~ ic.A
 

, ¡SEcpON 17 l (J l 

Pt

ll"ii ~

ØU 11 f "r ! ,.......
 ~.. '_-- i 

.av~.. 'Iri.ICV , June 12, 1998
 

....,.,..or#:;;-;..... " . ,", ;...~1
 

REPONSE OF TH OFfCE OF Our Ref. No. 98-5-ICR 

INTM COMPAN REULTION The Cha Maatt Ban DMSION OF INTM MAAGEM File No. 812-10176 

Your letr of May 29, 1998 reuests tht we extnd the effectiveness of our noaction position taen ii a letr issued 
 on July 11, 1997 (the "1997 No-Acton Ler") to The Chas Matt Ba ("Cha"). In the 1997 No-Acton Ler; we state th we would 

, not remmend tht the Commssion tae any enforcment acton under Secon 17(t) of the 

Investent Company Act of 1940 (the" Act") if, durig the penod beeen July 12, 1997 

and June 15, 1998, Chas and cert of its investment compay custmers tht had 

established foreign custoy argements pnor to July 12, 1997 in conformty with a 

Commission orderl contiued to rely on tht order. 

The expirtion date for our position in the 1997 No-Acton Leer was base on the 

compliance date for the 1997 amendments to Rule 17f-5 under the Act.2 On May 21, 1998, 

the Commission extnded the complice date for cert of the 1997 amendments to Rule
 

17f-5 unti FebÍi 1, 1999.3 You reuest that we extnd the effectiveness of our position 

in the 1997 No-Action'Leer to provide Chase with the benefit of 
 ths new complice date." 

Base on the facts and reresentations in your lettr date July 2, 1997 reuesting the 

position taen in the 1997 No-Acton Ler and your May 29, 1998 letr, we would not

remmend enforcement action under Secon 17(t) of the Act if Cha contiues to rely on 

the 1997 No-Action Letter from June 15, 1998 to the later of Febru 1; 1999, or any date 

that the Commission spifes as the complice date for the 1997 anendments, to Rule 17f­ 5. '
 

~),L

David W. Gnm 

Sta Attorney
 

Investment Company Act Releae No. 12053 (Nov. 20, 1981). 

2 See Investment Company Act Releae No. 22658 (May 12, 1997) (adopting 
 Rule 17f-5). ' , '
 amendments to

3 Investment Company Act Releae No. 23201 (May 21, 1998). 
. '
 

~~,., ;;.f 

BAKER & MÇKENZIE 

EuRO ASIA ATTORNEYS AT LAW NORTH AND 

MiDl EAT PACIFIC SOUTH AMERICA
 

ALMA TY
 

"'''STERDAM 

BARCELONA 

BERLIN 

BRUSSELS 

BuDAPEST 

CAIRO 

FRANKFURT 

GeNEVA 

KIEV 

LAUSANNE 

LONDON 

MADRID BANGKOK 815 CONNECTICUT AVENUE. N.W. BOGOTA MEXICO CITY SAN FRANCISCO MILAN BEIJING BRASILIA MIAMI SANTIAGO MOSCOW HANOI WASHINGTON. D.C. 20006-4078 BUENOS AIRES MONTERREY SAO PAULO MUNICH HO CHI MINH CITY C..RACAS NEW YORK TI.JUANA PARIS HONG KONG TELEPHONE 12021 452 - 7000 CHICAGO PALO ALTO TORONTO PRAGUE MAHILA DALLAS RIO DE .JANEIRO V ALENelA RIYADH MELBOURNE FACSIMILE (202) 452 - 7074 HOUSTON SAN DIEGO WASHINGTON. 0 C. ROME SINGAPORE JUARez 1940 Act ST PETERSBURG SYDNEY
 

STOCKHOLM TAIPEI
 

WARSAW TOK YO
 Section 17 (f) ZURICH 

May 29, 1998
 

BY MESSENGER
 

Robert E. Plaze
 

Associate Director 

Office of Associate Director (Regulation)
 

