S. 1037Senate109th Congress (2005-2007)In Committee

Mutual Fund Transparency Act of 2005

Introduced May 16, 2005

Legislative Activity

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3 earlier actions
SenateIntro Referral Latest Action

Sponsor introductory remarks on measure. (CR S7487-7488)

June 28, 2005

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SenateIntro Referral

Introduced in Senate

May 16, 2005

SenateIntro Referral

Sponsor introductory remarks on measure. (CR S5221-5222)

May 16, 2005

SenateIntro Referral

Read twice and referred to the Committee on Banking, Housing, and Urban Affairs. (text of measure as introduced: CR S5222-5223)

May 16, 2005

SenateIntro Referral

Sponsor introductory remarks on measure. (CR S7487-7488)

June 28, 2005

Floor Debate

20 members

What members said about S. 1037 on the floor

12 Republicans8 Democrats
James M. Inhofe
Sen. James M. InhofeR-OK · May 16, 2005

Mr. President, we are at the point now where I believe we are going to hear from a number of Members who have submitted amendments and some who simply want to talk about the bill, some who want to…

Ted Stevens
Sen. Ted StevensR-AK · Jun 28, 2005

Mr. President, I thank the Senator from Oregon for his statement and his support. I thank my colleague from Alaska for her statement. I come to the floor in opposition to the Sununu amendment, also.…

Lisa Murkowski
Sen. Lisa MurkowskiR-AK · Jun 28, 2005

Mr. President, this year marks the 100th anniversary of the founding of the U.S. Forest Service. The creation of the Forest Service in the Department of Agriculture is remembered as probably one of…

Tom Coburn
Sen. Tom CoburnR-OK · Jun 28, 2005

Parliamentary inquiry. Is it not the offeror of the amendment who places in order the amendments that are called up and lays the other amendments aside? Mr. President, I ask unanimous consent that…

Dianne Feinstein
Sen. Dianne FeinsteinD-CA · May 16, 2005

Mr. President, I rise to introduce the Credit Card Minimum Payment Notification Act. Today, 144 million Americans utilize credit cards and charge more debt on those cards than ever before. In 1990,…

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Mitch McConnell
Sen. Mitch McConnellR-KY · Jun 28, 2005

Mr. President, first, I extend my thanks to the majority leader for his exceptionally generous remarks about my service here, and I also want to take this opportunity to thank him for the…

Charles E. Schumer
Sen. Charles E. SchumerD-NY · May 16, 2005

Mr. President, I ask unanimous consent that the order for the quorum call be rescinded. Mr. President, I will speak on another subject, but as per an agreement with the Senator from Oklahoma, should…

Byron L. Dorgan
Sen. Byron L. DorganD-ND · May 16, 2005

Mr. President, I intend to introduce a bill and speak about it briefly. I will do that with the proviso that if someone comes and wishes to speak about their amendment on the highway bill, I will be…

Patty Murray
Sen. Patty MurrayD-WA · Jun 28, 2005

Mr. President, I rise today to speak to amendment No. 1052, an amendment offered by myself, Senator Byrd, and Senator Feinstein regarding emergency supplemental funding for the Veterans Health…

Kay Bailey Hutchison
Sen. Kay Bailey HutchisonR-TX · May 16, 2005

Mr. President, earlier this week, I offered an amendment, which was passed unanimously, to eliminate the ability to toll existing interstate highways. I did this because I believe in using our tax…

Conrad R. Burns
Sen. Conrad R. BurnsR-MT · Jun 28, 2005

I will take the chair. Mr. President, it is about time we got down to business this afternoon and start taking care of some of these amendments. We would like to dispose of this bill at least by…

Harry Reid
Sen. Harry ReidD-NV · May 16, 2005

Thank you very much, Mr. President. Wishing Senator Paul Sarbanes Well Mr. President, I would first like to say we have just received word that Paul Sarbanes has been taken to the hospital. He was…

Ron Wyden
Sen. Ron WydenD-OR · May 16, 2005

Mr. President, I ask unanimous consent that the order for the quorum call be rescinded. I ask unanimous consent to speak for 10 minutes. I very much appreciate the work of the Senators from Vermont…

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Byron L. Dorgan
Sen. Byron L. DorganD-ND · Jun 28, 2005

