Calendar No. 468

104TH CONGRESS

2D SESSION S. 1815

[Report No. 104–293]

A BILL

To provide for improved regulation of the securities

the costs of investing, and for other purposes.markets, eliminate excess securities fees, reduce

JUNE 26, 1996

Reported with an amendment
II

Calendar No. 468

104TH CONGRESS

2D SESSION S. 1815

[Report No. 104–293]

To provide for improved regulation of the securities markets, eliminate excess

securities fees, reduce the costs of investing, and for other purposes.

IN THE SENATE OF THE UNITED STATES

MAY 23, 1996

Mr. GRAMM (for himself, Mr. D’AMATO, Mr. DODD, Mr. BRYAN, Ms.

MOSELEY-BRAUN, Mr. MACK, and Mr. BENNETT) introduced the following bill; which was read twice and referred to the Committee on Banking,

Housing, and Urban Affairs

JUNE 26, 1996

Reported by Mr. D’AMATO, with an amendment

[Strike out all after the enacting clause and insert the part printed in italic]

A BILL

To provide for improved regulation of the securities markets,

eliminate excess securities fees, reduce the costs of investing, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

2 (a) SHORT TITLE.—This Act may be cited as the

3 ‘‘Securities Investment Promotion Act of 1996’’.

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

5 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Severability.

TITLE I—INVESTMENT ADVISERS INTEGRITY ACT

Sec. 101. Short title.

Sec. 102. Funding for enhanced enforcement priority.

Sec. 103. Improved supervision through State and Federal cooperation.

Sec. 104. Interstate cooperation.

Sec. 105. Disqualification of convicted felons.

TITLE II—FACILITATING INVESTMENT IN MUTUAL FUNDS

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. Prohibition on deceptive investment company names.

Sec. 207. Excepted investment companies.

Sec. 208. Performance fees exemptions.

TITLE III—REDUCING THE COST OF SAVING AND INVESTMENT

Sec. 301. Exemption for economic, business, and industrial development

companies.

Sec. 302. Intrastate closed-end investment company exemption.

Sec. 303. Definition of eligible portfolio company.

Sec. 304. Definition of business development company.

Sec. 305. Acquisition of assets by business development companies.

Sec. 306. Capital structure amendments.

Sec. 307. Filing of written statements.

Sec. 308. Facilitating national securities markets.

Sec. 309. Regulatory flexibility.

Sec. 310. Analysis of economic effects of regulation.

Sec. 311. Privatization of EDGAR.

Sec. 312. Improving coordination of supervision.

Sec. 313. Increased access to foreign business information.

Sec. 314. Short-form registration.

Sec. 315. Church employee pension plans.

Sec. 316. Promoting global preeminence of American securities markets.
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1 SEC. 2. SEVERABILITY.

2 If any provision of this Act, an amendment made by

3 this Act, or the application of such provision or amend4 ment to any person or circumstance is held to be unconsti5 tutional, the remainder of this Act, the amendments made

6 by this Act, and the application of the provisions of such

7 to any person or circumstance shall not be affected

8 thereby.

9 TITLE I—INVESTMENT ADVISERS

10 INTEGRITY ACT

11 SEC. 101. SHORT TITLE.

12 This title may be cited as the ‘‘Investment Advisers

13 Integrity Act’’.

14 SEC. 102. FUNDING FOR ENHANCED ENFORCEMENT

15 PRIORITY.

16 There are authorized to be appropriated to the Secu17 rities and Exchange Commission, for the enforcement of

18 the Investment Advisers Act of 1940, not more than

19 $16,000,000 in each of fiscal years 1997 and 1998.

20 SEC. 103. IMPROVED SUPERVISION THROUGH STATE AND

21 FEDERAL COOPERATION.

22 (a) STATE AND FEDERAL RESPONSIBILITIES.—The

23 Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et

24 seq.) is amended by inserting after section 203 the follow25 ing new section:
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1 ‘‘SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

2 ‘‘(a) ADVISERS SUBJECT TO STATE AUTHORITIES.—

3 ‘‘(1) IN GENERAL.—No investment adviser that

4 is regulated or required to be regulated as an invest5 ment adviser in the State in which it maintains its

6 principal office and place of business shall register

7 under section 203(a), unless the adviser—

8 ‘‘(A) has assets under management of not

9 less than $25,000,000, or such higher amount

10 as the Commission may, by rule, deem appro11 priate in accordance with the purposes of this

12 title; or

13 ‘‘(B) is an adviser to an investment com14 pany registered under title I of this Act, or a

15 company that has elected to be a business de16 velopment company pursuant to section 54 of

17 title I of this Act.

18 ‘‘(2) DEFINITION.—For purposes of this sub19 section, the term ‘assets under management’ means

20 the securities portfolios with respect to which an in21 vestment adviser provides continuous and regular

22 supervisory or management services.

23 ‘‘(b) ADVISERS SUBJECT TO COMMISSION

24 AUTHORITY.—

25 ‘‘(1) IN GENERAL.—No law of any State or po26 litical subdivision thereof requiring the registration,
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1 licensing, or qualification as an investment adviser

2 or employee of an investment adviser shall apply to

3 any person—

4 ‘‘(A) that is registered under section 203

5 as an investment adviser, or that is an em6 ployee of such a person; or

7 ‘‘(B) that is not registered under section

8 203 because that person is excepted from the

9 definition of an investment adviser under sec10 tion 202(a)(11).

11 ‘‘(2) LIMITATION.—Nothing in this subsection

12 shall prohibit the securities commission (or any

13 agency or office performing like functions) of any

14 State from—

15 ‘‘(A) requiring the filing with such com16 mission, agency, or office of any document filed

17 with the Commission by an investment adviser,

18 or any other document, whether or not such

19 document may be required to be filed with the

20 Commission, relating to an employee of an in21 vestment adviser solely for notice purposes, to22 gether with a consent to service of process and

23 requisite fees; or

24 ‘‘(B) investigating and bringing enforce25 ment actions with respect to fraud or deceit
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1 against an investment adviser or person associ2 ated with an investment adviser.

3 ‘‘(c) EXEMPTIONS.—The Commission may, by rule or

4 regulation upon its own motion, or by order upon applica5 tion, exempt any person or class of persons from the prohi6 bitions of subsection (a) and permit the registration with

7 the Commission of any person or class of persons to which

8 the application of subsection (a) would be unfair, a burden

9 on interstate commerce, or otherwise inconsistent with the

10 purposes of this section.

11 ‘‘(d) FILING DEPOSITORIES.—The Commission may,

12 by rule, require an investment adviser—

13 ‘‘(1) to file with the Commission any fee, appli14 cation, report, or notice required by this title or by

15 the rules issued under this title through any entity

16 designated by the Commission for that purpose; and

17 ‘‘(2) to pay the reasonable costs associated with

18 such filing.

19 ‘‘(e) STATE ASSISTANCE.—Upon request of the secu20 rities commissioner (or any agency or officer performing

21 like functions) of any State, the Commission may provide

22 such training, technical assistance, or other reasonable as23 sistance in connection with the regulation of investment

24 advisers by the State.’’.
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1 (b) ADVISERS NOT ELIGIBLE TO REGISTER.—Sec2 tion 203 of the Investment Advisers Act of 1940 (15

3 U.S.C. 80b–3) is amended—

4 (1) in subsection (c), in the matter immediately

5 following paragraph (2), by inserting ‘‘and that the

6 applicant is not prohibited from registering as an in7 vestment adviser under section 203A’’ after ‘‘satis8 fied’’; and

9 (2) in subsection (h), in the second sentence—

10 (A) by striking ‘‘existence or’’ and insert11 ing ‘‘existence,’’; and

12 (B) by inserting ‘‘or is prohibited from

13 registering as an investment adviser under sec14 tion 203A,’’ after ‘‘adviser,’’.

15 (c) CONFORMING AMENDMENT.—Section 203(a) of

16 the Investment Advisers Act of 1940 (15 U.S.C. 80b–

17 3(a)) is amended by striking ‘‘subsection (b)’’ and insert18 ing ‘‘subsection (b) and section 203A’’.

19 SEC. 104. INTERSTATE COOPERATION.

20 Section 222 of the Investment Advisers Act of 1940

21 (15 U.S.C. 80b–18a) is amended to read as follows:

22 ‘‘SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.

23 ‘‘(a) JURISDICTION OF STATE REGULATORS.—Noth24 ing in this title shall affect the jurisdiction of the securities

25 commissioner (or any agency or officer performing like
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1 functions) of any State over any security or any person

2 insofar as it does not conflict with the provisions of this

3 title or the rules and regulations thereunder.

4 ‘‘(b) DUAL COMPLIANCE PURPOSES.—No State may

5 enforce any law or regulation that would require an invest6 ment adviser to maintain any books or records in addition

7 to those required under the laws of the State in which

8 it maintains its principal place of business, if the invest9 ment adviser—

10 ‘‘(1) is registered or licensed as such in the

11 State in which it maintains its principal place of

12 business; and

13 ‘‘(2) is in compliance with the applicable books

14 and records requirements of the State in which it

15 maintains its principle place of business.

16 ‘‘(c) LIMITATION ON CAPITAL AND BOND REQUIRE17 MENTS.—No State may enforce any law or regulation that

18 would require an investment adviser to maintain a higher

19 minimum net capital or to post any bond in addition to

20 any that is required under the laws of the State in which

21 it maintains its principal place of business, if the invest22 ment adviser—

23 ‘‘(1) is registered or licensed as such in the

24 State in which it maintains its principal place of

25 business; and
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1 ‘‘(2) is in compliance with the applicable net

2 capital or bonding requirements of the State in

3 which it maintains its principal place of business.’’.

4 SEC. 105. DISQUALIFICATION OF CONVICTED FELONS.

5 (a) AMENDMENT.—Section 203(e) of the Investment

6 Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is amended—

7 (1) by redesignating paragraphs (3) through

8 (7) as paragraphs (4) through (8), respectively; and

9 (2) by inserting after paragraph (2) the follow10 ing new paragraph:

11 ‘‘(3) has been convicted during the 10-year pe12 riod preceding the date of filing of any application

13 for registration, or at any time thereafter, of—

14 ‘‘(A) any crime that is punishable by im15 prisonment for 1 or more years, and that is not

16 described in paragraph (2); or

17 ‘‘(B) a substantially equivalent crime by a

18 foreign court of competent jurisdiction.’’.

19 (b) CONFORMING AMENDMENTS.—Section 203 of the

20 Investment Advisers Act of 1940 (15 U.S.C. 80b–3) is

21 amended—

22 (1) in subsection (e)(6) (as redesignated by

23 subsection (a) of this section), by striking ‘‘this

24 paragraph (5)’’ and inserting ‘‘this paragraph’’;

25 (2) in subsection (f)—
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1 (A) by striking ‘‘paragraph (1), (4), (5), or

2 (7)’’ and inserting ‘‘paragraph (1), (5), (6), or

3 (8)’’; and

4 (B) by striking ‘‘paragraph (3)’’ and in5 serting ‘‘paragraph (4)’’; and

6 (3) in subsection (i)(1)(D), by striking ‘‘section

7 203(e)(5) of this title’’ and inserting ‘‘subsection

8 (e)(6) of this section’’.

9 TITLE II—FACILITATING

10 INVESTMENT IN MUTUAL FUNDS

11 SEC. 201. SHORT TITLE.

12 This title may be cited as the ‘‘Investment Company

13 Act Amendments of 1996’’.

14 SEC. 202. FUNDS OF FUNDS.

15 Section 12(d)(1) of the Investment Company Act of

16 1940 (15 U.S.C. 80a–12(d)(1)) is amended—

17 (1) in subparagraph (E)(iii)—

18 (A) by striking ‘‘in the event such invest19 ment company is not a registered investment

20 company,’’; and

21 (B) by inserting ‘‘in the event that such in22 vestment company is not a registered invest23 ment company,’’ after ‘‘(bb)’’;

24 (2) by redesignating subparagraphs (G) and

25 (H) as subparagraphs (H) and (I), respectively;
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1 (3) by inserting after subparagraph (F) the fol2 lowing new subparagraph:

3 ‘‘(G) This paragraph does not apply to securities of

4 a registered open-end investment company or a registered

5 unit investment trust (hereafter in this subparagraph re6 ferred to as the ‘acquired company’) purchased or other7 wise acquired by a registered open-end investment com8 pany or a registered unit investment trust (hereafter in

9 this subparagraph referred to as the ‘acquiring company’)

10 if—

11 ‘‘(i) the acquired company and the acquiring

12 company are part of the same group of investment

13 companies;

14 ‘‘(ii) the securities of the acquired company, se15 curities of other registered open-end investment

16 companies and registered unit investment trusts that

17 are part of the same group of investment companies,

18 Government securities, and short-term paper are the

19 only investments held by the acquiring company;

20 ‘‘(iii)(I) the acquiring company does not pay

21 and is not assessed any charges or fees for distribu22 tion-related activities with respect to securities of the

23 acquired company, unless the acquiring company

24 does not charge a sales load or other fees or charges

25 for distribution-related activities; or
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1 ‘‘(II) any sales loads and other distribution-re2 lated fees charged with respect to securities of the

3 acquiring company, when aggregated with any sales

4 load and distribution-related fees paid by the acquir5 ing company with respect to securities of the ac6 quired fund, are not excessive under rules adopted

7 pursuant to section 22(b) or section 22(c) of this

8 title by a securities association registered under sec9 tion 15A of the Securities Exchange Act of 1934 or

10 the Commission;

11 ‘‘(iv) the acquired company has a policy that

12 prohibits it from acquiring any securities of reg13 istered open-end investment companies or registered

14 unit investment trusts in reliance on this subpara15 graph or subparagraph (F); and

16 ‘‘(v) such acquisition is not in contravention of

17 such rules and regulations as the Commission may

18 from time to time prescribe with respect to acquisi19 tions in accordance with this subparagraph, as nec20 essary and appropriate for the protection of

21 investors.

22 For purposes of this subparagraph, the term ‘group of in23 vestment companies’ means any 2 or more registered in24 vestment companies that hold themselves out to investors
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1 as related companies for purposes of investment and inves2 tor services.’’; and

3 (4) by adding at the end the following new sub4 paragraph:

5 ‘‘(J) The Commission, by rules and regulations, upon

6 its own motion, or by order upon application, may condi7 tionally or unconditionally exempt any person, security, or

8 transaction, or any class or classes of persons, securities,

9 or transactions from any provision of this subsection, if

10 and to the extent that such exemption is consistent with

11 the public interest and the protection of investors.’’.

12 SEC. 203. FLEXIBLE REGISTRATION OF SECURITIES.

13 (a) AMENDMENTS TO REGISTRATION STATE14 MENTS.—Section 24(e) of the Investment Company Act

15 of 1940 (15 U.S.C. 80a–24(e)) is amended—

16 (1) by striking paragraphs (1) and (2);

17 (2) by redesignating paragraph (3) as sub18 section (e); and

19 (3) in subsection (e) (as so redesignated) by

20 striking ‘‘pursuant to this subsection or otherwise’’.

21 (b) REGISTRATION OF INDEFINITE AMOUNT OF SE22 CURITIES.—Section 24(f) of the Investment Company Act

23 of 1940 (15 U.S.C. 80a–24(f)) is amended to read as

24 follows:
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1 ‘‘(f) REGISTRATION OF INDEFINITE AMOUNT OF SE2 CURITIES.—

3 ‘‘(1) REGISTRATION OF SECURITIES.—Upon the

4 effective date, as provided by section 8 of the Securi5 ties Act of 1933, of its registration statement, a

6 face-amount certificate company, open-end manage7 ment company, or unit investment trust, shall be

8 deemed to have registered an indefinite amount of

9 securities.

10 ‘‘(2) PAYMENT OF REGISTRATION FEES.—Not

11 later than 90 days after the end of the fiscal year

12 of an entity referred to in paragraph (1), the entity

13 shall pay a registration fee to the Commission, cal14 culated in the manner specified in section 6(b) of the

15 Securities Act of 1933, based on the aggregate sales

16 price for which its securities (including, for purposes

17 of this paragraph, all securities issued pursuant to

18 a dividend reinvestment plan) were sold during the

19 previous fiscal year of the entity, reduced by—

20 ‘‘(A) the aggregate redemption or repur21 chase price of the securities of the entity during

22 that year; and

23 ‘‘(B) the aggregate redemption or repur24 chase price of the securities of the entity during

25 any prior fiscal year ending not more than 1
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1 year before the date of enactment of the Invest2 ment Company Act Amendments of 1996, that

3 were not used previously by the entity to reduce

4 fees payable under this section.

5 ‘‘(3) INTEREST DUE ON LATE PAYMENT.—An

6 entity paying the fee required by this subsection or

7 any portion thereof more than 90 days after the end

8 of the fiscal year of the entity shall pay to the Com9 mission interest on unpaid amounts, compounded

10 daily, at the underpayment rate established by the

11 Secretary of the Treasury pursuant to section 3717

12 of title 31, United States Code. The payment of in13 terest pursuant to this paragraph shall not preclude

14 the Commission from bringing an action to enforce

15 the requirements of paragraph (2).

16 ‘‘(4) RULEMAKING AUTHORITY.—The Commis17 sion may adopt rules and regulations to implement

18 this subsection.’’.

