RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF INVESTMENT MANAGEMENT

Our Ref. No. 93-55-CC

Dean Witter, Discover

& Co.

File No. 132-3

Your letters of February 2 and 8, 1993, ask us to concur in

your opinion that certain transactions involving Sears, Roebuck &

Co. ("Sears") and :its wholly owned subsidiary, Dean Witter,

Discover & Co. ("DWD"), will not result in an assignment of

advisory contracts for purposes of Sections 2(a)(4), 15(a) or

15(f) of the Investment Company Act of 1940 (the "1940 Act"), or

Sections 202(a)(1) or 205(a)(2) of the Investment Advisers Act of

1940 (the "Advisers Act").

DWD wholly owns Dean Witter Reynolds, Inc. ("DWR") which, in

turn, wholly owns Dean Witter Intercapital, Inc.

("Intercapital"). DWR and Intercapital are registered under the

Advisers Act. DWR is an investment adviser to certain noninvestment company clients. Intercapital is an investment

adviser to a number of registered investment companies (the

"Funds"), as well as to individuals and other institutions. In

September 1992, Sears announced plans to (1) publicly offer up to

20~ of DWD common stock (the "IPO"), and (2) spin off the

remaining 80~ of DWD common stock to Sears shareholders (the

"Spin-off"). As a result, DWD will become a publicly held

company, owned principally by Sears shareholders, the same

shareholders who already own DWD indirectly.

You state that neither the IPO nor the Spin-off will result

in any change in the personnel responsible for the management or

operations of DWR or Intercapital. You also state that Sears has

never exercised control over the actual management or policies of

Intercapital or DWR with respect to the Funds or other advisory

clients.

The 1940 Act and the Advisers Act contain similar provisions

regarding the assignment of advisory contracts. Section 15(a)(4)

of the 1940 Act generally states that an advisory contract with a

registered investment company must provide for the contract's

automatic termination in the event of its assignment. If the

advisory contract is terminated, a majority of the investment

company's shareholders must approve a new contract. Similarly,

Section 205(a)(2) of the Advisers Act generally provides that an

advisory contract may not be assigned without the client's

Sears principally has been a source of capital for DWD, and

the two companies have shared certain services, such as

computer facilities.

[Pub. Avail.: Feb. 8, 1993]
consent. Section 15(a)(4) and Section 205(a)(2) were designed to

prevent trafficking of investment advisory contracts.

Section 2(a)(4) of the 1940 Act and Section 202(a)(1) of the

Advisers Act define the term "assignment" to include any direct

or indirect transfer of a "controlling" block of the assignor's

outstanding voting securities by a securityholder of the

assignor. The staff has interpreted the term "assignment" in the

same manner for purposes of both Acts.

Section 2(a)(9) of the 1940 Act and Section 202(a)(12) of

the Advisers Act define "control" as the ability to exercise a

controlling influence over the management or policies of a

company. Section 2(a)(9) creates a presumption of control if a

person owns more than 25~ of a company's voting securities. It

also creates a presumption of non-control if a person owns less

than 25~ of a company's voting securities.

The IPO will result in the sale of, at most, 20~ of the DWD

common stock, and therefore will not be presumed to involve the

transfer of a controlling block of stock. Further, you represent

that the IPO will be widely dispersed. The agreement among

underwriters syndicate wire and the underwriting agreements for

the IPO provide that no single investor may purchase more than

10~ of the offering. As a result, no investor may purchase more

than 2~ of DWD stock through the IPO. Accordingly, we concur

with your view that the IPO will not cause an assignment of

advisory contracts as defined in Sections 2(x)(4) and 202(x)(1).

Therefore, the IPO will not trigger the requirements of Section

15(x)(4) of the 1940 Act or Section 205(x)(2) of the Advisers

Act.

J Hearings on S. 3580 before a Subcommittee of the Senate

Committee on Banking and Currency, 76th Cong., 3d Sess. 253

(1940) (statement of David Schenker); Investment Company Act

and Investment Advisers Act of 1940, S. Rep. No. 1775, 76th

Cong., 3d Sess. 22 (1940).

See Investment Advisers Act Rel. No. 1034 (Sept. 11, 1986)

(adopting Rule 202(x)(1)-1)(where the Commission noted the

staff's consistent interpretation of "assignment" under the

Acts) .

J The Advisers Act does not contain an analogous provision.

See Finomic Investment Fund, Inc. (pub. avail. Nov. 13,

1973)(transfer of less than 25~ of stock of adviser's parent

did not constitute the transfer of a controlling interest

and therefore did not cause an assignment).

~~
Nor do we believe that the Spin-off of 80~ of DWD stock will

cause an assignment of advisory contracts as defined in Sections

2(a)(4) or 202(a)(1). The same persons who currently own DWD

common stock indirectly through Sears will own the stock directly

after the Spin-off. Thus, there will be no transfer of a

controlling block of securities. ~ Accordingly we concur with

your conclusion that the Spin-off will not trigger the

requirements of sections 15(a)(4) or 2o5(a)(2).

