AMENDMENTS TO DEFINITIONS.

SEC. 209. AMENDMENTS TO DEFINITIONS. (a) Excepted Investment Companies.—Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)) is amended— (1) in paragraph (1), by inserting after the first sentence the following: “Such issuer shall be deemed to be an investment company for purposes of the limitations set forth in 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 any registered investment company and the sale of any security issued by any registered open-end investment company to any such issuer.”; (2) in subparagraph (A) of paragraph (1)— (A) by inserting after “issuer,” the first place that term appears, the following: “and is or, but for the exception provided for in this paragraph or paragraph (7), would be an investment company,”; and (B) by striking “unless, as of” and all that follows through the end of the subparagraph and inserting a period; (3) in paragraph (2)— (A) by striking “and acting as broker,” and inserting “acting as broker, and acting as market intermediary,”; (B) by inserting “(A)” after “(2)”; and 110 STAT. 3433 (C) by adding at the end the following new subparagraph: “(B) For purposes of this paragraph— “(i) the term market intermediary’ means any person that regularly holds itself out as being willing contemporaneously to engage in, and that is regularly engaged in, the business of entering into transactions on both sides of the market for a financial contract or one or more such financial contracts; and “(ii) the term ‘financial contract’ means any arrangement that— “(I) takes the form of an individually negotiated contract, agreement, or option to buy, sell, lend, swap, or repurchase, or other similar individually negotiated transaction commonly entered into by participants in the financial markets; “(II) is in respect of securities, commodities, currencies, interest or other rates, other measures of value, or any other financial or economic interest similar in purpose or function to any of the foregoing; and “(III) is entered into in response to a request from a counter party for a quotation, or is otherwise entered into and structured to accommodate the objectives of the counter party to such arrangement.”; and (4) by striking paragraph (7) and inserting the following: “(7)(A) Any issuer, the outstanding securities of which are owned exclusively by persons who, at the time of acquisition of such securities, are qualified purchasers, and which is not making and does not at that time propose to make a public offering of such securities. Securities that are owned by persons who received the securities from a qualified purchaser as a gift or bequest, or in a case in which the transfer was caused by legal separation, divorce, death, or other involuntary event, shall be deemed to be owned by a qualified purchaser, subject to such rules, regulations, and orders as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. “(B) Notwithstanding subparagraph (A), an issuer is within the exception provided by this paragraph if— “(i) in addition to qualified purchasers, outstanding securities of that issuer are beneficially owned by not more than 100 persons who are not qualified purchasers, if— “(I) such persons acquired any portion of the securities of such issuer on or before September 1, 1996; and “(II) at the time at which such persons initially acquired the securities of such issuer, the issuer was excepted by paragraph (1); and “(ii) prior to availing itself of the exception provided by this paragraph— “(I) such issuer has disclosed to each beneficial owner, as determined under paragraph (1), that future investors will be limited to qualified purchasers, and that ownership in such issuer is no longer limited to not more than 100 persons; and 110 STAT. 3434 “(II) concurrently with or after such disclosure, such issuer has provided each beneficial owner, as determined under paragraph (1), with a reasonable opportunity to redeem any part or all of their interests in the issuer, notwithstanding any agreement to the contrary between the issuer and such persons, for that person’s proportionate share of the issuer’s net assets. “(C) Each person that elects to redeem under subparagraph (B)(ii)(II) shall receive an amount in cash equal to that person’s proportionate share of the issuer’s net assets, unless the issuer elects to provide such person with the option of receiving, and such person agrees to receive, all or a portion of such person’s share in assets of the issuer. If the issuer elects to provide such persons with such an opportunity, disclosure concerning such opportunity shall be made in the disclosure required by subparagraph (B)(ii)(I). “(D) An issuer that is excepted under this paragraph shall nonetheless be deemed to be an investment company for purposes of the limitations set forth in subparagraphs (A)(i) and (B)(i) of section 12(d)(1) relating to the purchase or other acquisition by such issuer of any security issued by any registered investment company and the sale of any security issued by any registered openend investment company to any such issuer. “(E) For purposes of determining compliance with this paragraph and paragraph (1), an issuer that is otherwise excepted under this paragraph and an issuer that is otherwise excepted under paragraph (1) shall not be treated by the Commission as being a single issuer for purposes of determining whether the outstanding securities of the issuer excepted under paragraph (1) are beneficially owned by not more than 100 persons or whether the outstanding securities of the issuer excepted under this paragraph are owned by persons that are not qualified purchasers. Nothing in this subparagraph shall be construed to establish that a person is a bona fide qualified purchaser for purposes of this paragraph or a bona fide beneficial owner for purposes of paragraph (1).”