IB 
Union Calendar No. 205
108TH CONGRESS 
1ST SESSION H. R. 2420
[Report No. 108–351] 
To improve transparency relating to the fees and costs that mutual fund 
investors incur and to improve corporate governance of mutual funds. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 11, 2003
Mr. BAKER (for himself, Mr. GILLMOR, Mr. OSE, Mr. SHAYS, Mr. TIBERI, 
and Ms. GINNY BROWN-WAITE of Florida) introduced the following bill; 
which was referred to the Committee on Financial Services 
NOVEMBER 4, 2003
Additional sponsors: Mr. OXLEY, Mr. FRANK of Massachusetts, Mr. CASTLE, 
Ms. WATERS, Mrs. MALONEY, Ms. HOOLEY of Oregon, Mr. MOORE, Mr. 
FORD, Mr. JONES of North Carolina, Mr. GONZALEZ, Mr. EMANUEL, Mr. 
MATHESON, Mr. SCOTT of Georgia, Mr. HINOJOSA, Mr. HENSARLING, 
Mrs. CAPITO, Mr. GARRETT of New Jersey, and Mrs. BIGGERT 
NOVEMBER 4, 2003 
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on June 11, 2003] 
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 Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Mutual Funds Integrity 
and Fee Transparency Act of 2003’’. 
SEC. 2. IMPROVED TRANSPARENCY OF MUTUAL FUND 
COSTS. 
(a) REGULATION REVISION REQUIRED.—Within 270 
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 com-
bination thereof, to require, consistent with the protection 
of investors and the public interest, improved disclosure 
with respect to an open-end management investment com-
pany, in the quarterly statement or other periodic report 
to shareholders or other appropriate disclosure document, 
of the following: 
(1) The estimated amount, in dollars for each 
$1,000 of investment in the company, of the operating 
expenses of the company that are borne by share-
holders. 
(2) The structure of, or method used to deter-
mine, 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. 
(3) The portfolio turnover rate of the company, 
set forth in a manner that facilitates comparison 
among investment companies, and a description of 
the implications of a high turnover rate for portfolio 
transaction costs and performance. 
(4) Information concerning the company’s poli-
cies and practices with respect to the payment of com-
missions for effecting securities transactions to a 
member of an exchange, broker, or dealer who—
(A) 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 avail-
ability of securities or purchasers or sellers of se-
curities; 
(B) furnishes analyses and reports con-
cerning issuers, industries, securities, economic 
factors and trends, portfolio strategy, and the 
performance of accounts; or 
(C) facilitates the sale and distribution of 
the company’s shares. 
(5) Information concerning payments by any 
person other than the company that are intended to
facilitate the sale and distribution of the company’s 
shares. 
(6) Information concerning discounts on front-
end sales loads for which investors may be eligible, in-
cluding the minimum purchase amounts required for 
such discounts. 
(b) APPROPRIATE DISCLOSURE DOCUMENT.—
(1) IN
GENERAL.—For purposes of subsection 
(a), a disclosure shall not be considered to be made 
in an appropriate disclosure document if the disclo-
sure 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 (2) and (4) 
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 ad-
ditional information, or both such documents.
(c) CONCEPT RELEASE REQUIRED.—
(1) IN GENERAL.—The Commission shall issue a 
concept release examining the issue of portfolio trans-
action costs incurred by investment companies, in-
cluding commission, spread, opportunity, and market 
impact costs, with respect to trading of portfolio secu-
rities and how such costs may be disclosed to mutual
fund investors in a manner that will enable investors 
to compare such costs among funds.
(2) 
REPORT
AND
RECOMMENDATIONS
RE-
QUIRED.—The Commission shall submit a report on 
the findings from the concept release required by 
paragraph (1), as well as legislative and regulatory 
recommendations, if any, to the Committee on Finan-
cial Services of the House of Representatives and the 
Committee on Banking, Housing, and Urban Affairs 
of the Senate, no later than 270 days after the date 
of enactment of this Act. 
