[Federal Register Volume 61, Number 179 (Friday, September 13, 1996)]
[Notices]
[Pages 48515-48518]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23499]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22204; 812-10006]


Brinson Relationship Funds, et al.; Notice of Application

September 9, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (``Act'').

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APPLICANTS: Brinson Relationship Funds (``Trust''), any subsequently 
created series of the Trust for which Brinson Partners, Inc. 
(``Brinson''), any entity resulting from Brinson changing its 
jurisdiction or form of organization, or any entity controlling, 
controlled by, or under common control with Brinson serves as 
investment adviser (collectively, ``Series''), and Brinson.

RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
for an exemption from section 12(d)(1) of the Act and under sections 
6(c) and 17(b) of the Act for an exemption from section 17(a) of the 
Act.

SUMMARY OF APPLICATION: Applicants request an order to permit any 
Series to invest in any other Series, and certain Series to invest in 
certain other Series in excess of the limits of section 12(d)(1) (A) 
and (B). The order would amend and supersede a prior order by also 
permitting the latter transactions.

FILING DATE: The application was filed on February 22, 1996, and 
amended on April 22, 1996, and August 20, 1996. Applicants have agreed 
to file an amendment during the notices period, the substance of which 
is included in this notice.

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 October 7, 1996, 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit, or, for lawyers, a certificate of service. 
Hearing request should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: 209 South LaSalle St., Chicago, Illinois 60604-1295.

FOR FURTHER INFORMATION CONTACT:
Mercer E. Bullard, Branch Chief, at (202) 942-0564, or Elizabeth G. 
Osterman, Assistant Director, at (202) 942-0564 (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 Trust, a Delaware business trust, is registered under the 
Act as an open-end management investment company. The Trust currently 
offers the following six Series, each of which has its own investment 
objective and policies: The Brinson Global Securities Fund (``Global 
Fund''), the Brinson, Emerging Markets Equity Fund, the Brinson 
Emerging Markets Debt Fund, the Brinson Post-Venture Fund, the Brinson 
High Yield Fund, High Yield Fund, and the Brinson Short-Term Fund. Only 
accredited investors, as defined in Regulation D under the Securities 
Act of 1933, may invest in the Trust. The Trust imposes no sales 
charges or advisory fees and has no

[[Page 48516]]

