SEC Division of Investment Management staff letter: Thomson Fund Group, et al.

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.: J. ;;.~. if ~~ r~.t,~;.:' ) t~~ ~?l '. ":I~". " ,~...,,: ,,1 ~'~ Ë - t:~ r~LT !~,,: ,~lj U-.._ ----=---....,. RESPONSE OF THE OFFICE OF OUr Ref. No. 92-15-ICR INVSTMNT COMPAN REGULTION Thomson Fund Group, et ~ DIVISION OF INVSTMNT MAAGEM File Nos. 812-5733, 812-6361. and 812-7056 In your letter of Decemer 21, 1992, you request assurance

that the Division of Investment Management will not recommend

that the Commission take any enforcement action under the

Investment Company Act of 1940 against Thomson Fund Group (the

"Trust") and Thomson Investor Services Inc. (the "Distributor"),

if the Trust and Distributor introduce new classes of

transactions for which the Trust's contingent deferred sales

charge ("CDSC") will be waived in reliance on certain exemtive

orders (the "CDSC Orders"). ~/ The CDSC Orders permt the

imposition, and under certain circumtances the waiver, of a

CDSC. The new waiver categories proposed in 'your letter would

permit the Trust and Distributor to waive the. CDSC for certain

redemptions by tax qualified plans in connection with

distributions without penalty under section 72 of the Internal

Revenue Code, and for certain periodic. redemtions under an

automatic withdrawal plan.
The CDSC Orders were issued prior to the publication of

proposed rule 6c-10, which would permt open-end management .

investment companies to impose and waive CDSCs under certain

circumtances. 2/ While the representations in the CDSC Orders

are in many respects simlar to the provisions of proposed rule

6c-10, the CDSC Orders are not conditioned on compliance with the.

proposed rule.

Because proposed rule 6c-10 represents the Commssion's

latest position with regard to deferred sales charges, the

Division is unwilling to grant any no-action assurance unless an

order permitting a CDSC to be assessed is conditioned on

adherence to the provisions of the proposed rule as it is

currently proposed and as it may be reproposed, adopted, or

~/ Investment Company Act Release Nos. 13825 (March 15, 1984)

(notice) and 13877 (April 10, 1984) (order); as amended by

Investment Company Act Release Nos. 15138 (June 6, 1986) (notice)

and 15187 (June 30, 1986) (order), and 16574 (Sept. 27, 1988)

(notice) and 16609 (Oct. 25, 1988) (order).
2/ Investment Company Act Release No. 16619 (Nov. 9,1988).

• 2
  amended. ~/ Accordingly, on the basis of the facts and

representations in your letter, we are unwilling to assure you

that we would not recommend any enforcement action to the

Commission under the Investment Company Act of 1940 if the Trust

and the Distributor proceed as described in your letter.

This response does not reflect adversely on the merits of

your request. We would consider an application for an order to

amend the CDSC Orders to permit the proposed waiver categories,

so long as the requested order is conditioned on compliance with

proposed rule 6c-10 as such rule is currently proposed, and as it

may be reproposed, adopted or amended.

A!ClG,Ð~M/ 'Marc Duffy! reI

Staff Attorney

Office of Investment

Company Regulation

. January 28, 1993
~/ The Trust and the Distributor previously received no-action

assurance regarding the introduction of a new category of

transactions for which the CDSC would be waived. Thomson Fund

Group, et al. (pub. avail. April 29, 1991). Since that time,

however, the Division has decided that it is unwilling to grant

any no-action assurance with regard to a CDSC order that is not

conditioned on compliance with the provisions of proposed rule

6c-10 as it is currently proposed and as it may be reproposed,

adopted, or amended. See. e.g.. Dean Witter Reynolds Inc., et

al. (pub. avail. April 17, 1992).

'Acr --J C;t 0 pie¡ '-0

SECTON ROPES & GRAY
RULE f.'lfXx£J rule. &v- ¡p ON E 1 NTERNATIONAL PLACE BOSTON, MASSACHUSETTS 02110-2624 PUBLIC 30 KENNEDY PLAZA A V Aiumui/ANI/AvZ~:Ñ?a (617) 951-7000 PROVIDENCE, R. I. 02903 'NA5HINGTON, D. C. 20004 ,401) 521-6400 TELECOPIER: (617) 951-7050 :202) 626-3900 -ELECOPIER: (401) 521-0910 TELECOPIER: (202) 626-3961 ~riter's Direct Dial Number: (617) 951-7392 December 21, 1992 rF~~';~¿-:=:~;;'~~~' "-¡7'~7'''~':~1:~-1'-1

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Office of Investment Company Regulation Division of Investment Management IL. DEe 2 1 19~~j Securities and Exchange Commission 450 Fifth Street, N. W. . ~~~,"-.-~-'- Washington, D. C. 20549

Attention: Matthew A. Chambers

Re: Thomson Fund Group (File No. 811-3881)

Ladies and Gentlemen:

This is a request for assurance that the staff of the

Division of Investment Management (the "Division") will not

recommend enforcement action if Thomson Fund Group (the "Trust")

and its principal underwriter, Thomson Investor Services Inc.

