I
104TH CONGRESS
2D SESSION
H. R. 3005
To amend the Federal securities laws in order to promote efficiency and
capital formation in the financial markets, and to amend the Investment
Company Act of 1940 to promote more efficient management of mutual
funds, protect investors, and provide more effective and less burdensome
regulation.
IN THE HOUSE OF REPRESENTATIVES
MARCH 5, 1996
Mr. FIELDS of Texas introduced the following bill; which was referred to the
Committee on Commerce
A BILL
To amend the Federal securities laws in order to promote
efficiency and capital formation in the financial markets,
and to amend the Investment Company Act of 1940
to promote more efficient management of mutual funds,
protect investors, and provide more effective and less
burdensome regulation.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Securities Amendments of 1996’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—CAPITAL MARKETS DEREGULATION AND
LIBERALIZATION
Sec. 101. Short title.
Sec. 102. Investment recommendations to institutional clients.
Sec. 103. Creation of national securities markets.
Sec. 104. Securities margin requirements.
Sec. 105. Williams act study.
Sec. 106. Prospectus delivery.
Sec. 107. Exemptive authority.
Sec. 108. Promotion of efficiency, competition, and capital formation.
Sec. 109. Reduction in number of members of Commission.
Sec. 110. Privatization of EDGAR.
Sec. 111. Designation of primary SRO and examining authority.
Sec. 112. Treatment of press conferences.
Sec. 113. Report on Trust Indenture Act of 1939.
TITLE II—INVESTMENT COMPANY ACT AMENDMENTS
Sec. 201. Short title.
Sec. 202. Funds of funds.
Sec. 203. Registration of securities.
Sec. 204. Investment company advertising prospectus.
Sec. 205. Variable insurance contracts.
Sec. 206. Reports to the Commission and shareholders.
Sec. 207. Books, records and inspections.
Sec. 208. Investment company names.
Sec. 209. Excepted investment companies.
TITLE I—CAPITAL MARKETS DE-
REGULATION AND LIBERAL-
IZATION
SEC. 101. SHORT TITLE.
This title may be cited as the ‘‘Capital Markets De-
regulation and Liberalization Act of 1996’’.
SEC. 102. INVESTMENT RECOMMENDATIONS TO INSTITU-
TIONAL CLIENTS.
(a) RULES OF NATIONAL SECURITIES EXCHANGES
PERTAINING TO INVESTMENT RECOMMENDATIONS TO IN-
STITUTIONAL CLIENTS.—Section 6(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78f(b)) is amended by
inserting after paragraph (9) the following new paragraph:
‘‘(10) INVESTMENT RECOMMENDATIONS TO IN-
STITUTIONAL CLIENTS.—
‘‘(A) IN GENERAL.—The rules of the ex-
change do not provide that a member has an
obligation to form a belief as to the suitability
of an investment recommendation made by a
member to an institutional client, except that
the rules of the association may contain a provi-
sion in accordance with subparagraph (B).
‘‘(B) PROVISION
FOR
WRITTEN
AGREE-
MENTS.—The rules of the exchange may pro-
vide that a broker or dealer has an obligation
to form a reasonable belief as to the suitability
of an investment recommendation made by the
broker or dealer client if the following condi-
tions are met:
‘‘(i) the broker or dealer and the insti-
tutional client expressly agree in writing,
prior to or contemporaneously with the
recommendation, that the recommendation
will be made by the broker or dealer on a
reasonable belief that the recommendation
is suitable for such institutional client,
based upon facts disclosed by such institu-
tional client as to its other security hold-
ings and as to its financial situation and
needs; and
‘‘(ii) such other conditions as the ex-
change may establish in accordance with
the requirements of this section.
‘‘(C) DEFINITION OF INSTITUTIONAL CLI-
ENT.—For purposes of this paragraph, the
term ‘institutional client’ means any person
other than a natural person that has at least
$10,000,000 invested in securities in the aggre-
gate in its portfolio.’’.
(b) PRESUMPTION IN ACTIONS PERTAINING TO REC-
OMMENDATIONS
TO INSTITUTIONAL CLIENTS.—Section
15 of the Securities Exchange Act of 1934 (15 U.S.C.
78o) is amended by inserting after subsection (g) the fol-
lowing new subsection:
‘‘(h) INVESTMENT RECOMMENDATIONS TO INSTITU-
TIONAL CLIENTS.—
‘‘(1) PRESUMPTION.—In any action brought
against a broker or dealer or a person associated
with a broker or dealer under this title or under any
rule or regulation thereunder pertaining to an in-
vestment recommendation to an institutional client,
the broker or dealer or associated person shall be en-
titled to a presumption that it is not liable for the
investment decisions of an institutional client.
‘‘(2) STANDARD
FOR
REBUTTING
PRESUMP-
TION.—The presumption set out in paragraph (1)
may only be rebutted by proof that the broker or
dealer or associated person and the institutional cli-
ent expressly agreed in writing, prior to or contem-
poraneously with the recommendation, that the rec-
ommendation would be made by the broker or dealer
or associated person on a reasonable belief that the
recommendation would be suitable for such institu-
tional client, based upon facts disclosed by such in-
stitutional client as to its other security holdings and
as to its financial situation and needs.
‘‘(3) DEFINITION OF INSTITUTIONAL CLIENT.—
For purposes of this subsection, the term ‘institu-
tional client’ means any person other than a natural
person that has at least $10,000,000 invested in se-
curities in the aggregate in its portfolio.
‘‘(4) LIMITATION.—This subsection shall not be
deemed to create or affirm any private right of ac-
tion against a broker or dealer or associated person
for any investment recommendation to an institu-
tional client.’’.
(c) RULES OF SECURITIES ASSOCIATIONS.—Section
15A(b) of the Securities Exchange Act of 1934 (15 U.S.C.
78o–3(b)) is amended by inserting after paragraph (13)
the following new paragraph:
‘‘(14) INVESTMENT RECOMMENDATIONS TO IN-
STITUTIONAL CLIENTS.—
‘‘(A) IN GENERAL.—The rules of the asso-
ciation do not provide that a member has an
obligation to form a belief as to the suitability
of an investment recommendation made by a
member to an institutional client, except that
the rules of the association may contain a provi-
sion in accordance with subparagraph (B).
‘‘(B) PROVISION
FOR
WRITTEN
AGREE-
MENTS.—The rules of the association may pro-
vide that a broker or dealer has an obligation
to form a reasonable belief as to the suitability
of an investment recommendation made by the
broker or dealer client if the following condi-
tions are met:
‘‘(i) the broker or dealer and the insti-
tutional client expressly agree in writing,
prior to or contemporaneously with the
recommendation, that the recommendation
will be made by the broker or dealer on
a reasonable belief that the recommenda-
tion is suitable for such institutional client,
based upon facts disclosed by such institu-
tional client as to its other security hold-
ings and as to its financial situation and
needs; and
‘‘(ii) such other conditions as the as-
sociation may establish in accordance with
the requirements of this section.