19 (c) EFFECTIVE DATE.—The amendments made by

20 this section shall become effective 180 days after the date

21 of enactment of this Act.
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1 SEC. 204. FACILITATING USE OF CURRENT INFORMATION

2 IN ADVERTISING.

3 Section 24 of the Investment Company Act of 1940

4 (15 U.S.C. 80a–24) is amended by adding at the end the

5 following new subsection:

6 ‘‘(g) ADDITIONAL PROSPECTUSES.—In addition to

7 any prospectus permitted or required by section 10(a) of

8 the Securities Act of 1933, the Commission shall permit,

9 by rules or regulations deemed necessary or appropriate

10 in the public interest or for the protection of investors,

11 the use of a prospectus for the purposes of section 5(b)(1)

12 of that Act with respect to securities issued by a registered

13 investment company. Such a prospectus, which may in14 clude information the substance of which is not included

15 in the prospectus specified in section 10(a) of the Securi16 ties Act of 1933, shall be deemed to be permitted by sec17 tion 10(b) of that Act.’’.

18 SEC. 205. VARIABLE INSURANCE CONTRACTS.

19 (a) UNIT INVESTMENT TRUST TREATMENT.—Sec20 tion 26 of the Investment Company Act of 1940 (15

21 U.S.C. 80a–26) is amended by adding at the end the fol22 lowing new subsection:

23 ‘‘(e) EXEMPTION.—

24 ‘‘(1) IN GENERAL.—Subsection (a) does not

25 apply to any registered separate account funding

26 variable insurance contracts, or to the sponsoring in-
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1 surance company and principal underwriter of such

2 account.

3 ‘‘(2) LIMITATION ON SALES.—It shall be unlaw4 ful for any registered separate account funding vari5 able insurance contracts, or for the sponsoring in6 surance company of such account, to sell any such

7 contract, unless—

8 ‘‘(A) the fees and charges deducted under

9 the contract, in the aggregate, are reasonable in

10 relation to the services rendered, the expenses

11 expected to be incurred, and the risks assumed

12 by the insurance company, and the insurance

13 company so represents in the registration state14 ment for the contract; and

15 ‘‘(B) the insurance company—

16 ‘‘(i) complies with all other applicable

17 provisions of this section, as if it were a

18 trustee or custodian of the registered sepa19 rate account;

20 ‘‘(ii) files with the insurance regu21 latory authority of a State or territory of

22 the United States or of the District of Co23 lumbia in which is located the principal

24 place of business of the insurance com25 pany, an annual statement of its financial
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1 condition, which most recent statement in2 dicates that the insurance company has a

3 combined capital and surplus, if a stock

4 company, or an unassigned surplus, if a

5 mutual company, of not less than

6 $1,000,000, or such other amount as the

7 Commission may from time to time pre8 scribe by rule, as necessary or appropriate

9 in the public interest or for the protection

10 of investors; and

11 ‘‘(iii) together with its registered sepa12 rate accounts, is supervised and examined

13 periodically by the insurance authority of

14 such State, territory, or the District of Co15 lumbia.

16 ‘‘(3) FEES AND CHARGES.—For purposes of

17 paragraph (2), the fees and charges deducted under

18 the contract shall include all fees and charges im19 posed for any purpose and in any manner.

20 ‘‘(4) REGULATORY AUTHORITY.—The Commis21 sion may issue such rules and regulations to carry

22 out paragraph (2)(A) as it determines are necessary

23 or appropriate in the public interest or for the pro24 tection of investors.’’.
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1 (b) PERIODIC PAYMENT PLAN TREATMENT.—Sec2 tion 27 of the Investment Company Act of 1940 (15

3 U.S.C. 80a–27) is amended by adding at the end the fol4 lowing new subsection:

5 ‘‘(i)(1) This section shall not apply to any registered

6 separate account funding variable insurance contracts, or

7 to the sponsoring insurance company and principal under8 writer of such account, except as provided in paragraph

9 (2).

10 ‘‘(2) It shall be unlawful for any registered separate

11 account funding variable insurance contracts, or for the

12 sponsoring insurance company of such account, to sell any

13 such contract unless—

14 ‘‘(A) such contract is a redeemable security;

15 and

16 ‘‘(B) the insurance company complies with sec17 tion 26(e) and any rules or regulations adopted by

18 the Commission thereunder.’’.

19 SEC. 206. PROHIBITION ON DECEPTIVE INVESTMENT COM20 PANY NAMES.

21 Section 35(d) of the Investment Company Act of

22 1940 (15 U.S.C. 80a–34(d)) is amended to read as

23 follows:

24 ‘‘(d) It shall be unlawful for any registered invest25 ment company to adopt as a part of the name or title of
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1 such company, or of any securities of which it is the issuer,

2 any word or words that are materially deceptive or mis3 leading. The Commission is authorized, by rule, regula4 tion, or order, to define such names or titles as are materi5 ally deceptive or misleading.’’.

6 SEC. 207. EXCEPTED INVESTMENT COMPANIES.

7 (a) AMENDMENTS.—Section 3(c) of the Investment

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

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

10 sentence the following: ‘‘Such issuer shall be deemed

11 to be an investment company for purposes of the

12 limitations set forth in subparagraphs (A)(i) and

13 (B)(i) of section 12(d)(1) governing the purchase or

14 other acquisition by such issuer of any security is15 sued by any registered investment company and the

16 sale of any security issued by any registered open17 end investment company to any such issuer.’’;

18 (2) in subparagraph (A) of paragraph (1)—

19 (A) by inserting after ‘‘issuer,’’ the first

20 place that term appears, the following: ‘‘and is

21 or, but for the exception provided for in this

22 paragraph or paragraph (7), would be an in23 vestment company,’’; and
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1 (B) by striking ‘‘unless, as of’’ and all that

2 follows through the end of the subparagraph

3 and inserting a period; and

4 (3) by striking paragraph (7) and inserting the

5 following:

6 ‘‘(7)(A) Any issuer, the outstanding securities

7 of which are owned exclusively by persons who, at

8 the time of acquisition of such securities, are quali9 fied purchasers, and which is not making and does

10 not at that time propose to make a public offering

11 of such securities. Securities that are owned by per12 sons who received the securities from a qualified

13 purchaser as a gift or bequest, or in a case in which

14 the transfer was caused by legal separation, divorce,

15 death, or other involuntary event, shall be deemed to

16 be owned by a qualified purchaser, subject to such

17 rules, regulations, and orders as the Commission

18 may prescribe as necessary or appropriate in the

19 public interest or for the protection of investors.

20 ‘‘(B) Notwithstanding subparagraph (A), an is21 suer is within the exception provided by this para22 graph if—

23 ‘‘(i) in addition to qualified purchasers,

24 outstanding securities of that issuer are bene-
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1 ficially owned by not more than 100 persons

2 who are not qualified purchasers, if—

3 ‘‘(I) such persons acquired such secu4 rities on or before April 30, 1996; and

5 ‘‘(II) at the time such securities were

6 acquired by such persons, the issuer was

7 excepted by paragraph (1); and

8 ‘‘(ii) prior to availing itself of the exception

9 provided by this paragraph—

10 ‘‘(I) such issuer has disclosed to each

11 beneficial owner that future investors will

12 be limited to qualified purchasers, and that

13 ownership in such issuer is no longer lim14 ited to not more than 100 persons; and

15 ‘‘(II) concurrently with or after such

16 disclosure, such issuer has provided each

17 beneficial owner with a reasonable oppor18 tunity to redeem any part or all of their in19 terests in the issuer, notwithstanding any

20 agreement to the contrary between such is21 suer and persons, for their proportionate

22 share of the issuer’s net assets.

23 ‘‘(C) Each person that elects to redeem under

24 subparagraph (B)(ii)(II) shall receive an amount in

25 cash equal to that person’s proportionate share of
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1 the issuer’s net assets, unless the issuer elects to

2 provide such person with the option of receiving, and

3 such person agrees to receive, all or a portion of

4 such person’s share in assets of the issuer. If the is5 suer elects to provide such persons with such an op6 portunity, disclosure concerning such opportunity

7 shall be made in the disclosure required by subpara8 graph (B)(ii)(I).

9 ‘‘(D) An issuer that is excepted under this

10 paragraph shall nonetheless be deemed to be an in11 vestment company for purposes of the limitations set

12 forth in subparagraphs (A)(i) and (B)(i) of section

13 12(d)(1) relating to the purchase or other acquisi14 tion by such issuer of any security issued by any

15 registered investment company and the sale of any

16 security issued by any registered open-end invest17 ment company to any such issuer.

18 ‘‘(E) For purposes of determining compliance

19 with this paragraph and paragraph (1), an issuer

20 that is otherwise excepted under this paragraph and

21 an issuer that is otherwise excepted under paragraph

22 (1) shall not be treated by the Commission as being

23 a single issuer for purposes of determining whether

24 the outstanding securities of the issuer excepted

25 under paragraph (1) are beneficially owned by not
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1 more than 100 persons or whether the outstanding

2 securities of the issuer excepted under this para3 graph are owned by persons that are not qualified

4 purchasers. Nothing in this subparagraph shall be

5 construed to establish that a person is a bona fide

6 qualified purchaser for purposes of this paragraph

7 or a bona fide beneficial owner for purposes of para8 graph (1).’’.

9 (b) DEFINITION OF QUALIFIED PURCHASER.—Sec10 tion 2(a) of the Investment Company Act of 1940 (15

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

12 following new paragraph:

13 ‘‘(51)(A) ‘Qualified purchaser’ means—

14 ‘‘(i) any natural person who owns at least

15 $5,000,000 in investments, as defined by the

16 Commission;

17 ‘‘(ii) any company that owns not less than

18 $5,000,000 in investments and that is owned

19 directly or indirectly by or for 2 or more natu20 ral persons who are related as siblings or

21 spouse (including former spouses), or direct lin22 eal descendants by birth, marriage, or adoption,

23 spouses of such persons, the estates of such

24 persons, or foundations, charitable organiza-
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1 tions, or trusts established by or for the benefit

2 of such persons;

3 ‘‘(iii) any trust that is not covered by sub4 paragraph (B) and that was not formed for the

5 specific purpose of acquiring the securities of6 fered, as to which the trustee or other person

7 authorized to make decisions with respect to the

8 trust, and each settlor or other person who has

9 contributed assets to the trust, is a person de10 scribed in clause (i), (ii), or (iv);

11 ‘‘(iv) any person, acting for its own ac12 count or the accounts of other qualified pur13 chasers, who in the aggregate owns and invests

14 on a discretionary basis, not less than

15 $25,000,000 in investments; or

16 ‘‘(v) any person that the Commission, by

17 rule or regulation, has determined does not

18 need the protections of this title, after consider19 ation of factors such as—

20 ‘‘(I) a high degree of financial sophis21 tication, including extensive knowledge of

22 and experience in financial matters;

23 ‘‘(II) a substantial amount of assets

24 owned or under management;

25 ‘‘(III) relationship with an issuer; or
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1 ‘‘(IV) such other factors as the Com2 mission may determine to be consistent

3 with the purposes of this paragraph.

4 ‘‘(B) The Commission may adopt such rules

5 and regulations applicable to the persons and trusts

6 specified in clauses (i) through (v) of subparagraph

7 (A) as it determines are necessary or appropriate in

8 the public interest and for the protection of inves9 tors.

10 ‘‘(C) The term ‘qualified purchaser’ does not in11 clude a company that, but for the exceptions pro12 vided for in paragraph (1) or (7) of section 3(c),

13 would be an investment company (hereafter in this

14 paragraph referred to as an ‘excepted investment

15 company’), unless all beneficial owners of its out16 standing securities (other than short-term paper),

17 determined in accordance with section 3(c)(1)(A),

18 that acquired such securities on or before April 30,

19 1996 (hereafter in this paragraph referred to as

20 ‘pre-amendment beneficial owners’), and all pre21 amendment beneficial owners of the outstanding se22 curities (other than short-term paper) of any ex23 cepted investment company that, directly or indi24 rectly, owns any outstanding securities of such ex-
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1 cepted investment company, have consented to its

2 treatment as a qualified purchaser.’’.

3 (c) CONFORMING AMENDMENT.—Section 3(a) of the

4 Investment Company Act of 1940 (15 U.S.C. 80a–3(a))

5 is amended in the matter immediately following paragraph

6 (3)—

7 (1) by inserting ‘‘(i)’’ after ‘‘of the owner’’; and

8 (2) by inserting before the period the following:

9 ‘‘, and (ii) which are not relying on the exception

10 from the definition of investment company in para11 graph (1) or (7) of subsection (c)’’.

12 (d) RULEMAKING REQUIRED.—

13 (1) IMPLEMENTATION OF SECTION 3(c)(1)(B).—

14 Not later than 1 year after the date of enactment

15 of this Act, the Commission shall prescribe rules to

16 implement the requirements of section 3(c)(1)(B) of

17 the Investment Company Act of 1940 (15 U.S.C.

18 80a–3(c)(1)(B)).

19 (2) IDENTIFICATION OF INVESTMENTS.—Not

20 later than 180 days after the date of enactment of

21 this Act, the Commission shall prescribe rules defin22 ing or otherwise identifying ‘‘investments’’ for the

23 purposes of section 2(a)(51) of the Investment Com24 pany Act of 1940, as amended by this Act.
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1 (3) EMPLOYEE EXCEPTION.—Not later than 1

2 year after the date of enactment of this Act, the

3 Commission shall prescribe rules pursuant to its au4 thority under section 6 of the Investment Company

5 Act of 1940 to permit the ownership by knowledge6 able employees of an issuer of the securities or an

7 affiliated person without loss of the exception of the

8 issuer under paragraph (1) or (7) of section 3(c) of

9 that Act from treatment as an investment company

10 under that Act.

11 (e) EFFECTIVE DATE.—The amendments made by

12 this section shall become effective on the earlier of—

13 (1) 180 days after the date of enactment of this

14 Act; or

15 (2) the date on which the rulemaking required

16 under subsection (d)(2) is completed.

17 SEC. 208. PERFORMANCE FEES EXEMPTIONS.

18 Section 205 of the Investment Advisers Act of 1940

19 (15 U.S.C. 80b–5) is amended—

20 (1) in subsection (b)—

21 (A) in paragraph (2), by striking ‘‘or’’ at

22 the end;

23 (B) in paragraph (3), by striking the pe24 riod at the end and inserting ‘‘; or’’; and
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1 (C) by adding at the end the following new

2 paragraph:

3 ‘‘(4) apply to an investment advisory contract

4 with a company excepted from the definition of an

5 investment company under section 3(c)(7) of title I

6 of this Act.’’; and

7 (2) by adding at the end the following new sub8 section:

9 ‘‘(e) The Commission, by rule or regulation, upon its

10 own motion, or by order upon application, may condi11 tionally or unconditionally exempt any person or trans12 action, or any class or classes of persons or transactions,

13 from subsection (a)(1), if and to the extent that the ex14 emption relates to an investment advisory contract with—

15 ‘‘(1) any person that the Commission deter16 mines does not need the protections of subsection

17 (a)(1), on the basis of such factors as financial so18 phistication, net worth, knowledge and experience in

19 financial matters, amount of assets under manage20 ment, relationship with a registered investment ad21 viser, and such other factors as the Commission de22 termines are consistent with this section; or

23 ‘‘(2) a person who is not a resident of the Unit24 ed States.’’.
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1 TITLE III—REDUCING THE COST

2 OF SAVING AND INVESTMENT

3 SEC. 301. EXEMPTION FOR ECONOMIC, BUSINESS, AND IN4 DUSTRIAL DEVELOPMENT COMPANIES.

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

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

7 the following new paragraph:

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

9 the business of issuing redeemable securities, the op10 erations of which are subject to regulation by the

11 State in which the company is organized under a

12 statute governing entities that provide financial or

13 managerial assistance to enterprises doing business,

14 or proposing to do business, in that State if—

15 ‘‘(i) the organizational documents of the

16 company state that the activities of the com17 pany are limited to the promotion of economic,

18 business, or industrial development in the State

19 through the provision of financial or managerial

20 assistance to enterprises doing business, or pro21 posing to do business, in that State, and such

22 other activities that are incidental or necessary

23 to carry out that purpose;

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

25 securities of the company by the company or
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1 any underwriter for the company, not less than

2 80 percent of the securities of the company

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

4 basis, are held by persons who reside or who

5 have a substantial business presence in that

6 State;

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

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

9 by any underwriter for the company, solely to

10 accredited investors, as that term is defined in

11 section 2(15) of the Securities Act of 1933, or

12 to such other persons that the Commission, as

13 necessary or appropriate in the public interest

14 and consistent with the protection of investors,

15 may permit by rule, regulation, or order; and

16 ‘‘(iv) the company does not purchase any

17 security issued by an investment company or by

18 any company that would be an investment com19 pany except for the exclusions from the defini20 tion of the term ‘‘investment company’’ under

21 paragraph (1) or (7) of section 3(c), other

22 than—

23 ‘‘(I) any debt security that is rated in24 vestment grade by not less than 1 nation-
32

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1 ally recognized statistical rating organiza2 tion; or

3 ‘‘(II) any security issued by a reg4 istered open-end investment company that

5 is required by its investment policies to in6 vest not less than 65 percent of its total

7 assets in securities described in subclause

8 (I) or securities that are determined by

9 such registered open-end investment com10 pany to be comparable in quality to securi11 ties described in subclause (I).

12 ‘‘(B) Notwithstanding the exemption provided

13 by this paragraph, section 9 (and, to the extent nec14 essary to enforce section 9, sections 38 through 51)

15 shall apply to a company described in this paragraph

16 as if the company were an investment company reg17 istered under this title.

