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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3005 Enrolled Bill (ENR)]

        H.R.3005

                       One Hundred Fourth Congress

                                 of the

                        United States of America

                          AT THE SECOND SESSION

         Begun and held at the City of Washington on Wednesday,
   the third day of January, one thousand nine hundred and ninety-six

                                 An Act

 
To amend the Federal securities laws in order to promote efficiency and 
capital formation in the financial markets, and 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; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``National 
Securities Markets Improvement Act of 1996''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Severability.

                        TITLE I--CAPITAL MARKETS

Sec. 101. Short title.
Sec. 102. Creation of national securities markets.
Sec. 103. Broker-dealer exemptions from State law.
Sec. 104. Broker-dealer funding.
Sec. 105. Exemptive authority.
Sec. 106. Promotion of efficiency, competition, and capital formation.
Sec. 107. Privatization of EDGAR.
Sec. 108. Improving coordination of supervision.
Sec. 109. Increased access to foreign business information.

               TITLE II--INVESTMENT COMPANY ACT AMENDMENTS

Sec. 201. Short title.
Sec. 202. Funds of funds.
Sec. 203. Flexible registration of securities.
Sec. 204. Facilitating use of current information in advertising.
Sec. 205. Variable insurance contracts.
Sec. 206. Reports to the Commission and shareholders.
Sec. 207. Books, records, and inspections.
Sec. 208. Prohibition on deceptive investment company names.
Sec. 209. Amendments to definitions.
Sec. 210. Performance fees exemptions.

       TITLE III--INVESTMENT ADVISERS SUPERVISION COORDINATION ACT

Sec. 301. Short title.
Sec. 302. Funding for enhanced enforcement priority.
Sec. 303. Improved supervision through State and Federal cooperation.
Sec. 304. Interstate cooperation.
Sec. 305. Disqualification of convicted felons.
Sec. 306. Investor access to information.
Sec. 307. Continued State authority.
Sec. 308. Effective date.

       TITLE IV--SECURITIES AND EXCHANGE COMMISSION AUTHORIZATION

Sec. 401. Short title.
Sec. 402. Purposes.
Sec. 403. Authorization of appropriations.
Sec. 404. Registration fees.
Sec. 405. Transaction fees.
Sec. 406. Time for payment.
Sec. 407. Sense of the Congress concerning fees.

           TITLE V--REDUCING THE COST OF SAVING AND INVESTMENT

Sec. 501. Exemption for economic, business, and industrial development 
          companies.
Sec. 502. Intrastate closed-end investment company exemption.
Sec. 503. Definition of eligible portfolio company.
Sec. 504. Definition of business development company.
Sec. 505. Acquisition of assets by business development companies.
Sec. 506. Capital structure amendments.
Sec. 507. Filing of written statements.
Sec. 508. Church employee pension plans.
Sec. 509. Promoting global preeminence of American securities markets.
Sec. 510. Studies and reports.

SEC. 2. DEFINITIONS.

    For purposes of this Act--
        (1) the term ``Commission'' means the Securities and Exchange 
    Commission; and
        (2) the term ``State'' has the same meaning as in section 3 of 
    the Securities Exchange Act of 1934.

SEC. 3. SEVERABILITY.

    If any provision of this Act, an amendment made by this Act, or the 
application of such provision or amendment to any person or 
circumstance is held to be unconstitutional, the remainder of this Act, 
the amendments made by this Act, and the application of the provisions 
of such to any person or circumstance shall not be affected thereby.

                        TITLE I--CAPITAL MARKETS

SEC. 101. SHORT TITLE.

    This title may be cited as the ``Capital Markets Efficiency Act of 
1996''.

SEC. 102. CREATION OF NATIONAL SECURITIES MARKETS.

    (a) In General.--Section 18 of the Securities Act of 1933 (15 
U.S.C. 77r) is amended to read as follows:

``SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.

    ``(a) Scope of Exemption.--Except as otherwise provided in this 
section, no law, rule, regulation, or order, or other administrative 
action of any State or any political subdivision thereof--
        ``(1) requiring, or with respect to, registration or 
    qualification of securities, or registration or qualification of 
    securities transactions, shall directly or indirectly apply to a 
    security that--
            ``(A) is a covered security; or
            ``(B) will be a covered security upon completion of the 
        transaction;
        ``(2) shall directly or indirectly prohibit, limit, or impose 
    any conditions upon the use of--
            ``(A) with respect to a covered security described in 
        subsection (b), any offering document that is prepared by or on 
        behalf of the issuer; or
            ``(B) any proxy statement, report to shareholders, or other 
        disclosure document relating to a covered security or the 
        issuer thereof that is required to be and is filed with the 
        Commission or any national securities organization registered 
        under section 15A of the Securities Exchange Act of 1934, 
        except that this subparagraph does not apply to the laws, 
        rules, regulations, or orders, or other administrative actions 
        of the State of incorporation of the issuer; or
        ``(3) shall directly or indirectly prohibit, limit, or impose 
    conditions, based on the merits of such offering or issuer, upon 
    the offer or sale of any security described in paragraph (1).
    ``(b) Covered Securities.--For purposes of this section, the 
following are covered securities:
        ``(1) Exclusive federal registration of nationally traded 
    securities.--A security is a covered security if such security is--
            ``(A) listed, or authorized for listing, on the New York 
        Stock Exchange or the American Stock Exchange, or listed on the 
        National Market System of the Nasdaq Stock Market (or any 
        successor to such entities);
            ``(B) listed, or authorized for listing, on a national 
        securities exchange (or tier or segment thereof) that has 
        listing standards that the Commission determines by rule (on 
        its own initiative or on the basis of a petition) are 
        substantially similar to the listing standards applicable to 
        securities described in subparagraph (A); or
            ``(C) is a security of the same issuer that is equal in 
        seniority or that is a senior security to a security described 
        in subparagraph (A) or (B).
        ``(2) Exclusive federal registration of investment companies.--
    A security is a covered security if such security is a security 
    issued by an investment company that is registered, or that has 
    filed a registration statement, under the Investment Company Act of 
    1940.
        ``(3) Sales to qualified purchasers.--A security is a covered 
    security with respect to the offer or sale of the security to 
    qualified purchasers, as defined by the Commission by rule. In 
    prescribing such rule, the Commission may define the term 
    `qualified purchaser' differently with respect to different 
    categories of securities, consistent with the public interest and 
    the protection of investors.
        ``(4) Exemption in connection with certain exempt offerings.--A 
    security is a covered security with respect to a transaction that 
    is exempt from registration under this title pursuant to--
            ``(A) paragraph (1) or (3) of section 4, and the issuer of 
        such security files reports with the Commission pursuant to 
        section 13 or 15(d) of the Securities Exchange Act of 1934;
            ``(B) section 4(4);
            ``(C) section 3(a), other than the offer or sale of a 
        security that is exempt from such registration pursuant to 
        paragraph (4) or (11) of such section, except that a municipal 
        security that is exempt from such registration pursuant to 
        paragraph (2) of such section is not a covered security with 
        respect to the offer or sale of such security in the State in 
        which the issuer of such security is located; or
            ``(D) Commission rules or regulations issued under section 
        4(2), except that this subparagraph does not prohibit a State 
        from imposing notice filing requirements that are substantially 
        similar to those required by rule or regulation under section 
        4(2) that are in effect on September 1, 1996.
    ``(c) Preservation of Authority.--
        ``(1) Fraud authority.--Consistent with this section, the 
    securities commission (or any agency or office performing like 
    functions) of any State shall retain jurisdiction under the laws of 
    such State to investigate and bring enforcement actions with 
    respect to fraud or deceit, or unlawful conduct by a broker or 
    dealer, in connection with securities or securities transactions.
        ``(2) Preservation of filing requirements.--
            ``(A) Notice filings permitted.--Nothing in this section 
        prohibits the securities commission (or any agency or office 
        performing like functions) of any State from requiring the 
        filing of any document filed with the Commission pursuant to 
        this title, together with annual or periodic reports of the 
        value of securities sold or offered to be sold to persons 
        located in the State (if such sales data is not included in 
        documents filed with the Commission), solely for notice 
        purposes and the assessment of any fee, together with a consent 
        to service of process and any required fee.
            ``(B) Preservation of fees.--
                ``(i) In general.--Until otherwise provided by law, 
            rule, regulation, or order, or other administrative action 
            of any State, or any political subdivision thereof, adopted 
            after the date of enactment of the Capital Markets 
            Efficiency Act of 1996, filing or registration fees with 
            respect to securities or securities transactions shall 
            continue to be collected in amounts determined pursuant to 
            State law as in effect on the day before such date.
                ``(ii) Schedule.--The fees required by this 
            subparagraph shall be paid, and all necessary supporting 
            data on sales or offers for sales required under 
            subparagraph (A), shall be reported on the same schedule as 
            would have been applicable had the issuer not relied on the 
            exemption provided in subsection (a).
            ``(C) Availability of preemption contingent on payment of 
        fees.--
                ``(i) In general.--During the period beginning on the 
            date of enactment of the National Securities Market 
            Improvement Act of 1996 and ending 3 years after that date 
            of enactment, the securities commission (or any agency or 
            office performing like functions) of any State may require 
            the registration of securities issued by any issuer who 
            refuses to pay the fees required by subparagraph (B).
                ``(ii) Delays.--For purposes of this subparagraph, 
            delays in payment of fees or underpayments of fees that are 
            promptly remedied shall not constitute a refusal to pay 
            fees.
            ``(D) Fees not permitted on listed securities.--
        Notwithstanding subparagraphs (A), (B), and (C), no filing or 
        fee may be required with respect to any security that is a 
        covered security pursuant to subsection (b)(1), or will be such 
        a covered security upon completion of the transaction, or is a 
        security of the same issuer that is equal in seniority or that 
        is a senior security to a security that is a covered security 
        pursuant to subsection (b)(1).
        ``(3) Enforcement of requirements.--Nothing in this section 
    shall prohibit the securities commission (or any agency or office 
    performing like functions) of any State from suspending the offer 
    or sale of securities within such State as a result of the failure 
    to submit any filing or fee required under law and permitted under 
    this section.
    ``(d) Definitions.--For purposes of this section, the following 
definitions shall apply:
        ``(1) Offering document.--The term `offering document'--
            ``(A) has the meaning given the term `prospectus' in 
        section 2(10), but without regard to the provisions of 
        subparagraphs (A) and (B) of that section; and
            ``(B) includes a communication that is not deemed to offer 
        a security pursuant to a rule of the Commission.
        ``(2) Prepared by or on behalf of the issuer.--Not later than 6 
    months after the date of enactment of the Securities Amendments Act 
    of 1996, the Commission shall, by rule, define the term `prepared 
    by or on behalf of the issuer' for purposes of this section.
        ``(3) State.--The term `State' has the same meaning as in 
    section 3 of the Securities Exchange Act of 1934.
        ``(4) Senior security.--For purposes of this paragraph, the 
    term `senior security' means any bond, debenture, note, or similar 
    obligation or instrument constituting a security and evidencing 
    indebtedness, and any stock of a class having priority over any 
    other class as to distribution of assets or payment of 
    dividends.''.
    (b) Study and Report on Uniformity.--The Commission shall conduct a 
study, after consultation with States, issuers, brokers, and dealers, 
on the extent to which uniformity of State regulatory requirements for 
securities or securities transactions has been achieved for securities 
that are not covered securities (within the meaning of section 18 of 
the Securities Act of 1933, as amended by paragraph (1) of this 
subsection). Not later than 1 year after the date of enactment of this 
Act, the Commission shall submit a report to the Congress on the 
results of such study.

