[Federal Register Volume 59, Number 116 (Friday, June 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14735]


[[Page Unknown]]

[Federal Register: June 17, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20351; 812-8762]

 

MIMLIC Asset Allocation Fund, Inc., et al.; Notice of Application

June 10, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: MIMLIC Asset Allocation Fund, Inc., MIMLIC Fixed Income 
Securities Fund, Inc., MIMLIC Investors Fund I, Inc., MIMLIC Mortgage 
Securities Income Fund, Inc., MIMLIC Money Market Fund, Inc. 
(collectively, the ``Applicant Funds''), MIMLIC Asset Management 
Company (the ``Adviser''), and MIMLIC Sales Corporation (the 
``Distributor''). Applicants also seek relief on behalf of registered, 
open-end management investment companies (collectively, with the 
Applicant Funds, the ``Funds'') for which the Adviser, or any person 
controlled by or under common control with the Adviser, hereafter may 
serve as investment adviser, or for which the Distributor, or any 
person controlled by or under common control with the Distributor, 
hereafter may serve as distributor of such Fund's shares.

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from 
sections 2(a) (32), 2(a) (35), 18(f), 18(g), 18(i), 22(c), and 22(d) of 
the Act, and rule 22c-1 thereunder.

SUMMARY OF APPLICATION: Applicants seek a conditional order to permit 
the Funds to create multiple classes of shares and to assess and, under 
certain circumstances, waive a contingent deferred sales charge 
(``CDSC'') upon the redemption of certain shares.

FILING DATES: The application was filed on January 10, 1994, and 
amended on April 6, 1994 and June 2, 1994. In a letter to the SEC, 
counsel to applicants agreed to file an amendment during the notice 
period to make certain changes to its application. This notice reflects 
the changes to be made to the application by such further amendment.
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 July 5, 1994, 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549. 
Applicants, 400 Robert Street North, St. Paul Minnesota 55101.

