MLX Corporation; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22930/812-10836]

MLX Corporation; Notice of Application

December 9, 1997.

AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under sections 6(c) and 6(e)

of the Investment Company Act of 1940 (the ``Act'').

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SUMMARY OF APPLICATION: Applicant requests an order under sections 6(c)

and 6(e) of the Act that would exempt it from all of the provisions of

the Act except sections 9, 17(a) (modified as discussed in the

application), 17(d) (modified as discussed in the application), 17(e),

17(f) (modified as discussed in the application), and 36 through 53 and

the rules and regulations under the Act until the earlier of the date

of the pending merger of applicant with Morton Metalcraft Holding Co.,

or June 30, 1998.

FILING DATE: The application was filed on October 27, 1997 and amended

on December 3, 1997. Applicant has agreed to file an additional

amendment, the substance of which is incorporated in this notice,

during the notice period.

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

December 29, 1997, and should be accompanied by proof of service on

applicant, 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 Fifth Street, NW., Washington, DC 20549.

MLX Corporation, 1000 Center Place, Norcross, Georgia 30093.

FOR FURTHER INFORMATION CONTACT:

Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Nadya B. Roytblat,

Assistant Director, 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, 450 Fifth Street, NW., Washington, DC

20549 (tel. 202-942-8090).

Applicant's Representation

1. MLX Corporation (``MLX'') was formed in 1984 as part of the

reorganization of McLouth Steel Company (``McLouth''), a maker of steel

products that filed for bankruptcy in 1982. Under the terms of the

organization, McLouth was renamed ``MLX Corporation'' and McLouth

shares were exchanged for new MLX shares. As part of the

reorganization, McLouth's operating business was sold to a separate

entity. MLX's sole remaining asset is the net operating losses

generated by McLouth's unprofitable operations. These net operating

losses are still available to offset future taxable income from

operations and are one of MLX's most important assets. MLX has

approximately 8,500 shareholders.

2. In 1985, MLX acquired S.K. Wellman Limited, Inc. (``Wellman''),

a company engaged in the design and manufacture of high energy friction

materials used primarily in aircraft brakes and heavy equipment brakes,

transmissions, and clutches (the ``Wellman Business''). From 1985

through 1987, MLX consummated various other acquisitions that

complemented the Wellman Business (the ``Wellman Acquisitions''). In

addition to the Wellman Acquisitions, in 1986, 1987, and 1988, MLX

acquired

[[Page 65722]]

the companies and assets comprising Pameco Corporation (``Pameco''), a

distributor of heating and air conditioning units. In 1992, MLX sold

Pameco, which enabled MLX to focus its efforts exclusively on the

Wellman Business.

3. In August 1994, a foreign competitor approached MLX management

with an unsolicited expression of interest in a business combination

with Wellman. This led to negotiations for the sale of all the capital

stock of its wholly-owned subsidiary, Wellman (the ``Wellman

Transaction''). The Wellman Transaction, which closed June 30, 1995,

left MLX with approximately $38 million in cash and cash equivalents,

no debt, and federal net operating loss carryforwards (``NOLs'') of

approximately $300 million available to offset future taxable income

from operations.

4. Since the Wellman Transaction, MLX has been engaged in the

process of identifying and evaluating potential acquisition candidates

for the purpose of acquiring a suitable operating business as soon as

reasonably possible. MLX's president and chief executive officer, the

only officer and one of only two employees, spends substantially all of

his time seeking acquisition candidates for MLX. In addition, MLX's

other employee spends substantially all of her time supporting the

activities of MLX's president and attending to the ministerial

functions of operating the company. MLX has developed financial and

operational criteria as a basis for evaluating prospective target

businesses and for narrowing the focus of its search. MLX's executive

officers and board of directors have been in constant communications

with professional groups, including investment bankers, lenders,

attorneys and accountants (collectively ``Financial Intermediaries'')

for the purposes of discussing MLX's acquisition criteria and exploring

acquisition opportunities. MLX has discussed its acquisition criteria

directly with over fifty Financial Intermediaries. Three Cities

Research, Inc. (``Three Cities''), a New York investment banking firm

that owns approximately 39% of MLX's outstanding common stock, has

assisted MLX in identifying, evaluating and negotiating potential

acquisitions. In addition, MLX has engaged, on a non-exclusive basis,

the investment banking firm of Smith Barney to canvas the market of

businesses for sale and analyze these against MLX's acquisition

criteria.

