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No-Action Letter under:
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| RESPONSE OF THE OFFICE OF INVESTMENT COMPANY REGULATION DIVISION OF INVESTMENT MANAGEMENT |
Our Ref. No. 01-6-ICR
UAM Funds, Inc., et al. |
Your letter of September 21, 2001 requests our assurance that we would not recommend that the Commission take any enforcement action under the Investment Company Act of 1940 (the "Act") if eSecLending, LLC ("eSecLending") and PBHG Fund Services ("PBHGFS," and collectively with eSecLending, the "New Service Providers") rely on an exemptive order (the "Existing Order") issued to certain registered management investment companies, investment advisers, and other entities affiliated with United Asset Management Corporation ("UAM") (collectively, the "Original Parties").1
You state that, in connection with an internal reorganization, the New Service Providers, starting on or about September 30, 2001, will engage in certain securities lending and related activities currently undertaken under the terms of the Existing Order by UAM Trust Company, UAM Global Securities Lending, Inc. ("UAM-GSL"), and UAM Fund Services, Inc. (collectively, the "Old Service Providers"). In carrying out their duties, the New Service Providers may be acting in lieu of certain of the Old Service Providers, although certain of the Old Service Providers will continue to provide some of the services that are described in the Existing Order. Specifically, you state that eSecLending may act in the capacity of Lending Agent and/or Program Administrator, and PBHGFS may act in the capacity of Program Administrator, Administrator and/or Servicing Agent, as those terms are described in the application relating to the Existing Order (the "Original Application").2
You state that all of the New Service Providers and Old Service Providers are under the common control of UAM and UAM's parent corporation, Old Mutual Group plc ("Old Mutual").3 You state that the services provided by the New Service Providers to the registered management investment companies (the "Participating Funds") participating in the securities lending program described in the Original Application will be substantially similar to those currently provided by the Old Service Providers and will be consistent with the terms and conditions of the Existing Order. You state that the personnel who will provide day-to-day lending agency services to the Participating Funds do not and will not provide investment advisory services to the Participating Funds, or participate in any way in the selection of the portfolio securities or other aspects of the management of the Participating Funds. You state that it is currently anticipated that the fee rates payable by the Participating Funds to the New Service Providers will remain the same as those for the Old Service Providers. In addition, you state that to ensure that the fee arrangement and other terms between the Participating Funds and the New Service Providers are fair and in compliance with the Existing Order, the initial approval of any of the New Service Providers as Lending Agent, Servicing Agent, Program Administrator and/or Administrator to each Participating Fund will require approval by a majority of the board of directors of each Participating Fund, including a majority of the directors who are not "interested persons" of the Participating Fund. You further state that the New Service Providers agree to comply with the terms and conditions of the Existing Order as though such terms and conditions were imposed directly on the New Service Providers.
Based on the facts and representations made in your letter, we would not recommend enforcement action to the Commission if the New Service Providers rely on the Existing Order. This response expresses the Division's position on enforcement action only, and does not purport to express any legal conclusions on the questions presented. Facts or representations different from those presented in your letter might require a different conclusion.
Marilyn Mann
Senior Counsel
Office of Investment Company Regulation
September 24, 2001
| 1 | UAM Funds, Inc., Investment Company Act Release Nos. 24477 (May 25, 2000) (notice) and 24504 (June 20, 2000) (order) (order under section 12(d)(1)(J) of the Act exempting the Original Parties from section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the Act exempting the Original Parties from section 17(a) of the Act, and under section 17(d) of the Act and rule 17d-1 under the Act). |
| 2 | See Application of UAM Funds, Inc. (File No. 812-11644) (Amendment No. 1) (filed May 24, 2000). |
| 3 | Old Mutual may undertake an internal reorganization, pursuant to which eSecLending, UAM-GSL, and UAM Trust Company would become subsidiaries of one or more alternative intermediate holding companies, which in turn would be wholly owned subsidiaries of Old Mutual. |
Elizabeth Shea Fries, P .C. 617.570.1559 efries@goodwinprocter.com
Goodwin Procter llP Counsellors at Law Exchange Place Boston, MA 02109 T: 617.570.1000 F: 617.523.1231
September 21, 2001
Nadya B. Roytblat, Esq.
Office of Investment Company Regulation
Division of Investment Management
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0506
Re: UAM Funds, Inc., et al. -- Exemptive Order, dated June 20, 2000 (File No. 812-11644; Release No. IC-24504)
Dear Ms. Roytblat:
On June 20, 2000, certain registered management investment companies, investment advisers, and other entities affiliated with United Asset Management Corporation ("UAM") (collectively, the "Original Parties") received an order under Section 12(d)(1)(J) of the Investment Company Act of 1940 (the "Act") exempting the Original Parties from section 12(d)(1) of the Act, under sections 6(c) and 17(b) of the Act exempting the Original Parties from section 17(a) of the Act, and under section 17(d) of the Act and rule 17d-1 under the Act (the "Existing Order")1 to permit the Original Parties to engage in certain securities lending and related activities, including (i) to use cash collateral from securities lending transactions ("Cash Collateral") to purchase shares of affiliated money market funds or affiliated private investment companies, (ii) to deposit Cash Collateral in one or more joint accounts, and (iii) to pay fees based on a share of the revenue generated from securities lending transactions to an affiliated lending agent and other affiliated entities.
