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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1971 Introduced in Senate (IS)]

108th CONGRESS
  1st Session
                                S. 1971

To improve transparency relating to the fees and costs that mutual fund 
  investors incur and to improve corporate governance of mutual funds.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                           November 25, 2003

 Mr. Corzine (for himself, Mr. Dodd, and Mr. Lieberman) introduced the 
 following bill; which was read twice and referred to the Committee on 
                  Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL

 
To improve transparency relating to the fees and costs that mutual fund 
  investors incur and to improve corporate governance of mutual funds.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Mutual Fund 
Investor Confidence Restoration Act of 2003''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
  TITLE I--ENHANCING COST, FEE, AND OTHER DISCLOSURES TO SHAREHOLDERS

Sec. 101. Improved transparency of mutual fund costs.
Sec. 102. Obligations regarding certain distribution and soft dollar 
                            arrangements.
Sec. 103. Definition of no-load mutual fund.
Sec. 104. Disclosure of incentive compensation and mutual fund sales.
                    TITLE II--MUTUAL FUND GOVERNANCE

Sec. 201. Independent mutual fund boards.
Sec. 202. Audit committee requirements for investment companies.
Sec. 203. Informing directors of significant deficiencies.
Sec. 204. Certification by chairman and chief compliance officer.
          TITLE III--PREVENTING ABUSIVE MUTUAL FUND PRACTICES

Sec. 301. Prevention of fraud; internal compliance and control 
                            procedures.
Sec. 302. Ban on joint management of mutual funds and hedge funds.
Sec. 303. Restrictions on short term trading and mandatory redemption 
                            fees.
Sec. 304. Elimination of stale prices.
Sec. 305. Formal policies and procedures related to market timing.
Sec. 306. Prevention of late trades.
Sec. 307. Disclosure of insider transactions.
         TITLE IV--STRENGTHENING MUTUAL FUND INDUSTRY OVERSIGHT

Sec. 401. Study of Mutual Fund Oversight Board.
Sec. 402. Study of coordination of enforcement efforts.
Sec. 403. Review of Commission resources.
Sec. 404. Commission study and report regulating soft dollar 
                            arrangements.
Sec. 405. Report on adequacy of regulatory response to late trading and 
                            market timing.
Sec. 406. Study of arbitration claims.
                TITLE V--PROMOTING SHAREHOLDER LITERACY

Sec. 501. Financial literacy among mutual fund investors study.

  TITLE I--ENHANCING COST, FEE, AND OTHER DISCLOSURES TO SHAREHOLDERS

SEC. 101. IMPROVED TRANSPARENCY OF MUTUAL FUND COSTS.

    (a) Regulation Revision Required.--
            (1) In general.--Not later than 180 days after the date of 
        enactment of this Act, the Securities and Exchange Commission 
        shall revise regulations under the Securities Act of 1933, the 
        Securities Exchange Act of 1934, or the Investment Company Act 
        of 1940, or any combination thereof, to require, consistent 
        with the protection of investors and the public interest, 
        improved disclosure with respect to an open-end management 
        investment company, in the quarterly statement or other 
        periodic report to shareholders or other appropriate disclosure 
        document, of--
                    (A) the actual dollar amount, borne by each 
                shareholder, of the expenses of the company;
                    (B) the structure of, method used to determine, and 
                the total amount of the compensation of individuals 
                employed by the investment adviser of the company to 
                manage the portfolio of the company, and the ownership 
                interest of such individuals in the securities of the 
                company, including when such individuals have no 
                ownership interest in the company;
                    (C) whether the chairman of the board of directors 
                of the open-end management investment company or any 
                directors of the investment adviser of such company 
                employed to manage the portfolio of the company do not 
                own any securities of the company;
                    (D) the estimated total annual dollar amount of 
                fees, costs, expenses, taxes, and any other payments 
                made by the company for any purpose, excluding only pro 
                rata distributions to shareholders, and set forth in a 
                manner that facilitates comparison among different 
                companies;
                    (E) information concerning the company's policies 
                and practices with respect to the payment of 
                commissions for effecting securities transactions to a 
                member of an exchange, broker, or dealer who--
                            (i) furnishes advice, either directly or 
                        through publications or writings, as to the 
                        value of securities, the advisability of 
                        investing in, purchasing, or selling 
                        securities, and the availability of securities 
                        or purchasers or sellers of securities;
                            (ii) furnishes analyses and reports 
                        concerning issuers, industries, securities, 
                        economic factors and trends, portfolio 
                        strategy, and the performance of accounts; or
                            (iii) facilitates the sale and distribution 
                        of the company's shares;
                    (F) information concerning payments by any person 
                other than the company that are intended to facilitate 
                the sale and distribution of the company's shares; and
                    (G) information concerning discounts on front-end 
                sales loads for which investors may be eligible, 
                including the minimum purchase amounts required for 
                such discounts.
            (2) Rules and regulations.--
                    (A) Other management and service-related cost.--Not 
                later than 180 days after the date of enactment of this 
                Act, the Securities and Exchange Commission shall issue 
                rules or regulations defining ``fees, costs, expenses, 
                taxes, and any other payments made by the company'' for 
                purposes of paragraph (1)(D). Such definition shall 
                include any management fees, transfer agency expenses, 
                custodial fees, shareholder servicing fees, portfolio 
                transaction costs (including commissions, market 
                impact, spread, and opportunity costs, fees charged 
                under a plan adopted pursuant to rule 12b-1 of the 
                rules of the Securities and Exchange Commission (17 
                C.F.R. 270.12b-1), and other distribution expenses, 
                directors' fees, and registration fees.
                    (B) Manner that facilitates comparison among 
                investment companies.--
                            (i) In general.--Not later than 180 days 
                        after the date of enactment of this Act, the 
                        Securities and Exchange Commission shall issue 
                        rules or regulations defining ``manner that 
                        facilitates comparison amount investment 
                        companies'' for purposes of paragraph (1)(D). 
                        Such definition shall include definitions of 
                        functional categories of fees, costs, expenses, 
                        taxes, and other payments disclosed under 
                        paragraph (1)(D) that shall not be based on the 
                        contract under which or with whom the services 
                        are provided, and shall instead be based on the 
                        nature of the services provided.
                            (ii) Display.--Each category of costs under 
                        clause (i) shall be presented in a graphical 
                        display (such as a bar or pie chart) that shows 
                        each category as a percentage of the total 
                        dollar amount under paragraph (1)(D).
                    (C) Certification.--Not later than 90 days after 
                the date of enactment of this Act, the Securities and 
                Exchange Commission shall issue rules or regulations 
                requiring the independent audit of the estimate 
                required under paragraph (1)(D) and certification by 
                the investment adviser and the chairman of the board of 
                directors of the open-end investment company.
    (b) Appropriate Disclosure Document.--
            (1) In general.--For purposes of subsection (a)(1), a 
        disclosure shall not be considered to be made in an appropriate 
        disclosure document if the disclosure is made exclusively in a 
        prospectus or statement of additional information, or both such 
        documents.
            (2) Exceptions.--Notwithstanding paragraph (1), the 
        disclosures required by paragraph (1)(B), (C), and (E) of 
        subsection (a) may be considered to be made in an appropriate 
        disclosure document if the disclosure is made exclusively in a 
        prospectus or statement of additional information, or both such 
        documents.

