H. R. 3005
One Hundred Fourth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Wednesday,
the third day of January, one thousand nine hundred and ninety-six
An Act
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 Representatives 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 ‘‘National
Securities Markets Improvement Act of 1996’’.
(b) TABLE OF CONTENTS.—The table of contents of this Act
is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Severability.
TITLE I—CAPITAL MARKETS
Sec. 101. Short title.
Sec. 102. Creation of national securities markets.
Sec. 103. Broker-dealer exemptions from State law.
Sec. 104. Broker-dealer funding.
Sec. 105. Exemptive authority.
Sec. 106. Promotion of efficiency, competition, and capital formation.
Sec. 107. Privatization of EDGAR.
Sec. 108. Improving coordination of supervision.
Sec. 109. Increased access to foreign business information.
TITLE II—INVESTMENT COMPANY ACT AMENDMENTS
Sec. 201. Short title.
Sec. 202. Funds of funds.
Sec. 203. Flexible registration of securities.
Sec. 204. Facilitating use of current information in advertising.
Sec. 205. Variable insurance contracts.
Sec. 206. Reports to the Commission and shareholders.
Sec. 207. Books, records, and inspections.
Sec. 208. Prohibition on deceptive investment company names.
Sec. 209. Amendments to definitions.
Sec. 210. Performance fees exemptions.
TITLE III—INVESTMENT ADVISERS SUPERVISION COORDINATION ACT
Sec. 301. Short title.
Sec. 302. Funding for enhanced enforcement priority.
Sec. 303. Improved supervision through State and Federal cooperation.
Sec. 304. Interstate cooperation.
Sec. 305. Disqualification of convicted felons.
Sec. 306. Investor access to information.
Sec. 307. Continued State authority.
Sec. 308. Effective date.
TITLE IV—SECURITIES AND EXCHANGE COMMISSION AUTHORIZATION
Sec. 401. Short title.
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Sec. 402. Purposes.
Sec. 403. Authorization of appropriations.
Sec. 404. Registration fees.
Sec. 405. Transaction fees.
Sec. 406. Time for payment.
Sec. 407. Sense of the Congress concerning fees.
TITLE V—REDUCING THE COST OF SAVING AND INVESTMENT
Sec. 501. Exemption for economic, business, and industrial development companies.
Sec. 502. Intrastate closed-end investment company exemption.
Sec. 503. Definition of eligible portfolio company.
Sec. 504. Definition of business development company.
Sec. 505. Acquisition of assets by business development companies.
Sec. 506. Capital structure amendments.
Sec. 507. Filing of written statements.
Sec. 508. Church employee pension plans.
Sec. 509. Promoting global preeminence of American securities markets.
Sec. 510. Studies and reports.
SEC. 2. DEFINITIONS.
For purposes of this Act—
(1) the term ‘‘Commission’’ means the Securities and
Exchange Commission; and
(2) the term ‘‘State’’ has the same meaning as in section
3 of the Securities Exchange Act of 1934.
SEC. 3. SEVERABILITY.
If any provision of this Act, an amendment made by this
Act, or the application of such provision or amendment to any
person or circumstance is held to be unconstitutional, the remainder
of this Act, the amendments made by this Act, and the application
of the provisions of such to any person or circumstance shall not
be affected thereby.
TITLE I—CAPITAL MARKETS
SEC. 101. SHORT TITLE.
This title may be cited as the ‘‘Capital Markets Efficiency
Act of 1996’’.
SEC. 102. CREATION OF NATIONAL SECURITIES MARKETS.
(a) IN GENERAL.—Section 18 of the Securities Act of 1933
(15 U.S.C. 77r) is amended to read as follows:
‘‘SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES
OFFERINGS.
‘‘(a) SCOPE OF EXEMPTION.—Except as otherwise provided in
this section, no law, rule, regulation, or order, or other administra-
tive action of any State or any political subdivision thereof—
‘‘(1) requiring, or with respect to, registration or qualifica-
tion of securities, or registration or qualification of securities
transactions, shall directly or indirectly apply to a security
that—
‘‘(A) is a covered security; or
‘‘(B) will be a covered security upon completion of the
transaction;
‘‘(2) shall directly or indirectly prohibit, limit, or impose
any conditions upon the use of—
‘‘(A) with respect to a covered security described in
subsection (b), any offering document that is prepared by
or on behalf of the issuer; or
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‘‘(B) any proxy statement, report to shareholders, or
other disclosure document relating to a covered security
or the issuer thereof that is required to be and is filed
with the Commission or any national securities organiza-
tion registered under section 15A of the Securities
Exchange Act of 1934, except that this subparagraph does
not apply to the laws, rules, regulations, or orders, or
other administrative actions of the State of incorporation
of the issuer; or
‘‘(3) shall directly or indirectly prohibit, limit, or impose
conditions, based on the merits of such offering or issuer, upon
the offer or sale of any security described in paragraph (1).
