

[Federal Register: May 19, 2006 (Volume 71, Number 97)]
[Notices]               
[Page 29186-29189]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19my06-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27320; 812-13189]

 
J.P. Morgan Fleming Series Trust and J.P. Morgan Investment 
Management Inc.; Notice of Application

May 15, 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: J.P. Morgan Fleming Series Trust (the ``Trust'') and J.P. 
Morgan Investment Management Inc. (the ``Manager'').

Filing Dates: The application was filed on May 17, 2005 and amended on 
May 8, 2006.

[[Page 29187]]


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 12, 2006, 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, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington DC 20549-1090. Applicants, Stephen M. Benham, 
Esq., J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New 
York, NY, 10036.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, 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 Branch, 100 F Street NE, Washington DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. The Trust is organized as a Massachusetts business trust and is 
registered under the Act as an open-end management investment company. 
The Trust currently offers two series, each of which has its own 
investment objectives, restrictions, and policies (each current or 
future series, a ``Fund'' and collectively, the ``Funds''). Certain of 
the Funds use or may use the multi-manager structure described below 
(each, a ``Multi-Manager Fund,'' and collectively, the ``Multi-Manager 
Funds'').\1\ The Manager is registered as an investment adviser under 
the Investment Advisers Act of 1940 (``Advisers Act'') and provides 
investment management services to the Funds pursuant to an investment 
advisory and management agreement with the Trust (``Advisory 
Agreement''). The Advisory Agreement has been approved by the board of 
trustees of the Trust (the ``Board''), including a majority of the 
trustees who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, of the Trust (``Disinterested Board Members''), as 
well by each Fund's shareholders.
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    \1\Applicants request that any relief granted that pursuant to 
the application also apply to any other existing or future 
registered open-management investment company or series thereof 
that: (i) is advised by the Manager or any entity controlling, 
controlled by, or under common control with the Manager; and (ii) 
adopts the multi-manager structure described in the application 
(included in the term ``Multi-Manager Funds''). Any Multi-Manager 
Fund that relies on the requested order will do so only in 
accordance with the terms and conditions contained in the 
application. The Trust is the only existing registered open-end 
management investment company that currently intends to rely on the 
order. If the name of any Multi-Manager Fund contains the name of a 
Sub-Adviser (asdefined below), then the name of the Manager or the 
name of the entity controlling, controlled by, or under commond 
control with the Manager that serves as the primary adviser to the 
Multi-Manager Fund will precede the name of the Sub-Adviser.
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    2. Under the terms of the Advisory Agreement, the Manager oversees 
the investments of the Multi-Manager Funds and manages each Multi-
Manager's business affairs, subject to oversight by the Board. The 
Advisory Agreement also provides that the Manager may select and 
contract with one or more investment advisers (``Sub-Advisers'') to 
exercise day-to-day investment discretion over all or a portion of the 
assets of the Multi-Manager Funds (each such agreement, a ``Sub-
advisory Agreement'' and collectively, the ``Sub-advisory 
Agreements''). 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 
Disinterested Board Members. Each Sub-Adviser to a Multi-Manager Fund 
is, and any future Sub-Adviser to a Multi-Manager Fund will be, an 
investment adviser registered under the Advisers Act. The Manager 
compensates or will compensate each Sub-Adviser out of the fees paid to 
the Manager under the Advisory Agreement.
    3. Applicants request relief to permit the Manager to enter into 
and materially amend Sub-advisory Agreements without obtaining 
shareholder approval. 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 a Multi-Manager Fund or the Manager, other than by reason 
of serving as a Sub-Adviser to one or more of the Funds (``Affiliated 
Sub-Adviser''). None of the current Sub-Advisers is an Affiliated Sub-
Adviser.
    4. Applicants also request an exemption from the various disclosure 
provisions described below that may require the Multi-Manager Funds to 
disclose the fees paid by the Manager to the Sub-Advisers. An exemption 
is requested to permit a Multi-Manager Fund to disclose (as both a 
dollar amount and as a percentage of the Multi-Manager 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 (``Aggregate Fees''). If a Multi-Manager 
Fund 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 the 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

