Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?
104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    104-333
_______________________________________________________________________


 
                  PHILANTHROPY PROTECTION ACT OF 1995
                                _______


 November 10, 1995.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______


  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                        [To accompany H.R. 2519]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Commerce, to whom was referred the bill 
(H.R. 2519) to facilitate contributions to charitable 
organizations by codifying certain exemptions from the Federal 
securities laws, and for other purposes, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The amendment....................................................     1
Purpose and summary..............................................     4
Background and need for legislation..............................     5
Hearings.........................................................     9
Committee consideration..........................................     9
Rollcall votes...................................................     9
Committee oversight findings.....................................     9
Committee on Government Reform and Oversight.....................     9
New budget authority and tax expenditures........................    10
Committee cost estimate..........................................    10
Congressional Budget Office estimate.............................    10
Inflationary impact statement....................................    11
Advisory committee statement.....................................    11
Section-by-section analysis and discussion.......................    11
Changes in existing law made by the bill, as reported............    15

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Philanthropy 
Protection Act of 1995''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Amendments to the Investment Company Act of 1940.
Sec. 3. Amendment to the Securities Act of 1933.
Sec. 4. Amendments to the Securities Exchange Act of 1934.
Sec. 5. Amendment of the Investment Advisers Act of 1940.
Sec. 6. Protection of philanthropy under state law.
Sec. 7. Effective dates and applicability.

SEC. 2. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940.

  (a) Exemption.--Section 3(c)(10) of the Investment Company Act of 
1940 (15 U.S.C. 80a-3(c)(10)) is amended to read as follows:
          ``(10)(A) Any company organized and operated exclusively for 
        religious, educational, benevolent, fraternal, charitable, or 
        reformatory purposes--
                  ``(i) no part of the net earnings of which inures to 
                the benefit of any private shareholder or individual; 
                or
                  ``(ii) which is or maintains a fund described in 
                subparagraph (B).
          ``(B) For the purposes of subparagraph (A)(ii), a fund is 
        described in this subparagraph if such fund is a pooled income 
        fund, collective trust fund, collective investment fund, or 
        similar fund maintained by a charitable organization 
        exclusively for the collective investment and reinvestment of 
        one or more of the following:
                  ``(i) assets of the general endowment fund or other 
                funds of one or more charitable organizations;
                  ``(ii) assets of a pooled income fund;
                  ``(iii) assets contributed to a charitable 
                organization in exchange for the issuance of charitable 
                gift annuities;
                  ``(iv) assets of a charitable remainder trust or of 
                any other trust, the remainder interests of which are 
                irrevocably dedicated to any charitable organization;
                  ``(v) assets of a charitable lead trust;
                  ``(vi) assets of a trust not described in clauses (i) 
                through (v), the remainder interests of which are 
                revocably dedicated to a charitable organization, 
                subject to subparagraph (C); or
                  ``(vii) such assets (including assets revocably 
                dedicated to a charitable organization) as the 
                Commission may prescribe by rule, regulation, or order 
                in accordance with section 6(c).
          ``(C) A fund that contains assets described in clause (vi) of 
        subparagraph (B) shall be excluded from the definition of an 
        investment company for a period of 3 years after the date of 
        enactment of this subparagraph, but only if--
                  ``(i) such assets were contributed before the date 
                which is 60 days after the date of enactment of this 
                subparagraph; and
                  ``(ii) such assets are commingled in the fund with 
                assets described in one or more of clauses (i) through 
                (v) of subparagraph (B).
          ``(D) For purposes of this paragraph--
                  ``(i) a trust or fund is `maintained' by a charitable 
                organization if the organization serves as a trustee or 
                administrator of the trust or fund or has the power to 
                remove the trustees or administrators of the trust or 
                fund and to designate new trustees or administrators;
                  ``(ii) the term `pooled income fund' has the same 
                meaning as in section 642(c)(5) of the Internal Revenue 
                Code of 1986;
                  ``(iii) the term `charitable organization' means an 
                organization described in paragraphs (1) through (5) of 
                section 170(c) or section 501(c)(3) of the Internal 
                Revenue Code of 1986;
                  ``(iv) the term `charitable lead trust' means a trust 
                described in section 170(f)(2)(B), 2055(e)(2)(B), or 
                2522(c)(2)(B) of the Internal Revenue Code of 1986;
                  ``(v) the term `charitable remainder trust' means a 
                charitable remainder annuity trust or a charitable 
                remainder unitrust, as those terms are defined in 
                section 664(d) of the Internal Revenue Code of 1986; 
                and
                  ``(vi) the term `charitable gift annuity' means an 
                annuity issued by a charitable organization that is 
                described in section 501(m)(5) of the Internal Revenue 
                Code of 1986.''.
  (b) Disclosure by Exempt Charitable Organizations.--Section 7 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-7) is amended by adding 
at the end the following new subsection:
  ``(e) Disclosure by Exempt Charitable Organizations.--Each fund that 
is excluded from the definition of an investment company under section 
3(c)(10)(B) of this Act shall provide, to each donor to such fund, at 
the time of the donation or within 90 days after the date of enactment 
of this subsection, whichever is later, written information describing 
the material terms of the operation of such fund.''.

SEC. 3. AMENDMENT TO THE SECURITIES ACT OF 1933.

  Section 3(a)(4) of the Securities Act of 1933 (15 U.S.C. 77c(a)(4)) 
is amended by inserting after the semicolon at the end the following: 
``or any security of a fund that is excluded from the definition of an 
investment company under section 3(c)(10)(B) of the Investment Company 
Act of 1940;''.

SEC. 4. AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934.

