Union Calendar No. 178

104TH CONGRESS

1ST SESSION H. R. 2519

[Report No. 104–333]

A BILL

To facilitate contributions to charitable organizaFederal securities laws, and for other purposes. tions by codifying certain exemptions from the

NOVEMBER 10, 1995

Reported with an amendment, committed to the Commitordered to be printed tee of the Whole House on the State of the Union, and
IB

Union Calendar No. 178

104TH CONGRESS

1ST SESSION H. R. 2519

[Report No. 104–333]

To facilitate contributions to charitable organizations by codifying certain

exemptions from the Federal securities laws, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 24, 1995

Mr. FIELDS of Texas (for himself, Mr. BLILEY, Mr. BURR, Mr. DINGELL, Mr.

EDWARDS, Mr. FRISA, and Mr. MARKEY) introduced the following bill;

which was referred to the Committee on Commerce

NOVEMBER 10, 1995

Additional sponsors:

Mr. BRYANT of Texas, Mr. GILLMOR, Mr. HALL of Texas, Mr. HUTCHINSON,

Mr. INGLIS of South Carolina, Mr. OXLEY, Mr. SMITH of Texas, Mr.

BARTON of Texas, Mr. BENTSEN, Mr. LEWIS of Georgia, Mr. BREWSTER, Mr. MCDERMOTT, Mr. RAMSTAD, Mr. HASTERT, Mr.

FUNDERBURK, Mr. EMERSON, Mr. CRAMER, Mr. QUILLEN, Mr. STUMP,

and Ms. WOOLSEY

NOVEMBER 10, 1995

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 October 24, 1995]

A BILL

To facilitate contributions to charitable organizations by codi-
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fying certain exemptions from the Federal securities

laws, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the ‘‘Phi5 lanthropy Protection Act of 1995’’.

6 (b) TABLE OF CONTENTS.—The table of contents for

7 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Amendments to the Investment Company Act of 1940.

Sec. 3. Amendment to the Securities Act of 1933.

Sec. 4. Amendments to the Securities Exchange Act of 1934.

Sec. 5. Amendment of the Investment Advisers Act of 1940.

Sec. 6. Protection of philanthropy under State law.

Sec. 7. Effective dates and applicability.

8 SEC. 2. AMENDMENTS TO THE INVESTMENT COMPANY ACT

9 OF 1940.

10 (a) EXEMPTION.—Section 3(c)(10) of the Investment

11 Company Act of 1940 (15 U.S.C. 80a–3(c)(10) is amended

12 to read as follows:

13 ‘‘(10)(A) Any company organized and operated

14 exclusively for religious, educational, benevolent, fra15 ternal, charitable, or reformatory purposes—

16 ‘‘(i) no part of the net earnings of which in17 ures to the benefit of any private shareholder or

18 individual; or

19 ‘‘(ii) which is or maintains a fund de20 scribed in subparagraph (B).
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1 ‘‘(B) For the purposes of subparagraph (A)(ii),

2 a fund is described in this subparagraph if such fund

3 is a pooled income fund, collective trust fund, collec4 tive investment fund, or similar fund maintained by

5 a charitable organization exclusively for the collective

6 investment and reinvestment of one or more of the fol7 lowing:

8 ‘‘(i) assets of the general endowment fund or

9 other funds of one or more charitable organiza10 tions;

11 ‘‘(ii) assets of a pooled income fund;

12 ‘‘(iii) assets contributed to a charitable or13 ganization in exchange for the issuance of chari14 table gift annuities;

15 ‘‘(iv) assets of a charitable remainder trust

16 or of any other trust, the remainder interests of

17 which are irrevocably dedicated to any charitable

18 organization;

19 ‘‘(v) assets of a charitable lead trust;

20 ‘‘(vi) assets of a trust not described in

21 clauses (i) through (v), the remainder interests of

22 which are revocably dedicated to a charitable or23 ganization, subject to subparagraph (C); or

24 ‘‘(vii) such assets (including assets

25 revocably dedicated to a charitable organization)
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1 as the Commission may prescribe by rule, regu2 lation, or order in accordance with section 6(c).

3 ‘‘(C) A fund that contains assets described in

4 clause (vi) of subparagraph (B) shall be excluded

5 from the definition of an investment company for a

6 period of 3 years after the date of enactment of this

7 subparagraph, but only if—

8 ‘‘(i) such assets were contributed before the

9 date which is 60 days after the date of enactment

10 of this subparagraph; and

11 ‘‘(ii) such assets are commingled in the fund

12 with assets described in one or more of clauses

13 (i) through (v) of subparagraph (B).

