December 18, 1989
TO: PENSION MEMBERS NO. 54-89
UNIT INVESTMENT TRUST MEMBERS NO. 69-89
SEC RULES COMMITTEE NO. 78-89
RE: INSTITUTE COMMENTS ON FDIC PASS-THROUGH DEPOSIT INSURANCE
STUDY
__________________________________________________________
As we previously informed you, the Federal Deposit
Insurance Corporation ("FDIC") is preparing a study concerning
the pass-through of deposit insurance to individual investors in
unit investment trusts and to individual participants in pension
or profit-sharing plans qualified under section 401 of the
Internal Revenue Code of 1986. (See Memorandum to Pension
Members No. 51-89, Unit Investment Trust Members No. 64-89 and
SEC Rules Committee No. 74-89, dated November 28, 1989.)
Attached is a copy of the comment letter submitted by the
Institute on the FDIC study.
In its comment letter, the Institute urged the FDIC to
recommend in its study that pass-through insurance coverage be
extended to shareholders of all investment companies, regardless
of whether they are managed or unmanaged and regardless of
whether they are organized as a business trust or a corporation.
The Institute commented that there is no justification for
denying pass-through treatment to investment companies since such
treatment is afforded to other entities that operate in a
virtually identical manner to investment companies, such as bank
common and collective trust funds.
The Institute suggested that the standard for determining
eligibility for pass-through treatment should turn on whether the
entity is a mere passive investment pool, such as a unit
investment trust and a managed investment company, as
distinguished from a business enterprise that is engaged in an
independent commercial activity. Under current FDIC regulations,
registration under the Investment Company Act of 1940
automatically precludes an entity from receiving pass-through
treatment.
We will keep you informed of further developments.
Amy B. Rosenblum
Assistant General Counsel
Attachment