5. On May 19, 1997, MLX was granted an order (the ``Existing

Order'') exempting it from most of the provisions of the Act during the

period from the date of the Existing Order to December 31, 1997.\1\

However, in spite of its efforts, MLX has been unable to complete the

acquisition of an operating business. MLX has recently signed a

definitive merger agreement (the ``Pending Merger'') with Morton

Metalcraft Holding Co. (``Morton''), a leading contract manufacturer

and supplier of high quality fabricated sheet metal components and sub-

assemblies for construction, agricultural, and industrial equipment

manufacturers. Preliminary proxy materials seeking shareholder approval

for the Pending Merger were filed with the SEC on October 21, 1997.

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\1\ Investment Company Act Release Nos. 22626 (Apr. 21, 1997)

(notice) and 22667 (May 19, 1997) (order).

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6. MLX currently has NOLs of approximately $275 million available

to offset future taxable income from operations. In order for MLX to

retain its NOLs after the Pending Merger, section 382 of the Internal

Revenue Code of 1986, as amended (``Section 382'') requires existing

MLX shareholders to own 50% or more of the equity in MLX after the

Pending Merger. However, William D. Morton (``Mr. Morton''), President

and Chief Executive Officer of Morton, stated that he would only

consider a transaction which he would obtain voting control of the

entity resulting from the Pending Merger. In order to give Mr. Morton

effective voting control of MLX after the Pending Merger (i) MLX is

proposing that its shareholders approve a recapitalization that will be

structured to avoid an ownership change within the meaning of Section

382 (the ``Recapitalization'') and (ii) the transactions associated

with the Pending Merger, which includes a shareholders agreement and a

voting agreement, must be consummated (the ``Related Transactions'').

7. Under the Recapitalization, all existing common stock of MLX

will be re-classified as MLX Class A Common Stock (``Class A Common

Stock'') and a new class of 200,000 Shares of MLX Class B Common Stock

(``Class B Common Stock'') will be created. Certain affiliates of Three

Cities (``TCR Affiliates'') will own 100,000 shares of Class B Common

Stock. Class A Common Stock and Class B Common Stock will have equal

rights with respect to dividends and liquidation participation.\2\

Shareholders of Class A Common Stock and Class B Common Stock will vote

as a single class on all matters with each share of Class A Common

Stock entitled to one vote and each share of Class B Common Stock

entitled to one vote per share and increasing votes per share as the

shareholder disposes of certain shares \3\ of Class A Common Stock.

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\2\ Each share of Class B Common Stock will be convertible, at

the option of its holder, into one share of Class A Common Stock.

Each share of Class B Common Stock will automatically convert into

one share of Class A Common Stock (i) upon its sale or transfer to a

party unaffiliated with Mr. Morton or the TCR Affiliates and (ii) on

the tenth anniversary of the effective date of the Pending Merger.

\3\ Mr. Morton's voting power will also be increased by 338,990

shares of Class A Common Stock that are not taken into account in

calculating the voting power of his Class B Common Stock.

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8. Following the Pending Merger, Mr. Morton will own 1,218,990

shares of Class A Common Stock and 100,000 shares of Class B Common

Stock. TCR Affiliates will own 888,178 shares of Class A Common Stock

and 100,000 shares of Class B Common Stock. As Mr. Morton and TCR

Affiliates sell their shares of Class A Common Stock, the special

voting rights of the Class B Common Stock will ensure that Mr. Morton's

voting rights and the TCR Affiliates' voting rights will not be reduced

below 24%. Thus, after the Recapitalization and Pending Merger, Mr.

