[Federal Register Volume 59, Number 196 (Wednesday, October 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25190]
[[Page Unknown]]
[Federal Register: October 12, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20602; 812-9190]
WSIS Series Trust, et al.; Notice of Application
October 5, 1994.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANTS: WSIS Series Trust (the ``Trust''), Wertheim Schroder
Investment Services, Inc. (the ``Adviser''), and Wertheim Schroder &
Co. Incorporated (the ``Distributor'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) granting a
conditional exemption from sections 2(a)(32), 2(a)(35, 18(f)(1), 18(g),
18(i), 22(c), and 22(d) of the Act, and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants seek an order permitting certain
open-end management investment companies to issue multiple classes of
shares representing interests in the same portfolio of securities, and
assess and, under certain circumstances, waive a contingent deferred
sales charge (``CDSC'') on certain redemptions of the shares.
FILING DATES: The application was filed on August 18, 1994, and amended
on October 3, 1994.
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 October 31,
1994, 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 5th Street, NW., Washington, DC 20549.
Applicants, c/o Wertheim Schroder Investment Services, Inc., 787
Seventh Avenue, New York, New York 10019.
FOR FURTHER INFORMATION CONTACT:
James J. Dwyer, Staff Attorney, at (202) 942-0581, 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 may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a registered open-end management investment company
that currently offers shares in five series. Each existing or future
series of the Trust is referred to herein as a ``Fund.''
2. The Adviser is a registered investment adviser that serves as
investment adviser to all five series of the Trust. The Distributor
serves as principal underwriter to the Trust. The Adviser is a wholly
owned subsidiary of the Distributor.
3. Applicants request that any order also apply to any open-end
investment company advised by the Adviser or any entity controlled by,
or under common control with the Adviser, or for which the Distributor
or any entity controlled by or under common control with the
Distributor serves as principal underwriter and that (a) hereafter
becomes part of the same ``group of investment companies,'' as defined
in rule 11a-3, and (b) issues classes of shares that are identical in
all material respects to the classes described in this application.
4. Applicants seek an order to permit each of the Funds to offer
multiple classes of shares (the ``Multiple Class System''). The Funds
initially will issue four classes of shares. The requested order also
will permit each Fund to assess a CDSC on redemptions of certain
classes of shares, and waive the CDSC under certain circumstances.
5. Class A shares generally will be offered at net asset value plus
a front-end sales charge. Class A shares will be sold without a front-
end sales charge, however, but rather will be subject to a CDSC if they
were purchased (a) in an amount greater than a specified amount
(currently expected to be $1 million) or (b) with the proceeds from the
redemption or sale of shares of another investment company (which
redemption did not result in the payment by the investor of a CDSC).
The CDSC for such Class A shares will be at an expected rate of up to
1% if they are redeemed within four years after purchase. In addition,
all Class A shares will be subject to a non-rule 12b-1 shareholder
servicing fee of up to .25% of the average daily net assets of the
class annually..
6. Class B shares will be offered without a front-end sales charge,
but will be subject to a CDSC at an expected rate of up to 1% on
redemptions within the first year after purchase. In addition, the
shares will bear rule 12b-1 distribution fees of up to .75% (.50% in
the case of some Funds) and a non-rule 12b-1 shareholder servicing fee
of up to .25% of the average daily net assets of the class annually.
7. Class C shares will be subject to a variable rate CDSC
(declining over time) for a period of several years after purchase.
Applicants currently expect that the percentage of the CDSC generally
will vary from 6% for redemptions made during the first year from
initial purchase to 1% for redemptions made during the sixth year from
purchase. In addition, Class C shares will bear rule 12b-1 distribution
fees of up to .75%, and a non-rule 12b-1 shareholder servicing expense
of up to .25%, of the average daily net assets of the class annually.
Class C will automatically convert into Class A shares after a
specified period (currently expected to be six years) from the date of
purchase.
8. Class D shares will be offered without any sales charges or rule
12b-1 fees. Class D shares will be offered only to certain qualified
institutional investors that wish to make very large investments.