SEC. 102. OBLIGATIONS REGARDING CERTAIN DISTRIBUTION AND SOFT DOLLAR 
              ARRANGEMENTS.

    Section 15 of the Investment Company Act of 1940 (15 U.S.C. 80a-15) 
is amended by adding at the end the following:
    ``(g) Obligations Regarding Certain Distribution and Soft Dollar 
Arrangements.--
            ``(1) Reporting requirements.--Each investment adviser to a 
        registered investment company shall, not less frequently than 
        annually, submit to the board of directors of the company a 
        report on--
                    ``(A) payments during the reporting period by the 
                adviser (or an affiliated person of the adviser) that 
                were directly or indirectly made for the purpose of 
                promoting the sale of shares of the investment company 
                (referred to in paragraph (2) as a `revenue sharing 
                arrangement');
                    ``(B) services to the company provided or paid for 
                by a broker or dealer or an affiliated person of the 
                broker or dealer (other than brokerage and research 
                services) in exchange for the direction of brokerage to 
                the broker or dealer (referred to in paragraph (2) as a 
                `directed brokerage arrangement'); and
                    ``(C) research services obtained by the adviser (or 
                an affiliated person of the adviser) during the 
                reporting period from a broker or dealer, the receipt 
                of which may reasonably be attributed to securities 
                transactions effected on behalf of the company or any 
                other company that is a member of the same group of 
                investment companies (referred to in paragraph (2) as a 
                `soft dollar arrangement').
            ``(2) Fiduciary duty of board of directors.--The board of 
        directors of a registered investment company shall have a 
        fiduciary duty--
                    ``(A) to review the investment adviser's direction 
                of the company's brokerage transactions, including 
                directed brokerage arrangements and soft dollar 
                arrangements, and that the direction of such brokerage 
                adheres to the Fund's stated policies and is in the 
                best interests of the shareholders of the company; and
                    ``(B) to review any revenue sharing arrangements to 
                ensure compliance with this Act and the rules adopted 
                thereunder, and that such revenue sharing arrangements 
                adheres to the Fund's stated policies and are in the 
                best interests of the shareholders of the company.
            ``(3) Summaries of reports in annual reports to 
        shareholders.--In accordance with regulations prescribed by the 
        Commission under paragraph (4), annual reports to shareholders 
        of a registered investment company shall include a summary of 
        the most recent report submitted to the board of directors 
        under paragraph (1).
            ``(4) Regulations.--The Commission shall adopt rules and 
        regulations implementing this section, which rules and 
        regulations shall, among other things, prescribe the content of 
        the required reports.
            ``(5) Definition.--For purposes of this subsection--
                    ``(A) the term `brokerage and research services' 
                has the same meaning as in section 28(e)(3) of the 
                Securities Exchange Act of 1934; and
                    ``(B) the term `research services' means the 
                services described in subparagraphs (A) and (B) of such 
                section.''.

SEC. 103. DEFINITION OF NO-LOAD MUTUAL FUND.

    Not later than 180 days after the date of enactment of this Act, 
the Securities and Exchange Commission shall, by rule adopted by the 
Commission or a self-regulatory organization (or both)--
            (1) clarify the definition of ``no-load'' as such term is 
        used by investment companies that impose any fee under a plan 
adopted pursuant to rule 12b-1 of the rules of the Securities and 
Exchange Commission (17 C.F.R. 270.12b-1); and
            (2) require disclosure to prevent investors from being 
        misled by the use of such terminology by the company or its 
        adviser or principal underwriter.

SEC. 104. DISCLOSURE OF INCENTIVE COMPENSATION AND MUTUAL FUND SALES.