  (a) Exempted Securities.--Section 3(a)(12)(A) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)(A)) is amended--
          (1) in clause (iv) by striking ``and'' at the end;
          (2) by redesignating clause (v) as clause (vi); and
          (3) by inserting after clause (iv) the following new clause:
                  ``(v) any security issued by or any interest or 
                participation in any pooled income fund, collective 
                trust fund, collective investment fund, or similar fund 
                that is excluded from the definition of an investment 
                company under section 3(c)(10)(B) of the Investment 
                Company Act of 1940; and''.
  (b) Exemption From Broker-Dealer Provisions.--Section 3 of such Act 
(15 U.S.C. 78c) is amended by adding at the end the following new 
subsection:
  ``(e) Charitable Organizations.--
          ``(1) Exemption.--Notwithstanding any other provision of this 
        title, but subject to paragraph (2) of this subsection, a 
        charitable organization, as defined in section 3(c)(10)(D) of 
        the Investment Company Act of 1940, or any trustee, director, 
        officer, employee, or volunteer of such a charitable 
        organization acting within the scope of such person's 
        employment or duties with such organization, shall not be 
        deemed to be a `broker', `dealer', `municipal securities 
        broker', `municipal securities dealer', `government securities 
        broker', or `government securities dealer' for purposes of this 
        title solely because such organization or person buys, holds, 
        sells, or trades in securities for its own account in its 
        capacity as trustee or administrator of, or otherwise on behalf 
        of or for the account of--
                  ``(A) such a charitable organization;
                  ``(B) a fund that is excluded from the definition of 
                an investment company under section 3(c)(10)(B) of the 
                Investment Company Act of 1940; or
                  ``(C) a trust or other donative instrument described 
                in section 3(c)(10)(B) of the Investment Company Act of 
                1940, or the settlors (or potential settlors) or 
                beneficiaries of any such trust or other instrument.
          ``(2) Limitation on compensation.--The exemption provided 
        under paragraph (1) shall not be available to any charitable 
        organization, or any trustee, director, officer, employee, or 
        volunteer of such a charitable organization, unless each person 
        who, on or after 90 days after the date of enactment of this 
        subsection, solicits donations on behalf of such charitable 
        organization from any donor to a fund that is excluded from the 
        definition of an investment company under section 3(c)(10)(B) 
        of the Investment Company Act of 1940, is either a volunteer or 
        is engaged in the overall fund raising activities of a 
        charitable organization and receives no commission or other 
        special compensation based on the number or the value of 
        donations collected for the fund.''.
  (d) Conforming Amendment.--Section 12(g)(2)(D) of such Act (15 U.S.C. 
78l(g)(2)(D)) is amended by inserting before the period ``; or any 
security of a fund that is excluded from the definition of an 
investment company under section 3(c)(10)(B) of the Investment Company 
Act of 1940''.

SEC. 5. AMENDMENT OF THE INVESTMENT ADVISERS ACT OF 1940.

  Section 203(b) of Investment Advisers Act of 1940 (15 U.S.C. 80b-
3(b)) is amended--
          (1) by striking ``or'' at the end of paragraph (2);
          (2) by striking the period at the end of paragraph (3) and 
        inserting ``; or''; and
          (3) by adding at the end the following new paragraph:
          ``(4) any investment adviser that is a charitable 
        organization, as defined in section 3(c)(10)(D) of the 
        Investment Company Act of 1940, or is a trustee, director, 
        officer, employee, or volunteer of such a charitable 
        organization acting within the scope of such person's 
        employment or duties with such organization, whose advice, 
        analyses, or reports are provided only to one or more of the 
        following:
                  ``(A) any such charitable organization;
                  ``(B) a fund that is excluded from the definition of 
                an investment company under section 3(c)(10)(B) of the 
                Investment Company Act of 1940; or
                  ``(C) a trust or other donative instrument described 
                in section 3(c)(10)(B) of the Investment Company Act of 
                1940, or the trustees, administrators, settlors (or 
                potential settlors), or beneficiaries of any such trust 
                or other instrument.''.

SEC. 6. PROTECTION OF PHILANTHROPY UNDER STATE LAW.

  (a) Registration Requirements.--A security issued by or any interest 
or participation in any pooled income fund, collective trust fund, 
collective investment fund, or similar fund that is excluded from the 
definition of an investment company under section 3(c)(10)(B) of the 
Investment Company Act of 1940, and the offer or sale thereof, shall be 
exempt from any statute or regulation of a State that requires 
registration or qualification of securities.
  (b) Treatment of Charitable Organizations.--No charitable 
organization, or any trustee, director, officer, employee, or volunteer 
of a charitable organization acting within the scope of such person's 
employment or duties, shall be required to register as, or be subject 
to regulation as, a dealer, broker, agent, or investment adviser under 
the securities laws of any State because such organization or person 
buys, holds, sells, or trades in securities for its own account in its 
capacity as trustee or administrator of, or otherwise on behalf of or 
for the account of one or more of the following:
          (1) a charitable organization;
          (2) a fund that is excluded from the definition of an 
        investment company under section 3(c)(10)(B) of the Investment 
        Company Act of 1940; or
          (3) a trust or other donative instrument described in section 
        3(c)(10)(B) of the Investment Company Act of 1940, or the 
        settlors (or potential settlors) or beneficiaries of any such 
        trusts or other instruments.
  (c) State Action.--Notwithstanding subsections (a) and (b), during 
the 3-year period beginning on the date of enactment of this Act, a 
State may enact a statute that specifically refers to this section and 
provides prospectively that this section shall not preempt the laws of 
that State referred to in this section.
  (d) Definitions.--For purposes of this section--
          (1) the term ``charitable organization'' means an 
        organization described in paragraphs (1) through (5) of section 
        170(c) or section 501(c)(3) of the Internal Revenue Code of 
        1986;
          (2) the term ``security'' has the same meaning as in section 
        3 of the Securities Exchange Act of 1934; and
          (3) the term ``State'' means each of the several States of 
        the United States, the District of Columbia, the Commonwealth 
        of Puerto Rico, the Virgin Islands, Guam, American Samoa, and 
        the Commonwealth of the Northern Mariana Islands.

SEC. 7. EFFECTIVE DATES AND APPLICABILITY.

  This Act and the amendments made by this Act shall apply in all 
administrative and judicial actions pending on or commenced after the 
date of enactment of this Act, as a defense to any claim that any 
person, security, interest, or participation of the type described in 
this Act and the amendments made by this Act are subject to the 
provisions of the Securities Act of 1933, the Securities Exchange Act 
of 1934, the Investment Company Act of 1940, or the Investment Advisers 
Act of 1940, or any State statute or regulation preempted as provided 
in section 6 of this Act, except as otherwise specifically provided in 
such Acts or State law.

                           Purpose and Summary

    The purpose of H.R. 2519, the ``Philanthropy Protection Act 
of 1995,'' is to protect and facilitate donations to entities 
organized and operated exclusively for religious, educational, 
benevolent, fraternal, charitable, or reformatory purposes 
(collectively referred to as ``charitable organizations'') by 
limiting the applicability of Federal and State securities laws 
to the activities of such organizations in connection with the 
maintenance of certain pooled funds (collectively referred to 
as ``charitable income funds''). Charitable income funds 
include a variety of vehicles that permit donors to make 
contributions and retain a remainder interest, usually a 
lifetime income interest, in the donated property. Such funds 
are currently the subject of litigation in at least one Federal 
court 1 based on the allegation that the funds are 
investment companies that are subject to the registration and 
other requirements of the Investment Company Act of 1940. If 
such funds are found to be investment companies subject to 
these requirements, contributions to every charitable 
organization in the country could be revoked based on similar 
claims.
    \1\  Civil Action N. 7-94CV-128-X (N.D. Tex.).
---------------------------------------------------------------------------
     The legislation provides certain exemptions under the 
Federal securities laws for charitable organizations that 
maintain charitable income funds. The legislation also 
preempts, for at least three years, certain State securities 
laws relating to companies that are or maintain charitable 
income funds.

