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Touche Remnant Expanded
On March 4,
1996, the Division of Investment Management (the "Staff")
of the SEC modified its position as set forth in the Touche,
Remnant & Co. no-action letter regarding foreign funds that
have exceeded the 100 U.S. investor limit. The Staff modified
its position in response to a no-action request by the Investment
Funds Institute of Canada ("IFIC"). As a result of
the IFIC letter, foreign funds can exceed the 100 U.S. investor
limit if the excess is solely as a result of their foreign shareholders
(the "Non-U.S. investors") having moved into the United
States after acquiring their shares outside the United States.
In such cases, no investment company registration is needed.
Section 7(d) of the Investment
Company Act of 1940, as amended (the "1940 Act") prohibits
any investment company organized outside the United States from
offering its shares to the public in the United States, unless
the SEC issues an order authorizing such fund to register as
an investment company under the 1940 Act, thereby subjecting
the fund to the rules and regulations of the 1940 Act. Section
7(d) does not, however, apply to private offerings made in the
United States by foreign funds. Foreign funds have been, and
continue to be, able to use this safe harbor provided that not
more than 100 investors in their fund are U.S. residents. Section
3(c)(1) of the 1940 Act excludes from the definition of "investment
company" those funds which have one hundred or fewer beneficial
owners, subject to certain percentage tests and look-through
requirements. For offshore funds, the Staff has stated that exceeding
100 U.S. beneficial owners would cause such funds to seek authorization
to register under the '40 Act.
The major concern expressed by
the members of the IFIC related to Non-U.S. shareholders who
acquired their shares in Canada and subsequently move to the
United States. The Canadian funds who had thereby exceeded the
100 U.S. investor
continued on page three
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To Our Clients and Friends
A number of interesting matters
to report in this issue of GlobalNote.
The SEC has modified its Touche
Remnant position (the well known no action letter that deals
with the 100 investor limitation for investment company act status)
by providing us with guidance where non U.S. purchasers buy foreign
funds and move into the U.S. after the purchase.
For Reg S investors, the selection
of the Irish Stock Exchange as a designated offshore securities
market is an important matter. We provide information about that
designation in this issue.
Last month, the SEC simplified
the "short swing profit" rules, those covered by Rule
16b. We explain some of these important amendments.
And finally, the IRS has taken
a major step by proposing "check the box" regulations
for determining tax status and by setting a date for public hearings
on the proposal.
We hope you enjoy this GlobalNote.
Please call for further information about how these topics might
apply to you.
Sincerely,
Michael G. Tannenbaum
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