(d) ADDITIONAL REQUIREMENT
FOR FEE STATE-
MENT.—
(1) IN GENERAL.—Not later than 270 days after 
the date of enactment of this Act, the Commission 
shall prescribe a rule to require, with respect to an 
open-end management investment company, in the 
quarterly statement or other periodic report, or other 
appropriate disclosure document, a statement inform-
ing shareholders that such shareholders have paid fees 
on their investments, that such fees have been de-
ducted from the amounts shown on the statements, 
and where such shareholders may find additional in-
formation regarding the amount of these fees.
(2) APPROPRIATE DISCLOSURE DOCUMENT.—The 
statement required by paragraph (1) shall not be con-
sidered to be made in an appropriate disclosure docu-
ment unless such statement is—
(A) made in each periodic statement to a 
shareholder that discloses the value of the hold-
ings of the shareholder in the securities of the 
company; and 
(B) prominently displayed, in a location in 
close proximity to the statement of the shares ac-
count 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 investment 
companies the burdens of making the disclosures required 
by such rules, consistent with the public interest and the 
protection of investors. 
SEC. 3. OBLIGATIONS REGARDING CERTAIN DISTRIBUTION 
AND SOFT DOLLAR ARRANGEMENTS. 
(a) REPORTING REQUIREMENT.—Section 15 of the In-
vestment Company Act of 1940 (15 U.S.C. 80a–15) is 
amended by adding at the end the following new subsection: 
‘‘(g) OBLIGATIONS REGARDING CERTAIN DISTRIBU-
TION AND SOFT DOLLAR ARRANGEMENTS.—
‘‘(1) REPORTING REQUIREMENTS.—Each invest-
ment 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 ad-
viser) 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 broker-
age and research services) in exchange for the di-
rection of brokerage to the broker or dealer (re-
ferred to in paragraph (2) as a ‘directed broker-
age arrangement’); and 
‘‘(C) research services obtained by the ad-
viser (or an affiliated person of the adviser) dur-
ing the reporting period from a broker or dealer 
the receipt of which may reasonably be attrib-
uted to securities transactions effected on behalf 
of the company or any other company that is a 
member of the same group of investment compa-
nies (referred to in paragraph (2) as a ‘soft dol-
lar 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 transactions, 
including directed brokerage arrangements and 
soft dollar arrangements, and to determine that 
the direction of such brokerage is in the best in-
terests 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 di-
rectors 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 serv-
ices’ 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.’’.
(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 
(2) such contract shall describe the nature and 
value of the services provided. 
SEC. 4. 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 Com-
mission, by rule or regulation, determines 
are unlikely to exercise an appropriate de-
gree of independence as a result of—
‘‘(I) a material business or profes-
sional relationship with the company 
or any affiliated person of the com-
pany, or 
‘‘(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 Com-
mission, by rule or regulation, determines 
are unlikely to exercise an appropriate de-
gree of independence as a result of—
‘‘(I) a material business or profes-
sional 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),’’. 
SEC. 5. AUDIT COMMITTEE REQUIREMENTS FOR INVEST-
MENT COMPANIES. 
(a) AMENDMENTS.—Section 32 of the Investment Com-
pany 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 be-
ginning of the fiscal year or before the annual meet-
ing 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 re-
quirement 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 new sub-
section: 
‘‘(d) AUDIT COMMITTEE REQUIREMENTS.—
‘‘(1) REQUIREMENTS AS PREREQUISITE TO FIL-
ING FINANCIAL STATEMENTS.—Any registered man-
agement company or registered face-amount certifi-
cate company that files with the Commission any fi-
nancial statement signed or certified by an inde-
pendent public accountant shall comply with the re-
quirements of paragraphs (2) through (6) of this sub-
section and any rule or regulation of the Commission 
issued thereunder.
‘‘(2) 
RESPONSIBILITY
RELATING
TO
INDE-
PENDENT
PUBLIC
ACCOUNTANTS.—The audit com-
mittee 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 ac-
countant employed by such registered company (in-
cluding resolution of disagreements between manage-
ment and the auditor regarding financial reporting) 
for the purpose of preparing or issuing the audit re-
port or related work, and each such independent pub-
lic accountant shall report directly to the audit com-
mittee. 
