The March 2, 2012 deadline is approaching for the Quinquennial Report of U.S. Ownership of Foreign Securities, Including Selected Money Market Instruments (“TIC Form SHC”). The TIC Form SHC is a form used by the Department of the Treasury to survey ownership of foreign securities every five years. TIC Form SHC is a mandatory report for any U.S.-resident¹ custodian² or U.S.-resident end-investor³ that (i) has been contacted by the Federal Reserve Bank of New York, or (ii) met the reporting threshold for TIC Form SHC Schedule 2 and/or Schedule 3 as of December 31, 2011 (each, an “SHC Reporter”).

The reporting threshold for Schedule 2 is $100 million in aggregate fair value of all foreign securities⁴ owned by the SHC Reporter and not held with a U.S.-resident custodian. The reporting threshold for Schedule 3 is $100 million in aggregate fair value of foreign securities held with any one unaffiliated U.S.-resident custodian that is not a central securities depository. Each reporting threshold is independent of the other such that a U.S.-resident investor may be required to report on Schedule 2 but not on Schedule 3 or vice versa.

TIC Form SHC Schedules

Schedule 1

Schedule 1 must be completed by (i) all SHC Reporters that meet or exceed the reporting threshold for Schedule 2 or Schedule 3, and (ii) all SHC Reporters contacted by the Federal Reserve Bank of New York.

Schedule 1 requires certain identifying information of the SHC Reporter that includes: the reporter ID, name and address of the SHC Reporter, reporting status (i.e., whether the SHC Reporter exceeds the threshold for filing a Schedule 2 and/or a Schedule 3, or whether the SHC Reporter is exempt), description of valuation techniques and summaries of any information reported on Schedules 2 and/or Schedules 3 (if any).

Schedule 2

Schedule 2 requires details of the foreign securities owned by the SHC Reporter and not held with a U.S.-resident custodian. Information collected on Schedule 2 includes the details of the issuer of each such foreign security, the type of security and the fair value of the security held. One or more Schedule 2s may be required per issuer.

Schedule 3

Schedule 3 requires details from a U.S.-resident end-investor of each U.S.-resident custodian with which it holds foreign securities with an aggregate fair value of $100 million or more. This threshold is calculated on a custodian-by-custodian basis. Therefore, a SHC Reporter with more than one U.S.-resident custodian may be required to complete more than one such schedule for each U.S.-resident custodian that holds $100 million or more in foreign securities for the SHC Reporter. Schedule 3 requires a summary of foreign securities held by the U.S.-resident custodian and certain identifying details of the U.S.-resident custodian.

Consolidation

A U.S. resident manager will be required to complete and file TIC Form SHC on behalf of all the U.S. funds and accounts it manages and report on an aggregate basis.

Common Filing Scenarios

Contacted by the Federal Reserve Bank

A SHC Reporter will be required to complete Schedule 1 regardless of whether the SHC Reporter has met the reporting threshold for Schedule 2 or Schedule 3 if it is contacted by the Federal Reserve Bank. Any such SHC Reporter that does not meet such thresholds will report that it is exempt on Schedule 1. A SHC Reporter that is contacted by the Federal Reserve Bank that meets the threshold for Schedule 2 and/or Schedule 3, will also be required to file on such schedules, as described herein.

Master Feeder Structures

If a U.S.-resident manager manages one or more U.S. feeder funds that in the aggregate hold $100 million or more of one or more non-U.S. master funds’ securities, in general, the U.S.-resident manager will be required to complete a Schedule 2 for each such master fund.

Domestic Stand-Alone Fund with a Non-U.S. Resident Custodian

If a U.S.-resident manager manages a U.S. stand-alone fund that owns $100 million or more in foreign securities, not held with a U.S.-resident custodian, the U.S.-resident manager will be required to complete one or more Schedule 2s for each foreign issuer.

Domestic Stand-Alone Fund with a U.S.-Resident Custodian

A U.S.-resident manager that manages a stand-alone U.S. fund that holds all of its assets with a U.S.-resident custodian may still have a filing requirement for TIC Form SHC. Such SHC Reporter will have a reporting requirement if (i) it is contacted by the Federal Reserve Bank or (ii) it meets the threshold level for Schedule 3. That is, if any one unaffiliated U.S.-resident custodian holds $100 million or more in foreign securities for the U.S. fund, the SHC Reporter will be required to report on Schedule 3. If the SHC Reporter uses multiple custodians that each hold $100 million or more in foreign securities for the U.S. fund, the SHC Reporter will complete one Schedule 3 for each such custodian.

A SHC Reporter reporting for a combination of U.S. feeder funds and U.S. stand-alone funds may be required to file both Schedules 2 and 3, if it meets the threshold for each schedule.

Registered Investment Companies

A registered investment company (“RIC”), such as a mutual fund, will be required to complete TIC Form SHC in the same manner as a private fund. The reporter will be required to file and will complete TIC Form SHC if (i) it is contacted by the Federal Reserve Bank and/or (ii) it meets the reporting threshold for Schedule 2 and/or Schedule 3. For instance, if the RIC holds $100 million or more in foreign securities with a U.S.-resident custodian, the RIC will complete Schedule 3 for such U.S.-resident custodian.

Valuation

All securities should be reported using settlement date accounting. Gross long positions should be reported. Do not net
any short positions from long positions. The securities should be reported as of December 31, 2011 using fair value, as defined in ASC 820 (formerly FAS 157).

Submission of Reports

TIC Form SHC may be submitted either electronically, using the Federal Reserve System’s Internet Electronic Submission System (IESUB), or by mail or fax to the Federal Reserve Bank of New York. Other than banking institutions, reporting parties, including investment managers, private investment funds and pension plans, generally will file their reports with the Federal Reserve Bank of New York, regardless of their location.

If you have any questions concerning any information contained in this Memorandum, please contact your primary attorney in Seward & Kissel’s Investment Management Group.

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¹ A U.S. resident is any individual domiciled in the U.S. or any corporation or other entity incorporated or otherwise legally established in the U.S.

² A custodian is a bank or other entity that manages or administers the custody or safekeeping of stock certificates, debt securities or other assets for institutional or private investors.

³ An end-investor is an entity that invests in foreign securities for its own account (for trading, investment, or other purposes) or invests on behalf of others. An end-investor includes private funds and pension fund managers.

⁴ Generally, securities would include equity, debt (including short term debt such as certain money market instruments), restricted stock, limited partnership interests, zero coupon bonds, convertible securities, ABS and floating rate notes, and various other similar interests. They would not include derivatives, participations, bank deposits or annuities. Moreover, if the end investor is in a control relationship with the issuer or the ownership stake represents a greater than 10% voting interest, the security would be considered a “direct investment” that is not reportable under TIC Form SHC. Foreign securities are securities issued by foreign-resident entities and depository receipts issued by U.S.-resident entities that have underlying foreign securities.