(1), shall be borne by the shareholders of a reg-
istered investment company, unless the Commission 
finds that such new fee or expense fairly reflects the 
services provided to, or is in the best interests of the 
shareholders of— 
(A) a particular registered investment com-
pany; 
(B) specific types or categories of reg-
istered investment companies; or 
(C) registered investment companies in 
general. 
(f) COST STRUCTURES.—The Commission shall pro-
mulgate such rules or regulations as are necessary— 
(1) to promote the standardization and sim-
plification of the disclosure of the cost structures of 
registered investment companies; and 
(2) to ensure that the shareholders of such reg-
istered investment companies receive all material in-
formation regarding such costs— 
(A) in a nonmisleading manner; and 
(B) in such form and prominence as to fa-
cilitate, to the extent practicable, ease of com-
prehension and comparison of such costs. 
(g) DESCRIPTIONS
OF
FEES, EXPENSES, 
AND 
COSTS.—The Commission shall, by rule, require—
(1) the disclosure, in any annual or periodic re-
port filed with the Commission or any prospectus de-
livered to the shareholders of a registered investment 
company, of all types of fees, expenses, or costs 
borne by shareholders; 
(2) a clear definition of each such fee, expense, 
or cost; and 
(3) information as to where shareholders may 
find out more information concerning such fees, ex-
penses, or costs. 
SEC. 202. ADVISOR COMPENSATION AND OWNERSHIP OF 
FUND SHARES. 
(a) COMPENSATION OF INVESTMENT ADVISER.—The 
Commission shall, by rule, require— 
(1) the disclosure to the shareholders of a reg-
istered investment company of— 
(A) the amount and structure of, or the 
method used to determine, the compensation 
paid by the registered investment company to 
the portfolio manager or portfolio management 
team of the investment adviser; and 
(B) the ownership interest in such com-
pany of the portfolio manager or portfolio man-
agement team; and
(2) the disclosure to the board of directors of 
the registered investment company of all trans-
actions in the securities of the company by the port-
folio manager or management team of the invest-
ment adviser of such company. 
(b) FORM
OF DISCLOSURE.—The disclosures re-
quired under subparagraphs (A) and (B) of subsection 
(a)(1) shall be made by a registered investment company 
in— 
(1) the registration statement of the company; 
and 
(2) any other filings with the Commission that 
the Commission determines appropriate. 
SEC. 203. POINT OF SALE AND ADDITIONAL DISCLOSURE 
OF BROKER COMPENSATION. 
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) BROKER DISCLOSURES IN MUTUAL FUND 
TRANSACTIONS.— 
‘‘(A) IN GENERAL.—Each broker shall dis-
close in writing to each person that purchases 
the shares of an investment company registered 
under section 8 of the Investment Company Act 
of 1940 (15 U.S.C. 80a–8)—
‘‘(i) the source and amount of any 
compensation received or to be received by 
the broker in connection with such trans-
action; and 
‘‘(ii) such other information as the 
Commission determines appropriate. 
‘‘(B) TIMING OF DISCLOSURE.—The dis-
closures required under subparagraph (A) shall 
be made at or before the time of the purchase 
transaction. 
‘‘(C) LIMITATION.—The disclosures re-
quired under subparagraph (A) may not be 
made exclusively in— 
‘‘(i) a registration statement or pro-
spectus of the registered investment com-
pany; or 
‘‘(ii) any other filing of a registered 
investment company with the Commis-
sion.’’. 
SEC. 204. BREAKPOINT DISCOUNTS. 
The Commission, by rule, shall require the disclosure 
by any registered investment company, in any quarterly 
or other periodic report filed with the Commission, infor-
mation concerning discounts on front-end sales loads for
which shareholders may be eligible, including the min-
imum purchase amounts required for such discounts. 
SEC. 205. PORTFOLIO TURNOVER RATIO. 
The Commission, by rule, shall require the disclosure, 
by any registered investment company, in any quarterly 
or periodic report filed with the Commission, and in any 
prospectus delivered to the shareholders of such company, 
of the portfolio turnover ratio of the company, and an ex-
planation of its meaning and implications for cost and per-
formance. Such rules shall require the disclosures to be 
prominently displayed within the appropriate document. 
SEC. 206. PROXY VOTING POLICIES AND RECORD. 
