[Federal Register Volume 59, Number 63 (Friday, April 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7772]


[[Page Unknown]]

[Federal Register: April 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20163; 812-8760]

 

The Brinson Funds, et al.; Notice of Application

March 25, 1994.
Agency: Securities and Exchange Commission (``SEC'').

Action: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

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Applicants: The Brinson Funds (including all existing and future series 
thereof), on behalf of itself and future registered investment 
companies (including series thereof) for which Brinson Partners, Inc., 
or any person controlling, controlled by, or under common control with 
Brinson Partners, Inc., serves as investment adviser (the ``Funds''); 
and Brinson Partners, Inc. (the ``Adviser'').

Relevant Act Section: Exemption requested under section 17(d) and rule 
17d-1.

Summary of Application: Applicants seek a conditional order permitting 
them to participate in a joint account (the ``Joint Account'') to pool 
cash balances and reserves for the purpose of investing in:
    (a) Repurchase agreements, with maturities not to exceed 60 days, 
``collateralized fully,'' as that term is defined in rule 2a-7 under 
the Act;
    (b) U.S. Government securities with remaining maturities not to 
exceed 91 days (``Government Securities''); and
    (c) Other short-term money Market instruments that constitute 
``Eligible Securities'' within the meaning of rule 2a-7 with remaining 
maturities not to exceed 90 days (``Short-Term Money Market 
Instruments'') (collectively ``Short-Term Investments'').

Filing Date: The application was filed on January 10, 1994 and amended 
on March 17, 1994. Counsel, on behalf of applicants, has agreed to file 
a further amendment during the notice period to make certain technical 
changes. This notice reflects the changes to be made to the application 
by such further amendment.

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 April 19, 1994, 
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 such notification by writing to the 
SEC's Secretary.

Addresses: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 209 South LaSalle Street, Chicago, Illinois 60604.

For Further Information Contact: James E. Anderson, Staff Attorney, at 
(202) 272-7027, or C. David Messman, Branch Chief, at (202) 272-3018 
(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.

Applicants' Representations

    1. The Brinson Funds is an open-end, management investment company. 
The Brinson Funds currently is authorized to issue shares in eight 
series. Each series has entered into an investment advisory agreement 
with the Adviser.
    2. Each of the Funds may be expected to have cash balances in its 
custodian bank which, in the normal course, will be uninvested or 
invested in Short-Term Investments to provide liquidity and earn 
additional income for each Fund. At the present time, each Fund must 
separately pursue, secure, and implement investments in Short-Term 
Investments. This has resulted in certain inefficiencies, and may limit 
the return which some or all of the Funds achieve. Each Fund seeks an 
exemptive order to purchase Short-Term Investments through the Joint 
Account, consistent with each Fund's investment objectives and 
policies.
    3. The Joint Account will be registered in a nominee name of the 
Funds' custodian (the ``Custodian''). The sole purpose of the nominee 
will be to hold the investment of the Joint Account on behalf of the 
beneficial owners of these investments. Each Fund that deposits cash 
into the Joint Account will be the beneficial owner of the cash so 
deposited and the Fund's pro rata share of any securities purchased 
with the Fund's cash.
    4. As investment adviser to each Fund, the Adviser will determine 
whether to invest the assets of such Fund designated for Short-Term 
Investments in repurchase agreements, Government Securities, or Short-
Term Money Market Instruments. The existence of the Joint Account will 
not affect the decision whether to invest in repurchase agreements, 
Government Securities, or Short-Term Money Market Instruments, except 
to the extent the Joint Account has available to it such Short-Term 
Investments that are not otherwise available to a particular Fund and, 
on the basis of yield, creditworthiness, and liquidity, offer a 
competitive investment.
    5. Not all of the Funds will participate in every investment made 
through the Joint Account. When a Fund or Funds invests through the 
Joint Account, a particular Short-Term Investment will be purchased and 
allocated solely to those investors. A Fund will not be able to add 
additional cash to an outstanding Short-Term Investment. Rather, when 
additional cash is available for investment through the Joint Account, 
a new Short-Term Investment will be acquired and allocated solely to 
the newly investing Funds.
    6. Each of the Funds has established the same systems and standards 
for acquiring Short-Term Investments, and it is anticipated that the 
Joint Account will use the same systems and standards employed by the 
individual Funds. These standards for repurchase agreement transactions 
include creditworthiness standards for counterparties and for 
collateral. The repurchase agreements will be ``collateralized fully,'' 
as that term is defined in rule 2a-7 under the Act.
    7. Short-Term Money Market Instruments held in the name of the 
Joint Account will consist of a wide variety of short-term debt 
instruments, including commercial paper, bank debt instruments, loan 
participations, variable and floating rate notes, master demand notes, 
and bankers' acceptances. All Short-Term Money Market Instruments 
purchased by the Joint Account must be issued by persons on the 
Adviser's approved list of issuers of such instruments. The list is 
compiled by portfolio managers, credit analysts, and other employees of 
the Adviser based on such persons' assessment of whether the issuer 
presents minimal credit risk.
    8. The maturities selected with respect to Short-Term Investments 
reflect, in the Adviser's view, the economic trade-offs between higher 
yields generally available from investments with longer maturities and 
the higher interest rate risk and liquidity concerns of those longer 
maturity investments. The maturities selected with respect to Short-
Term Investments by the Joint Account also reflect the structure of the 
underlying markets in those instruments. For example, the repurchase 
agreement market is normally quoted and traded for overnight, one week, 
one month, and two month maturities and the repurchase agreement market 
is relatively inactive and illiquid beyond 60 days. With respect to 
Government Securities, Treasury bills are auctioned weekly for original 
maturities of 91 and 182 days. Maturities beyond 91 days are considered 
by the Adviser as possessing more interest rate risk than it believes 
is appropriate for the Funds' cash investments. Short-Term Money Market 
Instruments are normally quoted and offered for 30, 60, and 90 day 
maturities and such maturities are considered the most liquid and 
active segments of the market.
    9. Each trade in the Joint Account will be reported to the 
Custodian through a trade authorization that will include a ``master 
trading authorization'' and underlying ``tickets'' for each Fund that 
has participated in the transaction. The master trading authorization 
will authorize the Custodian to settle the transaction on a joint 
basis. The underlying tickets will state each Fund's portion of the 
investment. The Custodian will reconcile the Joint Account with the 
master trading authorizations and the underlying tickets on a daily 
basis. The Joint Account also will be reconciled to the Custodian's 
securities movement and control records at least monthly. The Custodian 
will reconcile each Fund's securities movement and control records with 
each Fund's security ownership records at least monthly.
    10. The operation of the Joint Account will result in fewer 
transactions in Short-Term Investments for the Funds, thus saving 
transaction fees. The Funds also will benefit from rates of return that 
are higher on large Short-Term Investments than on smaller ones.
    11. Any Short-Term Investment with a remaining maturity of more 
than seven days will be considered illiquid and subject to the 
restriction that a Fund may not invest more than 15% of its net assets 
in illiquid securities, if a Fund cannot sell its fractional share of 
the Short-Term Investment pursuant to condition 12 below. Short-Term 
Investments held in book-entry form may be sold in fractional parts. 
Therefore, a Fund may sell its portion of a Short-Term Investment held 
through a Joint Account in book-entry form without adversely affecting 
the other Funds participating in the Short-Term Investment. Applicants 
believe that the market for these ``fractional'' Short-Term Investments 
held in book-entry form is liquid since these securities are 
customarily sold in both small and large denominations as well as 
``odd-lots.''