‘‘(b) COVERED SECURITIES.—For purposes of this section, the
following are covered securities:
‘‘(1) EXCLUSIVE
FEDERAL
REGISTRATION
OF
NATIONALLY
TRADED SECURITIES.—A security is a covered security if such
security is—
‘‘(A) listed, or authorized for listing, on the New York
Stock Exchange or the American Stock Exchange, or listed
on the National Market System of the Nasdaq Stock Market
(or any successor to such entities);
‘‘(B) listed, or authorized for listing, on a national
securities exchange (or tier or segment thereof) that has
listing standards that the Commission determines by rule
(on its own initiative or on the basis of a petition) are
substantially similar to the listing standards applicable
to securities described in subparagraph (A); or
‘‘(C) is a security of the same issuer that is equal
in seniority or that is a senior security to a security
described in subparagraph (A) or (B).
‘‘(2) EXCLUSIVE
FEDERAL
REGISTRATION
OF
INVESTMENT
COMPANIES.—A security is a covered security if such security
is a security issued by an investment company that is reg-
istered, or that has filed a registration statement, under the
Investment Company Act of 1940.
‘‘(3) SALES TO QUALIFIED PURCHASERS.—A security is a cov-
ered security with respect to the offer or sale of the security
to qualified purchasers, as defined by the Commission by rule.
In prescribing such rule, the Commission may define the term
‘qualified purchaser’ differently with respect to different cat-
egories of securities, consistent with the public interest and
the protection of investors.
‘‘(4) EXEMPTION
IN
CONNECTION
WITH
CERTAIN
EXEMPT
OFFERINGS.—A security is a covered security with respect to
a transaction that is exempt from registration under this title
pursuant to—
‘‘(A) paragraph (1) or (3) of section 4, and the issuer
of such security files reports with the Commission pursuant
to section 13 or 15(d) of the Securities Exchange Act of
1934;
‘‘(B) section 4(4);
‘‘(C) section 3(a), other than the offer or sale of a
security that is exempt from such registration pursuant
to paragraph (4) or (11) of such section, except that a
municipal security that is exempt from such registration
pursuant to paragraph (2) of such section is not a covered
security with respect to the offer or sale of such security
H. R. 3005—4
in the State in which the issuer of such security is located;
or
‘‘(D) Commission rules or regulations issued under sec-
tion 4(2), except that this subparagraph does not prohibit
a State from imposing notice filing requirements that are
substantially similar to those required by rule or regulation
under section 4(2) that are in effect on September 1, 1996.
‘‘(c) PRESERVATION OF AUTHORITY.—
‘‘(1) FRAUD AUTHORITY.—Consistent with this section, the
securities commission (or any agency or office performing like
functions) of any State shall retain jurisdiction under the laws
of such State to investigate and bring enforcement actions
with respect to fraud or deceit, or unlawful conduct by a broker
or dealer, in connection with securities or securities trans-
actions.
‘‘(2) PRESERVATION OF FILING REQUIREMENTS.—
‘‘(A) NOTICE
FILINGS
PERMITTED.—Nothing in this
section prohibits the securities commission (or any agency
or office performing like functions) of any State from requir-
ing the filing of any document filed with the Commission
pursuant to this title, together with annual or periodic
reports of the value of securities sold or offered to be
sold to persons located in the State (if such sales data
is not included in documents filed with the Commission),
solely for notice purposes and the assessment of any fee,
together with a consent to service of process and any
required fee.
‘‘(B) PRESERVATION OF FEES.—
‘‘(i) IN GENERAL.—Until otherwise provided by law,
rule, regulation, or order, or other administrative
action of any State, or any political subdivision thereof,
adopted after the date of enactment of the Capital
Markets Efficiency Act of 1996, filing or registration
fees with respect to securities or securities transactions
shall continue to be collected in amounts determined
pursuant to State law as in effect on the day before
such date.
‘‘(ii) 
SCHEDULE.—The 
fees 
required 
by 
this
subparagraph shall be paid, and all necessary support-
ing data on sales or offers for sales required under
subparagraph (A), shall be reported on the same
schedule as would have been applicable had the issuer
not relied on the exemption provided in subsection
(a).