SEC. 103. BROKER-DEALER EXEMPTIONS FROM STATE LAW.

    (a) In General.--Section 15 of the Securities Exchange Act of 1934 
(15 U.S.C. 78o) is amended by adding at the end the following new 
subsection:
    ``(h) Limitations on State Law.--
        ``(1) Capital, margin, books and records, bonding, and 
    reports.--No law, rule, regulation, or order, or other 
    administrative action of any State or political subdivision thereof 
    shall establish capital, custody, margin, financial responsibility, 
    making and keeping records, bonding, or financial or operational 
    reporting requirements for brokers, dealers, municipal securities 
    dealers, government securities brokers, or government securities 
    dealers that differ from, or are in addition to, the requirements 
    in those areas established under this title. The Commission shall 
    consult periodically the securities commissions (or any agency or 
    office performing like functions) of the States concerning the 
    adequacy of such requirements as established under this title.
        ``(2) De minimis transactions by associated persons.--No law, 
    rule, regulation, or order, or other administrative action of any 
    State or political subdivision thereof may prohibit an associated 
    person of a broker or dealer from affecting a transaction described 
    in paragraph (3) for a customer in such State if--
            ``(A) such associated person is not ineligible to register 
        with such State for any reason other than such a transaction;
            ``(B) such associated person is registered with a 
        registered securities association and at least one State; and
            ``(C) the broker or dealer with which such person is 
        associated is registered with such State.
        ``(3) Described transactions.--
            ``(A) In general.--A transaction is described in this 
        paragraph if--
                ``(i) such transaction is effected--

                    ``(I) on behalf of a customer that, for 30 days 
                prior to the day of the transaction, maintained an 
                account with the broker or dealer; and
                    ``(II) by an associated person of the broker or 
                dealer--

                        ``(aa) to which the customer was assigned for 
                    14 days prior to the day of the transaction; and
                        ``(bb) who is registered with a State in which 
                    the customer was a resident or was present for at 
                    least 30 consecutive days during the 1-year period 
                    prior to the day of the transaction;
                ``(ii) the transaction is effected--

                    ``(I) on behalf of a customer that, for 30 days 
                prior to the day of the transaction, maintains an 
                account with the broker or dealer; and
                    ``(II) during the period beginning on the date on 
                which such associated person files an application for 
                registration with the State in which the transaction is 
                effected and ending on the earlier of--

                        ``(aa) 60 days after the date on which the 
                    application is filed; or
                        ``(bb) the date on which such State notifies 
                    the associated person that it has denied the 
                    application for registration or has stayed the 
                    pendency of the application for cause.
            ``(B) Rules of construction.--For purposes of subparagraph 
        (A)(i)(II)--
                ``(i) each of up to 3 associated persons of a broker or 
            dealer who are designated to effect transactions during the 
            absence or unavailability of the principal associated 
            person for a customer may be treated as an associated 
            person to which such customer is assigned; and
                ``(ii) if the customer is present in another State for 
            30 or more consecutive days or has permanently changed his 
            or her residence to another State, a transaction is not 
            described in this paragraph, unless the association person 
            of the broker or dealer files an application for 
            registration with such State not later than 10 business 
            days after the later of the date of the transaction, or the 
            date of the discovery of the presence of the customer in 
            the other State for 30 or more consecutive days or the 
            change in the customer's residence.''.
    (b) Technical Amendment.--Section 28(a) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78bb(a)) is amended by striking ``Nothing'' and 
inserting ``Except as otherwise specifically provided in this title, 
nothing''.

SEC. 104. BROKER-DEALER FUNDING.

    (a) Margin Requirements.--
        (1) Extensions of credit by broker-dealers.--Section 7(c) of 
    the Securities Exchange Act of 1934 (15 U.S.C. 78g(c)) is amended 
    to read as follows:
    ``(c) Unlawful Credit Extension to Customers.--
        ``(1) Prohibition.--It shall be unlawful for any member of a 
    national securities exchange or any broker or dealer, directly or 
    indirectly, to extend or maintain credit or arrange for the 
    extension or maintenance of credit to or for any customer--
            ``(A) on any security (other than an exempted security), in 
        contravention of the rules and regulations which the Board of 
        Governors of the Federal Reserve System (hereafter in this 
        section referred to as the `Board') shall prescribe under 
        subsections (a) and (b); and
            ``(B) without collateral or on any collateral other than 
        securities, except in accordance with such rules and 
        regulations as the Board may prescribe--
                ``(i) to permit under specified conditions and for a 
            limited period any such member, broker, or dealer to 
            maintain a credit initially extended in conformity with the 
            rules and regulations of the Board; and
                ``(ii) to permit the extension or maintenance of credit 
            in cases where the extension or maintenance of credit is 
            not for the purpose of purchasing or carrying securities or 
            of evading or circumventing the provisions of subparagraph 
            (A).
        ``(2) Exception.--This subsection and the rules and regulations 
    issued under this subsection shall not apply to any credit 
    extended, maintained, or arranged by a member of a national 
    securities exchange or a broker or dealer to or for a member of a 
    national securities exchange or a registered broker or dealer--
            ``(A) a substantial portion of whose business consists of 
        transactions with persons other than brokers or dealers; or
            ``(B) to finance its activities as a market maker or an 
        underwriter;
    except that the Board may impose such rules and regulations, in 
    whole or in part, on any credit otherwise exempted by this 
    paragraph if the Board determines that such action is necessary or 
    appropriate in the public interest or for the protection of 
    investors.''.
        (2) Extensions of credit by other lenders.--Section 7(d) of the 
    Securities Exchange Act of 1934 (78 U.S.C. 78g(d)) is amended to 
    read as follows:
    ``(d) Unlawful Credit Extension in Violation of Rules and 
Regulations; Exception to Application of Rules, Etc.--
        ``(1) Prohibition.--It shall be unlawful for any person not 
    subject to subsection (c) to extend or maintain credit or to 
    arrange for the extension or maintenance of credit for the purpose 
    of purchasing or carrying any security, in contravention of such 
    rules and regulations as the Board shall prescribe to prevent the 
    excessive use of credit for the purchasing or carrying of or 
    trading in securities in circumvention of the other provisions of 
    this section. Such rules and regulations may impose upon all loans 
    made for the purpose of purchasing or carrying securities 
    limitations similar to those imposed upon members, brokers, or 
    dealers by subsection (c) and the rules and regulations thereunder.
        ``(2) Exceptions.--This subsection and the rules and 
    regulations issued under this subsection shall not apply to any 
    credit extended, maintained, or arranged--
            ``(A) by a person not in the ordinary course of business;
            ``(B) on an exempted security;
            ``(C) to or for a member of a national securities exchange 
        or a registered broker or dealer--
                ``(i) a substantial portion of whose business consists 
            of transactions with persons other than brokers or dealers; 
            or
                ``(ii) to finance its activities as a market maker or 
            an underwriter;
            ``(D) by a bank on a security other than an equity 
        security; or
            ``(E) as the Board shall, by such rules, regulations, or 
        orders as it may deem necessary or appropriate in the public 
        interest or for the protection of investors, exempt, either 
        unconditionally or upon specified terms and conditions or for 
        stated periods, from the operation of this subsection and the 
        rules and regulations thereunder.
        ``(3) Board authority.--The Board may impose such rules and 
    regulations, in whole or in part, on any credit otherwise exempted 
    by subparagraph (C) if it determines that such action is necessary 
    or appropriate in the public interest or for the protection of 
    investors.''.
    (b) Borrowing by Members, Brokers, and Dealers.--Section 8 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78h) is amended--
        (1) by striking subsection (a); and
        (2) by redesignating subsections (b) and (c) as subsections (a) 
    and (b), respectively.

SEC. 105. EXEMPTIVE AUTHORITY.

    (a) General Exemptive Authority Under the Securities Act of 1933.--
Title I of the Securities Act of 1933 (15 U.S.C. 77a et seq.) is 
amended by adding at the end the following new section:

``SEC. 28. GENERAL EXEMPTIVE AUTHORITY.

    ``The Commission, by rule or regulation, may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of persons, securities, or transactions, from any 
provision or provisions of this title or of any rule or regulation 
issued under this title, to the extent that such exemption is necessary 
or appropriate in the public interest, and is consistent with the 
protection of investors.''.
    (b) General Exemptive Authority Under the Securities Exchange Act 
of 1934.--Title I of the Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by adding at the end the following new section:

``SEC. 36. GENERAL EXEMPTIVE AUTHORITY.

    ``(a) Authority.--
        ``(1) In general.--Except as provided in subsection (b), but 
    notwithstanding any other provision of this title, the Commission, 
    by rule, regulation, or order, may conditionally or unconditionally 
    exempt any person, security, or transaction, or any class or 
    classes of persons, securities, or transactions, from any provision 
    or provisions of this title or of any rule or regulation 
    thereunder, to the extent that such exemption is necessary or 
    appropriate in the public interest, and is consistent with the 
    protection of investors.
        ``(2) Procedures.--The Commission shall, by rule or regulation, 
    determine the procedures under which an exemptive order under this 
    section shall be granted and may, in its sole discretion, decline 
    to entertain any application for an order of exemption under this 
    section.
    ``(b) Limitation.--The Commission may not, under this section, 
exempt any person, security, or transaction, or any class or classes of 
persons, securities, or transactions from section 15C or the rules or 
regulations issued thereunder or (for purposes of section 15C and the 
rules and regulations issued thereunder) from any definition in 
paragraph (42), (43), (44), or (45) of section 3(a).''.

SEC. 106. PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION.

    (a) Securities Act of 1933.--Section 2 of the Securities Act of 
1933 (15 U.S.C. 77b) is amended--
        (1) by inserting ``(a) Definitions.--'' after ``Sec. 2.''; and
        (2) by adding at the end the following new subsection:
    ``(b) Consideration of Promotion of Efficiency, Competition, and 
Capital Formation.--Whenever pursuant to this title the Commission is 
engaged in rulemaking and is required to consider or determine whether 
an action is necessary or appropriate in the public interest, the 
Commission shall also consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, and 
capital formation.''.
    (b) Securities Exchange Act of 1934.--Section 3 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c) is amended by adding at the end 
the following new subsection:
    ``(f) Consideration of Promotion of Efficiency, Competition, and 
Capital Formation.--Whenever pursuant to this title the Commission is 
engaged in rulemaking, or in the review of a rule of a self-regulatory 
organization, and is required to consider or determine whether an 
action is necessary or appropriate in the public interest, the 
Commission shall also consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, and 
capital formation.''.
    (c) Investment Company Act of 1940.--Section 2 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-2) is amended by adding at the end 
the following new subsection:
    ``(c) Consideration of Promotion of Efficiency, Competition, and 
Capital Formation.--Whenever pursuant to this title the Commission is 
engaged in rulemaking and is required to consider or determine whether 
an action is consistent with the public interest, the Commission shall 
also consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation.''.

