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104TH CONGRESS

1ST SESSION H. R. 2519

IN THE SENATE OF THE UNITED STATES

NOVEMBER 29, 1995

Received

AN ACT

To facilitate contributions to charitable organizations by codifying 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

5 ‘‘Philanthropy Protection Act of 1995’’.
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1 (b) TABLE OF CONTENTS.—The table of contents for

2 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.

3 SEC. 2. AMENDMENTS TO THE INVESTMENT COMPANY ACT

4 OF 1940.

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

6 Company Act of 1940 (15 U.S.C. 80a–3(c)(10) is amend7 ed to read as follows:

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

9 exclusively for religious, educational, benevolent, fra10 ternal, charitable, or reformatory purposes—

11 ‘‘(i) no part of the net earnings of which

12 inures to the benefit of any private shareholder

13 or individual; or

14 ‘‘(ii) which is or maintains a fund de15 scribed in subparagraph (B).

16 ‘‘(B) For the purposes of subparagraph (A)(ii),

17 a fund is described in this subparagraph if such

18 fund is a pooled income fund, collective trust fund,

19 collective investment fund, or similar fund main20 tained by a charitable organization exclusively for

21 the collective investment and reinvestment of one or

22 more of the following:
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1 ‘‘(i) assets of the general endowment fund

2 or other funds of one or more charitable organi3 zations;

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

5 ‘‘(iii) assets contributed to a charitable or6 ganization in exchange for the issuance of char7 itable gift annuities;

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

9 or of any other trust, the remainder interests of

10 which are irrevocably dedicated to any chari11 table organization;

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

13 ‘‘(vi) assets of a trust, the remainder inter14 ests of which are revocably dedicated to or for

15 the benefit of 1 or more charitable organiza16 tions, if the ability to revoke the dedication is

17 limited to circumstances involving—

18 ‘‘(I) an adverse change in the finan19 cial circumstances of a settlor or an in20 come beneficiary of the trust;

21 ‘‘(II) a change in the identity of the

22 charitable organization or organizations

23 having the remainder interest, provided

24 that the new beneficiary is also a chari25 table organization; or
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1 ‘‘(III) both the changes described in

2 subclauses (I) and (II);

3 ‘‘(vii) assets of a trust not described in

4 clauses (i) through (v), the remainder interests

5 of which are revocably dedicated to a charitable

6 organization, subject to subparagraph (C); or

7 ‘‘(viii) such assets as the Commission may

8 prescribe by rule, regulation, or order in accord9 ance with section 6(c).

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

11 clause (vii) of subparagraph (B) shall be excluded

12 from the definition of an investment company for a

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

14 subparagraph, but only if—

15 ‘‘(i) such assets were contributed before

16 the date which is 60 days after the date of en17 actment of this subparagraph; and

18 ‘‘(ii) such assets are commingled in the

19 fund with assets described in one or more of

20 clauses (i) through (vi) and (viii) of subpara21 graph (B).

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

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

24 charitable organization if the organization

25 serves as a trustee or administrator of the trust
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1 or fund or has the power to remove the trustees

2 or administrators of the trust or fund and to

3 designate new trustees or administrators;

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

5 same meaning as in section 642(c)(5) of the In6 ternal Revenue Code of 1986;

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

8 means an organization described in paragraphs

9 (1) through (5) of section 170(c) or section

10 501(c)(3) of the Internal Revenue Code of

11 1986;

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

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

14 2055(e)(2)(B), or 2522(c)(2)(B) of the Internal

15 Revenue Code of 1986;

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

17 means a charitable remainder annuity trust or

18 a charitable remainder unitrust, as those terms

19 are defined in section 664(d) of the Internal

20 Revenue Code of 1986; and

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

22 means an annuity issued by a charitable organi23 zation that is described in section 501(m)(5) of

24 the Internal Revenue Code of 1986.’’.
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1 (b) DISCLOSURE BY EXEMPT CHARITABLE ORGANI2 ZATIONS.—Section 7 of the Investment Company Act of

3 1940 (15 U.S.C. 80a–7) is amended by adding at the end

4 the following new subsection:

5 ‘‘(e) DISCLOSURE BY EXEMPT CHARITABLE ORGANI6 ZATIONS.—Each fund that is excluded from the definition

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

8 this Act shall provide, to each donor to such fund, at the

9 time of the donation or within 90 days after the date of

10 enactment of this subsection, whichever is later, written

11 information describing the material terms of the operation

12 of such fund.’’.

