The staff of the SEC’s Division of Investment Management (the “Staff”) issued a no‑action letter in which it provided assurances that it would allow an unregistered foreign investment company (a “Foreign Fund”) to invest in a U.S. investment company (a “U.S. Fund”) registered under the Investment Company Act of 1940, as amended (the “1940 Act”), in excess of certain limits in Section 12(d)(1)(A) of the 1940 Act. Section 12(d)(1)(A) of the 1940 Act generally prohibits an investment company, which includes a foreign collective vehicle like a Foreign Fund that meets the 1940 Act’s definition of investment company, and companies it controls, from (i) acquiring more than 3% of a registered investment company’s outstanding voting securities; (ii) investing more than 5% of its total assets in any one registered investment company; or (iii) investing more than 10% of its total assets in registered investment companies in the aggregate. Under the relief, a Foreign Fund may exceed the second and third limitations but would need to comply with the first. Investments in a U.S. Fund by a Foreign Fund would also need to comply with the requirements of Section 12(d)(1)(B), such that a U.S. Fund may not sell the U.S. Fund’s shares to a Foreign Fund or companies the Foreign Fund controls if the sale would cause (i) the acquiring Foreign Fund and companies it controls to own more than 3% of the U.S. Fund’s outstanding voting securities; or (ii) all investment companies (including the Foreign Fund) and any companies controlled by them to own more than 10% of the U.S. Fund’s voting securities. Additional conditions of the relief are that (a) each Foreign Fund will not offer or sell securities in the U.S. or to any U.S. person as defined in Rule 902(k) of Regulation S under the Securities Act of 1933; and (b) each Foreign Fund’s transactions with its shareholders will be consistent with the definition of “offshore transactions” in Regulation S.
Alert August 18, 2009