[Congressional Record Volume 143, Number 37 (Thursday, March 20, 1997)]
[Extensions of Remarks]
[Pages E527-E528]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      INTRODUCTION OF LEGISLATION

                                 ______
                                 

                         HON. WILLIAM M. THOMAS

                             of california

                    in the house of representatives

                        Thursday, March 20, 1997

  Mr. THOMAS. Mr. Speaker, today I am introducing a bill that will 
allow mutual funds to invest in Publicly Traded Partnerships [PTP's].
  PTP's are limited partnerships and PTP shares are traded on 
regulated, public securities exchanges. Because interests in PTP's are 
liquid and can be purchased in small increments, they can be bought 
today by small investors. An anomaly in the Internal Revenue Code 
prevents mutual funds representing many small investors from making 
such investments.
  As safe, liquid securities which generally provide a steady income, 
PTP's could be excellent investments for mutual funds. However, the Tax 
Code discourages fund managers from investing in PTP's because our tax 
laws require that mutual funds get 90 percent of their gross income 
from specific sources in

[[Page E528]]

order to retain their special tax treatment. Distributions from a 
partnership do not qualify nor do most types of partnership income 
which flow through to the fund. The only way a mutual fund can invest 
in a PTP is to be certain that the income fund will never receive more 
than 10 percent of its income from the partnership and other 
nonqualifying income sources. Faced with the consequences of failing to 
qualify--loss of their special tax status--most mutual funds avoid PTP 
investments.
  The 90 percent rule makes no sense with regard to publicly traded 
partnerships. Traditional, small partnership interests are often 
illiquid and not always well regulated. PTP's are different: the 
companies have to file information with the Securities and Exchange 
Commission and the partnership interests are traded on major public 
exchanges just like stocks.
  Mutual funds are an increasingly important part of the capital 
markets, and it does not make sense to deny mutual fund investors an 
opportunity to earn money through PTP investments. My bill would 
correct this situation by ensuring that any income received by or 
allocated to a mutual fund by a PTP, as defined in the Internal Revenue 
Code, would count toward the income from specified sources which mutual 
funds must have.
  I hope my colleagues will join me in supporting this legislation.

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