‘‘(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 com-
pany, 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 ca-
pacity as a member of the audit committee, the 
board of directors, or any other board com-
mittee—
‘‘(i) accept any consulting, advisory, or 
other compensatory fee from the registered 
company or the investment adviser or prin-
cipal underwriter of the registered com-
pany; 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 con-
trols, or auditing matters; and 
‘‘(B) the confidential, anonymous submis-
sion 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 pur-
pose 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) es-
tablished by and amongst the board of directors 
of a registered investment company for the pur-
pose 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 re-
spect to a registered investment company, the en-
tire board of directors of the company.’’. 
(b) CONFORMING AMENDMENT.—Section 10A(m) of 
the Securities Exchange Act of 1934 is amended by adding 
at the end the following new paragraph:
‘‘(7) EXEMPTION
FOR
INVESTMENT
COMPA-
NIES.—Effective one year after the date of enactment 
of the Mutual Funds Integrity and Fee Transparency 
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.—Not later than 180 days after 
the date of enactment of this Act, the Securities and Ex-
change 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.
SEC. 6. TRADING RESTRICTIONS. 
Subsection (e) of section 22 of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–22(e)) is amended to read 
as follows: 
‘‘(e) TRADING RESTRICTIONS.—
‘‘(1) PROHIBITION
AND
EXCEPTIONS.—No reg-
istered investment company shall suspend the right of 
redemption, or postpone the date of payment or satis-
faction upon redemption of any redeemable security 
in accordance with its terms for more than seven days 
after the tender of such security to the company or its 
agents designated for that purpose for redemption, ex-
cept—
‘‘(A) for any period (i) during which the 
principal market for the securities in which the 
company invests is closed, other than customary 
week-end and holiday closings; or (ii) during 
which trading on such exchange is restricted; 
‘‘(B) for any period during which an emer-
gency exists as a result of which (i) disposal by 
the company of securities owned by it is not rea-
sonably practicable; or (ii) it is not reasonably 
practicable for such company fairly to determine 
the value of its net assets; or 
‘‘(C) for such other periods as the Commis-
sion may by order permit for the protection of 
security holders of the company. 
‘‘(2) COMMISSION
RULES.—The Commission 
shall by rules and regulations—
‘‘(A) determine the conditions under which 
trading shall be deemed to be restricted; 
‘‘(B) determine the conditions under which 
an emergency shall be deemed to exist; and 
‘‘(C) provide for the determination by each 
company, subject to such limitations as the Com-
mission shall determine are necessary and ap-
propriate for the protection of investors, of the
principal market for the securities in which the 
company invests.’’.
SEC. 7. DEFINITION OF NO-LOAD MUTUAL FUND. 
Within 270 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 organiza-
tion (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 Commission’s rules (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. 8. INFORMING DIRECTORS OF SIGNIFICANT DEFI-
CIENCIES. 
Section 42 of the Investment Company Act of 1940 (15 
U.S.C. 80a–41) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(f) INFORMING DIRECTORS OF SIGNIFICANT DEFI-
CIENCIES.—If the report of an inspection by the Commis-
sion of a registered investment company identifies signifi-
cant deficiencies in the operations of such company, or of 
its investment adviser or principal underwriter, the com-
pany shall provide such report to the directors of such com-
pany.’’. 
SEC. 9. EXEMPTION FROM IN PERSON MEETING REQUIRE-
MENTS. 
Section 15(c) of the of the Investment Company Act 
of 1940 (15 U.S.C. 80a–15(c)) is amended by adding at 
the end the following new sentence: ‘‘The Commission, by 
rule, regulation, or order, may exempt a registered invest-
ment company subject to this subsection from the require-
ment that the votes of its directors be cast at a meeting 
in person when such a requirement is impracticable, subject 
to such conditions as the Commission may require.’’. 
SEC. 10. PROXY VOTING DISCLOSURE. 
Section 30 of the Investment Company Act of 1940 (15 
U.S.C. 80a–29) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(k) PROXY VOTING DISCLOSURE.—Every registered 
management investment company, other than a small busi-
ness investment company, shall file with the Commission 
not later than August 31 of each year an annual report, 
on a form prescribed by the Commission by rule, containing 
the registrant’s proxy voting record for the most recent 
twelve-month period ending on June 30. The financial 
statements of every such company shall state that informa-
tion regarding how the company voted proxies relating to
portfolio securities during the most recent 12-month period 
ending on June 30 is available— 
‘‘(1) without charge, upon request, by calling a 
specified toll-free (or collect) telephone number; or on 
or through the company’s website at a specified Inter-
net address; or both; and 
‘‘(2) on the Commission’s website.’’. 
