[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 479 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 479

 To amend the Securities Act of 1933 and the Investment Company Act of 
   1940 to promote capital formation for small businesses and others 
    through exempted offerings under the Securities Act and through 
 investment pools that are excepted or exempted from regulation under 
  the Investment Company Act of 1940 and through business development 
                               companies.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

               March 2 (legislative day, January 5), 1993

 Mr. Dodd (for himself, Mr. Riegle, Mr. D'Amato, Mr. Kerry, Mr. Bryan, 
 Mr. Mack, and Mr. Domenici) introduced the following bill; which was 
read twice and referred to the Committee on Banking, Housing, and Urban 
                                Affairs

_______________________________________________________________________

                                 A BILL


 
 To amend the Securities Act of 1933 and the Investment Company Act of 
   1940 to promote capital formation for small businesses and others 
    through exempted offerings under the Securities Act and through 
 investment pools that are excepted or exempted from regulation under 
  the Investment Company Act of 1940 and through business development 
                               companies.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Incentive Act of 
1993''.

            TITLE I--AMENDMENT TO THE SECURITIES ACT OF 1933

SEC. 101. EXEMPTED SECURITIES.

    Section 3(b) of the Securities Act of 1933 (15 U.S.C. 77c(b)) is 
amended by striking ``$5,000,000'' and inserting ``$10,000,000''.

       TITLE II--AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940

SEC. 201. EXCLUSIONS FROM THE DEFINITION OF INVESTMENT COMPANY.

    Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-
3(c)) is amended--
            (1) In paragraph (1) by adding after the first sentence the 
        following new sentence: ``Such issuer shall be deemed to be an 
        investment company for purposes of the limitations set forth in 
        subparagraphs (A)(i) and (B)(i) of section 12(d)(1) governing 
        the purchase or other acquisition by such issuer of any 
        security issued by a registered investment company and the sale 
        of any security issued by a registered open-end investment 
        company to any such issuer.'';
            (2) In paragraph (1)(A)--
                    (A) by inserting after ``issuer,'' the first place 
                it appears ``and the company is or, but for the 
                exceptions set forth in this paragraph and paragraph 
                (7), would be an investment company,'';
                    (B) by striking ``paper) unless as of the date'' 
                and all that follows through the end of subparagraph 
                (A) and inserting the following: ``paper).'';
            (3) by amending paragraph (7) to read as follows:
            ``(7) Any issuer whose outstanding securities are owned 
        exclusively by persons who, at the time of acquisition of such 
        securities, are qualified purchasers, except that such issuer 
        shall be deemed to be an investment company for purposes of the 
        limitations set forth in subparagraphs (A)(i) and (B)(i) of 
        section 12(d)(1) governing the purchase or other acquisition by 
        such issuer of any security issued by a registered investment 
        company and the sale of any security issued by a registered 
        open-end investment company to any such issuer.''.

SEC. 202. DEFINITION OF QUALIFIED PURCHASER.

    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) `Qualified purchaser' means any person whom the 
        Commission, by rule or regulation, has determined does not need 
        the protections of this title. The Commission's determination 
        shall include consideration of a person's--
                    ``(A) financial sophistication;
                    ``(B) net worth;
                    ``(C) knowledge of and experience in financial 
                matters;
                    ``(D) amount of assets owned or under management;
                    ``(E) relationship with an issuer; or
                    ``(F) such other factors as the Commission may 
                determine to be consistent with the purposes of this 
                paragraph.''.

SEC. 203. DEFINITION OF INVESTMENT SECURITIES.

    Section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
3(a)) is amended in the last sentence by striking subparagraph (C) and 
inserting the following: ``(C) securities issued by any majority-owned 
subsidiary of the owner, unless such subsidiary is an investment 
company or is excluded from the definition of an investment company 
solely by virtue of paragraph (1) or (7) of section 3(c).''.

SEC. 204. EXEMPTION FOR 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 it is organized 
        under a statute governing entities that provide financial or 
        managerial assistance to enterprises doing business, or 
        proposing to do business, primarily in that State if--
                    ``(i) the organizational documents of such company 
                state that the purpose of the company is limited to 
                providing financial or managerial assistance to 
                enterprises doing business, or proposing to do 
                business, primarily in that State;
                    ``(ii) immediately following each sale of the 
                securities of such company by the company or any 
                underwriter for the company, not less than 80 percent 
                of the company's securities being offered in such sale, 
                on a class-by-class basis, are held by persons who 
                reside or have a substantial business presence in that 
                State;
                    ``(iii) the securities of such company are sold, or 
                proposed to be sold, by the company or any underwriter 
                for the company, solely to accredited investors, as 
                defined in section 2(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, as defined in section 
                3, or by any company that would be an investment 
                company except for the exclusions from the definition 
                of investment company in section 3(c), other than--
                            ``(I) any security that is rated investment 
                        grade by at least 1 nationally recognized 
                        statistical rating organization; or
                            ``(II) any security issued by a registered 
                        open-end investment company that is required by 
                        its investment policies to invest at least 65 
                        percent of its total assets in securities 
                        described in subclause (I) or securities 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 in this 
        paragraph, the provisions of section 9 (and, to the extent 
        necessary to enforce such provisions, sections 38 through 51) 
        of this title shall apply to a company described in this 
        paragraph as if the company were an investment company 
        registered under this title.
            ``(C) Any company proposing to rely on the exemption 
        provided in this paragraph shall file with the Commission a 
        notification stating that it intends to do so, in such form and 
        manner as the Commission may by rule prescribe.
            ``(D) Any company meeting the requirements of this 
        paragraph may rely on the exemption provided herein immediately 
        upon filing with the Commission the notification required by 
        subparagraph (C), unless the Commission determines by order 
        that such company's reliance is not in the public interest or 
        consistent with the protection of investors.
            ``(E) The exemption provided pursuant to this paragraph may 
        be subject to such additional terms and conditions as the 
        Commission may by rule, regulation, or order determine are 
        necessary or appropriate in the public interest or for the 
        protection of investors.''.