SEC. 107. PRIVATIZATION OF EDGAR.

    (a) Examination.--The Commission shall examine proposals for the 
privatization of the EDGAR system. Such examination shall promote 
competition in the automation and rapid collection and dissemination of 
information required to be disclosed. Such examination shall include 
proposals that maintain free public access to data filings in the EDGAR 
system.
    (b) Report.--Not later than 180 days after the date of enactment of 
this Act, the Commission shall submit to the Congress a report on the 
examination under subsection (a). Such report shall include such 
recommendations for such legislative action as may be necessary to 
implement the proposal that the Commission determines most effectively 
achieves the objectives described in subsection (a).

SEC. 108. IMPROVING COORDINATION OF SUPERVISION.

    Section 17 of the Securities Exchange Act of 1934 (15 U.S.C. 78q) 
is amended by adding at the end the following new subsection:
    ``(i) Coordination of Examining Authorities.--
        ``(1) Elimination of duplication.--The Commission and the 
    examining authorities, through cooperation and coordination of 
    examination and oversight activities, shall eliminate any 
    unnecessary and burdensome duplication in the examination process.
        ``(2) Coordination of examinations.--The Commission and the 
    examining authorities shall share such information, including 
    reports of examinations, customer complaint information, and other 
    nonpublic regulatory information, as appropriate to foster a 
    coordinated approach to regulatory oversight of brokers and dealers 
    that are subject to examination by more than one examining 
    authority.
        ``(3) Examinations for cause.--At any time, any examining 
    authority may conduct an examination for cause of any broker or 
    dealer subject to its jurisdiction.
        ``(4) Confidentiality.--
            ``(A) In general.--Section 24 shall apply to the sharing of 
        information in accordance with this subsection. The Commission 
        shall take appropriate action under section 24(c) to ensure 
        that such information is not inappropriately disclosed.
            ``(B) Appropriate disclosure not prohibited.--Nothing in 
        this paragraph authorizes the Commission or any examining 
        authority to withhold information from the Congress, or prevent 
        the Commission or any examining authority from complying with a 
        request for information from any other Federal department or 
        agency requesting the information for purposes within the scope 
        of its jurisdiction, or complying with an order of a court of 
        the United States in an action brought by the United States or 
        the Commission.
        ``(5) Definition.--For purposes of this subsection, the term 
    `examining authority' means a self-regulatory organization 
    registered with the Commission under this title (other than a 
    registered clearing agency) with the authority to examine, inspect, 
    and otherwise oversee the activities of a registered broker or 
    dealer.''.

SEC. 109. INCREASED ACCESS TO FOREIGN BUSINESS INFORMATION.

    Not later than 1 year after the date of enactment of this Act, the 
Commission shall adopt rules under the Securities Act of 1933 
concerning the status under the registration provisions of the 
Securities Act of 1933 of foreign press conferences and foreign press 
releases by persons engaged in the offer and sale of securities.

              TITLE II--INVESTMENT COMPANY ACT AMENDMENTS

SEC. 201. SHORT TITLE.

    This title may be cited as the ``Investment Company Act Amendments 
of 1996''.

SEC. 202. FUNDS OF FUNDS.

    Section 12(d)(1) of the Investment Company Act of 1940 (15 U.S.C. 
80a-12(d)(1)) is amended--
        (1) in subparagraph (E)(iii)--
            (A) by striking ``in the event such investment company is 
        not a registered investment company,''; and
            (B) by inserting ``in the event that such investment 
        company is not a registered investment company,'' after 
        ``(bb)'';
        (2) by redesignating subparagraphs (G) and (H) as subparagraphs 
    (H) and (I), respectively;
        (3) by striking ``this paragraph (1)'' each place that term 
    appears and inserting ``this paragraph'';
        (4) by inserting after subparagraph (F) the following new 
    subparagraph:
    ``(G)(i) This paragraph does not apply to securities of a 
registered open-end investment company or a registered unit investment 
trust (hereafter in this subparagraph referred to as the `acquired 
company') purchased or otherwise acquired by a registered open-end 
investment company or a registered unit investment trust (hereafter in 
this subparagraph referred to as 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 and registered unit 
    investment trusts that are part of the same group of investment 
    companies, Government securities, and short-term paper are the only 
    investments held by the acquiring company;
        ``(III) with respect to--
            ``(aa) securities of the acquired company, the acquiring 
        company does not pay and is not assessed any charges or fees 
        for distribution-related activities, unless the acquiring 
        company does not charge a sales load or other fees or charges 
        for distribution-related activities; or
            ``(bb) securities of the acquiring company, any sales loads 
        and other distribution-related fees charged, 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 section 
        22(b) or section 22(c) by a securities association registered 
        under section 15A of the Securities Exchange Act of 1934, or 
        the Commission;
        ``(IV) the acquired company has a policy that prohibits it from 
    acquiring any securities of registered open-end investment 
    companies or registered unit investment trusts in reliance on this 
    subparagraph or subparagraph (F); and
        ``(V) such acquisition is not in contravention of such rules 
    and regulations as the Commission may from time to time prescribe 
    with respect to acquisitions in accordance with this subparagraph, 
    as necessary and appropriate for the protection of investors.
    ``(ii) For purposes of this subparagraph, the term `group of 
investment companies' means any 2 or more registered investment 
companies that hold themselves out to investors as related companies 
for purposes of investment and investor services.''; and
        (5) by adding at the end the following new subparagraph:
    ``(J) The Commission, by rule or regulation, 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 provision of this 
subsection, if and to the extent that such exemption is consistent with 
the public interest and the protection of investors.''.

SEC. 203. FLEXIBLE REGISTRATION OF SECURITIES.

    (a) Amendments to Registration Statements.--Section 24(e) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-24(e)) is amended--
        (1) by striking paragraphs (1) and (2);
        (2) by striking ``(3) For'' and inserting ``For''; and
        (3) by striking ``pursuant to this subsection or otherwise''.
    (b) Registration of Indefinite Amount of Securities.--Section 24(f) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-24(f)) is amended 
to read as follows:
    ``(f) Registration of Indefinite Amount of Securities.--
        ``(1) Registration of securities.--Upon the effective date of 
    its registration statement, as provided by section 8 of the 
    Securities Act of 1933, a face-amount certificate company, open-end 
    management company, or unit investment trust, shall be deemed to 
    have registered an indefinite amount of securities.
        ``(2) Payment of registration fees.--Not later than 90 days 
    after the end of the fiscal year of a company or trust referred to 
    in paragraph (1), the company or trust, as applicable, shall pay a 
    registration fee to the Commission, calculated in the manner 
    specified in section 6(b) of the Securities Act of 1933, based on 
    the aggregate sales price for which its securities (including, for 
    purposes of this paragraph, all securities issued pursuant to a 
    dividend reinvestment plan) were sold pursuant to a registration of 
    an indefinite amount of securities under this subsection during the 
    previous fiscal year of the company or trust, reduced by--
            ``(A) the aggregate redemption or repurchase price of the 
        securities of the company or trust during that year; and
            ``(B) the aggregate redemption or repurchase price of the 
        securities of the company or trust during any prior fiscal year 
        ending not more than 1 year before the date of enactment of the 
        Investment Company Act Amendments of 1996, that were not used 
        previously by the company or trust to reduce fees payable under 
        this section.
        ``(3) Interest due on late payment.--A company or trust paying 
    the fee required by this subsection or any portion thereof more 
    than 90 days after the end of the fiscal year of the company or 
    trust shall pay to the Commission interest on unpaid amounts, at 
    the average investment rate for Treasury tax and loan accounts 
    published by the Secretary of the Treasury pursuant to section 
    3717(a) of title 31, United States Code. The payment of interest 
    pursuant to this paragraph shall not preclude the Commission from 
    bringing an action to enforce the requirements of paragraph (2).
        ``(4) Rulemaking authority.--The Commission may adopt rules and 
    regulations to implement this subsection.''.
    (c) Effective Date.--The amendments made by this section shall 
become effective on the earlier of--
        (1) 1 year after the date of enactment of this Act; or
        (2) the effective date of final rules or regulations issued in 
    accordance with section 24(f) of the Investment Company Act of 
    1940, as amended by this section.

SEC. 204. FACILITATING USE OF CURRENT INFORMATION IN ADVERTISING.

    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) Additional Prospectuses.--In addition to any prospectus 
permitted or required by section 10(a) of the Securities Act of 1933, 
the Commission shall permit, by rules or regulations deemed necessary 
or appropriate in the public interest or for the protection of 
investors, the use of a prospectus for purposes of section 5(b)(1) of 
that Act with respect to securities issued by a registered investment 
company. Such a prospectus, which may include information the substance 
of which is not included in the prospectus specified in section 10(a) 
of the Securities Act of 1933, shall be deemed to be permitted by 
section 10(b) of that Act.''.

SEC. 205. VARIABLE INSURANCE CONTRACTS.

    (a) Unit Investment Trust Treatment.--Section 26 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-26) is amended by adding at the end 
the following new subsection:
    ``(e) Exemption.--
        ``(1) In general.--Subsection (a) does not apply to any 
    registered separate account funding variable insurance contracts, 
    or to the sponsoring insurance company and principal underwriter of 
    such account.
        ``(2) Limitation on sales.--It shall be unlawful for any 
    registered separate account funding variable insurance contracts, 
    or for the sponsoring insurance company of such account, to sell 
    any such contract--
            ``(A) unless the fees and charges deducted under the 
        contract, in the aggregate, are reasonable in relation to the 
        services rendered, the expenses expected to be incurred, and 
        the risks assumed by the insurance company, and, beginning on 
        the earlier of August 1, 1997, or the earliest effective date 
        of any registration statement or amendment thereto for such 
        contract following the date of enactment of this subsection, 
        the insurance company so represents in the registration 
        statement for the contract; and
            ``(B) unless the insurance company--
                ``(i) complies with all other applicable provisions of 
            this section, as if it were a trustee or custodian of the 
            registered separate account;
                ``(ii) files with the insurance regulatory authority of 
            the State which is the domiciliary State of the insurance 
            company, an annual statement of its financial condition, 
            which most recent statement indicates that the insurance 
            company has a combined capital and surplus, if a stock 
            company, or an unassigned surplus, if a mutual company, of 
            not less than $1,000,000, or such other amount as the 
            Commission may from time to time prescribe by rule, as 
            necessary or appropriate in the public interest or for the 
            protection of investors; and
                ``(iii) together with its registered separate accounts, 
            is supervised and examined periodically by the insurance 
            authority of such State.
        ``(3) Fees and charges.--For purposes of paragraph (2), the 
    fees and charges deducted under the contract shall include all fees 
    and charges imposed for any purpose and in any manner.
        ``(4) Regulatory authority.--The Commission may issue such 
    rules and regulations to carry out paragraph (2)(A) as it 
    determines are necessary or appropriate in the public interest or 
    for the protection of investors.''.
    (b) Periodic Payment Plan Treatment.--Section 27 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-27) is amended by adding at the end 
the following new subsection:
    ``(i)(1) This section does not apply to any registered separate 
account funding variable insurance contracts, or to the sponsoring 
insurance company and principal underwriter of such account, except as 
provided in paragraph (2).
    ``(2) It shall be unlawful for any registered separate account 
funding variable insurance contracts, or for the sponsoring insurance 
company of such account, to sell any such contract unless--
        ``(A) such contract is a redeemable security; and
        ``(B) the insurance company complies with section 26(e) and any 
    rules or regulations issued by the Commission under section 
    26(e).''.

