[Federal Register Volume 59, Number 29 (Friday, February 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3192]
[[Page Unknown]]
[Federal Register: February 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20056; 812-8642]
MetLife Portfolios, Inc., et al.; Application
February 4, 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: MetLife Portfolios, Inc. (``MetLife Portfolios'');
MetLife--State Street Equity Trust, MetLife--State Street Financial
Trust, MetLife--State Street Income Trust, MetLife--State Street Money
Market Trust, MetLife--State Street Tax-Exempt Trust, State Street
Capital Trust, State Street Exchange Trust, State Street Fund for
Foundations and Endowments, State Street Growth Trust, State Street
Master Investment Trust, and State Street Research Securities Trust
(the ``Trusts''); GFM International Investors Limited, State Street
Research Investment Services, Inc., and State Street Research &
Management Company.
RELEVANT ACT SECTIONS: Conditional order requested under section 6(c)
for an exemption from sections 2(a)(32), 2(a)(35), 18(f), 18(g), 18(i),
22(c), and 22(d) of the Act and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants seek a conditional order under
section 6(c) to amend a prior order (the ``Prior Order'') \1\that
permits the Trusts to issue multiple classes of shares representing
interests in the same portfolio of securities, assess a contingent
deferred sales charge (``CDSC'') on certain redemptions of shares, and
waive the CDSC in certain cases.
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\1\MetLife--State Street Equity Trust, et al., Investment
Company Act Release Nos. 19227 (Jan. 22, 1993) (notice) and 19268
(Feb. 17, 1993) (order).
FILING DATE: The application was filed on October 18, 1993 and amended
on January 14, 1994. Counsel, on behalf of the applicants, has agreed
to file a further amendment during the notice period to make certain
technical changes. This notice reflects the changes to be made to the
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application by such further amendment.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on February 28,
1994, and should be accompanied by proof of service on applicants, in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549.
MetLife Portfolios, Inc. and GFM International Investors Limited, One
Madison Avenue, New York, New York 10010. All other applicants, One
Financial Center, Boston, Massachusetts 02111-2609.
FOR FURTHER INFORMATION CONTACT: James E. Anderson, Staff Attorney, at
(202) 272-7207, or C. David Messman, Branch Chief, at (202) 272-3018
(Office of Investment Company Regulation, Division of Investment
Management).
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.
Applicant's Representations
1. The Trusts and Metlife Portfolios, Inc. are open-end management
investment companies registered under the Act. Each of the Trusts is
organized as a Massachusetts business trust. Metlife Portfolios, Inc.
is organized as a Maryland corporation. The Trusts and Metlife
Portfolios are each series companies, with each series being referred
to herein as a Series. State Street Research Investment Services acts
as the distributor with respect to all of the applicant investment
companies other than State Street Fund for Foundations and Endowments.
State Street Research Investment Services also acts as investment
adviser to the two Series offered by Metlife Portfolios. GFM
International Investors Limited acts as sub-adviser to the Series of
Metlife Portfolios. State Street Research and Management acts as
investment adviser to the other Series.
2. The Prior Order authorized the Trusts and other investment
companies that become a part of the same ``group of investment
companies,'' as defined in rule 11a-3 under the Act, any future
portfolio series of the Trusts, and certain future investment companies
to issue multiple classes of shares representing interests in the same
portfolio of securities, to assess CDSC on certain redemptions of
shares, and to waive the CDSC in certain cases. Applicants seek to
amend the Prior Order to: (a) Add Metlife Portfolios and GFM
International Investors Limited as applicants; (b) provide for separate
prospectuses and sales literature relating to certain classes of the
Series offered solely to institutional investors; (c) permit the waiver
of any CDSC on redemptions of shares by Metropolitan Life Insurance
Company, State Street Research & Management Company, and State Street
Research Investment Services, Inc.; and (d) permit certain exchanges
not provided for by the Prior Order.
3. Metlife Portfolios presently may not rely on the Prior Order.
Metlife Portfolios was in existence at the time the application for the
Prior Order was filed and thus does not fall within the category of
``future funds'' permitted to rely on the Prior Order. Metlife
Portfolios also is not part of the same ``group of investment
companies'' as the Trusts.
