NATIONAL SECURITIES MARKETS IMPROVEMENT ACT OF 1996

PUBLIC LAW 104–290—OCT. 11, 1996

NATIONAL SECURITIES MARKETS

IMPROVEMENT ACT OF 1996

110 STAT. 3416 PUBLIC LAW 104–290—OCT. 11, 1996

Public Law 104–290

104th Congress

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) S

HORT

ITLE

.—This Act may be cited as the ‘‘National

Securities Markets Improvement Act of 1996’’.

(b) T

ABLE OF

ONTENTS

.—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.

15 USC 78a note.

National

Securities

Markets

Improvement Act

of 1996.

Oct. 11, 1996

[H.R. 3005]

110 STAT. 3417PUBLIC LAW 104–290—OCT. 11, 1996

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) I

ENERAL

.—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) S

COPE OF

XEMPTION

.—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

15 USC 78a note.

Capital Markets

Efficiency Act of

1996.

15 USC 78a note.

110 STAT. 3418 PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(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) C

OVERED

ECURITIES

.—For purposes of this section, the

following are covered securities:

‘‘(1) E

XCLUSIVE 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) E

XCLUSIVE 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) S

ALES 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) E

XEMPTION 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

110 STAT. 3419PUBLIC LAW 104–290—OCT. 11, 1996

in the State in which the issuer of such security is located;

‘‘(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) P

RESERVATION OF

UTHORITY

.—

‘‘(1) F

RAUD 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) P

RESERVATION OF FILING REQUIREMENTS

.—

‘‘(A) N

OTICE 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) P

RESERVATION OF FEES

.—

‘‘(i) I

N 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) S

CHEDULE

.—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) A

VAILABILITY OF PREEMPTION CONTINGENT ON PAY

MENT OF FEES

.—

‘‘(i) I

N 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) D

ELAYS

.—For purposes of this subparagraph,

delays in payment of fees or underpayments of fees

110 STAT. 3420 PUBLIC LAW 104–290—OCT. 11, 1996

that are promptly remedied shall not constitute a

refusal to pay fees.

‘‘(D) F

EES 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) E

NFORCEMENT 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) D

EFINITIONS

.—For purposes of this section, the following

definitions shall apply:

‘‘(1) O

FFERING 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) P

REPARED 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) S

TATE

.—The term ‘State’ has the same meaning as

in section 3 of the Securities Exchange Act of 1934.

‘‘(4) S

ENIOR 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) S

TUDY AND

EPORT ON

NIFORMITY

.—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) I

ENERAL

.—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) L

IMITATIONS ON

TATE

.—

‘‘(1) C

APITAL

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

15 USC 78r note.

110 STAT. 3421PUBLIC LAW 104–290—OCT. 11, 1996

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) D

E 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) D

ESCRIBED TRANSACTIONS

.—

‘‘(A) I

N 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) R

ULES 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

110 STAT. 3422 PUBLIC LAW 104–290—OCT. 11, 1996

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) T

ECHNICAL

MENDMENT

.—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) M

ARGIN

EQUIREMENTS

.—

(1) E

XTENSIONS 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) U

NLAWFUL

REDIT

XTENSION TO

USTOMERS

.—

‘‘(1) P

ROHIBITION

.—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) E

XCEPTION

.—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;

110 STAT. 3423PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(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) E

XTENSIONS 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) U

NLAWFUL

REDIT

XTENSION IN

IOLATION OF

ULES

AND

EGULATIONS

; E

XCEPTION TO

PPLICATION OF

ULES

, E

.—

‘‘(1) P

ROHIBITION

.—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) E

XCEPTIONS

.—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) B

OARD 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) B

ORROWING BY

EMBERS

, B

ROKERS

AND

EALERS

.—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.

110 STAT. 3424 PUBLIC LAW 104–290—OCT. 11, 1996

SEC. 105. EXEMPTIVE AUTHORITY.

(a) G

ENERAL

XEMPTIVE

UTHORITY

NDER THE

ECURITIES

CT 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) G

ENERAL

XEMPTIVE

UTHORITY

NDER THE

ECURITIES

XCHANGE

CT 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) A

UTHORITY

.—

‘‘(1) I

N 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) P

ROCEDURES

.—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) L

IMITATION

.—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) S

ECURITIES

CT OF

1933.—Section 2 of the Securities Act

of 1933 (15 U.S.C. 77b) is amended—

(1) by inserting ‘‘(a) D

EFINITIONS

.—’’ after ‘‘S

. 2.’’; and

(2) by adding at the end the following new subsection:

‘‘(b) C

ONSIDERATION OF

ROMOTION OF

FFICIENCY

, C

OMPETI

TION

AND

APITAL

ORMATION

.—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) S

ECURITIES

XCHANGE

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:

Regulations.

15 USC 78mm.

15 USC 77z–3.

110 STAT. 3425PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(f) C

ONSIDERATION OF

ROMOTION OF

FFICIENCY

, C

OMPETI

TION

AND

APITAL

ORMATION

.—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.’’.

NVESTMENT

OMPANY

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) C

ONSIDERATION OF

ROMOTION OF

FFICIENCY

, C

OMPETI

TION

AND

APITAL

ORMATION

.—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) E

XAMINATION

.—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) R

EPORT

.—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) C

OORDINATION OF

XAMINING

UTHORITIES

.—

‘‘(1) E

LIMINATION 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) C

OORDINATION 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) E

XAMINATIONS 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) C

ONFIDENTIALITY

.—

‘‘(A) I

N GENERAL

.—Section 24 shall apply to the sharing

of information in accordance with this subsection. The

Commission shall take appropriate action under section

110 STAT. 3426 PUBLIC LAW 104–290—OCT. 11, 1996

24(c) to ensure that such information is not inappropriately

disclosed.

‘‘(B) A

PPROPRIATE 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) D

EFINITION

.—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—

15 USC 80a–51

note.

Investment

Company Act

Amendments of

1996.

15 USC 77e note.

110 STAT. 3427PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(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) A

MENDMENTS TO

EGISTRATION

TATEMENTS

.—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) R

EGISTRATION OF

NDEFINITE

MOUNT OF

ECURITIES

.—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) R

EGISTRATION OF

NDEFINITE

MOUNT OF

ECURITIES

.—

‘‘(1) R

EGISTRATION 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-

110 STAT. 3428 PUBLIC LAW 104–290—OCT. 11, 1996

end management company, or unit investment trust, shall be

deemed to have registered an indefinite amount of securities.

