[Federal Register Volume 61, Number 111 (Friday, June 7, 1996)]
[Notices]
[Pages 29148-29150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14359]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--22000; International Series Release No. 990; File No. 
812-10136]


The Chase Manhattan Bank, N.A. and Chemical Bank; Notice of 
Application

May 31, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

-----------------------------------------------------------------------

Applicants: The Chase Manhattan Bank, N.A. (``Chase'') and Chemical 
Bank (``Chemical'').

Relevant Act Sections: Order requested under section 6(c) of the Act 
for an exemption from section 26(a) (2)(D) of the Act.

Summary of Application: Applicants request an order that would amend a 
prior order (the ``Prior Order'') \1\ granted to Chase which permits 
Chase, as trustee for certain unit investment trusts (``UITs''), to 
deposit trust assets in the custody of the Euroclear System 
(``Euroclear'') and Cedel Bank S.A. (``Cedel''). The requested order 
would substitute the entity surviving the anticipated merger of Chase 
and Chemical as the party to which relief is granted. Chemical will 
survive the merger and change its name to ``The Chase Manhattan Bank.''

    \1\ The Chase Manhattan Bank, N.A., Investment Company Act 
Release Nos. 21673 (Jan. 16, 1996) (notice) and 21751 (Feb. 13, 
1996) (order).
---------------------------------------------------------------------------

Filing Date: The application was filed on May 8, 1996.


[[Page 29149]]


Hearing or Notification of Hearing: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on June 25, 1996 by 
proof of service on applicants, in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Daniel L. Goelzer, Esq., Baker & McKenzie, 815 
Connecticut Avenue, N.W., Washington, D.C. 20006.

FOR FURTHER INFORMATION CONTACT: David W. Grim, Staff Attorney, at 
(202) 942-0571, or Robert A. Robertson, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

Supplementary Information: the following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Chase is a national banking association, regulated by the 
Comptroller of the Currency under the National Bank Act. At December 
31, 1995, Chase had shareholders' equity in excess of $8.065 billion. 
Through its Global Securities Services division, Chase provides custody 
and related services to global institutional investors, including U.S. 
registered investment companies.
    2. Chemical is a banking institution, organized under the laws of 
the State of New York. It is regulated as a bank by the Superintendent 
of Banks of New York, and is a member bank of the Federal Reserve 
System. At December 31, 1995, Chemical had shareholders' equity in 
excess of $8.18 billion. Through its Geoserve Securities Services 
division, Chemical provides custody and related services to global 
institutional investors, including U.S. registered investment 
companies.
    3. On March 31, 1996, Chase's parent holding company, The Chase 
Manhattan Corporation, and Chemical's parent holding company, Chemical 
Banking Corporation, merged. Chemical Banking Corporation was the 
surviving entity in the merger, and it has changed its name to ``The 
Chase Manhattan Corporation.'' During July 1996, it is anticipated that 
Chase will be merged into Chemical (the ``Merger''). Chemical will 
survive the Merger, and will change its name to ``The Chase Manhattan 
Bank'' (``New Chase''). Applicants state that, upon the Merger, New 
Chase will succeed by operation of law to the rights and obligations of 
Chase, including Chase's obligations under the trust indentures it has 
with various UITs predicated on the Prior Order.
    4. Euroclear and Cedel (together, the ``Transnational 
Depositories'') are among the largest clearance and custody systems in 
the world. The Transnational Depositories were organized principally to 
provide a simple, economic, and automated means of settling secondary 
market transactions in internationally traded securities, regardless of 
the geographical location of the parties to the transaction. Many U.S. 
institutions, including numerous investment companies registered under 
the Act, routinely hold substantial assets through the facilities of 
these entities.
    5. The Prior Order permits Chase to place the assets of certain 
UITs in the custody of the Transnational Depositories. After the 
Merger, however, Chase, the party to which the Prior Order was granted 
and which is bound by the conditions thereunder, will cease to exist. 
Accordingly, applicants request an order to amend the Prior Order to 
substitute New Chase as the party to which relief is granted. Such an 
amendment will ensure that UITs may continue utilizing the services of 
the Transnational Depositories through the New Chase after the Merger 
under the same conditions as are contained in the Prior Order.
    6. Under the conditions in the Prior Order, each indenture pursuant 
to which Chase acts as trustee for any UIT that utilizes the custody 
services of either of the Transnational Depositories must contain 
provisions under which (i) Chase agrees to indemnify the UIT against 
any loss occurring as a result of a Transnational Depository's willful 
misfeasance, reckless disregard, bad faith, or gross negligence in 
performing custodial duties, and (ii) Chase agrees to perform all the 
duties assigned by rule 17f-5, as now in effect or as it may be amended 
in the future, to the boards of directors of management investment 
companies. In addition, Chase must maintain certain records regarding 
the basis for the choice or the continued use of a particular 
Transnational Depository and to make such records available for 
inspection by unitholders and by the staff of the SEC. Chase also must 
provide disclosure regarding foreign securities and foreign custody 
required for management investment companies by Forms N-1A and N-2 in 
the prospectus of any UIT relying on the relief.