    (a) In General.--Section 15(b) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o(b)) is amended by adding at the end the following:
            ``(11) Confirmation of transactions for mutual funds.--
                    ``(A) In general.--Each broker shall disclose in 
                writing to customers that purchase the shares of an 
                open-end company registered under section 8 of the 
                Investment Company Act of 1940 (15 U.S.C. 80a-8)--
                            ``(i) the amount of any compensation 
                        received or to be received by the broker in 
                        connection with such transaction from any 
                        sources, including--
                                    ``(I) the amount and source of 
                                sales fees, payments by persons other 
                                than the investment company that are 
                                intended to facilitate the sale and 
                                distribution of the securities, and 
                                commissions for effecting portfolio 
                                securities transactions, or other 
                                payments, paid to such broker or 
                                dealer, or municipal securities broker 
                                or dealer, or associated person thereof 
                                in connection with such sale;
                                    ``(II) any commission or other fees 
                                or charges the investor has paid or 
                                will or might be subject to, including 
                                as a result of purchases or 
                                redemptions;
                                    ``(III) any conflicts of interest 
                                that any associated person of the 
                                broker, dealer, or municipal securities 
                                broker or dealer of the investor may 
                                face due to the receipt of differential 
                                compensation in connection with such 
                                sale; and
                                    ``(IV) information about the 
                                estimated amount of any asset-based 
                                distribution expenses incurred, or to 
                                be incurred, by the investment company 
                                in connection with the purchase of 
                                securities by the investor; and
                            ``(ii) such other information as the 
                        Commission determines appropriate.
                    ``(B) Timing of disclosure.--The disclosure 
                required under subparagraph (A) shall be made to a 
                customer not later than as of the date of the 
                completion of the transaction.
                    ``(C) Limitation.--The disclosures required under 
                subparagraph (A) may not be made exclusively in--
                            ``(i) a registration statement or 
                        prospectus of an open-end company; or
                            ``(ii) any other filing of an open-end 
                        company with the Commission.
                    ``(D) Commission authority.--Not later than 1 year 
                after the date of enactment of the Mutual Fund Investor 
                Confidence Restoration Act of 2003, the Commission 
                shall, by rule, establish, to the extent practicable, 
                standards for the disclosures required under 
                subparagraph (A).
                    ``(E) Definition of open-end company.--In this 
                paragraph, the term `open-end company' has the same 
                meaning as in section 5 of the Investment Company Act 
                of 1940 (15 U.S.C. 80a-5).
                    ``(F) Definitions of differential compensation and 
                municipal fund security.--
                            ``(i) Differential compensation.--In this 
                        paragraph, an associated person of a broker or 
                        dealer shall be considered to receive 
                        differential compensation if such person 
                        receives any increased or additional 
                        remuneration, in whatever form--
                                    ``(I) for sales of the securities 
                                of an investment company or municipal 
                                fund security that is affiliated with, 
                                or otherwise specifically designated 
                                by, such broker or dealer or municipal 
                                securities broker or dealer, as 
                                compared with the remuneration for 
                                sales of securities of an investment 
                                company or municipal fund security 
                                offered by such broker or dealer or 
                                municipal securities broker or dealer 
                                that are not so affiliated or 
                                designated; or
                                    ``(II) for the sale of any class of 
                                securities of an investment company or 
                                municipal fund security as compared 
                                with the remuneration for the sale of a 
                                class of securities of such investment 
                                company or municipal fund security 
                                (offered by such broker or dealer or 
                                municipal securities broker or dealer) 
                                that charges a sales load (as defined 
                                in section 2(a)(35) of the Investment 
                                Company Act of 1940 (15 U.S.C. 80a-
                                2(a)(35)) only at the time of such a 
                                sale.
                            ``(ii) Municipal fund security.--In this 
                        paragraph, a municipal fund security is any 
                        municipal security issued by an issuer that, 
                        but for the application of section 2(b) of the 
                        Investment Company Act of 1940 (15 U.S.C. 80a-
                        2(b)), would constitute an investment company 
                        within the meaning of section 3 of the 
                        Investment Company Act of 1940 (15 U.S.C. 80a-
                        3).''.

                    TITLE II--MUTUAL FUND GOVERNANCE

SEC. 201. INDEPENDENT MUTUAL FUND BOARDS.

    (a) Director Independence.--
            (1) In general.--Section 10(a) of the Investment Company 
        Act of 1940 (15 U.S.C. 80a-10(a)) is amended--
                    (A) by striking ``more than 60 per centum'' and 
                inserting ``more than 25 percent''; and
                    (B) by striking the period at the end and inserting 
                ``, and such company shall not have as a member of its 
                board of directors any person--
            ``(1) who has served without being approved or elected by 
        the shareholders of such registered investment company at least 
        once every 5 years; and
            ``(2) unless such director is an interested person or has 
        been found, on an annual basis, by a majority of the directors 
        who are not interested persons, after reasonable inquiry by 
        such directors, not to have any material business or familial 
        relationship with the registered investment company, a 
        significant service provider to the company, or any entity 
        controlling, controlled by, or under common control with such 
        service provider, that is likely to impair the independence of 
        the director.''.
            (2) Chairman; financial expert; independent committee.--
        Section 10 of the Investment Company Act of 1940 (15 U.S.C. 
        80a-10) is amended by adding at the end the following:
    ``(i) Chairman.--No registered investment company shall have as 
chairman of its board of directors an interested person of such 
registered company.
    ``(j) Independent Committee.--
            ``(1) In general.--The members of the board of directors of 
        a registered investment company who are not interested persons 
        of such registered investment company shall establish a 
        committee comprised solely of such members, which committee 
        shall be responsible for--
                    ``(A) selecting persons to be nominated for 
                election to the board of directors; and
                    ``(B) adopting qualification standards for the 
                nomination of directors.
            ``(2) Disclosure.--The standards developed under paragraph 
        (1)(B) shall be disclosed in the registration statement of the 
        registered investment company.
    ``(k) Financial Expert.--
            ``(1) In general.--Each registered investment company shall 
        have as a member of its board of directors not less than 1 
        member who is a financial expert, as such term is defined by 
        the Commission.
            ``(2) Rules defining financial expert.--In defining the 
        term `financial expert' for purposes of paragraph (1), the 
        Commission shall consider whether a person has, through 
        education and experience as a public accountant or auditor or 
        principal financial officer, comptroller, or principal 
        accounting officer of a registered investment company, or from 
        a position involving the performance of similar functions--
                    ``(A) an understanding of generally accepted 
                accounting principles and financial statements; and
                    ``(B) experience in the preparation or auditing of 
                financial statements of general comparable registered 
                investment companies.
            ``(3) Deadline for rulemaking.--Not later than 180 days 
        after the date of enactment of the Mutual Fund Investor 
        Confidence Restoration Act of 2003, the Commission shall issue 
        rules under paragraph (2).''.
    (c) Definition of Interested Person.--Section 2(a)(19) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)) is amended--
            (1) in subparagraph (A)--
                    (A) in clause (iv), by striking ``two'' and 
                inserting ``5''; and
                    (B) by striking clause (vii) and inserting the 
                following:
                            ``(vii) any natural person who has served 
                        as an officer or director, or as an employee 
                        within the preceding 10 fiscal years, of an 
                        investment adviser or principal underwriter to 
                        such registered investment company, or of any 
                        entity controlling, controlled by, or under 
                        common control with such investment adviser or 
                        principal underwriter;
                            ``(viii) any natural person who has served 
                        as an officer or director, or as an employee 
                        within the preceding 10 fiscal years, of any 
                        entity that has within the preceding 5 fiscal 
                        years acted as a significant service provider 
                        to such registered investment company, or of 
                        any entity controlling, controlled by, or under 
                        the common control with such service provider; 
                        or
                            ``(ix) any natural person who is a member 
                        of a class of persons that the Commission, by 
                        rule or regulation, determines is unlikely to 
                        exercise an appropriate degree of independence 
                        as a result of--
                                    ``(I) a material business 
                                relationship with the investment 
                                company or an affiliated person of such 
                                investment company;
                                    ``(II) a close familial 
                                relationship with any natural person 
                                who is an affiliated person of such 
                                investment company; or
                                    ``(III) any other reason determined 
                                by the Commission.''; and
            (2) in subparagraph (B)--
                    (A) in clause (iv), by striking ``two'' and 
                inserting ``5''; and
                    (B) by striking clause (vii) and inserting the 
                following:
                            ``(vii) any natural person who is a member 
                        of a class of persons that the Commission, by 
                        rule or regulation, determines is unlikely to 
                        exercise an appropriate degree of independence 
                        as a result of--
                                    ``(I) a material business 
                                relationship with such investment 
                                adviser or principal underwriter or 
                                affiliated person of such investment 
                                adviser or principal underwriter;
                                    ``(II) a close familial 
                                relationship with any natural person 
                                who is an affiliated person of such 
                                investment adviser or principal 
                                underwriter; or
                                    ``(III) any other reason as 
                                determined by the Commission.''.
    (d) Definition of Significant Service Provider.--Section 2(a) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)) is amended by 
adding at the end the following:
            ``(53) Significant service provider.--
                    ``(A) In general.--Not later than 180 days after 
                the date of enactment of the Mutual Fund Investor 
                Confidence Restoration Act of 2003, the Securities and 
                Exchange Commission shall issue final rules defining 
                the term `significant service provider'.
                    ``(B) Requirements.--The definition developed under 
                paragraph (1) shall include, at a minimum, the 
                investment adviser and principal underwriter of a 
                registered investment company for purposes of paragraph 
                (19).''.

