[Federal Register Volume 80, Number 94 (Friday, May 15, 2015)]
[Notices]
[Pages 28031-28035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11730]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31597; File No. 812-14360]
The MainStay Funds, et al.; Notice of Application
May 11, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act and rule 18f-2 under the Act, as well as from certain
disclosure requirements.
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Summary of Application: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements with
Wholly-Owned Subadvisers (as defined below) and Non-Affiliated
Subadvisers (as defined below) without shareholder approval and would
grant relief from certain disclosure requirements. The requested order
would supersede a prior order that granted relief solely with respect
to Non-Affiliated Subadvisers.\1\
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\1\ The MainStay Funds, et al., Investment Company Act Release
Nos. 27595 (December 11, 2006) (notice) and 27656 (January 8, 2007)
(order).
Applicants: The MainStay Funds, MainStay Funds Trust and MainStay VP
Funds Trust (each, a ``Trust'') and New York Life Investment Management
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LLC (the ``Adviser'' or ``New York Life Investments'').
Filing Dates: The application was filed on September 19, 2014, and
amended on February 3, 2015, and April 3, 2015.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on June 5, 2015, 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
[[Page 28032]]
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 Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants, c/o J. Kevin Gao,
Esq., New York Life Investment Management LLC, 169 Lackawanna Avenue,
Parsippany, New Jersey 07054.
FOR FURTHER INFORMATION CONTACT: Elizabeth G. Miller, Senior Counsel,
at (202) 551-8707, or Holly Hunter-Ceci, Branch Chief, at (202) 551-
6825 (Division of Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Each Trust is registered with the Commission as an open-end
management investment company under the Act. Each of MainStay Funds
Trust and MainStay VP Funds Trust is organized as a Delaware statutory
trust, and The MainStay Funds is organized as a Massachusetts business
trust. Each Trust may offer one or more series of shares (each a
``Fund,'' and collectively the ``Funds''), each with its own distinct
investment objectives, policies and restrictions. Shares of MainStay VP
Funds Trust will be offered and sold through insurance company
accounts, which are used to fund variable annuity contracts. The
Adviser is a Delaware limited liability company registered with the
Commission as an investment adviser under the Investment Advisers Act
of 1940 (the ``Advisers Act''), and serves as investment adviser to the
Funds.
2. Applicants request an order to permit the Adviser,\2\ subject to
the approval of the board of trustees of the applicable Trust (each a
``Board''),\3\ including a majority of the trustees who are not
``interested persons'' of the Trusts or the Adviser, as defined in
section 2(a)(19) of the Act (the ``Independent Trustees''), to, without
obtaining shareholder \4\ approval: (i) Select certain wholly-owned and
non-affiliated investment Subadvisers \5\ to manage all or a portion of
the assets of one or more of the Funds pursuant to an investment
subadvisory agreement with each Subadviser (each a ``Subadvisory
Agreement'' and collectively, the ``Subadvisory Agreements''); and (ii)
materially amend Subadvisory Agreements with the Subadvisers.\6\
Applicants request that the relief apply to the named applicants, as
well as to any future Fund and any other existing or future registered
open-end management investment company or series thereof that intends
to rely on the requested order in the future and (i) is advised by the
Adviser or its successors; (ii) uses the multi-manager structure
described in the application; and (iii) complies with the terms and
conditions set forth in the application (each, a ``Subadvised
Fund'').\7\ The requested relief will not extend to any subadviser,
other than a Wholly-Owned Subadviser, who is an affiliated person, as
defined in section 2(a)(3) of the Act, of the Subadvised Funds or of
the Adviser, other than by reason of serving as a subadviser to one or
more of the Subadvised Funds (``Affiliated Subadviser'').
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\2\ The term ``Adviser'' includes (1) New York Life Investments
and (ii) any entity controlling, controlled by or under common
control with, New York Life Investments or its successors. For the
purposes of the requested order, ``successor'' is limited to an
entity that results from a reorganization into another jurisdiction
or a change in the type of business organization.
\3\ The term ``Board'' also includes the board of trustees or
directors of a future Subadvised Fund (as defined below), if
different from the board of trustees of a Trust.
\4\ The term ``shareholder'' includes variable contract owners
and insurance companies entitled to give voting instructions with
respect to a Fund. Pursuant to current Commission requirements and
Commission staff interpretations, insurance companies vote Fund
shares held in registered separate accounts in accordance with
voting instructions received from variable contract owners or
payees. In addition, Fund shares held in registered separate
accounts for which contract owners or payees are entitled to give
voting instructions, but as to which no voting instructions are
received, are voted in proportion to the shares for which voting
instructions have been received by that company. The term ``payee''
shall include an individual entitled to the receipt of payment under
a variable annuity contract.