‘‘(2) P

AYMENT 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) I

NTEREST 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) R

ULEMAKING AUTHORITY

.—The Commission may adopt

rules and regulations to implement this subsection.’’.

FFECTIVE

ATE

.—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) A

DDITIONAL

ROSPECTUSES

.—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.’’.

Regulations.

15 USC 80a–24

note.

110 STAT. 3429PUBLIC LAW 104–290—OCT. 11, 1996

SEC. 205. VARIABLE INSURANCE CONTRACTS.

(a) U

NIT

NVESTMENT

RUST

REATMENT

.—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) E

XEMPTION

.—

‘‘(1) I

N 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) L

IMITATION 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) F

EES 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) R

EGULATORY 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) P

ERIODIC

AYMENT

LAN

REATMENT

.—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

110 STAT. 3430 PUBLIC LAW 104–290—OCT. 11, 1996

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) M

AINTENANCE OF

ECORDS

.—

‘‘(1) I

N GENERAL

.—Each registered investment company,

and each underwriter, broker, dealer, or investment adviser

that is a majority-owned subsidiary of such a company, shall

110 STAT. 3431PUBLIC LAW 104–290—OCT. 11, 1996

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) M

INIMIZING 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) E

XAMINATIONS OF

ECORDS

.—

‘‘(1) I

N 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) A

VAILABILITY

.—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) C

OMMISSION 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) L

IMITATIONS ON

ISCLOSURE BY

OMMISSION

.—Notwith-

standing any other provision of law, the Commission shall not

be compelled to disclose any internal compliance or audit records,

Regulations.

110 STAT. 3432 PUBLIC LAW 104–290—OCT. 11, 1996

or information contained therein, provided to the Commission under

this section. Nothing in this subsection shall authorize the Commis-

sion to withhold information from the Congress or prevent the

Commission from complying with a request for information from

any other Federal department or agency requesting the information

for purposes within the scope of the jurisdiction of that department

or agency, 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 described in subsection (b)(3)(B)

of such section 552.

‘‘(d) D

EFINITIONS

.—For purposes of this section—

‘‘(1) the term ‘internal compliance policies and procedures’

means policies and procedures designed by subject persons

to promote compliance with the Federal securities laws; and

‘‘(2) the term ‘internal compliance and audit record’ means

any record prepared by a subject person in accordance with

internal compliance policies and procedures.’’;

(4) in subsection (e), as redesignated, by inserting

‘‘R

EGULATORY

UTHORITY

.—’’ before ‘‘The Commission’’; and

(5) in subsection (f), as redesignated, by inserting

‘‘E

XEMPTION

UTHORITY

.—’’ before ‘‘The Commission’’.

SEC. 208. PROHIBITION ON DECEPTIVE 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) D

ECEPTIVE OR

ISLEADING

AMES

.—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. AMENDMENTS TO DEFINITIONS.

(a) E

XCEPTED

NVESTMENT

OMPANIES

.—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: ‘‘Such issuer shall be deemed to be an investment

company for purposes of the limitations set forth in subpara-

graphs (A)(i) and (B)(i) of section 12(d)(1) governing the pur-

chase 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.’’;

(2) in subparagraph (A) of paragraph (1)—

(A) by inserting after ‘‘issuer,’’ the first place that

term appears, the following: ‘‘and is or, but for the exception

provided for in this paragraph or paragraph (7), would

be an investment company,’’; and

(B) by striking ‘‘unless, as of’’ and all that follows

through the end of the subparagraph and inserting a

period;

(3) in paragraph (2)—

(A) by striking ‘‘and acting as broker,’’ and inserting

‘‘acting as broker, and acting as market intermediary,’’;

(B) by inserting ‘‘(A)’’ after ‘‘(2)’’; and

110 STAT. 3433PUBLIC LAW 104–290—OCT. 11, 1996

graph:

‘‘(B) For purposes of this paragraph—

‘‘(i) the term ‘market intermediary’ means any person

that regularly holds itself out as being willing contempora-

neously to engage in, and that is regularly engaged in,

the business of entering into transactions on both sides

of the market for a financial contract or one or more such

financial contracts; and

‘‘(ii) the term ‘financial contract’ means any arrange-

ment that—

‘‘(I) takes the form of an individually negotiated

contract, agreement, or option to buy, sell, lend, swap,

or repurchase, or other similar individually negotiated

transaction commonly entered into by participants in

the financial markets;

‘‘(II) is in respect of securities, commodities, cur-

rencies, interest or other rates, other measures of

value, or any other financial or economic interest

similar in purpose or function to any of the foregoing;

and

‘‘(III) is entered into in response to a request from

a counter party for a quotation, or is otherwise entered

into and structured to accommodate the objectives of

the counter party to such arrangement.’’; and

(4) by striking paragraph (7) and inserting the following:

‘‘(7)(A) Any issuer, the outstanding securities of which are

owned exclusively by persons who, at the time of acquisition

of such securities, are qualified purchasers, and which is not

making and does not at that time 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 in a case in which the transfer was caused

by legal separation, divorce, death, or other involuntary event,

shall be deemed to be owned by a qualified purchaser, subject

to such rules, regulations, and orders as the Commission may

prescribe as necessary or appropriate in the public interest

or for the protection of investors.

‘‘(B) Notwithstanding subparagraph (A), an issuer is within

the exception provided by this paragraph if—

‘‘(i) in addition to qualified purchasers, outstanding

securities of that issuer are beneficially owned by not more

than 100 persons who are not qualified purchasers, if—

‘‘(I) such persons acquired any portion of the secu-

rities of such issuer on or before September 1, 1996;

and

‘‘(II) at the time at which such persons initially

acquired the securities of such issuer, the issuer was

excepted by paragraph (1); and

‘‘(ii) prior to availing itself of the exception provided

by this paragraph—

‘‘(I) such issuer has disclosed to each beneficial

owner, as determined under paragraph (1), 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

110 STAT. 3434 PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(II) concurrently with or after such disclosure,

such issuer has provided each beneficial owner, as

determined under paragraph (1), with a reasonable

opportunity to redeem any part or all of their interests

in the issuer, notwithstanding any agreement to the

contrary between the issuer and such persons, for that

person’s proportionate share of the issuer’s net assets.

‘‘(C) Each person that elects to redeem under subparagraph

(B)(ii)(II) shall receive an amount in cash equal to that person’s

proportionate share of the issuer’s net assets, unless the issuer

elects to provide such person with the option of receiving,

and such person agrees to receive, all or a portion of such

person’s share in assets of the issuer. If the issuer elects to

provide such persons with such an opportunity, disclosure

concerning such opportunity shall be made in the disclosure

required by subparagraph (B)(ii)(I).

