H. R. 3005—21
(3) EMPLOYEE
EXCEPTION.—Not later than 1 year after
the date of enactment of this Act, the Commission shall pre-
scribe rules pursuant to its authority under section 6 of the
Investment Company Act of 1940 to permit the ownership
of securities by knowledgeable employees of the issuer of the
securities or an affiliated person without loss of the exception
of the issuer under paragraph (1) or (7) of section 3(c) of
that Act from treatment as an investment company under
that Act.
(4) BENEFICIAL OWNERSHIP.—Not later than 180 days after
the date of enactment of this Act, the Commission shall pre-
scribe rules defining the term ‘‘beneficial owner’’ for purposes
of section 3(c)(7)(B) of the Investment Company Act of 1940,
as amended by this Act.
(e) EFFECTIVE DATE.—The amendments made by this section
shall take effect on the earlier of—
(1) 180 days after the date of enactment of this Act; or
(2) the date on which the rulemaking required under sub-
section (d)(2) is completed.
SEC. 210. PERFORMANCE FEES EXEMPTIONS.
Section 205 of the Investment Advisers Act of 1940 (15 U.S.C.
80b–5) is amended—
(1) in subsection (b)—
(A) in paragraph (2), by striking ‘‘or’’ at the end;
(B) in paragraph (3), by striking the period at the
end and inserting a semicolon; and
(C) by adding at the end the following new paragraphs:
‘‘(4) apply to an investment advisory contract with a com-
pany excepted from the definition of an investment company
under section 3(c)(7) of title I of this Act; or
‘‘(5) apply to an investment advisory contract with a person
who is not a resident of the United States.’’; and
(2) by adding at the end the following new subsection:
‘‘(e) The Commission, by rule or regulation, upon its own
motion, or by order upon application, may conditionally or uncondi-
tionally exempt any person or transaction, or any class or classes
of persons or transactions, from subsection (a)(1), if and to the
extent that the exemption relates to an investment advisory contract
with any person that the Commission determines does not need
the protections of subsection (a)(1), on the basis of such factors
as financial sophistication, net worth, knowledge of and experience
in financial matters, amount of assets under management,
relationship with a registered investment adviser, and such other
factors as the Commission determines are consistent with this
section.’’.
TITLE III—INVESTMENT ADVISERS
SUPERVISION COORDINATION ACT
SEC. 301. SHORT TITLE.
This title may be cited as the ‘‘Investment Advisers Supervision
Coordination Act’’.
H. R. 3005—22
SEC. 302. FUNDING FOR ENHANCED ENFORCEMENT PRIORITY.
There are authorized to be appropriated to the Commission,
for the enforcement of the Investment Advisers Act of 1940, not
more than $20,000,000 in each of fiscal years 1997 and 1998,
in addition to any funds authorized to be appropriated to the
Commission for this or other purposes.
SEC. 303. IMPROVED SUPERVISION THROUGH STATE AND FEDERAL
COOPERATION.
(a) STATE
AND FEDERAL RESPONSIBILITIES.—The Investment
Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.) is amended by
inserting after section 203 the following new section:
‘‘SEC. 203A. STATE AND FEDERAL RESPONSIBILITIES.
‘‘(a) ADVISERS SUBJECT TO STATE AUTHORITIES.—
‘‘(1) IN GENERAL.—No investment adviser that is regulated
or required to be regulated as an investment adviser in the
State in which it maintains its principal office and place of
business shall register under section 203, unless the investment
adviser—
‘‘(A) has assets under management of not less than
$25,000,000, or such higher amount as the Commission
may, by rule, deem appropriate in accordance with the
purposes of this title; or
‘‘(B) is an adviser to an investment company registered
under title I of this Act.
‘‘(2) DEFINITION.—For purposes of this subsection, the term
‘assets under management’ means the securities portfolios with
respect to which an investment adviser provides continuous
and regular supervisory or management services.
‘‘(b) ADVISERS SUBJECT TO COMMISSION AUTHORITY.—
‘‘(1) IN GENERAL.—No law of any State or political subdivi-
sion 
thereof 
requiring 
the 
registration, 
licensing, 
or
qualification as an investment adviser or supervised person
of an investment adviser shall apply to any person—
‘‘(A) that is registered under section 203 as an invest-
ment adviser, or that is a supervised person of such person,
except that a State may license, register, or otherwise
qualify any investment adviser representative who has a
place of business located within that State; or
‘‘(B) that is not registered under section 203 because
that person is excepted from the definition of an investment
adviser under section 202(a)(11).
‘‘(2) LIMITATION.—Nothing in this subsection shall prohibit
the securities commission (or any agency or office performing
like functions) of any State from investigating and bringing
enforcement actions with respect to fraud or deceit against
an investment adviser or person associated with an investment
adviser.
‘‘(c) EXEMPTIONS.—Notwithstanding subsection (a), the Commis-
sion, by rule or regulation upon its own motion, or by order upon
application, may permit the registration with the Commission of
any person or class of persons to which the application of subsection
(a) would be unfair, a burden on interstate commerce, or otherwise
inconsistent with the purposes of this section.
‘‘(d) FILING DEPOSITORIES.—The Commission may, by rule,
require an investment adviser—
H. R. 3005—23
‘‘(1) to file with the Commission any fee, application, report,
or notice required by this title or by the rules issued under
this title through any entity designated by the Commission
for that purpose; and
‘‘(2) to pay the reasonable costs associated with such filing.
