[Federal Register Volume 59, Number 5 (Friday, January 7, 1994)]
[Notices]
[Pages 1048-1051]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-310]
[[Page Unknown]]
[Federal Register: January 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-19991; 812-8596]
Lincoln Renaissance Fund, Inc., et al.; Notice of Application
December 30, 1993.
Agency: Securities and Exchange Commission (``SEC'' or ``Commission'').
Action: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Lincoln Renaissance Fund, Inc. (the ``Existing Fund''),
Lincoln National Investment Management Company (``LNIMC''), and LNC
Equity Sales Corporation (``LNC Equity Sales'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from
sections 2(a)(32), 2(a)(35), 18(f)(1), 18(g), 18(i), 22(c), and 22(d)
of the Act and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants seek an order that would permit the
Existing Fund and its series to (a) issue multiple classes of shares
representing interests in the same portfolio of securities and (b)
assess and, under certain circumstances, waive a contingent deferred
sales charge (``CDSC'') on redemptions of shares.
FILING DATE: The application was filed on September 27, 1993, and
amended on November 23, 1993.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on January 24,
1994, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
Applicants, 1300 South Clinton Street, Fort Wayne, Indiana 46801.
FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Staff Attorney, at
(202)272-3026, or Robert A. Robertson, Branch Chief, at (202)272-3030
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Existing Fund is an open-end management investment company
registered under the Act consisting of nine series. LNIMC serves as the
Fund's investment adviser and LNC Equity Sales serves as distributor.
LNIMC and LNC Equity Sales are both wholly-owned subsidiaries of
Lincoln National Corporation (``Lincoln National'').
2. Applicants request that relief be extended to any investment
companies (a)(i) whose investment adviser or administrator is LNIMC, or
a person controlling, controlled, or under common control with LNIMC
(``Investment Adviser''), or (ii) whose principal underwriter is LNC
Equity Sales, or a person controlling, controlled, or under common
control with LNC Equity Sales (``Distributor'') and (b) that (i) are
within the same ``group of investment companies'' as that term is
defined in rule 11a-3 under the Act, and (ii) issue classes of shares
on a basis identical in all material respects to that described in the
application (collectively with the Existing Fund, the ``Funds'').
A. The Multiple Class Distribution System
1. Applicants propose to establish a multiple distribution
arrangement to enable each of the Funds, or series thereof, to create a
potentially unlimited number of classes representing different pricing
arrangements (the ``Alternative Purchase Plans''). Applicants initially
propose that each Fund, and series thereof, have the ability to offer
investors the option of purchasing classes of shares that would be
subject to a front-end sales load or subject to a CDSC, a combination
of front-end sales load and CDSC, or not subject to any such sales
charge. The shares offered pursuant to any of these options could be
subject to a 12b-1 plan. The sum of any front-end load, asset based
sales charge, and CDSC will not exceed the maximum sales charge
provided for in article III, section 26 of the Rules of Fair Practice
of the National Association of Securities Dealers (``NASD'').
2. The net asset value of all outstanding shares of the classes
would be computed separately for each class of shares by first
allocating gross income and expenses (other than rule 12b-1 fees, the
transfer agency fees of each class, and other incremental expenses
properly attributable to a particular class) to each class based on the
net assets attributable to each class at the beginning of the day and
then by separately recording the differing rule 12b-1 fees, transfer
agency fees of each class, and any other incremental expenses properly
attributable to the class. The net asset value attributable to each
shares of each class then would be calculated by dividing the net
assets calculated for each class by the number of shares outstanding in
that class.
3. Applicants propose an exchange program in which shares of a Fund
will be exchangeable for the same class, or a class with a similar
pricing structure, or another Fund. Under limited circumstances, shares
of a Fund may be exchangeable for a class of shares of the same or
another Fund with different pricing structures. For instance, shares
subject to a CDSC of certain retirement and deferred compensation plans
with total assets in excess of a specified dollar amount and whose
accounts are held directly with the Fund's transfer agent and for which
the transfer agent does individual account recordkeeping will be
exchangeable for shares of a class with lower 12b-1 fees. All exchanges
that are made at other than relative net asset value will be made in
accordance with rule 11a-3 under the Act.
4. Future classes may provide for a conversion feature in which
shares subject to a higher rule 12b-1 fee (``Higher 12b-1 Class'')
could convert, automatically after a period of time, to shares of
another class with a lower 12b-1 fee (``Lower 12b-1 Class''). With a
conversion feature, shares of Higher 12b-1 Classes would automatically
convert after the expiration of a set number of years after purchase to
shares of Lower 12b-1 Classes without the imposition of any additional
sales charge and thereafter be subject to the lower rule 12b-1 fee, if
any, applicable to the Lower 12b-1 Class.
