[Federal Register Volume 60, Number 45 (Wednesday, March 8, 1995)]
[Notices]
[Pages 12803-12806]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5583]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20931; 812-8630]


Dean Witter Reynolds Inc., et al., Notice of Application

March 1, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption Under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Dean Witter Reynolds Inc. (the ``Sponsor''); and Dean 
Witter Select Municipal Trust, Dean Witter Select 
[[Page 12804]] Corporate Trust, Dean Witter Select Investment Trust, 
Dean Witter Select Equity Trust, and Dean Witter Select Government 
Trust (the ``Trusts'').

RELEVANT ACT SECTIONS: Order requested pursuant to section 6(c) for 
exemptions for sections 2(a)(32), 2(a)(35), 22(c), 22(d), and 
26(a)(2)(C) of the Act and rule 22c-1 thereunder, and pursuant to 
section 11(a) to amend a prior order (the ``Prior Order'') granting 
relief from section 11(c).\1\

    \1\Dean Witter Reynolds Inc., et al. Investment Company Act 
Release Nos. 14934 (Feb. 12, 1986) (notice) and 14987 (March 13, 
1986) (order).

SUMMARY OF APPLICATION: Applicants seek to impose sales charges on a 
deferred basis and waive the deferred sales charge in certain cases, 
exchange Trust units having deferred sales charges, and exchange units 
of a terminating series of a Trust for units of the next available 
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series of that Trust.

FILING DATES: The application was filed on October 8, 1993 and amended 
on October 31, 1994, January 30, 1995, and February 17, 1995.

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 March 27, 1995, 
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 the date of a hearing may request notification by writing 
to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. 
Applicants, Two World Trade Center, New York, NY 10048.

FOR FURTHER INFORMATION CONTACT: Fran Pollack-Matz, Senior Attorney, at 
(202) 942-0570 or C. David Messman, 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 is available for a fee from the 
SEC's Public Reference Branch.

