall establish 
     a committee comprised solely of such members, which committee 
     shall be responsible for--
       ``(A) selecting persons to be nominated for election to the 
     board of directors; and
       ``(B) adopting qualification standards for the nomination 
     of directors.
       ``(2) Disclosure.--The standards developed under paragraph 
     (1)(B) shall be disclosed in the registration statement of 
     the registered investment company.''.
       (c) Definition of Interested Person.--Section 2(a)(19) of 
     the Investment Company Act of 1940 (15 U.S.C. 80a-2) is 
     amended--
       (1) in subparagraph (A)--
       (A) in clause (iv), by striking ``two'' and inserting 
     ``5''; and
       (B) by striking clause (vii) and inserting the following:
       ``(vii) any natural person who has served as an officer or 
     director, or as an employee within the preceding 10 fiscal 
     years, of an investment adviser or principal underwriter to 
     such registered investment company, or of any entity 
     controlling, controlled by, or under common control with such 
     investment adviser or principal underwriter;
       ``(viii) any natural person who has served as an officer or 
     director, or as an employee within the preceding 10 fiscal 
     years, of any entity that has within the preceding 5 fiscal 
     years acted as a significant service provider to such 
     registered investment company, or of any entity controlling, 
     controlled by, or under the common control with such service 
     provider;
       ``(ix) any natural person who is a member of a class of 
     persons that the Commission, by rule or regulation, 
     determines is unlikely to exercise an appropriate degree of 
     independence as a result of--

       ``(I) a material business relationship with the investment 
     company or an affiliated person of such investment company;
       ``(II) a close familial relationship with any natural 
     person who is an affiliated person of such investment 
     company; or
       ``(III) any other reason determined by the Commission.'';

       (2) in subparagraph (B)--
       (A) in clause (iv), by striking ``two'' and inserting 
     ``5''; and
       (B) by striking clause (vii) and inserting the following:
       ``(vii) any natural person who is a member of a class of 
     persons that the Commission, by rule or regulation, 
     determines is unlikely to exercise an appropriate degree of 
     independence as a result of--

       ``(I) a material business relationship with such investment 
     adviser or principal underwriter or affiliated person of such 
     investment adviser or principal underwriter;
       ``(II) a close familial relationship with any natural 
     person who is an affiliated person of such investment adviser 
     or principal underwriter; or
       ``(III) any other reason as determined by the 
     Commission:''.

       (d) Definition of Significant Service Provider.--Section 
     2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
     2(a)) is amended by adding at the end the following:
       ``(53) Significant service provider.--
       ``(A) In general.--Not later than 270 days after the date 
     of enactment of the Mutual Fund Transparency Act of 2005, the 
     Securities and Exchange Commission shall issue final rules 
     defining the term `significant service provider'.
       ``(B) Requirements.--The definition developed under 
     paragraph (1) shall include, at a minimum, the investment 
     adviser and principal underwriter of a registered investment 
     company for purposes of paragraph (19).''.

[[Page S5223]]

     SEC. 4. FINANCIAL LITERACY AMONG MUTUAL FUND INVESTORS STUDY.

       (a) In General.--The Securities and Exchange Commission 
     shall conduct a study to identify--
       (1) the existing level of financial literacy among 
     investors that purchase shares of open-end companies, as that 
     term is defined under section 5 of the Investment Company Act 
     of 1940, that are registered under section 8 of that Act;
       (2) the most useful and understandable relevant information 
     that investors need to make sound financial decisions prior 
     to purchasing such shares;
       (3) methods to increase the transparency of expenses and 
     potential conflicts of interest in transactions involving the 
     shares of open-end companies;
       (4) the existing private and public efforts to educate 
     investors; and
       (5) a strategy to increase the financial literacy of 
     investors that results in a positive change in investor 
     behavior.
       (b) Report.--Not later than 1 year after the date of 
     enactment of this Act, the Securities and Exchange Commission 
     shall submit a report on the study required under subsection 
     (a) to--
       (1) the Committee on Banking, Housing, and Urban Affairs of 
     the Senate; and
       (2) the Committee on Financial Services of the House of 
     Representatives.

     SEC. 5. STUDY REGARDING MUTUAL FUND ADVERTISING.

