[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31530]


[[Page Unknown]]

[Federal Register: December 23, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 20782; 812-9252]

 

United Funds Inc. et al.; Notice of Application

December 16, 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: United Funds, Inc., United Retirement Shares, Inc., United 
International Growth Fund, Inc., United Continental Income Funds, Inc., 
United Vanguard Fund, Inc., United Municipal Bond Fund, Inc., United 
High Income Fund, Inc., United Government Securities Fund, Inc., United 
New Concepts Fund, Inc., United Gold & Government Fund, Inc., United 
Municipal High Income Fund, Inc., United High Income Fund II, Inc., 
United Cash Management, Inc., and United Asset Strategy Fund, Inc. 
(collectively, the ``United Group Funds''); Waddell & Reed Funds, Inc. 
(the ``W&R Funds''); Waddell & Reed Investment Management Company 
(``WRIMCO''); Waddell & Reed, Inc. (``Waddell & Reed''); and any future 
open-end management investment company or series thereof (a) for which 
WRIMCO, or any person controlling, controlled by or under common 
control with WRIMCO, serves as investment adviser and/or Waddell & 
Reed, or any person controlling, controlled by or under common control 
with Waddell & Reed, serves as principal underwriter and (b) that 
issues and sells one or more classes of shares which are identical in 
all material respects to the classes described in the application.

relevant act sections: Order requested under 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 applications: Applicants request an order which would permit 
them to offer an unlimited number of classes, add a conversion feature, 
and assess and, under certain circumstances waive, a contingent 
deferred sales charge (``CDSC'') on redemptions of shares. The order 
would supersede a prior order that permits certain of the investment 
company applicants to assess and, under certain circumstances, waive a 
CDSC on redemptions of shares.

filing dates: The application was filed on September 27, 1994, and was 
amended on November 21, 1994 and December 14, 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 
applicant 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 10, 
1995, 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, N.W., Washington, D.C. 
20549. Applicants, 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, 
Kansas 66201-9217.

for further information contact: Sarah A. Wagman, Law Clerk, at (202) 
942-0654, or Barry D. Miller, Senior Special Counsel, 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 from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. Each of the United Group Funds and the W&R Funds (collectively, 
``Corporations'') is a Maryland corporation registered under the Act as 
an open-end, diversified management investment company.\1\ Some 
Corporations have multiple series, each of which has separate 
investment objectives and policies (hereinafter, the series of each 
Corporation, and each Corporation which is organized in other than 
series form and that in the future is subject to the order requested by 
this application, are referred to collectively as the ``Funds'' and 
individually as a ``Fund'').
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    \1\Each Corporation reserves the right to, and may, from time to 
time, reorganize from corporate to business trust or other form 
under the laws of another state, consistent with applicable state 
and federal law and the Corporation's articles of incorporation. 
Except as otherwise noted herein, references to Corporations, 
Directors, and articles of incorporation shall be deemed to apply to 
any form in which a Corporation or Fund may be organized.
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    2. For each existing Fund, WRIMCO serves as the investment adviser 
and Waddell & Reed serves as principal underwriter. WRIMCO is a wholly-
owned subsidiary of Waddell & Reed, which is an indirect subsidiary of 
Torchmark Corporation and United Investors Management Company, and is a 
direct subsidiary of Waddell & Reed Financial Services, Inc.
    3. Existing shares of United Group Funds, other than United Cash 
Management, Inc.\2\ and United Asset Strategy Fund, Inc.,\3\ are 
currently sold at net asset value per share plus a front-end sales 
charge. Shares of the W&R Funds are sold at net asset value per share 
plus a CDSC, in accordance with a prior order (the ``Prior Order'').\4\ 
In addition to the front-end sales charge and the CDSC described above, 
each Fund, other than United Cash Management, Inc., has adopted a rule 
12b-1 plan.
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    \2\Existing shares of United Cash Management, Inc. are sold at 
net asset value, without the imposition of a front-end sales load or 
CDSC.
    \3\On October 3, 1994, United Asset Strategy Fund, Inc. filed a 
registration statement to register its shares under the Securities 
Act of 1933. As of the date of this notice, its registration had not 
yet become effective.
    \4\Investment Company Act Release Nos. 18777 (June 11, 1992) 
(notice) and 18833 (July 7, 1992) (order). The Prior Order permits 
W&R Funds, WRIMCO, and Waddell & Reed to assess and, under certain 
circumstances, waive a CDSC on redemptions of shares. Applicants 
request that any order granted pursuant to this applicant supersede 
the Prior Order.
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A. The Multiple Class System

