[Federal Register Volume 64, Number 87 (Thursday, May 6, 1999)]
[Notices]
[Pages 24427-24430]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11363]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23817; 812-11530]
Bankers Trust Company, et al.; Notice of Application
April 29, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
[[Page 24428]]
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act.
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SUMMARY OF THE APPLICATION: The requested order would permit the
implementation, without prior shareholder approval, of new investment
advisory and subadvisory agreements (``New Advisory Agreements'') in
connection with the merger of Bankers Trust Corporation (``BT Corp'')
and Deutsche Bank AG (``Deutsche Bank''). The order would cover a
period of up to 150 days following the later of the date the merger is
consummated or the date the requested order is issued (but in no event
later than November 30, 1999) (``Interim Period'').
APPLICANTS: Bankers Trust Company ``BT''), Investment Company Capital
Corp. (``ICCC''), and Alex. Brown Investment Management (``ABIM'')
(collectively, ``BT Advisers''); Brown Investment Advisory & Trust
Company (``Brown Trust''); LaSalle Investment Management (Securities),
L.P. (``LaSalle''); and The Glenmede Trust Company (``Glenmede'')
(collectively with the BT Advisers, Brown Trust and LaSalle,
``Advisers'').
FILING DATES: The application was filed on March 5, 1999 and amended on
April 28, 1999.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on May 24, 1999 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 by writing to the Commission's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549-0609. Applicants, c/o Willkie Farr & Gallagher, Attn: Burton M.
Leibert, Esq. or Jon S. Rand, Esq., 787 Seventh Avenue, New York, NY
10019-6099.
FOR FURTHER INFORMATION CONTACT: Rachel H. Graham, Senior Counsel, at
(202) 942-0583, 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 from
the Commission's Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. BT, a New York banking corporation, serves as investment adviser
or subadviser to various open-end management investment companies
registered under the Act (``BT Advised Funds'') pursuant to separate
investment advisory or subadvisory agreements (``Existing BT
Agreements'').\1\ ICCC, a Maryland corporation and wholly-owned
subsidiary of BT Alex. Brown Incorporated, serves as investment adviser
to various open-end management investment companies registered under
the Act (``ICCC Funds'' and, together with the BT Advised Funds,
``Funds'') pursuant to separate investment advisory agreements
(``Existing ICCC Agreements'').\2\
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\1\ BT serves as investment adviser for the following BT Advised
Funds: BT Insurance Funds Trust, Cash Management Portfolio, Treasury
Money Portfolio, Tax Free Money Portfolio, New York Tax Free Money
Portfolio, International Equity Portfolio, Equity 500 Index
Portfolio, Asset Management Portfolio, Capital Appreciation
Portfolio, Intermediate Tax Free Portfolio, BT Investment
Portfolios, Quantitative Equity Fund (a series of BT Investment
Funds), Institutional Daily Assets Funds and Institutional Treasury
Assets Fund (each a series of BT Institutional Funds), and BT
Investment Equity Appreciation Fund (a series of BT Pyramid Mutual
Funds). BT serves as investment subadviser for the following BT
Advised Funds: AARP U.S. Stock Index Fund, a series of AARP Growth
Trust; three series of American General Series Portfolio Company
(Mid Cap Index Fund, Stock Index Fund, and Small Cap Index Fund);
four series of American General Series Portfolio Company 2 (Small
Cap ``Value'' Index Fund, Stock Index Fund, Midcap Index Fund, and
Small Cap Index Fund); Small Cap Value Index Fund, a series of
American General Series Portfolio Company 3; AST Bankers Trust
Enhanced 500 Portfolio, a series of American Skandia Trust; three
series of EQ Advisors Trust (BT Equity 500 Index Portfolio, BT Small
Company Index Portfolio, and BT International Equity Index
Portfolio); Spartan Market Index Fund, a series of Fidelity
Commonwealth Trust; four series of Fidelity Concord Street Trust
(Spartan Extended Market Index Fund, Spartan Total Market Index
Fund, Spartan International Market Index Fund, and Spartan U.S.
