William Griever William Hunter Debra Kuntz Diane Iacopelli Julia Warren-Cagle

1. Report of US Ownership of Foreign Securities Including Selected Money Market Instruments William Griever William Hunter Debra Kuntz Diane Iacopelli Julia Warren-Cagle

2. U.S. Portfolio Investment Surveys William Griever

3. Survey Perspective • Part of an integrated system • Used in conjunction with monthly flow data • Surveys are detailed, accurate, but not timely • Monthly data very timely, but less accurate • Used together to create ongoing estimates

4. Survey History • First survey in 1974 • Measured foreign investment in US securities • Congressional concern over growing foreign influence • Existing data lacked detail

5. Survey History • Liability surveys continued at 5-year intervals • Correct amounts foreign held, geography • Foreign ownership increasing • 1974 - 4.8% • 2000 - 10.2%

6. Asset Surveys • First in 1994 • Levels of foreign holdings had been modest • $ 9 billion per year 1980-1989 • $65 billion per year 1990-1994 • Assets were believed to be under-counted

7. Asset Survey Results • Measured US holdings of foreign securities 60% above estimates • $870 billion vs. $540 billion • Showed need for future surveys

8. Asset Under-Count • Worldwide problem • Measured portfolio investment 1991-1994 • Assets $400 billion per year • Liabilities $500 billion per year

9. First CPIS • Organized by the IMF, at year-end 1997 • 29 countries participated • World measured additional $750 billion • US measured an additional $300 billion

10. Problems Remain • Worldwide, at year-end 1997 • Assets $7.7 trillion • Liabilities $9.3 trillion • Implies more needs to be done

11. CPIS 2001 • 60+ countries • All of the major industrial countries • All of the major offshore financial centers • Short-term securities included

12. The Future • Coordinated international efforts • Annual surveys • External Debt Reporting System (SDDS) • CPIS

13. Data Uses • Financial industry analysts • International organizations • USG - BoP, country exposure, IIP • Reduced net debtor position • Current account sustainability • Academic research

14. “The Government are {sic} extremely fond of amassing great quantities of statistics. These are raised to the nth degree, the cube roots are extracted, and the results are arranged into elaborate and impressive displays. What must be kept in mind, however, is that in every case, the figures are first put down by a village watchman, and he puts down anything he damn well pleases!” Sir Josiah Stamp, Her Majesty’s Collector of Inland Revenue

15. Who Must Report? Diane Iacopelli

16. Who Must Report • U.S.- Resident Custodians • U.S.- Resident Investors

17. U.S. Residency • U.S. Resident • Any individual, corporation or other organization located in the United States. • This includes: branches, subsidiaries and affiliates of foreign entities located in the United States. • Corporations incorporated in the United States • Citizenship does not determine residency for this report. • Exclude: International and regional organizations even if they are located in the United States.

18. U.S. Residency • How to determine residency • Tax forms W-9 forms are filed by U.S. residents W-8 forms are filed by non-U.S. residents • When tax forms arenot available use the mailing address

19. U.S. Residency • Examples of U.S. residents • Bayerische Landesbank NY Branch • BP America Inc • Examples of non-U.S. residents • Bank of New York Tokyo Branch • GMAC Canada • International Bank for Reconstruction and Development (IBRD)

20. U.S.- Resident Custodian Organizations that manage the safekeeping of foreign securities for: • Their own account • The account of other entities located in the United States

21. U.S.- Resident Custodians • Each U.S. resident custodian should file one consolidated report for: • Their own custody accounts • The custody accounts for which safekeeping services are provided

22. U.S.- Resident Custodians • U.S.-resident custodians should exclude custody accounts managed by their foreign affiliates or subsidiaries. • U.S. affiliates or subsidiaries of foreign custodians should exclude custody accounts managed by their foreign parents. • U.S.-resident custodians should exclude foreign securities where the beneficial owner of the security is a foreign person.

23. U.S.-Resident Custodians • Schedule 2 Reporting: • U.S.-resident custodians should report all foreign securities whose custody they manage for themselves or for other U.S. persons. • U.S.-resident custodians, including broker/dealers, should report all foreign securities that they manage for themselves or for other U.S. persons using a foreign subcustodians directly to manage. • U.S.-resident custodians should report all foreign securities whose safekeeping is entrusted to central securities depositories- both domestic (Depository Trust Company) and foreign (Euroclear).

24. U.S.-Resident Custodians • Schedule 3 reporting: • Report all foreign securities entrusted, from their own account or the account of others, to another U.S.-resident custodian.

