[Federal Register Volume 59, Number 188 (Thursday, September 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24089]
[[Page Unknown]]
[Federal Register: September 29, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20571; 812-8930]
The Brinson Funds, et al.; Notice of Application
September 23, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANTS: The Brinson Funds (the ``Trust''), Brinson Partners, Inc.
(the ``Adviser''), Fund/Plan Broker Services, Inc. (the
``Underwriter''), and any other future open-end investment company
advised by the Adviser, or any person directly or indirectly
controlling, controlled by, or under common control with the Adviser
(such other investment companies and any series thereof individually, a
``future Fund'' and collectively, ``future Funds'').
RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from sections 2(a)(32), 2(a)(35), 18(f)(1), 18(g), 18(i),
22(c), and 22(d) of the Act and rule 22c-1 thereunder.
SUMMARY OF APPLICATION: Applicants seek an order to permit certain
open-end management investment companies to issue multiple classes of
securities representating interests in the same investment portofolio
and to assess and, under certain circumstances, waive or reduce a
contingent deferred sales charge (``CDSC'') on certain redemptions of
shares.
FILING DATE: The application was filed on April 8, 1994 and amended on
July 12, 1994. By letters dated September 14, 1994 and September 20,
1994, applicants' counsel stated that an amendment, the substance of
which is incorporated herein, will be filed during the notice period.
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 my mail. Hearing
requests should be received by the Commission by 5:30 p.m., on October
18, 1994 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 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 209 South LaSalle Street, Chicago, Illinois 60604.
FOR FURTHER INFORMATION CONTACT: James M. Curtis, Senior Counsel, at
(202) 942-0563, or Barry D. Miller, Senior Special Counsel, 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 a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is a Delaware Business Trust registered as an open-end
management investment company. The Trust currently consists of eight
series of shares (each, together with all series subsequently
established, a ``Series'').
2. The Adviser is an investment management firm controlled
indirectly by Brinson Associates, L.P., a limited partnership whose
sole general partner is Gary P. Brinson, the Chairman of the Board of
Trustees of the Trust. The Adviser manages each Series' investments.
3. The Underwriter is a registered broker-dealer. The Underwriter
was engaged for the limited purpose of acting as principal underwriter
to facilitate the registration of shares of each Series under state
securities laws and to assist in the sale of shares.
4. Fund/Plan Services, Inc. (the ``Administrator'') provides the
Trust with administrative, fund accounting, dividend disbursing, and
transfer agency services.
5. Existing shares of each Series (``Class A Shares'') are sold and
redeemed daily at net asset value without a sales or redemption charge,
do not charge a rule 12b-1 fee, and are designed primarily for
institutional and high net worth individual investors.
6. Applicants propose that the Trust issue additional, separate
classes of shares with characteristics designed for a particular market
(``New Shares''). The Trust or a future Fund may establish additional
classes of New Shares either in connection with a Shareholder Services
Plan as discussed below and/or a distribution plan adopted pursuant to
rule 12b-1 (a ``12b-1 Plan'') or without any of such Plans. In
addition, such additional classes may have differing load structures
which incorporate classes with no load, classes with front-end loads
and classes with CDSCs.
7. In addition to the current Class A Shares, the Trust currently
proposes to offer Class B Shares in connection with a 12b-1 Plan. It is
contemplated that the Class B Shares will be designed to capture a
portion of the retail market, and there will be a lower minimum initial
investment associated with such shares.
8. Under the 12b-1 Plan relating to the Class B Shares, the rule
12b-1 fee may be used to reimburse the Adviser or the Underwriter for,
or will be used for the Trust to pay directly, expenses incurred in the
promotion and distribution of the shares of the class, including but
not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature,
advertisements, and other distribution-related expenses, as well as any
distribution or service fees paid to banks, credit unions, securities
dealers or others (``Service Organizations'') who have executed a
servicing agreement (``Service Agreement'') with the Trust on behalf of
a Series' class or with the Underwriter. It is contemplated that, in
accordance with such Service Agreements, the Service Organizations will
provide certain account administration services to the customers of the
Service Organizations that beneficially own shares of a Series. In
addition, Service Agreements under the 12b-1 Plan may provide for an
asset-based sales charge to be paid to such Service Organizations.
