[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