[Federal Register Volume 65, Number 107 (Friday, June 2, 2000)]
[Notices]
[Pages 35406-35413]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13779]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24477; 812-11644]


UAM Funds, Inc. et al.; Notice of Application

May 25, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an application under section 12(d)(1)(J) of the 
Investment Company Act of 1940 (the ``Act'') exempting applicants from 
section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the Act 
exempting applicants from section 17(a) of the Act, and under section 
17(d) of the Act and rule 17d-1 under the Act to permit certain joint 
arrangements.

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SUMMARY OF THE APPLICATION: The order would permit certain registered 
open-end investment companies to use cash collateral from securities 
lending transactions (``Cash Collateral'') to purchase shares of 
affiliated money market funds or affiliated private investment 
companies, to deposit Cash Collateral in one or more joint accounts, 
and to pay fees based on a share of the revenue generated from 
securities lending transactions to an affiliated lending agent and 
other affiliated entities.

[[Page 35407]]


Applicants: UAM Funds, Inc. (``Fund I''), UAM Funds, Inc. II (``Fund 
II''), UAM Funds Trust (``Fund III'') (the ``Lending Funds''), Acadian 
Asset Management LLC, Analytic Investors, Inc., C.S. McKee & Company, 
Inc., Cambiar Investors, Inc., Chicago Asset Management Company, Cooke 
& Bieler, Inc., Dewey Square Investors Corp., Dwight Asset Management 
Company, Fiduciary Management Associates, Inc., First Pacific Advisors 
LLC, Hanson Investment Management Company, Heitman/PRA Securities 
Advisors LLC, Investment Counselors of Maryland, Inc., JAM Asset 
Management L.P., Murray Johnstone International Ltd., NWQ Investment 
Management Company, Pacific Financial Research, Inc., Pell Rudman Trust 
Company, Rice, Hall, James & Associates, Sirach Capital Management, 
Inc., Sterling Capital Management Company, Thompson, Siegel & Walmsley, 
Inc., Tom Johnson Investment Management, Inc. and any entity 
controlling, controlled by, or under common control with United Asset 
Management Corporation (``UAM'') that, in the future, acts as 
investment adviser to a Lending Fund or any other registered open-end 
management investment company (the ``Investment Advisers''), UAM Trust 
Company (the ``Trust Company''), UAM Global Securities Lending, Inc. 
(the ``Servicing Agent''), and UAM Fund Services, Inc. (the 
``Administrator'').

Filing Dates: The application was filed on June 4, 1999, and amended on 
May 24, 2000.

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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on June 19, 2000, 
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 SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicants, 211 Congress Street, Boston, MA 02110.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, or Mary Kay Frech, 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 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Funds I and II are Maryland corporations registered under the 
Act as open-end management investment companies comprised of multiple 
series. Fund III is a Delaware business trust registered under the Act 
as an open-end management investment company comprised of multiple 
series.
    2. Applicants request that the order also apply to (a) all other 
registered open-end management investment companies for which the 
Investment Advisers may now or in the future act as investment adviser 
(the ``Fund Lending Funds''); (b) unregistered investment vehicles 
relying on section 3(c)(1) or 3(c)(7) of the Act, currently in 
existence or proposed to be formed, and advised by a Private Fund 
Adviser (the ``Private Funds''); and (c) any investment adviser 
controlling, controlled by, or under common control with UAM that, in 
the future, acts as investment adviser to a Private Fund (the ``Private 
Fund Advisers''). \1\ Either the Trust Company or the Administrator may 
act in the role of ``Lending Agent,'' as described below. In addition, 
either the Trust Company or the Administrator may act in the role of 
``Program Administrator,'' as described below. Existing and future 
series of the Lending Funds and the Future Lending Funds are 
collectively referred to as the ``Portfolios.'' Portfolios that hold 
themselves out as money market funds are referred to as the ``Money 
Market Portfolios.''
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    \1\ All registered investment companies, unregistered investment 
vehicles and investment advisers that currently intend to rely on 
the order are named as applicants. Any Future Lending Fund, Private 
Fund, future Investment Adviser, or future Private Fund Adviser that 
relies on the requested relief will do so only in compliance with 
the terms and conditions of the application.
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    3. The current Investment Advisers, except JAM Asset Management 
L.P., are wholly-owned subsidiaries of UAM, which is a holding company 
incorporated in Delaware. JAM Asset Management L.P. is a limited 
partnership, of which UAM is the sole limited partner. Pursuant to an 
investment advisory agreement between the respective Investment Adviser 
and the respective Lending Fund, on behalf of each respective 
Portfolio, each Investment Adviser manages one or more Portfolio's 
investments. Each of the Investment Advisers is registered under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') except Pell 
Rudman Trust Company, which is exempt from registration pursuant to 
section 202(a)(11) of the Advisers Act.
    4. The Lending Funds have each entered into a Fund Administration 
Agreement with the Administrator, pursuant to which the Administrator 
provides transfer agent, fund accounting and fund administration 
services to the Lending Funds. Chase Manhattan Bank, N.A. is the 
custodian of Fund I and Fund III. First Union National Bank is the 
custodian of Fund II. The Trust Company, a wholly-owned subsidiary of 
UAM and a Maryland chartered trust company, is exempt from registration 
as an investment adviser pursuant to section 202(a)(11) of the Advisers 
Act. The Trust Company serves as Private Fund Adviser to certain 
Private Funds. The Servicing Agent is an indirect wholly-owned 
subsidiary of UAM.
    5. Each Lending Fund has the ability to increase its income by 
participating in a securities lending program (the ``Program'') under 
which it may lend portfolio securities to registered broker-dealers or 
other institutional investors deemed by its Investment Adviser to be of 
good standing, which meet minimum criteria established by the board of 
directors or trustees (the ``Board'') of the Lending Funds 
(``Borrowers''). The agreements governing such loans will require that 
the loans be continuously secured by collateral equal at all times in 
value to at least the market value of the securities loaned. Collateral 
for such loans may include cash, securities of the U.S. Government or 
its agencies, or any combination of cash and such securities.
    6. Under the Program, the Lending Agent, Program Administrator, 
Administrator and Servicing Agent, together or individually with 
unaffiliated entities, will provide securities lending services and 
administrative services required for the operation of the Program to 
the Lending Funds.\2\ The Lending Agent will be responsible for 
soliciting Borrowers for each Portfolio's securities subject to 
criteria established by the Board and guidelines provided by the 
Investment Advisers, monitoring daily the value of the loaned 
securities and collateral, and requesting that Borrowers add to the