You have also asked whether the IPO or the Spin-off will

cause an assignment for purposes of Section 15(f) of the 1940

Act. Section 15(f) generally permits an investment adviser to a

registered investment company, or an affiliated person of the

adviser, to receive a benefit in connection with a sale of

securities of, or other interest in, the adviser that results in

an assignment of an investment advisory contract, if certain

conditions are met. Because neither the IPO nor the Spin-off

will cause an assignment as that term is defined in Section

2(a)(4), we concur with your view that the transactions will not

trigger the requirements of Section 15(f).

Our view that the IPO and the Spin-off will not cause an

assignment of any advisory contracts arises from the particular

facts and representations in your letters and should not be

interpreted as a general statement that these types of

transactions do not result in an "assignment" under the 1940 Act

or the Advisers Act. Finally, because the determination of what

constitutes an assignment involves a factual inquiry that is

difficult to address in the context of no-action and interpretive

letters, the staff continues to adhere to its policy of not

responding to letters in this area unless they raise novel or

unusual issues.

Lawrence P. Stadulis

Special Counsel

See Funds, Inc.

distribution of

shareholders of

control).

(pub. avail. Apr. 21, 1972) (proportionate

the adviser subsidiary's stock to the

the parent did not constitute a transfer of

3
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Investment Company Act of 1940

Section 2 (a) (4)

Section 15 (a)

Section 15 (f)

Investment Advisers Act of 1940

Section 202(a)(1)

Section 205(a)(2)

February 2, 1993

Office of Chief Counsel 

Division of Investment Management 

U.~. Securities and Exchange ~>y ission

450 Fifth Street, N.W. 

Washin 9ton ~ D.C. 20549 

Ladies and Gentlemen:

We are writing on behalf of Dean Witter, Discover & Co.

("DWD"), Dean Witter Reynolds Inc. ("DWR"), Dean Witter

InterCapital Inc. ("InterCapital") and Sears, Roebuck and Co.

("Sears") to request that the staff of the Division of Investment

Management (the "Division") of the Securities and Exchange

Commission (the "Commission") confirm that Sections 15 (a) and

15(f) of the Investment Company Act of 1940 (the "Investment

Company Act"), and Section 205(a)(2) of the Investment Advisers

Act of 1940 (the "Advisers Act"), are not, by operation of the
term "assignment" as defined in Section 2(a)(4) of the Investment

Company Act and Section 202(a)(1) of the Advisers Act,

respectively, appropriately interpreted so as to apply to the

transactions described herein.

I. FACTS

DWR is one of the largest registered broker-dealers in the

United States, servicing both individual and institutional

accounts. InterCapital, a wholly-owned subsidiary of DWR, acts

as investment adviser or sub-adviser to over 50 investment

companies (collectively, the "Funds") registered under the

Investment Company Act, including both Funds sponsored by Dean

Witter (the "Dean Witter Funds") and Funds sponsored by others.l

In addition, DWR and InterCapital each render investment advisory

services to institutional and individual clients and to employee

benefit plans and endowment funds ("non-Fund advisory clients").

Sears, a publicly traded New York corporation, originated

from an enterprise established in 1886. The principal business

groups of Sears and its consolidated subsidiaries are: (1) Sears

Merchandise Group, which is among the largest retailers in the

world, on the basis of sales of merchandise and services,

(2) Allstate Insurance Group ("Allstate"), which includes

property-liability insurance and life insurance, (3) Coldwell

Banker Real Estate Group ("Coldwell Banker"), which invests in,

1 Another subsidiary of DWR, Dean Witter Distributors Inc.,

acts as a distributor of numerous mutual funds, including

the Funds.

2
develops and manages real estate, performs residential real

estate brokerage and related services, and engages in the

formation and sale of mortgage-related securities and mortgage

banking, and (4) DWD, the direct parent company of DWR.

DWD, a wholly-owned subsidiary of Sears, was acquired by

Sears in a two step transaction completed on December 31, 1981.

As the sole shareholder, Sears controls DWD by, among other

things, providing financing for certain of DWD~s business

operations, reviewing and approving business plans and

compensation plans and exercising ultimate control over the

business activities of DWD through its power to elect and remove

any or all of DWD's directors. In light of the above, Sears has

direct control of its subsidiary, DWD.

On September 29, 1992, Sears announced plans to sell,

through a primary initial public offering, up to 20~ of the

shares of Common Stock of DWD to the public. A registration

statement on Form S-1 with respect to such offering was filed

with the Commission on December 21, 1992. It is anticipated that

the sale will be followed by a spin-off of the remaining 80~ of

DWD shares to Sears shareholders. (The proposed public offering

is herein referred to as the "IPO" and the subsequent spin-off is

herein referred to as the "Spin-Off"). As a result, DWD will

become a publicly-owned company. Sears also plans to sell

certain of its Coldwell Banker holdings and, through a primary
initial public offering, to offer publicly a 20~ stake in

Allstate.

