[Federal Register Volume 59, Number 212 (Thursday, November 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27270]
[[Page Unknown]]
[Federal Register: November 3, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20666; 812-9294]
Select Strategies Trust, et al.; Notice of Application
October 28, 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: Select Strategies Trust, Series 1 and subsequent series and
any successor unit investment trust (the ``Trust'' and, each series,
separately, the ``Series''), NYLIFE Distributors, Inc. (the
``Distributor''), NYLIFE Depository Corporation (the ``Sponsor''),
MacKay-Shields Financial Corporation (the ``Adviser'') and any open-end
management investment company (or portfolio thereof), that may now or
in the future be advised by the Adviser, whose shares are distributed
by the Distributor, or that holds itself out to investors as part of a
``group of investment companies'' (the ``Funds''), as that term is
defined in rule 11a-3 under the Act.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act to
grant an exemption from sections 14(a) and 19(b) of the Act and rule
19b-1 thereunder; under sections 11 (a) and (c) of the Act to permit
certain offers of exchange; and under section 17(d) of the Act and rule
17d-1 thereunder to permit certain affiliated transactions.
SUMMARY OF APPLICATION: Applicants request an order: (a) permitting the
respective Series to invest in shares of an open-end investment company
and U.S. Treasury zero coupon obligations; (b) exempting the Sponsor
from having to take for its own account or place with others $100,000
worth of units in the Trust; (c) permitting the Trust to distribute
capital gains resulting from redemptions of Fund shares within a
reasonable time after receipt; (d) permitting certain offers of
exchange involving the Trust; and (e) permitting certain affiliated
transactions involving the Trust.
FILING DATES: The application was filed on October 19, 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 22,
1994, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons 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.
Applicants: 51 Madison Avenue, New York, New York 10291.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Law Clerk, at (202) 942-0573, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a unit investment trust, organized in series form
and registered under the Act. Units of each Series will be registered
under the Securities Act of 1933 (``Securities Act'') and will be
offered to the public. Each Series will be organized pursuant to a
trust indenture that will incorporate a master trust agreement relating
to the entire Trust (the agreement and indenture are collectively
referred to as the ``Trust Agreement''). The Trust Agreement will name
a qualified bank as trustee (the ``Trustee'').
2. Each unit of a Series will represent an undivided interest in an
unmanaged portfolio consisting of (i) U.S. Treasury bonds or notes
paying no current interest (zero coupon obligations) and (ii) shares of
a Fund. Each Series will acquire an amount of zero coupon obligations
that, upon termination of the Series, will be sufficient to pay each
initial investor purchasing units of the Trust Series on the first date
such units are offered for sale, the total amount that the investor
originally invested in the Series, plus sales charges incurred. The
remainder of the Series' proceeds will be invested in shares of a
single Fund.
3. The Sponsor will deposit in each Series zero coupon obligations
at a price determined by an independent evaluator and shares of a Fund
at their net asset value. With the deposit of the zero coupon
obligations and Fund shares in a Series, the Sponsor will have
established a proportionate relationship between the principal amount
of zero coupon obligations and Fund shares so that the initial
investors will receive at least their original purchase price,
including sales charges, upon termination of the Series. Simultaneously
with such deposit, the Trustee will deliver to the Sponsor registered
certificates for units in each Series which will represent the entire
ownership of the Series. The units of a Series will be offered for sale
to the public by the Sponsor through the final prospectus after the
registration statement of Form S-6 under the Securities Act has been
declared effective and clearance with the applicable state authorities
has been obtained.
4. The units will be offered initially at a price based on the net
asset value of the shares of a Fund selected for deposit in that
Series, the offering side value of the zero coupon obligations
deposited in the Series, plus a sales charge. An independent evaluator
will charge each Series an evaluation fee for the cost of determining
the value of zero coupon obligations that are deposited in the Series.
No such fee will be charged on Fund shares deposited in the Series
because the value of those securities is readily available. Upon
redemption, each Series will redeem units in that Series at prices
based on the aggregate bid side value of the zero coupon obligations
plus the net asset value of the Fund's shares.