distribution plan pursuant to section rule 12b-1 under the Act. One 
Series, the Brinson Emerging Markets Equity Fund, charges a redemption 
fee, but any investment by any other Series in that Fund will not be 
subject to the fee.
    2. Brinson, a wholly-owned subsidiary of Swiss Bank Corporation, is 
a registered investment adviser under the Investment Advisers Act of 
1940. Brinson serves as the investment adviser to each Series. Fund/
Plan Services, Inc. (``Administrator'') provides general 
administrative, accounting and pricing and transfer agency services to 
each Series, and Bankers Trust Company (``Custodian'') serves as 
custodian for each Series.
    3. Applications request an order to permit each Series to purchase 
shares of another Series (each purchasing Series, an ``Investing 
Series''), and to sell its shares to another Series and redeem such 
shares upon tender by the other Series (each selling Series, a ``Target 
Series''), and for Brinson to effect such transactions, all in 
accordance with section 12(d) of the Act.\1\ For purposes of the limits 
in section 12(d)(1)(A) of the Act, each Target Series will be treated 
as a separate investment company, which means that an Investing Series' 
ownership of a Target Series will not be aggregated with its ownership 
of any other Target Series in determining compliance with the limits of 
that section.
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    \1\ Applicants previously obtained an order permitting such 
transactions, except that the order did not permit the in-kind 
transactions between the Series, which would be permitted pursuant 
to the order requested in the application. Brinson Relationship 
Funds, Investment Company Act Release Nos. 21662 (Jan. 5, 1996) 
(notice) and 21724 (Jan. 31, 1996) (order) (``Prior Order''). The 
Prior Order would be superseded by the order requested herein.
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    4. Applicants expect that an Investing Series may transfer 
portfolio securities to a Target Series, or a Target Series may 
transfer portfolio securities to an Investing Series, in exchange for 
shares of the Target Series. Applicants contemplate three situations in 
which such in-kind transactions may occur: (1) When an Investing Series 
makes an initial investment in the Target Series; (2) in order to avoid 
unnecessary expense when a Target Series wishes to purchase a security 
that an Investing Series wishes to sell; and (3) in order for the 
Target Series to reduce trading costs in the event of unusually large 
purchases or redemptions. Such in-kind transactions would occur in the 
first two situations only when the Investing Series holds portfolio 
securities that would be appropriate investments for a Target Series. 
These in-kind transactions will comply with the provisions of 
paragraphs (a) through (f) of rule 17a-7, except that the consideration 
for the portfolio securities will be shares of the Target Series, 
rather than cash. In-kind distributions of portfolio securities by a 
Target Series in redemption of its shares would be made pro rata.
    5. Each Investing Series may invest the assets it allocates to 
particular asset classes in a Target Series that primarily invests in 
such classes, while also retaining its ability to invest directly in 
the securities within such asset classes, as authorized by the 
investing Series' investment objectives and policies. If Brinson 
believes that it can more economically invest in an asset class 
directly, rather than through a Target Series, then such direct 
investment will be made. Each Target Series would reserve the right to 
discontinue selling shares to any Investing Series if the board of 
trustees of the Trust determines that sales of the Target Series' 
shares would adversely affect such Series' portfolio management and 
operations. Brinson will monitor the magnitude and performance of each 
Investing Series' investments in the Target Series.
    6. Applicants also request to amend the Prior Order to permit any 
Investing Series that is an Asset Allocation Series (as defined below) 
to invest in any Target Series that is a Core Series (as defined below) 
in excess of the limits of section 12(d)(1)(A) of the Act, and the Core 
Series to sell its shares to the Asset Allocation Series in excess of 
the limits of section 12(d)(1)(B) of the Act. An Asset Allocation 
Series is the Global Fund and any Series which may be created in the 
future which employs an active asset allocation strategy of investing 
in two or more specific asset classes and which propose to invest in 
Target Series that are Core Series in excess of the limits of section 
12(d)(1)(A). A Core Series is the Brinson Emerging Markets Equity Fund, 
the Brinson Emerging Markets Debt Fund, the Brinson Post-Venture Fund, 
the Brinson High Yield Fund, the Brinson Short-Term Fund, and any 
Series which may be created in the future which invests at least 65 
percent of its assets in one particular asset class and in which an 
Asset Allocation Series may invest in excess of limits of section 
12(d)(1)(A). No Asset Allocation Series will also be a Core Series.
    7. The Global Fund employs active asset allocation strategies 
across global equity, fixed income, and money markets and active 
security selection within each market. The Global Fund may invest in 
certain asset classes by investing in a Series that invests in that 
asset class. For example, the Global Fund may invest in equity and debt 
securities in emerging markets by investing in two other Series of the 
Trust: the Brinson Emerging Markets Equity Fund and the Brinson 
Emerging Markets Debt Fund. Such investments by the Global Fund, as 
well as investments in other Series of the Trust, may be made in excess 
of the limits of section 12(d)(1).
    8. Brinson also serve as investment adviser to another investment 
company, The Brinson Funds, which offers shares in ten different 
Series. Pursuant to a prior order,\2\ Brinson, The Brinson Funds, and 
the Trust obtained exemptive relief to permit The Brinson Funds to 
invest in the Trust and the Trust to sell its shares to The Brinson 
Funds in excess of the limits of sections 12(d)(1) (A) and (B). 
Applicants represents that if any Series of The Brinson Funds invests 
in a Series in excess of the limits of section 12(d)(1)(A), such Series 
will not invest in any other investment company or portfolio thereof 
(including another Series) in excess of the limits of section 
12(d)(1)(A).
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    \2\ Investment Company Act Release Nos. 21922 (Apr. 29, 1996) 
(notice) and 21984 (May 28, 1996) (order).
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Applicants' Legal Analysis

