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

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Start Preamble May 15, 2006.


Securities and Exchange Commission (“Commission”).


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.

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.


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.

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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.


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.

Start Further Info


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).

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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.

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 Start Printed Page 29188statements 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

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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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[FR Doc. E6-7638 Filed 5-18-06; 8:45 am]