FOR FURTHER INFORMATION CONTACT:
James J. Dwyer, Staff Attorney, at (202) 942-0581, or C. David Messman, 
Branch Chief, at (202) 942-0564 (Division of Investment Management, 
Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Each Applicant Fund is a Minnesota corporation registered under 
the Act as an open-end management investment company. Except for MIMLIC 
Money Market Fund, Inc.\1\ the Applicant Funds currently offer shares 
to the public at net asset value plus a front-end sales charge 
(``FESC''). The shares currently also are subject to ongoing 
distribution and service fees pursuant to a plan adopted under rule 
12b-1 (the ``Plan'').\2\ For shares of the Asset Allocation Fund, the 
Plan Fees currently are up to .35% of that Fund's average daily net 
assets; for shares of each of the other Funds, the Plan Fees are up to 
.30% of each Fund's average daily net assets.
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    \1\MIMLIC Money Market Fund, Inc. (the ``Money Market Fund'') is 
a no-load fund that currently offers Class A shares to the public at 
net asset value. Applicants intend that the Money Market Fund and 
any other Funds that are ``money market'' Funds, as defined in rule 
2a-7 under the Act, will continue to issue shares at net asset value 
without the imposition of a FESC or CDSC, but that the Money Market 
Fund may offer multiple classes of shares with variations in 
distribution or service fees and in class expenses.
    \2\Applicants anticipate that all shareholder servicing fees 
will be imposed under a rule 12b-1 plan. Nevertheless, applicants 
may subsequently decide to impose a non-rule 12b-1 shareholder 
servicing fee. Accordingly, the term ``Plans,'' as used herein, 
collectively refers to any rule 12b-1 plans and any non-rule 12b-1 
shareholder services plans adopted in accordance with condition 16 
below. The term ``Plan Fees'' refers to any fees charged pursuant to 
any of the Plans.
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    2. The Adviser, a registered investment adviser, serves as each 
Applicant Fund's investment adviser. The Distributor, a registered 
broker-dealer, serves as principal underwriter of the shares of each 
Applicant Fund.
    3. Applicants seek relief to permit the Funds to offer multiple 
classes of shares that would differ only as set forth in condition 1 
below. The additional classes may be subject to a FESC, a CDSC, a 
combination of both, or neither, and also may be subject to Plan Fees. 
The Funds will not impose FESCs, CDSCs, or Plan Fees in excess of 
amounts permitted by article III, section 26 of the Rules of Fair 
Practice of the National Association of Securities Dealers, Inc. (the 
``NASD''), as they may be amended from time to time.
    4. Under the requested order, the Applicant Funds' currently 
outstanding shares will be designated ``Class A'' shares. Applicants 
contemplate selling a new class of shares (``Class B shares'') at net 
asset value without the imposition of a FESC at the time of purchase. 
Under the applicable rule 12b-1 plan, Class B shareholders initially 
will pay a shareholder services fee at an annual rate of up to .25%, 
and a distribution fee at an annual rate of up to .75%, of average 
daily net assets attributable to Class B shares. The Class B shares 
would be subject to a CDSC, as further described below. Class B shares 
would not be issued in connection with investments of $1,000,000 or 
more, but rather such investors would be permitted to invest in Class A 
shares, which would not be subject to a CDSC.
    5. Applicants contemplate that the Class B shares purchased by a 
shareholder automatically will convert to Class A shares of the same 
Fund after a certain holding period. Class B shares acquired through 
the reinvestment of dividends and distributions will be considered held 
in a separate sub-account. Each time any Class B shares purchased by a 
shareholder converts to Class A shares, a pro rata share of the Class B 
shares in the sub-account also will convert to Class A shares. 
Applicants may suspend such conversion if an expert's opinion or 
Internal Revenue Service ruling that such conversion does not 
constitute a taxable event under Federal income tax law is not 
available. The conversion feature would benefit long-term Class B 
shareholders by relieving them of most of the burden of distribution 
expenses after the Distributor has been compensated.
    6. Each service rendered to a specific class of shares will augment 
or replace, and not be duplicative of, any other service rendered to 
the class, or to the Fund. Expenses specific to a particular class of 
shares may be calculated and charged to the respective class. All other 
expenses incurred by a Fund will be allocated between the various 
classes based on the percentage of net assets of the class at the 
beginning of the day after adjusting for the prior day's capital share 
activity. Because of the differing class expenses and Plan Fees, the 
net income attributable to and the dividends payable on one class of 
shares of a Fund may be higher or lower than those of the other classes 
of shares of the same Fund. To the extent that a Fund has undistributed 
net income, the net asset value of the various classes of shares of the 
Fund may differ.
    7. Applicants contemplate that any class of shares of a Fund may be 
exchanged for shares of the corresponding class of other Funds. 
Exchanges also are permitted into money market Funds managed by the 
Adviser. All exchanges will comply with rule 11a-3 under the Act.
    8. Applicants also seek exemptive relief to permit the Funds to 
impose a CDSC on redemptions of Class B shares, and possibly other 
future classes of shares. The period during which the CDSC will apply 
(the ``CDSC period'') and the CDSC percentage will vary with the amount 
of the investment, and is expected to vary in the future depending on 
any Plan Fees, if any, imposed by a Fund with respect to the shares 
subject to the CDSC. The CDSC only would be imposed on shares issued on 
or after the date that the requested order is granted. In addition, any 
amendments to the CDSC will apply only when they are reflected in an 
amended and supplemented prospectus, and no such amendments adversely 
would affect shares issued prior to the effective date of such 
amendment.
    9. The applicable CDSC will be calculated on the lesser of the net 
asset value at the time the shares were issued or redeemed. No CDSC 
will be imposed on amounts representing capital appreciation, shares or 
amounts representing shares purchased through the reinvestment of 
dividends or capital gains distributions, or shares held for longer 
than the CDSC period. It will be assumed that redemptions will be made 
first of shares not subject to a CDSC in the order purchased, and then 
of shares subject to a CDSC in the order purchased. If a shareholder 
owns more than one class of shares and does not specify which shares 
are to be redeemed, shares not subject to a CDSC with the highest Plan 
Fees will be redeemed in full prior to any redemptions of shares not 
subject to a CDSC with lower Plan Fees.
    10. Applicants intend to waive the CDSC on redemptions of shares 
(a) resulting from the exercise of a Fund's right to liquidate a 
shareholder's account whose aggregate net asset value is less than the 
effective minimum size set forth in the Fund's then-current prospectus, 
and (b) in the event of the death or disability of a shareholder within 
the meaning of section 72(m)(7) of the Internal Revenue Code of 1986, 
as amended, provided that the shareholder held the shares at the time 
of death or initial determination of disability, and provided that the 
shareholder owned the shares as an individual or as a joint tenant with 
the right of survivorship or as a tenant-in-common.