As a result of subsequent internal reorganizations it is now contemplated that, subject to receipt of the no-action relief requested herein, on or about September 30, 2001, eSecLending, LLC ("eSecLending") and PBHG Fund Services ("PBHGFS" and collectively with eSecLending, the "New Service Providers") will engage in certain securities lending and related activities currently undertaken as described in the application relating to the Existing Order2 (the "Original Application") by several of their affiliates, namely, UAM Trust Company, UAM Global Securities Lending, Inc. ("UAM-GSL"), and UAM Fund Services, Inc. (collectively, the "Old Service Providers"). In carrying out their duties, the New Service Providers may be acting in lieu of certain of the Old Service Providers; although certain of the Old Service Providers will continue to provide some of the services that are described in the Existing Order. More specifically, eSecLending may act in the capacity of Lending Agent and/or Program Administrator, and PBHGFS may act in the capacity of Program Administrator, Administrator and/or Servicing Agent (which capacities are described in the Original Application). All of the New Service Providers and the Old Service Providers are under the common control of UAM and UAM's parent corporation, Old Mutual Group plc ("Old Mutual").
Therefore, on behalf of the New Service Providers, we respectfully request assurance that the staff of the Division of Investment Management (the "Staff") will not recommend that the Securities and Exchange Commission (the "Commission") take enforcement action under the Act against the New Service Providers if they rely on the Existing Order to engage in certain securities lending and related activities currently undertaken by the Old Service Providers, provided that they comply fully with the terms and conditions of the Existing Order.
We respectfully submit that granting no-action relief to the New Service Providers would further the public interest and ensure the protection of the relevant investors.
Background Information on the New Service Providers
eSecLending is a majority owned subsidiary of UAM-GSL. UAM-GSL is a wholly owned indirect subsidiary of UAM, which is an investment management holding company whose subsidiaries serve as investment adviser to over 40 different mutual funds. UAM-GSL is the managing member of, and holds 75 percent of the equity interests in, eSecLending.3 As managing member, UAM-GSL has the general power to manage the business of eSecLending. On matters requiring a vote of the members, UAM-GSL is entitled to cast 75 percent of the votes. The California Public Employees Retirement System ("CalPERS") owns the remaining 25 percent stake in eSecLending; CalPERS is a pension fund operated for the benefit of the public employees of the State of California.
PBHGFS is a subsidiary of Pilgrim Baxter & Associates, Ltd., which is, itself, a direct subsidiary of UAM and the investment adviser to UAM-affiliated PBHG Funds and PBHG Insurance Series Fund.4 PBHGFS provides administrative services to the PBHG Funds and, as described below, proposes to provide certain securities lending related services to these funds.
Legal Analysis
This request for no-action relief is strictly limited to the substantive issues originally addressed in the Existing Order. To this end, the request is designed merely to allow the New Service Providers to "stand in the shoes" of the Old Service Providers.
Although the transfer of certain securities lending activities from affiliates of UAM/Old Mutual to the New Service Providers, which also are under UAM/Old Mutual's control, will involve a nominal change in the identity of the provider of the relevant services, the services provided to the management investment companies (the "Participating Funds") participating in the securities lending program described in the Original Application (the "Program") will be substantially similar to those currently provided by the Old Service Providers and will be consistent with the terms and conditions of the Existing Order.5 The personnel who will provide day-to-day lending agency services to the Participating Funds do not and will not provide investment advisory services to the Participating Funds, or participate in any way in the selection of the portfolio securities or other aspects of the management of the Participating Funds. Subject to approval of new agreements by each Participating Fund's board of directors, as discussed below, the New Service Providers will provide the services as applicable and as described in the Original Application by the Fund Administration Agreement, the Securities Lending Agency Agreement, the Securities Lending Program Administration Agreement, the Securities Lending Record Administration Agreement, and the Administrative Services Agreement. It is currently anticipated that the fee rates payable by the Participating Funds to the New Service Providers will remain the same as those for the Old Service Providers. Thus, the facts on which the Existing Order was granted will not change as a result of the proposed transfer of duties.
The New Service Providers agree to comply with the terms and conditions of the Existing Order as though such terms and conditions were imposed directly on the New Service Providers. To ensure that the fee arrangement and other terms between the Participating Funds and the New Service Providers are fair and in compliance with the Existing Order, the initial approval of any of the New Service Providers as Lending Agent, Servicing Agent, Program Administrator, and/or Administrator to each Participating Fund will require approval by a majority of the board of directors of each Participating Fund, including a majority of the directors who are not "interested persons" of the Participating Fund (the "disinterested directors").