\5\ A ``Subadviser'' for a Fund is a Subadviser that is (i) an
indirect or direct ``wholly-owned subsidiary'' (as such term is
defined in the Act) of the Adviser, or (ii) a sister company of the
Adviser that is an indirect or direct ``wholly-owned subsidiary''
(as such term is defined in the Act) of the same company that,
indirectly or directly, wholly owns the Adviser (each of (i) and
(ii) a ``Wholly-Owned Subadviser'' and collectively, the ``Wholly-
Owned Subadvisers''), or (iii) not an ``affiliated person'' (as such
term is defined in section 2(a)(3) of the Act) of the Funds, the
applicable Trust, or the Adviser, except to the extent that an
affiliation arises solely because the Subadviser serves as a
subadviser to one or more Funds (each a ``Non-Affiliated
Subadviser'' and collectively, the ``Non-Affiliated Subadvisers'').
\6\ Shareholder approval will continue to be required for any
other subadviser changes and material amendments to an existing
subadvisory agreement with any subadviser other than a Non-
Affiliated Subadviser or a Wholly-Owned Subadviser (all such changes
referred to herein as ``Ineligible Subadviser Changes''), except as
otherwise permitted by rule.
\7\ All registered open-end investment companies that currently
intend to rely on the requested order are named as applicants. Any
entity that relies on the requested order will do so only in
accordance with the terms and conditions contained in the
application. If the name of any Subadvised Fund contains the name of
a Subadviser, the name of the Adviser that serves as the primary
adviser to the Subadvised Fund, or a trademark or trade name that is
owned by or publicly used to identify that Adviser, will precede the
name of the Subadviser.
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3. New York Life Investments serves as the investment adviser to
each Fund pursuant to an investment advisory agreement with the
applicable Trust (each an ``Investment Advisory Agreement'' and
together the ``Investment Advisory Agreements''). Any future Adviser
also will be registered with the Commission as an investment adviser
under the Advisers Act. Each Investment Advisory Agreement has been or
will be approved by the applicable Board, including a majority of the
Independent Trustees, and by the shareholders of the relevant Fund in
the manner required by sections 15(a) and 15(c) of the Act and rule
18f-2 thereunder. The terms of the Investment Advisory Agreements
comply or will comply with section 15(a) of the Act.
4. Pursuant to the terms of each Investment Advisory Agreement, the
Adviser, subject to the oversight of the applicable Board, has agreed
or will agree to provide a continuous investment program for each Fund
and determine the securities and other investments to be purchased,
retained, sold or loaned by each Fund and the portion of such assets to
be invested or held uninvested as cash. The Adviser will periodically
review each Fund's investment policies and strategies and, based on the
need of a particular Fund, may recommend changes to the investment
policies and strategies of the Fund for consideration by the Board. For
its services to each Fund, the Adviser receives or will receive an
investment advisory fee from that Fund as specified in the applicable
Investment Advisory Agreement. Consistent with the terms of each
Subadvised Fund's Investment Advisory Agreement, the Adviser may,
subject to the approval of the Board, including a majority of the
Independent Trustees, and the shareholders of the applicable Subadvised
Fund (if required), delegate portfolio management responsibilities of
all or a portion of the assets of a Subadvised Fund to a Subadviser.
The Adviser continues to have overall responsibility for the management
and
[[Page 28033]]
investment of the assets of each Subadvised Fund. These
responsibilities include recommending the removal or replacement of
Subadvisers, and determining the portion of that Subadvised Fund's
assets to be managed by any given Subadviser and reallocating those
assets as necessary from time to time.
5. Pursuant to the authority under the Investment Advisory
Agreements, the Adviser may enter into Subadvisory Agreements with
various Subadvisers on behalf of the Funds. The Adviser has entered
into a Subadvisory Agreement with the following Subadvisers: Candriam
Belgium S.A., Cornerstone Capital Management Holdings LLC;
Cushing[supreg] Asset Management, LP; Eagle Asset Management, Inc.;
Epoch Investments Partners, Inc.; Institutional Capital LLC; Janus
Capital Management LLC; MacKay Shields LLC; Marketfield Asset
Management LLC; Markston International LLC; Massachusetts Financial
Services Company; NYL Investors LLC; Pacific Investment Management
Company LLC; T. Rowe Price Associates, Inc.; Van Eck Associates
Corporation; and Winslow Capital Management LLC. The Adviser also may,
in the future, enter into Subadvisory Agreements with other Subadvisers
on behalf of the Funds. The Subadvisory Agreements were or will be
approved by the applicable Board, including a majority of the
Independent Trustees, and the shareholders of the Subadvised Fund in
accordance with sections 15(a) and 15(c) of the Act and rule 18f-2
thereunder. In addition, the terms of the Subadvisory Agreements comply
or will comply fully with the requirements of section 15(a) of the Act.
