[Federal Register Volume 63, Number 128 (Monday, July 6, 1998)]
[Notices]
[Pages 36453-36455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17712]
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SECURITIES AND EXCHANGE COMMISSION
[Rel No. IC-23287; 812-10696]
Cash Management Portfolio, et al.; Notice of Application
June 26, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under sections 6(c) and
17(b) of the Investment Company Act of 1940 (the ``Act'') from section
17(a) of the Act.
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Summary of Application: Applicants seek an order to permit redemption
in-kind of shares of certain registered investment companies by certain
shareholders who are affiliated persons of the investment companies.
Applicants: Cash Management Portfolio, Treasury Money Portfolio, Tax
Free Money Portfolio, NY Tax Free Money Portfolio, International Equity
Portfolio, Utility 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 (each a ``Portfolio''), BT
Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, BT
Advisor Funds (each a ``Fund''), and Bankers Trust Company (the
``Investment Advisor''). Applicants also request relief for each
subsequently created series of the Funds and the Portfolios and any
other registered open-end investment company advised by, or
substantially all of whose assets are invested in a Portfolio advised
by, the Investment Advisor or any entity controlling, controlled by or
under common control with the Investment Advisor.\1\
\1\ All investment companies that currently intend to rely on
the order have been named as applicants, and any other existing or
future investment company that subsequently may rely on the order
will comply with its terms and conditions.
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Filing Dates: The application was filed on June 6, 1997, and
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amended on March 17, 1998.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the SEC orders a hearing. Interested
persons any 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 July 21,
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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW, Washington, DC 20549.
Applicants, 130 Liberty Street, New York, NY 10006.
FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser, at
(202) 942-0562, or 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 Public Reference Branch, 450 5th Street, NW, Washington, DC 20549
(tel. 202-942-8090).
Applicants' Representations
1. Each of the Funds and the Portfolios is registered as an open-
end management investment company under the Act. The Investment
Advisor, a New York banking corporation and a wholly-owned subsidiary
of Bankers Trust New York Corporation, is exempt from registration
under the Investment Advisers Act of 1940. The Investment Advisor
serves an investment adviser to each of the Portfolios and certain of
the Funds. Certain other Funds are feeder funds (``Feeder Funds'') in a
master-feeder structure and seek to achieve their investment objectives
by investing all of their assets in a Portfolio with an identical
investment objective.
2. Shares of the BT PreservationPlus Fund (the ``PreservationPlus
Fund''), a Feeder Fund that is a series of the BT Pyramid Mutual Funds,
are offered solely to participant-directed employee benefit plans
meeting specific criteria (``Plans''). The PreservationPlus Fund
invests all of its assets in the PreservationPlus Portfolio. The
PreservationPlus Portfolio's investment objective is a high level of
current income while seeking to maintain a stable value per share.
3. Each of the Portfolios, including the PreservationPlus
Portfolio, is authorized to sell its shares to investors other than
Feeder Funds. The PreservationPlus Fund, however, is the sole
shareholder of the PreservationPlus Portfolio.
4. The PreservationPlus Portfolio enters into contracts (``Wrapper
Agreements'') with financial institutions, such as insurance companies
and banks (``Wrapper Providers''), that are intended by the
PreservationPlus Portfolio to stabilize the value per share of the
PreservationPlus Portfolio and the PreservationPlus Fund by offsetting
fluctuations in the value of the portfolio securities under certain
conditions. Each Wrapper Agreement obligates the Wrapper Provider to
maintain the book value of a portion of the PreservationPlus
Portfolio's assets (``Covered Assets'') up to a specified maximum
dollar amount, upon the occurrence of certain events.
5. Applicants request relief to permit in-kind redemptions of
shares of the Portfolios and/or the Funds by (a) any shareholder of a
Fund that owns five percent or more of the outstanding voting
securities of the Fund; (b) any shareholder of a Feeder Fund that owns
five percent or more of the outstanding voting securities of a
Portfolio; and (c) any shareholder of a Portfolio, other than a Feeder
Fund, that owns five percent or more of the outstanding voting
securities of the Portfolio (collectively, ``Affiliated
Shareholders'').\2\ With respect to the PreservationPlus Fund, the
requested relief would extend only to non-participant directed
redemptions by Plans, and only to redemptions that exceed $500,000 or
1% of the net asset value of the PreservationPlus Fund.
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\2\ Each of the Funds, other than the PreservationPlus Fund, has
elected to be governed by rule 18f-1 under the Act. Any redemption
in-kind by the Fund, therefore, will comply with the requirements of
that rule.
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6. Under the requested relief, the PreservationPlus Fund would make
a redemption in-kind in portfolio securities and in Wrapper Agreements.
The PreservationPlus Fund would assign to the redeeming Plan one or
more Wrapper Agreements (the ``Cloned Wrapper Agreements'') issued by
the Wrapper Providers covering the portfolio securities distributed in-
kind. The Cloned Wrapper Agreements would represent the redeeming
Plan's proportional interest in Wrapper Agreements covering the
PreservationPlus Fund's assets covered by Wrapper Agreements. The terms
and conditions of the Cloned Wrapper Agreements provided to a redeeming
Plan will be the same or substantially similar to the terms and
conditions of the Wrapper Agreements held by the PreservationPlus
Portfolio.\3\ The distribution of portfolio securities and Cloned
Wrapper Agreements to a redeeming Plan will be proportionate to each
other in order to achieve the PreservationPlus Funds' investment
objective of maintaining a stable value per share for both the
redeeming Plan and the PreservationPlus Fund's remaining shareholders.