Mr. President, while we are waiting, I ask unanimous consent to add Senator Jeffords and Senator Salazar as cosponsors to the Murray amendment. Mr. President, I have cosponsored the amendment offered…

Gordon H. Smith
Sen. Gordon H. SmithR-OR · Jun 28, 2005

Mr. President, I rise to speak about a national forest that is not in my State, and of constituents who are not in the State of Oregon. I do so because I see happening to my Alaskan colleagues and…

George V. Voinovich
Sen. George V. VoinovichR-OH · Jun 28, 2005

Mr. President, I call up amendment No. 1010. I ask unanimous consent the current order in terms of the amendment be waived so we can discuss this amendment at this time. Thank you, Mr. President. Mr.…

William H. Frist
Sen. William H. FristR-TN · Jun 28, 2005

Mr. President, I rise today to pay tribute to a leader in the Senate, a true partner in guiding the 109th Congress and my friend. Today, we mark a momentous occasion for the senior Senator from…

Johnny Isakson
Sen. Johnny IsaksonR-GA · Jun 28, 2005

Mr. President, I wish to take just a minute to address 48 extraordinary hours in my life this past weekend I spent with the men and women in the U.S. Armed Forces, first on Saturday in Ellijay, GA,…

Daniel K. Akaka
Sen. Daniel K. AkakaD-HI · May 16, 2005

Mr. President, I rise today to introduce the Mutual Fund Transparency Act of 2005. Mutual funds are vital investment vehicles for middle-income Americans that offer diversification and professional…

Daniel K. Akaka
Sen. Daniel K. AkakaD-HI · May 16, 2005

Mr. President, I rise today to introduce the Mutual Fund Transparency Act of 2005. Mutual funds are vital investment vehicles for middle-income Americans that offer diversification and professional…

Daniel K. Akaka
Sen. Daniel K. AkakaD-HI · Jun 28, 2005

Mr. President, the Securities and Exchange Commission-- SEC--has been impressively led by Chairman William Donaldson. Chairman Donaldson inherited an agency in turmoil. The previous chairman left an…

John E. Sununu
Sen. John E. SununuR-NH · Jun 28, 2005

Mr. President, I ask unanimous consent that the order for the quorum call be rescinded. Mr. President, I rise to speak on my amendment. I had an opportunity to present more complete remarks last…

Edward M. Kennedy
Sen. Edward M. KennedyD-MA · May 16, 2005

Mr. President, first, I commend my friend and colleague from New York, Senator Schumer. I was listening to him when he mentioned some of our former colleagues, all with whom I have served. He…

William H. Frist
Sen. William H. FristR-TN · May 16, 2005

Mr. President, today we return to the consideration of the highway bill. The managers are here to work through the remaining amendments this afternoon, and we will have votes on at least one…

Bill Text

Latest available legislative text

Reading Mode
Latest
Introduced in SenateIssued May 16, 2005

II

109th CONGRESS

1st Session

S. 1037

IN THE SENATE OF THE UNITED STATES

May 16, 2005

Mr. Akaka introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To require disclosure of financial relationships between brokers and mutual fund companies, and of certain brokerage commissions paid by mutual fund companies.

1.

Short title

This Act may be cited as the Mutual Fund Transparency Act of 2005.

2.

Disclosure of financial relationships between brokers and mutual fund companies

(a)

In general

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:

(13)

Confirmation of transactions for mutual funds

(A)

In general

Each broker shall disclose in writing to customers that purchase the shares of an open-end company registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a–8)—

(i)

the amount of any compensation received or to be received by the broker in connection with such transaction from any sources; and

(ii)

such other information as the Commission determines appropriate.

(B)

Revenue sharing

The term compensation under subparagraph (A) shall include any direct or indirect payment made by an investment adviser (or any affiliate of an investment adviser) to a broker or dealer for the purpose of promoting the sales of securities of an open-end company.

(C)

Timing of disclosure

The disclosure required under subparagraph (A) shall be made to a customer not later than as of the date of the completion of the transaction.

(D)

Limitation

The disclosures required under subparagraph (A) may not be made exclusively in—

(i)

a registration statement or prospectus of an open-end company; or

(ii)

any other filing of an open-end company with the Commission.