The Subadvisers, subject to the oversight of the Adviser and the
applicable Board, determine or will determine the securities and other
instruments to be purchased, sold or entered into by a Subadvised
Fund's portfolio or a portion thereof, and place orders with brokers or
dealers that they select. The Adviser will compensate the Subadvisers
out of the fee received by the Adviser from the applicable Subadvised
Fund under the applicable Investment Advisory Agreement.
6. Subadvised Funds will inform shareholders of the hiring of a new
Subadviser pursuant to the following procedures (``Modified Notice and
Access Procedures''): (a) Within 90 days after a new Subadviser is
hired for any Subadvised Fund, that Subadvised Fund will send its
shareholders either a Multi-manager Notice or a Multi-manager Notice
and Multi-manager Information Statement; \8\ and (b) a Subadvised Fund
will make the Multi-manager Information Statement available on the Web
site identified in the Multi-manager Notice no later than when the
Multi-manager Notice (or Multi-manager Notice and Multi-manager
Information Statement) is first sent to shareholders, and will maintain
it on that Web site for at least 90 days. Applicants state that, in the
circumstances described in the application, a proxy solicitation to
approve the appointment of new Subadvisers provides no more meaningful
information to shareholders than the proposed Multi-manager Information
Statement. Applicants also state that the applicable Board would comply
with the requirements of sections 15(a) and 15(c) of the Act before
entering into or amending Subadvisory Agreements.
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\8\ A ``Multi-manager Notice'' will be modeled on a Notice of
Internet Availability as defined in rule 14a-16 under the Securities
Exchange Act of 1934 (``Exchange Act''), and specifically will,
among other things: (a) Summarize the relevant information regarding
the new Subadviser (except as modified to permit Aggregate Fee
Disclosure, as defined below); (b) inform shareholders that the
Multi-manager Information Statement is available on a Web site; (c)
provide the Web site address; (d) state the time period during which
the Multi-manager Information Statement will remain available on
that Web site; (e) provide instructions for accessing and printing
the Multi-manager Information Statement; and (f) instruct the
shareholder that a paper or email copy of the Multi-manager
Information Statement may be obtained, without charge, by contacting
the Subadvised Fund.
A ``Multi-manager Information Statement'' will meet the
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule
14A under the Exchange Act for an information statement, except as
modified by the order to permit Aggregate Fee Disclosure. Multi-
manager Information Statements will be filed with the Commission via
the EDGAR system.
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7. Applicants also request an order under section 6(c) of the Act
exempting the Subadvised Funds from certain disclosure obligations that
may require each Subadvised Fund to disclose fees paid by the Adviser
to each Subadviser. Applicants seek relief to permit each Subadvised
Fund to disclose (as a dollar amount and a percentage of a Subadvised
Fund's net assets) (a) the aggregate fees paid to the Adviser and any
Wholly-Owned Subadvisers; (b) the aggregate fees paid to Non-Affiliated
Subadvisers; and (c) the fee paid to each Affiliated Subadviser
(collectively, the ``Aggregate Fee Disclosure''). An exemption is
requested to permit a Subadvised Fund to include only the Aggregate Fee
Disclosure. All other items required by Sections 6-07(2)(a), (b) and
(c) of Regulation S-X will be disclosed.
Applicants' Legal Analysis
1. Section 15(a) of the Act states, in part, that it is unlawful
for any person to act as an investment adviser to a registered
investment company ``except pursuant to a written contract, which
contract, whether with such registered company or with an investment
adviser of such registered company, has been approved by the vote of a
majority of the outstanding voting securities of such registered
company.'' Rule 18f-2 under the Act provides that each series or class
of stock in a series investment company affected by a matter must
approve that matter if the Act requires shareholder approval.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 19(a)(3) of Form N-1A requires a registered
investment company to disclose in its statement of additional
information the method of computing the ``advisory fee payable'' by the
investment company, including the total dollar amounts that the
investment company ``paid to the adviser (aggregated with amounts paid
to affiliated advisers, if any), and any advisers who are not
affiliated persons of the adviser, under the investment advisory
contract for the last three fiscal years.''
