[Federal Register Volume 63, Number 86 (Tuesday, May 5, 1998)]
[Notices]
[Pages 24834-24836]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11847]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23162; 812-10690]
Brinson Supplementary Trust, et al.; Notice of Application
April 29, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under sections 6(c) and
17(b) of the Investment Company Act of 1940 (the ``Act'') for an
exemption from section 17(a) of the Act, and under section 17(d) of the
Act and rule 17d-1 under the Act to permit certain joint transactions.
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SUMMARY OF APPLICATION: Applicants request an order to permit The
Brinson Funds, the Brinson Relationship Funds (the ``Relationship
Funds'') Fort Dearborn Income Securities, Inc. (``Ft. Dearborn,''
together with The Brinson Funds, and the Relationship Funds, the
``Funds''), private accounts (``Private Accounts'') managed by Brinson
Partners, Inc. (the ``Adviser''), and collective trusts (``Collective
Trusts'') which have Brinson Trust Company as a trustee to (a) use cash
collateral received from the borrowers of their portfolio securities to
purchase shares (``Shares'') of the Brinson Supplementary Trust (the
``Trust''), an affiliated private investment company, and (b) use
uninvested cash to purchase Shares of Trust.
APPLICANTS: Funds, Trust, and the Adviser.
FILING DATES: The application was filed on June 3, 1997, and amended on
February 20, 1998. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected 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 May 26, 1998,
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 who wish to be
notified of a hearing may request notification 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, IL 60604-1295.
FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, 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 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. The Brinson Funds and the Relationship Funds are registered
under the Act as open-end management investment companies and are
organized as Delaware business trusts. The Brinson Funds currently
offers eight series. The Relationship Funds currently offers sixteen
series.\1\
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\1\ The Relationship Funds currently offers a money market fund
series, Brinson U.S. Cash Management Prime Fund, which is not
included as an applicant and does not intend to rely upon the order.
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2. Ft. Dearborn is registered under the Act as a closed-end
management investment company and is incorporated under Illinois law.
Shares of Ft. Dearborn are listed on the New York Stock Exchange
(``NYSE'').
[[Page 24835]]
3. The Collective Trusts are collective investment trusts for which
Brinson Trust Company serves as trustee. The Collective Trusts contain
exclusively assets of public and private employee pension plans. The
Collective Trusts have been established in accordance with section
3(c)(11) under the Act.
4. The Adviser, a Delaware corporation, is registered under the
Investment Advisers Act of 1940. The Adviser serves as investment
adviser to the Funds. The Adviser also manages the daily investment and
business affairs of the Collective Trusts and Private Accounts. The
Adviser is entitled to receive monthly management fees from the Funds,
other than the Relationship Funds, (the ``Advisory Fees'') but has
agreed irrevocably to waive the Advisory Fees and reimburse expenses of
certain of The Brinson Funds so that the total annual operating
expenses of each of these Funds will not exceed a certain percentage of
such Fund's average daily net assets.
5. The Trust is organized as a Delaware business trust and will
initially consist of two series: The Brinson Supplementary Trust-U.S.
Cash Management Mutual Fund Trust (the ``Mutual Fund Series'') and the
Brinson Supplementary Trust-U.S. Cash Management Fund (the ``Cash Fund
Series''). The Trust will be a private investment company relying on
section 3(c)(7) of the Act. At all times at least 40% of the board of
trustees of the Trust (``Board'') will not be ``interested persons,''
as defined in section 2(a)(19) of the Act (``Independent Trustees'').
The Trust currently has three trustees, all of whom are Independent
Trustees.
6. The Trust will retain the Adviser to manage the investments of
the Cash Fund Series and the Mutual Fund Series. The Adviser will
receive no compensation for managing the assets of the Cash Fund
Series, but will receive a monthly fee at the annual rate of .0025% of
the average daily net assets of the Mutual Fund Series for its services
with respect to that series (``Trust Management Fee'').
7. The Funds, Collective Trusts, and Private Accounts may have
uninvested cash (``Uninvested Cash''). Such Uninvested Cash may result
from a variety of sources, including reserves held for temporary
defensive purposes, pending investment in securities or debt
obligations, to cover an obligation or commitment of a Fund to purchase
securities or other assets at a later date, or to be invested on a
strategic investment management basis.
8. The Funds, Collective Trusts, and Private Accounts may also
participate in a securities lending program (``Program'') to increase
their income by lending portfolio securities to registered broker-
dealers or institutional investors deemed by the Adviser to be
qualified. The Funds, Collective Trusts, and Private Accounts may have
cash collateral (``Cash Collateral'') posted by borrowers in connection
with the Program.
