Appendix — United States v. National Ass'n of Securities Dealers, Inc.
Supreme Court brief1974
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APPENDIX | FEB 10 1975
| BICHAEL RODAS
ee
In the Supreme Court of the Anited States
Ocroper Term, 1974
No. 73-1701
Uwrrep States or AMERICA, APPELLANT,
Vv.
Natrona, Association or Securities Deauers, INc., ET AL.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JURISDICTIONAL STATEMENT FILED MAY 13, 1974
PROBABLE JURISDICTION NOTED OCTOBER 15, 1974
Hn the Supreme Court of the Anited States
Octoper Term, 1974
No. 73-1701
Unrtep States or AMERICA, APPELLANT,
NaTIONAL AssoctaTION or Securities DeaLers, Inc
- ET AL,
ON APPEAL FROM THE UNITED STATES DISTRICT CGURT
FOR THE DISTRICT OF COLUMBIA
INDEX
ee en re . ciswosecesbeseenseusees
Complaint by the United States filed February 21,1973 ......
Answer of National Association of Securities Dealers, Inc.,
oe en he eeneennseedheunasees®
Answer of Massachusetts Investors Growth Stock Fund, filed
March 26, 1973
Answer of Crosby Corporation and Fidelity Fund, Inc., filed
i i ie Ueieis ied eee Phebe eek eneeneke seed
Answer of Wellington Fund, Inc., filed March 26,1973 ......
Answer of Vance, Sanders & Co., Inc., filed March 26, 1973 ...
Answer of Wellington Management Co., filed March 26,1973 ..
Answer of Bache & Co., et al., filed March 26, 1973 ..........
Motien of National Association of Securities Dealers, Ine. to
A ES GE DE occ beccccnncccocesvaseesvecs
Notice of Motion of Massachusetts Investment Growth Stock
Fund, Ine. to Dismiss with supporting affidavits of John
Barnard, Jr. and Tnomas Otis and exhibits, filed May 29,
1973
Motions of Fidelity Fund, Ine. and Crosby Corp. to Dismiss,
with supporting affidavit of Caleb Loring, Jr., filed May 29,
1973
“eevee eeevees eee eeneeereeeeneeneeeneeeneneeneeeneeeenr eee eee
117
o-
ll
INDEX (Continued)
Page
Motion of Vance, Sanders & Co., Inc. to Dismiss, filed May 29,
ROU. 6UViabsiness desineuaeiess bececdensdderceetateucs 225
Motion of Wellington Management Co. and Wellington Fund,
Ine. to Dismiss, filed May 29, 1973 ................cc0ee. 227
Motion of Bache & Co., et al., to Dismiss, filed May 29,1973... 228
Affidavit of Daniel R. Hunter, filed July 5, 1973 ............ 230
Government Exhibits:
Me acbdsenootedenubusbeéednnsecdedsdsidtdeécicskcaduas 233
ET AA bANOneeddenatbeebedbnededuaedtcdestendabedouse 238
Me SRbGS kasencKaneede en Mihediatetguarbaiadseees 241
De SUbatksenediadsaucdsudasuesstbenieesseesecbeceens 243
Pe 6apebbenknnsdedeeducdeeseeeksucdsndickedesesenes 246
i EE ee CCC EE Po PR eae rT 251
Dy Ctkavecccukaused sdncuusnGsesunceucesnsuessscuaaaaus 253
SE, +5bbbde dade deeU 4ks0d Ge bacdbs nous candeucnes biknee 254
DT: Hdkeunacshaehs dasekekbibadeedueadendaetasQumadaee 255
EE £60868 nuddesbhoeeces.banedeedseceesseninssadeudne 256
EE ht 6-4bdddaeernee a duenedeeaen eeu ma aun Lacie aed 258
DEE SbG0knuRER AEE OUR GEEES bdceteeebenbatdbasenkeads 263
DEY sn ceonndeend used isamenendeaeecectabeicuacacalans 267
SE 5866-0040 dbddasseeaduttisedcasecenedieessesdcese 268
SUED éacneRadknnnewinssdede cet enna ie Cacuded modded 272
SEE S408 0bsNuedennschakadhiedsdddadecneddckdebeuns 274
ST 4kib oees bee dédedehnnddedeuniddsbecdusadeneabades 276
Dy SbheSENbRS kde nekaedsdsdonscdaudeieiedde ccc dens 278
ET 60000 dneddT eohandecuccteiebddeenudcieoudeceecns 280
MED ih de chhdonsides6e6esededderukessadseerssusan duu 281
Dn ¢eciiedbasadésdenakeudteeusdsidsidecmeidaa 288
ST c6bsse desadeveheshsecnsenneeedians caduasieeades 289
SD -p604n0wiisinediiseadbandedededdusussnmoemiidans 291
ED A¢bOGESR he n60senddieebedebdeddeusécuckad caauus 294
DE Ko ee URRRCAdbedtdineweaduvadaeeddacdaboseaian 295
EE A6GRDSOSEDEvEsdasEENeceuddeeeseddicdambecussoen 296
DT it eidsiieeees bbnden bdein teabaedeedénesedaddadane 298
DE shagusedenauascaueuseaddsddansdsdksns dae deouwete 299
DY shedudeddsaceséenewaed siendeseudentueddssiaenene 301
DE Shéedededguddediaeadiddededwaomsded dees ecesnue cs 302
DEG SitRNbRhbdekecdbndnewnoenndediudssdaedentwaidinn 306
Bache & Co. Exhibits A & B filed July 20,1973 ............. 309
Letter of SEC General Counsel to District Court dated August
BREE See ee wren eee a Re > Met we EA, ©: kom ete 323
ili
INDEX (Con'inued)
Page
Letter of Appellant in reply to SEC General Counsel’s letter
Ss SD ER. EE 09 6..00.06660000ecsasesedcensctensas 327
Transcript of oral argument of August 3, 1973 [43], [57],
Sis ROUTE UPN 5 v06666000000000000060000006066 328
Memorandum Opinion of Judge Corcoran dated December 14,
UE 66 6.004666b60 04000600068 0606 erRerdnsessensensesee 333
Notice of Appeal to the Supreme Court by the United States
PUREE POROURED BD, BOGE cc ccccccescccctccecvccsceccets 363
Order of the Supreme Court noting probable jurisdiction,
Gated Gatewet TB, BOGS « ccccccccccccesccescecsecccocces 364
Date
2/21/73
3/26/ 73
3/26/73
3/26/73
3/26/73
3/26/73
3/26/73
3/27/73
0/29/73
0/29/73
0/29/73
5/29/73
0/29/73
0/30/73
Reitevant Docker ENrries
Complaint, appearance—+#7 serv. 3-1; +5
serv. 3-0; #6 serv. 3-5; #4 serv. 3-1; #11,
12,13 serv. 2-23; #3 serv. 3-5; #15 serv.
o-1; #2 serv. 3-2; #1, #8, #9, #10, #14,
#16 serv. 2/23.
Answer of deft. #2 to complaint. 3/m 3/26.
Answer of defts. 3 and 5 to complaint; exhibit
A;e¢/m 3/26.
Answer of deft #1 to complaint; e/m 3/26.
Answer of deft #4 to complaint; e/m 3/26
Exhibit A & B.
Answer of deft #7 to complaint; exhibit A &
B;¢/m 3/26.
Answer of defts 8,9.10,11,12,13,14,15 and 16 to
complaint; exhibit A, B and C; ¢/m 3/26.
Answer of deft. #6 to complaint. Attachments
(2);¢/m 3/26.
Motion of deft #6 to dismiss; affidavit; P & A;
table of contents; table of authorities;
memorandum ; ¢/m 5/29/73.
Motions of defts 8,9,10,11,12,13,14,15 and 16
to dismiss; ¢/m 5/29/73
Motion of defts 4 and 7 to dismiss; P & A;
e/m 5/29/73
Notice by deft. #2 of motion to dismiss; affi-
davit of John Barnard, Jr. exhibit A,B,C,D;
affidavit of Thomas Otis, exhibit A; state-
ment; brief. ¢/m 5/29/73
Motion of deft. +1 to dismiss; P & A; e/m
0/29/73. appendix A-F.
Motion of defts 3 and 5 to dismiss; affidavit;
P & A; ¢/m 5/29/73.
1
9
oo
Retevant Docket Entries—Continued
Date
8/3/73 MOTIONS to dismiss on issues of Investors
Co, Act 22(d), 22(f) jurisdiction argued and
taken under advisement. (Rep: Doyne
Spencer) Corcoran, J.
9/11/73 TRANSCRIPT of proceedings, August 3,
1973, Rep: Doyne Spencer; Court’s copy
(Filed in C.A, 2454-72)
12/14/73 ORDER dismissing cause.
12/14/73 MEMORANDUM OPINION. (N) (Filed in
CA 2454-72)
2/11/74 NOTICE of Appeal by pltf. to the Supreme
Court of the U.S. from Judgment of
12/14/74; ¢/m 2/11/74.
Daniel R. Hunter
Antitrust Division
U.S. Department of Justice
Washington, D. C. 20530
Telephone: 739-2497
Harold H. Titus, Jr.
United States Attorney
ord Street and Constitution
Avenue, N. W.
Washington, D. C. 20001
Telephone: 426-7456
Unitrep States District Court
District or CoLUMBIA
Unirep States or AMERICA, )
PLAINTIFF,
Vv.
Tue NatTionaL ASSOCIATION OF
Securities Deauers, Inc, ;
MassacHUSETTS INVESTORS
GrowtH Stock Funp, Ine.;
Fipe.ity Funp, Inc.;
WELLINGTON Funp, Inc.;
Tue Crospy CorporaTIon ;
Vance, Sanvers & Company,
Inc. ; Civil Action No. 338-73
THe WeLLIncton MANAGEMENT
Company, Inc.; Filed:
Merritt Lyncu, Prerce Feb. 21, 1973
Fenner & Smirtn, Ino.; Antitrust
Bacue & Company, Inc.; Equitable Relief Sought
ReYNOLDs SECURITIES
CORPORATION ;
F. I. pu Pont, Gore Forean,
INc.;
EK. F. Hutton, Inc.;
Watston & Company, Inc.;
Dean Witter & Company, INc.;
Paine, WEBBER, JACKSON &
Curtis, Inc. ;
Hornsiower & WEEKs-
Hempuiu, Noyegs, Inc.,
DEFENDANTS,
3
4
COMPLAINT
The United States of America, plaintiff, by its attorneys,
acting under the direction of the Attorney General of the
United States, brings this civil action against the above-
named defendants, and complains and alleges as follows:
JURISDICTION AND VENUE
1. This complaint is filed and this aetion is instituted
under Section 4 of the Act of Congress of July 2, 1890 (15
U.S.C. 64), as amended, entitled ‘An Act to protect trade
and commerce against unlawful restraints and monopolies, ”’
commonly known as the Sherman Act, in order to prevent
and restrain continuing violations by the defendants, as
hereinafter alleged, of Section 1 of the Sherman Act.
2. Mach of the defendants in each of the Counts herein-
after alleged, except Fidelity Fund, Ine., Massachusetts
Investors Growth Stoek Fund, Ine., and Wellington Mund,
Ine, tramsacts business or is found within the Distriet of
Columbia.
i]
DevintTions
». As used herein:
(a) ‘*mutual fund’? means an open-end management
Investinent company as that term is defined in the Invest
ment Company Act of 1940 (15 U.S.C. © SOa-(3), (4), and
(9) );
(b) “S principal underwriter’? means a principal under
writer of a mutual fund as that term is defined in the
Investment Company Act of 1940 (15 U.S.C. © 80a-2¢29) ;
(c) *Sbroker/dealer’? means a securities broker/dealer
registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 (15 U.S.C.
" 7TRoO) ;
(d) ‘‘brokerage transaction’? means a securities trans-
action executed by a broker/dealer as agent for the ae-
count of others ;
(e) “fdealer transaction’? means a securities trans-
action executed by a broker/dealer as principal for its
own account;
5
(f) “primary distribution system’’ means the pur-
chase of mutual fund shares by an investor through (1)
a broker/dealer which has a sales agreement wth the
principal underwriter, (2) the principal underwriter, and
3) the mutual fund;
(vr) ‘secondary dealer market’? means an interdealer
market in mutual fund shares and a market in which any
dealer can purchase mutual fund shares from investors
at more than the redemption price ; and
(h) “brokerage market’? means the trarsfer, by means
of a brokerage transaction, of already issued and out-
standing mutual fund shares between investors, acting
through broker /dealers.
Count |
|
DEFENDANTS
4. The Crosby Corporation (hereinafter ‘*Crosby"’), at
corporation organized under the laws of the State of pete
ware and having its principal plac. of business in Boston,
Massachusetts is made a defendar: herein. ( rosby 1s the
principal underw riter of the following mutual funds, hereim-
after collectively called the Fidelity F unds :
Kyerest Mund, Ine.
Fidelity Trend Fund, Ine.
Midelity Capita: und, Ine.
Midelity Fund, Ine.
KMssex Fund, Ine.
Salem Fund, Ine.
Puritan Fund, Ine.
Midelity Bond Debenture Fund
° . ‘ . : , oe excess of
The Fidelity Funds have combined net assets in exces
$3.4 billion.
ped. ; i 7 ”
5 Vanee, Sanders & Company (hereinafter \ ,
Fs < ‘ a
’ 1 7 : s rw Cc
Sanders’’), a corporation organized unde r the laws y th
State of Maryland and having its principal place of busi-
ness in Boston, Massachusetts, is made a defendant herein.
SS ston, . .
Vanee. Sanders is the principal underwriter of the follow
1 , iV r@ " , ‘a
ing mutual funds, hereinafter collectively called the Vance,
Sanders Funds:
6
Vance, Sanders Special Fund
Massachusetts Investors Growth Stock Fund
Massachusetts Investors Trust
Century Shares Trust
Boston Common Stock Fund
Boston Fune
Massachuse ncome Development
Massachuse s Capital Development Fund
Massachusetts Financial Development Fund
The Vance, Sanders Funds have combined net assets in
excess of $3.7 billion.
6. The Wellington Management Company (hereinaf r
‘*Wellington’’), a corporation organized under the laws of
the State of Delaware and having its principal place of
business in Philadelphia, Pennsylvania, is made a defendant
herein. Wellington is the principal underwriter of the
following mutual funds, hereinafter collectively called the
Wellington Funds: ;
W. L. Morgan Growth Fund, Ine.
Explorer Fund, Ine.
Ivest Fund, Ine.
Trustees Equity Fund, Ine.
Windsor Fund, Ine.
Wellington Fund, Ine.
Wellesley Income Fund
The Wellington Funds have combined net assets in excess
of $2.2 billion.
i. The following broker/dealers, each of which is a cor-
poration, and which hereinafter are called collectively ‘‘de-
fendant broker/dealers,’’ are made defendants herein:
Broker/ Dealer Principal Office
Merrill Lynch, Pieree Fenner New York, New York
& Smith, Ine.
Bache & Company, Ine. New York, New York
Reynolds Securities New York, New York
Corporation
I’. I. duPont, Glore Forgan
‘ew York, New York
Ls
?
Ine.
K. F’. Hutton, Ine. New York, New York
Walston & Company, Ine. New York, New York
Dean Witter & Company, Inc. San Francisco, California
Broker/ Dealer Principal Office
Paine, Webber, Jackson & New York, New York
Curtis, Ine.
Hornblower & Weeks- New York, New York
Hemphill, Noyes, Ine.
8. The National Association of Securities Dealers, Ine.
(hereinafter ‘‘NASD’’), an incorporated association of
broker/dealers registered under the Securities Exchange
Act of 1934 (15 U.S.C. 780-3), and having its principal
place of business in Washington, District of Columbia, is
made a defendant herein. More than 4400 broker/dealers
and principal underwriters are members of the NASD.
Each of defendant principal underwriters and defendant
broker/dealers is a member of the NASD.
Il
TRADE AND COMMERCE
9. Mutual funds are investment management companies
which invest in securities of other corporations and issue
shares representing interests in the assets of the mutual
fund. Shares of the mutual fund are continuously issued
and redeemed by the mutual fund. Numerous mutual funds
distribute their shares through a principal underwriter
which generally has the exclusive contractual right to dis-
tribute shares of the mutual fund. Many principal under-
writers enter into sales agreements with broker/dealers
which then sell the mutual fund shares to investors. Shares
are usually redeemed either through the primary distribu-
tion system or are sent directly to the mutual fund or an
agent of the fund for repurchase or redemption. Mutual
funds are required by law to redeem their shares on de-
mand. There is a constant flow of the purchase, sale, and
redemption of mutual fund shares in interstate commerce
distributed by principal underwriters, including defendant
principal underwriters, and sold to investors by broker/
dealers, including defendant broker /dealers. More than
2100 broker/dealer and principal underwriter members of
defendant NASD throughout the United States distribute
mutual fund shares.
10. During 1971 shares of mutual funds valued at more
than $5.1 billion were sold in the United States and mutual
fund shares valued at more than $5.0 billion were redeemed.
8
From 1940 to 1971 the total assets of mutual funds in the
United States increased from less than $1 billion to more
than $55 billion and the number of mutual fund shareholder
accounts increased from 300,000 to nearly 11 million. As
estimated 8.5 million individuals and more than 260,000
institutions, such as pension and profit sharing funds, col-
leges, churches, hospitals, and social and labor organiza-
tions, own mutual fund shares. Individual mutual fund
investors tend to be small investors, the average mutual
fund transaction amounting to $2,900.