Applicant's Representations

    1. Each of the Trusts is a unit investment trust sponsored by the 
Sponsor. The Trusts are made up of one or more separate series 
(``Series''). Over seven hundred Series of the Trusts are currently 
outstanding.
    2. Each Series is created by a trust indenture among the Sponsor, a 
banking institution or trust company as trustee, and an evaluator. The 
Sponsor acquires a portfolio of securities and deposits them with a 
trustee in exchange for certificates representing fractional undivided 
interests in the portfolio of securities (``Units''). Units currently 
are offered to the public through the Sponsor and other underwriters 
and dealers at a price based upon the aggregate offering side 
evaluation of the underlying securities plus an up-front sales charge. 
The sales charge currently ranges from 1.50% to 5.50% of the public 
offering price. The Sponsor may offer a discounted sales charge to 
unitholders within a Series based on the quantity of Units purchased. 
The sales charge may also vary among Series depending on the terms of 
the underlying securities.
    3. Applicants seek an order under section 6(c) exempting them from 
sections 2(a)(32), 2(a)(35), 22(c), 22(d), and 26(a)(2)(C) and rule 
22c-1 thereunder to let them impose sales charges on Units on a 
deferred basis and waive the deferred sales charge in certain cases. 
Under applicants' proposal, the Sponsor will continue to determine the 
amount of sales charge per Unit at the time portfolio securities are 
deposited in a Series. The Sponsor will have the discretion to defer 
collection of all or part of this sales charge over a period 
(``Collection Period'') following the settlement date for the purchase 
of Units. The Sponsor will in no event add to the deferred amount 
initially determined any additional amount for interest or any similar 
or related charge to reflect or adjust for such deferral.
    4. The deferred sales charge (``DSC'') may be (a) deducted from the 
proceeds of a sale, exchange, or redemption of units or termination of 
the Series (``Disposition Amount''); or (b) deducted from (i) amounts 
received on the sale of portfolio securities, (ii) amounts received on 
the maturity of portfolio securities, (iii) income distributions on the 
Units, or (iv) a combination thereof (``Distribution Deductions''). 
Alternatively, the trustee may advance the DSC on behalf of the Series 
on a periodic basis, in which case the trustee will be reimbursed from 
the principal account of the Series upon the receipt of proceeds from 
the maturity or sale of portfolio securities or from the income account 
of the Series. The total of all these amounts will not exceed the 
aggregate DSC per unit. The DSC may be paid out of the principal or 
income accounts of the Series and securities may be sold in order to 
pay any portion of the DSC due on a certain date.
    5. For purposes of calculating the amount of the DSC due upon 
redemption or sale of Units, it will be assumed that Units on which the 
balance of the sales charge has been collected from installment 
payments are liquidated first. Any Units disposed of over such amounts 
will be redeemed in the order of their purchase, so that Units held for 
the longest time are redeemed first.
    6. The Sponsor may adopt a procedure of waiving the DSC payable out 
of net sales, exchange, or redemption proceeds, if necessary, so as not 
to jeopardize the tax-exempt nature of various investors such as 
Individual Retirement Accounts and employee benefits plans, if 
otherwise required for tax purposes, or for such other reasons as 
disclosed in the prospectus.
    7. The Collection Period and the manner in which the Disposition 
Amount and/or Distribution deductions are calculated shall be stated in 
the prospectus, including the amount and date of each Distribution 
Deduction, if any. The prospectus for a Series will include disclosure 
that portfolio securities may be sold to pay the DSC if amounts in the 
income account are insufficient to pay the DSC or proceeds from 
portfolio securities are intended to pay the DSC. The confirmation 
received by a holder on the purchase, sale, exchange, or redemption of 
a Unit will indicate the sales charge as required by National 
Association of Securities Dealers, Inc. rules. The account statement of 
a holder will reflect a value of a Unit. The account statement, 
however, will not reflect the amount a holder paid for the up-front 
sales charge. At the end of every year, the Trust's annual report will 
reflect the aggregate amount of Distribution Deductions, both on a 
Series and per Unit basis.
    8. The Prior Order permits applicants to allow unitholders to 
exchange Units of one Series for Units of another Series subject to a 
sales charge of up to 2.5% per Unit (generally 2.0% per Unit for equity 
Series and 2.5% per Unit for municipal bond series). When Units held 
for less than five months are exchanged for Units with a higher regular 
sales charge, the sales charge will be the greater of (a) the reduced 
sales charge or (b) the difference between the sales charge paid in 
acquiring the Units being exchanged and the regular sales charge for 
the quantity of Units being acquired, [[Page 12805]] determined as of 
the date of the exchange.
    9. Applicants seek to amend the Prior Order to permit offers of 
exchange of Units subject to a DSC. The DSC, including Distribution 
Deductions uncollected at the time of the exchange, would be imposed at 
the time of the exchange. The sales charge imposed will be fixed at the 
time of the exchange, will be equal to the greater of a fixed dollar 
amount or the amount of the DSC remaining on the Units acquired, and 
may be comprised of an upfront and/or deferred amount, which deferred 
amount, if applicable, would include any portion of the sales charge 
not collected at the time of exchange. In the case where a Unit subject 
to a DSC is being exchanged, the proceeds due to the exchanging 
investor will be net of the DSC due upon the sale of a Unit at such 
time. Such net proceeds will be used to purchase the acquired Units. 
Those Units may be subject to the greater of a sales load of a fixed 
dollar amount or the amount of the DSC remaining on the Units acquired 
in the exchange.
    10. The Sponsor may offer certain Series that have intermediate or 
short-term stated maturities. Upon termination of such Series, the 
Sponsor may create a new Series with the same investment objective, the 
same type of portfolio securities as the terminating Series, and in 
certain instances some of the same portfolio securities. Applicants 
wish to make Units of the new Series available to the unitholders of 
the new Units plus a reduced sales charge on an up-front and/or 
deferred basis (the ``Rollover Option''). Although applicants believe 
that the Prior Order already permits the Rollover Option, they request 
that the Prior Order be amended to cover the Rollover Option 
explicitly.