‘‘(C) AVAILABILITY OF PREEMPTION CONTINGENT ON PAY-
MENT OF FEES.—
‘‘(i) IN GENERAL.—During the period beginning on
the date of enactment of the National Securities
Market Improvement Act of 1996 and ending 3 years
after that date of enactment, the securities commission
(or any agency or office performing like functions) of
any State may require the registration of securities
issued by any issuer who refuses to pay the fees
required by subparagraph (B).
‘‘(ii) DELAYS.—For purposes of this subparagraph,
delays in payment of fees or underpayments of fees
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that are promptly remedied shall not constitute a
refusal to pay fees.
‘‘(D) FEES NOT PERMITTED ON LISTED SECURITIES.—Not-
withstanding subparagraphs (A), (B), and (C), no filing
or fee may be required with respect to any security that
is a covered security pursuant to subsection (b)(1), or will
be such a covered security upon completion of the trans-
action, or is a security of the same issuer that is equal
in seniority or that is a senior security to a security that
is a covered security pursuant to subsection (b)(1).
‘‘(3) ENFORCEMENT OF REQUIREMENTS.—Nothing in this sec-
tion shall prohibit the securities commission (or any agency
or office performing like functions) of any State from suspending
the offer or sale of securities within such State as a result
of the failure to submit any filing or fee required under law
and permitted under this section.
‘‘(d) DEFINITIONS.—For purposes of this section, the following
definitions shall apply:
‘‘(1) OFFERING DOCUMENT.—The term ‘offering document’—
‘‘(A) has the meaning given the term ‘prospectus’ in
section 2(10), but without regard to the provisions of sub-
paragraphs (A) and (B) of that section; and
‘‘(B) includes a communication that is not deemed to
offer a security pursuant to a rule of the Commission.
‘‘(2) PREPARED BY OR ON BEHALF OF THE ISSUER.—Not later
than 6 months after the date of enactment of the Securities
Amendments Act of 1996, the Commission shall, by rule, define
the term ‘prepared by or on behalf of the issuer’ for purposes
of this section.
‘‘(3) STATE.—The term ‘State’ has the same meaning as
in section 3 of the Securities Exchange Act of 1934.
‘‘(4) SENIOR SECURITY.—For purposes of this paragraph,
the term ‘senior security’ means any bond, debenture, note,
or similar obligation or instrument constituting a security and
evidencing indebtedness, and any stock of a class having
priority over any other class as to distribution of assets or
payment of dividends.’’.
(b) STUDY AND REPORT ON UNIFORMITY.—The Commission shall
conduct a study, after consultation with States, issuers, brokers,
and dealers, on the extent to which uniformity of State regulatory
requirements for securities or securities transactions has been
achieved for securities that are not covered securities (within the
meaning of section 18 of the Securities Act of 1933, as amended
by paragraph (1) of this subsection). Not later than 1 year after
the date of enactment of this Act, the Commission shall submit
a report to the Congress on the results of such study.
SEC. 103. BROKER-DEALER EXEMPTIONS FROM STATE LAW.
(a) IN GENERAL.—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) LIMITATIONS ON STATE LAW.—
‘‘(1) CAPITAL, MARGIN, BOOKS AND RECORDS, BONDING, AND
REPORTS.—No law, rule, regulation, or order, or other adminis-
trative action of any State or political subdivision thereof shall
establish capital, custody, margin, financial responsibility, mak-
ing and keeping records, bonding, or financial or operational
H. R. 3005—6
reporting requirements for brokers, dealers, municipal securi-
ties dealers, government securities brokers, or government
securities dealers that differ from, or are in addition to, the
requirements in those areas established under this title. The
Commission shall consult periodically the securities commis-
sions (or any agency or office performing like functions) of
the States concerning the adequacy of such requirements as
established under this title.
‘‘(2) DE MINIMIS TRANSACTIONS BY ASSOCIATED PERSONS.—
No law, rule, regulation, or order, or other administrative action
of any State or political subdivision thereof may prohibit an
associated person of a broker or dealer from affecting a
transaction described in paragraph (3) for a customer in such
State if—
‘‘(A) such associated person is not ineligible to register
with such State for any reason other than such a trans-
action;
‘‘(B) such associated person is registered with a reg-
istered securities association and at least one State; and
‘‘(C) the broker or dealer with which such person is
associated is registered with such State.
