[Federal Register Volume 61, Number 87 (Friday, May 3, 1996)]
[Notices]
[Pages 19965-19967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11035]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21922; 812-9776]
The Brinson Funds, et al.; Notice of Application
April 29, 1996.
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 (the ``Fund'') on behalf of its series
(the ``Public Funds''); Brinson Relationship Funds (the ``Trust'') on
behalf of its series (the ``Series''), and Brinson Partners, Inc. (the
``Adviser''). Applicants request that any relief granted pursuant to
this application also apply to any subsequently created Public Fund or
Series for which the Adviser, any entity resulting from the Adviser
changing its jurisdiction or form of organization, or any entity
controlling, controlled by, or under common control with the Adviser
serves as investment advisers.
Relevant Act Sections: Order requested under section 6(c) granting an
exemption from sections 12(d)(1) (A) and (B), and under sections 6(c)
and 17(b) granting an exemption from section 17(a).
Summary of Application: The requested order would permit each Public
Fund to invest a portion of its assets in the Series.
Filing DATES: The application was filed on September 21, 1995, and was
amended on December 4, 1995, March 15, 1996, April 10, 1996, and April
18, 1996.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request 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 May 24, 1996,
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 who wish to be
notified of a hearing may request 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 60604-1295.
FOR FURTHER INFORMATION CONTACT: Sarah A. Wagman, Staff Attorney, at
(202) 942-0654, or Alison E. Baur, Branch Chief, at (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Fund is a Delaware business trust registered under the act
as an open-end management investment company. The Funds currently
consists of ten Public Funds: one equity and income fund (Global Fund),
three equity funds (Global Equity Fund, U.S. Equity Fund, and Non-U.S.
Equity Fund), four fixed income funds (Global Bond Fund, Short-Term
Global Income Fund, U.S. Bond Fund, and Non-U.S. Bond Fund), one
balanced fund (U.S. Balanced Fund), and one money market fund (U.S.
Cash Management Fund). Each Public Fund offers two classes of shares:
the Brinson Fund class shares, which have no sales charge and are not
subject to a distribution fee imposed in accordance with rule 12b-1
under the Act (a ``12b-1 Fee''), and the SwissKey Fund class shares,
which have not sales charge but are subject to a 12b-1 Fee. Fund/Plan
Broker Services, Inc. (``FPBS'') acts as distributor of the Fund. FPBS
does not receive any payment from the Public Funds for its services as
distributor. Rather, the Adviser pays FPBS a fixed annual fee for the
distribution services it provides to the Public Funds.
2. The Trust is a Delaware business trust registered under the Act
as an open-end management investment company. The Trust currently
consists of six Series: Brinson Global Securities Fund, Brinson Short-
Term Fund, Brinson Post-Venture Fun, Brinson High Yield Fund, Brinson
Emerging Markets Equity Fund, and Brinson Emerging Markets Debt Fund.
Investment in the Series is limited to ``accredited investors'' within
the meaning of Regulation D under the Securities act of 1933. The
Series impose no sales charge, advisory fee, or 12b-1 Fee. Because
shares of the Series are issued solely in private placement
transactions, the Trust does not have a distributor.
3. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Adviser provides investment
advisory services to each Public Fund and receives a fee for such
services under the Adviser's investment advisory agreement with the
Fund. The Adviser provides investment advisory services to each Series
of the Trust, but it does not receive any compensation for these
services under its investment advisory agreement with the Trust. Fund/
Plan Services, Inc. (``Fund/Plan'') provides administrative and
transfer agency services to both the Fund and the Trust.
[[Page 19966]]
4. Applicants propose that, subject to the conditions to the
requested order, the Public Funds be permitted to purchase and redeem
shares of the Series, and that each Series be permitted to sell shares
to, and redeem shares from, each of the Public Funds. The Public Funds
would invest a portion of their assets in Series that primarily invest
in certain securities (each Series in which a Public Fund invests in
reliance on the requested order is referred to herein as a ``Target
Series'').\1\
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\1\ It is presently anticipated that the Public Funds will
invest in the following Series: the Brinson Emerging Markets Equity
Fund, the Brinson Emerging Markets Debt Fund, the Brinson Post-
Venture Fund, and the Brinson High Yield Fund.