‘‘(C) DEFINITION OF INSTITUTIONAL CLI-
ENT.—For purposes of this paragraph, the
term ‘institutional client’ means any person
other than a natural person that has at least
$10,000,000 invested in securities in the aggre-
gate in its portfolio.’’.
SEC. 103. CREATION OF NATIONAL SECURITIES MARKETS.
(a) SECURITIES ACT OF 1933.—Section 18 of the Se-
curities Act of 1933 (15 U.S.C. 77r) is amended to read
as follows:
‘‘SEC. 18. EXEMPTION FROM STATE CONTROL OF SECURI-
TIES OFFERINGS.
‘‘(a) EXEMPTION FROM STATE LAW
FOR REG-
ISTERED SECURITIES.—No law of any State or Territory
of the United States, or the District of Columbia, or any
political subdivision thereof—
‘‘(1) requiring, or with respect to, registration
or qualification of securities or securities trans-
actions shall apply to any securities that are offered
or sold using any means or instruments of transpor-
tation or communication in interstate commerce or
of the mails pursuant to—
‘‘(A) a registration statement filed pursu-
ant to this title, with the exception of a reg-
istration statement filed by an issuer which is
a blank check company as defined in section
7(b) of this title;
‘‘(B) an exemption from registration set
forth in section 3(a) of this title, with the ex-
ception of section 3(a)(11) or any rule or regu-
lation promulgated thereunder; or
‘‘(C) any other exemption from section 5 of
this title;
‘‘(2) shall prohibit, limit, or impose conditions
upon the use of any prospectus contained in a reg-
istration statement that has been filed with the
Commission, or any sales literature used in connec-
tion therewith; or
‘‘(3) shall prohibit, limit, or impose conditions
upon the offer or sale of any security registered with
the Commission under this title based upon the mer-
its of such offering or the issuer thereof;
except where the Commission may, by rule or regulation,
exclude such securities from the provisions of this section
upon a finding that the public interest and the protection
of investors would be served by State regulation.
‘‘(b) PRESERVATION OF FILING REQUIREMENTS.—
Nothing contained in this title shall prohibit the securities
commission (or any agency or office performing like func-
tions) of any State or Territory of the United States, or
the District of Columbia, from requiring the filing of any
documents filed with the Commission pursuant to this
title, or from requiring some other form of filing, solely
for notice purposes, along with a consent to service of
process and requisite fee; except that no such filing, con-
sent, or fee may be required with respect to securities, or
transactions relating to securities, that are of the same
class as securities, or are senior to such a class, listed on
a national securities exchange or designated for trading
in the National Market System of the National Associa-
tion of Securities Dealers Automated Quotation System,
or securities that will be so listed or designated for trading
upon completion of the transaction.
‘‘(c) EXCEPTIONS.—Nothing in this title shall affect
the jurisdiction of the securities commission (or any agen-
cy or office performing like functions) of any State or Ter-
ritory of the United States, or the District of Columbia,
over—
‘‘(1) any securities or transactions in securities
excluded, by statute, rule, or regulation, from the
operation of subsection (a) of this section, or
‘‘(2) any person who, in the offer or sale of any
securities subject to subsection (a) of this section,
directly or indirectly, engages in conduct that vio-
lates section 17(a) of this title, regardless of whether
the jurisdictional means specified therein are satis-
fied.’’.
(2) 
TECHNICAL
AMENDMENT.—Section
19(c)(3)(C) is amended by striking the last sentence.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall be effective 180 days after
the date of the enactment of this Act.
(b) SECURITIES EXCHANGE ACT OF 1934.—
(1) AMENDMENT.—Section 15 of the Securities
Exchange Act of 1934 (15 U.S.C. 78o) is amended
by adding at the end the following new subsection:
‘‘(h) EXEMPTION FROM STATE LAW
FOR REG-
ISTERED PERSONS.—
‘‘(1) EXEMPTION.—No law of any State or po-
litical subdivision thereof requiring the registration,
licensing, qualification, or inspection of a broker,
dealer, or person acting in a similar capacity in con-
nection with the purchase or sale of any security,
shall apply to—
‘‘(A) any person who is registered with the
Commission as a broker or dealer, municipal se-
curities dealer, or government securities broker
or dealer under this title, or who the Commis-
sion by rule or order has exempted from reg-
istration, or any issuer;
‘‘(B) any member of a national securities
exchange; or
‘‘(C) any person associated with a broker
or dealer, member of a national securities ex-
change, municipal securities dealer, government
securities broker or dealer, or any issuer, in-
cluded within the coverage of subparagraph (A)
or (B).
‘‘(2) PERMITTED STATE ACTIVITIES.—Nothing
contained in this subsection shall prohibit a State
from requiring registration, licensing, qualification,
or inspection of any person, other than an issuer,
who is within the coverage of paragraph (1) of this
subsection—
‘‘(A) in the case of paragraphs (1) (A) and
(B), the State performs its registration, licens-
ing, qualification, or inspection procedures
through a central registration depository system
operated by a national securities association
registered under section 15A of this title, and
the State’s requirements are substantially simi-
lar to the Commission’s registration require-
ments and do not include any provisions that
are inconsistent with, or in addition to, the
Commission’s registration requirements; or
‘‘(B) in the case of paragraph (1)(C), the
State performs its registration, licensing, quali-
fication, or inspection procedures through a
central registration depository system operated
by a national securities association registered
under section 15A of this title and the State’s
requirements are substantially similar to, and
not inconsistent with, the registration require-
ments of such association or the Commission.
‘‘(3) PROHIBITED REQUIREMENTS.—No law of
any State or political subdivision thereof shall estab-
lish broker or dealer capital, books, and records, or
financial reporting requirements regarding persons
registered, licensed, qualified, or inspected pursuant
to paragraph (1) of this subsection that differ from
requirements established in these areas by the Com-
mission.
‘‘(4) EXEMPTIONS.—The Commission may by
rule, regulation, or order exempt State requirements
from the provisions of paragraphs (1), (2), and (3)
of this subsection, in whole or in part, conditionally
or unconditionally, upon a finding that the public in-
terest, the protection of investors, and the mainte-
nance of fair and orderly markets would be served
by such State regulation.
‘‘(5) FEES PERMITTED.—Nothing in this sub-
section shall prohibit any State or political subdivi-
sion thereof from charging requisite fees in connec-
tion with the registration, licensing, or qualification
of persons within the coverage of this subsection.
‘‘(6) PRESERVATION OF AUTHORITY.—Nothing
contained in this subsection shall affect the jurisdic-
tion of any State or political subdivision thereof to
administer or enforce any provision of State law not
preempted by this subsection.’’.
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall be effective upon enactment.
SEC. 104. SECURITIES MARGIN REQUIREMENTS.
(a) MARGIN REQUIREMENTS.—Section 7 of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78g) is amended
to read as follows:
‘‘SEC. 7. MARGIN REQUIREMENTS.