4. Applicants propose to offer Class C shares (as defined in the
notice of the application for the Prior Order) of the Series and any
other classes of shares that may be created in the future and offered
to institutional investors (collectively, ``Institutional Shares'')
pursuant to separate prospectuses providing only limited disclosure
about each other class of shares of the Series. Institutional Shares
will be offered only to the following six categories of investors: (a)
Unaffiliated benefit plans such as qualified retirement plans, other
than individual retirement accounts and self-employed retirement plans,
with total assets in excess of $10 million or such other amounts as the
Series may establish and with such other characteristics as the Series
may establish; (b) tax-exempt retirement plans of State Street Research
& Management Company and its affiliates, including the retirement plans
of State Street Research & Management Company's affiliated brokers; (c)
unit investment trusts (``UITs'') sponsored by State Street Research &
Management Company or its affiliates; (d) banks and insurance companies
purchasing for their own accounts; (e) investment companies not
affiliated with State Street Research & Management Company; and (f)
endowment funds of non-profit organizations with total assets in excess
of $10 million or such other amounts as the Series may establish.
5. The unaffiliated benefit plans in category (a) will have a
separate trustee for the plan who is vested with investment discretion
as to plan assets. The plan beneficiaries will have limited ability to
access their plan investments without incurring adverse tax
consequences. The assets of the tax-exempt retirement plans in category
(b) will be held in trust by a trustee, and the employees who
participate in such plans will have limited pre-retirement access to
their plan investments. The UITs in category (c) will, under current
regulations, require a separate order of exemption pursuant to section
6(c) in order to invest in shares of the Series. In addition, the UITs
will invest in fixed pools of securities, which will include
Institutional Shares of the Series but will also include other
securities. The investors in categories (d), (e), and (f) will not be
affiliated persons or affiliated persons of affiliated persons of State
Street Research & Management Company and State Street Research
Investment Services, Inc.
6. The definitions of institutional and non-institutional investors
will be applied to assure that the two groups will not overlap.
Applicants may choose not to make a particular class of Institutional
Shares available to one or more categories of institutional investors.
If no class of Institutional Shares is made available to a particular
category of institutional investor, institutional investors in this
category will be permitted to purchase non-institutional shares. No
institutional investor that is eligible to invest in any class of
Institutional Shares, however, will be permitted by applicants to
invest in any class of non-institutional shares.
7. In addition to the waiver categories provided for in the Prior
Order, applicants also propose to waive the CDSC permitted under the
Prior Order in connection will all redemptions of shares subject to a
CDSC by Metropolitan Life Insurance Company, State Street Research &
Management Company, and State Street Research Investment Services, Inc.
These entities invest in all or some of the classes essentially to
provide start-up capital. With respect to purchases by these entities,
no significant marketing or selling expenses are incurred, and the
other shareholders of the Series would not be adversely affected by the
proposed CDSC waiver.
8. The application for the Prior Order provides that each share of
a particular class will be exchanged only for shares of the same
available class of another Series. Applicants propose to permit each
class of shares generally to be exchanged for shares of a class with
similar characteristics in another Series. Applicants also propose to
permit shares of any class of a Series to be exchanged for shares of
certain money market funds. All such exchanges will comply with rule
11a-3, including the requirement that shares can be exchanged only
between Series that are within the same ``group of investment
companies'' as defined in rule 11a-3.
Applicants' Legal Analysis
1. Applicants seek an exemption from sections 18(g), 18(f)(1), and
18(i) of the Act to the extent the multiple class arrangement may
result in a senior security, as defined by section 18(g), the issuance
and sale of which would be prohibited by section 18(f)(1), and to the
extent the allocation of voting rights under the multiple class
arrangement may violate the provisions of section 18(i). Applicants
assert that the multiple class arrangement does not raise any of the
legislative concerns that section 18 of the Act was designed to
ameliorate. The proposal does not involve borrowings and does not
affect the Funds' existing assets or reserves. Each class of shares
will be redeemable at all time. No class of shares will have
distribution or liquidation preferences to particular assets and no
class will be protected by any reserve or other account. In addition,
the proposed arrangement will not increase the speculative character of
the shares of the Funds since all such shares will participate pro rata
in all of a Fund's income and expenses with the exception of the
differing Class Expenses.