9. Because the Trust or a future Fund may sell its shares to a
broad range of institutions, including banks, it is possible, as a
result of legal constraints imposed on certain banks, which constraints
preclude receipt of rule 12b-1 payments in connection with the
distribution of shares, that the Trust may, at some point in the
future, adopt a shareholder services plan (``Shareholder Services
Plan'') with respect to a separate class of New Shares of the Series.
The Shareholder Services Plan (and any Service Agreements related
thereto) would be used with respect to Service Organizations authorized
to provide only personal and account maintenance services under a
Shareholder Services Plan.
10. Under the proposal, each New Share or existing share in a
particular Series, regardless of class, would represent an interest in
the same Series and would have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations, and terms and conditions, except that:
(1) Each class of New Shares would have a different class designation;
(2) each class of New Shares offered in connection with a 12b-1 Plan or
Shareholder Services Plan would bear the expenses associated with such
Plans and, where relevant, any incremental transfer agency fees
associated with that class (``Class Expenses''); (3) only the holders
of the shares of the class or classes involved would be entitled to
vote on matters pertaining to a 12b-1 Plan or Shareholder Services Plan
and any related agreements relating to such class or classes except as
provided in condition 16 below\1\; (4) the fact that only certain
classes will have a conversion feature; and (5) each class would have
different exchange privileges.
---------------------------------------------------------------------------
\1\Shares offered in connection with a Shareholder Services Plan
would not necessarily be accorded the voting rights specified in
rule 12b-1, although the Trustees may approve a Shareholder Services
Plan with such rights in order to give holders of such Shareholder
Services Plan shares rights identical to holders of shares subject
to a 12b-1 Plan.
---------------------------------------------------------------------------
11. Expenses of the Trust that cannot be attributed directly to any
one Series (``Trust Expenses'') will be allocated to each Series based
on the relative net assets of such Series.\2\ Trust Expenses could
include, for example, Trustees' fees and expenses, unallocated audit
and legal fees, insurance premiums, expenses relating to shareholder
reports, and printing expenses.
---------------------------------------------------------------------------
\2\From time to time, the Trust may allocate expenses among
Series using alternative methods, including allocations based on the
number of shares of each Series.
---------------------------------------------------------------------------
12. Certain expenses may be attributable to a particular Series,
but not a particular class (``Series Expenses''). All such Series
Expenses will be allocated to each class of shares in a Series on the
basis of the relative net asset values of the classes of that Series.
Series expenses may include, for example, advisory fees, custodian
fees, and fees related to preparation of separate documents of a
particular Series, such as an annual report for such Series.
13. Except as noted below, each class of shares may be exchanged
only for shares of the same class in another Series and in all events
will be limited to within the same ``group of investment companies'' as
that term is defined in rule 11a-3 of the Act. Exchanges will comply
with all applicable provisions of rule 11a-3 under the Act.
14. It is contemplated that at some point in the future an
additional class of shares (``Class C Shares'') may be offered, which
shares will be subject to deferred charges consisting of a distribution
fee and a CDSC.
15. Any CDSC will not be imposed on redemptions of shares which
were purchased more than a fixed number of years prior to the
redemptions (the ``CDSC Period'') or on shares derived from
reinvestment of distributions. Furthermore, no CDSC will be imposed on
an amount which represents an increase in the value of a shareholder's
account resulting from capital appreciation above the amount paid for
shares purchased during the CDSC Period. The amount of the CDSC will be
calculated as the lesser of the amount that represents a specified
percentage of the net asset value of the shares at the time of
purchase, or the amount that represents such percentage of the net
asset value of the shares at the time of redemption. In determining the
applicability and rate of any CDSC, it will be assumed that a
redemption is made first of shares representing reinvestment of
dividends and capital gain distributions and then of other shares held
by the shareholder for the longest period of time. However, any portion
of the value of such shares representing capital appreciation will not
bear a charge.
16. Applicants request relief to permit each Fund to waive or
reduce the CDSC in certain circumstances. Any waiver or reduction will
comply with the conditions in paragraphs (a) through (d) of rule 22d-1
of the Act.
17. Applicants state that it is likely that to the extent that
Class C Shares are offered in connection with a rule 12b-1 fee, upon
termination of the CDSC Period, the Class C Shares will convert to a
class of shares with a lower rule 12b-1 fee or without such a fee.
