HR 2420 RFS 
(B) prominently displayed, in a location in 
close proximity to the statement of the shares 
account value. 
(e) REDUCING BURDENS ON SMALL FUNDS.—In pre-
scribing rules under this section, the Commission shall 
give consideration to methods for reducing for small in-
vestment companies the burdens of making the disclosures 
required by such rules, consistent with the public interest 
and the protection of investors. 
SEC. 102. OBLIGATIONS REGARDING CERTAIN DISTRIBU-
TION AND SOFT DOLLAR ARRANGEMENTS. 
(a) REPORTING REQUIREMENT.—Section 15 of the 
Investment Company Act of 1940 (15 U.S.C. 80a–15) is 
amended by adding at the end the following new sub-
section: 
‘‘(g) OBLIGATIONS REGARDING CERTAIN DISTRIBU-
TION AND SOFT DOLLAR ARRANGEMENTS.—
‘‘(1) REPORTING
REQUIREMENTS.—Each in-
vestment adviser to a registered investment company 
shall, no 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
HR 2420 RFS 
of the investment company (referred to in para-
graph (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 bro-
kerage and research services) in exchange for 
the direction of brokerage to the broker or deal-
er (referred to in paragraph (2) as a ‘directed 
brokerage arrangement’); and 
‘‘(C) research services obtained by the ad-
viser (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 invest-
ment companies (referred to in paragraph (2) 
as a ‘soft dollar arrangement’). 
‘‘(2) FIDUCIARY DUTY OF BOARD OF DIREC-
TORS.—The board of directors of a registered invest-
ment company shall have a fiduciary duty—
‘‘(A) to review the investment adviser’s di-
rection of the company’s brokerage trans-
actions, including directed brokerage arrange-
ments and soft dollar arrangements, and to de-
HR 2420 RFS 
termine that the direction of such brokerage is 
in the best interests of the shareholders of the 
company; and 
‘‘(B) to review any revenue sharing ar-
rangements to ensure compliance with this Act 
and the rules adopted thereunder, and to deter-
mine that such revenue sharing arrangements 
are in the best interests of the shareholders of 
the company. 
‘‘(3) SUMMARIES OF REPORTS IN ANNUAL RE-
PORTS TO SHAREHOLDERS.—In accordance with reg-
ulations prescribed by the Commission under para-
graph (4), annual reports to shareholders of a reg-
istered 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 sec-
tion, which rules and regulations shall, among other 
things, prescribe the content of the required reports. 
‘‘(5) DEFINITION.—For purposes of this sub-
section—
‘‘(A) the term ‘brokerage and research 
services’ has the same meaning as in section
HR 2420 RFS 
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.’’.
(b) CONTRACTUAL RECORDS.—Within 270 days after 
the date of enactment of this Act, the Securities and Ex-
change Commission shall, by rule prescribed pursuant to 
section 28(e) of the Securities Exchange Act of 1934 (15 
U.S.C. 78bb(e)), require that—
(1) if any research services (as such term is de-
fined in section 15(g)(5)(B) of the Investment Com-
pany Act of 1940, as amended by subsection (a) of 
this section)—
(A) are provided by a member of an ex-
change, broker, or dealer who effects securities 
transactions in an account, and 
(B) are prepared or provided by a party 
that is unaffiliated with such member, broker, 
or dealer, 
any person exercising investment discretion with re-
spect to such account shall maintain a copy of the 
written contract between the person preparing such 
research and the member of an exchange, broker, or 
dealer; and
HR 2420 RFS 
(2) such contract shall describe the nature and 
value of the services provided. 
SEC. 103. MUTUAL FUND GOVERNANCE. 
(a) DIRECTOR INDEPENDENCE.—Section 10(a) of 
the Investment Company Act of 1940 (15 U.S.C. 80a–
10) is amended by striking ‘‘60 per centum’’ and inserting 
‘‘one-third’’. 
(b) 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) by striking clause (vi) and redesig-
nating clause (vii) as clause (vi); and 
(B) by amending clause (v) to read as fol-
lows: 
‘‘(v) any natural person who is a 
member of a class of persons who the 
Commission, by rule or regulation, deter-
mines are unlikely to exercise an appro-
priate degree of independence as a result 
of—
‘‘(I) a material business or pro-
fessional relationship with the com-
pany or any affiliated person of the 
company, or
HR 2420 RFS 
‘‘(II) a close familial relationship 
with any natural person who is an af-
filiated person of the company,’’; and 
(2) in subparagraph (B)—
(A) by striking clause (vi) and redesig-
nating clause (vii) as clause (vi); and 
(B) by amending clause (v) to read as fol-
lows: 
‘‘(v) any natural person who is a 
member of a class of persons who the 
Commission, by rule or regulation, deter-
mines are unlikely to exercise an appro-
priate degree of independence as a result 
of—
‘‘(I) a material business or pro-
fessional relationship with such invest-
ment adviser or principal underwriter 
(or affiliated person thereof), or 
‘‘(II) a close familial relationship 
with a natural person who is such in-
vestment adviser or principal under-
writer (or affiliated person thereof),’’.