‘‘(D) An issuer that is excepted under this paragraph shall

nonetheless be deemed to be an investment company for pur-

poses of the limitations set forth in subparagraphs (A)(i) and

(B)(i) of section 12(d)(1) relating to the purchase or other

acquisition by such issuer of any security issued by any reg-

istered investment company and the sale of any security issued

by any registered open-end investment company to any such

issuer.

‘‘(E) For purposes of determining compliance with this para-

graph and paragraph (1), 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

Commission as being a single issuer for purposes of determining

whether the outstanding securities of the issuer 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 subparagraph shall

be construed to establish that a person is a bona fide qualified

purchaser for purposes of this paragraph or a bona fide bene-

ficial owner for purposes of paragraph (1).’’.

(b) Q

UALIFIED

URCHASER

.—Section 2(a) of the Investment

Company Act of 1940 (15 U.S.C. 80a–2(a)) is amended by adding

at the end the following new paragraph:

‘‘(51)(A) ‘Qualified purchaser’ means—

‘‘(i) any natural person (including any person who holds

a joint, community property, or other similar shared owner-

ship interest in an issuer that is excepted under section

3(c)(7) with that person’s qualified purchaser spouse) who

owns not less than $5,000,000 in investments, as defined

by the Commission;

‘‘(ii) any company that owns not less than $5,000,000

in investments and that is owned directly or indirectly

by or for 2 or more natural persons who are related as

siblings or spouse (including former spouses), or direct

lineal descendants by birth or adoption, spouses of such

persons, the estates of such persons, or foundations, chari-

table organizations, or trusts established by or for the

benefit of such persons;

‘‘(iii) any trust that is not covered by clause (ii) and

that was not formed for the specific purpose of acquiring

110 STAT. 3435PUBLIC LAW 104–290—OCT. 11, 1996

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 clause (i),

(ii), or (iv); or

‘‘(iv) any person, acting for its own account or the

accounts of other qualified purchasers, who in the

aggregate owns and invests on a discretionary basis, not

less than $25,000,000 in investments.

‘‘(B) The Commission may adopt such rules and regulations

applicable to the persons and trusts specified in clauses (i)

through (iv) of subparagraph (A) as it determines are necessary

or appropriate in the public interest or for the protection of

investors.

‘‘(C) The term ‘qualified purchaser’ does not include a

company that, but for the exceptions provided for in paragraph

(1) or (7) of section 3(c), would be an investment company

(hereafter in this paragraph referred to as an ‘excepted invest-

ment company’), unless all beneficial owners of its outstanding

securities (other than short-term paper), determined in accord-

ance with section 3(c)(1)(A), that acquired such securities on

or before April 30, 1996 (hereafter in this paragraph referred

to as ‘pre-amendment beneficial owners’), and all pre-amend-

ment beneficial owners of the outstanding securities (other

than short-term paper) of any excepted investment company

that, directly or indirectly, owns any outstanding securities

of such excepted investment company, have consented to its

treatment as a qualified purchaser. Unanimous consent of all

trustees, directors, or general partners of a company or trust

referred to in clause (ii) or (iii) of subparagraph (A) shall

constitute consent for purposes of this subparagraph.’’.

ONFORMING

MENDMENTS

.—Section 3(a) of the Investment

Company Act of 1940 (15 U.S.C. 80a–3(a)) is amended—

(1) by striking ‘‘(1)’’ and inserting ‘‘(A)’’;

(2) by striking ‘‘(2)’’ and inserting ‘‘(B)’’;

(3) by striking ‘‘(3)’’ and inserting ‘‘(C)’’;

(4) by inserting ‘‘(1)’’ after ‘‘(a)’’;

(5) by striking ‘‘As used’’ and inserting ‘‘(2) As used’’; and

(6) in paragraph (2)(C), as designated by paragraph (5)

of this subsection—

(A) by striking ‘‘which are’’ and inserting the following:

‘‘which (i) are’’; and

(B) by inserting before the period at the end, the follow-

ing: ‘‘, and (ii) are not relying on the exception from the

definition of investment company in paragraph (1) or (7)

of subsection (c)’’.

(d) R

ULEMAKING

EQUIRED

.—

(1) I

MPLEMENTATION OF SECTION 3(

)(1)(B)

.—Not later than

1 year after the date of enactment of this Act, the Commission

shall prescribe rules to implement the requirements of section

3(c)(1)(B) of the Investment Company Act of 1940 (15 U.S.C.

80a–3(c)(1)(B)), as amended by this section.

(2) I

DENTIFICATION OF INVESTMENTS

.—Not later than 180

days after the date of enactment of this Act, the Commission

shall prescribe rules defining the term, or otherwise identifying,

‘‘investments’’ for purposes of section 2(a)(51) of the Investment

Company Act of 1940, as added by this Act.

15 USC 80a–2

note.

15 USC 80a–3

note.

110 STAT. 3436 PUBLIC LAW 104–290—OCT. 11, 1996

(3) E

MPLOYEE 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) B

ENEFICIAL 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) E

FFECTIVE

ATE

.—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

‘‘(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’’.

15 USC 80b–20

note.

Investment

Advisers

Supervision

Coordination Act.

15 USC 80a–2

note.

15 USC 80a–3

note.

15 USC 80a–3

note.

110 STAT. 3437PUBLIC LAW 104–290—OCT. 11, 1996

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) S

TATE AND

EDERAL

ESPONSIBILITIES

.—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) A

DVISERS

UBJECT TO

TATE

UTHORITIES

.—

‘‘(1) I

N 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) D

EFINITION

.—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) A

DVISERS

UBJECT TO

OMMISSION

UTHORITY

.—

‘‘(1) I

N 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) L

IMITATION

.—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) E

XEMPTIONS

.—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) F

ILING

EPOSITORIES

.—The Commission may, by rule,

require an investment adviser—

15 USC 80b–3a.

Appropriation

authorization.

110 STAT. 3438 PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(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) S

TATE

SSISTANCE

.—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) A

DVISERS

LIGIBLE

EGISTER

.—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,’’.

EFINITION OF

‘‘S

UPERVISED

ERSON

’’.—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) C

ONFORMING

MENDMENT

.—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) J

URISDICTION OF

TATE

EGULATORS

.—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) D

UAL

OMPLIANCE

URPOSES

.—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.