Applicants' Legal Analysis

    1. Section 17(d) makes it unlawful for any affiliated person, or 
affiliated person of an affiliated person, of a registered investment 
company, acting as principal, to effect any transaction in which the 
company is a joint or joint and several participant with the affiliated 
person in contravention of such rules and regulations as the SEC may 
prescribe for the purpose of limiting or preventing participation by 
such company. Rule 17d-1 was promulgated pursuant to section 17(d). 
Under rule 17d-1, most joint transactions are prohibited unless 
approved by order of the SEC.
    2. Each Fund, by participating in the proposed Joint Account, and 
the Advisers, by administering the Joint Account, could be deemed to be 
``joint participants'' in a transaction within the meaning of section 
17(d), and the Joint Account could be deemed to be a ``joint enterprise 
or other joint arrangement'' within the meaning of rule 17d-1. Each 
Fund may be deemed an ``affiliated person'' of each other Fund under 
the definition set forth in section 2(a)(3).\1\
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    \1\Section 2(a)(3) defines the term ``affiliated person of 
another person'' to include, in relevant part, (a) any person 
directly or indirectly controlling, controlled by, or under common 
control with such other person; and (b) if such other person is an 
investment company, any investment adviser thereof.
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    3. The proposed method of operating the Joint Account will not 
result in any conflicts of interest between any of the Funds or between 
a Fund and the Adviser. Although the Adviser will gain some benefit 
through administrative convenience and a possible reduction in clerical 
costs, the primary beneficiaries will be the Funds because the Joint 
Account will be a more efficient way of administering investment 
transactions. Applicants believe that the operation of the Joint 
Account will be free of any inherent bias favoring one Fund over 
another.
    4. In passing upon applications under section 17(d) and rule 17d-1, 
the SEC considers whether participation by a registered investment 
company is consistent with the provisions, policies, and purposes of 
the Act and not on a basis less advantageous than that of other 
participants. For the reasons described above and in light of the 
conditions set forth below, applicants submit that the criteria for 
issuing an order under rule 17d-1 are met.