B. The CDSC
1. Applicants also request an exemption to permit the Funds to
impose a CDSC on redemptions of shares of the Funds, and to waive the
CDSC under certain circumstances. No CDSC will be imposed on an amount
that represents an increase in the shareholder's account resulting from
capital appreciation or on those shares purchased more than a specified
period prior to redemption. Furthermore, no CDSC will be charged on
shares purchased prior to the effective date of the requested order.
2. Applicants seek the ability to waive the CDSC on redemptions (a)
following the death or disability, as defined in section 72(m)(7) of
the Internal Revenue Code of 1986 (the ``Code''), of a shareholder; (b)
in connection with distributions from a tax deferred retirement plan,
an individual retirement account, a custodial account maintained
pursuant to Code section 403(b)(7), or a pension plan or profit-sharing
plan when the redemptions are (i) after termination of employment or
retirement or, in the case of individual retirement accounts, after
attaining age 59\1/2\, (ii) resulting from the return of an excess
contribution, deferral amounts or aggregate contributions pursuant to
the Code, (iii) or resulting from the death or disability of employee,
(iv) by any 401(k) plan or pension, profit-sharing, stock bonus plans,
deferred compensation, or annuity plans under sections 401, 403(b)(7),
or 457 of the Code (``Benefit Plans'') whose accounts are held directly
with a Fund's transfer agent for which the transfer agent does
individual record keeping (``Direct Account Benefit Plans''), (v) of
shares of Benefit Plans sponsored by LNC Equity Sales (``Prototype
Benefit Plans''), (vi) of shares acquired with amounts used to repay a
loan from Direct Account Benefit Plans and on which a CDSC was
previously imposed, and (vii) by Direct Account Benefit Plans and
Prototype Benefit Plans which represent borrowings from such plans; (c)
by trust accounts following the death or disability of the beneficiary
or the grantor, trustee, or other fiduciary; (d) of shares purchased
through a LNC Equity Sales sales representative which were purchased
with the proceeds from the sale of any unaffiliated open-end investment
company other than a money market fund; (e) by profit-sharing or stock
bonus plans upon ``hardship'' of an employee, as determined by the
plan; (f) pursuant to a qualified domestic relations order, as defined
in section 414(p) of the Code; (g) by Direct Account Benefit Plans of
shares originally purchased subject to a CDSC and subsequently
exchanged for a Lower 12b-1 Class pursuant to an exchange privilege
afforded to such plans with total assets in excess of a specified
dollar amount; (h) of shares purchased with dividends or distributions
earned in other Funds; (i) made in connection with a systematic
withdrawal plan; and (j) by directors and officers of the Funds and
employees of LNIMC, LNC Equity Sales, and Lincoln National and their
subsidiaries.
3. In regards to waiver category (d) above, applicants will take
such steps as may be necessary to determine that the shareholder has
not paid a CDSC, fee, or other charge in connection with the redemption
of shares of such other open-end investment company, including, without
limitation, requiring the shareholder to provide a written
representation that neither a CDSC, fee, nor other charge was imposed
upon the redemption, and, in addition, either (a) requiring such
shareholder to provide an activity statement reflecting the redemption
that supports the shareholder's representation or (b) reviewing a copy
of the current prospectus of the other open-end investment company and
determining that such company does not impose a CDSC, fee, or other
charge in connection with the redemption of shares.
Applicants' Legal Analysis
1. Applicants request an exemption under section 6(c) from sections
18(f)(1), 18(g), and 18(i) of the Act to issue multiple classes of
shares representing interests in the same portfolio of securities.
Applicants believe that by implementing the multiple class distribution
system, the Funds would be able to facilitate the distribution of their
shares and provide a broad array of services without assuming excessive
accounting and bookkeeping costs. Applicants also believe that the
proposed allocation of expenses and voting rights in the manner
described above is equitable and would not discriminate against any
group of shareholders.
2. The proposed arrangement does not involve borrowings, and does
not affect the Funds' existing assets or reserves. The proposed
arrangement also will not increase the speculative character of the
shares of a Fund, since all such shares will participate in the Fund's
appreciation, income, and expenses in the manner described above.