       (a) In General.--The Comptroller General of the United 
     States shall conduct a study on mutual fund advertising to 
     identify--
       (1) existing and proposed regulatory requirements for open-
     end investment company advertisements;
       (2) current marketing practices for the sale of open-end 
     investment company shares, including the use of unsustainable 
     past performance data, funds that have merged, and incubator 
     funds;
       (3) the impact of such advertising on consumers;
       (4) recommendations to improve investor protections in 
     mutual fund advertising and additional information necessary 
     to ensure that investors can make informed financial 
     decisions when purchasing shares.
       (b) Report.--Not later than 1 year after the date of 
     enactment of this Act, the Comptroller General of the United 
     States shall submit a report on the results of the study 
     conducted under subsection (a) to--
       (1) the Committee on Banking, Housing, and Urban Affairs of 
     the United States Senate; and
       (2) the Committee on Financial Services of the House of 
     Representatives.

     SEC. 6. POINT-OF-SALE DISCLOSURE.

       (a) In General.--Section 15(b) of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78o(b)), as amended by section 2, is 
     amended by adding at the end the following:
       ``(14) Broker disclosures in mutual fund transactions.--
       ``(A) In general.--Each broker shall disclose in writing to 
     each person that purchases the shares of an investment 
     company registered under section 8 of the Investment Company 
     Act of 1940 (15 U.S.C. 80a-8)--
       ``(i) the source and amount, in dollars and as a percentage 
     of assets, of any compensation received or to be received by 
     the broker in connection with such transaction from any 
     sources;
       ``(ii) the amount, in dollars and as a percentage of 
     assets, of compensation received in connection with 
     transactions in shares of other investment company shares 
     offered by the broker, if materially different from the 
     amount under (i);
       ``(iii) comparative information that shows the average 
     amount received by brokers in connection with comparable 
     transactions, as determined by the Commission; and
       ``(iv) such other information as the Commission determines 
     appropriate.
       ``(B) Revenue sharing.--The term `compensation' under 
     subparagraph (A) shall include any direct or indirect payment 
     made by an investment adviser (or any affiliate of an 
     investment adviser) to a broker or dealer for the purpose of 
     promoting the sales of securities of a registered investment 
     company.
       ``(C) Timing of disclosure.--The disclosures required under 
     subparagraph (A) shall be made to permit the person 
     purchasing the shares to evaluate such disclosures before 
     deciding to engage in the transaction.
       ``(D) Limitation.--The disclosures required under 
     subparagraph (A) may not be made exclusively in--
       ``(i) a registration statement or prospectus of a 
     registered investment company; or
       ``(ii) any other filing of a registered investment company 
     with the Commission.
       ``(E) Commission authority.--The Commission shall 
     promulgate such final rules as are necessary to carry out 
     this paragraph not later than 1 year after the date of 
     enactment of the Mutual Fund Transparency Act of 2005.''.
       (b) National Securities Association Requirements.--Section 
     15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) 
     is amended by adding at the end the following:
       ``(n) National Securities Association Requirements.--Each 
     national securities association registered pursuant to this 
     section shall issue such rules as necessary not later than 1 
     year after the date of enactment of the Mutual Fund 
     Transparency Act of 2005 to require that a broker that 
     provides individualized investment advice to a person shall--
       ``(1) have a fiduciary duty to that person;
       ``(2) act solely in the best interests of that person; and
       ``(3) fully disclose all potential conflicts of interest 
     and other information that is material to the relationship to 
     that person prior to the time that the investment advice is 
     first provided to the person and at least annually 
     thereafter.''.
  Mr. AKAKA. Mr. President, I ask unanimous consent that a letter in 
support of my legislation from Fund Democracy, the Consumer Federation 
of America, Consumer Action, and Consumers Union, as well as a letter 
of support from AARP, be printed in the Record.
  The PRESIDENT pro tempore. Without objection, it is so ordered.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
                                                     May 16, 2005.
     Hon. Daniel K. Akaka,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Akaka: We are writing to express our 
     enthusiastic support for your Mutual Fund Transparency Act of 
     2005. Your bill will benefit fund shareholders in three 
     significant respects. First, it will strengthen the 
     independence of fund board to help ensure that the gross 
     abuses of trust committed by fund managers in connection with 
     the recent mutual fund scandal will not be repeated. Second, 
     the bill will require that fund shareholders be provided with 
     full and understandable disclosure of brokers' fees and 
     conflicts of interest, and that when brokers provide 
     individualized investment advice they will be held to the 
     same fiduciary standards to which all other investment 
     advisers are held. Third, the bill will promote competition 
     through increased price transparency, and thereby improve 
     services and reduce costs for the almost 100 million 
     Americans who have entrusted their financial security to 
     mutual funds.