5. Although it will not be obligated to do so, the Sponsor will
contract with a registered broker-dealer (the ``Market Maker''),
initially expected to be an organization unaffiliated with the Sponsor,
to maintain a secondary market for the units. The Market Maker will
repurchase the units at a price based on the aggregate bid side value
of the zero coupon obligations plus the net asset value of the Fund's
shares (excluding sales loads on Fund shares) and will reoffer the
units at this price plus a sales charge. The extent to which the Market
Maker maintains a secondary market for the units will reduce the number
of units presented to the Series for redemption and thus obviate the
need for the Series to sell zero coupon obligations or Fund shares to
meet redemption requests. In the event that the Sponsor does not enter
into or maintain a contract with the Market Maker, or the Market Maker
does not maintain a secondary market in the units, the Sponsor will
instruct the Trustee to sell Fund shares or zero coupon obligations,
the latter only if after the sale the original proportional
relationship between zero coupon obligations and unit value is
maintained.
6. The Sponsor will be permitted under the Trust Agreement to
deposit additional securities, which may result in a potential
corresponding increase in the number of units outstanding. Such units
may be continuously offered for sale to the public by means of a
prospectus. The Sponsor anticipates that any additional securities
deposited in the Series subsequent to the initial date of deposit in
connection with the sale of these additional units will maintain the
proportionate relationship between the principal amounts of zero coupon
obligations and Fund shares in the Series.
7. Each Fund will be an open-end management investment company that
is registered under the Act. Each Fund will be advised by the Adviser,
have its shares distributed by the Distributor, or otherwise be a fund
within the same group of investment companies, within the meaning of
rule 11a-3 under the Act. The Adviser is registered as an investment
adviser under the Investment Advisers Act of 1940. The Distributor is a
broker-dealer registered under the Securities Exchange Act of 1934.
8. Some of the Funds may impose front-end sales loads (``FESL''),
contingent deferred sales charges (``CDSC'') in accordance with an
exemptive order (the ``CDSC Order''),\1\ or rule 12b-1 fees. Any FESL
or CDSC will be waived by the Fund on purchases by a Series and any
rule 12b-1 fees will either be waived or rebated immediately to the
Trustee of a Series by the Fund. In the event that a rule 12b-1 fee is
rebated in this manner, the Series will use the rebated fee to pay for
that Series' expenses and distribute to unit holders any remainder. If
rule 12b-1 fees are not charged by the Fund, the Series will pay for
its expenses from any income received from distributions paid on Fund
shares and, if necessary, will sell Fund shares to pay for expenses.
Zero coupon obligations held by a Series will not be sold to pay for
Series or Trust expenses.
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\1\Investment Company Act Release Nos. 20284 (May 9, 1994)
(notice) and 20336 (June 6, 1994) (order).
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9. Each Series will terminate after a stated period of years,
initially expected to be approximately 10 to 15 years. At the
termination of a Series, unitholders will have a choice of receiving
(1) their pro rata share of the underlying Fund shares in kind and the
cash proceeds from the zero coupon obligations, (2) their pro rata
share of cash upon the liquidation of the Fund shares and zero coupon
obligations or (3) their pro rata share of the underlying Fund shares
in kind and investing the amount of cash proceeds from the zero coupon
obligations in additional Fund shares without paying a FESL or CDSC, if
any. After termination of a Series, unitholders electing the first or
last option will become shareholders of the particular Fund and will be
subject to their pro rata share of any rule 12b-1 fees charged by the
Fund, as are all other shareholders of the Fund.
Applicants' Legal Conclusions
1. Section 14(a) of the Act requires that investment companies have
$100,000 of net worth prior to making a public offering. As the Sponsor
intends to sell all of the Trust Series' units to the public, thereby
withdrawing certificates representing the entire beneficial ownership
of the Trust, applicants request exemptive relief from the net worth
requirement of section 14(a). Applicants will comply in all respects
with rule 14a-3, which provides an exemption from section 14(a), except
that the Trust will not restrict its portfolio investments to
``eligible trust securities.''
2. Section 19(b) and rule 19b-1 thereunder make it unlawful for a
registered investment company to distribute long-term capital gains
more often than once every twelve months. Applicants request an
exemption from section 19(b) and rule 19b-1 to the extent necessary to
permit any capital gains resulting from the redemption of Fund shares
to be distributed to unitholders along with the Trust's regular
quarterly distributions. In all other respects, applicants intend to
comply with rule 19b-1 under the Act.
