[16776]
November 18, 2003
TO: BOARD OF GOVERNORS No. 62-03
CEOS
ACCOUNTING/TREASURERS COMMITTEE No. 36-03
BROKER/DEALER ADVISORY COMMITTEE No. 32-03
COMPLIANCE ADVISORY COMMITTEE No. 100-03
FEDERAL LEGISLATION MEMBERS No. 23-03
INVESTMENT COMPANY DIRECTORS No. 18-03
OPERATIONS COMMITTEE No. 24-03
PENSION COMMITTEE No. 44-03
PRIMARY CONTACTS - MEMBER COMPLEX No. 101-03
PUBLIC INFORMATION COMMITTEE No. 39-03
SEC RULES COMMITTEE No. 92-03
TAX COMMITTEE No. 74-03
TRANSFER AGENT ADVISORY COMMITTEE No. 103-03
RE: HOUSE OF REPRESENTATIVES TO CONSIDER MUTUAL FUND LEGISLATION ON
NOVEMBER 19
On Wednesday, November 19, the House of Representatives is scheduled to consider
H.R. 2420, the Mutual Funds Integrity and Fee Transparency Act of 2003. The bill—approved
by the House Financial Services Committee in July1—addresses a number of issues including
the disclosure of fund costs and practices and the structure and duties of fund boards. The
Institute has endorsed the bill as approved by the committee.
During floor consideration, a manager’s amendment will be introduced to add
provisions to H.R. 2420 that would:
• prohibit fraudulent trading of fund shares by fund personnel;
• require funds to adopt a code of ethics;
• require a chief compliance officer who reports to the independent
directors;
• require independent directors to certify that they have reviewed and
approved the portfolio manager’s compensation and that procedures
are in place for verifying net asset value, overseeing fund flows,
1 See Institute Memorandum [16346], dated July 25, 2003.
2
ensuring that investors receive breakpoint discounts, ensuring that
share classes are designed in the interests of investors, preventing
improper disclosure of portfolio holdings, and confirming compliance
with securities laws and codes of ethics;
• prohibit an individual from managing both a mutual fund and a hedge
fund;
• prohibit fund personnel from engaging in short-term trading of their
own funds, with certain exceptions;
• permit funds to charge redemption fees in excess of 2 percent for short-
term trading;
• require the SEC to prescribe standards concerning the use of fair value
methods for determining net asset value; and
• require the SEC to issue rules to prevent late trading that allow for the
after-hours execution of trades collected by intermediaries if certain
conditions are met.
H.R. 2420 will be considered under suspension of the rules, an expedited process that
requires a two-thirds majority for approval. We will keep you informed of further
developments.
Matthew P. Fink
President