Investors eligible to purchase Class D shares will include tax-
qualified employee benefit plans, endowment funds, foundations, and
other tax-exempt organizations and certain insurance company separate
accounts.\1\
---------------------------------------------------------------------------
\1\The minimum initial investment amount will be $25,000 or less
for Class A, Class B and Class C shares and $1,000,000 for Class D
shares. These amounts may be changed from time to time, but it is
anticipated that, even if the specific amounts change, the Class A,
Class B, and Class C shares would continue to have a low minimum
investment, while Class D shares would have a much higher minimum
investment.
---------------------------------------------------------------------------
9. The net asset value of all outstanding shares of all classes of
a Fund will be computed by allocating gross income and expenses to each
class based on the net assets attributable to each class, except for
rule 12b-1 fees, shareholder servicing expenses, and ``Class
Expenses,'' as defined in condition 1 below.
10. Class C shares will automatically convert into Class A shares
or shares of classes created in the future which are identical in all
material respects to the Class A shares after a specified period (not
to exceed six years) following the purchase date. Class C shares
acquired by exchange from Class C shares of another Fund will convert
into Class A shares based on the time of the initial purchase. Class C
shares purchased through the reinvestment of dividends and other
distributions paid in respect of Class C shares will convert into Class
A shares at the same time as the shares with respect to which they were
purchased are converted.
11. Applicants expect that shares of each Fund may be exchanged for
shares of the same respective class in any other fund, without payment
of an additional sales charge. All exchange privileges applicable to
each class will comply with rule 11a-3 under the Act.
12. No CDSC will be imposed with respect to: (a) redemptions of
shares that were purchased more than a specified number of years prior
to the redemptions: (b) shares derived from reinvestment of dividends
or capital gain distributions; or (c) the amount that represents an
increase in the value of the shareholder's account resulting from
capital appreciation. The amount of the CDSC will be calculated as the
lesser of the amount that represents a specified percentage of the net
asset value of the shares at the time of purchase, or the amount that
represents such percentage of the net asset value of the shares at the
time of redemption.
13. In determining the applicability and rate of any CDSC, it will
be assumed that a redemption is made first of shares representing
reinvestment of dividends and capital gain distributions and then of
other shares held by the shareholder for the longest period of time.
This will result in the charge, if any, being imposed at the lowest
possible rate. In addition, redemption requests placed by shareholders
who own shares of more than one class will be satisfied first by
redeeming the shareholder's shares of the class or classes not subject
to a CDSC, unless the shareholder has specifically elected to redeem
shares which are subject to a CDSC.
14. The CDSC will not be imposed on shares issued prior to the
effective date of the order granting exemptive relief.
15. Applicants request relief to permit each Fund to waive or
reduce the CDSC in certain circumstances. Any waiver or reduction will
comply with the conditions in paragraphs (a) through (d) of rule 22d-1
under the Act.
Applicants' Legal Analysis
1. Applicants request an exemption under section 6(c) from sections
18(f)(1), 18(g), and 18(i) to issue multiple classes of shares
representing interests in the same portfolio of securities. Applicants
believe that, by implementing the multiple class distribution system,
the Funds would be able to facilitate the distribution of their shares
and permit shareholders to receive the benefits of mutual fund services
and distribution arrangements and the added benefits of scale and other
advantages that may result from combining investors' assets in a single
portfolio. Applicants also believe that the proposed allocation of
expenses and voting rights is equitable and would not discriminate
against any group of shareholders. The proposed arrangement does not
involve borrowings, affect the Funds' existing assets or reserves, or
increase the speculative character of the shares of a Fund.
2. Applicants also request an exemption under section 6(c) from
sections 2(a)(32), 2(a)(35), 22(c), and 22(d), and rule 22c-1, to
assess and, under certain circumstances, waive a CDSC on redemptions of
shares. Applicants believe that the CDSC arrangement would permit
shareholders to have the advantage of greater investment dollars
working for them from the time of their purchase than if a sales charge
had been imposed.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund and be identical in all respects,
except as set forth below. The only differences among various classes
of shares of the same Fund will relate solely to: (a) the impact of the
disproportionate payments made under the rule 12b-1 distribution plan
and the shareholder services plan, and any Class Expenses which are
limited to (i) transfer agency fees attributable to a specific class of
shares; (ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and
proxies to current shareholders of a specific class; (iii) Blue Sky
registration fees incurred by a class of shares; (iv) SEC registration
fees incurred by a class of shares; (v) administrative services fees
payable under each class' respective administrative services agreement,
if any; and (vi) any other incremental expenses subsequently identified
that should be properly allocated to one class which shall be approved
by the Commission pursuant to an amended order; (b) voting rights on
matters which pertain to rule 12b-1 plans except as provided in
condition 2 below; (c) the different exchange privileges of the classes
of shares; (d) the designation of each class of shares of a Fund; and
(e) the fact that only certain classes will have a conversion feature.