SEC. 206. REPORTS TO THE COMMISSION AND SHAREHOLDERS.

    Section 30 of the Investment Company Act of 1940 (15 U.S.C. 80a-29) 
is amended--
        (1) in subsection (b), by striking paragraph (1) and inserting 
    the following:
        ``(1) such information, documents, and reports (other than 
    financial statements), 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;'';
        (2) by redesignating subsections (c), (d), (e), and (f) as 
    subsections (d), (e), (g), and (h), respectively;
        (3) by inserting after subsection (b) the following new 
    subsection:
    ``(c)(1) The Commission shall take such action as it deems 
necessary or appropriate, consistent with the public interest and the 
protection of investors, to avoid unnecessary reporting by, and 
minimize the compliance burdens on, registered investment companies and 
their affiliated persons in exercising its authority--
        ``(A) under subsection (f); and
        ``(B) under subsection (b)(1), if the Commission requires the 
    filing of information, documents, and reports under that subsection 
    on a basis more frequently than semiannually.
    ``(2) Action taken by the Commission under paragraph (1) shall 
include considering, and requesting public comment on--
        ``(A) feasible alternatives that minimize the reporting burdens 
    on registered investment companies; and
        ``(B) the utility of such information, documents, and reports 
    to the Commission in relation to the costs to registered investment 
    companies and their affiliated persons of providing such 
    information, documents, and reports.'';
        (4) by inserting after subsection (e) (as redesignated by 
    paragraph (2) of this section), the following new subsection:
    ``(f) The Commission may, by rule, require that semiannual reports 
containing the information set forth in subsection (e) include such 
other information as the Commission deems necessary or appropriate in 
the public interest or for the protection of investors.''; and
        (5) in subsection (g) (as redesignated by paragraph (2) of this 
    section), by striking ``subsections (a) and (d)'' and inserting 
    ``subsections (a) and (e)''.

SEC. 207. 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) Maintenance of Records.--
        ``(1) In general.--Each registered investment company, and each 
    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. Each investment adviser that is not a majority-owned 
    subsidiary of, and each depositor of any registered investment 
    company, and each 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.
        ``(2) Minimizing compliance burden.--In exercising its 
    authority under this subsection, the Commission shall take such 
    steps as it deems necessary or appropriate, consistent with the 
    public interest and for the protection of investors, to avoid 
    unnecessary recordkeeping by, and minimize the compliance burden 
    on, persons required to maintain records under this subsection 
    (hereafter in this section referred to as `subject persons'). Such 
    steps shall include considering, and requesting public comment on--
            ``(A) feasible alternatives that minimize the recordkeeping 
        burdens on subject persons;
            ``(B) the necessity of such records in view of the public 
        benefits derived from the independent scrutiny of such records 
        through Commission examination;
            ``(C) the costs associated with maintaining the information 
        that would be required to be reflected in such records; and
            ``(D) the effects that a proposed recordkeeping requirement 
        would have on internal compliance policies and procedures.
    ``(b) Examinations of Records.--
        ``(1) In general.--All records required to be maintained and 
    preserved in accordance with subsection (a) 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.
        ``(2) Availability.--For purposes of examinations referred to 
    in paragraph (1), any subject person 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.
        ``(3) Commission action.--The Commission shall exercise its 
    authority under this subsection with due regard for the benefits of 
    internal compliance policies and procedures and the effective 
    implementation and operation thereof.'';
        (2) by redesignating subsections (c) and (d) as subsections (e) 
    and (f), respectively;
        (3) by inserting after subsection (b) the following new 
    subsections:
    ``(c) Limitations on Disclosure by Commission.--Notwithstanding any 
other provision of law, the Commission shall not be compelled to 
disclose any internal compliance or audit records, or information 
contained therein, provided to the Commission under this section. 
Nothing in this subsection shall authorize the Commission to withhold 
information from the Congress or prevent the Commission from complying 
with a request for information from any other Federal department or 
agency requesting the information for purposes within the scope of the 
jurisdiction of that department or agency, or complying with an order 
of a court of the United States in an action brought by the United 
States or the Commission. For purposes of section 552 of title 5, 
United States Code, this section shall be considered a statute 
described in subsection (b)(3)(B) of such section 552.
    ``(d) Definitions.--For purposes of this section--
        ``(1) the term `internal compliance policies and procedures' 
    means policies and procedures designed by subject persons to 
    promote compliance with the Federal securities laws; and
        ``(2) the term `internal compliance and audit record' means any 
    record prepared by a subject person in accordance with internal 
    compliance policies and procedures.'';
        (4) in subsection (e), as redesignated, by inserting 
    ``Regulatory Authority.--'' before ``The Commission''; and
        (5) in subsection (f), as redesignated, by inserting 
    ``Exemption Authority.--'' before ``The Commission''.

SEC. 208. PROHIBITION ON DECEPTIVE INVESTMENT COMPANY NAMES.

    Section 35(d) of the Investment Company Act of 1940 (15 U.S.C. 80a-
34(d)) is amended to read as follows:
    ``(d) Deceptive or Misleading Names.--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 the Commission finds are materially deceptive or 
misleading. The Commission is authorized, by rule, regulation, or 
order, to define such names or titles as are materially deceptive or 
misleading.''.

SEC. 209. AMENDMENTS TO DEFINITIONS.

