[Federal Register Volume 68, Number 175 (Wednesday, September 10, 2003)]
[Notices]
[Pages 53405-53407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-23050]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26173; 812-12940]


Matrix Capital Group, Inc., et al.; Notice of Application 
September 4, 2003.

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 the Application: Matrix Unit Trust (``Matrix Trust''), 
Matrix Capital Group, Inc. (``Matrix''), and any registered unit 
investment trusts (``UITs'') organized in the future and sponsored by 
Matrix, or an entity controlling, controlled by or under common control 
with Matrix (collectively, the ``Depositor''), and their respective 
series (together with the Matrix Trust, the ``Trusts'', and each series 
of the Trusts, a ``Series''), request an order to permit the Trusts to 
acquire shares of registered management investment companies and UITs 
both within and outside the same group of investment companies.
    Applicants: Matrix Trust and Matrix.
    Filing Dates: The application was filed on March 18, 2003, and 
amended on August 29, 2003.
    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 September 29, 2003, 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 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, 666 Fifth Avenue, 14th Floor, New York, New 
York 10103.

FOR FURTHER INFORMATION CONTACT: John Yoder, Attorney-Adviser, at (202) 
942-0544, or Todd Kuehl, Branch Chief, at (202) 942-0564 (Office of 
Investment Company Regulation, Division of Investment Management).

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, (202) 942-8090.

Applicants' Representations

    1. Matrix Trust is a UIT registered under the Act. Each Series will 
be a series of a Trust, each a UIT which is or will be registered under 
the Act. Matrix, a New York corporation, is registered under the 
Securities Exchange Act of 1934 as a broker-dealer.
    2. Applicants request relief to permit the Series to invest in (a) 
registered investment companies that are part of the same ``group of 
investment companies'' (as that term is defined in section 12(d)(1)(G) 
of the Act) as the Trust (``Affiliated Funds''), and (b) registered 
investment companies that are not part of the same group of investment 
companies as the Trust (``Unaffiliated Funds,'' together with the 
Affiliated Funds, the ``Funds''). The Unaffiliated Funds may include 
UITs (``Unaffiliated Underlying Trusts'') and open-end or closed-end 
management investment companies (``Unaffiliated Underlying Funds''). 
Certain of the Unaffiliated Underlying Trusts or Unaffiliated 
Underlying Funds may be ``exchange-traded funds'' that are registered 
under the Act as UITs or open-end management investment companies and 
have received exemptive relief to sell their shares on a national 
securities exchange at negotiated prices.\1\
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    \1\ All Trusts that currently intend to rely on the requested 
order are named as applicants. Any other Trust that relies on the 
order in the future will comply with the terms and conditions of the 
application.
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    3. Applicants state that the requested relief will benefit 
unitholders by providing investors with a professionally selected, 
diversified portfolio of investment company shares through a single 
investment vehicle.

Applicants' Legal Analysis

A. Section 12(d)(1)

    1. Section 12(d)(1)(A) of the Act prohibits a registered investment 
company from acquiring shares of an investment company if the 
securities represent more than 3% of the total outstanding voting stock 
of the acquired company, more than 5% of the total assets of the 
acquiring company, or, together with the securities of any other 
investment companies, more than 10% of the total assets of the 
acquiring company. 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 investment companies generally. Section 12(d)(1)(C) 
prohibits an investment company, other investment companies having the 
same investment 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)(G) provides, in relevant part, that section 
12(d)(1) will not apply to securities of a registered open-end 
investment company or UIT acquired by a registered UIT if the acquired 
company and the acquiring company are part of the same group of 
investment companies, provided that certain other requirements 
contained in section 12(d)(1)(G) are met. Applicants state that they 
may not rely on section 12(d)(1)(G) because a Series will invest in 
Unaffiliated Funds in addition to Affiliated Funds.
    3. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction, or any class or classes of 
persons, securities or transactions, from any provision of section 
12(d)(1) if the exemption is consistent with the public interest and 
the protection of investors. Applicants seek an exemption under section 
12(d)(1)(J) to permit a Series to acquire shares of a Fund and to 
permit a Fund to sell shares to a Series beyond the limits set forth in 
sections 12(d)(1)(A), (B), and (C).
    4. Applicants state that the proposed arrangement will not give 
rise to the policy concerns underlying sections 12(d)(1)(A), (B), and 
(C), which include concerns about undue influence by a fund of funds 
over underlying funds, excessive layering of fees, and overly complex 
fund structures. Accordingly, applicants believe that the requested 
exemption is consistent with the public interest and the protection of 
investors.
    5. Applicants state that the proposed arrangement will not result 
in undue influence by a Series or its affiliates over Funds. To limit 
the control that a Series may have over an Unaffiliated Fund, 
applicants propose a condition prohibiting the Depositor, the Series, 
and certain affiliates (individually or in the aggregate) from 
controlling an

