[Federal Register Volume 59, Number 204 (Monday, October 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26277]


[[Page Unknown]]

[Federal Register: October 24, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20635; 812-9054]

 

Great Hall Investment Funds, Inc., et al.; Notice of Application

October 18, 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: Great Hall Investment Funds, Inc.; Insight Investment 
Management, Inc. (the ``Adviser''); and Dain Bosworth Incorporated and 
Rauscher Pierce Refsnes, Inc. (the ``Distributors'') and such other 
registered open-end management investment companies for which the 
Adviser, or any person controlled by or under common control with the 
Adviser, may serve as investment adviser, or for which either or both 
of the Distributors, or any person controlled by or under common 
control with the Distributors, may serve as Distributor (collectively, 
the ``Funds'').

Relevant Act Sections: Order requested pursuant to section 6(c) for 
exemptions 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 to permit the Funds to 
offer an unlimited number of classes of shares representing interests 
in the same portfolio of securities, and to assess and, under certain 
circumstances, waive a contingent deferred sales charge (``CDSC'').

Filing Date: The application was filed on June 15, 1994 and amended on 
October 17, 1994.

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 November 14, 
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 the date of a hearing may request notification by 
writing to the SEC's Secretary.

Addresses: Secretary, SEC, 450 Fifth Street NW., Washington, D.C. 
20549. Applicants, 60 South Sixth Street, Minneapolis, Minnesota 55402.