Applicants' Legal Analysis

    1. Applicants request an exemptive order to the extent that the 
proposed issuance and sale of various classes of shares representing 
interests in the same Fund might be deemed: (a) To result in a ``senior 
security'' within the meaning of section 18(g); (b) prohibited by 
section 18(f)(1); and (c) to violate the equal voting provisions of 
section 18(i).
    2. Applicants believe that the proposed multi-class arrangement 
will better enable the Funds to meet the competitive demands of today's 
financial services industry. Under the multi-class arrangement, an 
investor will be able to choose the method of purchasing shares that is 
most beneficial given the amount of his or her purchase, the length of 
time the investor expects to hold his or her shares, and other relevant 
circumstances. The proposed arrangement would permit the Funds to 
facilitate both the distribution of their securities and provide 
investors with a broader choice as to the method of purchasing shares 
without assuming excessive accounting and bookkeeping costs or 
unnecessary investment risks.
    3. Applicants further believe that the proposed allocation of 
expenses and voting rights relating to the Plans in the manner 
described in the application is equitable and would not discriminate 
against any group of shareholders. In addition, such arrangements 
should not give rise to any conflicts of interest because the rights 
and privileges of each class of shares are substantially identical.
    4. Applicants submit that the proposed multi-class arrangement does 
not present any concerns that section 18 was designed to ameliorate. 
The multi-class arrangement does not involve borrowings, does not 
affect a Fund's existing assets or reserves, and does not involve a 
complex capital structure. The multi-class arrangement will not 
increase the speculative character of the shares of the Funds. No class 
of shares will have preference or priority over any other class of 
shares in a Fund with respect to particular assets, and no class of 
shares will be protected by any reserve or other account.
    5. Applicants submit that the requested exemption to permit the 
Funds to implement the proposed CDSC is appropriate in the public 
interest, and is consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. The 
proposed CDSC arrangements will provide shareholders the option of 
having greater investment dollars working for them from the time of 
their purchase than if a sales load had been imposed at such time.

