[Federal Register Volume 61, Number 34 (Tuesday, February 20, 1996)]
[Notices]
[Pages 6398-6400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3666]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21741; 812-9774]
The Brinson Funds, et al.; Notice of Application
February 12, 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 ``Trust'') and Brinson Partners,
Inc. (``Partners'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from section 12(d)(1)(A)(ii), under sections 6(c) and 17(b)
for an exemption from section 17(a), and under section 17(d) and rule
17d-1 thereunder permitting certain joint transactions.
SUMMARY OF APPLICATION: Applicants request an order that would permit
certain money market funds to sell their shares to affiliated
investment companies.
FILING DATES: The application was filed on September 20, 1995 and
amended on January 2, 1996.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on March 8, 1996
and should be accompanied by proof of service on the applicant, 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.
Applicants, 209 South LaSalle Street, Chicago, Illinois 60604-1295.
FOR FURTHER INFORMATION CONTACT:
David W. Grim, Staff Attorney, at (202) 942-0571, or Robert A.
Robertson, Branch Chief, 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 is an open-end management investment company that
currently offers ten series (each, a ``Fund''). One of the Funds is a
money market fund subject to the requirements of rule 2a-7 under the
Act (together with any future money market funds, the ``Money Market
Funds''). The other nine Funds are non-money market funds (together
with any future non-money market funds, the ``Non-Money Market
Funds''). Applicants request relief on behalf of themselves and any
other registered investment companies that now or in the future are
advised or subadvised by Partners or an entity controlling, controlled
by, or under common control with Partners.\1\
\1\ All existing investment companies that presently intend to
rely on the requested order are named as applicants.
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2. Partners serves as investment adviser for each Fund. Fund/Plan
Services, Inc. (``Fund/Plan'') serves as administrator and transfer
agent for each Fund. Fund/Plan Broker Services, Inc. (``FPBS'') serves
as distributor for each Fund. Bankers Trust Company serves as custodian
for each Fund.
3. The Money Market Funds seek to maximize current income
consistent with the preservation of capital by investing exclusively in
short-term money market instruments. The Non-Money Market Funds invest
in a variety of debt and/or equity securities in accordance with their
respective investment objectives and policies.
4. Each of the Funds has, or may be expected to have, uninvested
cash in an account with the custodian. This cash either may be invested
directly in individual short-term money market instruments or may not
be invested in any portfolio securities.
5. Applicants request an order that would permit (a) each of the
Funds to utilize cash reserves that have not been invested in portfolio
securities to purchase shares of one or more of the Money Market Funds
(each such Fund, including the Money Market Funds, purchasing shares of
the Money Market Funds is an ``Investing Fund'') and (b) each Money
Market Fund to sell shares to, and redeem such shares from, an
Investing Fund. By investing cash balances in the Money Market Funds as
proposed, applicants believe that the Investing Funds will be able to
combine their cash balances and thereby reduce their transaction costs,
create more liquidity, enjoy greater returns, and further diversify
their holdings. While the investment policies of each Fund currently do
not permit the Funds to purchase money market instruments, including
shares of a money market fund, the investment policies and registration
statements of the Funds will be amended to permit these investments.
The proposed transactions will, therefore, be consistent with the
investment policies and restrictions of the Funds, as recited in their
registration statements and other SEC filings.
[[Page 6399]]
6. The shareholders of the Investing Fund would not be subject to
the imposition of double management fees. Partners, Fund/Plan, and any
affiliated persons of Partners and Fund/Plan will remit to the
respective Investing Funds, or waive, an amount equal to the increased
investment advisory fees, and administrative and accounting fees, that
Partners and Fund/Plan would earn as a result of the Investing Funds'
investment in the Money Market Funds to the extent such fees are based
upon the Investing Funds' assets invested in shares of the Money Market
Funds (the ``Reduction Amount''). Further, no sales charge, contingent
deferred sales charge, 12b-1 fee, or other underwriting or distribution
fee will be charged by the Money Market Funds with respect to the
purchase or redemption of their shares. If a Money Market Fund offers
more than one class of shares, each Investing Fund will invest only in
the class with the lowest expense ratio at the time of the investment.
7. Each of the Funds has a mandatory expense cap arrangement with
Partners for the purpose of keeping each Fund's total expenses below a
certain predetermined percentage amount (an `'Expense Waiver''). To the
extent actual expenses of any such Fund exceeds such cap, Partners
waives or reimburses the Fund in the amount of the excess. Any
applicable Expense Waiver will not limit the advisory and
administrative fee waiver or remittance discussed above.