    1. Applicants seek an exemptive order that would permit the Funds 
to issue an unlimited number of classes of shares. Each class of such 
new shares (``New Shares'') of a Fund would be identical in all 
respects, except that: (a) Each class of shares would have a different 
class designation; (b) certain classes of shares may have different 
sales charges; (c) certain classes of shares may bear fees under a plan 
adopted pursuant to rule 12b-1 (``12b-1 Plan''), a non-rule 12b-1 
shareholder services plan (``Shareholder Services Plan''), or a 
combination of these (collectively, the ``Plans''); (d) each class of 
shares could also bear certain other expenses that are directly 
attributable only to that class (``Class Expenses,'' as described in 
condition 1, below); (e) only the holders of a class of shares would be 
entitled to vote on matters pertaining to a 12b-1 Plan and any related 
agreements, or any other matters, relating to such class; (f) exchange 
privileges could vary among the classes; and (g) only certain classes 
will have a conversion feature.
    2. Each 12b-1 Plan applicable to New Shares would contemplate 
compensation and/or reimbursement to the principal underwriter for: (1) 
the distribution of shares, the provision of other distribution-related 
services, and the payment of related expenses (``Distribution 
Services'');\5\ and/or (2) the provision of certain personal and/or 
account maintenance services and the payment of related expenses 
(``Maintenance Services'').\6\ The amount of 12b-1 Plan payments by a 
class of 12b-1 Shares for Distribution and Maintenance Services will 
not exceed .75% and .25%, respectively, per annum of the average daily 
net assets of that class, or such other amount as may be permitted 
pursuant to applicable NASD rules.
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    \5\These expenses may include, for example, advertising 
expenses, costs of printing and mailing to prospective shareholders 
prospectuses and other sales promotion materials relating to the 
applicable Fund, costs relating to the Distributor's selling and 
servicing activities, including, among other things, employee 
salaries and overhead expenses, and ongoing fees to entities that 
have sold shares subject to a rule 12b-1 Plan (``12b-1 Shares'').
    \6\These expenses may include, for example, ongoing fees to 
entities that provide such services.
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    3. Under a Shareholder Services Plan applicable to New Shares, one 
or more organizations would provide various administrative support 
services (``Support Services'') to shareholders of the particular 
class.\7\ With respect to each class of New Shares, a Fund could enter 
into Shareholder Services Plan agreements with the principal 
underwriter and/or other organizations, such as broker-dealers or 
banks.
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    \7\These services may include, for example, preparing, printing, 
and distributing prospectuses and annual reports to shareholders; 
ensuring compliance with securities laws; processing purchase, 
exchange, and redemption requests for shares from customers; 
providing information to shareholders concerning their shares; 
providing and maintaining elective services; acting as shareholder 
of record; maintaining account records; and responding to 
shareholder inquiries.
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    4. The Distribution, Maintenance, and/or Support Services provided 
under the Plans are intended to complement, rather than duplicate, the 
services to be provided to each Fund by WRIMCO, the principal 
underwriter, and the various parties that provide custody, shareholder 
servicing, and accounting services to each Fund. If a class of shares 
is subject to both a rule 12b-1 Plan and a Shareholder Services Plan, 
the services provided under one Plan would augment, rather than 
duplicate, the services provided under the other Plan. In establishing 
and implementing the Plans, applicants will comply with subsection (d) 
of Article III, section 26, of the Rules of Fair Practice of the 
National Association of Securities Dealers, Inc. (``NASD''), to the 
extent applicable.
    5. The expenses of a Corporation that has established more than one 
Fund, which expenses cannot be attributed directly to any one Fund 
(``Corporation Expenses'') will be allocated to each Fund based on the 
relative daily net assets of those Funds. Expenses which may be 
attributable to a particular Fund, but not to a particular class 
(``Fund Expenses''), will be allocated to each class of the particular 
Fund's shares based on the relative daily net assets of the class. 
Further, Plan payments and Class Expenses will be charged directly to 
the net assets of the particular class and thus will be borne on a pro 
rata basis by the outstanding shares of such class.
    6. The shares in different classes within a Fund will have 
different exchange privileges. The applicable exchange privileges will 
comply with rule 11a-3 under the Act.
    7. WRIMCO may choose to reimburse or waive Class Expenses on 
certain classes of the Fund on a voluntary, temporary basis. The amount 
of Class Expenses reimbursed or waived by WRIMCO may vary from class to 
class. Class Expenses are by their nature specific to a given class and 
obviously expected to vary from one class to another. Applicants thus 
believe that it is acceptable and consistent with shareholder 
expectations to reimburse or waive Class Expenses at different levels 
for different classes of the same Fund.
    8. In addition, WRIMCO may waive or reimburse Corporation Expenses 
and/or Fund Expenses (with or without a waiver or reimbursement of 
Class Expenses), but only if the same proportionate amount of 
Corporation Expenses and/or Fund Expenses is waived or reimbursed for 
each class of a Fund. Thus, any Corporation Expenses that are waived or 
reimbursed would be credited to each class of a Fund according to the 
relative net assets of the classes. Similarly, any Fund Expenses that 
are waived or reimbursed would be credited to each class of that Fund 
according to the relative net assets of the classes. Corporation 
Expenses and Fund Expenses apply equally to all classes of a given 
Fund. Accordingly, it may not be appropriate to waive or reimburse 
Corporation Expenses or Fund Expenses at different levels for different 
classes of the same Fund.
    9. Shares of one or more classes (``Purchase Class Shares'') may 
automatically convert to another class (``Target Class Shares'') after 
a prescribed period of time. It currently is expected that such 
Purchase Class Shares will convert to Target Class Shares following the 
expiration of approximately eight years from the purchase date, 
although a shorter period may be prescribed.
    10. Purchase Class Shares in a shareholder's account that were 
acquired through the reinvestment (or payment in shares) of dividends 
and other distributions paid in respect of Purchase Class Shares will 
be considered to be held in a separate sub-account (``Dividend Purchase 
Shares''). Each time any Purchase Class Shares in the shareholder's 
account covert to Target Class Shares, a pro rata share of the Dividend 
Purchase Shares also will convert to Target Class Shares. The portion 
converted will be determined by the ratio that the shareholder's 
convertain Purchase Class Shares bears to the total of the 
shareholder's Purchase Class Shares subject to the conversion feature, 
excluding Dividend Purchase Shares.
    11. The conversion of the Purchase Class Shares into Target Class 
Shares will be subject to the availability of an opinion of counsel or 
an Internal Revenue service private letter ruling to the effect that 
the conversion of the Purchase Class Shares does not constitute a 
taxable event under federal income tax law. The proposed conversion 
feature may be suspended if such a ruling or opinion is not available.