[[Page 35408]]

collateral when required by the loan arrangements. The Lending Agent 
will contract with the Servicing Agent to provide product development 
support, including information about Borrowers and securities lending 
market data.
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    \2\ The personnel who will provide day-to-day lending agency 
services to the Lending Funds do not and will not provide investment 
advisory services to the Lending Funds, or participate in any way in 
the selection of the portfolio securities or other aspects of the 
management of the Lending Funds.
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    7. In transactions in which the collateral consists of U.S. 
Government securities or letters of credit, the Lending Agent will 
negotiate on behalf of the Lending Fund a lending fee to be paid by the 
Borrower to the Lending Fund. In transactions in which the collateral 
consists of cash, the Lending Fund, instead of receiving a separate 
lending fee, receives a portion of the return earned on the investment 
of the Cash Collateral by or under the direction of the Lending Fund's 
Investment Adviser. Depending on the arrangements negotiated with the 
Borrower by the Lending Agent, a percentage of the return on the 
investment of the Cash Collateral may be remitted on behalf of the 
Lending Fund to the Borrower.
    8. Under the Program, it is proposed that the Lending Funds pay, 
and that the Lending Agent, Program Administrator, Administrator, and 
Servicing Agent accept, fees based on a share of the revenues generated 
from securities lending transactions for the Lending Funds. The Program 
Administrator and/or the Administrator will maintain accounting and 
financial records for the Portfolios of the Lending Funds that 
participate in the Program, and assist with communications and 
instructions by and among the Lending Funds, the Investment Advisers, 
Borrowers, and the managers and other personnel of the various 
investment vehicles in which the Cash Collateral will be invested.
    9. Each of the Lending Funds will enter into a Securities Lending 
Program Administration Agreement with the Program Administrator. 
Services provided to the Lending Funds under this agreement include: 
monitoring the Program to ensure that loans are effected in accordance 
with the instructions of each Investment Adviser; maintaining financial 
and accounting records; communicating instructions by and among the 
Lending Funds, Investment Advisers and third parties; reviewing market 
prices of securities, daily reports of outstanding loan activity, 
collateral reinvestment and month-end security position reports.
    10. The Program Administrator will enter into a Securities Lending 
Record Administration Agreement with the Administrator, pursuant to 
which the Program Administrator delegates certain of its recordkeeping 
obligations under the Securities Lending Program Administration 
Agreement to the Administrator. The Administrator will be compensated 
under that agreement based on a share of the securities lending program 
administration fees received by the Program Administrator from the 
Lending Funds.
    11. The Lending Agent will enter into an Administrative Services 
Agreement with the Servicing Agent pursuant to which the Servicing 
Agent will assist in identification of prospective Borrowers, analyzing 
the creditworthiness of prospective Borrowers, identifying strategies 
for reinvestment of cash collateral consistent with the Investment 
Advisers' instructions, and provide research about industry trends and 
developments, and analyses of the economy as it may affect the Program. 
Under the applicable agreement, the Servicing Agent will be compensated 
based on a share of the fees received by the Lending Agent from the 
Lending Funds.
    12. Applicants proposed that each of the Portfolios of the Lending 
Funds (the ``Investing Portfolios'') use Cash Collateral to purchase 
shares of the Money Market Portfolios. By investing Cash Collateral in 
the Money Market Portfolios, the Investing Portfolios are expected to 
reduce their transaction costs, create more liquidity, enjoy greater 
returns and further diversify their holdings.
    13. Applicants also propose that the Investing Portfolios use Cash 
Collateral to purchase shares of beneficial interest, common stock or 
other units of beneficial ownership (``Shares'') issued by the Private 
Funds. An Investment Adviser or other entity under common control with 
an Investment Adviser, such as the Trust Company, will serve as the 
trustee or other manager (``Trustee'') of the Private Funds. In 
addition, a Private Fund Adviser will serve as investment adviser to 
the Private Funds. An affiliated person of an Investment Adviser may 
provide administrative, accounting, transfer agent and other services 
to the Private Funds. Private Funds utilized in the Program may operate 
as a money market portfolio and comply with the requirements of rule 
2a-7 under the Act. Private Funds that do not comply with rule 2a-7 
will be short-term fixed income funds with an average portfolio 
maturity of no more than 365 days. Each Private Fund will offer daily 
redemption of Shares at the current net asset value per share. The 
Private Funds will not impose any sales load or redemption or 
distribution fees.
    14. Applicants also propose to deposit Cash Collateral in one or 
more joint trading accounts or subaccounts (``Joint Accounts'') with 
their custodian bank or another unaffiliated custodian or sub-custodian 
approved by the Boards of the Lending Funds (the ``Custodians''). The 
daily balance of the Joint Accounts will be invested in: (a) Repurchase 
agreements ``collateralized fully'' (as defined in rule 2a-7 under the 
Act); \R\ (b) interest bearing or discounted commercial paper, 
including dollar denominated commercial paper of foreign issuers; and 
(c) any other short-term taxable or tax-exempt money market 
instruments, including variable rate demand notes, that constitute 
``Eligible Securities'' (as defined in rule 2a-7 under the Act) 
(collectively, ``Short-Term Investments'').
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    \3\ The Investing Portfolios will not enter into ``hold-in-
custody'' repurchase agreements in which the counterparty or one of 
its affiliated persons may have possession of, or control over, the 
collateral subject to the agreements except in instances when cash 
is received very late in the business day or would otherwise be 
unavailable for investment.
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    15. Any repurchase agreements entered into through a Joint Account 
will comply with Investment Company Act Release No. 13005 (February 2, 
1983) and any other existing and future staff positions taken by the 
SEC and the staff by rule, release, letter or otherwise relating to 
repurchase agreement transactions. In the event that the SEC or the 
staff sets forth guidelines with respect to other Short-Term 
Investments, all such investments made through the Joint Accounts will 
comply with those guidelines. All purchases through the Joint Accounts 
will comply with all present and future SEC and staff positions 
relating to the investment of Cash Collateral in connection with 
securities lending activities.
    16. Investing Portfolios will invest through a Joint Account only 
to the extent that, regardless of the Joint Accounts, they would desire 
to invest in short-term liquid investments that are consistent with 
their respective investment objectives, policies and restrictions. An 
Investing Portfolio's decision to use a Joint Account will be based on 
the same factors as its decision to make any other short-term liquid 
investment.
    17. The Investment Advisers will be responsible for providing 
guidelines to the Program Administrator or the Administrator for 
investing funds held by the Joint Accounts, and, in conjunction with 
the Program Administrator or the Administrator, establishing accounting 
and control procedures, operating the Joint Accounts in accordance with 
the procedures discussed below, and ensuring fair treatment of the 
Investing Portfolios. The Investment Advisers will

