[Federal Register Volume 64, Number 134 (Wednesday, July 14, 1999)]
[Notices]
[Pages 38052-38054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17881]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23899; 812-11266]


The Short Term Bond Portfolio, et al.; Notice of Application

July 8, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 12(d)(1)(J) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the 
Act, and under section 17(d) of the Act and rule 17d-1 under the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered open-end management investment companies to invest 
uninvested cash in affiliated money market funds.

    APPLICANTS: The Short Term Bond Portfolio, The U.S. Fixed Income 
Portfolio, The Tax Exempt Bond Portfolio, The New Tax Exempt Bond 
Portfolio, The U.S. Equity Portfolio, The U.S. Small Company Portfolio, 
The International Equity Portfolio, The Emerging Markets Equity 
Portfolio, The Diversified Portfolio, The Series Portfolio, Series 
Portfolio II (collectively, the ``Investing Master Funds''); The Prime 
Money Market Portfolio, The Federal Money Market Portfolio, The Tax 
Exempt Money Market Portfolio, and The Treasury Money Market Portfolio, 
a subtrust of Series Portfolio II (collectively, the ``Underlying 
Master Funds''); J.P. Morgan Series Trust (``Series Trust''), J.P. 
Morgan Institutional Funds

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(``Institutional Funds''), J.P. Morgan Funds (``Morgan Funds''), Morgan 
Guaranty Trust Company of New York (``MGT''), J.P. Morgan Investment 
Management Inc. (``JPMIM,'' together with MGT, the ``Advisers'').\1\

    \1\ Applicants also request relief for any other registered 
open-end management investment company that is advised by the 
Advisers or an entity controlling, controlled by, or under common 
control with the Advisers. All investment companies that currently 
intend to rely on the requested order are named as applicants. Any 
other existing or future open-end management investment company that 
may rely on the order in the future will do so only in accordance 
with the terms and conditions of the application.

FILING DATES: The application was filed on August 21, 1998. Applicants 
have agreed to file an amendment during the notice period, the 
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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 August 2, 1999, 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 Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549-0609. Applicants, c/o John E. 
Baumgardner, Jr., Sullivan & Cromwell, 125 Broad Street, New York, NY 
10004.
FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney, 
at (202) 942-0517, or George J. Zornada, 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 at the 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20459-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Investing Master Funds and the Series Trust are registered 
under the Act as open-end management investment companies. The 
Investing Master Funds and the Series Trust are advised by JPMIM. The 
Advisers are wholly-owned subsidiaries of J.P. Morgan & Co., Inc., a 
bank holding company. JPMIM is an investment adviser registered under 
the Investment Advisers Act of 1940 (the ``Advisers Act'').
    2. The Institutional Funds and the Morgan Funds are registered 
under the Act as open-end management investment companies. The 
Institutional Funds and the Morgan Funds (collectively, the 
``Underlying Feeder Funds'') invest all of their assets, in reliance on 
section 12(d)(1)(E) of the Act, in securities of the Underlying Master 
Funds, which are corresponding open-end management investment companies 
registered under the Act. The Underlying Master Funds are advised by 
JPMIM. The Underlying Feeder Funds together with the Underlying Master 
Funds are collectively referred to as the ``Money Market Funds.'' Each 
of the Money Market Funds is subject to the requirements of rule 2a-7 
under the Act.
    3. The Investing Master Funds and the Series Trust (``Investing 
Funds'') have, or may be expected to have, uninvested cash 
(``Uninvested Cash'') held by their custodian. Uninvested Cash may 
result from a variety of sources, including dividends or interest 
received on portfolio securities, unsettled securities transactions, 
reserves held for investment strategy purposes, scheduled maturity of 
investments, liquidation of investment securities to meet anticipated 
redemptions, dividend payments, or new monies received from investors. 
Currently, the Investing Funds can invest uninvested cash directly in 
money market instruments.
    4. Applicants request relief to permit the Investing Funds to 
invest their Uninvested Cash in the Money Market Funds. Any investment 
of Uninvested Cash in shares of the Money Market Funds will be in 
accordance with each Investing Fund's investment restrictions and will 
be consistent with each Investing Fund's policies as set forth in its 
prospectus and statement of additional information (or registration 
statement with respect to the Investing Master Funds). Applicants 
believe that the proposed transactions may reduce transaction costs, 
create more liquidity, increase returns on Uninvested Cash, and 
diversify holdings.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
acquired investment companies, represent more than 10% of the acquiring 
company's outstanding total assets. Section 12(d)(1)(B) of the Act 
provides that no registered open-end investment company may sell its 
securities to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if, and to the extent that, the exemption is 
consistent with the public interest and the protection of investors. 
Applicants request relief under section 12(d)(1)(J) to permit the 
Investing Funds to use uninvested Cash to acquire shares of the Money 
Market Funds in excess of the percentage limitations in section 
12(d)(1)(A), provided however, that in all cases the Investing Fund's 
aggregate investment of Uninvested Cash in shares of the Money Market 
Funds will not exceed 25% of the Investing Fund's total assets at any 
time. Applicants also request relief to permit a Money Market Fund to 
sell its securities to an Investing Fund in excess of the percentage 
limitations in section 12(d)(1)(B). Applicants represent that Money 
Market Funds that are the Underlying Master Funds will not acquire 
securities of any other investment company in excess of the limitations 
contained in section 12(d)(1)(A) of the Act; and Money Market Funds 
that are Underlying Feeder Funds will invest only in Underlying Master 
Funds in compliance with section 12(d)(1)(E) of the Act.
    3. Applicants believe that the proposed arrangement does not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants represent that the proposed arrangement will not 
result in an inappropriate layering of fees because shares of the 
Monday Market Funds sold to the Investing Funds will not be subject to 
a sales load, redemption fee, asset-based distribution fee or service 
fee. If the Money Market Fund shares are subject to a sales load, 
redemption fee, asset-based distribution fee or service fee, applicants 
state that the Advisers will waive their investment advisory fees in an 
amount that offsets these charges or, if necessary, reimburse any such 
Investing Fund out of the Adviser' own resources. In addition, the 
Advisers will waive their investment

