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October 19, 2006

Soft Dollar Transparency Bill Expected

By Gregory Bresiger

If Democrats recapture control of Congress next month, chances for new legislative restrictions on the use of soft dollars will increase.

That's what a spokesman for Sen. Daniel Kahikina Akaka (D-Hawaii) told Traders Magazine.

"We know our bill on fund transparency and soft dollars is dead for this session, but it will be re-introduced in January in the new session," said Matt Pippin, press officer for the senator. He added that, if the Democrats regain control of Congress, the bill's "prospects will be much better. But it will be re-introduced either way."

Akaka, sponsor of the Mutual Fund Transparency Act of 2005 (S-1037), wants a law stipulating that investment companies disclose the dollar amount and the percentage of assets of all brokerage commissions. These figures must be stated in the fund's expense fund tables, according to the bill.

Today, brokerage costs are not included in the fund expense ratio. Soft dollar critics have contended this encourages funds to be wasteful.

"The inclusion of brokerage commissions in the expense ratio," Akaka said in a prepared statement, "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 in the expense ratio."

The senator's spokesman said the re-introduced bill would not contain a provision to abolish soft dollars. Several members of Congress unsuccessfully attempted to kill soft dollars a few years ago. Nevertheless, in his statement, Akaka still raised the possibility of doing away with soft dollars.

"This is a recommendation that needs to be further examined," the senator said.

The SEC, in recent guidance on soft dollars, restricted their use. But it recognized that they can, under limited circumstances, help the investor obtain independent research. (See Traders Magazine, September)