[Federal Register Volume 64, Number 55 (Tuesday, March 23, 1999)]
[Notices]
[Pages 14023-14024]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6972]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-2371; 812-11322]


The Brinson Funds, et al.; Notice of Application

March 17, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under sections 6(c) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') from section 
17(a) of the Act.

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SUMMARY OF APPLICATION: Applicants seek an order to permit redemptions 
in-kind of shares of certain registered investment companies by certain 
shareholders who are affiliated persons of the investment companies.

APPLICANTS: The Brinson Funds (``Brinson''), Brinson Relationship Funds 
(the ``Trust''), and Brinson Partners, Inc. (``Partners'').

FILING DATES: The application was filed on September 24, 1998, and 
amended on March 3, 1999.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief 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 
12, 1999 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC 450 5th Street, NW, Washington, D.C. 20549-
0609. Applicants, Brinson Partners, Inc., 209 South LaSalle Street, 
Chicago, IL 60604-1295.

FOR FURTHER INFORMATION CONTACT:
Lisa McCrea, Attorney Adviser, at (202) 942-0562, or Nadya B. Roytblat, 
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 at the 
SEC's Public Reference Branch, 450 5th Street, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Brinson, a Delaware business trust, is an open-end management 
investment company registered under the Act, and currently consists of 
thirteen series (the ``Brinson Funds''). The Trust, a Delaware business 
trust, is an open-end management investment company registered under 
the Act, and currently consists of seventeen series (the ``Trust 
Funds''). The Brinson Funds, the Trust Funds, and other registered 
open-end management investment companies or series thereof that may in 
the future be advised by Partners or any person controlling, controlled 
by, or under common control with Partners, are referred to collectively 
as the ``Funds.''
    2. Partners is registered as an investment adviser under the 
Investment Advisers Act of 1940. Partners provides investment advisory 
services to the Funds, and manages the daily investment and business 
affairs of the Funds, subject to the policies of the boards of trustees 
of Brinson and the Trust (the ``Boards''). Each of the Boards has three 
trustees, all of whom are not ``interested persons'' as defined in 
section 2(a)(19) of the Act (the ``Non-Interested Trustees'').
    3. The prospectuses of the Brinson Funds and the Trust Funds 
provide that, if condition exist which make cash payments undesirable, 
any request for redemption of a Fund's shares may be honored by making 
payment in whole or impart in securities. The payment would be made on 
a pro rata basis, monitored by Partners, which the securities valued in 
the same manner as they would be for purposes of computing the Fund's 
net asset value. This redemption procedure presently applies to all 
shareholders other than shareholders who are ``affiliated persons'' of 
the Funds within the meaning of section 2(a)(3) of the Act (``Non-
Covered Shareholders'').
    4. Applicants request relief to permit the Funds to satisfy 
redemption requests make by shareholders who are ``affiliated persons'' 
of the Funds solely within the meaning of section 2(a)(3)(A) of the Act 
(``Covered Shareholders'') because they own 5% or more of a Fund's 
outstanding shares by distributing portfolio securities in kind.

Applicant's Legal Analysis

    1. Section 17(a)(2) of the Act makes it unlawful for an affiliated 
person of a registered investment company or an affiliated person of 
such a person, acting as principal, to knowingly ``purchase'' from such 
registered investment company any security or other property (except 
securities of which the seller is the issuer). Under section 2(a)(3)(A) 
of the Act, an ``affiliated person'' includes any person owning 5% or 
more of the outstanding voting securities of such other person. 
Applicants state that to the extent that an in-kind redemption could be 
deemed to involve the purchase of portfolio securities by a Covered 
Shareholder, the proposed redemption in-kind would be prohibited by 
section 19(a)(2).
    2. Section 17(b) authorizes the SEC to exempt a proposed 
transaction from section 17(a) provided that: (a) the terms of the 
proposed transaction, including the consideration to be paid or 
received, are fair and reasonable and do not involve overreaching on 
the part of any person concerned; (b) the transaction is consistent 
with the policy of each registered investment company involved; and (c) 
the proposed transaction is consistent with the general purposes of the 
Act.
    3. Section 6(c) of the Act provides that the SEC may exempt classes 
of persons or transactions from the Act, where an 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.
    4. Applicants request an order under sections 6(c) and 17(b) of the 
Act exempting them from the provisions of section 17(a) of the Act to 
permit Covered Shareholders to redeem their shares in-kind from the 
Funds. The requested order would not apply to redemptions by 
shareholders who are affiliated persons of the Fund within the meaning 
of sections 2(a)(3)(B) through (F) of the Act.
    5. Applicants submit that the proposed transactions meet the 
standards set forth in sections 6(c) and 17(b) of the Act. Applicants 
assert that the terms of the proposed in-kind redemptions are 
reasonable and fair. Applicants state that Covered Shareholders who 
wish to redeem shares receive the same ``in-kind'' distribution of 
securities and cash on the same basis as Non-Covered Shareholders 
wishing to redeemshares. Applicants further state that the securities 
to be distributed in-kind will be valued in the same manner as that