Applicants' Conditions

    1. Each Fund will transfer into the Joint Account the cash it 
wishes to invest through the Joint Account after the calculation of its 
daily cash available for investment and will specifically indicate 
whether the cash is to be used to purchase repurchase agreements, 
Government Securities, or Short-Term Money Market Instruments. The 
Joint Account will not be distinguishable from any other account 
maintained by a Fund with its custodian bank except that monies from a 
Fund will be deposited on a commingled basis. The Joint Account will 
not have any separate existence which would be indicative of a separate 
legal entity. The sole function of the Joint Account will be to provide 
a convenient way of aggregating individual transactions which would 
otherwise require management by each Fund.
    2. Cash contributed by a Fund to the Joint Account will be invested 
in one or more of the following, as directed by the Fund:
    (a) Repurchase agreements, with maturities not to exceed 60 days, 
``collateralized fully,'' as that term is defined in rule 2a-7 under 
the Act;
    (b) Government Securities with remaining maturities not to exceed 
91 days; or
    (c) Other Short-Term Money Market Instruments with remaining 
maturities not to exceed 90 days.
    3. Any investment made through the Joint Account will satisfy the 
investment criteria of all Funds participating in that investment.
    4. All investments held through the Joint Account will be valued on 
the basis of amortized cost to the extent permitted by applicable 
Commission release, rule, or order.
    5. Any Fund valuing its net assets in reliance upon rule 2a-7 will 
use the average maturity of the instrument(s) in the Joint Account in 
which such Fund has an interest (determined on a dollar weighted basis) 
for the purpose of computing the Fund's average portfolio maturity with 
respect to the portion of its assets held in the Joint Account on that 
day.
    6. In order to assure that there will be no opportunity for one 
Fund to use any part of a balance of the Joint Account credited to 
another Fund, no Fund will be allowed to create a negative balance in 
the Joint Account for any reason. A Fund's decision to invest through 
the Joint Account will be solely at the Fund's option. No Fund will be 
obligated to invest through the Joint Account or maintain any minimum 
balance therein. In addition, each Fund will retain the sole rights of 
ownership of any of its assets held through the Joint Account, 
including interest payable on such assets.
    7. The Adviser, the fund accountant/pricing agent, and the 
Custodian will maintain records (in conformity with section 31 and the 
rules and regulations thereunder) documenting, for any given day, each 
Fund's aggregate investment in the Joint Account and each Fund's pro 
rata share of each Short-Term Investment made through the Joint 
Account.
    8. Not every Fund participating in the Joint Account will 
necessarily have its cash invested in every Short-Term Investment held 
in the Joint Account. However, to the extent a Fund's cash is applied 
to a particular Short-Term Investment made through the Joint Account, 
the Fund will participate in, and own a proportionate share of, such 
investment, and the income earned or accrued thereon, based upon the 
percentage of such investment purchased with the monies contributed by 
the Fund.
    9. The Adviser will administer the investments of the Joint Account 
as part of its duties under the existing or any future investment 
advisory agreements with each Fund and will not collect any additional 
fee for the management of the Joint Account. (The Adviser will collect 
fees in accordance with each Fund's respective investment advisory 
agreement.)
    10. The boards of trustees/directors of the Funds will adopt 
procedures pursuant to which the Joint Account will operate, which will 
be reasonably designed to provide that the requirements of the 
application will be met. The board will make and approve such changes 
as it deems necessary to ensure that such procedures are followed. In 
addition, the board will determine, no less frequently than annually, 
that the Joint Account has been operated in accordance with such 
procedures.
    11. The administration of the Joint Account will be within the 
fidelity bond coverage required by section 17(g) and rule 17g-1.
    12. Short-Term Investments held through the Joint Account generally 
will not be sold prior to maturity except:
    (a) If the Adviser believes the security no longer presents minimal 
credit risk;
    (b) In the case of Short-Term Money Market Instruments, if as a 
result of a credit downgrading or otherwise, the security no longer 
satisfies the investment criteria of all Funds participating in that 
investment; or
    (c) In the case of a repurchase agreement, if the counterparty 
defaults. A Fund may, however, sell its fractional portion of a Short-
Term Investment prior to the maturity of the investment if the cost of 
such transaction will be borne solely by the selling Fund and the 
transaction would not adversely affect the other Funds participating in 
the Short-Term Investment. In no case would an early termination by 
less than all participating Funds be permitted if it would reduce the 
principal amount or yield received by other Funds participating in a 
particular Short-Term Investment or otherwise adversely affect the 
other participating Funds. Each Fund participating in the Short-Term 
Investment will be deemed to have consented to such sale and partition 
of the Short-Term Investment.
    13. With respect to each Fund, any Short-Term Investment held 
through a Joint Account with a remaining maturity of more than seven 
days will be considered illiquid and subject to the restriction that 
each Fund may not invest more than 15% of its net assets in illiquid 
securities, if a Fund cannot sell its fractional share of the Short-
Term Investment pursuant to the requirements described in the preceding 
condition.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7772 Filed 3-31-94; 8:45 am]
BILLING CODE 8010-01-M