I

103D CONGRESS

2D SESSION H. R. 4858

To amend the Securities Act of 1933 and the Investment Company Act

of 1940 to promote capital formation for small businesses and others

through exempted offerings under the Securities Act and through investment pools that are excepted or exempted from regulation under the

Investment Company Act of 1940 and through business development

companies.

IN THE HOUSE OF REPRESENTATIVES

JULY 29, 1994

Mr. MARKEY (for himself and Mr. FIELDS of Texas) introduced the following

bill; which was referred to the Committee on Energy and Commerce

A BILL

To amend the Securities Act of 1933 and the Investment

Company Act of 1940 to promote capital formation for

small businesses and others through exempted offerings

under the Securities Act and through investment pools

that are excepted or exempted from regulation under

the Investment Company Act of 1940 and through business development companies.

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

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Small Business Incen5 tive Act of 1993’’.
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1 SEC. 2. EXEMPTED SECURITIES.

2 Section 3(b) of the Securities Act of 1933 (15 U.S.C.

3 77c(b)) is amended by striking ‘‘$5,000,000’’ and insert4 ing ‘‘$10,000,000’’.

5 SEC. 3. EXCLUSIONS FROM THE DEFINITION OF INVEST6 MENT COMPANY.

7 Section 3(c) of the Investment Company Act of 1940

8 (15 U.S.C. 80a–3(c)) is amended—

9 (1) in paragraph (1), by inserting after the first

10 sentence the following new sentence: ‘‘Such issuer

11 shall be deemed to be an investment company for

12 purposes of the limitations set forth in subpara13 graphs (A)(i) and (B)(i) of section 12(d)(1) govern14 ing the purchase or other acquisition by such issuer

15 of any security issued by a registered investment

16 company and the sale of any security issued by a

17 registered open-end investment company to any such

18 issuer.’’;

19 (2) in paragraph (1)(A)—

20 (A) by inserting after ‘‘issuer’’ the first

21 place it appears ‘‘and the company is or (but

22 for the exceptions set forth in this paragraph

23 and paragraph (7)) would be an investment

24 company’’; and
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1 (B) by striking ‘‘unless as of the date’’ and

2 all that follows through the end of subpara3 graph (A) and inserting a period; and

4 (3) by amending paragraph (7) to read as

5 follows:

6 ‘‘(7) Any issuer whose outstanding securities

7 are owned exclusively by persons who, at the time of

8 acquisition of such securities, are qualified pur9 chasers, except that such issuer shall be deemed to

10 be an investment company for purposes of the limi11 tations set forth in subparagraphs (A)(i) and (B)(i)

12 of section 12(d)(1) governing the purchase or other

13 acquisition by such issuer of any security issued by

14 a registered investment company and the sale of any

15 security issued by a registered open-end investment

16 company to any such issuer.’’.

17 SEC. 4. DEFINITION OF QUALIFIED PURCHASER.

18 Section 2(a) of the Investment Company Act of 1940

19 (15 U.S.C. 80a–2(a)) is amended by adding at the end

20 the following new paragraph:

21 ‘‘(51) ‘Qualified purchaser’ means—

22 ‘‘(A) any natural person who owns at least

23 $10,000,000 in securities of issuers, each of

24 which is not an affiliated person, as defined in

25 section 2(a)(3)(C), of such person;
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1 ‘‘(B) any person, acting for its own ac2 count or the accounts of other qualified pur3 chasers, who in the aggregate owns and invests

4 on a discretionary basis, not less than

5 $100,000,000 in securities of issuers, each of

6 which is not an affiliated person, as defined in

7 section 2(a)(3)(C), of such person; or

8 ‘‘(C) any person, who may own or invest a

9 lesser amount in securities than specified in

10 subparagraphs (A) and (B), that the Commis11 sion, by rule or regulation, has determined does

12 not need the protections of this title, after con13 sideration of factors such as—

14 ‘‘(i) a high degree of financial sophis15 tication, including extensive knowledge of

16 and experience in financial matters;

17 ‘‘(ii) sizable net worth;

18 ‘‘(iii) a substantial amount of assets

19 owned or under management;

20 ‘‘(iv) relationship with an issuer; or

21 ‘‘(v) such other factors as the Com22 mission may determine to be consistent

23 with the purpose of this paragraph.

24 The Commission also may adopt such rules and reg25 ulations governing the persons specified in subpara-
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1 graphs (A) and (B) as it determines are necessary

2 or appropriate in the public interest and for the pro3 tection of investors.’’.

4 SEC. 5. DEFINITION OF INVESTMENT SECURITIES.

5 Section 3(a) of the Investment Company Act of 1940

6 (15 U.S.C. 80a–3(a)) is amended in the last sentence by

7 striking subparagraph (C) and inserting the following:

8 ‘‘(C) securities issued by any majority-owned subsidiary

9 of the owner, unless such subsidiary is an investment com10 pany or is excluded from the definition of an investment

11 company solely by virtue of paragraph (1) or (7) of sub12 section (c).’’.