Equity Index Fund); Index 500 Portfolio, a series of Fidelity
Variable Insurance Products Fund II; two series of Pacific Select
Fund (Equity Index Portfolio and Small-Cap Index Portfolio); two
series of SBL Fund (Series H and Series I); two series of Security
Index Fund (International Series and Enhanced Index Series);
International Equity Portfolio, a series of Style Select Series
Inc.; and eight series of Seasons Series Trust (Large-Cap Growth
Portfolio, Large-Cap Composite Portfolio, Large-Cap Value Portfolio,
Mid-Cap Growth Portfolio, Mid-Cap Value Portfolio, Small Cap
Portfolio, International Equity Portfolio, and Diversified Fixed
Income Portfolio).
\2\ The ICCC Funds are: Tax-Free Series, Prime Series, and
Treasury Series (each a series of BT Alex. Brown Cash Reserve Fund,
Inc.); Flag Investors Communications 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.; Flag Investors Equity Partners
Fund, Inc.; and Flag Investors International Fund, Inc.
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2. ABIM, a Maryland limited partnership, serves as investment
subadviser to three ICCC Funds. Brown Trust, a Maryland trust company,
serves as investment subadviser to two ICCC Funds. LaSalle, a Maryland
limited partnership, and Glenmede, a Pennsylvania limited purpose trust
company, each serve as investment subadviser to one ICCC Fund. Each of
ABIM, Brown Trust, LaSalle, and Glenmede serves in this capacity
pursuant to separate investment subadvisory agreements with ICCC
(collectively, ``Existing Subadvisory Agreements,'' and together with
the Existing BT Agreements and the Existing ICCC Agreements, ``Existing
Advisory Agreements'').
3. BT and ICCC are wholly-owned subsidiaries of BT Corp, a
registered bank holding company that also indirectly controls ABIM. BT
Corp is not affiliated with Brown Trust, LaSalle, or Glenmede (each a
``Non-BT Subadviser'').
4. BT, Brown Trust, and Glenmede are exempt from registration as
investment advisers under the Investment Advisers Act of 1940
(``Advisers Act'') pursuant to section 202(a)(11)(A) of the Advisers
Act. ICCC, ABIM, and LaSalle are registered as investment advisers
under the Advisers Act.
5. On November 30, 1998, BT Corp and Deutsche Bank entered into an
agreement pursuant to which Circle Acquisition Corporation, a wholly-
owned subsidiary of Deutsche Bank, will merge with and into BT Corp,
with BT Corp continuing as the surviving entity (the ``Merger'').
Applicants expect consummation of the Merger on or about May 31, 1999.
6. Applicants state that the Merger may result in the assignment,
and thus termination, of the Existing Advisory Agreements under the
terms of those agreements and the Act. Applicants request an exemption
to permit (i) the implementation of the New Advisory Agreements without
prior shareholder approval, and (ii) the Advisers to receive all
advisory fees earned under the New Advisory Agreements during the
Interim Period, subject to approval of the New Advisory Agreements by
the Funds' shareholders. The requested exemption would cover the
Interim Period of not more than 150 days beginning on the later of the
date the
[[Page 24429]]
merger is consummated (``Closing Date'') or the date the requested
order is issued and continuing until the New Advisory Agreements are
approved or disapproved by the Funds' shareholders, but in no event
later than November 30, 1999.\3\ Applicants state that the New Advisory
Agreements will contain substantially the same terms and conditions as
the Existing Advisory Agreements, except for the dates of commencement
and termination.