    1. Section 17(a) of the Act makes it unlawful for an affiliated 
person of a registered investment company to sell securities to, or 
purchase securities from, the company. Applicants believe that the 
Investing and Target Series may be affiliated persons under section 
2(a)(3) of the Act because they share a common investment adviser, and 
that the Asset Allocation and Core Series may be affiliated persons for 
the additional reason that an Asset Allocation Series may own more than 
five percent of a Core Series.
    2. Applicants believe that section 17(a) was intended to prohibit 
affiliated persons in a position of influence or control over an 
investment company to further their own interests by selling property 
to an investment company at an inflated value, by purchasing property 
from an investment company at less than its fair value, or by selling 
or purchasing property on terms that involve overreaching by the 
affiliated person. Applicants assert that investments by Investing 
Series in Target Series will not result in any of the abuses that 
section 17(a) was designed to prevent. Applicants also believe that it 
is appropriate to permit the in-kind transactions described above 
because they do not differ materially from the kind of transactions 
that rule

[[Page 48517]]

17a-7 was intended to exempt from the prohibitions of section 17(a).
    3. Section 17(b) of the Act provides that the SEC shall exempt a 
proposed transaction from section 17(a) if evidence establishes that: 
(1) The terms of the proposed transaction are reasonable and fair and 
do not involve overreaching; (2) the proposed transaction is consistent 
with the policies of the registered investment company involved; and 
(3) the proposed transaction is consistent with the general provisions 
of the Act.
    4. Applicants believe that, for the following reasons, the section 
17(b) standard has been satisfied. Applicants contend that the 
Investing Series' purchase and redemption of a Target Series' shares 
will be effected at net asset value, which is the same consideration 
paid and received by other shareholders. Applicants also state that no 
sales loads, redemption fees, or distribution fees under rule 12b-1 
will be charged in connection with transactions between Investing and 
Target Series, and Brinson will receive no advisory fee from the 
Series. Finally, applicants assert that Investing Series' investments 
in Target Series will be made in accordance with each Investing Series' 
investment restrictions and its policies set forth in its registration 
statement. Applicants also believe that the in-kind transactions are 
reasonable and fair and do not involve overreaching.
    5. Applicants believe that substantial benefits may flow to 
investors if Investing Series may invest in Target Series. Applicants 
contend that Investing Series will be able largely to eliminate 
brokerage costs and custody fees when they invest in Target Series 
rather than investing directly in individual securities. Applicants 
also assert that the Investing Series will realize efficiencies when 
investing small portions in certain asset classes. Direct investments 
in such asset classes would require the Series' managers to follow a 
large number of issuers to make a relatively small investment. 
Applicants believe it will be more efficient to exploit the expertise 
of portfolio managers of Target Series who specialize in such asset 
classes. Finally, Applicants believe that investing in Target Series 
will provide greater diversification because it will expose the 
Investing Series to a greater range of issuers than if the Series 
invested directly.
    6. Section 12(d)(1)(A) of the Act 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.
    7. Applicants assert that the restrictions in section 12(d)(1) were 
intended to prevent the negative effects associated with unregulated 
pyramiding of investment companies, including (1) unnecessary 
duplication of costs (e.g. sales loads, advisory fees, and 
administrative costs); (2) undue influence by the fund holding company 
over its underlying funds; (3) the threat of large scale redemptions of 
the securities of the underlying investment companies. For the 
following reasons, applicants believe that the proposed arrangements 
will not give rise to these dangers.
    8. Applicants contend that the proposed structure will not result 
in significant duplication of the costs of distribution, portfolio 
management, fund administration or operations. Instead, applicants 
believe that efficiencies that the Asset Allocation Series should 
achieve in portfolio management and fund operations will result in net 
cost savings. Applicants assert that there will be no layering of sales 
or distribution charges, or advisory fees, because no investment by an 
Asset Allocation Series will be subject to such charges or fees. 
Applicants argue that the Administrator will not receive higher fees, 
as the administration and accounting fees paid to it by the Asset 
Allocation Series will be reduced by an amount equal to fees paid for 
such services by the Core Series to the extent that they are 
attributable to the Asset Allocation Series' investment in the Core 
Series. Applicants also believe that each Asset Allocation Series' 
custodial fees will be lower than if it invested directly in the 
securities held by the Core Series.
    9. Applicants believe that there is no risk that the management of 
an Asset Allocation Series will exercise inappropriate control or undue 
influence over the management of the Core Series because Brinson is the 
adviser for all Series, and because there will be a small number of 
investors in the Core Series, which are marketed solely to accredited 
investors.
    10. Applicants contend that the proposed transactions will reduce 
the potential for disruptive large scale redemptions because Brinson 
will serve as investment adviser to the Series and the Series will be 
part of the same ``group of investment companies,'' as defined in rule 
11a-3 under the Act.
    11. Section 6(c) of the Act provides that the SEC may exempt 
persons or transactions from any provision of the Act if 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 believe that the transactions described above meet the 
standards set forth in section 6(c).