                  Background and Need for Legislation

I. Description of Charitable Income Funds vis-a-vis Federal Securities 
                                  Laws

    A charitable income fund is a fund maintained by a 
charitable organization, to which a person transfers property 
but retains an interest in the property. Usually the donor 
transfers a remainder interest in the property and retains a 
lifetime income interest, although not necessarily; for 
example, a donor to a charitable lead trust transfers the 
income interest of a corpus to a charitable organization, while 
the remainder interest in the corpus passes to the donor's 
designated beneficiaries.
    The charitable income fund includes commingled assets 
received from multiple transfers to the charitable 
organization. Each income beneficiary of the fund receives a 
proportionate share of the income earned by the fund each year. 
When a beneficiary's income interest terminates (by the terms 
of the instrument by which it was created, generally on the 
death of the income beneficiary), the remainder interest in the 
property upon which the income interest was based is paid to 
(or retained by) the charitable organization.
     As discussed below, the status under Federal securities 
laws of charitable income funds, the income interests in those 
funds, the charitable organizations maintaining the funds, and 
the persons who solicit donations to the funds is unclear, as 
illustrated by an examination of certain definitions under 
those laws.

A. Definitions

    Investment Company.--Section 3(a)(1) of the Investment 
Company Act of 1940, 15 U.S.C. 80a-3(a)(1) (the ``Investment 
Company Act''), defines ``investment company'' to mean any 
issuer which is or holds itself out as being engaged primarily, 
or proposes to engage primarily, in the business of investing, 
reinvesting, or trading in securities.
     Issuer.--Section 2(a)(22) of the Investment Company Act, 
15 U.S.C. 80a-2(a)(22), section 2(4) of the Securities Act of 
1933, 15 U.S.C. 77b-2(4) (the ``Securities Act''), and section 
3(a)(8) of the Securities Exchange Act of 1934, 15 U.S.C. 78c-
3(a)(8) (the ``Exchange Act''), each define ``issuer'' to mean 
every person who issues or proposes to issue any security (the 
Investment Company Act also includes in this definition every 
person who has outstanding any security which it has issued).
    Security.--Section 2(a)(36) of the Investment Company Act, 
15 U.S.C. 80b-2(a)(36), section 2(1) of the Securities Act, 15 
U.S.C. 77b-2(1), and section 3(a)(10) of the Exchange Act, 15 
U.S.C. 78c-3(a)(10), each define ``security'' to mean, among 
other things, any investment contract. The test for an 
investment contract is ``whether the scheme involves an 
investment of money in a common enterprise with profits to come 
solely from the efforts of others.'' Securities and Exchange 
Commission v. W.J. Howey Co., 328 U.S. 293, 301 (1946). The 
Court noted that it was ``immaterial whether the shares in the 
enterprise are evidenced by formal certificates or by nominal 
interests in the physical assets employed in the enterprise.'' 
328 U.S. at 299.
    Broker.--Section 3(a)(4) of the Exchange Act, 15 U.S.C. 
78c-3(a)(4), defines ``broker'' to mean ``any person engaged in 
the business of effecting transactions in securities for the 
account of others * * *.''
    Investment Adviser.--Section 202(a)(11) of the Investment 
Advisers Act, 15 U.S.C. 80b-2(a)(11) (the ``Advisers Act''), 
defines ``investment adviser'' to mean, among other things, 
``any person who, for compensation, engages in the business of 
advising others, either directly or through publications or 
writings, as to the value of securities or as to the 
advisability of investing in, purchasing, or selling 
securities.''
    Under these statutory provisions, because the money of 
donors to charitable income funds is pooled together in a 
``common enterprise'' (the charitable income fund) with 
``profits'' (the retained interest in the gift, usually a 
lifetime income interest) to come solely from the efforts of 
others (those who maintain the charitable income fund), the 
acquisition of an interest in a charitable income fund for 
consideration may be an investment contract. In that case, the 
interest would be a security of which the charitable income 
fund would be the issuer. If the charitable income fund were an 
issuer of a security, it would, if primarily engaged in the 
business of investing in securities, be an investment company. 
A person who is engaged in the business of soliciting donations 
to the charitable income fund would thus be engaged in the 
business of ``effecting transactions'' in ``securities,'' and 
would therefore be a broker. Finally, a person who is engaged 
in the business of advising a charitable income fund as to the 
investment of its assets may be viewed as an investment 
adviser.

