[Federal Register Volume 63, Number 89 (Friday, May 8, 1998)]
[Notices]
[Pages 25528-25530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12265]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23168; 812-10598]
Dean Witter Select Equity Trust, et al.; Notice of Application
May 1, 1998.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application under sections 6(c), 12(d)(1)(J), and
17(b) of the Investment Company Act of 1940 (the ``Act'') for an
exemption from sections 12(d)(1)(F)(ii) and 17(a) of the Act.
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SUMMARY OF APPLICATION: The requested order would permit a trust of
funds relying on section 12(d)(1)(F) to offer units with a sales load
in excess of the 1.5% limit in section 12(d)(1)(F)(ii) of the Act. In
addition, the requested order would permit a terminating series of the
trust to sell certain fund shares and fixed income securities issued by
the United States government (``Treasuries'') to a new series of the
trust.
APPLICANTS: Dean Witter Reynolds Inc. (the ``Sponsor'' or ``Dean
Witter''); Dean Witter Select Equity Trust and Dean Witter Select
Investment Trust (collectively, the ``Trusts''); and certain subsequent
series of the Trusts sponsored by Dean Witter (each, a ``Trust
Series'').
FILING DATES: The application was filed on March 27, 1997, and amended
on October 15, 1997. Applicants have agreed to file an additional
amendment, the substance of which is incorporated in this notice,
during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. 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 May 26, 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 5th Street, N.W., Washington, D.C.
20549. Applicants, Two World Trade Center, New York, New York 10048.
Attention: Steven M. Massoni.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Senior Counsel, at (202) 942-0572, or Christine Y.
Greenlees, 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 at the
SEC's Public Reference Branch, 450 5th Street, NW, Washington, DC 20549
(telephone (202) 942-8090).
Applicants' Representations
1. Each Trust Series will be a series of one of the Trusts, each a
unit investment trust (``UIT'') registered under the Act. Dean Witter
will be the sponsor of each Trust Series.
2. The Sponsor intends to offer certain Trust Series based on an
asset allocation model. The portfolio of each Trust Series will contain
a different asset allocation of shares of one or more open-end
investment companies or series thereof, none of which will be an
affiliated person of applicants (the ``Funds''), and, in some cases,
Treasuries. The shares of the Funds will be deposited in each Trust
Series at the shares' net asset value and the Treasuries will be valued
by an independent evaluator (the ``Independent Evaluator''), who will
be a ``qualified evaluator'' as defined in rule 22c-1(b)(2) under the
Act, based on the Treasuries' offer-side valuation.
[[Page 25529]]
3. Simultaneously with the deposit of Fund shares and Treasuries
and/or cash with instructions to the Trust's trustee (the ``Trustee'')
to purchase the securities, the Trustee will deliver to the Sponsor a
certificate or receipt for units (``Units'') representing the entire
ownership of the Trust Series. The Units will be offered at prices
based upon the aggregate underlying value of the Fund shares and
Treasuries, plus a sales charge. The sales charge imposed on the Units
will not, when aggregated with any sales charge or service fees paid by
the Trust Series with respect to shares of the underlying Funds, exceed
the limits set forth in rule 2830(d) of the National Association of
Securities Dealers' (``NASD'') Conduct Rules. A Trust Series may invest
in a Fund with an asset-based sales charge, provided that any asset-
based sales charge received by the Sponsor or the Trustee from a Fund
will be rebated to the Trust Series. Although a Trust Series may invest
in a Fund with an asset-based sales charge greater than .25% of the
Fund's average net assets, if any of the asset-based sales charge is
received by the Sponsor or the Trustee as a Fund distribution expense,
that amount will not be retained by the Sponsor or the Trustee but will
be paid to the Trust Series for the benefit of the Trusts' unitholders.
4. Each Trust Series will terminate approximately one year after it
is offered for sale (``Rollover Series''). At that time, the Sponsor
intends to create and offer a new Trust Series (``New Trust Series''),
the portfolio of which will reflect the then current asset allocation
model for the corresponding Trust Series. Investors in the Rollover
Series may elect to invest in the New Trust Series.