[[Page 14024]]

used by each Fund to determine its net asset value.
    6. Applicants state that the proposed in-kind redemptions are 
consistent with the investment policies of the Funds. Applicants also 
state that the proposed in-kind redemptions are consistent with the 
general purposes of the Act because there will not be discriminatory 
practices on the part of investment company affiliates to the detriment 
of other security holders.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The portfolio securities distributed pursuant to a redemption 
in-kind (the ``In-Kind Securities'') will be limited to securities that 
are traded on a public securities market or for which quoted bid and 
asked prices are available.
    2. The In-Kind Securities will be distributed on a pro-rata basis 
after excluding: (a) securities which, if distributed, would be 
required to be registered under the Securities Act of 1933; (b) 
securities issued by entities in countries which (i) restrict or 
prohibit the holding of securities by non-nationals other than through 
qualified investment vehicles, such as a Fund, or (ii) permit transfers 
of ownership of securities to be effected only by transactions 
conducted on a local stock exchange; and (c) certain portfolio assets 
(such as forward foreign currency exchange contracts, futures and 
options contracts and repurchase agreements) that, although they may be 
liquid and marketable, must be traded through the marketplace or with 
the counterparty to the transaction in order to effect a change in 
beneficial ownership. Cash will be paid for that portion of a Fund's 
assets represented by cash equivalents (such as certificates of 
deposit, commercial paper and repurchase agreements) and other assets 
which are not readily distributable (including receivable sand prepaid 
expenses), net of all liabilities (including accounts payable). In 
addition, a Fund will distribute cash in lieu of securities held in its 
portfolio not amounting to round lots (or which would not amount to 
round lots if included in the in-kind distribution), fractional shares 
and accruals on such securities.
    3. The In-Kind Securities will be valued in the same manner as they 
would be valued for purposes of computing a Fund's net asset value, 
which, in the case of securities traded on a public securities market 
for which quotations are available, is their last reported sales price 
on the exchange on which the securities are primarily traded or the 
last sales price on the national securities market, or, if the 
securities are not listed on an exchange or the national securities 
market, or if there is no such reported price, the average of the most 
recent bid and asked price (or, if no such price is available, the last 
quoted bid price).
    4. The Trusts' Boards, including a majority of the Non-Interested 
Trustees, will determine no less frequently then annually: (a) whether 
the In-Kind Securities, if any, have been distributed in accordance 
with conditions 1 and 2; (b) whether the In-Kind Securities, if any, 
have been valued in accordance with condition 3; and (c) whether the 
distribution of any such In-Kind Securities is consistent with the 
policies of each affected Fund as reflected in its prospectus. In 
addition, the Boards will make and approve such changes as they deem 
necessary in the procedures for monitoring the applicants' compliance 
with the terms and conditions of the application.
    5. The relevant Funds will maintain and preserve for a period of 
not less than six years from the end of the fiscal year in which the 
proposed in-kind redemption occurs, the first two years in an easily 
accessible place, a written record of each such redemption setting 
forth a description of each security distributed, the identity of the 
Covered Shareholder, the terms of the distribution, and the information 
or materials upon which the valuation was made.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-6972 Filed 3-22-99; 8:45 am]
BILLING CODE 8010-01-M