B. Charitable Organization Exemptions Under the Securities Laws

    Section 3(c)(10) of the Investment Company Act, 15 U.S.C. 
80b-3(c)(10), excludes from the definition of investment 
company any company organized and operated exclusively for 
religious, educational, benevolent, fraternal, charitable, or 
reformatory purposes, provided that no part of the company's 
net earnings inures to the benefit of any person, private 
shareholder or individual. Similarly, section 3(a)(4) of the 
Securities Act, 15 U.S.C. 77c-3(a)(4), and section 12(g)(2)(D) 
of the Exchange Act, 15 U.S.C. 78l-12(g)(2)(D), exempt from 
their provisions (other than their anti-fraud provisions) any 
security issued by a person organized and operated exclusively 
for religious, educational, benevolent, fraternal, charitable, 
or reformatory purposes and not for pecuniary profit, provided 
that no part of the company's net earnings inures to the 
benefit of any person, private shareholder or individual.
     Because the nature (indeed, the very purpose) of 
charitable income funds is to provide a financial interest to 
donors in the funds' net earnings, part of the funds' net 
earnings may be viewed as inuring to the benefit of persons and 
individuals. Therefore, the applicability of the charitable 
organization exemptions under the Investment Company Act, 
Securities Act, and Exchange Act is subject to question.
    The staff of the Securities and Exchange Commission (the 
``Commission'') has addressed the questions raised by 
charitable income funds under the Investment Company Act, 
Securities Act, and Exchange Act on a number of occasions over 
the past twenty-three years. In particular, the staff has 
provided no-action assurance under certain circumstances when 
charitable income funds have operated: without being registered 
under the Investment Company Act, without registering interests 
in the funds under the Securities Act or the Exchange Act; and 
without registering themselves, or persons soliciting gifts on 
their behalf, as broker-dealers under the Exchange Act. 2 
The circumstances under which registration has not been 
required are: (1) the charitable income fund holds no assets 
contributed through a revocable donation; 3 (2) the fund 
qualifies as a recipient of tax-deductible contributions under 
the Internal Revenue Code of 1986; (3) each prospective donor 
receives written disclosures fully and fairly describing the 
fund's operations; and (4) any person soliciting contributions 
to the fund is either a volunteer or is employed in the 
charity's overall fundraising activities and is not compensated 
on the basis of the amount of gifts transferred to the fund. 
4
    \2\  See, e.g., Investment Company Act Release No. 11016 (Jan. 10, 
1980); National Foundation for Philanthropy (pub. avail. Mar. 21, 
1985); Princeton University (pub. avail. Aug. 26, 1982).
    \3\  See Society for the Propagation of the Faith (pub. avail. Aug. 
23, 1984) (where charitable organization pooled together assets donated 
by irrevocable and revocable trusts, the pool would have to register as 
an investment company; staff was unconvinced that the donors of the 
revocable trusts ``evidence a true charitable donative intent and not 
the intention of an investor.'').
    \4\  The Commission historically has viewed the receipt of 
transaction-based compensation as potentially providing the incentive 
to persons who work for charitable organizations to engage in high-
pressure or abusive sales practices. See Securities Exchange Act 
Release No. 22172 (June 27, 1985) (adopting Exchange Act rule 3a4-1). 
Accordingly, the staff has conditioned its position that associated 
persons of charitable organizations are exempt from the broker-dealer 
provisions of the Exchange Act upon the absence of this type of 
compensation. See authorities cited above in note 2.
---------------------------------------------------------------------------
    Notwithstanding the staff's view that certain charitable 
income funds can operate without registering under the Federal 
securities laws, the staff consistently has taken the position 
that the anti-fraud provisions of the Federal securities laws 
apply to the activities of those funds and their associated 
persons. 5
    \5\  E.g., Investment Company Act Release No. 11016 (Jan. 10, 
1980); American Council on Education (pub. avail. Dec. 15, 1972).
---------------------------------------------------------------------------
    The rationale for the staff's position with respect to 
charitable income funds is that the primary purpose of persons 
who transfer property to these funds is to make a charitable 
donation, not to make an investment. The staff has concluded 
that this donative intent--combined with, among other things, 
the protections afforded by disclosure to donors and the 
applicability of the anti- fraud provisions of the securities 
laws to the operations of charitable income funds--makes 
registration under the Federal securities laws unnecessary.

                 II. Need for and Scope of Legislation

    A favorable letter from the Commission's staff regarding a 
particular transaction, however, does not insulate the 
recipient, or others similarly situated, from liability to a 
private litigant who alleges that the same transaction violates 
the Federal securities laws.
    In addition, every State imposes securities laws separate 
from the Federal securities laws. In general, State securities 
laws (also known as ``blue sky laws'') require registration of 
securities and may also require qualification of securities. 
State securities laws also impose registration and other 
regulatory requirements on dealers, brokers, agents, and 
investment advisers. Accordingly, as in the case of the Federal 
securities laws noted above, the applicability of State 
securities laws to charitable income funds and persons 
associated with them is uncertain.
    A plaintiff recently filed a class action in Federal 
district court in Texas alleging, among other things, that 
charitable income funds are investment companies required to 
register under the Investment Company Act. 6 This lawsuit 
has created uncertainty among charitable organizations 
nationwide as to the applicability of the Federal securities 
laws to charitable income funds. 7 Among other things, a 
charitable income fund that is an unregistered investment 
company could have all of its transactions invalidated, and 
might be required to return all donations. 8
    \6\  Civil Action N. 7-94CV-128-X (N.D. Tex.).
    \7\  A favorable ruling for the plaintiff on the plaintiff's 
Federal securities law complaints would create a precedent that could 
render every charitable organization in the nation that operates a 
charitable donation pool vulnerable to similar lawsuits. See Cong. Rec. 
E2006 (daily ed. Oct. 24, 1995) (remarks of Rep. Fields) (``Some 
organizations have already stopped accepting gifts through their 
charitable donation pools for fear a class action will send that money 
right back out the door--into the pockets of plaintiffs and their 
lawyers.'').
    \8\  Contracts entered into by unregistered investment companies 
may fall under section 47(b) of the Investment Company Act, 15 U.S.C. 
80a-46(b), which provides that a contract made or performed in 
violation of the Act is unenforceable by either party unless a court 
finds that, in a particular case, enforcement would produce a more 
equitable result and would not be inconsistent with the purposes of the 
Act. The plaintiff in the Texas lawsuit, among other things, seeks 
rescission under section 47(b) of certain charitable donations made to 
certain of the defendants.
---------------------------------------------------------------------------
    The legislation is intended to eliminate the uncertainty 
created by the Texas litigation by codifying the approach taken 
by the Commission's staff to permit charitable income funds to 
operate without registration under the Investment Company Act, 
Securities Act, and Exchange Act, and by providing further 
exemptions from Federal and State securities laws to charitable 
organizations and persons associated with them in connection 
with the maintenance and operation of charitable income funds. 
To ensure that the remedies provided by the legislation are 
available to the charitable organizations that spurred the need 
for the legislation, the legislation applies to actions pending 
on the date of the legislation's effectiveness.
    Consistent with the conditions of the relief accorded by 
the Commission staff to charitable income funds, the 
legislation includes safeguards regarding disclosure to donors, 
asset-based solicitation compensation, and fraud. Because the 
legislation does not affect the reach or scope of the anti-
fraud provisions of the Federal or State securities laws, such 
anti-fraud laws will continue to prohibit ``Ponzi'' schemes and 
other frauds perpetrated under the guise of charitable 
activity.

                                Hearings

    On October 31, 1995, the Subcommittee on Telecommunications 
and Finance held a legislative hearing on H.R. 2519. Witnesses 
included: Mr. Barry P. Barbash, Director, Division of 
Investment Management, U.S. Securities and Exchange Commission; 
Mr. Terry L. Simmons, President, Charitable Accord, and Vice 
President and General Counsel, Baptist Foundation of Texas; Mr. 
Paul Fritz Kling, Director of Planned Gifts, University of 
Richmond; Ms. Katelyn Quynn, Director of Planned Giving, 
Massachusetts General Hospital; and Mr. Douglas E. White, 
Director of Client Relations, Kaspick & Co.

