[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 479 Referred in House (RFH)]

103d CONGRESS
  1st Session
                                 S. 479


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            November 3, 1993

            Referred to the Committee on Energy and Commerce

_______________________________________________________________________

                                 AN ACT


 
 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''.

SEC. 2. 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''.

SEC. 3. 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 inserting 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''; and
                    (B) by striking ``unless as of the date'' and all 
                that follows through the end of subparagraph (A) and 
                inserting a period; and
            (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. 4. 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--
                    ``(A) any natural person who owns at least 
                $10,000,000 in securities of issuers, each of which is 
                not an affiliated person, as defined in section 
                2(a)(3)(C), of such person;
                    ``(B) 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 $100,000,000 in securities of issuers, 
                each of which is not an affiliated person, as defined 
                in section 2(a)(3)(C), of such person; or
                    ``(C) any person, who may own or invest a lesser 
                amount in securities than specified in subparagraphs 
                (A) and (B), that the Commission, by rule or 
                regulation, has determined does not need the 
                protections of this title, after consideration of 
                factors such as--
                            ``(i) a high degree of financial 
                        sophistication, including extensive knowledge 
                        of and experience in financial matters;
                            ``(ii) sizable net worth;
                            ``(iii) a substantial amount of assets 
                        owned or under management;
                            ``(iv) relationship with an issuer; or
                            ``(v) such other factors as the Commission 
                        may determine to be consistent with the purpose 
                        of this paragraph.
        The Commission also may adopt such rules and regulations 
        governing the persons specified in subparagraphs (A) and (B) as 
        it determines are necessary or appropriate in the public 
        interest and for the protection of investors.''.

SEC. 5. 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 subsection (c).''.

SEC. 6. 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 
        financial 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 promotion of economic, business, or industrial 
                development in the State through the provision of 
                financial or managerial 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 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 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 not less than 
                        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 by 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 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 
        paragraph 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 determines 
        by order that such reliance is not in the public interest or 
        consistent with the protection of investors.
            ``(E) The exemption provided by 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. 7. 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. 8. 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 more 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. 9. 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 
2(a)(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 
consistent with the public interest, the protection of investors, and 
the purposes fairly intended by the policy and provisions of this 
title''.

SEC. 10. 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. 11. 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 subparagraph (A) of this section or 
        subparagraphs (A) and (B) of section 18(a)(2), a business 
        development company may have an asset coverage of not less than 
        110 percent, if, immediately before the issuance or sale of 
        senior securities, the business development company 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 
        subparagraph (B), 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) the 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 status of the company 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 subparagraph 
        (B), 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) the 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 status of the company 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;
            (3) in paragraph (3)(A)--
                    (A) by striking ``senior securities representing 
                indebtedness accompanied by'';
                    (B) inserting ``accompanied by securities,'' after 
                ``of such company,''; and
                    (C) in clause (ii), by striking ``senior''; and
            (4) 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
                    (C) by inserting after subparagraph (B) the 
                following new subparagraph:
                    ``(C) a business development company may issue 
                warrants, 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 issuance 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 issuance is in the best interests of 
                        the company and its shareholders or 
                        partners.''.

SEC. 12. 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''.
            Passed the Senate November 2, 1993.
            Attest:
                                                     WALTER J. STEWART,
                                                             Secretary.
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