Folio Rule

Securities and Exchange Commission

Investment Company Act Release No. 23186

THE CHASE MANHATTAN BANK, N.A. AND CHEMICAL BANK

812-10136

May 14, 1998

ORDER GRANTING AN EXEMPTION AND

DENYING A REQUEST FOR A HEARING

The Chase Manhattan Bank, N.A. ("Chase") and Chemical Bank ("Chemical") filed an application on May 8, 1996 requesting 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. The order amends a prior order [FN1] granted to Chase that permits Chase, as trustee for certain unit investment trusts ("UITs"), to deposit trust assets in the custody of the Euroclear System and Cedel Bank S.A. The order substitutes Chemical (which has changed its name to The Chase Manhattan Bank) ("New Chase") as the party to which relief is granted as a result of Chemical's merger with Chase.

On May 31, 1996, a notice of the filing of the application was issued (Investment Company Act Release No. 22000). The notice gave interested persons an opportunity to request a hearing and stated that an order disposing of the application would be issued unless a hearing was ordered. On June 25, 1996, Matthew Lee, Executive Director of Inner City Press/Community on the Move ("ICP"), a community and consumers' membership organization, filed a request on behalf of ICP for a hearing on the application.

The principal reasons given by ICP for requesting a hearing are that: (i) Chase and Chemical allegedly have made misleading public statements relating to the merger; (ii) Chase and Chemical's alleged managerial lapses have adversely affected consumers; and (iii) Chase and Chemical's merger allegedly has caused an anticompetitive concentration in the UIT custody business.

Section 40(a) of the Act provides that orders shall be issued only after appropriate notice and opportunity for a hearing. Rule 0-5(a) under the Act provides that an "interested person" may submit a hearing request within the time specified in the notice, stating the reasons for the request and the nature of his interest. Rule 0-5(c) states that the Commission will order a hearing on any matter, upon the request of an "interested person" or upon its own motion, if it appears to be "necessary or appropriate in the public interest or for the protection of investors."

ICP has failed to demonstrate that it is an interested person with respect to the application. To be an interested person entitled to request a hearing on an application under the Act, a requestor must state an ownership or other direct interest in the applicants at issue or demonstrate that it is likely to be harmed by the granting of the application. [FN2] ICP asserts that it is an interested person because certain of its members have portions of their pensions invested in UITs. According to ICP, because only a limited number of entities provide custody services to UITs, "it is virtually inevitable that the UITs in which ICP's members' pensions have invested will use Chase as a UIT custodian." ICP's assertion that its members have ownership interests in UITs for which Chase serves as custodian, and thus that its members' ownership interests may be harmed if the Commission grants the application, is not the same as an assertion that ICP itself has interests may be harmed if the matter. [FN3] ICP has not asserted, nor demonstrated, that it has an ownership interest in any UIT for which Chase serves as custodian. While a membership organization may be interested in ways other than by having an ownership interest (e.g., by its members having a competitive interest in the outcome of a particular proceeding), for a membership organization to represent its members as an "interested person," the interests that the organization seeks to protect must be related to the purposes of the organization. ICP is a community activist organization interested in whether banks provide adequate services to the poor. ICP's members' interests in their pension investments is therefore unrelated to ICP's organizational purpose.

Even if ICP was deemed to be an interested person entitled to request a hearing under the Act, its request does not demonstrate that a hearing is "necessary or appropriate in the public interest or for the protection of investors." To make this showing, a requestor must raise a material issue of fact or law that is relevant to the issues the Act requires the Commission to consider in deciding whether to grant or deny the application.

The issue in this application is whether UIT assets will be protected adequately by New Chase. First, ICP's allegations of misleading public statements by Chase and Chemical relate chiefly to the effect of the merger on bank services in low income areas. None of these allegations, even if substantiated, is relevant to the question at issue in the application -- whether the UIT assets will be protected adequately if the requested relief is granted.

Second, ICP's allegations of managerial deficiencies on the part of Chase and Chemical are not relevant to the issues raised in the application. Each of the allegations made by ICP is unrelated to applicants' global custody business. Furthermore, ICP has not submitted evidence demonstrating that the deficiencies have affected in any way the ability of applicants to protect UIT assets. [FN4]

Third, the Federal Reserve Board, the government agency charged with assessing the competitive impact of the merger, has concluded that the effect of the merger in all of the banking markets in which Chase and Chemical competed, including the UIT custody market, did not exceed the relevant legal thresholds. ICP has not provided any evidence to show that the merger will have illegal anticompetitive effects. Moreover, even if it had, the possible anticompetitive effects of the merger on the UIT custodian industry do not appear to be relevant in any way to the question of whether the UIT assets at issue will be adequately protected by New Chase and its foreign custodians.

On the basis of the foregoing, the Commission finds that ICP is not an "interested person" entitled to request a hearing on the application. The Commission also finds that ICP has raised no issue of fact, law, or policy that would justify a Commission decision to order a hearing on the application. It therefore appears that a hearing is not necessary or appropriate in the public interest or for the protection of investors.

Accordingly,

IT IS ORDERED that the request for a hearing is denied.

The matter having been considered, it is further found that granting the requested exemption is 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.

Accordingly,

IT IS FURTHER ORDERED, under section 6(c) of the Act, that the requested exemption from section 26(a)(2)(D) is hereby granted, effective forthwith, subject to the condition contained in the application.

By the Commission.

Jonathan G. Katz

Secretary

FN1. The Chase Manhattan Bank, N.A., Investment Company Act Release Nos. 21673 (Jan. 16, 1996) (notice) and 21751 (Feb. 13, 1996) (order).

FN2. See Potomac Capital Investment Corp., Investment Company Act Release No. 17238 (Nov. 28, 1989) (order); Shearson Loeb Rhoades Inc., Investment Company Act Release Nos. 11834 and 11835 (June 26, 1981) (orders).

FN3. The Commission is not passing on whether the generalized assertion that an ICP member may own shares in a UIT for which Chase acts as custodian is sufficient to show that the member is an "interested person." FN4. The Commission acknowledges that allegations of an overall breakdown of management or controls might support a request for a hearing, as such a breakdown could affect the safekeeping of UIT assets under New Chase's control. The examples provided by ICP, however, fail to support such an allegation.

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