Applicants' Legal Conclusions

    1. Under sections 2(a)(5) and 26(a)(1) of the Act, the trustee of a 
UIT must be a bank that is subject to regulation by the U.S. government 
or one of the states. Section 26(a)(2)(D) requires that the trust 
indenture provide that the trustee ``shall have possession of all 
securities and other property in which the funds of the trust are 
invested * * * and shall segregate and hold the same in trust * * * 
until distribution thereof to the security holders of the trust.'' 
Under these sections, the only foreign entity that qualifies as a UIT 
custodian is an overseas branch of a U.S. bank.\2\
---------------------------------------------------------------------------

    \2\ See Custody of Investment Company Assets Outside the United 
States, Investment Company Act Release No. 21259 (July 27, 1995).
---------------------------------------------------------------------------

    2. Section 6(c) provides that the SEC may exempt any person, 
security, or transaction from any provision of the Act or any rule or 
regulation thereunder, if and to the extent that such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act.
    3. Applicants request an order under section 6(c) for an exemption 
from section 26(a)(2)(D) that would amend the Prior Order. The Prior 
Order exempted Chase, any UIT for which Chase serves as trustee, any 
co-trustee or subcustodian thereof, and any sponsor of such UIT from 
section 26(a)(2)(D) to the extent necessary to permit Chase to maintain 
securities and other assets of such UITs in the custody of the 
Transnational Depositories. Applicants request an order to amend the 
Prior Order to substitute New Chase as the party to which relief is 
granted.
    4. Applicants believe that the requested amendment is necessary and 
appropriate in the public interest to permit UITs for which Chase 
serves as trustee to continue to use the arrangements currently in 
place under the Prior Order after the Merger, and to permit new UIT 
customers for which New Chase may serve in such capacity to have access 
to such arrangements. Absent an amendment, New Chase may be unable to 
offer these services to UITs under the existing order. To require 
current UIT customers of Chase to bear the substantial expense and 
effort of implementing alternative arrangements merely because of the 
Merger would be

[[Page 29150]]

contrary to the best interests of investors, and contrary to public 
policy.
    5. Applicants believe that the assets to which the Prior Order 
relate will be as effectively protected by New Chase as they have been 
by Chase. Chase qualifies as a ``bank'' for purposes of section 26, 
since it is a banking institution organized under the laws of the 
United States and has an aggregate capital, surplus, and undivided 
profits substantially in excess of the $500,000 required by the Act. 
Chemical also qualifies as a ``bank'' for section 26 purposes, since it 
is a member of the Federal Reserve System and has capital substantially 
in excess of the $500,000 minimum. New Chase will continue to qualify 
as such a ``bank'' on and after the Merger. With respect to global 
custody services, New Chase will combine the size, expertise, and 
reputation of both Chase and Chemical. UITs for which Chase acts as 
trustee and custodian will therefore be at least as well-protected 
after the Merger as before.
    6. Applicants state that New Chase will be required to indemnify 
UITs against loss of assets held by the Transnational Depositories to 
the same extent that Chase is required to do so under the Prior Order. 
Also, applicants believe that securities deposited in the Transnational 
Depositories are as well-protected as if they were deposited with a 
foreign branch of a U.S. bank, or shipped to the U.S. for foreign 
custody. The Transnational Depositories are among the largest and most 
experienced clearance and custody systems for internationally-traded 
securities in the world.
    7. Applicants state that sections 26(a)(1) and 26(a)(2)(D) were 
adopted for essentially the same purposes as section 17(f) of the Act. 
The purpose of section 17(f) is to ensure that U.S. investment 
companies hold securities in a safe manner that protects the interests 
of their shareholders. The purpose of rule 17f-5 is to relieve U.S. 
investment companies of the expense and inconvenience of transferring 
assets to the custody of a U.S. bank or other qualified custodian 
outside the jurisdiction in which the primary trading market for those 
assets is located and to reduce the risks inherent in maintaining 
assets outside the U.S. The requested amendment would permit New Chase 
to continue offering the arrangements under the same terms and 
conditions as set forth in the Prior Order and is, therefore, 
consistent with these purposes.
    8. Applicants state that in granting the Prior Order, the SEC 
determined that the arrangements permitted by that order satisfy the 
standards of section 6(c). Applicants believe that the substitution of 
New Chase for Chase as the party to which the terms and conditions of 
those orders apply in no way detracts from the continuing validity of 
the SEC's determinations. Therefore, applicants believe the requested 
order satisfies these standards.

Applicants' Condition

    Applicants agree that the order granting the requested relief shall 
be subject to the condition that, following the merger of Chase and 
Chemical, New Chase will comply with all of the terms and conditions 
set forth in the Prior Order as if such order had been granted to New 
Chase.
    For the Commission, by the Division of Investment Management, under 
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-14359 Filed 6-6-96; 8:45 am]
BILLING CODE 8010-01-M