SEC. 202. AUDIT COMMITTEE REQUIREMENTS FOR INVESTMENT COMPANIES.

    (a) Amendments.--Section 32 of the Investment Company Act of 1940 
(15 U.S.C. 80a-31) is amended--
            (1) in subsection (a)--
                    (A) by striking paragraphs (1) and (2) and 
                inserting the following:
            ``(1) such accountant shall have been selected at a meeting 
        held within 30 days before or after the beginning of the fiscal 
        year or before the annual meeting of stockholders in that year 
        by the vote, cast in person, of a majority of the members of 
        the audit committee of such registered company;
            ``(2) such selection shall have been submitted for 
        ratification or rejection at the next succeeding annual meeting 
        of stockholders if such meeting be held, except that any 
        vacancy occurring between annual meetings, due to the death or 
        resignation of the accountant, may be filled by the vote of a 
        majority of the members of the audit committee of such 
        registered company, cast in person at a meeting called for the 
        purpose of voting on such action;''; and
                    (B) by adding at the end the following new 
                sentence: ``The Commission, by rule, regulation, or 
                order, may exempt a registered management company or 
                registered face-amount certificate company subject to 
                this subsection from the requirement in paragraph (1) 
                that the votes by the members of the audit committee be 
                cast at a meeting in person when such a requirement is 
                impracticable, subject to such conditions as the 
                Commission may require.''; and
            (2) by adding at the end the following:
    ``(d) Audit Committee Requirements.--
            ``(1) Requirements as prerequisite to filing financial 
        statements.--Any registered management company or registered 
        face-amount certificate company that files with the Commission 
        any financial statement signed or certified by an independent 
        public accountant shall comply with the requirements of 
        paragraphs (2) through (6) of this subsection and any rule or 
        regulation of the Commission issued thereunder.
            ``(2) Responsibility relating to independent public 
        accountants.--The audit committee of the registered company, in 
        its capacity as a committee of the board of directors, shall be 
        directly responsible for the appointment, compensation, and 
        oversight of the work of any independent public accountant 
        employed by such registered company (including resolution of 
        disagreements between management and the auditor regarding 
        financial reporting) for the purpose of preparing or issuing 
        the audit report or related work, and each such independent 
        public accountant shall report directly to the audit committee.
            ``(3) Independence.--
                    ``(A) In general.--Each member of the audit 
                committee of the registered company shall be a member 
                of the board of directors of the company, and shall 
                otherwise be independent.
                    ``(B) Criteria.--In order to be considered to be 
                independent for purposes of this paragraph, a member of 
                an audit committee of a registered company may not, 
                other than in his or her capacity as a member of the 
                audit committee, the board of directors, or any other 
                board committee--
                            ``(i) accept any consulting, advisory, or 
                        other compensatory fee from the registered 
                        company or the investment adviser or principal 
                        underwriter of the registered company; or
                            ``(ii) be an `interested person' of the 
                        registered company, as such term is defined in 
                        section 2(a)(19).
            ``(4) Complaints.--The audit committee of the registered 
        company shall establish procedures for--
                    ``(A) the receipt, retention, and treatment of 
                complaints received by the registered company regarding 
                accounting, internal accounting controls, or auditing 
                matters; and
                    ``(B) the confidential, anonymous submission by 
                employees of the registered company and its investment 
                adviser or principal underwriter of concerns regarding 
                questionable accounting or auditing matters.
            ``(5) Authority to engage advisers.--The audit committee of 
        the registered company shall have the authority to engage 
        independent counsel and other advisers, as it determines 
        necessary to carry out its duties.
            ``(6) Funding.--The registered company shall provide 
        appropriate funding, as determined by the audit committee, in 
        its capacity as a committee of the board of directors, for 
        payment of compensation--
                    ``(A) to the independent public accountant employed 
                by the registered company for the purpose of rendering 
                or issuing the audit report; and
                    ``(B) to any advisers employed by the audit 
                committee under paragraph (5).
            ``(7) Audit committee.--For purposes of this subsection, 
        the term `audit committee' means--
                    ``(A) a committee (or equivalent body) established 
                by and among the board of directors of a registered 
                investment company for the purpose of overseeing the 
                accounting and financial reporting processes of the 
                company and audits of the financial statements of the 
                company; and
                    ``(B) if no such committee exists with respect to a 
                registered investment company, the entire board of 
                directors of the company.''.
    (b) Conforming Amendment.--Section 10A(m) (15 U.S.C. 78j-1(m)) of 
the Securities Exchange Act of 1934 is amended by adding at the end the 
following:
            ``(7) Exemption for investment companies.--Effective 1 year 
        after the date of enactment of the Mutual Fund Investor 
        Confidence Restoration Act of 2003, for purposes of this 
subsection, the term `issuer' shall not include any investment company 
that is registered under section 8 of the Investment Company Act of 
1940.''.
    (c) Implementation.--
            (1) In general.--Not later than 180 days after the date of 
        enactment of this Act, the Securities and Exchange Commission 
        shall issue final regulations to carry out section 32(d) of the 
        Investment Company Act of 1940, as added by subsection (a) of 
        this section.
            (2) Incentives.--Not later than 180 days after the date of 
        enactment of this Act, the Securities and Exchange Commission 
        shall, by rule, establish--
                    (A) a program of incentives to encourage the filing 
                of meritorious complaints under section 32(d)(4)(A) of 
                the Investment Company Act of 1940; and
                    (B) appropriate penalties for the willful filing of 
                materially false complaints under such section.