13 SEC. 6. EXEMPTION FOR ECONOMIC, BUSINESS, AND IN14 DUSTRIAL DEVELOPMENT COMPANIES.

15 Section 6(a) of the Investment Company Act of 1940

16 (15 U.S.C. 80a–6(a)) is amended by adding at the end

17 the following new paragraph:

18 ‘‘(5)(A) Any company that is not engaged in

19 the business of issuing redeemable securities, the op20 erations of which are subject to regulation by the

21 State in which the company is organized under a

22 statute governing entities that provide financial or

23 managerial assistance to enterprises doing business,

24 or proposing to do business, in that State if—
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1 ‘‘(i) the organizational documents of the

2 company state that the activities of the com3 pany are limited to the promotion of economic,

4 business, or industrial development in the State

5 through the provision of financial or managerial

6 assistance to enterprises doing business, or pro7 posing to do business, in that State, and such

8 other activities that are incidental or necessary

9 to carry out that purpose;

10 ‘‘(ii) immediately following each sale of the

11 securities of the company by the company or

12 any underwriter for the company, not less than

13 80 percent of the securities of the company

14 being offered in such sale, on a class-by-class

15 basis, are held by persons who reside or have a

16 substantial business presence in that State;

17 ‘‘(iii) the securities of the company are

18 sold, or proposed to be sold, by the company or

19 any underwriter for the company, solely to ac20 credited investors, as defined in section 2(15) of

21 the Securities Act of 1933, or to such other

22 persons that the Commission, as necessary or

23 appropriate in the public interest and consistent

24 with the protection of investors, may permit by

25 rule, regulation, or order; and
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1 ‘‘(iv) the company does not purchase any

2 security issued by an investment company, as

3 defined in section 3, or by any company that

4 would be an investment company except for the

5 exclusions from the definition of investment

6 company in section 3(c), other than—

7 ‘‘(I) any security that is rated invest8 ment grade by at least 1 nationally recog9 nized statistical rating organization; or

10 ‘‘(II) any security issued by a reg11 istered open-end investment company that

12 is required by its investment policies to in13 vest not less than 65 percent of its total

14 assets in securities described in subclause

15 (I) or securities that are determined by

16 such registered open-end investment com17 pany to be comparable in quality to securi18 ties described in subclause (I).

19 ‘‘(B) Notwithstanding the exemption provided

20 by this paragraph, the provisions of section 9 (and,

21 to the extent necessary to enforce such provisions,

22 sections 38 through 51) of this title shall apply to

23 a company described in this paragraph as if the

24 company were an investment company registered

25 under this title.
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1 ‘‘(C) Any company proposing to rely on the ex2 emption provided by this paragraph shall file with

3 the Commission a notification stating that the com4 pany intends to do so, in such form and manner as

5 the Commission may prescribe by rule.

6 ‘‘(D) Any company meeting the requirements of

7 this paragraph may rely on the exemption provided

8 by this paragraph upon filing with the Commission

9 the notification required by subparagraph (C), until

10 such time as the Commission determines by order

11 that such reliance is not in the public interest or

12 consistent with the protection of investors.

13 ‘‘(E) The exemption provided by this paragraph

14 may be subject to such additional terms and condi15 tions as the Commission may by rule, regulation, or

16 order determine are necessary or appropriate in the

17 public interest or for the protection of investors.’’.

18 SEC. 7. INTRASTATE CLOSED-END INVESTMENT COMPANY

19 EXEMPTION.

20 Section 6(d)(1) of the Investment Company Act of

21 1940 (15 U.S.C. 80a–6(d)(1)) is amended by striking

22 ‘‘$100,000’’ and inserting ‘‘$10,000,000, or such other

23 amount as the Commission may set by rule, regulation,

24 or order’’.
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1 SEC. 8. DEFINITION OF ELIGIBLE PORTFOLIO COMPANY.

2 Section 2(a)(46)(C) of the Investment Company Act

3 of 1940 (15 U.S.C. 80a–2(a)(46)(C)) is amended—

4 (1) in clause (ii), by striking ‘‘or’’ at the end;

5 (2) by redesignating clause (iii) as clause (iv);

6 and

7 (3) by inserting after clause (ii) the following:

8 ‘‘(iii) it has total assets of not more

9 than $4,000,000, and capital and surplus

10 (shareholders’ equity less retained earn11 ings) of not more than $2,000,000, except

12 that the Commission may adjust such

13 amounts by rule, regulation, or order to re14 flect changes in 1 or more generally ac15 cepted indices or other indicators for small

16 businesses; or’’.

17 SEC. 9. DEFINITION OF BUSINESS DEVELOPMENT COM18 PANY.

19 Section 2(a)(48)(B) of the Investment Company Act

20 of 1940 (15 U.S.C. 80a–2(a)(48)(B)) is amended by in21 serting before the semicolon at the end the following: ‘‘,

22 and provided further that a business development com23 pany need not make available significant managerial as24 sistance with respect to any company described in section

25 2(a)(46)(C)(iii), or with respect to any other company that

26 meets such criteria as the Commission may by rule, regu-
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1 lation, or order permit, as consistent with the public inter2 est, the protection of investors, and the purposes fairly in3 tended by the policy and provisions of this title’’.

4 SEC. 10. ACQUISITION OF ASSETS BY BUSINESS DEVELOP5 MENT COMPANIES.

6 Section 55(a)(1)(A) of the Investment Company Act

7 of 1940 (15 U.S.C. 80a–54(a)(1)(A)) is amended—

8 (1) by striking ‘‘or from any person’’ and in9 serting ‘‘from any person’’; and

10 (2) by inserting before the semicolon ‘‘, or from

11 any other person, subject to such rules and regula12 tions as the Commission may prescribe as necessary

13 or appropriate in the public interest or for the pro14 tection of investors’’.

15 SEC. 11. FILING OF WRITTEN STATEMENTS.

16 Section 64(b)(1) of the Investment Company Act of

17 1940 (15 U.S.C. 80a–63(b)(1)) is amended by inserting

18 ‘‘and capital structure’’ after ‘‘portfolio’’.

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