Morton and the TCR Affiliates together will have 56.5% of the voting

rights of MLX common shares.

9. In connection with the Pending Merger, Mr. Morton and TCR

Affiliates entered into a shareholders agreement (the ``Shareholders

Agreement'') whereby the benefits of the potential voting rights of

Class B Common Stock enure entirely to Mr. Morton. Under the terms of

the Shareholders Agreement, TCR Affiliates will grant Mr. Morton a

proxy to vote all of the Class A Common Stock and the Class B Common

Stock owned by TCR Affiliates. The proxy will cover all matters to be

voted upon by MLX's shareholders after the Pending Merger except for

the liquidation of MLX, and sale of MLX's assets, and certain

mergers.\4\

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\4\ In another Related Transaction, MLX has entered into a

securities purchase agreement with certain holders of Morton common

stock, options, and warrants whereby MLX will purchase shares of

Morton common stock, options, and warrants. The Morton securities

purchased by MLX will be cancelled by the Pending Merger.

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10. In connection with the Pending Merger, TCR Affiliates and

Morton have also entered into a voting agreement (the ``Voting

Agreement'') under which TCR Affiliates have agreed that at any meeting

of the MLX shareholders, TCR Affiliates will vote all the shares of MLX

common stock owned by them in favor of (i) the Recapitalization, (ii)

the Pending Merger, and (iii) a new employee stock option plan and each

of the other actions contemplated by or

[[Page 65723]]

required in furtherance of such transactions.

11. Until the Pending Merger, a substantial majority of the

potential acquisitions were rejected by MLX because of valuation

issues. In other instances, MLX was outbid for the target. As of

September 30, 1997, MLX had evaluated 225 transactions and made thirty-

one offers or valuation proposals. If for any reason, the Pending

Merger is not consummated, MLX plans to continue to be engaged in the

process of identifying and evaluating potential acquisition candidates

for the purpose of acquiring a suitable operating business as soon as

reasonably possible.

12. MLX states that there is no assurance that the Pending Merger

will be completed, if at all, by December 31, 1997. Accordingly, it is

necessary for MLX to seek a new order extending the time period of the

Existing Order. MLX requests an order under sections 6(c) and 6(e) of

the Act exempting it from all the provisions of the Act except sections

9, 17(a) (modified as discussed in the application), 17(d) (modified as

discussed in the application), 17(e), 17(f) (modified as discussed in

the application), and 36 through 53 and the rules and regulations under

the Act until the earlier of the date of the Pending Merger or June 30,

1998. MLX also requests a limited and specific exemption for the same

time period (i) under section 6(c) for an exemption from section 17(f)

to permit MLX to continue its present custodial arrangement, (ii) under

rule 17d-1 to grant an exemption from section 17(d) to permit MLX to

maintain, operate and comply with its stock option plans and

agreements, and (iii) under section 17(b) and rule 17d-1 for an

exemption from section 17(a) and section 17(d), respectively, to permit

MLX and TCR Affiliates to consummate the Pending Merger and Related

Transactions.

13. MLX's NOLs represent substantial value that may only be

maximized by acquiring a profitable operating company at a fair price.

The NOLs expire as follows: $144.3 million in 1997; $1.2 million in

1998; $73.8 million in 1999; $2.7 million in 2000; $2.2 million in

2002; $5.0 million in 2005; $2.0 million in 2006 and $47.3 million in

2007. The existence of the NOLs, together with their expiration

schedule, provide MLX with a strong incentive to close the acquisition

of a profitable operating business as soon as possible. Though

currently in transition, MLX expects to have acquired an operating

business by no later than June 30, 1998 or sooner if the Pending Merger

is completed. In the event that MLX is unable to acquire an operating

business by June 30, 1998, MLX's board of directors will consider the

alternatives available, including registration as an investment company

or dissolution. These alternatives would be considered in advance of

June 30, 1998 in order to allow sufficient time for the implementation

of any board decision.