110 STAT. 3439PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(c) L

IMITATION ON

APITAL AND

OND

EQUIREMENTS

.—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) N

ATIONAL

INIMIS

TANDARD

.—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) A

MENDMENT

.—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) C

ONFORMING

MENDMENTS

.—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

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

15 USC 80b–10

note.

110 STAT. 3440 PUBLIC LAW 104–290—OCT. 11, 1996

receive inquiries regarding disciplinary actions and proceedings

involving investment advisers and persons associated with

investment advisers; and

(2) provide for prompt response to any inquiry described

in paragraph (1).

SEC. 307. CONTINUED STATE AUTHORITY.

(a) P

RESERVATION OF

ILING

EQUIREMENTS

.—Nothing in this

title or any amendment made by this title prohibits the securities

commission (or any agency or office performing like functions) of

any State from requiring the filing of any documents filed with

the Commission pursuant to the securities laws solely for notice

purposes, together with a consent to service of process and any

required fee.

(b) P

RESERVATION OF

EES

.—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 this Act, filing, registration, or licensing fees shall,

notwithstanding the amendments made by this title, continue to

be paid in amounts determined pursuant to the law, rule, regula-

tion, or order, or other administrative action as in effect on the

day before such date of enactment.

VAILABILITY OF

REEMPTION

ONTINGENT ON

AYMENT OF

EES

.—

(1) I

N GENERAL

.—During the period beginning on the date

of enactment of this Act 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

registration of any investment adviser that fails or refuses

to pay the fees required by subsection (b) in or to such State,

notwithstanding the limitations on the laws, rules, regulations,

or orders, or other administrative actions of any State, or

any political subdivision thereof, contained in subsection (a),

if the laws of such State require registration of investment

advisers.

(2) D

ELAYS

.—For purposes of this subsection, delays in

payment of fees or underpayments of fees that are promptly

remedied in accordance with the applicable laws, rules, regula-

tions, or orders, or other administrative actions of the relevant

State shall not constitute a failure or refusal to pay fees.

SEC. 308. EFFECTIVE DATE.

(a) I

ENERAL

.—This title and the amendments made by

this title shall take effect 180 days after the date of enactment

of this Act.

(b) C

ONFORMING

MENDMENT

.—

(1) I

N GENERAL

.—Section 3(38)(B) of the Employee Retire-

ment Income Security Act of 1974 (29 U.S.C. 1002(38)(B)) is

amended by inserting ‘‘or under the laws of any State’’ after

‘‘1940’’.

(2) S

UNSET

.—The amendment made by paragraph (1) shall

cease to be effective 2 years after the date of enactment of

this Act.

29 USC 1002

note.

15 USC 80b–2

note.

15 USC 80b–3a

note.

110 STAT. 3441PUBLIC LAW 104–290—OCT. 11, 1996

TITLE IV—SECURITIES AND EXCHANGE

COMMISSION AUTHORIZATION

SEC. 401. SHORT TITLE.

This title may be cited as the ‘‘Securities and Exchange

Commission Authorization Act of 1996’’.

SEC. 402. PURPOSES.

The purposes of this title are—

(1) to authorize appropriations for the Commission for fiscal

year 1997; and

(2) to reduce over time the rates of fees charged under

the Federal securities laws.

SEC. 403. AUTHORIZATION OF APPROPRIATIONS.

Section 35 of the Securities Exchange Act of 1934 is amended

to read as follows:

‘‘SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

‘‘There are authorized to be appropriated to carry out the

functions, powers, and duties of the Commission $300,000,000 for

fiscal year 1997, in addition to any other funds authorized to

be appropriated to the Commission.’’.

SEC. 404. REGISTRATION FEES.

Section 6(b) of the Securities Act of 1933 (15 U.S.C. 77f(b))

is amended to read as follows:

‘‘(b) R

EGISTRATION

.—

‘‘(1) R

ECOVERY OF COST OF SERVICES

.—The Commission

shall, in accordance with this subsection, collect registration

fees that are designed to recover the costs to the government

of the securities registration process, and costs related to such

process, including enforcement activities, policy and rulemaking

activities, administration, legal services, and international regu-

latory activities.

‘‘(2) F

EE PAYMENT REQUIRED

.—At the time of filing a reg-

istration statement, the applicant shall pay to the Commission

a fee that shall be equal to the sum of the amounts (if any)

determined under the rates established by paragraphs (3) and

(4). The Commission shall publish in the Federal Register

notices of the fee rates applicable under this section for each

fiscal year.

‘‘(3) G

ENERAL REVENUE FEES

.—The rate determined under

this paragraph is a rate equal to $200 per $1,000,000 of the

maximum aggregate price at which such securities are proposed

to be offered, except that during fiscal year 2007 and any

succeeding fiscal year such rate is equal to $67 per $1,000,000

of the maximum aggregate price at which such securities are

proposed to be offered. Fees collected during any fiscal year

pursuant to this paragraph shall be deposited and credited

as general revenues of the Treasury.

‘‘(4) O

FFSETTING COLLECTION FEES

.—

‘‘(A) I

N GENERAL

.—Except as provided in sub-

paragraphs (B) and (C), the rate determined under this

paragraph is a rate equal to the following amount per

$1,000,000 of the maximum aggregate price at which such

securities are proposed to be offered:

15 USC 78kk.

15 USC 78a note.

Securities and

Exchange

Commission

Authorization

Act of 1996.

110 STAT. 3442 PUBLIC LAW 104–290—OCT. 11, 1996

‘‘(i) $95 during fiscal year 1998;

‘‘(ii) $78 during fiscal year 1999;

‘‘(iii) $64 during fiscal year 2000;

‘‘(iv) $50 during fiscal year 2001;

‘‘(v) $39 during fiscal year 2002;

‘‘(vi) $28 during fiscal year 2003;

‘‘(vii) $9 during fiscal year 2004;

‘‘(viii) $5 during fiscal year 2005; and

‘‘(ix) $0 during fiscal year 2006 or any succeeding

fiscal year.

‘‘(B) L

IMITATION

;

DEPOSIT

.—Except as provided in

subparagraph (C), no amounts shall be collected pursuant

to this paragraph (4) for any fiscal year except to the

extent provided in advance in appropriations Acts. Fees

collected during any fiscal year pursuant to this paragraph

shall be deposited and credited as offsetting collections

in accordance with appropriations Acts.

‘‘(C) L

APSE OF APPROPRIATIONS

.—If on the first day

of a fiscal year a regular appropriation to the Commission

has not been enacted, the Commission shall continue to

collect fees (as offsetting collections) under this paragraph

at the rate in effect during the preceding fiscal year, until

such a regular appropriation is enacted.

