I
104TH CONGRESS
1ST SESSION
H. R. 1495
To amend the Investment Company Act of 1940 to promote more efficient
management of mutual funds, protect investors, and provide more effec-
tive and less burdensome regulation.
IN THE HOUSE OF REPRESENTATIVES
APRIL 7, 1995
Mr. FIELDS of Texas (for himself and Mr. MARKEY) introduced the following
bill; which was referred to the Committee on Commerce
A BILL
To amend the Investment Company Act of 1940 to promote
more efficient management of mutual funds, protect in-
vestors, and provide more effective and less burdensome
regulation.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Investment Company
Act Amendments of 1995’’.
SEC. 2. CORPORATE GOVERNANCE.
(a) AFFILIATIONS OF DIRECTORS.—Section 10(a) of
the Investment Company Act of 1940 (15 U.S.C. 80a–
10(a)) is amended to read as follows:
‘‘SEC. 10. (a) A registered investment company shall
have a board of directors at least a majority of the mem-
bers of which are persons who are not interested persons
of such registered company. After any public offering of
the company’s voting securities, the selection and nomina-
tion of the directors who are not interested persons shall
be committed to the discretion of such directors.’’.
(b) INVESTMENT ADVISORY
AND UNDERWRITING
CONTRACTS.—Section 15(a) of the Investment Company
Act of 1940 (15 U.S.C. 80a–15(a)) is amended to read
as follows:
‘‘SEC. 15. (a) It shall be unlawful for any person to
serve or act as investment adviser of a registered invest-
ment company, except pursuant to a written contract,
which contract, whether with such registered company or
with an investment adviser of such registered company—
‘‘(1) precisely describes all compensation to be
paid thereunder;
‘‘(2) shall continue in effect for a period more
than two years from the date of its execution, only
so long as such continuance is specifically approved
at least annually by the board of directors or by vote
of a majority of the outstanding voting securities of
such company;
‘‘(3) provides, in substance, that it may be ter-
minated at any time, without the payment of any
penalty, by the board of directors of such registered
company, by those directors who are not interested
persons of such company, or by a vote of a majority
of the outstanding voting securities of such company
on not more than 60 days written notice to the in-
vestment adviser; and
‘‘(4) provides, in substance, for its automatic
termination in the event of its assignment.’’.
(c) ACCOUNTANTS AND AUDITORS.—Section 32(a) of
the Investment Company Act of 1940 (15 U.S.C. 80a–
31(a)) is amended to read as follows:
‘‘SEC. 32. (a) It shall be unlawful for any registered
management company or registered face-amount certifi-
cate company to file with the Commission any financial
statement signed or certified by an independent public ac-
countant, unless—
‘‘(1) such accountant shall have been selected
by the vote, cast in person, of a majority of those
members of the board of directors who are not inter-
ested persons of such registered company—
‘‘(A) at a board of directors meeting held
within 90 days before or after the beginning of
the fiscal year if the company is in a set of in-
vestment companies (as defined by Commission
rule, regulation, or order), all of the members
of which do not have an identical fiscal year-
end; or
‘‘(B) at a board of directors meeting held
within 30 days before or 90 days after the be-
ginning of the fiscal year if the company is not
in a set of investment companies or is in a set
and each of the members of such set has the
same fiscal year-end;
‘‘(2) the employment of such accountant shall
have been conditioned upon the right of the company
by vote of a majority of the outstanding voting secu-
rities at any meeting called for the purpose to termi-
nate such employment forthwith without any pen-
alty; and
‘‘(3) such certificate or report of such account-
ant shall be addressed both to the board of directors
of such registered company and to the security hold-
ers thereof.
In the case of a common-law trust of the character de-
scribed in section 16(c), the employment of an accountant
may be terminated and such accountant removed by action
of the holders of record of a majority of the outstanding
shares of beneficial interest in such trust in the same man-
ner as is provided in section 16(c) in respect of the re-
moval of a trustee, and all the provisions therein contained
as to the calling of a meeting shall be applicable. The pro-
visions of paragraph (42) of section 2(a) as to a majority
shall be applicable to the vote cast at any meeting of the
shareholders of such a trust held pursuant to this sub-
section.’’.
(d) CHANGES
IN INVESTMENT POLICY.—Section
13(a)(1) of the Investment Company Act of 1940 (15
U.S.C. 80a–13(a)(1)) is amended by inserting after ‘‘(1)’’
the following: ‘‘change its investment objective, or’’.
(e) FILING INFORMATION.—Section 8(b)(1) of the
Investment Company Act of 1940 (15 U.S.C. 80a–8(b))
is amended—
(1) by inserting after ‘‘(1)’’ the following: ‘‘a re-
cital of the investment objective of the registrant
and’’; and
(2) by inserting ‘‘of policy’’ after ‘‘activities,
such recital’’.
(f) VOTING PROCEDURES.—Section 12(d)(1)(E)(iii)
of the Investment Company Act of 1940 (15 U.S.C. 80a–
12(d)(1)(E)(iii)) is amended—
are necessary or appropriate to record such person’s trans-
actions with such registered company.
‘‘(b) All records required to be maintained and pre-
served in accordance with subsection (a) of this section
shall be subject at any time and from time to time to such
reasonable periodic, special, and other examinations by the
Commission, or any member or representative thereof, as
the Commission may prescribe. For purposes of such ex-
aminations, such persons shall make available to the Com-
mission or its representatives any copies or extracts from
such records as may be prepared without undue effort, ex-
pense, or delay as the Commission or its representatives
may reasonably request.’’;
(2) by redesignating existing subsections (c)
and (d) as subsections (d) and (e), respectively; and
(3) by inserting after subsection (b) the follow-
ing new subsection:
‘‘(c) The Commission shall have the authority to pre-
scribe rules specifying the format and manner in which
the records required to be maintained and preserved by
any person pursuant to subsection (a) are transmitted to
the Commission or its representatives. In using such au-
thority, the Commission shall minimize the burden that
any requirement that such records be maintained, pre-
served, or transmitted in machine readable format may
place on small entities that are subject to subsection (a).’’.
