Document ID: SEC-2006-1632-0001
Agency: sec
Document Type: Notice
Title: The MainStay Funds, et al.; Notice of Application
Posted Date: 2006-12-15T05:00Z

[Federal Register: December 15, 2006 (Volume 71, Number 241)]
[Notices]               
[Page 75589-75591]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de06-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27595; 812-13257]

 
The MainStay Funds, et al.; Notice of Application

December 11, 2006.
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 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 
without shareholder approval and would grant relief from certain 
disclosure requirements.
    Applicants: The MainStay Funds and MainStay VP Series Fund, Inc. 
(each a ``Registrant'' and together, the ``Registrants'') and New York 
Life Investment Management LLC (``NYLIM'' or the ``Manager'').
    Filing Dates: The application was filed on February 1, 2006, and 
amended on May 2, 2006 and November 15, 2006. Applicants have agreed to 
file an amendment during the notice period, the substance of which is 
reflected in this notice.
    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 January, 5, 2007 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants, c/o Marguerite E.H. 
Morrison, Esq., New York Life Investment Management LLC, 169 Lackawanna 
Ave., 3rd Floor, Parsippany, NJ 07054.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Nadya B. Roytblat, Assistant Director, at (202) 551-
6821 (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 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-0102 (telephone (202) 551-5850).

Applicants' Representations

    1. The MainStay Funds is organized as a Massachusetts business 
trust and is registered under the Act as an open-end management 
investment company. Each Registrant currently offers multiple series 
(each a ``Fund'') with its own investment objectives, policies and 
restrictions.\1\ MainStay VP Series Fund, Inc. is organized as a 
Maryland corporation and is registered under the Act as an open-end 
management investment company. The Manager is a Delaware limited 
liability company and is registered as an investment adviser

[[Page 75590]]

