Fund Democracy Insights

Resource Materials

June 2001

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The June 2001 issue of Fund Democracy Insights dissects the Oversight Plan for the House Financial Services Committee. A surprising number of topics on the Committee's agenda directly or indirectly relate to mutual funds. The June 2001 issue also explains why the SEC adopted its new fair-value pricing requirement and what it means for funds, and discusses the future of multimanager funds.

Table of Contents - June 2001

House Financial Services Committee's Mutual
Fund Reform Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The New Fair-Value Pricing Requirement . . . . . . . . . . . 6

New Spin on an Old Policy? . . . . . . . . . . . . . . . . . . . . . . 7

An Orthogonal Solution from the Ivory Tower . . . . . . 9

The Shotgun Is Coming Out of the Closet . . . . . . . . . 11

The End of Multimanager Exemptions? . . . . . . . . . . . .12

Are Existing Multimanager Exemptions Void? . . . . . . 13

Worth Reading on the Internet . . . . . . . . . . . . . . . . . . .14

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Links to resource materials (.pdf files require Adobe Acrobat for viewing):

House Financial Services Committee's Mutual Fund Reform Agenda

• Introduction
  • Oversight Plan for the House Financial Services Committee. 107th Congress (Feb. 2001)
  • Oversight Plan for the House Banking and Financial Services Committee, 106th Congress (Feb. 3, 1999)


• Item: New Economy Businesses and Incubator Funds
  • Definition of Investment Company, Section 3(a) of the Investment Company Act
  • In the Matter of Bill Gross' Idealab!, Notice of Exemptive Application, Investment Company Act Release No. 24642 (Sep. 15, 2000)
  • Idealab S-1 (Apr. 20, 2000)


• Item: Affiliated Transaction Rules and Gramm-Leach-Bliley
  • Section 17 of the Investment Company Act (generally prohibiting transactions between funds and their affiliates)
  • Section 10(f) of the Investment Company Act (prohibiting funds from purchasing IPOs from affiliated underwriting syndicates)
  • Rule 10f-3 under the Investment Company Act (permitting family of funds to purchase up to 25% of IPOs underwritten by affiliated syndicate)
  • Paul Roye, Maintaining the Pillars of Protection in a New Millennium, before the Investment Company Institute General Membership Meeting (May 21, 1999)(rejecting calls to dismantle affiliated transaction prohibitions)

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• Item: Private Social Security Accounts
  • Commissioner Paul Carey, Social Security Privatization, before the Women in Housing and Finance Conference (Jan. 31, 2001)
  • Chairman Arthur Levitt, The SEC Perspective on Investing Social Security in the Stock Market, at the John F. Kennedy School of Government Forum (Oct. 19, 1998)


• Item: IPO Allocations
  • In the Matter of the Dreyfus Corporation, Investment Company Act Release No. 24450 (May 10, 2000)


• Item: New Investment Products
  • Investment Company Institute Rulemaking Petition (Mar. 28, 2001)(asking SEC to find that folios are illegally unregistered investment companies)
  • Investment Company Institute Proposed Rule Regarding Folios (Mar. 28 ,2001)
  • Certain Broker-Dealers Deemed Not to Be Investment Advisers, Investment Advisers Act Release No. 1845 (Nov. 4, 1999) (proposing the "Merrill Rule," which would exempt brokerage programs charging asset-based fees from advisory regulation)


• Item: After-Tax Returns and Other Fund Disclosure Requirements
  • Disclosure of Mutual Fund After-Tax Returns, Investment Company Act Release No. 24832 (Jan. 18, 2001) (adopting after-tax returns disclosure rule)
  • The Mutual Fund Tax Awareness Act of 2000, H.R. 1089, 106th Congress (2000)(introduced by Congressman Paul Gillmor, passed by the House, as amended, on April 3, 2000, by a vote of 358 to 2, and referred to the Senate on April 4, 2000)
  • Partial Exclusion of Capital Gains Distributions From Regulated Investment Companies, H.R. 168 (introduced by Congressman Jim Saxton, referred to House Committee on Ways and Means on January 3, 2001)
  • Mercer Bullard, Industry Trying to Defang Law Disclosing the Tax Bite on Fund Returns, TheStreet.com (Feb. 8, 2001)
  • Paul Roye, Navigating the Mutual Fund Industry Through Challenging Times, before the Investment Company Institute General Membership Meeting, Washington, D.C. (May 18, 2001)(discussing significance of Saxton bill for after-tax disclosure)
  • Report on Mutual Fund Fees and Expenses, Division of Investment Management, SEC (Dec. 2000)(recommending that SEC consider requiring disclosure of dollar amount of fees paid by fund shareholders)
  • Additional Disclosure Could Encourage Price Competition, Government Accounting Office (June 2000)(.pdf file)
    

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• Item: Investment Company Act and ERISA
  • The 401(k) Full Disclosure Act, S. 1541, 106th Congress (1999) (introduced by Senator Tim Johnson, referred to Committee on August 5, 1999)
  • Mercer Bullard, 401(k) Plans Spread Information Gap Becomes More Glaring, TheStreet.com (May 27, 2000)


• Item: Insurance Products:
  • Variable Annuities: What You Should Know, SEC (Apr. 2001)
  • Paul Roye, Understanding the Securities Products of Insurance Companies, before the Practicing Law Institute (Jan. 9, 2001) (expressing skepticism regarding variable annuity bonus plans)

