[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1495 Introduced in House (IH)]







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 
               effective 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 investors, and provide more 
               effective and less burdensome regulation.

    Be it enacted by the Senate and House of Representatives 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 members 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 
nomination 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 investment 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 terminated 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 investment 
        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 certificate company to file with the 
Commission any financial statement signed or certified by an 
independent public accountant, 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 interested 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 investment 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 beginning 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 securities at any meeting called for 
        the purpose to terminate such employment forthwith without any 
        penalty; and
            ``(3) such certificate or report of such accountant shall 
        be addressed both to the board of directors of such registered 
        company and to the security holders thereof.
In the case of a common-law trust of the character described 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 
manner as is provided in section 16(c) in respect of the removal of a 
trustee, and all the provisions therein contained as to the calling of 
a meeting shall be applicable. The provisions 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 
subsection.''.
    (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 recital 
        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--
            (1) by striking ``in the event such investment company is 
        not a registered investment company,''; and
            (2) by inserting ``in the event such investment company is 
        a unit investment trust,'' after ``(bb)''.
    (g) Definition of Majority Vote.--Section 2(a)(42) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)) is amended by 
striking the last sentence and inserting the following: ``The vote of a 
majority of the outstanding voting securities of a company on any 
matter means the affirmative vote of a majority of the shares 
represented at a meeting at which a quorum is present and voting on 
such matter. For these purposes, the presence in person or by proxy of 
holders of a majority of the outstanding voting securities of such 
company constitutes a quorum.''.

SEC. 3. INVESTMENT COMPANY ADVERTISING PROSPECTUS.

    Section 24 of the Investment Company Act of 1940 (15 U.S.C. 80a-24) 
is amended by adding at the end the following new subsection:
    ``(g) In addition to the prospectuses permitted or required in 
section 10(a) of the Securities Act of 1933, the Commission shall by 
rules or regulations deemed necessary or appropriate in the public 
interest or for the protection of investors permit the use of a 
prospectus for the purposes of section 5(b)(1) of such Act which makes 
an offer in the form of an advertisement for securities issued by a 
registered investment company. Such a prospectus shall be deemed to be 
permitted by section 10(b) of the Securities Act of 1933.''.

SEC. 4. BOOKS, RECORDS AND INSPECTIONS.

    Section 31 of the Investment Company Act of 1940 (15 U.S.C. 80a-30) 
is amended--
            (1) by striking subsections (a) and (b) and inserting the 
        following:
    ``(a) Every registered investment company, and every underwriter, 
broker, dealer, or investment adviser that is a majority-owned 
subsidiary of such a company, shall maintain and preserve such records 
(as defined in section 3(a)(37) of the Securities Exchange Act of 1934) 
for such period or periods as the Commission, by rules and regulations, 
may prescribe as necessary or appropriate in the public interest or for 
the protection of investors. Every investment adviser not a majority-
owned subsidiary of, and every depositor of any registered investment 
company, and every principal underwriter for any registered investment 
company other than a closed-end company, shall maintain and preserve 
for such period or periods as the Commission shall prescribe by rules 
and regulations, such records as are necessary or appropriate to record 
such person's transactions with such registered company.
    ``(b) All records required to be maintained and preserved 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 
examinations, such persons shall make available to the Commission or 
its representatives any copies or extracts from such records as may be 
prepared without undue effort, expense, 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 following new 
        subsection:
    ``(c) The Commission shall have the authority to prescribe 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 
authority, the Commission shall minimize the burden that any 
requirement that such records be maintained, preserved, or transmitted 
in machine readable format may place on small entities that are subject 
to subsection (a).''.

SEC. 5. REPORTS TO THE COMMISSION AND SHAREHOLDERS.

