SEC. 303. PASS-THRU OF EXEMPT-INTEREST DIVIDENDS 
AND FOREIGN TAX CREDITS IN FUND OF 
FUNDS STRUCTURE. 
(a) IN GENERAL.—Section 852 is amended by adding 
at the end the following new subsection: 
‘‘(g) SPECIAL RULES FOR FUND OF FUNDS.— 
‘‘(1) IN GENERAL.—In the case of a qualified 
fund of funds— 
‘‘(A) such fund shall be qualified to pay 
exempt-interest dividends to its shareholders 
without regard to whether such fund satisfies 
the requirements of the first sentence of sub-
section (b)(5), and 
‘‘(B) such fund may elect the application 
of section 853 (relating to foreign tax credit al-
lowed to shareholders) without regard to the re-
quirement of subsection (a)(1) thereof. 
‘‘(2) QUALIFIED FUND OF FUNDS.—For pur-
poses of this subsection, the term ‘qualified fund of 
funds’ means a regulated investment company if (at 
the close of each quarter of the taxable year) at least 
50 percent of the value of its total assets is rep-
resented by interests in other regulated investment 
companies.’’.
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 304. MODIFICATION OF RULES FOR SPILLOVER DIVI-
DENDS OF REGULATED INVESTMENT COMPA-
NIES. 
(a) DEADLINE FOR DECLARATION OF DIVIDEND.— 
Paragraph (1) of section 855(a) is amended to read as 
follows: 
‘‘(1) declares a dividend before the later of— 
‘‘(A) the 15th day of the 9th month fol-
lowing the close of the taxable year, or 
‘‘(B) in the case of an extension of time 
for filing the company’s return for the taxable 
year, the due date for filing such return taking 
into account such extension, and’’. 
(b) DEADLINE FOR DISTRIBUTION OF DIVIDEND.— 
Paragraph (2) of section 855(a) is amended by striking 
‘‘the first regular dividend payment’’ and inserting ‘‘the 
first dividend payment of the same type of dividend’’. 
(c) SHORT-TERM CAPITAL GAIN.—Subsection (a) of 
section 855 is amended by adding at the end the following: 
‘‘For purposes of paragraph (2), a dividend attributable 
to any short-term capital gain with respect to which a no-
tice is required under the Investment Company Act of
1940 shall be treated as the same type of dividend as a 
capital gain dividend.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions in taxable years 
beginning after the date of the enactment of this Act. 
SEC. 305. RETURN OF CAPITAL DISTRIBUTIONS OF REGU-
LATED INVESTMENT COMPANIES. 
(a) IN GENERAL.—Subsection (b) of section 316 is 
amended by adding at the end the following new para-
graph: 
‘‘(4) CERTAIN DISTRIBUTIONS BY REGULATED 
INVESTMENT COMPANIES IN EXCESS OF EARNINGS 
AND PROFITS.—In the case of a regulated invest-
ment company that has a taxable year other than a 
calendar year, if the distributions by the company 
with respect to any class of stock of such company 
for the taxable year exceed the company’s current 
and accumulated earnings and profits which may be 
used for the payment of dividends on such class of 
stock, the company’s current earnings and profits 
shall, for purposes of subsection (a), be allocated 
first to distributions with respect to such class of 
stock made during the portion of the taxable year 
which precedes January 1.’’.
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to distributions made in taxable 
years beginning after the date of the enactment of this 
Act. 
SEC. 306. DISTRIBUTIONS IN REDEMPTION OF STOCK OF A 
REGULATED INVESTMENT COMPANY. 
(a) REDEMPTIONS TREATED AS EXCHANGES.— 
(1) IN
GENERAL.—Subsection (b) of section 
302 is amended by redesignating paragraph (5) as 
paragraph (6) and by inserting after paragraph (4) 
the following new paragraph: 
‘‘(5) REDEMPTIONS
BY
CERTAIN
REGULATED 
INVESTMENT
COMPANIES.—Except to the extent 
provided in regulations prescribed by the Secretary, 
subsection (a) shall apply to any distribution in re-
demption of stock of a publicly offered regulated in-
vestment company (within the meaning of section 
67(c)(2)(B)) if— 
‘‘(A) such redemption is upon the demand 
of the stockholder, and 
‘‘(B) such company issues only stock which 
is redeemable upon the demand of the stock-
holder.’’.
(2) CONFORMING AMENDMENT.—Subsection (a) 
of section 302 is amended by striking ‘‘or (4)’’ and 
inserting ‘‘(4), or (5)’’. 
(b) LOSSES ON REDEMPTIONS NOT DISALLOWED 
FOR FUND-OF-FUNDS REGULATED INVESTMENT COMPA-
NIES.—Paragraph (3) of section 267(f) is amended by 
adding at the end the following new subparagraph: 
‘‘(D) REDEMPTIONS
BY
FUND-OF-FUNDS 
REGULATED INVESTMENT COMPANIES.—Except 
to the extent provided in regulations prescribed 
by the Secretary, subsection (a)(1) shall not 
apply to any distribution in redemption of stock 
of a regulated investment company if— 
‘‘(i) such company issues only stock 
which is redeemable upon the demand of 
the stockholder, and 
‘‘(ii) such redemption is upon the de-
mand of another regulated investment 
company.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after the date of 
the enactment of this Act.
SEC. 307. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR 
PUBLICLY OFFERED REGULATED INVEST-
MENT COMPANIES. 
(a) IN GENERAL.—Subsection (c) of section 562 is 
amended by striking ‘‘The amount’’ and inserting ‘‘Except 
in the case of a publicly offered regulated investment com-
pany (as defined in section 67(c)(2)(B)), the amount’’. 
(b) CONFORMING AMENDMENT.—Section 562(c) is 
amended by inserting ‘‘(other than a publicly offered regu-
lated investment company (as so defined))’’ after ‘‘regu-
lated investment company’’ in the second sentence thereof. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions in taxable years 
beginning after the date of the enactment of this Act. 
SEC. 308. ELECTIVE DEFERRAL OF CERTAIN LATE-YEAR 
LOSSES OF REGULATED INVESTMENT COM-
PANIES. 
(a) IN GENERAL.—Paragraph (8) of section 852(b) 
is amended to read as follows: 
‘‘(8) ELECTIVE DEFERRAL OF CERTAIN LATE- 
YEAR LOSSES.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided by the Secretary, a regulated invest-
ment company may elect for any taxable year to 
treat any portion of any qualified late-year loss 
for such taxable year as arising on the first day