under the Investment Advisers Act of 1940 (``Advisers Act'') and 
provides investment management services to the Sub-Advised Funds 
pursuant to an investment advisory agreement with each Sub-Advised Fund 
(``Investment Advisory Agreement''). Each Investment Advisory Agreement 
has been approved by the Registrants' board of trustees or directors 
(the ``Board''), including a majority of the members of the Board who 
are not ``interested persons,'' as defined in section 2(a)(19) of the 
Act, of the Sub-Advised Fund (``Independent Board Members'') and the 
shareholders of the Sub-Advised Fund at the time and in the manner 
required by sections 15(a) and (c) of the Act and Rule 18f-2 under the 
Act.
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    \1\ Applicants also request relief with respect to: (a) All of 
the Funds; and (b) any other existing and future series of the 
Registrants and any other existing or future registered open-end 
management investment company or series thereof that wishes to rely 
on the relief and: (1) Uses the ``manager-of-managers'' arrangement 
described in the application; (2) complies with the terms and 
conditions of the application; and (3) is advised by a Manager 
(together with the Funds, the ``Sub-Advised Funds''). All references 
to the term ``Manager'' herein include (a) NYLIM, and (b) any entity 
controlling, controlled by, or under common control with NYLIM. All 
existing registered open-end management investment companies that 
currently intend to rely on the requested order are named as 
applicants. If the name of any Sub-Advised Fund contains the name of 
a Sub-Adviser (as defined below), the name of the Manager, including 
the legal name of the Manager and/or any ``doing business as'' or 
business unit names used by the Manager, will precede the name of 
the Sub-Adviser.
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    2. Under the terms of the Investment Advisory Agreement, the 
Manager is responsible for providing a program of continuous investment 
management to each Sub-Advised Fund in accordance with the investment 
objective, policies and limitations of the Sub-Advised Fund. The 
Investment Advisory Agreement also authorizes the Manager, subject to 
Board approval, to enter into investment sub-advisory agreements 
(``Sub-Advisory Agreements'') with one or more subadvisers (``Sub-
Advisers''). Each Sub-Adviser is, and will be, registered as an 
investment adviser under the Advisers Act. The Manager monitors and 
evaluates the Sub-Advisers and recommends to the Board their hiring, 
retention or termination. Sub-Advisers recommended to the Board by the 
Manager have been, or will be, selected and approved by the Board, 
including a majority of the Independent Board Members. In return for 
providing Sub-Adviser selection, monitoring and asset allocation 
services, and overall management services, the Manager will receive a 
fee from the Sub-Advised Fund (``Advisory Fee''). The Sub-Adviser's 
fees will be paid out of the Advisory Fee that a Sub-Advised Fund pays 
to its Manager.
    3. Applicants request an order to permit the Manager, subject to 
approval of the applicable Board, including a majority of the 
Independent Board Members, and without obtaining shareholder approval 
to enter into and materially amend Sub-Advisory Agreements. The 
requested relief will not extend to any Sub-Adviser that is an 
affiliated person, as defined in section 2(a)(3) of the Act, of the 
Sub-Advised Fund or of a Manager, other than by reason of serving as a 
Sub-Adviser to one or more of the Sub-Advised Funds (``Affiliated Sub-
Adviser'').
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require a Sub-Advised Fund to 
disclose fees paid by the Manager to each Sub-Adviser. An exemption is 
requested to permit each Sub-Advised Fund to disclose (as both a dollar 
amount and as a percentage of the Sub-Advised Fund's net assets): (a) 
the aggregate fees paid to the Manager and any Affiliated Sub-Advisers; 
and (b) the aggregate fees paid to Sub-Advisers other than Affiliated 
Sub-Advisers (collectively, ``Aggregate Fee Disclosure''). For any Sub-
Advised Fund that employs an Affiliated Sub-Adviser, the Fund will 
provide separate disclosure of any fees paid to the Affiliated Sub-
Adviser.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to act as an investment adviser to a registered 
investment company except under a written contract that has been 
approved by the vote of a majority of the company's outstanding voting 
securities. Rule 18f-2 under the Act provides that each series or class 
of stock in a series company affected by a matter must approve such 
matter if the Act requires shareholder approval.
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 14(a)(3) of Form N-1A requires disclosure of 
the method and amount of an investment adviser's compensation.
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to an investment company to comply with Schedule 14A under the 
Securities Exchange Act of 1934 (``1934 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 fees,'' 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. Form N-SAR is the semi-annual report filed with the Commission 
by registered investment companies. Item 48 of Form N-SAR requires 
investment companies to disclose the rate schedule for fees paid to 
their investment advisers, including the Sub-Advisers.
    5. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of investment company 
registration statements and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
that investment companies include in their financial statements 
information about investment advisory fees.
    6. 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 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.
    7. Applicants assert that the shareholders of a Sub-Advised Fund 
are relying on the Manager's experience to select one or more Sub-
Advisers best suited to achieve the Sub-Advised Fund's investment 
objectives. Applicants assert that, from the perspective of the 
investor, the role of the Sub-Advisers is comparable to that of the 
individual portfolio managers employed by traditional investment 
company advisory firms. Applicants state that requiring shareholder 
approval of each Sub-Advisory Agreement would impose costs and 
unnecessary delays on the Sub-Advised Funds, and may preclude the 
Manager from acting promptly in a manner considered advisable by the 
Board. Applicants note that the Investment Advisory Agreement and any 
Sub-Advisory Agreement with an Affiliated Sub-Adviser will remain 
subject to section 15(a) of the Act and rule 18f-2 under the Act.
    8. Applicants assert that some Sub-Advisers use a ``posted'' rate 
schedule to set their fees. Applicants state that while Sub-Advisers 
are willing to negotiate fees that are lower than those posted on the 
schedule, they are reluctant to do so where the fees are disclosed to 
other prospective and existing customers. Applicants submit that the 
requested relief will allow the Manager to negotiate more effectively 
with each Sub-Adviser.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Sub-Advised Fund may rely on the requested order, the 
operation of the Sub-Advised Fund in the manner described in the 
application will be approved by a majority of the Sub-Advised Fund's 
outstanding voting securities, as defined in the Act, or, in the case 
of a Sub-Advised Fund whose public shareholders purchase shares on

