[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Notices]
[Pages 45464-45467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22006]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22167; 812-9866]
BT Investment Portfolios and Bankers Trust Company; Notice of
Application
August 22, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANTS: BT Investment Portfolios (the ``Portfolio Trust'') and
Bankers Trust Company (``BT'').
RELEVANT ACT SECTIONS: Order requested under section 17(d) of the Act
and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: Applicants request an order to permit a series
of the Portfolio Trust, Liquid Assets Portfolio (the ``Portfolio''),
and BT, the Portfolio's investment adviser, to jointly enter into
repurchase agreements and time
[[Page 45465]]
deposits with non-affiliated financial institutions.
FILING DATES: The application was filed on November 22, 1995 and
amended on July 17, 1996. Applicants have agreed to file an amendment,
the substance of which is incorporated herein, during the notice
period.
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 September 16,
1996 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 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Kirkpatrick & Lockhart LLP, 1251 Avenue of the
Americas, 45th Floor, New York, NY 10020.
FOR FURTHER INFORMATION CONTACT: David W. Grim, Staff Attorney, at
(202) 942-0571, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUMMARY INFORMATION: The following is a summary of the application. The
complete application is available for a fee from the SEC's Public
Reference Branch.
Applicant's Representations
1. The Portfolio Trust is a registered investment company that
currently has eleven series, one of which is the Portfolio. BT serves
as the Portfolio's custodian, transfer agent, administrator, and
investment adviser. The Portfolio is a money market fund and serves as
the master fund for Institutional Liquid Assets Fund (the ``Fund''), a
feeder fund holding itself out as a money market fund. The Fund is a
series of BT Institutional Funds (the ``Trust''). BT serves as the
Fund's custodian, transfer agent, administrator, and as one of its
shareholder servicing agents. The Trust seeks to achieve the investment
objective of the Fund by investing all of the Fund's assets not
earmarked for expenses or shareholder distributions in the Portfolio.
The Portfolio, in turn, invests its assets in securities in accordance
with its investment objective and investment policies and limitations.
Through the master/feeder structure, the Fund acquires an indirect
interest in the securities held by the Portfolio. BT and the Portfolio
will jointly enter into repurchase agreements and purchase time
deposits from non-affiliated financial institutions pursuant to the
procedures described below.
2. Applicants request that the relief requested herein extend to
any other series of the Portfolio Trust now existing or established in
the future, and any other registered open-end-investment company or
series thereof (i) which holds itself out as a money market fund
(whether in a stand-alone or master-feeder structure); and (ii) for
which BT or any person directly or indirectly controlling, controlled
by, or under common control with BT, serves as investment adviser, or
administrator for any BT feeder money market fund that invests its
assets into a master money market fund advised by BT. Applicants
understand that the requested relief does not apply to joint repurchase
agreement or time deposit arrangement among two or more money market
funds.\1\
---------------------------------------------------------------------------
\1\ Cf. The Benchmark Funds and Northern Trust Company,
Investment Company Act Release Nos. 21808 (Mar. 5, 1996) (notice)
and 21867 (Apr. 2, 1996) (order).
---------------------------------------------------------------------------
3. A portion of the shares of the Fund will be purchased by
customers of BT and those of its affiliates through automatic
investment orders placed by BT, acting as agent for its customers and
those of its affiliates, where such customers have signed an
application or an agreement or have otherwise given directions
expressly authorizing BT, as their agent, to automatically invest cash
balances in excess of any required minimum balance in shares of the
Fund. These standing ``sweep'' orders will be effected automatically by
computer each business day on or before the time the Fund's net asset
value is calculated (``Pricing Time''), currently 4:00 p.m. Eastern
Time for the Fund. The computer program governing BT's customer
accounts also provides for automatic redemption of Fund shares held in
the account as of the Pricing Time if the cash balance in the account
is less than zero or the minimum balance specified for the customer.
The daily computer processing required to tabulate the day's
transaction activity in BT's customer accounts is completed later in
the day and recorded prior to the opening of business on the following
business day (``Completion Time''). Based on BT's orders for Fund
share, the Fund will, in turn, invest all cash expected to be received
through the ``Sweep'' program in the Portfolio.
4. BT, acting as agent for its customers and those of its
affiliates, prior to Pricing Time on each business day, will place an
order for Fund shares in the amount of excess cash expected to be
available to be swept in the customer accounts on that business day.