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\3\ The PreservationPlus Fund may incur costs in obtaining
Cloned Wrapper Agreements from Wrapper Providers. These costs will
be payable from, and are not expected to exceed, any applicable
redemption fee.
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7. The PreservationPlus Portfolio intends to make in-kind
distributions of mortgage-backed securities in its portfolio based upon
groups or ``baskets'' of such securities, all of which share common
characteristics, rather than a pro-rata basis of each individual pool
of mortgages. Consequently, rather than receiving a pro-rata
distribution of every individual mortgage pool, a redeeming Plan will
receive a pro-rata distribution of securities from each different type
of mortgage pool (each a ``Basket''), proportionate to the
PreservationPlus Portfolio's holdings. The Baskets would be determined
by application of the Lehman Brothers Mortgage-Backed Securities Index.
A redeeming shareholder would receive a pro-rata share of each Basket
of securities held by the PreservationPlus Portfolio.
Legal Analysis
1. Section 17(a)(2) of the Act makes it unlawful for an affiliated
person of a registered investment company or an affiliated person of
such a person, acting as principal, to knowingly ``purchase'' from such
registered investment company any security or other property (except
securities of which the seller is the issuer). Section 2(a)(3)(A) of
the Act defines affiliated person to include any person owning 5% or
more of the outstanding voting securities of such other person.
2. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) provided that: (a) the terms of the
proposed transaction, including the consideration to be paid or
received, are fair and reasonable and do not involve overreaching on
the part of any person concerned; (b) the transaction is
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consistent with the policy of the investment company, as recited in its
registration statement and reports filed under the Act; and (c) the
proposed transaction is consistent with the general purposes of the
Act.
3. Section 6(c) of the Act provides that the SEC may exempt classes
of persons or transactions from the Act, where an exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act.
4. Applicants request an order under sections 6(c) and 17(b) of the
Act exempting applicants from section 17(a) of the Act to permit
Affiliated Shareholders to redeem their shares in-kind. The requested
order would not apply to redemptions by shareholders who are affiliated
persons of a Fund or Portfolio within the meaning of sections 2(a)(3)
(B) through (F) of the Act.
5. Applicants submit that the proposed transactions meet the
standards set forth in sections 6(c) and 17(b) of the Act. Applicants
believe that the use of proposed objective standards for the selection
and valuation of securities to be distributed in an in-kind redemption
to an Affiliated Shareholder will ensure that the proposed transactions
will be on terms that are reasonable and fair to the Portfolios, the
Affiliated Shareholders, and non-Affiliated Shareholders, and will not
involve overreaching on the part of any person.
6. Applicants submit that the proposed transactions are consistent
with the investment policy of each Fund and Portfolio. Applicants
further submit that the proposed transactions are consistent with the
general purposes of the Act because no Affiliated Shareholder would
receive any advantage over any other shareholder if the proposed
transactions are effected. Affiliated Shareholders who wish to redeem
shares would receive the same in-kind distribution of securities, and
in the case of the PreservationPlus Fund, Cloned Wrapper Agreements,
and cash on the same basis as other shareholders wishing to redeem
their shares.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The portfolio securities distributed to Affiliated Shareholders
and non-Affiliated Shareholders pursuant to a redemption in-kind (the
``In-Kind Portfolio Securities'') will be limited to securities that
are traded on a public securities market or for which quoted bid and
asked prices are available.
2. The In-Kind Portfolio Securities will be distributed to
Affiliated Shareholders on a pro rata basis after excluding: (a)
securities which, if distributed, would be required to be registered
under the Securities Act of 1933; and (b) securities issued by entities
in countries which restrict or prohibit the holding of securities by
non-nationals other than through qualified investment vehicles, such as
the Portfolios. Cash will be paid for that portion of the Portfolio's
assets represented by cash equivalents (such as certificates of
deposit, commercial paper, and repurchase agreements) and other assets
that are not readily distributable (including receivables and prepaid
expenses), net of all liabilities (including accounts payable). In
addition, cash will be distributed in lieu of portfolio securities not
amounting to round lots or fractional shares.
3. The terms and conditions of the Cloned Wrapper Agreements will
be substantially similar to those Wrapper Agreements held by the
PreservationPlus Portfolio.
4. The board of trustees of a Fund or Portfolio (``Board''),
including a majority of the disinterested trustees, will determine no
less frequently than annually: (a) whether the In-Kind Portfolio
Securities and Cloned Wrapper Agreements have been distributed in
accordance with conditions 1, 2 and 3; and (b) whether the distribution
of any such In-Kind Portfolio Securities and Cloned Wrapper Agreements
is consistent with the policies of the relevant Fund or Portfolio as
reflected in the prospectus of the Fund or the Portfolio. In addition,
each Board shall make and approve such changes as the Board deems
necessary in its procedures for monitoring compliance by applicants
with the terms and conditions of the application.
5. The relevant Fund or Portfolio will maintain and preserve for a
period of not less than six years from the end of the fiscal year in
which any redemption in-kind to an Affiliated Shareholder occurred, the
first two years in an easily accessible place, a written record of each
such redemption setting forth a description of each security
distributed, the identity of the Affiliated Shareholder, the terms of
the distribution, and the information or materials upon which the
valuation was made.
6. In-Kind Portfolio Securities and Cloned Wrapper Agreements
distributed to Affiliated Shareholders and non-Affiliated Shareholders
will be valued in the same manner as they would be valued for computing
a Fund's or a Portfolio's net asset value per share.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-17712 Filed 7-2-98; 8:45 am]
BILLING CODE 8010-01-M