8. Applicants' request also would permit the Funds to invest
uninvested cash in a Money Market Fund in excess of the percentage
limitations set out in section 12(d)(1)(A)(ii) of the Act. Section
12(d)(1)(A)(ii) prohibits a registered investment company from
acquiring the securities of another investment company if, immediately
thereafter, the acquiring company would have more than 5% of its total
assets invested in the securities of the selling company. Applicants
propose that each Fund be permitted to invest in shares of a Money
Market Fund so long as each Fund's aggregate investment in such Money
Market Fund does not exceed the greater of 5% of such Fund's total net
assets or $2.5 million. Applicants will comply with all other
provisions of section 12(d)(1).
Applicants' Legal Analysis
1. Sections 17(a) (1) and (2) make it unlawful for any affiliated
person of a registered investment company, acting as principal, to sell
or purchase any security to or from such investment company. Because
each Fund may be deemed to be under common control with the other
Funds, it may be an ``affiliated person,'' as defined in section
2(a)(3), of the other Funds. Accordingly, the sale of shares of the
Money Market Funds to the Investing Funds, and the redemption of such
shares of the Money Market Funds from the Investing Funds, would be
prohibited under section 17(a).
2. Section 17(b) authorizes the SEC to exempt a single transaction
from section 17(a) if the terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and
do not involve overreaching on the part of any person concerned, the
proposed transaction is consistent with the policy of each investment
company concerned, and the proposed transaction is consistent with the
general purposes of the Act. Under section 6(c), the SEC may exempt a
series of transactions from any provision of the Act or any rule or
regulation thereunder 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 relief under sections
6(c) and 17(b) because they wish to engage in a series of transactions
rather than a single transaction.
3. The Investing Funds will be permitted to invest their cash
balances directly in money market instruments as authorized by their
investment objectives and policies, as amended, if they believe they
can obtain a higher return or for any other reason. Each of the Money
Market Funds has the right to discontinue selling shares to any of the
Investment Funds if its board of trustees determines that such sales
would adversely affect the portfolio management and operations of such
Money Market Fund. Therefore, applicants believe that the proposal
satisfies the standards for relief.
4. Section 17(d) and rule 17d-1 prohibit an affiliated person of an
investment company, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
joint arrangement in which the investment company participates. Each
Investing Fund, by purchasing shares of the Money Market Funds,
Partners, by managing the assets of the Investing Funds invested in the
Money Market Funds, and each Money Market Fund, by selling shares to
the Investing Funds, could be participants in a joint enterprise or
other joint arrangement within the meaning of section 17(d0 and rule
17d-1.
5. Under rule 17d-1, the SEC can grant by order an application
regarding such a joint enterprise after considering whether
participation by the registered investment company is consistent with
the provisions, policies, and purposes of the Act, and the extent to
which such participation is on a basis different from or less
advantageous than that of the other participants. Applicants believe
that the proposal satisfies these standards.
6. Section 12(d)(1), as noted above, sets certain limits on an
investment company's ability to invest in the shares of another
investment company. The perceived abuses section 12(d)(1) sought to
address include undue influence by an acquiring fund over the
management of an acquired fund, the acquisition of voting control by
the acquiring fund over the acquired fund, layering of fees, and
complex structures. Applicants believe that none of these concerns are
presented by the proposed transactions and that the proposed
transactions meet the section 6(c) standards for relief.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Shares of the Money Market Funds sold to and redeemed from the
Investing Funds will not be subject to a sales load, redemption fee, or
distribution fee under a plan adopted in accordance with rule 12b-1.
2. Applicants will cause Partners, Fund/Plan, and their affiliated
persons to remit to the respective Investing Fund, or waive, an amount
equal to the Reduction Amount. Any of these fees remitted or waived
will not be subject to recoupment by Partners, Fund/Plan, or their
affiliated persons at a later date.
3. For the purpose of determining any amount to be waived and/or
expenses to be borne to comply with any Expense Waiver, the adjusted
fees for an Investing Fund (gross fees minus Expense Waiver) will be
calculated without reference to the amounts waived or remitted pursuant
to condition 2. Adjusted fees then will be reduced by the amount waived
pursuant to condition 2. If the amount waived pursuant to condition 2
exceeds adjusted fees, Partners also will reimburse the Investing Fund
in an amount equal to such excess.
4. Each of the Investing Funds will be permitted to invest
uninvested cash in, and hold shares of, a Money Market Fund only to the
extent that the Investing Fund's aggregate investments in such Money
Market Fund does not exceed the greater of 5% of the Investing Fund's
total net assets or $2.5 million.
[[Page 6400]]
5. Each Investing Fund will vote its shares of each Money Market
Fund in the same proportion as the votes of all other shareholders of
such Money Market Funds entitled to vote on the matter.
6. As shareholders of a Money Market Fund, the Investing Funds will
receive dividends and bear their proportionate share of expenses on the
same basis as other shareholders of such Money Market Funds. A separate
account will be established in the shareholder records of each of the
Money Market Funds for each of the Investing Funds.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-3666 Filed 2-16-96; 8:45 am]
BILLING CODE 8010-01-M