[[Page 35409]]

not participate monetarily in the Joint Accounts.
    18. The applicants request relief to permit: (a) The Investing 
Portfolios to use Cash Collateral to purchase and redeem shares of the 
Money Market Portfolios and each Money Market Portfolio to sell shares 
to, and redeem such shares from the Investing Portfolios; (b) the 
Investing Portfolios to use Cash Collateral to purchase and redeem 
Shares of the Private Funds and the Private Funds to sell Shares to the 
Investing Portfolios and redeem Shares from the Investing Portfolios; 
(c) the Investing Portfolios to deposit Cash Collateral in the Joint 
Accounts; and (d) the Lending Funds and Future Lending Funds to pay, 
and the Lending Agent, Program Administrator, Administrator and 
Servicing Agent to accept, fees based on a share of the revenue 
generated from securities lending transactions for services provided by 
the lending Agent, program Administrator, Administrator and Servicing 
Agent.

Applicants' Legal Analysis

A. Investment of Cash Collateral in Money Market Portfolios and Private 
Funds

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
representing more than 3% of the acquired company's outstanding voting 
stock, more than 5% of the acquiring company's total assets, or, 
together with the securities of other investment companies, more than 
10% of the acquiring company's total assets. Section 12(d)(1)(B) 
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 SEC may exempt 
any person 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.
    3. Applicants request an exemption under section 12(d)(1)(J) to 
permit each Investing Portfolio to use Cash Collateral to acquire 
shares of a Money Market Portfolio in excess of the limits imposed by 
section 12(d)(1)(A) if the Act. Applicants' proposed also would permit 
the Money Market Portfolios to sell their securities to an Investing 
Portfolio in excess of the percentage limitation in section 12(d)(1(B). 
Applicants represent that no Money Market Portfolio will acquire 
securities of any other investment company in excess of the limits 
contained in section 12(d)(1)(A) of the Act.
    4. Applicants state that none of the abuses meant to be addressed 
by section 12(d)(1) of the Act is created by the proposed investment of 
Cash Collateral in Money Market Portfolios. Applicants further state 
that access to the Money Market Portfolios will enhance each Investing 
Portfolio's ability to manage and invest Cash Collateral. Applicants 
represent that the proposed arrangement will not result in an 
inappropriate layering of fees because the Money Market Portfolios will 
not charge a sales load, redemption fee, distribution fee 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 Dealers, Inc. 
Conduct Rules (``NASD Conduct Rules'')).
    5. Sections 17(a)(1) and 17(a)(2) of the Act prohibit an affiliated 
person of a registered investment company, or any affiliated person of 
the affiliated person, acting as principal, from selling any security 
to, or purchasing any security from, the registered investment company. 
Section 2(a)(3) of the Act defines an ``affilated person'' of another 
person to include: Any person directly or indirectly controlling, 
controlled by, or under common control with, the other person; and, in 
the case of an investment company, its investment adviser. Control is 
defined in section 2(a)(9) of the Act to mean ``the power to exercise a 
controlling influence over the management of policies of a company, 
unless such power is solely the results of an official position with 
such company.'' Because the Lending Funds share a common Board, each 
Portfolio of the Lending Funds may be deemed to be under common control 
with each of the other Portfolios of the Lending Funds. In addition, an 
Investment Adviser serves as investment adviser to each of the 
Investment Portfolios and the Money Market Portfolios, each such 
Investment Adviser could be deemed to control the Portfolio it advises, 
and the Investment Advisers are under common control. Therefore, the 
Investing Portfolios and the Money Market Portfolios could be deemed to 
be under common control and each Investing Portfolio is an affiliated 
person of each Money Market Portfolios. Accordingly, the sale of shares 
of the Money Market Portfolios to the Investing Portfolios, and 
redemption of such shares by the Investing Portfolios, is prohibited 
under section 17(a).
    6. Because the Trust Company, an Investment Adviser, an entity 
under common control with an Investment Adviser or a Private Fund 
Adviser will serve as Private Fund Adviser or Trustee to each Private 