Section 30 of the Investment Company Act of 1940 
(15 U.S.C. 80a–29) is amended by adding at the end the 
following: 
‘‘(k) PROXY VOTING DISCLOSURE.— 
‘‘(1) IN GENERAL.—Each registered investment 
company, other than a small business 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, con-
taining the proxy voting record of the registrant and 
policies of the company with respect to the voting of 
such proxies for the most recent 12-month period 
ending on June 30.
‘‘(2) NOTICE IN FINANCIAL STATEMENTS.—The 
financial statements of each registered investment 
company shall state that information regarding how 
the company voted proxies and proxy voting policies 
relating to portfolio securities during the most re-
cent 12-month period ending on June 30 is avail-
able— 
‘‘(A) without charge, upon request, by call-
ing a specified toll-free (or collect) telephone 
number; or on or through the company’s 
website at a specified Internet address, or both; 
and 
‘‘(B) on the website of the Commission.’’. 
SEC. 
207. 
CUSTOMER 
INFORMATION 
FROM 
ACCOUNT 
INTERMEDIARIES. 
(a) IN GENERAL.—The Commission shall, by rule, re-
quire that each account intermediary of a registered in-
vestment company provide to such company, with respect 
to each account serviced by the intermediary, such infor-
mation as is necessary for the company to enforce its in-
vestment, trading, and fee policies. 
(b) REQUIREMENTS.—The information provided by a 
registered investment company under subsection (a) shall 
include, at a minimum—
(1) the name under which the account is opened 
with the intermediary; 
(2) the taxpayer identification number of such 
person; 
(3) the mailing address of such person; and 
(4) individual transaction data for all pur-
chases, redemptions, transfers, and exchanges by or 
on behalf of such person. 
(c) PRIVACY
OF INFORMATION.—The information 
provided under subsection (a), and the use thereof, shall 
be subject to all Federal and State laws with regard to 
privacy and proprietary information. 
SEC. 208. ADVERTISING. 
(a) PERFORMANCE ADVERTISING.—The Commission 
shall promulgate such rules as the Commission determines 
necessary with respect to the advertising of a registered 
investment company regarding— 
(1) unrepresentative short-term performance; 
(2) performance based upon an undisclosed or 
improbable event; and 
(3) performance based upon incomplete or mis-
leading data. 
(b) DOLLAR AND TIME-WEIGHTED RETURNS.— 
(1) IN GENERAL.—Subject to paragraph (2), 
the Commission shall, by rule, require each reg-
istered investment company to disclose, in its annual 
report and any prospectus delivered to shareholders, 
dollar-weighted returns and time-weighted returns 
for each of— 
(A) the preceding fiscal year; 
(B) the preceding 5 fiscal years; 
(C) the preceding 10 fiscal years; and 
(D) the life of the company. 
(2) EXCEPTION.—The Commission may omit or 
require additional disclosures required under para-
graph (1) for such time periods as the Commission 
determines necessary. 
(3) COMMISSION USE OF BENCHMARKS.—The 
Commission may require, in the interest of facili-
tating non-misleading disclosures, that any perform-
ance-related advertising by a registered investment 
company be accompanied by such benchmarks as the 
Commission may deem appropriate. 
(c) SUBSIDIZED YIELDS.—The Commission shall, by 
rule, require that any registered investment company that 
discloses in any publication a subsidized yield to disclose 
in the same publication the amount and duration of such 
subsidy.
TITLE III—FUND REGULATION 
AND OVERSIGHT 
SEC. 301. PROHIBITION OF ASSET-BASED DISTRIBUTION 
EXPENSES. 
(a) REPEAL OF RULE 12b–1.— 
(1) IN GENERAL.—Beginning 180 days after 
the date of enactment of this Act (or such earlier 
time as the Commission may elect), as in effect on 
the date of enactment of this Act, section 270.12b– 
1 of chapter II of title 17 of the Code of Federal 
Regulations, promulgated under section 12 of the 
Investment Company Act of 1940 (15 U.S.C. 80a– 
12), is repealed, and shall have no force or effect. 
(2) PRESERVATION
OF
ACTIONS.—Paragraph 
(1) shall have no effect on any case pending or pen-
alty imposed under section 270.12b–1 of the Code of 
Federal Regulations prior to the date of repeal 
under paragraph (1). 
(b) PAYMENT OF DISTRIBUTION EXPENSES FROM 
MANAGEMENT FEE.—Section 12 of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–12) is amended by add-
ing at the end the following: 
‘‘(h) PAYMENT OF DISTRIBUTION EXPENSES.—Not-
withstanding any provision of subsection (b), or any rule 
or regulation promulgated thereunder, distribution ex-
penses incurred by an investment adviser may be paid out 
of the management fee received by the investment ad-
viser.’’. 