11. Mutual fund shares are sold at a publ offering price
described in the mutual fund prospectus which is based on
the net asset value of the fund plus a sales load (commis-
sion). The sales load, in most cases, is 7144 percent-814
percent of the offering price, depending upon the amount of
the purchase and the rates set by the individual mutual
fund. Lower rates usually apply on larger purchases.
Mutual funds generally redeem their outstanding shares at
their current net asset value.
12. When a mutual fund share is sold the principal!
underwriter retains a portion of the sales load, generally
1-11% percent and the broker/dealer retains the remainder.
During 1971, approximately $240 million in mutual fund
sales loads were charged to investors in the United States.
During 1970, sales load charges on mutual fund shares
distributed by defendant principal underwriters amounted
to more than $32 million, of which defendant broker/dealers
received in excess of $8 million.
13. Section 22(d) of the Investment Company Act of 1940
(15 U.S.C. § 80a-22(d)) provides that a broker/dealer en-
gaged in a dealer transaction in mutual fund shares must
sell the mutual fund share at the current public offering
price described in the prospectus unless the sale is to
another dealer, the principal underwriter or the mutual
fund.
14. A broker/dealer is authorized by the securities laws
to engage in both brokerage transactions and dealer trans-
actions. Section 22(d) of the Investment Company Act of
1940 applies only to dealer transactions. Thus, when a
broker/dealer executes a brokerage transaction between
two investors, or when two broker/dealers, one acting for
the purchasing investor and one acting for the selling
investor, execute a brokerage transaction in mutual fund
9
shares, the public offering price need not be maintained.
In such a situation the broker/dealer is not prohibited by
the Investment Company Act from independently establish-
ing the commission for the transaction.
III
VIOLATION ALLEGED
15. For many years, up to and including the date of filing
of this complaint, defendant NASD and the members of
defendant NASD, including defendant broker/dealers and
defendant principal underwriters, have entered into and
maintained a combination and conspiracy among themselves
in restraint of the aforesaid trade and commerce in the
purchase and sale of mutual fund shares in violation of
Section 1 of the Sherman Act.
16. The aforesaid combination and conspiracy has con-
sisted of a continuing understanding and concert of action,
the substantial terms of which have been, and are, to pre-
vent the growth of a secondary dealer market and a broker-
age market in the purchase and sale of mutual fund shares.
17. In effectuating said combination and conspiracy
NASD and the members of the NASD have done the follow-
ing things, among others:
(a) established and maintained rules which inhibited
the development of a secondary dealer market and a
brokerage market in mutual fund shares;
(b) established and maintained rules which induced
broker dealers to enter into sales agreements with princi-
pal underwriters, with knowledge that sales agreements
contained restrictive provisions which inhibited the devel-
opment of a secondary dealer market and brokerage mar-
ket in mutual fund shares;
(c) induced member principal underwriters to include
restrictive provisions in their sales agreements ;
(d) discouraged persons who made inquiry about the
legality of a brokerage market from participating in a
brokerage market and distributed misleading information
to its members concerning the legality of a brokerage
market in mutual fund shares; and
(e) suppressed market quotations for the secondary
dealer market.
10
18. The unlawful combination and conspiracy herein-
before alleged has had the following effects, among others:
(a) sales of mutual fund shares have been confined to
a primary distribution syste.n and the growth and devei-
opment of a secondary dealer market and a brokerage
market in mutual fund shares has been inhibited ; and
(b) the public has been deprived of the benefits of free
and open competition in a secondary dealer market and
a brokerage market in mutual fund shares.
Count II
|
DEFENDANTS
19. Crosby, as described in paragraph 4 hereof, is made
a defendant herein.
20. Each of defendant broker/dealers, as described in
paragraph 7 hereof, is made a defendant herein.
li
TRADE AND COMMERCE
21. Paragraphs 9 through 14 hereof are realleged in full.
III
VIOLATION ALLEGED
22. For many years up to and including the date of the
filing of this complaint, defendant Crosby has entered intc
and maintained contracts, and combinations with each de-
fendant broker/dealer, and other broker/dealers, in unrea-
sonable restraint of the aforesaid trade and commerce in
the purchase and sale of mutual fund shares in violation of
Section 1 of the Sherman Act.
23. The aforesaid contracts and combinations have con-
sisted of continuing understandings and agreements, the
substantial terms of which have been, and are, that:
(a) each broker/dealer must maintain the public offer-
ing price in any brokerage transaction in which it par-
ticipates involving the purchase or sale of shares of the
Fidelity Funds; and
(b) each broker/dealer must sell shares of the Fidelity
11
Funds only to investors or the fund and purchase such
shares only from investors or the fund.
24. The effects of the aforesaid unlawful contracts and
combinations have been, and are, among others, that:
(a) the price of brokerage transactions in shares of
the Fidelity Funds has been fixed and maintained at
artificial and noncompetitive levels ;
(b) the purchase and sale of shares of the Fidelity
Funds has been confined to a primary distribution system
and the growth and development of a secondary dealer
market and a brokerage market in the purchase and sale
of such shares has been inhibited;
(c) the public has been deprived of the benefits of free
and open competition in the purchase and sale of shares
of the Fidelity Funds by means of brokerage trans-
actions ; and
(d) broker/dealers with whom Crosby does not have
sales agreements have been deprived of opportunities to
purchase and sell shares of the Fidelity Funds.
Count ITI
I
DEFENDANTS
25. Fidelity Fund, Inc., a mutual fund organized under
the laws of the State of Massachusetts, is made a defendant
herein. Fidelity Fund, Inc., has net assets of $1.86 billion
and in 1970 issues shares having a value of $40 million.
26. Crosby, as described in paragraph 4 hereof, is made a
defendant herein.
II
TRADE AND COMMERCE
27. Paragraphs 9 through 14 hereof are realleged in full.
III
VIoLATION ALLEGED
28. For many years up to and including the date of the
filing of this complaint, defendant Crosby has entered into
and maintained contracts and combinations with each of the
12
Fidelity Funds, including defendant Fidelity Fund, Inc., in
unreasonable restraint of the aforesaid trade and commerce
in mutual fund shares in violation of Section 1 of the
Sherman Act.
29. The aforesaid contracts and combinations have con-
sisted of continuing understandings and agreements, the
substantial terms of which have been and are, that the
dealer agreements entered into between Crosby and broker/
dealers would contain the restrictions set forth in para-
graph 23(a) and 23(b) hereof.
30. The effects of the aforesaid unlawful contracts and
combinations have been and are, among others, that:
(a) the price of brokerage transactions in shares of
the Fidelity Funds has been fixed and maintained at
artificial and noncompetitive levels ;
(b) the purchase and sale of shares of the Fidelity
Funds has been confined to a primary distribution system
and the growth and development of a secondary dealer
market and a brokerage market in the purchase and sale
of such shares has been inhibited;
(c) the publie has been deprived of the benefits of free
and open competition in the purchase and sale of shares
of the Fidelity Funds by means of brokerage trans-
actions; and
(d) broker/dealers with whom Crosby does not have
sales agreements have been deprived of opportunities to
purchase and sell shares of the Fidelity Funds.
Count IV
I
DEFENDANTS
31. Vance, Sanders, as described in paragraph 5 hereof,
is made a defendant herein.
32. Each of defendant broker/dealers, as described in
paragraph 7 hereof, is made a defendant herein.
II
TRADE AND CoMMERCE
33. Paragraphs 9 through 14 hereof are realleged in full.
13
Ill
VIOLATION ALLFGED
34. For many years, up to and including the date of the
filing of this complaint, defendant Vance, Sanders has
entered into and maintained contracts and combinations
with each defendant broker/dealer, and other broker/
dealers, in unreasonable restraint of the aforesaid trade
and commerce in the purchase and sale of mutual fund
shares in violation of Section 1 of the Sherman Act.
35. The aforesaid contracts and combinations have con-
sisted of continuing understandings and agreements, the
substantial terms of which have been and are, that:
(a) in all sales of shares of the Vance, Sanders F'unds
to the public, the broker/dealer would act as dealer for
its own account; and
(b) the broker/dealer would not purchase shares of
Vance, Sanders Funds from other broker/dealers and
would not sell such shares to other broker/dealers, or, in
the alternative, would sell such shares to other broker/
dealers only at the public offering price.
36. The effects of the aforesaid unlawful contracts and
combinations have been and are, among others, that:
(a) the purchase and sale of Vance, Sanders Funds
has been confined to a primary distribution system and
the public has been deprived of the benefits of a second-
ary dealer market and a brokerage market in the pur-
chase and sale of shares of the Vance, Sanders Funds;
and
(b) broker/dealers with whom Vance, Sanders does
not have sales agreements have been deprived of oppor-
tunities to purchase shares of the Vance, Sanders Funds,
or, in the alternative, to purchase and sell shares of the
Vance, Sanders Funds at competitive prices.
Count V
I
DEFENDANTS
37. Massachusetts Investors Growth Stock Fund (‘‘MIG
Fund’’), a mutual fund organized under the laws of the
State of Massachusetts, is made a defendant herein. MIG
14
Fund has net assets in excess of $1.2 billion and in 1970
issued shares having a value of $62 million.
38. Vance, Sanders, as described in paragraph 5 hereof,
is made a defendant herein.
II
TRADE AND COMMERCE
39. Paragraphs 9 through 14 hereof are realleged in full.
Ill
ViIoLaTION ALLEGED
40. For many years, up to and including the date of the
filing of this complaint, Vance, Sanders has entered into
and maintaired contracts and combinations with each of the
Vance, Seuders Funds, including defendant MIG Fund, in
unreascaable restraint of the aforesaid trade and commerce
in the purchase and sale of mutual fund shares in violation
of Section 1 of the Sherman Act.
41. The aforesaid contracts and combinations have con-
sisted of a continuing understanding and agreement, the
substantial terms of which have been and are, that in all
sales of shares of the Vance, Sanders Funds to the publie,
Vance, Sanders would act as principal for its own account.
42. The effects of the aforesaid combinations and con-
spiracies have been and are, among others, that Vance,
Sanders is prohibited from executing brokerage trans-
actions in shares of the Vance, Sanders Funds, thereby
depriving investors of a brokerage market in such shares.
Count VI
I
DEFENDANTS
43. Wellington, as described in paragraph 6 hereof, is
made a defendant herein.
44. Each of defendant broker/dealers, as described in
paragraph 7 hereof, is made a defendant herein.
IT
TRADE AND COMMERCE
45. Paragraphs 9 through 14 hereof are realleged in full.
15
IIT
VIOLATION ALLEGED
46. For many years up to and including the date of the
filing of this complaint, Wellington has entered into and
maintained contracts and combinations with each defendant
broker/dealer, and other broker/dealers, in unreasonable
restraint of the aforesaid trade and commerce in mutual
fund shares in violation of Section 1 of the Sherman Act.
47. The aforesaid unlawful contracts and combinations
have consisted of continuing agreements and understand-
ings, the substantial terms of which have been and are, that:
(a) the broker/dealer must sell shares of the Welling-
ton Funds only as principal, for its own account :
(b) the broker/dealer must not purchase shares of the
Wellington Funds from other broker/dealers and must
not sell such shares to other broker ‘dealers ; and
(c) in all transactions involving Wellington and the
broker/dealer, Wellington would act only as agent for
the appropriate Wellington Fund.
48. The effects of the aforesaid unlawful contracts and
combinations have been and are, among others, that:
(a) the purchase and sale of Wellington Funds has
heen confined to a primary distribution system and the
public has been deprived of a secondary dealer market
and a brokerage market in the purchase and sale of shares
of the Wellington Fund: and
(b) broker/dealers with whom Wellington did not have
sales agreements have heen deprived of opportunities to
purchase and sell shares of the Wellington Funds.
Count VII
I
DEFENDANTS
49. Wellington Fund, Inc., a mutual fund organized under
the laws of the State of Delaware, is made a defendant
herein. Wellingten Fund, Inc., has assets in excess of $1.2
billion, and in 1971 issued shares having a value in excess of
$33 million.
50. Wellington, as described in paragraph 6 hereof, is
made a defendant herein.
16
II
TRADE AND CoMMERCE
51. Paragraphs 9 through 14 hereof are realleged in full.
Ill
VIOLATION ALLEGED
52. For many years up to and including the date of the
filing of this complaint, Wellington has entered into and
maintained contracts and combinations with each of the
Wellington Funds, including defendant Wellington Fund,
Inc., in unreasonable restraint of the aforesaid trade and
commerce in the purchase and sale of mutual fund shares in
violation of Section 1 of the Sherman Act.
53. The aforesaid unlawful contracts and combinations
have consisted of continuing understandings and agree-
ments, the substantial terms of which have been and are,
that:
(a) Wellington must forward all orders from investors
or broker/dealers to the appropriate Wellington Fund
for sale only at the public offering price ; and
(b) Wellington would arrange for the purchase of
shares only from the appropriate Wellington Funds.
54. The effects of the aforesaid unlawful contracts and
combinations have been and are, that:
(a) the public has been deprived the benefits of a
secondary dealer market and a brokerage market in the
purchase and sale of shares of the Wellington Funds; and
(b) broker/dealers have been deprived of the benefits
of free and open competition in a secondary dealer mar-
ket in shares of ‘the Wellington Funds.
Count VIII
I
DEFENDANTS
55. Each broker/dealer defendant, as described in para-
graph 7 hereof, is made a defendant herein.
17
II
TraDE anp CoMMERCE
56. Paragraphs 9 through 14 hereof are realleged in full.
III
VIoLaTION ALLEGED
57. For many years, up to and including the date of
filing of this complaint, each defendant broker/dealer has
entered into and maintained contracts and combinations
with numerous principal underwriters in addition to de-
fendant principal underwriters, in unreasonable restraint
of the aforesaid trade and commerce in the purchase and
sale of mutual fund shares in violation of Section 1 of the
Sherman Act.
98. The aforesaid unlawful contracts and combinations
have consisted of continuing understandings and agree-
ments, the substantial terms of which have been and are,
that with respect to sales and purchases of shares of the
funds distributed by the principal underwriter concerned,
one or more of the following restrictions would be in effect:
(a) the broker/dealer must act as principal (dealer)
only in the sale of such shares;
(b) if the broker/dealer acted as agent (broker) in the
sale of such shares, it must maintain the public offering
price ;
(c) the broker/dealer must purchase such shares only
from the principal underwriter, investors or the fund;
and
(d) the broker/dealer must sell such shares only to the
principal underwriter, investors, or the fund.
09. The effects of such unlawful contracts and combina-
tions have been and are, among others, that:
(a) the public has been deprived of the benefits of
competition in a secondary dealer market and a brokerage
market in the purchase and sale of mutual fund shares;
and
(b) the public has paid artificial and noncompetitive
sales load charges for the purchase and sale of mutual
fund shares.
-. 18
PRAYER
WHEREFORE, plaintiff prays:
1. That the contracts, combinations and conspiracies al-
leged in Counts I through VIII hereof be adjudged and
decreed to be unlawful and in violation of Section 1 of the
Sherman Act.
2. That the defendants and each of their officers, direc-
tors, agents, managers, employees, successors, assigns,
members, and all other persons acting or claiming to act on
behalf of the defendants be perpetually enjoined and re-
strained from directly or indirectly continuing, maintain-
ing, enforcing, or re newing the aforesaid contracts, com-
binations, and conspiracies and from engaging in any
practices, contracts, combinations, or conspiracies having
like or similar purposes or effects.
3. That the defendant mutual funds, principal under-
writers and broker/dealers and their officers, directors,
agents, representatives, and all persons acting or claiming
to act on their behalf be perpetually enjoined from enter-
ing into or maintaining any agreement containing:
(a) any limitation or restriction as to (i) the persons
from whom any registered broker/dealer may purchase,
or to whom any registered broker/dealer may sell, mutual
fund shares (ii) a registered broker/dealer’s right to act
as broker in the purchase or sale of mutual fund shares;
or
(b) any requirement as to the number of mutual fund
shares that must be purchased from, or redeemed, liqui-
dated or repurchased through, the mutual fund or its
principal underwriter.
4. That each defendant mutual fund be required promi-
nently to display in its prospectus a statement that shares
of the fund may legally be purchased at less than the public
offering price and sold at more than the redemption price
if a broker/dealer acts as broker for another investor
rather than dealer in the transaction.
5. That each defendant broker/dealer be required to
inform prospective customers that mutual fund shares may
legally be purchased for less than the public offering price
if the broker/dealer agrees to act as agent rather than
principal.
6. That defendant NASD and each of its officers, govern-
19
ors, agents, managers, employees, successors, assigns, and
all other persons acting or claiming to act on behalf of the
defendant NASD be perpetually enjoined from establishing,
maintaining, or adhering to any rule or regulation, formal
or informal, or suggesting any course of action for its
members, which:
(a) requires or induces any member (i) to enter into
any agreement or course of action enjoined by other
paragraphs of this Prayer for Relief, (ii) to act as princi-
pal in the purchase or sale of mutual fund shares, or (iii)
to refrain from purchasing mutual fund shares from, or
from selling such shares to, any other broker/dealer ;
(b) fixes the price for a brokerage transaction in
mutual fund shares; or
(c) otherwise unreasonably impedes a_ secondary
dealer market or a brokerage market in mutual fund
shares.