‘‘(a) UNLAWFUL CREDIT EXTENSION IN VIOLATION
OF RULES AND REGULATIONS; EXCEPTION TO APPLICA-
TION OF RULES, ETC.—
‘‘(1) GENERAL LIMITATIONS.—It shall be un-
lawful for any person to extend or maintain credit
on any equity security of a class designated by the
Board of Governors of the Federal Reserve System
for the purpose of purchasing or carrying any equity
security of a class so designated, in contravention of
such rules and regulations as the Board of Gov-
ernors of the Federal Reserve System shall prescribe
to prevent the excessive use of credit for the pur-
chasing or carrying of equity securities of a class so
designated.
‘‘(2) APPLICABILITY.—Such rules and regula-
tions shall designate the classes of equity securities
subject to credit restrictions under this subsection
and shall apply equally to banks, brokers, dealers,
and other lenders. This subsection and the rules and
regulations thereunder shall not apply to any credit
extended or maintained—
‘‘(A) by a person not in the ordinary
course of business;
‘‘(B) on an exempted security;
‘‘(C) to or for an excluded account; or
‘‘(D) as the Board of Governors of the
Federal Reserve System shall, by such rules,
regulations, or orders as it may deem necessary
or appropriate in the public interest or for the
protection of investors, exempt, either uncondi-
tionally or upon specified terms and conditions,
or for stated periods, from the operation of this
subsection and the rules and regulations there-
under.
‘‘(3) EXEMPTION.—Notwithstanding subpara-
graphs (A), (B), and (C) of paragraph (2), the
Board of Governors of the Federal Reserve System
may impose such rules and regulations, in whole or
in part, on any extension of credit otherwise exempt-
ed by such subparagraphs if the Board of Governors
determines that such action is necessary to deal with
substantial instability or the imminent threat of sub-
stantial instability in the financial markets.
‘‘(b) UNLAWFUL USE OF FOREIGN CREDIT FACILI-
TIES.—
‘‘(1) LIMITATIONS.—It shall be unlawful for
any United States person, or any foreign person con-
trolled by a United States person or acting on behalf
of or in conjunction with such person, to obtain, re-
ceive, or enjoy the beneficial use of any extension of
credit from any lender (without regard to whether
the lender’s office or place of business is in a State
or the transaction occurred in whole or in part with-
in a State) for the purpose of—
‘‘(A) purchasing or carrying United States
equity securities of a class designated by the
Board of Governors of the Federal Reserve Sys-
tem pursuant to subsection (a); or
‘‘(B) purchasing or carrying within the
United States of any other equity securities of
a class so designated, if, under this section or
rules and regulations prescribed thereunder, the
extension of credit is prohibited or would be
prohibited if it had been made or the trans-
action had otherwise occurred in a lender’s of-
fice or other place of business in a State.
‘‘(2) DEFINITIONS.—For the purposes of this
subsection:
‘‘(A) The term ‘United States person’ in-
cludes a person which is organized or exists
under the laws of any State or, in the case of
a natural person, a citizen or resident of the
United States; a domestic estate; or a trust in
which one or more of the foregoing persons has
a cumulative direct or indirect beneficial inter-
est in excess of 50 percent of the value of the
trust.
‘‘(B) The term ‘United States equity secu-
rity’ means an equity security (other than an
exempted security) issued by a person incor-
porated under the laws of any State, or whose
principal place of business is within a State.
‘‘(C) The term ‘foreign person controlled
by a United States person’ includes any
noncorporate entity in which United States per-
sons directly or indirectly have more than a 50
percent beneficial interest, and any corporation
in which one or more United States persons, di-
rectly or indirectly, own stock possessing more
than 50 percent of the total combined voting
power of all classes of stock entitled to vote, or
more than 50 percent of the total value of
shares of all classes of stock.
‘‘(3) EXEMPTIONS.—The Board of Governors of
the Federal Reserve System may, in its discretion
and with due regard for the purposes of this section,
by rule, regulation, or order exempt any class of
United States persons or foreign persons controlled
by a United States person from the application of
this subsection.
‘‘(c) INCONSISTENT RULES.—No margin, financial
responsibility, or other rule of any national securities ex-
change or of any national securities association shall im-
pose any limitation on the extension or maintenance of
credit more restrictive than, or otherwise inconsistent
with, those provided for in this section and the rules and
regulations of the Board of Governors of the Federal Re-
serve System adopted hereunder.’’.
(b) REMOVAL OF RESTRICTIONS ON BORROWING BY
BROKER-DEALERS.—Section 8 of the Securities Exchange
Act of 1934 (15 U.S.C. 78h) is amended—
(1) by striking out ‘‘member of a national secu-
rities exchange, or broker or dealer who transacts
business in securities through the medium of any
member of a national securities exchange,’’; and
(2) by striking out subsection (a) and by redes-
ignating subsections (b) and (c) as subsections (a)
and (b), respectively.
(c) TRADING BY MEMBERS OF EXCHANGES, BRO-
KERS AND DEALERS.—Section 11(d) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78k(d)) is amended—
(1) by striking out ‘‘a member of a national se-
curities exchange’’ and inserting in lieu thereof ‘‘any
person’’;
(2) by striking out ‘‘, or for any person who
both as a broker and a dealer transacts a business
in securities through the medium of a member or
otherwise,’’;
(3) by striking out ‘‘in the case of a member’’;
(4) by inserting ‘‘(other than an excluded ac-
count)’’ after ‘‘customer’’ the first place it appears;
(5) by inserting ‘‘equity’’ before ‘‘security’’ the
first place it appears;
(6) by striking out ‘‘(i)’’ and by striking out ‘‘or
(ii) any mortgage related security or any small busi-
ness related security against full payment of the en-
tire purchase price thereof upon such delivery within
180 days after such purchase or within such shorter
period as the Commission may prescribe by rule or
regulation’’; and
(7) by adding at the end thereof the following
new sentence: ‘‘The Commission may, by such rules,
regulations, or orders as it may deem necessary or
appropriate in the public interest or for the protec-
tion of investors, exempt either unconditionally or
upon specified terms and conditions, or for stated
periods, any security or transaction, or class of secu-
rities or transactions from the operation of this sub-
section and the rules and regulations thereunder.’’.
(d) DEFINITION.—Section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)) is amended by
adding at the end thereof the following new paragraph:
‘‘(54) The term ‘excluded account’ means any
person who comes within any of the following cat-
egories:
‘‘(A) A financial institution, trust com-
pany, savings association, or savings and loan
association (acting in an individual, fiduciary,
or agency capacity).
‘‘(B) A broker or dealer or an investment
adviser (acting on its own behalf or on behalf
of another).
‘‘(C) A futures commission merchant, floor
broker, or floor trader (acting on its own behalf
or on behalf of another).
‘‘(D) An insurance company.
‘‘(E) An investment company, small busi-
ness investment company, business development
company, or private business development com-
pany.
‘‘(F) Any governmental entity (including
the United States, any State or any foreign
government), any political subdivision thereof,
any multinational or supranational entity, or
any department, agency, or instrumentality of
any of the foregoing.
