For immediate release

The Federal Reserve Board today announced its approval of the notice of J.P. Morgan & Co., Inc., New York, New York, to acquire approximately 45 percent of the shares of American Century Companies, Inc., Kansas City, Missouri, and thereby engage in certain nonbanking activities. Attached is the Board's Order relating to this action.

J.P. Morgan & Co., Inc. New York, New York Order Approving Notice to Engage in Certain Nonbanking Activities

J.P. Morgan & Co., Inc., New York, New York ("Morgan"), a bank holding company within the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's Regulation Y (12 C.F.R. 225.24) to acquire approximately 45 percent of the shares of American Century Companies, Inc., Kansas City, Missouri ("American Century"). Morgan thereby would engage in the following nonbanking activities: Providing financial and investment advisory services, pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)); Providing securities brokerage and other transactional services, pursuant to section 225.28(b)(7)(i) and (v) of Regulation Y (12 C.F.R. 225.28(b)(7)(i) and (v)); and Providing certain administrative services for open-end investment companies or mutual funds. Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (62 Federal Register 55,403 (1997)). The time for filing comments has expired, and the Board has considered the notice and all comments received in light of the factors set forth in section 4(c)(8) of the BHC Act. Morgan, with total consolidated assets of approximately $250.4 billion, is the fourth largest commercial banking organization in the United States. Morgan engages, directly and through its nonbanking subsidiaries, in a broad range of permissible nonbanking activities in the United States.1 American Century provides services to no-load mutual funds. It conducts its activities through three subsidiaries: American Century Investment Management, Inc. ("ACIM"), which provides investment advisory and administrative services to open-end investment companies; American Century Services Corporation ("ACSC"), which provides transfer agency services to mutual funds advised by ACIM ("Funds"); and American Century Investment Services, Inc. ("ACIS"), a broker-dealer. ACIM is an investment advisor registered with the Securities and Exchange Commission ("SEC") under the Investment Advisers Act of 1940 (15 U.S.C. § 80b-1 et seq.) ("Advisers Act"), subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Advisers Act and the SEC. ACIS is registered with the SEC as a broker-dealer under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), and is subject to the recordkeeping and reporting obligations, fiduciary standards, and other requirements of the Securities Exchange Act of 1934 and the SEC.2 Activities Previously Approved by the Board The Board previously has determined by regulation that providing investment advisory and securities brokerage and transactional services is closely related to banking and permissible for bank holding companies under section 4(c)(8) of the BHC Act.3 The Board also previously has determined that providing administrative services to mutual funds is closely related to banking within the meaning of section 4(c)(8) of the BHC Act.4 Morgan proposes to provide investment advisory, brokerage and transactional, and administrative services through American Century that previously have been approved by the Board, and Morgan has committed that the proposed activities will be conducted in compliance with Regulation Y and subject to the prudential and other limitations established by the Board.5 Glass-Steagall Act Under the Glass-Steagall Act, a company that owns a member bank may not control "through stock ownership or in any other manner" a company that engages principally in distributing, underwriting, or issuing securities.6 The Board has found that this provision prohibits affiliates of banks from sponsoring, organizing, or controlling a mutual fund. The Board previously has determined, however, that the Glass-Steagall Act does not prohibit a bank holding company from providing advisory and administrative services to a mutual fund.7 American Century provides administrative, advisory, brokerage, and other services to the Funds. Morgan proposes that American Century would continue to provide these services to the Funds. As noted above, however, distribution activities of the Funds would be the responsibility of an independent distributor, which would enter into contractual agreements with the Funds to serve as "principal underwriter" of the Funds.8 The independent distributor also would continue to be responsible for supervising sales as the "principal" underwriter for purposes of the federal securities laws.9 Morgan also proposes to have certain director and officer interlocks with the Funds. Morgan contemplates that up to two of the nine directors of the Funds would be employees, officers, or directors of Morgan or its subsidiaries, including American Century. In addition, Morgan proposes that a limited number of employees of Morgan or its subsidiaries, including American Century, would serve as junior-level officers of the Funds.10 The Board previously has authorized a bank holding company and its nonbank