Applicants' Conditions

    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 be identical in all respects, 
except as set forth below. The only differences among various classes 
of shares of the same Fund will relate solely to: (a) The designation 
of each class of shares of the Fund; (b) expenses assessed to a class 
as a result of a Plan providing for Plan Fees; (c) different expenses 
which the board of directors of a Fund may in the future determine to 
allocate to a specific class, which will be limited to: (i) Transfer 
agency fees as identified by the transfer agent as being attributable 
to a specific class; (ii) printing and postage expenses related to 
preparing and distributing materials such as shareholder reports, 
prospectuses, and proxies to current shareholders; (iii) Blue Sky 
registration fees incurred by a class of shares; (iv) SEC registration 
fees incurred by a class of shares; (v) the expenses of administrative 
personnel and services as required to support the shareholders of a 
specific class; (vi) litigation or other legal expenses relating solely 
to one class of shares; and (vii) directors' fees incurred as a result 
of issues relating to one class of shares; (d) voting rights on matters 
exclusively affecting one class of shares (e.g., the adoption, 
amendment, or termination of a Plan) in accordance with the procedures 
set forth in rule 12b-1, except as provided in condition 15 below; (e) 
the different exchange privileges of the various classes of shares as 
described in the prospectuses (and as more fully described in the 
statements of additional information) of the Funds; and (f) classes 
that impose a Plan Fee may convert to another Class. Any additional 
incremental expenses not specifically identified above that are 
subsequently identified and determined to be properly allocated to one 
class of shares shall not be so allocated until approved by the SEC 
pursuant to an amended order.
    2. The directors of each of the Funds, including a majority of the 
independent directors, shall have approved the multi-class distribution 
system prior to the implementation thereof by a particular Fund. The 
minutes of the meetings of the directors of each of the Funds regarding 
the deliberations of the directors with respect to the approvals 
necessary to implement the multi-class distribution system will reflect 
in detail the reasons for determining that the proposed multi-class 
distribution system is in the best interest of both the Fund and its 
shareholders.
    3. The initial determination of the class expenses, if any, that 
will be allocated to a particular class of a Fund and any subsequent 
changes thereto will be reviewed and approved by a vote of the 
directors of the affected Fund, including a majority of the independent 
directors. Any person authorized to direct the allocation and 
disposition of monies paid or payable by a Fund to meet class expenses 
shall provide to the directors, and the directors shall review, at 
least quarterly, a written report of the amounts so expended and the 
purpose for which the expenditures were made.
    4. On an ongoing basis, the directors of the Funds, pursuant to 
their fiduciary responsibilities under the Act and otherwise, will 
monitor each Fund for the existence of any material conflicts among the 
interests of the various classes of shares. 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 Adviser and the Distributor will be responsible for reporting any 
potential or existing conflicts to the directors. If a conflict arises, 
the Adviser and the Distributor at their own costs will remedy such 
conflict up to and including establishing a new registered management 
investment company.
    5. The directors of the Funds 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 any Plan 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 any Plan Fee 
attributable to that class. The statements, including the allocations 
upon which they are based, will be subject to the review and approval 
of the independent directors in the exercise of their fiduciary duties.
    6. Dividends paid by a Fund with respect to each class of shares, 
to the extent any dividends are paid, will be calculated in the same 
manner, at the same time, on the same day, and will be in the same 
amount, except that fee payments made under the Plan relating to a 
particular class will be borne exclusively by each such class and 
except that any class expenses will be borne by the applicable class of 
shares.
    7. The methodology and procedures for calculating the net asset 
value and dividends/distributions of the various classes and the proper 
allocation of income and expenses among the various classes has been 
reviewed by an expert (the ``Expert''). The Expert has rendered a 
report, which has been provided to the staff of the SEC, stating that 
such methodology and procedures are adequate to ensure that such 
calculations and allocations will be made in an appropriate manner. On 
an ongoing basis, the Expert, or an appropriate substitute Expert, will 
monitor the manner in which the calculations and allocations are being 
made and, based upon such review, they will render at least annually a 
report to the Funds that the calculations and allocations are being 
made properly. The reports of the Expert shall be filed as part of the 
periodic reports filed with the SEC pursuant to section 30(a) and 
30(b)(1) of the Act. The work papers of the Expert with respect to such 
reports, following request by the Funds which the Funds agree to make, 
will be available for inspection by the SEC staff upon the written 
request for such work papers by a senior member of the Division of 