18 ‘‘(C) Any company proposing to rely on the ex19 emption provided by this paragraph shall file with

20 the Commission a notification stating that the com21 pany intends to do so, in such form and manner as

22 the Commission may prescribe by rule.

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

24 this paragraph may rely on the exemption provided

25 by this paragraph upon filing with the Commission
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1 the notification required by subparagraph (C), until

2 such time as the Commission determines by order

3 that such reliance is not in the public interest or is

4 not consistent with the protection of investors.

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

6 may be subject to such additional terms and condi7 tions as the Commission may by rule, regulation, or

8 order determine are necessary or appropriate in the

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

10 SEC. 302. INTRASTATE CLOSED-END INVESTMENT COM11 PANY EXEMPTION.

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

13 1940 (15 U.S.C. 80a–6(d)(1)) is amended by striking

14 ‘‘$100,000’’ and inserting ‘‘$10,000,000, or such other

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

16 or order’’.

17 SEC. 303. DEFINITION OF ELIGIBLE PORTFOLIO COMPANY.

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

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

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

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

22 and

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

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

25 than $4,000,000, and capital and surplus
34

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1 (shareholders’ equity less retained earn2 ings) of not more than $2,000,000, except

3 that the Commission may adjust such

4 amounts by rule, regulation, or order to re5 flect changes in 1 or more generally ac6 cepted indices or other indicators for small

7 businesses; or’’.

8 SEC. 304. DEFINITION OF BUSINESS DEVELOPMENT COM9 PANY.

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

11 of 1940 (15 U.S.C. 80a–2(a)(48)(B)) is amended by in12 serting before the semicolon at the end the following: ‘‘,

13 and provided further that a business development com14 pany need not make available significant managerial as15 sistance with respect to any company described in section

16 2(a)(46)(C)(iii), or with respect to any other company that

17 meets such criteria as the Commission may by rule, regu18 lation, or order permit, as consistent with the public inter19 est, the protection of investors, and the purposes fairly in20 tended by the policy and provisions of this title’’.

21 SEC. 305. ACQUISITION OF ASSETS BY BUSINESS DEVELOP22 MENT COMPANIES.

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

24 of 1940 (15 U.S.C. 80a–54(a)(1)(A)) is amended—
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1 (1) by striking ‘‘or from any person’’ and in2 serting ‘‘from any person’’; and

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

4 any other person, subject to such rules and regula5 tions as the Commission may prescribe as necessary

6 or appropriate in the public interest or for the pro7 tection of investors’’.

8 SEC. 306. CAPITAL STRUCTURE AMENDMENTS.

9 Section 61(a) of the Investment Company Act of

10 1940 (15 U.S.C. 80a–60(a)) is amended—

11 (1) in paragraph (2), by striking ‘‘if such busi12 ness development company’’ and all that follows

13 through the end of paragraph (2) and inserting a

14 period;

15 (2) in paragraph (3)(A)—

16 (A) by striking ‘‘senior securities rep17 resenting indebtedness accompanied by’’;

18 (B) inserting ‘‘accompanied by securities,’’

19 after ‘‘of such company,’’; and

20 (C) in clause (ii), by striking ‘‘senior’’; and

21 (3) in paragraph (3)—

22 (A) in subparagraph (A), by striking

23 ‘‘and’’ at the end;
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1 (B) in subparagraph (B), by striking the

2 period at the end of clause (iv) and inserting ‘‘;

3 and’’; and

4 (C) by inserting after subparagraph (B)

5 the following new subparagraph:

6 ‘‘(C) a business development company may

7 issue warrants, options, or rights to subscribe

8 to, convert to, or purchase voting securities not

9 accompanied by securities, if—

10 ‘‘(i) such warrants, options, or rights

11 satisfy the conditions in clauses (i) and

12 (iii) of subparagraph (A); and

13 ‘‘(ii) the proposal to issue such war14 rants, options, or rights is authorized by

15 the shareholders or partners of such busi16 ness development company, and such issu17 ance is approved by the required majority

18 (as defined in section 57(o)) of the direc19 tors of or general partners in such com20 pany on the basis that such issuance is in

21 the best interests of the company and its

22 shareholders or partners.’’.
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1 SEC. 307. FILING OF WRITTEN STATEMENTS.

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

3 1940 (15 U.S.C. 80a–63(b)(1)) is amended by inserting

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

5 SEC. 308. FACILITATING NATIONAL SECURITIES MARKETS.

6 Section 18 of the Securities Act of 1933 (15 U.S.C.

7 77r) is amended to read as follows:

8 ‘‘SEC. 18. EXEMPTION FROM STATE CONTROL OF

9 SECURITIES OFFERINGS.

10 ‘‘(a) EXEMPTION FROM STATE LAW FOR REG11 ISTERED SECURITIES.—Except with respect to offerings

12 described in subsection (b) and as otherwise specifically

13 provided in this section, no law, rule, regulation, order,

14 or other administrative action of any State or Territory

15 of the United States, or the District of Columbia, or any

16 political subdivision thereof—

17 ‘‘(1) requiring, or with respect to, registration

18 or qualification of securities or securities trans19 actions shall directly or indirectly apply to an offer20 ing subject to a registration statement filed pursu21 ant to this title;

22 ‘‘(2) shall directly or indirectly prohibit, limit,

23 or impose conditions upon the use of any offering

24 document, including any prospectus contained in a

25 registration statement that has been filed with the

26 Commission; or
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1 ‘‘(3) shall directly or indirectly prohibit, limit,

2 or impose conditions upon the offer or sale of any

3 security registered with the Commission under this

4 title based on the merits of such offering or issuer.

5 ‘‘(b) SPECIAL RULES FOR CERTAIN OFFERINGS.—

6 Except with respect to a security of an investment com7 pany that is registered under the Investment Company

8 Act of 1940, the provisions of subsection (a) shall not

9 apply to—

10 ‘‘(1) an offering—

11 ‘‘(A) by an issuer that is a blank check

12 company, as defined in section 7(b), a partner13 ship, a limited liability company, or a direct

14 participation investment program;

15 ‘‘(B) of penny stock; or

16 ‘‘(C) giving effect to a limited partnership

17 rollup transaction;

18 ‘‘(2) an offering of a security, if a person asso19 ciated with the offering is subject to a statutory dis20 qualification, as defined in section 3(a)(39) of the

21 Securities Exchange Act of 1934 or any substan22 tially equivalent State law; or

23 ‘‘(3) an offering of a security that—

24 ‘‘(A) is not listed on the New York Stock

25 Exchange, the American Stock Exchange, or as
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1 part of a category of securities on another ex2 change or trading system, as determined by the

3 Commission consistent with the purposes of this

4 title and the protection of investors;

5 ‘‘(B) is not authorized for trading on the

6 National Market System of the National Asso7 ciation of Securities Dealers Automated

8 Quotation System; or

9 ‘‘(C) will not be listed or authorized for

10 quotation as described in subparagraph (A) or

11 (B) upon completion of the transaction.

12 ‘‘(c) EXEMPTION FROM STATE LAW FOR TRANS13 ACTIONS IN SECURITIES WITH QUALIFIED PUR14 CHASERS.—Notwithstanding subsection (b), subsection

15 (a) shall apply with respect to offers and sales to qualified

16 purchasers, as defined by the Commission.

17 ‘‘(d) PRESERVATION OF FILING REQUIREMENTS.—

18 Nothing in this section shall prohibit the securities com19 mission (or any agency or office performing like functions)

20 of any State or Territory of the United States, or the Dis21 trict of Columbia, from requiring the filing of any docu22 ments filed with the Commission pursuant to this title

23 solely for notice purposes, along with a consent to service

24 of process and requisite fee, except that no such filing,

25 consent, or fee may be required with respect to securities,
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1 or transactions relating to securities that are of the same

2 class as securities, or are senior to such a class, as de3 scribed in subsection (b)(3). Nothing in this section shall

4 prohibit States from enforcing fee requirements in effect

5 on May 31, 1996.

6 ‘‘(e) PRESERVATION OF STATE AUTHORITY.—Noth7 ing in this section shall affect the jurisdiction of the secu8 rities commission (or any agency or office performing like

9 functions) of any State or Territory of the United States,

10 or the District of Columbia, pursuant to the laws of such

11 State or Territory, with respect to any fraud or broker12 dealer conduct in connection with securities or securities

13 transactions.’’.

14 SEC. 309. REGULATORY FLEXIBILITY.

15 (a) UNDER THE SECURITIES ACT OF 1933.—Title I

16 of the Securities Act of 1933 (15 U.S.C. 77a et seq.) is

17 amended by adding at the end the following new section:

18 ‘‘SEC. 28. GENERAL EXEMPTIVE AUTHORITY.

19 ‘‘The Commission, by rule or regulation, may condi20 tionally or unconditionally exempt any person, security, or

21 transaction, or any class or classes of persons, securities,

22 or transactions, from any provision or provisions of this

23 title or of any rule or regulation issued thereunder, to the

24 extent that such exemption is necessary or appropriate in
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1 the public interest, and is consistent with the protection

2 of investors.’’.

3 (b) UNDER THE SECURITIES EXCHANGE ACT OF

4 1934.—Title I of the Securities Exchange Act of 1934 (15

5 U.S.C. 78a et seq.) is amended by adding at the end the

6 following new section:

7 ‘‘SEC. 36. GENERAL EXEMPTIVE AUTHORITY.

8 ‘‘Notwithstanding any other provision of this title,

9 the Commission, by rule, regulation, or order, may condi10 tionally or unconditionally exempt any person, security, or

11 transaction, or any class or classes of persons, securities,

12 or transactions, from any provision or provisions of this

13 title or of any rule or regulation issued thereunder, to the

14 extent that such exemption is necessary or appropriate in

15 the public interest, and is consistent with the protection

16 of investors. The Commission shall, by rule or regulation,

17 determine the procedures under which an exemptive order

18 under this section shall be granted and may, in its sole

19 discretion, decline to entertain any application for an

20 order of exemption under this section.’’.

21 SEC. 310. ANALYSIS OF ECONOMIC EFFECTS OF REGULA22 TION.

23 (a) AUTHORIZATION OF APPROPRIATIONS.—There

24 are authorized to be appropriated to carry out the Eco25 nomic Analysis Program, including funding for the Office
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1 of Economic Analysis of the Securities and Exchange

2 Commission, $6,000,000 for fiscal year 1997, and

3 $6,000,000 for fiscal year 1998.

4 (b) ANALYSIS OF ECONOMIC EFFECTS OF REGULA5 TION.—

6 (1) IN GENERAL.—The Chief Economist of the

7 Commission shall prepare a report on each proposed

8 regulation of the Commission. Such report shall be

9 provided to each Commissioner and shall be pub10 lished in the Federal Register before any such regu11 lation of the Commission may become effective.

12 (2) REPORT CONTENTS.—The report required

13 by this subsection shall include—

14 (A) an analysis of the likely effects of the

15 proposed regulation on the economy of the

16 United States, and particularly upon the securi17 ties markets and the participants in those mar18 kets; and

19 (B) the estimated impact of the proposed

20 regulation upon economic and market behavior,

21 including any impact on market liquidity, the

22 costs of investment, and the financial risks of

23 investment.
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1 SEC. 311. PRIVATIZATION OF EDGAR.

2 Not later than 180 days after the date of enactment

3 of this Act, the Commission shall submit to the Congress

4 a report on the Electronic Data Gathering Analysis and

5 Retrieval System consisting of the Commission’s plan for

6 promoting competition and innovation of the system

7 through privatization of all or any part of the system.

8 Such plan shall include such recommendations for action

9 as may be necessary to implement the plan.

10 SEC. 312. IMPROVING COORDINATION OF SUPERVISION.

11 Section 17 of the Securities Exchange Act of 1934

12 (15 U.S.C. 78q) is amended by adding at the end the fol13 lowing new subsection:

14 ‘‘(i) COORDINATION OF EXAMINING AUTHORITIES.—

15 ‘‘(1) OBJECTIVE.—The Commission and the ex16 amining authorities shall promote effective and effi17 cient oversight of the activities of brokers and deal18 ers, avoiding redundancy, while maintaining the

19 highest level of examination and oversight quality.

20 ‘‘(2) ELIMINATION OF DUPLICATION.—The

21 Commission and the examining authorities, through

22 cooperation and coordination of examination and

23 oversight activities, shall eliminate any unnecessary

24 and burdensome duplication in the examination

25 process.
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1 ‘‘(3) COORDINATION OF EXAMINATIONS.—The

2 Commission and the examining authorities shall

3 share such information, including reports of exami4 nations, customer complaint information, and other

5 nonpublic regulatory information, as appropriate to

6 foster a coordinated approach to regulatory over7 sight of brokers and dealers that are subject to ex8 amination by more than one examining authority.

9 ‘‘(4) EXAMINATIONS FOR CAUSE.—At any time,

10 any examining authority may conduct an examina11 tion for cause of any broker or dealer subject to its

12 jurisdiction.

13 ‘‘(5) CONFIDENTIALITY.—

14 ‘‘(A) IN GENERAL.—The provisions of sec15 tion 24 shall apply to the sharing of informa16 tion in accordance with this subsection. The

17 Commission shall take appropriate action under

18 section 24(c) to assure that such information

19 is not inappropriately disclosed.

20 ‘‘(B) APPROPRIATE DISCLOSURE NOT PRO21 HIBITED.—Nothing in this paragraph shall au22 thorize the Commission or any examining au23 thority to withhold information from the Con24 gress, or prevent the Commission or any exam25 ining authority from complying with a request
45

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1 for information from any other Federal depart2 ment or agency requesting the information for

3 purposes within the scope of its jurisdiction, or

4 complying with an order of a court of the Unit5 ed States in an action brought by the United

6 States or the Commission.

7 ‘‘(6) DEFINITION.—For purposes of this sub8 section, the term ‘examining authority’ means the

9 self-regulatory organizations registered with the

10 Commission under this title (other than registered

11 clearing agencies) with the authority to examine, in12 spect, and otherwise oversee the activities of a reg13 istered broker or dealer.’’.

14 SEC. 313. INCREASED ACCESS TO FOREIGN BUSINESS IN15 FORMATION.

16 (a) THE SECURITIES ACT OF 1993.—Section 2(3) of

17 the Securities Act of 1933 (15 U.S.C. 77b(3)) is amended

18 in the third sentence—

19 (1) by striking ‘‘not include preliminary’’ and

20 inserting ‘‘not include the following: (A) prelimi21 nary’’; and

22 (2) by inserting before the period ‘‘or (B) solely

23 for purposes of section 5, press conferences held out24 side of the United States, public meetings with is25 suer representatives conducted outside of the United
46

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1 States, or press related materials released outside of

2 the United States in which an offshore offering is

3 discussed, irrespective of whether journalists from

4 the United States or journalists for publications (in5 cluding on-line services) with circulation in the Unit6 ed States attend such press conferences or meetings

7 or receive such press related materials.’’.

8 (b) THE SECURITIES EXCHANGE ACT OF 1934.—

9 Section 14 of the Securities Exchange Act of 1934 (15

10 U.S.C. 78n) is amended by adding at the end the following

11 new subsection:

12 ‘‘(i) TREATMENT OF PRESS RELATED MATERIALS.—

13 ‘‘(1) IN GENERAL.—Any person making a ten14 der offer for, or a request or invitation for tenders

15 of, the securities of a foreign issuer may grant jour16 nalists from the United States or journalists for

17 publications (including on-line services) with circula18 tion in the United States access to press conferences

19 outside of the United States, meetings with its rep20 resentatives conducted outside of the United States,

21 or press related materials released outside of the

22 United States in which an offshore tender offer is

23 discussed, without being deemed to have used the ju24 risdictional means specified in subsection (d)(1) or

25 becoming subject to any regulations promulgated by
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1 the Commission, pursuant to subsection (e) of this

2 section or 13(e), or otherwise, that relate to tender

3 offers or requests or invitations for tenders.

4 ‘‘(2) DEFINITION.—For purposes of this sub5 section, the term ‘foreign issuer’ means any corpora6 tion or other organization—

7 ‘‘(A) that is incorporated or organized

8 under the laws of any foreign country; or

9 ‘‘(B) the principal place of business of

10 which is located in a foreign country.’’.

11 SEC. 314. SHORT-FORM REGISTRATION.

12 (a) IN GENERAL.—Not later than 180 days after the

13 date of enactment of this Act, the Commission shall

14 amend Form S–3 (17 C.F.R. 239.13, relating to registra15 tion under the Securities Act of 1933, of securities of cer16 tain issuers offered pursuant to certain types of trans17 actions) to allow such form, or its equivalent, to be used

18 for primary offerings by a registrant if—

19 (1) the outstanding stock of the registrant held

20 by nonaffiliates of the registrant has an adequate

21 aggregate market value as determined by the Com22 mission; and

23 (2) such registrant otherwise meets the eligi24 bility requirements for registration using such form,

25 or its equivalent.
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1 (b) ADJUSTMENTS.—Any adjustment to the adequate

2 aggregate market value threshold referred to in subsection

3 (a)(1)(B) by the Commission following the date of enact4 ment of this Act shall apply equally to voting and nonvot5 ing common shares and such other securities as the Com6 mission shall establish.

7 (c) DEFINITION.—For purposes of this section, the

8 term ‘‘stock’’ includes voting and nonvoting common

9 shares, and such other securities as the Commission shall

10 establish.