9. Applicants seek an order under the Act to permit the Funds \2\
to use Uninvested Cash and Cash Collateral to purchase and redeem
Shares of the Trust. By investing in Shares, applicants anticipate that
the Funds will be able to reduce transaction costs, create more
liquidity, enjoy greater returns on the Uninvested Cash and Cash
Collateral, and achieve greater diversification with respect to
investment of Uninvested Cash and Cash Collateral.
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\2\ Applicants also request relief for registered management
investment companies and series thereof (except for an investment
company or series thereof that holds itself out as a money market
fund) that in the future are advised by the Adviser or any person
controlling, controlled by, or under common control with the
Adviser. Each registered investment company that currently intends
to rely on the order has been named as an applicant. Any registered
investment company that in the future seeks to rely on the order
will do so only in accordance with the terms and conditions of the
application.
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10. It is currently anticipated that Shares of the Mutual Fund
Series will be sold to The Brinson Funds and Ft. Dearborn and Shares of
the Cash Fund Series will be sold to the Relationship Funds, Collective
Trusts, and Private Accounts. The Trust will offer redemption of its
Shares at the current net asset value per Share on each business day on
which the NYSE is open. Each of the Trust Series which will sell its
Shares to investment companies registered under the Act will comply
with all requirements of rule 2a-7 under the Act and will use the
amortized cost method of valuation to determine its net asset value per
share.
Applicants' Legal Analysis
1. Sections 17(a)(1) and 17(a)(2) of the Act make it unlawful for
any affiliated person of a registered investment company, acting as
principal, to sell or purchase any security to or from the company.
Section 17(d) of the Act and rule 17d-1 under the Act prohibit any
affiliated person of a registered investment company, or an affiliated
person of such person, acting as principal, from participating in any
joint enterprise or arrangement in which the investment company is a
participant, unless the SEC has issued an order authorizing the
arrangement.
2. Section 2(a)(3) of the Act defines an affiliated person of an
investment company to include, among others: (i) Any person that owns
5% or more of the outstanding voting securities of the investment
company; (ii) any investment adviser of the investment company; and
(iii) any person directly or indirectly controlling, controlled by, or
under common control with that person. The Funds and the Trust share a
common investment adviser and thus may be deemed to be under common
control. The Trust also may be considered an affiliated person of a
Fund to the extent that a Fund owns 5% or more of the Shares. As a
result, section 17(a) would prohibit the sale of Shares to the Funds,
and the redemption of the Shares by the Trust. Applicants also believe
that the Funds, Collective Trusts, and Private Accounts by purchasing
Shares of the Trust; the Adviser, by managing the Funds, Collective
Trusts, and Private Accounts; and the Trust, by selling Shares to and
redeeming Shares from the Funds, Collective Trusts, and Private
Accounts could be deemed to be ``joint participants'' in a ``joint
enterprise or joint arrangement'' within the meaning of section 17(d)
of the Act and rule 17d-1 under the Act.
3. Section 17(b) of the Act authorizes the SEC to exempt a
transaction for 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, and the proposed transaction is consistent with the policy
of each investment company concerned and with the general purposes of
the Act. Section 6(c) of the Act permits the SEC to exempt persons or
transactions from any provision of the act, if the exemption is
necessary or appropriate in the public interests and consistent with
the protection of investors and the purposes of fairly intended by the
policy and provisions of the Act. Applicants submit, for the reasons
discussed below, that their request for relief satisfies these
standards.
4. Applicants state that the Funds will be treated like all other
shareholders of the Trust and will purchase and redeem Shares on the
same terms and on the same basis as Shares are purchased and redeemed
by all other shareholders of the Trust, including the Private Accounts
and Collective Trusts.
5. Applicants further state that shareholders of the Funds will not
be subject to duplicative management fees. As long as the Trust
Management Fee is charged, an amount of Advisory Fee equal to the net
asset value of Shares of the Mutual Fund Series that are held by a Fund
multiplied by the applicable
[[Page 24836]]
Trust Management Fee rate charged by the Adviser, will be waived in the
calculation of the overall advisory fees paid by such Fund.\3\
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\3\ The Relationship Funds do not pay any advisory fees and no
calculation will be necessary for such Funds.
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6. The Trust will comply with the prohibitions on affiliated
transactions set forth in sections 17(a), (d), and (e) of the Act,
except to the extent necessary to permit the Funds to invest Uninvested
Cash and Cash Collateral in the Trust as described in the application.