Fund, and each entity could be deemed to control the Private Fund, the 
Private Fund and each Lending Fund could be deemed to be under common 
control. Therefore, the sale or redemption by a Private Fund of its 
Shares to or from the Lending Funds is prohibited by section 17(a).
    7. Section 17(b) of the Act authorizes the SEC 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, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act.
    8. Section 6(c) of the Act authorizes the SEC to exempt any person 
or transaction 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.
    9. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Investing Portfolios to use Cash Collateral to 
purchase shares of the Money Market Portfolios and Shares of the 
Private Funds and to permit the redemption of the shares or Shares. 
Applicants maintain that the terms of the proposed transactions are 
reasonable and fair because the Investing Portfolios will be treated 
like any other investors in the Money Market Portfolios and Private 
Funds, and will purchase and sell shares of the Money Market Portfolios 
and Shares of the Private Funds on the same terms and on the same basis 
as all other shareholders of the Money Market Portfolios and Private 
Funds. Applicants assert that the proposed transactions comply with 
each Portfolio's investment restrictions and policies. Applicants state 
that Cash Collateral of an Investing Portfolio that is a Money Market 
Portfolio will not be used to acquire Shares of any Private Fund that 
does not comply with rule 2a-7 under the Act. Applicants further sate 
that the investment of Cash Collateral will comply with all present and 
future SEC and staff positions concerning securities lending. 
Applicants also state that the Private Funds will comply with the major

[[Page 35410]]

substantive provisions of the Act, including the prohibitions against 
affiliated transactions, leveraging and issuing senior securities, and 
rights of redemption.
    10. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person or principal underwriter for a registered 
investment company, or any affiliated person of such a person or 
principal underwriter, acting as principle, from effecting any 
transaction in connection with any joint enterprise or other joint 
arrangement or profit sharing plan in which the investment company 
participates, without an order of the SEC.
    11. Applicants state that the Investing Portfolios (by purchasing 
and redeeming shares of the Money Market Portfolios and Shares of the 
Private Funds), the Investment Advisers (by managing the assets of the 
Investing Portfolios invested in the Money Market Portfolios and 
Private Funds and by managing the assets of the Money Market 
Portfolios), the Investment Advisers, Private Fund Advises, and Trust 
Company and their affiliated companies (by managing the assets of, and 
providing other services to, the Private Funds), the Lending Agent, 
Program Administrator, Servicing Agent, and Administrator (by 
facilitating the investment of Cash Collateral of the Investing 
Portfolios in the Money Market Portfolios and Private Funds), an the 
Money Market Portfolios (by selling shares to and redeeming Shares from 
the Investing Portfolios) could be deemed to be participants in a joint 
enterprise or other joint arrangement within the meaning of section 
17(d) of the Act and rule 17d-1 under the Act. Applicants request an 
order in accordance with section 17(d) and rule 17d-1 to permit certain 
transactions incident to investments in the Money Market Portfolios and 
the Private Funds.
    12. Under rule 17d-1, in passing on applicants for orders under 
section 17(d), the SEC considers whether the company's participation in 
the joint enterprise is consistent with the provisions, policies, and 
purposes of the Act, and the extent to which the participation is on a 
basis different from or less advantageous than that of other 
participants. Applicants submit that the proposed transactions meet 
these standards.
    13. Applicants state that the investment by the Investing 
Portfolios in shares of the Money Market Portfolios and Shares of the 
Private Funds will be on the same basis and will be indistinguishable 
from any other shareholder account maintained by the Money Market 
Portfolios and Private Funds. Applicants also maintain that, to the 
extent any of the Investing Portfolios invests in the Money Market 
Portfolios and Private Funds as proposed, each Investing Portfolios 
will participate on a fair and reasonable basis in the returns and 
expenses of the Money Portfolios and Private Funds.