Investment Management or of a Regional Office of the SEC, 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 Expert is a ``report on policies and procedures placed in 
operation'' and the ongoing reports will be ``reports on policies and 
procedures placed in operation and tests of operating effectiveness'' 
as defined and described in SAS No. 70 of the AICPA, as it may be 
amended from time to time, or in similar auditing standards as may be 
adopted by the AICPA from time to time.
    8. Applicants have adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset value and dividends/distributions among the various classes 
of shares and the proper allocation of income and expenses among such 
classes of shares and this representation has been concurred with by 
the Expert in its initial report referred to in condition 7 above and 
will be concurred with by the Expert, or an appropriate substitute 
Expert, on an ongoing basis at least annually in the ongoing reports 
referred to in condition 7 above. Applicants agree to take immediate 
corrective action if the Expert, or an appropriate substitute Expert, 
does not so concur in the ongoing reports.
    9. 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 for selling one particular class of shares over 
another in a Fund.
    10. The Distributor will adopt compliance standards as to when 
shares of a particular class may appropriately be sold to particular 
investors. Applicants will require all persons selling shares of the 
Funds to agree to conform to these standards.
    11. The conditions pursuant to which the exemptive order is granted 
and the duties and responsibilities of the directors of the Funds with 
respect to the multi-class distribution system will be set forth in 
guidelines which will be furnished to the directors.
    12. Each Fund prospectus (regardless of whether all classes of 
shares of such Fund are offered through such prospectus) will disclose 
the respective expenses, performance data, distribution arrangements, 
services, Plan Fees, FESC, CDSC, exchange privileges, and conversion 
features applicable to each class of shares. The shareholder reports of 
each Fund will disclose the respective expenses and performance data 
applicable to each class of shares in every shareholder report. The 
shareholder reports will contain, in the statement of assets and 
liabilities and statement of operations, information related to the 
Fund as a whole generally and not on a per class basis. Each Fund's per 
share data, however, will be prepared on a per class basis with respect 
to all classes of shares of such Fund. To the extent any advertisement 
or sales literature describes the expenses or performance data 
applicable to any class of shares, it will disclose the expenses and/or 
performance data applicable to all classes. The information provided by 
applicants for publication in any newspaper or similar listing of the 
Funds' net asset values and public offering prices will separately 
present each class of shares.
    13. Applicants acknowledge that the grant of the exemptive order 
requested by this application will not imply SEC approval, 
authorization, or acquiescence in any particular level of payments that 
the Funds may make pursuant to any Plans in reliance on the exemptive 
order.
    14. 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.
    15. If a Fund implements any amendment to its rule 12b-1 plan (or, 
if presented to shareholders, adopts or implements any amendments of a 
non-rule 12b-1 shareholder services plan) that would increase 
materially the amount that may be borne by the Target Class shares 
under the Plan, existing Purchase Class shares will stop converting 
into Target Class unless the Purchase Class shareholders, voting 
separately as a class, approve the proposal. The directors shall take 
such action as is necessary to ensure that existing Purchase Class 
shares are exchanged or converted into a new class of shares (``New 
Target Class''), identical in all material respects to Target Class as 
it existed prior to implementation of the proposal, no later than such 
shares previously were scheduled to convert into Target Class shares. 
If deemed advisable by the directors to implement the foregoing, such 
action may include the exchange of all existing Purchase Class shares 
for a new class (``New Purchase Class''), identical to existing 
Purchase Class shares in all material respects except that New Purchase 
Class will convert into New Target Class. New Target Class or New 
Purchase Class may be formed without further exemptive relief. 
Exchanges or conversions described in this condition shall be effected 
in any manner that the directors reasonably believe will not be subject 
to federal taxation. In accordance with condition 4, any additional 
cost associated with the creation, exchange, or conversion of New 
Target Class or New Purchase Class shall be borne solely by the Adviser 
and the Distributor. Purchase Class shares sold after the 
implementation of the proposal may convert into Target Class shares 
subject to the higher maximum payment, provided that the material 
features of the Plan of the Target Class and the relationship of such 
Plan to the Purchase Class shares are disclosed in an effective 
registration statement.
    16. The shareholder services plan will be adopted and operated in 
accordance with the procedures set forth in rule 12b-1 (b) through (f) 
as if the expenditures made thereunder were subject to rule 12b-1, 
except that shareholders need not enjoy the voting rights specified in 
rule 12b-1.
    17. 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 SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-14735 Filed 6-16-94; 8:45 am]
BILLING CODE 8010-01-M