B. The CDSC

    1. Applicants also seek to impose a CDSC on redemptions of certain 
classes of shares of the Funds (``CDSC Shares'') and to waive or reduce 
the CDSC with respect to certain types of redemptions. Under the 
proposed CDSC arrangement, some or all shares of certain classes of a 
Fund may be subject to a CDSC if such shares are redeemed or 
repurchases within a prescribed period of time after their purchase. 
The CDSC may be imposed at a constant or declining rate over a 
specified period of years. No CDSC will be imposed with respect to: (a) 
the portion of redemption or repurchase proceeds attributable to 
increases in the value of the shares due to capital appreciation; (b) 
shares representing reinvestment or payment of dividends or other 
distributions; or (c) shares held for more than a certain time after 
their purchase. The amount of a CDSC would be calculated as the lesser 
of the net asset value of the shares at the time of purchase and the 
net asset value of the shares at the time of repurchase or redemption.
    2. In determining the applicability and rate of any CDSC, it will 
be assumed that a redemption is made first of shares representing 
capital appreciation, next of shares representing reinvestment of 
dividends and capital gains distributions, and finally of other shares 
held by the shareholder for the longest period of time. This will 
result in any such charge being imposed on the fewest number of shares 
at the lowest possible rate. The amount of the CDSC and the 
circumstances and timing of its imposition may vary among classes and 
may be changed with respect to any class. The Funds may change the 
length of time during which the CDSC will be imposed or the percentage 
used to calculate the amount of the CDSC, if issued shares would be 
unaffected or, if such issued shares would be affected, the changes 
would be to shareholders' benefit. Except in accordance with the Prior 
Order, a CDSC will not be imposed on any shares issued by the Funds 
prior to the date of the order requested by this application.
    3. Each Fund will have the ability to waive or reduce a CDSC in 
connection with certain categories of transactions, as described in 
that Fund's prospectus. In waiving or reducing a CDSC, the Funds will 
comply with the requirements of rule 22d-1 under the Act.