‘‘(5) P

RO RATA APPLICATION OF RATES

.—The rates required

by this subsection shall be applied pro rata to amounts and

balances equal to less than $1,000,000.’’.

SEC. 405. TRANSACTION FEES.

(a) A

MENDMENT

.—Section 31 of the Securities Exchange Act

of 1934 (15 U.S.C. 78ee) is amended to read as follows:

‘‘SEC. 31. TRANSACTION FEES.

‘‘(a) R

ECOVERY OF

OST OF

ERVICES

.—The Commission shall,

in accordance with this subsection, collect transaction fees that

are designed to recover the costs to the Government of the

supervision and regulation of securities markets and securities

professionals, and costs related to such supervision and regulation,

including enforcement activities, policy and rulemaking activities,

administration, legal services, and international regulatory activi-

ties.

‘‘(b) E

XCHANGE

-T

RADED

ECURITIES

.—Every national securities

exchange shall pay to the Commission a fee at a rate equal to

⁄

300

of one percent of the aggregate dollar amount of sales of

securities (other than bonds, debentures, and other evidences of

indebtedness) transacted on such national securities exchange,

except that for fiscal year 2007 or any succeeding fiscal year such

rate shall be equal to

⁄

800

of one percent of such aggregate dollar

amount of sales. Fees collected pursuant to this subsection shall

be deposited and collected as general revenue of the Treasury.

‘‘(c) O

-E

XCHANGE

RADES OF

XCHANGE

EGISTERED

ECURITIES

.—Each national securities association shall pay to the

Commission a fee at a rate equal to

⁄

300

of one percent of the

aggregate dollar amount of sales transacted by or through any

member of such association otherwise than on a national securities

exchange of securities registered on such an exchange (other than

bonds, debentures, and other evidences of indebtedness), except

that for fiscal year 2007 or any succeeding fiscal year such rate

shall be equal to

⁄

800

of one percent of such aggregate dollar

110 STAT. 3443PUBLIC LAW 104–290—OCT. 11, 1996

amount of sales. Fees collected pursuant to this subsection shall

be deposited and collected as general revenue of the Treasury.

‘‘(d) O

-E

XCHANGE

RADES OF

AST

-S

ALE

-R

EPORTED

ECURITIES

.—

‘‘(1) C

OVERED TRANSACTIONS

.—Each national securities

association shall pay to the Commission a fee at a rate equal

⁄

300

of one percent of the aggregate dollar amount of sales

transacted by or through any member of such association other-

wise than on a national securities exchange of securities (other

than bonds, debentures, and other evidences of indebtedness)

subject to prompt last sale reporting pursuant to the rules

of the Commission or a registered national securities associa-

tion, excluding any sales for which a fee is paid under sub-

section (c), except that for fiscal year 2007, or any succeeding

fiscal year, such rate shall be equal to

⁄

800

of one percent

of such aggregate dollar amount of sale.

‘‘(2) L

IMITATION

;

DEPOSIT OF FEES

.—Except as provided in

paragraph (3), no amounts shall be collected pursuant to sub-

section (d) for any fiscal year, except to the extent provided

in advance in appropriations Acts. Fees collected during any

such fiscal year pursuant to this subsection shall be deposited

and credited as offsetting collections to the account providing

appropriations to the Commission.

‘‘(3) L

APSE OF APPROPRIATIONS

.—If on the first day of a

fiscal year a regular appropriation to the Commission has not

been enacted, the Commission shall continue to collect fees

(as offsetting collections) under this subsection at the rate

in effect during the preceding fiscal year, until such a regular

appropriation is enacted.

‘‘(e) D

ATES FOR

AYMENT OF

EES

.—The fees required by sub-

sections (b), (c), and (d) of this section shall be paid—

‘‘(1) on or before March 15, with respect to transactions

and sales occurring during the period beginning on the preced-

ing September 1 and ending at the close of the preceding

December 31; and

‘‘(2) on or before September 30, with respect to transactions

and sales occurring during the period beginning on the

preceding January 1 and ending at the close of the preceding

August 31.

‘‘(f) E

XEMPTIONS

.—The Commission, by rule, may exempt any

sale of securities or any class of sales of securities from any fee

imposed by this section, if the Commission finds that such exemp-

tion is consistent with the public interest, the equal regulation

of markets and brokers and dealers, and the development of a

national market system.

‘‘(g) P

UBLICATION

.—The Commission shall publish in the

Federal Register notices of the fee rates applicable under this

section for each fiscal year.’’.

(b) E

FFECTIVE

ATES

; T

RANSITION

.—

(1) I

N GENERAL

.—Except as provided in paragraph (2), the

amendment made by subsection (a) shall apply with respect

to transactions in securities that occur on or after October

1, 1997.

(2) O

EXCHANGE TRADES OF LAST SALE REPORTED TRANS

ACTIONS

.—The amendment made by subsection (a) shall apply

with respect to transactions described in section 31(d)(1) of

15 USC 78ee

note.

Federal Register,

publication.

110 STAT. 3444 PUBLIC LAW 104–290—OCT. 11, 1996

the Securities Exchange Act of 1934 (as amended by subsection

(a) of this section) that occur on or after September 1, 1997.

SEC. 406. TIME FOR PAYMENT.

Section 4(e) of the Securities Exchange Act of 1934 (15 U.S.C.

78d(e)) is amended by inserting before the period at the end thereof

the following: ‘‘and the Commission may also specify the time

that such fee shall be determined and paid relative to the filing

of any statement or document with the Commission’’.

SEC. 407. SENSE OF THE CONGRESS CONCERNING FEES.

It is the sense of the Congress that, in order to maintain

the competitiveness of United States securities markets relative

to foreign markets, no fee should be assessed on transactions involv-

ing portfolios of equity securities taking place at times of day

characterized by low volume and during nontraditional trading

hours.

TITLE V—REDUCING THE COST OF

SAVING AND INVESTMENT

SEC. 501. EXEMPTION FOR ECONOMIC, BUSINESS, AND INDUSTRIAL

DEVELOPMENT COMPANIES.

Section 6(a) of the Investment Company Act of 1940 (15 U.S.C.