For Further Information Contact: Marianne H. Khawly, Law Clerk, at 
(202) 942-0562, 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 is available for a fee from the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Fund is an open-end diversified management investment 
company and is organized as a Minnesota corporation. The Fund's charter 
authorizes the Fund to issue its shares in more than one series, each 
series representing a separate portfolio of assets and liabilities. The 
Adviser serves as the investment adviser of each series of the Fund. 
The Distributors serve as the principal underwriters of the Fund's 
shares.
    2. The Fund currently consists of five series. Three series are 
money market series; Great Hall Prime Money Market Fund, Great Hall 
U.S. Money Market Fund, and Great Hall Tax-Free Money Market Fund. The 
other two series are non-money market series: Great Hall National Tax-
Exempt Fund and Great Hall Minnesota Insured Tax-Exempt Fund.
    3. Each non-money market series of the Fund currently offers its 
shares at net asset value plus a front-end sales charge in connection 
with investments of up to $1 million. Investments of $1 million are not 
subject to a front-end sales charge, but a CDSC is deducted in certain 
cases upon redemption of the Funds' shares.\1\ Each money market series 
currently offers its shares at net asset value without the imposition 
of any front-end sales charge or CDSC.
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    \1\See Investment Company Act Release Nos. 19461 (May 6, 1993) 
(notice) and 19512 (June 4, 1993) (order). This order will be 
superseded by the order requested hereby as to each Fund that 
implements a multi-class structure.
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    4. Applicants request an order pursuant to section 6(c) for 
exemptions 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 to permit the 
Funds to issue and sell multiple classes of shares, assess a CDSC on 
certain redemptions, and waive the CDSC in certain instances.
    5. The Funds initially propose to offer up to four different 
classes of shares. Class A shares will be subject to a conventional 
front-end sales load, except that investments of $1 million or more 
will not be subject to a front-end sales load but will be subject to a 
CDSC. Class A shares also will be subject to service and/or 
distribution fees at an aggregate annual rate of up to 0.30% of average 
daily net assets. The service fee portion may not exceed 0.25% of 
average daily net assets. The plan of distribution will be adopted 
pursuant to rule 12b-1 under the Act (a ``rule 12b-1 plan'') and/or, in 
the case of service fees only, pursuant to a shareholder service plan 
not subject to rule 12b-1 (a ``non-rule 12b-1 plan'').\2\ Existing 
shares of the Funds will be designated Class A shares upon 
implementation of the multiple distribution structure (the ``multi-
class system'').
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    \2\Rule 12b-1 plans and non-rule 12b-1 plans are hereinafter 
referred to generically as a ``plan'' or ``plans.'' Applicants 
currently anticipate that all shareholder servicing fees will be 
imposed under rule 12b-1 plans. Nevertheless, applicants may impose 
a shareholder servicing fee pursuant to a non-rule 12b-1 plan in 
accordance with condition 16 below.
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    6. Class B shares will not be subject to a front-end sales charge 
but will be subject to a CDSC which will decline over time. Applicants 
expect the CDSC to range from 4% on redemptions made during the first 
two years following purchase to 1% on redemptions made during the sixth 
year following purchase. Class B shares will be subject to a service 
fee at an annual rate of up to 0.25%, and a distribution fee at an 
annual rate of up to 0.75%, of average daily net assets. Class B shares 
will automatically convert into Class A shares after a specified period 
of time.
    7. Class C shares will not be subject to a front-end sales charge 
but will be subject to a CDSC of up to 1% on redemptions made during 
the first two years following purchase. Class C shares will be subject 
to a service fee at an annual rate of up to 0.25%, and a distribution 
fee at an annual rate of up to 0.75%, of average daily net assets. 
Class C shares will not be convertible into any other class of shares.
    8. Investors meeting minimum investment and/or other eligibility 
requirements established by applicants will be eligible to purchase 
certain exclusive shares (``Class Y shares''). Class Y shares will not 
be subject to a front-end sales load or a CDSC. They will be subject to 
a plan initially providing for combined service and/or distribution 
fees of up to 0.25% per annum of average daily net assets.\3\
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    \3\Applicants intend that upon the initial public offering of 
Class Y shares of a Fund, shareholders of any existing classes of 
such Fund who would qualify for investment in Class Y shares would 
have such existing classes automatically convert into Class Y shares 
on the basis of the relative net asset values of such classes of 
shares at the time of conversion.
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    9. Each money market series of a Fund may offer shares in two or 
more classes without a front-end sales charge or CDSC and with 
variations among classes only in service fees and or distribution fees 
(if any) and certain other class-specific expenses, as discussed below. 
The Funds also may establish one or more additional classes to be sold 
with different sales load, service, and distribution fee structures, as 
described below.
    10. The net asset value of all outstanding shares of all classes 
will be computed on the following basis. For daily-dividend money 
market funds, net investment income and fund-level expenses will be 
allocated daily based upon the relative value of net assets of all 
dividend-eligible (``settled'') shares of each class at the beginning 
of the day, after the net assets of each such class are adjusted for 
the prior day's capital share activity. For all other funds, income and 
fund level expenses will be allocated to each class based on the 
relative value of the net assets of all shares in each class at the 
beginning of the day, after the net assets of each such class are 
adjusted for the prior business day's capital share activity. For all 
funds, realized and unrealized gains and losses will be allocated to 
each class based on the relative percentage of net assets at the 
beginning of the day, after such net assets are adjusted for the prior 
business day's capital share activity of each class of shares. Class-
specific expenses will be calculated and charged to the appropriate 
class.
    11. The Funds will not impose front-end sales charges, CDSCs, 
service fees (or any combination thereof) in excess of amounts 
permitted by Article III, Section 26 of the rules of Fair Practice of 
the National Association of Securities Dealers, Inc. (``NASD'').
    12. Any CDSC imposed by a class of shares will be based on the 
lesser of the aggregate net asset value of the shares being redeemed 
either at the time of purchase or redemption. No CDSC will be imposed 
on shares acquired through reinvestment of income dividends or capital 
gains distributions. Upon any request for redemption of Class A, Class 
B, or Class C shares, it will be assumed that shares subject to no CDSC 
will be redeemed first in the order purchased. If a shareholder owns 
Class A, Class B, and Class C shares, then, absent a shareholder choice 
to the contrary, Class C shares not subject to a CDSC will be redeemed 
in full prior to any redemption of Class A or Class B shares not 
subject to a CDSC, and thereafter Class B shares not subject to a CDSC 
will be redeemed in full prior to any redemption of Class A shares not 
subject to a CDSC. It is expected that the CDSC schedule of the Funds 
will vary depending in part on the front-end sales load (if any) 
applicable to the shares and the compensation paid to a dealer for 
selling shares of the Fund. Any variation in the CDSC schedules will be 
set forth in the applicable prospectus. No CDSC will be imposed 
pursuant to the requested order on shares issued prior to the date of 
the order.
    13. Applicants request relief to permit each Fund to waive or 
reduce the CDSC in certain circumstances. Any waiver or reduction will 
comply with the conditions in paragraphs (a) through (d) or rule 22d-1 
under the Act.
    14. Applicants intend to provide a one time credit for any CDSC 
paid upon redemption, the proceeds of which are reinvested in the same 
class of shares of a Fund within 90 days of redemption. The Distributor 
will provide this credit from its own assets.
    15. Class B shares of a Fund held for a specified number of years 
will automatically convert to Class A shares of such Fund at the 
relative net asset values of each of the classes. For purposes of 
calculating the holding period, Class B shares will be deemed to have 
been issued on the sooner of: (a) the date on which the issuance of 
Class B shares occurred; or (b) for Class B shares obtained through an 
exchange, or a series of exchanges, the date on which the issuance of 
the original Class B shares occurred. Class B shares in a shareholder's 
Fund account that were purchased through the reinvestment of dividends 
and other distributions paid in respect of Class B shares will be 
considered to be held in a separate sub-account. Each time any Class B 
shares in the shareholder's Fund account (other than those held in the 
sub-account) convert to Class A shares, a pro rata portion of the Class 
B shares then in the sub-account will also convert to Class A shares. 
The portion will be determined by the ratio that the shareholder's 
Class B shares converting to Class A shares bears to the shareholder's 
total Class B shares not acquired through dividends and distributions. 
The automatic conversion feature will be subject to the continuing 
availability of a ruling from the Internal Revenue Service (or an 
expert's opinion) that the conversion will not constitute a taxable 
event under the Code.
    16. Applicants anticipate that a given class of shares will be 
exchangeable only for shares of the corresponding class of other Funds. 
Applicants will comply with rule 11a-3 as to all exchanges.

