[Federal Register Volume 59, Number 92 (Friday, May 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11703]
[[Page Unknown]]
[Federal Register: May 13, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20284; 812-7939]
New York Life Institutional Funds, Inc., et al.; Application
May 9, 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: New York Life Institutional Funds, Inc. (the ``Company''),
The MainStay Funds (the ``Trust''), and NYLIFE Distributors, Inc.
(``Nylife Distributors'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from
sections 2(a)(32), 2(a)(35), 18(f)(1), 18(g), 18(i), 22(c), and 22(d)
of the Act and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants seek an order that would permit the
Company and the Trust to (a) issue multiple classes of shares
representing interests in the same portfolio of securities and (b)
assess and, under certain circumstances, waive a contingent deferred
sales charge (``CDSC'') on redemptions of shares. The order will
supersede previous orders that permitted the assessment of a CDSC.
FILING DATE: The application was filed on June 9, 1992, and amended on
August 6, 1992, November 12, 1992, January 27, 1994, and May 5, 1994.
Applicants have agreed to file an additional amendment, the substance
of which is incorporated herein, 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
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 June 3, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549.
Applicants, 51 Madison Avenue, New York, New York 10010.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 272-3026, or Robert A.
Robertson, Branch Chief, at (202) 272-3030 (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.
Applicants' Representations
1. The Company and the Trust are open-end management investment
companies consisting of multiple series. Nylife Distributors serves as
distributor for the Company and the Trust. New York Life Insurance
Company (``New York Life''), MacKay-Shields Financial Corporation,
Monitor Capital Advisors, Inc., and Quorum Capital Management Limited
serve as investment advisers to individual series of the Company and
the Trust. New York Life serves as administrator to the Company, and
Nylife Distributors serves as administrator to the Trust. Nylife
Distributors, MacKay-Shields Financial Corporation, Monitor Capital
Advisors and Quorum Capital Management are wholly owned subsidiaries of
New York Life.
2. Applicants request that relief also extend to all series of the
Company or the Trust that may be created in the future and to other
registered open-end management investment companies for which Nylife
Distributors, or any entity that controls, is controlled by or is under
common control with Nylife Distributors, may serve as investment
adviser or distributor (collectively these investment companies, the
Company, and the Trust are the ``Funds'').
A. The Multiple Class Distribution System
1. Applicants propose to establish a multi-class distribution
system to enable each of the Funds to create an unlimited number of
classes of shares. Classes could be offered in connection with a 12b-1
plan (a ``12b-1 Plan''), a non-rule 12b-1 administrative services
arrangement (``Administrative Services Arrangement''), neither a 12b-1
Plan nor an Administrative Services Arrangement, or a combination of
these options. These classes also could be subject to different sales
loads. Classes offered subject to differing types of sales loads would
provide investors the option of purchasing shares that would either be
subject to a conventional front-end sales load (the ``Front-End
Option''), subject to a CDSC (the ``Deferred Option''), subject to a
combination of a front-end load and a CDSC (the combination option),
any of which could be coupled with a 12b-1 Plan or an Administrative
Services Arrangement, or not subject to any sales charges.
2. Under Administrative Services Arrangements, Funds may enter into
agreements (``Administrative Services Agreements'') with organizations
to provide services to the clients of the organization, who
beneficially own shares of a particular class. Alternatively, a Fund
may enter into an Administrative Services Agreement with the Fund's
administrator to provide services to class shareholders. With respect
to each class of shares, the Fund would pay an organization or the
administrator for its services in accordance with its particular
Administrative Services Agreement (such payments are ``Administrative
Services Payments'') and the expense of such payments would be borne
entirely by the beneficial owners of the class of shares to which each
such Administrative Services Agreement relates.
3. Expenses incurred by a Fund may not be attributable to a
particular portfolio or to a particular class of share of a portfolio
(``Corporate Level Expenses''). Certain expenses may be attributable to
a portfolio but not attributable to any particular class of the
portfolio's shares (``Fund Expenses''). Corporate Level and Fund
Expenses will be allocated among the classes of shares based on the
value of their relative net assets at the beginning of the day. In
addition to the cost of 12b-1 and/or Administrative Service Payments,
each class will bear certain expenses specifically attributable to the
particular class (``Class Expenses''), as provided in condition 1
below.