. (b) 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)(A) ‘Qualified purchaser’ means— “(i) any natural person (including any person who holds a joint, community property, or other similar shared owner-ship interest in an issuer that is excepted under section 3(c)(7) with that person’s qualified purchaser spouse) who owns not less than $5,000,000 in investments, as defined by the Commission; “(ii) any company that owns not less than $5,000,000 in investments and that is owned directly or indirectly by or for 2 or more natural persons who are related as siblings or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, the estates of such persons, or foundations, charitable organizations, or trusts established by or for the benefit of such persons; “(iii) any trust that is not covered by clause (ii) and that was not formed for the specific purpose of acquiring 110 STAT. 3435the securities offered, as to which the trustee or other person authorized to make decisions with respect to the trust, and each settlor or other person who has contributed assets to the trust, is a person described in clause (i), (ii), or (iv); or “(iv) any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments. “(B) The Commission may adopt such rules and regulations applicable to the persons and trusts specified in clauses (i) through (iv) of subparagraph (A) as it determines are necessary or appropriate in the public interest or for the protection of investors. “(C) The term ‘qualified purchaser’ does not include a company that, but for the exceptions provided for in paragraph (1) or (7) of section 3(c), would be an investment company (hereafter in this paragraph referred to as an ‘excepted investment company’), unless all beneficial owners of its outstanding securities (other than short-term paper), determined in accordance with section 3(c)(1)(A), that acquired such securities on or before April 30, 1996 (hereafter in this paragraph referred to as ‘preamendment beneficial owners’), and all preamend- ment beneficial owners of the outstanding securities (other than short-term paper) of any excepted investment company that, directly or indirectly, owns any outstanding securities of such excepted investment company, have consented to its treatment as a qualified purchaser. Unanimous consent of all trustees, directors, or general partners of a company or trust referred to in clause (ii) or (iii) of subparagraph (A) shall constitute consent for purposes of this subparagraph.”. (c) Conforming Amendments.—Section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) is amended— (1) by striking “(1)” and inserting “(A)”; (2) by striking “(2)” and inserting “(B)”; (3) by striking “(3)” and inserting “(C)”; (4) by inserting “(1)” after “(A)”; (5) by striking “As used” and inserting “(2) As used”; and (6) in paragraph (2)(C), as designated by paragraph (5) of this subsection— (A) by striking “which are” and inserting the following: “which (i) are”; and (B) by inserting before the period at the end, the following: “, and (ii) are not relying on the exception from the definition of investment company in paragraph (1) or (7) of subsection (c)”. (d) Rulemaking Required.— (1) Implementation of section 3(c)(1)(B).—Not later than 1 year after the date of enactment of this Act, the Commission shall prescribe rules to implement the requirements of section 3(c)(l)(B) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(l)(B)), as amended by this section. (2) Identification of investments.—Not later than 180 days after the date of enactment of this Act, the Commission shall prescribe rules defining the term, or otherwise identifying, “investments” for purposes of section 2(a)(51) of the Investment Company Act of 1940, as added by this Act. 110 STAT. 3436 (3) Employee exception.—Not later than 1 year after the date of enactment of this Act, the Commission shall prescribe rules pursuant to its authority under section 6 of the Investment Company Act of 1940 to permit the ownership of securities by knowledgeable employees of the issuer of the securities or an affiliated person without loss of the exception of the issuer under paragraph(1) or (7) of section 3(c) of that Act from treatment as an investment company under that Act. (4) Beneficial ownership.—Not later than 180 days after the date of enactment of this Act, the Commission shall prescribe rules defining the term “beneficial owner” for purposes of section 3(c)(7)(B) of the Investment Company Act of 1940, as amended by this Act. (e) Effective Date.—The amendments made by this section shall take effect on the earlier of— (1) 180 days after the date of enactment of this Act; or (2) the date on which the rulemaking required under subsection (d)(2) is completed.