The amount expected to be available to be swept in the customer
accounts is the amount of excess cash in the customer accounts at or
before Pricing Time on each business day, plus the amount of cash that
BT estimates will be wired into the customer accounts prior to the
close of the FedWire on that business day.\2\ To the extent one or more
customer accounts have not yet received money anticipated to be wired
and necessary to pay for the customer accounts' orders in full, BT, on
behalf of the applicable customer, will advance such amount to fill
such orders. Because of its past experience and close relationship with
its customers, BT anticipates that it will be able to forecast on a
daily basis the amounts that will be wired into the customer accounts
between 4 p.m. and the close of the FedWire so that it can also
forecast the total amount that will be swept directly into the Fund,
and indirectly into the Portfolio.
---------------------------------------------------------------------------
\2\ The FedWire is open until 6:00 p.m. each business day. From
time to time, at the direction of the Federal Reserve Board, its
hours are extended until as late as 7:30 p.m. As a condition of
eligibility to participate in the sweep program, each customer has
agreed to notify BT by 2:00 p.m. on each business day of any large
amounts of funds it expects its account to receive or send out that
business day through the FedWire. These notifications will assist BT
in estimating the amount that will be wired into the accounts
between 4 p.m. and the close of the FedWire, the period during which
the system is settling.
---------------------------------------------------------------------------
5. The actual amount of money swept into the Fund, and then
invested in the Portfolio by the Fund, may vary above or below the
forecast. The forecast variance at the customer account level results
from many factors, such as counterparty difficulties, delivery
failures, and unanticipated purchases and sales of securities. BT, on
behalf of applicable customers, will forward an amount to the Fund to
cover such forecast variance.
6. BT and the Portfolio propose to enter into repurchase agreements
and/or purchase time deposits in an amount to cover situations in which
the actual amount of money swept into the Fund, and then invested in
the Portfolio by the Fund, varies above or below the forecasted amount
of sweep money. For example, assume that, based on BT's past
experience, the actual amount of money available in the customer
[[Page 45466]]
accounts participating in the ``sweep'' program has a variance of
$25 million. To ensure that the Fund is fully invested, BT,
on behalf of the applicable customers, would forward $25 million to the
Fund, which would invest such assets in the Portfolio. BT, as the
Portfolio's investment adviser, would cause the Portfolio to invest on
that day a total of $50 million (the $25 million forwarded from BT plus
$25 million in investable assets received from other investors) in
``sweep'' repurchase agreements and/or ``sweep'' time deposits to
account for the most extreme tails of the ``sweep'' program's variance
of $25 million.
7. To the extent that the Portfolio's ``sweep'' repurchase
transactions or ``sweep'' time deposits were sufficient to make the
Portfolio fully invested, the Portfolio's records will reflect the
specific amount it had in fact invested in such investments (including
in the case of ``sweep'' repurchase transactions, its ownership of
eligible securities purchased in the transaction). If the Portfolio's
``sweep'' repurchase transactions or ``sweep'' time deposits were not
sufficient to make the Portfolio fully invested, the Portfolio's
records will continue to reflect its investment in the entire amount of
``sweep'' repurchase agreements and ``sweep'' time deposits and an
uninvested cash position. (This is an unlikely occurrence, as BT
expects to approximate the likely aggregate amount of ``sweep'' funds
such that the ``sweep'' investment transaction(s) will be greater than
the likely forecast variance.) If any amount of ``sweep'' repurchase
transactions or ``sweep'' time deposits exceeds amounts available to
the Portfolio for investment, BT will be deemed to have purchased such
excess securities or investments for its own account.
8. In connection with the ``sweep'' program, the Portfolio intends
to purchase time deposits issued by U.S. or foreign banks, or foreign
branches and subsidiaries of U.S. and foreign banks. With respect to
``sweep'' repurchase transactions, the Portfolio Trust will use a
master repurchase agreement (``Master Agreement''). The Master
Agreement will require the other party to the transaction (``Seller'')
on a given day to sell to the Portfolio, and, on the same day, transfer
to the Portfolio's designated custodian or sub-custodian the particular
eligible securities which are subject to the repurchase transaction
against crediting to an account of the Seller (in immediately available
funds) the purchase price therefor. At the time of the Seller's
transfer of securities to the Portfolio, the Seller will be required to
take the action necessary to perfect a security interest in favor of
the Portfolio in all of the transferred securities. Prior to the
reconciliation of the ``sweep'' activity, the Portfolio will have a
perfected security interest in all of the transferred securities. The
Portfolio will comply with the SEC's position concerning repurchase
agreements set forth in Investment Company Act Release No. 13005
(February 2, 1983) and with other existing and future positions taken
by the SEC or its staff by rule, interpretive release, no-action
letter, any release adopting any new rule, or any release adopting any
amendments to any existing rule. Each ``sweep'' repurchase transaction
will be ``collateralized fully'' as that term is defined in Rule 2a-7
under the 1940 Act.