The proposed transactions will result in no change in actual

management or control of DWR or InterCapital, or in either the

operations of the Funds or the provision of investment advice to

non-Fund advisory clients. Most important, 80$ of the shares of

DWD will be spun off to Sears shareholders, the same persons wha

now own them indirectly through their ownership of Sears. The

transactions will not result in any change in the way in which

the Funds are managed or operated, or in the personnel of

InterCapital who are charged with performing such management or

operational functions. Similarly, the proposed transactions will

not result in any change in the advisory personnel of DWR or

InterCapital who render investment advice to non-Fund advisory

clients. In addition, each of the directors of DWR and

InterCapital already hold positions as directors or officers of

DWD . 2

It is also important that at no previous time did Sears

exercise control over the actual management or policies of

2 Sears and DWD have agreed that, during the period from the

closing date of the IPO to the effective date of the SpinOff, Sears will designate five of DWD's six directors, the

remaining director to be DWD's Chief Executive Officer.

After the Spin-Off, it is expected that a majority of DWD's

board of directors will consist of directors not designated

by Sears. The proposed changes in DWD's board of directors

are not intended to affect in any way the operations of the

Funds or the provision of investment advice to non-Fund

advisory clients of DWR or InterCapital.

.n~
InterCapital with respect to the Funds or of either DWR or

InterCapital with respect to non-Fund advisory clients. The

relationship with Sears has yielded primarily two types of

benefits to DWD as a wholly-owned subsidiary of Sears. Sears has

been a source of capital to DWD, often through the use of the

borrowing power of Sears. In addition, Sears has shared certain

types of services, e•Q• computer facilities, with DWD.

Subsequent to the Spin-Off, DWD will have to arrange for its own

financing and will have to pay for shared services or make other

arrangements. It is anticipated that DWD will be able to arrange

for any needed financing, including financing related to

distribution payments pursuant to Rule 12b-1 under the Investment

Company Act, on satisfactory terms. Similarly, DWD should not

find itself unable to obtain any desired services. Thus, it is

not expected that the potential end of the Sears role will affect

materially the ability of InterCapital to perform its duties on

behalf of the Funds in the same manner it is now doing, nor will

the termination of the Sears affiliation affect materially the

ability of DWR or InterCapital to render investment advice to

non-Fund advisory clients.

II. LEGAL ANALYSIS

As noted above, we are making the instant request under

Sections 202(a)(1) and 205(a)(2) of the Advisers Act, as well as

Sections 2(a)(4), 15(a) and 15 (f) of the Investment Company Act.

Our discussion below, however, focuses primarily on the

5
'; Investment Company Act provisions as they are, in substance and

purpose, virtually the same as the relevant Advisers Act

provisions. The Division has previously indicated that the term

"assignment" should generally be interpreted in the same way

under both statutes. See Spears. Benzak, Salman & Farrell, Inc.

(pub. avail. January 21, 1986); Templeton Investment Counsel Ltd.

(pub. avail. January 22, 1986) . Compare Rule 202 (a) (1) -1 under

the Advisers Act with Rule 2a-6 under the Investment Company Act

(Rules 202(a)(1)-1 and 2a-6 define an assignment in substantially

the same fashion).

A. Section 15(a)

Section 15(a) of the Investment Company Act provides, in

pertinent part, that:

It shall be unlawful for any person to serve or act as

investment adviser of a registered investment company,

except pursuant to a written contract, which contract,

whether with such registered company or with an investment

adviser of such registered company, has been approved by the

vote of a majority of the outstanding voting securities of

such registered company, and --

(4) Provides, in substance, for its automatic

termination in the event of its assignment.

The purpose of Section 15(a) is to prevent "trafficking" in

investment advisory contracts, i.e., the sale of the adviser s

fiduciary office to another person or persons. As described by

David Schenker, counsel to the Commission's Investment Trust

6
Study, in his statement on S.3580, the Senate's original version

of the legislation that became the Investment Company Act:

Let me discuss [Section 15(a)(4)] at this point. .

Here you have a situation where a person assumes a fiduciary

obligation; he is the manager of other people's money. If

he is through with the job, he ought to go home. However,

instead of that they take these 10-year contracts which they

have the right to assign to someone else.

This provision says that the management contract is

personal, that it cannot be assigned, and that you cannot

turn over the management of other people's money to someone

else.

See Investment Trusts and Investment Companies: Hearings on

5.3580 before a Subcomm. of the Senate Comm. on Banking and

Currency, 76th Cong. 3d Sess. 253 (1939) (statement of David

Schenker)(emphasis added).

That theme was echoed by the General Counsel of the

Commission, in an opinion rendered shortly after the passage of

the Investment Company Act:

The legislative history of Section 15 manifests a clear

Congressional intention to prevent all trafficking in

investment advisory contracts and to prevent an investment

adviser from transferring his fiduciary obligations by

turning over the management of the stockholders money to a

different person. That intention is effectuated by the

requirement in Section 15(a) that every investment advisory

contract made after March 15, 1940, must provide for its

automatic termination upon assignment. .