(the "Distributor"), introduce new classes of transactions for

which the Trust's contingent deferred sales charge will be

waived, as described below. These proposed classes reflect

changes in the facts and circumstances from those described in

the applications for the orders of exemption and the prior no-

action letter referred to below.

The Trust

The Trust, originally called Thomson McKinnon Investment

'ust, is a Massachusetts business trust organized in 1983. It

registered as an open-end management investment company under

~ Investment Company Act of 1940 (the "Act"). The Trust is a

ries company" as described in Rule 18f-2 under the Act and

-ently offers shares of eleven (11) separate series ("Funds")

sale to investors. Each Fund has its own investment

~tive and policies.

1t Sales Load Arranqements

tnce the commencement of the public offering of its shares

, the Trust has offered shares ("Class B Shares") subj ect .. a itingent deferred sales charge ("CDSC"), in reliance upon rder 'f exemption (the "CDSC Orders") granted by the Commission ~

ROPES & GRAY

Office of Investment -2- December 21, 1992

Company Regulation

J.' ,2, from the provisions of sections 2(a) (32), (2) (a) (35), 22(c) and /' .I;! .' 22 (d) of the Act and Rules 22c-1 and 22d-1 thereunder. See, ~Thomson McKinnon Investment Trust, Investment Company Act Release No. 13877. (April 10, 1984) ¡OOhomson McKinnon Global Trust, ~et / al., Investment Company Act Release No. 15187 (June 30, 198j)'I;(::, . and~Thomson McKinnon Investment Trust, et al., Investment Company Act Release No. 16609 (October 25, 1988). i(¡C)Ii.( e¡/;;e/i2)' J \ i I

Pursuant to the CDSC Orders and the no-action relief

descrïbed below, a CDSC is imposed on Class B shares if an

investor redeems an amount which causes the current value of the investor i s account for a Fund to fall below the total dollar amount of purchase payments subj ect to the deferred sales charge,

except that no such charge is imposed if the shares redeemed have

been acquired through the reinvestment of dividends or capital

gains distributions or if the amount redeemed is derived from

increases in the value of the account above the amount of

purchase payments subj ect to the deferred sales charge.

Whether a CDSC is imposed and the amount of the charge will

depend on the number of years since the investor made a purchase

payment from which an amount is being redeemed and the date such

purchase payment was made. Purchases are subj ect to the CDSC

according to the following schedules:

Purchase payments made on or after July 1, 1991:

Year Since Purchase Percentage contingent

Payment Was Made Deferred Sales Charqe

First 1
Therea fter a
Purchase payments made before July 1, 1991:

Year Since Purchase Percentage contingent

Payment Was Made Deferred Sales Charqe

First . 5
Second 4
Third . 3
Fourth 2
Fifth 2 sixth and following o
In determining whether a CDSC is payable, it is assumed that

e purchase payment from which the redemption is made is the

-1 iest purchase payment (from which a redemption or exchange l not already been effected). If the earliest purchase from

ROPES & GRAY

Off ice of Investment -3- December 21, 1992 Company Regulation which a redemption has not yet been effected was made on or after

July 1, 1991 and within 12 months before the redemption, then a

deferred sales charge at the rate of 1% will be imposed. If the

earl iest purchase payment from which a redemption has not yet been effected was made before July 1, 1991, then a deferred sales

charge of up to 5% may be imposed, in accordance with the table

above. The reduction in the CDSC with respect to purchase

payments made on or after July 1, 1991 was implemented pursuant

to no-action relief granted to the Trust on April-29, 1991 (the

"No-Action Relief") . . . .,~

As permitted by the CDSC Orders and the No-Action Relief,

the CDSC is waived for (i) any partial or complete redemption in

connection with a distribution (a) upon attaining age 59 1/2 in

the case of an IRA or Keogh Plan, or (b) following retirement

under a t9x qualified plan other than an IRA or Keogh Plan; (ii)

redemption from qualìfiel retirement plans in connection with an

employee i s termination of employment and the transfer of assets

to a qualified retirement plan maintained by the employee i s new

employer; (iii) redemption resulting from tax-free return of an

excess contribution to an IRA; (iv) any partial or complete

redemption following death or disability (as defined in the

Internal Revenue Code of 1986, as amended (the "Code")) of a shareholder (including one who owns the shares as j oint tenant wi th his or her spouse) from an account in which the deceased or

disabled is named, provided the redemption is requested wi thin

one year of the death or initial determination of disability; or

(v) redemptions by Trustees, officers and employees of the Trust

and by employees of the Distributor and the investment manager of

the Trust.