B. Investments in Joint Trading Accounts

    1. As noted above, section 17(d) and rule 17d-1 generally prohibit 
joint transactions involving registered investment companies and 
certain of their affiliates unless the SEC has approved the 
transaction. Applicants state that the Investing Portfolios may be 
considered ``affiliated persons'' because they may be deemed to be 
under the control of the Investment Advisers, which are under common 
control. Applicants state that the Investing Portfolios, by 
participating in the Joint Accounts, and the Investment Advisers, 
Program Administrator and Administrator, by managing the Joint 
Accounts, could be deemed to be ``joint participants'' in a transaction 
within the meaning of section 17(d). In addition, applicants state that 
each Joint Account could be deemed to be a ``joint enterprise or other 
joint arrangement'' within the meaning of rule 17d-1.
    2. Applicants submit that the proposed Joint Accounts meet the 
criteria of rule 17d-1 for issuance of an order. Applicants assert that 
no Investing Portfolio would be in a less favorable position than any 
other Investing Portfolio as a result of participating in the Joint 
Accounts. Each Investing Portfolio's liability on any Short-Term 
Investment will be limited to its interest in the Short-Term 
Investment. Applicants also assert that the proposed operation of the 
Joint Accounts will not result in any conflicts of interest among any 
of the Investing Portfolios, Investment Advisers, Program Administrator 
or Administrator.
    3. Applicants state that the operation of the Joint Accounts could 
result in certain benefits to the Investing Portfolios. The Investing 
Portfolios may earn a higher rate of return on investments through the 
Joint Accounts relative to the returns they could earn individually. 
Under most market conditions, applicants assert, it is possible to 
negotiate a rate of return on larger investments that is higher than 
the rate available on smaller investments. In addition, applicants 
state that the enhanced purchasing power available through a Joint 
Account may increase the number of dealers willing to enter into Short-
Term Investments with the Investing Portfolios and may reduce the 
possibility that an Investing Portfolio's Cash Collateral would remain 
uninvested. Finally, the Joint Accounts may result in certain 
administrative efficiencies and lessen the potential for error by 
reducing the number of trade tickets and cash wires that 
counterparties, the Custodian and the Investment Advisers must process.

C. Payment of Lending Agent Fees to the Lending Agent, Program 
Administrator, Administrator and Servicing Agent

    1. Applicants state that each of the Lending Agent, the Program 
Administrator, the Administrator, and the Servicing Agent, as an entity 
under common control with the Investment Advisers to the Lending Funds, 
is an affiliated person of an affiliated person of the Lending Funds. 
Applicants further state that a lending agent agreement between the 
Lending Funds and the Lending Agent, an administrative services 
agreement between the Lending Funds and the Program Administrator, an 
administrative services agreement between the Program Administrator and 
the Administrator, and an administrative and research services 
agreement between the Lending Agent and the Servicing Agent, under 
which compensation is based on a share of the revenue generated by the 
Program, may be a joint enterprise or other joint arrangement or profit 
sharing plan within the meaning of section 17(d) and rule 17d-1. 
Consequently, applicants request an order to permit the Lending Agent. 
Program Administrator, Administrator and Servicing Agent to receive a 
portion of the revenue generated by the Program.
    2. Applicants propose that each Lending Fund adopt the following 
procedures to ensure that the proposed fee arrangement and the other 
terms governing the relationship with the Lending Agent, the Program 
Administrator, the Administrator and the Servicing Agent will meet the 
standards of rule 17d-1:
    (a) In connection with the approval of the Lending Agent as lending 
agent and the Program Administrator and/or the Administrator as 
administrator and the Servicing Agent as provider of administrative and 
research services for the Program and implementation of the proposed 
fee arrangement, a majority of the Board of the Lending Fund (including 
a majority of the directors or trustees who are not ``interested 
persons'' of the Lending Fund within the meaning of the Act (the 
``disinterested directors'')) will