See Investment Company Act Release No. 354 (1942).3 Thus,

3 The opinion itself held that the sale of an investment

advisory contract for profit would constitute a gross abuse

of trust, notwithstanding that the new advisory arrangements

were to be approved both by stockholders and directors.

Such an abuse was deemed to exist regardless of the form of

the sale, including the transfer of a controlling block of

(continued...)

7
Section 15(a)(4) furthers the more general Congressional finding

set forth in Section 1(b)(6) of the Act, which declares it

against the public interest ". when the control or management

[of investment companies] is transferred without the consent of

their security holders."

If either the IPO or the Spin-Off were deemed to be an

assignment within the meaning of Section 15(a), the consequences

would be dramatic. The existing investment advisory and subadvisory agreements with respect to the Funds would be deemed to

have terminated upon such assignment, and the continued receipt

of advisory compensation by InterCapital would be jeopardized

unless "new" contracts were approved by Fund shareholders prior

to the transaction.4 That is, the advisory function performed

subsequent to the transaction would be considered as being

3(...continued)

the advisers securities. As discussed below, Section

15(f), adopted in 1975, clarifies that such a sale is

permissible, under certain conditions.

4 Section 47 of the Investment Company Act provides that "any

contract that is made, or whose performance involves, a

violation of the [Investment Company Act) is unenforceable

by either party unless a court finds that under the

circumstances enforcement would produce a more equitable

result .". Similarly, absent the approval of non-Fund

advisory clients, the existence of an assignment would

terminate the advisory agreements of DWR and InterCapital

with respect to such clients under Section 205(a)(2) of the

Advisers Act.

8
perforried under a "neTa" contract ~,Thich, under Section 15 (a) , must

be approved initially by shareholder~.s

We do not believe, however, that either the IPO or the SpinOff results in an assignment as trat term is defined in the

Investr►ent Company Act. Section 2(a)(4) of the Investment

Company Act includes as an assignment, among other things, "any

direct or indirect transfer... of a controlling block of the

assignor's outstanding voting securities by a security holder of

the assignor....j6 Section 2(a)~9) creates a presumption that

such control lies in any person owning beneficially, directly or

through one or more controlled companies, more than 25~ of the

voting securities of an issuer, and a negative presumption for

S While the Dean Witter Funds do not believe that either

transaction results in an assignment, the "new" advisory

arrangements with InterCapital have been approved by their

directors or trustees and have been submitted by such

directors or trustees to a vote of shareholders. The

shareholders of the Dean Witter Funds approved the advisory

arrangements at meetings of shareholders held on January 12,

1993, and January 13, 1993. Resolution of the issue of

assignment is, however, important with respect to

InterCapital~s sub-advisory arrangements (where shareholder

approval of the new arrangements is not being sought) and to

the applicability of Section 15(f) of the Investment Company

Act, described below.

6 Section 202(a)(1) of the Advisers Act, in pertinent part,

contains a substantially identical definition.

~~
- ` amounts of 25$ or less. Either presumption may be rebutted by

an order of the Commission.

In addition, Rule 2a-6 under the Investment Company Act,

among other things, provides that a transaction which does not

result in a change of actual control or management of an

investment adviser should not be deemed an assignment.$ The Rule

was meant to exclude from the definition of an assignment

situations where, particularly because of a modification of

corporate structure, there may be deemed to be a transfer of a

controlling block of the adviser's stock, but where the transfer

does not affect actual control or management of the adviser. See

Investment Company Act Release No. 10809 (August 6, 1979)

(proposing Rule 2a-6). It is our view that neither of the

~ Specifically, Section 2(a)(9) provides:

(9) "Control" means the power the exercise a

controlling influence over the management or policies of a

company, unless such power is solely the result of an

official position with such company.

Any person who owns beneficially, either directly or

through one or more controlled companies, more than 25~ per

centum of the voting securities of a company shall be

presumed to control such company. Any person who does not

so own more than 25 per centum of the voting securities of

any company shall be presumed not to control such company.

A natural person shall be presumed not to be a controlled

person within the meaning of this title. Any such

presumption may be rebutted by evidence, but except as

hereinafter provided, shall continue until a determination

to the contrary made by the Commission by order either on

its own motion or on application by an interested

person. .

g Rule 202(a)(1)-1 under the Advisers Act contains a similar

provision.

10
1

proposed transactions constitutes an assignment under these

provisions.