2. If a Fund implements any amendments to its rule 12b-1 plan (or,
if presented to shareholders, adopts or implements any amendment of a
non-rule 12b-1 shareholder service plan) that would increase materially
the amount that may be borne by a class of shares under the plan into
which another class will convert (the ``Target Class''), shares of the
class that will convert (the ``Purchase Class'') will stop converting
into the Target Class unless the Purchase Class shareholders, voting
separately as a class, approve the proposal. The Trustees shall take
such action as is necessary to ensure that existing Purchase Class
shares are exchanged or converted into a new class of shares (the ``New
Target Class''), identical in all material respects to the Target Class
as it existed prior to implementation of the proposal, no later than
the date such shares previously were scheduled to covert into the
Target Class. If deemed advisable by the Trustees to implement the
foregoing, such action may include the exchange of all existing
Purchase Class shares for a new class (the ``New Purchase Class''),
identical to existing Purchase Class shares in all material respects
except that the New Purchase Class will convert into the New Target
Class. The New Target Class or the New Purchase Class may be formed
without further exemptive relief. Exchanges or conversions described in
this condition shall be effected in a manner that the Trustees
reasonably believe will not be subject to federal taxation. In
accordance with condition 6, any additional cost associated with the
creation, exchange, or conversion of the New Target Class or the New
Purchase Class shall be borne solely by the Adviser or Distributor. The
Purchase Class shares sold after the implementation of the proposal may
convert into the Target Class shares subject to the higher maximum
payment, provided that the material features of the Target Class plan
and the relationship of such plan to the Purchase Class shares are
disclosed in an effective registration statement.
3. Any class of shares with a conversion feature will convert into
another class of shares on the basis of the relative net asset values
of the two classes, without the imposition of any sales load, fee, or
other charge. After conversion, the converted shares will be subject to
an asset-based sales charge and/or service fee (as those terms are
defined in article III, section 26 of the NASD's Rules of Fair
Practice), if any, that in the aggregate are lower than the asset-based
sales charge and service fee to which they were subject prior to the
conversion.
4. The Trustees of the Trust, including a majority of the
independent Trustees, shall have approved the Multiple Class System
prior to the implementation of the Multiple Class System by a
particular Fund. The minutes of the meetings of the Trustees regarding
their deliberations with respect to the approvals necessary to
implement the Multiple Class System will reflect in detail the reasons
for determining that the Multiple Class System is in the best interests
of both the Funds and their respective shareholders.
5. The initial determination of the Class Expenses that will be
allocated to a particular class of a Fund and any subsequent charges
thereto will be reviewed and approved by a vote of the Trustees,
including a majority of the independent Trustees. Any person authorized
to direct the allocation and disposition of monies paid or payable by
the Fund to meet Class Expenses, rule 12b-1 fees and shareholder
servicing fees shall provide to the Trustees, and the Trustees shall
review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
6. On an ongoing basis, the Trustees, pursuant to their fiduciary
responsibilities under the Act and otherwise, will monitor each Fund
for the existence of any material conflicts among the interests of the
various classes or shares. The Trustees, including a majority of the
independent Trustees, shall take such action as is reasonably necessary
to eliminate any such conflicts that may develop. The Adviser and
Distributor will be responsible for reporting any potential or existing
conflicts to the Trustees. If a conflict arises, the Adviser and
Distributor at their own costs will remedy the conflict up to and
including establishing a new registered management investment company.
7. The Trustees of the Trust will receive quarterly and annual
statements concerning distribution and shareholder servicing
expenditures complying with paragraph (b)(3)(ii) of rule 12b-1, as it
may be amended from time to time. In the statements, only expenditures
properly attributable to the sale or servicing of a class of shares
will be used to support any distribution or servicing fee charged to
shareholders of such class of shares. Expenditures not related to the
sale or servicing of a particular class of shares will not be presented
to the Trustees to justify any fee attributable to that class. The
statements, including the allocations upon which they are based, will
be subject to the review and approval of the independent Trustees in
the exercise of their fiduciary duties.