Division of Investment Management
 

Securities and Exchange Commission
 

450 Fifth Street, N.W.
 

Washington, D.C. 20549
 

Douglas J. Scheidt


Associate Director 

Office of Associate Director (Chief Counsel)
 

Division of Investment Management
 

Securities and Exchange Commission
 

450 Fifth street, N.W.
 

Washington, D. C. 20549
 

Re: The Chase Manhattan Bank
 

Re~est for Amendment to Temporary No-Action Relief
 

Dear Messrs. Plaze and Scheidt: 

On behalf of our client, The Chase Manhattan Bank
 

("Chase"), we hereby request that the staff of the Divisio'n of


Investment Management advise us that it will not recommend that
 

the Securities and Exchange Commission ("Commission") take
 

enf orcement action under Section 17 (f) of the Investment
 

Company Act of 1940 (the "Act") if, during the period from June
 

16, 1998, until February 1, 1999 (or such later date as the
 

Commission may specify as the end of the transition period for
 

implementation of the 1997 amendments to Investment Company Act
 

Rule 17f-5), Chase and those of its investment company
 

customers that have established foreign custody arrangements in
 

conformity with an order granted to Chase's predecessor ("Old
 
BAKER & MÇKENZIE 

Robert E. Plaze
 

Douglas J. Scheidt
 

Division of Investment Management
 

May 29, 1998
 

Page 2
 

Chase") in 1981 ("1981 Order") 1 continue to rely on those
 

arrangements. The staff has previously granted such relief to
 

Chase and its investment company customers, but that relief
 

expires on June 15, 1998.2
 

At the time that the staff issued the 1997 No-Action
 

Letter, the Commission had announced that the transition period
 

for the implementation of the 1997 amendments to Rule 17f-53
 

would expire on June 15, 1998. The effect of the 1997 No-


Action Letter is therefore to permit Chase and its customers to
 

avail themselves of the same transition period to implement
 

Amended Rule 17f-5 as the Commission afforded to other global
 

custodians and their customers. On May 21, 1998, the
 

Commission extended the end of the transition period for
 

implementation of Amended Rule 17f-5 to February 1, 1999. In
 

order to continue to afford Chase and its investment company
 

customers the same treatment as other global custodians and
 

their customers, the relief granted in the 1997 No-Action
 

Letter should also be extended to February 1, 1999 (or such
 

later date as the Commission may specify as the end of the
 

transition period for implementation of Amended Rule 17f-5).
 

Background 

The pre-1998 background of this matter is set forth in
 

detail in my letter, dated July 9, 1997, requesting the relief
 

granted in the 1997 No-Action Letter. That backgrounq, and
 

subsequent developments, are summarized briefly below.
 

Investment Company Act Release No. 12053 (November
 

20, 1981). This order was issued prior to the adoption of Rule


1 7f-5. 

2 The Chase Manhattan Bank (July 11, 1997) ("1997 No-


Action Letter").
 

3 The amendments to Rule 1 7f-5 were adopted in
 

Investment Company Act Release No. 22658 (May 12,1997),62
 

Fed. Reg. 26923 (May 16, 1997). Release No. 22658 is referred
 

to herein as the "1997 Release;" Rule 17f-5 as amended is
 

referred to as "Amended Rule 1 7f-5. "
 
BAKR & MÇKENZIE
 

Robert E. Plaze
 

Douglas J. Scheidt
 

Division of Investment Management
 

May 29, 1998
 

Page 3
 

A. The 1981 Order
 

The 1981 Order, subject to certain conditions, permits Old
 Chase, and qualifying- foreign banks and foreign securities 

depositories selected by Old Chase, to hold the assets of
 

registered investment companies outside of the United States,
 

notwithstanding the fact that these foreign banks and foreign
 

depositories do not qualify as custodians of investment company
 

assets under section 17 (f) of the Act. Old Chase and Chase
 

entered into numerous contracts with U. S. investment companies
 

and foreign subcustodians based on the 1981 Order. Chase
 

estimates that, as of December 31, 1997, in excess of $700
 

billion in assets of over 100 U. S. investment company complexes
 

were held by Chase pursuant to contracts premised on the 1981


Order. 