2. Applicants state that owners of each class of shares may be
relieved of a portion of the fixed costs normally associated with
investing in mutual funds because such costs would, potentially, be
spread over a greater number of shares than they would be otherwise.
3. Applicants assert that the proposed allocation of expenses and
voting rights relating to the rule 12b-1 plans is equitable and would
not discriminate against any group of shareholders. With respect to any
class in a Fund, the rights and privileges of the shares in such class
would be identical.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each class of shares will represent interests in the same
portfolio of investments of a Series and will be identical in all
respects, except as set forth below. The only differences among classes
of shares of the same Series will relate solely to: (a) The impact of
the disproportionate payments made under the 12b-1 plan, any
incremental expenses which the board of directors of Metlife Portfolios
or the board of trustees of each Trust, including a majority of the
independent directors or trustees, determines should be allocated or
charged on a class basis, which expenses are limited to transfer agency
fees, printing and postage expenses relating to preparing and
distributing materials to shareholders and investors (such as
shareholder reports, prospectuses and proxies), blue sky and SEC
registration expenses, administrative and support personnel salaries
and expenses, litigation or other legal expenses relating to solely the
class, and directors' or trustees' fees incurred as a result of issues
relating solely to one class (together with fees payable pursuant to
12b-1 plans, ``Class Expenses''), and any other incremental expenses
subsequently identified that should be properly allocated or charged to
one class which shall be approved by the SEC pursuant to an amended
order; (b) the fact that the classes will vote separately with respect
to a Series' rule 12b-1 distribution plan and shareholder services
plan, except as provided in condition 16 below; (c) the different
exchange privileges of the classes of shares; (d) the fact that only
certain classes will have a conversion feature; and (e) the designation
of each class of shares of a Series.
2. The directors of Metlife Portfolios and the trustees of each
Trust, including a majority of the independent directors or trustees,
have approved the offering of different classes of shares (the ``Multi-
Class System''). The minutes of the meetings of the directors of
Metlife Portfolios and the trustees of each Trust regarding the
deliberations of the directors and trustees with respect to the
approvals necessary to implement the Multi-Class System will reflect in
detail the reasons for the directors' or trustees' determination that
the proposed Multi-Class System is in the best interests of Metlife
Portfolios and each Trust and their shareholders.
3. The initial determination of the Class Expenses that will be
allocated or charged to a particular class and any subsequent changes
thereto will be reviewed and approved by a vote of the board of
directors of Metlife Portfolios and board of trustees of each Trust
including a majority of the directors or trustees who are not
interested persons of the Trust or Metlife Portfolios. Any person
authorized to direct the allocation and disposition of monies paid or
payable by a Series to meet Class Expenses shall provide to the board
of directors or the board of trustees, and the directors or trustees
shall review, at least quarterly, a written report of the amounts of
such expenses and the purposes for which such expenditures were made.
4. On an ongoing basis, the directors of Metlife Portfolios and the
trustees of each Trust, pursuant to their fiduciary responsibilities
under the Act and otherwise, will monitor each Series for the existence
of any material conflicts among the interests of the various classes of
shares. The directors or trustees, including a majority of the
independent directors or trustees, will take such action as is
reasonably necessary to eliminate any such conflicts that may develop.
The investment adviser and the distributor of each series will be
responsible for reporting any potential or existing conflicts to the
directors or trustees. If a conflict arises, the investment adviser and
the distributor at their own cost will take such steps as are necessary
to remedy such conflict up to and including establishing a new
registered management investment company.
5. The directors or trustees will receive quarterly and annual
statements concerning the amounts expended under the 12b-1 plans and
related agreements 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 of shares will not be presented
to the directors or trustees to justify any fee attributable to that
class. The statement, including the allocations upon which they are
based, will be subject to the review and approval of the independent
directors or trustees in the exercise of their fiduciary duties.
6. Dividends paid by each Series with respect to a class of shares
of a Series will be calculated in the same manner, at the same time, on
the same day, and will in the same amount as dividends paid by the
Series with respect to each other class of shares in the same Series,
except that each particular class will bear exclusively its own Class
Expenses.
