[Federal Register Volume 68, Number 7 (Friday, January 10, 2003)]
[Notices]
[Pages 1489-1490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-461]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25882; 812-12484]


Van Kampen Funds Inc., et al.; Notice of Application

January 3, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 
26(a)(2)(D) of the Act.

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    Summary of Application: Applicants request an order to supercede a 
prior order (``Prior Order'') \1\ to permit certain unit investment 
trusts (``UIT's'') to deposit trust assets in the custody of foreign 
banks and securities depositories.
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    \1\ Investment Company Act Release Nos. 23032 (Feb. 20, 1998) 
(notice) and 23069 (Mar. 18, 1998) (order).
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    Applicants: Van Kampen Funds Inc. (the ``Sponsor'') and Van Kampen 
Focus Portfolios (the ``Trust'').
    Filing Dates: The application was filed on March 21, 2001 and 
amended on December 19, 2002.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on January 28, 2003 and should be accompanied by proof of 
service on the 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, 1 Parkview Plaza, 
P.O. Box 5555, Oakbrook Terrace, IL 60181-5555.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Janet M. Grossnickle, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Sponsor is a broker-dealer registered under the Securities 
and Exchange Act of 1934. The Trust is registered under the Act and 
consists of several UITs registered or to be registered under the 
Securities Act of 1933 (``Trust Series''). Each Trust Series is created 
under the laws of the United States pursuant to a trust agreement that 
will contain information specific to that Trust Series and which will 
incorporate by reference a master trust indenture (the ``Indenture'') 
among the Sponsor, a bank (as defined in section 2(a)(5) of the Act), 
an evaluator and a supervisor. Applicants request that any order 
granted pursuant to the application extend to any future UIT sponsored 
by the Sponsor or an entity controlling, controlled by, or under common 
control with the Sponsor (together with the Trust, the ``Trusts'' and 
their series, ``Trust Series'') and any bank which acts as trustee (a 
``Trustee'') for any Trust Series.
    2. Several Trust Series have investment objectives that specify the 
investment of assets in non-United States securities. To date, the 
existing Trust Series which invest in foreign securities have been able 
to deposit such securities in the custody of foreign banks and 
securities depositories pursuant to the Prior Order. Applicants state 
that the Commission granted the Prior Order before the most recent 
amendments to rule 17f-5 under the Act and the adoption of rule 17f-7 
under the Act \2\ and seek to amend the Prior Order to reflect these 
changes. Applicants therefore request an order to supercede the Prior 
Order to permit the Trust Series to deposit investments, including 
foreign currencies, for which the primary market is outside the United 
States and such cash and cash equivalents as reasonably necessary to 
effect the Trust Series' transactions in those investments 
(collectively, ``Foreign Investments''), with any foreign bank or 
securities depository subject to the requirements described below.
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    \2\ See Investment Company Act Rel. Nos. 23815 (April 29, 1999) 
(proposing release) and 24424 (April 27, 2000) (adopting release).
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Applicants' Legal Analysis

    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) also requires that the

[[Page 1490]]

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 provisions, the only foreign entity that qualifies as a UIT 
custodian is an overseas branch of a U.S. bank.
    2. Section 6(c) provides that the Commission may conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class or classes of person, securities, or transactions, from any 
provisions of the Act or any rule or regulation under the Act if, and 
to the extent that, the 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. Rules 17f-5 and 17f-7 under the Act govern the custody of assets 
of registered management investment companies overseas. Applicants seek 
an order under section 6(c) exempting them and any U.S. bank that acts 
as Trustee for any Trust Series from section 26(a)(2)(D) of the Act to 
the extent necessary to permit a Trustee to deposit Foreign Investments 
with an eligible foreign custodian as that term is defined in Rule 17f-
5 under the Act (``Eligible Foreign Custodian'') or with an eligible 
securities depository as that term is defined in Rule 17f-7 under the 
Act (``Eligible Securities Depository'').
    4. Under the proposed arrangements, a Trust Series would comply 
with all of the requirements of rule 17f-5, except that the Trustee 
will perform the duties and responsibilities that are normally 
performed by the foreign custody manager as described in rule 17f-5(c) 
(``Foreign Custody Manager''). Applicants state that the Trustee will 
fulfill the duties of a Foreign Custody Manager under rule 17f-5 to 
select an Eligible Foreign Custodian and monitor the foreign custody 
arrangements. Applicants assert that the Trustee will have the 
expertise and generally be in the best position to make the 
determinations required by rule 17f-5. Under the proposed arrangements, 
a Trust Series also will comply with all of the requirements of rule 
17f-7, with the Trustee providing the risk analysis to the Sponsor, 
monitoring the custody risks associated with maintaining Foreign 
Investments with an Eligible Securities Depositary on a continuing 
basis, and promptly notifying the Sponsor of any material change in the 
risks. Applicants also state that the Sponsor will be required to take 
appropriate action in response to a notification by the Trustee.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Indenture will contain provisions under which the Trustee 
agrees to indemnify the Trust Series against the risk of loss of Trust 
Series' Foreign Investments held with an Eligible Foreign Custodian in 
accordance with the foreign custody contract.
    2. The Indenture will contain provisions under which the Trustee 
agrees to exercise reasonable care, prudence, and diligence such as a 
person having responsibility for the safekeeping of Trust Series assets 
would exercise, and to be liable to the Trust Series for any loss 
occurring as a result of the Trustee's failure to do so.
    3. The Indenture will contain provisions under which the Trustee 
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 a Foreign Custody 
Manager. A Trustee's duties under this condition will not be delegated.
    4. The Indenture will contain provisions under which the Trustee 
agrees that it (or the Trustee's agent) will (i) Provide the Sponsor 
with an analysis of the custody risks associated with maintaining 
assets with an Eligible Securities Depository; (ii) monitor the custody 
risks associated with maintaining assets with the Eligible Securities 
Depository on a continuing basis and promptly notify the Sponsor of any 
material change in these risks; and (iii) exercise reasonable care, 
prudence and diligence in performing the foregoing duties.
    5. The Sponsor will be required to take appropriate action in 
response to a notification by the Trustee provided pursuant to 
condition 4 above.
    6. The Trust Series' prospectus will contain such disclosure 
regarding foreign securities and foreign custody as is required for 
management investment companies by Forms N-1A and N-2. The prospectus 
also will contain disclosure concerning the Sponsor's responsibilities 
pursuant to condition 5 above.
    7. The Trustee will maintain and keep current written records 
regarding the basis for the choice or continued use of each foreign 
custodian. These records will be preserved for a period of not less 
than six years from the end of the fiscal year in which the Trust 
Series was terminated, the first two years in an easily accessible 
place. The records will be available for inspection at the Trustee's 
main office during the Trustee's usual business hours, by unitholders 
and by the Commission or its staff.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-461 Filed 1-9-03; 8:45 am]
BILLING CODE 8010-01-P