The IPO. The IPO is proposed to consist only of 20~ of the

stock of DWD and, consequently, is presumed under the language of

Section 2(a)(9) not to constitute a transfer of control. See

also Wilheim v. Murchison, 342 F.2d 33, 39 (2d Cir. 1965), cert.

denied, 382 U.S. 840 (1966). That presumption is further

supported by the expectation that the offering will be widely

dispersed. In addition, the Division has previously taken "noaction" positions regarding the issue of assignment even where

greater than 25~ of the adviser's securities were offered to the

public, provided that the previous owner or owners remained in

actual control of the adviser. See Templeton Investment Counsel

Ltd. (pub. avail. January 22, 1986) (a public offering of 33-

1/3~); Central Corporate Reports Service, Inc. (pub. avail. March

9, 1981) (subsequent to a public offering, the largest

shareholder retained 49.9 0 .9 In addition, in a going private

transaction, the converse of the present situation, the Division

found no assignment where only 24~ of the shares were publicly

held. See Wellington Management Co. (pub. avail. November 29,

9 The Division's response in Central Corporate Reports

Service, Inc. was issued under Section 205(a)(2) of the

Investment Advisers Act of 1940, which parallels Section

15(a)(4). Similarly, the absence of a presumption in the

Advisers Act like that contained in Section 2(a)(9) does not

cause the IPO to result in assignment for purposes of the

Advisers Act; the determinative fact is that the IPO results

in no change of control of DWR or InterCapital.

11
"` `7 1979). As discussed more fully above and in connection with the

Spin-Off below, there will be no actual change in control as a

result of the transactions.

The Spin-Off. The Spin-Off, while comprising 80$ of the

stock of DWD, should be viewed as not constituting an assignment

for two reasons. First, while there appear to be no definitive

Commission or Division positions on the issue, we believe that no

assignment may be deemed to occur under Section 15(a) of the

Investment Company Act (or Section 205(a)(2) of the Advisers Act)

unless (1) there is a transfer of control to another person or

persons and (2) such person s) may be viewed as having obtained

the control so transferred. Neither of those elements will be

present in the Spin-Off. As described in greater detail below in

connection with Rule 2a-6, there will be no transfer of control

since the net result of the Spin-Off will be merely that persons

owning shares of DWD indirectly through Sears will hold such

shares directly. In addition, the change in the form of

ownership of DWD will not constitute a change in control as there

will be rio person receiving such control. Second, the Spin-Off

should be viewed as falling within the provisions of Rule 2a-6

under the Investment Company Act (and Rule 202(a)(1)-1 under the

Advisers Act), discussed above; the Spin-Off will not result in a

change of actual control or management of InterCapital, with

respect to Fund advisory activities (or of DWR or InterCapital,

with respect to non-Fund advisory clients).

12
The need to have a recipient of control (i.e., a recipient

of more than a 25~ interest in the adviser) for there to be an

assignment seems apparent from the language of the statute, as

well as from legislative history and purposes of Section 15(a).

Section 15(a), by its terms, provides for the termination of an

advisory contract only in the event of an assignment which, by

reference to Section 2(a)(4), requires that there be a transfer

of control. Thus, the Section requires that there be an assignee

or transferee for there to be a termination. Where there is no

recipient of control, there is no such party. In addition, as

indicated above, the Section clearly was designed to prevent the

transfer of the advisory relationship to another party without

shareholder approval, such as might occur upon the sale of a

controlling block of the adviser's securities to that other

party. It is not expected that the Spin-Off would result in any

person owning beneficially greater than 25g of the voting

securities of DWD. The DWD shares will be distributed to Sears

shareholders, and there are no present holders of Sears

securities who, upon such distribution, are expected to own in

excess of 25g of DWD stock. Thus, the Spin-Off, as an

interpretative matter, should not be viewed as a transfer of

control under Section 15(a).

To our knowledge, neither the Commission nor the Division

has interpreted Section 15(a), or the definition of an assignment

as used therein, expressly in the manner set forth above. As

13
'~ stated below, however, in at least one letter, the Commission

staff apparently recognized that, to have an assignment, there

must be a new person or persons receiving control. See Funds,

Inc. (pub. avail. April 21, 1972).10 In addition, at least one

court apparently has recognized that a dispersal of ownership of

a previous control block does not constitute a transfer of

control; the court found persuasive the absence of a transferee

obtaining control. See Herzog v. Russell, 483 F. Supp. 1346,

1356 (E.D.N.Y. 1979) in which the court stated:

Even if the public offering [of 19~ of the stock of

Franklin Resources Inc. ("Resources"), an investment

adviser to a registered investment company] is

integrated with the private placements to constitute a

single transfer of more than 33$ of the stock of

Resources, this would still not be sufficient to

constitute a sale of control. No single individual or

related group of individuals received anywhere near 25~

of the stock of Resources as a result of these

transactions, and thus none could be said to have

received control under §2(a)(9) of the Act."

On the other hand, certain previous letters of the Division

in response to requests for no-action advice, while not directly

on point, have contained language which appears inconsistent with

such a construction of the statute. In Finomic Investment Fund

Inc. and Investment Advisors Inc. (pub. avail. November 19, 1973)

("Finomic") and Lowry Management Corp. (pub. avail. February 20,

1984), quoting Finomic in the context of an assignment issue

under the Advisers Act, the Division stated, without further

analysis, that "the assignment definition sections do not require

to See note 12 infra and accompanying text.

14
. ~ that the controlling block be transferred to any one person,

merely that it leave the hands of a security holder." (emphasis

added) .

