[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]


=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \3\ The Relationship Funds do not pay any advisory fees and no 
calculation will be necessary for such Funds.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \4\ The Relationship Funds do not pay any advisory fees and no 
calculation will be necessary for such Funds.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \5\ See, e.g., SIFE Trust Fund (pub. avail. Feb. 17, 1982).
---------------------------------------------------------------------------

    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