February 28, 1990
TO: CLOSED-END FUND MEMBERS NO. 11-90
SEC RULES MEMBERS NO. 17-90
UNIT INVESTMENT TRUST MEMBERS NO. 15-90
INTERNATIONAL FUNDS TASK FORCE NO. 3-90
RE: SEC ADOPTS RULE 12d1-1, REMOVING RESTRICTIONS ON PURCHASES
OF SECURITIES OF FOREIGN BANKS AND INSURANCE COMPANIES
__________________________________________________________
The SEC has adopted Rule 12d1-1, which removes restrictions
on registered investment companies purchasing securities of
foreign banks and foreign insurance companies. (A copy of the
release is attached.) Rule 12d1-1 was proposed by the Commission
last July. The Institute filed a comment letter supporting
adoption of the Rule and recommending that it be broadened in
certain areas. Many of the Institute's comments were reflected
in the final Rule.
As adopted, the Rule exempts foreign banks and foreign
insurance companies and finance subsidiaries thereof from the
definition of "investment company" for purposes of Section
12(d)(1)(A) of the 1940 Act, which imposes limitations on the
purchase by registered investment companies of shares of other
investment companies. (Although "banks" and "insurance
companies" are specifically excluded from the definition of
"investment company" in Section 3(c)(3) of the 1940 Act, those
terms do not include foreign banks and foreign insurance
companies. Similarly, Rule 3a-5 exempts certain finance
subsidiaries from the definition of an investment company, but
does not cover finance subsidiaries of foreign banks and
insurance companies.)
Rule 12d1-1 applies to purchases of both equity and debt
securities, but only to direct interests in or obligations of a
foreign bank or foreign insurance company or a finance subsidiary
of a foreign bank or foreign insurance company. Interests in
other entities organized under the auspices of a foreign bank or
foreign insurance company such as collective trusts or separate
accounts are not covered by the Rule. In addition, registered
investment companies' acquisitions of securities of foreign
insurance companies would remain subject to the limitations on
acquisitions of domestic insurance companies' securities imposed
by Section 12(d)(2) of the 1940 Act.
The Rule applies to foreign banks as defined in Rule 6c-9
under the 1940 Act. As recommended by the Institute in its
comment letter, the final Rule uses the less restrictive of two
alternative definitions of "foreign insurance company" set forth
in the release proposing the Rule. The applicable definition
requires that the issuer be regulated as an insurance company by
the appropriate government authority and primarily engaged in the
writing of insurance agreements of the type specified in Section
3(a)(8) of the 1933 Act, but does not contain an additional
condition governing the risk characteristics of such agreements.
In addition, as the Institute proposed in its comment letter,
Rule 12d1-1 as adopted specifically encompasses finance
subsidiaries of foreign banks and foreign insurance companies
that would otherwise satisfy the conditions of Rule 3a-5.
The Rule takes effect thirty days after the date of its
publication in the Federal Register.
Frances M. Stadler
Assistant General Counsel
Attachment