11 SEC. 315. CHURCH EMPLOYEE PENSION PLANS.

12 (a) AMENDMENT TO THE INVESTMENT COMPANY

13 ACT OF 1940.—Section 3(c) of the Investment Company

14 Act of 1940 (15 U.S.C. 80a–3(c)) is amended by adding

15 at the end the following new paragraph:

16 ‘‘(14) Any church plan described in section

17 414(e) of the Internal Revenue Code of 1986, if,

18 under any such plan, no part of the assets may be

19 used for, or diverted to, purposes other than the ex20 clusive benefit of plan participants or beneficiaries,

21 or any company or account that is—

22 ‘‘(A) established by a person that is eligible

23 to establish and maintain such a plan under

24 section 414(e) of the Internal Revenue Code of

25 1986; and
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1 ‘‘(B) substantially all of the activities of

2 which consist of—

3 ‘‘(i) managing or holding assets con4 tributed to such church plans or other as5 sets which are permitted to be commingled

6 with the assets of church plans under the

7 Internal Revenue Code of 1986; or

8 ‘‘(ii) administering or providing bene9 fits pursuant to church plans.

10 (b) AMENDMENT TO THE SECURITIES ACT OF

11 1933.—Section 3(a) of the Securities Act of 1933 (15

12 U.S.C. 77(a)) is amended by adding at the end the follow13 ing new paragraph:

14 ‘‘(13) Any security issued by or any interest or

15 participation in any church plan, company or ac16 count that is excluded from the definition of an in17 vestment company under section 3(c)(14) of the In18 vestment Company Act of 1940.’’.

19 (c) AMENDMENTS TO THE SECURITIES EXCHANGE

20 ACT OF 1934.—

21 (1) EXEMPTED SECURITIES.—Section

22 3(a)(12)(A) of the Securities Exchange Act of 1934

23 (15 U.S.C. 78(c)(12)(A)) is amended—

24 (A) in clause (v), by striking ‘‘and’’ at the

25 end;
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1 (B) by redesignating clause (vi) as clause

2 (vii); and

3 (C) by inserting after clause (v) the follow4 ing new clause:

5 ‘‘(vi) any security issued by or any in6 terest or participation in any church plan,

7 company, or account that is excluded from

8 the definition of an investment company

9 under section 3(c)(14) of the Investment

10 Company Act of 1940; and’’.

11 (2) EXEMPTION FROM BROKER-DEALER PROVI12 SIONS.—Section 3 of the Securities Exchange Act of

13 1934 (15 U.S.C. 78(c)) is amended by adding at the

14 end the following new subsection:

15 ‘‘(f) CHURCH PLANS.—No church plan described in

16 section 414(e) of the Internal Revenue Code of 1986, no

17 person or entity eligible to establish and maintain such

18 a plan under the Internal Revenue Code of 1986, no com19 pany or account that is excluded from the definition of

20 an investment company under section 3(c)(14) of the In21 vestment Company Act of 1940, and no trustee, director,

22 officer or employee of or volunteer for such plan, company,

23 account person, or entity, shall be deemed to be a ‘broker’,

24 ‘dealer’, ‘municipal securities broker’, ‘municipal securities

25 dealer’, ‘government securities broker’, ‘government secu-
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1 rities dealer’, ‘clearing agency’, or ‘transfer agent’ for pur2 poses of this title—

3 ‘‘(1) solely because such plan, company, person,

4 or entity buys, holds, sells, trades in, or transfers se5 curities or acts as an intermediary in making pay6 ments in connection with transactions in securities

7 for its own account in its capacity as trustee or ad8 ministrator of, or otherwise on behalf of, or for the

9 account of, any church plan, company, or account

10 that is excluded from the definition of an investment

11 company under section 3(c)(14) of the Investment

12 Company Act of 1940; and

13 ‘‘(2) if no such person or entity receives a com14 mission or other transaction-related sales compensa15 tion in connection with any activities conducted in

16 reliance on the exemption provided by this sub17 section.’’.

18 (d) AMENDMENT TO THE INVESTMENT ADVISERS

19 ACT OF 1940.—Section 203(b) of the Investment Advisers

20 Act of 1940 (15 U.S.C. 80b–3(b)) is amended—

21 (1) in paragraph (2), by striking ‘‘or’’ at the

22 end;

23 (2) in paragraph (3), by striking the period at

24 the end and inserting ‘‘; or’’; and
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1 (3) by adding at the end the following new

2 paragraph:

3 ‘‘(4) any plan described in section 414(d) of the

4 Internal Revenue Code of 1986, any person or entity

5 eligible to establish and maintain such a plan under

6 the Internal Revenue Code of 1986, or any trustee,

7 director, officer, or employee of or volunteer for any

8 such plan or person, if such person or entity pro9 vides investment advice exclusively to any plan, per10 son, or entity or any company, account, or fund that

11 is excluded from the definition of an investment

12 company under section 3(c)(14) of the Investment

13 Company Act of 1940.’’.

14 (e) AMENDMENT TO THE TRUST INDENTURE ACT OF

15 1939.—Section 304(a)(4)(A) of the Trust Indenture Act

16 of 1939 (15 U.S.C. 77ddd(4)(A)) is amended by striking

17 ‘‘or (11)’’ and inserting ‘‘(11), or (14)’’.

18 (f) PROTECTION OF CHURCH EMPLOYEE BENEFIT

19 PLANS UNDER STATE LAW.—

20 (1) REGISTRATION REQUIREMENTS.—Any secu21 rity issued by or any interest or participation in any

22 church plan, company, or account that is excluded

23 from the definition of an investment company under

24 section 3(c)(14) of the Investment Company Act of

25 1940, and any offer, sale, or purchase thereof, shall
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1 be exempt from any law of a State that requires reg2 istration or qualification of securities.

3 (2) TREATMENT OF CHURCH PLANS.—No

4 church plan described in section 414(e) of the Inter5 nal Revenue Code of 1986, no person or entity eligi6 ble to establish and maintain such a plan under the

7 Internal Revenue Code of 1986, no company or ac8 count that is excluded from the definition of an in9 vestment company under section 3(c)(14) of the In10 vestment Company Act of 1940, and no trustee, di11 rector, officer, or employee of or volunteer for any

12 such plan, person, entity, company, or account shall

13 be required to qualify, register, or be subject to reg14 ulation as an investment company or as a broker,

15 dealer, investment adviser, or agent under the laws

16 of any State solely because such plan, person, entity,

17 company, or account buys, holds, sells, or trades in

18 securities for its own account or in its capacity as

19 a trustee or administrator of or otherwise on behalf

20 of, or for the account of, or provides investment ad21 vice to, for, or on behalf of, any such plan, person,

22 or entity or any company or account that is excluded

23 from the definition of an investment company under

24 section 3(c)(14) of the Investment Company Act of

25 1940.
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1 (g) FURTHER AMENDMENTS TO THE SECURITIES

2 EXCHANGE ACT OF 1934.—Section 3 of the Securities

3 Exchange Act of 1934 (15 U.S.C. 78c) is amended by add4 ing at the end the following new subsection:

5 ‘‘(g) DISCLOSURE TO CHURCH PLAN PARTICI6 PANTS.—A person that maintains a church plan that is

7 excluded from the definition of an investment company

8 solely by reason of section 3(c)(14) of the Investment

9 Company Act of 1940 shall provide disclosure to plan par10 ticipants, in writing, and not less frequently than annu11 ally, and for new participants joining such a plan after

12 May 31, 1996, prior to joining such plan, that—

13 ‘‘(1) the plan, or any company or account main14 tained to manage or hold plan assets and interests

15 in such plan, company, or account, are not subject

16 to registration, regulation, or reporting under this

17 title, the Securities Act of 1933, the Investment

18 Company Act of 1940 or State securities laws; and

19 ‘‘(2) plan participants and beneficiaries there20 fore will not be afforded the protections of those pro21 visions.’’.

22 SEC. 316. PROMOTING GLOBAL PREEMINENCE OF AMER23 ICAN SECURITIES MARKETS.

24 It is the sense of the Congress that—
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1 (1) the United States and foreign securities

2 markets are increasingly becoming international

3 securities markets, as issuers and investors seek the

4 benefits of new capital and secondary market oppor5 tunities without regard to national borders;

6 (2) as issuers seek to raise capital across

7 national borders, they confront differing accounting

8 requirements in the various regulatory jurisdictions;

9 (3) the establishment of a high-quality com10 prehensive set of generally accepted international ac11 counting standards in cross-border securities offer12 ings would greatly facilitate international financing

13 activities and, most significantly, would enhance the

14 ability of foreign corporations to access and list in

15 United States markets;

16 (4) in addition to the efforts made before the

17 date of enactment of this Act by the Commission to

18 respond to the growing internationalization of secu19 rities markets, the Commission should enhance its

20 vigorous support for the development of high-quality

21 international accounting standards as soon as prac22 ticable; and

23 (5) the Commission, in view of its clear author24 ity under law to facilitate the access of foreign cor25 porations to list their stocks in United States mar-
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1 kets, should report to the Congress, not later than

2 one year after the date of enactment of this Act on

3 progress in the development of international ac4 counting standards and the outlook for successful

5 completion of a set of international standards that

6 would be acceptable to the Commission for offerings

7 and listings by foreign corporations in United States

8 markets.

9 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

10 (a) SHORT TITLE.—This Act may be cited as the ‘‘Se11 curities Investment Promotion Act of 1996’’.

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

13 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Severability.

TITLE I—INVESTMENT ADVISERS SUPERVISION COORDINATION ACT

Sec. 101. Short title.

Sec. 102. Funding for enhanced enforcement priority.

Sec. 103. Improved supervision through State and Federal cooperation.

Sec. 104. Interstate cooperation.

Sec. 105. Disqualification of convicted felons.

Sec. 106. Continued State authority.

Sec. 107. Effective date.

TITLE II—FACILITATING INVESTMENT IN MUTUAL FUNDS

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. Prohibition on deceptive investment company names.

Sec. 207. Excepted investment companies.

Sec. 208. Performance fees exemptions.

Sec. 209. Reports to the Commission and shareholders.

Sec. 210. Books, records, and inspections.
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TITLE III—REDUCING THE COST OF SAVING AND INVESTMENT

Sec. 301. Exemption for economic, business, and industrial development companies.

Sec. 302. Intrastate closed-end investment company exemption.

Sec. 303. Definition of eligible portfolio company.

Sec. 304. Definition of business development company.

Sec. 305. Acquisition of assets by business development companies.

Sec. 306. Capital structure amendments.

Sec. 307. Filing of written statements.

Sec. 308. Facilitating national securities markets.

Sec. 309. Regulatory flexibility.

Sec. 310. Analysis of economic effects of regulation.

Sec. 311. Privatization of EDGAR.

Sec. 312. Improving coordination of supervision.

Sec. 313. Increased access to foreign business information.

Sec. 314. Short-form registration.

Sec. 315. Church employee pension plans.

Sec. 316. Promoting global preeminence of American securities markets.

Sec. 317. Broker-dealer exemption from State law for certain de minimis transactions.

Sec. 318. Studies and reports.

1 SEC. 2. SEVERABILITY.

2 If any provision of this Act, an amendment made by

3 this Act, or the application of such provision or amendment

4 to any person or circumstance is held to be unconstitu5 tional, the remainder of this Act, the amendments made by

6 this Act, and the application of the provisions of such to

7 any person or circumstance shall not be affected thereby.

8 TITLE I—INVESTMENT ADVISERS

9 SUPERVISION COORDINATION

10 ACT

11 SEC. 101. SHORT TITLE.

12 This title may be cited as the ‘‘Investment Advisers

13 Supervision Coordination Act’’.
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1 SEC. 102. FUNDING FOR ENHANCED ENFORCEMENT

2 PRIORITY.

3 There are authorized to be appropriated to the Securi4 ties and Exchange Commission, for the enforcement of the

5 Investment Advisers Act of 1940, not more than

6 $16,000,000 in each of fiscal years 1997 and 1998.

7 SEC. 103. IMPROVED SUPERVISION THROUGH STATE AND

8 FEDERAL COOPERATION.

9 (a) STATE AND FEDERAL RESPONSIBILITIES.—The

10 Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.)

11 is amended by inserting after section 203 the following new

12 section:

13 ‘‘SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.

14 ‘‘(a) ADVISERS SUBJECT TO STATE AUTHORITIES.—

15 ‘‘(1) IN GENERAL.—No investment adviser that

16 is regulated or required to be regulated as an invest17 ment adviser in the State in which it maintains its

18 principal office and place of business shall register

19 under section 203, unless the investment adviser—

20 ‘‘(A) has assets under management of not

21 less than $25,000,000, or such higher amount as

22 the Commission may, by rule, deem appropriate

23 in accordance with the purposes of this title; or

24 ‘‘(B) is an adviser to an investment com25 pany registered under title I of this Act, or a

26 company that has elected to be a business devel-
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1 opment company pursuant to section 54 of title

2 I of this Act.

3 ‘‘(2) DEFINITION.—For purposes of this sub4 section, the term ‘assets under management’ means

5 the securities portfolios with respect to which an in6 vestment adviser provides continuous and regular su7 pervisory or management services.

8 ‘‘(b) ADVISERS SUBJECT TO COMMISSION

9 AUTHORITY.—

10 ‘‘(1) IN GENERAL.—No law of any State or po11 litical subdivision thereof requiring the registration,

12 licensing, or qualification as an investment adviser or

13 supervised person of an investment adviser shall

14 apply to any person—

15 ‘‘(A) that is registered under section 203 as

16 an investment adviser, or that is a supervised

17 person of such a person; or

18 ‘‘(B) that is not registered under section

19 203 because that person is excepted from the defi20 nition of an investment adviser under section

21 202(a)(11).

22 ‘‘(2) LIMITATION.—Nothing in this subsection

23 shall prohibit the securities commission (or any agen24 cy or office performing like functions) of any State

25 from—
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1 ‘‘(A) requiring the filing with such commis2 sion, agency, or office of any document filed with

3 the Commission by an investment adviser, to4 gether with a consent to service of process and

5 requisite fees; or

6 ‘‘(B) investigating and bringing enforce7 ment actions with respect to fraud or deceit

8 against an investment adviser or person associ9 ated with an investment adviser.

10 ‘‘(c) EXEMPTIONS.—Notwithstanding subsection (a),

11 the Commission, by rule or regulation upon its own motion,

12 or by order upon application, may permit the registration

13 with the Commission of any person or class of persons to

14 which the application of subsection (a) would be unfair, a

15 burden on interstate commerce, or otherwise inconsistent

16 with the purposes of this section.

17 ‘‘(d) FILING DEPOSITORIES.—The Commission may,

18 by rule, require an investment adviser—

19 ‘‘(1) to file with the Commission any fee, appli20 cation, report, or notice required by this title or by

21 the rules issued under this title through any entity

22 designated by the Commission for that purpose; and

23 ‘‘(2) to pay the reasonable costs associated with

24 such filing.
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1 ‘‘(e) STATE ASSISTANCE.—Upon request of the securi2 ties commissioner (or any agency or officer performing like

3 functions) of any State, the Commission may provide such

4 training, technical assistance, or other reasonable assistance

5 in connection with the regulation of investment advisers by

6 the State.’’.

7 (b) ADVISERS NOT ELIGIBLE TO REGISTER.—Section

8 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–

9 3) is amended—

10 (1) in subsection (c), in the matter immediately

11 following paragraph (2), by inserting ‘‘and that the

12 applicant is not prohibited from registering as an in13 vestment adviser under section 203A’’ after ‘‘satis14 fied’’; and

15 (2) in subsection (h), in the second sentence—

16 (A) by striking ‘‘existence or’’ and inserting

17 ‘‘existence,’’; and

18 (B) by inserting ‘‘or is prohibited from reg19 istering as an investment adviser under section

20 203A,’’ after ‘‘adviser,’’.

21 (c) DEFINITION OF ‘‘SUPERVISED PERSON’’.—Section

22 202(a) of the Investment Advisers Act of 1940 (15 U.S.C.

23 80b–2(a)) is amended—

24 (1) by striking ‘‘requires—’’ and inserting ‘‘re25 quires, the following definitions shall apply:’’; and
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1 (2) by adding at the end the following new para2 graph:

3 ‘‘(25) ‘Supervised person’ means any partner, of4 ficer, director (or other person occupying a similar

5 status or performing similar functions), or employee

6 of an investment adviser, or other person who pro7 vides investment advice on behalf of the investment

8 adviser and is subject to the supervision and control

9 of the investment adviser.’’.

10 (d) CONFORMING AMENDMENT.—Section 203(a) of the

11 Investment Advisers Act of 1940 (15 U.S.C. 80b–3(a)) is

12 amended by striking ‘‘subsection (b) of this section’’ and

13 inserting ‘‘subsection (b) and section 203A’’.

14 SEC. 104. INTERSTATE COOPERATION.

15 Section 222 of the Investment Advisers Act of 1940 (15

16 U.S.C. 80b–18a) is amended to read as follows:

17 ‘‘SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.

18 ‘‘(a) JURISDICTION OF STATE REGULATORS.—Nothing

19 in this title shall affect the jurisdiction of the securities com20 missioner (or any agency or officer performing like func21 tions) of any State over any security or any person insofar

22 as it does not conflict with the provisions of this title or

23 the rules and regulations thereunder.

24 ‘‘(b) DUAL COMPLIANCE PURPOSES.—No State may

25 enforce any law or regulation that would require an invest-
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1 ment adviser to maintain any books or records in addition

2 to those required under the laws of the State in which it

3 maintains its principal place of business, if the investment

4 adviser—

5 ‘‘(1) is registered or licensed as such in the State

6 in which it maintains its principal place of business;

7 and

8 ‘‘(2) is in compliance with the applicable books

9 and records requirements of the State in which it

10 maintains its principle place of business.