4. Applicants wish to have the ability to convert shares of one
class to those of another class, subject to conditions 5 and 16 below.
For example, shares of a Deferred Option class could convert after a
specified period of time to shares of the Front-End Option class in the
same portfolio. For purposes of conversion to Front-End Option shares,
all shares in a shareholder's account that had been purchased through
the reinvestment of dividends and other distributions paid in respect
of Deferred Option shares would be considered to be held in a separate
sub-account. Each time any Deferred Option shares in the shareholder's
fund account convert to Front-End Option shares, a pro rata portion of
the Deferred Option shares then in the sub-account also would convert
to Front-End Option shares. The portion would be determined by the
ratio that the shareholder's Deferred Option shares converting to
Front-End Option shares bears to the shareholder's total Deferred
Option shares not acquired through dividends and distributions.
5. Applicants propose that each class of shares sold without a
front-end sales load or subject to a CDSC be permitted to be exchanged
for shares of a class sold without a front-end sales load or subject to
a CDSC in the same or another Fund. Each class of shares sold with a
front-end sales load or subject to a CDSC would be only exchanged for
the same class of shares in a different Fund. The exchange privileges
would be operated in accordance with rule 11a-3 under the Act.
B. The CDSC
1. 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
permit the Funds to assess a CDSC on redemptions of certain classes of
shares, and to permit the Funds to waive the CDSC for certain types of
redemptions. The requested exemption will supersede three prior
orders.\1\ Each Fund's particular CDSC schedule may vary, but the sum
of any front-end sales charge, CDSC, and asset based sales charge will
not exceed the maximum sales charge provided in article III, section
26(d) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (``NASD'').
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\1\MacKay-Shields MainStay Series Funds, Investment Company Act
Release Nos. 15038 (Apr. 3, 1986) (notice), 15078 (Apr. 30, 1986)
(order), 15718 (May 5, 1987) (notice), and 15758 (May 29, 1987)
(order) and The Mainstay Funds, Investment Company Act Release Nos.
20046 (Jan. 21, 1994) and 20104 (Mar. 1, 1994).
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2. The CDSC will not be imposed on shares that were purchased more
than a specified period of years prior to their redemption or on shares
derived from the reinvestment of distributions. Furthermore, no CDSC
will be imposed on an amount that represents an increase in the value
of the shareholder's account resulting from capital appreciation above
the amount paid for shares purchased during the CDSC period. In
determining whether a CDSC is applicable, it will be assumed that a
redemption is made first of shares representing capital appreciation,
second of shares derived from reinvestment of dividends and capital
gains distributions, and finally of other shares held by the
shareholder for the longest period of time.
3. Applicants request the ability to waive or reduce the CDSC (a)
on redemptions following the death or disability, as defined in section
72(m)(7) of the Internal Revenue Code of 1986, as amended (the
``Code''), of a shareholder if redemption is made within one year of
death or disability of a shareholder; (b) in connection with
distributions permitted to be made under the Code without penalty from
an individual retirement account or other qualified retirement plan,
other than tax-free rollovers or transfers of assets; (c) in connection
with redemptions of shares purchased by active or retired officers,
directors or trustees, partners and employees of the Funds, the
distributor or affiliated companies, by members of the immediate
families of such persons, by dealers having a sales agreement with the
distributor, or any trust, pension, profit sharing plan for the benefit
of such persons; (d) on redemptions by New York Life or an affiliate
thereof; (e) in connection with redemptions of shares made pursuant to
a shareholder's participation in any systematic withdrawal plan adopted
by a Fund; (f) in connection with redemptions by accounts established
with an initial purchase order of $1 million or more; (g) in connection
with redemptions effected by separate accounts or advisory accounts
managed by New York Life or an affiliated company; (h) in connection
with redemptions by tax-exempt employee benefit plans resulting from
the adoption or promulgation of any law or regulation pursuant to which
continuation of the investment in the Funds would be improper; (i) in
connection with redemptions effected by registered investment companies
by virtue of transactions with a Fund; (j) in connection with
redemptions by any state, county, or city, or any instrumentality,
department, authority or agency thereof and by trust companies and bank
trust departments; (k) on redemptions made for the purpose of funding a
loan to a participant in a tax-qualified retirement plan permitted to
make such loans; (1) on transfers to (i) other funding vehicles
sponsored or distributed by New York Life or an affiliated company or
(ii) guaranteed investment contracts, regardless of the sponsor, within
a retirement plan; (m) on redemptions made to meet required
distributions by a charitable remainder trust under section 664 of the
Code; and (n) on redemptions by living revocable trusts.