Even if the Division does not agree that there can be no

assignment without a recipient of control, the Spin-Off should be

deemed outside the purview of Sections 15(a) and 2(a)(4) both by

appropriate construction of the Sections and by virtue of Rule

2a-6, discussed above. Rule 2a-6 is a definitional rule under

the Investment Company Act, not solely an exemptive rule.'l

Thus, if a transfer in excess of 25~ of the securities of an

issuer does not result in a change of actual control or

management of the investment adviser, the transfer is, by

definition, deemed not to be an assignment for purposes of

Section 15(a). The Spin-Off is just such a transfer and,

accordingly, should be viewed by the Division as an

interpretative matter to be outside the definition of an

assignment.

The absence of a change in control by reason of the Spin-Off

is apparent. In the first place, the Spin-Off will result in the

stock of DWD being distributed to the shareholders of Sears, the

it Rule 2a-6 was adopted under Section 38(a) of the Investment

Company Act, which gives the Commission the authority to

define technical terms contained in the Investment Company

Act, as well as Section 6(c), which permits general

exemptive rulemaking. In contrast, Rule 15a-4 under the

Investment Company Act, which was proposed and adopted

together with Rule 2a-6, was promulgated solely under

Section 6(c). See Investment Company Act Release No. 11005

(January 2, 1980) (release adopting Rules 2a-6 and 15a-4.)

15
same persons who immediately prior to the Spin-Off will be in

ultimate control of DWD; since DWD is a wholly-owned subsidiary

of Sears, Sears shareholders are appropriately viewed as already

controlling DWD indirectly. No change of control will be

created by the fact that Sears shareholders will own directly

what they now own indirectly. Thus, there is no transfer of the

type which should be viewed by operation of Section 2(a)(4) as an

assignment under Section 15(a). The Commission staff

acknowledged, in effect, this very argument by counsel in a

virtually identical situation in its response to a no-action

request in Funds, Inc. (pub. avail. April 21, 1972).lZ That

response alluded to the arguments of counsel, stating that:

As I understand the facts as now presented, the shares

of Funds [the investment adviser's parent], a wholly owned

subsidiary of Lincoln, would be distributed by Lincoln to

its shareholders in proportion to their current

shareholdings. As expressed in your letter of January 19,

1972, this spin off of Funds shares would be effected as a

part of a reorganization to be affected between Lincoln and

Illinois Central Industries, Inc. As such, the shares of

Funds would be owned by the same persons who now indirectly

own them through their share ownership of Lincoln.

Investment Advisory [the investment adviser] would still be

wholly owned by Funds, and the personnel of both Funds and

Investment Advisory would remain substantially the same,

particularly with respect to the research and analyst

staffs.

But Cf. Babson Organization)Inc. (pub. avail. April 26, 1973)

(the Division declined to take a no-action position with respect

12 Funds, Inc., which was issued prior to the adoption of

Rule 2a-6, dealt with Sections 202(a)(1) and 205(a)(2) of

the Advisers Act which, as noted earlier, are analogs of

sections 2 (a) (4) and 15 (a) (4) .

F~~
~ ~ to the transfer of an investment adviser's securities to the

holders of certificates of a voting trust with respect to such

securities).

There also is no change in actual management or control from

the viewpoint of the operations of the Funds or InterCapital. As

noted above, the Spin-Off will not result in any change in the

way in which the Funds are managed or operated, or in the

personnel of InterCapital who are charged with performing such

management or operational functions. (Similarly, the Spin-Off

will not affect the advisory operations or personnel of DWR or

InterCapital related to non-Fund advisory clients.)

In addition, the fact that DWD will become a publicly owned

company rather than a wholly-owned subsidiary of Sears will not

impact DWD in any other way that may be viewed as an actual

change of control, let alone a trafficking, of InterCapital

advisory or sub-advisory contracts with respect to the Funds. As

previously discussed, Sears has never directly exercised actual

control over the management or policies of InterCapital

generally, or with respect to the Funds (nor has such control

been exercised with respect to non-Fund advisory clients of DWR

or InterCapital). Sears has yielded primarily two types of

benefits to DWD as a wholly-owned subsidiary of Sears. Sears has

been a source of capital to DWD and has shared certain types of

services with DWD. It is anticipated that subsequent to the

Spin-Off, DWD will be fully able to arrange for its own financing

17
(including financing of Rule 12b-1 expenses) and either to pay

for shared services or make other arrangements. Moreover, any

change in the financing activities of DWD should not change

materially the ability of InterCapital (or DWR) to perform its

advisory duties in the same manner it is now doing.

In sum, there is nothing inherent in the Spin-Off that

violates the spirit of Section 15(a)(4) or Rule 2a-6. That DWD

and InterCapital (as well as DWR) will be essentially the same

entities as they are now negates any inference that there has

been a transfer of control.