5. In order to minimize the potential for overreaching, Dean Witter
will certify in writing to the Trustee, within five days of each sale
of securities from a Rollover Series to a New Trust Series: (a) that
the transaction is consistent with the policy of both the Rollover and
New Trust Series, as recited in their respective registration
statements and reports filed under the Act, (b) the date of the
transaction, and (c) the price determined by the Independent Evaluator
for the sale date of the Treasuries. The Trustee will then countersign
the certificate, unless, in the event that the Trustee disagrees with
the price listed on the certificate, the Trustee immediately informs
Dean Witter orally of any such disagreement and returns the certificate
within five days to Dean Witter with corrections duly noted. Upon Dean
Witter's receipt of a corrected certificate, Dean Witter and the
Trustee will jointly determine the correct sales price by reference to
a mutually agreeable, published list of prices for the date of the
transaction.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) of the Act provides that no registered
investment company may acquire securities issued by another investment
company if such securities represent more than 3% of the total
outstanding voting stock of the acquired company, more than 5% of the
value of the total assets of the acquiring company, or if securities
issued by the acquired company and all other investment companies have
an aggregate value in excess of 10% of the value of the total assets of
the acquiring company.
2. Section 12(d)(1)(F) provides that section 12(d)(1) does not
apply to securities purchased or otherwise acquired by a registered
investment company if, immediately after the purchase or acquisition,
not more than 3% of the total outstanding stock of the acquired company
is owned by the acquiring company, and the acquiring company does not
impose a sales load on its shares of more than 1.5%. In addition, 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.
3. Section 12(d)(1)(J) provides that the SEC may exempt persons or
transactions from any provision of section 12(d)(1) if and to the
extent such exemption is consistent with the public interest and the
protection of investors. Applicants request an exemption under section
12(d)(1)(J) to permit a Trust Series to offer Units with a sales load
in excess of the 1.5% limitation. For the reasons below, applicants
believe that the requested relief meets the standards of section
12(d)(1)(J).
4. Applicants argue that section 12(d)(1) is intended to mitigate
or eliminate actual or potential abuses that might arise when one
investment company acquires sharing of another investment company,
including the excessive layering of sales charges. For the reasons
stated below, applicants do not believe that their proposal will result
in excessive sales charges.
5. While each Trust Series will charge a sales load, the Sponsor
will deposit the Fund shares at net asset value (i.e., without any
sales charge). To further limit the extent to which unitholders may pay
indirectly for distribution costs of the underlying Funds, any asset-
based sales charges received by the Sponsor of the Trustee from a Fund
with regard to the Fund shares will be rebated to the Trust Series. In
addition, applicants have agreed as a condition to the relief that any
sales charge assessed with respect to the Units of a Trust Series, when
aggregated with any sales charge or service fees paid by the Trust
Series with respect to securities of the underlying Funds, will not
exceed the limits set forth in rule 2830(d) of the Conduct Rules of the
NASD. As a result, the aggregate sales charges will not exceed the
limit that otherwise could be charged at any single level.
6. Applicants believe that it is appropriate to apply the NASD's
rules to the proposed arrangement instead of the sales load limitation
in section 12(d)(1)(F)(ii). Applicants further believe that the
condition subjecting any sales charges or service fees to the limits
established by the NASD will provide ongoing regulation with the
flexibility to accommodate continuing developments in the industry.
7. Administrative fees may be charged at both the Trust Series and
underlying Fund levels. Applicants believe, however, that certain
expenses of the Trusts may be reduced under the proposed arrangement.
For example, when a Trust Series invests in Fund shares (whose net
asset value is readily available), applicants anticipate that the
evaluator would charge a lower fee, if any at all.
8. Applicants assert that the proposal will benefit potential
unitholders as well as shareholders of the Funds. Applicants believe
that a Trust Series provides a simple means through which investors can
obtain a professionally selected and maintained mix of investment
company shares in one package and at one sales load for a relatively
small initial investment. In addition, applicants believe that
purchasing shares in large quantities will enable a Fund to obtain
certain economies of scale, and will benefit certain Funds by
permitting them to carry a Trust Series on their books as a single
shareholder account, even though there are numerous unitholders, and by
providing them with a stable net asset base.
B. Section 17
1. Section 17(a) of the Act generally makes it unlawful for an
affiliated person of a registered investment company to sell securities
to or purchase securities from the company. Investment companies under
common control are considered affiliates of one another. The Trust
Series may be deemed to be under common control
[[Page 25530]]
because they have Dean Witter as a sponsor and, therefore, unable to
sell and buy securities to and from each other without an exemption
from section 17(a). Accordingly, applicants request relief to permit a
Rollover Series to sell Fund shares and Treasuries to a New Trust
Series.