    (a) Excepted Investment Companies.--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: ``Such issuer shall be deemed to be an investment 
    company for purposes of the limitations set forth in subparagraphs 
    (A)(i) and (B)(i) of section 12(d)(1) 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 that 
        term appears, the following: ``and is or, but for the exception 
        provided for in this paragraph or paragraph (7), would be an 
        investment company,''; and
            (B) by striking ``unless, as of'' and all that follows 
        through the end of the subparagraph and inserting a period;
        (3) in paragraph (2)--
            (A) by striking ``and acting as broker,'' and inserting 
        ``acting as broker, and acting as market intermediary,'';
            (B) by inserting ``(A)'' after ``(2)''; and
            (C) by adding at the end the following new subparagraph:
        ``(B) For purposes of this paragraph--
            ``(i) the term `market intermediary' means any person that 
        regularly holds itself out as being willing contemporaneously 
        to engage in, and that is regularly engaged in, the business of 
        entering into transactions on both sides of the market for a 
        financial contract or one or more such financial contracts; and
            ``(ii) the term `financial contract' means any arrangement 
        that--
                ``(I) takes the form of an individually negotiated 
            contract, agreement, or option to buy, sell, lend, swap, or 
            repurchase, or other similar individually negotiated 
            transaction commonly entered into by participants in the 
            financial markets;
                ``(II) is in respect of securities, commodities, 
            currencies, interest or other rates, other measures of 
            value, or any other financial or economic interest similar 
            in purpose or function to any of the foregoing; and
                ``(III) is entered into in response to a request from a 
            counter party for a quotation, or is otherwise entered into 
            and structured to accommodate the objectives of the counter 
            party to such arrangement.''; and
        (4) by striking paragraph (7) and inserting the following:
        ``(7)(A) Any issuer, the outstanding securities of which are 
    owned exclusively by persons who, at the time of acquisition of 
    such securities, are qualified purchasers, and which is not making 
    and does not at that time propose to make a public offering of such 
    securities. Securities that are owned by persons who received the 
    securities from a qualified purchaser as a gift or bequest, or in a 
    case in which the transfer was caused by legal separation, divorce, 
    death, or other involuntary event, shall be deemed to be owned by a 
    qualified purchaser, subject to such rules, regulations, and orders 
    as the Commission may prescribe as necessary or appropriate in the 
    public interest or for the protection of investors.
        ``(B) Notwithstanding subparagraph (A), an issuer is within the 
    exception provided by this paragraph if--
            ``(i) in addition to qualified purchasers, outstanding 
        securities of that issuer are beneficially owned by not more 
        than 100 persons who are not qualified purchasers, if--
                ``(I) such persons acquired any portion of the 
            securities of such issuer on or before September 1, 1996; 
            and
                ``(II) at the time at which such persons initially 
            acquired the securities of such issuer, the issuer was 
            excepted by paragraph (1); and
            ``(ii) prior to availing itself of the exception provided 
        by this paragraph--
                ``(I) such issuer has disclosed to each beneficial 
            owner, as determined under paragraph (1), that future 
            investors will be limited to qualified purchasers, and that 
            ownership in such issuer is no longer limited to not more 
            than 100 persons; and
                ``(II) concurrently with or after such disclosure, such 
            issuer has provided each beneficial owner, as determined 
            under paragraph (1), with a reasonable opportunity to 
            redeem any part or all of their interests in the issuer, 
            notwithstanding any agreement to the contrary between the 
            issuer and such persons, for that person's proportionate 
            share of the issuer's net assets.
        ``(C) Each person that elects to redeem under subparagraph 
    (B)(ii)(II) shall receive an amount in cash equal to that person's 
    proportionate share of the issuer's net assets, unless the issuer 
    elects to provide such person with the option of receiving, and 
    such person agrees to receive, all or a portion of such person's 
    share in assets of the issuer. If the issuer elects to provide such 
    persons with such an opportunity, disclosure concerning such 
    opportunity shall be made in the disclosure required by 
    subparagraph (B)(ii)(I).
        ``(D) An issuer that is excepted under this paragraph shall 
    nonetheless be deemed to be an investment company for purposes of 
    the limitations set forth in subparagraphs (A)(i) and (B)(i) of 
    section 12(d)(1) relating to 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.
        ``(E) For purposes of determining compliance with this 
    paragraph and paragraph (1), an issuer that is otherwise excepted 
    under this paragraph and an issuer that is otherwise excepted under 
    paragraph (1) shall not be treated by the Commission as being a 
    single issuer for purposes of determining whether the outstanding 
    securities of the issuer excepted under paragraph (1) are 
    beneficially owned by not more than 100 persons or whether the 
    outstanding securities of the issuer excepted under this paragraph 
    are owned by persons that are not qualified purchasers. Nothing in 
    this subparagraph shall be construed to establish that a person is 
    a bona fide qualified purchaser for purposes of this paragraph or a 
    bona fide beneficial owner for purposes of paragraph (1).''.
    (b) Qualified Purchaser.--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 new paragraph:
        ``(51)(A) `Qualified purchaser' means--
            ``(i) any natural person (including any person who holds a 
        joint, community property, or other similar shared ownership 
        interest in an issuer that is excepted under section 3(c)(7) 
        with that person's qualified purchaser spouse) who owns not 
        less than $5,000,000 in investments, as defined by the 
        Commission;
            ``(ii) any company that owns not less than $5,000,000 in 
        investments and that is owned directly or indirectly by or for 
        2 or more natural persons who are related as siblings or spouse 
        (including former spouses), or direct lineal descendants by 
        birth or adoption, spouses of such persons, the estates of such 
        persons, or foundations, charitable organizations, or trusts 
        established by or for the benefit of such persons;
            ``(iii) any trust that is not covered by clause (ii) and 
        that was not formed for the specific purpose of acquiring the 
        securities offered, as to which the trustee or other person 
        authorized to make decisions with respect to the trust, and 
        each settlor or other person who has contributed assets to the 
        trust, is a person described in clause (i), (ii), or (iv); or
            ``(iv) 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 
        $25,000,000 in investments.
        ``(B) The Commission may adopt such rules and regulations 
    applicable to the persons and trusts specified in clauses (i) 
    through (iv) of subparagraph (A) as it determines are necessary or 
    appropriate in the public interest or for the protection of 
    investors.
        ``(C) The term `qualified purchaser' does not include a company 
    that, but for the exceptions provided for in paragraph (1) or (7) 
    of section 3(c), would be an investment company (hereafter in this 
    paragraph referred to as an `excepted investment company'), unless 
    all beneficial owners of its outstanding securities (other than 
    short-term paper), determined in accordance with section 
    3(c)(1)(A), that acquired such securities on or before April 30, 
    1996 (hereafter in this paragraph referred to as `pre-amendment 
    beneficial owners'), and all pre-amendment beneficial owners of the 
    outstanding securities (other than short-term paper) of any 
    excepted investment company that, directly or indirectly, owns any 
    outstanding securities of such excepted investment company, have 
    consented to its treatment as a qualified purchaser. Unanimous 
    consent of all trustees, directors, or general partners of a 
    company or trust referred to in clause (ii) or (iii) of 
    subparagraph (A) shall constitute consent for purposes of this 
    subparagraph.''.
    (c) Conforming Amendments.--Section 3(a) of the Investment Company 
Act of 1940 (15 U.S.C. 80a-3(a)) is amended--
        (1) by striking ``(1)'' and inserting ``(A)'';
        (2) by striking ``(2)'' and inserting ``(B)'';
        (3) by striking ``(3)'' and inserting ``(C)'';
        (4) by inserting ``(1)'' after ``(a)'';
        (5) by striking ``As used'' and inserting ``(2) As used''; and
        (6) in paragraph (2)(C), as designated by paragraph (5) of this 
    subsection--
            (A) by striking ``which are'' and inserting the following: 
        ``which (i) are''; and
            (B) by inserting before the period at the end, the 
        following: ``, and (ii) are not relying on the exception from 
        the definition of investment company in paragraph (1) or (7) of 
        subsection (c)''.
    (d) Rulemaking Required.--
        (1) Implementation of section 3(c)(1)(b).--Not later than 1 
    year after the date of enactment of this Act, the Commission shall 
    prescribe rules to implement the requirements of section 3(c)(1)(B) 
    of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1)(B)), 
    as amended by this section.
        (2) Identification of investments.--Not later than 180 days 
    after the date of enactment of this Act, the Commission shall 
    prescribe rules defining the term, or otherwise identifying, 
    ``investments'' for purposes of section 2(a)(51) of the Investment 
    Company Act of 1940, as added by this Act.
        (3) Employee exception.--Not later than 1 year after the date 
    of enactment of this Act, the Commission shall prescribe rules 
    pursuant to its authority under section 6 of the Investment Company 
    Act of 1940 to permit the ownership of securities by knowledgeable 
    employees of the issuer of the securities or an affiliated person 
    without loss of the exception of the issuer under paragraph (1) or 
    (7) of section 3(c) of that Act from treatment as an investment 
    company under that Act.
        (4) Beneficial ownership.--Not later than 180 days after the 
    date of enactment of this Act, the Commission shall prescribe rules 
    defining the term ``beneficial owner'' for purposes of section 
    3(c)(7)(B) of the Investment Company Act of 1940, as amended by 
    this Act.
    (e) Effective Date.--The amendments made by this section shall take 
effect on the earlier of--
        (1) 180 days after the date of enactment of this Act; or
        (2) the date on which the rulemaking required under subsection 
    (d)(2) is completed.

SEC. 210. PERFORMANCE FEES EXEMPTIONS.

    Section 205 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
5) is amended--
        (1) in subsection (b)--
            (A) in paragraph (2), by striking ``or'' at the end;
            (B) in paragraph (3), by striking the period at the end and 
        inserting a semicolon; and
            (C) by adding at the end the following new paragraphs:
        ``(4) apply to an investment advisory contract with a company 
    excepted from the definition of an investment company under section 
    3(c)(7) of title I of this Act; or
        ``(5) apply to an investment advisory contract with a person 
    who is not a resident of the United States.''; and
        (2) by adding at the end the following new subsection:
    ``(e) The Commission, by rule or regulation, upon its own motion, 
or by order upon application, may conditionally or unconditionally 
exempt any person or transaction, or any class or classes of persons or 
transactions, from subsection (a)(1), if and to the extent that the 
exemption relates to an investment advisory contract with any person 
that the Commission determines does not need the protections of 
subsection (a)(1), on the basis of such factors as financial 
sophistication, net worth, knowledge of and experience in financial 
matters, amount of assets under management, relationship with a 
registered investment adviser, and such other factors as the Commission 
determines are consistent with this section.''.

      TITLE III--INVESTMENT ADVISERS SUPERVISION COORDINATION ACT

SEC. 301. SHORT TITLE.

    This title may be cited as the ``Investment Advisers Supervision 
Coordination Act''.

SEC. 302. FUNDING FOR ENHANCED ENFORCEMENT PRIORITY.

    There are authorized to be appropriated to the Commission, for the 
enforcement of the Investment Advisers Act of 1940, not more than 
$20,000,000 in each of fiscal years 1997 and 1998, in addition to any 
funds authorized to be appropriated to the Commission for this or other 
purposes.

SEC. 303. IMPROVED SUPERVISION THROUGH STATE AND FEDERAL COOPERATION.

    (a) State and Federal Responsibilities.--The Investment Advisers 
Act of 1940 (15 U.S.C. 80b-1 et seq.) is amended by inserting after 
section 203 the following new section:

``SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

    ``(a) Advisers Subject to State Authorities.--
        ``(1) In general.--No investment adviser that is regulated or 
    required to be regulated as an investment adviser in the State in 
    which it maintains its principal office and place of business shall 
    register under section 203, unless the investment adviser--
            ``(A) has assets under management of not less than 
        $25,000,000, or such higher amount as the Commission may, by 
        rule, deem appropriate in accordance with the purposes of this 
        title; or
            ``(B) is an adviser to an investment company registered 
        under title I of this Act.
        ``(2) Definition.--For purposes of this subsection, the term 
    `assets under management' means the securities portfolios with 
    respect to which an investment adviser provides continuous and 
    regular supervisory or management services.
    ``(b) Advisers Subject to Commission Authority.--
        ``(1) In general.--No law of any State or political subdivision 
    thereof requiring the registration, licensing, or qualification as 
    an investment adviser or supervised person of an investment adviser 
    shall apply to any person--
            ``(A) that is registered under section 203 as an investment 
        adviser, or that is a supervised person of such person, except 
        that a State may license, register, or otherwise qualify any 
        investment adviser representative who has a place of business 
        located within that State; or
            ``(B) that is not registered under section 203 because that 
        person is excepted from the definition of an investment adviser 
        under section 202(a)(11).
        ``(2) Limitation.--Nothing in this subsection shall prohibit 
    the securities commission (or any agency or office performing like 
    functions) of any State from investigating and bringing enforcement 
    actions with respect to fraud or deceit against an investment 
    adviser or person associated with an investment adviser.
    ``(c) Exemptions.--Notwithstanding subsection (a), the Commission, 
by rule or regulation upon its own motion, or by order upon 
application, may permit the registration with the Commission of any 
person or class of persons to which the application of subsection (a) 
would be unfair, a burden on interstate commerce, or otherwise 
inconsistent with the purposes of this section.
    ``(d) Filing Depositories.--The Commission may, by rule, require an 
investment adviser--
        ``(1) to file with the Commission any fee, application, report, 
    or notice required by this title or by the rules issued under this 
    title through any entity designated by the Commission for that 
    purpose; and
        ``(2) to pay the reasonable costs associated with such filing.
    ``(e) State Assistance.--Upon request of the securities 
commissioner (or any agency or officer performing like functions) of 
any State, the Commission may provide such training, technical 
assistance, or other reasonable assistance in connection with the 
regulation of investment advisers by the State.''.
    (b) Advisers Not Eligible To Register.--Section 203 of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-3) is amended--
        (1) in subsection (c), in the matter immediately following 
    paragraph (2), by inserting ``and that the applicant is not 
    prohibited from registering as an investment adviser under section 
    203A'' after ``satisfied''; and
        (2) in subsection (h), in the second sentence--
            (A) by striking ``existence or'' and inserting 
        ``existence,''; and
            (B) by inserting ``or is prohibited from registering as an 
        investment adviser under section 203A,'' after ``adviser,''.
    (c) Definition of ``Supervised Person''.--Section 202(a) of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)) is amended--
        (1) by striking ``requires--'' and inserting ``requires, the 
    following definitions shall apply:''; and
        (2) by adding at the end the following new paragraph:
        ``(25) `Supervised person' means any partner, officer, director 
    (or other person occupying a similar status or performing similar 
    functions), or employee of an investment adviser, or other person 
    who provides investment advice on behalf of the investment adviser 
    and is subject to the supervision and control of the investment 
    adviser.''.
    (d) Conforming Amendment.--Section 203(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-3(a)) is amended by striking 
``subsection (b) of this section'' and inserting ``subsection (b) and 
section 203A''.

SEC. 304. INTERSTATE COOPERATION.

    Section 222 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
18a) is amended to read as follows:

``SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.