subsidiaries to have limited director and officer interlocks with mutual funds that the bank holding company advises and administers.11 The Board found that the funds would be controlled by the independent directors.12 The Board noted that the independent directors would be responsible for the selection and review of the investment advisor, underwriter, and other major contractors with the fund.13 In this case, Morgan has stated that the number of its directors and employees who would serve as directors of any fund would not comprise more than two of nine directors (less than 25 percent) of these mutual funds. Any director of the funds who also serves as an officer or employee of Morgan would be an "interested person" under the 1940 Act and, therefore, would be required to abstain from voting on the investment advisory and other major contracts of the Funds. The director and officer interlocks proposed by Morgan would not appear to affect the independence of the other directors on the boards of directors for the funds. Moreover, the fact that American Century may be the primary broker for these funds, much like a bank proprietary fund, would not require a different conclusion under the Glass-Steagall Act. The independent members of the board of directors would continue to have authority to review brokerage, advisory, administrative and other major contracts and would retain authority to change the system for distribution of fund shares. Based on the foregoing, the Board concludes that control of the Funds would rest with the independent members of the boards of directors of the Funds and that the proposed interlocks between the Funds and Morgan, American Century, and their subsidiaries would not compromise the independence of the boards of the Funds or permit Morgan or American Century to control the Funds. Thus, the Board concludes that the proposal is consistent with the Glass-Steagall Act. Proper Incident to Banking Test In order to approve the proposal, the Board also must find that the performance of the proposed activities by Morgan "can reasonably be expected to produce benefits to the public . . . that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices."14 As part of its review of these factors, the Board considers the financial and managerial resources of the notificant and its subsidiaries and the effect of the transaction on those resources.15 Based on all the facts of record, the Board has determined that financial and managerial considerations are consistent with approval of the proposal. The Board expects that the activities in which Morgan proposes to engage through American Century would provide added convenience to both American Century's and Morgan's customers by offering them an expanded range of products and services. The proposed acquisition also would provide Morgan with further access to U.S. markets for its advisory services and products. There are numerous providers of the proposed services and, therefore, consummation of the proposal would not significantly decrease competition in any relevant market. In addition, the Board previously has determined that the provision of advisory and administrative services to mutual funds within certain parameters is not likely to result in the types of subtle hazards at which the Glass-Steagall Act is aimed. There is no evidence in the record, moreover, that consummation of this proposal, subject to the limitations noted above, would result in any significantly adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices that are not outweighed by the benefits of the proposal. On the basis of the foregoing and all the other facts of record, including the commitments made by Morgan, the Board has determined that performance of the proposed activities by Morgan reasonably can be expected to produce benefits to the public that would outweigh any possible adverse effects under the proper incident to banking standard of section 4(c)(8) of the BHC Act. Conclusion Based on all the facts of record, including all the commitments and representations made by Morgan, and subject to all of the terms and conditions set forth in this order, the Board has determined that the notice should be, and hereby is, approved. This determination is subject to all the conditions set forth in the Board's Regulation Y, including those in sections 225.7 and 225.23(g), and to the Board's authority to require modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to assure compliance with, or to prevent evasion of, the provisions and purposes of the BHC Act and the Board's regulations and orders issued thereunder. The Board's decision is specifically conditioned on compliance with all the commitments and representations made in the notice, including the commitments and conditions discussed in this order. The commitments, representations, and conditions relied on in reaching this decision shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be enforced in proceedings under applicable law. The proposal shall not be consummated later than three months after the effective date of this order, unless such period is extended for good cause by the Board or the Federal Reserve Bank of New York, acting pursuant to delegated authority.