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. The Target Series' shares purchased by an Investing Series will 
not be subject to a sales load, redemption fee, advisory fee, or 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act.
    2. Investment in shares of a Target Series will be in accordance 
with each Investing Series' respective investment restrictions and will 
be consistent with its policies as recited in its registration 
statement.
    3. The applicants will cause Brinson, the Administrator, the 
Custodian, and their respective affiliates, in their capacities as 
service providers to the Target Series, to remit to the respective 
Investing Series, or to waive, an amount equal to all fees received by 
them or their affiliates under their respective agreements with the 
Trust, on behalf of the Target Series, to the extent such fees are 
based upon the Investing Series' assets invested in the shares of a 
Target Series. Any of these fees remitted or waived will not be subject 
to recoupment by Brinson, the Administrator, the Custodian, or their 
respective affiliates at a later date.
    4. If Brinson waives any portion of a Target Series' fees or bears 
any portion of the expenses of a Target Series (an ``Expense Waiver''), 
the adjusted fees for a Target Series (gross fees minus Expense Waiver) 
will be calculated without reference to the amounts waived or remitted 
pursuant to condition 3 above. If the amount waived pursuant to 
condition 3 exceeds adjusted fees, Brinson also will reimburse the 
Investing Series in an amount equal to such excess.

[[Page 48518]]

    5. Each Asset Allocation Series and each Core Series will be part 
of the same ``group of investment companies,'' as defined in rule 11a-3 
under the Act.
    6. No Core Series will acquire securities of any investment company 
or series thereof in excess of the limits contained in section 
12(d)(1)(A) of the Act.
    7. A majority of the trustees of the Trust will not be ``interested 
persons,'' as defined in section 2(a)(19) of the Act.
    8. 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 Asset 
Allocation Series and Core Series; monthly purchases and redemptions 
(other than by exchange) for each Asset Allocation Series and each of 
its Core Series; monthly exchanges into and out of each Asset 
Allocation Series and each Core Series; month-end allocations of the 
Asset Allocation Series' assets among its Core Series; annual expense 
ratios for each Asset Allocation Series and for each of its Core 
Series; and a description of any vote taken by the shareholders of any 
Cores Series, including a statement of the percentage of votes cast for 
and against the proposal by the Asset Allocation Series and by the 
other shareholders of the Core Series. The information will be provided 
as soon as reasonably practicable following each fiscal year-end of the 
Trust (unless the Chief Financial Analyst shall notify 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. 96-23499 Filed 9-12-96; 8:45 am]
BILLING CODE 8010-01-M