‘‘(e) STATE ASSISTANCE.—Upon request of the securities commis-
sioner (or any agency or officer performing like functions) of any
State, the Commission may provide such training, technical
assistance, or other reasonable assistance in connection with the
regulation of investment advisers by the State.’’.
(b) ADVISERS NOT ELIGIBLE TO REGISTER.—Section 203 of the
Investment Advisers Act of 1940 (15 U.S.C. 80b–3) is amended—
(1) in subsection (c), in the matter immediately following
paragraph (2), by inserting ‘‘and that the applicant is not
prohibited from registering as an investment adviser under
section 203A’’ after ‘‘satisfied’’; and
(2) in subsection (h), in the second sentence—
(A) 
by 
striking 
‘‘existence 
or’’ 
and 
inserting
‘‘existence,’’; and
(B) by inserting ‘‘or is prohibited from registering as
an investment adviser under section 203A,’’ after ‘‘adviser,’’.
(c) DEFINITION
OF ‘‘SUPERVISED PERSON’’.—Section 202(a) of
the Investment Advisers Act of 1940 (15 U.S.C. 80b–2(a)) is
amended—
(1) by striking ‘‘requires—’’ and inserting ‘‘requires, the
following definitions shall apply:’’; and
(2) by adding at the end the following new paragraph:
‘‘(25) ‘Supervised person’ means any partner, officer,
director (or other person occupying a similar status or perform-
ing similar functions), or employee of an investment adviser,
or other person who provides investment advice on behalf of
the investment adviser and is subject to the supervision and
control of the investment adviser.’’.
(d) CONFORMING AMENDMENT.—Section 203(a) of the Invest-
ment Advisers Act of 1940 (15 U.S.C. 80b–3(a)) is amended by
striking ‘‘subsection (b) of this section’’ and inserting ‘‘subsection
(b) and section 203A’’.
SEC. 304. INTERSTATE COOPERATION.
Section 222 of the Investment Advisers Act of 1940 (15 U.S.C.
80b–18a) is amended to read as follows:
‘‘SEC. 222. STATE REGULATION OF INVESTMENT ADVISERS.
‘‘(a) JURISDICTION OF STATE REGULATORS.—Nothing in this title
shall affect the jurisdiction of the securities commissioner (or any
agency or officer performing like functions) of any State over any
security or any person insofar as it does not conflict with the
provisions of this title or the rules and regulations thereunder.
‘‘(b) DUAL COMPLIANCE PURPOSES.—No State may enforce any
law or regulation that would require an investment adviser to
maintain any books or records in addition to those required under
the laws of the State in which it maintains its principal place
of business, if the investment adviser—
‘‘(1) is registered or licensed as such in the State in which
it maintains its principal place of business; and
‘‘(2) is in compliance with the applicable books and records
requirements of the State in which it maintains its principle
place of business.
H. R. 3005—24
‘‘(c) LIMITATION
ON CAPITAL
AND BOND REQUIREMENTS.—No
State may enforce any law or regulation that would require an
investment adviser to maintain a higher minimum net capital or
to post any bond in addition to any that is required under the
laws of the State in which it maintains its principal place of busi-
ness, if the investment adviser—
‘‘(1) is registered or licensed as such in the State in which
it maintains its principal place of business; and
‘‘(2) is in compliance with the applicable net capital or
bonding requirements of the State in which it maintains its
principal place of business.
‘‘(d) NATIONAL DE MINIMIS STANDARD.—No law of any State
or political subdivision thereof requiring the registration, licensing,
or qualification as an investment adviser shall require an invest-
ment adviser to register with the securities commissioner of the
State (or any agency or officer performing like functions) or to
comply with such law (other than any provision thereof prohibiting
fraudulent conduct) if the investment adviser—
‘‘(1) does not have a place of business located within the
State; and
‘‘(2) during the preceding 12-month period, has had fewer
than 6 clients who are residents of that State.’’.
SEC. 305. DISQUALIFICATION OF CONVICTED FELONS.
(a) AMENDMENT.—Section 203(e) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b–3(e)) is amended—
(1) by redesignating paragraphs (3) through (7) as para-
graphs (4) through (8), respectively; and
(2) by inserting after paragraph (2) the following new
paragraph:
‘‘(3) has been convicted during the 10-year period preceding
the date of filing of any application for registration, or at
any time thereafter, of—
‘‘(A) any crime that is punishable by imprisonment
for 1 or more years, and that is not described in paragraph
(2); or
‘‘(B) a substantially equivalent crime by a foreign court
of competent jurisdiction.’’.
(b) CONFORMING AMENDMENTS.—Section 203 of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–3) is amended—
(1) in subsection (e)(6) (as redesignated by subsection (a)
of this section), by striking ‘‘this paragraph (5)’’ and inserting
‘‘this paragraph’’;
(2) in subsection (f)—
(A) by striking ‘‘paragraph (1), (4), (5), or (7) of sub-
section (e) of this section’’ and inserting ‘‘paragraph (1),
(5), (6), or (8) of subsection (e)’’;
(B) by striking ‘‘paragraph (3)’’ and inserting ‘‘para-
graph (4)’’; and
(C) by striking ‘‘said subsection’’ each place that term
appears and inserting ‘‘subsection’’; and
(3) in subsection (i)(1)(D), by striking ‘‘section 203(e)(5)
of this title’’ and inserting ‘‘subsection (e)(6)’’.
SEC. 306. INVESTOR ACCESS TO INFORMATION.
The Commission shall—
(1) provide for the establishment and maintenance of a
readily accessible telephonic or other electronic process to