[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