    ``(a) Jurisdiction of State Regulators.--Nothing in this title 
shall affect the jurisdiction of the securities commissioner (or any 
agency or officer performing like functions) of any State over any 
security or any person insofar as it does not conflict with the 
provisions of this title or the rules and regulations thereunder.
    ``(b) Dual Compliance Purposes.--No State may enforce any law or 
regulation that would require an investment adviser to maintain any 
books or records in addition to those required under the laws of the 
State in which it maintains its principal place of business, if the 
investment adviser--
        ``(1) is registered or licensed as such in the State in which 
    it maintains its principal place of business; and
        ``(2) is in compliance with the applicable books and records 
    requirements of the State in which it maintains its principle place 
    of business.
    ``(c) Limitation on Capital and Bond Requirements.--No State may 
enforce any law or regulation that would require an investment adviser 
to maintain a higher minimum net capital or to post any bond in 
addition to any that is required under the laws of the State in which 
it maintains its principal place of business, if the investment 
adviser--
        ``(1) is registered or licensed as such in the State in which 
    it maintains its principal place of business; and
        ``(2) is in compliance with the applicable net capital or 
    bonding requirements of the State in which it maintains its 
    principal place of business.
    ``(d) National De Minimis Standard.--No law of any State or 
political subdivision thereof requiring the registration, licensing, or 
qualification as an investment adviser shall require an investment 
adviser to register with the securities commissioner of the State (or 
any agency or officer performing like functions) or to comply with such 
law (other than any provision thereof prohibiting fraudulent conduct) 
if the investment adviser--
        ``(1) does not have a place of business located within the 
    State; and
        ``(2) during the preceding 12-month period, has had fewer than 
    6 clients who are residents of that State.''.

SEC. 305. DISQUALIFICATION OF CONVICTED FELONS.

    (a) Amendment.--Section 203(e) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-3(e)) is amended--
        (1) by redesignating paragraphs (3) through (7) as paragraphs 
    (4) through (8), respectively; and
        (2) by inserting after paragraph (2) the following new 
    paragraph:
        ``(3) has been convicted during the 10-year period preceding 
    the date of filing of any application for registration, or at any 
    time thereafter, of--
            ``(A) any crime that is punishable by imprisonment for 1 or 
        more years, and that is not described in paragraph (2); or
            ``(B) a substantially equivalent crime by a foreign court 
        of competent jurisdiction.''.
    (b) Conforming Amendments.--Section 203 of the Investment Advisers 
Act of 1940 (15 U.S.C. 80b-3) is amended--
        (1) in subsection (e)(6) (as redesignated by subsection (a) of 
    this section), by striking ``this paragraph (5)'' and inserting 
    ``this paragraph'';
        (2) in subsection (f)--
            (A) by striking ``paragraph (1), (4), (5), or (7) of 
        subsection (e) of this section'' and inserting ``paragraph (1), 
        (5), (6), or (8) of subsection (e)'';
            (B) by striking ``paragraph (3)'' and inserting ``paragraph 
        (4)''; and
            (C) by striking ``said subsection'' each place that term 
        appears and inserting ``subsection''; and
        (3) in subsection (i)(1)(D), by striking ``section 203(e)(5) of 
    this title'' and inserting ``subsection (e)(6)''.

SEC. 306. INVESTOR ACCESS TO INFORMATION.

    The Commission shall--
        (1) provide for the establishment and maintenance of a readily 
    accessible telephonic or other electronic process to receive 
    inquiries regarding disciplinary actions and proceedings involving 
    investment advisers and persons associated with investment 
    advisers; and
        (2) provide for prompt response to any inquiry described in 
    paragraph (1).

SEC. 307. CONTINUED STATE AUTHORITY.

    (a) Preservation of Filing Requirements.--Nothing in this title or 
any amendment made by this title prohibits the securities commission 
(or any agency or office performing like functions) of any State from 
requiring the filing of any documents filed with the Commission 
pursuant to the securities laws solely for notice purposes, together 
with a consent to service of process and any required fee.
    (b) Preservation of Fees.--Until otherwise provided by law, rule, 
regulation, or order, or other administrative action of any State, or 
any political subdivision thereof, adopted after the date of enactment 
of this Act, filing, registration, or licensing fees shall, 
notwithstanding the amendments made by this title, continue to be paid 
in amounts determined pursuant to the law, rule, regulation, or order, 
or other administrative action as in effect on the day before such date 
of enactment.
    (c) Availability of Preemption Contingent on Payment of Fees.--
        (1) In general.--During the period beginning on the date of 
    enactment of this Act and ending 3 years after that date of 
    enactment, the securities commission (or any agency or office 
    performing like functions) of any State may require registration of 
    any investment adviser that fails or refuses to pay the fees 
    required by subsection (b) in or to such State, notwithstanding the 
    limitations on the laws, rules, regulations, or orders, or other 
    administrative actions of any State, or any political subdivision 
    thereof, contained in subsection (a), if the laws of such State 
    require registration of investment advisers.
        (2) Delays.--For purposes of this subsection, delays in payment 
    of fees or underpayments of fees that are promptly remedied in 
    accordance with the applicable laws, rules, regulations, or orders, 
    or other administrative actions of the relevant State shall not 
    constitute a failure or refusal to pay fees.

SEC. 308. EFFECTIVE DATE.

    (a) In General.--This title and the amendments made by this title 
shall take effect 180 days after the date of enactment of this Act.
    (b) Conforming Amendment.--
        (1) In general.--Section 3(38)(B) of the Employee Retirement 
    Income Security Act of 1974 (29 U.S.C. 1002(38)(B)) is amended by 
    inserting ``or under the laws of any State'' after ``1940''.
        (2) Sunset.--The amendment made by paragraph (1) shall cease to 
    be effective 2 years after the date of enactment of this Act.

       TITLE IV--SECURITIES AND EXCHANGE COMMISSION AUTHORIZATION

SEC. 401. SHORT TITLE.

    This title may be cited as the ``Securities and Exchange Commission 
Authorization Act of 1996''.

SEC. 402. PURPOSES.

    The purposes of this title are--
        (1) to authorize appropriations for the Commission for fiscal 
    year 1997; and
        (2) to reduce over time the rates of fees charged under the 
    Federal securities laws.

SEC. 403. AUTHORIZATION OF APPROPRIATIONS.

    Section 35 of the Securities Exchange Act of 1934 is amended to 
read as follows:

``SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

    ``There are authorized to be appropriated to carry out the 
functions, powers, and duties of the Commission $300,000,000 for fiscal 
year 1997, in addition to any other funds authorized to be appropriated 
to the Commission.''.

SEC. 404. REGISTRATION FEES.

    Section 6(b) of the Securities Act of 1933 (15 U.S.C. 77f(b)) is 
amended to read as follows:
    ``(b) Registration Fee.--
        ``(1) Recovery of cost of services.--The Commission shall, in 
    accordance with this subsection, collect registration fees that are 
    designed to recover the costs to the government of the securities 
    registration process, and costs related to such process, including 
    enforcement activities, policy and rulemaking activities, 
    administration, legal services, and international regulatory 
    activities.
        ``(2) Fee payment required.--At the time of filing a 
    registration statement, the applicant shall pay to the Commission a 
    fee that shall be equal to the sum of the amounts (if any) 
    determined under the rates established by paragraphs (3) and (4). 
    The Commission shall publish in the Federal Register notices of the 
    fee rates applicable under this section for each fiscal year.
        ``(3) General revenue fees.--The rate determined under this 
    paragraph is a rate equal to $200 per $1,000,000 of the maximum 
    aggregate price at which such securities are proposed to be 
    offered, except that during fiscal year 2007 and any succeeding 
    fiscal year such rate is equal to $67 per $1,000,000 of the maximum 
    aggregate price at which such securities are proposed to be 
    offered. Fees collected during any fiscal year pursuant to this 
    paragraph shall be deposited and credited as general revenues of 
    the Treasury.
        ``(4) Offsetting collection fees.--
            ``(A) In general.--Except as provided in sub- paragraphs 
        (B) and (C), the rate determined under this paragraph is a rate 
        equal to the following amount per $1,000,000 of the maximum 
        aggregate price at which such securities are proposed to be 
        offered:
                ``(i) $95 during fiscal year 1998;
                ``(ii) $78 during fiscal year 1999;
                ``(iii) $64 during fiscal year 2000;
                ``(iv) $50 during fiscal year 2001;
                ``(v) $39 during fiscal year 2002;
                ``(vi) $28 during fiscal year 2003;
                ``(vii) $9 during fiscal year 2004;
                ``(viii) $5 during fiscal year 2005; and
                ``(ix) $0 during fiscal year 2006 or any succeeding 
            fiscal year.
            ``(B) Limitation; deposit.--Except as provided in 
        subparagraph (C), no amounts shall be collected pursuant to 
        this paragraph (4) for any fiscal year except to the extent 
        provided in advance in appropriations Acts. Fees collected 
        during any fiscal year pursuant to this paragraph shall be 
        deposited and credited as offsetting collections in accordance 
        with appropriations Acts.
            ``(C) Lapse of appropriations.--If on the first day of a 
        fiscal year a regular appropriation to the Commission has not 
        been enacted, the Commission shall continue to collect fees (as 
        offsetting collections) under this paragraph at the rate in 
        effect during the preceding fiscal year, until such a regular 
        appropriation is enacted.
        ``(5) Pro rata application of rates.--The rates required by 
    this subsection shall be applied pro rata to amounts and balances 
    equal to less than $1,000,000.''.

SEC. 405. TRANSACTION FEES.

    (a) Amendment.--Section 31 of the Securities Exchange Act of 1934 
(15 U.S.C. 78ee) is amended to read as follows:

``SEC. 31. TRANSACTION FEES.