(c) SUMS EXPENDED PROMOTING SALE OF SECURI-
TIES.—The Commission shall, by rule— 
(1) require that any sums expended by the in-
vestment adviser of a registered investment company 
to promote or facilitate the sale of the securities of 
such company be disclosed to the board of directors 
of the company; 
(2) require that such sums be accounted for 
and identified in the expense ratio of any such com-
pany; and 
(3) authorize the board of directors of any such 
company to prohibit its investment adviser from 
using any compensation received from the company 
for distribution expenses that the board determines 
not to be in the best interest of the shareholders of 
the company. 
(d) PROHIBITION OF ASSET-BASED FEES.—Section 
12 of the Investment Company Act of 1940 (15 U.S.C. 
80a–12), as amended by subsection (a), is amended by 
adding at the end the following: 
‘‘(i) ASSET-BASED FEES.—
‘‘(1) IN GENERAL.—It shall be unlawful for any 
registered investment company to pay asset-based 
fees to any broker or dealer in connection with the 
offer or sale of the securities of such investment 
company. 
‘‘(2) DEFINITION OF ASSET-BASED FEES.—The 
Commission shall, by rule, define the term ‘asset- 
based fees’ for purposes of this subsection.’’. 
SEC. 302. PROHIBITION ON REVENUE SHARING, DIRECTED 
BROKERAGE, AND SOFT DOLLAR ARRANGE-
MENTS. 
(a) IN GENERAL.—The Investment Company Act of 
1940 (15 U.S.C. 80a–1 et seq.) is amended by inserting 
after section 12 the following: 
‘‘SEC. 12A. PROHIBITION ON REVENUE SHARING, DIRECTED 
BROKERAGE, AND SOFT DOLLAR ARRANGE-
MENTS. 
‘‘(a) REVENUE SHARING ARRANGEMENTS.—It shall 
be unlawful for any investment adviser to enter into a rev-
enue sharing arrangement with any broker or dealer with 
respect to the securities of a registered investment com-
pany. 
‘‘(b) DIRECTED BROKERAGE ARRANGEMENTS.—It 
shall be unlawful for any registered investment company,
or any affiliate of such company, to enter into a directed 
brokerage arrangement with a broker or dealer. 
‘‘(c) SOFT-DOLLAR ARRANGEMENTS.—It shall be un-
lawful for any registered investment company or reg-
istered investment adviser to enter into a soft-dollar ar-
rangement with any broker or dealer. 
‘‘(d) REGULATIONS RESPECTING SECTION 28(e) OF 
THE SECURITIES EXCHANGE ACT OF 1934.—The Com-
mission shall, by rule, narrow the soft-dollar safe harbor 
under section 28(e) of the Securities Exchange Act of 
1934 (15 U.S.C. 78bb(e)(1)) to promote such parity as 
the Commission determines appropriate, and in the best 
interests of shareholders of a registered investment com-
pany, between registered investment companies governed 
by section 12A, and companies not covered by section 12A. 
‘‘(e) DEFINITIONS.— 
‘‘(1) IN GENERAL.—In this section— 
‘‘(A) the term ‘directed brokerage arrange-
ment’ means the direction of discretionary bro-
kerage by an investment company or an affil-
iate of that company, to a broker or dealer in 
exchange for services other than trade execu-
tions; 
‘‘(B) the term ‘revenue sharing arrange-
ment’ means any direct or indirect payment
‘‘(C) enhancing market negotiation for and 
price competition in trade execution services, 
and products and services previously obtained 
under arrangements prohibited by this section; 
‘‘(D) ensuring the transparency of trans-
actions for trade executions, and products and 
services previously obtained under arrange-
ments prohibited by this section, and disclosure 
to shareholders of costs associated with trade 
executions, and products and services previously 
obtained under arrangements prohibited by this 
section, that is simplified, clear, and com-
prehensible; and 
‘‘(E) providing reasonable safe harbors for 
conduct otherwise consistent with such pur-
poses.’’. 
(b) TECHNICAL AND CONFORMING AMENDMENT.— 
Section 28(e)(1) of the Securities Exchange Act of 1934 
(15 U.S.C. 78bb(e)(1)) is amended by striking ‘‘This sec-
tion is exclusive’’ and inserting ‘‘Except as provided under 
section 12A of the Investment Company Act of 1940, this 
section is exclusive’’. 