                        Committee Consideration

    On October 31, 1995, the Subcommittee on Telecommunications 
and Finance met in open markup session and approved H.R. 2519 
for Full Committee consideration, without amendment, by a voice 
vote, a quorum being present. On November 1, 1995, the Full 
Committee met in open markup session an ordered H.R. 2519, as 
amended, reported to the House, by a voice vote, a quorum being 
present.

                             Rollcall Votes

    Clause 2(l)(2)(B) of rule XI of the Rules of the House 
requires the Committee to list the recorded votes on the motion 
to report legislation and on amendments thereto. There were no 
recorded votes taken in connection with ordering H.R. 2519 
reported or in adopting the amendment. The voice votes taken in 
Committee are as follows:

                 committee on commerce--104th congress

    Bill: H.R. 2519, Philanthropy Protection Act of 1995.
    Amendment: Amendment in the Nature of a Substitute by Mr. 
Fields.
    Disposition: Agreed to, by a voice vote.
    Motion: Motion by Mr. Fields to order H.R. 2519, as 
amended, reported to the House.
    Disposition: Agreed to, by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Subcommittee on 
Telecommunications and Finance held a legislative hearing and 
made findings that are reflected in this report.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform and Oversight.

               New Budget Authority and Tax Expenditures

    In compliance with clause 2(l)(3)(b) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that H.R. 2519 would result in no new or increased budget 
authority or tax expenditures or revenues.

                        Committee Cost Estimate

     In compliance with clause 7(a) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the cost estimate prepared by the Director of the 
Congressional Budget Office pursuant to section 403 of the 
Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
403 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, November 8, 1995.
Hon. Thomas J. Bliley, Jr.,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 2519, the Philanthropy Protection Act of 1995, as 
ordered reported by the House Committee on Commerce on November 
1, 1995. CBO estimates that enacting H.R. 2519 would not result 
in any significant cost to the Federal Government. Because 
enactment of H.R. 2519 would not affect direct spending or 
receipts, pay-as-you-go procedures would not apply to the bill.
    H.R. 2519 would amend the federal securities laws to exempt 
certain types of charitable income funds from the registration 
laws and fees which apply to investment companies. A charitable 
income fund allows donors to make contributions to charities 
while retaining remainder interest in the donation, usually in 
the form of a lifetime income stream from the asset. Charities 
often commingle the assets to form different types of 
charitable income funds in order to manage the assets more 
efficiently.
    Current law exempts a charity from the registration laws 
and fees as long as no part of the charity's net earnings 
accrue to any private shareholder or individual. The Securities 
and Exchange Commission (SEC) interprets the law to include 
charitable income funds; thus such funds are exempt from the 
registration laws and fees. This bill would codify the current 
practice of the SEC with regards to charitable income funds and 
would have no effect on the amount of registration fees paid to 
the federal government. The bill would retain the anti-fraud 
and disclosure requirements that currently apply to both 
investment companies and charitable organizations and trusts.
    H.R. 2519 would preempt existing state laws regarding the 
exclusion of charities and charitable trusts from registration 
laws for a period of three years following the enactment of the 
bill. CBO estimates that the bill would not affect the budgets 
of state or local governments.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Rachel 
Forward.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the bill 
would have no inflationary impact.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

             Section-by-Section Analysis of the Legislation

Sec. 1. Short title.

    This section provides that the Act may be cited as the 
``Philanthropy Protection Act of 1995.'' It also provides a 
table of contents of the Act.

Sec. 2. Amendment to the Investment Company Act of 1940.