14 ‘‘(D) For purposes of this paragraph—

15 ‘‘(i) a trust or fund is ‘maintained’ by a

16 charitable organization if the organization serves

17 as a trustee or administrator of the trust or fund

18 or has the power to remove the trustees or ad19 ministrators of the trust or fund and to des20 ignate new trustees or administrators;

21 ‘‘(ii) the term ‘pooled income fund’ has the

22 same meaning as in section 642(c)(5) of the In23 ternal Revenue Code of 1986;

24 ‘‘(iii) the term ‘charitable organization’

25 means an organization described in paragraphs
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1 (1) through (5) of section 170(c) or section

2 501(c)(3) of the Internal Revenue Code of 1986;

3 ‘‘(iv) the term ‘charitable lead trust’ means

4 a trust described in section 170(f)(2)(B),

5 2055(e)(2)(B), or 2522(c)(2)(B) of the Internal

6 Revenue Code of 1986;

7 ‘‘(v) the term ‘charitable remainder trust’

8 means a charitable remainder annuity trust or

9 a charitable remainder unitrust, as those terms

10 are defined in section 664(d) of the Internal Rev11 enue Code of 1986; and

12 ‘‘(vi) the term ‘charitable gift annuity’

13 means an annuity issued by a charitable organi14 zation that is described in section 501(m)(5) of

15 the Internal Revenue Code of 1986.’’.

16 (b) DISCLOSURE BY EXEMPT CHARITABLE ORGANIZA17 TIONS.—Section 7 of the Investment Company Act of 1940

18 (15 U.S.C. 80a–7) is amended by adding at the end the

19 following new subsection:

20 ‘‘(e) DISCLOSURE BY EXEMPT CHARITABLE ORGANI21 ZATIONS.—Each fund that is excluded from the definition

22 of an investment company under section 3(c)(10)(B) of this

23 Act shall provide, to each donor to such fund, at the time

24 of the donation or within 90 days after the date of enact25 ment of this subsection, whichever is later, written informa-
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1 tion describing the material terms of the operation of such

2 fund.’’.

3 SEC. 3. AMENDMENT TO THE SECURITIES ACT OF 1933.

4 Section 3(a)(4) of the Securities Act of 1933 (15 U.S.C.

5 77c(a)(4)) is amended by inserting after the semicolon at

6 the end the following: ‘‘or any security of a fund that is

7 excluded from the definition of an investment company

8 under section 3(c)(10)(B) of the Investment Company Act

9 of 1940;’’.

10 SEC. 4. AMENDMENTS TO THE SECURITIES EXCHANGE ACT

11 OF 1934.

12 (a) EXEMPTED SECURITIES.—Section 3(a)(12)(A) of

13 the Securities Exchange Act of 1934 (15 U.S.C.

14 78c(a)(12)(A)) is amended—

15 (1) in clause (iv) by striking ‘‘and’’ at the end;

16 (2) by redesignating clause (v) as clause (vi);

17 and

18 (3) by inserting after clause (iv) the following

19 new clause:

20 ‘‘(v) any security issued by or any interest

21 or participation in any pooled income fund, col22 lective trust fund, collective investment fund, or

23 similar fund that is excluded from the definition

24 of an investment company under section
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1 3(c)(10)(B) of the Investment Company Act of

2 1940; and’’.

3 (b) EXEMPTION FROM BROKER-DEALER PROVI4 SIONS.—Section 3 of such Act (15 U.S.C. 78c) is amended

5 by adding at the end the following new subsection:

6 ‘‘(e) CHARITABLE ORGANIZATIONS.—

7 ‘‘(1) EXEMPTION.—Notwithstanding any other

8 provision of this title, but subject to paragraph (2) of

9 this subsection, a charitable organization, as defined

10 in section 3(c)(10)(D) of the Investment Company Act

11 of 1940, or any trustee, director, officer, employee, or

12 volunteer of such a charitable organization acting

13 within the scope of such person’s employment or du14 ties with such organization, shall not be deemed to be

15 a ‘broker’, ‘dealer’, ‘municipal securities broker’, ‘mu16 nicipal securities dealer’, ‘government securities

17 broker’, or ‘government securities dealer’ for purposes

18 of this title solely because such organization or person

19 buys, holds, sells, or trades in securities for its own

20 account in its capacity as trustee or administrator of,

21 or otherwise on behalf of or for the account of—

22 ‘‘(A) such a charitable organization;

23 ‘‘(B) a fund that is excluded from the defi24 nition of an investment company under section
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1 3(c)(10)(B) of the Investment Company Act of

2 1940; or

3 ‘‘(C) a trust or other donative instrument

4 described in section 3(c)(10)(B) of the Invest5 ment Company Act of 1940, or the settlors (or

6 potential settlors) or beneficiaries of any such

7 trust or other instrument.

8 ‘‘(2) LIMITATION ON COMPENSATION.—The ex9 emption provided under paragraph (1) shall not be

10 available to any charitable organization, or any

11 trustee, director, officer, employee, or volunteer of such

12 a charitable organization, unless each person who, on

13 or after 90 days after the date of enactment of this

14 subsection, solicits donations on behalf of such chari15 table organization from any donor to a fund that is

16 excluded from the definition of an investment com17 pany under section 3(c)(10)(B) of the Investment

18 Company Act of 1940, is either a volunteer or is en19 gaged in the overall fund raising activities of a chari20 table organization and receives no commission or

21 other special compensation based on the number or

22 the value of donations collected for the fund.’’.