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

14 Section 3(a)(4) of the Securities Act of 1933 (15

15 U.S.C. 77c(a)(4)) is amended by inserting after the semi16 colon at the end the following: ‘‘or any security of a fund

17 that is excluded from the definition of an investment com18 pany under section 3(c)(10)(B) of the Investment Com19 pany Act of 1940;’’.

20 SEC. 4. AMENDMENTS TO THE SECURITIES EXCHANGE ACT

21 OF 1934.

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

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

24 78c(a)(12)(A)) is amended—

25 (1) in clause (iv) by striking ‘‘and’’ at the end;
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1 (2) by redesignating clause (v) as clause (vi);

2 and

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

4 new clause:

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

6 or participation in any pooled income fund, col7 lective trust fund, collective investment fund, or

8 similar fund that is excluded from the definition

9 of an investment company under section

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

11 1940; and’’.

12 (b) EXEMPTION FROM BROKER-DEALER PROVI13 SIONS.—Section 3 of such Act (15 U.S.C. 78c) is amended

14 by adding at the end the following new subsection:

15 ‘‘(e) CHARITABLE ORGANIZATIONS.—

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

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

18 of this subsection, a charitable organization, as de19 fined in section 3(c)(10)(D) of the Investment Com20 pany Act of 1940, or any trustee, director, officer,

21 employee, or volunteer of such a charitable organiza22 tion acting within the scope of such person’s employ23 ment or duties with such organization, shall not be

24 deemed to be a ‘broker’, ‘dealer’, ‘municipal securi25 ties broker’, ‘municipal securities dealer’, ‘govern-
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1 ment securities broker’, or ‘government securities

2 dealer’ for purposes of this title solely because such

3 organization or person buys, holds, sells, or trades in

4 securities for its own account in its capacity as

5 trustee or administrator of, or otherwise on behalf of

6 or for the account of—

7 ‘‘(A) such a charitable organization;

8 ‘‘(B) a fund that is excluded from the defi9 nition of an investment company under section

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

11 1940; or

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

13 described in section 3(c)(10)(B) of the Invest14 ment Company Act of 1940, or the settlors (or

15 potential settlors) or beneficiaries of any such

16 trust or other instrument.

17 ‘‘(2) LIMITATION ON COMPENSATION.—The ex18 emption provided under paragraph (1) shall not be

19 available to any charitable organization, or any

20 trustee, director, officer, employee, or volunteer of

21 such a charitable organization, unless each person

22 who, on or after 90 days after the date of enactment

23 of this subsection, solicits donations on behalf of

24 such charitable organization from any donor to a

25 fund that is excluded from the definition of an in-
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1 vestment company under section 3(c)(10)(B) of the

2 Investment Company Act of 1940, is either a volun3 teer or is engaged in the overall fund raising activi4 ties of a charitable organization and receives no

5 commission or other special compensation based on

6 the number or the value of donations collected for

7 the fund.’’.

8 (d) CONFORMING AMENDMENT.—Section

9 12(g)(2)(D) of such Act (15 U.S.C. 78l(g)(2)(D)) is

10 amended by inserting before the period ‘‘; or any security

11 of a fund that is excluded from the definition of an invest12 ment company under section 3(c)(10)(B) of the Invest13 ment Company Act of 1940’’.