3. Rule 20a-1 under the Act requires proxies solicited with respect
to a registered investment company to comply with Schedule 14A under
the Exchange Act. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and
22(c)(9) of Schedule 14A, taken together, require a proxy statement for
a shareholder meeting at which the advisory contract will be voted upon
to include the ``rate of compensation of the investment adviser,'' the
``aggregate amount of the investment adviser's fee,'' a description of
the ``terms of the contract to be acted upon,'' and, if a change in the
advisory fee is proposed, the existing and proposed fees and the
difference between the two fees.
4. Regulation S-X sets forth the requirements for financial
statements required to be included as part of a registered investment
company's registration statement and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b) and (c) of Regulation S-X require
a registered investment company to include in its financial statement
information about the investment advisory fees.
5. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or any class or classes of
persons, securities, or transactions from any provisions of the Act, or
from any rule thereunder, if such
[[Page 28034]]
exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. Applicants state that
their requested relief meets this standard for the reasons discussed
below.
6. Applicants assert that the shareholders expect the Adviser,
subject to the review and approval of the applicable Board, to select a
Subadviser who is in the best position to achieve the Subadvised Fund's
investment objective. Applicants assert that, from the perspective of
the shareholder, the role of the Subadvisers is substantially
equivalent to the role of the individual portfolio managers employed by
an investment adviser to a traditional investment company. Applicants
believe that permitting the Adviser to perform the duties for which the
shareholders of a Subadvised Fund are paying the Adviser--the
selection, supervision and evaluation of the Subadviser--without
incurring unnecessary delays or expenses is appropriate and in the
interest of a Subadvised Fund's shareholders and will allow such
Subadvised Fund to operate more efficiently. Applicants state that each
Investment Advisory Agreement will continue to be fully subject to
section 15(a) of the Act and rule 18f-2 under the Act and approved by
the relevant Board, including a majority of the Independent Trustees,
in the manner required by sections 15(a) and 15(c) of the Act.
Applicants are not seeking an exemption with respect to the Investment
Advisory Agreements.
7. Applicants assert that disclosure of the individual fees that
the Adviser would pay to the Subadvisers does not serve any meaningful
purpose. Applicants contend that the primary reasons for requiring
disclosure of individual fees paid to Subadvisers are to inform
shareholders of expenses to be charged by a particular Subadvised Fund
and to enable shareholders to compare the fees to those of other
comparable investment companies. Applicants believe that the requested
relief satisfies these objectives because the advisory fee paid to the
Adviser will be fully disclosed and, therefore, shareholders will know
what a Subadvised Fund's fees and expenses are and will be able to
compare the advisory fees a Subadvised Fund is charged to those of
other investment companies. Applicants assert that the requested
disclosure relief would benefit shareholders of the Subadvised Funds
because it would improve the Adviser's ability to negotiate the fees
paid to Subadvisers. Applicants state that the Adviser may be able to
negotiate rates that are below a Subadviser's ``posted'' amounts if the
Adviser is not required to disclose the Subadvisers' fees to the
public. Applicants assert that the relief will also encourage
Subadvisers to negotiate lower subadvisory fees with the Adviser if the
lower fees are not required to be made public.
8. Applicants submit that the requested relief meets the standards
for relief under section 6(c) of the Act. Applicants state that the
operation of a Subadvised Fund in the manner described in the
application must be approved by shareholders of the Subadvised Fund
before that Subadvised Fund may rely on the requested order. In
addition, applicants state that any conflict of interest or economic
incentive that may exist in connection with the Adviser selecting a
Wholly-Owned Subadviser to manage all or a portion of the assets of a
Subadvised Fund are addressed under the terms and conditions of the
application and will be disclosed to shareholders and considered by the
applicable Board when it reviews the selection or termination of
Subadvisers. Applicants also assert that conditions 6, 7, 10 and 11 are
designed to provide the Board with sufficient independence and the
resources and information it needs to monitor and address any conflicts
of interest. Applicants state that, accordingly, they believe the
requested relief is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Subadvised Fund may rely on the order requested in the
application, the operation of the Subadvised Fund in the manner
described in the application, including the hiring of Wholly-Owned
Subadvisers, will be, or has been, approved by a majority of the
Subadvised Fund's outstanding voting securities (or if the Subadvised
Fund serves as a funding medium for any sub-account of a registered
separate account, pursuant to voting instructions provided by variable
contract owners with to whom units of the sub-account are credited), as
defined in the Act, or, in the case of a Subadvised Fund whose public
shareholders (or variable contract owners through a registered separate
account) purchase shares on the basis of a prospectus containing the
disclosure contemplated by condition 2 below, by the initial
shareholder before such Subadvised Fund's shares are offered to the
public (or the variable contract owners through a separate account).