‘‘(3) DESCRIBED TRANSACTIONS.—
‘‘(A) IN GENERAL.—A transaction is described in this
paragraph if—
‘‘(i) such transaction is effected—
‘‘(I) on behalf of a customer that, for 30 days
prior to the day of the transaction, maintained
an account with the broker or dealer; and
‘‘(II) by an associated person of the broker
or dealer—
‘‘(aa) to which the customer was assigned
for 14 days prior to the day of the transaction;
and
‘‘(bb) who is registered with a State in
which the customer was a resident or was
present for at least 30 consecutive days during
the 1-year period prior to the day of the trans-
action;
‘‘(ii) the transaction is effected—
‘‘(I) on behalf of a customer that, for 30 days
prior to the day of the transaction, maintains an
account with the broker or dealer; and
‘‘(II) during the period beginning on the date
on which such associated person files an applica-
tion for registration with the State in which the
transaction is effected and ending on the earlier
of—
‘‘(aa) 60 days after the date on which the
application is filed; or
‘‘(bb) the date on which such State notifies
the associated person that it has denied the
application for registration or has stayed the
pendency of the application for cause.
‘‘(B) RULES
OF
CONSTRUCTION.—For purposes of
subparagraph (A)(i)(II)—
‘‘(i) each of up to 3 associated persons of a broker
or dealer who are designated to effect transactions
H. R. 3005—7
during the absence or unavailability of the principal
associated person for a customer may be treated as
an associated person to which such customer is
assigned; and
‘‘(ii) if the customer is present in another State
for 30 or more consecutive days or has permanently
changed his or her residence to another State, a trans-
action is not described in this paragraph, unless the
association person of the broker or dealer files an
application for registration with such State not later
than 10 business days after the later of the date of
the transaction, or the date of the discovery of the
presence of the customer in the other State for 30
or more consecutive days or the change in the
customer’s residence.’’.
(b) TECHNICAL AMENDMENT.—Section 28(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78bb(a)) is amended by striking
‘‘Nothing’’ and inserting ‘‘Except as otherwise specifically provided
in this title, nothing’’.
SEC. 104. BROKER-DEALER FUNDING.
(a) MARGIN REQUIREMENTS.—
(1) EXTENSIONS OF CREDIT BY BROKER-DEALERS.—Section
7(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78g(c))
is amended to read as follows:
‘‘(c) UNLAWFUL CREDIT EXTENSION TO CUSTOMERS.—
‘‘(1) PROHIBITION.—It shall be unlawful for any member
of a national securities exchange or any broker or dealer,
directly or indirectly, to extend or maintain credit or arrange
for the extension or maintenance of credit to or for any
customer—
‘‘(A) on any security (other than an exempted security),
in contravention of the rules and regulations which the
Board of Governors of the Federal Reserve System (here-
after in this section referred to as the ‘Board’) shall
prescribe under subsections (a) and (b); and
‘‘(B) without collateral or on any collateral other than
securities, except in accordance with such rules and regula-
tions as the Board may prescribe—
‘‘(i) to permit under specified conditions and for
a limited period any such member, broker, or dealer
to maintain a credit initially extended in conformity
with the rules and regulations of the Board; and
‘‘(ii) to permit the extension or maintenance of
credit in cases where the extension or maintenance
of credit is not for the purpose of purchasing or carrying
securities or of evading or circumventing the provisions
of subparagraph (A).
‘‘(2) EXCEPTION.—This subsection and the rules and regula-
tions issued under this subsection shall not apply to any credit
extended, maintained, or arranged by a member of a national
securities exchange or a broker or dealer to or for a member
of a national securities exchange or a registered broker or
dealer—
‘‘(A) a substantial portion of whose business consists
of transactions with persons other than brokers or dealers;
or
H. R. 3005—8
‘‘(B) to finance its activities as a market maker or
an underwriter;
except that the Board may impose such rules and regulations,
in whole or in part, on any credit otherwise exempted by
this paragraph if the Board determines that such action is
necessary or appropriate in the public interest or for the protec-
tion of investors.’’.
(2) EXTENSIONS OF CREDIT BY OTHER LENDERS.—Section
7(d) of the Securities Exchange Act of 1934 (78 U.S.C. 78g(d))
is amended to read as follows:
‘‘(d) UNLAWFUL CREDIT EXTENSION
IN VIOLATION
OF RULES
AND REGULATIONS; EXCEPTION TO APPLICATION OF RULES, ETC.—
‘‘(1) PROHIBITION.—It shall be unlawful for any person not
subject to subsection (c) to extend or maintain credit or to
arrange for the extension or maintenance of credit for the
purpose of purchasing or carrying any security, in contravention
of such rules and regulations as the Board shall prescribe
to prevent the excessive use of credit for the purchasing or
carrying of or trading in securities in circumvention of the
other provisions of this section. Such rules and regulations
may impose upon all loans made for the purpose of purchasing
or carrying securities limitations similar to those imposed upon
members, brokers, or dealers by subsection (c) and the rules
and regulations thereunder.