11 ‘‘(c) LIMITATION ON CAPITAL AND BOND REQUIRE12 MENTS.—No State may enforce any law or regulation that

13 would require an investment adviser to maintain a higher

14 minimum net capital or to post any bond in addition to

15 any that is required under the laws of the State in which

16 it maintains its principal place of business, if the invest17 ment adviser—

18 ‘‘(1) is registered or licensed as such in the State

19 in which it maintains its principal place of business;

20 and

21 ‘‘(2) is in compliance with the applicable net

22 capital or bonding requirements of the State in which

23 it maintains its principal place of business.’’.
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1 SEC. 105. DISQUALIFICATION OF CONVICTED FELONS.

2 (a) AMENDMENT.—Section 203(e) of the Investment

3 Advisers Act of 1940 (15 U.S.C. 80b–3(e)) is amended—

4 (1) by redesignating paragraphs (3) through (7)

5 as paragraphs (4) through (8), respectively; and

6 (2) by inserting after paragraph (2) the follow7 ing new paragraph:

8 ‘‘(3) has been convicted during the 10-year pe9 riod preceding the date of filing of any application

10 for registration, or at any time thereafter, of—

11 ‘‘(A) any crime that is punishable by im12 prisonment for 1 or more years, and that is not

13 described in paragraph (2); or

14 ‘‘(B) a substantially equivalent crime by a

15 foreign court of competent jurisdiction.’’.

16 (b) CONFORMING AMENDMENTS.—Section 203 of the

17 Investment Advisers Act of 1940 (15 U.S.C. 80b–3) is

18 amended—

19 (1) in subsection (e)(6) (as redesignated by sub20 section (a) of this section), by striking ‘‘this para21 graph (5)’’ and inserting ‘‘this paragraph’’;

22 (2) in subsection (f)—

23 (A) by striking ‘‘paragraph (1), (4), (5), or

24 (7) of subsection (e) of this section’’ and insert25 ing ‘‘paragraph (1), (5), (6), or (8) of subsection

26 (e)’’;
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1 (B) by striking ‘‘paragraph (3)’’ and insert2 ing ‘‘paragraph (4)’’; and

3 (C) by striking ‘‘said subsection’’ each place

4 that term appears and inserting ‘‘subsection’’;

5 and

6 (3) in subsection (i)(1)(D), by striking ‘‘section

7 203(e)(5) of this title’’ and inserting ‘‘subsection

8 (e)(6)’’.

9 SEC. 106. CONTINUED STATE AUTHORITY.

10 Notwithstanding any other provision of this title, or

11 any amendment made by this title, a State or Territory

12 of the United States, or the District of Columbia may con13 tinue to collect filing, registration, or licensing fees in

14 amounts determined pursuant to State law as in effect on

15 the day before the date of enactment of this Act, until other16 wise specifically provided under a State law enacted on or

17 after that date of enactment.

18 SEC. 107. EFFECTIVE DATE.

19 This title and the amendments made by this title shall

20 take effect 180 days after the date of enactment of this Act.

21 TITLE II—FACILITATING

22 INVESTMENT IN MUTUAL FUNDS

23 SEC. 201. SHORT TITLE.

24 This title may be cited as the ‘‘Investment Company

25 Amendments Act of 1996’’.
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1 SEC. 202. FUNDS OF FUNDS.

2 Section 12(d)(1) of the Investment Company Act of

3 1940 (15 U.S.C. 80a–12(d)(1)) is amended—

4 (1) in subparagraph (E)(iii)—

5 (A) by striking ‘‘in the event such invest6 ment company is not a registered investment

7 company,’’; and

8 (B) by inserting ‘‘in the event that such in9 vestment company is not a registered investment

10 company,’’ after ‘‘(bb)’’;

11 (2) by redesignating subparagraphs (G) and (H)

12 as subparagraphs (H) and (I), respectively;

13 (3) by striking ‘‘this paragraph (1)’’ each place

14 that term appears and inserting ‘‘this paragraph’’;

15 (4) by inserting after subparagraph (F) the fol16 lowing new subparagraph:

17 ‘‘(G)(i) This paragraph does not apply to securities

18 of a registered open-end investment company or a registered

19 unit investment trust (hereafter in this subparagraph re20 ferred to as the ‘acquired company’) purchased or otherwise

21 acquired by a registered open-end investment company or

22 a registered unit investment trust (hereafter in this sub23 paragraph referred to as the ‘acquiring company’) if—

24 ‘‘(I) the acquired company and the acquiring

25 company are part of the same group of investment

26 companies;
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1 ‘‘(II) the securities of the acquired company, se2 curities of other registered open-end investment com3 panies and registered unit investment trusts that are

4 part of the same group of investment companies, Gov5 ernment securities, and short-term paper are the only

6 investments held by the acquiring company;

7 ‘‘(III)(aa) the acquiring company does not pay

8 and is not assessed any charges or fees for distribu9 tion-related activities with respect to securities of the

10 acquired company, unless the acquiring company does

11 not charge a sales load or other fees or charges for dis12 tribution-related activities; or

13 ‘‘(bb) any sales loads and other distribution-re14 lated fees charged with respect to securities of the ac15 quiring company, when aggregated with any sales

16 load and distribution-related fees paid by the acquir17 ing company with respect to securities of the acquired

18 fund, are not excessive under rules adopted pursuant

19 to section 22(b) or section 22(c) by a securities asso20 ciation registered under section 15A of the Securities

21 Exchange Act of 1934 or the Commission;

22 ‘‘(IV) the acquired company has a policy that

23 prohibits it from acquiring any securities of reg24 istered open-end investment companies or registered
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1 unit investment trusts in reliance on this subpara2 graph or subparagraph (F); and

3 ‘‘(V) such acquisition is not in contravention of

4 such rules and regulations as the Commission may

5 from time to time prescribe with respect to acquisi6 tions in accordance with this subparagraph, as nec7 essary and appropriate for the protection of investors.

8 ‘‘(ii) For purposes of this subparagraph, the term

9 ‘group of investment companies’ means any 2 or more reg10 istered investment companies that hold themselves out to in11 vestors as related companies for purposes of investment and

12 investor services.’’; and

13 (5) by adding at the end the following new sub14 paragraph:

15 ‘‘(J) The Commission, by rules and regulations, upon

16 its own motion, or by order upon application, may condi17 tionally or unconditionally exempt any person, security, or

18 transaction, or any class or classes of persons, securities,

19 or transactions from any provision of this subsection, if and

20 to the extent that such exemption is consistent with the pub21 lic interest and the protection of investors.’’.

22 SEC. 203. FLEXIBLE REGISTRATION OF SECURITIES.

23 (a) AMENDMENTS TO REGISTRATION STATEMENTS.—

24 Section 24(e) of the Investment Company Act of 1940 (15

25 U.S.C. 80a–24(e)) is amended—
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1 (1) by striking paragraphs (1) and (2);

2 (2) by striking ‘‘(3) For’’ and inserting ‘‘For’’;

3 and

4 (3) by striking ‘‘pursuant to this subsection or

5 otherwise’’.

6 (b) REGISTRATION OF INDEFINITE AMOUNT OF SECU7 RITIES.—Section 24(f) of the Investment Company Act of

8 1940 (15 U.S.C. 80a–24(f)) is amended to read as follows:

9 ‘‘(f) REGISTRATION OF INDEFINITE AMOUNT OF SECU10 RITIES.—

11 ‘‘(1) REGISTRATION OF SECURITIES.—Upon the

12 effective date of its registration statement, as provided

13 by section 8 of the Securities Act of 1933, a face14 amount certificate company, open-end management

15 company, or unit investment trust, shall be deemed to

16 have registered an indefinite amount of securities.

17 ‘‘(2) PAYMENT OF REGISTRATION FEES.—Not

18 later than 90 days after the end of the fiscal year of

19 an entity referred to in paragraph (1), the entity

20 shall pay a registration fee to the Commission, cal21 culated in the manner specified in section 6(b) of the

22 Securities Act of 1933, based on the aggregate sales

23 price for which its securities (including, for purposes

24 of this paragraph, all securities issued pursuant to a

25 dividend reinvestment plan) were sold pursuant to a
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1 registration of an indefinite amount of securities

2 under this subsection during the previous fiscal year

3 of the entity, reduced by—

4 ‘‘(A) the aggregate redemption or repur5 chase price of the securities of the entity during

6 that year; and

7 ‘‘(B) the aggregate redemption or repur8 chase price of the securities of the entity during

9 any prior fiscal year ending not more than 1

10 year before the date of enactment of the Invest11 ment Company Amendments Act of 1996, that

12 were not used previously by the entity to reduce

13 fees payable under this section.

14 ‘‘(3) INTEREST DUE ON LATE PAYMENT.—An en15 tity paying the fee required by this subsection or any

16 portion thereof more than 90 days after the end of the

17 fiscal year of the entity shall pay to the Commission

18 interest on unpaid amounts, compounded daily, at

19 the underpayment rate established by the Secretary of

20 the Treasury pursuant to section 3717 of title 31,

21 United States Code. The payment of interest pursuant

22 to this paragraph shall not preclude the Commission

23 from bringing an action to enforce the requirements

24 of paragraph (2).
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1 ‘‘(4) RULEMAKING AUTHORITY.—The Commis2 sion may adopt rules and regulations to implement

3 this subsection.’’.

4 (c) EFFECTIVE DATE.—The amendments made by this

5 section shall become effective on the earlier of—

6 (1) 1 year after the date of enactment of this Act;

7 or

8 (2) the effective date of final rules or regulations

9 issued in accordance with section 24(f) of the Invest10 ment Company Act of 1940, as amended by this sec11 tion.

12 SEC. 204. FACILITATING USE OF CURRENT INFORMATION

13 IN ADVERTISING.

14 Section 24 of the Investment Company Act of 1940 (15

15 U.S.C. 80a–24) is amended by adding at the end the follow16 ing new subsection:

17 ‘‘(g) ADDITIONAL PROSPECTUSES.—In addition to

18 any prospectus permitted or required by section 10(a) of

19 the Securities Act of 1933, the Commission shall permit,

20 by rules or regulations deemed necessary or appropriate in

21 the public interest or for the protection of investors, the use

22 of a prospectus for the purposes of section 5(b)(1) of that

23 Act with respect to securities issued by a registered invest24 ment company. Such a prospectus, which may include in25 formation the substance of which is not included in the pro-
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1 spectus specified in section 10(a) of the Securities Act of

2 1933, shall be deemed to be permitted by section 10(b) of

3 that Act.’’.

4 SEC. 205. VARIABLE INSURANCE CONTRACTS.

5 (a) UNIT INVESTMENT TRUST TREATMENT.—Section

6 26 of the Investment Company Act of 1940 (15 U.S.C. 80a–

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

9 ‘‘(e) EXEMPTION.—

10 ‘‘(1) IN GENERAL.—Subsection (a) does not

11 apply to any registered separate account funding

12 variable insurance contracts, or to the sponsoring in13 surance company and principal underwriter of such

14 account.

15 ‘‘(2) LIMITATION ON SALES.—It shall be unlaw16 ful for any registered separate account funding vari17 able insurance contracts, or for the sponsoring insur18 ance company of such account, to sell any such con19 tract, unless—

20 ‘‘(A) the fees and charges deducted under

21 the contract, in the aggregate, are reasonable in

22 relation to the services rendered, the expenses ex23 pected to be incurred, and the risks assumed by

24 the insurance company, and the insurance com-
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1 pany so represents in the registration statement

2 for the contract; and

3 ‘‘(B) the insurance company—

4 ‘‘(i) complies with all other applicable

5 provisions of this section, as if it were a

6 trustee or custodian of the registered sepa7 rate account;

8 ‘‘(ii) files with the insurance regu9 latory authority of the State or territory of

10 the United States or of the District of Co11 lumbia in which is located the principal

12 place of business of the insurance company,

13 an annual statement of its financial condi14 tion, which most recent statement indicates

15 that the insurance company has a combined

16 capital and surplus, if a stock company, or

17 an unassigned surplus, if a mutual com18 pany, of not less than $1,000,000, or such

19 other amount as the Commission may from

20 time to time prescribe by rule, as necessary

21 or appropriate in the public interest or for

22 the protection of investors; and

23 ‘‘(iii) together with its registered sepa24 rate accounts, is supervised and examined

25 periodically by the insurance authority of
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1 such State, territory, or the District of Co2 lumbia.

3 ‘‘(3) FEES AND CHARGES.—For purposes of

4 paragraph (2), the fees and charges deducted under

5 the contract shall include all fees and charges imposed

6 for any purpose and in any manner.

7 ‘‘(4) REGULATORY AUTHORITY.—The Commis8 sion may issue such rules and regulations to carry

9 out paragraph (2)(A) as it determines are necessary

10 or appropriate in the public interest or for the protec11 tion of investors.’’.

12 (b) PERIODIC PAYMENT PLAN TREATMENT.—Section

13 27 of the Investment Company Act of 1940 (15 U.S.C. 80a–

14 27) is amended by adding at the end the following new sub15 section:

16 ‘‘(i)(1) This section does not apply to any registered

17 separate account funding variable insurance contracts, or

18 to the sponsoring insurance company and principal under19 writer of such account, except as provided in paragraph

20 (2).

21 ‘‘(2) It shall be unlawful for any registered separate

22 account funding variable insurance contracts, or for the

23 sponsoring insurance company of such account, to sell any

24 such contract unless—

25 ‘‘(A) such contract is a redeemable security; and
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1 ‘‘(B) the insurance company complies with sec2 tion 26(e) and any rules or regulations issued by the

3 Commission under section 26(e).’’.

4 SEC. 206. PROHIBITION ON DECEPTIVE INVESTMENT COM5 PANY NAMES.

6 Section 35(d) of the Investment Company Act of 1940

7 (15 U.S.C. 80a–34(d)) is amended to read as follows:

8 ‘‘(d) It shall be unlawful for any registered investment

9 company to adopt as a part of the name or title of such

10 company, or of any securities of which it is the issuer, any

11 word or words that the Commission finds are materially

12 deceptive or misleading. The Commission is authorized, by

13 rule, regulation, or order, to define such names or titles as

14 are materially deceptive or misleading.’’.

15 SEC. 207. EXCEPTED INVESTMENT COMPANIES.

16 (a) AMENDMENTS.—Section 3(c) of the Investment

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

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

19 sentence the following: ‘‘Such issuer shall be deemed

20 to be an investment company for purposes of the limi21 tations set forth in subparagraphs (A)(i) and (B)(i)

22 of section 12(d)(1) governing the purchase or other ac23 quisition by such issuer of any security issued by any

24 registered investment company and the sale of any se-
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1 curity issued by any registered open-end investment

2 company to any such issuer.’’;

3 (2) in subparagraph (A) of paragraph (1)—

4 (A) by inserting after ‘‘issuer,’’ the first

5 place that term appears, the following: ‘‘and is

6 or, but for the exception provided for in this

7 paragraph or paragraph (7), would be an invest8 ment company,’’; and

9 (B) by striking ‘‘unless, as of’’ and all that

10 follows through the end of the subparagraph and

11 inserting a period;

12 (3) in paragraph (2)—

13 (A) by striking ‘‘and acting as broker,’’ and

14 inserting ‘‘acting as broker, and acting as mar15 ket intermediary,’’;

16 (B) by inserting ‘‘(A)’’ after ‘‘(2)’’; and

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

18 subparagraph:

19 ‘‘(B) For purposes of this paragraph—

20 ‘‘(i) the term ‘market intermediary’ means

21 any person that regularly holds itself out as

22 being willing contemporaneously to engage in,

23 and that is regularly engaged in, the business of

24 entering into transactions on both sides of the
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1 market for a financial contract or one or more

2 such financial contracts; and

3 ‘‘(ii) the term ‘financial contract’ means

4 any arrangement that—

5 ‘‘(I) takes the form of an individually

6 negotiated contract, agreement, or option to

7 buy, sell, lend, swap, or repurchase, or other

8 similar individually negotiated transaction

9 commonly entered into by participants in

10 the financial markets;

11 ‘‘(II) is in respect of securities, com12 modities, currencies, interest or other rates,

13 other measures of value, or any other finan14 cial or economic interest similar in purpose

15 or function to any of the foregoing; and

16 ‘‘(III) is entered into in response to a

17 request from a counter party for a

18 quotation, or is otherwise entered into and

19 structured to accommodate the objectives of

20 the counter party to such arrangement.’’;

21 and

22 (4) by striking paragraph (7) and inserting the

23 following:

24 ‘‘(7)(A) Any issuer, the outstanding securities of

25 which are owned exclusively by persons who, at the
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1 time of acquisition of such securities, are qualified

2 purchasers, and which is not making and does not at

3 that time propose to make a public offering of such

4 securities. Securities that are owned by persons who

5 received the securities from a qualified purchaser as

6 a gift or bequest, or in a case in which the transfer

7 was caused by legal separation, divorce, death, or

8 other involuntary event, shall be deemed to be owned

9 by a qualified purchaser, subject to such rules, regula10 tions, and orders as the Commission may prescribe as

11 necessary or appropriate in the public interest or for

12 the protection of investors.

