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 pur-
suant to section 3717(a) 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.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall be effective 6 months after the date of enact-
ment of this Act or on such earlier date as the Commission
may specify by rule.
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 follow-
ing new subsection:
‘‘(g) In addition to the prospectuses permitted or re-
quired in section 10 of the Securities Act of 1933, the Com-
mission shall permit, by rules or regulations deemed nec-
essary or appropriate in the public interest or for the pro-
tection of investors, the use of a prospectus for the purposes
of section 5(b)(1) of such Act with respect to securities is-
sued by a registered investment company. Such a prospec-
tus, which may include information the substance of which
is not included in the prospectus specified in section 10(a)
of the Securities Act of 1933, shall be deemed to be permitted
by section 10(b) of such Act.’’.
SEC. 205. VARIABLE INSURANCE CONTRACTS.
(a) UNIT INVESTMENT TRUST TREATMENT.—Section
26 of the Investment Company Act of 1940 (15 U.S.C. 80a–
26) is amended by adding at the end the following new sub-
section:
‘‘(e)(1) Subsection (a) 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.
‘‘(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 con-
tract 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 registra-
tion statement for the contract; and
‘‘(B) the insurance company (i) complies with
all other applicable provisions of this section as if it
were a trustee or custodian of the registered separate
account; (ii) files with the insurance regulatory au-
thority of a State an annual statement of its finan-
cial condition, which most recent statement indicates
that it has a combined capital and surplus, if a stock
company, or an unassigned surplus, if a mutual com-
pany, of not less than $1,000,000, or such other
amount as the Commission may from time to time
prescribe by rule as necessary or appropriate in the
public interest or for the protection of investors; and
(iii) together with its registered separate accounts, is
supervised and examined periodically by the insur-
ance authority of such State.
‘‘(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.—Section
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 secu-
rity, and (B) the insurance company complies with section
26(e) and any rules or regulations adopted by the Commis-
sion 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 Commission
may require to keep reasonably current the informa-
tion and documents contained in the registration
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), respectively;
(3) by inserting after subsection (b) the following
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 Com-
mission shall take such steps as it deems necessary or ap-
propriate, consistent with the public interest and the protec-
tion of investors, to avoid unnecessary reporting by, and
minimize the compliance burdens on, registered investment
companies and their affiliated persons. Such steps shall in-
clude 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, documents,
and reports to the Commission in relation to the costs
to registered investment companies and their affili-
ated persons of providing such information, docu-
ments, 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 authority
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 un-
necessary reporting by, and minimize the compliance bur-
dens on, registered investment companies and their affili-
ated persons. Such steps shall include considering and re-
questing public comment on—
‘‘(1) feasible alternatives that minimize the re-
porting burdens on registered investment companies;
and
‘‘(2) the utility of such information to sharehold-
ers in relation to the costs to registered investment
companies and their affiliated persons of providing
such information to shareholders.’’; and
(5) in subsection (g) (as so redesignated) by
striking ‘‘subsections (a) and (d)’’ and inserting ‘‘sub-
sections (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 scrutiny
of such records through Commission examination;
‘‘(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 re-
quirement would have on internal compliance policies
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 reason-
able periodic, special, and other examinations by the Com-
mission, or any member or representative thereof, as the
Commission may prescribe. For purposes of such examina-
tions, any subject person shall make available to the Com-
mission or its representatives any copies or extracts from
such records as may be prepared without undue effort, ex-
pense, or delay as the Commission or its representatives
may reasonably request. The Commission shall exercise its
authority under this subsection with due regard for the ben-
efits of internal compliance policies and procedures 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 following
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 Com-
mission from complying with a request for information
from any other Federal department or agency requesting
the information for purposes within the scope of its jurisdic-
tion, or complying with an order of a court of the United
States in an action brought by the United States or the
Commission. For purposes of section 552 of title 5, United
States Code, this section shall be considered a statute de-
scribed in subsection (b)(3)(B) of such section 552.
‘‘(d) For purposes of this section—
‘‘(1) ‘internal compliance policies and proce-
dures’ means policies and procedures designed by sub-
ject persons to promote compliance with the Federal
securities laws; and
‘‘(2) ‘internal compliance and audit record’
means any record prepared by a subject person in ac-
cordance with internal compliance policies and proce-
dures.’’.
SEC. 208. INVESTMENT COMPANY NAMES.
Section 35(d) of the Investment Company Act of 1940
(15 U.S.C. 80a–34(d)) is amended to read as follows:
‘‘(d) It shall be unlawful for any registered investment
company to adopt as a part of the name or title of such
company, or of any securities of which it is the issuer, any
word or words that the Commission finds are materially
deceptive or misleading. The Commission is authorized, by
rule, regulation, or order, to define such names or titles as
are materially deceptive or misleading.’’.
SEC. 209. EXCEPTIONS FROM DEFINITION OF INVESTMENT
COMPANY.
