[Federal Register Volume 63, Number 230 (Tuesday, December 1, 1998)]
[Notices]
[Pages 66219-66221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31938]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23548; 812-11248]
Bankers Trust Company et al.; Notice of Application
November 24, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 12(d)(1)(J) of
the Investment Company Act of 1940 (the ``Act'') exempting applicants
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and
17(b) of the Act exempting applicants from section 17(a) of the Act,
and under section 17(d) of the Act and rule 17d-1 under the Act.
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SUMMARY OF APPLICATION: Applicants seeks an order that would permit
registered open-end management investment companies to invest their
uninvested cash in affiliated money market funds.
APPLICANTS: Bankers Trust Company; Cash Management Portfolio, Treasury
Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
International Equity Portfolio, Equity 500 Index Portfolio, Short/
Intermediate U.S. Government Securities Portfolio, Asset Management
Portfolio, Capital Appreciation Portfolio, Intermediate Tax Free
Portfolio, BT Investment Portfolios, BT Institutional Funds, BT
Insurance Funds Trust, BT Pyramid Mutual Funds, BT Alex. Brown Cash
Reserve Fund, Inc., Flag Investors Communications Fund, Inc., Flag
Investors International Fund, Inc., Flag Investors Emerging Growth
Fund, Inc., Flag Investors Short-Intermediate Income Fund, Inc., Flag
Investors Value Builder Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc., and Flag Investors Equity Partners Fund, Inc.
(and each of their current series and each subsequently created
series), and any other currently existing or subsequently created
registered open-end management investment company advised or sub-
advised by Bankers Trust Company or an entity controlling, controlled
by, or under common control with Bankers Trust Company (``Bankers
Trust'') (collectively, the ``Affiliated Funds'').
FILING DATES: The application was filed on August 5, 1998, and amended
on November 24, 1998.
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 December 17,
1998, and should be accompanied by proof or 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, NW, Washington, DC 20549.
Applicants, One Bankers Trust Plaza, 31st Floor, New York, New York
10006.
FOR FURTHER INFORMATION CONTACT: Mary Kay Frech, 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 at the
SEC's
[[Page 66220]]
Public Reference Branch, 450 Fifth Street, NW, Washington, DC 20549
(tel. 202-942-8090).
Applicants' Representations
1. The Affiliated Funds are open-end management investment
companies registered under the Act. Nine of the Affiliated Funds are
money market funds subject to rule 2a-7 under the Act (together with
any future money market Affiliated Fund, the ``Money Market Funds'').
The remaining Affiliated Funds are variable net asset value funds
(together with any future variable net asset value Affiliated Fund, the
``Non-Money Market Funds'').
2. Bankers Trust serves as investment adviser to the Affiliated
Funds. Bankers Trust, a New York banking corporation, is exempt from
registration as an investment adviser under section 202(a)(11)(A) of
the Investment Advisers Act of 1940. Bankers Trust and any entity
controlling, controlled by, or under common control with Bankers Trust
that serves as investment adviser to the Affiliated Funds are referred
to as the ``Investment Adviser.'' Bankers Trust also serves as
custodian to all of the Affiliated Funds.
3. Each of the Affiliated Funds has, or may be expected to have,
cash reserves that have not been invested in portfolio securities
(``Uninvested Cash'') in an account at its custodian that either may be
invested directly in individual short-term money market instruments or
may not otherwise be invested in any portfolio securities. Uninvested
Cash may result from a variety of sources, including dividends or
interest received or portfolio securities, unsettled securities
transactions, reserves held for investment strategy purposes, scheduled
maturity of investments, liquidation of investment securities to meet
anticipated redemptions and dividend payments, or new monies received
from investors. Uninvested Cash of the Affiliated Funds which are Money
Market Funds also may result from a variety of sources, including late
trades on portfolio securities, unsettled securities transactions, or
new monies received from investors.
4. Applicants seek an order that would permit each of the
Affiliated Funds, including the Money Market Funds, to utilize their
Uninvested Cash to purchase shares of one or more of the Money Market
Funds (the ``Underlying Money Market Funds'') (each Affiliated Fund
purchasing shares of the Money Market Funds, an ``Investing Fund,'' and
collectively, ``Investing Funds''), and would permit the Underlying
Money Market Funds to sell their shares to, and redeem shares from, the
Investing Funds. Applicants state that the proposed transactions may
reduce transaction costs, create more liquidity, increase returns on
the Uninvested Cash, and diversify holdings.
Applicants' Legal Analysis
1. Section 12(d)(1)(A) of the Act provides that a registered
investment company may not acquire securities of another investment
company if such securities represent more than 3% of the acquired
company's outstanding voting stock, more than 5% of the acquiring
company's total assets, or if such securities, together with the
securities of other acquired investment companies, represent more than
10% of the acquiring company's total assets. Section 12(d)(1)(B) of the
Act provides that no registered open-end investment company may sell
its securities to another investment company if the sale will cause the
acquiring company to own more than 3% of the acquired company's voting
stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies.