SEC. 203. INFORMING DIRECTORS OF SIGNIFICANT DEFICIENCIES.

    Section 42 of the Investment Company Act of 1940 (15 U.S.C. 80a-41) 
is amended by adding at the end the following:
    ``(f) Informing Directors of Significant Deficiencies.--
            ``(1) In general.--If the report of an inspection by the 
        Commission of a registered investment company identifies 
        significant deficiencies in the operations of such company, or 
        of its investment adviser or principal underwriter, the company 
        shall provide such report to the directors of such company.
            ``(2) Disclosure of deficiencies.--The Commission shall, on 
        an annual basis, review all inspection reports of registered 
        investment companies and publicly disclose the 10 most common 
        deficiencies cited in those reports.''.

SEC. 204. CERTIFICATION BY CHAIRMAN AND CHIEF COMPLIANCE OFFICER.

    (a) In General.--Subsection (j) of section 17 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-17(j)), as amended by section 301 of 
this Act, is amended by adding at the end the following:
            ``(4) Certification by chairman.--The rules and regulations 
        established under paragraph (1) shall require the chairman of 
        the board of directors of each registered open-end investment 
        company to certify, in the periodic report to shareholders, or 
        other appropriate disclosure document, that--
                    ``(A) procedures are in place for verifying that 
                the determination of current net asset value of any 
                redeemable security issued by the company used in 
                computing periodically the current price for the 
                purpose of purchase, redemption, and sale complies with 
                the requirements of the Investment Company Act of 1940 
                and the rules and regulations thereunder, and the 
                company is in compliance with such procedures;
                    ``(B) procedures are in place for the oversight of 
                the flow of funds into and out of the securities of the 
                company, and the company is in compliance with such 
                procedures;
                    ``(C) procedures are in place to ensure that 
                investors are receiving any applicable discounts on 
                front-end sales loads that are disclosed in the 
                company's prospectus;
                    ``(D) procedures are in place to ensure that, if 
                the company's shares are offered as different classes 
                of shares, such classes are designed in the interests 
                of investors, and could reasonably be an appropriate 
                investment option for an investor;
                    ``(E) procedures are in place to ensure that 
                information about the company's portfolio securities is 
                not disclosed in violation of the securities laws or 
                the company's code of ethics;
                    ``(F) the members of the board of directors who are 
                not interested persons of the company have reviewed and 
                approved the compensation of the company's portfolio 
                manager in connection with their consideration of the 
                investment advisory contract under section 15(c);
                    ``(G) the company has established and enforces a 
                code of ethics as required by paragraph (2) of this 
                subsection;
                    ``(H) the company is in compliance with the 
                additional requirements of paragraph (3) of this 
                subsection;
                    ``(I) the report submitted to the board of 
                directors under section 15(g)(1) is complete and 
                accurate; and
                    ``(J) the board of directors has fulfilled its 
                obligations under section 15(g)(2).''
            ``(5) Certification by chief compliance officer.--The rules 
        and regulations established under paragraph (1) shall require 
        the chief compliance officer of each registered open-end 
        investment company to certify, on an annual basis, that--
                    ``(A) appropriate internal controls are in place 
                for the review required under subparagraphs (A) through 
                (H) of paragraph (4); and
                    ``(B) such internal controls have been reviewed, 
                and determined to reasonably achieve their stated 
                purpose, by the chief compliance officer.
            ``(6) Review of advisory contracts.--The rules and 
        regulations established under paragraph (1) shall require that 
        the chairman of the board of directors and the chief compliance 
        officer of a registered open-end investment company certify, on 
        an annual basis, that any advisory contract entered into by the 
        company and associated management fees have been negotiated and 
        are in the best interests of the company.''.
    (b) Deadline for Rules.--Not later than 90 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall 
prescribe--
            (1) rules to implement subsection (a); and
            (2) minimum standards for compliance with the certification 
        requirements of paragraphs (4) and (5) of section 17(j) of the 
        Investment Company Act of 1940 (15 U.S.C. 80a-17(j)).

          TITLE III--PREVENTING ABUSIVE MUTUAL FUND PRACTICES

SEC. 301. PREVENTION OF FRAUD; INTERNAL COMPLIANCE AND CONTROL 
              PROCEDURES.