7. That defendant NASD be required to display in all
manuals, training guides and other literature distributed to
members relating to the sale of investment company shares,
a statement that any member broker/dealer, including any
member principal underwriter which is also registered as a
broker/dealer, is legally free to arrange for the purchase
and sale of mutual fund shares at less than the public offer-
ing price by acting as broker between two customers.
8. That pursuant to Section 5 of the Sherman Act an
order he made and entered herein requiring defendants
Fidelity Fund, Inc., Massachusetts Investors Growth Stock
Fund, Ine., and Wellington Fund, Inc., to be brought before
this Court in this proceeding and directing the United
States Marshals of the appropriate Districts to serve a
summons on each of such defendants.
9. That the plaintiff have such other and further relief
as the nature of the case may require and the Court may
deem just and proper.
10. That plaintiff recover its taxable costs.
/s/ Richard G. Kleindienst
Ricwarp G. KLEeINDIENST
Attorney General
/8/ Thomas E. Kauper
Tomas E. Kauper
Assistant Attorney General
/s/ Baddia J. Rashid
Bappia J. Rasuip
/s/ Robert B. Hummel
Rosert B. HuMMEL
/s/ Samuel Z. Gordon
Samvue. Z. Gorpon
Attorneys, Department of Justice
/s/ Harold H. Titus, Jr.
Haroip H. Trius, Jr.
United States Attorney
/s/ Daniel R. Hunter
Daniet R. Hunter
/s/ Philip L. Verveer
Puimipe L. Verveer
/8/ Ronald J. Silverman
Ronautp J. SrtverMan
Attorneys, Department of Justice
(Certificate of Service Omitted in Printing)
(Title Omitted in Printing)
ANSWER OF DEFENDANT
NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC.
Now comes Defendant NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC., hereinafter referred to
as ‘‘the Association,’’ a corporation, through counsel, and
states as and for its Answer to the Complaint:
First Defense
In specific answer to the allegations of the Complaint
filed herein, Defendant Association states as follows:
1. Defendant Association denies each and every allega-
tion contained in paragraph 1.
2. Defendant Association states that it is without knowl-
edge sufficient to either admit or deny the allegations con-
tained in paragraph 2 except that it states that it may be
found within the District of Columbia.
3. Defendant Association states that paragraph 3, in-
cluding subparagraphs (a) through 3(h), constitute a state-
ment of definitions selected or constructed by Plaintiff and
are not capable of being either admitted or denied.
4. Defendant Association is without knowledge sufficient
to either admit or deny the allegations contained in para-
graphs 4 throngh 7.
5. Defendant Association admits the allegations con-
tained in paragraph 8.
6. Defendant Association states that paragraphs 9
through 14 constitute statements incapable of being either
admitted or denied or constitute allegations concerning
which defendant Association does not have knowledge
sufficient to either admit or deny.
7. Defendant Association denies each and every allega-
tion contained in paragraph 15 through paragraph 18, in-
cluding subparagraphs 17(a) through 17(e) and 18(a) and
18(b).
8. In answer to paragraph 19, Defendant Association
reasserts the answer set forth hereinabove ‘uv paragraph 4.
9. In answer to paragraph 20, Defendant Association
reasserts the answer set forth hereinabove to paragraph 7.
10. In answer to paragraph 21, Defendant Association
21
22
reasserts the answers set forth hereinabove to paragrapbs
9 through 14.
11. In answer to paragraphs 22 through 24, including
subparagraphs 23(a) and (b) and 24(a) through /d), De-
fendant Association states that it is without knowledge
sufficient to either admit or deny the allegations contained
therein.
12. In answer to paragraphs 25 and 26, Defendant Asso-
ciation states that it is without knowledge sufficient to
either admit or deny the allegations contained therein.
13. In answer to paragraph 27, Defendant Association
reasserts the answers set forth hereinabove to paragraphs
9 through 14.
14. In answer to paragraphs 28 through 30, including
subparagraphs 30(a) through (d), Defendant Association
states that it is without knowledge sufficient to either admit
or deny the allegations contained therein.
15. In answer to paragraphs 31 and 32, Defendant Asso-
ciation states that it is without knowledge sufficient to
either admit or deny the allegations contained therein.
16. In answer to paragraph 33 Defendant Association
reasserts the answers set forth hereinabove to paragraphs
9 through 14.
17. In answer to paragraphs 34 through 36 including
subparagraphs 35(a) and (b) and 36(a) and (b), Defend-
ant Association states that it is without knowledge sufficient
to either admit or deny the allegations contained therein.
18. In answer to paragraphs 37 and 38, Defendant Asse-
ciation states that it is without knowledge sufficient to either
admit or deny the allegations contained therein.
19. In answer to paragraph 39, Defendant Association
reasserts the answers set forth hereinabove te paragraphs
9 through 14.
20. In answer to paragraphs 40 through 42, Defendant
Association states that it is without knowledge sufficient to
either admit or deny the allegations contained therein.
21. In answer to paragraphs 43 and 44, Defendant Asso-
ciation states that it is without knowleJdge sufficient to
either admit or deny the allegations contained therein.
22. In answer te paragraph 45, Defendant Association
reasserts the answers set forth hereinabove to paragraphs
9 through 14.
23. In answer te paragraphs 46 through 48, including
23
subparagraphs 47(a) through (c) and 48(a) and (b), De-
fendant Association states that it is without knowledge
sufficient to either admit or deny the allegations contained
therein.
24. In answer to paragraphs 49 and 50, Defendant Asso-
ciation states that it is without knowledge sufficient to
either admit or deny the allegations contained therein.
25. In answer to paragraph 51, Defendani Association
reasserts the answers set forth hereinabove to paragraphs
9 through 14.
26. In answer to paragraphs 52 through 54, including
subparagraphs 53(a) and (b) and 54(a) and (b), Defend-
ant Association states that it is without knowledge sufficient
to either admit or deny the allegations set forth therein.
27. In answer to paragraph 55, Defendant Association
states that it is without knowledge sufficient to either admit
or deny the allegations contained therein. _
28. In answer to paragraph 56, Defendant Association
reasserts the answers set forth hereinabove to paragraphs
9 through 14. .
29. In answer to paragraphs 57 through 59, including
subparagraphs 58(a) through (d) and 59(a) and (b),
Defendant Association states that it is without knowledge
sufficient to either admit or deny the allegations set forth
therein.
Second Defense
The Complaint fails to state a cause of action as to De-
fendant Association upon which relief can be granted.
Third Defense
The Court does not have jurisdiction of the subject
matter.
Fourth Defense
Defendant Association is exempted from application of
the antitrust laws by the Securities Exchange Act of 1934,
as amended, 15 U.S.C. §78a et seq., generally, and by
Section 15A(n) of that act, 15 U.S.C. §780-3(n), spe-
cifically.
24
Fifth Defense
The conduct alleged in the Complaint as to Defendant
Association is exempted from application of the anti-trust
laws by the Securities Exchange Act of 1934, as amended,
15 U.S.C. § 78a et seq. and the Investment Company Act
of 1940, as amended, 15 U.S.C. §§ 80a-1 through 80a-52.
Sixth Defense
Any action taken by Defendant Association in connection
with any facts alleged in the Complaint was taken with the
acquiescence, and under the active oversight, of the Securi-
ties and Exchange Commission pursuant to its responsi-
bility as established by the Securities Exchange Act of
1934, as amended, 15 U.S.C. § 78a et seq.
Seventh Defense
Primary and exclusive jurisdiction to adjudicate the
allegations made against Defendant Association in the
Complaint rests with the Securities and Exchange Com-
mission under the Securities Exchange Act of 1934, as
amended, 15 U.S.C. § 78a et seq., and the Investment Com-
pany Act of 1940, 15 U.S.C. 44 80a-1 through 80a-52.
WHEREFORE, Defendant Association prays this Court:
1. To dismiss the Complaint filed herein and award costs
to the Defendant Association, and
2. To grant such other relief as this Court may deem
appropriate.
NATIONAL ASSOCIATION OF
Securities Deauers, Ine.
Defendant
eo@eoeoeeaevee eee eeeeee eee ee ees
Lloyd J. Derrickson
Senior Vice-President and
General Counsel
Dennis C. Hensley
Assistant General Counsel
Dated: March 26, 1973
(Certificate of Service omitted in printing)
ANSWER OF DEFENDANT
Massacuvusetts Investors Growru Stock Funp, Inc,
(Title Omitted in Printing)
ANSWER
Defendant Massachusetts Investors Growth Stock Fund,
Inc. (‘‘ MIGS’’), by its attorneys, for its answer to Count V
of the complaint herein:
1. Denies the allegations of paragraph 1 of the complaint
except admits that plaintiff purports to bring this action
under 15 U.S.C. § 4.
2. Denies knowledge or information sufficient to form a
belief as to the allegations of paragraph 2 of the complaint
except admits that it may not be found and does not trans-
act business within the District of Columbia.
3. States that paragraph 3 of the complaint does not
require an answer.
4. Denies the allegations of paragraph 37 of the com-
plaint except admits and avers as follows: MIGS is a
Massachusetts corporation and is an open-end, diversified
investment company of the type commonly known as a
‘*mutual fund.’’ MIGS had net assets of approximately
$1,634,718,730 on December 31, 1972. In fiseal 1972 MIGS
issued shares having a net asset value of approximately
$97,741,482 and redeemed or repurchased shares having a
net asset value of approximately $102,060,568.
5. Denies knowledge or information sufficient to form a
belief as to the allegations of paragraph 38 of the complaint
except admits and avers that Vance, Sanders & Company,
Inc., a Maryland corporation having its principal place of
business in Boston, Massachusetts, is the principal under-
writer of MIGS and that MIGS has given notice of the
termination, effective June 30, 1973, of the underwriting
agreement between it and Vance, Sanders & Company, Ine.
6. As an answer to paragraph 39 of the complaint:
(a) Denies knowledge or information sufficient to form
a belief as to the allegations of paragraph 9 of the com-
plaint except admits and avers as follows: MIGS is an
open-end diversified investment company as those terms
are defined in sections 3 and 5 of the Investment Company
Act of 1940, as amended. Said type of investment company
is commonly known as a ‘‘mutual fund.’’ MIGS continu-
ously issues and stands ready to redeem its shares. MIGS
currently distributes its shares through a principal under-
25
27
26
writer which has the exclusive contractual right, except in ee ee
certain limited circumstances, to buy shares from MIGS.
Shareholders of MIGS have the right to redeem their shares
through MIGS’ transfer agent and MIGS has also an-
thorized its principal underwriter to act as its agent in
repurchasing shares.
(b) Denies knowledge or information sufficient to form a
belief as to the allegations of paragraph 10 of the ceom-
plaint.
(c) Denies knowledge or information sufficient to form
a belief as to the allegations of paragraph 11 of the com-
plaint except admits and avers as follows: Shares of MIGS
are sold to the public at a current offering price described
in MIGS’ prospectus. The public offering price is the net
asset value prevailing at the time of purchase, plus a sales
charge. The sales charge on MIGS’ shares is &'%% of the
offering price for purchases of less than $12,500, M9 of
the offering price for purchases of $12,500 but less than
$25,000, 5% % of the offering price for purchases of $25,000
but less than $50,000, 4% of the offering price for purchases
of $50,000 but less than $100,000, 314% for purchases of
$100,000 but less than $250,000, 24%% for purchases of
$250,000 but less than $500,000, 214% for purchases of
$500,000 but less than $1,000,000 and 1%% for purchases
of $1,000,000 or more. MIGS redeems its shares at net
asset value.
(d) Denies knowledge or information sufficient to form
a belief as to the allegations of paragraph 12 of the com-
plaint except admits and avers as follows: MIGS’ principal
underwriter, acting as principal, currently allows its dealers
discounts from the applicable public offering price. On sales
for which the maximum sales charge is applicable, the
dealer retains 6'4% and the principal underwriter retains
2% of the public offering price, except in the case of
subsequent investments under the Lifetime Investing Ae-
count’s Services for Accumulation.
(e) Denies the allegations of paragraph 13 of the com-
plaint and refers to Section 22(d) of the Investment Com-
pany Act of 1940, as amended, for the terms thereof.
(f) Denies the allegation of paragraph 14 of the com-
plaint. |
7. Denies the allegations of paragraphs 40, 41 and 42
‘of the complaint.
8. As a first affirmative defense, alleges and avers that
venue in this district is improper.
Seconp AFFIRMATIVE DEFENSE
9. As a second affirmative defense, alleges and avers that
the transactions complained of are prescribed by, governed
by and exempted from the antitrust laws by Section 22 of
the Investment Company Act of 1940, as amended.
Tuirp AFFIRMATIVE DEFENSE
10. As a third affirmative defense, alleges and avers that
the transactions complained of are prescribed by, governed
by and exempted from the antitrust laws by the Rules of
Fair Practice and By-Laws of the National Association
of Securities Dealers and Section 15A of the Securities
Exchange Act of 1934.
FourtH AFFIRMATIVE DEFENSE
11. As a fourth affirmative defense, alleges and avers
that primary jurisdiction over this matter resis in the
Securities and Exchange Commission.
Fietu AFFIRMATIVE DEFENSE
12. As a fifth affirmative defense, alleges and avers that
this action is barred by the doctrine of laches.
Sruxta AFFIRMATIVE DEFENSE
13. As a sixth affirmative defense, alleges and avers that
the complaint fails to state a claim upon which relief can
be granted.
WHEREFORE, this defendant demands judgment dis-
missing the complaint and providing such other and differ-
ent relief as to this Court may seem just and proper.
SULLIVAN & CROMWELL
(A Member of the Firm
48 Wall Street,
New York, New York 10005
(212) HAnover 2-8100
28
and
DAVIS R. ROBINSON
Davis R. Robinson
815 Connecticut Avenue, N.W.,
Washington, D.C. 20016
(212) 298-8020
Attorneys for Defendant
Massachusetts Investors Growth
Stock Fund, Ine.
DATED: March 26, 1973
(Certificate of service omitted in printing)
(Title Omitted in Printing)
ANSWER OF DEFENDANTS THE CROSBY
CORPORATION AND FIDELITY FUND, INC.
Defendants The Crosby Corporation (‘*Crosby’’) and
Fidelity Fund, Ine, (‘‘Fidelity’’), by their attorneys, an-
swer the complaint as follows:
1. Admit that the complaint seeks relief for alleged
violations of Section 1 of the Sherman Act as stated in
paragraph 1 of the complaint.
2. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations in paragraph 2 of
the complaint, except admit that Fidelity does not transact
business and is not found within the District of Columbia,
and deny that Crosby transacts business or is found within
the District of Columbia.
3. Admit the definitions contained in paragraph 3 of the
complaint are those used within the complaint.
Answering Count 1
4. Admit the allegations contained in paragraph 4 of the
complaint, except deny that Crosby is at present acting as
principal underwriter for Essex Fund, Ine.
5. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in para-
graphs 5, 6 and 7 of the complaint.
6. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in para-
graph 8 of the complaint, except admit that Crosby is a
member of defendant National Association of Securities
Dealers.
7. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in para-
graph 9 of the complaint, except admit the allecations
contained in the first two sentences of paragraph 9 and that
mutual funds are reyuired by law to redeem their shares
on demand.
8. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in para-
graph 10 of the complaint.
9. Deny knowledge or information sufficient to form a
29
—>
—
30
belief as to the truth of the allegations contained in para-
graph 11 of the complaint, except admit that shares of
‘‘load’’ mutual funds are sold at a public offering price
described in the fund’s prospectus which is based on the
net asset value of the fund plus a sales load.
10. Deny knowledge or information sufficient to form a
belief as to the truth of the allegations contained in
paragraph 12 of the complaint.
11. Deny the allegations contained in paragraphs 13 and
14 of the complaint, and respectfully refer the Court to
Section 22(d) of the 'nvestment Company Act of 1940 for
the provisions thereof.
12. Deny the allegations contained in paragraphs 15
through 18 of the complaint.
Answering Count II
13. The allegations contained in paragraphs 19 and 20
of the complaint do not require further answer.
14. With respect to paragraph 21 of the complaint, de-
fendants repeat and reallege the admissions and denials set
forth in this answer with respect to paragraphs 9 through
14 of the complaint as if here fully set forth.
15. Deny the allegations contained in paragraphs 22 and
23 of the complaint, and respectfully refer the Court to
the standard dealer agreement between Crosby and broker/
dealers distributing Fidelity shares, a copy of which is
annexed hereto as Exhibit A, for the terms and conditions
thereof.
16. Deny the allegations contained in paragraph 24 of
the complaint.
answering Count III
17. To the extent that paragraphs 25 and 26 require
further answer, admit the allegations contained therein,
except deny that Fidelity has assets of $1.86 billion.
18. With respect to paragraph 27 of the complaint, de-
fencants repeat and reallege the admissions and denials
set forth in this answer with respect to paragraphs 9
through 14 of the complaint as if here fully set forth.
19. Deny the allegations contained in paragraphs 28
through 30 of the complaint.