‘‘(G) A corporation, partnership, propri-
etorship, organization, trust, or other entity,
not formed for the specific purpose of evading
the requirements of any rule or regulation
adopted under section 7, with total assets ex-
ceeding $5,000,000 or the obligations of which
with respect to any extension of credit are guar-
anteed or otherwise supported by a letter of
credit or keepwell, support, or other agreement
by any such entity or by an entity referred to
in subparagraph (A), (B), (C), (D), (E), or (F)
of this paragraph.
‘‘(H) An employee benefit plan with assets
exceeding $5,000,000 or whose investment deci-
sions are made by a bank, trust company,
broker, dealer, or registered investment adviser.
‘‘(I) Any entity in which all the equity
owners are ‘excluded accounts’.
‘‘(J) Any person, other than a natural per-
son, who is an affiliate of the person extending
or maintaining credit.
‘‘(K) Such other persons as the Board of
Governors of the Federal Reserve System shall,
by rule, regulation, or order, designate as an
‘excluded account’, either unconditionally or
upon specified terms and conditions, or for
specified periods.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall be effective 270 days after the date of
enactment of this Act.
SEC. 105. WILLIAMS ACT STUDY.
(a) STUDY REQUIRED.—The Securities and Ex-
change Commission shall conduct a study of—
(1) the burdens imposed on institutional inves-
tors and other entities by the requirements of sub-
sections (d), (g), and (h) of section 13 of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78m (d), (g),
(h)); and
(2) the extent to which the requirements of
such section 13(d) redistribute income from active to
passive investors.
(b) REPORT.—Within 18 months after the date of en-
actment of this Act, the Commission shall submit to the
Congress a report on the results of the study required by
subsection (a). Such report shall include such legislative
recommendations as the Commission considers appro-
priate to reduce the regulatory burdens associated with
subsections (d), (g), and (h) of section 13 of the Securities
Exchange Act of 1934.
SEC. 106. PROSPECTUS DELIVERY.
(a) DEFINITION OF PROSPECTUS.—Section 2(10) of
the Securities Act of 1933 (15 U.S.C. 77b(10)) is amend-
ed by striking ‘‘or confirms the sale of any security’’.
(b) DELIVERY ON REQUEST.—Section 5(b)(2) of the
Securities Act of 1933 (15 U.S.C. 77e(b)(2)) is amended
by inserting before the period at the end the following:
‘‘, if the purchaser or prospective purchaser of such secu-
rity has requested a prospectus’’.
(c) AUTHORITY TO EXEMPT.—Section 5 of the Secu-
rities Act of 1933 (15 U.S.C. 77(e)) is amended by adding
a new subsection (d) after subsection (c) as follows:
‘‘(d) AUTHORITY TO EXEMPT.—The Commission
may from time to time by its rules and regulations and
subject to such terms and conditions as may be prescribed
therein, upon its own motion or by order on application
by an interested person, exempt from subsection (b) of
section 5 any person or prospectus, or any class or classes
of persons or prospectuses, if and to the extent that such
exemption is necessary or appropriate in the public inter-
est and consistent with the protection of investors. The
Commission shall by rules and regulations determine the
procedures under which an exemption under this sub-
section shall be granted, and may, in its sole discretion,
decline to entertain any application for an order of exemp-
tion under this subsection.’’.
SEC. 107. EXEMPTIVE AUTHORITY.
(a) GENERAL EXEMPTIVE AUTHORITY UNDER THE
SECURITIES ACT OF 1933.—Title I of the Securities Act
of 1933 (15 U.S.C. 77a et seq.) is amended by adding
at the end the following new section:
‘‘SEC. 28. GENERAL EXEMPTIVE AUTHORITY.
‘‘The Commission, by rules and regulations, may con-
ditionally or unconditionally exempt any person, security,
or transaction, or any class or classes of persons, securi-
ties, or transactions, from any provision or provisions of
this title or of any rule or regulation thereunder, to the
extent that such exemption is necessary or appropriate in
the public interest, and is consistent with the protection
of investors and the promotion of efficiency, competition,
and capital formation.’’.
(b) GENERAL EXEMPTIVE AUTHORITY UNDER THE
SECURITIES EXCHANGE ACT OF 1934.—Title I of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
is amended by adding at the end the following new section:
‘‘SEC. 36. GENERAL EXEMPTIVE AUTHORITY.
‘‘Notwithstanding any other provision of title, the
Commission, by rule, regulation, or order, may condi-
tionally or unconditionally exempt any person, security, or
transaction, or any class or classes of persons, securities,
or transactions, from any provision or provisions of this
title or of any rule or regulation thereunder, to the extent
that such exemption is necessary or appropriate in the
public interest, and is consistent with the protection of in-
vestors and the promotion of efficiency, competition, and
capital formation. The Commission shall by rules and reg-
ulations determine the procedures under which an exemp-
tive order under this section shall be granted.’’.
SEC. 108. PROMOTION OF EFFICIENCY, COMPETITION, AND
CAPITAL FORMATION.
(a) SECURITIES ACT OF 1933.—Section 2 of the Se-
curities Act of 1933 (15 U.S.C. 77b) is amended—
(1) by inserting ‘‘(a) DEFINITIONS.—’’ after
‘‘SEC. 2.’’; and
(2) by adding at the end the following new sub-
section:
‘‘(b) CONSIDERATION
OF PROMOTION
OF EFFI-
CIENCY, COMPETITION, AND
CAPITAL
FORMATION.—
Whenever in this title the Commission is required to con-
sider or determine whether an action is consistent with
the public interest or the protection of investors (or both),
the Commission shall also consider or determine whether
the action will promote efficiency, competition, and capital
formation. This subsection shall not apply with respect to
any investigation or other action taken with respect to a
violation of this title.’’.
(b) SECURITIES EXCHANGE ACT of 1934.—Section
3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)
is amended by adding at the end the following new sub-
section:
‘‘(e) CONSIDERATION
OF
PROMOTION
OF EFFI-
CIENCY, COMPETITION, AND
CAPITAL
FORMATION.—
Whenever in this title the Commission is required to con-
sider or determine whether an action is consistent with
the public interest or the protection of investors (or both),
the Commission shall also consider or determine whether
the action will promote efficiency, competition, and capital
formation. This subsection shall not apply with respect to
any investigation or other action taken with respect to a
violation of this title.’’.
(c) INVESTMENT COMPANY ACT of 1940.—Section 2
of the Investment Company Act of 1940 (15 U.S.C. 80a–
2) is amended by adding at the end the following new sub-
section:
‘‘(c) CONSIDERATION
OF
PROMOTION
OF
EFFI-
CIENCY, COMPETITION, AND
CAPITAL
FORMATION.—
Whenever in this title the Commission is required to con-
sider or determine whether an action is consistent with
the public interest or the protection of investors (or both),
the Commission shall also consider or determine whether
the action will promote efficiency, competition, and capital
formation. This subsection shall not apply with respect to
any investigation or other action taken with respect to a
violation of this title.’’.
SEC. 109. REDUCTION IN NUMBER OF MEMBERS OF COM-
MISSION.