    (a) Amendment.--Subsection (j) of section 17 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-17(j)) is amended to read as 
follows:
    ``(j) Detection and Prevention of Fraud.--
            ``(1) Commission rules to prohibit fraud, deception, and 
        manipulation.--It shall be unlawful for any affiliated person 
        of or principal underwriter for a registered investment company 
        or any affiliated person of an investment adviser of or 
        principal underwriter for a registered investment company, to 
        engage in any act, practice, or course of business in 
        connection with the purchase or sale, directly or indirectly, 
        by such person of any security held or to be acquired by such 
        registered investment company, or any security issued by such 
        registered investment company or by an affiliated registered 
        investment company, in contravention of such rules and 
        regulations as the Commission may adopt to define, and 
        prescribe means reasonably necessary to prevent, such acts, 
        practices, or courses of business as are fraudulent, deceptive, 
        or manipulative.
            ``(2) Codes of ethics.--The rules and regulations 
        established under paragraph (1) shall include requirements for 
        the adoption of codes of ethics by registered investment 
        companies and investment advisers of, and principal 
        underwriters for, such investment companies establishing such 
        standards as are reasonably necessary to prevent such acts, 
        practices, or courses of business. Such rules and regulations 
        shall require each such registered investment company to 
        disclose such codes of ethics (and any changes therein) in the 
        periodic report to shareholders of such company, and to 
        disclose such code of ethics and any waivers and material 
        violations thereof on a readily accessible electronic public 
        information facility of such company and in such additional 
        form and manner as the Commission shall require by rule or 
        regulation.
            ``(3) Additional compliance procedures.--The rules and 
        regulations established under paragraph (1) shall--
                    ``(A) require each investment company and 
                investment adviser registered with the Commission to 
                adopt and implement policies and procedures reasonably 
                designed to prevent violation of the Securities Act of 
                1933 (15 U.S.C. 78a et seq.), the Securities Exchange 
                Act of 1934 (15 U.S.C. 78a et seq.), the Sarbanes-Oxley 
                Act of 2002 (15 U.S.C. 7201 et seq.), the Trust 
                Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the 
                Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
                seq.), the Investment Advisers Act of 1940 (15 U.S.C. 
                80b et seq.), the Securities Investor Protection Act of 
                1970 (15 U.S.C. 78aaa et seq.), subchapter II of 
                chapter 53 of title 31, United States Code, chapter 2 
                of title I of Public Law 91-508 (12 U.S.C. 1951 et 
                seq.), or section 21 of the Federal Deposit Insurance 
                Act (12 U.S.C. 1829b);
                    ``(B) require each such company and adviser to 
                review such policies and procedures annually for their 
                adequacy and the effectiveness of their implementation;
                    ``(C) require each such company to appoint a chief 
                compliance officer to be responsible for overseeing 
                such policies and procedures, ensuring that the 
                practices of the company adhere to those policies and 
                procedures, and promote the interest of shareholders--
                            ``(i) whose compensation shall be approved 
                        by the members of the board of directors of the 
                        company who are not interested persons of such 
                        company;
                            ``(ii) who shall report directly to the 
                        members of the board of directors of the 
                        company who are not interested persons of such 
                        company, privately as such members request, but 
                        no less frequently than annually; and
                            ``(iii) whose report to such members shall 
                        include any violations or waivers of, and any 
                        other significant issues arising under, such 
                        policies and procedures; and
                    ``(D) require each such company to establish 
                policies and procedures reasonably designed to protect 
                any officer, director, employee, contractor, 
                subcontractor, or agent of such company from 
                retaliation, including discharge, demotion, suspension, 
                harassment, or any other manner of discrimination in 
                the terms and conditions of employment, because of any 
                lawful act done by such officer, director, employee, 
                contractor, subcontractor, or agent to provide 
                information, cause information to be provided, or 
                otherwise assist in an investigation that relates to 
                any conduct which such officer, director, employee, 
                contractor, subcontractor, or agent reasonably believes 
                constitutes a violation of the securities laws or the 
                code of ethics of such investment company.''.
    (b) Deadline for Rules.--Not later than 90 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall 
prescribe rules to implement subsection (a).

SEC. 302. BAN ON JOINT MANAGEMENT OF MUTUAL FUNDS AND HEDGE FUNDS.

    (a) Amendment.--Section 15 of the Investment Company Act of 1940 
(15 U.S.C. 80a-15) is further amended by adding at the end the 
following:
    ``(h) Ban on Joint Management of Mutual Funds and Hedge Funds.--
            ``(1) Prohibition of joint management.--It shall be 
        unlawful for any individual to serve or act as the portfolio 
        manager or investment adviser of a registered open-end 
        investment company if such individual also serves or acts as 
        the portfolio manager or investment adviser of an investment 
        company that is not registered, or of such other categories of 
        companies as the Commission shall prescribe by rule in order to 
        prohibit conflicts of interest, such as conflicts in the 
        selection of the portfolio securities.
            ``(2) Exceptions.--Notwithstanding paragraph (1), the 
        Commission may, by rule, regulation, or order, permit joint 
        management by a portfolio manager in exceptional circumstances 
        when necessary to protect the interest of investors, provided 
        that such rule, regulation, or order requires--
                    ``(A) enhanced disclosure by the registered open-
                end investment company to investors of any conflicts of 
                interest raised by such joint management; and
                    ``(B) fair and equitable policies and procedures 
                for the allocation of securities to the portfolios of 
                the jointly managed companies, and certification by the 
                members of the board of directors who are not 
                interested persons of such registered open-end 
                investment company, in the periodic report to 
                shareholders, or other appropriate disclosure document, 
                that such policies and procedures of such company are 
                fair and equitable.
            ``(3) Definition.--For purposes of this subsection, the 
        term `portfolio manager' means the individual or individuals 
        who are designated as responsible for decision-making in 
        connection with the securities purchased and sold on behalf of 
        a registered open-end investment company, but shall not include 
        individuals who participate only in making research 
        recommendations or executing transactions on behalf of such 
        company.''.
    (b) Deadline for Rules.--The Securities and Exchange Commission 
shall prescribe rules to implement the amendment made by subsection (a) 
of this section within 90 days after the date of enactment of this Act.

SEC. 303. RESTRICTIONS ON SHORT TERM TRADING AND MANDATORY REDEMPTION 
              FEES.