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5. Each Public Fund may invest directly in debt and equity
securities of emerging market issuers (``Emerging Market Securities''),
equity securities of small capitalization issuers (``Small Cap
Securities''), and/or high yield securities, as consistent with the
Public Fund's investment objectives and policies. Applicants believe
that investors in the Public Funds may obtain substantial benefits if
the Public Funds invest that portion of their assets they currently
invest directly in Emerging Market Securities, Small Cap Securities,
and high yield securities in the Series that primarily invest in such
securities.\2\
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\2\ While the Public Funds request relief to invest in the
Series in order to obtain exposure to these three asset classes, it
is likely that the Fund will create new Public Funds in the future
that may seek to obtain exposure to different and additional asset
classes through investment in the Series.
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6. Solely in instances where a Public Fund holds portfolio
securities that would be appropriate investments for a Series, the
Public Fund may invest in the Series by transferring securities and
cash in the Public Fund's portfolio to the corresponding Series in
exchange for shares of the Series. In addition, the Series may pay
redeeming shareholders, including the Public Funds, in-kind with a pro
rata distribution of the Series' portfolio securities rather than cash.
These in-kind purchases or redemptions will comply with the provisions
of rule 17a-7 (a) through (f) under the Act, except for the requirement
under subparagraph (a) that the transaction be for no consideration
other than cash payment.
7. The Public Funds will retain the ability to invest their assets
directly in securities as authorized by their respective investment
objectives and policies. Thus, if the Adviser believes that it can more
economically invest a Public Fund's assets directly in a particular
type of security, then such direct investment will be made. In
addition, each Series reserves the right to discontinue selling shares
to any Public Fund if the Trust's board of trustees determines that
sales of Series shares to the Public Funds would adversely affect the
Series' portfolio management and operations.
Applicants' Legal Analysis
A. Section 12(d)(1)
1. Section 12(d)(1)(A) 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 any other acquired
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 6(c) provides that the SEC may exempt persons or
transaction if, and to the extent that, 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 request an order under section 6(c)
exempting them from section 12(d)(1) (A) and (B) to permit the Public
Funds to invest in shares of the Series.
3. Section 12(d)(1) was intended to mitigate or eliminate actual or
potential abuses which might arise when one investment company acquires
shares of another investment company. These abuses include the
unnecessary duplication of costs (such as sales charges, distribution
fees, advisory fees, and administrative costs), undue influence by the
fund holding company over its underlying funds, and the threat of large
scale redemptions of the securities of the underlying investment
companies.
4. Applicants believe that none of these potential or actual abuses
are present in the proposed arrangement. Applicants assert that the
Public Funds' investment in the Series will not result in duplicative
distribution, portfolio management, fund administration, or operating
costs. Investors in the Public Funds will not pay duplicative advisory
fees because the Adviser does not receive any compensation for the
investment advisory services it provides to the Series. The
administration and accounting fees (both of which are asset-based) paid
by the Public Funds to Fund/Plan will be reduced by an amount equal to
the administration and accounting fees attributable to the Public
Funds' investments in the Series. While one of the Series (Brinson
Emerging Markets Equity Fund) assesses a redemption fee, applicants
agree that any investment by the Public Funds in that Series will not
be subject to the redemption fee. Because Fund/Plan receives a fixed
annual fee from each Series for providing transfer agency services,
Fund/Plan will not receive increased transfer agency fees as a result
of the proposed transaction.
5. Applicants assert that the proposed arrangement will not result
in disruptive or manipulative redemptions by the Public Funds of shares
of the Series, since the Public Funds and the Series are part of the
same ``group of investment companies'' as defined in rule 11a-3 under
the Act. Applicants also assert that there is no risk that the Public
Funds will exercise inappropriate control or undue influence over the
management of the Trust. For these reasons, applicants submit that the
requested order exempting applicants from section 12(d)(1) meets the
standards of section 6(c).
B. Section 17(a)
1. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company, or an affiliated person of such person,
to sell securities to, or purchase securities from, the company. Each
Public Fund and Series may be considered an affiliated person of the
other, within the meaning of section 2(a)(3) of the Act, because each
is advised by the Adviser, and thus could be considered under common
control. Accordingly, a Series' sale of its shares to a Public Fund,
and the redemption of such shares, may be considered a purchase and
sale prohibited by section 17(a).
2. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) The
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of each registered investment company involved; and (c)
the proposed transaction is consistent with the general provision of
the Act. Applicants request an exemption under sections 6(c) and 17(b)
to permit the Series to sell their shares to the Public
[[Page 19967]]
Funds, and to permit the Public Funds to redeem shares of the
Series.\3\
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\3\ Applicants request relief under section 6(c) as well as
under section 17(b) because they wish to engage in a series of
transactions rather than a single transaction.
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3. Applicants state that the terms of the proposed transactions are
reasonable and fair, and do not involve overreaching. The consideration
paid and received for the sale and redemption of shares of the Series
will be based on the net asset value of those Series' shares. In
addition, the Series will not charge the Public Funds any sales charge,
redemption fee, or 12b-1 Fee, and Brinson does not receive any advisory
fee for serving as adviser to the Series.
4. Applicants assert that the proposed transactions will be
consistent with the policies of each Public Fund, as the Public Funds
will amend the Fund's investment restrictions and policies to permit
the proposed transactions. Applicants also assert that the proposed
transactions are consistent with the general purposes of the Act.
5. Applicants believe that investing in the Series will permit the
Public Funds more efficiently to obtain exposure to a broadly
diversified portfolio of securities at lower cost than investing
directly. For example, transaction and custodial fees associated with
Emerging Markets Securities are relatively high as compared to
securities of U.S. issuers. Consequently, it is more economical to
invest one portfolio of Emerging Markets Securities rather than
several. The Public Funds' investment in the Series may also result in
greater efficiency in the Public Funds' portfolio management. For
example, because of the large number of small company issuers and the
difficulty of obtaining information about these issuers, following a
large number of such issuers is extremely time-consuming for portfolio
managers. Where a Public Fund allocates a fairly small percentage of
its assets to investment in Small Cap Securities, the Public Fund can
achieve exposure to these securities by investing in the Brinson Post-
Venture Fund, without the Public Fund's portfolio managers spending a
disproportionate amount of time following individual Small Cap
Securities.
6. Applicants also state that Public Funds, by investing in the
Series, will gain exposure to a far greater range of issuers than would
be possible by investing directly. Applicants anticipate that greater
diversification will result in lower risk and volatility, and greater
price stability of investments in these securities. For these reasons
and the reasons discussed above, applicants believe that the proposed
transactions meet the standards of sections 6(c) and 17(b).
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief shall be subject to the following conditions:
1. The Public Funds and the Series will be part of the same ``group
of investment companies,'' as defined in rule 11a-3 under the Act.
2. No Target Series shall acquire securities of any other
investment company in excess of the limitations contained in section
12(d)(1)(A) of the Act.
3. A majority of the trustees of a Public Fund will not be
``interested persons'' of the Public Fund, as defined in section
2(a)(19) of the Act.
4. Brinson will not charge any advisory fee for serving as adviser
to the Series.
5. Any sales charges or service fees charged with respect to
securities of a Public Fund, when aggregated with any sales charges or
service fees paid by the Public Fund with respect to shares of the
Target Series, shall not exceed the limitations set forth in Article
III, section 26, of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc.
6. The applicants agree to provide the following information, in
electronic format, to the Chief Financial Analyst of the SEC's Division
of Investment Management: monthly average total assets of each Public
Fund and each of its Target Series; monthly purchases and redemptions
(other than by exchange) for each Public Fund and each of its Target
Series; monthly exchanges into and out of each Public Fund and each of
its Target Series; month-end allocations of each Public Fund's assets
among its Target Series; annual expense ratios for each Public Fund and
each of its Target Series; and a description of any vote taken by the
shareholders of any Target Series, including a statement of the
percentage of votes cast for and against the proposal by the Public
Fund and by the other shareholders of the Target Series. Such
information will be provided as soon as reasonably practicable
following each fiscal year-end of the Public Fund (unless the Chief
Financial Analyst shall notify the applicants in writing that such
information need no longer be submitted).
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-11035 Filed 5-2-96; 8:45 am]
BILLING CODE 8010-01-M