(a) AMENDMENTS.—Section 4(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78d(a)) is amended—
(1) by striking ‘‘five commissioners’’ and insert-
ing ‘‘3 commissioners’’; and
(2) by striking ‘‘three of such commissioners’’
and inserting ‘‘2 of such commissioners’’.
(b) EFFECTIVE
DATE; IMPLEMENTATION.—The
amendments made by subsection (a) shall take effect on
the date of enactment of this Act, except that—
(1) the offices the terms of which expired on
June 5, 1994, and June 5, 1995, shall be abolished;
and
(2) notwithstanding section 4(a) of the Securi-
ties Exchange Act of 1934—
(A) upon the expiration of the term of of-
fice prescribed by law to occur on June 5,
1996, any person appointed to serve as a com-
missioner of the Securities and Exchange Com-
mission to fill such office for the following term
shall be eligible to serve until June 5, 1999;
(B) upon the expiration of the term of of-
fice prescribed by law to occur on June 5,
1997, any person appointed to serve as a com-
missioner of the Securities and Exchange Com-
mission to fill such office for the following term
shall be eligible to serve until June 5, 2001;
and
(C) upon the expiration of the term of of-
fice prescribed by law to occur on June 5,
1998, any person appointed to serve as a com-
missioner of the Securities and Exchange Com-
mission to fill such office for the following term
shall be eligible to serve until June 5, 2003.
SEC. 110. PRIVATIZATION OF EDGAR.
(a) REQUEST FOR PROPOSALS.—The Securities and
Exchange Commission shall, by public notice, request pro-
posals for the privatization of the EDGAR system. Such
notice shall specify the methods by which the Commission
will evaluate such proposal, which shall include the follow-
ing objectives:
(1) return to the Government on its investment
in the establishment of such system; and
(2) promote the automation and rapid dissemi-
nation of information required to be disclosed.
(b) REVIEW AND REPORT.—Within 180 days after
the date of enactment of this Act, the Commission shall
review the proposal received pursuant to subsection (a)
and submit to the Congress a report thereon. Such report
shall include such recommendations for such legislative ac-
tion as may be necessary to implement the proposal that
the Commission determines most effectively achieves the
objections described in subsection (a).
SEC. 111. DESIGNATION OF PRIMARY SRO AND EXAMINING
AUTHORITY.
(a) AMENDMENTS.—Section 17(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q(d)) is amended to
read as follows:
‘‘(d) DESIGNATION OF EXAMINING AUTHORITIES.—
‘‘(1) DESIGNATION.—After notice and com-
ment, the Commission shall designate for each reg-
istered broker or dealer a self-regulatory organiza-
tion of which the broker or dealer is a member
(other than a registered clearing agency) as its ex-
amining authority. In no event shall the Commission
designate more than one examining authority for
any broker or dealer, except with the consent of such
broker or dealer. In making any such designation,
the Commission shall take into consideration the
regulatory capabilities and procedures of the self-
regulatory organizations, availability of staff, con-
venience of location, unnecessary regulatory duplica-
tion, and such other factors as the Commission may
consider germane to the protection of investors, the
promotion of efficiency, competition, and capital for-
mation, cooperation and coordination among self-
regulatory organizations, and the development of a
national market system and a national system for
the clearance and settlement of securities trans-
actions.
‘‘(2) ROUTINE EXAMINATIONS AND ENFORCE-
MENT OF RULES.—(A) Subject to paragraph (5), an
examining authority shall have exclusive authority to
conduct routine examinations and inspections of the
financial operations or sales practices of any broker
or dealer for which it has been designated as the ex-
amining authority, and to issue a report of examina-
tion relating to each such examination or inspection
noting any deficiencies found.
‘‘(B) An examining authority shall enforce its
own rules with respect to such broker or dealer, and
the Federal securities laws and rules and regulations
thereunder.
‘‘(C) An examining authority shall furnish cop-
ies of any report of examination of any broker or
dealer to the Commission and to any self-regulatory
organization of which such person is a member or in
which such person is a participant. Any self-regu-
latory organization receiving a copy of the report
shall enforce its own rules with respect to such
broker or dealer, and the Federal securities laws and
rules and regulations thereunder.
‘‘(3) CHANGES IN DESIGNATION.—On its own
motion or pursuant to a request by a broker or deal-
er for which the Commission previously has des-
ignated an examining authority, the Commission
shall consider changing the designation of an exam-
ining authority. After notice and comment, the Com-
mission shall change such designation by order if it
is consistent with the factors set forth in paragraph
(1) of this subsection. The issuance of such an order
shall not alter or extinguish any pending disciplinary
proceeding that the originally designated examining
authority has brought against the broker or dealer
or any person associated with a broker or dealer.
‘‘(4) COMMISSION
RULES.—The Commission
may adopt rules for the designation of an examining
authority for a broker or dealer, and for changing
such designation. Such rules shall be designed to
minimize the costs and burdens on the registered
broker or dealer, consistent with the protection of in-
vestors and the public interest.
‘‘(5) PRESERVATION
OF
EXISTING
AUTHOR-
ITY.—Nothing in this subsection shall be construed
to alter, impair, or limit—
‘‘(A) the Commission’s authority (i) to
conduct examinations and inspections of a
broker or dealer, or (ii) to bring any action
under this title against any broker or dealer, or
against any person associated with a broker or
dealer; or
‘‘(B) the authority of any self-regulatory
organization to discipline any member or any
person associated with a member.’’.
(b) DEFINITION.—Section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78e) is amended by adding
the following paragraph:
‘‘(53) The term ‘examining authority’ means a
self-regulatory organization (other than a registered
clearing agency), as designated by the Commission,
with exclusive authority to examine, inspect, and
otherwise oversee the activities of a registered broker
or dealer.’’.
(c) CONFORMING AMENDMENTS.—
(1) Section 19(g) of the Securities Exchange
Act of 1934 (15 U.S.C. 78s(g))—
(A) by striking subparagraph (A);
(B) by inserting ‘‘a national securities ex-
change and’’ after ‘‘in the case of’’ in subpara-
graph (B); and
(C) by redesignating subparagraphs (B)
and (C) as subparagraphs (A) and (B), respec-
tively.
(2) Section 19(h) of such Act is amended in
each of paragraphs (1), (2), and (4)—
(A) by striking subparagraph (A) of each
such paragraph;
(B) by inserting ‘‘a national securities ex-
change and’’ after ‘‘in the case of’’ in subpara-
graph (B) of each such paragraph; and
(C) by redesignating subparagraphs (B)
and (C) of each such paragraph as subpara-
graphs (A) and (B) of each such paragraph, re-
spectively.
(2) Section 19(h)(3) of such Act is amended by
striking ‘‘transaction—’’ and all that follows through
‘‘(B) in the case of’’ and ‘‘transaction, in the case
of a national securities exchange and’’.
(d) INITIAL DESIGNATION.—The Commission shall
complete the initial designations of examining authorities
for brokers and dealers required by section 17(d) of the
Security Exchange Act of 1934 no later than one year
after the date of enactment of this Act.