18. If shares of a class are offered with a conversion feature,
shares of one class (the ``Purchase Class'') will automatically convert
at their net asset value to shares of another class with different
features (the ``Target Class'') after the expiration of a specified
period. For purposes of the conversion, all Purchase Class shares in a
shareholder's Fund account that were acquired through reinvestment of
dividends and other distributions paid in respect of such shares (and
which had not yet converted) will be considered to be held in a
separate sub-account. Each time any Purchase Class shares in the
shareholder's Fund account are converted, an equal portion of shares
then in the sub-account also will convert, and will no longer be
considered held in the sub-account.
19. Any conversion of shares will be subject to the continuing
availability of an opinion of counsel or a private letter ruling from
the Internal Revenue to the effect that the conversion of shares will
not constitute a taxable event under federal income tax law. Conversion
of shares will be suspended if such an opinion or ruling were no longer
available.
20. Any front-end load, asset-based sales charge, service fee, or
contingent deferred sales load will comply with Section 26(d), Article
III of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (``NASD'').
Applicants' Legal Analysis
1. The proposed issuance and sale of New Shares, including the
allocation of voting rights thereto, might be deemed to result in a
``senior security'' within the meaning of Section 18(g) and be
prohibited by section 18(f)(1) and also to violate the requirement in
section 18(i) that every share of stock issued by a registered
management investment company shall have equal voting rights with every
other share of outstanding voting stock.
2. Applicants believe that the proposed allocation of expenses and
voting rights relating to a 12b-1 Plan or a Shareholder Services Plan
(each a ``Plan'') in the manner described is equitable and would not
discriminate against any group of shareholders. Although investors
purchasing shares offered in connection with a Plan would bear the
costs associated with the related services, they would also enjoy the
benefits of those services and exclusive shareholder voting rights with
respect to matters affecting the Plan. Conversely, investors purchasing
shares that are not covered by a Plan would not be burdened with such
expenses or enjoy such voting rights. Moreover, because with respect to
any Series the rights and privileges of shares would be substantially
identical, the possibility that the interests of the various classes of
shareholders would ever conflict would be remote. In any event, the
interests of each class of shareholders would be adequately protected
since the Plans and any related agreements or payments would conform to
the requirements of rule 12b-1 or the protections described in the
application, including the requirement that they be approved by the
Board of Trustees of the Trust or a future Fund.
3. The abuses that section 18 of the Act are intended to redress
are set forth in section 1(b) of the Act which declares that the
interests of investors are adversely affected when investment
companies, by excessive borrowing and the issuance of excessive amounts
of senior securities, increase the speculative character of the other
securities, or when investment companies operate without adequate
reserves. The proposed arrangement does not involve borrowings and does
not affect the Trust's existing assets or reserves. Nor will the
proposed arrangement increase the speculative character of the shares
in a Series, since each class of shares in a Series will participate in
all of such Series's appreciation (if any), income and expenses (with
the exception of the proposed Class Expenses) on the basis of the
applicable net assets of such class.
4. Applicants are also requesting an exemption from the provisions
of Section 2(a)(32), 2(a)(35), 22(c) and 22(d) of the Act and rule 22c-
1 thereunder, to the extent necessary to permit the Series to assess a
CDSC on certain redemptions of classes of shares of the Trust to be
created in the future, and to permit the Series to waive or reduce the
CDSC with respect to certain types of redemptions. The proposal would
permit shareholders to have the advantage of greater investment dollars
working for them from the time of their purchase of shares than if a
sales load were imposed at the time of purchase.
Applicants' Conditions
Applicants agree that the order of the Commission granting the
requested relief shall be subject to the following conditions:
1. Each class of shares of a Series will represent interests in the
same portfolio of investments and be identical in all respects, except
as set forth below. The only differences among the classes of shares of
a Series will relate solely to one or more of the following: (a) Class
Expenses; (b) the fact that the classes will vote separately with
respect to the Trust's 12b-1 Plan, except as proved in condition 16
below; (c) the different exchange privileges of the classes of shares;
(d) the fact that certain classes will have a conversion feature; and
(e) the designation of each class of shares of the Series. Any
additional incremental expenses not specifically identified above which
are subsequently identified and determined to be properly allocated to
one class of shares shall not be so allocated unless and until approved
by the Commission by amended order.