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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 by investing in a Multi-Manager Fund, 
shareholders, in effect, will hire the Manager to manage the Multi-
Manager Fund's assets by using its investment adviser selection and 
monitoring process. Applicants assert that investors will purchase 
Multi-Manager Fund shares to gain access to the Manager's expertise in 
these areas. Applicants further assert that the requested relief will 
reduce Multi-Manager Fund expenses and enable the Multi-Manager Funds 
to operate more efficiently. Applicants note that the Advisory 
Agreement will remain subject to the shareholder approval requirements 
of section 15(a) and rule 18f-2.
    8. Applicants assert that many Sub-Advisers charge their customers 
for advisory services according to a ``posted'' fee schedule. 
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 better 
enable the Manager to negotiate lower advisory fees with the Sub-
Advisers, the benefits of which would be passed on to the shareholders 
of the Multi-Manager Funds.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Multi-Manager Fund may rely on the requested order, the 
operation of the Multi-Manager Fund in the manner described in the 
application will be approved by a majority of the Multi-Manager Fund's 
outstanding voting securities, as defined in the Act, or, in the case 
of a Multi-Manager Fund whose public shareholders purchase shares on 
the basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the initial shareholder(s) prior to offering 
shares of the Multi-Manager Fund to the public.
    2. Each Multi-Manager Fund will disclose in its prospectus the 
existence, substance and effect of any order granted pursuant to the 
application. In addition, each Multi-Manager Fund will hold itself out 
to the public as employing the multi-manager approach described in the 
application. The prospectus will prominently disclose that the Manager 
has ultimate responsibility (subject to oversight by the Board) for the 
investment performance of the Multi-Manager Fund due to its 
responsibility to oversee Sub-Advisers and recommend their hiring, 
termination and replacement.
    3. Within 90 days of the hiring of any new Sub-Adviser, the Manager 
will furnish shareholders of the affected Multi-Manager Fund with all 
of the information about the new Sub-Adviser that would be contained in 
a proxy statement, except as modified by the order to permit the 
disclosure of Aggregate Fees. This information will include the 
disclosure of Aggregate Fees and any change in such disclosure caused 
by the addition of a new Sub-Adviser. The Manager will meet this 
condition by providing shareholders 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 the disclosure of Aggregate Fees.
    4. The Manager will not enter into a Sub-advisory Agreement with 
any Affiliated Sub-Adviser without such agreement, including the 
compensation to be paid thereunder, being approved by the shareholders 
of the affected Multi-Manager Fund.
    5. At all times, at least a majority of the Board will be 
Disinterested Board Members, and the nomination of new or additional 
Disinterested Board Members will be placed within the discretion of the 
then-existing Disinterested Board Members. The Board also will satisfy 
the fund governance standards defined in rule 0-1(a)(7) under the Act.
    6. When a change of Sub-Adviser is proposed for a Multi-Manager 
Fund with an Affiliated Sub-Adviser, the Board, including a majority of 
the Disinterested Board Members, will make a separate finding, 
reflected in the Board minutes, that such change is in the best 
interests of the Multi-Manager 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 
Multi-Manager Fund, including overall supervisory responsibility for 
the general management and investment of the Multi-Manager Fund's 
assets and, subject to review and approval of the Board, will: (i) Set 
the Multi-Manager Fund's overall investment strategies; (ii) evaluate, 
select and recommend Sub-Advisers to manage all or a part of the Multi-
Manager Fund's assets; (iii) when appropriate, allocate and reallocate 
the Multi-Manager Fund's assets among multiple Sub-Advisers; (iv) 
monitor and evaluate the Sub-Advisers' performance; and (v) implement 
procedures reasonably designed to ensure that the Sub-Advisers comply 
with the Multi-Manager Fund's investment objectives, policies and 
restrictions.
    8. No trustee or officer of a Multi-Manager 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: (i) ownership 
of interests in the Manager or any entity that controls, is controlled 
by, or is under common control with the Manager; or (ii) 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 Sub-Adviser or an 
entity that controls, is controlled by, or is under common control with 
a Sub-Adviser.
    9. Each Multi-Manager Fund will disclose in its registration 
statement the Aggregate Fees.
    10. Independent legal counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Disinterested Board Members. 
The selection of such counsel will be within the discretion of the 
then-existing Disinterested Board Members.
    11. The Manager will provide the Board, no less frequently than 
quarterly, with information about the Manager's profitability on a per-
Multi-Manager Fund basis. The information will reflect the impact on 
profitability of the hiring or termination of any Sub-Adviser during 
the applicable quarter.
    12. Whenever a Sub-Adviser is hired or terminated, the Manager will 
provide the Board with information showing the expected impact on the 
Manager's profitability.
    13. The requested order will expire on the effective date of rule 
15a-5 under the Act, if adopted.


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    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jill M. Peterson
Assistant Secretary
[FR Doc. E6-7638 Filed 5-18-06; 8:45 am]

BILLING CODE 8010-01-P