SEC. 303. MARKET TIMING. 
(a) IN GENERAL.—The Commission shall, by rule, re-
quire—
(1) the disclosure in any registration statement 
filed with the Commission by a registered investment 
company of the market timing policies of that com-
pany and the procedures adopted to enforce such 
policies; and 
(2) that any registered investment company 
that declines to adopt restrictions on market timing 
disclose such fact in the registration statement of 
the company, and in any advertising or other pub-
licly available documents, as the Commission deter-
mines necessary. 
(b) FUNDAMENTAL INVESTMENT POLICY.—The poli-
cies required to be disclosed under paragraph (1) shall be 
deemed ‘‘fundamental investment policies’’ for purposes of 
sections 8(b)(3) and 13(a)(3) of the Investment Company 
Act of 1940 (15 U.S.C. 80a–8(b)(3) and 80a–13(a)(3)). 
SEC. 304. ELIMINATION OF STALE PRICES. 
(a) IN GENERAL.—Not later than 90 days after the 
date of enactment of this Act, the Commission shall pre-
scribe, by rule or regulation, standards concerning the ob-
ligation of registered investment companies under the In-
vestment 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 re-
flect the fair market value of the portfolio securities of
such a company, in order to prevent dilution of the inter-
ests of long-term shareholders or as necessary in the pub-
lic interest or for the protection of shareholders. 
(b) CONTENT.—The rule or regulation prescribed 
under subsection (a) shall identify, in addition to signifi-
cant events, the conditions or circumstances from which 
such an 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. 
SEC. 305. PROHIBITION OF SHORT TERM TRADING; MANDA-
TORY 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.— 
‘‘(1) PROHIBITION.—It shall be unlawful for 
any officer, director, partner, or employee of a reg-
istered investment company, any affiliated person, 
investment adviser, or principal underwriter of such 
company, or any officer, director, partner, or em-
ployee of such an affiliated person, investment ad-
viser, or principal underwriter, to engage in any 
short-term transaction, in any securities issued by 
such company, or any affiliate of such company.
‘‘(2) LIMITATION.—This subsection does not 
prohibit any transaction in a money market fund, or 
in funds, the investment policy of which expressly 
permits short-term transactions, or such other cat-
egory of registered investment company as the Com-
mission shall specify, by rule. 
‘‘(3) DEFINITION.—For purposes of this sub-
section, the term ‘short-term transaction’ has the 
meaning given that term by the Commission, by 
rule.’’. 
(b) MANDATORY REDEMPTION FEES.—The Commis-
sion shall, by rule, require any registered investment com-
pany that does not allow for market timing practices to 
charge a redemption fee upon the short-term redemption 
of any securities of such company. In determining the ap-
plication of mandatory redemption fees, shares shall be 
considered in the reverse order of their purchase. 
(c) INCREASED REDEMPTION FEES PERMITTED FOR 
SHORT-TERM TRADING.—Not later than 90 days after the 
date of enactment of this Act, the Commission shall per-
mit a registered investment company to charge redemption 
fees in excess of 2 percent upon the redemption of any 
securities of such company that are redeemed within such 
period after their purchase as the Commission specifies
in such rule to deter short term trading that is unfair to 
the shareholders of such company. 
(d) DEADLINE FOR RULES.—The Commission shall 
prescribe rules to implement section 17(k) of the Invest-
ment Company Act of 1940, as added by subsection (a) 
of this section, not later than 90 days after the date of 
enactment of this Act. 
SEC. 306. PREVENTION OF AFTER-HOURS TRADING. 
(a) ADDITIONAL RULES REQUIRED.—The Commis-
sion shall issue rules to prevent transactions in the securi-
ties of any registered 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 exe-
cuted at a price based on a net asset value that was deter-
mined as of a time prior to the actual execution of the 
transaction. 
(b) TRADES COLLECTED BY INTERMEDIARIES.—The 
Commission shall determine the circumstances under 
which to permit, subject to rules of the Commission and 
an annual independent audit of such trades, the execution 
of after-hours trades that are provided to a registered in-
vestment company by a broker, dealer, retirement plan ad-
ministrator, insurance company, or other intermediary, 
after the time as of which the net asset value was deter-
mined.
SEC. 307. 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 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 in-
dividual 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 con-
flicts in the selection of the portfolio securities. 
