investor brochures, and assisting in the development of high school and college courses relating to investing.

Disclosure. We have met with investors from throughout the country. So many of these hardworking, intelligent people are putting their hard earned money into funds as a way of saving for their children's college education or their own retirement. We are concerned that the expectations these people have about funds may be unrealistic and will not be met. That's why we've been pressing so hard for funds to use good, clear disclosure in their written documents and for sellers of fund shares to be guided by the highest ethical principles. Expectations are, after all, shaped by what investors read and are told.

New Entrants.-The fund industry has grown dramatically over the past 10 to 15 years. We are concerned, on behalf of fund shareholders, that new entrants to the business-like new entrants in any business-may not fully understand their obligations in managing fund assets and selling fund shares. A survey we saw recently of the CEO's of 1,300 domestic and foreign banks and thrifts, for instance, indicated that 25 percent of these institutions have no risk management process for the sale of mutual fund shares. Concerns over new entrants have caused us to focus more of our fund inspection unit's time and attention on those companies.

Compliance. Many have pointed to the extreme competition we are starting to see in the fund business. The competition may well lead to lower fund expenses, which would be most beneficial for shareholders. We are concerned, though, that costcutting could also mean cutbacks of important functions, particularly compliance. That would be a mistake and would hurt the fund business in the long run.

INVESTMENT ADVISERS

Question. As a result of the National Securities Markets Improvement Act, oversight for over 70 percent of all registered investment advisers will become the responsibility of the states. The SEC will now be responsible for the 8,000 investment advisers that manage portfolios over $25 million.

What impact will this division of responsibility have on the SEC?

Answer. We will be able to reduce our current examination cycle for the advisers who will be registered with the SEC to once every 4-5 years. In the past, examination cycles ranged from every 7-8 years for the largest advisers, to every 44 years for the smaller advisers. The advisers who will remain registered with the SEC and subject to this enhanced oversight manage approximately 95 percent of the industry's assets under management. In addition, we will be able to conduct "targeted inspections" which identify specific topics of regulatory interest (such as with the soft dollar project now underway) as well as continue our routine and cause inspections. In a targeted inspection, we obtain an understanding of how a practice or activity is performed, the types of problems or violative conduct that can arise and whether there is further need for regulatory consideration of the practice or activity.

Question. What responsibility will the SEC have to oversee the state run programs?

Answer. We will have no direct responsibility. Each state will be responsible for regulating those advisers within its borders that manage under $25 million. The SEC will not be responsible for overseeing the various state programs. The Improvement Act does, however, direct the SEC to make technical and other assistance available to the states. We have been active in this effort by developing training programs for state regulators, creating SEC internships, conducting joint examinations, and sharing information about examination techniques and about specific advisers that will be solely state-regulated.

Question. Does this policy change have any budget implications?

Answer. The changes to the Advisers Act were intended to affect the investment adviser program, and not to have a budget impact. This legislation has vastly improved our ability to examine and regulate the adviser population registered with the SEC. To prepare for the legislation, the Commission has reallocated eight existing staff positions to the Division of Investment Management to form a task force to update the Commission's adviser rules. In addition, $20 million was authorized by the Improvement Act for 1997.

ELECTRONIC DATA GATHERING ANALYSIS AND RETRIEVAL (EDGAR] SYSTEM

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Question. The current EDGAR contract expired in January 1997. You've stated in your written testimony that EDGAR is 10 year olu technology and the Improvement Act asked SEC to look into the possibility of privatizing EDGAR by April 9, 1997. What is the status of the EDGAR recompetition?

Answer. The SEC is currently evaluating proposals received in response to Phase 1 of the solicitation. We are also preparing the report to the Congress that will address the issue of the modernization of EDGAR through privatization.

It is anticipated that once the Congress has provided its guidance on privatization, the SEC will issue Phase 2 of the solicitation and will award a new contract following proposal receipt and final evaluations.

Question. Are there funds requested in the President's 1998 budget for the SEC to update EDGAR?

Answer. The 1998 budget request has carried forward the 1997 level of $8 million for the maintenance of EDGAR operations. This funding level is not sufficient to carry out an EDGAR modernization program.

SUBCOMMITTEE RECESS

Senator GREGG. Thank you. Thanks for your time. The hearing is concluded.

[Whereupon, at 2:28 p.m., Wednesday, March 19, the subcommittee was recessed, to reconvene at 2 p.m., Thursday, March 20.]

DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

THURSDAY, MARCH 20, 1997

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 2 p.m., in room S-146, the Capitol, Hon. Judd Gregg (chairman) presiding.

Present: Senators Gregg, Domenici, Hollings, and Lautenberg.

UNITED NATIONS

STATEMENT OF AMBASSADOR BILL RICHARDSON, U.S. PERMANENT REPRESENTATIVE TO THE UNITED NATIONS

ACCOMPANIED BY PRINCETON N. LYMAN, ASSISTANT SECRETARY FOR THE BUREAU OF INTERNATIONAL ORGANIZATION AFFAIRS

OPENING REMARKS

Senator GREGG. We will start the hearing. I know there are other Members of the Senate that are going to be joining us, but I do not want to hold the Ambassador up. Here is the ranking member right now.