‘‘(2) EXCEPTIONS.—This subsection and the rules and regu-
lations issued under this subsection shall not apply to any
credit extended, maintained, or arranged—
‘‘(A) by a person not in the ordinary course of business;
‘‘(B) on an exempted security;
‘‘(C) to or for a member of a national securities
exchange or a registered broker or dealer—
‘‘(i) a substantial portion of whose business consists
of transactions with persons other than brokers or
dealers; or
‘‘(ii) to finance its activities as a market maker
or an underwriter;
‘‘(D) by a bank on a security other than an equity
security; or
‘‘(E) as the Board 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 unconditionally or upon specified terms and condi-
tions or for stated periods, from the operation of this sub-
section and the rules and regulations thereunder.
‘‘(3) BOARD AUTHORITY.—The Board may impose such rules
and regulations, in whole or in part, on any credit otherwise
exempted by subparagraph (C) if it determines that such action
is necessary or appropriate in the public interest or for the
protection of investors.’’.
(b) BORROWING BY MEMBERS, BROKERS, AND DEALERS.—Section
8 of the Securities Exchange Act of 1934 (15 U.S.C. 78h) is
amended—
(1) by striking subsection (a); and
(2) by redesignating subsections (b) and (c) as subsections
(a) and (b), respectively.
H. R. 3005—9
SEC. 105. 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 rule or regulation, may conditionally 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
issued under this title, to the extent that such exemption is nec-
essary or appropriate in the public interest, and is consistent with
the protection of investors.’’.
(b) GENERAL EXEMPTIVE AUTHORITY UNDER THE SECURITIES
EXCHANGE ACT OF 1934.—Title I of the Securities 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.
‘‘(a) AUTHORITY.—
‘‘(1) IN GENERAL.—Except as provided in subsection (b),
but notwithstanding any other provision of this title, the
Commission, by rule, regulation, or order, may conditionally
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 consist-
ent with the protection of investors.
‘‘(2) PROCEDURES.—The Commission shall, by rule or regu-
lation, determine the procedures under which an exemptive
order under this section shall be granted and may, in its
sole discretion, decline to entertain any application for an order
of exemption under this section.
‘‘(b) LIMITATION.—The Commission may not, under this section,
exempt any person, security, or transaction, or any class or classes
of persons, securities, or transactions from section 15C or the rules
or regulations issued thereunder or (for purposes of section 15C
and the rules and regulations issued thereunder) from any definition
in paragraph (42), (43), (44), or (45) of section 3(a).’’.
SEC. 106. PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL
FORMATION.
(a) SECURITIES ACT OF 1933.—Section 2 of the Securities 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 subsection:
‘‘(b) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETI-
TION, AND CAPITAL FORMATION.—Whenever pursuant to this title
the Commission is engaged in rulemaking and is required to
consider or determine whether an action is necessary or appropriate
in the public interest, the Commission shall also consider, in addi-
tion to the protection of investors, whether the action will promote
efficiency, competition, and capital formation.’’.
(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 subsection:
H. R. 3005—10
‘‘(f) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETI-
TION, AND CAPITAL FORMATION.—Whenever pursuant to this title
the Commission is engaged in rulemaking, or in the review of
a rule of a self-regulatory organization, and is required to consider
or determine whether an action is necessary or appropriate in
the public interest, the Commission shall also consider, in addition
to the protection of investors, whether the action will promote
efficiency, competition, and capital formation.’’.
(c) INVESTMENT COMPANY ACT of 1940.—Section 2 of the Invest-
ment Company Act of 1940 (15 U.S.C. 80a–2) is amended by adding
at the end the following new subsection:
‘‘(c) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETI-
TION, AND CAPITAL FORMATION.—Whenever pursuant to this title
the Commission is engaged in rulemaking and is required to
consider or determine whether an action is consistent with the
public interest, the Commission shall also consider, in addition
to the protection of investors, whether the action will promote
efficiency, competition, and capital formation.’’.
SEC. 107. PRIVATIZATION OF EDGAR.
(a) EXAMINATION.—The Commission shall examine proposals
for the privatization of the EDGAR system. Such examination shall
promote competition in the automation and rapid collection and
dissemination of information required to be disclosed. Such exam-
ination shall include proposals that maintain free public access
to data filings in the EDGAR system.
(b) REPORT.—Not later than 180 days after the date of enact-
ment of this Act, the Commission shall submit to the Congress
a report on the examination under subsection (a). Such report
shall include such recommendations for such legislative action as
may be necessary to implement the proposal that the Commission
determines most effectively achieves the objectives described in
subsection (a).