13 ‘‘(B) Notwithstanding subparagraph (A), an is14 suer is within the exception provided by this para15 graph if—

16 ‘‘(i) in addition to qualified purchasers,

17 outstanding securities of that issuer are bene18 ficially owned by not more than 100 persons who

19 are not qualified purchasers, if—

20 ‘‘(I) such persons acquired such securi21 ties on or before April 30, 1996; and

22 ‘‘(II) at the time such securities were

23 acquired by such persons, the issuer was ex24 cepted by paragraph (1); and
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1 ‘‘(ii) prior to availing itself of the exception

2 provided by this paragraph—

3 ‘‘(I) such issuer has disclosed to each

4 beneficial owner that future investors will

5 be limited to qualified purchasers, and that

6 ownership in such issuer is no longer lim7 ited to not more than 100 persons; and

8 ‘‘(II) concurrently with or after such

9 disclosure, such issuer has provided each

10 beneficial owner with a reasonable oppor11 tunity to redeem any part or all of their in12 terests in the issuer, notwithstanding any

13 agreement to the contrary between the issuer

14 and such persons, for that person’s propor15 tionate share of the issuer’s net assets.

16 ‘‘(C) Each person that elects to redeem under

17 subparagraph (B)(ii)(II) shall receive an amount in

18 cash equal to that person’s proportionate share of the

19 issuer’s net assets, unless the issuer elects to provide

20 such person with the option of receiving, and such

21 person agrees to receive, all or a portion of such per22 son’s share in assets of the issuer. If the issuer elects

23 to provide such persons with such an opportunity,

24 disclosure concerning such opportunity shall be made

25 in the disclosure required by subparagraph (B)(ii)(I).
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1 ‘‘(D) An issuer that is excepted under this para2 graph shall nonetheless be deemed to be an investment

3 company for purposes of the limitations set forth in

4 subparagraphs (A)(i) and (B)(i) of section 12(d)(1)

5 relating to the purchase or other acquisition by such

6 issuer of any security issued by any registered invest7 ment company and the sale of any security issued by

8 any registered open-end investment company to any

9 such issuer.

10 ‘‘(E) For purposes of determining compliance

11 with this paragraph and paragraph (1), an issuer

12 that is otherwise excepted under this paragraph and

13 an issuer that is otherwise excepted under paragraph

14 (1) shall not be treated by the Commission as being

15 a single issuer for purposes of determining whether

16 the outstanding securities of the issuer excepted under

17 paragraph (1) are beneficially owned by not more

18 than 100 persons or whether the outstanding securi19 ties of the issuer excepted under this paragraph are

20 owned by persons that are not qualified purchasers.

21 Nothing in this subparagraph shall be construed to es22 tablish that a person is a bona fide qualified pur23 chaser for purposes of this paragraph or a bona fide

24 beneficial owner for purposes of paragraph (1).’’.
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1 (b) DEFINITION OF QUALIFIED PURCHASER.—Section

2 2(a) of the Investment Company Act of 1940 (15 U.S.C.

3 80a–2(a)) is amended by adding at the end the following

4 new paragraph:

5 ‘‘(51)(A) ‘Qualified purchaser’ means—

6 ‘‘(i) any natural person (including any per7 son who holds a joint, community property, or

8 other similar shared ownership interest in an is9 suer that is excepted under section 3(c)(7) with

10 that person’s qualified purchaser spouse) who

11 owns not less than $5,000,000 in investments, as

12 defined by the Commission;

13 ‘‘(ii) any company that owns not less than

14 $5,000,000 in investments and that is owned di15 rectly or indirectly by or for 2 or more natural

16 persons who are related as siblings or spouse (in17 cluding former spouses), or direct lineal descend18 ants by birth or adoption, spouses of such per19 sons, the estates of such persons, or foundations,

20 charitable organizations, or trusts established by

21 or for the benefit of such persons;

22 ‘‘(iii) any trust that is not covered by sub23 paragraph (B) and that was not formed for the

24 specific purpose of acquiring the securities of25 fered, as to which the trustee or other person au-
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1 thorized to make decisions with respect to the

2 trust, and each settlor or other person who has

3 contributed assets to the trust, is a person de4 scribed in clause (i), (ii), or (iv);

5 ‘‘(iv) any person, acting for its own account

6 or the accounts of other qualified purchasers,

7 who in the aggregate owns and invests on a dis8 cretionary basis, not less than $25,000,000 in in9 vestments; or

10 ‘‘(v) any person that the Commission, by

11 rule or regulation, has determined does not need

12 the protections of this title, after consideration of

13 factors such as—

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

16 and experience in financial matters;

17 ‘‘(II) a substantial amount of assets

18 owned or under management;

19 ‘‘(III) relationship with an issuer; and

20 ‘‘(IV) such other factors as the Com21 mission may determine to be consistent

22 with the purposes of this paragraph.

23 ‘‘(B) The Commission may adopt such rules and

24 regulations applicable to the persons and trusts speci25 fied in clauses (i) through (v) of subparagraph (A) as
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1 it determines are necessary or appropriate in the

2 public interest or for the protection of investors.

3 ‘‘(C) The term ‘qualified purchaser’ does not in4 clude a company that, but for the exceptions provided

5 for in paragraph (1) or (7) of section 3(c), would be

6 an investment company (hereafter in this paragraph

7 referred to as an ‘excepted investment company’), un8 less all beneficial owners of its outstanding securities

9 (other than short-term paper), determined in accord10 ance with section 3(c)(1)(A), that acquired such secu11 rities on or before April 30, 1996 (hereafter in this

12 paragraph referred to as ‘pre-amendment beneficial

13 owners’), and all pre-amendment beneficial owners of

14 the outstanding securities (other than short-term

15 paper) of any excepted investment company that, di16 rectly or indirectly, owns any outstanding securities

17 of such excepted investment company, have consented

18 to its treatment as a qualified purchaser. Unanimous

19 consent of all trustees, directors, or general partners

20 of a company or trust referred to in clause (ii) or

21 (iii) of subparagraph (A) shall constitute consent for

22 purposes of this subparagraph.’’.

23 (c) CONFORMING AMENDMENTS.—Section 3(a) of the

24 Investment Company Act of 1940 (15 U.S.C. 80a–3(a)) is

25 amended—
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1 (1) by striking ‘‘(1)’’ and inserting ‘‘(A)’’;

2 (2) by striking ‘‘(2)’’ and inserting ‘‘(B)’’;

3 (3) by striking ‘‘(3)’’ and inserting ‘‘(C)’’;

4 (4) by inserting ‘‘(1)’’ after ‘‘(a)’’;

5 (5) by striking ‘‘As used’’ and inserting ‘‘(2) As

6 used’’; and

7 (6) in paragraph (2)(C), as designated by para8 graph (5) of this subsection—

9 (A) by striking ‘‘which are’’ and inserting

10 the following: ‘‘which (i) are’’; and

11 (B) by inserting before the period at the

12 end, the following: ‘‘, and (ii) are not relying on

13 the exception from the definition of investment

14 company in paragraph (1) or (7) of subsection

15 (c)’’.

16 (d) RULEMAKING REQUIRED.—

17 (1) IMPLEMENTATION OF SECTION 3(c)(1)(B).—

18 Not later than 1 year after the date of enactment of

19 this Act, the Commission shall prescribe rules to im20 plement the requirements of section 3(c)(1)(B) of the

21 Investment Company Act of 1940 (15 U.S.C. 80a–

22 3(c)(1)(B)).

23 (2) IDENTIFICATION OF INVESTMENTS.—Not

24 later than 180 days after the date of enactment of this

25 Act, the Commission shall prescribe rules defining the
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1 term, or otherwise identifying, ‘‘investments’’ for pur2 poses of section 2(a)(51) of the Investment Company

3 Act of 1940, as added by this Act.

4 (3) EMPLOYEE EXCEPTION.—Not later than 1

5 year after the date of enactment of this Act, the Com6 mission shall prescribe rules pursuant to its authority

7 under section 6 of the Investment Company Act of

8 1940 to permit the ownership of securities by knowl9 edgeable employees of the issuer of the securities or

10 an affiliated person without loss of the exception of

11 the issuer under paragraph (1) or (7) of section 3(c)

12 of that Act from treatment as an investment company

13 under that Act.

14 (e) EFFECTIVE DATE.—The amendments made by this

15 section shall take effect on the earlier of—

16 (1) 180 days after the date of enactment of this

17 Act; or

18 (2) the date on which the rulemaking required

19 under subsection (d)(2) is completed.

20 SEC. 208. PERFORMANCE FEES EXEMPTIONS.

21 Section 205 of the Investment Advisers Act of 1940 (15

22 U.S.C. 80b–5) is amended—

23 (1) in subsection (b)—

24 (A) in paragraph (2), by striking ‘‘or’’ at

25 the end;
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1 (B) in paragraph (3), by striking the period

2 at the end and inserting a semicolon; and

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

4 paragraphs:

5 ‘‘(4) apply to an investment advisory contract

6 with a company excepted from the definition of an

7 investment company under section 3(c)(7) of title I of

8 this Act; or

9 ‘‘(5) apply to an investment advisory contract

10 with a person who is not a resident of the United

11 States.’’; and

12 (2) by adding at the end the following new sub13 section:

14 ‘‘(e) The Commission, by rule or regulation, upon its

15 own motion, or by order upon application, may condi16 tionally or unconditionally exempt any person or trans17 action, or any class or classes of persons or transactions,

18 from subsection (a)(1), if and to the extent that the exemp19 tion relates to an investment advisory contract with any

20 person that the Commission determines does not need the

21 protections of subsection (a)(1), on the basis of such factors

22 as financial sophistication, net worth, knowledge of and ex23 perience in financial matters, amount of assets under man24 agement, relationship with a registered investment adviser,
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1 and such other factors as the Commission determines are

2 consistent with this section.’’.

3 SEC. 209. REPORTS TO THE COMMISSION AND SHAREHOLD4 ERS.

5 Section 30 of the Investment Company Act of 1940 (15

6 U.S.C. 80a–29) is amended—

7 (1) in subsection (b), by striking paragraph (1)

8 and inserting the following:

9 ‘‘(1) such information, documents, and reports

10 (other than financial statements), as the Commission

11 may require to keep reasonably current the informa12 tion and documents contained in the registration

13 statement of such company filed under this title;’’;

14 (2) by redesignating subsections (c), (d), (e), and

15 (f) as subsections (d), (e), (g), and (h), respectively;

16 (3) by inserting after subsection (b) the following

17 new subsection:

18 ‘‘(c)(1) The Commission shall take such action as it

19 deems necessary or appropriate, consistent with the public

20 interest and the protection of investors, to avoid unneces21 sary reporting by, and minimize the compliance burdens

22 on, registered investment companies and their affiliated

23 persons in exercising its authority—

24 ‘‘(A) under subsection (f); and
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1 ‘‘(B) under subsection (b)(1), if the Commission

2 requires the filing of information, documents, and re3 ports under that subsection on a basis more frequently

4 than semiannually.

5 ‘‘(2) Action taken by the Commission under paragraph

6 (1) shall include considering, and requesting public com7 ment on—

8 ‘‘(A) feasible alternatives that minimize the re9 porting burdens on registered investment companies;

10 and

11 ‘‘(B) the utility of such information, documents,

12 and reports to the Commission in relation to the costs

13 to registered investment companies and their affili14 ated persons of providing such information, docu15 ments, and reports.’’;

16 (4) by inserting after subsection (e) (as redesig17 nated by paragraph (2) of this section), the following

18 new subsection:

19 ‘‘(f) The Commission may, by rule, require that semi20 annual reports containing the information set forth in sub21 section (e) include such other information as the Commis22 sion deems necessary or appropriate in the public interest

23 or for the protection of investors.’’; and
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1 (5) in subsection (g) (as redesignated by para2 graph (2) of this section), by striking ‘‘subsections (a)

3 and (d)’’ and inserting ‘‘subsections (a) and (e)’’.

4 SEC. 210. BOOKS, RECORDS, AND INSPECTIONS.

5 Section 31 of the Investment Company Act of 1940 (15

6 U.S.C. 80a–30) is amended—

7 (1) by striking subsections (a) and (b) and in8 serting the following:

9 ‘‘(a)(1) Each registered investment company, and each

10 underwriter, broker, dealer, or investment adviser that is

11 a majority-owned subsidiary of such a company, shall

12 maintain and preserve such records (as defined in section

13 3(a)(37) of the Securities Exchange Act of 1934) for such

14 period or periods as the Commission, by rules and regula15 tions, may prescribe as necessary or appropriate in the

16 public interest or for the protection of investors. Each in17 vestment adviser that is not a majority-owned subsidiary

18 of, and each depositor of any registered investment com19 pany, and each principal underwriter for any registered

20 investment company other than a closed-end company, shall

21 maintain and preserve for such period or periods as the

22 Commission shall prescribe by rules and regulations, such

23 records as are necessary or appropriate to record such per24 son’s transactions with such registered company.
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1 ‘‘(2) In exercising its authority under this subsection,

2 the Commission shall take such steps as it deems necessary

3 or appropriate, consistent with the public interest and for

4 the protection of investors, to avoid unnecessary record5 keeping by, and minimize the compliance burden on, per6 sons required to maintain records under this subsection

7 (hereafter in this section referred to as ‘subject persons’).

8 Such steps shall include considering, and requesting public

9 comment on—

10 ‘‘(A) feasible alternatives that minimize the rec11 ordkeeping burdens on subject persons;

12 ‘‘(B) the necessity of such records in view of the

13 public benefits derived from the independent scrutiny

14 of such records through Commission examination;

15 ‘‘(C) the costs associated with maintaining the

16 information that would be required to be reflected in

17 such records; and

18 ‘‘(D) the effects that a proposed recordkeeping re19 quirement would have on internal compliance policies

20 and procedures.

21 ‘‘(b) All records required to be maintained and pre22 served in accordance with subsection (a) shall be subject at

23 any time and from time to time to such reasonable periodic,

24 special, and other examinations by the Commission, or any

25 member or representative thereof, as the Commission may
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1 prescribe. For purposes of such examinations, any subject

2 person shall make available to the Commission or its rep3 resentatives any copies or extracts from such records as may

4 be prepared without undue effort, expense, or delay as the

5 Commission or its representatives may reasonably request.

6 The Commission shall exercise its authority under this sub7 section with due regard for the benefits of internal compli8 ance policies and procedures and the effective implementa9 tion and operation thereof.’’;

10 (2) by redesignating subsections (c) and (d) as

11 subsections (e) and (f), respectively; and

12 (3) by inserting after subsection (b) the following

13 new subsections:

14 ‘‘(c) Notwithstanding any other provision of law, the

15 Commission shall not be compelled to disclose any internal

16 compliance or audit records, or information contained

17 therein, provided to the Commission under this section.

18 Nothing in this subsection shall authorize the Commission

19 to withhold information from the Congress or prevent the

20 Commission from complying with a request for information

21 from any other Federal department or agency requesting

22 the information for purposes within the scope of the juris23 diction of that department or agency, or complying with

24 an order of a court of the United States in an action

25 brought by the United States or the Commission. For pur-
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1 poses of section 552 of title 5, United States Code, this sec2 tion shall be considered a statute described in subsection

3 (b)(3)(B) of such section 552.

4 ‘‘(d) For purposes of this section—

5 ‘‘(1) the term ‘internal compliance policies and

6 procedures’ means policies and procedures designed

7 by subject persons to promote compliance with the

8 Federal securities laws; and

9 ‘‘(2) the term ‘internal compliance and audit

10 record’ means any record prepared by a subject per11 son in accordance with internal compliance policies

12 and procedures.’’.

13 TITLE III—REDUCING THE COST

14 OF SAVING AND INVESTMENT

15 SEC. 301. EXEMPTION FOR ECONOMIC, BUSINESS, AND IN16 DUSTRIAL DEVELOPMENT COMPANIES.

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

18 (15 U.S.C. 80a–6(a)) is amended by adding at the end the

19 following new paragraph:

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

21 business of issuing redeemable securities, the oper22 ations of which are subject to regulation by the State

23 in which the company is organized under a statute

24 governing entities that provide financial or manage-
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1 rial assistance to enterprises doing business, or pro2 posing to do business, in that State if—

3 ‘‘(i) the organizational documents of the

4 company state that the activities of the company

5 are limited to the promotion of economic, busi6 ness, or industrial development in the State

7 through the provision of financial or managerial

8 assistance to enterprises doing business, or pro9 posing to do business, in that State, and such

10 other activities that are incidental or necessary

11 to carry out that purpose;

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

13 securities of the company by the company or any

14 underwriter for the company, not less than 80

15 percent of the securities of the company being of16 fered in such sale, on a class-by-class basis, are

17 held by persons who reside or who have a sub18 stantial business presence in that State;

19 ‘‘(iii) the securities of the company are sold,

20 or proposed to be sold, by the company or by any

21 underwriter for the company, solely to accredited

22 investors, as that term is defined in section 2(15)

23 of the Securities Act of 1933, or to such other

24 persons that the Commission, as necessary or ap25 propriate in the public interest and consistent
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1 with the protection of investors, may permit by

2 rule, regulation, or order; and

3 ‘‘(iv) the company does not purchase any

4 security issued by an investment company or by

5 any company that would be an investment com6 pany except for the exclusions from the definition

7 of the term ‘investment company’ under para8 graph (1) or (7) of section 3(c), other than—

9 ‘‘(I) any debt security that is rated in10 vestment grade by not less than 1 nation11 ally recognized statistical rating organiza12 tion; or

13 ‘‘(II) any security issued by a reg14 istered open-end investment company that

15 is required by its investment policies to in16 vest not less than 65 percent of its total as17 sets in securities described in subclause (I)

18 or securities that are determined by such

19 registered open-end investment company to

20 be comparable in quality to securities de21 scribed in subclause (I).

