[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