2. Section 12(d)(1)(J) of the Act provides that the SEC may exempt
any persons or transactions from section 12(d)(1) if and to the extent
the exemption is consistent with the public interest and the protection
of investors. Applicants request an order under section 12(d)(1)(J) to
permit the Investing Funds to purchase and redeem shares of the
Underlying Money Market Funds in excess of the limits in sections
12(d)(1)(A) and (B), provided however, that in all cases each Investing
Fund's aggregate investment of Uninvested Cash in shares of the
Underlying Money Market Funds will not exceed 25% of the Investing
Fund's total assets at any time.
3. Applicants maintain that the proposed arrangement will not
result in the abuses that sections 12(d)(1)(A) and (B) were intended to
address. Applicants submit that the Underlying Money Market Funds
contain a highly liquid portfolio and there would be no undue influence
from an Investing Fund. Applicants state that the proposed arrangement
will not result in an inappropriate layering of fees because shares of
the Underlying Money Market Funds sold to the Investing Funds will not
be subject to a sales load, redemption fee, asset-based distribution
fee, or service fee. In addition, the Investment Adviser will waive its
advisory fee for each Investing Fund in an amount that offsets the
amount of the advisory fees of an Underlying Money Market Fund incurred
by the Investing Fund.
4. Section 17(a) of the Act makes 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 2(a)(3) of the
Act defines ``affiliated person'' to include persons under common
control. Section 2(a)(9) of the Act defines ``control'' to mean the
power to exercise a controlling influence over the management or
policies of a company. Because the Affiliated Funds share a common
investment adviser, each of the Affiliated Funds may be deemed to be
under common control with the other Affiliated Funds. Accordingly,
applicants state that the sale of shares of the Underlying Money Market
Funds to the Investing Funds would be prohibited under section 17(a) of
the Act.
5. Section 17(b) of the Act authorizes the SEC to exempt a
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, and the proposed transaction is consistent with the
policy of each investment company concerned and the general purposes of
the Act. Section 6(c) authorizes the Commission to exempt persons or
transactions from the provisions of the Act to the extent that such
exemptions are appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policies and provisions of the Act.
6. Applicants state that the terms of the proposed transactions
meet the standards of sections 6(c) and 17(b). Applicants state that
the shares of the Underlying Money Market Funds will be purchased and
redeemed at their net asset value, which is the same consideration paid
and received for the shares by any other shareholder. Applicants also
state that the Investing Funds will retain their ability to invest
their Uninvested Cash directly in money market instruments if they
believe they can obtain a higher return. Applicants assert that the
purchase of shares of the Underlying Money Market Funds by the
Investing Funds will be effected in accordance with each Investing
Fund's investment policies and that the proposed transactions are
consistent with the general purposes of the Act.
7. Section 17(d) of the Act and rule 17d-1 prohibit an affiliated
person of a registered investment company, acting as principal, from
participating in any joint arrangement within the investment company
unless the SEC has issued an order authorizing the arrangement.
[[Page 66221]]
Applicants state that the Investing Funds, by purchasing shares of the
Underlying Money Market Funds, the Investment Adviser, by managing the
assets of the Investing Funds invested in the Underlying Money Market
Funds, and the Underlying Money Market Funds could be deemed to be
participating in a joint arrangement within the meaning of section
17(d) and rule 17d-1.
8. Rule 17d-1 under the Act permits the SEC to approve a joint
transaction covered by the terms of section 17(d). In determining
whether to permit a transaction, the SEC considers whether the
investment company's participation in the joint enterprise 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 other participants. Applicants assert
that the investment by the Investing Funds in shares of the Underlying
Money Market Funds will be on the same basis as any other shareholder
and will be consistent with the policies and purposes of the Act.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Shares of the Underlying Money Market Funds sold to and redeemed
from the Investing Funds will not be subject to a sales load,
redemption fee, distribution fee under a plan adopted in accordance
with rule 12b-1 under the Act, or service fee (as defined in Rule 2830
of the NASD's Conduct Rules).
2. The Investment Adviser will waive its advisory fee for each
Investing Fund in an amount that offsets the amount of the advisory
fees of an Underlying Money Market Fund incurred by the Investing Fund.
3. Each Investing Fund will invest Uninvested Cash in, and hold
shares of, the Underlying Money Market Funds only to the extent that
the Investing Fund's aggregate investment in the Underlying Money
Market Funds does not exceed 25% of the Investing Fund's total assets.
For purposes of this limitation, each Investing Fund or series thereof
will be treated as a separate investment company.
4. Investment in shares of the Underlying Money Market Funds will
be in accordance with each Investing Fund's respective investment
restrictions, if any, and will be consistent with each Investing Fund's
policies as set forth in its prospectus and statement of additional
information.
5. Each Investing Fund, each Underlying Money Market Fund, and any
future fund that may rely on the order shall be advised by the
Investment Adviser, or a person controlling, controlled by, or under
common control with the Investment Adviser.
6. No Underlying Money Market Fund shall acquire securities of any
other investment company in excess of the limits contained in section
12(d)(1)(A) of the Act.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-31938 Filed 11-30-98; 8:45 am]
BILLING CODE 8010-01-M