(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 issued
by any registered investment company and the sale of
any security issued by any registered open-end com-
pany 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 paragraph
(7), would be an investment company,’’; and
(B) by striking all that follows ‘‘(other than
short-term paper)’’ and inserting a period;
(3) in paragraph (2)—
(A) by striking ‘‘and acting as broker,’’ and
inserting ‘‘acting as broker, and acting as mar-
ket intermediary,’’; and
(B) by adding at the end of such paragraph
the following new sentences: ‘‘For the purposes of
this paragraph, the term ‘market intermediary’
means any person that regularly holds itself out
as being willing contemporaneously to engage in,
and is regularly engaged in the business of enter-
ing into, transactions on both sides of the market
for a financial contract or one or more such fi-
nancial contracts. For purposes of the preceding
sentence, the term ‘financial contract’ means any
arrangement that (A) takes the form of an indi-
vidually negotiated contract, agreement, or op-
tion to buy, sell, lend, swap, or repurchase, or
other similar individually negotiated transaction
commonly entered into by participants in the fi-
nancial markets; (B) is in respect of securities,
commodities, currencies, interest or other rates,
other measures of value, or any other financial
or economic interest similar in purpose or func-
tion to any of the foregoing; and (C) is entered
into in response to a request from a counterparty
for a quotation or is otherwise entered into and
structured to accommodate the objectives of the
counterparty to such arrangement.’’; and
(4) by striking paragraph (7) and inserting the
following:
‘‘(7)(A) Any issuer (i) whose outstanding securi-
ties are owned exclusively by persons who, at the time
of acquisition of such securities, are qualified pur-
chasers, and (ii) who is not making and does not
presently propose to make a public offering of such se-
curities. Securities that are owned by persons who re-
ceived the securities from a qualified purchaser as a
gift or bequest, or where the transfer was caused by
legal separation, divorce, death, or other involuntary
event, shall be deemed to be owned by a qualified pur-
chaser, subject to such rules, regulations, and orders
as the Commission may prescribe as necessary or ap-
propriate 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 qualified
purchasers if (I) such persons acquired such se-
curities on or before December 31, 1995, and (II)
at the time such securities were acquired by such
persons, the issuer was excepted 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 limited
to qualified purchasers, and that ownership
in such issuer is no longer limited to not
more than 100 persons, and
‘‘(II) concurrently with or after such
disclosure, such issuer has provided such
persons with a reasonable opportunity to re-
deem 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 investment
company for purposes of the limitations set forth in
section 12(d)(1)(A)(i) and (B)(i) governing the pur-
chase or other acquisition by such issuer of any secu-
rity issued by any registered investment company
and the sale of any security issued by any registered
open-end 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 excepted
under paragraph (1) shall not be treated by the Com-
mission as being a single issuer for purposes of deter-
mining whether the outstanding securities of the is-
suer excepted under paragraph (1) are beneficially
owned by not more than 100 persons or whether the
outstanding securities of the issuer excepted under
this paragraph are owned by persons that are not
qualified purchasers. Nothing in this 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 para-
graph (1) of this subsection.’’.
(b) DEFINITION OF QUALIFIED PURCHASER.—Section
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—
‘‘(A) any natural person who owns at least
$10,000,000 in securities of issuers that are not
controlled by such person, except that securities
of such a controlled issuer may be counted to-
ward such amount if such issuer is, or but for
the exception in paragraph (1) or (7) of section
3(c) would be, an investment company;
‘‘(B) any trust not formed for the specific
purpose of acquiring the securities offered, as to
which the trustee or other person authorized to
make decisions with respect to the trust, and
each settlor or other person who has contributed
assets to the trust, is a person described in sub-
paragraph (A) or (C); or
‘‘(C) any person, acting for its own account
or the accounts of other qualified purchasers,
who in the aggregate owns and invests on a dis-
cretionary basis, not less than $100,000,000 in
securities of issuers that are not affiliated per-
sons (as defined in paragraph (3)(C) of this sub-
section) of such person, except that securities of
such an affiliated person issuer may be counted
toward such amount if such issuer is, or but for
the exception in paragraph (1) or (7) of section
3(c) would be, an investment company.
The Commission may adopt such rules and regula-
tions governing the persons and trusts specified in
subparagraphs (A), (B), and (C) of this paragraph as
it determines are necessary or appropriate in the
public interest and for the protection of investors.’’.
(c) CONFORMING AMENDMENT.—The last sentence of
section 3(a) of the Investment Company Act of 1940 (15
U.S.C. 80a–3(a)) is amended—
(1) by inserting ‘‘(i)’’ after ‘‘of the owner’’; and
(2) by inserting before the period the following:
‘‘, and (ii) which are not relying on the exception
from the definition of investment company in sub-
section (c)(1) or (c)(7) of this section’’.
(d) RULEMAKING REQUIRED.—
(1) IMPLEMENTATION
OF
SECTION
3(c)(1)(B).—
Within one year after the date of enactment of this
Act, the Commission shall prescribe rules to imple-
ment the requirements of section 3(c)(1)(B) of the In-
vestment Company Act of 1940 (15 U.S.C. 80a–
3(c)(1)(B)).
(2) EMPLOYEE
EXCEPTION.—Within one year
after the date of enactment of this Act, the Commis-
sion shall prescribe rules pursuant to its authority
under section 6 of the Investment Company Act of
1940 (15 U.S.C. 80a–6) to permit the ownership by
knowledgeable employees of an issuer or an affiliated
person of the issuer of the securities of that issuer or
affiliated person without loss of the issuer’s exception
under section 3(c)(1) or 3(c)(7) of such Act from
treatment as an investment company under such Act.