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\3\ Applicants state that if the Closing Date precedes the
issuance of the requested order, they will serve after the Closing
Date and prior to the issuance of the order in a manner consistent
with their fiduciary duty to provide investment advisory and
subadvisory services to the Funds even though approval of the New
Advisory Agreements has not yet been secured from the Funds'
shareholders. Applicants submit that, in such an event, they will be
entitled to receive, from the Closing Date until the issuance of the
order, no more than their actual out-of-pocket costs for providing
investment advisory and subadvisory services to the Funds.
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7. Applicants state that, on March 11, 1999, six days after
applicants filed this application with the Commission, the U.S.
Attorney for the Southern District of New York filed a three-count
felony information (``Information'') in the United States District
Court for the Southern District of New York. The Information charges BT
with making false entries on its books and records as a result of the
conduct of certain employees in BT's processing services businesses in
1994-1996.\4\ On March 11, 1999, BT pleaded guilty to the charges in
the Information pursuant to a written cooperation and plea agreement
(``Cooperation and Plea Agreement'').\5\
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\4\ The conduct involved the transfer to reserve accounts and to
income of aged credit items that should have been paid to customers,
other third parties, or state abandoned property authorities.
\5\ As part of the Cooperation and Plea Agreement, BT agreed to
pay a $60 million fine and to place that amount in escrow pending
sentencing. As a result of the matters underlying the Cooperation
and Plea Agreement, BT also has agreed to pay a $3.5 million fine to
the State of New York.
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8. On March 12, 1999, BT filed an application pursuant to section
9(c) of the Act for a temporary order exempting it and entities of
which it is or becomes an affiliated person (``Covered Entities'') from
the provisions of section 9(a) of the Act. \6\ On March 12, 1999, BT
and the Covered Entities received a temporary conditional order from
the Commission exempting them from section 9(a) of the Act with respect
to the Cooperation and Plea Agreement (``Temporary Order'') (Investment
Company Act Release No. 23737). The Temporary Order stated that it
would expire when the Commission took final action on an application
for a permanent order or, if earlier, May 11, 1999. On march 25, 1999,
the BT Advisers filed an application under section 9(c) for (i) a
permanent order exempting the Covered Entities from section 9(a) with
respect to the Cooperation and Plea Agreement and (ii) an extension of
the Temporary Order if the requested permanent order is not granted
before the Temporary Order expires.
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\6\ Section 9(a), in relevant part, prohibits a person and any
company of which the person is an affiliated person from serving or
acting as an investment adviser, principal underwriter, or depositor
for any registered investment company if the person has been
convicted of any felony arising out of the person's conduct as,
among other things, an underwriter, broker, dealer, investment
adviser, or transfer agent. Section 9(c) of the Act provides that
the Commission shall grant an application for an exemption from the
disqualification provisions of section 9(a) if it is established
that these provisions, as applied to the applicant, are unduly or
disproportionately severe or that the applicant's conduct has been
such as not to make it against the public interest or the protection
of investors to grant the application.
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9. Applicants currently intend that the board of directors
(``Board'') of each Fund will meet prior to the Closing Date to
consider approval of the New Advisory Agreements and submission of the
New Advisory Agreements to the shareholders for their approval, in
accordance with section 15(c) of the Act.\7\ Applicants state that each
Board will evaluate whether the terms of the relevant New Advisory
Agreement(s) are in the best interests of the Fund and its
shareholders. Applicants state that a majority of the Boards already
have convened and approved the New Advisory Agreements applicable to
their Funds. Applicants represent that any Board that met prior to
March 11, 1999 subsequently was apprised of the Cooperation and Plea
Agreement and BT's requests for relief under section 9(c). Applicants
also represent that all other Boards have been or will be apprised of
the Cooperation and Plea Agreement and BT's requests for relief under
section 9(c) before voting on the New Advisory Agreements applicable to
their Funds. Applicants further represent that each Board has been or
will be provided with all information reasonably necessary to evaluate
whether retaining the relevant BT Adviser is in the best interests of
the Fund and its shareholders.
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\7\ Applicants acknowledge that, to the extent that a Fund's
Board cannot meet prior to the Closing Date, the applicable
Adviser(s) may not rely upon the exemptive relief requested in this
application.