[[Page 35411]]

determine that: (i) Each of the contracts between the Lending Funds and 
the Lending Agent, between the Lending Funds and the Program 
Administrator, between the Program Administrator and the Administrator, 
and between the Lending Agent and the Servicing Agent is in the best 
interests of the Lending Fund and its shareholders; (ii) the services 
to be performed by the Lending Agent, Program Administrator, 
Administrator and the Servicing Agent are appropriate for the Lending 
Fund; (iii) the nature and quality of the services provided by the 
Lending Agent, Program Administrator, Administrator and Servicing Agent 
are at least equal to those provided by others offering the same or 
similar services for similar compensation; and (iv) the fees for the 
Lending Agent's, Program Administrator's, Administrator's and Servicing 
Agent's services are fair and reasonable in light of the usual and 
customary charges imposed by others for services of the same nature and 
quality.
    (b) Each Lending Fund's respective contract withe the Lending Agent 
for lending agent services, the Program Administrator for program 
administration, and the Program Administrator's contract with the 
Administrator for administrative services and the Lending Agent's 
contract with the Servicing Agent for related research and 
administrative services, will be reviewed annually and will be approved 
for continuation only if a majority of the Board of the Lending Fund 
(including a majority of the disinterested directors) makes the 
findings referred to paragraph (a) above.
    (c) In connection with the initial implementation of an arrangement 
whereby the Lending Agent will be compensated as lending agent, the 
Program Administrator and/or the Administrator will be compensated as 
administrator and the Servicing Agent will be compensated for 
administrative and research services based on a percentage of the 
revenue generated by a Lending Fund's participation in the Program, the 
Board will obtain at least three competing quotes from independent 
entities providing Lending Agent, Program Administrator, Administrator 
and Servicing Agent services as a package, to assist the Board in 
making the findings referred to in paragraph (a) above.
    (d) The Board, including a majority of the disinterested directors, 
will (i) at each regular quarterly meeting determine, on the basis of 
reports submitted by the Lending Agent, that the loan transactions 
during the prior quarter were conducted in compliance with the 
conditions and procedures set forth in the application and (ii) review 
no less frequently than annually the conditions and procedures set 
forth in the application for continuing appropriateness.
    (e) Each Lending Fund will (i) maintain and preserve permanently in 
an easily accessible place a written copy of the procedures and 
conditions (and modifications thereto) described in the application or 
otherwise followed in connection with lending securities pursuant to 
the Program and (ii) maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any loan 
transaction pursuant to the Program occurred, the first two years in an 
easily accessible place, a written record of each loan transaction 
setting forth a description of the security loaned, the identity of the 
person on the other side of the loan transaction, the terms of the loan 
transaction, and the information or materials upon which a 
determination was made that each loan was made in accordance with the 
procedures set forth above and the conditions to the application.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

A. General

    1. The securities lending program of each Lending Fund will comply 
with all present and future applicable guidelines of the SEC and its 
staff regarding securities lending arrangements.
    2. Each Lending Fund, Future Lending Fund and Private Fund that 
relies on the order will be advised by an Investment Adviser or Private 
Fund Adviser controlling, controlled by or under common control with 
UAM.
    3. Before a Lending Fund may participate in the Program, a majority 
of the Board (including a majority of the disinterested directors) of 
the Lending Fund will approve the Lending Fund's participation in the 
Program. The Board of each Lending Fund will evaluate the Program and 
its results no less frequently than annually and a majority of the 
Board (including a majority of the disinterested directors) will 
determine that investing Cash Collateral in any of the Money Market 
Portfolios, the Private Funds and/or Joint Accounts is in the best 
intersts of the shareholders of the Lending Fund.

B. Private Funds

    1. Investment in Shares of a Private Fund by a particular Lending 
Fund will be consistent with the Lending Fund's investment objectives 
and policies.
    2. A money market Lending Fund that complies with rule 2a-7 under 
the Act will not invest its Cash Collateral in a Private Fund that does 
not comply with the requirements of rule 2a-7.
    3. Shares of a Private Fund will not be subject to a sales load, 
redemption fee or asset-based sales charge or service fee (as defined 
in rule 2830(b)(9) of the NASD Conduct Rules).
    4. The Private Funds will comply as to each investment series with 
the requirements of sections 17(a), (d), and (e), and 18 of the Act as 
if the Private Fund were a registered open-end investment company. With 
respect to all redemption requests made by a Lending Fund, the Private 
Fund will comply with section 22(e) of the Act. The Private Fund 
Adviser will, subject to approval by the Trustee, adopt procedures 
designed to ensure that the Private Fund complies with sections 17(a), 
(d) and (e), 18, and 22(e) of the Act. The Private Fund Adviser will 
also periodically review and periodically update as appropriate the 
procedures and will maintain books and records describing the 
procedures, and maintain the records required by rules 31a-1(b)(1), 
31a-1(b)(2)(ii), and 31a-1(b)(9) under the Act. All books and records 
required to be made pursuant to this condition will be maintained and 
preserved for a period of not less than six years from the end of the 
fiscal year in which any transaction occurred, the first two years in 
an easily accessible place, and will be subject to examination by the 
SEC and the staff.
    5. The net asset value per share with respect to Shares of a 
Private Fund will be determined separately for each Private Fund by 
dividing the value of the assets belonging to that Private Fund, less 
the liabilities of that Private Fund, by the number of Shares 
outstanding with respect to that Private Fund.
    6. Each Lending Fund will purchase and redeem Shares of a Private 
Fund as of the same time and at the same price, and will receive 
dividends and bear its proportionate share of expenses on the same 
basis, as other shareholders of a Private Fund. A separate account will 
be established in the shareholder records of a Private Fund for the 
account of each Lending Fund.
    7. Private Funds will not acquire securities of any investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act.
    8. Each Private Fund that operates as a money market portfolio and 
uses the amortized cost method of valuation, as defined in rule 2a-7 
under the Act, will