Applicants' Legal Analysis

    1. Applicants request an order pursuant to section 6(c) of the Act 
exempting them from sections 18(f)(1) and 18(g) of the Act to the 
extent that the proposed creation, issuance, and sale of multiple 
classes of shares may result in a ``senior security'' prohibited by 
section 18(f), and in a violation of section 18(i) of the Act to the 
extent that the different voting rights associated with such classes 
may be deemed to result in one or more classes of shares having unequal 
voting rights with other classes of shares. In addition, applicants 
request an exemption from sections 2(a)(32), 2(a)(35), 22(c), and 22(d) 
of the Act and rule 22c-1 thereunder, to the extent necessary to permit 
the proposed CDSC arrangement.
    2. Applicants believe that the proposed allocation of expenses and 
voting rights is equitable and would not discriminate against any group 
of shareholders. The proposed arrangement does not involve borrowing 
and will not affect the Funds's existing assets or reserves. It will 
not increase the speculative character of the shares in a Fund, since 
all shares will participate in all of the Fund's appreciation, income, 
and expenses in the manner described in the representations above.

Applicants' Conditions

    Applicants agree that the order granting the requested exemptions 
will be subject to the following conditions:
    1. Each class of shares of a Fund will represent interests in the 
same portfolio of investments, and be identical in all respects, except 
as set forth below. The only differences among the classes of shares of 
a Fund will relate solely to one or more of the following: (a) Expenses 
assessed to a class pursuant to a Plan, if any, with respect to such 
class; (b) the impact of Class Expenses, which are limited to any or 
all of the following: (i) transfer agent and shareholder servicing fees 
identified as being attributable to a specific class of shares, (ii) 
stationery, printing, postage, and delivery expenses related to 
preparing and distributing materials such as shareholder reports, 
prospectuses, and proxy statements to current shareholders of a 
specific class of shares, (iii) Blue Sky registration fees incurred by 
a specific class of shares, (iv) Commission registration fees incurred 
by a specific class of shares, (v) expenses of administrative personnel 
and services as required to support the shareholders of a specific 
class of shares, (vi) Directors' fees or expenses incurred as a result 
of issues relating to a specific class of shares, (vii) accounting 
expenses relating solely to a specific class of shares, (viii) 
auditors' fees, litigation expenses, and legal fees and expenses 
relating to a specific class of shares, (ix) expenses incurred in 
connection with shareholders meetings as a result of issues relating to 
a specific class of shares, and (x) any other expenses subsequently 
identified which should be properly allocated to a specific class of 
shares and which, as such, are approved by the Commission pursuant to 
an amended order; (c) certain classes of shares may have different 
sales charges; (d) the fact that the classes will vote separately with 
respect to matters relating to the applicable Plan or any other 
matters, if any, relating to a class, except as provided in condition 
16 below; (e) the different exchange privileges of the classes of 
shares, if any; (f) the designation of each class of shares of a Fund; 
and (g) the fact that only certain classes will have a conversion 
feature.
    2. The Board of Directors of each Corporation, including a majority 
of the Directors who are not interested persons of the Corporation 
(``Independent Directors''), will have approved the Multiple Class 
System with respect to a particular Fund of the Corporation prior to 
the implementation of the system by that Fund. The minutes of the 
meetings of the Board of the Corporation regarding the deliberations of 
the Directors with respect to the approvals necessary to implement the 
Multiple Class System will reflect in detail the reasons for the 
determination by the Board that the proposed Multiple Class System is 
in the best interests of each Fund and its shareholders.
    3. The initial determination of the Class Expenses that will be 
allocated to a particular class and any subsequent changes thereto will 
be reviewed and approved by a vote of the appropriate Board of 
Directors, 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 
applicable Board, and the Directors shall review, at least quarterly, a 
written report of the amounts so expended and the purposes for which 
such expenditures were made.
    4. On an ongoing basis, the Board of each Corporation, pursuant to 
its fiduciary responsibilities under the Act and otherwise, will 
monitor each Fund, as applicable, for the existence of any material 
conflicts among the interests of the classes of its shares, if there is 
more than one class. The Board, including a majority of the Independent 
Directors, shall take such action as is reasonably necessary to 
eliminate any such conflicts that may develop. Each Fund's principal 
underwriter and investment adviser will be responsible for reporting 
any potential or existing conflicts to the appropriate Board. If such a 
conflict arises, the Fund's principal underwriter and investment 
adviser, at their own expense, will take such actions as are necessary 
to remedy such conflict, including establishing a new registered 
management investment company, if necessary.
    5. Each 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.
    6. The principal underwriter of each Fund implementing a Multiple 
Class System 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 Fund to agree to conform 
to such standards.
    7. The Board of Directors of each Corporation will receive 
quarterly and annual statements concerning the amounts expended under 
the Corporation's Plans 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 fee for 
Distribution, Maintenance, or Support Services charged to that class. 
Expenditures not related to the sale or servicing of a particular class 
will not be presented to the Board of 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.