20. Counts IV through VIII assert no claim against de-
31
fendants Crosby and Fidelity, and therefore no answer is
required as to paragraphs 31 through 59.
First Defense
21. The complaint fails to state a claim upon which
relief can be granted.
Second Defense
22. The Court does not have jurisdiction over the per-
sons of defendants Crosby and Fidelity.
Third Defense
23. Each and every sales agreement between defendant
Crosby and the defendant broker/dealers, a typical sample
copy of which is annexed as Exhibit A, contains the follow-
ing provisions, among others:
‘*You agree not to purchase as principal or to participate
as broker in the purchase of, any Fund shares except
through or from us or from investors, and to pay a price
not lower than the bid price then quoted by or for the
appropriate Fund. You further agree not to sell as prin-
cipal, or to participate as broker in the sale of, any Fund
shares except at a price to the purchaser equal to the
applicable public offering price (determined as set forth
in the then currently effective applicable Fund prospec-
tus) in effect at the time of such sale, unless such sale is
to the Fund or to us, provided nothing in this paragraph
shall prevent you from selling any shares for the account
of an investor to us or the appropriate Fund at the bid
price currently quoted by or for the Fund and charging
the investor a fair commission for handling the trans-
action.”’
24. A true sample copy of the then existing sales agree-
ments between defendant Crosby and defendant broker/
dealers was and is an exhibit to and made a part of registra-
tion statements filed with the Securities and Exchange
Commission (‘‘Commission’’) in conection with the issu-
ance, sale and distribution of shares in the load mutual
funds included in the Fidelity Group of Funds, and par-
ticulariy the shares of Fidelity, and in the event of any
change in said agreements, a true copy of the new sales
32
agreement is filed with the Commission in accordance with
its rules and regulations.
25. The sales agreements and practices of these defend-
ants which are alleged in the complaint to be in violation
of the Sherman Act were and are authorized by the Invest-
ment Company Act and by the Commission, and therefore
are exempt from the operation of the Sherman Act.
Fourth Defense
26. The Investment Company Act vested the Commission
with the exclusive power and authority to regulate and
supervise continuously the investment company industry
and the activities of those engaged therein, and to protect
the public interest and especially the interests of investors
in mutual funds against any and all evils and abuses arising
from the agreements, practices or other activities of invest-
ment companies, investment advisors, dealers and broker/
dealers, including methods employed in the issuance, dis-
tribution, sale, purchase, redemption and resale of the
shares of open-end investment companies.
27. By reason of the foregoing, the agreements, trans-
actions and practices alleged in the complaint to be in
violation of the Sherman Act are exempt from the provi-
sions of the Act.
Fifth Defense
28. By reason of the authority vested in the Commission
under the Securities Exchange Act of 1934 and Investment
Company Act of 1940, primary jurisdiction to regulate the
agreements and activities complained of and to deal with
any legal challenge to the practices and procedures con-
nected with the distribution and sale of mutual fund shares
rests with the Commission.
Prayer
WHEREFORE, defendants pray for judgment dismiss-
ing the complaint on the merits and awarding defendants
the costs and disbursements of this action and reasonable
counsel fees and such other and further relief as this Court
deems just and proper.
Dated: March 26, 1973
33
/s/ Daniel P. Levitt
Daniet P. Levirr
Attorney for Defendants The Crosby
Corporation and Fidelity Fund, Inc.
Paul, Weiss, Rifkind,
Wharton & Garrison
1775 K Street, N.W., Suite 700
Washington, D.C, 20006
Tel. No.: (202) 293-6370
OF COUNSEL:
William R. Meagher, Esq.
Joseph H. Flom, Esq.
Skadden, Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, N.Y. 10022
Tel. No.: (212) 371-6000
SALES AGREEMENT
The Crosby Corporation, Fidelity Fund, Ine.
Distributor Fidelity Debenture Fund, Ine.
225 Franklin Street, Fidelity Capital Fund, Ine.
Boston, Mass. 02110 Fideltiy Trend Fund, Ine.
Executive Offices Puritan Fund, Ine.
617-726-0400—C able- Salem Fund, Ine.
Crosfidel Everest Fund, Ine.
Order Department—
617-742-5700—Teletype
710-321-0411
The Fidelity Group of Mutual Funds
November 1, 1972
Dear Sirs:
We are the principal underwriter of shares of the above
Funds which we agree to sell to you to cover orders received
by you as principal from your customers. All orders should
be communicated directly to The Crosby Corporation which
will accept and confirm such orders to you at the applicable
public offering price computed as described in the appli-
cable Fund’s then currently effective Prospectus, less the
Dealer Discount deser bed below. The net asset value and
public offering prices of the Funds’ shares will be furnished
from time to time to public information sources.
Sales Charge and Dealer Discount
The sales charges and discounts allowed to dealers on
shares purchased are as follows (the percentage in each case
being a percentage of the applicable public offering price) :
Sales Charge
Paid by Dealer
At least But less than Investor Discount
On investments ee ° $ 10,000 8.5% 7.0%
On investments — $ 10,000 20,000 8.0% 6.5%
On investments of ....... 25,000 50,000 6.0% 4.8%
On investments of ....... 50,000 100,000 4.5% 3.6%
On investments 7 ssenene 100,000 250,000 3.5% 2.8%
On investments a specece 250,000 500,000 2.5% 2.0%
On investments of ....... 500,000 1,000,000 2.0% 1.6%
On investments over ..... 1,000,000 1.0% 0.8%
* The minimum initial and subsequent investments must be as specified in the
then currently effective applicable Fund Prospectus.
34
35
The schedule of sales charges and dealer discounts set
forth above is applicable to purchases by ‘‘any person’’
(a) of a single Fund at any one time, or (b) in accordance
with ‘‘Combined Purchase Privilege,’’ ‘‘Cumulative Quan-
tity Discount’’ and/or ‘‘Statement of Intention’’ as each of
those terms is described in the then currently effective
applicable Fund Prospectus. You must notify us of the
total holdings, if applicable, of ‘‘any person’’ before he
may vail himself of a reduced sales charge pursuant to
the foregoing. Such notification, in writing, must be re-
ceived by Crosby within four (4) usiness days of the
placing of the order. An application form is available for
this purpose. As used in this paragraph, ‘‘any person’’
means an individual, or an individual, his spouse and
children under the age of 21, or a trustee, or other like
fiduciary of a single trust estate or single fiduciary account,
(including a pension, profit-sharing, or other employee
benefit trust created pursuant to a plan qualified under
Section 401 of the Internal Revenue Code) although more
than one beneficiary is involved; provided, however, that
the term ‘‘any person’’ shall not include a group of indi-
viduals whose funds are combined, directly or indirectly,
for the purpose of purchasing shares of any one or more of
the Funds jointly or through a trustee, agent, custodian,
or other representative, nor shall it include a trustee, agent,
custodian, or other representative of such a group of
individuals.
If any shares are repurchased by any Fund, or by us for
the account of any Fund, or are tendered for redemption
within seven (7) business days (Saturdays, Sundays and
holidays not being considered business days) after con-
firmation to you of the original purchase order for such
shares, you shall forthwith refund to us (or we may retain)
the full discount allowed to you on the original sale, and
upon receipt thereof we will as soon as practicable there-
after pay to the applicable Fund the full amount of the sales
charge on the original sale by us. You will be notified by
us of such repurchase or redemption within ten (10) days
of the date on which the certificate is delivered to us or to
the Fund.
36
Payment and Delivery
Upon receipt of confirmation you will pay promptly the
net amount due as shown thereon. Payment should be
made as follows:
The Crosby Corporation
Cash Clearing Department, 3rd Floor
Ten Post Office Square
Boston, Massachusetts 02109
FOR IDENTIFICATION PURPOSES ALL PAY-
MENTS AND TRANSFER INSTRUCTIONS MUST
REFER TO THE INVOICE NUMBER SHOWN ON THE
CONFIRMATION. THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
REQUIRE US TO NOTIFY THE ASSOCIATION OF
ANY PAYMENTS NOT RECEIVED FROM YOU
WITHIN TEN BUSINESS DAYS FOLLOWING THE
DATE OF A TRANSACTION INVOLVING MORE
THAN $100. WE RESERVE THE RIGHT TO HOLD
YOU RESPONSIBLE FOR ANY LOSS WE MAY INCUR
AS THE RESULT OF YOUR FAILURE TO MAKE
ANY SUCH PAYMENTS.
Other Transactions in Fund Shares
You agree not to purchase as principal, or to participate
as broker in the purchase of, any Fund shares except
through or from us or from investors, and to pay a price
not lower than the net asset value then quoted by or for
the appropriate Fund. You further agree not to sell as
principal, or to participate as broker in the sale of, any
Fund shares except at a price to the purchaser equal to the
applicable publie offering price (determined as set forth in
the then currently effective applicable Fund Prospectus),
unless such sale is to the Fund or to us, provided nothing in
this paragraph shall prevent you from selling to us fer the
account of an investor any shares of the appropriate Fund
at the net asset value price currently quoted by or for the
Fund and charging the investor a fair commission for
handling the transaction.
You agree that you will not withhold placing a customer’s
order in such manner as to profit yourself as a result of
such withholding. You further agree that you will not pur-
37
chase shares, other than for investment, except for the
purpose of covering purchase orders already received, and
then only at the public offering price at which such orders
were taken less the dealer discount allowed hereunder. We
will not accept a conditional order for shares of the Funds.
Miscellaneous
We reserve the right to amend this Agreement and, in
our discretion, to reject in whole or in part any order re-
ceived by us from you and to terminate this Agreement
in the event of violation by you of any of its provisions or
for any cause which in our opinion justifies such action.
This Agreement shall be in substitution for any prior Sales
Agreement between us regarding shares of any of the
Funds, and shall terminate automatically in the event of
your ceasing to be a member in good standing of the Na-
tional Association of Securities Dealers, Inc. as you repre-
sent vourself_to be. All transactions pursuant to this
Agreement are subject to and must be in compliance with
any and all applicable federal and state laws, including the
Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, the Investment Company Act of
1940, as amended, and the Rules and Regulations there-
under, and any applicable rules of the National Associat'on
of Securities Dealers, Inc., particularly rule 26 of the Rules
of Fair Practice.
No person is authorized or permitted to give any infor-
mation or make any representations concerning the Funds
other than those which are contained in the then currently
effective applicable Fund Prospectus and in such other
printed information as may be subsequently issued by us as
information supplemental to such Prospectus or approved
by us in writing for use in connection therewith. You will
not use the words ‘‘Fidelity Fund, Inc.,’’ ‘‘Puritan Fund,
Ine.,”’ ‘‘Fidelity Capital Fund, Ine.,’’ Fidelity Trend
Fund, Ine.,’’ ‘‘Salem Fund, Inc.,’’ ‘‘Everest Fund, Ine.,”’
‘‘Fidelity Bond-Debenture Fund, Inc.,’’ ‘‘ Fidelity Group of
Funds”’ or ‘‘The Crosby Corporation’’ whether in writing,
by radio or television or any other advertising media with-
out our prior written approval.
Nothing in this Agreement shall be deemed or construed
to make you an employee, agent or representative of any
of the Funds or of this Corporation, and you are not
38
authorized to act for use or for any of the Funds or to make
any representations on our or their behalf. We shall not
be liable in any way or for any matter connected herewith,
except such as may be incurred under the Securities Act of
1933, as amended, and except for lack of good faith.
This Agreement supersedes and cancels any prior agree-
ment with respect to the sale of shares of any of the Funds
for which we are the principal underwriter and we reserve
the right to amend this Agreement at any time and from
time to time or to terminate the same at any time.
We and/or the Funds in the Fidelity Group of Funds
may at any time modify the sales charge and dealer dis-
count to be paid in connection with the sale of shares of any
of those Funds, In the event of any such change you agree
that you will have no continuing claim to or vested interest
in the level of sales charges or dealer discounts established
by this Agreement as to any shares purchased subsequent
to such change.
Very truly yours,
THe Crospy Corporation
By
The undersigned hereby accepts this Agreement and agrees
to abide by all of its terms and conditions,
Er — = Firm
By
Authorized Signature
Address
(Title Omitted in Printing)
ANSWER OF DEFENDANT WELLINGTON
FUND, INC.
Comes now Wellington Fund, Ine. named as one of the
defendants in the above styled case, and answers and
responds to the complaint as follows:
First Defense
The complaint fails to state a claim against the defendant
upon which relief can be granted.
Second Defense
The alleged unlawful activities of this defendant were
required by the Investment Company Act of 1940, 15 U.S.C.
§ 80a-1, et seq., the Securities Exchange Act of 1934, 15
U.S.C. § 78a, et seq., and rules and regulations adopted
pursuant to such Acts, and are exempt from the prohibi-
tions of the antitrust laws.
Third Defense
The Court lacks jurisdiction over the subject matter of
the complaint and the person of the defendant.
Fourth Defense
1.
With respect to the section of the complaint entitled
‘Jurisdiction and Venue’’ this defendant admits that the
complaint purports to seek relief under 4 4 of the Sherman
Act (15 U.S.C. § 4), admits that it is not found and does
not transact business in the District of Columbia, and is
without knowledge or information sufficient to form a belief
as to whether the other defendants are found or transact
business in the District of Columbia.
2.
With respect to the section of the complaint entitled
**Definitions,’’ this defendant admits the definitions con-
39
40
tained in paragraphs 3(a)-(e) and denies the statement of
the definitions contained in paragraphs 3(f)-(h).
3.
This defendant is without knowledge or information sufti-
cient to form a belief as to the truth of the allegations
contained in paragraphs 4 and 5 of the complaint.
4.
This defendant admits the allegations contained in para-
graph 6 of the complaint.
This defendant is without knowledge or information
sufficient to form a belief as to the truth of the allegations
contained in paragraphs 7 and 8 of the complaint.
6.
This defendant admits that Wellington Management
Company, Inc. acts as principal underwriter for it and for
the six other open-end management investment companies
listed in paragraph 6 of the complaint (which investment
companies are registered with the Securities and Exchange
Commission under the Investment Company Act of 1940),
pursuant to an underwriting agreement, a specimen copy
of which is attached hereto as Exhibit A, and which is filed
with the Securities and Exchange Commission as required
by the Investment Company Act of 1940 and regulations
issued thereunder. This defendant also admits that Well-
ington Management Company, Ine. has existing sales agree-
ments with each of the defendants named in paragraph 7
of the complaint relating to the sale of shares of each of the
registered open-end management investment companies for
which Wellington Management Company, Inc. acts as
principal underwriter, a specimen copy of which is at-
tached hereto as Exhibit B, and specimens of which are on
file with the Securities and Exchange Commission as re-
quired by the Investment Company Act of 1940 and regula-
tions issued thereunder. The underwriting agreement
referred to above is the only agreement relating to the sale
of such shares between this defendant and Wellington
41
Management Company, Inc. The sales agreement referred
to above is the only agreement referring to the sales of the
shares of this defendant between Wellington Management
Company, Ine. and the broker-dealers named in paragraph
7 of the complaint. This defendant also admits that it must
redeem its shares in accordance with the provisions of the
Investment Company Act of 1940. Other than as stated
above, this defendant denies, or is without information
sufficient to form a belief as to the truth of the allegations
contained in paragraph 9.
7.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraph 10 of the eomplaint.
8,
With respect to the allegations of paragraphs 11 and 12
of the complaint, this defendant admits that its shares are
normally sold at an offering price described in the prospec-
tus as required by § 22(d) of the Investment Act of 1940,
and set forth in the sales agreement attached hereto as
Exhibit B. Except as stated above this defendant either
denies or is without knowledge or information sufficient to
form a belief as to the truth of the allegations contained
in paragraphs 11 and 12 of the complaint.
9.
With respect to paragraphs 13 and 14 of the complaint,
this defendant avers that the allegations contained therein
constitute conclusions of law incapable of being either
admitted or denied. To the extent such allegations may be
deemed to be allegations of material fact they are denied.
10.
This defendant denies the allegations contained in para-
graphs 15, 16, 17 and 18 of the complaint.
11.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
42
contained in paragraphs 19, 20, 22, 23 and 24. This de-
fendant reasserts its response in paragraphs 6 through 9
of this Fourth Defense to the allegations contained in
paragraph 21 of the complaint.
12.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 25, 26, 28, 29 and 230. This de-
fendant reasserts its response in paragraphs 6 through 9
of this Fourth Defense to the allegations contained in
paragraph 27 of the complaint.
13.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 31, 32, 24, 35 and 36. This defend-
ant reasserts its response in paragraphs 6 through 9 of this
Fourth Defense to the allegations contained in paragraph
53 of the complaint.
14.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 37, 38, 40, 41 and 42. This defend-
ant reasserts its response in paragraphs 6 through 9 of this
Fourth Defense to the allegations contained in paragraph
39 of the complaint.
15.
With respect to the allegations contained in paragraphs
43 through 48 of the complaint this defendant reasserts its
response contained in paragraphs 6 through 9 of this Fourth
Defense. Except as stated above, this defendant denies the
allegations contained in paragraphs 43 through 48.
16,
This defendant admits the allegations of paragraph 49.
17.
With respect to the allegations contained in paragraphs
50 tarough 54 of the complaint, this defendant reasserts its
48
response contained in paragraphs 6 through 9 of this Fourth
Defense. Except as stated above this defendant denies the
allegations contained in paragraphs 50 through 54 of the
complaint.