‘‘(2) 
EXCEPTIONS.—Notwithstanding 
para-
graph (1), the Commission may, by rule, regulation, 
or order, permit joint management by a portfolio 
manager in exceptional circumstances when nec-
essary to protect the interest of shareholders, pro-
vided that such rule, regulation, or order requires— 
‘‘(A) enhanced disclosure by the registered 
open-end investment company to shareholders
of any conflicts of interest raised by such joint 
management; and 
‘‘(B) fair and equitable policies and proce-
dures for the allocation of securities to the port-
folios of the jointly managed companies, and 
certification by the members of the board of di-
rectors who are not interested persons of such 
registered open-end investment company, in the 
periodic report to shareholders, or other appro-
priate disclosure document, that such policies 
and procedures of such company are fair and 
equitable. 
‘‘(3) DEFINITION.—For purposes of this sub-
section, the term ‘portfolio manager’ means the indi-
vidual or individuals who are designated as respon-
sible for decision-making in connection with the se-
curities 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 Commission shall 
prescribe rules to implement section 15(h) of the Invest-
ment Company Act of 1940, as added by subsection (a)
of this section, not later than 90 days after the date of 
enactment of this Act. 
SEC. 308. SELECTIVE DISCLOSURES. 
(a) IN GENERAL.—The Commission shall promulgate 
such rules as the Commission determines necessary to pre-
vent the selective disclosure by a registered investment 
company of material information relating to the portfolio 
of securities held by such company. 
(b) REQUIREMENTS.—The rules promulgated under 
subsection (a) shall treat selective disclosures of material 
information by a registered investment company in sub-
stantially the same manner as selective disclosures by 
issuers of securities registered under section 12 of the Se-
curities Exchange Act of 1934 under the rules of the Com-
mission. 
TITLE IV—STUDIES 
SEC. 401. STUDY OF ADVISER CONFLICT OF INTEREST. 
(a) IN GENERAL.—The Commission shall conduct a 
study of— 
(1) the consequences of the inherent conflicts of 
interest confronting investment advisers employed by 
registered investment companies; 
(2) the extent to which legislative or regulatory 
measures could minimize such conflicts of interest; 
and
(3) the extent to which legislative or regulatory 
measures could incentivize internal management of a 
registered investment company. 
(b) REPORT.—Not later than 1 year after the date 
of enactment of this Act, the Commission shall submit a 
report on the results of the study required under sub-
section (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. 402. STUDY OF COORDINATION OF ENFORCEMENT EF-
FORTS. 
(a) IN GENERAL.—The Comptroller General of the 
United States, with the cooperation of the Commission, 
shall conduct a study of the coordination of enforcement 
efforts between— 
(1) the headquarters of the Commission; 
(2) the regional offices of the Commission; and 
(3) State regulatory and law enforcement agen-
cies. 
(b) REPORT.—Not later than 1 year after the date 
of enactment of this Act, the Commission shall submit a 
report on the results of the study required under sub-
section (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. 
403. 
STUDY 
OF 
COMMISSION 
ORGANIZATIONAL 
STRUCTURE. 
(a) IN GENERAL.—The Comptroller General of the 
United States, with the cooperation of the Commission, 
shall conduct a study of— 
(1) the current organizational structure of the 
Commission with respect to the regulation of invest-
ment companies; 
(2) whether the organizational structure and re-
sources of the Commission sufficiently credit the im-
portance of oversight of investment companies to the 
95 million investors in such companies within the 
United States; 
(3) whether certain organizational features of 
that structure, such as the separation of regulatory 
and enforcement functions, are sufficient to promote 
the optimal understanding of the current practices 
of investment companies; and 
(4) whether a separate regulatory entity would 
improve or impair effective oversight.
(b) REPORT.—Not later than 1 year after the date 
of enactment of this Act, the Comptroller General shall 
submit a report on the results of 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. TRENDS IN ARBITRATION CLAUSES. 
(a) IN GENERAL.—The Commission shall conduct a 
study on the trends in arbitration clauses between brokers, 
dealers, and investors since December 31, 1995, and alter-
native means to avert the filing of claims in Federal or 
State courts. 
(b) REPORT.—Not later than 1 year after the date 
of enactment of this Act, the Commission shall submit a 
report on the results of the study required under sub-
section (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. 405. HEDGE FUND REGULATION. 
(a) IN GENERAL.—The Commission shall conduct a 
study of whether additional regulation of alternative in-