[Federal Register Volume 67, Number 143 (Thursday, July 25, 2002)]
[Notices]
[Pages 48685-48687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18837]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25668; 812-12798]


Matrix Unit Trust, et al.; Notice of Application

July 19, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A), (B), and (C) of the Act and under sections 6(c) 
and 17(b) of the Act for an exemption from section 17(a) of the Act.

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    Summary of Application: Applicants Matrix Capital Group, Inc. (the 
``Depositor''), Matrix Unit Trust (``Matrix Trust'') and unit 
investment trusts (``UITs'') organized in the future and sponsored by 
the Depositor (together with Matrix Trust, the ``Trusts,'' and series 
of the Trusts, ``Series'') request an order (a) under section 
12(d)(1)(J) of the Act to permit

[[Page 48686]]

Series to offer and sell to the public units (``Units'') with a sales 
load that exceeds the limit in section 12(d)(1)(F)(ii) of the Act; and 
(b) under sections 6(c) and 17(b) from section 17(a) of the Act to 
permit the Series to invest in affiliated registered investment 
companies within the limits of section 12(d)(1)(F) of the Act.
    Applicants: Matrix Unit Trust and Matrix Capital Group, Inc.
    Filing Dates: The application was filed on March 21, 2002. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected in this notice.
    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 applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on August 13, 2002, and should be accompanied by proof of 
service on applicant, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants: c/o Mark J. Kneedy, Chapman and Cutler, 111 
West Monroe Street, Chicago, IL 60603.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, or Nadya B. 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 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Matrix Trust is registered under the Act as a UIT. The 
Depositor, a broker-dealer registered under the Securities Exchange Act 
of 1934, is the depositor for each Series. Each Series will be created 
under state law pursuant to a trust agreement that will contain 
information specific to that Series, and will incorporate by reference 
a master trust agreement between the Depositor and a financial 
institution that satisfies the criteria in section 26(a) of the Act 
(the ``Trustee''). The trust agreement and the master trust agreement 
are referred to collectively as the ``Trust Agreement''. Pursuant to 
the Trust Agreement, the Depositor will deposit into each Series shares 
of existing registered investment companies (``Funds''), or contracts 
and monies for the purchase of shares of the Funds. Each of the Funds 
will be a closed-end investment company (``Closed-end Fund''), an open-
end investment company or a UIT. In addition, certain of the Funds may 
be either an open-end investment company or a UIT that has received 
exemptive relief under the Act to sell its shares at negotiated prices 
on an exchange (``Exchange Funds'').
    2. The purpose of each Series is to provide retail investors with a 
practical, cost efficient means of investing in a diversified pool of 
securities of investment companies that has been professionally 
selected by the Depositor, and each Series' investment objective will 
be to seek capital appreciation, income, or any combination thereof by 
investing all or a portion of its assets in shares of investment 
companies. Applicants anticipate that certain of the Funds selected may 
be advised and/or distributed by the Depositor or one of its affiliates 
(``Affiliated Funds''). Applicants anticipate that most of the Funds 
selected will be unaffiliated with any of the applicants, including the 
Depositor (``Unaffiliated Funds''). Applicants state that the Series'' 
investments in Affiliated and Unaffiliated Funds will comply with 
section 12(d)(1)(F) in all respects except for the sales load 
restriction of section 12(d)(1)(F)(ii).
    3. The only Funds that will be eligible for inclusion in a Series 
are either no load Funds or Funds which, although they offer shares 
with a front-end sales charge to the public, agree to waive any 
otherwise applicable front-end sales load with respect to all shares 
sold or deposited in any Series. Shares of each of the Funds (except 
Closed-end Funds and Exchange Funds), therefore, will be sold for 
deposit into any Series at net asset value. Shares of Closed-end Funds 
and Exchange Funds will be purchased by a Series at their ``market 
value''.\1\ Investors in a Series (``Unitholders'') will pay a 
specified sales load to the Depositor in connection with the purchase 
of their Units.
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    \1\ Market value will be determined by an evaluator and will be 
based on the closing prices (or if unavailable, the closing asking 
prices) for the securities traded on an exchange or on the Nasdaq 
Stock Market.
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    4. A Series may pay an evaluation fee with regard to determining 
the value of a Fund's shares. If the Trustee receives service fees 
under a rule 12b-1 plan from the Funds to compensate it for providing 
servicing and sub-accounting functions with respect to Fund shares held 
by a Series, the Trustee will reduce its regular fee to a Series 
directly by the fees it receives from the Funds and rebate any excess 
fees it receives to the Series. Any fees so rebated will be utilized by 
the Series to absorb other bona fide Series expenses. To the extent 
that these fees exceed the total Series expenses, the excess will be 
distributed along with other income earned by the Series.