By order of the Board of Governors,16 effective December 8, 1997. (signed) Jennifer J. Johnson Jennifer J. Johnson Deputy Secretary of the Board

Appendix List of Administrative Services Maintaining and preserving the records of the Funds, including financial and corporate records. Computing net asset value, dividends, performance data, and financial information regarding the Funds. Furnishing statistical and research data to the Funds. Preparing and filing with the SEC and state securities regulators registration statements, notices, reports, and other materials required to be filed under applicable laws. Preparing reports and other informational materials regarding the Funds, including prospectuses, proxies, and other shareholder communications. Providing legal and other regulatory advice to the Funds. Providing office facilities and clerical support for the Funds. Developing and implementing procedures for monitoring compliance with regulatory requirements and compliance with the Funds' investment objectives, policies, and restrictions as established by the board of directors of the Funds. Providing routine fund accounting services and liaison with outside auditors. Preparing and filing tax returns, and monitoring tax compliance. Reviewing and arranging for payment of Fund expenses. Providing communication and coordination services with regard to the Funds' investment advisors, transfer agent, custodian, distributor, and other service organizations that render distribution, recordkeeping, or shareholder communication services. Reviewing and providing advice to the distributor, the Funds, and investment advisors regarding sales literature and marketing plans for the Funds. Providing information to the distributor's personnel concerning performance and administration of the Funds. Providing marketing support with respect to sales of the Funds through financial intermediaries. Participating in seminars, meetings, and conference designed to present information concerning the Funds. Assisting in the development of additional Funds. Providing reports to the board of directors of the Funds. Providing telephone shareholder services through a toll-free number.

Footnotes 1 Asset and ranking data are as of June 30, 1997. 2 Following consummation of the proposal, ACIS would cease to act as a distributor for the Funds. Distribution activities would be the responsibility of a distributor independent of both Morgan and American Century. ACIS would continue to act as a broker for the Funds, and the Funds may be sold primarily to customers of Morgan and American Century. 3 See 12 C.F.R. 225.28(b)(6), (b)(7)(i) and (7)(v). 4 See Bankers Trust New York Corporation, 83 Federal Reserve Bulletin 780 (1997) ("BTNY"); Commerzbank AG, 83 Federal Reserve Bulletin 679 (1997) ("Commerzbank"). 5 See BTNY. The administrative services that Morgan would provide to the Funds through American Century or Morgan's other subsidiaries include computing the fund's financial data, maintaining and preserving the records of the fund, providing office facilities and clerical support for the fund, and preparing and filing tax returns for the Funds. American Century also provides telephone services to shareholders through a toll-free number. The proposed administrative services are listed in the Appendix. 6 12 U.S.C. §§ 221a and 377. 7 See 12 C.F.R. 225.125. In particular, the Board has determined that the Glass-Steagall Act does not prohibit a bank holding company from providing both investment advisory and administrative services to a proprietary mutual fund, whose shares are sold primarily to customers of the bank holding company. See, e.g., Barclays PLC, 82 Federal Reserve Bulletin 158 (1996). 8 As defined under the Investment Company Act of 1940 ("1940 Act"), a principal underwriter is any underwriter who, as principal, purchases from a mutual fund any security for distribution, or who as agent for such fund sells or has the right to sell the fund's securities to a dealer and/or to the public. 15 U.S.C. § 80a-2(a)(29). 9 An independent distributor, or intermediaries other than Morgan or American Century, would enter into any sales agreements with financial intermediaries to sell shares of the Funds. The independent distributor would be responsible for placing all advertisements and would have legal responsibility under the rules of the National Association of Securities Dealers ("NASD") for the form and use of all advertising and sales literature prepared by American Century or Morgan, and also would be responsible for filing these materials with the NASD or the SEC. 10 Morgan states that no more than three officers or employees of American Century would serve as secretary, treasurer, or vice president of the Funds. In addition, American Century employees would serve as assistant secretaries, assistant treasurers, or assistant vice-presidents of the Funds. These employees would have no policy-making authority at the Funds and would not be responsible for policy-making functions. 11 See BTNY; Commerzbank. In Commerzbank, for example, the Board allowed Commerzbank officers and employees to serve as chairman of the 4-member board of trustees and junior level officers of the mutual funds. In BTNY, the Board permitted two officers of BTNY to serve as directors of the funds, with one director serving as chairman of the boards of the funds, and a limited number of BTNY employees serving as junior-level officers of the funds. In each case, a majority of the board of directors was comprised of individuals that were unrelated to the bank holding company. 12 Under the 1940 Act, at least 40 percent of the board of directors of a mutual fund must be individuals who are not affiliated with the mutual fund, investment advisor, or any other major contractor to the fund. 13 The 1940 Act and related regulatory provisions require that independent directors annually review and approve the mutual fund's investment advisory contract and any plan of distribution or related agreement. 14 12 U.S.C. § 1843(c)(8). 15 12 C.F.R. 225.26. 16 Voting for this action: Chairman Greenspan and Governors Kelley, Phillips, Meyer, Ferguson, and Gramlich. Absent and not voting: Vice Chair Rivlin.

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1997 Orders on banking applications