3. Section 11(a) makes it unlawful for any registered open-end
investment company or principal underwriter for such company to make or
cause to be made certain offers of exchange on any basis other than the
relative net asset values of the securities to be exchanged, unless the
terms of the exchange offer have first been approved by the SEC.
Section 11(c) provides that section 11(a) will be applicable to any
type of exchange offer involving securities of a registered unit
investment trust, irrespective of the basis of exchange. Upon
termination of the Trust, unitholders will have the option, which could
be viewed as an exchange offer, to receive their pro rata share of the
underlying Fund shares in kind and invest the amount of cash proceeds
from the zero coupon obligations in additional Fund shares without the
imposition of a FESL or CDSC (although rule 12b-1 fees will be imposed
on the Fund shares ultimately held by the unitholder) (the ``Exchange
Option''). The ``exchange'' of Series' unit proceeds for Fund shares
will be at relative net asset value since the Fund will waive any FESL
or CDSC that it might otherwise impose if a unitholder selects the
Exchange Option. As such, aside from a rule 12b-1 fee, if any, that
would be imposed on unitholders once they became shareholders of a Fund
that imposed such a fee, there will be no economic incentive for a
broker to encourage a unitholder to select the Exchange Option at the
termination of the Series. Applicants believe that the terms of the
Exchange Option are fair and reasonable to the unitholders and
consistent with the policy and purpose of section 11.
4. Section 17(d) and rule 17d-1 under the Act make it unlawful for
any affiliated person or principal underwriter for a registered
investment company, and any affiliated person of such persons, acting
as principal, to effect any transaction in which such registered
company is a joint or a joint and several participant with such person,
unless the SEC has granted an order approving of the transaction.
Applicants believe that the conditions imposed in any order granted
will ensure that the proposed arrangement is consistent with the
provisions, policies and purposes of the Act, and that neither the
Trust nor the Fund will participate in the arrangement on a different
or less disadvantageous basis than other participants.
5. Applicants do not request relief under section 12(d)(1) of the
Act. Section 12(d)(1) limits purchases by registered investment
companies of securities issued by other investment companies. Section
12(d)(1) (E) provides, however, that section 12(d)(1) shall not apply
to securities purchased by a registered unit investment trust if the
securities are the only ``investment securities'' held by the trust.
Applicants believe that the U.S. Treasury zero coupon obligations are
not ``investment securities'' for purposes of section 12(d)(1) (E)\2\
and that the Fund shares are the only ``investment securities'' which
the Trust will hold. Accordingly, they do not believe relief from
section 12(d)(1) is necessary.
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\2\Equity Securities Trust, (pub. avail. Jan. 19, 1994).
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Applicants' Conditions
Applicants agree to the following as conditions to the granting of
the requested order:
1. The Trustee will not redeem Fund shares except to the extent
necessary to meet redemptions of units by unitholders, or to pay Trust
expenses should distributions and rebated rule 12b-1 fees received on
Fund shares prove insufficient to cover such expenses.
2. Any rule 12b-1 fees received by the Sponsor or the Distributor
in connection with the distribution of Fund shares to the Trust will be
immediately rebated to the Trustee.
3. All Trust Series investing in shares of the same Fund will be
structured so that their maturity dates will be at least thirty days
apart from one another.
4. Applicants will comply in all respects with the requirements of
rule 14a-3, except that the Trust will not restrict its portfolio
investments to ``eligible trust securities.''
5. Shares of a Fund which are held by a Series of the Trust will be
voted by the Trustee of the Trust, and the Trustees will vote all
shares of a Fund held in a Trust in the same proportion as all other
shares of that Fund not held by the Trust are voted.
6. No sales charge or redemption fee will be imposed on shares of a
Fund which are held by any Series of the Trust or on any shares
acquired by unitholders through reinvestment of dividends or
distributions or through reinvestment at termination.
7. The prospectus of each Trust Series and any sales literature or
advertising that mentions the existence of a reinvestment option will
disclose that shareholders who elect to invest in Fund shares will
incur a rule 12b-1 fee if the Fund imposes a rule 12b-1 fee.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-27270 Filed 11-2-94; 8:45 am]
BILLING CODE 8010-01-M