25. U.S.-Resident Investors • Organizations that: • Invest in foreign securities for their own account (for trading, investment, or any other purpose) • Invest on behalf of others, including funds such as: • Managers of mutual funds, • Managers of insurance company policy holder assets, • Managers of pension funds

26. U.S.-Resident Investors • Examples of U.S.-resident Investors include: • Managers of public and private pension funds • Managers of mutual funds, country funds, unit-investment funds, exchange-traded funds,collective-investment trusts, or any other similarly pooled,commingled funds • Insurance companies • Foundations • Institutions of higher learning (e.g., university endowments) • Financial and non-financial organizations • Trusts and estates

27. U.S.-Resident Investors • Each U.S.-resident investor should file one consolidated report for: • Their own investment accounts • The investment accounts of all their affiliates in the United States • The U.S. funds under their own management • The U.S. funds under the management of their affiliates in the United States

28. U.S.-Resident Investors • U.S.-resident investors should exclude investment accounts managed by their foreign affiliates or subsidiaries for other U.S. persons. • U.S. affiliates or subsidiaries of foreign investors should exclude the investment accounts managed by their foreign parents.

29. U.S.-Resident Investors • Schedule 2 reporting: • Report securities held directly • Report securities entrusted to a foreign custodian or to a U.S. (Depository Trust Company) or foreign (Euroclear) central securities depository.

30. U.S.-Resident Investors • Schedule 3 reporting: • Report foreign securities entrusted to U.S.- resident custodians.

31. Who Must Report U.S.-resident investor employs a U.S.-resident custodian U.S.-resident investor U.S.-resident custodian Files Schedules 1 and 3 Files Schedules 1 and 2

32. Who Must Report A U.S-resident custodian entrusts foreign securities to another U.S.-resident custodian U.S.-resident investor Files Schedules 1 and 3 Note: On Schedule 3 reports Custodian A U.S. resident custodian A U.S.-resident custodian B Files Schedules 1 and 3 Note: On Schedule 3 reports Custodian B Files Schedules 1 and 2

33. Who Must Report A U.S.-resident custodian subcontracts with a foreign subcustodian U.S.-resident investor Files Schedules 1 and 3 Foreign Local subcustodian U.S.-resident custodian Does not report Files Schedules 1 and 2

34. Who Must Report A U.S.-resident investor employs a foreign custodian U.S.-resident investor Foreign Custodian Files Schedules 1 and 2 Does not report

35. What Must be Reported on the Report of U.S. Ownership of Foreign Securities, Including Money Market Instruments Debra Kuntz

36. Foreign Securities • Securities issued by foreign entities, including: • international and regional organizations • foreign-resident organizations • foreign subsidiaries of U.S. organizations • foreign branches of U.S. banks

37. Foreign Securities • Information that does not contribute to determining if a foreign security: • place of issue or trading • currency of issue • nationality of parent organization • nationality of guarantor

38. Foreign SecurityExample 1 • Euro denominated 2-year note issued by a Daimler Chrysler affiliate incorporated in the United States. • Is this security reportable?

39. Foreign SecuritiesExample 1 Answer • Euro denominated 2-year note issued by a Daimler Chrysler affiliate incorporated in the United States. • Is this security reportable? • No. The security was issued by a U.S.-resident entity.

40. Foreign SecuritiesExample 2 • U.S. dollar-denominated 2-year note issued by Daimler Chrysler incorporated in Germany. • Is this security reportable?

41. Foreign SecuritiesExample 2 Answer • U.S. dollar-denominated 2-year note issued by Daimler Chrysler incorporated in Germany. • Is this security reportable? • Yes. This security was issued by a foreign-resident entity. The currency denomination does not factor into the decision of whether the security is foreign or not.

42. Foreign SecuritiesExample 3 • U.S. dollar-denominated asset-backed security issued by Company B incorporated in Hong Kong and guaranteed by the parent, Company A, incorporated in the United States. • Is this security reportable?

43. Foreign SecuritiesExample 3 Answer • U.S. dollar-denominated asset-backed security issued by Company B incorporated in Hong Kong and guaranteed by the parent, Company A, incorporated in the United States. • Is this security reportable? • Yes. This security was issued by a foreign-resident entity. The location of the guarantor does not factor into the decision of whether the security is foreign or not.

44. Type of Reportable Foreign Securities • Equity • Short-Term Debt • Long-Term Debt • Asset-Backed Securities

45. Equity • All instruments representing an ownership interest in foreign-resident organizations. • However, ownership interests representing direct investment are not reported.

46. EquityDirect Investment • Direct investment is defined as ownership or control of 10% or more of an organization’s voting stock.

47. Equity • Reportable equity securities include: • common stock • restricted stock • participating preference shares • depositary receipts/shares • shares/units in foreign mutual funds

48. EquityDepositary Receipts • Reportable depositary receipts are those where the underlying security was issued by a foreign resident. • Although the depositary receipt is usually issued by a U.S.-resident organization, it represents shares in the foreign company. • ADRs, GDRs, IDRs, etc. are considered foreign securities for this report.

49. EquityDepositary Receipts • Issuers of depositary receipts should not report the holdings of the underlying foreign securities. • U.S.-resident holders of the depositary receipts should report these holdings.

50. Equity Depositary Receipts Example • U.S. Company A has issued $100 million of ADRs representing ownership in a Swiss company. U.S. Company B purchases these ADRs. • What should Company A and B report?