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Unaffiliated Fund within the meaning of section 2(a)(9) of the Act. To 
limit further the potential for undue influence over Unaffiliated 
Funds, applicants propose conditions 2 through 6, stated below, to 
preclude a Series and its affiliated entities from taking advantage of 
an Unaffiliated Fund with respect to transactions between the entities 
and to ensure that transactions will be on an arm's length basis.
    6. As an additional assurance that an Unaffiliated Underlying Fund 
understands the implications of an investment by a Series under the 
requested order, prior to a Series' investment in an Unaffiliated 
Underlying Fund in excess of the limit in Section 12(d)(1)(A)(i), the 
Series and Unaffiliated Underlying Fund will execute an agreement 
stating that the board of directors of the Unaffiliated Underlying Fund 
and the investment adviser to the Unaffiliated Underlying Fund 
understand the terms and conditions of the order and agree to fulfill 
their responsibilities under the order. Applicants note that an 
Unaffiliated Fund may choose to reject an investment from the Series.
    7. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. Applicants state that a condition 
to the order would provide that any sales charges and/or service fees 
(as those terms are defined in Rule 2830 of the Conduct Rules of the 
National Association of Securities Dealers (``NASD Conduct Rules'')) 
charged with respect to Units of a Series will not exceed the limits 
applicable to a fund of funds as set forth in Rule 2830 of the NASD 
Conduct Rules. In addition, the trustee to a Series (``Trustee'') will 
waive or offset fees otherwise payable by the Series in an amount at 
least equal to any compensation (including fees paid pursuant to a plan 
adopted by an Unaffiliated Underlying Fund under rule 12b-1 under the 
Act (``12b-1 Fees'')) received by the Depositor or Trustee, or an 
affiliated person of the Depositor or Trustee, from an Unaffiliated 
Fund in connection with the investment by a Series in the Unaffiliated 
Fund.
    8. Applicants state that the proposed arrangement will not create 
an overly complex fund structure. Applicants note that a Fund will be 
prohibited from acquiring securities of any investment company in 
excess of the limits contained in section 12(d)(1)(A). Applicants also 
represent that a Series' prospectus and sales literature will contain 
concise, ``plain English'' disclosure designed to inform investors of 
the unique characteristics of the trust of funds structure, including, 
but not limited to, its expense structure and the additional expenses 
of investing in Funds.

B. Section 17(a)

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include (a) any person 
directly or indirectly owning, controlling, or holding with power to 
vote, 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; and (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person.
    2. Applicants state that a Series and Affiliated Funds might be 
deemed to be under the common control of the Depositor or an entity 
controlling, controlled by, or under common control with the Depositor. 
Applicants also state that a Series and a Fund might become affiliated 
persons if the Series acquires more than 5% of the Fund's outstanding 
voting securities. In light of these possible affiliations, section 
17(a) could prevent a Fund from selling shares to and redeeming shares 
from a Series.
    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (a) the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned; (b) the proposed transaction is consistent with the policies 
of each registered investment company involved; and (c) the proposed 
transaction is consistent with the general purposes of the Act. Section 
6(c) of the Act permits the Commission to exempt any person or 
transactions from any provision of the Act if 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.
    4. Applicants submit that the proposed arrangement satisfies the 
standards for relief under sections 17(b) and 6(c) of the Act. 
Applicants state that the terms of the arrangement are fair and 
reasonable and do not involve overreaching. Applicants note that the 
consideration paid for the sale and redemption of shares of the Funds 
will be based on the net asset values of the Funds. Applicants state 
that the proposed arrangement will be consistent with the policies of 
each Series and Fund, and with the general purposes of the Act.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. (a) The Depositor, (b) any person controlling, controlled by, or 
under common control with the Depositor, and (c) any investment company 
and any issuer that would be an investment company but for section 
3(c)(1) or section 3(c)(7) of the Act sponsored or advised by the 
Depositor or any person controlling, controlled by, or under common 
control with the Depositor (collectively, the ``Group'') will not 
control (individually or in the aggregate) an Unaffiliated Fund within 
the meaning of section 2(a)(9) of the Act. If, as a result of a 
decrease in the outstanding voting securities of an Unaffiliated Fund, 
the Group, in the aggregate, becomes a holder of more than 25% of the 
outstanding voting securities of the Unaffiliated Fund, the Group will 
vote its shares in the same proportion as the vote of all other holders 
of the Unaffiliated Fund's shares.
    2. A Series and its Depositor, promoter, and principal underwriter, 
and any person controlling, controlled by, or under common control with 
any of those entities (each a ``Series Affiliate'') will not cause any 
existing or potential investment by the Series in shares of an 
Unaffiliated Fund to influence the terms of any services or 
transactions between the Series or a Series Affiliate and the 
Unaffiliated Fund or its investment adviser, sponsor, promoter, and 
principal underwriter, and any person controlling, controlled by, or 
under common control with any of those entities.
    3. Once an investment by a Series in the securities of an 
Unaffiliated Underlying Fund exceeds the limits of section 
12(d)(1)(A)(i) of the Act, the board of directors of the Unaffiliated 
Underlying Fund, including a majority of the disinterested directors, 
will determine that any consideration paid by the Unaffiliated 
Underlying Fund to a Series or a Series Affiliate in connection with 
any services or transactions: (a) Is fair and reasonable in relation to 
the nature and quality of the services and benefits received by the 
Unaffiliated Underlying Fund; (b) is within the range of consideration 
that the Unaffiliated Underlying Fund would be required to pay to 
another unaffiliated entity in connection with the same services or 
transactions; and