22 ‘‘(B) Notwithstanding the exemption provided by

23 this paragraph, section 9 (and, to the extent necessary

24 to enforce section 9, sections 38 through 51) shall

25 apply to a company described in this paragraph as
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1 if the company were an investment company reg2 istered under this title.

3 ‘‘(C) Any company proposing to rely on the ex4 emption provided by this paragraph shall file with

5 the Commission a notification stating that the com6 pany intends to do so, in such form and manner as

7 the Commission may prescribe by rule.

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

9 this paragraph may rely on the exemption provided

10 by this paragraph upon filing with the Commission

11 the notification required by subparagraph (C), until

12 such time as the Commission determines by order that

13 such reliance is not in the public interest or is not

14 consistent with the protection of investors.

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

16 may be subject to such additional terms and condi17 tions as the Commission may by rule, regulation, or

18 order determine are necessary or appropriate in the

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

20 SEC. 302. INTRASTATE CLOSED-END INVESTMENT COM21 PANY EXEMPTION.

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

23 1940 (15 U.S.C. 80a–6(d)(1)) is amended by striking

24 ‘‘$100,000’’ and inserting ‘‘$10,000,000, or such other
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1 amount as the Commission may set by rule, regulation, or

2 order’’.

3 SEC. 303. DEFINITION OF ELIGIBLE PORTFOLIO COMPANY.

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

5 1940 (15 U.S.C. 80a–2(a)(46)(C)) is amended—

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

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

8 and

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

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

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

12 (shareholders’ equity less retained earnings)

13 of not less than $2,000,000, except that the

14 Commission may adjust such amounts by

15 rule, regulation, or order to reflect changes

16 in 1 or more generally accepted indices or

17 other indicators for small businesses; or’’.

18 SEC. 304. DEFINITION OF BUSINESS DEVELOPMENT COM19 PANY.

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

21 of 1940 (15 U.S.C. 80a–2(a)(48)(B)) is amended by adding

22 at the end the following: ‘‘provided further that a business

23 development company need not make available significant

24 managerial assistance with respect to any company de25 scribed in paragraph (46)(C)(iii), or with respect to any
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1 other company that meets such criteria as the Commission

2 may by rule, regulation, or order permit, as consistent with

3 the public interest, the protection of investors, and the pur4 poses of this title; and’’.

5 SEC. 305. ACQUISITION OF ASSETS BY BUSINESS DEVELOP6 MENT COMPANIES.

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

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

9 (1) by striking ‘‘or from any person’’ and insert10 ing ‘‘from any person’’; and

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

12 any other person, subject to such rules and regula13 tions as the Commission may prescribe as necessary

14 or appropriate in the public interest or for the protec15 tion of investors’’.

16 SEC. 306. CAPITAL STRUCTURE AMENDMENTS.

17 Section 61(a) of the Investment Company Act of 1940

18 (15 U.S.C. 80a–60(a)) is amended—

19 (1) in paragraph (2), by striking ‘‘if such busi20 ness development company’’ and all that follows

21 through the end of the paragraph and inserting a pe22 riod;

23 (2) in paragraph (3)(A)—

24 (A) by striking ‘‘senior securities represent25 ing indebtedness accompanied by’’;
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1 (B) by inserting ‘‘accompanied by securi2 ties,’’ after ‘‘of such company,’’; and

3 (C) in clause (ii), by striking ‘‘senior’’; and

4 (3) in paragraph (3)—

5 (A) in subparagraph (A), by striking ‘‘and’’

6 at the end;

7 (B) in subparagraph (B), by striking the

8 period at the end of clause (iv) and inserting ‘‘;

9 and’’; and

10 (C) by inserting immediately after subpara11 graph (B) the following new subparagraph:

12 ‘‘(C) a business development company may

13 issue warrants, options, or rights to subscribe to,

14 convert to, or purchase voting securities not ac15 companied by securities, if—

16 ‘‘(i) such warrants, options, or rights

17 satisfy the conditions in clauses (i) and

18 (iii) of subparagraph (A); and

19 ‘‘(ii) the proposal to issue such war20 rants, options, or rights is authorized by the

21 shareholders or partners of such business de22 velopment company, and such issuance is

23 approved by the required majority (as de24 fined in section 57(o)) of the directors of or

25 general partners in such company on the
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1 basis that such issuance is in the best inter2 ests of the company and its shareholders or

3 partners.’’.

4 SEC. 307. FILING OF WRITTEN STATEMENTS.

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

6 1940 (15 U.S.C. 80a–63(b)(1)) is amended by inserting

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

8 SEC. 308. FACILITATING NATIONAL SECURITIES MARKETS.

9 Section 18 of the Securities Act of 1933 (15 U.S.C.

10 77r) is amended to read as follows:

11 ‘‘SEC. 18. EXEMPTION FROM STATE CONTROL OF

12 SECURITIES OFFERINGS.

13 ‘‘(a) EXEMPTION FROM STATE LAW FOR REGISTERED

14 SECURITIES.—Except with respect to offerings described in

15 subsection (b) and as otherwise specifically provided in this

16 section, no law, rule, regulation, order, or other administra17 tive action of any State or Territory of the United States,

18 or the District of Columbia, or any political subdivision

19 thereof—

20 ‘‘(1) requiring, or with respect to, registration or

21 qualification of securities or securities transactions

22 shall directly or indirectly apply to an offering sub23 ject to a registration statement filed pursuant to this

24 title;
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1 ‘‘(2) shall directly or indirectly prohibit, limit,

2 or impose conditions upon the use of any offering doc3 ument, including any prospectus contained in a reg4 istration statement that has been filed with the Com5 mission; or

6 ‘‘(3) shall directly or indirectly prohibit, limit,

7 or impose conditions upon the offer or sale of any se8 curity registered with the Commission under this title

9 based on the merits of such offering or issuer.

10 ‘‘(b) SPECIAL RULES FOR CERTAIN OFFERINGS.—Ex11 cept with respect to a security of an investment company

12 that is registered under the Investment Company Act of

13 1940, the provisions of subsection (a) shall not apply to—

14 ‘‘(1) an offering—

15 ‘‘(A) by an issuer that is a blank check com16 pany, as defined in section 7(b), or a direct par17 ticipation investment program;

18 ‘‘(B) of penny stock; or

19 ‘‘(C) giving effect to a limited partnership

20 rollup transaction;

21 ‘‘(2) an offering of a security, if a person associ22 ated with the offering is subject to a statutory dis23 qualification, as defined in section 3(a)(39) of the Se24 curities Exchange Act of 1934, or any substantially

25 equivalent State law; or
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1 ‘‘(3) an offering of a security that—

2 ‘‘(A) is not listed on the New York Stock

3 Exchange, the American Stock Exchange, or the

4 National Market Segment of the National Asso5 ciation of Securities Dealers Automated

6 Quotation System Stock Market;

7 ‘‘(B) is not listed, authorized for listing, or

8 authorized for trading on a national securities

9 exchange (or tier or segment thereof) that has

10 standards for listing or for trading authorization

11 that the Commission determines, by rule (on its

12 own initiative or on the basis of a petition), are

13 substantially similar to the standards for listing

14 or for trading authorization that are applicable

15 to securities described in subparagraph (A); or

16 ‘‘(C) will not be listed or authorized for

17 trading as described in subparagraph (A) or (B)

18 upon completion of the transaction.

19 ‘‘(c) EXEMPTION FROM STATE LAW FOR TRANS20 ACTIONS IN SECURITIES WITH QUALIFIED PURCHASERS.—

21 Notwithstanding subsection (b), subsection (a) shall apply

22 with respect to offers and sales to qualified purchasers, as

23 defined by the Commission.

24 ‘‘(d) PRESERVATION OF FILING REQUIREMENTS.—
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1 ‘‘(1) IN GENERAL.—Nothing in this section shall

2 prohibit the securities commission (or any agency or

3 office performing like functions) of any State or Ter4 ritory of the United States, or the District of Colum5 bia, from requiring the filing of any documents filed

6 with the Commission pursuant to this title solely for

7 notice purposes, along with a consent to service of

8 process and requisite fee, except that no such filing,

9 consent, or fee may be required with respect to securi10 ties, or transactions relating to securities that are of

11 the same class, or are senior to such a class, as securi12 ties described in subsection (b)(3).

13 ‘‘(2) CONTINUED STATE AUTHORITY.—Notwith14 standing paragraph (1), a State or Territory of the

15 United States, or the District of Columbia may con16 tinue to collect filing or registration fees with respect

17 to securities or securities transactions in amounts de18 termined pursuant to State law as in effect on the

19 day before the date of enactment of the Securities In20 vestment Promotion Act of 1996, until otherwise spe21 cifically provided under a State law enacted on or

22 after that date of enactment.

23 ‘‘(e) PRESERVATION OF STATE AUTHORITY.—Nothing

24 in this section shall affect the jurisdiction of the securities

25 commission (or any agency or office performing like func-
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1 tions) of any State or Territory of the United States, or

2 the District of Columbia pursuant to the laws of such State

3 or Territory, with respect to any fraud or broker-dealer con4 duct in connection with securities or securities trans5 actions.’’.

6 SEC. 309. REGULATORY FLEXIBILITY.

7 (a) UNDER THE SECURITIES ACT OF 1933.—Title I

8 of the Securities Act of 1933 (15 U.S.C. 77a et seq.) is

9 amended by adding at the end the following new section:

10 ‘‘SEC. 28. GENERAL EXEMPTIVE AUTHORITY.

11 ‘‘The Commission, by rule or regulation, may condi12 tionally or unconditionally exempt any person, security, or

13 transaction, or any class or classes of persons, securities,

14 or transactions, from any provision or provisions of this

15 title or of any rule or regulation issued under this title,

16 to the extent that such exemption is necessary or appro17 priate in the public interest, and is consistent with the pro18 tection of investors.’’.

19 (b) UNDER THE SECURITIES EXCHANGE ACT OF

20 1934.—Title I of the Securities Exchange Act of 1934 (15

21 U.S.C. 78a et seq.) is amended by adding at the end the

22 following new section:

23 ‘‘SEC. 36. GENERAL EXEMPTIVE AUTHORITY.

24 ‘‘(a) IN GENERAL.—Except as provided in subsection

25 (b), the Commission, by rule, regulation, or order, may con-
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1 ditionally or unconditionally exempt any person, security,

2 or transaction, or any class or classes of persons, securities,

3 or transactions, from any provision or provisions of this

4 title or of any rule or regulation issued under this title,

5 to the extent that such exemption is necessary or appro6 priate in the public interest, and is consistent with the pro7 tection of investors. The Commission shall, by rule or regu8 lation, determine the procedures under which an exemptive

9 order under this section shall be granted and may, in its

10 sole discretion, decline to entertain any application for an

11 order of exemption under this section.

12 ‘‘(b) LIMITATION.—The Commission may not, under

13 this section, exempt any person, security, or transaction,

14 or any class or classes of persons, securities, or transactions

15 from section 15C or the rules or regulations issued there16 under or (for purposes of section 15C and the rules and

17 regulations issued thereunder) from the definitions in para18 graphs (42), (43), (44), or (45) of section 3(a).’’.

19 SEC. 310. ANALYSIS OF ECONOMIC EFFECTS OF REGULA20 TION.

21 (a) AUTHORIZATION OF APPROPRIATIONS.—There are

22 authorized to be appropriated to carry out the Economic

23 Analysis Program, including funding for the Office of Eco24 nomic Analysis of the Securities and Exchange Commis-
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1 sion, $6,000,000 for fiscal year 1997, and $6,000,000 for

2 fiscal year 1998.

3 (b) ANALYSIS OF ECONOMIC EFFECTS OF REGULA4 TION.—

5 (1) IN GENERAL.—The Chief Economist of the

6 Commission shall prepare a report on each proposed

7 regulation of the Commission. Such report shall be

8 provided to each Commissioner and shall be published

9 in the Federal Register before any such regulation of

10 the Commission may become effective.

11 (2) REPORT CONTENTS.—The report required by

12 this subsection shall include—

13 (A) an analysis of the likely effects of the

14 proposed regulation on the economy of the Unit15 ed States, and particularly upon the securities

16 markets and the participants in those markets;

17 and

18 (B) the estimated impact of the proposed

19 regulation upon economic and market behavior,

20 including any impact on market liquidity, the

21 costs of investment, and the financial risks of in22 vestment.

23 SEC. 311. PRIVATIZATION OF EDGAR.

24 Not later than 180 days after the date of enactment

25 of this Act, the Commission shall submit to the Congress
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1 a report on the Electronic Data Gathering Analysis and

2 Retrieval System consisting of the Commission’s plan for

3 promoting competition and innovation of the system

4 through privatization of all or any part of the system. Such

5 plan shall include such recommendations for action as may

6 be necessary to implement the plan.

7 SEC. 312. IMPROVING COORDINATION OF SUPERVISION.

8 Section 17 of the Securities Exchange Act of 1934 (15

9 U.S.C. 78q) is amended by adding at the end the following

10 new subsection:

11 ‘‘(i) COORDINATION OF EXAMINING AUTHORITIES.—

12 ‘‘(1) OBJECTIVE.—The Commission and the ex13 amining authorities shall promote effective and effi14 cient oversight of the activities of brokers and dealers,

15 avoiding redundancy, while maintaining the highest

16 level of examination and oversight quality.

17 ‘‘(2) ELIMINATION OF DUPLICATION.—The Com18 mission and the examining authorities, through co19 operation and coordination of examination and over20 sight activities, shall eliminate any unnecessary and

21 burdensome duplication in the examination process.

22 ‘‘(3) COORDINATION OF EXAMINATIONS.—The

23 Commission and the examining authorities shall

24 share such information, including reports of examina25 tions, customer complaint information, and other
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1 nonpublic regulatory information, as appropriate to

2 foster a coordinated approach to regulatory oversight

3 of brokers and dealers that are subject to examination

4 by more than one examining authority.

5 ‘‘(4) EXAMINATIONS FOR CAUSE.—At any time,

6 any examining authority may conduct an examina7 tion for cause of any broker or dealer subject to its

8 jurisdiction.

9 ‘‘(5) CONFIDENTIALITY.—

10 ‘‘(A) IN GENERAL.—The provisions of sec11 tion 24 shall apply to the sharing of information

12 in accordance with this subsection. The Commis13 sion shall take appropriate action under section

14 24(c) to assure that such information is not in15 appropriately disclosed.

16 ‘‘(B) APPROPRIATE DISCLOSURE NOT PRO17 HIBITED.—Nothing in this paragraph shall au18 thorize the Commission or any examining au19 thority to withhold information from the Con20 gress, or prevent the Commission or any examin21 ing authority from complying with a request for

22 information from any other Federal department

23 or agency requesting the information for pur24 poses within the scope of its jurisdiction, or com25 plying with an order of a court of the United
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1 States in an action brought by the United States

2 or the Commission.

3 ‘‘(6) DEFINITION.—For purposes of this sub4 section, the term ‘examining authority’ means the

5 self-regulatory organizations registered with the Com6 mission under this title (other than registered clearing

7 agencies) with the authority to examine, inspect, and

8 otherwise oversee the activities of a registered broker

9 or dealer.’’.

10 SEC. 313. INCREASED ACCESS TO FOREIGN BUSINESS IN11 FORMATION.

12 (a) THE SECURITIES ACT OF 1993.—Section 2(3) of

13 the Securities Act of 1933 (15 U.S.C. 77b(3)) is amended

14 in the third sentence—

15 (1) by striking ‘‘not include preliminary’’ and

16 inserting ‘‘not include (A) preliminary’’; and

17 (2) by inserting before the period ‘‘; or (B) solely

18 for purposes of section 5, press conferences held out19 side of the United States, public meetings with issuer

20 representatives conducted outside of the United States,

21 or press related materials released outside of the Unit22 ed States in which an offshore offering is discussed,

23 irrespective of whether journalists from the United

24 States or journalists for publications (including on25 line services) with circulation in the United States at-
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1 tend such press conferences or meetings or receive such

2 press related materials.’’.

3 (b) THE SECURITIES EXCHANGE ACT OF 1934.—Sec4 tion 14 of the Securities Exchange Act of 1934 (15 U.S.C.

5 78n) is amended by adding at the end the following new

6 subsection:

7 ‘‘(i) TREATMENT OF PRESS RELATED MATERIALS.—

8 ‘‘(1) IN GENERAL.—Any person making a tender

9 offer for, or a request or invitation for tenders of, the

10 securities of a foreign issuer may grant journalists

11 from the United States or journalists for publications

12 (including on-line services) with circulation in the

13 United States access to press conferences occurring

14 outside of the United States, meetings with its rep15 resentatives conducted outside of the United States, or

16 press related materials released outside of the United

17 States in which an offshore tender offer is discussed,

18 without being deemed to have used the jurisdictional

19 means specified in subsection (d)(1) or becoming sub20 ject to any regulations promulgated by the Commis21 sion, pursuant to subsection (e) of this section or sec22 tion 13(e), or otherwise, that relate to tender offers or

23 requests or invitations for tenders.
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1 ‘‘(2) DEFINITION.—For purposes of this sub2 section, the term ‘foreign issuer’ means any corpora3 tion or other organization—

4 ‘‘(A) that is incorporated or organized

5 under the laws of any foreign country; or

6 ‘‘(B) the principal place of business of

7 which is located in a foreign country.’’.