    Exclusion from definition of investment company.--Section 
2(a) of the legislation amends section 3(c)(10) of the 
Investment Company Act to exclude from the definition of 
``investment company'' any collective investment fund 
maintained by a charitable organization exclusively for the 
collective investment and reinvestment of certain defined 
assets.
    These assets, defined more specifically below, include 
property contributed by donors who retain an interest, usually 
a lifetime income interest, in the donated property, or who 
contribute property in exchange for an annuity. The collective 
investment funds that are excluded from the definition of 
investment company under this section are referred to hereafter 
as ``charitable income funds.''
    Section 2(a) of the legislation adds paragraph (B) to 
section 3(c)(10). Paragraph (B) states that a charitable income 
fund must be maintained exclusively for the collective 
investment of: (i) the assets of the general endowment fund or 
other funds of one or more charitable organizations; (ii) the 
assets of a pooled income fund, as that term is defined in the 
Internal Revenue Code of 1986 (the ``Code''); (iii) assets 
contributed to a charitable organization in exchange for the 
issuance of charitable gift annuities, as described in the 
Code; (iv) the assets of a charitable remainder trust (as 
defined in the Code) or any other trust whose remainder 
interests are irrevocably dedicated to a charitable 
organization; and (v) the assets of a charitable lead trust, as 
described in the Code.
    Clauses (vi) and (vii) of paragraph (B) provide conditional 
or limited exemptive relief to charitable income funds that 
include assets that are revocably donated or that are not 
otherwise exempt under clauses (i) through (v) of paragraph (B) 
of amended section 3(c)(10), as described below.
    The Commission staff has not accorded the same relief from 
the Federal securities laws to charitable income funds that 
contain assets that are revocably donated as it has to funds 
containing only irrevocably donated assets.9 The staff has 
denied this relief based on the concern that donors of 
revocable gifts may not have a ``true charitable intent'' as 
opposed to the ``intention of an investor''.10 
Nevertheless, section 2(a) of the legislation adds clauses (vi) 
and (vii) to amended section 3(c)(10) in order to prevent the 
undesirable result of exposing charitable organizations that 
maintain charitable income funds that contain revocably donated 
(and other) assets to the litigation risk that the Texas suit 
has created for all charitable income funds.
    \9\ See supra n.3.
    \10\ Id.
---------------------------------------------------------------------------
     Clause (vi) is a grandfather clause that, together with 
the conditions imposed by paragraph (C) of amended section 
3(c)(10), permits a charitable income fund, for a period of 
three years following the legislation's enactment, to continue 
to hold (but not to receive, after a grace period of 60 days) 
assets donated by a trust, the remainder interests of which are 
revocably dedicated to the charitable organization. This 
provision is intended to permit charitable income funds that 
currently include revocable assets to be restructured to 
qualify for the permanent exemptive provisions of the 
legislation.
     Clause (vii) explicitly ratifies the Commission's 
authority to expand the scope of the permanent exemptive 
provisions of the legislation to include: (1) funds that may 
include assets not defined in sections (i) through (vi) of new 
section 3(c)(10)(B); and (2) funds that may include assets that 
are revocably donated. This provision is not intended to limit 
in any way the broad exemptive authority of the Commission 
under section 6(c) of the Investment Company Act, 15 U.S.C. 
80a-6(c).
     One purpose of this exemptive provision is to ensure that 
developments in planned giving, such as the creation of a new 
type of instrument that is not in use today or the use of an 
instrument that is otherwise not described in sections (i) 
through (vi) of new section 3(c)(10)(B), do not cause 
charitable organizations using such instruments to be subject 
to the uncertainty under the Federal securities laws that the 
legislation is designed to eliminate.
     Another purpose of the provision is to ensure that the 
Commission retains the flexibility to exempt from the 
Investment Company Act, under certain circumstances, a fund 
that includes revocably donated assets but does not meet the 
requirements of the grandfather clause.11 Such flexibility 
might be warranted where, for example, donations to a 
charitable income fund are revocable in the event of health 
emergencies or other extenuating circumstances, or where 
revocable donations comprise a very small proportion of a 
charitable income fund. In these and other circumstances, the 
concern that the donors of revocable trusts may not evidence 
true charitable intent 12 may not be substantiated by the 
facts at hand, or may not justify the consequences of the 
denial of the legislation's exemptive provisions to a 
charitable income fund.
    \11\ That is, new clause 3(c)(10)(B)(vi) of the Investment Company 
Act.
    \12\ E.g., Society For the Propagation of the Faith, supra n.3.
---------------------------------------------------------------------------
     Definitions.--Section 2(a) also adds subparagraph (D) to 
section 3(c)(10) to provide definitions of the terms used in 
the new provisions added to the Investment Company Act. These 
definitions cross-reference appropriate sections of the Code 
with respect to the various charitable instruments and 
organizations referred to in the legislation.
     Disclosure requirement.--Section 2(b) of the legislation 
amends section 7 of the Investment Company Act to add paragraph 
(e), which requires that each fund that is excluded from the 
definition of an investment company under amended section 
3(c)(10)(B) of the Act shall provide, to each donor of the 
fund, at the later of the time of donation or within 90 days 
after the date of enactment of the legislation, written 
information describing the material terms of the operation of 
the fund.
     This disclosure requirement is not a condition upon which 
the exemption from the Investment Company Act is based. 
Accordingly, a charitable income fund that fails to provide the 
requisite written information will not become subject to the 
provisions of the Investment Company Act (and, therefore, the 
other securities laws amended by the legislation), although the 
fund may be subject to enforcement or other action by the 
Commission in connection with such a statutory violation. The 
disclosure requirement is intended to afford charitable 
organizations flexibility in determining the contents of the 
required disclosure.

Sec. 3. Amendment to the Securities Act of 1933

     Section 3 of the legislation amends section 3(a)(4) of the 
Securities Act. Section 3(a) of the Securities Act exempts 
certain classes of securities from the provisions of that Act 
(except as otherwise provided, as in, for example, the Act's 
anti-fraud provisions). Paragraph (4) of that section exempts 
securities issued by the same entities currently listed in 
section 3(c)(10) of the Investment Company Act.
     Section 3 of the legislation extends the exemption in 
paragraph (4) of Securities Act section 3(a) to interests in 
any charitable income fund that is excluded from the definition 
of investment company under section 3(c)(10) of the Investment 
Company Act, as amended by section 2 of the legislation. As 
noted in the parenthetical above, this provision does not 
exempt charitable income funds from the anti-fraud provisions 
of the Securities Act.

Sec. 4. Amendments to the Securities Exchange Act of 1934

     Exempted securities.--Section 4(a) amends the definition 
of exempted securities under section 3(a)(12)(A) of the 
Exchange Act to include any security issued by a charitable 
income fund that is excluded from the definition of investment 
company under section 3(c)(10) of the Investment Company Act, 
as amended by section 2 of the legislation. This amendment, 
like the amendments to the Securities Act noted above, does not 
exempt charitable income funds from the anti-fraud provisions 
of the Exchange Act.
    Broker-dealer regulations.--Section 4(b) adds a new 
subsection (e) to section 3 of the Exchange Act. This new 
subsection provides in paragraph (1) that, subject to the 
conditions of paragraph (2), a charitable organization, or any 
trustee, director, officer, employee, or volunteer of a 
charitable organization, acting within the scope of his or her 
employment or duties with such organization, will not be 
subject to the broker-dealer regulations of the Exchange Act 
solely because such organization or person trades in securities 
on behalf of a charitable organization, a charitable income 
fund, or the settlors, potential settlors or beneficiaries 
thereof.
     The exemption from the Exchange Act broker-dealer 
provisions is subject to the condition, set forth in paragraph 
(2) of subsection (e), that any person soliciting donations on 
behalf of such a charitable organization must be either a 
volunteer or employed in the overall fund-raising activities of 
a charitable organization, and that such a person must not 
receive any special compensation based on the number or value 
of donations collected for the fund. This condition applies 
after a 90-day grace period following enactment of the 
legislation.
     The exemption from the Exchange Act's broker-dealer 
provisions is conditional because, while charitable 
organizations should remain free to compensate persons who 
solicit donations based on their success in obtaining 
donations, persons who are so compensated may be acting as 
brokers, and, accordingly, should not necessarily be 
statutorily exempt from the broker-dealer provisions of the 
Exchange Act.
    Registration requirements.--Section 4(d) of the legislation 
amends section 12(g)(2)(D) of the Exchange Act to exempt from 
the registration provisions of Exchange Act section 12(g)(1) 
any security issued by a charitable income fund that is 
excluded from the definition of investment company under 
section 3(c)(10) of the Investment Company Act, as amended by 
section 2 of the legislation.

