[Federal Register Volume 64, Number 72 (Thursday, April 15, 1999)]
[Notices]
[Pages 18646-18648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9442]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. IC-23780, 812-11276]


PaineWebber Incorporated and PaineWebber Equity Trust, ABCs Trust 
Series 1; Notice of Application

April 9, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') for an 
exemption from section 17(a) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order that would permit 
certain terminating series of a unit investment trust (``UIT'') to sell 
portfolio securities to certain new series of the UIT.

APPLICANTS: PaineWebber Incorporated (``PaineWebber'' or ``Sponsor''), 
PaineWebber Equity Trust (``Trust''), ABCs Trust Series 1 (``Series 
1''), and each subsequent series of the Trust sponsored by PaineWebber 
(together with Series 1, each a ``Series'').\1\
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    \1\ Any future Series that relies on the requested relief will 
comply with the terms and conditions of the application.

FILING DATES: The application was filed on August 26, 1998, and amended 
on March 5, 1999. Applicants have agreed to file an amendment, the 
substance of which is reflected in this notice, during the notice 
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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 
applicant 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 5, 1999, and 
should be accompanied by proof of service on applicant, in the form of 
an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature

[[Page 18647]]

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 SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C. 
20549-0609. Applicants, 1200 Harbor Boulevard, Weehawken, N.J. 07087, 
Attn: Robert E. Holley.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at 
(202) 942-0572, or Mary Kay Frech, 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 
SEC's Public Reference Branch, 450 5th Street, N.W., Washington, D.C. 
20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Each Series will be a series of the Trust and will be a UIT 
registered under the Act. PaineWebber will be the sponsor of each 
Series. Each Series will be created under the laws of one of the United 
States pursuant to a trust indenture, which will contain information 
specific to that Series, and which will incorporate by reference a 
master trust indenture between the Sponsor and a financial institution 
that is a bank within the meaning of section 2(a)(5) of the Act and 
that satisfies the criteria in section 26(a) of the Act and will be 
unaffiliated with the Sponsor (the ``Trustee'').
    2. The investment objective of each Series will be to provide for 
capital appreciation and/or dividend income by investing in equity 
securities. The Sponsor will deposit with the Trustee portfolio 
securities which will be chosen according to fixed criteria from 
securities that appear on the PaineWebber Equity Research Department's 
Analysts' Best Call List as of the initial date of deposit. Each 
Series' portfolio may include equity securities that have (a) a minimum 
market capitalization of U.S. $1 billion and (b) had an average daily 
trading volume in the preceding 60 trading days of at least 50,000 
shares equal in value to at least U.S. $250,000 on an exchange 
(``Qualified Exchange'') which is (i) a national securities exchange 
which meets the qualifications of section 6 of the Securities Exchange 
Act of 1934, (ii) the Nasdaq National Market, or (iii) a foreign 
securities exchange that meets the qualifications set out in the 
proposed amendments to rule 12d3-1(d)(6) under the Act \2\ (``Qualified 
Rollover Securities'').
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    \2\ Investment Company Act Release No. 17096 (Aug. 3, 1989) 
(proposing amendments to rule 12d3-1). The proposed amended rule 
defined a ``Qualified Foreign Exchange'' to mean a stock exchange in 
a country other than the United States where (a) trading generally 
occurred at least four days a week; (b) there were limited 
restrictions on the ability of registered investment companies to 
trade their holdings on the exchange; (c) the exchange had a trading 
volume in stocks for the previous year of at least U.S. $7.5 
billion; and (d) the exchange had a turnover ratio for the 
proceeding year of at least 20% of its market capitalization. The 
version of the amended rule that was adopted did not include the 
part of the proposed amendment defining the term ``Qualified Foreign 
Exchange.''
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    3. Each Series has at least one rollover date (``Rollover Date'') 
on which unitholders in the Series (``Rollover Series'') may redeem 
their units in the Rollover Series on a specified date (``Special 
Liquidation Date'') and receive units of a subsequent Series of the 
same type (``New Series''), which will be created on or about the 
Rollover Date.
    4. Each Rollover Series will terminate approximately one year after 
it is offered for sale. The Sponsor anticipates that there will be some 
overlap in the Qualified Rollover Securities selected for the 
portfolios of each Rollover Series and the related New Series. In 
connection with the rollover, absent the requested relief, each 
Rollover Series would sell all of its Qualified Rollover Securities and 
each New Series would acquire its Qualified Rollover Securities on the 
applicable securities exchange. This would result in the unitholders of 
both the Rollover Series and the New Series incurring brokerage 
commissions on the same securities.