SEC. 112. TREATMENT OF PRESS CONFERENCES.
(a) DEFINITION OF OFFER.—Section 2(3) of the Se-
curities Act of 1933 (15 U.S.C. 77b(3)) is amended—
(1) in the third sentence—
(A) by inserting ‘‘(A)’’ after ‘‘shall not in-
clude’’; and
(B) by inserting before the period at the
end thereof the following: ‘‘or (B) solely for
purposes of section 5, offshore press con-
ferences, meetings with issuer representatives
conducted offshore, or press releases or other
material issued or released offshore in which an
offshore offering is discussed, irrespective of
whether journalists from the United States or
journalists for publications (including on-line
services) with circulation in the United States
attend such press conferences or meetings or
receive such press releases or material’’; and
(2) by inserting after such third sentence the
following: ‘‘Solely for purposes of section 5, no activ-
ity described in clause (B) of this paragraph shall be
considered in determining whether any other activity
or communication is included within the terms de-
fined in this paragraph and the term ‘offer to buy’
as used in subsection (c) of section 5 of this Act.’’.
(b) DEFINITION OF PROSPECTUS.—Section 2(10) of
the Securities Act of 1933 (15 U.S.C. 77b(10)) is amend-
ed—
(1) by redesignating clauses (a) and (b) as
clauses (A) and (B), respectively; and
(2) by striking the period at the end and insert-
ing the following: ‘‘, and (C) solely for purposes of
section 5, any press release or other material issued
or released offshore in which an offshore offering is
discussed shall not be deemed a prospectus if such
press release or material states that it is not an
offer of securities. For purposes of clause (C) of this
paragraph, the Commission, as it deems necessary
or appropriate in the public interest or for the pro-
tection of investors, may adopt rules or regulations
requiring such press releases or material to contain
additional information.’’.
SEC. 113. REPORT ON TRUST INDENTURE ACT OF 1939.
Within 6 months after the date of enactment of this
Act, the Securities and Exchange Commission shall sub-
mit to the Congress a report on the continuing need for,
and options for the modification or elimination of, the
Trust Indenture Act of 1939 (15 U.S.C. 77aaa et seq.).
TITLE II—INVESTMENT
COMPANY ACT AMENDMENTS
SEC. 201. SHORT TITLE.
This title may be cited as the ‘‘Investment Company
Act Amendments of 1996’’.
SEC. 202. FUNDS OF FUNDS.
Section 12(d)(1) of the Investment Company Act of
1940 (15 U.S.C. 80a–12(d)(1)) is amended—
(1) in subparagraph (E)—
(A) by striking ‘‘in the event such invest-
ment company is not a registered investment
company’’; and
(B) by inserting ‘‘in the event such invest-
ment company is not a registered investment
company’’ after ‘‘(bb)’’;
(2) by redesignating existing subparagraphs (G)
and (H) as subparagraphs (H) and (I), respectively;
(3) by inserting after subparagraph (F) the fol-
lowing new subparagraph:
‘‘(G) The provisions of this paragraph (1) shall not
apply to securities of a registered open-end investment
company (the ‘acquired company’) purchased or otherwise
acquired by a registered open-end investment company
(the ‘acquiring company’) if—
‘‘(i) the acquired company and the acquiring
company are part of the same group of investment
companies;
‘‘(ii) the securities of the acquired company, se-
curities of other registered open-end investment
companies that are part of the same group of invest-
ment companies, Government securities, and short-
term paper are the only investments held by the ac-
quiring company;
‘‘(iii)(I) the acquiring company does not pay
and is not assessed any charges or fees for distribu-
tion-related activities with respect to securities of the
acquired company unless the acquiring company
does not charge a sales load or other fees or charges
for distribution-related activities; or
‘‘(II) any sales loads and other distribution-re-
lated fees charged with respect to securities of the
acquiring company, when aggregated with any sales
load and distribution-related fees paid by the acquir-
ing company with respect to securities of the ac-
quired fund, are not excessive under rules adopted
pursuant to either section 22(b) or section 22(c) of
this title by a securities association registered under
section 15A of the Securities Exchange Act of 1934
or the Commission;
‘‘(iv) the acquired company shall have a fun-
damental policy that prohibits it from acquiring any
securities of registered open-end investment compa-
nies in reliance on this subparagraph or subpara-
graph (F) of this subsection; and
‘‘(v) such acquisition is not in contravention of
such rules and regulations as the Commission may
from time to time prescribe with respect to acquisi-
tions in accordance with this subparagraph as nec-
essary and appropriate for the protection of inves-
tors.
For purposes of this subparagraph, a ‘group of investment
companies’ shall mean any two or more registered invest-
ment companies that hold themselves out to investors as
related companies for purposes of investment and investor
services.’’; and
(4) adding at the end the following new sub-
paragraph:
‘‘(J) The Commission, by rules and regulations upon
its own motion or by order upon application, may condi-
tionally or unconditionally exempt any person, security or
transaction, or any class or classes of persons, securities
or transactions from any provisions of this subsection, if
and to the extent such exemption is consistent with the
public interest and the protection of investors.’’.
SEC. 203. REGISTRATION OF SECURITIES.
(a) 
AMENDMENTS
TO
REGISTRATION
STATE-
MENTS.—Section 24(e) of the Investment Company Act
of 1940 (15 U.S.C. 80a–24(e)) is amended—
(1) by striking paragraphs (1) and (2);
(2) by redesignating paragraph (3) as sub-
section (e); and
(3) in subsection (e) (as so redesignated) by
striking ‘‘pursuant to this subsection or otherwise’’.
(b) REGISTRATION OF INDEFINITE AMOUNT OF SE-
CURITIES.—Section 24(f) of the Investment Company Act
of 1940 (15 U.S.C. 80a–24(f)) is amended to read as fol-
lows:
‘‘(f) REGISTRATION OF INDEFINITE AMOUNT OF SE-
CURITIES.—
‘‘(1) INDEFINITE
REGISTRATION
OF
SECURI-
TIES.—Upon the effectiveness of its registration
statement under the Securities Act of 1933, a face-
amount certificate company, open-end management
company, or unit investment trust, shall be deemed
to have registered an indefinite amount of securities.
‘‘(2) PAYMENT OF REGISTRATION FEES.—With-
in 90 days after the end of the company’s fiscal
year, the company shall pay a registration fee to the
Commission, calculated in the manner specified in
section 6(b) of the Securities Act of 1933, based on
the aggregate sales price for which its securities (in-
cluding, for this purpose, all securities issued pursu-
ant to a dividend reinvestment plan) were sold dur-
ing the company’s previous fiscal year reduced by—
‘‘(A) the aggregate redemption or repur-
chase price of the securities of the company
during that year, and
‘‘(B) the aggregate redemption or repur-
chase price of the securities of the company
during any prior year that were not used pre-
viously by the company to reduce fees payable
under this section.