SEC. 11. ETHICS COMPLIANCE BY MUTUAL FUNDS. 
Within 270 days after the date of enactment of this 
Act, the Commission shall, by rule pursuant to the Invest-
ment Company Act of 1940 and the Investment Advisers 
Act of 1940, require each investment company and invest-
ment adviser registered with the Commission—
(1) to adopt and implement policies and proce-
dures reasonably designed to prevent violation of the 
Securities Act of 1933 (15 U.S.C. 78a et seq.), the Se-
curities 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.), sub-
chapter 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 De-
posit Insurance Act (12 U.S.C. 1829b); 
(2) review those policies and procedures annu-
ally for their adequacy and the effectiveness of their 
implementation; and 
(3) appoint a chief compliance officer to be re-
sponsible for administering the policies and proce-
dures. 
SEC. 12. INCENTIVE COMPENSATION AND MUTUAL FUND 
SALES. 
(a) COMMISSION RULE REQUIRED.—Within 270 days 
after the date of enactment of this Act, the Commission shall 
by rule prohibit, as a means reasonably designed to prevent 
fraudulent, deceptive, or manipulative acts and practices, 
the sale of the securities of an investment company or of 
municipal fund securities by a broker or dealer or by a mu-
nicipal securities broker or dealer without the disclosure 
of—
(1) the amount and source of sales fees, pay-
ments by persons other than the investment company 
that are intended to facilitate the sale and distribu-
tion 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 con-
nection with such sale; 
(2) any commission or other fees or charges the 
investor has paid or will or might be subject to, in-
cluding as a result of purchases or redemptions; 
(3) any conflicts of interest that any associated 
person of the investor’s broker or dealer or municipal 
securities broker or dealer may face due to the receipt 
of differential compensation in connection with such 
sale; and
(4) information about the estimated amount of 
any asset-based distribution expenses incurred, or to 
be incurred, by the investment company in connection 
with the investor’s purchase of the securities. 
(b) BENCHMARKS.—In connection with the rule re-
quired by subsection (a), the Commission shall, to the extent 
practical, establish standards for such disclosures. 
(c) DEFINITIONS.—
(1) DIFFERENTIAL
COMPENSATION.—For pur-
poses of this section, 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—
(A) for sales of the securities of an invest-
ment company or municipal fund security that
is affiliated with, or otherwise specifically des-
ignated by, such broker or dealer or municipal 
securities broker or dealer, as compared with the 
remuneration for sales of securities of an invest-
ment company or municipal fund security of-
fered by such broker or dealer or municipal secu-
rities broker or dealer that are not so affiliated 
or designated; or 
(B) for the sale of any class of securities of 
an investment company or municipal fund secu-
rity 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 de-
fined in section 2(a)(35) of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–2(a)(35)) only 
at the time of such a sale. 
(2) MUNICIPAL FUND SECURITY.—For purposes 
of this section, a municipal fund security is any mu-
nicipal security issued by an issuer that, but for the 
application of section 2(b) of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–2(b)), would con-
stitute an investment company within the meaning of
section 3 of the Investment Company Act of 1940 (15 
U.S.C. 80a–3). 
SEC. 13. 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 in-
vestment 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 re-
quired by this section shall examine—
(A) the trends in the average amounts of 
soft dollar commissions paid by investment ad-
visers 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 ex-
tent to which use of soft dollar arrangements af-
fects the ability of mutual fund investors to 
evaluate and compare the expenses of different 
mutual funds;
(D) the potential or actual conflicts of inter-
est (or both potential and actual conflicts) cre-
ated by soft dollar arrangements, including 
whether certain potential conflicts are being 
managed effectively by other laws and regula-
tions specifically addressing those situations, the 
role of the board of directors in managing these 
potential or actual (or both) conflicts, and the ef-
fectiveness of the board in this capacity; 
(E) the transparency of such soft dollar ar-
rangements 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 arrange-
ments, 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 legis-
lative changes should be considered and adopted 
to benefit investors. 
(b) REPORT REQUIRED.—The Commission shall sub-
mit a report on the study required by subsection (a) to the