[Federal Register Volume 62, Number 227 (Tuesday, November 25, 1997)]
[Notices]
[Pages 62793-62795]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30862]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22895; 812-10624]


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

November 19, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 12(d)(1)(G)(i)(II), and under sections 6(c) and 17(b) for an 
exemption from section 17(a).

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SUMMARY OF THE APPLICATION: Applicants seek an order that would permit 
a fund of funds relying on section 12(d)(1)(G) to make direct 
investments in equity and fixed income securities. The order also would 
permit applicants to redeem shares in-kind under certain circumstances.

APPLICANTS: UAM Funds, Inc. (the ``Fund''), on behalf of the TS & W 
Balanced Portfolio (the ``Balanced Portfolio'') and the TS & W 
International Equity Portfolio (the ``International Equity Portfolio'') 
(collective, the ``Portfolios''), and Thompson, Siegel & Walmsley, Inc. 
(the ``Adviser'').

FILING DATES: The application was filed on April 18, 1997, and amended 
on August 4, 1997. Applicants have agreed to file an additional 
amendment, the substance of which is incorporated in this notice, 
during the notice period.

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 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on December 15, 
1997, 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, One International Place, 44th Floor, Boston, MA 
02110.

FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, or Christine Y. 
Greenless, 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 from 
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, 
D.C. 20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Fund, a Maryland corporation, is registered under the Act as 
an open-end management investment company and is comprised of multiple 
series, including the Portfolios.\1\ The Balanced Portfolio invests in 
a diversified portfolio of common stocks of established companies and 
investment grade fixed income securities. The Balanced Portfolio may 
invest in equity securities issued by foreign companies as provided in 
its investment policies.
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    \1\ Until October 31, 1995, the Fund was named The Regis Fund, 
Inc. All parties that currently intend to rely on the order are 
named as applicants.
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    2. The International Equity Portfolio generally invests in equity 
securities of established companies listed on U.S. or foreign 
securities exchanges. The International Equity Portfolio also may 
invest in convertible bonds, convertible preferred stocks, non-
convertible preferred stocks, fixed income securities of governments, 
government agencies, supranational agencies and companies, and cash 
equivalents (including foreign money market instruments). The 
International Equity Portfolio may purchase and sell options on any of 
the above-mentioned securities and also may invest in closed-end 
investment companies holding foreign securities.
    3. The Adviser, registered under the Investment Advisers Act of 
1940, serves as investment adviser to the Portfolios. The Adviser is a 
wholly-owned subsidiary of United Asset Management Corporation 
(``UAM''), which is a Delaware holding company incorporated for the 
purpose of acquiring and owning firms engaged primarily in 
institutional investment management.
    4. The Adviser receives an advisory fee based on a percentage of 
net assets of the particular Portfolio. The Adviser currently intends 
to waive its advisory fee with respect to the portion of the Balanced 
Portfolio's assets that are invested in the shares of the International 
Equity Portfolio by excluding these assets from the net assets of the 
Balanced Portfolio for purposes of calculation of the advisory fee. 
Currently, no sales loads or other distribution charges will be 
incurred by the Balanced Portfolio in purchasing shares of the 
International Equity Portfolio. Other expenses incurred by the 
International Equity Portfolio will be borne by it, and thus indirectly 
by the Balanced Portfolio.
    5. Applicants propose to use the International Equity Portfolio as 
a means to invest a portion of the Balanced Portfolio's assets in 
foreign equity securities. Applicants believe that the use of a single 
investment vehicle to invest in a broadly diversified portfolio of 
foreign equity securities will provide the Balanced Portfolio with the 
most effective exposure to the

[[Page 62794]]