14. Since the Wellman Transaction, MLX's revenues have been derived

from the investment of substantially all of its assets in overnight

repurchase agreements collateralized by United States Treasury and

agency securities. MLX's overnight repurchase agreement investment

program (the ``Program'') is administered by five large national banks

approved by MLX's board of directors. The Program is designed to: (a)

Maximize safety of capital, (b) assure availability of funds for the

purpose of consummating an acquisition, and (c) relieve MLX management

of the time-consuming management of those funds.

15. Access to MLX's funds is severely restricted. MLX has one

operating account for the purpose of executing routine operating

disbursements and business expenses, including salaries, rent and

taxes. The maximum amount of funds deposited in the account is limited

to no more than the anticipated expense level for the upcoming two

months, based on MLX's budget as approved by the board of directors.

Any disbursements from the operating account must be approved by the

chief executive officer and the account is reconciled on a monthly

basis. In addition, MLX's board of directors receives a monthly summary

report of expenses.

16. Five national banks invest the remainder of MLX's funds as part

of the Program, each of which is responsible for approximately equal

portions of $7 million. MLX's board of directors has designated First

Union National Bank as the primary bank. The non-primary banks are

Wachovia Bank of Georgia, National Bank, SunTrust Bank, and National

Bank of Detroit. All five banks are United States regulated banks and

meet the qualifications prescribed in section 26(a)(1) of the Act. The

non-primary banks have been instructed in writing to wire money only to

MLX's account at First Union National Bank and not to any other person

or entity. In addition, MLX's agreements with all of the banks (``Bank

Agreements'') contain provisions requiring the banks to segregate and

identify all securities owned by MLX as subject to the respective Bank

Agreement.

17. Transfers from any non-primary bank investment account in any

amount must be approved by an MLX executive officer and the Funds

Management Committee of the board of directors, and primary account

transfers (including check disbursements) in amounts above $5,000 must

be approved by an MLX executive officer and a member of the Committee.

In addition, the bank must verify the authenticity of the wire transfer

request by voice verification with a second, non-initiating MLX officer

in a phone call initiated by the bank. MLX also has secured an

executive protection policy from the Chubb Group of Insurance Companies

insuring MLX for, among other things, losses of money, securities and

other property caused by theft or forgery by any employee or agent of

MLX or by any other person in an amount not to exceed $5 million.

18. MLX has two stock option plans. Under the MLX Corporation Stock

Option Plan, adopted in 1985 (the ``1985 Plan''), MLX granted stock

options to certain officers, directors and key employees at prices not

less than the market value on the date the options were granted. No new

options may be granted under the 1985 Plan, although some options are

still outstanding. Under the MLX Corporation Stock Option and Incentive

Award Plan, adopted in 1995 (the ``1995 Plan''), stock-based awards may

be issued to key employees (including directors who are also employees)

and certain others. The awards may include incentive stock options,

non-qualified stock options, restricted stock, and outright stock

awards. A total of 125,000 shares of MLX common stock are reserved

under the 1995 Plan. In addition, on February 11, 1991, MLX issued

options to Brian R. Esher, its then Chief Executive Officer and

currently a director of MLX, to acquire 190,400 shares of MLX common

stock at a price of $5.00 per share, exercisable (subject to vesting

schedules which have been satisfied) at any time prior to February 10,

1998. Mr. Esher's options were converted to stock appreciation rights

and exercised as of February 28, 1997. On October 3, 1993, December 29,

1994 and July 26, 1995, MLX issued options to Thomas Waggoner, its then

Chief Financial Officer and current Chief Executive Officer, to acquire

50,000 shares of MLX common stock at prices ranging from $2.20 to $9.25

per share, exercisable at any time prior to July 25, 2000. It is also

possible for Mr. Waggoner's options to be converted to stock

appreciation rights.