2. The prospectus for each Subadvised Fund will disclose the
existence, substance, and effect of any order granted pursuant to the
application. In addition, each Subadvised Fund will hold itself out to
the public as employing the multi-manager structure described in the
application. The prospectus will prominently disclose that the Adviser
has the ultimate responsibility, subject to oversight by the applicable
Board, to oversee the Subadvisers and recommend their hiring,
termination and replacement.
3. The Adviser will provide general management services to each
Subadvised Fund, including overall supervisory responsibility for the
general management and investment of the Subadvised Fund's assets, and
subject to review and approval of the applicable Board, will (i) set
the Subadvised Fund's overall investment strategies; (ii) evaluate,
select, and recommend Subadvisers to manage all or a portion of the
Subadvised Fund's assets; (iii) allocate and, when appropriate,
reallocate the Subadvised Fund's assets among Subadvisers; (iv) monitor
and evaluate the Subadvisers' performance; and (v) implement procedures
reasonably designed to ensure that Subadvisers comply with the
Subadvised Fund's investment objective, policies and restrictions.
4. A Subadvised Fund will not make any Ineligible Subadviser
Changes without the approval of the shareholders (or, if the Subadvised
Fund serves as a funding medium for any sub-account of a registered
separate account, the Adviser will inform the unitholders of the sub-
account) of the applicable Subadvised Fund.
5. Subadvised Funds will inform shareholders (or, if the Subadvised
Fund serves as a funding medium for any sub-account of a registered
separate account, the Adviser will inform the unitholders of the sub-
account) of the hiring of a new Subadviser within 90 days after the
hiring of the new Subadviser pursuant to the Modified Notice and Access
Procedures.
6. At all times, at least a majority of the applicable Board will
be Independent Trustees, and the selection and nomination of new or
additional Independent Trustees will be placed within the discretion of
the then-existing Independent Trustees.
7. Independent Legal Counsel, as defined in rule 0-1(a)(6) under
the Act,
[[Page 28035]]
will be engaged to represent the Independent Trustees. The selection of
such counsel will be within the discretion of the then-existing
Independent Trustees.
8. The Adviser will provide the applicable Board, no less
frequently than quarterly, with information about the profitability of
the Adviser on a per Subadvised Fund basis. The information will
reflect the impact on profitability of the hiring or termination of any
Subadviser during the applicable quarter.
9. Whenever a Subadviser is hired or terminated, the Adviser will
provide the applicable Board with information showing the expected
impact on the profitability of the Adviser.
10. Whenever a Subadviser change is proposed for a Subadvised Fund
with an Affiliated Subadviser or a Wholly-Owned Subadviser, the
applicable Board, including a majority of the Independent Trustees,
will make a separate finding, reflected in the applicable Board
minutes, that the change is in the best interests of the Subadvised
Fund and its shareholders and does not involve a conflict of interest
from which the Adviser or the Affiliated Subadviser or Wholly-Owned
Subadviser derives an inappropriate advantage.
11. No Trustee or officer of a Subadvised Fund, or director,
manager or officer of the Adviser, will own directly or indirectly
(other than through a pooled investment vehicle that is not controlled
by such person), any interest in a Subadviser except for (a) ownership
of interests in the Adviser or any entity, other than a Wholly-Owned
Subadviser, that controls, is controlled by or is under common control
with the Adviser, or (b) ownership of less than 1% of the outstanding
securities of any class of equity or debt of a publicly-traded company
that is either a Subadviser or an entity that controls, is controlled
by, or is under common control with a Subadviser.
12. Each Subadvised Fund will disclose in its registration
statement the Aggregate Fee Disclosure.
13. In the event that the Commission adopts a rule under the Act
providing substantially similar relief to that requested in the
application, the requested order will expire on the effective date of
that rule.
14. Any new Subadvisory Agreement or any amendment to a Subadvised
Fund's existing investment advisory agreement or Subadvisory Agreement
that directly or indirectly results in an increase in the aggregate
advisory fee rate payable by the Subadvised Fund will be submitted to
the Subadvised Fund's shareholders (or, if the Subadvised Fund serves
as a funding medium for any sub-account of a registered separate
account, the Adviser will inform the unitholders of the sub-account)
for approval.
For the Commission, by the Division of Investment Management,
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-11730 Filed 5-14-15; 8:45 am]
BILLING CODE 8011-01-P