B. Section 15 (f)

Section 15(f), in effect, sets forth the circumstances under

which an investment adviser to a registered investment company,

or affiliated person of such an adviser, may receive a benefit in

connection with a sale of securities of, or other interest in,

the adviser which results in an assignment of an investment

advisory contract. Specifically, Section 15(f)(1) provides:

An investment adviser of a registered

investment company or an affiliated person of such

investment adviser may receive any amount or

benefit in connection with a sale of securities

of, or a sale of any other interest in, such

investment adviser which results in an

assignment of an investment advisory contract with

such company if--

(A) For a period of three years after the

time of such action, at least 75 per centum of the

members of the board of directors of such

registered company (or successor thereto, by

reorganization or otherwise) are not (i)

interested persons of the investment adviser of

18
such company or (ii) interested persons of

the predecessor investment adviser .; and

(B) There is not imposed an unfair burden on

such company as a result of such transactions or

any express or implied terms, conditions, or

understandings applicable thereto.

Section 2(a)(3) of the Investment Company Act, in effect,

includes as an affiliated person of the investment adviser any

person directly or indirectly controlling, controlled by, or

under common control with the adviser. See Section 2(a)(3)(C).

Thus, Section 15(f) would encompass any benefit received by Sears

or DWD in connection with any assignment of the advisory or subadvisory contracts of InterCapital, which is controlled by Sears

and DWD.

Section 15 (f) was adopted as part of the Securities Acts

Amendments of 1975, 89 Stat. 166, P.L. 94-29, (June 4, 1975) to

resolve the uncertainty surrounding the circumstances under which

an investment adviser to an investment company may receive any

profit upon the transfer of its business.13 See H.R. Rep. No.

123, 94th Cong., Ist Sess. 90 (1975); S. Rep. No. 75, 94th Cong.,

1st Sess. 71 (1975) (the "Senate Report"). The conditions of

Section 15(f)(1) generally are designed to prevent any unfair

13 The uncertainty that Congress sought to address was a result

of certain prior decisions, particularly, Rosenfeld v.

Black, 445 F.2d 1337 (2d Cir. 1971). While Section 15 (f)

may be categorized theoretically as a safe harbor, the

interpretation that we request would affirm that, as a

practical matter, compliance with the provisions of the

Section is unnecessary with respect to the proposed

transactions.

19
`~ burden from being imposed on the investment company in connection

with the transaction. See Senate Report at 140.

We have considered the potential argument that the Section

applies to the proposed transactions. Such a theory would likely

be based on the assertion that the Spin-Off constitutes an

assignment of the advisory contracts between InterCapital and the

Funds, and that while neither InterCapital nor any affiliated

person thereof received any financial benefit in connection with

that assignment, such a benefit may be found to exist if the

Spin-Off is integrated with the IPO. Both Sears and DWD will

receive a financial benefit in connection with the IPO, and each

of these entities may be viewed as an affiliated person of

InterCapital by virtue of their control over that company.14 If

Section 15 (f) is deemed to apply, there may be an issue to the

extent that, by the time of the IPO, the boards of directors or

trustees of the Dean Witter Funds may not have determined the

precise manner in which such boards would be reconstituted in

order to comply with Section 15(f)(1)(A). Thus, if the Division

agrees that the Section is inapplicable, it would preserve the

flexibility to conduct the IPO in accordance with the proposed

schedule.

'a As noted above, the definition of an affiliated person of an

investment adviser includes any person controlling the

adviser. Section 2(a)(9) of the Act, described further

above, presumes such control to lie in anyone owning more

than 25~ of the voting securities of the adviser.

20
For the reasons described more fully above, we believe

neither the IPO nor the Spin-Off constitutes an assignment.

Consequently, Section 15(f) should not be deemed to apply to the

proposed transactions. Regarding the Spin-Off, we recognize that

one basis for finding an assignment to be absent is the

application of Rule 2a-6, and that the Rule purports to exclude

certain transactions from being an assignment solely for purposes

of Section 15(a) (and Section 15(b)) of the Investment Company

Act. However, Rule 2a-6 should be equally applicable under

Section 15(f). The Division apparently recognized this argument

in at least one no-action letter; the incoming request asserted

that Rule 2a-6 should apply in the context of Section 15(f). See

Rodecker & Company Investment Brokers, Inc. (pub. avail. July 28,

1986). The Division did not in that letter disagree with the

requestor's legal analysis. In any event, even without the Rule,

we do not believe the proposed transactions fall within the

statutory meaning of the term "assignment".

In addition, even assuming that the Spin-Off is considered

an assignment, it may be viewed as outside the purview of Section

15(f) because no benefit will be conferred upon InterCapital or

its affiliated persons "in connection with" such assignment. The

financial benefits of the proposed transactions could be

construed to arise in connection with the IPO which, as discussed

above, is presumed not to constitute a change in control. DWD

will receive the proceeds of the IPO, which will be used to repay

21
debt to Sears. No similar benefits are received in connection

with the Spin-Off. Only if one takes the position that the IPO

and Spin-Off should be viewed as a single transaction for

purposes of Section 15 (f) would compliance with the Section be

necessary. It is submitted, however, that such an extension of

the literal wording of the Section is inappropriate in the

present situation.