SEC. 108. IMPROVING COORDINATION OF SUPERVISION.
Section 17 of the Securities Exchange Act of 1934 (15 U.S.C.
78q) is amended by adding at the end the following new subsection:
‘‘(i) COORDINATION OF EXAMINING AUTHORITIES.—
‘‘(1) ELIMINATION OF DUPLICATION.—The Commission and
the examining authorities, through cooperation and coordina-
tion of examination and oversight activities, shall eliminate
any unnecessary and burdensome duplication in the examina-
tion process.
‘‘(2) COORDINATION
OF
EXAMINATIONS.—The Commission
and the examining authorities shall share such information,
including reports of examinations, customer complaint informa-
tion, and other nonpublic regulatory information, as appropriate
to foster a coordinated approach to regulatory oversight of
brokers and dealers that are subject to examination by more
than one examining authority.
‘‘(3) EXAMINATIONS FOR CAUSE.—At any time, any examin-
ing authority may conduct an examination for cause of any
broker or dealer subject to its jurisdiction.
‘‘(4) CONFIDENTIALITY.—
‘‘(A) IN GENERAL.—Section 24 shall apply to the sharing
of information in accordance with this subsection. The
Commission shall take appropriate action under section
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24(c) to ensure that such information is not inappropriately
disclosed.
‘‘(B) APPROPRIATE DISCLOSURE NOT PROHIBITED.—Noth-
ing in this paragraph authorizes the Commission or any
examining authority to withhold information from the
Congress, or prevent the Commission or any examining
authority 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.
‘‘(5) DEFINITION.—For purposes of this subsection, the term
‘examining authority’ means a self-regulatory organization reg-
istered with the Commission under this title (other than a
registered clearing agency) with the authority to examine,
inspect, and otherwise oversee the activities of a registered
broker or dealer.’’.
SEC. 109. INCREASED ACCESS TO FOREIGN BUSINESS INFORMATION.
Not later than 1 year after the date of enactment of this
Act, the Commission shall adopt rules under the Securities Act
of 1933 concerning the status under the registration provisions
of the Securities Act of 1933 of foreign press conferences and foreign
press releases by persons engaged in the offer and sale of securities.
TITLE II—INVESTMENT COMPANY ACT
AMENDMENTS
SEC. 201. SHORT TITLE.
This title may be cited as the ‘‘Investment Company Act Amend-
ments 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)(iii)—
(A) by striking ‘‘in the event such investment company
is not a registered investment company,’’; and
(B) by inserting ‘‘in the event that such investment
company is not a registered investment company,’’ after
‘‘(bb)’’;
(2) by redesignating subparagraphs (G) and (H) as subpara-
graphs (H) and (I), respectively;
(3) by striking ‘‘this paragraph (1)’’ each place that term
appears and inserting ‘‘this paragraph’’;
(4) by inserting after subparagraph (F) the following new
subparagraph:
‘‘(G)(i) This paragraph does not apply to securities of a reg-
istered open-end investment company or a registered unit invest-
ment trust (hereafter in this subparagraph referred to as the
‘acquired company’) purchased or otherwise acquired by a registered
open-end investment company or a registered unit investment trust
(hereafter in this subparagraph referred to as the ‘acquiring com-
pany’) if—
H. R. 3005—12
‘‘(I) the acquired company and the acquiring company are
part of the same group of investment companies;
‘‘(II) the securities of the acquired company, securities of
other registered open-end investment companies and registered
unit investment trusts that are part of the same group of
investment companies, Government securities, and short-term
paper are the only investments held by the acquiring company;
‘‘(III) with respect to—
‘‘(aa) securities of the acquired company, the acquiring
company does not pay and is not assessed any charges
or fees for distribution-related activities, unless the acquir-
ing company does not charge a sales load or other fees
or charges for distribution-related activities; or
‘‘(bb) securities of the acquiring company, any sales
loads and other distribution-related fees charged, when
aggregated with any sales load and distribution-related
fees paid by the acquiring company with respect to
securities of the acquired fund, are not excessive under
rules adopted pursuant to section 22(b) or section 22(c)
by a securities association registered under section 15A
of the Securities Exchange Act of 1934, or the Commission;
‘‘(IV) the acquired company has a policy that prohibits
it from acquiring any securities of registered open-end invest-
ment companies or registered unit investment trusts in reliance
on this subparagraph or subparagraph (F); 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 acquisitions in accordance with this
subparagraph, as necessary and appropriate for the protection
of investors.