Applicant's Legal Analysis

1. Section 3(a)(3) of the Act defines an investment company as an

issuer who is engaged or proposes to engage in the business of

investing, reinvesting,

[[Page 65724]]

owning, holding, or trading in securities and owns investment

securities having a value in excess of 40% of the issuer's total assets

(excluding Government securities and cash). MLX believes it may be an

investment company under section 3(a)(1)(C). However, MLX contends

that, if the Pending Merger is consummated, MLX would not be deemed to

be an investment company under section 3(a)(1)(C) of the Act.

2. Rule 3a-2 under the Act generally provides that, for purposes of

section 3(a)(3), an issuer will not be deemed to be engaged in the

business of investing, reinvesting, owning, holding, or trading in

securities for a period not exceeding one year if the issuer has a bona

fide intent to be engaged in a noninvestment company business. For the

period from July 1, 1995 through June 30, 1996, MLX operated under the

exemption provided by rule 3a-2.

3. Section 6(c) provides that the SEC may conditionally or

unconditionally exempt any person, security or transaction, or any

class thereof, from any provision of the Act, or of any rule or

regulation, if and to the extent that an exemption is necessary or

appropriate in the public interest and consistent with the protection

of investors and the purposes fairly intended by the policies and

provisions of the Act. Section 6(e) permits the SEC to require

companies exempted from the registration requirements of the Act to

comply with certain specified provisions thereof as though the company

were a registered investment company.

4. MLX asserts that registration under the Act would involve

unnecessary burden and expense for MLX and its shareholders where there

is no likelihood of abuse. MLX believes that registration would require

costly changes in its financial reporting requirements, because the

requirements are significantly different for investment companies. MLX

contends that making these changes during this interim period, until it

consummates the acquisition of an operating business, is likely to

result in considerable and unwarranted confusion of its shareholders

and the investing public. MLX states that many shareholders, as a

result of this confusion, might sell their positions in MLX, an event

which might have an adverse effect on the market price of MLX's

securities and consequently on MLX's remaining shareholders. MLX

asserts that those shareholders also would be deprived of the benefits

of a potential acquisition.

5. MLX contends that certain provisions of the Act also might

impair its ability to carry out its stated intention to acquire an

operating business. For example, MLX believes that (a) the shareholder

approval requirement of section 13(a)(4) of the Act would be a

significant obstacle to effecting any acquisition requiring rapid

action, (b) the cross-ownership prohibition of section 20(c) of the Act

would limit MLX's ability to attempt a takeover which was not favored

by the target sought to be acquired, and (c) the debt limitations of

section 18 of the Act might preclude bridge financing of an

acquisition. Also, MLX asserts that, if MLX is unable to obtain

shareholder approval for the Pending Merger and complete it prior to

December 31, 1997, failure to obtain the requested order may prevent

MLX from completing the Pending Merger after December 31, 1997.

6. MLX states that it is a reporting company under the Securities

Exchange Act of 1934 and is subject to extensive reporting and other

requirements for the protection of its shareholders. Further, MLX

asserts that its shareholders and the investing public have been

informed on numerous occasions of its intention to acquire an operating

business and the framework for its acquisition efforts. MLX also

asserts that it has pursued and remains committed to the acquisition of

a suitable operating business consistent with the best interests of its

shareholders.

7. MLX notes that, in determining whether to grant an exemption for

a transient investment company, the SEC considers these factors: (1)

Whether the failure of the company to become primarily engaged in a

non-investment company business within one year was due to factors

beyond its control; (2) whether the company's officers and employees

during that period tried, in good faith, to effect the company's

investment of its assets in a non-investment company business; and (3)

whether the company invested in securities solely to preserve the value

of its assets.