    8. Dividends and other distributions of income, including capital 
gains, paid by the Fund with respect to each class of its shares, to 
the extent any such dividends and other distributions are paid, will be 
declared and paid on the same day and at the same time, and will be 
determined in the same manner and will be in the same amount, except 
that the amount of dividends and other distributions declared and paid 
by a particular class may be different from that of another class 
because of Plan payments made by a class and Class Expenses borne 
exclusively by that class.
    9. The methodology and procedures for calculating the net asset 
value and dividends and other distributions of the classes and the 
proper allocation of expenses among the classes have been reviewed by 
an expert (the ``Expert'') who has rendered a report to the Applicants, 
which is attached as Exhibit A to the originally filed application, 
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, will render at 
least annually a report to the Funds that the calculations and 
allocations are being made properly. The reports of the Expert will be 
filed as part of the periodic reports filed with the Commission 
pursuant to sections 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 provide), will be available for inspection by 
the Commission staff upon the written request to the Funds 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 Expert is a ``Special Purpose'' report on 
``policies and procedures placed in operation'' in accordance with 
Statement of Auditing Standards (``SAS'') No. 70, ``Reports on the 
Processing of Transactions by Service Organizations,'' of the American 
Institute of Certified Public Accountants (``AICPA''). Ongoing reports 
will be ``reports on policies and procedures placed in operation and 
tests of operating effectiveness'' prepared in accordance with SAS No. 
70 of the AICPA, as it may be amended from time to time, or such other 
applicable auditing standards as may be adopted by the AICPA.
    10. Applicants have adequate facilities in place to ensure 
implementation of the methodology and procedures for calculating the 
net asset value and dividends and other distributions of the classes of 
shares and the proper allocation of expenses among the classes of 
shares, and this representation has been concurred with by the Expert 
in the initial report referred to in condition 9, 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 9, above. Applicants will take immediate corrective 
measures if the Expert, or appropriate substitute Expert, does not so 
concur in the ongoing reports.
    11. The prospectuses of each class of shares will contain a 
statement to the effect that a salesperson and any other person 
entitled to receive compensation for selling or servicing shares may 
receive different compensation with respect to one particular class of 
shares over another in the Funds.
    12. The conditions pursuant to which the exemptive order is granted 
and the duties and responsibilities of the Board of each Fund with 
respect to the Multiple Class System will be set forth in guidelines 
that will be furnished to the Directors.
    13. Each Fund implementing a Multiple Class System will disclose 
the respective expenses, performance data, distribution arrangements, 
services, fees, sales charges, and exchange privileges applicable to 
each class of its shares in every prospectus, regardless of whether all 
classes of its shares are offered pursuant to each prospectus. Each 
Fund will disclose the respective expenses and performance data 
applicable to all classes of its 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 also disclose the respective 
expenses and/or performance data applicable to all classes of that 
Fund's shares. The information provided by an applicant for publication 
in any newspaper or similar listing of a Fund's net asset value and 
public offering price will present each class of that Fund's shares 
separately.
    14. Applicants acknowledge that the grant of the exemptive order 
requested by this application will not imply Commission approval of, 
authorization of, or acquiescence in any particular level of payments 
that any Fund may make pursuant to a Plan in reliance on the exemptive 
order.
    15. Any class of shares with a conversion feature will convert into 
another class of shares on the basis of the relative net asset values 
of the two classes, without the imposition of any sales charge, 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.
    16. If a Fund implements any amendment to a 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 12b-1 
Plan, then existing Purchase Class Shares will stop converting into the 
Target Class Shares unless Purchase Class shareholders, voting 
separately as a class, approve the proposal. If the holders of a 
majority of the Purchase Class Shares fail to approve such amendment, 
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 Shares''), 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 Directors to implement the foregoing, such 
action may include the exchange of all existing Purchase Class Shares 
for a new class (``New Purchase Class Shares''), identical to existing 
Purchase Class Shares in all material respects except that the New 
Purchase Class Shares will convert into the New Target Class Shares. 
The New Target Class Shares and New Purchase Class Shares may be formed 
without further exemptive relief. Exchanges or conversions described in 
this condition shall be effected in a 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 the New Target Class Shares or New 
Purchase Class Shares will be borne solely by the investment adviser 
and the principal underwriter. Purchase Class Shares sold after the 
implementation of the amended 12b-1 Plan may convert into Target Class 
Shares subject to the higher maximum payment, provided that the 
material features of the amended 12b-1 Plan applicable to the Target 
Class Shares and the relationship of such amended 12b-1 Plan to the 
Purchase Class Shares are disclosed in an effective registration 
statement.
    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, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31530 Filed 12-22-94; 8:45 am]
BILLING CODE 8010-01-M