18.
With respect to the allegations contained in paragraphs
95, 57 through 59 of the complaint, defendant admits that
Wellington Management Company, Inc. has in effect sales
agreements with the broker-dealers named in paragraph 7
of the complaint (a specimen copy of which is attached as
Exhibit B) with respect to the sale of this defendant’s
shares. This defendant reasserts its response contained in
paragraphs 6 through 9 of this Fourth Defense in response
to the allegations of paragraph 56 of the complaint. Except
as stated above, this defendant denies the allegations
contained in paragraphs 55 through 59.
WHEREFORE, this defendant files its answer to the
plaintiff’s complaint and prays that the complaint be dis-
missed.
By Robert E. Jensen
Ropert E. Jensen
Or CouNSEL:
By W.L. Dickey
Richard M. Phillips WruuiaM L, Dickey
Hill, Christopher & WiiuuaMs & Jensen
Phillips Attorneys for Defendant
2000 L, Street, N.W. Wellington Fund, Ine.
Washington, D.C. Suite 620, 1130 17th Street, N.W.
20036 Washington, D.C. 20036
Tel. (202) 833-3990 Tel. (202) 223-6150
(Ce ctifieate of Service Omitted in Printing)
EXHIBIT A
UNDERWRITING AGREEMENT
Tuts AGREEMENT, by and between WeLLinctTor Funp,
Inc. a corporation organized and existing under the laws of
the State of Maryland (hereinafter called ‘*Fuxp’’) and
WELLINGTON Manacement Company, a corporation orga-
nized and existing under the laws of the State of Delaware
(hereinafter called ‘‘Company’’) :
WITNESSETH:
Wuereas, Funp is an open-end investment company
registered under the Investment Company Act of 1940, the
shares of which are registered under the Securities Act of
1933, and is desirous of issuing to the general public all of
its now or hereafter authorized, but unissued, shares of
capital stock and/or shares of capital stock now or later
held in its Treasury; and
Whereas, Company is interested in promoting the growth
of Funp and will be equipped financially and with qualified
personnel and extensive facilities to encourage the sale of
shares of Funp by investment dealers and to create and
provide the sales literature, advertising and other sales
promotional aids necessary to accomplish such growth.
Now, Turrerore, in consideration of the mutual covenants
herein contained, the parties hereto hereby covenant and
agree to and with each other as follows:
1. (a) Company agrees to act as the principal under-
writer and exclusive national distributor for the shares of
Funp and will, upon receipt of unconditional orders from
investment dealers or investors (and not before), transmit
such bids or orders as agent for Funp for acceptance and
confirmation by Funp to its principal office as Fuyp may
from time to time direct. The price ac which shares of Funp
are offered to the publie through Company shall be com-
puted and shall be effective as set forth in the Prospectus
of Funp current as of the time of such sale.
(9) Funp reserves the right to reject any order, pro-
vided, however, that Funp does hereby covenant and agree
that it will not arbitrarily or without reasonable cause
refuse acceptance or confirmation of orders obtained and
44
45
submitted under this Agreement for the purchase of shares
of stock of Funp and, upon receipt thereof, will in all proper
cases confirm orders directly through the Company as agent
for Funp or authorize the Company, as agent for Funp, to
deliver proper confirmations and, if requested, will deliver
certificates for shares so purchased to Company as soon as
practicable after receipt of payment therefore in cash.
(ce) Company agrees that it will not directly or indi-
rectly withhold orders for the purchase of stock of Funp
or purchase stock of Funp in anticipation of orders, and
does further agree that in all contracts or arrangements
with dealers or distributors acting under or through it, it
will require a similar contractual undertaking. Company
further agrees that it will arrange for the purchase of
shares of Fuynp only from Funp, except when acting as
agent for Funp on repurchase of shares under Paragraph 2
hereof.
2. Sales of Funp’s shares under this Agreement shall be
handled by Company as agent for Fuxp. With Funp’s
consent, Company may also act as agent for Funxp without
commission on repurchase of shares of Fuxp. Except for
such sales and repurchase of shares of Funp, Company shall
act as principal in all other matters relating to promotion
of the growth of Funv and shall enter into all of its engage-
ments, agreements and contracts as principal on its own
account. Furthermore, this Agreement shall not be con-
strued as authorizing any dealer or other person to act as
agent, either of Funp or of Company.
3. Funp covenants and agrees that it will, at its own
expense :
(a) use its best efforts to keep authorized, but un-
issued, sufficient of its capital stock to meet the reasonable
requirements of Company;
(b) execute or cause to be executed all documents
requiring signatures of Funp necessary to permit Company
to comply with the provisions of Paragraph 4 hereof ;
(c) supply Company with the ‘‘net asset value per
share’’ computed as at the time(s) prescribed by and in
compliance with all pertinent requirements of the National
Association of Securities Dealers and the Securities and
Exchange Commission, so as to permit Company to comply
with the provisions of Paragraph 4 hereof.
46
4. Company covenants and agrees that it will, at its own
expense :
(a) prepare, file and keep effective registration state-
ments, prospectuses and licenses covering so many shares
of stock of Funp as may be necessary to meet ComPpany’s
reasonable requirements for distribution and sale of such
shares in ail jurisdictions where shares of Fuxp may law-
fully be sold;
(b) prepare as often as, and at the specific times, re-
quired by appropriate authority on each business day for
publication in newspapers or other financial publications
both the offering price to the public and the liquidation
price of Funp shares:
(c) prepare, print and distribute (subject to the pro-
visions of Paragraph 5 hereof) all advertising and sales
literature relating to Funp.
0. (a) Company does hereby covenant and agree that it
will not issue any statements other than Funp’s properly
approved Prospectus, except such supplemental literature
or advertising (prepared at the expense of Company) as
shall be lawful under state and federal securities laws and
regulations and under applicable laws and regulations of
foreign jurisdictions. Company agrees to file with the
Securities and Exchange Commission, the National Asso-
ciation of Securities Dealers, Inc. and such other regulatory
authorities as may be required, copies of any advertise-
ment, pamphlet, circular, form letter, or other sales litera-
ture relating to Funp or its shares, addressed to or intended
for distribution to prospective investors, within the time
required by such regulatory authorities, to furnish Fuxp
at its principal office with a copy of all such material prior
to its use and not to use such material if the Funp shall
reasonably and promptly object to such use.
(b) Company shall conform to all applicable By-Laws,
charter provisions, and regulations to which Funp is sub-
ject and to applicable laws and regulations of the United
States and of the individual states within which Compaxy
or Funp may do business, or where shares of Funp are
offered for sale, and will conduct its affairs both with rela-
tion to Funp and with relation to dealers, or investors, in
accordance with the rules of fair practice of the National
Association of Securities Dealers, Inc. Company shall also
comply with applicable laws and regulations of foreign
47
jurisdictions in which shares of Funp or securities of an
investment company using shares of Funp as its sole under-
lying investment are offered.
(c) Company agrees to indemnify and hold harmless
F'unp and each person who has been, is, or may hereafter
be an officer or director of Funp against expenses reason-
ably incurred by any of them in connection with any claim
or in connection with any action, suit or proceeding to which
any of them may be a party, which arises out of, or is
alleged to arise out of any wrongful act of Company or its
employees or any misrepresentation in the registration
statement of Funp filed under the Securities Act of 1933
of a material fact, or out of any alleged omission to state
therein a material fact necessary to make the statements
made therein not misleading, insofar as any such statement
or omission was made in reliance upon, and in conformity
with, information furnished to Funp in connection there-
with by, or in behalf of Company, provided, however, that
(i) in no case is the indemnity of Compaxy in favor of Funp
or any person indemnified to be deemed to protect Funp or
any such person against any liability to which Funp or any
such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence, in the per-
formance of its duties or by reason of its reckless disregard
of its obligation and duties under this agreement, and (ii) in
no case is Company to be liable under its indemnity agree-
ment contained in this paragraph with respect to any claim
made against Funp or any person indemnified, unless
Funp or such person, as the case may be, shall have noti-
fied Company in writing within a reasonable time after the
summons or other first legal process giving information of
the nature of the claim shall have been served upon Funp
or upon such person (or after Funp or such persen shall
have received notice of such service on any designated
agent). In the case of any such notice to Company, Com-
pany shall be entitled to participation, at its own expense,
in the defense of any suit brought to enforce any such
liability. Company agrees promptly to notify Funp of the
commencement of any litigation or proceedings against it
in connection with the issue and sale of any of the shares.
The term ‘‘expenses’’ includes amounts paid in satisfaction
of judgments or in settlement. The foregoing right of
indemnification shall be in addition to any other rights to
48
which Funp or any such officer or director may be entitled
as a matter of law.
6. Funp covenants and agrees that it will not, during the
term of this Agreement offer any of its shares for sale
directly or through any person or corporation other than
Company, excepting only (a) the issuance of rights to
stockholders to subscribe to shares to the extent of all or
part of any dividend that may be distributed to stockholders
of Funp or to the extent of any shares that may be taken
up under an optional or alternative dividend, or the issu-
ance of additional shares through stock splits or stock
dividends, and (b) sales of shares to another investment
or securities holding company in the process of converting
all or a portion of its assets into shares of Funp or in
connection with an issuance of Funp’s shares in exchange
for shares of another investment or securities holding
company, to the extent permitted by the Investment Com-
pany Act of 1940, as from time to time amended. Provided,
however, that in the event Company should be unable to
continue to distribute shares of Funp aud such restriction
shall not apply to the sale of shares of Funp by any other
person, F'unp may at its option make arrangements for the
offer and sale of its shares within the jurisdiction or
jurisdictions in which distribution and sale thereof by
Company has been prevented, provided, further however,
that if Company shall have removed all material obstacles
to resyming the offer and sale within said jurisdictions
within ninety days from its first restraint or inability, then
the right of Funp to distribute through instrumentalities
other than Company shall be extinguished, subject only to
the provisions of Paragraph 8 hereof. Funp further agrees
that Company may act as principal underwriter and ex-
elusive national distributor for the shares of other invest-
nent companies registered under Investment Company Act
of 1940. Funp and Company further agree that the shares
of the Funp may be sold through Company as agent for the
Funp to any investment company which uses the shares of
the Funp as its sole underlying investment, provided that
such other investment company is sponsored by the Com-
PANY (or, if a United States investment company, spon-
sored by a distributor approved by the Company), or by a
wholly-owned subsidiary of the Company and, provided
further, that if such investment company is organized under
49
the laws of the United States or is designed to permit its
securities to be sold to United States citizens or residents,
it shall additionally register under the Investment Com-
pany Act of 1940, as from time to time amended.
7. It is hereby mutually agreed that Company in full
satisfaction of all services herein agreed to be performed
by it shall receive a commission not to exceed 814% of the
offering price of all shares of Funp sold by it after the
effective date hereof; provided, however, that the commis-
sion payable on separate volume and other special trans-
actions shall be as from time to time set forth in the Pro-
spectus of Funp then in effect, provided further that, if the
Prospectus of the Funp so specifies, Company shall receive
no commission on sales of shares of Funp at net asset value
to those persons described and on the terms provided in
Rule 22d-1(h) promulgated under the Investment Company
Act of 1940, as amended. The commissions aforesaid shall
become due and owing immediately upon settlement for any
sale made through Company and Company shall deduct
such commissions from any remittance to Funp, provided,
however, that if change is required in the aforesaid com-
missions, either by duly constituted regulatory authorities,
or for husiness reasons, the amount payable to Funp from
the sale of shares shall always equal the then current net
asset value per share. Company agrees that, if shares are
repurchased by Funp or by Company as agent for Funp, or
are tendered to Funp for redemption within seven days
after confirmation by Company, as agent, of the original
purchase order to any broker or dealer originating such
transaction, Company will immediately remit to Funp the
commission (net of allowances of dealers or brokers) on
such sale paid to Company and will promptly, upon receipt
thereof, pay to Funp ‘any refunds of the balance of sales
commissions repaid to Company by brokers or dealers.
Notwithstanding the foregoing, all sales of shares of Funp
to any investment company in accordance with the provi-
sions of Paragraph 6 of this Agreement as amended shall
be made through Company at net asset value, and no com-
missions shall be charged to, or paid by, such investment
company with respect to suck shares.
8. This Agreement shall become effective on April 1,
1973, and shall continue in force until March 31, 1975, and
thereafter, only so long as such continuance is approved at
50
least annually thereafter by a vote of the Fund’s Board of
Directors, including the votes of a majority of the directors
who are not parties to such Contract or interested persons
of any such party, cast in person at a meeting called for the
purpose of voting such approval.
9. Subject to the provisions of the immediately preceding
paragraph, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respec-
live successors, provided, however, that this Agreement
shall terminate automatically upon assignment by Company
as provided for and defined in the Investment Company
Act of 1940 as amended, unless under the exemptive provi-
sions of Section 6(c) of such Act, the Securities and Ex-
change Commission shall determine that a conditional or
unconditional order of exemption is necessary or appro-
priate in the public interest and consistent with the protee-
tion of investors and the purpose fairly interded by the
policy and practice of such Act; in which event this Agree-
ment shall continue in full force and effect.
10. In the event that this Agreement, or any part thereof,
shall become unlawful under any future law of the United
States, or any state, territory, possession or district thereof,
or any regulations of the United States, any state, territory,
possession and district thereof, or any department, board
or commission or other governmental authority having
jurisdiction over its performance, such unlawful portion of
the Agreement shall be considered as though it were deleted
by mutual consent; but the remaining provisions of the
Agreement shall not cease and terminate and the parties
hereto shall confer and attempt to agree to such change or
modification in the said Agreement as will cause it to con-
form to said law or regulation and will maintain the general
purpose and provisions of this Agreement in a manner
equitable to each of the parties hereto. If, in such event,
the parties hereto are unable to agree with respect to the
said modification, each shall promptly appoint one arbitra-
tor and the two arbitrators so appointed shall appoint a
third arbitrator, who shall consider all the facts and cir-
cumstances relating to this Agreement and to the necessary
modification thereof to comply with such future law or
regulation, and if, in the opinion of said arbitrators, or a
majority of them, a modification of the said Agreement may
be made which will comply with the said new law or regula-
51
tion and will maintain the general purposes of this Agree-
ment and be fair and equitable to both of the parties hereto,
they shall direct in what particulars this Agreement shall
be modified and amended, and upon the receipt by each of
the parties hereto of the written report of the arbitrators,
the Agreement shall thereupon be deemed to be altered and
amended as provided in the said report and as so altered
and amended shall continue to be effective and binding on
both of the parties hereto. The provisions of this Para-
graph 10 shall be administered in accordance with provi-
sions of the Act of Assembly of the Commonwealth of
Pennsylvania, enacted April 25, 1927, P.L., 381 Number 248,
as amended. Provided, however, that neither Funp, nor
Company, shall be bound to accept the directions of the
arbitrators if the modification or amendment of the Agree-
ment stated in the Arbitrators’ written report would, in the
opinion of counsel for Funp, require approval under the
provisions of Section 15(c) of the Investment Company Act
of 1940, as amended, and provided further that Funp
reserves the right in the event of any award or decision by
the arbitrators to call a special meeting of the stockholders
of the Funp and to submit to the vote of the stockholders
the question of whether the recommendations of the arbitra-
tors shall or shall not be adopted by and binding upon the
Funp, in which case the decision of the stockholders shall
be final and binding upon Funp and Company.
11. It is the intention of the parties hereto that this
Agreement shall be governed and construed according to
the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed by their respective
duly authorized officers and to have hereunto affixed their
respective corporate seals this First day of April, 1973.
Attest:
Secretary
Attest:
Secretary
WELLINGTON Funp, Ino,
By:
President
WELLINGION MANAGEMENT COMPANY
By:
President
EXHIBIT B
WELLINGTON MANAGEMENT CoMPANY
1630 LocUST STREET * PHILADELPHIA, PA. 19103
Sales Agreement
with respect to
WeELLINGtron Funp Wuxpsor Funp Ivest Funp W. L.
Morcan Growtn Funp Wetiestey Income Funp
ExpLorer Funp Trustees’ Eeuitry Funp
Gentlemen:
As National Distributor for the shares of Wellington
Fund, Windsor Fund, Ivest Fund, Explorer Fund, W. L.
Morgan Growth Fund, Trustees’ Equity Fund, Wellesley
Income Fund, and any other mutual fund for which we may
hereafter act as Distributor (the ‘‘Funds’’), we invite you
to become a member of the Selling Group to distribute the
shares of said Funds upon the following terms:
Ordering of Shares
i. Orders received from you will be accepted by us for
the Funds only at the public offering price applicable to
each order, as established in accordance with the provisions
of the then current Prospectus of each of the Funds. The
procedure stated herein relating to the pricing and handling
of orders shall be subject to instructions which we will for-
ward from time to time to all members of the Selling Group.
All orders are subject to acceptance or rejection by the
Funds in their sole discretion.
2. You agree to purchase shares only from the Funds
through us or from your customers. If you purchase shares
from the Funds you agree that all such purchases shall be
made only to cover orders already received by you from
your customers (who may be any ,‘ersons other than a
securities dealer or broker), or for your own investment.
If you purchase shares from your customers, you agree to
pay such customers not less than the bid prices quoted by
us as agent at the time of such purchase. As distributor,
we will not accept a conditional offer for shares of the
Funds.