    (a) Short Term Trading Prohibited.--Section 17 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-17) is amended by adding at the end 
the following:
    ``(k) Short Term Trading Prohibited.--It shall be unlawful for any 
officer, director, partner, or employee of a registered investment 
company, any affiliated person, investment adviser, or principal 
underwriter of such company, or any officer, director, partner, or 
employee of such an affiliated person, investment adviser, or principal 
underwriter, to engage in short-term transactions, as such term is 
defined by the Commission by rule, in any securities of which such 
company, or any affiliate of such company, is the issuer, except that 
this subsection shall not prohibit transactions in money market funds, 
other funds the investment policy of which expressly permits short-term 
transactions, or such other categories of registered investment 
companies as the Commission shall specify by rule.''.
    (b) Mandatory Redemption Fees.--Not later than 180 days after the 
date of enactment of this Act, the Securities and Exchange Commission 
shall, by rule, require that any investment company that does not allow 
for market timing practices to charge a redemption fee upon the short-
term redemption of any securities of such company.
    (c) Deadline for Rules.--Not later than 180 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall 
prescribe rules to implement the amendment made by subsection (a) of 
this section.

SEC. 304. ELIMINATION OF STALE PRICES.

    (a) In General.--Not later than 180 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall 
prescribe, by rule or regulation, standards concerning the obligation 
of registered open-end investment companies under the Investment 
Company Act of 1940 to apply and use fair value methods of 
determination of net asset value when market quotations are unavailable 
or do not accurately reflect the fair market value of the companies' 
portfolio securities, in order to prevent dilution of the interests of 
long-term investors or as necessary in the other interests of 
investors. Such rule or regulation shall identify, in addition to 
significant events, the conditions or circumstances from which such 
obligation will arise, such as the need to value securities traded on 
foreign exchanges, and the methods by which fair value methods shall be 
applied in such events, conditions, and circumstances.
    (b) Formal Policies and Procedures.--
            (1) In general.--Not later than 180 days after the date of 
        enactment of this Act, the Securities and Exchange Commission 
        shall, by rule or regulation--
                    (A) require that each registered open-end 
                investment company and registered investment advisor 
                establish formal policies with respect to compliance 
                with the regulations established under subsection (a);
                    (B) require such policies to be publicly disclosed 
                to shareholders;
                    (C) require the adoption of internal procedures to 
                ensure compliance with such policies;
                    (D) require that such policies be subject to 
                ongoing review by the company or investment adviser; 
                and
                    (E) require, on an annual basis, a certification by 
                the chief executive officer of the company or 
                investment adviser that such policies are being adhered 
                to.
            (2) Changes to policies.--Any policies adopted by a 
        registered open-end company or registered investment adviser 
        under paragraph (1) shall not be altered without the prior 
        approval of a majority of the shareholders of such company or 
        adviser.

SEC. 305. FORMAL POLICIES AND PROCEDURES RELATED TO MARKET TIMING.

    (a) In General.--Not later than 180 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall, by 
rule--
            (1) require that each registered open-end investment 
        company and registered investment advisor establish formal 
policies with respect to whether it permits market timing and short 
term trading, and under what circumstances such practices will be 
permitted;
            (2) require such policies to be publicly disclosed in any 
        prospectus delivered by the company or investment advisor;
            (3) require the adoption of internal procedures reasonably 
        designed to ensure compliance with such policies;
            (4) require that such policies be subject to ongoing review 
        by the company or investment advisor; and
            (5) require, on an annual basis, a certification by the 
        chief executive officer of the investment adviser, and chairman 
        of the board of directors and chief compliance officer of the 
        company that such policies are being adhered to by the 
        investment adviser or the company.

SEC. 306. PREVENTION OF LATE TRADES.

    (a) Additional Rules Required.--Not later than 180 days after the 
date of enactment of this Act, the Securities and Exchange Commission 
shall issue rules to prevent transactions in the securities of any 
registered open-end investment company in violation of section 22 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-22), including after-
hours trades that are executed at a price based on a net asset value 
that was determined as of a time prior to the actual execution of the 
transaction.
    (b) Trades Collected by Intermediaries.--
            (1) In general.--The rules established under subsection (a) 
        shall permit execution of after-hours trades that are provided 
        to the registered open-end investment company by a broker-
        dealer, retirement plan administrator, insurance company, or 
        other intermediary, after the time as of which such net asset 
        value was determined, if the late trading and detection 
        procedures and policies of such intermediary are subject to 
        inspection by the Commission (in this subsection, a ``permitted 
        intermediary'').
            (2) Rules.--The Commission, by rule, shall--
                    (A) require each permitted intermediary to certify 
                that it has policies and procedures in place to prevent 
                and detect late-trades, and that such policies have 
                been adhered to by the permitted intermediary;
                    (B) require each permitted intermediary to submit 
                an independent annual audit verifying that its policies 
                and procedures do not permit the acceptance of late 
                order trading; and
                    (C) provide that any intermediary that is not a 
                permitted intermediary shall be required to submit all 
                transactions to the open-end investment company before 
                the determination of the related net asset value.

SEC. 307. DISCLOSURE OF INSIDER TRANSACTIONS.

    Not later than 180 days after the date of enactment of this Act, 
the Securities and Exchange Commission shall, by rule, require--
            (1) that any senior executive officer of an open-end 
        management investment company publicly disclose, prior to the 
        actual time of purchase, any intended sale or purchase of 
        securities of an open-end management investment company that 
        employs the same investment adviser as the company with whom 
        such senior executive officer is employed; and
            (2) that any such securities purchased be held by the 
        senior executive officer for not less than 6 months.

         TITLE IV--STRENGTHENING MUTUAL FUND INDUSTRY OVERSIGHT

SEC. 401. STUDY OF MUTUAL FUND OVERSIGHT BOARD.

    (a) In General.--The General Accounting Office shall conduct a 
study to determine the feasibility of, and assess what, if any, 
benefits to shareholders, mutual fund governance and mutual fund 
supervision would result from establishing a Mutual Fund Oversight 
Board that would--
            (1) have inspection, examination, and enforcement authority 
        over mutual fund boards of directors;
            (2) be funded by assessments against mutual fund assets or 
        management fees;
            (3) have members selected by Commission; and
            (4) have rulemaking authority.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the General Accounting Office shall submit a report on the 
study required under paragraph (1) to--
            (1) the Committee on Banking, Housing, and Urban Affairs of 
        the Senate; and
            (2) the Committee on Financial Services of the House of 
        Representatives.

