[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]


-----------------------------------------------------------------------

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'').

-----------------------------------------------------------------------

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