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(c) does not involve overreaching on the part of any person concerned.
    4. No Series or Series Affiliate will cause an Unaffiliated Fund to 
purchase a security from any underwriting or selling syndicate in which 
a principal underwriter is the Depositor or a person of which the 
Depositor is an affiliated person (each an ``Underwriting Affiliate''). 
An offering during the existence of an underwriting or selling 
syndicate of which a principal underwriter is an Underwriting Affiliate 
is considered an ``Affiliated Underwriting.''
    5. The board of directors of an Unaffiliated Underlying Fund, 
including a majority of the disinterested directors, will adopt 
procedures reasonably designed to monitor any purchases by the 
Unaffiliated Underlying Fund of securities in Affiliated Underwritings 
once an investment by a Series in the securities of the Unaffiliated 
Underlying Fund exceeds the limits of section 12(d)(1)(A)(i) of the 
Act, including any purchases made directly from an Underwriting 
Affiliate. The board of directors will review these purchases 
periodically, but no less frequently than annually, to determine 
whether the purchases were influenced by the investment by the Series 
in shares of the Unaffiliated Underlying Fund. The board of directors 
will consider, among other things, (a) whether the purchases were 
consistent with the investment objectives and policies of the 
Unaffiliated Underlying Fund; (b) how the performance of securities 
purchased in an Affiliated Underwriting compares to the performance of 
comparable securities purchased during a comparable period of time in 
underwritings other than Affiliated Underwritings or to a benchmark 
such as a comparable market index; and (c) whether the amount of 
securities purchased by the Unaffiliated Underlying Fund in Affiliated 
Underwritings and the amount purchased directly from Underwriting 
Affiliates have changed significantly from prior years. The board of 
directors shall take any appropriate actions based on its review, 
including, if appropriate, the institution of procedures designed to 
assure that purchases of securities from Affiliated Underwritings are 
in the best interests of shareholders.
    6. An Unaffiliated Underlying Fund shall maintain and preserve 
permanently in an easily accessible place a written copy of the 
procedures described in the preceding condition, and any modifications, 
and shall maintain and preserve for a period not less than 6 years from 
the end of the fiscal year in which any purchase from an Affiliated 
Underwriting occurred, the first 2 years in an easily accessible place, 
a written record of each purchase made once an investment by a Series 
in the securities of an Unaffiliated Underlying Fund exceeded the 
limits of section 12(d)(1)(A)(i) of the Act, setting forth from whom 
the securities were acquired, the identity of the underwriting 
syndicate's members, the terms of the purchase, and the information or 
materials upon which the board's determinations were made.
    7. Prior to an investment in an Unaffiliated Underlying Fund in 
excess of the limit in section 12(d)(1)(A)(i), the Series and the 
Unaffiliated Underlying Fund will execute an agreement stating, without 
limitation, that the board of directors of the Unaffiliated Fund and 
the investment adviser to the Unaffiliated Underlying Fund understand 
the terms and conditions of the order and agree to fulfill their 
responsibilities under the order. At the time of its investment in 
shares of an Unaffiliated Underlying Fund in excess of the limit in 
section 12(d)(1)(A)(i), a Series will notify the Unaffiliated 
Underlying Fund of the investment. At such time, the Series also will 
transmit to the Unaffiliated Underlying Fund a list of the names of 
each Series Affiliate and Underwriting Affiliate. The Series will 
notify the Unaffiliated Underlying Fund of any changes to the list as 
soon as reasonably practicable after a change occurs. The Unaffiliated 
Underlying Fund and the Series will maintain and preserve a copy of the 
order, the agreement, and the list with any updated information for a 
period not less than 6 years from the end of the fiscal year in which 
any investment occurred, the first 2 years in an easily accessible 
place.
    8. The Trustee will waive or offset fees otherwise payable by a 
Series in an amount at least equal to any compensation (including 12b-1 
Fees) received by the Depositor or Trustee, or an affiliated person of 
the Depositor or Trustee, from an Unaffiliated Fund in connection with 
the investment by a Series in the Unaffiliated Fund.
    9. Any sales charges and/or service fees (as those terms are 
defined in Rule 2830 of the NASD Conduct Rules) charged with respect to 
Units of a Series will not exceed the limits applicable to a fund of 
funds as set forth in Rule 2830 of the NASD Conduct Rules.
    10. No Fund will acquire securities of any other investment company 
in excess of the limits contained in section 12(d)(1)(A) of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-23050 Filed 9-9-03; 8:45 am]
BILLING CODE 8010-01-P