14 SEC. 5. AMENDMENT OF THE INVESTMENT ADVISERS ACT

15 OF 1940.

16 Section 203(b) of the Investment Advisers Act of

17 1940 (15 U.S.C. 80b–3(b)) is amended—

18 (1) by striking ‘‘or’’ at the end of paragraph

19 (2);

20 (2) by striking the period at the end of para21 graph (3) and inserting ‘‘; or’’; and

22 (3) by adding at the end the following new

23 paragraph:

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

25 organization, as defined in section 3(c)(10)(D) of
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1 the Investment Company Act of 1940, or is a trust2 ee, director, officer, employee, or volunteer of such

3 a charitable organization acting within the scope of

4 such person’s employment or duties with such orga5 nization, whose advice, analyses, or reports are pro6 vided only to one or more of the following:

7 ‘‘(A) any such charitable organization;

8 ‘‘(B) a fund that is excluded from the defi9 nition of an investment company under section

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

11 1940; or

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

13 described in section 3(c)(10)(B) of the Invest14 ment Company Act of 1940, or the trustees, ad15 ministrators, settlors (or potential settlors), or

16 beneficiaries of any such trust or other instru17 ment.’’.

18 SEC. 6. PROTECTION OF PHILANTHROPY UNDER STATE

19 LAW.

20 (a) REGISTRATION REQUIREMENTS.—A security is21 sued by or any interest or participation in any pooled in22 come fund, collective trust fund, collective investment

23 fund, or similar fund that is excluded from the definition

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

25 the Investment Company Act of 1940, and the offer or
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1 sale thereof, shall be exempt from any statute or regula2 tion of a State that requires registration or qualification

3 of securities.

4 (b) TREATMENT OF CHARITABLE ORGANIZATIONS.—

5 No charitable organization, or any trustee, director, offi6 cer, employee, or volunteer of a charitable organization

7 acting within the scope of such person’s employment or

8 duties, shall be required to register as, or be subject to

9 regulation as, a dealer, broker, agent, or investment ad10 viser under the securities laws of any State because such

11 organization or person buys, holds, sells, or trades in secu12 rities for its own account in its capacity as trustee or ad13 ministrator of, or otherwise on behalf of or for the account

14 of one or more of the following:

15 (1) a charitable organization;

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

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

18 of the Investment Company Act of 1940; or

19 (3) a trust or other donative instrument de20 scribed in section 3(c)(10)(B) of the Investment

21 Company Act of 1940, or the settlors (or potential

22 settlors) or beneficiaries of any such trusts or other

23 instruments.

24 (c) STATE ACTION.—Notwithstanding subsections

25 (a) and (b), during the 3-year period beginning on the
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1 date of enactment of this Act, a State may enact a statute

2 that specifically refers to this section and provides pro3 spectively that this section shall not preempt the laws of

4 that State referred to in this section.

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

6 (1) the term ‘‘charitable organization’’ means

7 an organization described in paragraphs (1) through

8 (5) of section 170(c) or section 501(c)(3) of the In9 ternal Revenue Code of 1986;

10 (2) the term ‘‘security’’ has the same meaning

11 as in section 3 of the Securities Exchange Act of

12 1934; and

13 (3) the term ‘‘State’’ means each of the several

14 States of the United States, the District of Colum15 bia, the Commonwealth of Puerto Rico, the Virgin

16 Islands, Guam, American Samoa, and the Common17 wealth of the Northern Mariana Islands.

18 SEC. 7. EFFECTIVE DATES AND APPLICABILITY.

19 This Act and the amendments made by this Act shall

20 apply in all administrative and judicial actions pending on

21 or commenced after the date of enactment of this Act, as

22 a defense to any claim that any person, security, interest,

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

24 amendments made by this Act is subject to the provisions

25 of the Securities Act of 1933, the Securities Exchange Act
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1 of 1934, the Investment Company Act of 1940, or the In2 vestment Advisers Act of 1940, or any State statute or

3 regulation preempted as provided in section 6 of this Act,

4 except as otherwise specifically provided in such Acts or

5 State law.

Passed the House of Representatives November 28,

1995.

Attest: ROBIN H. CARLE,

Clerk.