(E)

Commission authority

(i)

In general

The Commission shall promulgate such final rules as are necessary to carry out this paragraph not later than 1 year after the date of enactment of the Mutual Fund Transparency Act of 2005.

(ii)

Form of disclosure

Disclosures under this paragraph shall be in such form as the Commission, by rule, shall require.

(F)

Definition

In this paragraph, the term open-end company has the same meaning as in section 5 of the Investment Company Act of 1940 (15 U.S.C. 80a–5).

.

(b)

Disclosure of brokerage commissions

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)

Disclosure of brokerage commissions

The Commission, by rule, shall require that brokerage commissions as an aggregate dollar amount and percentage of assets paid by an open-end company be included in any disclosure of the amount of fees and expenses that may be payable by the holder of the securities of such company for purposes of—

(1)

the registration statement of that open-end company; and

(2)

any other filing of that open-end company with the Commission, including the calculation of expense ratios.

.

3.

Mutual fund governance

(a)

Independent fund boards

Section 10(a) of the Investment Company Act of 1940 (15 U.S.C. 80a–10(a)) is amended—

(1)

by striking shall have and inserting the following:

shall—

(1)

have

;

(2)

by striking 60 per centum and inserting 25 percent;

(3)

by striking the period at the end and inserting a semicolon; and

(4)

by adding at the end the following:

(2)

have as chairman of its board of directors an interested person of such registered company; or

(3)

have as a member of its board of directors any person that is an interested person of such registered investment company—

(A)

who has served without being approved or elected by the shareholders of such registered investment company at least once every 5 years; and

(B)

unless such director has been found, on an annual basis, by a majority of the directors who are not interested persons, after reasonable inquiry by such directors, not to have any material business or familial relationship with the registered investment company, a significant service provider to the company, or any entity controlling, controlled by, or under common control with such service provider, that is likely to impair the independence of the director.

.

(b)

Action by independent directors

Section 10 of the Investment Company Act of 1940 (15 U.S.C. 80a–10) is amended by adding at the end the following:

(i)

Action by board of directors

No action taken by the board of directors of a registered investment company may require the vote of a director who is an interested person of such registered investment company.

(j)

Independent committee

(1)

In general

The members of the board of directors of a registered investment company who are not interested persons of such registered investment company shall establish a committee comprised solely of such members, which committee shall be responsible for—

(A)

selecting persons to be nominated for election to the board of directors; and

(B)

adopting qualification standards for the nomination of directors.

(2)

Disclosure

The standards developed under paragraph (1)(B) shall be disclosed in the registration statement of the registered investment company.

.

(c)

Definition of interested person

Section 2(a)(19) of the Investment Company Act of 1940 (15 U.S.C. 80a–2) is amended—

(1)

in subparagraph (A)—

(A)

in clause (iv), by striking two and inserting 5; and

(B)

by striking clause (vii) and inserting the following:

(vii)

any natural person who has served as an officer or director, or as an employee within the preceding 10 fiscal years, of an investment adviser or principal underwriter to such registered investment company, or of any entity controlling, controlled by, or under common control with such investment adviser or principal underwriter;

(viii)

any natural person who has served as an officer or director, or as an employee within the preceding 10 fiscal years, of any entity that has within the preceding 5 fiscal years acted as a significant service provider to such registered investment company, or of any entity controlling, controlled by, or under the common control with such service provider;

(ix)

any natural person who is a member of a class of persons that the Commission, by rule or regulation, determines is unlikely to exercise an appropriate degree of independence as a result of—

(I)

a material business relationship with the investment company or an affiliated person of such investment company;

(II)

a close familial relationship with any natural person who is an affiliated person of such investment company; or

(III)

any other reason determined by the Commission.

;

(2)

in subparagraph (B)—

(A)

in clause (iv), by striking two and inserting 5; and

(B)

by striking clause (vii) and inserting the following:

(vii)

any natural person who is a member of a class of persons that the Commission, by rule or regulation, determines is unlikely to exercise an appropriate degree of independence as a result of—

(I)

a material business relationship with such investment adviser or principal underwriter or affiliated person of such investment adviser or principal underwriter;

(II)

a close familial relationship with any natural person who is an affiliated person of such investment adviser or principal underwriter; or

(III)

any other reason as determined by the Commission:

.