performance of foreign markets while at the same time minimizing costs. 
The Balanced Portfolio also may have some additional direct investments 
in foreign stocks. This could occur both (a) because the Balanced 
Portfolio, between its periodic purchase or sale transactions in shares 
of the International Equity Portfolio, may accumulate cash that it 
wishes to invest in foreign securities, and (b) because the Balanced 
Portfolio may use foreign securities to meet some of its remaining 
strategic diversification targets. Applicants state that the Balanced 
Portfolio needs the flexibility to invest directly in foreign 
securities because, on occasion, a particular foreign security may be 
determined to be the most suitable investment to satisfy a specific 
investment strategy being pursued by the Balanced Portfolio. Direct 
investments also may result because the Balanced Portfolio determines 
that a specific weighting in a particular foreign security, which is 
not satisfied by ownership of the International Equity Portfolio, would 
be beneficial to the Portfolio.
    6. Applicants state that the International Equity Portfolio is more 
diversified in foreign markets than the Balanced Portfolio could be 
investing on its own. As a result, events affecting the price of a 
single foreign issuer or country can be expected to have less impact on 
the International Equity Portfolio than they would have on the foreign 
securities holdings of the Balanced Portfolio. Applicants represent 
that this diversification can be expected to benefit both Portfolios by 
providing greater price stability and lower volatility, while at the 
same time capturing the performance benefits of exposure to foreign 
markets.
    7. Applicants also expect that use of the International Equity 
Portfolio as a vehicle for international investing by the Balanced 
Portfolio will increase the efficiency of portfolio management of the 
Balanced Portfolio. Tracking the performance of various country markets 
and issuers in foreign markets is a time-consuming process and 
substantially different from tracking the domestic market and domestic 
issuers, which would normally be attendant with the Balanced 
Portfolio's portfolio management. By obtaining most of its exposure to 
foreign markets through the International Equity Portfolio, the 
Balanced Portfolio and its shareholders would gain the benefit of 
exposure to this sector without incurring the penalty attendant upon 
its portfolio manager spending a disproportionate amount of his or her 
time following these relatively small positions.
    8. Applicants anticipate that the efficiencies resulting from the 
use of the International Equity Portfolio will result in cost savings 
to the Balanced Portfolio in three areas: administrative costs, out-of-
pocket costs, and trading costs. Savings of administrative costs will 
be attributable to a great reduction in administrative procedures. 
Savings of out-of-pocket costs such as audit fees and custodial fees 
will be offset by increases in other out-of-pocket costs such as legal 
and transfer agency fees. Applicants expect that the major cost savings 
will occur because the International Equity Portfolio will experience 
trading costs that will be substantially less than the trading costs 
that would be incurred if the foreign stocks were purchased separately 
for the Balanced Portfolio. Applicants believe that this cost savings 
will increase in direct proportion to the number of foreign stocks over 
which the investment in the foreign securities is diversified.
    9. Although the majority of the Balanced Portfolio's investments in 
foreign securities will be through the International Equity Portfolio, 
the Balanced Portfolio may have some additional direct investments in 
foreign stocks. Applicants state that the Adviser has adopted the 
following procedures to avoid the unnecessary expense that could occur 
if the International Equity Portfolio were to sell a particular stock 
at the same time that the Balanced Portfolio were to purchase it, or 
vice versa. The International Equity Portfolio will generate a list of 
stocks that it intends to purchase or sell, which it will forward to 
the portfolio manager of the Balanced Portfolio. If the Balanced 
Portfolio's portfolio manager wishes to sell or buy a stock on the 
list, the International Equity Portfolio will effect the transaction 
directly with the Balanced Portfolio pursuant to the provisions of rule 
17a-7 (a) through (f), except as described below. The value of the 
stock will be the current market price, determined in accordance with 
the provisions of rule 17a-7. Payment will be made by simultaneous 
transfer of cash or by simultaneous redemption or issuance of shares of 
the International Equity Portfolio with an equal value, depending on 
whether the Balanced Portfolio wishes to alter its investment in the 
International Equity Portfolio. In cases where the payment for the 
subject stock is International Equity Portfolio shares rather than 
cash, the transactions will comply with the provision of rule 17a-7 (a) 
through (f) in all respects other than the requirement that purchases 
and sales be made only for cash consideration.
    10. To minimize the need for the International Equity Fund to 
maintain excessive cash balances, the Adviser will coordinate the 
Balanced Portfolio's purchases and sales of shares of the International 
Equity Portfolio to minimize the cash flow into or out of the 
International Equity Portfolio, and attempt to anticipate the Balanced 
Portfolio's cash needs and to coordinate net cash investment or 
redemptions to permit the orderly acquisition or disposition of foreign 
securities within the International Equity Portfolio. The purchase or 
sale of shares of the International Equity Portfolio by the Balanced 
Portfolio will also be coordinated with purchase and sale or 
``rebalancing'' transactions calculated to bring the holdings of the 
International Equity Portfolio back in line with its targets. The 
Adviser will monitor the process over time to ensure that the best 
interests of the Balanced Portfolio and the International Equity 
Portfolio are met.
    11. The Adviser anticipates that in virtually all instances it will 
be able to follow the foregoing procedures. It is conceivable, however, 
that there will be occasions where these procedures cannot be followed 
because the Balanced Portfolio makes an unusually large purchase or 
redemption of International Equity Portfolio shares. Under these 
circumstances, the Adviser in its sole discretion may cause the 
transaction to be executed in-kind. In the case of a purchase, the 
Balanced Portfolio would acquire foreign stocks directly, then 
contribute them to the International Equity Portfolio in exchange for 
its shares. In the case of a redemption, the International Equity 
Portfolio would deliver redemption proceeds to the Balanced Portfolio 
in the form of a pro rata distribution of foreign stocks, which the 
Balanced Portfolio could then sell. These in-kind transactions will 
comply with the provisions of rule 17a-7(a) and (f), except that the 
consideration for the foreign stocks will be International Equity 
Portfolio shares rather than cash.