8. Each shareholder services plan will be adopted and operated in
accordance with the procedures set forth in rule 12b-1(b) through (f)
as if the expenditures made thereunder were subject to rule 12b-1,
except that shareholders need not enjoy the voting rights specified in
rule 12b-1.
9. Dividends paid by a Fund with respect to each class of shares,
to the extent any dividends are paid, will be calculated in the same
manner, at the same time, and on the same day and will be in the same
amount, except that fee payments made under the rule 12b-1 plans
relating to a particular class of shares will be borne exclusively by
such class and except that any Class Expense and shareholder servicing
expenses will be borne exclusively by the applicable class of shares.
10. The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes and the
proper allocation of expenses among the various classes have been
reviewed by an expert (the ``Expert''). The Expert has rendered a
report to applicants (and such report has been filed with the SEC as an
exhibit to the application) that such methodology and procedures are
adequate to ensure that such calculations and allocations will be made
in an appropriate manner. On an ongoing basis, the Expert, or an
appropriate substitute Expert, will monitor the manner in which the
calculations and allocations are being made and, based upon such
review, will render at least annually a report to the Funds that the
calculations and allocations are being made properly. The reports of
the Expert shall be filed as part of the periodic reports filed with
the Commission pursuant to sections 30(a) and 30(b)(1) of the Act. The
work papers of the Expert with respect to such reports, following
request by the Funds which the Funds agree to make, will be available
for inspection by the Commission staff upon the written request for
these work papers by a senior member of the Division of Investment
Management or of a Regional Office of the Commission, limited to the
Director, an Associate Director, the Chief Accountant, the Chief
Financial Analyst, any Assistant Director, and any Regional
Administrator or associate and Assistant Administrator. The initial
report of the Expert is a ``report on policies and procedures placed in
operation'' and the ongoing reports will be ``reports on policies and
procedures placed in operation and tests of operating effectiveness''
as defined and described in SAS No. 70 of the AICPA, as it may be
amended from time to time, or in similar auditing standards as may be
adopted by the AICPA from time to time.
11. Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions among the various
classes of shares and the proper allocation of expenses among such
classes of shares and this representation has been concurred with by
the Expert in the initial report referred to in condition 10 above and
will be concurred with by the Expert, or an appropriate substitute
Expert, on an ongoing basis at least annually in the ongoing reports
referred to in condition 10 above. Applicants agree to take immediate
corrective action if the Expert, or appropriate substitute Expert, does
not so concur in the ongoing reports.
12. The prospectuses of the Funds will contain a statement to the
effect that a salesperson and any other person entitled to receive
compensation for selling or servicing Fund shares may receive different
compensation with respect to one particular class of shares over
another in the Fund.
13. The Distributor will adopt compliance standards as to when each
class of shares may appropriately be sold to particular investors.
Applicants will require all persons selling shares of the Funds to
agrees to conform to these standards.
14. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the Trustees of the Funds with
respect to the Multiple Class System will be set forth in guidelines
which will be furnished to the Trustees.
15. Each Fund will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads, deferred
sales loads, and exchange privileges applicable to each class of shares
in every prospectus regardless of whether all classes of shares are
offered through each prospectus. Each Fund will disclose the respective
expenses and performance data applicable to all classes of shares in
every shareholder report. The shareholder reports will contain, in the
statement of assets and liabilities and statement of operations,
information related to the Fund as a whole generally and not on a per
class basis. Each Fund's per share data, however, will be prepared on a
per class basis with respect to all classes of shares of such Fund. To
the extent any advertisement or sales literature describes the expenses
or performance data applicable to any class of shares, it will also
disclose the respective expenses and/or performance data applicable to
all classes of shares. The information provided by applicants for
publication in any newspaper or similar listing of the Fund's net asset
values and public offering prices will present each class of shares
separately.
16. Applicants acknowledge that the grant of the requested
exemptive order will not imply Commission approval or authorization of
or acquiescence in any particular level of payments that the Funds may
make pursuant to rule 12b-1 plans or shareholder services plans in
reliance on the order.
17. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, Investment Company Act Release No. 16619 (November 2,
1988), as the rule is currently proposed and as it may be reproposed,
adopted, or amended.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25190 Filed 10-11-94; 8:45 am]
BILLING CODE 8010-01-M
