I

104TH CONGRESS

1ST SESSION H. R. 2519

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

A BILL

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’’.

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

Sec. 6. Protection of philanthropy under state law.

Sec. 7. Effective dates and applicability.

1 SEC. 2. AMENDMENT TO THE INVESTMENT COMPANY ACT

2 OF 1940.

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

4 1940 (15 U.S.C. 80a–3(c)(10) is amended to read as fol5 lows:

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

7 exclusively for religious, educational, benevolent, fra8 ternal, charitable, or reformatory purposes—

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

10 inures to the benefit of any private shareholder

11 or individual; or

12 ‘‘(ii) which is or maintains a fund de13 scribed in subparagraph (B).

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

15 a fund is described in this subparagraph if such

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

17 collective investment fund, or similar fund main18 tained by a charitable organization exclusively for

19 the collective investment and reinvestment of one or

20 more of the following:

21 ‘‘(i) assets of the general endowment fund

22 or other funds of one or more charitable organi23 zations;

24 ‘‘(ii) assets of a pooled income fund;
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1 ‘‘(iii) assets contributed to a charitable or2 ganization in exchange for the issuance of char3 itable gift annuities;

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

5 or of any other trust, the remainder interests of

6 which are irrevocably dedicated to any chari7 table organization;

8 ‘‘(v) assets of a charitable lead trust; or

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

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

11 of which are revocably dedicated to a charitable

12 organization, subject to subparagraph (C).

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

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

15 from the definition of an investment company for a

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

17 subparagraph, but only if—

18 ‘‘(i) such assets were contributed before

19 the date which is 60 days after the date of en20 actment of this subparagraph; and

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

22 fund with assets described in one or more of

23 clauses (i) through (v) of subparagraph (B).

24 ‘‘(D) For purposes of this paragraph—
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1 ‘‘(i) a trust or fund is ‘maintained’ by a

2 charitable organization if the organization

3 serves as a trustee or administrator of the trust

4 or fund or has the power to remove the trustees

5 or administrators of the trust or fund and to

6 designate new trustees or administrators;

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

8 same meaning as in section 642(c)(5) of the In9 ternal Revenue Code of 1986;

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

11 means an organization described in paragraphs

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

13 501(c)(3) of the Internal Revenue Code of

14 1986;

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

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

17 2055(e)(2)(B), or 2522(c)(2)(B) of the Internal

18 Revenue Code of 1986;

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

20 means a charitable remainder annuity trust or

21 a charitable remainder unitrust, as those terms

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

23 Revenue Code of 1986; and

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

25 means an annuity issued by a charitable organi-
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1 zation that is described in section 501(m)(5) of

2 the Internal Revenue Code of 1986.’’.

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

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

5 U.S.C. 77c(a)(4)) is amended by inserting after the semi6 colon at the end the following: ‘‘or any security of a fund

7 that is excluded from the definition of an investment com8 pany under section 3(c)(10)(B) of the Investment Com9 pany Act 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 in21 terest or participation in any pooled in22 come fund, collective trust fund, collective

23 investment fund, or similar fund that is ex24 cluded from the definition of an investment
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1 company under section 3(c)(10)(B) of the

2 Investment Company Act of 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.—Notwithstand7 ing any other provision of this title, a charitable organiza8 tion, as defined in section 3(c)(10)(D) of the Investment

9 Company Act of 1940, or any trustee, director, officer,

10 employee, or volunteer of such a charitable organization

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

12 duties with such organization, shall not be deemed to be

13 a ‘broker’, ‘dealer’, ‘municipal securities broker’, ‘munici14 pal securities dealer’, ‘government securities broker’, or

15 ‘government securities dealer’ for purposes of this title

16 solely because such organization or person buys, holds,

17 sells, or trades in securities for its own account in its ca18 pacity as trustee or administrator of, or otherwise on be19 half of or for the account of—

20 ‘‘(1) such a charitable organization;

21 ‘‘(2) a fund that is excluded from the definition

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

23 of the Investment Company Act of 1940; or

24 ‘‘(3) a trust or other donative instrument de25 scribed in section 3(c)(10)(B) of the Investment
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1 Company Act of 1940, or the settlors (or potential

2 settlors) or beneficiaries of any such trust or other

3 instrument.’’.