2. Section 17(b) permits the SEC to grant an order permitting a
transaction otherwise prohibited by section 17(a) if it finds that the
terms of the proposed transaction, including the consideration to be
paid or received, are fair and reasonable and do not involve
overreaching on the part of any person concerned and the proposed
transaction is consistent with the policy of the registered investment
company and the general purposes of the Act. Section 6(c) permits the
SEC to exempt any person or transaction 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 policies and provisions of the Act. For the reasons
stated below, applicants believe that the terms of the transactions
meet the standards of sections 6(c) and 17(b).
3. Rule 17a-7 under the Act p[permits registered investment
companies that might be deemed affiliates solely by reason of having
common investment advisers, directors, and/or officers, to purchase
securities from or sell securities to one another at an independently
determined price, provided certain conditions are met. Applicants
represent that they will comply with all of the provisions of rule 17a-
7, other than paragraphs (b) and (e).
4. Paragraph (e) of the rule requires an investment company's board
of directors to adopt and monitor procedures for these transactions to
assure compliance with the rule. Since a UIT does not have a board of
directors, there can be no board review of the transaction. Applicants
state, however, that review in the context of a UIT would serve little
useful purpose in connection with Fund shares and Treasuries because
independently verifiable prices are readily available.
5. Paragraph (b) of rule 17a-7 requires that the transactions be
effected at the independent current market price of the security. The
Fund shares and Treasuries would fall within the paragraph (b)(4)
category of ``all other securities,'' for which the current market
price under rule 17a-7(b) is the average of the highest current
independent bid and lowest current independent offer determined on the
basis of reasonable inquiry.
6. With respect to Fund shares, applicants state that Fund shares
do not trade at a bid or offer price but at an independently determined
net asset value. Applicants state that the Funds' shares will be issued
by investment companies that will not be affiliated with the Sponsor
and that each Fund will calculate the net asset value of its shares
daily. The net asset value would be the price at which the Rollover
Series would sell Fund shares to the New Trust Series.
7. With respect to Treasuries, applicants state that the Treasuries
would be sold by a Rollover Series to a New Trust Series at the
Treasuries' offer-side evaluation. Other Treasuries acquired by the New
Trust Series will be acquired at the offer-side evaluation and the New
Trust Series would be valued during the Trusts' initial offering period
based on the Treasuries' offer-side evaluation. Applicants state that,
therefore, there will be uniformity as to price for all of the
Treasuries evaluated (both Treasuries bought in the market and
Treasuries purchased from a Rollover Series). In addition, all
unitholders of the New Trust Series, both unitholders from a Rollover
Series and new unitholders, will acquire Unites with a value based on
the offer-side evaluation of the Treasuries, which applicants state is
consistent with the Trusts' acquisition cost.
8. Applicants believe that engaging in transactions for securities
for which market quotations are readily available at an independently
determined price will not disadvantage either Trust Series. Applicants
state that the sales between Trust Series will reduce transaction costs
to unitholders of the Trust Series and will reduce costs to the Fund.
In addition, applicants state that the purchases and sales between
Trust Series will be consistent with the policy of each Trust Series,
as only securities that would otherwise be bought and sold on the open
market pursuant to the policy of each Trust Series will be involved in
the proposed transactions.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Each Trust 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 or service fees charged with respect to Units
of a Trust Series, when aggregated with any sales charges or service
fees paid by the Trust Series with respect to securities of the
underlying Funds, will not exceed the limits set forth in rule 2830(d)
of the NASD's Conduct Rules.
3. Each sale of Fund shares between the Trust Series will be
effected at the net asset value of the Fund shares as determined by the
Fund on the sale date. Each sale of Treasuries between the Trust Series
will be effected at the Treasuries' offer-side evaluation as determined
by an Independent Evaluator as of the evaluation time on the sale date.
Such sales will be effected without any brokerage charges or other
remuneration except customary transfer fees, if any.
4. The nature and conditions of such transactions will be fully
disclosed to investors in the appropriate prospectus of each future
Rollover Series and New Trust Series.
5. The Trustee of each Rollover Series and New Trust Series will
(a) review the procedures relating to the sale of securities from a
Rollover Series and the purchase of securities for deposit in a New
Trust Series and (b) make changes to the procedures as the Trustee
deems necessary that are reasonably designed to comply with paragraphs
(a), (c), and (d) of rule 17a-7.
6. A written copy of these procedures and a written record of each
transaction pursuant to the requested order will be maintained as
provided in rule 17a-7(f).
7. No Trust Series will acquire securities of an underlying 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-12265 Filed 5-7-98; 8:45 am]
BILLING CODE 8010-01-M