Proposed Modifications

The Trust and the Distributor propose to waive the CDSC in connection with redemptions involving a partial or complete redemption by a tax qualified plan in connection with a distribution without penalty under Section 72 of the Code. Those distributions (in addition to distributions already covered by a waiver of the CDSC) are as follows: (1) upon attaining age 59 ;, in the case of a qualified employer retirement plan, (2) as part of a series of substantially equal periodic payments in the case of a qualified employer retirement plan or an IRA, (3) upon separation from service and attaining age 55 in the case of a qualified employer retirement plan, (4) a complete redemption in connection with a distribution from a qualified employer retirement plan in connection with the termination of such plan nd the transfer of assets to another qualified employer IS

~tirement plan or to an IRA, and (5) arising in connection with

qualifying loan from a qualified employer retirement plan. The

ROPES & GRAY

Office of Investment -4- December 21, 1992 Company Regulation Trust and the Distributor also propose to waive the CDSC for

certain periodic redemptions under an Automatic withdrawal Plan

from an account meeting certain minimum balance requirements, in

amounts meeting certain maximums established from time to time by the Distributor. The Trust and the Distributor represent that, except as

described above, the operation of the Trust is CDSC arrangements

will continue to conform in all respects to the CDSC Orders and

the No-Action Rel ief, including the conditions thereto.

Requested Rel ief
The Trust and the Distributor hereby seek the assurance of

the staff of the Division that it would not recommend that the

Commission take enforcement action if the Trust and the Distributor effect the above-described changes in the Trust i s CDSC waiver policy.

In our view, the introduction of the new CDSC waiver

categories are permissible without first obtaining an amendment

of the CDSC Orders . with respect to the expanded category for

which the current examples are as described in items (1), (2),

(3), (4) and (5) above (the "expanded qualified retirement plan

category"), it should be noted that the CDSC is already waived in

connection with certain distributions and withdrawals from

qualified retirement plans with respect to which the Code imposes

no penalty. C~anqes in the Code since the dates upon which the

CDSC Orders and No-Action Relief were obtained now permit distributi nn~ ~nd ~ithdr~lãl~ frnm qualified retirement plans without penalty in the circumstances set forth in the expandéd

qualified retirement plan category. Because considerations of

fairness to qualified retirement plan participants dictate that

the CDSC waiver policy should be uniform with respect to all

distributions and withdrawals from qualified retirement plans for

which a penalty is not imposed under the Code, the Trust is

seeking to expand its CDSC waiver policy to include the expanded

qualified retirement plan category. This revised policy would be

fully consistent with the policies reflected in the Code

provisions granting favored tax treatment to accumulations under

such plans and allowing certain distributions and withdrawals to

be made without penalty. In the expanded qualified retirement

plan category, the event giving rise to the redemption is not

likely to occur for the purpose of obtaining the CDSC waiver.

Furthermore, the Trust and the Distributor believe that it is

important in order to remain competitive in the qualified

retirement plan segment of the mutual fund industry to expand the

ROPES & GRAY

Off ice of Investment -5- December 21, 1992 Company Regulation CDSC waiver policy to include the expanded qualified retirement

plan category.

The Trust and the Distributor are also proposing a new

waiver category which would apply to redemptions made pursuant to

an Automatic withdrawal Plan offered by the Trust and the

Distributor. The Automatic Withdrawal Plan is a plan by which an

investor may designate a sum of money to be paid automatically on

a monthly or quarterly basis to the investor or another

designated person. To be eligible for the CDSC waiver with

respect to a redemption from an Automatic withdrawal Plan, an

investor would be required to maintain a minimum balance in his

or her account and the amount of the periodic redemption would be

subject to certain maximums established from time to time by the

Distributor. The Trust and the Distributor desire to waive the

CDSC with respèct to such redemptions because the amount of CDSC

fees imposed with respect to such redemptions would not justifY

the cos . . sterin the CDSC under an Automatic Withdrawal ?~ ñnn because comrpti ti ve factors in the mutual fund in ~ y dictate such a waiver. Because participants in the Automatic

withdrawal Plan are required to maintain a minimum balance in

their account, the CDSC waiver will not impose a burden on other

shareholders of the Funds. The Commission has granted exemptions

to permit CDSC waivers in connection with similar automatic withdrawal plans for other fund complexes. See,~, Seligman Capital Fund, Inc. et. al. (Notice of Application), Release No.

18841 (July 10, 1992); Shearson Lehman Appreciation Fund Inc.,

et. al. (Notice of Application), Release No. 18770 (June 11,

1992); and Oppenheimer Fund, et. al. (Notice of Application),

Release No. 18454 (December 20, 1991).
Please call William R. Royer of this office at (617) 951 7746 or me at (617) 951-7392, if you require further information

or wish to discuss the matters described in this letter. Eight

additional copies of this letter accompany this original.

Very truly yours,

.Je':i,¡JÅ- J3 kc ih-, d~.J Jf~
Joseph B. Kittredge, Jr. ~~

WXR/ cp : \JXRNOAC1. TM

cc: William R. Royer, Esq.