Applicants' Legal Analysis

    1. Section 17(a) of the Act prohibits an affiliated person of a 
registered investment company from selling securities to, or purchasing 
securities from, the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include, in pertinent part, 
any person directly or indirectly controlling, controlled by or under 
common control with, such other person. Each Series will have a common 
sponsor. Applicants state that, since the sponsor of a Series may be 
deemed to control the Series, all of the Series may be deemed to be 
under common control and, thus affiliated persons of each other.
    2. Rule 17a-7 under the Act permits registered investment companies 
that might be deemed affiliated persons 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 paragraph (e).
    3. Paragraph (e) of the rule requires an investment company's board 
of directors to adopt and monitor certain procedures to assure 
compliance with the rule. Since a UIT does not have a board of 
directors, the Series would be unable to comply with this requirement.
    4. Section 17(b) of the Act authorizes the SEC to exempt a 
transaction from section 17(a) if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, the proposed transaction is consistent with the 
policy of each registered investment company concerned, and the 
proposed transaction is consistent with the general purposes of the 
Act. Section 6(c) under the Act 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 of the Act. Applicants request relief under sections 6(c) and 
17(b) to permit a Rollover Series to sell Qualified Rollover Securities 
to a New Series at the closing sales prices of the Qualified Rollover 
Securities on a Qualified Exchange on the Special Liquidation Date of 
the Rollover Series (``Sale Date''), and to permit the New Series to 
purchase the Qualified Rollover Securities.
    5. Applicants state that the terms of the proposed transactions 
will meet the standards of sections 6(c) and 17(b). Applicants 
represent that purchases and sales between Series will be consistent 
with the policy of each Series. Applicants state that permitting the 
proposed transactions would result in savings on brokerage commissions 
for the Series.
    6. Applicants state that the requirements for Qualified Rollover 
Securities would help to protect against overreaching. In addition, 
applicants state that the Sponsor will certify to the Trustee, within 
five days of each sale of Qualified Rollover Securities from a Rollover 
Series to a New Series: (a) that the transaction is consistent with the 
policy of both the Rollover Series and the New Series, as recited in 
their respective registration statements and reports filed under the 
Act, (b) the date of the transaction, and (c) the closing sales price 
on the Qualified Exchange

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for the Sale Date of the Qualified Rollover Securities. The Trustee 
will then countersign the certificate, unless, in the unlikely event 
that the Trustee disagrees with the closing sales price listed on the 
certificate, the Trustee immediately informs the Sponsor orally of the 
disagreement and returns the certificate within five days to the 
Sponsor with corrections duly noted. Upon the Sponsor's receipt of a 
corrected certificate, if the Sponsor can verify the corrected price by 
reference to an independently published list of closing sales prices 
for the date of the transactions, the Sponsor will ensure that the 
price of units of the New Series, and distributions to holders of the 
Rollover Series with regard to redemption of their units or termination 
of the Rollover Series, accurately reflect the corrected price. To the 
extent that the Sponsor disagrees with the Trustee's corrected price, 
the Sponsor and the Trustee will jointly determine the correct sales 
price by reference to a mutually agreeable, independently published 
list of closing sales prices for the date of the transaction.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Each sale of Qualified Rollover Securities by a Rollover Series 
to a New Series will be effected at the closing price of the Qualified 
Rollover Securities sold on a Qualified Exchange on the Sale Date, 
without any brokerage charges or other remuneration except customary 
transfer fees, if any.
    2. The nature and conditions of the transaction will be fully 
disclosed to investors in the appropriate prospectus of each Rollover 
Series and New Series.
    3. The Trustee of each Rollover Series and New Series will (a) 
review the procedures relating to the sale of Qualified Rollover 
Securities from a Rollover Series and the purchase of those Qualified 
Rollover Securities for deposit in a New Series, and (b) make such 
changes to the procedures as the Trustee deems necessary that are 
reasonably designed to comply with paragraphs (a) through (d) of rule 
17a-7.
    4. A written copy of these procedures and a written record of each 
transaction pursuant to this order will be maintained as provided in 
rule 17a-7(f).

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 99-9442 Filed 4-14-99; 8:45 am]
BILLING CODE 8010-01-M