    ``(a) Recovery of Cost of Services.--The Commission shall, in 
accordance with this subsection, collect transaction fees that are 
designed to recover the costs to the Government of the supervision and 
regulation of securities markets and securities professionals, and 
costs related to such supervision and regulation, including enforcement 
activities, policy and rulemaking activities, administration, legal 
services, and international regulatory activities.
    ``(b) Exchange-Traded Securities.--Every national securities 
exchange shall pay to the Commission a fee at a rate equal to \1/300\ 
of one percent of the aggregate dollar amount of sales of securities 
(other than bonds, debentures, and other evidences of indebtedness) 
transacted on such national securities exchange, except that for fiscal 
year 2007 or any succeeding fiscal year such rate shall be equal to \1/
800\ of one percent of such aggregate dollar amount of sales. Fees 
collected pursuant to this subsection shall be deposited and collected 
as general revenue of the Treasury.
    ``(c) Off-Exchange Trades of Exchange Registered Securities.--Each 
national securities association shall pay to the Commission a fee at a 
rate equal to \1/300\ of one percent of the aggregate dollar amount of 
sales transacted by or through any member of such association otherwise 
than on a national securities exchange of securities registered on such 
an exchange (other than bonds, debentures, and other evidences of 
indebtedness), except that for fiscal year 2007 or any succeeding 
fiscal year such rate shall be equal to \1/800\ of one percent of such 
aggregate dollar amount of sales. Fees collected pursuant to this 
subsection shall be deposited and collected as general revenue of the 
Treasury.
    ``(d) Off-Exchange Trades of Last-Sale-Reported Securities.--
        ``(1) Covered transactions.--Each national securities 
    association shall pay to the Commission a fee at a rate equal to 
    \1/300\ of one percent of the aggregate dollar amount of sales 
    transacted by or through any member of such association otherwise 
    than on a national securities exchange of securities (other than 
    bonds, debentures, and other evidences of indebtedness) subject to 
    prompt last sale reporting pursuant to the rules of the Commission 
    or a registered national securities association, excluding any 
    sales for which a fee is paid under subsection (c), except that for 
    fiscal year 2007, or any succeeding fiscal year, such rate shall be 
    equal to \1/800\ of one percent of such aggregate dollar amount of 
    sale.
        ``(2) Limitation; deposit of fees.--Except as provided in 
    paragraph (3), no amounts shall be collected pursuant to subsection 
    (d) for any fiscal year, except to the extent provided in advance 
    in appropriations Acts. Fees collected during any such fiscal year 
    pursuant to this subsection shall be deposited and credited as 
    offsetting collections to the account providing appropriations to 
    the Commission.
        ``(3) Lapse of appropriations.--If on the first day of a fiscal 
    year a regular appropriation to the Commission has not been 
    enacted, the Commission shall continue to collect fees (as 
    offsetting collections) under this subsection at the rate in effect 
    during the preceding fiscal year, until such a regular 
    appropriation is enacted.
    ``(e) Dates for Payment of Fees.--The fees required by subsections 
(b), (c), and (d) of this section shall be paid--
        ``(1) on or before March 15, with respect to transactions and 
    sales occurring during the period beginning on the preceding 
    September 1 and ending at the close of the preceding December 31; 
    and
        ``(2) on or before September 30, with respect to transactions 
    and sales occurring during the period beginning on the preceding 
    January 1 and ending at the close of the preceding August 31.
    ``(f) Exemptions.--The Commission, by rule, may exempt any sale of 
securities or any class of sales of securities from any fee imposed by 
this section, if the Commission finds that such exemption is consistent 
with the public interest, the equal regulation of markets and brokers 
and dealers, and the development of a national market system.
    ``(g) Publication.--The Commission shall publish in the Federal 
Register notices of the fee rates applicable under this section for 
each fiscal year.''.
    (b) Effective Dates; Transition.--
        (1) In general.--Except as provided in paragraph (2), the 
    amendment made by subsection (a) shall apply with respect to 
    transactions in securities that occur on or after October 1, 1997.
        (2) Off-exchange trades of last sale reported transactions.--
    The amendment made by subsection (a) shall apply with respect to 
    transactions described in section 31(d)(1) of the Securities 
    Exchange Act of 1934 (as amended by subsection (a) of this section) 
    that occur on or after September 1, 1997.

SEC. 406. TIME FOR PAYMENT.

    Section 4(e) of the Securities Exchange Act of 1934 (15 U.S.C. 
78d(e)) is amended by inserting before the period at the end thereof 
the following: ``and the Commission may also specify the time that such 
fee shall be determined and paid relative to the filing of any 
statement or document with the Commission''.

SEC. 407. SENSE OF THE CONGRESS CONCERNING FEES.

    It is the sense of the Congress that, in order to maintain the 
competitiveness of United States securities markets relative to foreign 
markets, no fee should be assessed on transactions involving portfolios 
of equity securities taking place at times of day characterized by low 
volume and during nontraditional trading hours.

          TITLE V--REDUCING THE COST OF SAVING AND INVESTMENT

SEC. 501. EXEMPTION FOR ECONOMIC, BUSINESS, AND INDUSTRIAL DEVELOPMENT 
              COMPANIES.

    Section 6(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
6(a)) is amended by adding at the end the following new paragraph:
        ``(5)(A) Any company that is not engaged in the business of 
    issuing redeemable securities, the operations of which are subject 
    to regulation by the State in which the company is organized under 
    a statute governing entities that provide financial or managerial 
    assistance to enterprises doing business, or proposing to do 
    business, in that State if--
            ``(i) the organizational documents of the company state 
        that the activities of the company are limited to the promotion 
        of economic, business, or industrial development in the State 
        through the provision of financial or managerial assistance to 
        enterprises doing business, or proposing to do business, in 
        that State, and such other activities that are incidental or 
        necessary to carry out that purpose;
            ``(ii) immediately following each sale of the securities of 
        the company by the company or any underwriter for the company, 
        not less than 80 percent of the securities of the company being 
        offered in such sale, on a class-by-class basis, are held by 
        persons who reside or who have a substantial business presence 
        in that State;
            ``(iii) the securities of the company are sold, or proposed 
        to be sold, by the company or by any underwriter for the 
        company, solely to accredited investors, as that term is 
        defined in section 2(a)(15) of the Securities Act of 1933, or 
        to such other persons that the Commission, as necessary or 
        appropriate in the public interest and consistent with the 
        protection of investors, may permit by rule, regulation, or 
        order; and
            ``(iv) the company does not purchase any security issued by 
        an investment company or by any company that would be an 
        investment company except for the exclusions from the 
        definition of the term `investment company' under paragraph (1) 
        or (7) of section 3(c), other than--
                ``(I) any debt security that is rated investment grade 
            by not less than 1 nationally recognized statistical rating 
            organization; or
                ``(II) any security issued by a registered open-end 
            investment company that is required by its investment 
            policies to invest not less than 65 percent of its total 
            assets in securities described in subclause (I) or 
            securities that are determined by such registered open-end 
            investment company to be comparable in quality to 
            securities described in subclause (I).
        ``(B) Notwithstanding the exemption provided by this paragraph, 
    section 9 (and, to the extent necessary to enforce section 9, 
    sections 38 through 51) shall apply to a company described in this 
    paragraph as if the company were an investment company registered 
    under this title.
        ``(C) Any company proposing to rely on the exemption provided 
    by this paragraph shall file with the Commission a notification 
    stating that the company intends to do so, in such form and manner 
    as the Commission may prescribe by rule.
        ``(D) Any company meeting the requirements of this paragraph 
    may rely on the exemption provided by this paragraph upon filing 
    with the Commission the notification required by subparagraph (C), 
    until such time as the Commission determines by order that such 
    reliance is not in the public interest or is not consistent with 
    the protection of investors.
        ``(E) The exemption provided by this paragraph may be subject 
    to such additional terms and conditions as the Commission may by 
    rule, regulation, or order determine are necessary or appropriate 
    in the public interest or for the protection of investors.''.

SEC. 502. INTRASTATE CLOSED-END INVESTMENT COMPANY EXEMPTION.

    Section 6(d)(1) of the Investment Company Act of 1940 (15 U.S.C. 
80a-6(d)(1)) is amended by striking ``$100,000'' and inserting 
``$10,000,000, or such other amount as the Commission may set by rule, 
regulation, or order''.

SEC. 503. DEFINITION OF ELIGIBLE PORTFOLIO COMPANY.

    Section 2(a)(46)(C) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(46)(C)) is amended--
        (1) in clause (ii), by striking ``or'' at the end;
        (2) by redesignating clause (iii) as clause (iv); and
        (3) by inserting after clause (ii) the following:
                ``(iii) it has total assets of not more than 
            $4,000,000, and capital and surplus (shareholders' equity 
            less retained earnings) of not less than $2,000,000, except 
            that the Commission may adjust such amounts by rule, 
            regulation, or order to reflect changes in 1 or more 
            generally accepted indices or other indicators for small 
            businesses; or''.

SEC. 504. DEFINITION OF BUSINESS DEVELOPMENT COMPANY.

    Section 2(a)(48)(B) of the Investment Company Act of 1940 (15 
U.S.C. 80a-2(a)(48)(B)) is amended by adding at the end the following: 
``provided further that a business development company need not make 
available significant managerial assistance with respect to any company 
described in paragraph (46)(C)(iii), or with respect to any other 
company that meets such criteria as the Commission may by rule, 
regulation, or order permit, as consistent with the public interest, 
the protection of investors, and the purposes of this title; and''.

SEC. 505. ACQUISITION OF ASSETS BY BUSINESS DEVELOPMENT COMPANIES.

    Section 55(a)(1)(A) of the Investment Company Act of 1940 (15 
U.S.C. 80a-54(a)(1)(A)) is amended--
        (1) by striking ``or from any person'' and inserting ``from any 
    person''; and
        (2) by inserting before the semicolon ``, or from any other 
    person, subject to such rules and regulations as the Commission may 
    prescribe as necessary or appropriate in the public interest or for 
    the protection of investors''.

SEC. 506. CAPITAL STRUCTURE AMENDMENTS.

    Section 61(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
60(a)) is amended--
        (1) in paragraph (2), by striking ``if such business 
    development company'' and all that follows through the end of the 
    paragraph and inserting a period;
        (2) in paragraph (3)(A)--
            (A) by striking ``senior securities representing 
        indebtedness accompanied by'';
            (B) by inserting ``accompanied by securities,'' after ``of 
        such company,''; and
            (C) in clause (ii), by striking ``senior''; and
        (3) in paragraph (3)--
            (A) in subparagraph (A), by striking ``and'' at the end;
            (B) in subparagraph (B), by striking the period at the end 
        of clause (iv) and inserting ``; and''; and
            (C) by inserting immediately after subparagraph (B) the 
        following new subparagraph:
            ``(C) a business development company may issue warrants, 
        options, or rights to subscribe to, convert to, or purchase 
        voting securities not accompanied by securities, if--
                ``(i) such warrants, options, or rights satisfy the 
            conditions in clauses (i) and (iii) of subparagraph (A); 
            and
                ``(ii) the proposal to issue such warrants, options, or 
            rights is authorized by the shareholders or partners of 
            such business development company, and such issuance is 
            approved by the required majority (as defined in section 
            57(o)) of the directors of or general partners in such 
            company on the basis that such issuance is in the best 
            interests of the company and its shareholders or 
            partners.''.

SEC. 507. FILING OF WRITTEN STATEMENTS.

    Section 64(b)(1) of the Investment Company Act of 1940 (15 U.S.C. 
80a-63(b)(1)) is amended by inserting ``and capital structure'' after 
``portfolio''.

SEC. 508. CHURCH EMPLOYEE PENSION PLANS.

