[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]


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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'').

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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\
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    \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.
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    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