2. The Trustees of the Trust, including a majority of the
independent Trustees, will approve the offering of additional classes
of New Shares (the ``Multi-Class System''). The minutes of the meeting
of the Trustees regarding the deliberations of the Trustees with
respect to the approvals necessary to implement the Multi-Class System
will reflect in detail the reasons for the Trustees' determination that
the proposed Multi-Class System is in the best interest of both the
Trust and its shareholders.
3. On an ongoing basis, the Trustees of the Trust, pursuant to
their fiduciary responsibilities under the Act and otherwise, will
monitor the Trust for the existence of any material conflicts among the
interests of the classes of shares. The Trustees, including a majority
of the Independent Trustees, shall take such action as is reasonably
necessary to eliminate any such conflicts that may develop. The
Underwriter and the Adviser will be responsible for reporting any
potential or existing conflicts to the Trustees. If a conflict arises,
the Underwriter and the Adviser, at their own cost, will remedy such
conflict up to and including establishing a new registered management
investment company.
4. The initial determination of the Class Expenses that will be
allocated to a particular class and any subsequent changes thereto will
be reviewed and approved by a vote of the Board of Trustees including a
majority of the Independent Trustees. Any person authorized to direct
the allocation and disposition of monies paid or payable by the Trust
to meet Class Expenses shall provide to the Board of Trustees, and the
Trustees shall review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were
made.
5. The Trustees will receive quarterly and annual statements
concerning the amounts expended under any Shareholder Services Plans
and the 12b-1 Plans complying with paragraph (b)(3)(ii) of rule 12b-1,
as it may be amended from time to time. In the statements, only
expenditures properly attributable to the sale or servicing of a
particular class of shares will be used to justify any distribution or
servicing fee charged to that class. Expenditures not related to the
sale or servicing of a particular class will not be presented to the
Trustees to justify any fee attributable to that class. The statements,
including the allocations upon which they are based, will be subject to
the review and approval of the Independent Trustees in the exercise of
their fiduciary duties.
6. If any class will be subject to a Shareholder Services Plan,
such Shareholder Services Plan will be adopted and operated in
accordance with the procedures set forth in rule 12b-1 (b) through (f)
as if the expenditure made thereunder were subject to rule 12b-1,
except that shareholders need not enjoy the voting rights specified in
rule 12b-1.
7. Dividends paid by the Trust on behalf of a Series with respect
to each class of its shares, to the extent any dividends are paid, will
be calculated in the same manner, at the same time, on the same day,
and will be in the same amount per outstanding share, except that
payments made by a class under a 12b-1 Plan or any Shareholder
Servicing Plan and any incremental transfer agency costs relating to a
specific class will be borne exclusively by that class.
8. The methodology and procedures for calculating the net asset
value and dividends and distributions of the classes and the proper
allocation of expenses among the classes have been reviewed by an
expert (the ``Expert'') who has rendered a report to applicants, which
has been provided to the staff of the Commission, that such methodology
and procedures are adequate to ensure that such calculations and
allocations would be made in an appropriate manner. On an ongoing
basis, the Expert, or an appropriate substitute Expert, will monitor
the manner in which the calculations and allocations are being made
and, based upon such review, will render at least annually a report to
the Trust that the calculations and allocations are being made
properly. The reports of the Expert will be filed as part of the
periodic reports filed with the Commission pursuant to section 30(a)
and 30(b)(1) of the Act. The work papers of the Expert with respect to
such reports, following request by the Trust (which the Trust agrees to
provide), will be available for inspection by the Commission staff upon
written request to the Trust for such work papers by a senior member of
the Division of Investment Management or a regional office of the
Commission. Authorized staff members would be limited to the Director,
an Associate Director, the Chief Accountant, the Chief Financial
Analyst, an Assistant Director, and any Regional Administrators or
Associate or Assistant Administrators. The initial report of the Expert
is a ``Report on Policies and Procedures Placed in Operation,'' and the
ongoing reports will be ``Reports on Policies and Procedures Placed in
Operation and Tests of Operating Effectiveness,'' as defined and
described in SAS No. 70 of the American Institute of Certified Public
Accountants (``AICPA''), as it may be amended from time to time, or in
similar auditing standards as may be adopted by the AICPA from time to
time.
9. Applicants have adequate facilities in place to ensure
implementation of the methodology and procedures for calculating the
net asset value and dividends and distributions of the classes of
shares and the proper allocation of expenses among the classes of
shares and this representation has been concurred with by the Expert in
the initial report referred to in condition (8) above and will be
concurred with by the Expert, or an appropriate substitute Expert, on
an ongoing basis at least annually in the ongoing reports referred to
in condition (8) above. Applicants will take immediate corrective
action if this representation is not concurred in by the Expert or
appropriate substitute Expert.