The New Fair-Value Pricing Requirement

• Letter from Douglas Scheidt, Chief Counsel and Associate Director, Division of Investment Management, SEC, to Craig Tyle General Counsel, Investment Company Institute (Apr. 30, 2001)
• Letter from Douglas Scheidt, Chief Counsel and Associate Director, Division of Investment Management, SEC, to Craig Tyle, General Counsel, Investment Company Institute (Dec. 8, 1999)
• Section 2(a)(41) of the Investment Company Act
• See, supra, Paul Roye, Navigating the Mutual Fund Industry
• Barry Barbash, Remembering the Past: Mutual Funds and the Lessons of the Wonder Years, before the Investment Company Institute Securities Law Procedures Conference, Washington, D.C. (Dec. 4, 1997)
• Mercer Bullard, SEC to Mutual Funds: Take Down Your Arbitrage Welcome Signs, TheStreet.com (May 2, 2001)
• Mercer Bullard SEC Finally Moves to Stop Arbs Who Prey on Foreign Funds, TheStreet.com (Feb. 6, 2001)
• Mercer Bullard, International Funds Still Sitting Ducks for Arbs, TheStreet.com (July 1, 2000)
• Mercer Bullard, Your International Fund May Have the "Arbs Welcome" Sign Out, TheStreet.com (June 10, 2000)
• Goetzmann, Ivkovich & Rouwenhorst, Day Trading International Mutual Funds: Evidence and Policy Solutions (Oct. 2000) (.pdf file)
• Fund Alarm Discussion Board, fundalarm.com

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New Spin on an Old Policy?

• See supra, Barbash.
• Registration Form Used by Open-End Management Investment Companies, Investment Company Act Release No. 23064 (Mar. 13, 1998)(adopting changes to mutual fund registration form and restating, in part II.A.6.b, long-standing staff position that a fund may (but is not required to) value portfolio securities traded on a foreign exchange using fair value, rather than the closing price of the securities on the exchange, when an event occurs after the close of the exchange that is likely to have changed the value of the securities)
• Pricing of Redeemable Securities for Distribution, Redemption, and Repurchase, Investment Company Act Release No. 14244 (Nov. 21, 1984) (abstract: suggesting that funds may be required to use fair values when events occurring after markets close may have affected a security's value)

An Orthogonal Solution from the Ivory Tower

• See, supra, Goetzmann (.pdf file)

The Shotgun Is Coming Out of the Closet

• Paul Roye, The Right and Wrong of Board Oversight, before the Investment Company Institute Investment Company Directors Conference (Nov. 14, 2000)(discussing fund directors' responsibilities and listing SEC enforcement actions against directors for pricing violations)
• See, supra, SEC April 2001 pricing letter
• See, supra, SEC December 1999 pricing letter

• Mercer Bullard, SEC May Hold Independent Directors Responsible for Heartland Debacle, TheStreet.com (Dec. 6, 2000)

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The End of Multimanager Exemptions?

• Fund Democracy Hearing Request (Mar. 5, 2001)(.pdf file)
• Fund Democracy Supporting Memorandum (Mar. 5, 2001)(.pdf file)
• Institutional Shareholder Services Hearing Request (Mar. 5, 2001)(.pdf file)
• Hillview Response to Hearing Requests (Mar. 7, 2001)(.pdf file)
• Fund Democracy Response to Hillview Response (Mar. 12, 2001)(.pdf file)
• In the Matter of Hillview Investment Trust, et al., Notice of Exemptive Application, Investment Company Act Release No. 24853 (Feb. 6, 2001)
• Hillview Funds Registration Statement (Alpha and International Alpha Funds) (Sep. 5, 2000)
• In the Matter of Frank Russell Investment Company, Notice of Exemptive Application, Investment Company Act Release No. 21108 (June 2, 1995)
• Mercer Bullard, A Voting Rights Issue that Hits Home for Investors, TheStreet.com (Feb. 13, 2001)
• Mercer Bullard, Voting Rights II: How Funds Raise Fees Without a Shareholder Vote, TheStreet.com (Feb. 15, 2001)

Are Existing Multimanager Exemptions Void?

• 17 CFR § 200.30-5(a)(2)(delegating authority to Division of Investment Management to grant exemption)

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Worth Reading on the Internet

• Eric M. Engen, Andreas Lehnert & Richard Kehoe, Mutual Funds and the U.S. Equity Market, Federal Reserve Bulletin (Dec. 2000) (analyzing the relationship between households’ investment decisions in equity mutual funds and equity market prices)(.pdf file)
• Investment Company Institute, Redemption Activity of Mutual Fund Owners, 10 Fundamentals 1 (Mar. 2001) (distinguishing redemption rates for mutual funds from actual holding periods for individual investors)(.pdf file)
• See, supra, Paul Roye, Navigating the Mutual Fund Industry
• The Taxation of Mutual Fund Investors: Performance, Saving and Investment, Joint Economic Committee, U.S. Congress (Apr. 2001) (arguing that the tax treatment of capital gains realized by mutual fund shareholders should be modified because current policy unfairly discriminates against investors seeking diversification through mutual funds rather than through direct ownership of stocks)(.pdf file)

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This page was last updated on May 26, 2001.