80a–6(a)) is amended by adding at the end the following new

paragraph:

‘‘(5)(A) Any company that is not engaged in the business

of issuing redeemable securities, the operations of which are

subject to regulation by the State in which the company is

organized under a statute governing entities that provide finan-

cial or managerial assistance to enterprises doing business,

or proposing to do business, in that State if—

‘‘(i) the organizational documents of the company state

that the activities of the company are limited to the pro-

motion of economic, business, or industrial development

in the State through the provision of financial or manage-

rial assistance to enterprises doing business, or proposing

to do business, in that State, and such other activities

that are incidental or necessary to carry out that purpose;

‘‘(ii) immediately following each sale of the securities

of the company by the company or any underwriter for

the company, not less than 80 percent of the securities

of the company being offered in such sale, on a class-

by-class basis, are held by persons who reside or who

have a substantial business presence in that State;

‘‘(iii) the securities of the company are sold, or proposed

to be sold, by the company or by any underwriter for

the company, solely to accredited investors, as that term

is defined in section 2(a)(15) of the Securities Act of 1933,

or to such other persons that the Commission, as necessary

or appropriate in the public interest and consistent with

the protection of investors, may permit by rule, regulation,

or order; and

‘‘(iv) the company does not purchase any security issued

by an investment company or by any company that would

be an investment company except for the exclusions from

110 STAT. 3445PUBLIC LAW 104–290—OCT. 11, 1996

the definition of the term ‘investment company’ under para-

graph (1) or (7) of section 3(c), other than—

‘‘(I) any debt security that is rated investment

grade by not less than 1 nationally recognized statis-

tical rating organization; or

‘‘(II) any security issued by a registered open-end

investment company that is required by its investment

policies to invest not less than 65 percent of its total

assets in securities described in subclause (I) or securi-

ties that are determined by such registered open-end

investment company to be comparable in quality to

securities described in subclause (I).

‘‘(B) Notwithstanding the exemption provided by this para-

graph, section 9 (and, to the extent necessary to enforce section

9, sections 38 through 51) shall apply to a company described

in this paragraph as if the company were an investment com-

pany registered under this title.

‘‘(C) Any company proposing to rely on the exemption pro-

vided by this paragraph shall file with the Commission a

notification stating that the company intends to do so, in such

form and manner as the Commission may prescribe by rule.

‘‘(D) Any company meeting the requirements of this para-

graph may rely on the exemption provided by this paragraph

upon filing with the Commission the notification required by

subparagraph (C), until such time as the Commission deter-

mines by order that such reliance is not in the public interest

or is not consistent with the protection of investors.

‘‘(E) The exemption provided by this paragraph may be

subject to such additional terms and conditions as the Commis-

sion may by rule, regulation, or order determine are necessary

or appropriate in the public interest or for the protection of

investors.’’.

SEC. 502. INTRASTATE CLOSED-END INVESTMENT COMPANY

EXEMPTION.

Section 6(d)(1) of the Investment Company Act of 1940 (15

U.S.C. 80a–6(d)(1)) is amended by striking ‘‘$100,000’’ and inserting

‘‘$10,000,000, or such other amount as the Commission may set

by rule, regulation, or order’’.

SEC. 503. DEFINITION OF ELIGIBLE PORTFOLIO COMPANY.

Section 2(a)(46)(C) of the Investment Company Act of 1940

(15 U.S.C. 80a–2(a)(46)(C)) is amended—

(1) in clause (ii), by striking ‘‘or’’ at the end;

(2) by redesignating clause (iii) as clause (iv); and

(3) by inserting after clause (ii) the following:

‘‘(iii) it has total assets of not more than

$4,000,000, and capital and surplus (shareholders’

equity less retained earnings) of not less than

$2,000,000, except that the Commission may adjust

such amounts by rule, regulation, or order to reflect

changes in 1 or more generally accepted indices or

other indicators for small businesses; or’’.

SEC. 504. DEFINITION OF BUSINESS DEVELOPMENT COMPANY.

Section 2(a)(48)(B) of the Investment Company Act of 1940

(15 U.S.C. 80a–2(a)(48)(B)) is amended by adding at the end the

following: ‘‘provided further that a business development company

110 STAT. 3446 PUBLIC LAW 104–290—OCT. 11, 1996

need not make available significant managerial assistance with

respect to any company described in paragraph (46)(C)(iii), or

with respect to any other company that meets such criteria as

the Commission may by rule, regulation, or order permit, as consist-

ent with the public interest, the protection of investors, and the

purposes of this title; and’’.

SEC. 505. ACQUISITION OF ASSETS BY BUSINESS DEVELOPMENT

COMPANIES.

Section 55(a)(1)(A) of the Investment Company Act of 1940

(15 U.S.C. 80a–54(a)(1)(A)) is amended—

(1) by striking ‘‘or from any person’’ and inserting ‘‘from

any person’’; and

(2) by inserting before the semicolon ‘‘, or from any other

person, subject to such rules and regulations as the Commission

may prescribe as necessary or appropriate in the public interest

or for the protection of investors’’.

SEC. 506. CAPITAL STRUCTURE AMENDMENTS.

Section 61(a) of the Investment Company Act of 1940 (15 U.S.C.

80a–60(a)) is amended—

(1) in paragraph (2), by striking ‘‘if such business develop-

ment company’’ and all that follows through the end of the

paragraph and inserting a period;

(2) in paragraph (3)(A)—

(A) by striking ‘‘senior securities representing indebted-

ness accompanied by’’;

(B) by inserting ‘‘accompanied by securities,’’ after ‘‘of

such company,’’; and

(3) in paragraph (3)—

(A) in subparagraph (A), by striking ‘‘and’’ at the end;

(B) in subparagraph (B), by striking the period at

the end of clause (iv) and inserting ‘‘; and’’; and

the following new subparagraph:

‘‘(C) a business development company may issue war-

rants, options, or rights to subscribe to, convert to, or

purchase voting securities not accompanied by securities,

if—

‘‘(i) such warrants, options, or rights satisfy the

conditions in clauses (i) and (iii) of subparagraph (A);

and

‘‘(ii) the proposal to issue such warrants, options,

or rights is authorized by the shareholders or partners

of such business development company, and such issu-

ance is approved by the required majority (as defined

in section 57(o)) of the directors of or general

partners in such company on the basis that such issu-

ance is in the best interests of the company and its

shareholders or partners.’’.

SEC. 507. FILING OF WRITTEN STATEMENTS.

Section 64(b)(1) of the Investment Company Act of 1940 (15

U.S.C. 80a–63(b)(1)) is amended by inserting ‘‘and capital structure’’

after ‘‘portfolio’’.

110 STAT. 3447PUBLIC LAW 104–290—OCT. 11, 1996

SEC. 508. CHURCH EMPLOYEE PENSION PLANS.

