[Federal Register Volume 66, Number 164 (Thursday, August 23, 2001)]
[Notices]
[Pages 44389-44390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21306]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25115; 812-11198]


Investec Ernst & Company et al.; Notice of Application

August 17, 2001.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 
12(d)(3) of the Act.

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    Summary of Application: The requested order would permit certain 
series of unit investment trusts to invest up to 10.5%, 14.5% or 34.5% 
of their respective total assets in securities of issuers that derived 
more than 15% of their gross revenues in their most recent fiscal year 
from securities related activities (``Securities Related Issuers'').
    Applicants: Investec Ernest & Company (``Sponsor''); The Pinnacle 
Family of Trusts, Schwab Trusts, Equity Securities Trust, and EST 
Symphony Trust (``Trusts''); all presently outstanding and subsequently 
issued series of the Trusts (``Series''); and all future unit 
investment trusts (``UITs'') containing qualified securities and 
sponsored or co-sponsored by the Sponsor or a sponsor controlling, 
controlled by, or under common control, within the meaning of section 
2(a)(9) of the Act, with the Sponsor (these UITs are included in the 
term Trusts and their series included in the term Series).
    Filing Dates: The application was filed on June 26, 1998 and 
amended on December 8, 1998 and August 15, 2001.
    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

[[Page 44390]]

mail. Hearing requests should be received by the SEC by 5:30 p.m. on 
September 11, 2001 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 a hearing may request notification by 
writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC, 20549. 
Applicants, Investec Ernst & Company, One Battery Park Plaza, 7th 
Floor, New York, NY 10004.

FOR FURTHER INFORMATION CONTACT: Julia Kim Gilmer, Senior Counsel, at 
(202) 942-0528, or Nadya B. Roytblat, Assistant Director, 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 Fifth Street, NW, Washington, DC, 
20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Each Trust is a UIT registered under the Act and consists of 
various Series. The Sponsor is a sponsor or co-sponsor of the Series. 
The investment objective of certain Series is to seek a greater total 
return than the stocks comprising the Dow Jones Industrial Average 
(``DJIA,'' and the Series, ``Dow Series''). Certain of the Dow Series 
(``Top Ten Series'') will invest approximately 10% of the value of its 
total assets in each of the ten common stocks in the DJIA that have the 
highest dividend yields (the ``Top Ten''). In no event will a Top Ten 
Series invest more than 10.5% of the value of its total assets in the 
common stock of a Securities Related Issuer in the Top Ten. Certain 
other Dow Series (``Triple Strategy Series'') invest 20% of its assets 
in the Top Ten. 60% of its assets in the five lowest priced stocks of 
the Top Ten (the ``Focus Five''), and 20% in the single stock which is 
the second lowest priced stock of the Focus Five (the ``Penultimate 
Pick''). A Triple Strategy Series will invest no more than 10.5% with 
respect to the Top Ten, 14.5% with respect to the Focus Five, or 34.5% 
with respect to the Penultimate Pick, if the Penultimate Pick is itself 
a Securities Related Issuer, of the value of its total assets in a 
Securities Related Issuer.
    2. The DJIA comprises 30 widely-held common stocks listed on the 
New York Stock Exchange which are chosen by the editors of The Wall 
Street Journal. The DJIA is the property of Dow Jones & Company, Inc., 
which is not affiliated with any Series, the Sponsor, or any co-sponsor 
and does not participate in any way in the creation of any Series or 
the selection of its stocks. The securities deposited in each Dow 
Series will be chosen solely according to the formula described above. 
The sponsor will not have any discretion as to which securities are 
purchased. Sales of securities in the Dow Series' portfolios will be 
made in connection with redemptions and at termination of the Trust on 
a date specified a year in advance. The sponsor does not have 
discretion as to when the securities will be sold except in extremely 
limited circumstances, such as default by the issuer in the payment of 
amounts due on a security or the institution of certain legal 
proceedings against the issuer.

Applicants' Legal Analysis

    1. Section 12(d)(3) of the Act prohibits, with limited exceptions, 
an investment company from acquiring any security issued by any person 
who is a broker, dealer, underwriter, an investment adviser of an 
investment company, or a registered investment adviser. Rule 12d3-1 
under the Act exempts the purchase of securities of an issuer that 
derived more than fifteen percent of its gross revenues in its most 
recent fiscal year from securities related activities, provided that, 
among other things, immediately after an acquisition, the acquiring 
company has not invested more than 5% of the value of its total assets 
in the securities of the issuer.
    2. Section 6(c) of the Act provides that the SEC may exempt a 
person from any provision of the Act or any rule under the Act, if and 
to the extent that the 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.
    3. Applicants request an exemption under section 6(c) from section 
12(d)(3) to permit a Top Ten Series to invest up to approximately 10%, 
but in no event more than 10.5%, of the value of its total assets in a 
Securities Related Issuer in the Top Ten, and to permit a Triple 
Strategy Series to invest up to approximately 10%, but in no event more 
than 10.5%, in a Securities Related Issuer in the Top Ten, 
approximately 14%, but in no event more than 14.5%, of the value of its 
total assets in a Securities Related Issuer in the Focus Five, and 
approximately 34%, but in no event more than 34.5%, of the value of its 
total assets in the Penultimate Pick, if the Penultimate Pick is itself 
a Securities Related Issuer. Each of the Top Ten Series and Triple 
Strategy Series will comply with all of the conditions of rule 12d3-1, 
except the condition prohibiting an investment company from investing 
more than 5% of the value of its total assets in securities of a 
Securities Related Issuer.
    4. Applicants state that section 12(d)(3) was designed to prevent 
certain potential conflicts of interest and to eliminate certain 
reciprocal practices between investment companies and securities 
related businesses. One potential conflict of interest could occur if 
an investment company purchased securities or other interests in a 
broker-dealer to reward that broker-dealer for selling investment 
company shares, rather than solely on investment merit. Applicants 
state that this concern does not arise in connection with the Top Ten 
Series and the Triple Strategy Series because neither the Series nor 
the sponsor has discretion in choosing the portfolio securities or the 
amount purchased. Applicants also state that the effect of a Series' 
purchase on the stock of a Securities Related Issuer would be de 
minimis because the common stocks represented in the DJIA are widely 
held and have active markets.
    5. Applicants state that another potential conflict of interest 
could occur if an investment company directed brokerage to a broker-
dealer in which the investment company has invested to enhance the 
broker-dealer's profitability or to assist it during financial 
difficulty, even though that broker-dealer may not offer the best price 
and execution. To preclude this type of conflict, applicants agree, as 
a condition to the requested order, that no company held in a Series' 
portfolio nor any affiliated person of that company will act as a 
broker for any Series in the purchase or sale of any security for its 
portfolio.

Applicants' Condition

    Applicants agree that the order granting the requested relief will 
be subject to the following condition:
    No company held in the Series' portfolios nor any affiliated person 
of that company will act as a broker for any Series in the purchase or 
sale of any securities for the Series' portfolios.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-21306 Filed 8-22-01; 8:45 am]
BILLING CODE 8010-01-M