Applicants' Legal Analysis

A. Section 12(d)(1)

    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

[[Page 62795]]

other investment companies, represent 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)(G) of the Act provides that section 12(d)(1) 
will not apply to securities of an acquired company purchased by an 
acquiring company if: (a) The acquiring company and the acquired 
company are part of the same group of investment companies; (b) the 
acquiring company holds only securities of acquired companies that are 
part of the same group of investment companies, government securities, 
and short-term paper; (c) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are 
limited; and (d) the acquired company has a policy that prohibits it 
from the acquiring securities of registered open-end investment 
companies or registered unit investment trusts in reliance on section 
12(d)(1)(F) or (G).
    3. Applicants state that the proposed arrangement would comply with 
the provisions of section 12(d)(1)(G), but for the fact that the 
Balanced Portfolio would like to retain the flexibility to invest 
directly in stocks, bonds, and other instruments, in addition to 
investing in the International Equity Portfolio.\2\
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    \2\ Section 12(d)(1)(G)(i)(II) limits a fund of funds' 
investments to certain government securities and short-term 
instruments.
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    4. Section 12(d)(1)(J) provides that the SEC may exempt persons or 
transactions from any provision of section 12(d)(1) if and to the 
extent the exemption is consistent with the public interest and the 
protection of investors. Applicants believe that the proposed 
arrangement will not implicate any of the abuses that section 12(d)(1) 
was intended to prevent, such as duplicative costs, undue influence or 
control, or the potential adverse impact of large-scale redemptions.

B. Section 17(a)

    5. Section 17(a) of the Act prohibits certain purchases and sales 
of securities between investment companies and their affiliated 
persons, as defined in section 2(a)(3) of the Act. The Adviser is an 
affiliated person of each Portfolio. To the extent that the Portfolios 
are deemed under common control by reason of having the same investment 
adviser, each Portfolio would be an affiliated person of the other 
Portfolio under section 2(a)(3)(C) of the Act. Accordingly, purchases 
or sales of securities between the International Equity Portfolio and 
the Balanced Portfolio may violate section 17(a). Applicants request an 
exemption from section 17(a) of the Act to the extent necessary to 
permit them to redeem shares in-kind as described in the application.
    6. Sections 6(c) and 17(b) of the Act set forth the standards for 
exempting a series of transactions from section 17(a). Under section 
17(b), the terms of the transaction must be reasonable and fair and 
must not involve overreaching on the part of any person, the 
transaction must be consistent with the policy of each investment 
company concerned, and the transaction must be consistent with the 
general purposes of the Act. In addition, under section 6(c), the 
exemption must be necessary or appropriate in the public interest, 
consistent with the protection of investors, and consistent with the 
purposes fairly intended by the policy and provisions of the Act.
    7. Applicants believe that the proposed transactions meet the 
standards for relief under sections 6(c) and 17(b). Applicants contend 
that the terms of the proposed transactions are reasonable and fair and 
do not involve overreaching. The consideration paid and received for 
the purchase and redemption of International Equity Portfolio shares 
will be based on the net asset value of the International Equity 
Portfolio. Currently, the Balanced Portfolio will not incur any sales 
load or other charge in purchasing shares of the International Equity 
Portfolio. Applicants believe that the proposed transactions are 
consistent with the policies of each Portfolio. The Balanced 
Portfolio's investments in the International Equity Portfolio, and the 
International Equity Portfolio's issuance of shares, will be effected 
in accordance with each Portfolio's investment restrictions and 
policies. Applicants also believe that the proposed transactions are 
consistent with the general purposes of the Act. Section 17(a) was 
intended to prohibit affiliated persons from furthering their own 
interests by, for example, selling property to an investment company at 
less than fair value. Applicants believe that their proposal does not 
present those concerns.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. Applicants will comply with all provisions of section 
12(d)(1)(G), except for section 12(d)(1)(G)(i)(II) to the extent that 
it restricts the Balanced Portfolio from investing in equity and fixed 
income securities, and other instruments as described in the 
application.
    2. Before approving any advisory contract for the Balanced 
Portfolio under section 15 of the Act, the directors of the Fund, 
including a majority of the directors who are not ``interested 
persons'' as defined in section 2(a)(19) of the Act (the ``Independent 
Directors''), shall find that the advisory fee, if any, charged under 
the contract is based on services provided that are in addition to, 
rather than duplicative of, services provided pursuant to the 
International Equity Portfolio's advisory contract. The finding, and 
the basis upon which the finding was made, will be recorded fully in 
the minute books of the Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30862 Filed 11-24-97; 8:45 am]
BILLING CODE 8010-01-M