(a) A

MENDMENT TO THE

NVESTMENT

OMPANY

CT OF

1940.—

Section 3(c) of the Investment Company Act of 1940 (15 U.S.C.

80a–3(c)) is amended by adding at the end the following new para-

graph:

‘‘(14) Any church plan described in section 414(e) of the

Internal Revenue Code of 1986, if, under any such plan, no

part of the assets may be used for, or diverted to, purposes

other than the exclusive benefit of plan participants or bene-

ficiaries, or any company or account that is—

‘‘(A) established by a person that is eligible to establish

and maintain such a plan under section 414(e) of the

Internal Revenue Code of 1986; and

‘‘(B) substantially all of the activities of which

consist of—

‘‘(i) managing or holding assets contributed to such

church plans or other assets which are permitted to

be commingled with the assets of church plans under

the Internal Revenue Code of 1986; or

‘‘(ii) administering or providing benefits pursuant

to church plans.’’.

(b) A

MENDMENT TO THE

ECURITIES

CT OF

1933.—Section 3(a)

of the Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by

adding at the end the following new paragraph:

‘‘(13) Any security issued by or any interest or participation

in any church plan, company or account that is excluded from

the definition of an investment company under section 3(c)(14)

of the Investment Company Act of 1940.’’.

MENDMENTS TO THE

ECURITIES

XCHANGE

CT OF

1934.—

(1) E

XEMPTED SECURITIES

.—Section 3(a)(12)(A) of the Secu-

rities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)) is

amended—

(A) in clause (v), by striking ‘‘and’’ at the end;

(B) by redesignating clause (vi) as clause (vii); and

clause:

‘‘(vi) solely for purposes of sections 12, 13, 14,

and 16 of this title, any security issued by or any

interest or participation in any church plan, company,

or account that is excluded from the definition of

an investment company under section 3(c)(14) of the

Investment Company Act of 1940; and’’.

(2) E

XEMPTION FROM BROKER

DEALER PROVISIONS

.—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:

‘‘(g) C

HURCH

LANS

.—No church plan described in section 414(e)

of the Internal Revenue Code of 1986, no person or entity eligible

to establish and maintain such a plan under the Internal Revenue

Code of 1986, no company or account that is excluded from the

definition of an investment company under section 3(c)(14) of the

Investment Company Act of 1940, and no trustee, director, officer

or employee of or volunteer for such plan, company, account

person, or entity, acting within the scope of that person’s employ-

ment or activities with respect to such plan, shall be deemed to

be a ‘broker’, ‘dealer’, ‘municipal securities broker’, ‘municipal secu-

rities dealer’, ‘government securities broker’, ‘government securities

110 STAT. 3448 PUBLIC LAW 104–290—OCT. 11, 1996

dealer’, ‘clearing agency’, or ‘transfer agent’ for purposes of this

title—

‘‘(1) solely because such plan, company, person, or entity

buys, holds, sells, trades in, or transfers securities or acts

as an intermediary in making payments in connection with

transactions in securities for its own account in its capacity

as trustee or administrator of, or otherwise on behalf of, or

for the account of, any church plan, company, or account that

is excluded from the definition of an investment company under

section 3(c)(14) of the Investment Company Act of 1940; and

‘‘(2) if no such person or entity receives a commission

or other transaction-related sales compensation in connection

with any activities conducted in reliance on the exemption

provided by this subsection.’’.

(d) A

MENDMENT TO THE

NVESTMENT

DVISERS

CT OF

1940.—

Section 203(b) of the Investment Advisers Act of 1940 (15 U.S.C.

80b–3(b)) is amended—

(1) in paragraph (3), by striking ‘‘or’’ at the end;

(2) in paragraph (4), by striking the period at the end

and inserting ‘‘; or’’; and

(3) by adding at the end the following new paragraph:

‘‘(5) any plan described in section 414(e) of the Internal

Revenue Code of 1986, any person or entity eligible to establish

and maintain such a plan under the Internal Revenue Code

of 1986, or any trustee, director, officer, or employee of or

volunteer for any such plan or person, if such person or entity,

acting in such capacity, provides investment advice exclusively

to, or with respect to, any plan, person, or entity or any com-

pany, account, or fund that is excluded from the definition

of an investment company under section 3(c)(14) of the Invest-

ment Company Act of 1940.’’.

(e) A

MENDMENT TO THE

RUST

NDENTURE

CT OF

1939.—

Section 304(a)(4)(A) of the Trust Indenture Act of 1939 (15 U.S.C.

77ddd(4)(A)) is amended by striking ‘‘or (11)’’ and inserting ‘‘(11),

or (14)’’.

(f) P

ROTECTION OF

HURCH

MPLOYEE

ENEFIT

LANS

NDER

TATE

.—

(1) R

EGISTRATION REQUIREMENTS

.—Any security issued

by or any interest or participation in any church plan, company,

or account that is excluded from the definition of an investment

company under section 3(c)(14) of the Investment Company

Act of 1940, as added by subsection (a) of this section, and

any offer, sale, or purchase thereof, shall be exempt from any

law of a State that requires registration or qualification of

securities.

(2) T

REATMENT OF CHURCH PLANS

.—No church plan

described in section 414(e) of the Internal Revenue Code of

1986, no person or entity eligible to establish and maintain

such a plan under the Internal Revenue Code of 1986, no

company or account that is excluded from the definition of

an investment company under section 3(c)(14) of the Investment

Company Act of 1940, as added by subsection (a) of this section,

and no trustee, director, officer, or employee of or volunteer

for any such plan, person, entity, company, or account shall

be required to qualify, register, or be subject to regulation

as an investment company or as a broker, dealer, investment

adviser, or agent under the laws of any State solely because

15 USC 80a–3

note.

110 STAT. 3449PUBLIC LAW 104–290—OCT. 11, 1996

such plan, person, entity, company, or account buys, holds,

sells, or trades in securities for its own account or in its capacity

as a trustee or administrator of or otherwise on behalf of,

or for the account of, or provides investment advice to,

for, or on behalf of, any such plan, person, or entity or any

company or account that is excluded from the definition of

an investment company under section 3(c)(14) of the Investment

Company Act of 1940, as added by subsection (a) of this section.

(g) A

MENDMENT TO THE

NVESTMENT

OMPANY

CT OF

1940.—

Section 30 of the Investment Company Act of 1940 (15 U.S.C.