[[Page 75591]]

the basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the sole initial shareholder before offering the 
Sub-Advised Fund's shares to the public.
    2. Each Sub-Advised Fund will disclose in its prospectus the 
existence, substance, and effect of any order granted pursuant to the 
application. In addition, each Sub-Advised Fund will hold itself out to 
the public as employing the manager of managers arrangement described 
in the application. The prospectus relating to each Sub-Advised Fund 
will prominently disclose that its Manager has ultimate responsibility 
(subject to oversight by the Board) to oversee the Sub-Advisers and 
recommend their hiring, termination, and replacement.
    3. Within 90 days of the hiring of a new Sub-Adviser, the 
applicable Manager will furnish shareholders all information about the 
new Sub-Adviser that would be included in a proxy statement, except as 
modified to permit Aggregate Fee Disclosure. This information will 
include Aggregate Fee Disclosure and any change in such disclosure 
caused by the addition of the new Sub-Adviser. To meet this condition, 
the Manager will provide shareholders of the applicable Sub-Advised 
Fund within 90 days of the hiring of a new Sub-Adviser with an 
information statement meeting the requirements of Regulation 14C, 
Schedule 14C, and Item 22 of Schedule 14A under the 1934 Act, except as 
modified by the order to permit Aggregate Fee Disclosure.
    4. The Manager will not enter into a Sub-Advisory Agreement with 
any Affiliated Sub-Adviser unless that agreement, including the 
compensation to be paid thereunder, has been approved by the 
shareholders of the applicable Sub-Advised Fund.
    5. At all times, at least a majority of the Board will be 
Independent Board Members and the nomination of new or additional 
Independent Board Members will be at the discretion of the then 
existing Independent Board Members.
    6. When a change of Sub-Adviser is proposed for a Sub-Advised Fund 
with an Affiliated Sub-Adviser, the Board, including a majority of the 
Independent Board Members, will make a separate finding, reflected in 
the Board minutes, that such change is in the best interests of the 
Sub-Advised Fund and its shareholders, and does not involve a conflict 
of interest from which the Manager or an Affiliated Sub-Adviser derives 
an inappropriate advantage.
    7. The Manager will provide general management services to each 
Sub-Advised Fund, including overall supervisory responsibility for the 
general management and investment of each Sub-Advised Fund's assets, 
and, subject to review and approval by the Board, will, for each Sub-
Advised Fund: (a) Set the Sub-Advised Fund's overall investment 
strategies; (b) evaluate, select and recommend Sub-Advisers to manage 
all or a part of the Sub-Advised Fund's assets; (c) when appropriate, 
allocate and reallocate the Sub-Advised Fund's assets among multiple 
Sub-Advisers; (d) monitor and evaluate the Sub-Advisers' investment 
performance; and (e) implement procedures reasonably designed to ensure 
compliance by the Sub-Advisers with the Sub-Advised Fund's investment 
objective, policies and restrictions.
    8. No director, trustee or officer of a Sub-Advised Fund, or 
director or officer of the Manager, will own, directly or indirectly 
(other than through a pooled investment vehicle over which such person 
does not have control), any interest in a Sub-Adviser, except for: (a) 
ownership of interests in the Manager or any entity that controls, is 
controlled by, or is under common control with the Manager, or (b) 
ownership of less than 1% of the outstanding securities of any class of 
equity or debt of any publicly traded company that is either a Sub-
Adviser or an entity that controls, is controlled by, or is under 
common control with a Sub-Adviser.
    9. Each Sub-Advised Fund will disclose in its registration 
statement the Aggregate Fee Disclosure.
    10. Independent Legal Counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Board Members. 
The selection of such counsel will be within the discretion of the then 
existing Independent Board Members.
    11. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.
    12. The Manager will provide the Boards, no less frequently than 
quarterly, with information about the profitability of the Manager on a 
per-Sub-Advised Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Sub-Adviser during 
the applicable quarter.
    13. Whenever a Sub-Adviser is hired or terminated, the Manager will 
provide the Board with information showing the expected impact on the 
profitability of the Manager.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Nancy M. Morris,
Secretary.
 [FR Doc. E6-21342 Filed 12-14-06; 8:45 am]

BILLING CODE 8011-01-P