3. You agree to sell shares only
52
53
(a) as principal, for your own account, to customers
at the public offering price then in effect ;
(b) to the Funds through Wellington Management
Company, as agent for the Funds at the net asset value
next determined after our receipt of the request for re-
purchase of the shares subject to such procedural stand-
ards as may from time to time be established or approved
by the appropriate regulatory agencies. In such a sale
to the Funds you may act either as principal for your
own account or as agent for your customer. If you act as
principal for your own account, you agree to pay your
customer (unless the shares are in your investment ac-
count) not less than the price so determined. If you act
as agent for your customer in selling shares to the Funds
you may charge a fair commission for handling the trans-
action. All transactions in shares of Funds between you
and us are between us as agent for the Funds concerned
and you, either as principal for your own account or as
agent for an undisclosed principal.
Dealer Discount and Sales Charge
4. The shares of the Funds will be offered to the public
at a public offering price which will include a sales charge
in varying amounts depending on the size of the purchase
or other circumstances as described in the then current
Prospectus of each of the Funds. On such sales you will
receive a discount as shown in the following table (with the
sales charge and discount stated as a percentage of the
applicable offering price).
Gross
Sales Dealer
Amount of Sale Charge Discount
Less than $10,000 °............. 8.50% 7.00%
$10,000 but under $25,000....... 7.75 6.25
$25,000 but under $50,000....... 6.00 4.50
$50,000 but under $100,000...... 4.5 3.50
$100,000 but under $250,000..... 3.25 3.5
$250,000 but under $500,000... .. 2.50 2.00
$500,000 but under $1,000,000... . 2.00 1.50
$1,000,000 but under $5,000,000. . 1.50 1.125
$5,000,000 and over............. 1.00 0.75
*The minimum initial purchase for Explorer Fund is
$5,000.
54
d. The Funds may change the amount of the gross sales
charge or the dealer discount or both at any time upon
written notice to you.
6. You shall not withhold placing with us orders received
from your customers so as to profit yourself as a result of
such withholding, nor shall we accept from you any order
for shares on any basis other than in accordance with the
rules for such orders as may, from time to time, be estab-
lished by the appropriate regulatory agencies.
7. If any shares sold to you under the terms of this agree-
ment are repurchased by the Funds or by Wellington Man-
agement Company for the account of the Funds, or are
tendered for repurchase or redemption within seven busi-
ness days after the date of the confirmation of the original
purchase by you, it is agreed that you shall forfeit your
right to an; discount received by you on such shares.
We shall notify you of any such repurchase or redemp-
tion within ten business days from the date on which the
certificate is delivered to Wellington Management Com-
pany, or to the Funds and you shall forthwith refund to us
the full discount allowed to you on such sale. We agree, in
the event of any such repurchase or redemption, to refund
to the Funds our share of the sales charge and upon receipt
from you of the refund of the discount allowed to you, to
pay svch refund forthwith to the Funds.
8. Notwithstanding any of the foregoing provisions,
orders to purchase shares received by us in connection with
any exchange privilege made available to the shareholders
of the respective Funds will be at the public offering price
less all sales charges as applicable to each order and estab-
lished by the then effective Prospectus of the Fund con-
cerned. Orders to redeem shares under such exchange
privilege shall not be subject to commission charge by
either you or us.
Payment and Delivery
9. Orders and confirmation should be sent directly to
Wellington Management Company, 1630 Locust Street,
Philadelphia, Pa. 19103. Payment for shares shall be made
payable to the order of Wellington Management Company
and sent to the Funds’ Transfer Agent, Data-Sys-Tance,
Inec., P. O. Box 1400, Kansas City, Mo. 64141. The Funds
reserve the right to delay issuance or transfer until the
55
check is cleared. Payment shall be received by us within
five days after acceptance by us for the Funds of your
order. If such payment is not so received we reserve the
right, without notice, forthwith to cancel the sale, and we
may hold you responsible for any loss, including loss of
profit, suffered by us or by the Funds resulting from your
failure to make such payment. .
10. No person is authorized to make any representations
concerning shares of the Funds except those contained in
the then current Prospectus of each of the Funds and in
printed information subsequently issued by each of the
Funds as information supplemental to such Prospectus. In
all sales of these shares to the publie you shall act as dealer
for your own account, and in no transaction shall you have
any authority to act as agent for the Funds for us or for
any other member of the Selling Group. In purchasing
shares from us you shall rely solely on the representations
contained in the Prospectus of each of the Funds concerned
and supplemental information above mentioned.
11. Additional copies of the then current Prospectus for
each of the Funds and any printed information issued as
supplemental to such Prospectus will be supplied by us in
reasonable quantities upon request. .
12. The Funds reserve the right in their own discretion,
without notice, at any time and from time to time, to sus-
pend sales or withdraw the offering of shares entirely. W e
reserve the right to amend this Agreement, and to reject
in whole or in part any order received by us from you.
Kither party hereto may cancel this Agreement at any time.
All purchase orders received by us will be subject to receipt
of shares by us from the Fund concerned.
13. Each of us hereby represents and agrees that each of
us is and will continue to be during the life of this Agree-
ment a member of the National Association of Securities
Dealers, Inc., or that we are a foreign dealer and we are
not eligible for membership in said Association, and in any
event we both hereby agree to abide by the Rules of Fair
Practice of that Association.
14. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
This Agreement shall be construed in accordance with the
laws of Pennsylvania.
56
15. Your first order placed with us for the purchase of
shares of any of the Funds will represent your acceptance
of this Agreement.
WELLINGTON MANAGEMENT COMPANY
By William G. Gallagher
Senior Vice President—Sales
Please return one signed cepy of this agreement to:
Wellington Management Company
Order Department
1630 Locust Street
Philadelphia, Pa. 19103
Accepted:
eeeoeveeeeeeeeeeeeeseeeseeeeseseeeeeeeeeeee
VY" rFTSeeeeeeeeseeeeseeeeseeeseeseeeeewmeeeeeeseeeees
~we Ceeeeseeseseesseeeeeseeeseeesseeemwesseeeseeeeees
Pe ey Se eee SeSeSe eee eSeSeeeeeseeeeoeeeseeeseeeeeeeeeeaeeeeeees
(Title Omitted in Printing)
ANSWER OF THE DEFENDANT
VANCE, SANDERS & COMPANY, INC.
1. The defendant Vance, Sanders & Company, Inc. (‘‘the
defendant’’) admits that the action purports to be brought
under section 4 of the Act of Congress of July 2, 1890 com-
monly known as the Sherman Act, 15 U.S.C. 4 4, to restrain
alleged continuing violations of section 1 of said Act, 15
U.S.C. § 1, but denies that the action can be so maintained.
2. The defendant admits that it presently has an office
in the District of Columbia and that the defendant Massa-
chusetts Investors Growth Stock Fund, Inc. does not trans-
act business, and is not found, therein. The defendant is
without information sufficient to form a belief as to the
truth or falsity of the other allegations of paragraph 2 of
the Complaint.
3. Paragraph 3 of the Complaint does not call for any
answer. The defendant further says that it does not accept
as correct the definitions in paragraph 3 of the Complaint.
4. The defendant is without information sufficient to form
a belief as to the truth or falsity of the allegations of para-
graph 4 of the Complaint.
5. The defendant admits the allegations of the first sen-
tence of paragraph 5 of the Complaint. The defendant
admits that it is presently the principal underwriter of the
mutual funds listed in paragraph 5 of the Complaint and
says that said mutual funds presently have combined net
assets in excess of $3.7 billion. Further answering the
allegations of paragraph 5 of the Complaint, the defendant
says that after June 30, 1973, it will no longer act as princi-
pal underwriter for Massachusetts Investors Growth Stock
Fund, Inc., Massachusetts Investors Trust, Massachusetts
Income Development Fund, Massachusetts Capital Develop-
ment Fund and Massachusetts Financial Development Fund
and that it does not aecept the characterization of any of
the funds listed in paragraph 5 of the Complaint as the
‘*Vance Sanders Funds’”’.
6. The defendant is without information sufficient to form
a belief as to the truth or falsity of the allegations of para-
graph 6 of the Complaint.
7. The defendant is without information sufficient to form
57
58
a belief as to the truth or falsity of the allegations of para-
graph 7 of the Complaint.
8. The defendant admits the allegations of the first and
third sentences of paragraph 8 of the Complaint. The
defendant is without information sufficient to form a belief
as to the truth of falsity of the allegations of the second
sentence of paragraph 8 of the Complaint.
9. The defendant admits the allegations of the first sen-
tence of paragraph 9 of the Complaint. The defendant
admits that shares of the mutual funds for which it acted
as principal underwriter as of February 21, 1973 (‘the
Vance Sanders underwritten funds’’) are continuously
issued and redeemed by said mutual funds, that the shares
of the Vance Sanders underwritten funds are presently
distributed throngh the defendant which presently has the
exclusive contractual right to distribute said shares to deal-
ers for resale and that the defendant enters into selling
group agreements with broker-dealers which sell shares of
the Vance Sanders underwritten funds to investors, the
current form of which selling group agreement is attached
hereto and incorporated herein marked ‘‘A’’. The defend-
ant is otherwise without information sufficient to form a
belief as to the truth or falsity of the allegations of the
second, third and fourth sentences of paragraph 9 of the
Complaint. The defendant denies the allegations of the
fifth sentence of paragraph 9 of the Complaint. The sixth
sentence of paragraph 9 of the Complaint is a conclusion
of law which the defendant is not required to answer. The
defendant admits that some mutual fund shares are pur-
chased, sold and redeemed in interstate commerce. The
defendant is otherwise without information sufficient to
form a belief as to the truth or falsity of the allegations of
the seventh sentence of paragraph 9 of the Complaint. The
defendant is without information sufficient to form a belief
as te the truth or falsity of the allegations of the eighth
sentence of paragraph 9 of the Complaint.
10. The defendant is without information sufficient to
form a belief as to the truth or falsity of the allegations of
paragraph 10 of the Complaint.
11. The defendant admits that the public offering prices
of the Vance Sanders underwritten funds, as described in
the prospectuses thereof, are based on net asset values plus
sales charges, the maxima of which are presently 8.5% of
59
the public offering prices for purchases of less than $12,500
(less on larger purchases), and that the Vance Sanders
underwritten funds redeem their outstanding shares, upon
presentation for redemption, at the then current net, asset
values. The defendant is otherwise without information
sufficient to form a belief as to the truth or falsity of the
allegations of paragraph 11 of the Complaint.
12. The defendant admits that, when a share of a Vance
Sanders underwritten fund is sold, the defendant presently
retains a portion of the sales charge which is usually 2.0%
when the sales charge is 8.5% (less when the sales charge is
less). The defendant is otherwise without information suffi-
cient to form a belief as to the truth or falsity of the allega-
tions of the first sentence of paragraph 12 of the Complaint.
The defendant is without information sufficient to form a
belief as to the truth or falsity of the allegations of the
second and third sentences of paragraph 12 of the
Complaint.
13. Answering the allegations of paragraph 13 of the
Complaint, the defendant says that section 22(d) of the
Investment Company Act is codified as 15 U.S.C. § 80a-
22(d) and is in writing and, read in conjunction with its
history and all other relevant and pertinent interpretive
material, speaks for itself. And further answering the
allegations of paragraph 13 of the Complaint, the defendant
says that neither as enacted in 1940, nor as amended in
1970, has section 22(d) of the Investment Company Act
ever contained the alleged provision ‘‘engaged in a dealer
transaction’’ which the plaintiff now gratuitously inter-
polates into the statute.
14. The allegations of paragraph 14 of the Complaint
are legal conclusions which the defendant is not required
to answer.
15. The defendant denies the allegations of paragraph
15 of the Complaint.
16. The defendant denies the allegaticus of paragraph
16 of the Complaint.
17. Answering the allegations of paragraph 17 of the
Complaint, the defendant says that he rules of the NASD
have always been on file with the Securities and Exchange
Commission and have always been readily available to inter-
ested members of the public and are in writing and speak
for themselves and that this is not the proper forum or
60
type of proceeding for an attack by the plaintiff on rules
promulgated pursuant to authority conferred by the Con-
gress of the United States and under the supervision of the
Securities and Exchange Commission. Otherwise the de-
fendant denies the allegations of paragraph 17 of the
Complaint.
18. The defendant denies the allegations of paragraph
18 of the Complaint.
19-30. The defendant is not made a defendant in Count
IT or Count [11 of the Complaint and is therefore not called
upon to answer the allegations of paragraphs 19 through
30 inclusive of the Complaint.
41. The defendant admits that it is made a defendant
in Count IV of the Complaint and further answering the
allegations of paragraph 31 of the Complaint restates the
averments of paragraph 5 of this Answer with the same
force and effect as if herein set forth and repeated in full.
32. The defendant admits that the so-called defendant
broker dealers are made defendants in Count IV of the
Complaint and further answering the allegations of para-
graph 52 of the Complaint restates the averments of para-
graph ¢ of this Answer with the same force and effect as
if herein set forth and repeated in full.
33. The defendant restates the averments of paragraphs
9 through 14 inclusive of this Answer with the same force
and effect as if herem set forth and repeated in full.
34. The defendant denies the allegations of paragraph
34 of the Complaint.
4). The defendant says that the current form of its
selling group agreement is attached hereto and _ incor-
porated herein marked ‘*A’’ and is in writing and speaks
for itself. Except as averred, the defendant denies the
allegations of paragraph 35 of the Complaint.
36. The defendant denies the allegations of paragraph
36 of the Complaint.
37. The defendant admits that Massachusetts Investors
Growth Stock Fund, Ine. (‘**MIGS"’) is made a defendant
in Count V of the Complaint, that MIGS is a corporation
organized under the law of the Commonwea!th of Massa-
chusetts, that MIGS is an open-end management type
investment company commonly known as a mutual fund,
that as of February 21, 1973, MIGS had net assets in excess
of $1.2 billion and that in the fiscal year ended November
61
30, 1970 approximately $69.9 million of treasury or newly
issued MIGS shares were sold to investors. The defendant
is without information sufficient to form a belief as to the
truth or falsity of the other allegations of paragraph 37 of
the Complaint.
38. The defendant admits that it is made a defendant
in Count V of the Complaint and further answering the
allegations of paragraph 38 of the Complaint restates the
averments of paragraph 5 of this Answer with the same
force and effect as if herein set forth and repeated in full.
39. The defendant restates the averments of paragraphs
9 through 14 inclusive of this Answer with the same force
and effect as if herein set forth and repeated in full.
40. The defendant denies the allegations of paragraph
40 of the Complaint.
41. The defendant admits that, pursuant te its agree-
ments with the Vanee Sanders underwritten funds, it pre-
sently acts as principal for its own account in the sale of
shares of said funds to dealers. Except as expressly ad-
mitted, the defendant denies the allegations of paragraph
41 of the Complaint.
42. The defendant denies the allegations of paragraph
42 of the Complaint.
43-59. The defendant is not made a defendant im Count
VI, Count VII or Count VIII of the Complaint and is
therefore not called upon to answer the allegations of para-
graphs 43 through 59 inclusive of the Complaint.
Second Defense
The Complaint and each of Counts I, IV and V thereof
fails to state a claim on which relief can be granted.
Third Defense
Any acts of the defendant and the other defendants which
are the subject matter of the Complaint were authorized
by the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a
et seq., by the Investment Company Act of 1940, 15 U.S.C,
Ԥ 80a-1 et seq., and by the Securities and Exchange Com-
mission acting with the powers conferred upon it by said
Acts and as so authorized do not constitute a violation of
any of the laws of the United States.
62
Fourth Defense
The Congress of the United States has delegated exelu-
sive authority and administrative supervision over the
matters alleged in the Complaint to the Securities and
Exchange Commission to the exclusion of the jurisdiction
of the courts of the United States including this Court.
Wuererore, the defendant prays that the Complaint be
dismissed and for its costs.
Vance, Sanvers & Company, Ive.
By its attorneys,
Herbert J. Miller, Jr.
Miller, Cassidy, Larroca & Lewin
Suite 500
1520 19th Street, N.W.
Washington, D.C. 20036
Telephone 293-6400
Or CouNSEL:
George C. Caner, Jr.
John Silas Hopkins, ITT
Ropes & Gray
225 Franklin Street
Boston, Massachusetts 02110
Telephone 617-423-6100
March 26, 1973
Exutsit A To Answer or Derenpant Vance, Sanvers & Co,
Vance, Sanvers & Company, Inc.
111 Devonshire Street
Boston 02109
Boston Fund
Boston Common Stock Fund
Century Shares Trust
Massachusetts Capital Development Fund
Massachusetts Financial Development Fund
Massachusetts Income Development Fund
Massachusetts Investors Growth Stock Fund
Massachusetts Investors Trust
Vance, Sanders Special Fund
Dear Sirs:
We are the Principal Underwriter of the shares of
Boston Fund, Ine., Boston Common Stock Fund, Inc., Cen-
tury Shares Trust, Massachusetts Capital Development
Fund, Inc., Massachusetts Financial Development Fund,
Ine., Massachusetts Income Development Fund, Inc., Massa-
chusetts Investors Growth Stock Fund, Inc., Massachusetts
Investors Trust and Vance, Sanders Special Fund, Ine. and,
as such, have the exclusive right to distribute shares of
these Funds for resale. As principal, we offer to sell to
you, as a member of the Selling Group, shares of each of
these Funds upon the following terms and conditions:
1. In all sales of these shares to the publie you shall act
as dealer for your own account, and in no transaction shall
you have any authority to act as agent for the issuer, for
us or for any other member of the Selling Group.