    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 registration 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 subsection (b) 
        the following new sentence: ``The Commission shall have the 
        authority to prescribe rules specifying the format and manner 
        in which the information, 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 paragraph 
                (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 appropriate 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 section, the 
Commission may by rule or order exempt, in whole or in part, a 
registered open-end investment company 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 `exempted 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 interested 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 services and 
expenses of the exempted company, except taxes, interest, brokerage 
commissions, fees paid to those directors who are not interested 
persons of the exempted company for their services as members of the 
exempted company'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 annually and only 
        upon adequate notice to the exempted 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 exempted 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 contract and 
        any other contract entered into by the investment 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 contract or any 
        material amendment of any fund contract.
Notwithstanding section 15(c), the directors of the exempted company 
shall have a duty to request and evaluate, and the contracting party 
shall have a duty to furnish, such information as may reasonably be 
necessary to evaluate the adequacy of the services provided under the 
management 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 enumerated 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 investment 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 misleading. The Commission is authorized, by 
rules, regulations or order, to define such names or titles as are 
deceptive 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 nonetheless is deemed 
        to be an investment company for purposes of the limitations set 
        forth in section 12(d)(1)(A)(i) and (B)(i) governing the 
        purchase or other acquisition by such issuer of any security 
        issued by any registered investment company and the sale of any 
        security issued by any registered open-end investment company 
        to any such issuer.'';
            (2) in subparagraph (A) of paragraph (1)--
                    (A) by inserting after ``issuer,'' the first place 
                it appears the following: ``and is or, but for the 
                exception in this paragraph or paragraph (7), would be 
                an investment company,''; and
                    (B) by striking all that follows the words ``(other 
                than short-term paper)'' and inserting a period; and
            (3) by striking paragraph (7) and inserting the following:
            ``(7) Any issuer whose outstanding securities are owned 
        exclusively by persons who, at the time of acquisition of such 
        securities, are qualified purchasers. Such issuer nonetheless 
        is deemed to be an investment company for purposes of the 
        limitations set forth in section 12(d)(1)(A)(i) and (B)(i) 
        governing the purchase or other acquisition by such issuer of 
        any security issued by any registered investment company and 
        the sale of any security issued by any registered open-end 
        investment company to any such issuer.''.
    (b) Definition of Qualified Purchaser.--Section 2(a) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)) is amended by 
inserting after paragraph (50) the following new paragraph:
            ``(51) `Qualified purchaser' means--
                    ``(A) any natural person who owns at least 
                $10,000,000 in securities of issuers, each of which is 
                not an affiliated person, as defined in section 
                2(a)(3)(C), of such person; or
                    ``(B) any person, acting for its own account or the 
                accounts of other qualified purchasers, who in the 
                aggregate owns and invests on a discretionary basis, 
                not less than $100,000,000 in securities of issuers, 
                each of which is not an affiliated person, as defined 
                in section 2(a)(3)(C), of such person.
        The Commission also may adopt such rules and regulations 
        governing the persons specified in subparagraphs (A) and (B) as 
        it determines are necessary or appropriate in the public 
        interest and for the protection of investors.''.
    (c) Conforming Amendment.--The last sentence of section 3(a) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) is amended by 
inserting before the period the following: ``or relying on the 
exclusion from the definition of investment company in subsection 
(c)(1) or (c)(7) of this section''.

SEC. 9. FUNDS OF FUNDS.

    Section 12(d)(1) of the Investment Company Act of 1940 (15 U.S.C. 
80a-12(d)(1)) is amended by--
            (1) redesignating existing subparagraphs (G) and (H) as 
        subparagraphs (H) and (I), respectively;
            (2) inserting after subparagraph (F) the following new 
        subparagraph:
    ``(G) The provisions of this paragraph (1) shall not apply to 
securities of a registered open-end investment company (the `acquired 
company') purchased or otherwise acquired by a registered open-end 
investment company (the `acquiring company') if--
            ``(i) the acquired company and the acquiring company are 
        part of the same group of investment companies;
            ``(ii) the securities of the acquired company, securities 
        of other registered open-end investment companies that are part 
        of the same group of investment companies, and short-term paper 
        are the only investment securities held by the acquiring 
        company;
            ``(iii)(I) the acquiring company does not pay and is not 
        assessed any charges or fees for distribution-related 
        activities with respect to securities of the acquired company 
        unless the acquiring company does not charge a sales load or 
        other fees or charges for distribution-related activities; or
            ``(II) any sales loads and other distribution-related fees 
        charged with respect to securities of the acquiring company, 
        when aggregated with any sales load and distribution-related 
        fees paid by the acquiring company with respect to securities 
        of the acquired fund, are not excessive under rules adopted 
        pursuant to either section 22(b) or section 22(c) of this title 
        by a securities association registered under section 15A of the 
        Securities Exchange Act of 1934 or the Commission;
            ``(iv) the acquired company shall have a fundamental policy 
        that prohibits it from acquiring any securities of registered 
        open-end investment companies in reliance on this subparagraph 
        or subparagraph (F) of this subsection;
            ``(v) the acquiring company shall exercise voting rights by 
        proxy or otherwise with respect to the securities of the 
        acquired company purchased or acquired in the manner prescribed 
        by subparagraph (E) of this subsection; and
            ``(vi) such acquisition is not in contravention of such 
        rules and regulations as the Commission may have prescribed 
        with respect to acquisitions in accordance with this 
        subparagraph as necessary and appropriate for the protection of 
        investors.
For purposes of this subparagraph, a `group of investment companies' 
shall mean any two or more registered investment companies that hold 
themselves out to investors as related companies for purposes of 
investment and investor services.''; and
            (3) adding at the end the following new subparagraph:
    ``(J) The Commission, by rules and regulations upon its own motion 
or by order upon application, may conditionally or unconditionally 
exempt any person, security or transaction, or any class or classes of 
persons, securities or transactions from any provisions of this 
subsection, if and to the extent such exemption is consistent with the 
protection of investors.''.
                                 <all>
HR 1495 IH----2