Sec. 5. Amendment to the Investment Advisers Act of 1940

     Section 5 of the legislation adds a new paragraph (4) to 
section 203(b) of the Advisers Act to add a new category of 
investment advisers that is exempt from registration. 
Generally, the Investment Advisers Act requires investment 
advisers--defined to include persons who provide advice, 
analyses, or reports concerning securities--to register, unless 
they are exempted from registration under section 203(b) of the 
Advisers Act. New paragraph (4) exempts from registration 
certain persons associated with a charitable organization (and 
the organization itself) if such persons, acting within the 
scope of their duties with the organization, provide advice, 
analyses, or reports solely to one or more of the following: a 
charitable organization; a charitable income fund that is 
excluded from the definition of investment company under 
section 3(c)(10) of the Investment Company Act, as amended by 
section 2 of the legislation; or a trust or other donative 
instrument described in section 3(c)(10)(B) of the Investment 
Company Act, as amended by the legislation, or the trustees, 
administrators, settlors (or potential settlors), or 
beneficiaries of any such trust or other instrument. Although 
such persons are exempt from registration as investment 
advisers, they remain subject to the anti-fraud provision of 
the Advisers Act.

Sec. 6. Protection of philanthropy under State law

     Preemption.--Subject to section 6(c), section 6(a) of the 
legislation provides that interests in charitable income funds 
excluded from the definition of investment company under 
amended section 3(c)(10) of the Investment Company Act and the 
offer or sale of such interests shall be exempt from any State 
law that requires registration or qualification of securities. 
Section 6(b) of the legislation provides that no charitable 
organization or trustee, director, officer, employee, or 
volunteer of a charitable organization acting within the scope 
of his or her employment or duties shall be subject to 
regulation as a dealer, broker, agent or investment adviser 
under any State securities law because such organization or 
person trades in securities on behalf of a charitable 
organization, a charitable income fund, or the settlors, 
potential settlors or beneficiaries thereof. Section 6 of the 
legislation is not intended to alter the reach or scope of 
State anti-fraud laws.
     Opt-out provision.--Section 6(c) of the legislation 
permits any State to enact a statute that specifically refers 
to section 6 of the legislation and provides prospectively that 
such section shall not preempt the laws of that State. The 
State may enact such a statute at any time during the three-
year period beginning on the date of the legislation's 
enactment.
     The purpose of section 6 is to ensure that the exemptions 
provided under Federal law by the legislation are not 
immediately vitiated by State securities laws.

Sec. 7. Effective dates and applicability

     Section 7 provides that the amendments effected by the 
legislation shall apply in all administrative and judicial 
actions pending on or commenced after the date of enactment. 
This provision is intended to render moot the securities law 
claims in the Texas case referred to above 13 as well as 
in any other action pending on the date of the legislation's 
effectiveness.
    \13\ See supra n.6.
---------------------------------------------------------------------------

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                     INVESTMENT COMPANY ACT OF 1940

          * * * * * * *

                     TITLE I--INVESTMENT COMPANIES

          * * * * * * *

                    definition of investment company

  Sec. 3. (a)  * * *
          * * * * * * *
  (c) Notwithstanding subsection (a), none of the following 
persons is an investment company within the meaning of this 
title:
          (1)  * * *
          * * * * * * *
          [(10) Any company organized and operated exclusively 
        for religious, educational, benevolent, fraternal, 
        charitable, or reformatory purposes, no part of the net 
        earnings of which inures to the benefit of any private 
        shareholder or individual.]
          (10)(A) Any company organized and operated 
        exclusively for religious, educational, benevolent, 
        fraternal, charitable, or reformatory purposes--
                  (i) no part of the net earnings of which 
                inures to the benefit of any private 
                shareholder or individual; or
                  (ii) which is or maintains a fund described 
                in subparagraph (B).
          (B) For the purposes of subparagraph (A)(ii), a fund 
        is described in this subparagraph if such fund is a 
        pooled income fund, collective trust fund, collective 
        investment fund, or similar fund maintained by a 
        charitable organization exclusively for the collective 
        investment and reinvestment of one or more of the 
        following:
                  (i) assets of the general endowment fund or 
                other funds of one or more charitable 
                organizations;
                  (ii) assets of a pooled income fund;
                  (iii) assets contributed to a charitable 
                organization in exchange for the issuance of 
                charitable gift annuities;
                  (iv) assets of a charitable remainder trust 
                or of any other trust, the remainder interests 
                of which are irrevocably dedicated to any 
                charitable organization;
                  (v) assets of a charitable lead trust;
                  (vi) assets of a trust not described in 
                clauses (i) through (v), the remainder 
                interests of which are revocably dedicated to a 
                charitable organization, subject to 
                subparagraph (C); or
                  (vii) such assets (including assets revocably 
                dedicated to a charitable organization) as the 
                Commission may prescribe by rule, regulation, 
                or order in accordance with section 6(c).
          (C) A fund that contains assets described in clause 
        (vi) of subparagraph (B) shall be excluded from the 
        definition of an investment company for a period of 3 
        years after the date of enactment of this subparagraph, 
        but only if--
                  (i) such assets were contributed before the 
                date which is 60 days after the date of 
                enactment of this subparagraph; and
                  (ii) such assets are commingled in the fund 
                with assets described in one or more of clauses 
                (i) through (v) of subparagraph (B).
          (D) For purposes of this paragraph--
                  (i) a trust or fund is ``maintained'' by a 
                charitable organization if the organization 
                serves as a trustee or administrator of the 
                trust or fund or has the power to remove the 
                trustees or administrators of the trust or fund 
                and to designate new trustees or 
                administrators;
                  (ii) the term ``pooled income fund'' has the 
                same meaning as in section 642(c)(5) of the 
                Internal Revenue Code of 1986;
                  (iii) the term ``charitable organization'' 
                means an organization described in paragraphs 
                (1) through (5) of section 170(c) or section 
                501(c)(3) of the Internal Revenue Code of 1986;
                  (iv) the term ``charitable lead trust'' means 
                a trust described in section 170(f)(2)(B), 
                2055(e)(2)(B), or 2522(c)(2)(B) of the Internal 
                Revenue Code of 1986;
                  (v) the term ``charitable remainder trust'' 
                means a charitable remainder annuity trust or a 
                charitable remainder unitrust, as those terms 
                are defined in section 664(d) of the Internal 
                Revenue Code of 1986; and
                  (vi) the term ``charitable gift annuity'' 
                means an annuity issued by a charitable 
                organization that is described in section 
                501(m)(5) of the Internal Revenue Code of 1986.
          * * * * * * *

           transactions by unregistered investment companies

  Sec. 7. (a)  * * *
          * * * * * * *
  (e) Disclosure by Exempt Charitable Organizations.--Each fund 
that is excluded from the definition of an investment company 
under section 3(c)(10)(B) of this Act shall provide, to each 
donor to such fund, at the time of the donation or within 90 
days after the date of enactment of this subsection, whichever 
is later, written information describing the material terms of 
the operation of such fund.
          * * * * * * *
                              ----------                              