7. The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes and the
proper allocation of expenses among the classes has been reviewed by an
expert (the ``Expert'') who has rendered a report to the applicants,
which has been provided to the staff of the SEC, 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
Series that the calculations and allocations are being made properly.
The reports of the Expert shall be filed as part of the periodic
reports filed with the SEC pursuant to sections 30(a) and 30(b)(1) of
the Act and the work papers of the Expert with respect to such reports,
following request by Metlife Portfolios or any Trust, which Metlife
Portfolios or the Trust agrees to provide, will be available for
inspection by the SEC staff upon written request 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 Administrator or Associate or
Assistant Administrators. The initial report of the Expert is a
``Special Purpose'' report on the ``Design of a System'' as defined and
described in Statement of Auditing Standards No. 44 of the American
Institute of Certified Public Accountants (``AICPA''), 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 dividend and distributions of the various 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 7 above and will be
concurred with by the Expert or an appropriate substitute Expert on an
on-going basis at least annually in the on-going reports referred to in
that condition. Applicants will take immediate corrective action if the
Expert, or appropriate substitute Expert, does not so concur in the on-
going reports.
9. Each prospectus pursuant to which one or more classes of a
Series are offered will include a statement to the effect that a
salesperson or any other person entitled to receive compensation for
selling or servicing the shares may receive different compensation with
respect to one particular class of shares over another class in the
same Series.
10. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the directors of Metlife
Portfolios and trustees of each Trust with respect to the Multi-Class
System will be set forth in guidelines to be furnished to the directors
and trustees.
11. The Series will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads, deferred
sales loads, and exchange privileges applicable to each class of shares
other than Institutional Shares in every prospectus, regardless of
whether all classes are offered through each prospectus. Institutional
Shares may be offered pursuant to a separate prospectus. The prospectus
for Institutional Shares will disclose the existence of a Series' other
classes, and the prospectus for the Series' other classes will disclose
the existence of Institutional Shares and will identify the person
eligible to purchase Institutional Shares. The Series will disclose the
respective expenses and performance data applicable to all classes 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 Series as a whole generally and
not on a per class basis. Each Series' per share data, however, will be
prepared on a per class basis with respect to all classes of shares of
such Series. 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 shares except
Institutional Shares. Advertising materials reflecting the expenses or
performance data for Institutional Shares may be available only to
those persons eligible to purchase Institutional Shares. The
information provided by applicants for publication in any newspaper or
similar listing of the Series' net asset value and public offering
price will present each class of shares, except Institutional Shares,
separately.
12. In administering the CDSC, applicants will comply with proposed
rule 6c-10 under the Act, as such rule is currently proposed and as it
may be re-proposed, adopted, or amended.
13. Applicants acknowledge that the grant of the requested
exemptive order does not imply SEC approval, authorization of or
acquiescence in any particular level of payments that applicants may
make pursuant to their 12b-1 plan in reliance on this exemptive order.
14. The distributor 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 a Series to agree
to conform to such standards. Such compliance standards will require
that all investors eligible to purchase Institutional Shares be sold
only Institutional Shares, and vice-versa.
15. Any class of shares (``Purchase Class'') with a conversion
feature will convert into another class of shares (``Target Class'') 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
IV, 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 Series 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 or trustees
shall take such action as is necessary to ensure that existing Purchase
Class shares are exchanged or converted into a new class of shares
(``New Target Class''), identical in all material respects to Target
Class as it existed prior to implementation of the proposal, no later
than such shares previously were scheduled to convert into Target Class
shares. If deemed advisable by the directors or trustees 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. 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 or
trustees reasonably believe will not be subject to federal taxation. In
accordance with condition 4, any additional cost associated with the
creation, exchange, or conversion of new Target Class or New Purchase
Class shall be borne solely by the adviser and the distributor.
Purchase Class shares sold after the implementation of the proposal may
convert into Target Class shares subject to the higher maximum payment,
provided that the material features of the Target Class plan and the
relationship of such plan to the Purchase Class shares are disclosed in
an effective registration statement.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3192 Filed 2-10-94; 8:45 am]
BILLING CODE 8010-01-M