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10. Advisory fees earned by the Advisers under the New Advisory
Agreements during the Interim Period will be maintained in interest-
bearing escrow accounts with one or more financial institutions
unaffiliated with the Advisers (each an ``Escrow Agent'').\8\ The
applicable Escrow Agent will release the amounts held in the escrow
accounts (including any interest earned): (i) to the applicable Adviser
upon approval of each New Advisory Agreement by the relevant Fund's
shareholders; or (ii) to the Fund, if the Interim Period has ended and
the Fund's shareholders have not approved the New Advisory
Agreement.\9\ Before any such release is made, the Board of the
applicable Fund will be notified.
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\8\ In certain cases, the fees payable to BT under the New
Advisory Agreements include a portion of revenues earned from
securities lending activities performed on behalf of certain BT
Advised Funds. The portion of such revenues owned to the applicable
BT Advised Funds, as opposed to BT, will not be placed into escrow.
\9\ As described in representation 11 in this notice, if the
Commission declines to extend the Temporary Order or denies the BT
Advisers' request for a permanent section 9(c) order, the BT
Advisers may only receive the fees payable to them that were
escrowed up to the date on which the Temporary Order or an extension
of the Temporary Order expires if the permanent order has not been
granted.
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11. Proxy materials for the shareholders meeting of each Fund are
expected to be mailed beginning in or about May, 1999. The proxy
materials will include disclosure regarding the Corporation and Plea
Agreement, the Temporary Order, and the BT Advisers' request for a
permanent order of exemption from section 9(a). Applicants represent
that if the Commission decides not to extend the Temporary Order or
denies the BT Advisers' request for a permanent section 9(c) order
prior to the time that the proxy materials are mailed, solicitation of
shareholder votes with respect to the New Advisory Agreements will be
limited only to approval of the release of amounts payable to the BT
Advisers that were escrowed up to the date on which the Temporary Order
or an extension of the Temporary Order expires if the permanent order
has not been granted. Applicants further represent that if the
Commission decides not to extend the Temporary Order or denies the BT
Advisers' request for a permanent section 9(c) order while the proxies
are outstanding, the BT Advisers will mail supplemental proxy materials
with respect to the BT Advisers' New Advisory Agreements soliciting
shareholder approval only for the release of amounts payable to the BT
Advisers that were escrowed up to the date on which the Temporary Order
or an extension of the Temporary Order expires if the permanent order
has not been granted. In either instance, the ICCC Funds subadvised by
the Non-BT Subadvisers will be permitted to solicit shareholder
approval of the release of all escrowed fees payable to the Non-BT
Subadvisers under the New Advisory Agreements.
[[Page 24430]]
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to serve as an investment adviser to a
registered investment company, except pursuant to a written contract
that has been approved by the vote of a majority of the outstanding
voting securities of the investment company. Section 15(a) further
requires the written contract to provide for its automatic termination
in the event of its assignment. Section 2(a)(4) of the Act defines
``assignment'' to include any direct or indirect transfer of a
controlling block of the assignor's outstanding voting securities by a
security holder of the assignor. Applicants state that the Merger may
result in an assignment of the Existing Advisory Agreements and that
such agreements will terminate according to their terms.
2. Rule 15a-4 under the Act provides, in relevant part, that if an
investment advisory contract with a registered investment company is
terminated due to its assignment, an investment adviser may act as such
for the company for 120 days under a written contract that has not been
approved by the company's shareholders, provided that: (i) The new
contract is approved by that company's board of directors, including a
majority of the non-interested directors; (ii) the compensation to be
paid under the new contract does not exceed the compensation that would
have been paid under the contract most recently approved by the
company's shareholders; and (iii) neither the adviser nor any
controlling person of the adviser ``directly or indirectly receive[s]
money or other benefit'' in connection with the assignment. Applicants
state that they may not rely on rule 15a-4 because BT Corp will receive
benefits in connection with the Merger.
3. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction from any provision of the Act or
any rule thereunder if and to the extent that such exemption is
necessary or appropriate in the public interest and consistent with
both the protection of investors and the purposes fairly intended by
the policy and provisions of the Act. Applicants state that the
requested relief meets this standard.
4. Applicants state that the terms and timing of the Merger were
determined in response to a number of factors beyond the scope of the
Act and substantially unrelated to the Funds. Applicants assert that
there is insufficient time to obtain shareholder approval of the New
Advisory Agreements before the Merger is consummated. Applicants
further assert that the requested relief would prevent any disruption
in the delivery of investment advisory services to the Funds during the
period after the Merger.
5. Applicants represent that, under the New Advisory Agreements
during the Interim Period, the Funds will receive the same scope and
quality of investment advisory services, provided in the same manner,
as they receive under the Existing Advisory Agreements. Applicants
state that, in the event of any material change in investment
management personnel providing services to the Funds, the applicable
Adviser will apprise and consult with the relevant Fund's Board to
ensure that the Broad, including a majority of the non-interested
directors, is satisfied that the services provided by the Adviser will
not be diminished in scope and quality. Applicants note that the fees
payable to the Advisers under the New Advisory Agreements during the
Interim Period will be at the same rate as the fees paid under the
Existing Advisory Agreements.
Applicants' Conditions
Applicants agree as conditions to the issuance of the exemptive
order requested by the application that:
1. The New Advisory Agreements will contain substantially the same
terms and conditions as the Existing Advisory Agreements, except for
the date of commencement and termination.
2. The portion of the advisory fees earned by the Advisers during
the Interim Period will be maintained in interest-bearing escrow
accounts, and amounts in the accounts chargeable to the Funds
(including interest earned on such amounts) will be paid to the
applicable Adviser only upon approval of each New Advisory Agreement by
the relevant Fund's shareholders or, in the absence of such approval,
to the Fund.\10\
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\10\ As described in representation 11 in this notice, if the
Commission declines to extend the Temporary Order or denies the BT
Advisers' request for a permanent section 9(c) order, the BT
Advisers may only receive the fees payable to them that were
escrowed up to the date on which the Temporary Order or an extension
of the Temporary Order expires if the permanent order has not been
granted.
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3. Each fund will schedule a meeting of its shareholders to vote on
approval of the New Advisory Agreements, which will be held within 150
days following the commencement of the Interim Period (but in no event
later that November 30, 1999).
4. The BT Advisers, or entities controlling them, will pay the
costs of preparing and filing the application and the costs relating to
the solicitation and approval of Fund Shareholders of the New Advisory
Agreements necessitated by the Merger.
5. BT Corp, Deutsche Bank, and applicants will take all appropriate
actions to ensure that the scope and quality of investment advisory and
other services to be provided to the Funds by the advisers during the
Interim Period will be least equivalent, in the judgment of the Boards,
including a majority of the non-interested directors, to the scope and
quality of services currently provided under the Existing Advisory
Agreements. In the event of any material change in investment
management personnel providing advisory services pursuant to the New
Advisory Agreements, the applicable Adviser will apprise and consult
with the relevant Fund's Board to ensure that the Board, including a
majority of the non-interested directors, is satisfied that the
services provided by the Adviser during the Interim Period will not be
diminished in scope or quality.
6. The application and any exemption issued will be without
prejudice to, and will not limit the Commission's rights in any manner
with respect to, any Commission investigations or enforcement actions
pursuant to the federal securities laws, or the consideration by the
Commission of any application for exemption from statutory
requirements, including without limitation, the consideration of a
request for a permanent exemption pursuant to sections 9(c) of the Act,
or the revocation, removal, or extension of the Temporary Order.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-11363 Filed 5-5-99; 8:45 am]
BILLING CODE 8010-01-M