B. The Chase/Chemical Merger
 

On March 31, 1996, Old Chase's parent holding company, The
 

Chase Manhattan Corporation, and Chemical Banking Corporation,
 

the parent holding company of Chemical Bank ("Chemical"),
 

merged. Chemical Banking Corporation survived the merger, but
 

changed its name to The Chase Manhattan Corporation.
 

Thereafter, on July 14, 1996, Old Chase merged into Chemical.
 

Chemical survived that merger and changed its name to "The
 

Chase Manhattan Bank."
 

c. The 1997 Amendments To Rule 17f-S and the Transition
 

Period 

On May 12, 1997, the Commission adopted substantial
 

amendments to Rule 17f-5. These amendments were effective on
 

June 16, 1997. However, since Amended Rule 17f-5 imposes
 

significant new requirements on foreign custody arrangements,
 

the Commission concluded that a transition period should be
 

provided for investment companies to comply with the amended
 

rule. In this regard, the 1997 Release states:
 

Funds that have established foreign custody
 

arrangements in accordance with rule 17f-5 prior to
 

the effective date of these amendments ("existing
 

foreign custody arrangements") must bring these
 

arrangements into compliance with the amended rule
 

(J., have the fund's board make the findings
 
BAKER & MÇKENZIE
 

Robert E. Plaze
 

Douglas J. Scheidt
 

Division of Investment Management
 

May 29, 1998
 

Page 4
 

required by the amended rule or appoint a delegate
 

to do so) within one year of the effective date of
 these amendments. The one year period is designed 

to give funds the flexibility to bring an existing
 

foreign custody arrangement into compliance with the
 

amended rule either when that arrangement would have
 

been subject to the fund board i s annual review, as
 

was required by the rule before these amendments, or
 4 at any board 'meeting within the one year period. 


D. 1997 No-Action Letter
 

The arrangements pursuant to which Chase holds the foreign
 

assets of its investment company customers will no longer
 

require exempti ve relief after the investment company boards
 

(or their delegates) make the necessary findings under Amended
 Rule 17f-5. Therefore, following discussions with the staff, 

Chase withdrew a previously-filed application to amend the 1981
 

Order to substitute Chase for Old Chase as the party to which
 

relief was granted. However, like other global custodians and
 

their investment company customers, Chase and its customers
 

require a transition period to conform their foreign custody
 

arrangements to the requirements of the amended rule.
 

Accordingly, on July 2, 1997, Chase requested that the staff
 

afford Chase and its investment company customers the same
 

transition period as set forth in the 1997 Release.
 

On July 11, 1997, the staff granted Chase i s request by
 

issuing the 1997 No-Action Letter. The staff stated:
 

Based on the facts and representations in - your 

letter, we would not recommend enforcement action
 

under section 17 (f) if Chase and those of its
 

investment company customers that have established
 

foreign custody arrangements prior to July 12, 1997
 

in conformity with the 1981 Order continue to rely
 

on that order during the period ,between July 12,
 

1997 and June 15, 1998.5
 

4 1997 Release at 33-34.
 

5 1997 No-Action Letter at 4-5.
 
",.' tj

BAKR & MÇKENZIE
 

Robert E. Plaze
 

Douglas J. Scheidt
 

Division of Investment Management
 

May 29, 1998
 

Page 5
 

E. 1998 Extension o~ Transition Period
 

On May 21, 1998, the Commission, at the request of the
 

Investment Company Institute ("ICI"), extended the transition
 

period to Amended Rule 17f-5 until February 1, 1999.6 In
 

announcing this extension, the Commission noted that the ICI
 

had asserted that certain requirements of Amended Rule 17f-5
 

"may present unanticipated problems when a foreign custod~
 

arrangement involves the selection of a compulsory depos i tory"
 

and that, because of difficulties in applying the rule, "many
 

funds may not be prepared to comply with the 1997 Amendments as
 

of June 16, 1998. ,,8 _ The Commission described the effect of
 

this extension as follows:
 

Until February 1, 1999, a fund may maintain its
 

foreign custody arrangements under either of two
 

regulatory frameworks. First, the fund may continue
 

to comply with rule 17f-5 as it existed prior to the
 

1997 Amendments ("old rule 1 7f-5"). Because the
 

compliance date for the amended definition of
 

eligible foreign custodian will remain June 16,
 

1998, a fund may comply with old rule 17f-5 while
 also selecting a custodian that is an eligible

foreign custodian under the amended def ini tion. 