[[Page 35412]]

comply with rule 2a-7. Each such Private Fund will value its shares, as 
of the close of business on each business day, using the amortized cost 
method to determine its net asset value per share. Each such Private 
Fund will adopt the monitoring procedures described in rule 2a-7(c)(7) 
and the Private Fund Adviser will comply with these procedures and take 
any other action as are required to be taken pursuant to these 
procedures.

C. Affiliated Money Market Funds

    1. Shares of the Money Market Portfolios sold to and redeemed by 
the Investing Portfolios will not be subject to a sales load, 
redemption fee, distribution fee under a plan adopted in accordance 
with rule 12b-1 under the 1940 Act, or service fee (as defined in rule 
2830(b)(9) of the NASD Conduct Rules).
    2. Investment of Cash Collateral in shares of the Money Market 
Portfolios will be in accordance with each Investing Portfolio's 
respective investment restrictions and will be consistent with each 
Investing Portfolio's policies as set forth in its prospectus and 
statement of additional information.
    3. The Money Market Portfolios shall not acquire securities of any 
other investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.

D. Joint Accounts

    1. One or more Joint Accounts will be established on behalf of the 
Lending Funds as separate cash accounts into which a Lending Fund may 
deposit daily all or a portion of its Cash Collateral. The Joint 
Accounts may be established with one or more custodians, and more than 
one Joint Account may be established with a custodian. The Joint 
Accounts will not be distinguishable from any other accounts maintained 
by the Lending Funds at their custodian except that monies from the 
Lending Funds will be deposited in the Joint Accounts on a commingled 
basis. The Joint Accounts will not have a separate existence and will 
not have indicia of a separate legal entity. The sole function of the 
Joint Accounts will be to provide a convenient way of aggregating 
individual transactions that would otherwise require daily management 
by the Investment Advisers of Cash Collateral.
    2. If a Lending Fund wishes to participate in a Joint Account that 
will be maintained by a custodian other than its regular custodian, the 
Lending Fund will appoint that custodian as its sub-custodian for the 
limited purpose of: (a) Receiving and disbursing cash; (b) holding any 
Short-Term Investment purchased by the Joint account; and (c) holding 
any collateral received from a transaction effected through the Joint 
Account. Any Lending Fund that appoints a sub-custodian will have taken 
all necessary actions to authorize that entity as its legal custodian, 
including all actions required under the Act.
    3. Assets in the Joint Accounts will be invested in one or more of 
the following Short-Term Investments, as determined by the Investment 
Advisers: (a) Repurchase agreements ``collateralized fully'' (as 
defined in rule 2a-7 under the Act); (b) interest-bearing or discounted 
commercial paper, including dollar-denominated commercial paper of 
foreign issuers; and (c) any other short-term taxable and tax-exempt 
money market instruments, including variable rate demand notes, that 
constitute ``eligible securities'' (as defined in rule 2a-7 under the 
Act). Short-Term Investments that are repurchase agreements would have 
a remaining maturity of 60 days or less as calculated in accordance 
with rule 2a-7 under the Act. Cash Collateral in a Joint Account would 
be invested in Short-Term Investments that have a remaining maturity of 
397 days or less, as calculated in accordance with rule 2a-7 under the 
Act. No Lending Fund will be permitted to invest in a Joint Account 
unless the Short-Term Investments in that Joint Account will comply 
with the investment policies and guidelines of that Lending Fund.
    4. All assets held by the Joint Accounts will be valued on an 
amortized cost basis to the extent permitted by applicable SEC or staff 
releases, rules, letters, or orders.
    5. Each participating Lending Fund valuing its net assets in 
reliance on rule 2a-7 under the Act will use the average maturity of 
the instruments in the Joint Account in which the Lending Fund has an 
interest (determined on a dollar-weighted basis) for the purpose of 
computing its average portfolio maturity with respect to its portion of 
the assets held in a Joint Account on that day.
    6. In order to ensure that there will be no opportunity for any 
Lending Fund to use any part of a balance of a Joint Account credited 
to another Lending Fund, no Lending Fund will be allowed to create a 
negative balance in any Joint Account for any reason. Each Lending Fund 
will be permitted to draw down its entire balance in a Joint Account at 
any time, provided that the Investment Adviser determines that such 
draw-down will have no significant adverse impact on any other Lending 
Fund participating in that Joint Account. Each Lending Fund's decision 
to invest in a Joint Account will be solely at its option, and no 
Lending Fund will be obligated to invest in a Joint Account or to 
maintain any minimum balance in a Joint Account. In addition, each 
Lending Fund will retain the sole rights of ownership to any of its 
assets invested in a Joint Account, including interest payable on such 
assets invested in the Joint Account.
    7. The Investment Advisers will be responsible for investing funds 
held by the Joint Accounts. The Administrator or Program Administrator 
will administer the Joint Accounts in accordance with the standards and 
procedures established by the directors or trustees of the Lending 
Funds as part of its duties under the existing or any future 
administrative contract with the Lending Funds. The Administrator, the 
Program Administrator and the Investment Advisers will not receive 
additional or separate fees for advising or administering the Joint 
Accounts.
    8. The administration of the Joint Accounts will be within the 
fidelity bond coverage required by section 17(g) of the Act and rule 
17g-1 under the Act.
    9. The Board of each Lending Fund will adopt procedures pursuant to 
which the Joint Accounts will operate, which will be reasonably 
designed to provide that the requirements of this application will be 
met. Each Board will make and approve such changes as it deems 
necessary to ensure that such procedures are followed. In addition, the 
Board of each Lending Fund will determine, no less frequently than 
annually, that the Joint Accounts have been operated in accordance with 
the adopted procedures and will only permit a Lending Fund to continue 
to participate therein if it determines that there is a reasonable 
likelihood that the Lending Fund and its shareholders will benefit from 
its continued participation.
    10. Each Investing Portfolio of a lending fund will participate in 
a Joint Account on the same basis as any other Investing Portfolio of a 
Lending Fund in conformity with its respective fundamental investment 
objectives, policies, and restrictions. Any Investing Portfolio of a 
Future Lending Fund that participates in a Joint Account will be 
required to do so on the same terms and conditions as the existing 
Investing Portfolios of the Lending Funds.
    11. Any Short-Term Investments made through the Joint Accounts will 
satisfy the investment criteria of all Lending Funds participating in 
that investment.
    12. Each Lending Fund's investment in a Joint Account will be 
documented