                            Fund Governance

       The mutual scandal that erupted in September 2003 and 
     continues to be litigated to this day revealed ``a serious 
     breakdown in management controls in more than just a few 
     mutual fund complexes.'' As noted by the Securities and 
     Exchange Commission:
       ``The breakdown in fund management and compliance controls 
     evidenced by our enforcement cases raises troubling questions 
     about the ability of many fund boards, as presently 
     constituted, to effectively oversee the management of funds. 
     The failure of a board to play its proper role can result, in 
     addition to serious compliance breakdowns, in excessive fees 
     and brokerage commissions, less than forthright disclosure, 
     mispricing of securities, and inferior investment 
     performance.''
       The Act directly addresses the governance weaknesses 
     revealed by the scandal by strengthening the independence of 
     fund directors. It plugs loopholes that have allowed former 
     executives of fund managers and other fund service 
     providers, among others, to qualify as ``independent'' 
     directors when their independence is clearly compromised 
     by their former positions. The Act also ensures that the 
     board's agenda will be set by an independent chairman, and 
     not by the CEO of the fund's manager, as is common 
     practice, and that independent directors will control 
     board matters and the evaluation of independent nominees. 
     The Act's requirement that independent directors seek 
     shareholder approval at least every 5 years will enhance 
     the accountability of independent directors to the 
     shareholders whose interests they are supposed to serve.
       Although the SEC recently adopted rules requiring 
     independent fund chairmen and a 75% independent board, these 
     rules will not prevent fund managers from terminating 
     independent chairmen or reducing independent representation 
     on the board to the statutory minimum of 40%. The SEC's rules 
     apply only when the funds choose to rely on certain exemptive 
     rules. If there is a conflict between the fund's independent 
     directors and the fund manager, the fund manager can simply 
     stop relying on the rules and seek to install its own 
     executives in a majority of board positions. This is 
     precisely what Don Yacktman did when the independent 
     directors of his funds opposed him, and it will undoubtedly 
     be repeated the next time that there is a similar 
     confrontation. More importantly, independent directors know 
     from the Yacktman experience that the protection given them 
     by the SEC is limited, and they therefore will be less likely 
     to stand up for shareholders than if--as you have proposed--
     the SEC's requirements were codified.


    Fiduciary Duties and Full Disclosure for All Investment Advisers

       Recent regulatory investigations and enforcement actions 
     have uncovered persistent and widespread sales abuses by 
     brokers. Regulators have found that brokers have 
     systematically overcharged investors for commissions, 
     routinely made improper recommendations of B shares, accepted 
     undisclosed directed brokerage payments in return for 
     distribution services, and received revenue sharing payments 
     that create incentives to favor funds that pay the highest 
     compensation rather than funds that are the best investment 
     option for their clients.
       Last fall, the Commission promised that it would address 
     the problems that have so long plagued brokers' sales 
     practices, but the Commission's efforts have fallen far short 
     of the mark. Its recent proposals fail to require full 
     disclosure of brokers' compensation,

[[Page S5224]]