80a–29) is amended by adding at the end the following new sub-

sections:

‘‘(g) D

ISCLOSURE TO

HURCH

LAN

ARTICIPANTS

.—A person

that maintains a church plan that is excluded from the definition

of an investment company solely by reason of section 3(c)(14) shall

provide disclosure to plan participants, in writing, and not less

frequently than annually, and for new participants joining such

a plan after May 31, 1996, as soon as is practicable after joining

such plan, that—

‘‘(1) the plan, or any company or account maintained to

manage or hold plan assets and interests in such plan, com-

pany, or account, are not subject to registration, regulation,

or reporting under this title, the Securities Act of 1933, the

Securities Exchange Act of 1934, or State securities laws; and

‘‘(2) plan participants and beneficiaries therefore will not

be afforded the protections of those provisions.

‘‘(h) N

OTICE TO

OMMISSION

.—The Commission may issue rules

and regulations to require any person that maintains a church

plan that is excluded from the definition of an investment company

solely by reason of section 3(c)(14) to file a notice with the

Commission containing such information and in such form as the

Commission may prescribe as necessary or appropriate in the public

interest or consistent with the protection of investors.’’.

SEC. 509. PROMOTING GLOBAL PREEMINENCE OF AMERICAN

SECURITIES MARKETS.

It is the sense of the Congress that—

(1) the United States and foreign securities markets are

increasingly becoming international securities markets, as issu-

ers and investors seek the benefits of new capital and secondary

market opportunities without regard to national borders;

(2) as issuers seek to raise capital across national borders,

they confront differing accounting requirements in the various

regulatory jurisdictions;

(3) the establishment of a high-quality comprehensive set

of generally accepted international accounting standards in

cross-border securities offerings would greatly facilitate inter-

national financing activities and, most significantly, would

enhance the ability of foreign corporations to access and list

in United States markets;

(4) in addition to the efforts made before the date of enact-

ment of this Act by the Commission to respond to the growing

internationalization of securities markets, the Commission

should enhance its vigorous support for the development of

high-quality international accounting standards as soon as

practicable; and

110 STAT. 3450 PUBLIC LAW 104–290—OCT. 11, 1996

(5) the Commission, in view of its clear authority under

law to facilitate the access of foreign corporations to list their

securities in United States markets, should report to the Con-

gress, not later than 1 year after the date of enactment of

this Act, on progress in the development of international

accounting standards and the outlook for successful completion

of a set of international standards that would be acceptable

to the Commission for offerings and listings by foreign corpora-

tions in United States markets.

SEC. 510. STUDIES AND REPORTS.

(a) I

MPACT OF

ECHNOLOGICAL

DVANCES

.—

(1) S

TUDY

.—

(A) I

N GENERAL

.—The Commission shall conduct a

study of—

(i) the impact of technological advances and the

use of on-line information systems on the securities

markets, including steps that the Commission has

taken to facilitate the electronic delivery of

prospectuses to institutional and other investors;

(ii) how such technologies have changed the way

in which the securities markets operate; and

(iii) any steps taken by the Commission to address

such changes.

(B) C

ONSIDERATIONS

.—In conducting the study under

subparagraph (A), the Commission shall consider how the

Commission has adapted its enforcement policies and

practices in response to technological developments with

regard to—

(i) disclosure, prospectus delivery, and other

customer protection regulations;

(ii) intermediaries and exchanges in the domestic

and international financial services industry;

(iii) reporting by issuers, including communications

with holders of securities;

(iv) the relationship of the Commission with other

national regulatory authorities and organizations to

improve coordination and cooperation; and

(v) the relationship of the Commission with State

regulatory authorities and organizations to improve

coordination and cooperation.

(2) R

EPORT

.—Not later than 1 year after the date of enact-

ment of this Act, the Commission shall submit a report to

the Congress on the results of the study conducted under para-

graph (1).

(b) S

HAREHOLDER

ROPOSALS

.—

(1) S

TUDY

.—The Commission shall conduct a study of—

(A) whether shareholder access to proxy statements

pursuant to section 14 of the Securities Exchange Act of

1934 has been impaired by recent statutory, judicial, or

regulatory changes; and

(B) the ability of shareholders to have proposals relat-

ing to corporate practices and social issues included as

part of proxy statements.

(2) R

EPORT

.—Not later than 1 year after the date of enact-

ment of this Act, the Commission shall submit a report to

the Congress on the results of the study conducted under para-

15 USC 78n note.

15 USC 78b note.

110 STAT. 3451PUBLIC LAW 104–290—OCT. 11, 1996

LEGISLATIVE HISTORY—H.R. 3005 (S. 1815):

HOUSE REPORTS: Nos. 104–622 (Comm. on Commerce) and 104–864 (Comm. of

Conference).

CONGRESSIONAL RECORD, Vol. 142 (1996):

June 18, 19, considered and passed House.

June 27, considered and passed Senate, amended, in lieu of S. 1815.

Sept. 28, House agreed to conference report.

Oct. 1, Senate agreed to conference report.

graph (1), together with any recommendations for regulatory

or legislative changes that it considers necessary to improve

shareholder access to proxy statements.

REFERENCING

.—

(1) S

TUDY

.—The Commission shall conduct a study of the

impact on investors and the national market system of the

practice known as ‘‘preferencing’’ on one or more registered

securities exchanges, including consideration of—

(A) how preferencing impacts—

(i) the execution prices received by retail securities

customers whose orders are preferenced; and

(ii) the ability of retail securities customers in

all markets to obtain executions of their limit orders

in preferenced securities; and

(B) the costs of preferencing to such customers.

(2) R

EPORT

.—Not later than 6 months after the date of

enactment of this Act, the Commission shall submit a report

to the Congress on the results of the study conducted under

paragraph (1).

(3) D

EFINITION

.—For purposes of this subsection, the term

‘‘preferencing’’ refers to the practice of a broker acting as a

dealer on a national securities exchange, directing the orders

of customers to buy or sell securities to itself for execution

under rules that permit the broker to take priority in execution

over same-priced orders or quotations entered prior in time.

(d) B

ROKER

-D

EALER

NIFORMITY

.—

(1) S

TUDY

.—The Commission, after consultation with reg-

istered securities associations, national securities exchanges,

and States, shall conduct a study of the impact of disparate

State licensing requirements on associated persons of registered

brokers or dealers and methods for States to attain uniform

licensing requirements for such persons.

(2) R

EPORT

.—Not later than 1 year after the date of enact-

ment of this Act, the Commission shall submit to the Congress

a report on the study conducted under paragraph (1). Such

report shall include recommendations concerning appropriate

methods described in paragraph (1)(B), including any necessary

legislative changes to implement such recommendations.

Approved October 11, 1996.

15 USC 78o note.