(d)

Definition of significant service provider

Section 2(a) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)) is amended by adding at the end the following:

(53)

Significant service provider

(A)

In general

Not later than 270 days after the date of enactment of the Mutual Fund Transparency Act of 2005, the Securities and Exchange Commission shall issue final rules defining the term significant service provider.

(B)

Requirements

The definition developed under paragraph (1) shall include, at a minimum, the investment adviser and principal underwriter of a registered investment company for purposes of paragraph (19).

.

4.

Financial literacy among mutual fund investors study

(a)

In general

The Securities and Exchange Commission shall conduct a study to identify—

(1)

the existing level of financial literacy among investors that purchase shares of open-end companies, as that term is defined under section 5 of the Investment Company Act of 1940, that are registered under section 8 of that Act;

(2)

the most useful and understandable relevant information that investors need to make sound financial decisions prior to purchasing such shares;

(3)

methods to increase the transparency of expenses and potential conflicts of interest in transactions involving the shares of open-end companies;

(4)

the existing private and public efforts to educate investors; and

(5)

a strategy to increase the financial literacy of investors that results in a positive change in investor behavior.

(b)

Report

Not later than 1 year after the date of enactment of this Act, the Securities and Exchange Commission shall submit a report on 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.

5.

Study regarding mutual fund advertising

(a)

In general

The Comptroller General of the United States shall conduct a study on mutual fund advertising to identify—

(1)

existing and proposed regulatory requirements for open-end investment company advertisements;

(2)

current marketing practices for the sale of open-end investment company shares, including the use of unsustainable past performance data, funds that have merged, and incubator funds;

(3)

the impact of such advertising on consumers; and

(4)

recommendations to improve investor protections in mutual fund advertising and additional information necessary to ensure that investors can make informed financial decisions when purchasing shares.

(b)

Report

Not later than 1 year after the date of enactment of this Act, the Comptroller General of the United States shall submit a report on the results of the study conducted under subsection (a) to—

(1)

the Committee on Banking, Housing, and Urban Affairs of the United States Senate; and

(2)

the Committee on Financial Services of the House of Representatives.

6.

Point-of-sale disclosure

(a)

In general

Section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)), as amended by section 2, is amended by adding at the end the following:

(14)

Broker disclosures in mutual fund transactions

(A)

In general

Each broker shall disclose 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, in dollars and as a percentage of assets, of any compensation received or to be received by the broker in connection with such transaction from any sources;

(ii)

the amount, in dollars and as a percentage of assets, of compensation received in connection with transactions in shares of other investment company shares offered by the broker, if materially different from the amount under (i);

(iii)

comparative information that shows the average amount received by brokers in connection with comparable transactions, as determined by the Commission; and

(iv)

such other information as the Commission determines appropriate.

(B)

Revenue sharing

The term compensation under subparagraph (A) shall include any direct or indirect payment made by an investment adviser (or any affiliate of an investment adviser) to a broker or dealer for the purpose of promoting the sales of securities of a registered investment company.

(C)

Timing of disclosure

The disclosures required under subparagraph (A) shall be made to permit the person purchasing the shares to evaluate such disclosures before deciding to engage in the transaction.

(D)

Limitation

The disclosures required under subparagraph (A) may not be made exclusively in—

(i)

a registration statement or prospectus of a registered investment company; or

(ii)

any other filing of a registered investment company with the Commission.

(E)

Commission authority

The Commission shall promulgate such final rules as are necessary to carry out this paragraph not later than 1 year after the date of enactment of the Mutual Fund Transparency Act of 2005.

.

(b)

National securities association requirements

Section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by adding at the end the following:

(n)

National securities association requirements

Each national securities association registered pursuant to this section shall issue such rules as necessary not later than 1 year after the date of enactment of the Mutual Fund Transparency Act of 2005 to require that a broker that provides individualized investment advice to a person shall—

(1)

have a fiduciary duty to that person;

(2)

act solely in the best interests of that person; and

(3)

fully disclose all potential conflicts of interest and other information that is material to the relationship to that person prior to the time that the investment advice is first provided to the person and at least annually thereafter.

.