Second, in the alternative, a fund may comply
 

entirely with rule 17f-5 as amended by the 1997
 

Amendments (the "amended rule").
 

The Fund may apply either of these al ternati ve
 

frameworks separately to each foreign custodian it
 uses. The fund' s arrangement with a particular 

foreign custodian or subcustodian, however, snould
 

comply in its entirety either with old rule 17f-5
 

(subject to the amended definition of eligible


foreign custodian), or with the amended rule.9
 

6 Investment Company Act Release No. 23201 (May 21,
 1998) (" 1998 Release"). 

7 '­ 1998 Release at 2-3.
 

8 1998 Release at 3.
 

9 1998 Release at 4-5 (footnote omitted).
 
BAKR & MÇKENZIE
 

Robert E. Plaze
 

Douglas J. Scheidt
 

Division of Investment Management
 

May 29, 1998
 

Page 6
 

Discussion 

By this request, Chase merely seeks the continuation of
 

the principle underlying the 1997 No-Action Letter -- that its
 

investment company customers should be afforded the same
 

transition period to implement the requirements of Amended Rule
 

17f-5 as the Commission has afforded to other investment
 

companies. The uncertainties described in the 1998 Release
 

have precluded investment companies generally from implementing
 

delegations or otherwise conforming their foreign custody
 

arrangements to the requirements of 
 Amended Rule 17 f - 5 . These 

uncertainties have similarly affected Chase's investment
 

company customers. Therefore, Chase and its customers have the
 

same need for an extension of the transition period as do all
 

other global custodians and investment companies.
 

Relief Requested
 

Chase respectfully requests that the staff advise it that
 

it will not recommend that the Commission take enforcement
 

action under section 17 (f) of the Act if, during the period
 

between June 15, 1998 and February 1, 1999 (or such later date
 

as the Commission may specify as the end of the transition
 

period for implementation of Amended Rule 1 7f-5), Chase and
 

those of its investment company customers that have established
 

foreign custody arrangements in conformity with the 1981 Order
 

continue to rely on those arrangements. 10
 

* * * 

In accordance with Investment Company Act Release No. 6330
 

(January 25, 1971) ,we are enclosing two additional copies of


this letter. Given the brief period of time between the
 

10 We respectfully suggest that the staff extend the
 

relief granted to Chase until February 1, 1999, or such later
 

date as the Commission may specify as the end of the transition
 

period for implementation of Amended Rule 17f-5, in order to
 

avoid the need for additional no-action requests in the event
 

that, in the future, the Commission further extends the Rule
 

17f-5 transition period.
 
BAKR & MÇKENZIE
 

Robert E. Plaze
 

Douglas J. Scheidt
 

Division of Investment Management
 

May 29, 1998
 

Page 7
 

issuance or the 1998 Release and the June 15, 1998 expiration
 

of transition period in the 1997 No-Action Letter, we
 

respectfully request expedited consideration of this request.
 

We appreciate the staff's attention to this matter. If
 

you have questions concerning our request, or require any
 

additional information, please contact the undersigned at


202/452-7013. 

Sincerely, 

Q~o~~Eme lJ 9­

cc: C. Hunter Jones
 

Assistant Director
 

M. J. Kerwin
 

Senior Counsel
 

Office of Regulatory Policy
 

Nadya B. Royblat
 

Assistant Director
 

Office of Investment Company Regulation
 

Mercer E. Bullard
 

Assistant Chief Counsel
 

David W. Grim
 

Staff Attorney
 

Office of Chief Counsel
 

Simeon S. Amon
 

Vice President and Senior Associate Counsel
 

The Chase Manhattan Bank
 

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