     much less the disclosure of information that would enable 
     investors to fully evaluate their brokers' conflicts of 
     interests. The new disclosure requirements that you have 
     proposed will ensure that brokers' conflicts of interest will 
     be fully transparent to investors. Investors will be able to 
     view the amount the broker is being paid for the fund being 
     recommended compared with the (often lesser) amount the 
     broker would receive for selling a different fund, which 
     cannot help but direct investors' attention to the conflict 
     of interest created by differential compensation structures. 
     We especially applaud your proposal to ensure that all broker 
     compensation, including revenue sharing payments, is 
     disclosed in the point-of-sale document, which ensures that 
     disclosure rules will not create an incentive for brokers to 
     favor revenue sharing as a means of avoiding disclosure.
       Remarkably, in the wake of a longstanding pattern of 
     brokers' sales abuses, the Commission has recently repealed 
     Congress's narrow exemption from advisory regulation for 
     brokers who provide only ``solely incidental'' advice. The 
     Commission's strained interpretation of ``solely incidental'' 
     advice to include any advice provided ``in connection with 
     and reasonably related to a broker's brokerage services''\3\ 
     has effectively stripped advisory clients of the protections 
     of an entire statutory regime solely on the ground that the 
     investment advice happens to be provided by a broker. The 
     Commission's position flatly contradicts the text and purpose 
     of the Investment Advisers Act, which, as the Supreme Court 
     has stated: ``reflects a congressional recognition ``of `the 
     delicate fiduciary nature of an investment advisory 
     relationship,' as well as a congressional intent to 
     eliminate, or at least to expose, all conflicts of interest 
     which might incline an investment adviser--consciously or 
     unconsciously--to render advice which was not 
     disinterested.''
       Your proposal restores crucial components of Congress's 
     carefully constructed regulatory scheme for the distinct and 
     complementary regulation of brokerage and advisory services. 
     It properly recognizes that a ``fiduciary, which Congress 
     recognized the investment adviser to be,'' is also what 
     consumers expect an investment adviser to be, as is generally 
     the case when professional services are provided on a 
     personalized basis. The Act also recognizes the importance 
     of''expos[ing] all conflicts of interest which might incline 
     an investment adviser--consciously or unconsciously--to 
     render advice which was not disinterested'' by requiring full 
     disclosure of such conflicts of interests and other material 
     information at the time that the prospective client is 
     deciding whether to enter into the relationship.


                  Fee Disclosure and Price Competition

       Your fee disclosure provisions will do double duty, by 
     addressing conflicts of interest and brokers' sales abuses 
     while also promoting competition, thereby improving services 
     and driving down expenses. Requiring brokers to disclose the 
     amount of differential payments and average fees for 
     comparable transactions will provide the kind of price 
     transparency that is a necessary predicate for price 
     competition and the efficient operation of free markets. In 
     addition, the requirement that funds disclose the amount of 
     commissions they pay will ensure that the fund expense ratio 
     includes all of the costs of the fund's operations and enable 
     investors to make more informed investment decisions. The 
     best regulator of fees is the market, but the market cannot 
     operate efficiently when brokers and funds are permitted to 
     hide the actual cost of the services they provide.


               Financial Literacy and Fund Advertisements

       Finally, we strongly agree that there is a need to further 
     study of financial literacy, including especially information 
     that fund investors need to make informed investment 
     decisions and methods to increase the transparency of fees 
     and potential conflicts of interest. Your proposed study of 
     mutual fund advertisements is also timely, as the regulation 
     of fund ads continues to permit misleading touting of out 
     sized short-term performance and other abuses.
       Mutual funds are Americans' most important lifeline to 
     retirement security. The regulation of mutual funds, however, 
     has not kept pace with their enormous growth. We applaud your 
     continuing efforts to enhance investor protection, promote 
     vigorous market competition and create wealth for America's 
     mutual fund investors through effective disclosure and truly 
     independent board oversight.
           Respectfully submitted,
     Mercer Bullard,
       Founder and President, Fund Democracy, Inc.
     Barbara Roper,
       Director of Investor Protection, Consumer Federation of 
     America.
     Ken McEldowney,
       Executive Director, Consumer Action.
     Sally Greenberg,
       Senior Counsel, Consumers Union.
                                  ____

                                                             AARP,


                                                 E Street, NW,

                                     Washington, DC, May 13, 2005.
     Hon. Daniel K. Akaka,
     U.S. Senate, Hart Senate Office Building,
     Washington, DC.
       Dear Senator Akaka: AARP supports your continuing efforts 
     to expand investor awareness of mutual fund costs, to promote 
     fund competition by making those costs transparent and 
     comparable, and to improve the independent oversight and 
     governance functions of fund boards of directors. Building on 
     legislation that you introduced in November of 2003, which 
     AARP supported, we are also pleased to support the updated 
     and upgraded legislation that you are introducing today, the 
     ``Mutual Fund Transparency Act of 2005.''
       We believe that there exists a growing need for legislative 
     action that clarifies, reinforces, strengthens, and secures 
     the corrective rule-making efforts undertaken by the U.S. 
     Securities and Exchange Commission (SEC) that were--in part--
     stimulated by your earlier legislative proposal. We look 
     forward to working with you on these issues that are critical 
     to the economic security of millions of Americans--
     particularly those of or near retirement age. If you have any 
     questions, please do not hesitate to call me, or have your 
     staff call Roy Green of our Federal Affairs Department.
           Sincerely,
                                                    David Certner,
                                        Director, Federal Affairs.
                                 ______