SEC. 205. INTRA-STATE 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. 206. 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) in 
                        excess of $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. 207. 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 inserting before the semicolon at 
the end the following: 
``: And provided further, That a business development company need not 
make available significant managerial assistance with respect to any 
company described in section 55(a)(7) or with respect to any other 
company that meets such criteria as the Commission may by rule, 
regulation, or order permit, as consistent with the public interest, 
the protection of investors, and the purposes fairly intended by the 
policy and provisions of this title''.

SEC. 208. ACQUISITION OF ASSETS BY BUSINESS DEVELOPMENT COMPANIES.

    Section 55(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
54(a)) is amended--
            (1) by striking ``(7)'' the first 2 times such figure 
        appears and inserting ``(8)'';
            (2) by striking ``(6)'' the first time such figure appears 
        and inserting ``(7)'';
            (3) in subparagraph (1)(A)--
                    (A) by striking ``, or from any person'' and 
                inserting ``, from any person''; and
                    (B) 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'';
            (4) in paragraph (6), by striking ``and'' at the end;
            (5) by redesignating paragraph (7) as paragraph (8); and
            (6) by inserting after paragraph (6) the following new 
        paragraph:
            ``(7) securities of any eligible portfolio company with 
        respect to which the business development company satisfies the 
        requirements of section 2(a)(46)(C)(iii); and''.

SEC. 209. CAPITAL STRUCTURE AMENDMENTS.

    Section 61(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-
60(a)) is amended--
            (1) by striking paragraph (1) and inserting the following:
            ``(1)(A) The asset coverage requirements of subparagraphs 
        (A) and (B) of section 18(a)(1) applicable to business 
        development companies shall be 200 percent.
            ``(B) Notwithstanding subsection (a)(1)(A) of this section 
        and subparagraphs (A) and (B) of section 18(a)(2), a business 
        development company may have an asset coverage of at least 110 
        percent, if, immediately before the issuance or sale of senior 
        securities, it has--
                    ``(i) total interest and dividend income for the 12 
                months preceding such issuance or sale that exceeds 120 
                percent of the sum of its total expenses (including 
                taxes and interest expenses accrued) and dividends 
                declared on senior securities for that 12-month period; 
                and
                    ``(ii) either--
                            ``(I) an average of not less than 50 
                        percent of its assets invested in securities 
                        described in paragraphs (1) through (5) of 
                        section 55(a) throughout the preceding 12-month 
                        period; or
                            ``(II) not less than 50 percent of its 
                        assets invested in securities described in 
                        paragraphs (1) through (5) of section 55(a) 
                        throughout 10 months of the preceding 12-month 
                        period.
            ``(C) It shall be unlawful for any business development 
        company to issue any class of senior security representing 
        indebtedness, or to sell any such security pursuant to 
        subsection (a)(1)(B) of this section, unless provision is made 
        to prohibit the declaration of any dividend (except a dividend 
        payable in stock of the issuer), or the declaration of any 
        other distribution upon any class of the capital stock of such 
        business development company, or the purchase of any such 
        capital stock, unless, in every such case--
                    ``(i) such class of senior securities has, at the 
                time of the declaration of any such dividend or 
                distribution or at the time of any such purchase, an 
                asset coverage of not less than 110 percent after 
                deducting the amount of such dividend, distribution, or 
                purchase price as the case may be; and
                    ``(ii) the business development company complies 
                with subparagraph (B)(i) except with respect to any 
                amounts that are required to be distributed to maintain 
                the company's status as a regulated investment company 
                under the Internal Revenue Code of 1986.
            ``(D) It shall be unlawful for any business development 
        company to issue any class of senior security representing 
        stock, or to sell any such security pursuant to subsection 
        (a)(1)(B) of this section, unless provision is made to prohibit 
        the declaration of any dividend (except a dividend payable in 
        common stock of the issuer), or the declaration of any other 
        distribution, upon the common stock of such business 
        development company, or the purchase of any such common stock, 
        unless, in every such case--
                    ``(i) such class of senior securities has, at the 
                time of the declaration of any such dividend or 
                distribution or at the time of any such purchase an 
                asset coverage of not less than 110 percent after 
                deducting the amount of such dividend, distribution or 
                purchase price; and
                    ``(ii) the business development company complies 
                with subparagraph (B)(i), except with respect to any 
                amounts that are required to be distributed to maintain 
                the company's status as a regulated investment company 
                under the Internal Revenue Code of 1986.'';
            (2) in paragraph (2), by striking ``if such business 
        development company'' and all that follows through the end of 
        paragraph (2) and inserting a period; and
            (3) in paragraph (3)(A)--
                    (A) by striking ``senior securities representing 
                indebtedness accompanied by'';
                    (B) inserting ``either alone or accompanied by 
                securities,'' after ``of such company,''; and
                    (C) in clause (ii), by striking ``senior''.

SEC. 210. 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''.

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