‘‘(3) INTEREST
DUE
ON
LATE
PAYMENT.—A
company paying the fee or any portion thereof more
than 90 days after the end of the company’s fiscal
year shall pay to the Commission interest on unpaid
amounts, compounded daily, at the underpayment
rate established by the Secretary of the Treasury
pursuant to section 3717 of title 31, United States
Code. The payment of interest pursuant to the re-
quirement of this paragraph shall not preclude the
Commission from bringing an action to enforce the
requirements of paragraph (2) of this subsection.
‘‘(4) RULEMAKING AUTHORITY.—The Commis-
sion may adopt rules and regulations to implement
the provisions of this subsection.’’.
SEC. 204. INVESTMENT COMPANY ADVERTISING PROSPEC-
TUS.
Section 24 of the Investment Company Act of 1940
(15 U.S.C. 80a–24) is amended by adding at the end the
following new subsection:
‘‘(g) In addition to the prospectuses permitted or re-
quired in section 10(a) of the Securities Act of 1933, the
Commission shall permit, by rules or regulations deemed
necessary or appropriate in the public interest or for the
protection of investors, the use of a prospectus for the pur-
poses of section 5(b)(1) of such Act with respect to securi-
ties issued by a registered investment company. Such a
prospectus, which may include information the substance
of which is not included in the prospectus specified in sec-
tion 10(a) of the Securities Act of 1933, shall be deemed
to be permitted by section 10(b) of such Act.’’.
SEC. 205. VARIABLE INSURANCE CONTRACTS.
(a) UNIT INVESTMENT TRUST TREATMENT.—Sec-
tion 26 of the Investment Company Act (15 U.S.C. 80a–
26) is amended by adding at the end the following new
subsection:
‘‘(e)(1) Subsection (a) shall not apply to any reg-
istered separate account funding variable insurance con-
tracts, or to the sponsoring insurance company and prin-
cipal underwriter of such account.
‘‘(2) It shall be unlawful for any registered separate
account funding variable insurance contracts, or for the
sponsoring insurance company of such account, to sell any
such contract, unless—
‘‘(A) the fees and charges deducted under the
contract in the aggregate are reasonable in relation
to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance
company, and the insurance company so represents
in the registration statement for the contract; and
‘‘(B) the insurance company (i) complies with
all other applicable provisions of section 26 as if it
were a trustee or custodian of the registered sepa-
rate account; (ii) files with the insurance regulatory
authority of a State or territory of the United States
or of the District of Columbia an annual statement
of its financial condition, which most recent state-
ment indicates that it has a combined capital and
surplus, if a stock company, or an unassigned sur-
plus, if a mutual company, of not less than
$1,000,000, or such other amount as the Commis-
sion may from time to time prescribe by rule as nec-
essary or appropriate in the public interest or for
the protection of investors; and (iii) together with its
registered separate accounts, is supervised and ex-
amined periodically by the insurance authority of
such State, territory, or the District of Columbia.
‘‘(3) The Commission may adopt such rules and regu-
lations under paragraph (2)(A) as it determines are nec-
essary or appropriate in the public interest or for the pro-
tection of investors. For the purposes of such paragraph,
the fees and charges deducted under the contract shall in-
clude all fees and charges imposed for any purpose and
in any manner.’’.
(b) PERIODIC PAYMENT PLAN TREATMENT.—Sec-
tion 27 of such Act (15 U.S.C. 80a–27) is amended by
adding at the end the following new subsection:
‘‘(i)(1) This section shall not apply to any registered
separate account funding variable insurance contracts, or
to the sponsoring insurance company and principal under-
writer of such account, except as provided in paragraph
(2).
‘‘(2) It shall be unlawful for any registered separate
account funding variable insurance contracts, or for the
sponsoring insurance company of such account, to sell any
such contract unless (A) such contract is a redeemable se-
curity, and (B) the insurance company complies with sec-
tion 26(e) and any rules or regulations adopted by the
Commission thereunder.
SEC. 206. REPORTS TO THE COMMISSION AND SHAREHOLD-
ERS.
Section 30 of the Investment Company Act of 1940
(15 U.S.C. 80a–29) is amended—
(1) by striking paragraph (1) of subsection (b)
and inserting the following:
‘‘(1) such information, documents, and reports
(other than financial statements), as the Commis-
sion may require to keep reasonably current the in-
formation and documents contained in the registra-
tion statement of such company filed under this
title;’’; and
(2) by redesignating subsections (c), (d), (e),
and (f) as subsections (d), (e), (g), and (h), respec-
tively;
(3) by inserting after subsection (b) the follow-
ing new subsection:
‘‘(c) In exercising its authority under subsection
(b)(1) to require the filing of information, documents, and
reports on a basis more frequently than semi-annually, the
Commission shall take such steps as it deems necessary
or appropriate, consistent with the public interest and the
protection of investors, to avoid unnecessary reporting by,
and minimize the compliance burdens on, registered in-
vestment companies and their affiliated persons. Such
steps shall include considering and requesting public com-
ment on—
‘‘(1) feasible alternatives that minimize the re-
porting burdens on registered investment companies;
and
‘‘(2) the utility of such information, documents,
and reports to the Commission in relation to the
costs to registered investment companies and their
affiliated persons of providing such information, doc-
uments, and reports.’’;
(4) by inserting after subsection (e) (as redesig-
nated by paragraph (2) of this section) the following
new subsection:
‘‘(f) The Commission may by rule require that semi-
annual reports containing the information set forth in sub-
section (e) include such other information as the Commis-
sion deems necessary or appropriate in the public interest
or for the protection of investors. In exercising its author-
ity under this subsection, the Commission shall take such
steps as it deems necessary or appropriate, consistent with
the public interest and the protection of investors, to avoid
unnecessary reporting by, and minimize the compliance
burdens on, registered investment companies and their af-
filiated persons. Such steps shall include considering and
requesting public comment on—
‘‘(1) feasible alternatives that minimize the re-
porting burdens on registered investment companies;
and
‘‘(2) the utility of such information to share-
holders in relation to the costs to registered invest-
ment companies and their affiliated persons of pro-
viding such information to shareholders.’’; and
(5) in subsection (g) (as so redesignated) by
striking ‘‘subsections (a) and (d)’’ and inserting
‘‘subsections (a) and (e)’’.
SEC. 207. BOOKS, RECORDS AND INSPECTIONS.