Applicants' Legal Analysis

    1. Under section 6(c), the SEC may exempt any person or transaction 
from any provision of the Act or any rule thereunder to the extent that 
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.
    2. Section 2(a)(32) defines a ``redeemable security'' as a security 
that, upon its presentation to the issuer, entitles the holder to 
receive approximately his or her proportionate share of the issuer's 
current net assets, or the cash equivalent of those assets. Because the 
imposition of the DSC defers the deduction of a portion of the sales 
charge, applicants seek an exemption from section 2(a)(32) so that 
Units subject to a deferred sales charge are considered redeemable 
securities for purposes of the Act.\2\

    \2\Without an exemption, a trust selling units subject to a 
deferred sales charge could not meet the definition of a unit 
investment trust under section 4(2) of the Act. Section 4(2) defines 
a unit investment trust as an investment company that issues only 
``redeemable securities.''
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    3. Section 2(a)(35) defines the term ``sales load'' to be the 
difference between the sales price and the proceeds to the issuer, less 
any expenses not properly chargeable to sales or promotional expenses. 
Because a deferred sales charge is not charged at the time of purchase, 
an exemption from section 2(a)(35) is necessary.
    4. Section 22(c) and rule 22c-1 require that the price of a 
redeemable security issued by an investment company for purposes of 
sale, redemption, and repurchase be based on the investment company's 
current net asset value. Because the imposition of a deferred sales 
charge may cause a redeeming unitholder to receive an amount less than 
the net asset value of the redeemed Units, applicants seek an exemption 
from this section and rule.
    5. Section 22(d) requires an investment company and its principal 
underwriter and dealer to sell securities only at a current public 
offering price described in the investment company's prospectus. 
Because sales charges traditionally have been a component of the public 
offering price, section 22(d) historically required that all investors 
be charged the same load. Rule 22d-1 was adopted to permit the sale of 
redeemable securities ``at prices that reflect scheduled variations in, 
or elimination of, the sales load.'' Because rule 22d-1 may not be 
interpreted to extend to scheduled variations in deferred sales 
charges, applicants seek relief from section 22(d) to permit each 
Series to waive or reduce the DSC in certain circumstances. Any waiver 
or reduction will comply with the conditions in paragraphs (a) through 
(d) of rule 22d-1 under the Act.
    6. Section 26(a)(2) in relevant part prohibits a trustee or 
custodian of a unit investment trust from collecting from the trust as 
an expense any payment to a depositor or principal underwriter thereof. 
Because of this prohibition, applicants need an exemption to permit the 
trustee to collect the DSC installments from Distribution Deductions or 
the principal account.
    7. Applicants believe that implementation of the DSC program in the 
manner described above would be fair and in the best interests of the 
unitholders of the Trusts. Thus, granting the requested order would be 
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.
    8. Section 11(c) prohibits any offers of exchange of the securities 
of a registered until investment trust for the securities of any other 
investment company, unless the terms of the offer have been approved by 
the SEC. Applicants assert that the reduced sales charge imposed at the 
time of exchange is justified by cost savings because that shareholder 
would require less explanation concerning the procedures and operations 
of the Trusts.
Applicants' Conditions
    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Whenever the exchange option is to be terminated or its terms 
are to be amended materially, any holder of a security subject to that 
privilege will be given prominent notice of the impending termination 
or amendment at least 60 days prior to the date of termination or the 
effective date of the amendment, provided that: (a) no such notice need 
be given if the only material effect of an amendment is to reduce or 
eliminate the sales charge payable at the time of an exchange, to add 
one or more new Series eligible for the exchange option, or to delete a 
Series which has terminated; and (b) no notice need be given if, under 
extraordinary circumstances, either (i) there is a suspension of the 
redemption of Units of the Trust under section 22(e) and the rules and 
regulations promulgated thereunder, or (ii) a Trust temporarily delays 
or ceases the sale of its Units because it is unable to invest amounts 
effectively in accordance with applicable investment objectives, 
policies, and restrictions.
    2. The amount of the sales charge per Unit collected from a holder 
at the time of any exchange or conversion of a Unit will be lower than 
the sales charge collected on the initial purchase of the same Unit at 
such time.
    3. The prospectus of each Trust offering exchanges and any sales 
literature or advertising that mentions the existence of the exchange 
option will disclose that the exchange option is subject to 
modification, termination, or suspension, without notice except in 
certain limited cases.
    4. Each Series offering Units subject to a deferred sales charge 
will include in its prospectus the table required by item 2 of From N-
1A (modified as appropriate to reflect the differences between unit 
investment trusts and open-end management investment 
[[Page 12806]] companies) and a schedule setting forth the number and 
date of each installment payment.

    For the Commission, by the Division of Investment, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5583 Filed 3-7-95; 8:45 am]
BILLING CODE 8010-01-M