(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Oxley Wants Greater Transparency for Mutual Funds

Congress must carefully examine mutual funds and insist on integrity, transparency and accountability, according to House Financial Services Committee Chairman Michael G. Oxley, who spoke at a conference hosted by the Heritage Foundation and the New Millennium Research Council. The mutual fund investor "fights an uphill battle for real returns against the always-confusing array of sales commissions or loads, 12b-1 fees, and assorted management fees," said Mr. Oxley. In addition, he emphasized that mutual fund investors have to evaluate funds' after-tax performance and effect on their bottom lines. Extra charges and fees have added up to billions of dollars that go into investors' accounts every day, he noted, estimating the cumulative cost at $14 billion over the next 10 years.

Moreover, mutual fund companies spend billions of dollars for so-called "soft dollar arrangements" with brokerage firms to purchase outside research products, said the chairman. While legal, the arrangements "may be a disincentive for companies to demand the very best research and to pay the least for it," he added. Because soft dollar arrangements can be an annual commitment for a certain level of trading, they can obligate portfolio managers to trade, regardless of whether it is in the best interest of the shareholders, according to the senior House leader. The excessive trading might be a contributing factor to poor mutual fund performance and poor after-tax performance for the investing public, he contended.

Noting that mutual fund performance is below market averages, Chairman Oxley questioned the soft dollar arrangements and their effect on investors' returns. "It's an interesting subject the Financial Services Committee may very well explore this year," he said.

The SEC has proposed two rules to require increased transparency and additional disclosure in mutual fund investments. The first regulation would require the disclosure of votes cast on behalf of mutual fund shareholders as well as the policies and procedures for proxy voting (2002 CCH Dec. ¶86,728). "This is a common sense effort to restore investor confidence and in the spirit of the reforms mandated by the Sarbanes-Oxley Act last year," explained Mr. Oxley. The other proposal (¶86,811 ) calls on mutual funds to disclose holdings more often, giving consumers more current and valuable information on which to base their investment decisions, said the chairman, who added that he has asked the General Accounting Office to study current trends in mutual fund fees, disclosure and transparency. "We believe that greater attention to these details will benefit millions of American investors," he concluded.