SEC. 402. STUDY OF COORDINATION OF ENFORCEMENT EFFORTS.

    (a) In General.--The General Accounting Office shall conduct a 
study of the coordination of enforcement efforts related to allegations 
of misconduct by open-end management companies between the headquarters 
of the Securities and Exchange Commission, the regional offices of the 
Commission, and appropriate State regulatory and law enforcement 
entities, such as State attorneys general and the North American 
Securities Administrators Association.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the General Accounting Office shall submit a report on the 
study required under subsection (a) to Congress.

SEC. 403. REVIEW OF COMMISSION RESOURCES.

    (a) In General.--The Securities and Exchange Commission shall 
conduct a study on the allocation and adequacy of the supervision and 
enforcement resources of the Commission dedicated to the oversight of 
open-end management companies.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Securities and Exchange Commission shall submit a report 
on the study required under subsection (a) to--
            (1) the Committee on Banking, Housing, and Urban Affairs of 
        the Senate; and
            (2) the Committee on Financial Services of the House of 
        Representatives.

SEC. 404. COMMISSION STUDY AND REPORT REGULATING SOFT DOLLAR 
              ARRANGEMENTS.

    (a) Study Required.--
            (1) In general.--The Commission shall conduct a study of 
        the use of soft dollar arrangements by investment advisers as 
        contemplated by section 28(e) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78bb(e)).
            (2) Areas of consideration.--The study required by this 
        section shall examine--
                    (A) the trends in the average amounts of soft 
                dollar commissions paid by investment advisers and 
                investment companies in the past 3 years;
                    (B) the types of services provided through soft 
                dollar arrangements;
                    (C) the benefits and disadvantages of the use of 
                soft dollars for investors, including the extent to 
                which use of soft dollar arrangements affects the 
                ability of mutual fund investors to evaluate and 
                compare the expenses of different mutual funds;
                    (D) the potential or actual conflicts of interest 
                (or both potential and actual conflicts) created by 
                soft dollar arrangements, including whether certain 
                potential conflicts are being managed effectively by 
                other laws and regulations specifically addressing 
                those situations, the role of the board of directors in 
                managing these potential or actual (or both) conflicts, 
                and the effectiveness of the board in this capacity;
                    (E) the transparency of such soft dollar 
                arrangements to investment company shareholders and 
                investment advisory clients of investment advisers, the 
                extent to which enhanced disclosure is necessary or 
                appropriate to enable investors to better understand 
                the impact of these arrangements, and an assessment of 
                whether the cost of any enhanced disclosure or other 
                regulatory change would result in benefits to the 
                investor; and
                    (F) whether such section 28(e) should be modified, 
                and whether other regulatory or legislative changes 
                should be considered and adopted to benefit investors.
    (b) Report Required.--Not later than 1 year after the date of 
enactment of this Act, the Commission shall submit a report on the 
study required by subsection (a) to the Committee on Financial Services 
of the House of Representatives and the Committee on Banking, Housing, 
and Urban Affairs of the Senate.

SEC. 405. REPORT ON ADEQUACY OF REGULATORY RESPONSE TO LATE TRADING AND 
              MARKET TIMING.

    (a) Report Required.--Not later than 180 days after the date of 
enactment of this Act, the Securities and Exchange Commission shall 
submit a report to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, and Urban 
Affairs of the Senate on market timing and late trading of mutual 
funds.
    (b) Required Contents of Report.--The report required by this 
section shall include the following:
            (1) The economic harm of market timing and late trading of 
        mutual fund shares on long-term mutual fund shareholders.
            (2) The findings by the Commission's Office of Compliance, 
        Inspections and Examinations, and the actions taken by the 
        Commission's Division of Enforcement, regarding--
                    (A) illegal late trading practices;
                    (B) illegal market timing practices; and
                    (C) market timing practices that are not in 
                violation of prospectus disclosures.
            (3) When the Commission became aware that the use of market 
        timing practices was harming long-term shareholders, and the 
        circumstances surrounding the Commission's discovery of that 
        activity.
            (4) The steps the Commission has taken since becoming aware 
        of market timing practices to protect long-term mutual fund 
        investors.
            (5) Any additional legislative or regulatory action that is 
        necessary to protect long-term mutual fund shareholders against 
        the detrimental effects of late trading and market timing 
        practices.

SEC. 406. STUDY OF ARBITRATION CLAIMS.

    (a) Study Required.--The Securities and Exchange Commission shall 
conduct a study of the increased rate of arbitration claims and 
decisions involving mutual funds since 1995 for the purposes of 
identifying trends in arbitration claim rates and, if applicable, the 
causes of such increased rates and the means to avert such causes.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Securities and Exchange Commission shall submit a report 
on the study required by subsection (a) to the Committee on Financial 
Services of the House of Representatives and the Committee on Banking, 
Housing, and Urban Affairs of the Senate.

                TITLE V--PROMOTING SHAREHOLDER LITERACY

SEC. 501. FINANCIAL LITERACY AMONG MUTUAL FUND INVESTORS STUDY.

    (a) In General.--The Securities and Exchange Commission shall 
conduct a study to identify--
            (1) the existing level of financial literacy among 
        investors that purchase shares of open-end companies, as such 
        term is defined under section 5 of the Investment Company Act 
        of 1940, that are registered under section 8 of such Act;
            (2) the most useful and understandable relevant information 
        that investors need to make sound financial decisions prior to 
        purchasing such shares;
            (3) methods to increase the transparency of expenses and 
        potential conflicts of interest in transactions involving the 
        shares of open-end companies;
            (4) the existing private and public efforts to educate 
        investors; and
            (5) a strategy to increase the financial literacy of 
        investors that results in a positive change in investor 
        behavior.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Securities and Exchange Commission shall submit a report 
on the study required under subsection (a) to--
            (1) the Committee on Banking, Housing, and Urban Affairs of 
        the Senate; and
            (2) the Committee on Financial Services of the House of 
        Representatives.
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