Applicants' Legal Analysis

A. Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if those securities represent more than 3% of the acquired company's 
total outstanding voting stock, more than 5% of the acquiring company's 
total assets, or if the securities, together with the securities of any 
other acquired investment companies, represent more than 10% of the 
acquiring company's total assets. Section 12(d)(1)(B) of the Act 
prohibits a registered open-end investment company from selling its 
shares to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by the investment companies 
generally. Section 12(d)(1)(C) of the Act prohibits an investment 
company, other investment companies having the same adviser, and 
companies controlled by such investment companies, from acquiring more 
than 10% of the outstanding voting stock of a registered closed-end 
management investment company.
    2. Section 12(d)(1)(F) of the Act provides that section 12(d)(1) 
does not apply to an acquiring company if the company and its 
affiliated persons own no more than 3% of an acquired company's total 
outstanding securities, provided that the acquired company does not 
impose a sales load of more than 1.5%. In addition, the section 
provides that no acquired company may be obligated to honor any 
acquiring company's redemption request in excess of 1% of the acquired 
company's securities during any period of less than 30 days, and the 
acquiring company must vote its acquired company shares either in 
accordance with instructions from its shareholders or in the same

[[Page 48687]]

proportion as all other shareholders of the acquired company.
    3. A Series will invest in Affiliated and Unaffiliated Funds in 
reliance on section 12(d)(1)(F) of the Act. If the requested relief is 
granted, the Series will offer Units to the public with a sales load 
that exceeds the 1.5% limit in section 12(d)(1)(F)(ii).
    4. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt persons or transactions from any provision of section 12(d)(1), 
if and to the extent that such exemption is consistent with the public 
interest and the protection of investors.
    5. Applicants have agreed, as a condition to the requested relief, 
that any sales charges and/or service fees with respect to Units of a 
Series will not exceed the limits set forth in rule 2830 of the 
National Association of Securities Dealers, Inc. (``NASD'') Conduct 
Rules applicable to a fund of funds. Applicants believe that it is 
appropriate to apply the NASD's rule to the proposed arrangement 
instead of the sales load limitation in section 12(d)(1)(F)(ii) because 
the proposed limit would cap the aggregate sales charges of the Units 
and the Funds. Applicants assert that the NASD's rule more accurately 
reflects today's regulatory environment with respect to the methods by 
which investment companies finance sales expenses.
    6. Applicants state that, with respect to shares of Closed-end 
Funds and Exchange Funds held by a Series, no front-end sales load, 
contingent deferred sales charges or redemption fees will be charged in 
connection with the sale or purchase of Funds shares by a Series. 
Applicants state that although the Series likely will incur brokerage 
commissions in connection with its market purchases of shares of 
Closed-end Funds or Exchange Funds, these commissions will not differ 
materially from commissions otherwise incurred in connection with the 
purchase or sale of comparable portfolio securities.
    7. Applicants also agree, as a condition to the requested relief, 
that no Series will acquire securities of a Fund which, at the time of 
acquisition, owns securities of any other investment company in excess 
of the limits contained in section 12(d)(1)(A) of the Act.

B. Section 17(a) of the Act

    1. With regard to the Series' investments in Affiliated Funds, 
applicants request relief from section 17(a) of the Act under sections 
6(c) and 17(b). Section 17(a) of the Act generally prohibits an 
affiliated person, or an affiliated person of an affiliated person, of 
a registered investment company from selling securities to, or 
purchasing securities from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include any 
person directly or indirectly controlling, controlled by, or under 
common control with the other person. Applicants submit that the Series 
and Affiliated Funds may be deemed to be affiliated persons of one 
another by virtue of being under common control of the Depositor. 
Applicants state that purchases and redemptions of share of the 
Affiliated Funds by a Series could be deemed to be principal 
transactions between affiliated persons under section 17(a).
    2. Section 6(c) of the Act provides that the Commission may exempt 
persons or transactions from any provisions of the Act if 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. Section 17(b) of the Act provides 
that the Commission will exempt a proposed transaction from section 
17(a) if evidence establishes that: (a) The terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching; (b) the proposed 
transaction is consistent with the policies of the registered 
investment company involved; and (c) the proposed transaction is 
consistent with the general purposes of the Act.
    3. Applicants state that shares of Affiliated Funds will be sold to 
the Series at net asset value, or, in the case of Closed-end Funds or 
Exchange Funds, at their market value. As a result, applicants believe 
that the proposed terms and conditions of the Series' transactions in 
Affiliated Fund shares, including the consideration to be paid or 
received, will be reasonable and fair and will not involve overreaching 
on the part of any person concerned. Furthermore, applicants believe 
that the proposed transactions will be consistent with the policies of 
the each Series as recited in their registration statements, including 
disclosure that each Series is to hold shares of various Funds.

Applicant's Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Series will comply with section 12(d)(1)(F) in all respects 
except for the sales load limitation of section 12(d)(1)(F)(ii).
    2. Any sales charges and/or service fees (as those terms are 
defined in NASD Conduct Rule 2830) charged with respect to Units of a 
Series will not exceed the limits set forth in NASD Conduct Rule 2830 
applicable to a fund of funds (as defined in NASD Conduct Rule 2830).
    3. No Series will acquire securities of a Fund which, at the time 
of acquisition, owns securities of any other investment company in 
excess of the limits contained in section 12(d)(1)(A) of the Act.
    4. No Series will terminate within thirty days of the termination 
of any other Series that holds shares of one or more common Funds.
    5. The prospectus of each Series and any sales literature or 
advertising that mentions the existence of an in-kind distribution 
option will disclose that Unitholders who elect to receive Fund shares 
will incur any applicable rule 12b-1 fees.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-18837 Filed 7-24-02; 8:45 am]
BILLING CODE 8010-01-P