Section 31 of the Investment Company Act of 1940
(15 U.S.C. 80a–30) is amended—
(1) by striking subsections (a) and (b) and in-
serting the following:
‘‘(a) Every registered investment company, and every
underwriter, broker, dealer, or investment adviser that is
a majority-owned subsidiary of such a company, shall
maintain and preserve such records (as defined in section
3(a)(37) of the Securities Exchange Act of 1934) for such
period or periods as the Commission, by rules and regula-
tions, may prescribe as necessary or appropriate in the
public interest or for the protection of investors. Every in-
vestment adviser not a majority-owned subsidiary of, and
every depositor of any registered investment company, and
every principal underwriter for any registered investment
company other than a closed-end company, shall maintain
and preserve for such period or periods as the Commission
shall prescribe by rules and regulations, such records as
are necessary or appropriate to record such person’s trans-
actions with such registered company. In exercising its au-
thority under this subsection, the Commission shall take
such steps as it deems necessary or appropriate, consistent
with the public interest and for the protection of investors,
to avoid unnecessary recordkeeping by, and minimize the
compliance burden on, persons required to maintain
records under this subsection (hereinafter in this section
referred to as ‘subject persons’). Such steps shall include
considering, and requesting public comment on—
‘‘(1) feasible alternatives that minimize the rec-
ordkeeping burdens on subject persons;
‘‘(2) the necessity of such records in view of the
public benefits derived from the independent scru-
tiny of such records through Commission examina-
tion;
‘‘(3) the costs associated with maintaining the
information that would be required to be reflected in
such records; and
‘‘(4) the effects that a proposed recordkeeping
requirement would have on internal compliance poli-
cies and procedures.
‘‘(b) All records required to be maintained and pre-
served in accordance with subsection (a) of this section
shall be subject at any time and from time to time to such
reasonable periodic, special, and other examinations by the
Commission, or any member or representative thereof, as
the Commission may prescribe. For purposes of such ex-
aminations, any subject person shall make available to the
Commission or its representatives any copies or extracts
from such records as may be prepared without undue ef-
fort, expense, or delay as the Commission or its represent-
atives may reasonably request. The Commission shall exer-
cise its authority under this subsection with due regard
for the benefits of internal compliance policies and proce-
dures and the effective implementation and operation
thereof.’’;
(2) by redesignating existing subsections (c)
and (d) as subsections (e) and (f), respectively; and
(3) by inserting after subsection (b) the follow-
ing new subsections:
‘‘(c) Notwithstanding any other provision of law, the
Commission shall not be compelled to disclose any internal
compliance or audit records, or information contained
therein, provided to the Commission under this section.
Nothing in this subsection shall authorize the Commission
to withhold information from Congress or prevent the
Commission from complying with a request for informa-
tion from any other Federal department or agency re-
questing the information for purposes within the scope of
its jurisdiction, or complying with an order of a court of
the United States in an action brought by the United
States or the Commission. For purposes of section 552
of title 5, United States Code, this section shall be consid-
ered a statute described in subsection (b)(3)(B) of such
section 552.
‘‘(d) For purposes of this section:
‘‘(1) ‘internal compliance policies and proce-
dures’ shall mean policies and procedures designed
by subject persons to promote compliance with the
Federal securities laws; and
‘‘(2) ‘internal compliance and audit record’
shall mean any record prepared by a subject person
in accordance with internal compliance policies and
procedures.’’.
SEC. 208. INVESTMENT COMPANY NAMES.
Section 35(d) of the Investment Company Act of
1940 (15 U.S.C. 80a–34) is amended to read as follows:
‘‘(d) It shall be unlawful for any registered invest-
ment company to adopt as a part of the name or title of
such company, or of any securities of which it is the issuer,
any word or words that are materially deceptive or mis-
leading. The Commission is authorized, by rule, regula-
tion, or order, to define such names or titles as are materi-
ally deceptive or misleading.’’.
SEC. 209. EXCEPTED INVESTMENT COMPANIES.
(a) AMENDMENTS.—Section 3(c) of the Investment
Company Act of 1940 (15 U.S.C. 80a–3(c)) is amended—
(1) in paragraph (1), by inserting after the first
sentence the following new sentence: ‘‘Such issuer
nonetheless is deemed to be an investment company
for purposes of the limitations set forth in section
12(d)(1) (A)(i) and (B)(i) governing the purchase or
other acquisition by such issuer of any security is-
sued by any registered investment company and the
sale of any security issued by any registered open-
end investment company to any such issuer.’’;
(2) in subparagraph (A) of paragraph (1)—
(A) by inserting after ‘‘issuer,’’ the first
place it appears the following: ‘‘and is or, but
for the exception in this paragraph or para-
graph (7), would be an investment company,’’;
and
(B) by striking all that follows the words
‘‘(other than short-term paper)’’ and inserting a
period; and
(3) by striking paragraph (7) and inserting the
following:
‘‘(7)(A) Any issuer (i) whose outstanding secu-
rities are owned exclusively by persons who, at the
time of acquisition of such securities, are qualified
purchasers, and (ii) who is not making and does not
presently propose to make a public offering of such
securities. Securities that are owned by persons who
received the securities from a qualified purchaser as
a gift or bequest, or where the transfer was caused
by legal separation, divorce, death, or other involun-
tary event, shall be deemed to be owned by a quali-
fied purchaser, subject to such rules, regulations,
and orders as the Commission may prescribe as nec-
essary or appropriate in the public interest or for
the protection of investors.
‘‘(B) Notwithstanding subparagraph (A), an is-
suer is within the exception provided by this para-
graph if—
‘‘(i) in addition to qualified purchasers, its
outstanding securities are beneficially owned by
not more than 100 persons who are not quali-
fied purchasers if (I) such persons acquired
such securities on or before December 31,
1995, and (II) at the time such securities were
acquired by such persons, the issuer was ex-
cepted by paragraph (1) of this subsection; and
‘‘(ii) prior to availing itself of the exception
provided by this paragraph—
‘‘(I) such issuer has disclosed to such
persons that future investors will be lim-
ited to qualified purchasers, and that own-
ership in such issuer is no longer limited to
not more than 100 persons, and
‘‘(II) concurrently with or after such
disclosure, such issuer has provided such
persons with a reasonable opportunity to
redeem any part or all of their interests in
the issuer for their proportionate share of
the issuer’s current net assets, or the cash
equivalent thereof.
‘‘(C) An issuer that is excepted under this para-
graph shall nonetheless be deemed to be an invest-
ment company for purposes of the limitations set
forth in section 12(d)(1) (A)(i) and (B)(i) governing
the purchase or other acquisition by such issuer of
any security issued by any registered investment
company and the sale of any security issued by any
registered open-end investment company to any such
issuer.
‘‘(D) For purposes of determining compliance
with this paragraph and paragraph (1) of this sub-
section, an issuer that is otherwise excepted under
this paragraph and an issuer that is otherwise ex-
cepted under paragraph (1) shall not be treated by
the Commission as being a single issuer for purposes
of determining whether the outstanding securities of
the issuer excepted under paragraph (1) are bene-
ficially owned by not more than 100 persons or
whether the outstanding securities of the issuer ex-
cepted under this paragraph are owned by persons
that are not qualified purchasers. Nothing in this
provision shall be deemed to establish that a person
is a bona fide qualified purchaser for purposes of
this paragraph or a bona fide beneficial owner for
purposes of paragraph (1) of this subsection.’’.
(b) DEFINITION OF QUALIFIED PURCHASER.—Sec-
tion 2(a) of the Investment Company Act of 1940 (15
U.S.C. 80a–2(a)) is amended by inserting after paragraph
(50) the following new paragraph:
‘‘(51) ‘Qualified purchaser’ means—