[Federal Register Volume 63, Number 38 (Thursday, February 26, 1998)]
[Notices]
[Pages 9877-9879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4857]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23032; 812-10856]
Van Kampen American Capital Distributors, Inc., et al.; Notice of
Application
February 20, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order 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.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: Applicants request an order that would permit
certain unit investment trusts to deposit trust assets in the custody
of foreign banks and securities depositories.
APPLICANTS: Van Kampen American Capital Distributors, Inc. (the
``Sponsor''), and Van Kampen American Capital Equity Opportunity Trust
(the ``Trust'').
FILING DATES: The application was filed on November 3, 1997 and amended
on February 18, 1998.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing.
[[Page 9878]]
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 March 17, 1998, and should be accompanied 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
may request notification of a hearing by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, One Parkview Plaza, Oakbrook Terrace, Illinois
60181.
FOR FURTHER INFORMATION CONTACT:
J. Amanda Machen, Senior Counsel, at (202) 942-7120 or Nadya Roytblat,
Assistant Director, 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, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicant's Representations
1. The Sponsor, a wholly-owned indirect subsidiary of Morgan
Stanley, Dean Witter, Discover & Co., specializes in the underwriting
and distribution of unit investment trusts (``UITs'') and mutual funds.
The Sponsor is also a broker-dealer registered under the Securities
Exchange Act of 1934.
2. The Trust is registered under the Act and consists of several
UITs registered or to be registered under the Securities Act of 1933
(``Series'' or ``Trust Series''). Each 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 financial institution that is a bank within the meaning of
section 2(a)(5) of the Act and that satisfies the criteria of section
26(a) of the Act (the ``Trustee''), 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
controlled by or under common control with the Sponsor (together with
the Trust, the ``Trusts'').
3. Several Series have investment objectives that specify the
investment of assets in non-United States securities. To date, the
existing Trust Series that invest in foreign securities have been able
to deposit those securities in the custody of a foreign branch of a
U.S. bank or with the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York, in its capacity
as operator of the Euroclear System (``Euroclear''), or with Central de
Livraison de Valeurs Mobilieres, S.A. (``Cedel''), under an exemptive
order granted to the Series' Trustee, the Bank of New York.\1\
Applicants currently contemplate creating a Trust Series (the ``EAFE
Trust'') that will invest in the twenty companies with the highest
dividend yield selected from a subset of the Morgan Stanley Capital
International Europe, Australasia, Far East Index. The EAFE Trust will
invest in foreign securities traded in several countries (such as
Australia, France and New Zealand) that either are not eligible for
settlement through Euroclear or Cedel or for which those depositories
are not used in the ordinary course of settling transactions in those
securities. Applicants therefore request an 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 necessary to effect the Series' transactions in those
investments (collectively, ``Foreign Investments''), with any foreign
bank or securities depository that meets the requirements described
below.
---------------------------------------------------------------------------
\1\ Investment Company Act Release Nos. 20444 (August 5, 1994)
(notice) and 20521 (August 31, 1994) (order).
---------------------------------------------------------------------------
4. Without the requested relief, purchases of certain foreign
securities by the EAFE Trust require that the securities must be
physically transported in certificate form for deposit with a foreign
branch of a U.S. bank and then retransported and redeposited upon sale.
The costs and risks of this process are borne by the Series. Applicants
also represent that, increasingly, transactions in foreign securities
must be settled by book entry through specified clearing systems with
related depositories. In addition, certain countries by law or
regulation mandate use of a particular depository as the only means of
holding a security. In other markets, maintaining securities outside a
depository is not consistent with prevailing custodial practices. In
some markets, anticipated time delays, as well as the costs, of
maintaining securities with the nearest branch of a qualified U.S. bank
have led the Sponsor to determine not to invest in those securities.
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 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 SEC may conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities or transactions, from any
provision 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. Rule 17f-5 under the Act governs 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''). Rule 17f-5 defines
Eligible Foreign Custodian to include an entity incorporated or
organized under the laws of a foreign country that is (i) a banking
institution or trust company regulated as a bank or trust company by
the foreign country's government or government agency or a majority-
owned direct or indirect subsidiary of a U.S. bank or bank holding
company; (ii) a securities depository or clearing agency that acts as a
system for the central handling of securities or equivalent book-
entries in the country that is regulated by a foreign financial
regulatory authority; or (iii) a securities depository or clearing
agency that acts as a transnational system for the handling of
securities or equivalent book-entries.
4. Under the proposed arrangements, a Trust Series would comply
with all of the requirements of rule 17f-5, except
[[Page 9879]]
that the Trustee would perform the duties that rule 17f-5 requires to
be performed by a ``foreign custody manager.'' Rule 17f-5 defines
``Foreign Custody Manager'' as the board of directors of a management
investment company or a person serving as the board's delegate.
5. Under the proposed arrangements, the Sponsor, in determining the
composition of the Trust Series' portfolio, will evaluate the risks of
a Trust Series' investing in a particular country. In making the
foreign investment decisions, the Sponsor may seek and rely on the
information and opinion of the Trustee who may have information and
experience concerning the financial systems and practices of the
particular foreign market. The risks associated with the investment, if
material, will be disclosed in the Trust Series' prospectus.
6. Consistent with the requirements of rule 17f-5, the Trustee, as
Foreign Custody Manager, will select an Eligible Foreign Custodian
after determining that the Series's assets will be subject to
reasonable care; that the foreign custody contract will provide
reasonable care for the Series' assets; and after establishing a system
to monitor the appropriateness of maintaining the Series' assets with
the custodian. The Trustee will make these determinations according to
the requirements of the rule. The Indenture will contain provisions
under which the Trustee agrees to indemnify the Trust Series against
the risk of loss of Trust Series assets held in accordance with the
foreign custody contract. In addition, 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.
7. Applicants believe the Trustee can fulfill the duties of a
Foreign Custody Manager under rule 17f-5 to select a foreign custodian
and monitor the foreign custody arrangements. Applicants also assert
that the Trustee will have the necessary expertise and generally be in
the best position to make the determinations required by the rule.
Applicants believe that permitting the use of Eligible Foreign
Custodians by Trust Series would result in efficiencies, cost savings
and enhanced liquidity of the Series' Foreign Investments.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
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 assets held 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 of the duties assigned by rule 17f-5, as now in
effect or as it may be amended in the future, to the Foreign Custody
Manager. A Trustee's duties under this condition will not be delegated.
4. 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.
5. 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 SEC or its staff.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4857 Filed 2-25-98; 8:45 am]
BILLING CODE 8010-01-M