8 SEC. 314. SHORT-FORM REGISTRATION.

9 (a) IN GENERAL.—Not later than 180 days after the

10 date of enactment of this Act, the Commission shall amend

11 Form S–3 (17 C.F.R. 239.13, relating to registration under

12 the Securities Act of 1933, of securities of certain issuers

13 offered pursuant to certain types of transactions) to allow

14 such form, or its equivalent, to be used for primary offerings

15 by a registrant if—

16 (1) the outstanding stock of the registrant held

17 by nonaffiliates of the registrant has an adequate ag18 gregate market value, as determined by the Commis19 sion; and

20 (2) such registrant otherwise meets the eligibility

21 requirements for registration using such form, or its

22 equivalent.

23 (b) ADJUSTMENTS.—Any adjustment to the adequate

24 aggregate market value threshold referred to in subsection

25 (a)(1) by the Commission following the date of enactment
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1 of this Act shall apply equally to voting and nonvoting com2 mon shares and such other securities as the Commission

3 shall establish.

4 (c) DEFINITION.—For purposes of this section, the

5 term ‘‘stock’’ includes voting and nonvoting common shares,

6 and such other securities as the Commission shall establish.

7 SEC. 315. CHURCH EMPLOYEE PENSION PLANS.

8 (a) AMENDMENT TO THE INVESTMENT COMPANY ACT

9 OF 1940.—Section 3(c) of the Investment Company Act of

10 1940 (15 U.S.C. 80a–3(c)) is amended by adding at the

11 end the following new paragraph:

12 ‘‘(14) Any church plan described in section

13 414(e) of the Internal Revenue Code of 1986, if, under

14 any such plan, no part of the assets may be used for,

15 or diverted to, purposes other than the exclusive bene16 fit of plan participants or beneficiaries, or any com17 pany or account that is—

18 ‘‘(A) established by a person that is eligible

19 to establish and maintain such a plan under sec20 tion 414(e) of the Internal Revenue Code of 1986;

21 and

22 ‘‘(B) substantially all of the activities of

23 which consist of—

24 ‘‘(i) managing or holding assets con25 tributed to such church plans or other assets
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1 which are permitted to be commingled with

2 the assets of church plans under the Inter3 nal Revenue Code of 1986; or

4 ‘‘(ii) administering or providing bene5 fits pursuant to church plans.’’.

6 (b) AMENDMENT TO THE SECURITIES ACT OF 1933.—

7 Section 3(a) of the Securities Act of 1933 (15 U.S.C. 77c(a))

8 is amended by adding at the end the following new para9 graph:

10 ‘‘(13) Any security issued by or any interest or

11 participation in any church plan, company or ac12 count that is excluded from the definition of an in13 vestment company under section 3(c)(14) of the In14 vestment Company Act of 1940.’’.

15 (c) AMENDMENTS TO THE SECURITIES EXCHANGE ACT

16 OF 1934.—

17 (1) EXEMPTED SECURITIES.—Section

18 3(a)(12)(A) of the Securities Exchange Act of 1934

19 (15 U.S.C. 78c(a)(12)(A)) is amended—

20 (A) in clause (v), by striking ‘‘and’’ at the

21 end;

22 (B) by redesignating clause (vi) as clause

23 (vii); and

24 (C) by inserting after clause (v) the follow25 ing new clause:
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1 ‘‘(vi) solely for purposes of sections 12,

2 13, 14, and 16 of this title, any security is3 sued by or any interest or participation in

4 any church plan, company, or account that

5 is excluded from the definition of an invest6 ment company under section 3(c)(14) of the

7 Investment Company Act of 1940; and’’.

8 (2) EXEMPTION FROM BROKER-DEALER PROVI9 SIONS.—Section 3 of the Securities Exchange Act of

10 1934 (15 U.S.C. 78c) is amended by adding at the

11 end the following new subsection:

12 ‘‘(f) CHURCH PLANS.—No church plan described in

13 section 414(e) of the Internal Revenue Code of 1986, no per14 son or entity eligible to establish and maintain such a plan

15 under the Internal Revenue Code of 1986, no company or

16 account that is excluded from the definition of an invest17 ment company under section 3(c)(14) of the Investment

18 Company Act of 1940, and no trustee, director, officer or

19 employee of or volunteer for such plan, company, account

20 person, or entity, acting within the scope of that person’s

21 employment or activities with respect to such plan, shall

22 be deemed to be a ‘broker’, ‘dealer’, ‘municipal securities

23 broker’, ‘municipal securities dealer’, ‘government securities

24 broker’, ‘government securities dealer’, ‘clearing agency’, or

25 ‘transfer agent’ for purposes of this title—
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1 ‘‘(1) solely because such plan, company, person,

2 or entity buys, holds, sells, trades in, or transfers se3 curities or acts as an intermediary in making pay4 ments in connection with transactions in securities

5 for its own account in its capacity as trustee or ad6 ministrator of, or otherwise on behalf of, or for the ac7 count of, any church plan, company, or account that

8 is excluded from the definition of an investment com9 pany under section 3(c)(14) of the Investment Com10 pany Act of 1940; and

11 ‘‘(2) if no such person or entity receives a com12 mission or other transaction-related sales compensa13 tion in connection with any activities conducted in

14 reliance on the exemption provided by this sub15 section.’’.

16 (d) AMENDMENT TO THE INVESTMENT ADVISERS ACT

17 OF 1940.—Section 203(b) of the Investment Advisers Act

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

19 (1) in paragraph (3), by striking ‘‘or’’ at the

20 end;

21 (2) in paragraph (4), by striking the period at

22 the end and inserting ‘‘; or’’; and

23 (3) by adding at the end the following new para24 graph:
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1 ‘‘(5) any plan described in section 414(e) of the

2 Internal Revenue Code of 1986, any person or entity

3 eligible to establish and maintain such a plan under

4 the Internal Revenue Code of 1986, or any trustee, di5 rector, officer, or employee of or volunteer for any

6 such plan or person, if such person or entity provides

7 investment advice exclusively to any plan, person, or

8 entity or any company, account, or fund that is ex9 cluded from the definition of an investment company

10 under section 3(c)(14) of the Investment Company

11 Act of 1940.’’.

12 (e) AMENDMENT TO THE TRUST INDENTURE ACT OF

13 1939.—Section 304(a)(4)(A) of the Trust Indenture Act of

14 1939 (15 U.S.C. 77ddd(4)(A)) is amended by striking ‘‘or

15 (11)’’ and inserting ‘‘(11), or (14)’’.

16 (f) PROTECTION OF CHURCH EMPLOYEE BENEFIT

17 PLANS UNDER STATE LAW.—

18 (1) REGISTRATION REQUIREMENTS.—Any secu19 rity issued by or any interest or participation in any

20 church plan, company, or account that is excluded

21 from the definition of an investment company under

22 section 3(c)(14) of the Investment Company Act of

23 1940, as added by subsection (a) of this section, and

24 any offer, sale, or purchase thereof, shall be exempt
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1 from any law of a State that requires registration or

2 qualification of securities.

3 (2) TREATMENT OF CHURCH PLANS.—No church

4 plan described in section 414(e) of the Internal Reve5 nue Code of 1986, no person or entity eligible to es6 tablish and maintain such a plan under the Internal

7 Revenue Code of 1986, no company or account that

8 is excluded from the definition of an investment com9 pany under section 3(c)(14) of the Investment Com10 pany Act of 1940, as added by subsection (a) of this

11 section, and no trustee, director, officer, or employee

12 of or volunteer for any such plan, person, entity, com13 pany, or account shall be required to qualify, register,

14 or be subject to regulation as an investment company

15 or as a broker, dealer, investment adviser, or agent

16 under the laws of any State solely because such plan,

17 person, entity, company, or account buys, holds, sells,

18 or trades in securities for its own account or in its

19 capacity as a trustee or administrator of or otherwise

20 on behalf of, or for the account of, or provides invest21 ment advice to, for, or on behalf of, any such plan,

22 person, or entity or any company or account that is

23 excluded from the definition of an investment com24 pany under section 3(c)(14) of the Investment Com-
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1 pany Act of 1940, as added by subsection (a) of this

2 section.

3 (g) AMENDMENT TO THE INVESTMENT COMPANY ACT

4 OF 1940.—Section 30 of the Investment Company Act of

5 1940 (15 U.S.C. 80a–29) is amended by adding at the end

6 the following new subsections:

7 ‘‘(g) DISCLOSURE TO CHURCH PLAN PARTICIPANTS.—

8 A person that maintains a church plan that is excluded

9 from the definition of an investment company solely by rea10 son of section 3(c)(14) shall provide disclosure to plan par11 ticipants, in writing, and not less frequently than annually,

12 and for new participants joining such a plan after May

13 31, 1996, prior to joining such plan, that—

14 ‘‘(1) the plan, or any company or account main15 tained to manage or hold plan assets and interests in

16 such plan, company, or account, are not subject to

17 registration, regulation, or reporting under this title,

18 the Securities Act of 1933, the Securities Exchange

19 Act of 1934, or State securities laws; and

20 ‘‘(2) plan participants and beneficiaries therefore

21 will not be afforded the protections of those provisions.

22 ‘‘(h) NOTICE TO COMMISSION.—The Commission may

23 issue rules and regulations to require any person that

24 maintains a church plan that is excluded from the defini25 tion of an investment company solely by reason of section
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1 3(c)(14) to file a notice with the Commission containing

2 such information and in such form as the Commission may

3 prescribe as necessary or appropriate in the public interest

4 or consistent with the protection of investors.’’.

5 SEC. 316. PROMOTING GLOBAL PREEMINENCE OF AMER6 ICAN SECURITIES MARKETS.

7 It is the sense of the Congress that—

8 (1) the United States and foreign securities mar9 kets are increasingly becoming international

10 securities markets, as issuers and investors seek the

11 benefits of new capital and secondary market oppor12 tunities without regard to national borders;

13 (2) as issuers seek to raise capital across

14 national borders, they confront differing accounting

15 requirements in the various regulatory jurisdictions;

16 (3) the establishment of a high-quality com17 prehensive set of generally accepted international ac18 counting standards in cross-border securities offerings

19 would greatly facilitate international financing ac20 tivities and, most significantly, would enhance the

21 ability of foreign corporations to access and list in

22 United States markets;

23 (4) in addition to the efforts made before the date

24 of enactment of this Act by the Commission to re25 spond to the growing internationalization of securities
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1 markets, the Commission should enhance its vigorous

2 support for the development of high-quality inter3 national accounting standards as soon as practicable;

4 and

5 (5) the Commission, in view of its clear author6 ity under law to facilitate the access of foreign cor7 porations to list their securities in United States

8 markets, should report to the Congress, not later than

9 1 year after the date of enactment of this Act, on

10 progress in the development of international account11 ing standards and the outlook for successful comple12 tion of a set of international standards that would be

13 acceptable to the Commission for offerings and list14 ings by foreign corporations in United States mar15 kets.

16 SEC. 317. BROKER-DEALER EXEMPTION FROM STATE LAW

17 FOR CERTAIN DE MINIMIS TRANSACTIONS.

18 (a) IN GENERAL.—Section 15 of the Securities Ex19 change Act of 1934 (15 U.S.C. 78o) is amended by adding

20 at the end the following new subsection:

21 ‘‘(h) EXEMPTION FROM STATE LAW FOR CERTAIN DE

22 MINIMIS TRANSACTIONS.—

23 ‘‘(1) IN GENERAL.—No law, rule, regulation, or

24 order, or other administrative action of any State or

25 political subdivision thereof may prohibit an associ-
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1 ated person of a broker or dealer from affecting a

2 transaction described in paragraph (2) for a customer

3 in such State if—

4 ‘‘(A) such associated person is not ineligible

5 to register with such State for any reason other

6 than such a transaction;

7 ‘‘(B) such associated person is registered

8 with a registered securities association and at

9 least one State; and

10 ‘‘(C) the broker or dealer with which such

11 person is associated is registered with such State.

12 ‘‘(2) DESCRIBED TRANSACTIONS.—

13 ‘‘(A) IN GENERAL.—A transaction is de14 scribed in this paragraph if—

15 ‘‘(i) such transaction is effected—

16 ‘‘(I) on behalf of a customer that,

17 for 30 days prior to the day of the

18 transaction, maintained an account

19 with the broker or dealer; and

20 ‘‘(II) by an associated person of

21 the broker or dealer—

22 ‘‘(aa) to which the customer

23 was assigned for 14 days prior to

24 the day of the transaction; and
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1 ‘‘(bb) who is registered with

2 a State in which the customer was

3 a resident or was present for at

4 least 30 consecutive days during

5 the one-year period prior to the

6 day of the transaction;

7 ‘‘(ii) the transaction is effected—

8 ‘‘(I) on behalf of a customer that,

9 for 30 days prior to the day of the

10 transaction, maintains an account

11 with the broker or dealer; and

12 ‘‘(II) within the period beginning

13 on the date on which such associated

14 person files an application for registra15 tion with the State in which the trans16 action is effected and ending on the

17 earlier of—

18 ‘‘(aa) 60 days after the date

19 on which the application is filed;

20 or

21 ‘‘(bb) the date on which such

22 State notifies the associated per23 son that it has denied the applica24 tion for registration or has stayed
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1 the pendency of the application

2 for cause.

3 ‘‘(B) RULES OF CONSTRUCTION.—For pur4 poses of subparagraph (A)(i)(II)—

5 ‘‘(i) each of up to 3 associated persons

6 of a broker or dealer who are designated to

7 effect transactions during the absence or un8 availability of the principal associated per9 son for a customer may be treated as an as10 sociated person to which such customer is

11 assigned; and

12 ‘‘(ii) if the customer is present in an13 other State for 30 or more consecutive days

14 or has permanently changed his or her resi15 dence to another State, a transaction is not

16 described in this paragraph, unless the asso17 ciation person of the broker or dealer files

18 an application for registration with such

19 State not later than 10 business days after

20 the later of the date of the transaction, or

21 the date of the discovery of the presence of

22 the customer in the other State for 30 or

23 more consecutive days or the change in the

24 customer’s residence.’’.
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1 (b) TECHNICAL AMENDMENT.—Section 28(a) of the Se2 curities Exchange Act of 1934 (15 U.S.C. 78bb(a)) is

3 amended by striking ‘‘Nothing’’ and inserting ‘‘Except as

4 otherwise specifically provided in this title, nothing’’.

5 SEC. 318. STUDIES AND REPORTS.

6 (a) IMPACT OF TECHNOLOGICAL ADVANCES.—

7 (1) STUDY.—

8 (A) IN GENERAL.—The Commission shall

9 conduct a study of—

10 (i) the impact of technological ad11 vances and the use of on-line information

12 systems on the securities markets;

13 (ii) how such technologies have changed

14 the way in which the securities markets op15 erate; and

16 (iii) any steps taken by the Commis17 sion to address such changes.

18 (B) CONSIDERATIONS.—In conducting the

19 study under subparagraph (A), the Commission

20 shall consider how the Commission has adapted

21 its enforcement policies and practices in response

22 to technological developments with regard to—

23 (i) disclosure, prospectus delivery, and

24 other customer protection regulations;
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1 (ii) intermediaries and exchanges in

2 the domestic and international financial

3 services industry;

4 (iii) reporting by issuers, including

5 communications with holders of securities;

6 (iv) the relationship of the Commission

7 with other national regulatory authorities

8 and organizations to improve coordination

9 and cooperation; and

10 (v) the relationship of the Commission

11 with State regulatory authorities and orga12 nizations to improve coordination and co13 operation.

14 (2) REPORT.—Not later than 1 year after the

15 date of enactment of this Act, the Commission shall

16 submit a report to the Congress on the results of the

17 study conducted under paragraph (1).

18 (b) SHAREHOLDER PROPOSALS.—

19 (1) STUDY.—The Commission shall conduct a

20 study of—

21 (A) whether shareholder access to proxy

22 statements pursuant to section 14 of the Securi23 ties Exchange Act of 1934 has been impaired by

24 recent statutory, judicial, or regulatory changes;

25 and
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1 (B) the ability of shareholders to have pro2 posals relating to corporate practices and social

3 issues included as part of proxy statements.

4 (2) REPORT.—Not later than 1 year after the

5 date of enactment of this Act, the Commission shall

6 submit a report to the Congress on the results of the

7 study conducted under paragraph (1), together with

8 any recommendations for regulatory or legislative

9 changes that it considers necessary to improve share10 holder access to proxy statements.

11 (c) PREFERENCING.—

12 (1) STUDY.—The Commission shall conduct a

13 study of the impact on investors and the national

14 market system of the practice known as

15 ‘‘preferencing’’ on one or more registered securities ex16 changes, including consideration of—

17 (A) how preferencing impacts—

18 (i) the execution prices received by re19 tail securities customers whose orders are

20 preferenced; and

21 (ii) the ability of retail securities cus22 tomers in all markets to obtain executions

23 of their limit orders in preferenced securi24 ties; and
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1 (B) the costs of preferencing to such cus2 tomers.

3 (2) REPORT.—Not later than 6 months after the

4 date of enactment of this Act, the Commission shall

5 submit a report to the Congress on the results of the

6 study conducted under paragraph (1).

7 (3) DEFINITION.—For purposes of this sub8 section, the term ‘‘preferencing’’ refers to the practice

9 of a broker acting as a dealer on a national securities

10 exchange, directing the orders of customers to buy or

11 sell securities to itself for execution under rules that

12 permit the broker to take priority in execution over

13 same-priced orders or quotations entered prior in

14 time.