The Trust will also comply with the prohibitions against leveraging and
issuing senior securities set forth in section 18 of the Act and the
requirements of section 22(e) of the Act which governs rights of
redemption. Applicants thus argue that permitting the Funds to invest
Uninvested Cash and Cash Collateral in Shares of the Trust will enable
the Funds to invest in a vehicle that is similar to a registered
investment company in terms of liquidity, diversity, and quality of its
investments at a cost that is expected to be significantly lower than
the cost typically incurred when investing in a registered investment
company.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. A majority of the board of directors or trustees of a Fund
(including a majority of the directors or trustees who are not
``interested persons'' of the Fund within the meaning of section
2(a)(19) of the Act) will initially and at least annually thereafter
determine that the investment of Uninvested Cash and Cash Collateral in
Shares of the Trust is in the best interests of the Fund and its
shareholders.
2. With respect to any Fund that invests in the Trust, the Adviser
will reduce its Advisory Fees \4\ charged to such Fund by an amount
(the ``Reduction Amount'') equal to the net asset value of such Fund's
holdings in the Trust multiplied by the rate at which advisory fees are
charged by the Adviser to the Trust. Any fees remitted or waived
pursuant to this condition will not be subject to recoupment by the
Adviser or its affiliated persons at a later date.
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\4\ The Relationship Funds do not pay any advisory fees and no
calculation will be necessary for such Funds.
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3. If the Adviser waives any portion of its fees or bears any
portion of the expenses of a Fund (an ``Expense Waiver''), the adjusted
fees for such Fund (gross fees less Expense Waiver) will be calculated
with reference to the Reduction Amount. Adjusted fees then will be
reduced by the Reduction Amount. If the Reduction Amount exceeds
adjusted fees, the Adviser will reimburse such Fund in an amount equal
to such excess.
4. Investment in Shares will be in accordance with each Fund's
respective investment restrictions and will be consistent with its
policies as recited in its registration statement and prospectus.
5. Each Fund will invest Uninvested Cash in, and hold Shares of,
the Trust only to the extent that the Fund's aggregate investment of
Uninvested Cash in the Trust does not exceed 25% of the Fund's total
assets.
6. The Trust will comply with the requirements of sections 17(a),
17(d), and 18 of the Act as if the Trust were a registered open-end
management investment company. With respect to all redemption requests
made by a Fund, the Trust will comply with section 22(e) of the Act.
The Trust's Board will adopt procedures designed to ensure that the
Trust complies with sections 17(a), 17(d), 17(e), 18, and 22(e) of the
Act. The Trust's Board will also periodically review and periodically
update as appropriate such procedures and will maintain books and
records describing such procedures, and maintain the records required
by rules 31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) under the Act.
All books and records required to be made pursuant to this condition
will be maintained and preserved for a period of not less than six
years from the end of the fiscal year in which any transaction
occurred, the first two years in an easily accessible place, and will
be subject to examination by the SEC and its staff.
7. Each of the Trust Series which will sell its Shares to
investment companies registered under the Act will comply with rule 2a-
7 under the Act. For each such Trust Series, the Trust will value the
Shares, as of the close of business on each business day, using the
``amortized cost method,'' as defined in rule 2a-7 under the Act, to
determine the net asset value per share of such Trust Series. For each
such Trust Series, the Trust will, subject to approval by the Board,
adopt the monitoring procedures described in rule 2a-7(c)(6) under the
Act and the Adviser will comply with such procedures and take such
other actions as are required to be taken pursuant to such procedures.
8. The Shares will not be subject to a sales load, redemption fee,
asset-based sales charge, or service fee (as defined in rule 2830(b)(9)
of the Conduct Rules of the National Association of Securities Dealers,
Inc.).
9. Each Fund will purchase and redeem Shares of a Trust Series as
of the same time and at the same price, and will receive dividends and
bear its proportionate share of expenses on the same basis, as other
shareholders of the Trust Series. A separate account will be
established in the shareholder records of the Trust for the account of
each Fund.
10. Each Fund, the Trust, and any future registered management
investment company that may rely on the order will be advised by the
Adviser or a person controlling, controlled by, or under common control
with the Adviser.
11. A majority of the directors or trustees of each Fund will not
be ``interested persons'' as that term is defined in section 2(a)(19)
of the Act.
12. The Trust will not acquire securities of any other investment
company in excess of the limits contained in section 12(d)(1)(A) of the
Act.
13. The securities lending program of each Fund will comply with
all present and future applicable SEC and SEC staff positions regarding
securities lending arrangements (including, without limitation, the
type and amount of collateral, voting of loaned securities, limitations
on the percentage of portfolio securities on loan, prospectus
disclosure, termination of loans, receipt of dividends or other
distributions, and compliance with fundamental policies).\5\
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\5\ See, e.g., SIFE Trust Fund (pub. avail. Feb. 17, 1982).
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14. The net asset value per share with respect to Shares of the
Trust will be determined separately for each Trust Fund Series, less
the liabilities of the Trust Series, by the number of Shares
outstanding with respect to Trust.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-11847 Filed 5-4-98; 8:45 am]
BILLING CODE 8010-01-M