4 (c) DISCLOSURE AND SOLICITATION BY EXEMPT

5 CHARITABLE ORGANIZATIONS.—Section 3 of the Securi6 ties Exchange Act of 1934 (15 U.S.C. 78c) is further

7 amended by adding at the end the following new sub8 section:

9 ‘‘(f) DISCLOSURE AND SOLICITATION BY EXEMPT

10 CHARITABLE ORGANIZATIONS.—The Commission shall

11 prescribe rules to require that—

12 ‘‘(1) each charitable organization shall provide,

13 to each donor to a fund that is maintained by such

14 organization and that is excluded from the definition

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

16 of the Investment Company Act of 1940, at the time

17 of the donation or within 60 days after the effective

18 date of such rule, whichever is later, written infor19 mation describing the material terms of the instru20 ments governing the operation of such fund; and

21 ‘‘(2) any person soliciting donations on behalf

22 of such a charitable organization from any such

23 donor is either a volunteer or is engaged in the over24 all fund raising activities of a charitable organization

25 and receives no commission or other special com-
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1 pensation based on the amount of donations col2 lected for the fund.’’.

3 (d) CONFORMING AMENDMENT.—Section

4 12(g)(2)(D) of such Act (15 U.S.C. 78l(g)(2)(D)) is

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

6 of a fund that is excluded from the definition of an invest7 ment company under section 3(c)(10)(B) of the Invest8 ment Company Act of 1940’’.

9 SEC. 5. AMENDMENT OF THE INVESTMENT ADVISERS ACT

10 OF 1940.

11 Section 203(b) of Investment Advisers Act of 1940

12 (15 U.S.C. 80b–3(b)) is amended—

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

14 (2);

15 (2) by striking the period at the end of para16 graph (3) and inserting ‘‘; or’’; and

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

18 paragraph:

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

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

21 the Investment Company Act of 1940, or is a trust22 ee, director, officer, employee, or volunteer of such

23 a charitable organization acting within the scope of

24 such person’s employment or duties with such orga-
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1 nization, whose advice, analyses, or reports are pro2 vided only to one or more of the following:

3 ‘‘(A) any such charitable organization;

4 ‘‘(B) a fund that is excluded from the defi5 nition of an investment company under section

6 3(c)(10)(B) of the Investment Company Act of

7 1940; or

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

9 described in section 3(c)(10)(B) of the Invest10 ment Company Act of 1940, or the trustees, ad11 ministrators, settlors (or potential settlors), or

12 beneficiaries of any such trust or other instru13 ment.’’.

14 SEC. 6. PROTECTION OF PHILANTHROPY UNDER STATE

15 LAW.

16 (a) REGISTRATION REQUIREMENTS.—A security is17 sued by or any interest or participation in any pooled in18 come fund, collective trust fund, collective investment

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

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

21 the Investment Company Act of 1940, and the offer or

22 sale thereof, shall be exempt from any statute or regula23 tion of a State that requires registration or qualification

24 of securities.
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1 (b) TREATMENT OF CHARITABLE ORGANIZATIONS.—

2 No charitable organization, or any trustee, director, offi3 cer, employee, or volunteer of a charitable organization

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

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

6 regulation as, a dealer, broker, agent, or investment ad7 viser under the securities laws of any State because such

8 organization or person buys, holds, sells, or trades in secu9 rities for its own account in its capacity as trustee or ad10 ministrator of, or otherwise on behalf of or for the account

11 of one or more of the following:

12 (1) a charitable organization;

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

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

15 of the Investment Company Act of 1940; or

16 (3) a trust or other donative instrument de17 scribed in section 3(c)(10)(B) of the Investment

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

19 settlors) or beneficiaries of any such trusts or other

20 instruments.

21 (c) STATE ACTION.—Notwithstanding subsections

22 (a) and (b), during the 3-year period beginning on the

23 date of enactment of this Act, a State may enact a statute

24 that specifically refers to this section and provides pro-
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1 spectively that this section shall not preempt the laws of

2 that State referred to in this section.

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

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

5 an organization described in paragraphs (1) through

6 (5) of section 170(c) or section 501(c)(3) of the In7 ternal Revenue Code of 1986;

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

9 as in section 3 of the Securities Exchange Act of

10 1934; and

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

12 States of the United States, the District of Colum13 bia, the Commonwealth of Puerto Rico, the Virgin

14 Islands, Guam, American Samoa, and the Common15 wealth of the Northern Mariana Islands.

16 SEC. 7. EFFECTIVE DATES AND APPLICABILITY.

17 This Act and the amendments made by this Act shall

18 apply in all administrative and judicial actions pending on

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

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

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

22 amendments made by this Act is subject to the provisions

23 of the Securities Act of 1933, the Securities Exchange Act

24 of 1934, the Investment Company Act of 1940, or the In25 vestment Advisers Act of 1940, or any State statute or
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1 regulation preempted as provided in section 6 of this Act,

2 except as otherwise specifically provided in such Acts or

3 State law.

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