3. Applicants also request an exemption under section 6(c) from
sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act and rule 22c-1
thereunder to assess and, under certain circumstances, waive a CDSC on
redemptions of shares. Applicants believe that their request to permit
the CDSC arrangement would place the purchaser in a better position
than if a sales load were imposed at the time of sale, since the
shareholder may have to pay only a reduced sales charge or no sales
charge at all.
Applicants' Conditions
A. The Multiple Class Distribution System
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund, and will be identical in all
respects, except as set forth below. The only differences among the
classes of the same Fund will relate solely to: (a) The impact of the
disproportionate rule 12b-fees, any higher incremental transfer agency
costs attributable solely to the classes, and any other incremental
expenses subsequently identified that should be properly allocated to
one or more classes and which shall be approved by the SEC pursuant to
an amended order; (b) the fact that the classes will vote separately
with respect to the rule 12b-1 plan, if any, adopted by each class of
the Fund, except as set forth in condition 14 below; (c) the difference
in exchange privileges of the classes of shares; (d) the designation of
each class of shares of the Fund; and (e) the difference in conversion
features of the classes of shares.
2. The directors of a Fund, including a majority of the independent
directors, will approve the creation and issuance of any new classes of
shares in the Fund. The minutes of the meetings of the board of
directors of a Fund regarding the deliberations of the directors with
respect to the approvals necessary to add or change a class of shares
will reflect in detail the reasons for determining that offering any of
the proposed Alternative Purchase Plans is in the best interests of the
Fund and its shareholders.
3. On an ongoing basis, the directors of a Fund, pursuant to their
fiduciary responsibilities under the Act and otherwise, will monitor
the Fund for the existence of any material conflicts between the
interests of the various classes of shares offered by the Fund. The
directors, including a majority of the independent directors, shall
take such action as is reasonably necessary to eliminate any such
conflicts that may develop. The Investment Adviser and the Distributor
will be responsible for reporting any potential or existing conflicts
to the boards of directors. If a conflict arises, the Investment
Adviser and the Distributor at their own cost will remedy such conflict
up to and including, if necessary, establishing new registered
management investment companies.
4. The directors of the Funds with regard to Funds with rule 12b-1
plans will receive quarterly and annual statements concerning
distribution and shareholder servicing expenditures complying with
paragraph (b)(3)(ii) of rule 12b-1, as it may be amended from time to
time. In the statements, only expenditures properly attributable to the
sale or servicing of a particular class of shares will be used to
justify the rule 12b-1 fee charged to that class. Expenditures not
related to the sale or servicing of a particular class will not be
presented to the directors to justify rule 12b-1 fees charged to
shareholders of that class. The statements, including the allocations
upon which they are based, will be subject to the review and approval
of the independent directors in the exercise of their fiduciary duties.
5. Dividends paid by a Fund with respect to its various classes of
shares, to the extent any dividends are paid, will be calculated in the
same manner, at the same time on the same day, and will be in the same
amount, except that rule 12b-1 fee payments relating to each respective
class of shares will be borne exclusively by that class and except that
any higher incremental transfer agency costs attributable solely to one
class will be borne exclusively by that class.
6. The methodology and procedures for calculating the net asset
value and dividends and distributions of multiple classes and the
proper allocation of expenses among them has been reviewed by an expert
(the ``Independent Examiner'') which has rendered a report to
applicants, which has been provided to the staff of the SEC, that such
methodology and procedures are adequate to ensure that such
calculations and allocations will be made in an appropriate manner. On
an ongoing basis, the Independent Examiner, or an appropriate
substitute Independent Examiner, will monitor the manner in which the
calculations and allocations are being made and, based upon such
review, will render at least annually a report to the Funds that the
calculations and allocations are being made properly. The reports of
the Independent Examiner shall be filed as part of the periodic reports
filed with the SEC pursuant to sections 30(a) and 30(b)(1) of the Act.
The work papers of the Independent Examiner with respect to such
reports, following request by a Fund (which each Fund agrees to
provide), will be available for inspection by the SEC staff upon the
written request to a Fund for such work papers by a senior member of
the Division of Investment Management, limited to the Director, an
Associate Director, the Chief Accountant, the Chief Financial Analyst,
an Assistant Director, and any Regional Administrators or Associate and
Assistant Administrators. The initial report of the Independent
Examiner is a ``report on policies and procedures placed in operation''
and the ongoing reports will be ``reports on policies and procedures
placed in operation and tests of operating effectiveness'' as defined
and described in SAS No. 70 of the AICPA, as it may be amended from
time to time, or in similar auditing standards as may be adopted by the
AICPA from time to time.
7. Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the various classes
of shares and the proper allocation of expenses among the various
classes of shares and this representation has been concurred with by
the Independent Examiner in the initial report referred to in condition
(6) above and will be concurred with by the Independent Examiner, or an
appropriate substitute Independent Examiner, on an ongoing basis at
least annually in the ongoing reports referred to in condition (6)
above. Applicants will take immediate corrective measures if this
representation is not concurred in by the Independent Examiner or an
appropriate substitute Independent Examiner.
8. The prospectuses of the Funds will contain a statement to the
effect that a salesperson and any other person entitled to receive
compensation for selling or servicing Fund shares may receive different
levels of compensation with respect to one particular class of shares
over another in a Fund.
9. The Distributor will adopt compliance standards as to when each
class of shares may appropriately be sold to particular investors.
Applicants will require all persons selling shares of the Funds to
agree to conform to such standards.
10. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the boards of directors of the
Funds with respect to the Alternative Purchase Plans will be set forth
in guidelines which will be furnished to the boards of directors.
11. Each Fund will disclose the expenses, performance data,
distribution arrangements, services, fees, sales loads, deferred sales
loads, conversion features, and exchange privileges applicable to each
class of shares of the Fund in every prospectus, regardless of whether
all classes of shares are offered through each prospectus. Each Fund
will disclose the respective expenses and performance data applicable
to all classes of shares in every shareholder report. The shareholder
reports will contain, in the statement of assets and liabilities and
statement of operations, information related to a Fund as a whole
generally and not on a per class basis. A Fund's per share data,
however, will be prepared on a per class basis with respect to all
classes of shares of such Fund. To the extent any advertisement or
sales literature describes the expenses or performance data applicable
to any class of shares, it will also disclose the expenses and/or
performance data applicable to all classes of shares. The information
provided by applicants for publication in any newspaper or similar
listing of a Fund's net asset value and public offering price will
present each outstanding class of shares separately.
12. Applicants acknowledge that the grant of the exemptive order
requested by the application will not imply SEC approval,
authorization, or acquiescence in any particular level of payments that
the Funds may make pursuant to rule 12b-1 plans in reliance on the
exemptive order.
13. Any class of shares with a conversion feature (``Purchase
Class'') will convert into another class (``Target Class'') of shares
on the basis of the relative net asset values of the two classes,
without the imposition of any sales load, fee, or other charge. After
conversion, the converted shares will be subject to an asset-based
sales charge and/or service fee (as those terms are defined in article
III, section 26 of the NASD's Rules of Fair Practice), if any, that in
the aggregate are lower than the asset-based sales charge and service
fee to which they were subject prior to the conversion.
14. If a Fund implements any amendment to a rule 12b-1 plan (or, if
presented to shareholders, adopts or implements any amendment to a non-
rule 12b-1 shareholder services plan) that would increase materially
the amount that may be borne by a Target Class under the plan, existing
Purchase Class shares will stop converting into shares of such Target
Class unless Purchase Class, voting separately as a class, approve the
amendment. The directors shall take such action as is necessary to
ensure that existing Purchase Class shares and exchanged or converted
into a new class of shares (``New Target Class''), identical in all
material respects to Target Class shares as they existed prior to
implementation of the amendment, no later than the date such shares
previously were scheduled to convert into Target Class shares. If
deemed advisable by the board of directors to implement the foregoing,
such action may include the exchange of all existing Purchase Class
shares for a new class (``New Purchase Class'') of shares, identical to
existing Purchase Class shares in all material respects except that the
New Purchase Class will convert into the New Target Class. The New
Target Class and New Purchase Class may be formed without further
exemptive relief. Exchanges or conversions described in this condition
shall be effected in a manner that the board of directors reasonably
believe will not be subject to federal taxation. In accordance with
condition 3, any additional cost associated with the creation,
exchange, or conversion of the New Target Class or New Purchase Class
shall be borne solely by the Investment Adviser and the Distributor.
Purchase Class shares sold after the implementation of the amendment
may convert into Target Class shares subject to the higher maximum
payment, provided that the material features of the Target Class plan
and the relationship of such plan to the Purchase Class are disclosed
in an effective registration statement.
B. The CDSC
1. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act (Investment Company Act Release No. 16619 (Nov. 2,
1988)), as such rule is currently proposed and as it may be reproposed,
adopted or amended.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-310 Filed 1-6-94; 8:45 am]
BILLING CODE 8010-01-M