‘‘(ii) For purposes of this subparagraph, the term ‘group of
investment companies’ means any 2 or more registered investment
companies that hold themselves out to investors as related
companies for purposes of investment and investor services.’’; and
(5) by adding at the end the following new subparagraph:
‘‘(J) The Commission, by rule or regulation, upon its own motion
or by order upon application, may conditionally or unconditionally
exempt any person, security, or transaction, or any class or classes
of persons, securities, or transactions from any provision of this
subsection, if and to the extent that such exemption is consistent
with the public interest and the protection of investors.’’.
SEC. 203. FLEXIBLE REGISTRATION OF SECURITIES.
(a) AMENDMENTS TO REGISTRATION STATEMENTS.—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 striking ‘‘(3) For’’ and inserting ‘‘For’’; and
(3) by striking ‘‘pursuant to this subsection or otherwise’’.
(b) REGISTRATION OF INDEFINITE AMOUNT OF SECURITIES.—Sec-
tion 24(f) of the Investment Company Act of 1940 (15 U.S.C.
80a–24(f)) is amended to read as follows:
‘‘(f) REGISTRATION
OF INDEFINITE AMOUNT
OF SECURITIES.—
‘‘(1) REGISTRATION OF SECURITIES.—Upon the effective date
of its registration statement, as provided by section 8 of the
Securities Act of 1933, a face-amount certificate company, open-
H. R. 3005—13
end management company, or unit investment trust, shall be
deemed to have registered an indefinite amount of securities.
‘‘(2) PAYMENT OF REGISTRATION FEES.—Not later than 90
days after the end of the fiscal year of a company or trust
referred to in paragraph (1), the company or trust, as applicable,
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
(including, for purposes of this paragraph, all securities issued
pursuant to a dividend reinvestment plan) were sold pursuant
to a registration of an indefinite amount of securities under
this subsection during the previous fiscal year of the company
or trust, reduced by—
‘‘(A) the aggregate redemption or repurchase price of
the securities of the company or trust during that year;
and
‘‘(B) the aggregate redemption or repurchase price of
the securities of the company or trust during any prior
fiscal year ending not more than 1 year before the date
of enactment of the Investment Company Act Amendments
of 1996, that were not used previously by the company
or trust to reduce fees payable under this section.
‘‘(3) INTEREST DUE ON LATE PAYMENT.—A company or trust
paying the fee required by this subsection or any portion thereof
more than 90 days after the end of the fiscal year of the
company or trust shall pay to the Commission interest on
unpaid amounts, at the average investment rate for Treasury
tax and loan accounts published by the Secretary of the
Treasury pursuant to section 3717(a) of title 31, United States
Code. The payment of interest pursuant to this paragraph
shall not preclude the Commission from bringing an action
to enforce the requirements of paragraph (2).
‘‘(4) RULEMAKING AUTHORITY.—The Commission may adopt
rules and regulations to implement this subsection.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall become effective on the earlier of—
(1) 1 year after the date of enactment of this Act; or
(2) the effective date of final rules or regulations issued
in accordance with section 24(f) of the Investment Company
Act of 1940, as amended by this section.
SEC. 
204. 
FACILITATING 
USE 
OF 
CURRENT 
INFORMATION 
IN
ADVERTISING.
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 sub-
section:
‘‘(g) ADDITIONAL PROSPECTUSES.—In addition to any prospectus
permitted or required by 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 purposes of section 5(b)(1)
of that Act with respect to securities issued by a registered invest-
ment company. Such a prospectus, 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 that Act.’’.
H. R. 3005—14
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 subsection:
‘‘(e) EXEMPTION.—
‘‘(1) IN GENERAL.—Subsection (a) does not apply to any
registered 
separate 
account 
funding 
variable 
insurance
contracts, or to the sponsoring insurance company and principal
underwriter of such account.
‘‘(2) LIMITATION ON SALES.—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—
‘‘(A) unless 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,
beginning on the earlier of August 1, 1997, or the earliest
effective date of any registration statement or amendment
thereto for such contract following the date of enactment
of this subsection, the insurance company so represents
in the registration statement for the contract; and
‘‘(B) unless 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 authority
of the State which is the domiciliary State of the
insurance company, an annual statement of its finan-
cial condition, which most recent statement indicates
that the insurance company has a combined capital
and surplus, if a stock company, or an unassigned
surplus, if a mutual company, 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 protec-
tion of investors; and
‘‘(iii) together with its registered separate accounts,
is supervised and examined periodically by the
insurance authority of such State.
‘‘(3) FEES AND CHARGES.—For purposes of paragraph (2),
the fees and charges deducted under the contract shall include
all fees and charges imposed for any purpose and in any
manner.