8. MLX states that, while it is using its best efforts, in good

faith, to acquire an operating business with the proceeds of the

Wellman Transaction, it has been unable, notwithstanding the Pending

Merger, to negotiate and complete a favorable transaction. MLX asserts

that this is attributable solely to factors beyond its control,

including the unavailability of suitable acquisition candidates and the

unwillingness of certain candidates to accept what MLX believed to be

reasonable offers. Moreover, MLX states that the purchase of a suitable

operating business of the size being pursued often requires a long

period of time. MLX contends that its ability to acquire an operating

business will depend upon the availability of suitable acquisition

candidates, the willingness of those candidates to accept MLX's offers

and the time needed to negotiate the terms of the acquisition and other

factors outside of its control.

9. MLX submits that management's efforts to invest its assets in a

non-investment company business are evident from the efforts of Three

Cities and the other Financial Intermediaries to provide assistance in

identifying acquisition candidates, which includes the Pending Merger,

and the fact that MLX's management spends substantially all of its time

on MLX's acquisition search and MLX's investments in overnight

repurchases agreements are made solely to maximize the safety of its

assets. MLX contends that its investments in overnight repurchase

agreements, motivated primarily by a desire to consummate an

acquisition and to preserve the value of capital pending consummation

of the acquisition, should not be subject to registration and

regulation under the Act.

10. Section 17(a) provides, in relevant part, that it is unlawful

for any affiliated person of a registered investment company or any

affiliated person of such person, acting as principal, knowingly to

sell any security or other property to such company or to purchase from

such company any security or other property. Section 17(b) of the Act

authorizes the SEC to issue an order of exemption from one or more of

the provisions of section 17(a) if evidence establishes that the terms

of the proposed transaction are reasonable and fair and do not involve

overreaching on the part of any person concerned, the proposed

transaction is consistent with the policy of each registered investment

company concerned, and the proposed transaction is consistent with the

general purposes of the Act. MLX believes that, because TCR Affiliates

are affiliates of Three Cities that own 39% of existing MLX shares, TCR

Affiliates may be deemed to be affiliated persons of MLX under section

2(a)(3) of the Act. Thus, MLX requests an exemption from the provisions

of section 17(a) to the extent necessary to permit the Pending Merger.

11. MLX states that TCR Affiliates, unlike other existing MLX

shareholders, will be receiving Class B Common Stock that permits TCR

Affiliates to retain a significant voting interest in MLX. However, MLX

contends that, despite the greater voting rights inherent in the Class

B Common Stock, TCR Affiliates have agreed under the Shareholders

[[Page 65725]]

Agreement to be subject to substantial detriment compared with all

other MLX shareholders. MLX asserts that the Pending Merger and Related

Transactions were designed to satisfy Mr. Morton's conditions regarding

control of MLX and to permit MLX to retain its major assets, the NOLs.

MLX also states that the Pending Merger and Related Transactions were

approved by MLX's board of directors, including MLX's disinterested

directors, and will not be effective unless approved by a vote of MLX's

shareholders. Further, MLX contends that TCR Affiliates are receiving

no additional equity or any fee as a result of the Pending Merger.

Finally, MLX asserts that the Pending Merger will permit MLX to acquire

a suitable operating business that will result in MLX no longer being

subject to the Act. Thus, MLX contends that the terms of the Pending

Merger are reasonable and fair and do not involve overreaching.

12. Section 17(d) and rule 17d-1 make it unlawful for any

affiliated person of a registered investment company, acting as

principal, to effect any transaction in which the company is a joint or

joint and several participant with the affiliated person unless the

transaction has been approved by order of the SEC. MLX requests an

exemption pursuant to section 17(d) and rule 17d-1 to the extent

necessary to permit MLX (i) to operate and comply with its stock option

plans and agreements and (ii) to consummate the Pending Merger and

Related Transactions.