There is no reason not to recognize that the IPO and SpinOff are separate transactions. The IPO- and Spin-Off are not by

their terms interdependent transactions; e•Q•, the IPO may take

place even if the proposed Spin-Off does not. There is no unfair

burden placed on the Funds by the proposed transactions. Neither

the IPO nor the Spin-Off results in any payment of any kind by

the Funds. Moreover, since DWD and its subsidiaries will remain

essentially the same after the transactions as before, both in

their management and in the nature of their operations

particularly with respect to the Funds, the Funds will not be

operated in any different way by virtue of the transactions, nor

will there be any implicit understanding with a third party

regarding portfolio transactions such as might be presumed to be

an unfair burden under the Section.13

is section 15 (f) (2) (B) provides:

For the purpose of paragraph (1)(B) of [Section

15(f)(1)], an unfair burden on a registered investment

company includes any arrangement, during the two-year

period after the date on which any such transaction

(continued...)

22
CONCLUSION

For the reasons set forth more fully above, we request that

the Division issue an interpretation that neither the provisions

of Sections 15(a) and 15(f) of the Investment Company Act, nor

those of Section 205(a)(2) of the Advisers Act, are, by reason of

the operation of the definition of an assignment contained in

Section 2(a)(4) of the Investment Company Act or in Section

202(a)(1) of the Advisers Act, applicable to the IPO or the SpinOff. The IPO is statutorily presumed not to constitute an

assignment such as might implicate those provisions. In

addition, neither the IPO nor the Spin-Off is an assignment

within the language or purposes of those Sections, and such a

conclusion is further mandated by Rule 2a-6 under the Investment

Company Act and Rule 202(a)(1)-1 under the Advisers Act.

The instant request is of the utmost importance to DWD, DWR,

InterCapital and Sears, as well as to the Funds and the non-Fund

advisory clients for which InterCapital or DWR acts as investment

adviser (or sub-adviser). Consequently, we respectfully request

is (. , ,continued)

occurs, whereby the investment adviser ... trustee or

predecessor or successor investment advisers or any

interested person of any such adviser ... receives or

is entitled to receive any compensation directly or

indirectly (i) from any person in connection with the

purchase or sale of securities or other property to,

from, or on behalf of such company, other than bona

fide ordinary compensation as principal underwriter for

such company, or (ii) from such company or its security

holders for other than bona fide investment advisory or

other services.

23
,\' that the Division act on the instant request as promptly as

possible. We further request that if the Division determines not

to grant this interpretation or determines to issue a response in

the form of a no-action letter that it contact either of Thomas

R. Smith, Jr. ((212) 839-5535) or Brian M. Kaplowitz ((212) 839-

5370) before taking such action. Thank you for your

consideration of this matter.

Very truly yours,

v

24
655 CALIFORNIA STREET

SAN FRANCISCO, CA. X4101-1716

TELEPHONE: ~I S-3D8-390

FACSIMILE: 415-]9 7-4621

i oaoo WiLSMiRE OOULEVARD

LOS ANGELES, CA. X0024-395D

TE LCPH ON E: X10-443-0200

FACSIMILE: ~10-20S-b740

SNIROVAMA JT MORI DUILDINU~ 16TH FLOOR

3-1, TORANOM ON 4-CMOME. MINATO-KU

TOKYO 105, JI

TELEPHONE: 03-5~

FACSIMILE: 03-54

BROWN & WOO D

ONE WORLD TRADE CENTER

N EW YORK, N.Y. 10048-0557

TE LE PN ON E: 2 12-039-5.)00

FACSIMILE: 21 2-S»-S 5DD

February 8, 1993

Office of Chief Counsel

Division of Investment Management

U.S. Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Ladies and Gentlemen:

015 CONNECTICUT AVENUE, N.W.

WASNINGTON~ D.C. 2 0006-40 04

TEIE PM ONE: 202-223-0220

FACSIMILE: 202-2Z3-0485

1 72 WEST STATE STREET

TRENTON, N.J. 08608-1 104

TELEPHONE: 609.393-0303

FAC51 M I LE: 609- 393- 1990

SU.0 KW ELL MOUSE

OUILDMALL YARD

LONDON EC2V SAB

TELEPMON E: 071-606-1988

FAC51 M I lE: 07 I-7 a6- 1607

At your request, this letter is intended to supplement our

prior submission on behalf of Dean Witter, Discover & Co., et

al., dated February 2, 1993, seeking an interpretation of certain

provisions of the Investment Company Act of 1940 and the

Investment Advisers Act of 1940. We hereby confirm that both the

agreement among underwriters syndicate wire and the underwriting

agreements contain a provision that no single purchaser may

purchase greater than 10~ of the offering. The net effect of

those provisions is that no single purchaser may, as a result of

the IPO, acquire greater than two percent of the stock of DWD.

If I can be of any further assistance to you, please feel free to

call me at (212) 839-5370.

Sincerely,

Brian M. Kaplowitz