To grant such approval, a majority of the board of each Participating Fund (including a majority of the disinterested directors) must determine that: (1) each of the contracts with the Lending Agent, the Program Administrator, the Administrator and the Servicing Agent is in the best interests of the Participating Fund and its shareholders; (2) the services to be performed by the Lending Agent, the Program Administrator, the Administrator and the Servicing Agent, are appropriate for the Participating Fund; (3) the nature and quality of the services to be provided by the Lending Agent, the Program Administrator, the Administrator and the Servicing Agent are at least equal to those provided by others offering the same or similar services for similar compensation; and (4) the fees for the Lending Agent's, the Program Administrator's, the Administrator's and the 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. In making these determinations, each board will review the services and fees of at least three independent entities providing Lending Agent, Program Administrator, Administrator and Servicing Agent services as a package. Each Participating Fund's contract with a New Service Provider will be reviewed at least annually and will be approved for continuation if a majority of the respective board, including a majority of the disinterested directors, continues to make the findings described above.
Accordingly, because the transfer of certain duties from the Old Service Providers to the New Service Providers will not materially alter the structure of the Program, and because the New Service Providers will comply with all of the relevant terms and conditions in the Existing Order applicable to the Old Service Providers, we respectfully submit that granting the requested no-action relief would be appropriate. We note that the Staff has granted similar no-action relief on several occasions in the past, allowing investment companies to rely on existing exemptive orders to engage in practices consistent with, but not expressly authorized by, the previous orders.6
More specifically, the Staff has, on at least one other occasion, explicitly granted no-action relief in a case like this one, involving a new entity stepping into the shoes of an affiliate that previously had been granted exemptive relief to provide services as part of a securities lending program.7 As explained by the party requesting no-action relief in that earlier case, because the "lending agency services will be identical in all material respects to those [previously] offered[,] the transfer . . . will be essentially a change in form and not substance."8 Thus, the requesting party argued, it "should be entitled to `stand in the shoes' of the predecessor entity under the terms and conditions of the Existing Order."9 In its request for no-action assurance, the requesting party also wrote:
since the relevant facts upon which the Existing Orders were granted will not change and [the successor entity] will comply with all of the terms and conditions applicable to [the predecessor entity] as securities lending agent, we submit that the granting of this no-action letter, like the granting of the Existing Order, is in the public interest and consistent with the protection of investors.10
Because the transfer proposed by the New Service Providers similarly will involve no substantive change in the form of the Program, we believe that the New Service Providers are entitled to no-action relief on this matter.
Conclusion
We believe that allowing the New Service Providers to rely on the Existing Order is consistent with the provisions, policies, and purposes of the Act and with the Staff's prior no-action positions. We therefore respectfully request assurance that the Staff will not recommend enforcement action against the New Service Providers if they rely on the Existing Order.
Please do not hesitate to call if you have any questions or wish additional information regarding this request.
Sincerely,
Elizabeth Shea Fries, P.C.
cc: Gloria Flinn, Esq.
| 1 | See Release No. IC-24504, 72 S.E.C. Docket 1770 (June 20, 2000). |
| 2 | See "Amendment No. 1 to the Application for an Order," File No. 812-11644 (May 24, 2000); UAM Funds, Inc., Rel. No. IC-24477, 72 S.E.C. Docket 1210 (May 25, 2000) (Notice). |
| 3 | Old Mutual may undertake an internal reorganization, pursuant to which eSecLending, UAM-GSL, and UAM Trust Company would become subsidiaries of one or more alternative intermediate holding companies, which in turn would be wholly owned subsidiaries of Old Mutual. This reorganization will not affect the relief sought herein. |
| 4 | PBHG Funds, a Delaware business trust, and PBHG Insurance Series Fund (collectively, the "PBHG Funds") were not named parties in the Original Application but may rely on the Existing Order to participate in the Program because each is a registered open-end investment company the investment adviser of which is controlled by UAM. The Existing Order applies to all management investment companies or series thereof that are registered under the Act and that currently are or in the future may be advised by the investment advisers named in the Original Application or any other entity controlling, controlled by, or under common control (within the meaning of 2(a)(9) of the Act) with such investment advisers. The Existing Order further applies to all unregistered investment vehicles relying on Section 3(c)(1) or 3(c)(7) of the Act that currently are or in the future may be advised by an investment adviser controlling, controlled by, or under common control (within the meaning of 2(a)(9) of the Act) with UAM. |
| 5 | As in the past, it is expected that there will be continuing enhancement of the services provided as part of the Program. |
| 6 | See, e.g., The Great-West Life Assurance Company, et al., SEC No-Action Letter (Sept. 30, 1996); Goldman Sachs Group of Funds, SEC No-Action Letter (Nov. 22, 1991); American Capital Funds, SEC No-Action Letter (Aug. 26, 1991); Keystone America Fund Group, SEC No-Action Letter (May 10, 1991); Federated Investors, Incorporated, SEC No-Action Letter (Sept. 22, 1989). |
| 7 | Morgan Stanley Co. Inc., et al., SEC No-Action Letter (Sept. 24, 1998). |
| 8 | Id. |
| 9 | Id. |
| 10 | Id. |
http://www.sec.gov/divisions/investment/noaction/uam092401.htm
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