13. MLX believes that compliance with section 17(d) of the Act and

the rules under the Act would prohibit operation of and compliance with

the 1985 Plan, the 1995 Plan, and Mr. Waggoner's Option Agreement. MLX

states that these options were granted as compensation to various

executive officers and key employees at different times prior to the

Wellman Transaction. MLX asserts that inability to realize the value of

those options would be unfair to the officers without the result being

necessary or appropriate in the public interest.

14. MLX believes that the participation of TCR Affiliates in the

Pending Merger and Related Transactions will be on a basis less

advantageous than that of other MLX shareholders. MLX contends that TCR

Affiliates will be giving up certain benefits retained by other MLX

shareholders in order to induce Morton to agree to the Pending Merger

and Related Transactions. MLX states that under the Shareholder

Agreement, TCR Affiliates will be transferring their voting rights to

Mr. Morton in order to give Mr. Morton voting control of MLX. In

addition, MLX asserts that the Shareholders Agreement contains severe

restrictions on TCR Affiliates' ability to transfer their shares.

Further, MLX asserts that under the Voting Agreement, TCR Affiliates

have agreed to vote their shares in MLX in favor of the Recaptalization

and Pending Merger. MLX states that for the reasons stated above under

section 17(a), MLX meets the standards of rule 17d-1. Thus, MLX

contends that no regulatory purpose would be served by prohibiting MLX

from consummating the Pending Merger and Related Transactions.

15. Section 17(f) provides that the securities and similar

investments of a registered management investment company must be

placed in the custody of a bank, a member of a national securities

exchange, or the company itself in accordance with SEC rules. MLX

states that all assets invested under the Program are in the custody of

qualified banks and the ability of the banks to transfer money in and

out is subject to numerous restrictions and checks and balances.

Furthermore, MLX states that those assets are insured up to $5 million,

an amount substantially in excess of what would be required under a

fidelity bond obtained under section 17(g) of the Act. MLX also states

that its custodial arrangements are consistent with the substantive

requirements of rule 17f-2 under the Act, except for paragraph (f)

thereof regarding the requirement for MLX's independent accountants to

conduct three actual examinations. MLX also submits that its financial

statements are audited annually by its independent accountants.

Applicant's Conditions

Applicant agrees that any order will be subject to the following

conditions:

1. During the period of time MLX is exempted from registration

under the Act, MLX will not purchase or otherwise acquire any

additional securities other than securities that are rated investment

grade or higher by a nationally recognized statistical rating

organization or, if unrated, deemed to be of comparable quality under

guidelines approved by MLX's board of directors, except that MLX may

make equity investments in issuers that are not investment companies,

as defined in section 3(a) of the Act (unless an issuer is covered by a

specific exclusion from the definition of investment company under

section 3(c) other than sections 3(c)(1) and 3(c)(7)), in the following

circumstances: (a) in connection with the consideration of the possible

acquisition of an operating business as evidenced by a resolution

approved by MLX's board of directors, and (b) in connection with the

acquisition of majority-owned subsidiaries.

2. MLX will allocate and utilize its accumulated cash and short-

term securities for the purpose of funding cash requirements for its

existing businesses or far acquiring one or more new businesses.

3. While any order is in effect, MLX's 10-K, 10-Q, and annual

reports to shareholders will state that an exemptive order has been

granted under sections 6(c) and 6(e) of the Act and that MLX and other

persons, in their transactions and relations with MLX, are subject to

sections 9, 17(a) (except as discussed in the application), 17(d)

(except as discussed in the application), 17(e), 17(f) (except as

discussed in the application), and 36 through 53 of the Act as if MLX

were a registered investment company.

4. MLX will obtain an amended order from the SEC prior to any

material modification of MLX's custodial arrangement in a manner not

described in the application.

For the Commission, by the Division of Investment Management,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97-32651 Filed 12-12-97; 8:45 am]

BILLING CODE 8010-01-M