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REPONSE OF TH OFfCE OF

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DMSION OF INTM MAAGEM

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June 12, 1998

Our Ref. No. 98-5-ICR

The Cha Maatt Ban

File No. 812-10176

Your letr of May 29, 1998 reuests tht we extnd the effectiveness of our noon July 11, 1997 (the "1997 No-Acton Ler") to The

action position taen ii a letr issued

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

ths new complice date."

in the 1997 No-Action'Leer to provide Chase with the benefit of

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

5. '

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

~),L

David W. Gnm

Sta Attorney

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

Rule 17f-5). ' , '

2 See Investment Company Act Releae No. 22658 (May 12, 1997) (adopting

3

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

amendments to

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BAKER & MÇKENZIE

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JUARez 1940 Act

TORONTO

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 NoAction 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 NoAction 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

at any board

'meeting within the one year period.

4

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

5

1997 Release at 33-34.

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

Amended Rule 17 f - 5 . These

uncertainties have similarly affected Chase's investment

arrangements to the requirements of

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

I: \CORP\OLG\PUBL\2034537.1