                SECTION 3 OF THE SECURITIES ACT OF 1933

          * * * * * * *

                          exempted securities

  Sec. 3. (a) Except as hereinafter expressly provided, the 
provisions of this title shall not apply to any of the 
following classes of securities:
          (1)  * * *
          * * * * * * *
          (4) Any security issued by a person organized and 
        operated exclusively for religious, educational, 
        benevolent, fraternal, charitable, or reformatory 
        purposes and not for pecuniary profit, and no part of 
        the net earnings of which inures to the benefit of any 
        person, private stockholder, or individual; or any 
        security of a fund that is excluded from the definition 
        of an investment company under section 3(c)(10)(B) of 
        the Investment Company Act of 1940;
          * * * * * * *
                              ----------                              


                    SECURITIES EXCHANGE ACT OF 1934

          * * * * * * *

              TITLE I--REGULATION OF SECURITIES EXCHANGES

          * * * * * * *

                  definitions and application of title

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1)  * * *
          * * * * * * *
          (12)(A) The term ``exempted security'' or ``exempted 
        securities'' includes--
                  (i)  * * *
          * * * * * * *
                  (iv) any interest or participation in a 
                single trust fund, or a collective trust fund 
                maintained by a bank, or any security arising 
                out of a contract issued by an insurance 
                company, which interest, participation, or 
                security is issued in connection with a 
                qualified plan as defined in subparagraph (C) 
                of this paragraph; [and]
                  (v) any security issued by or any interest or 
                participation in any pooled income fund, 
                collective trust fund, collective investment 
                fund, or similar fund that is excluded from the 
                definition of an investment company under 
                section 3(c)(10)(B) of the Investment Company 
                Act of 1940; and
                  [(v)] (vi) such other securities (which may 
                include, among others, unregistered securities, 
                the market in which is predominantly 
                intrastate) as the Commission may, by such 
                rules and regulations as it deems consistent 
                with the public interest and the protection of 
                investors, either unconditionally or upon 
                specified terms and conditions or for stated 
                periods, exempt from the operation of any one 
                or more provisions of this title which by their 
                terms do not apply to an ``exempted security'' 
                or to ``exempted securities''.
          * * * * * * *
  (e) Charitable Organizations.--
          (1) Exemption.--Notwithstanding any other provision 
        of this title, but subject to paragraph (2) of this 
        subsection, a charitable organization, as defined in 
        section 3(c)(10)(D) of the Investment Company Act of 
        1940, or any trustee, director, officer, employee, or 
        volunteer of such a charitable organization acting 
        within the scope of such person's employment or duties 
        with such organization, shall not be deemed to be a 
        ``broker'', ``dealer'', ``municipal securities 
        broker'', ``municipal securities dealer'', ``government 
        securities broker'', or ``government securities 
        dealer'' for purposes of this title solely because such 
        organization or person buys, holds, sells, or trades in 
        securities for its own account in its capacity as 
        trustee or administrator of, or otherwise on behalf of 
        or for the account of--
                  (A) such a charitable organization;
                  (B) a fund that is excluded from the 
                definition of an investment company under 
                section 3(c)(10)(B) of the Investment Company 
                Act of 1940; or
                  (C) a trust or other donative instrument 
                described in section 3(c)(10)(B) of the 
                Investment Company Act of 1940, or the settlors 
                (or potential settlors) or beneficiaries of any 
                such trust or other instrument.
          (2) Limitation on compensation.--The exemption 
        provided under paragraph (1) shall not be available to 
        any charitable organization, or any trustee, director, 
        officer, employee, or volunteer of such a charitable 
        organization, unless each person who, on or after 90 
        days after the date of enactment of this subsection, 
        solicits donations on behalf of such charitable 
        organization from any donor to a fund that is excluded 
        from the definition of an investment company under 
        section 3(c)(10)(B) of the Investment Company Act of 
        1940, is either a volunteer or is engaged in the 
        overall fund raising activities of a charitable 
        organization and receives no commission or other 
        special compensation based on the number or the value 
        of donations collected for the fund.
          * * * * * * *

                registration requirements for securities

  Sec. 12. (a)  * * *
          * * * * * * *
  (g)(1)  * * *
  (2) The provisions of this subsection shall not apply in 
respect of--
          (A)  * * *
          * * * * * * *
          (D) any security of an issuer organized and operated 
        exclusively for religious, educational, benevolent, 
        fraternal, charitable, or reformatory purposes and not 
        for pecuniary profit, and no part of the net earnings 
        of which inures to the benefit of any private 
        shareholder or individual; or any security of a fund 
        that is excluded from the definition of an investment 
        company under section 3(c)(10)(B) of the Investment 
        Company Act of 1940.
          * * * * * * *
                              ----------                              


             SECTION 203 OF INVESTMENT ADVISERS ACT OF 1940

                  registration of investment advisers

  Sec. 203. (a)  * * *
  (b) The provisions of subsection (a) shall not apply to--
          (1)  * * *
          (2) any investment adviser whose only clients are 
        insurance companies; [or]
          (3) any investment adviser who during the course of 
        the preceding twelve months has had fewer than fifteen 
        clients and who neither holds himself out generally to 
        the public as an investment adviser nor acts as an 
        investment adviser to any investment company registered 
        under title I of this Act, or a company which has 
        elected to be a business development company pursuant 
        to section 54 of title I of this Act and has not 
        withdrawn its election. For purposes of determining the 
        number of clients of an investment adviser under this 
        paragraph, no shareholder, partner, or beneficial owner 
        of a business development company, as defined in this 
        title, shall be deemed to be a client of such 
        investment adviser unless such person is a client of 
        such investment adviser separate and apart from his 
        status as a shareholder, partner, or beneficial 
        owner[.]; or
          (4) any investment adviser that is a charitable 
        organization, as defined in section 3(c)(10)(D) of the 
        Investment Company Act of 1940, or is a trustee, 
        director, officer, employee, or volunteer of such a 
        charitable organization acting within the scope of such 
        person's employment or duties with such organization, 
        whose advice, analyses, or reports are provided only to 
        one or more of the following:
                  (A) any such charitable organization;
                  (B) a fund that is excluded from the 
                definition of an investment company under 
                section 3(c)(10)(B) of the Investment Company 
                Act of 1940; or
                  (C) a trust or other donative instrument 
                described in section 3(c)(10)(B) of the 
                Investment Company Act of 1940, or the 
                trustees, administrators, settlors (or 
                potential settlors), or beneficiaries of any 
                such trust or other instrument.
          * * * * * * *