    (a) Amendment to the Investment Company Act of 1940.--Section 3(c) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)) is amended 
by adding at the end the following new paragraph:
        ``(14) Any church plan described in section 414(e) of the 
    Internal Revenue Code of 1986, if, under any such plan, no part of 
    the assets may be used for, or diverted to, purposes other than the 
    exclusive benefit of plan participants or beneficiaries, or any 
    company or account that is--
            ``(A) established by a person that is eligible to establish 
        and maintain such a plan under section 414(e) of the Internal 
        Revenue Code of 1986; and
            ``(B) substantially all of the activities of which consist 
        of--
                ``(i) managing or holding assets contributed to such 
            church plans or other assets which are permitted to be 
            commingled with the assets of church plans under the 
            Internal Revenue Code of 1986; or
                ``(ii) administering or providing benefits pursuant to 
            church plans.''.
    (b) Amendment to the Securities Act of 1933.--Section 3(a) of the 
Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by adding at the 
end the following new paragraph:
        ``(13) Any security issued by or any interest or participation 
    in any church plan, company or account that is excluded from the 
    definition of an investment company under section 3(c)(14) of the 
    Investment Company Act of 1940.''.
    (c) Amendments to the Securities Exchange Act of 1934.--
        (1) Exempted securities.--Section 3(a)(12)(A) of the Securities 
    Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)) is amended--
            (A) in clause (v), by striking ``and'' at the end;
            (B) by redesignating clause (vi) as clause (vii); and
            (C) by inserting after clause (v) the following new clause:
                ``(vi) solely for purposes of sections 12, 13, 14, and 
            16 of this title, any security issued by or any interest or 
            participation in any church plan, company, or account that 
            is excluded from the definition of an investment company 
            under section 3(c)(14) of the Investment Company Act of 
            1940; and''.
        (2) Exemption from broker-dealer provisions.--Section 3 of the 
    Securities Exchange Act of 1934 (15 U.S.C. 78c) is amended by 
    adding at the end the following new subsection:
    ``(g) Church Plans.--No church plan described in section 414(e) of 
the Internal Revenue Code of 1986, no person or entity eligible to 
establish and maintain such a plan under the Internal Revenue Code of 
1986, no company or account that is excluded from the definition of an 
investment company under section 3(c)(14) of the Investment Company Act 
of 1940, and no trustee, director, officer or employee of or volunteer 
for such plan, company, account person, or entity, acting within the 
scope of that person's employment or activities with respect to such 
plan, shall be deemed to be a `broker', `dealer', `municipal securities 
broker', `municipal securities dealer', `government securities broker', 
`government securities dealer', `clearing agency', or `transfer agent' 
for purposes of this title--
        ``(1) solely because such plan, company, person, or entity 
    buys, holds, sells, trades in, or transfers securities or acts as 
    an intermediary in making payments in connection with transactions 
    in securities for its own account in its capacity as trustee or 
    administrator of, or otherwise on behalf of, or for the account of, 
    any church plan, company, or account that is excluded from the 
    definition of an investment company under section 3(c)(14) of the 
    Investment Company Act of 1940; and
        ``(2) if no such person or entity receives a commission or 
    other transaction-related sales compensation in connection with any 
    activities conducted in reliance on the exemption provided by this 
    subsection.''.
    (d) Amendment to the Investment Advisers Act of 1940.--Section 
203(b) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-3(b)) is 
amended--
        (1) in paragraph (3), by striking ``or'' at the end;
        (2) in paragraph (4), by striking the period at the end and 
    inserting ``; or''; and
        (3) by adding at the end the following new paragraph:
        ``(5) any plan described in section 414(e) of the Internal 
    Revenue Code of 1986, any person or entity eligible to establish 
    and maintain such a plan under the Internal Revenue Code of 1986, 
    or any trustee, director, officer, or employee of or volunteer for 
    any such plan or person, if such person or entity, acting in such 
    capacity, provides investment advice exclusively to, or with 
    respect to, any plan, person, or entity or any company, account, or 
    fund that is excluded from the definition of an investment company 
    under section 3(c)(14) of the Investment Company Act of 1940.''.
    (e) Amendment to the Trust Indenture Act of 1939.--Section 
304(a)(4)(A) of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd(4)(A)) 
is amended by striking ``or (11)'' and inserting ``(11), or (14)''.
    (f) Protection of Church Employee Benefit Plans Under State Law.--
        (1) Registration requirements.--Any security issued by or any 
    interest or participation in any church plan, company, or account 
    that is excluded from the definition of an investment company under 
    section 3(c)(14) of the Investment Company Act of 1940, as added by 
    subsection (a) of this section, and any offer, sale, or purchase 
    thereof, shall be exempt from any law of a State that requires 
    registration or qualification of securities.
        (2) Treatment of church plans.--No church plan described in 
    section 414(e) of the Internal Revenue Code of 1986, no person or 
    entity eligible to establish and maintain such a plan under the 
    Internal Revenue Code of 1986, no company or account that is 
    excluded from the definition of an investment company under section 
    3(c)(14) of the Investment Company Act of 1940, as added by 
    subsection (a) of this section, and no trustee, director, officer, 
    or employee of or volunteer for any such plan, person, entity, 
    company, or account shall be required to qualify, register, or be 
    subject to regulation as an investment company or as a broker, 
    dealer, investment adviser, or agent under the laws of any State 
    solely because such plan, person, entity, company, or account buys, 
    holds, sells, or trades in securities for its own account or in its 
    capacity as a trustee or administrator of or otherwise on behalf 
    of, or for the account of, or provides investment advice to, for, 
    or on behalf of, any such plan, person, or entity or any company or 
    account that is excluded from the definition of an investment 
    company under section 3(c)(14) of the Investment Company Act of 
    1940, as added by subsection (a) of this section.
    (g) Amendment to the Investment Company Act of 1940.--Section 30 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-29) is amended by 
adding at the end the following new subsections:
    ``(g) Disclosure to Church Plan Participants.--A person that 
maintains a church plan that is excluded from the definition of an 
investment company solely by reason of section 3(c)(14) shall provide 
disclosure to plan participants, in writing, and not less frequently 
than annually, and for new participants joining such a plan after May 
31, 1996, as soon as is practicable after joining such plan, that--
        ``(1) the plan, or any company or account maintained to manage 
    or hold plan assets and interests in such plan, company, or 
    account, are not subject to registration, regulation, or reporting 
    under this title, the Securities Act of 1933, the Securities 
    Exchange Act of 1934, or State securities laws; and
        ``(2) plan participants and beneficiaries therefore will not be 
    afforded the protections of those provisions.
    ``(h) Notice to Commission.--The Commission may issue rules and 
regulations to require any person that maintains a church plan that is 
excluded from the definition of an investment company solely by reason 
of section 3(c)(14) to file a notice with the Commission containing 
such information and in such form as the Commission may prescribe as 
necessary or appropriate in the public interest or consistent with the 
protection of investors.''.

SEC. 509. PROMOTING GLOBAL PREEMINENCE OF AMERICAN SECURITIES MARKETS.

    It is the sense of the Congress that--
        (1) the United States and foreign securities markets are 
    increasingly becoming international securities markets, as issuers 
    and investors seek the benefits of new capital and secondary market 
    opportunities without regard to national borders;
        (2) as issuers seek to raise capital across national borders, 
    they confront differing accounting requirements in the various 
    regulatory jurisdictions;
        (3) the establishment of a high-quality comprehensive set of 
    generally accepted international accounting standards in cross-
    border securities offerings would greatly facilitate international 
    financing activities and, most significantly, would enhance the 
    ability of foreign corporations to access and list in United States 
    markets;
        (4) in addition to the efforts made before the date of 
    enactment of this Act by the Commission to respond to the growing 
    internationalization of securities markets, the Commission should 
    enhance its vigorous support for the development of high-quality 
    international accounting standards as soon as practicable; and
        (5) the Commission, in view of its clear authority under law to 
    facilitate the access of foreign corporations to list their 
    securities in United States markets, should report to the Congress, 
    not later than 1 year after the date of enactment of this Act, on 
    progress in the development of international accounting standards 
    and the outlook for successful completion of a set of international 
    standards that would be acceptable to the Commission for offerings 
    and listings by foreign corporations in United States markets.

SEC. 510. STUDIES AND REPORTS.

    (a) Impact of Technological Advances.--
        (1) Study.--
            (A) In general.--The Commission shall conduct a study of--
                (i) the impact of technological advances and the use of 
            on-line information systems on the securities markets, 
            including steps that the Commission has taken to facilitate 
            the electronic delivery of prospectuses to institutional 
            and other investors;
                (ii) how such technologies have changed the way in 
            which the securities markets operate; and
                (iii) any steps taken by the Commission to address such 
            changes.
            (B) Considerations.--In conducting the study under 
        subparagraph (A), the Commission shall consider how the 
        Commission has adapted its enforcement policies and practices 
        in response to technological developments with regard to--
                (i) disclosure, prospectus delivery, and other customer 
            protection regulations;
                (ii) intermediaries and exchanges in the domestic and 
            international financial services industry;
                (iii) reporting by issuers, including communications 
            with holders of securities;
                (iv) the relationship of the Commission with other 
            national regulatory authorities and organizations to 
            improve coordination and cooperation; and
                (v) the relationship of the Commission with State 
            regulatory authorities and organizations to improve 
            coordination and cooperation.
        (2) Report.--Not later than 1 year after the date of enactment 
    of this Act, the Commission shall submit a report to the Congress 
    on the results of the study conducted under paragraph (1).
    (b) Shareholder Proposals.--
        (1) Study.--The Commission shall conduct a study of--
            (A) whether shareholder access to proxy statements pursuant 
        to section 14 of the Securities Exchange Act of 1934 has been 
        impaired by recent statutory, judicial, or regulatory changes; 
        and
            (B) the ability of shareholders to have proposals relating 
        to corporate practices and social issues included as part of 
        proxy statements.
        (2) Report.--Not later than 1 year after the date of enactment 
    of this Act, the Commission shall submit a report to the Congress 
    on the results of the study conducted under paragraph (1), together 
    with any recommendations for regulatory or legislative changes that 
    it considers necessary to improve shareholder access to proxy 
    statements.
    (c) Preferencing.--
        (1) Study.--The Commission shall conduct a study of the impact 
    on investors and the national market system of the practice known 
    as ``preferencing'' on one or more registered securities exchanges, 
    including consideration of--
            (A) how preferencing impacts--
                (i) the execution prices received by retail securities 
            customers whose orders are preferenced; and
                (ii) the ability of retail securities customers in all 
            markets to obtain executions of their limit orders in 
            preferenced securities; and
            (B) the costs of preferencing to such customers.
        (2) Report.--Not later than 6 months after the date of 
    enactment of this Act, the Commission shall submit a report to the 
    Congress on the results of the study conducted under paragraph (1).
        (3) Definition.--For purposes of this subsection, the term 
    ``preferencing'' refers to the practice of a broker acting as a 
    dealer on a national securities exchange, directing the orders of 
    customers to buy or sell securities to itself for execution under 
    rules that permit the broker to take priority in execution over 
    same-priced orders or quotations entered prior in time.
    (d) Broker-Dealer Uniformity.--
        (1) Study.--The Commission, after consultation with registered 
    securities associations, national securities exchanges, and States, 
    shall conduct a study of the impact of disparate State licensing 
    requirements on associated persons of registered brokers or dealers 
    and methods for States to attain uniform licensing requirements for 
    such persons.
        (2) Report.--Not later than 1 year after the date of enactment 
    of this Act, the Commission shall submit to the Congress a report 
    on the study conducted under paragraph (1). Such report shall 
    include recommendations concerning appropriate methods described in 
    paragraph (1)(B), including any necessary legislative changes to 
    implement such recommendations.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.
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