‘‘(4) REGULATORY AUTHORITY.—The Commission may issue
such rules and regulations to carry out paragraph (2)(A) as
it determines are necessary or appropriate in the public interest
or for the protection of investors.’’.
(b) PERIODIC PAYMENT PLAN TREATMENT.—Section 27 of the
Investment Company Act of 1940 (15 U.S.C. 80a–27) is amended
by adding at the end the following new subsection:
‘‘(i)(1) This section does not apply to any registered separate
account funding variable insurance contracts, or to the sponsoring
insurance company and principal underwriter 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
H. R. 3005—15
insurance company of such account, to sell any such contract
unless—
‘‘(A) such contract is a redeemable security; and
‘‘(B) the insurance company complies with section 26(e)
and any rules or regulations issued by the Commission under
section 26(e).’’.
SEC. 206. REPORTS TO THE COMMISSION AND SHAREHOLDERS.
Section 30 of the Investment Company Act of 1940 (15 U.S.C.
80a–29) is amended—
(1) in subsection (b), by striking paragraph (1) and inserting
the following:
‘‘(1) such information, documents, and reports (other than
financial statements), as the Commission may require to keep
reasonably current the information and documents contained
in the registration statement of such company filed under this
title;’’;
(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 sub-
section:
‘‘(c)(1) The Commission shall take such action 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 affiliated persons in exercising its authority—
‘‘(A) under subsection (f); and
‘‘(B) under subsection (b)(1), if the Commission requires
the filing of information, documents, and reports under that
subsection on a basis more frequently than semiannually.
‘‘(2) Action taken by the Commission under paragraph (1) shall
include considering, and requesting public comment on—
‘‘(A) feasible alternatives that minimize the reporting
burdens on registered investment companies; and
‘‘(B) the utility of such information, documents, and reports
to the Commission in relation to the costs to registered invest-
ment companies and their affiliated persons of providing such
information, documents, and reports.’’;
(4) by inserting after subsection (e) (as redesignated by
paragraph (2) of this section), the following new subsection:
‘‘(f) The Commission may, by rule, require that semiannual
reports containing the information set forth in subsection (e) include
such other information as the Commission deems necessary or
appropriate in the public interest or for the protection of investors.’’;
and
(5) in subsection (g) (as redesignated by paragraph (2)
of this section), by striking ‘‘subsections (a) and (d)’’ and insert-
ing ‘‘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 inserting the
following:
‘‘(a) MAINTENANCE OF RECORDS.—
‘‘(1) IN
GENERAL.—Each registered investment company,
and each underwriter, broker, dealer, or investment adviser
that is a majority-owned subsidiary of such a company, shall
H. R. 3005—16
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 regulations, may
prescribe as necessary or appropriate in the public interest
or for the protection of investors. Each investment adviser
that is not a majority-owned subsidiary of, and each depositor
of any registered investment company, and each 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 transactions with such registered
company.
‘‘(2) MINIMIZING
COMPLIANCE
BURDEN.—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 for the protection of investors,
to avoid unnecessary recordkeeping by, and minimize the
compliance burden on, persons required to maintain records
under this subsection (hereafter in this section referred to
as ‘subject persons’). Such steps shall include considering, and
requesting public comment on—
‘‘(A) feasible alternatives that minimize the record-
keeping burdens on subject persons;
‘‘(B) the necessity of such records in view of the public
benefits derived from the independent scrutiny of such
records through Commission examination;
‘‘(C) the costs associated with maintaining the informa-
tion that would be required to be reflected in such records;
and
‘‘(D) the effects that a proposed recordkeeping require-
ment would have on internal compliance policies and
procedures.
‘‘(b) EXAMINATIONS OF RECORDS.—
‘‘(1) IN GENERAL.—All records required to be maintained
and preserved in accordance with subsection (a) 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.
‘‘(2) AVAILABILITY.—For purposes of examinations referred
to in paragraph (1), 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 effort,
expense, or delay as the Commission or its representatives
may reasonably request.
‘‘(3) COMMISSION ACTION.—The Commission shall exercise
its authority under this subsection with due regard for the
benefits of internal compliance policies and procedures and
the effective implementation and operation thereof.’’;
(2) by redesignating subsections (c) and (d) as subsections
(e) and (f), respectively;
(3) by inserting after subsection (b) the following new sub-
sections:
‘‘(c) LIMITATIONS
ON DISCLOSURE
BY COMMISSION.—Notwith-
standing any other provision of law, the Commission shall not
be compelled to disclose any internal compliance or audit records,