Applicants' Legal Analysis
1. Applicants request an exemption under section 6(c) of the Act
from sections 18(f)(1), 18(g), and 18(i) of the Act to issue multiple
classes of shares representing interests in the same portfolio of
securities. Applicants believe that any implementing the multiple class
distribution system, the Funds would be able to facilitate the
distribution of their shares and provide a broad array of services
without assuming excessive accounting and bookkeeping costs. Applicants
also believe that the proposed allocation of expenses and voting rights
in the manner described above is equitable and would not discriminate
against any group of shareholders. The proposed arrangement does not
involve borrowings, and does not affect the Funds' existing assets or
reserves. The proposed arrangement also will not increase the
speculative character of the shares of a Fund.
2. Applicants also request an exemption under section 6(c) from
sections 2(a)(32), 2(a)(35), 22(c), and 22(d) of the Act and rule 22c-1
thereunder permitting applicants to assess and, under certain
circumstances, waive a CDSC on redemptions of shares. Applicants submit
that their request permits shareholders purchasing a class of shares
subject to a CDSC to have the advantage of greater investment dollars
working for them from the time of their purchase of shares of the Funds
than if a sales load were imposed at the time of purchase.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
A. Multiple Class Distribution System
1. Each class of shares will represent interests in the same
portfolio of investments of a Fund, and be identical in all respects,
except as set forth below. The only differences between the classes of
shares of a Fund relate solely to: (a) The method of financing certain
Class Expenses, which are limited to (i) transfer agency fees
identified by the transfer agent as being attributable to a specific
class of shares; (ii) printing and postage expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxies to current shareholders of a specific class;
(iii) blue sky registration fees incurred by a class of shares; (iv)
SEC registration fees incurred by a class of shares; (v) the expense of
administrative personnel and services as required to support the
shareholders of a specific class; (vi) litigation or other legal
expenses relating solely to one class of shares; and (vii) directors'/
trustees' fees incurred as a result of issues relating to one class of
shares; (b) expenses assessed to a class resulting from 12b-1 and
Administrative Services Payments; (c) voting rights as to matters
exclusively affecting one class of shares, except as provided in
condition (5) below; (d) exchange features; (e) conversion features;
and (f) class designation differences. Any additional incremental
expenses not specifically identified above which are subsequently
identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the SEC pursuant to
an amended order.
2. The directors of the Company, trustees of the Trust, and the
directors/trustees of any subsequently created Funds (collectively,
``Directors/Trustees''), including a majority of the independent
Directors/Trustees, will approve the offering of multiple classes of
shares (the ``Multi-Class System''). The minutes of the respective
meetings of the Directors/Trustees regarding the deliberations of the
Directors/Trustees with respect to the approvals necessary to implement
the Multi-Class System will reflect in detail the reasons for the
Directors/Trustees' determination that the proposed Multi-Class System
is in the best interests of both the Funds and their 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 board of Directors/Trustees
of the Funds including a majority of the Directors/Trustees who are not
interested persons of the Fund. 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 board of Directors/Trustees, and
the Directors/Trustees 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 Directors/Trustees, pursuant to their
fiduciary responsibilities under the Act and otherwise, will monitor
each Fund for the existence of any material conflicts between the
interests of the various classes of shares. The Directors/Trustees,
including a majority of the independent Directors/Trustees, shall take
such action as is reasonably necessary to eliminate any such conflicts
that may develop. Each Fund's adviser and distributor will be
responsible for reporting any potential or existing conflicts to the
Directors/Trustees. If a conflict arises, the Fund's adviser and
distributor at their own cost will remedy such conflict up to and
including establishing a new registered management investment company.