2. Orders received from you will be accepted through us
only at the public offering price applicable to each order,
as established by the then current Prospectus of the Fund
for whose shares the order is placed. The procedure relat-
ing to the handling of orders shall be subject to instructions
which we shall forward from time to time to all members of
the Selling Group. All orders are subject to acceptance
or rejection by us in our sole discretion.
3. For a schedule of the offering prices of the shares of
each of the Funds and of your discount with respect to the
sale of shares of each of the Funds see the reverse side
hereof. The term ‘‘single transaction’’ shall have the same
63
64
meaning as set forth in the current Prospectus of each
Fund.
4. You agree to purchase shares only through us or from
your customers other than dealers or brokers. If you
purchase shares through us, you agree that all such pur-
chases shall be made only to cover orders already received
by you from your customers, or for your own bona fide
investment. If you purchase shares from your customers,
you agree to pay such customers not less than the bid price
quoted by us as agent for the issuer at the time of such
purchase.
9. You shall sell shares only
(a) to customers at the public offering price then in
effect.
(b) to us or the Fund upon the terms and conditions
set forth in the current Prospectus of each Fund. In such
a sale, you may act either as principal for your own
account or as agent for your customer. If you act as
agent for your customer in selling shares, you agree not
to charge your customer more than a fair commission
for handling the transaction.
6. You shall not withhold placing through us orders re-
ceived from your customers so as to profit yourself as a
result of such withholding: e.g., by a change in the ‘net
asset value’’ from that used in determining the offering
price to your customers,
7. We will not accept from you any conditional orders
or shares, except ata definite specified price.
8. If anv shares sold to you under the terms of this
agreement are repurchased by the issuer or by us as agent
for any such Fund or are tendered for redemption, within
seven business days after the date of our confirmation of
the original purchaser by you, it is agreed that you shall
forfeit your right to any discount received by you on such
shares.
We will notify vou of any such repurchase or redemption
within ten business days from the date on which the cer-
tificate is delivered to us or to the issuer, and you shall
forthwith refund to us the full discount allowed to you,
and we agree to pay such refund forthwith to the issuer.
9. Payment for shares ordered from us shall be in New
York or Boston clearing house funds received by us within
65
five days after our acceptance of your order. If such pay-
ment is not received by us, we reserve the right, without
notice, forthwith to cancel the sale, or, at our option, to sell
the shares ordered back to the issuer, in which latter case
we may hold you responsible for any loss, including loss of
profit, suffered by us resulting from your failure to make
payment as aforesaid.
10. Shares sold to you hereunder shall be available to you
for delivery against payment at the office of our agent, the
New England Merchants National Bank, Mutual Funds
Clearance Department, Boston, Massachusetts, unless other
arrangements are made with us for delivery and payment.
11. No person is authorized to make any representations
concerning shares of the issuer except those contained in
the current Prospectus and in such printed information
subsequently issued by us as information supplemental to
such Prospectus. In purchasing shares through us you shall
rely solely on the representations contained in the appro-
priate Prospectus and supplemental information above
mentioned. Qualification of the shares of Boston Fund, Ine.,
Boston Common Stock Fund, Inc., Century Shares Trust,
Massachusetts Capital Development Fund, Ine., Massachu-
setts Financial Development Fund, Ine., Massachusetts
Income Development Fund, Ine., Massachusetts Investors
Growth Stock Fund, Ine., Massachusetts Investors Trust
and Vance, Sanders Special Fund, Ine. in the various
states, including the filing of any state or further state
notices respecting such shares, and any printed information
which we furnish you other than the Funds’ Prospectuses
and periodic reports are our sole responsibility and not the
responsibility of the respective Funds, and you agree that
these Funds shall have no liability or responsibility to you
in these respects.
12. Additional copies of any current Prospectus and any
printed information issued as supplemental to such Pro-
spectus will be supplied by us in reasonable quantities upon
request,
13. We reserve the right in our discretion, without notice,
to suspend sales or withdraw the offering of shares entirely.
Each party hereto has the right to caneel this agreement
upon notice to the other party.
14. You represent that you are a member of the National
66
Association of Securities Dealers and we both hereby agree
to abide by the Rules of Fair Practice of such Association.
15. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address spec ified by you below.
This agreement shall be construed in accordance with the
laws of Massachusetts.
16. This agreement supersedes and cancels any prior
agreement with respect to the sale of shares of any of the
«" ementioned Funds.
You appoint the transfer agent for each Fund
your agent to execute the purchase transactions of shares
of each Fund in accordance with the terms and provisions
of any account, program, plan or service established or used
by your customers and to confirm each purchase to your
customers on your behalf, and you guarantee the legal
capacity of your customers so purchasing such shares and
any co-owners of such shares.
NOTE: The term ‘‘net asset value’’ as used in paragraphs
® and 6 and on the schedule ‘‘Offering Prices”’
means ‘‘liquidating value’”’ in the case of Boston
Fund and Century Shares Trust.
Vance, Sanpvers & Company, Inc.
By John D. Wilson
President
ee ee bond a
The undersigned hereby accepts the offer set forth in
the above letter.
eeeseveeec eee eeeeeeeeeeeeeee see
Authorized Representative
Address
eoeeeeeeeeeeeeeeeesee 6
OFFERING PRICES
In single transactions by you of shares of Boston Fund,
Boston Common Stock Fund, Century Shares Trust,
Massachusetts Capital Development Fund, Massachusetts
Financial Development Fund, Massachusetts Income De-
velopment Fund, Massachusetts Investors Growth Stock
Fund, Massachusetts Investors Trust or Vance, Sanders
Special Fund involving: (1) less than $12,500, the public
offering price of each of these Funds will be fixed by
dividing the ‘‘net asset value’? per share by .915, in each
case determined in the manner and as of the time specified
in the Prospectus; (2) $12,500 but less than $25,000, the
publie offering price of each of these Funds will be fixed
by dividing the ‘‘net asset value’? per share by .925; (3)
$25,000 but less than $50,000, the public offering price of
each of these Funds will be fixed by dividing the ‘net
asset value’’ per share by .9425; (4) $50,000 but less than
$100,000, the publie offering price of each of these Funds
will be fixed by dividing the ‘‘net asset value’’ per share
by .96; (5) $100,000 but less than $250,000, the publie offer-
ing price of each of these Funds will be fixed by dividing
the ‘‘net asset value’’ per share by .9675; (6) $250,000 but
less than $500,000, the public offering price of each of these
Funds will be fixed by dividing the ‘‘net asset value’’ per
share by .975; (7) $500,000 but less than $1,000,000, the
~?—- offering price of each of these Funds will be fixed
by dividing the *‘net asset value’’ per share by .9775; and
(8) $1,000,000 or more, the public offering price of each of
these Funds will be fixed by dividing the ‘‘net asset value’’
per share by .9825.
Deater Discounts
On the purchase of shares by you to cover a single trans-
action involving: (1) less than $12,500, you shall receive a
discount from the applicable public offering price of 6.50%
with respect to shares of Boston Fund, Boston Common
Stock Fund, Century Shares Trust, Massachusetts Capital
Development Fund, Massachusetts Financial Development
Fund, Massachusetts Income Development Fund, Massa-
chusetts Investors Growth Stock Fund, Massachusetts In-
vestors Trust and Vance, Sanders Special Fund, except that
67
68
in supplementary purchases of shares of any of these
Funds under the invest-by-mail program, you shall receive
a discount from the applicable public offering price of
6.00% (except that on Dividend Reinvestments only, dis-
counts of less than $5 will not be paid); (2) $12,500 but less
than $25,000, you shall receive a discount from the appli-
cable public offering price of 6.0007; (8) $25,000 but less
than $50,000, you shall receive a discount from the ap-
plicable publie offering price of 4.25% ; (4) $50,000 but less
than $100,000, you shall receive a discount from the appli-
cable public offering price of 3.00° ; (5) $100,000 but less
than $250,006, vou shall receive a discount from the ap-
plicable publie offering price of 2.50%; (6) $250,000 but
less than $500,000, you shall receive a discount from the
applicable publie offering price of 2.00% ; (7) $500,000 but
less than $1,000,000, you shall receive a discount from the
applicable public offering price of 1.75% and (8) $1,000,000
or more, you shall receive a discount from the applicable
public offering price of 1.25%.
December 29, 1972
AMENDMEN’ To Sev_uinec Group AGREEMENT
To Selling Group Members:
Effective today, the name of Boston Common Stock Fund
is changed to Vance, Sanders Common Stock Fund. Ac-
cordingly, we wish to advise you that the present Selling
Group Agreement between our firms is amended to reflect
this name change in the following paragraphs:
(1) The initial paragraph of the Agreement which lists
the group of Funds for which we are the underwriter.
(2) The third sentence of paragraph 11 of the Agree-
ment.
(3) The two paragraphs on the reverse side of the Agree-
ment headed ‘‘Offering Prices’’ and ‘‘ Dealer Dis-
counts.”’
In place of your signing and returning a duplicate copy
of this revision of the Selling Group Agreement, we will
consider your first order on or after December 29, 1972 as
acceptance of this revision.
This amendment to the Selling Group Agreement should
be attached to your file copy of the Agreement inasmuch as
it is part of the Agreement as of the date hereof.
Vance, Sanpers & Company, Inc.
By John D. Wilson
JOHN D. WILSON
President
(Certificate of Service Omitted in Printing)
(Title Omitted in Printing)
ANSWER OF DEFENDANT WELLINGTON
MANAGEMENT COMPANY, INC.
Comes now Wellington Management Company, Ine.
named as one of the defendants in the above styled case,
and answers and responds to the complaint as follows:
First Defense
The complaint fails to state a claim against the defendant
upon which relief can be granted.
Second Defense
The alleged unlawful activities of this defendant were
required by the Investment Company Act of 1940, 15 U.S.C.
§ 80a-1, ef seq., the Securities Exchange Act of 1934, 15
U.S.C. § 78a, ef seq., and rules and regulations adopted
pursuant to such Acts, and are exempt from the prohibi-
tions of the antitrust laws.
Third Defense
The Court lacks jurisdiction over the subjeet matter of
the complaint and the person of the defendant.
Fourth Defense
1.
With respect to the section of the complaint entitled
‘* Jurisdiction and Venue’ this defendant admits that the
complaint purports to seek relief under § 4 of the Sherman
Act (15 U.S.C. © 4), admits that Wellington Fund, Ine. is
not found and does not transact business in the District
of Columbia, and is without knowledge or information suffi-
cient to form a belief as to whether the other defendants
are found or transact business in the District of Columbia.
)
With respect to the section of the complaint entitled
**Definitions,’’ this defendant admits the definitions con-
70
71
tained in paragraph 3(a)-(e) and denies the statement of
the definitions contained in paragraphs 3(f)-(h).
2
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 4 and 5 of the complaint.
4.
This defendant admits the allegations contained in para-
graph 6 of the complaint.
D.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 7 and 8 of the complaint.
6.
This defendant admits that it acts as principal under-
writer for the seven open-end management investment
companies listed in paragraph 6 of the complaint (which
investment companies are registered with the Securities
and Exehange Commission under the Investment Company
Act of 1940) pursuant to an underwriting agreement, a
specimen copy of which is attached hereto as Exhibit A,
and which is filed with the Securities and Exchange Com-
mission as required by the Investment Company Act of
1940 and regulations issued thereunder. This defendant
also admits that it has existing sales agreements with each
of the defendants named in paragraph 7 of the complaint
relating to the sale of shares of each of the registered
open-end management investment companies for which it
acts as principal underwriter, a specimen copy of which
is attached hereto as Exhibit B, and specimens of which
are on file with the Securities and Exchange Commission
as required by the Investment Company Act of 1940 and
regulations issued thereunder. The underwriting agree-
ment referred to above is the only agreement relating to
the sale of such shares between this defendant and the
registered open-end companies referred to in paragraph 6
of the complaint. The sales agreement referred to above is
72
the only agreement referring to the sales of the shares
of such registered companies between this defendant and
the broker-dealers named in paragraph 7 of the complaint.
This defendant also admits that the registered open-end
management investment companies for which it acts as
principal underwriter must redeem their shares in accord-
ance with the provisions of the Investment Company Act
of 1940. Other than as stated above, this defendant denies,
or is without information sufficient to form a belief as to
the truth of the allegations contained in paragraph 9.
i.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
cor ‘uined in paragraph 10 of the complaint.
Ss.
With respect to the allegations of paragraphs 11 and 12
of the complaint, this defendant admits that shares of the
registered open-end management investment companies for
which it acts as principal underwriter are normally sold at
an offering price described in the prospectus as required
by § 22(d) of the Investment Act of 1940, and set forth im
the sales agreement attached hereto as Exhibit B. Except
as stated above this defendant either denies or is without
knowledge or information sufficient to form a belief as to the
truth of the allegations contained in paragraphs 11 and 12
of the comp!aint.
+
With respect to paragraphs 13 and 14 of the complaint,
this defendant avers that the allegations contained therein
constitute conclusions of law incapable of being either
admitted or denied. To the extent such allegations may be
deemed to be allegations of material fact they are denied.
10.
This defendant denies the allegations contained in para-
graphs 15, 16, 17 and 18 of the complaint.
73
11.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 19, 20, 22, 23 and 24. This defend-
ant reasserts its response in paragraphs 6 through 9 of this
Fourth Defense to the allegations contained in paragraph
21 of the complaint.
12.
This defendant is without knowledge or informatien suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 25, 26, 28, 29 and 30. This defend-
ant reasserts its response in paragraphs 6 through 9 of this
Fourth Defense to the allegations contained in paragraph
27 of the complaint.
13.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 31, 32, 34, 35 and 36. This defend-
ant reasserts its response in paragraphs 6 through 9 of this
Fourth Defense to the allegations contained in paragraph
33 of the complaint.
14.
This defendant is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in paragraphs 37, 38, 40, 41 and 42. This defend-
ant reasserts its response in paragraphs 6 through 9 of this
Fourth Defense to the allegations contained in paragraph
39 of the complaint.
15.
With respect to the allegations contained in paragraphs
43 through 48 of the complaint this defendant reasserts its
response contained in paragraphs 6 through 9 of this
Fourth Defense. Except as stated above, this defendant
denies the allegations contained in paragraphs 43 through
48.
16.
This defendant admits the allegations of paragraph 49.
17.
With respect to the allegations contained in paragraphs
50 through 54 of the complaint, this defendant reasserts its
response contained in paragraphs 6 through 9 of this
Fourth Defense. Except as stated above this defendant
denies the allegations contained in paragraphs 50 through
54 of the complaint.
18.
With respect to the allegations contained in paragraphs
29, 57 through 59 of the complaint, defendant admits that
it has in effect sales agreements with the broker-dealers
named in paragraph 7 of the complaint, a specimen copy
of which is attached as Exhibit B. This defendant reasserts
its response contained in paragraphs 6 through 9 of this
Fourth Defense in response to the allegations of paragraph
06 of the complaint. Except as stated above, this defendant
denies the allegations contained in paragraphs 55 through
oy.
Wuererore, this defendant files its answer to the plain-
tiff’s complaint and prays that the complaint be dismissed.
By Robert E. Jensen
Ropert Kk. Jensen
By W.L. Dickey
Wituiam L. Dickey
Wittiams & JENSEN
Attorneys for Defendant
Wellington Management Company, ine.
Suite 620, 1130 17th Street, N.W.
Washington, D.C. 20036
Tel. (202) 223-6150
Or CouUNSEL:
Richard M. Phillips
Hill, Christopher & Phillips
2000 L, Street, N.W.
Washington, D.C. 20036
Tel. (202) 833-3990
(Certificate of Service Omitted in Printing)
EXHIBIT A
UNDERWRITING AGREEMENT
Tuts AcreeMent, by and between Wetiincton Fwunp,
Inc. a corporation organized and existing under the laws of
the State of Maryland (hereinafter called ‘‘Funp’’) and
WeLuincton ManaGement Company, a corporation orga-
nized and existing under the laws of the State of Delaware
(hereinafter called ‘*Company’’):
WITNESSETH:
Whereas, Funp is an open-end investment company
registered under the Investment Company Act of 1940, the
shares of which are registered under the Securities Act of
1933, and is desirous of issuing to the general public all of
its now or hereafter authorized, but unissued, shares of
capital stock and/or shares of capital stock now or later
held in its Treasury ; and
W Heneas, Company is interested in promoting the growth
of Funp and will be equipped financially and with qualified
personnel and extensive facilities to encourage the sale of
shares of Funp by investment dealers and to create and
provide the sales literature, advertising and other sales
promotional aids necessary to accomplish such growth.
Now, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto hereby covenant and
agree to and with each other as follows:
1. (a) Company agrees to act as the principal under-
writer and exclusive national distributor for the shares of
Funp and will, upon receipt of unconditional orders from
investment dealers or investors (and not before), transmit
such bids or orders as agent for Funp for acceptance and
confirmation by Funp to its principal office as Funp may
from time to time direct. The price at which shares of Funp
are offered to the public through Company shall be com-
puted and shall be effective as set forth in the Prospectus
of Funp current as of the time of such sale.