10. The prospectuses of each class of shares will contain a
statement to the effect that a salesperson and any other person
entitled to receive compensation for selling or servicing shares of the
Trust may receive different compensation with respect to one particular
class of shares over another in the Trust.
11. The Underwriter will adopt compliance standards as to when each
class of shares may be sold to particular investors. Applicants will
require all persons selling shares of the Trust to agree to conform to
such standards.
12. The conditions pursuant to which the exemptive order is granted
and the duties and responsibilities of the Trustees with respect to the
Multi-Class System will be set forth in guidelines which will be
furnished to the Trustees.
13. The Trust will disclose the respective expenses, performance
data, distribution arrangements, services, fees, sales loads, deferred
sales loads, and exchange privileges applicable to each class of shares
in every prospectus relating to a Series, regardless of whether all
classes of shares of the Series are offered through each prospectus.
The Trust will disclose the respective expenses and performance data
applicable to each class of shares of a Series in every shareholder
report relating to such Series. The shareholder reports relating to
each Series will contain in the statement of assets and liabilities and
statement of operations, information related to the Series as a whole
and not on a per class basis. Each Series' per share data, however,
will be prepared on a per class basis with respect to all classes of
shares of such Series. To the extent that any advertisement or sales
literature describes the expenses or performance data applicable to any
class of shares of a Series, it will also disclose the respective
expenses and/or performance data applicable to all classes of shares of
such Series. The information provided by applicants for publication in
any newspaper or similar listing of the Trust's net asset value or
public offering price will present each class of shares separately.
14. Applicants acknowledge that the grant of the exemptive order
requested by the Application will not imply Commission approval,
authorization of or acquiescence in any particular level of payments
that the Series may make pursuant to its 12b-1 Plan or any Shareholder
Services Plan in reliance on the exemptive order.
15. Any Purchase Class shares will convert into Target Class shares
on the basis of the relative net asset values of the two classes,
without the imposition of any sales load, fee, or other charge. After
conversion, the converted shares will be subject to an asset-based
sales charge and/or service fee (as those terms are defined in Article
III, section 26 of the NASD's Rules of Fair Practice), if any, that in
the aggregate are lower than the asset-based sales charge and service
fee to which they were subject prior to the conversion.
16. If the Trust implements any amendment to its 12b-1 Plan (or, if
presented to shareholders, adopts or implements any amendment of a non-
rule 12b-1 shareholder services plan) that would increase materially
the amount that may be borne by the Target Class shares under the Plan,
existing Purchase Class shares will stop converting into Target Class
shares unless the Purchase Class shareholders, voting separately as a
class, approve the proposal. The Trustees shall take such action as is
necessary to ensure that existing Purchase Class shares are exchanged
or converted into a new class of shares (``New Target Class''),
identical in all material respects to the Target Class as it existed
prior to implementation of the proposal, no later than the date such
shares previously were scheduled to convert into the Target Class. If
deemed advisable by the Trustees to implement the foregoing, such
action may include the exchange of all existing Purchase Class shares
for a new class (the ``New Purchase Class''), identical to existing
Purchase Class shares in all material respects except that New Purchase
Class shares will convert into New Target Class shares. The New Target
Class and New Purchase Class may be formed without further exemptive
relief. Exchanges or conversions described in this condition shall be
effected in a manner that the Trustees reasonably believe will not be
subject to federal taxation. In accordance with condition (3), any
additional cost associated with the creation, exchange, or conversion
of the New Target Class or New Purchase Class shall be borne solely by
the Administrator, the Underwriter, and the Adviser. The Purchase Class
shares sold after the implementation of the proposal may convert into
Target Class shares subject to the higher maximum payment, provided
that the material features of the Target Class plan and the
relationship of such plan to the Purchase Class shares are disclosed in
an effective registration statement.
17. Applicants will comply with the provisions of proposed rule 6c-
10 under the Act, Investment Company Act Release No. 16619 (Nov. 2,
1988), as such rule is currently proposed and as it may be reproposed,
adopted or amended.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24089 Filed 9-28-94; 8:45 am]
BILLING CODE 8010-01-M