Basically we very much appreciate the Ambassador coming by. I would just say, as a bit of an opening statement, that we have been working with the Ambassador and with the Secretary of State on the issue of arrearages. We have a working group functioning that has been aggressively trying to resolve the problem.

I hope that by the middle of April we will have some sort of an agreed-to position between the Congress and the administration on how to address the arrearages question; how much we will pay; and the manner of the payments and the conditions of the payments.

I personally do not intend to spend any time or any significant time on that issue, although it is deemed to be the most controversial. There is so much going on in the way of trying to resolve it, that I do not think it is necessary to spend a lot of time on it, in my viewpoint.

However, there are other issues, obviously, which involve the United Nations and we appreciate the Ambassador coming today. I would yield to the ranking member for any comments that he might have.

Senator HOLLINGS. Thank you, Mr. Chairman. Just the reality, Mr. Ambassador, of what we face. A couple of years ago we answered up to our responsibilities and Congress took care of the arrearages. We appropriated over $1 billion.

Twofold: now that you've come back, one question, what did we get for the $1 billion. No reforms, really. Second question is that unless you get this money in a supplemental, in this Senator's judgment, you're going to have a tough time.

You've got drives and moves on foot to cut back period or to eliminate, like the Department of Commerce. This is State, Justice, and Commerce. And when we get into the final conference and all which you have experienced yourself, they say, wait a minute, why are we so bothered about arrearages and paying that bill when we don't even pay our own bills here in the United States.

And the flexibility of trying to get a conference report, and the bill passed, falls right on that particular U.N. amount.

And we go out on the floor, Senator Kassebaum, on two occasions. Once she got 17 votes, I think, and another time, 21. So we tried. We're not acting in opposition. It's a real problem. Suggestion: please put the pressure on in that supplemental where we can get it done and not put it in the overall budget.

Thank you, Mr. Chairman.

Senator GREGG. OK. We'll be happy to get your thoughts, Mr. Ambassador, in any manner in which you wish to express them.

OPENING STATEMENT OF AMBASSADOR RICHARDSON

Ambassador RICHARDSON. Well, first of all, Mr. Chairman, and members of the subcommittee, let me just say it's good to be back home in the Congress. I've been away 1 month, and this is a very challenging job, as U.N. Ambassador.

U.N. ARREARS

As the chairman mentioned, in the executive branch we're undergoing a process of negotiating with the congressional leadership, the appropriators, the authorizers, on a package, as the chairman mentioned, that involves the arrearages issue, and subsequent reforms.

And our hope is that we can come up with an agreement, hopefully, within 30 days.

I would only want to make one point, and not go into an opening statement, because I think it's more relevant to answer your questions, plus, as my colleagues may know, I am faced with a potential Middle East resolution in the National Security Council, and if possible I'd like to go back once I'm adequately finished here.

U.N. REFORM

The only point I would like to make to the members of the subcommittee is that we do have a Secretary General that is reform minded, that has taken the lead on reforms. And, I know, Senator Hollings, you've expressed some disappointment with those reforms, but I do think that what Annan has put forth, and some reforms that our Government has pushed in the last 2 years under

Secretary Albright, have resulted in a leaner, meaner United Nations.

Let me just go through very briefly these reforms that Secretary General Annan announced on Monday which I think are significant and should be the basis of negotiations along with the Senate, the House, and the administration.

No. 1, the United Nations has a negative nominal growth budget, the budget cap. This is historic. It's $2.608 billion. They've stuck to it. We think in the next biennium, which is 2 years from now, there will also be a budget cap.

One thousand posts were eliminated. Now, these are jobs which will not be filled again. Secretary Annan will go to the General Assembly and try to get these posts eliminated so that they can never be replaced.

No. 2, a 13-percent reduction of administrative costs, from 38 percent to 25 percent by the year 2001, with the annual savings directed to substantive programming.

No. 3, 25 percent reduction in U.Ñ. documents and paperwork by December 1998.

No. 4, the establishment of a code of conduct, and I know this is very important to Members of the Senate. This is basically a code of conduct for U.N. employees involving financial disclosure, all types of employee behavior, perks that would be eliminated which is considered significant.

No. 5, the merging of three separate development departments into one. This will improve the accounting. This will consolidate three departments of the United Nations on economic issues into one. The merging of the Conference Services Division, General Assembly Affairs Division, another effort at consolidation.

Restructuring the Department of Public Information, country level coordination of U.N. programs, centralized management system, coupled also with other reforms that we stand behind, such as, besides the budget cap, a stronger oversight inspector general operation with the United Nations-the OIOS. Inspector general services, investigation oversight services, which goes in, roots waste out.

They recently did, in the Rwanda war crimes tribunal, three individuals were dismissed because of mismanagement. This is an operation that we want to see have more teeth and that we're strongly supporting.

In addition to that, there are initiatives that deal with, as I mentioned, consolidations, having departments at the United Nations run more efficiently, the merging of other economic and social council agencies.

PEACEKEEPING

I would also like to mention peacekeeping, which I know has been a big issue in the Congress and in this committee with many of you taking leadership roles in peacekeeping operations. We have reduced our role in peacekeeping.

We have right now about $280 million in our cost of peacekeeping this is the U.S. contribution. In the mid-1990's, it was up to $1 billion. Instead of there being 75,000 peacekeepers, there are 25,000 right now in the whole U.N. system.