23 (d) CONFORMING AMENDMENT.—Section 12(g)(2)(D)

24 of such Act (15 U.S.C. 78l(g)(2)(D)) is amended by insert25 ing before the period ‘‘; or any security of a fund that is
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1 excluded from the definition of an investment company

2 under section 3(c)(10)(B) of the Investment Company Act

3 of 1940’’.

4 SEC. 5. AMENDMENT OF THE INVESTMENT ADVISERS ACT

5 OF 1940.

6 Section 203(b) of Investment Advisers Act of 1940 (15

7 U.S.C. 80b–3(b)) is amended—

8 (1) by striking ‘‘or’’ at the end of paragraph (2);

9 (2) by striking the period at the end of para10 graph (3) and inserting ‘‘; or’’; and

11 (3) by adding at the end the following new para12 graph:

13 ‘‘(4) any investment adviser that is a charitable

14 organization, as defined in section 3(c)(10)(D) of the

15 Investment Company Act of 1940, or is a trustee, di16 rector, officer, employee, or volunteer of such a chari17 table organization acting within the scope of such

18 person’s employment or duties with such organiza19 tion, whose advice, analyses, or reports are provided

20 only to one or more of the following:

21 ‘‘(A) any such charitable organization;

22 ‘‘(B) a fund that is excluded from the defi23 nition of an investment company under section

24 3(c)(10)(B) of the Investment Company Act of

25 1940; or
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1 ‘‘(C) a trust or other donative instrument

2 described in section 3(c)(10)(B) of the Invest3 ment Company Act of 1940, or the trustees, ad4 ministrators, settlors (or potential settlors), or

5 beneficiaries of any such trust or other instru6 ment.’’.

7 SEC. 6. PROTECTION OF PHILANTHROPY UNDER STATE

8 LAW.

9 (a) REGISTRATION REQUIREMENTS.—A security is10 sued by or any interest or participation in any pooled in11 come fund, collective trust fund, collective investment fund,

12 or similar fund that is excluded from the definition of an

13 investment company under section 3(c)(10)(B) of the In14 vestment Company Act of 1940, and the offer or sale thereof,

15 shall be exempt from any statute or regulation of a State

16 that requires registration or qualification of securities.

17 (b) TREATMENT OF CHARITABLE ORGANIZATIONS.—

18 No charitable organization, or any trustee, director, officer,

19 employee, or volunteer of a charitable organization acting

20 within the scope of such person’s employment or duties,

21 shall be required to register as, or be subject to regulation

22 as, a dealer, broker, agent, or investment adviser under the

23 securities laws of any State because such organization or

24 person buys, holds, sells, or trades in securities for its own

25 account in its capacity as trustee or administrator of, or
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1 otherwise on behalf of or for the account of one or more

2 of the following:

3 (1) a charitable organization;

4 (2) a fund that is excluded from the definition

5 of an investment company under section 3(c)(10)(B)

6 of the Investment Company Act of 1940; or

7 (3) a trust or other donative instrument de8 scribed in section 3(c)(10)(B) of the Investment Com9 pany Act of 1940, or the settlors (or potential settlors)

10 or beneficiaries of any such trusts or other instru11 ments.

12 (c) STATE ACTION.—Notwithstanding subsections (a)

13 and (b), during the 3-year period beginning on the date

14 of enactment of this Act, a State may enact a statute that

15 specifically refers to this section and provides prospectively

16 that this section shall not preempt the laws of that State

17 referred to in this section.

18 (d) DEFINITIONS.—For purposes of this section—

19 (1) the term ‘‘charitable organization’’ means an

20 organization described in paragraphs (1) through (5)

21 of section 170(c) or section 501(c)(3) of the Internal

22 Revenue Code of 1986;

23 (2) the term ‘‘security’’ has the same meaning as

24 in section 3 of the Securities Exchange Act of 1934;

25 and
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1 (3) the term ‘‘State’’ means each of the several

2 States of the United States, the District of Columbia,

3 the Commonwealth of Puerto Rico, the Virgin Islands,

4 Guam, American Samoa, and the Commonwealth of

5 the Northern Mariana Islands.

6 SEC. 7. EFFECTIVE DATES AND APPLICABILITY.

7 This Act and the amendments made by this Act shall

8 apply in all administrative and judicial actions pending

9 on or commenced after the date of enactment of this Act,

10 as a defense to any claim that any person, security, interest,

11 or participation of the type described in this Act and the

12 amendments made by this Act is subject to the provisions

13 of the Securities Act of 1933, the Securities Exchange Act

14 of 1934, the Investment Company Act of 1940, or the Invest15 ment Advisers Act of 1940, or any State statute or regula16 tion preempted as provided in section 6 of this Act, except

17 as otherwise specifically provided in such Acts or State law.