[[Page 35413]]

daily on its books and on the books of its custodian. The Investment 
Adviser and the custodian of each participating Lending fund will 
maintain records documenting, for any given day, each Lending Fund's 
aggregate investment in a Joint Account and each Lending Fund's pro 
rata share of each investment made through such Joint Account. The 
records for each such Lending Fund shall be maintained in conformity 
with section 31 of the Act and the rules and regulations thereunder.
    13. Every Lending Fund participating in the Joint Accounts will not 
necessarily have its Cash Collateral invested in every Short-Term 
Investment. However, to the extent that a Lending Fund's Cash 
Collateral is applied to a particular Short-Term Investment, the 
Lending Fund will participate in and own its proportionate share of 
such Short-Term Investment, and any income earned or accrued thereon, 
based upon the percentage of such investment purchased with monies 
contributed by the Lending Fund.
    14. Short-Term Investments held in a Joint Account generally will 
not be sold prior to maturity unless: (a) The Investment Adviser 
believes the investment no longer presents minimal credit risk: (b) the 
investment no longer satisfies the investment criteria of all Lending 
funds participating in the investment because of a credit downgrading 
or otherwise; or (c) in the case of a repurchase agreement, the 
counterpart defaults. The Investment Adviser may, however, sell any 
Short-Term Investment (of a fractional portion thereof) on behalf of 
some or all participating Lending Funds prior to the maturity of the 
investment if the cost of such transactions will be borne solely by the 
selling Lending Funds and the transaction will not adversely affect 
other Lending Funds participating in that Joint Account. In no case 
will an early termination by less than all participating Lending Funds 
be permitted if it would reduce the principal amount or yield received 
by other Lending funds in a particular Joint Account or otherwise 
adversely affect the other participating Lending Funds. Each Fund 
participating in a Joint Account will be deemed to have consented to 
such sale and partition of the investments in the Joint Account.
    15. Short-Term Investments held through a Joint Account will a 
remaining maturity of more than seven days, as calculated pursuant to 
rule 2a-7 under the Act, will be considered illiquid and subject to the 
restriction that the lending Fund may not invest more than 15%, or in 
the case of a money market fund, more than 10% (or such other 
percentage as set forth by the SEC from time to time) of its net assets 
in illiquid securities, if the Investment Adviser cannot sell the 
instrument, or the lending Fund's fractional interest in such 
instruments, pursuant to the preceding condition.

E. Payment of Fees to the Lending Agent, Program Administrator, 
Administrator and Servicing Agent

    1. The approval of each Lending Fund's Board, including a majority 
of the disinterested directors, shall be required for: the initial and 
subsequent approvals of the Lending Agent's service as lending agent; 
for the Program Administrator's and the Administrator's services as 
administrator, and for the Servicing Agent's research and other 
services, respectively, for each Lending Fund pursuant to the Program; 
for the institution of all procedures relating to the Program as it 
relates to each lending Fund; and for any periodic review of loan 
transactions for which the lending Agent acted as lending agent 
pursuant to the program and the Program Administrator, and/or 
Administrator provided services as administrator and the Servicing 
Agent provided research and other services.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-13779 Filed 6-1-00; 8:45 am]
BILLING CODE 8010-01-M