5. If a Fund implements any amendment to its 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 class of shares (for purposes of the
Application, ``Class X'') under the plan, existing shares of a class of
shares that converts into Class X shares after a period of time (for
purposes of the application, ``Class Y'') will stop converting into
Class X unless the Class Y shareholders, voting separately as a class,
approve the proposal. The Directors/Trustees shall take such action as
is necessary to ensure that existing Class Y shares are exchanged or
converted into a new class of shares (``New Class X''), identical in
all material respects to Class X as it existed prior to implementation
of the proposal, no later than the date such shares previously were
scheduled to convert into Class X. If deemed advisable by the
Directors/Trustees to implement the foregoing, such action may include
the exchange of all existing Class Y shares for a new class (``New
Class Y''), identical to existing Class Y shares in all material
respects except that New Class Y will convert into New Class X. New
Class X or New Class Y may be formed without further exemptive relief.
Exchanges or conversions described in this condition shall be effected
in any manner that the Directors/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 Class X or New Class Y shall be borne solely by the adviser and
the distributor. Class Y shares sold after the implementation of the
proposal may convert into Class X shares subject to the higher maximum
payment, provided that the material features of the Class X plan and
the relationship of such plan to the Class Y shares are disclosed in an
effective registration statement.
6. The Administrative Services Arrangements 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.
7. The Directors/Trustees of the Fund will receive quarterly and
annual statements concerning distribution and servicing expenditures
complying with paragraph (b)(3)(ii) of rule 12b-1, as it may be amended
from time to time. In the statements, only expenditures properly
attributable to the sale or servicing of a particular class of shares
will be used to justify any distribution or servicing fee charged to
that class. Expenditures not related to the sale or servicing of a
particular class will not be presented to the Directors/Trustees to
justify any fee attributable to that class. The statements, including
the allocations upon which they are based, will be subject to the
review an approval of the independent Directors/Trustees in the
exercise of their fiduciary duties.
8. Dividends paid by a Fund with respect to each class of its
shares will be calculated in the same manner, at the same time, on the
same day, and will be in the same amount, except that plan payments
made by a class under its 12b-1 Plan or Administrative Services
Arrangement and any Class Expenses will be borne exclusively by that
class.
9. 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 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
applicants 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 SEC pursuant to sections 30(a) and
30(b)(1) of the Act. The workpapers 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 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 Administrators or Associate and Assistant Administrators. The
initial report of the Expert is a ``request on policies and procedures
placed in operation'' and the ongoing reports will be ``reports on
policies and procedures placed in operation and tests of operating
effectiveness'' as defined and described in SAS No. 70 of the AICPA, as
it may be amended from time to time, or in similar auditing standards
as may be adopted by the AICPA from time to time.
10. Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value, dividends and distributions, and sales loads 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 (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 this representation is not concurred in by the
Expert, or appropriate substitute Expert.
11. The prospectuses of each class of a Fund will contain a
statement to the effect that a salesperson and any other person
entitled to receive compensation for selling or servicing Fund shares
may receive different compensation with respect to one particular class
of shares over another in that Fund.
12. Each Fund's 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 the
Funds to agree to conform to such standards.
13. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the Directors/Trustees with
respect to the Multi-Class System will be set forth in guidelines which
will be furnished to the Directors/Trustees.
14. Each Fund will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales charges,
deferred sales charges, and exchange privileges (if any) applicable to
each class of shares in every prospectus, regardless of whether all
classes of shares are offered through each prospectus. Each Fund 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 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 that any advertisement or sales literature
describes the expenses and/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. The information
provided by applicants for publication in any newspaper or similar
listing of a Fund's net asset value or public offering price will
present each class of shares separately.
15. Applicants acknowledge that the grant of the requested
exemptive order will not imply SEC approval, authorization of, or
acquiescence in any particular level of payments that applicants may
make pursuant to any 12b-1 Plan or Administrative Services Arrangement
in reliance on the exemptive order.
16. Any conversion of shares from one class to another will be
based on the relative net assets of the two classes, without the
imposition of any sales load, fee, or other charge. After conversion,
the converted shares will be subject to an asset-based sales charge
and/or service fee (as those terms are defined in Article III, Section
26 of the NASD's Rules of Fair Practice), if any, that in the aggregate
are lower than the asset-based sales charge and service fee to which
they were subject prior to the conversion.
B. CDSC
1. Applicants will comply with the representations in the
application concerning the CDSC and the provisions of proposed rule 6c-
10 under the Act\2\ as such rule is currently proposed and as it may be
reproposed, adopted, or amended.
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\2\Investment Company Act Release No. 16619 (Nov. 2, 1988).
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-11703 Filed 5-12-94; 8:45 am]
BILLING CODE 8010-01-M