Applicants' Legal Analysis

    1. Applicants request an order exempting them from the provisions 
of sections 18(f)(1), 18(g), and 18(i) of the Act 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. The proposed allocation of expenses and voting rights relating 
to any rule 12b-1 plans and/or non-rule 12b-1 plans in the manner 
described 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 believe that the proposed multi-class arrangement 
does not present the concerns that section 18 of the Act was designed 
to address. The multi-class arrangement will not increase the 
speculative character of the shares of the Fund. The multi-class 
arrangement does not involve borrowing, nor will it affect the Funds' 
existing assets or reserves, and does not involve a complex capital 
structure. Nothing in the multi-class arrangement suggest that it will 
facilitate control by holders of any class of shares.
    5. 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 submit that the requested 
exemption to permit the Funds to implement the proposed CDSCs is 
appropriate in the public interest, consistent with the protection of 
investors, and consistent with the purposes fairly intended by the 
policy and provisions of the Act. The proposed CDSC arrangements will 
provide shareholders with the option of having their full payment 
invested for them at the time of their purchase of shares of the Funds 
with no deduction of an initial sales charge.

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 one or more plans providing for a service and/or 
distribution fee (as set forth above); (c) different expenses which the 
Board of Directors of a Fund may in the future determine to allocate to 
a specific class (``class-specific expenses''), 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 rule 12b-1 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; and (f) the different conversion 
features of the various classes of shares. 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 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 Variable Pricing System will reflect in detail the 
reasons for determining that the proposed multi-class system is in the 
best interest of the Fund and its shareholders.
    3. The initial determination of the class-specific 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-
specific 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 Distributors will be responsible for reporting any 
potential or existing conflicts to the directors. If a conflict arises, 
the Adviser and the Distributors at their own cost 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 distribution or servicing 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 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 plans relating to a 
particular class will be borne exclusively by each such class and 
except that any class-specific 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 classes has been reviewed 
by the Independent Examiner. The Independent Examiner 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 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 Examiners 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 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.
    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 Independent Examiner in its initial report referred to in condition 
7 above and will be concurred with by the Independent Examiner, or 
appropriate substitute Independent Examiner, 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 Independent 
Examiner, or appropriate substitute Independent Examiner, does not so 
concur in the ongoing reports.
    9. The prospectuses of the Funds will include 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. Applicants will adopt compliance standards as to when shares of 
a particular class may appropriately be sold to particular investors 
and 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 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, fees, front-end sales charge, 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 and ratios, 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 rule 12b-1 distribution plans or 
shareholder services 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 amendment 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 shares 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 the Target Class 
as it is existed prior to implementation of the proposal, no later than 
the date 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 shares will convert into New Target 
Class shares. 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 Distributors. 
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 Target Class plan and the 
relationship of such plan to the Purchase Class shares are disclosed in 
an effective registration statement.
    16. Any non-rule 12b-1 plan will be adopted and operated in 
accordance with the procedures set forth in paragraphs (b) through (f) 
of rule 12b-1 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. 16169 (Nov. 2, 
1988), as currently proposed and as it may be reproposed, adopted, or 
amended.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-26277 Filed 10-21-94; 8:45 am]
BILLING CODE 8010-01-M