(b) Funp reserves the right to reject any order, pro-
vided, however, that Funp does hereby covenant and agree
that it will not arbitrarily or without reasonable cause
refuse acceptance or confirmation of orders obtained and
75
76
submitted under this Agreement for the purchase of shares
of stock of Funp and, upon receipt thereof, will in all proper
‘ases confirm orders directly through the Company as agent
for Funp or authorize the Company, as agent for Funp, to
deliver proper confirmations and, if requested, will deliver
certificates for shares so purchased to CoMPANY as soon as
practicable after receipt of payment therefore in cash.
(c) Company agrees that it will not directly or indi-
rectly withhold orders for the purchase of stock of Funp
or purchase stock of Funp in anticipation of orders, and
does further agree that in all contracts or arrangements
with dealers or distributors acting under or through it, it
will require a similar contractual undertaking. Company
further agrees that it will arrange for the purchase of
shares of Funp only from Funp, except when acting as
agent for Funp on repurchase of shares under Paragraph 2
hereof.
2. Sales of Funp’s shares under this Agreement shall be
handled by Company as agent for Fuxp. With Funp’s
consent, COMPANY may also act as agent for Funp without
commission on repurchase of shares of Funp. Except for
such sales and repurchase of shares of Funp, Company shall
act as principal in all other matters relating to promotion
of the growth of Funp and shall enter into all of its engage-
ments, agreements and contracts as principal on its own
account. Furthermore, this Agreement shall not be con-
strued as authorizing any dealer or other person to act as
agent, either of Funp or of Company.
3. Fuxp covenants and agrees that it will, at its own
expense :
(a) use its best efforts to keep authorized, but un-
issued, sufficient of its capital stock to meet the reasonable
requirements of COMPANY;
(b) execute or cause to be executed all documents
requiring signatures of Funp necessary to permit CoMPANY
to comply with the provisions of Paragraph 4 hereof ;
(c) supply Company with the ‘‘net asset value per
share’? computed as at the time(s) prescribed by and in
compliance with all pertinent requirements of the National
Association of Securities Dealers and the Securities and
Exchange Commission, so as to permit Company to comply
with the provisions of Paragraph 4 hereof.
77
4. Company covenants and agrees that it will, at its own
expense:
(a) prepare, file and keep effective registration state-
ments, prospectuses and licenses covering so many shares
of stock of Funp as may be necessary to meet Company’s
reasonable requirements for distribution and sale of such
shares in all jurisdictions where shares of Funp may law-
fully be sold;
(b) prepare as often as, and at the specific times, re-
quired by appropriate authority on each business day for
publication in newspapers or other financial publications
both the offering price to the public and the liquidation
price of Funp shares;
(c) prepare, print and distribute (subject to the pro-
visions of Paragraph 5 hereof) all advertising and sales
literature relating to Funp.
5. (a) Company does hereby covenant and agree that it
will not issue any statements other than Funp’s properly
approved Prospectus, except such supplemental literature
or advertising (prepared at the expense of Company) as
shall be lawful under state and federal securities laws and
regulations and under applicable laws and regulations of
foreign jurisdictions. Company agrees to file with the
Securities and Exchange Commission, the National Asso-
ciation of Securities Dealers, Inc. and such other regulatory
authorities as may be required, copies of any advertise-
ment, pamphlet, circular, form letter, or other sales litera-
ture relating to Funp or its shares, addressed to or intended
for distribution to prospective investors, within the time
required by such regulatory authorities, to furnish Funp
at its principal office with a copy of all such material prior
to its use and not to use such material if the Funp shall
reasonably and promptiy object to such use.
(b) Company shall conform to all applicable By-Laws,
charter provisions, and regulations to which Funp is sub-
ject and to applicable laws and regulations of the United
States and of the individual states within which Company
or Funp may do business, or where shares of Funp are
offered for sale, and will conduct its affairs both with rela-
tion to Funp and with relation to dealers, or investors, in
accordance with the rules of fair practice of the National
Association of Securities Dealers, Inc. Company shall also
comply with applicable laws and regulations of foreign
78
jurisdictions in which shares of Funp or securities of an
investment company using shares of Funp as its sole under-
lying investment are offered.
(c) Company agrees to indemnify and hold harmless
Funp and each person who has been, is, or may hereafter
be an officer or director of Funp against expenses reason-
ably incurred by any of them in connection with any claim
or in connection with any action, suit or proceeding to which
any of them may be a party, which arises out of, or is
alleged to arise out of any wrongful act of Compayy or its
employees or any misrepresentation in the registration
statement of Funp filed under the Securities Act of 193:
of a material fact, or out of any alleged omission to state
therein a material fact necessary to make the statements
made therein not misleading, insofar as any such statement
or omission was made in reliance upon, and in conformity
with, information furnished to Funp in connection there-
with by, or in behalf of Company, provided, however, that
(1) in no case is the indemnity of Company in favor of Funp
or any person indemnified to be deemed to protect Funp or
any such person against any liability to which Funp or any
such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence, in the per-
formance of its duties or by reason of its reckless disregard
of its obligation and duties under this agreement, and (ii) in
no case is Company to be liable under its indemnity agree-
ment contained in this paragraph with respect to any claim
made against Funp or any person indemnified, unless
F'unv or such person, as the case may be, shall have noti-
fed Compayy in writing within a reasonable time after the
summons or other first legal process giving information of
the nature of the claim shall have been served upon Funp
or upon such person (or after Funp or such person shall
have received notice of such service on any designated
agent). In the case of any such notice to Company, Com-
PANY shall be entitled to participation, at its own expense,
in the defeise of any suit brought to enforce any such
liability. Company agrees promptly to notify Funp of the
commencement of any litigation or proceedings against it
in connection with the issue and sale of any of the shares,
The term ‘‘expenses’’ includes amounts paid in satisfaction
of judgments or in settlement. The foregoing right of
indemnification shall be in addition to any other rights to
79
which Funp or any such officer or director may be entitled
as a matter of law.
Funp covenants and agrees that it will not, during the
term of this Agreement offer any of its shares for sale
directly or through any person or corporation other than
CoMPANY, excepting only (a) the issuance of rights to
stockholders to subscribe to shares to the extent of all or
part of any dividend that may be distributed to stockholders
of Funp or to the extent of any shares that may he taken
up under an optional or alternative dividend, or the issu-
ance of additional shares through stock splits or stock
dividends, and (b) sales of shares to another investment
or securities holding company in the process of converting
all or a portion of its assets into shares of Funp or in
connection with an issuance of Funp’s shares in exchange
for shares of another investment or securities holding
company, to the extent permitted by the Investment Com-
pany Act of 1940, as from time to time amended. Provided,
however, that in the event Company should be unable to
continue to distribute shares of Funp and such restriction
shall not apply to the sale of shares of Funp by any other
person, Funp may at its option make arrangements for the
offer and sale of its shares within the jurisdiction or
jurisdictions in which distribution and sale thereof by
(Company has been prevented, provided, further however,
that if Company shall have removed all material obstacles
to resuming the offer and sale within said jurisdictions
within ninety days from its first restraint or inability, then
the right of Funp to distribute through instrumentalities
other than Company shall be extinguished, subject only to
the provisions of Paragraph 8 hereof. Funxp further agrees
that Company may act as principal underwriter and ex-
clusive national distributor for the shares of other invest-
ment companies registered under Investment Company Act
of 1940. Funp and Company further agree that the shares
of the Funp may be sold through Company as agent for the
F'unp to any investment company which uses the shares of
the Funp as its sole underlying investment, provided that
such other investment company is sponsored by the Com-
PANY (or, if a United States investment company, spon-
sored by a distributor approved by the Company), or by a
wholly-owned subsidiary of the «‘ompany and, provided
further, that if such investment company is organized under
80
the laws of the United States or is designed to permit its
securities to be sold to United States citizens or residents,
it shall additionally register under the Investment Com-
pany Act of 1940, as from time to time amended.
7. It is hereby mutually agreed that Company in full
satisfaction of all services herein agreed to be performed
by it shall receive a commission not to exceed 8'4% of the
offering price of all shares of Funp sold by it after the
effective date hereof ; provided, however, that the commis-
sion payable on separate volume and other special trans-
actions shall be as from time to time set forth in the Pro-
spectus of Funp then in effect, provided further that, if the
Prospectus of the Funp so specifies, Company shall receive
no commission on sales of shares of Funp at net asset value
to those persons described and on the terms provided in
Rule 22d-1(h) promulgated under the Investment Company
Act of 1940, as amended. The commissions aforesaid shall
become due and owing immediately upon settlement for any
sale made through Company and Company shall deduct
such commissions from any remittance to Funp, provided,
however, that if change is required in the aforesaid com-
missions, either by duly constituted regulatory authorities,
or for business reasons, the amount payable to Funp from
the sale of shares shall always equal the then current net
asset value per share. Company agrees that, if shares are
repurchased by Funv or by Company as agent for Funp, or
are tendered to Funp for redemption within seven days
after confirmation by Company, as agent, of the original
purchase order to any broker or dealer originating such
transaction, Company will immediately remit to Funp the
commission (net of allowances of dealers or brokers) on
such sale paid to Company and will promptly, upon receipt
thereof, pay to Funp any refunds of the balance of sales
commissions repaid to Company by brokers or dealers.
Notwithstanding the foregoing, all sales of shares of Funp
to any investment company in accordance with the provi-
sious of Paragraph 6 of this Agreement as amended shall
be made through Company at net asset value, and no com-
missions shall be charged to, or paid by, such investment
company with respect to such shares.
8. This Agreement shall become effective on April 1,
1973, and shall continue in force until March 31, 1975, and
thereafter, only so long as such continuance is approved at
81
least annually thereafter by a vote of the Fund’s Board of
Directors, including the voies of a majority of the directors
who are not parties to such Contract or interested persons
of any such party, cast in person at a meeting called for the
purpose of voting such approval.
9. Subject to the provisions of the immediately preceding
paragraph, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respec-
tive successors, provided, however, that this Agreement
shall terminate automatically upon assignment by Company
as provided for and defined in the Investment Company
Act of 1940 as amended, unless under the exemptive provi-
sions of Section 6(c) of such Act, the Securities and Ex-
change Commission shall determine that a conditional or
unconditional order of exemption is necessary or appro-
priate in the public interest and consistent with the protec-
tion of investors and the purpose fairly intended by the
policy and practice of such Act; in which event this Agree-
ment shall continue in full force and effect.
10. In the event that this Agreement, or any part thereof,
shall become unlawful under any future law of the United
States, or any state, territory, possession or district thereof,
or any regulations of the United States, any state, territory,
possession and district thereof, or any department, board
or commission or other governmental authority having
jurisdiction over its performance, such unlawful portion of
the Agreement shall be considered as though it were deleted
by mutual consent; but the remaining provisions of the
Agreement shall not cease and terminate and the parties
hereto shall confer and attempt to agree to such change or
modification in the said Agreement as will cause it to con-
form to said law or regulation and will maintain the general
purpose and provisions of this Agreement in a manner
equitable to each of the parties hereto. If, in such event,
the parties hereto are unable to agree with respect to the
said modification, each shall promptly appoint one arbitra-
tor and the two arbitrators so appointed shall appoint a
third arbitrator, who shall consider all the facts and cir-
cumstances relating to this Agreement and to the necessary
modification thereof to comply with such future law or
regulation, and if, in the opinion of said arbitrators, or a
majority of them, a modification of the said Agreement may
be made which will comply with the said new law or regula-
82
tion and will maintain the general purposes of this Agree-
ment and be fair and equitable to both of the parties hereto,
they shall direct in what particulars this Agreement shall
be modified and amended, and upon the receipt by each of
the parties hereto of the written report of the arbitrators,
the Agreement shall thereupon be deemed to be altered and
amended as provided in the said report and as so altered
and amended shall continue to be effective and binding on
both of the parties hereto. The provisions of this Para-
graph 10 shall be administered in aecordance with provi-
sions of the Act of Assembly of the Commonwealth of
Pennsylvania, enacted April 25, 1927, P.L., 381 Number 248,
as amended. Provided, however, that neither Kinp, nor
Company, shall be bound to accept the directions of the
arbitrators if the modification or amendment of the Agree-
ment stated in the Arbitrators’ written report would, in the
opinion of counsel for Fuxp, require approval under the
provisions of Section 15(c) of the Investment Company Act
of 1940, as amended, and provided further that Funp
reserves the right in the event of any award or decision by
the arbitrators to call a special meeting of the stockholders
of the Funp and to submit to the vote of the stockholders
the question of whether the recommendations of the arbitra-
tors shall or shall not be adopted by and binding upon the
Funp, in which case the decision of the stockholders shall
be final and binding upon Funp and Company.
11. It is the intention of the parties hereto that this
Agreement shall be governed and construed according to
the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed by their respective
duly authorized officers and to have hereunto affixed their
respective corporate seals this First day of April, 1973.
Attest: WELLINGTON Funp, Ine,
By:
Secretary . President
Attest: WELLINGTON MANAGEMENT COMPANY
By:
Secretary President
EXHIBIT B
WELLINGTON MANAGEMENT COMPANY
1630 LocUST STREET * PHILADELPHIA, PA. 191038
Sales Agreement
with respect to
WeLuINGTon Funp Winpsor Funp Ivest Funpn W. L.
7 ‘ , *
Morcan Growtu Funp Wetuestey Income FunpD
;\ > a
Exptorer Funp Trustees’ Eeuity Funp
Gentlemen:
As National Distributor for the shares of Wellington
Fund, Windsor Fund, Ivest Fund, Explorer Fund, W. L.
Morgan Growth Fund, Trustees’ Equity Fund, Wellesley
Income Fund, and any other mutual fund for which we may
hereafter act as Distributor (the ‘‘Funds’’), we invite you
to become a member of the Selling Group to distribute the
shares of said Funds upon the following terms:
Ordering of Shares
1. Orders received from you will be accepted by us for
the Funds only at the public offering price applicable to
each order, as established in accordance with the provisions
of the then current Prospectus of each of the Funds. The
procedure stated herein relating to the pricing and handling
of orders shall be subject tu instructions which we will for-
ward from time to time to all members of the Selling Group.
All orders are subject to acceptance or rejection by the
Funds in their sole discretion.
2. You agree to purchase shares only from the Funds
through us or from your customers. If you purchase shares
from the Funds you agree that all such purchases shall be
made only to cover orders already received by you from
your customers (who may be any persons other than a
securities dealer or broker’, or for your own investment.
If you purchase shares from. your customers, you agree to
pay such customers not less than the bid prices quoted by
us as agent at the time of such purchase. As distributor,
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we will not accept a conditional offer for shares of the
Funds.
5. You agree to sell shares enly
(a) as principal, for your own account, to customers
at the public offering price then in effect;
(b) to the Funds through Wellington Management
Company, as agent for the Funds at the net asset value
next determined after our receipt of the request for re-
purchase of the shares subject to such procedural stand-
ards as may from time to time be established or approved
by the appropriate regulatory agencies. In such a sale
to the Funds you may act either as principal for your
own account or as agent for your customer. If you act as
principal for your own account, you agree to pay your
customer (unless the shares are in your investment ac-
count) not less than the price so determined. Jf you act
as agent for your customer in selling shares to the Funds
you may charge a fair commission for handling the trans-
action. All transactions in shares of Funds between vou
and us are between us as agent for the Funds concerned
and you, either as principal for vour own account or as
agent for an undisclosed principal.
Dealer Discount and Sales Charge
4. The shares of the Funds will be offered to the public
at a public offering price which will include a sales charge
in varying amounts depending on the size of the purchase
or other circumstances as deseribed in the then current
Prospectus of each of the Funds. On such sales you will
receive a discount as shown in the following table (with the
sales charge and discount stated as a percentage of the
applicable offering price).
Gross
Sales Dealer
Amount of Sale Charge Discount
Less than $10,000 *............. 8.905% % 7.000 .
$10,000 but under $25,000....... 7.79 6.25
$25,000 but under $50,000... .... 6.00 4.50
$50,000 but under $100,000... .. 4.50 3.50
> . . . . .
The minimum initial purchase for Explorer Fund is
$5,000.
Gross
Sales Dealer
Amount of Sale Charge Discount
$100,000 but under $250,000, .... 3.25 2.50
$250,000 but under $500,000... .. 2.50 2.00
$500,000 but under $1,000,000. . . . 2.00 1 50
$1,000,000 but under $5,000,000. . 1.50 1.125
$5,000,000 and over ............ 1.00 0.75
5. The Funds may change the amount of the gros» sales
charge or the dealer discount or both at any time upon
written notice to you.
6. You shall not withhold placing with us orders received
from your customers so as to profit yourself as a result of
such withholding, nor shall we accept from you any order
for shares on any basis other than in accordance with the
rules for such orders as may, from time to time, be estab-
lished by the appropriate regulatory agencies.
7. If any shares sold to you under the terms of this agree-
ment are repurchased by the Funds or by Wellington Man-
agement Company for the account of the Funds, or are
tendered for repurchase or redemption within seven busi-
ness days after the date of the confirmation of th
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