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advisory fees for each Investing Fund in an amount that offsets the 
amount of the advisory fees of Money Market Funds incurred by the 
Investing Fund either directly if the investment is in shares of an 
Underlying Master Fund or indirectly if the investment is in shares of 
an Underlying Feeder Fund. The Advisers have voluntarily agreed to 
waive their advisory fees for each Investing Fund and/or reimburse any 
such Investing Fund, in an amount that offsets the amount of 
administrative services fees of the Money Market Fund incurred by the 
Investing Fund and payable to MGT, the administrator of the Money 
Market Funds.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the company. Section 2(a)(3) of the 
Act defines an ``affiliated person'' of an investment company to 
include any investment adviser to the investment company and any person 
directly or indirectly controlling, controlled by, or under common 
control with the investment adviser. The Investing Funds and the Money 
Market Funds are advised by the Advisers and have identical boards of 
trustees and thus may be deemed to be under common control. In 
addition, if an Investing Fund were to acquire 5% or more of a Money 
Market Fund, applicants state that an Investing fund could become an 
affiliate of a Money Market Fund. Accordingly, applicants state that 
section 17(a) would prohibit the sale of the shares of Money Market 
Funds to the Investing Funds, and the redemption of the shares by the 
Money Market Funds.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, the proposed transaction is consistent with the 
policy of each registered investment company concerned, and with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt persons or transactions, or classes of persons or 
transactions, from any provision of the Act if the 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.
    6. Applicants submit that their request for relief satisfies the 
standards in sections 17(b) and 6(c) of the Act. Applicants state that 
the Investing Funds will retain their ability to invest Uninvested Cash 
directly in money market instruments as authorized by their respective 
investment objectives and policies, if they believe they can obtain a 
higher rate of return, or for any other reason. Similarly, the Money 
Market Funds have the right to discontinue selling shares to any of the 
Investing Funds if the Money Market Fund's board of trustees determines 
that such sales would adversely affect its portfolio management and 
operations. Applicants also state that shares of the Money Market Funds 
will be purchased and redeemed at their net asset value, the same 
consideration paid and received for these shares by any other 
shareholder.
    7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of an investment company, acting as principal, 
from participating in or effecting any transaction in connection with 
any joint enterprise or joint arrangement in which the investment 
company participates. Applicants believe that the Investing Funds and 
the Money Market Funds, by participating in the proposed transactions, 
and the Advisers, by managing the assets of the Investing Funds and the 
Money Market Funds, could be deemed to be participating in a joint 
arrangement within the meaning of section 17(d) and rule 17d-1 under 
the Act.
    8. In considering whether to approve a transaction under rule 17d-
1, the Commission considers whether the investment company's 
participation in such joint enterprise is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
such participation is on a basis different from or less advantageous 
than that of other participants. Applicants submit that the Funds will 
participate in the proposed transactions on a basis not different from 
or less advantageous than that of any other participant and that the 
transactions will be consistent with the Act.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. Shares of the Money Market Funds sold to and redeemed by the 
Investing Funds will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act, or service fee (as defined in rule 2830(b)(9) of the 
National Association of Securities Dealer's Conduct Rules), or if such 
shares are subject to any such sales load, redemption fee, distribution 
fee or service fee, each Adviser will waive its advisory fee for each 
Investing Fund, and/or reimburse any such Investing Fund out of the 
Adviser's own resources, in an amount that offsets the amount of such 
fees incurred by the Investing Fund.
    2. Each Adviser will waive its advisory fee for each Investing Fund 
in an amount that offsets the amount of the advisory fee of the Money 
Market Funds incurred by the Investing Fund either directly or 
indirectly if the investment is in shares of an Underlying Feeder Fund.
    3. Each Investing Fund will invest Uninvested Cash in, and hold 
shares of, the Money Market Funds only to the extent that the Investing 
Fund's aggregate investment in the Money Market Funds does not exceed 
25% of the Investing Fund's total assets. For purposes of this 
limitation, each Investing Fund or series thereof will be treated as a 
separate investment company.
    4. Investment of Uninvested Cash in shares of the Money Market 
Funds will be in accordance with each Investing Fund's investment 
restrictions and will be consistent with each Investing Fund's policies 
as set forth in its prospectuses and statements of additional 
information (or registration statement with respect to an Investing 
Master Fund).
    5. Each Investing Fund, each Money Market Fund, and any future 
registered open-end management investment company that may rely on the 
order will be advised by the Advisers or an entity controlling, 
controlled by, or under common control with the Advisers.
    6. No Money Market Fund shall acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act, except to the extent permitted by Section 
12(d)(1)(E) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Depty Secretary.
[FR Doc. 99-17881 Filed 7-13-99; 8:45 am]
BILLING CODE 8020-01-M