SEC. 5. REPORTS TO THE COMMISSION AND SHAREHOLD-
ERS.
Section 30 of the Investment Company Act of 1940
(15 U.S.C. 80a–29) is amended—
(1) by striking paragraph (1) of subsection (b)
and inserting the following:
‘‘(1) such information, documents and reports,
in such format and for such period or periods, as the
Commission may require to keep reasonably current
the information and documents contained in the reg-
istration statement of such company filed under this
title, or as the Commission by rules and regulations
may prescribe as necessary or appropriate in the
public interest or for the protection of investors;’’;
(2) by inserting after the last sentence of sub-
section (b) the following new sentence: ‘‘The Com-
mission shall have the authority to prescribe rules
specifying the format and manner in which the in-
formation, documents, or reports required to be filed
pursuant to paragraph (1) are transmitted to the
Commission or its representatives.’’; and
(3) in subsection (d)—
(A) by striking ‘‘and’’ at the end of para-
graph (5);
(B) by striking the colon at the end of
paragraph (6) and inserting ‘‘; and’’; and
(C) by inserting after paragraph (6) the
following new paragraph:
‘‘(7) such other information as the Commission
may by rule require as being necessary or appro-
priate in the public interest or for the protection of
investors:’’.
SEC. 6. UNIFIED FEE INVESTMENT COMPANY.
The Investment Company Act of 1940 (15 U.S.C.
80a) is amended by inserting the following new section
after section 65 (15 U.S.C. 80a–64):
‘‘UNIFIED FEE INVESTMENT COMPANY
‘‘SEC. 66. (a) Subject to the requirements of this sec-
tion, the Commission may by rule or order exempt, in
whole or in part, a registered open-end investment com-
pany from sections 12(b), 15, 22(b), and 36(b) of this
title, and such other provisions as may be necessary or
appropriate to further the purposes of this section and
consistent with the protection of investors. For purposes
of this section, any such company is referred to as an ‘ex-
empted company’.
‘‘(b) Notwithstanding section 10(a), the exempted
company shall have a board of directors at least two-thirds
of the members of which are persons who are not inter-
ested persons of the company. After any public offering
of the exempted company’s voting securities, the selection
and nomination of those directors who are not interested
persons of the exempted company shall be committed to
the discretion of such directors.
‘‘(c) The exempted company shall have engaged an
investment manager pursuant to a written management
contract which shall require the investment manager to
perform, or make provision for, all services necessary to
the exempted company’s operations and the distribution
of its securities in return for a single fee covering all serv-
ices and expenses of the exempted company, except taxes,
interest, brokerage commissions, fees paid to those direc-
tors who are not interested persons of the exempted com-
pany for their services as members of the exempted com-
pany’s board of directors and fees paid to legal counsel
or any expert acting solely on behalf of such directors, and
any extraordinary expenses. The fee payable under the
management contract—
‘‘(1) may not change more frequently than an-
nually and only upon adequate notice to the exempt-
ed company’s shareholders, which notice shall be
deemed to be a solicitation of a proxy within the
meaning of section 20 of this title; and
‘‘(2) shall be prominently disclosed on the cover
page of the exempted company’s prospectus and in
all advertising and sales literature concerning the ex-
empted company or its securities.
‘‘(d) The board of directors of the exempted company
and those directors who are not interested persons of the
exempted company by majority vote shall approve—
‘‘(1) prior to effectiveness the management con-
tract and any other contract entered into by the in-
vestment manager for the provision of services or
the payment of expenses necessary to the exempted
company’s operations or distribution of its securities
(‘fund contract’);
‘‘(2) at least annually a management contract
and any fund contract that continues in effect for a
period of more than 2 years; and
‘‘(3) any amendment of the management con-
tract or any material amendment of any fund con-
tract.
Notwithstanding section 15(c), the directors of the ex-
empted company shall have a duty to request and evalu-
ate, and the contracting party shall have a duty to furnish,
such information as may reasonably be necessary to evalu-
ate the adequacy of the services provided under the man-
agement contract and any fund contract. In evaluating the
management contract, the directors also shall have a duty
to determine that the compensation payable under the
contract is not unconscionable or grossly excessive.
‘‘(e) Notwithstanding section 22(a), the exempted
company’s securities shall be sold and redeemed at the
current net asset value of such securities. Except for the
fee paid to the investment manager and the expenses enu-
merated in subsection (c), no expenses shall be deducted
from the exempted company’s assets or charged to all
shareholder accounts.’’.
SEC. 7. INVESTMENT COMPANY NAMES.
Section 35(d) of the Investment Company Act of
1940 (15 U.S.C. 80a–34) is amended to read as follows:
‘‘(d) It shall be unlawful for any registered invest-
ment company to adopt as a part of the name or title of
such company, or of any securities of which it is the issuer,
any word or words that are materially deceptive or mis-
leading. The Commission is authorized, by rules, regula-
tions or order, to define such names or titles as are decep-
tive or misleading.’’.
SEC. 8. PRIVATE INVESTMENT COMPANIES.
(a) AMENDMENTS.—Section 3(c) of the Investment
Company Act of 1940 (15 U.S.C. 80a–3(c)) is amended—
(1) in paragraph (1), by inserting after the first
sentence the following new sentence: ‘‘Such issuer