9. With respect to both ``sweep'' repurchase transactions and
``sweep'' time deposits, BT, as the Portfolio's adviser, will receive
prompt confirmation of the total amount invested on behalf of the
Portfolio and other relevant terms of the transaction on the business
day of the transaction. The confirmation most likely will not agree
with the final allocation of the repurchase transactions or time
deposits between BT and the Portfolio on the business day immediately
following the transaction. To create a written record of the dollar
amounts actually allocated to the Portfolio and the specific securities
actually purchased and time deposits actually invested in by the
Portfolio, BT will issue to the Seller an adjusted trade ticket on the
business day immediately following the transaction, after the final
allocation between BT and the Portfolio is known. Some Sellers may
choose to subsequently send corrected confirmations to the Portfolio
showing the final allocation of the ``sweep'' repurchase transaction or
the ``sweep'' time deposit between BT and the Portfolio. Also, prior to
the opening of business on the business day immediately following the
transaction, BT, as agent for its customers, will provide the Fund's
transfer agent and shareholder servicing agent(s) with records relating
to the automatic investment transactions.
10. In the event that any ``sweep'' repurchase agreement involves
two or more issues of securities differing as to quality, maturity or
rate, each security will be apportioned between the Portfolio and BT
pro-rata to the extent possible. To the extent that sweep time deposits
have been purchased from more than one institution, each ``sweep'' time
deposit will be apportioned between the Portfolio and BT pro-rata to
the extent possible. Where such pro-rata apportionment is not possible,
securities and time deposits will be apportioned in a manner that BT,
as the Portfolio's adviser, believes will leave each party in a
comparable position.
Applicants' Legal Analysis
1. Section 17(d) of the Act makes it unlawful for an affiliated
person of a registered investment company, acting as principal, to
effect any transaction in which the registered investment company is a
joint or a joint and several participant with such person in
contravention of rules and regulations the SEC may prescribe. Rule 17d-
1(a) provides that an affiliated person of a registered investment
company, acting as principal, shall not participate in, or effect any
transaction in connection with, any joint enterprise or other joint
arrangement in which the registered investment company is a participant
unless the SEC has issued an order approving the arrangement.
2. The Portfolio Trust and BT, as its adviser, wish to adopt the
proposed investment procedures in the interests of the Fund and all of
its shareholders in response to the demands placed on portfolio
management by automatic purchase and redemption transactions by Fund
shareholders. The effect of the proposed procedures will be to permit
BT, as agent for its customers, to purchase shares of the Fund even
though the exact number of shares acquired by BT as agent is not
determined until prior to the opening of business the following day.
The proposed procedures also will permit BT and the Portfolio Trust, on
behalf of the Portfolio, to jointly enter into repurchase agreements
and time deposits prior to Pricing Time, based upon amounts estimated
to be received by the Fund on that day through the operation of the
``sweep'' program, with determination of the exact allocation of the
principal amount of each repurchase agreement and time deposit for the
Fund occurring prior to the opening of business the following day.
These special arrangements for the investment of ``sweep'' assets by
the Portfolio allow such assets to be invested on the same day that
dividends become payable on shares of the Fund purchased with such
assets.
3. To the extent that assets of BT are used with those of the
Portfolio to enter into ``sweep'' repurchase transactions or purchase
``sweep'' time deposits, BT may be deemed to be participating in, as
principal, a transaction in connection with a joint enterprise in which
the Portfolio is a participant in violation of section 17(d) and rule
17d-1. Applicants believe that the relief
[[Page 45467]]
requested on behalf of the Portfolio is appropriate and in the public
interest because it will permit the investment of cash immediately when
it is available and will thereby reduce any dilution in daily dividends
declared by the Fund.
4. With respect to ``sweep'' repurchase transactions, the
Portfolio's rights vis-a-vis Sellers under ``sweep'' repurchase
agreement transactions will be protected under the ``sweep'' repurchase
agreement, which is a standard industry agreement. Pending
reconciliation of the day's transaction activity, BT, as the
Portfolio's custodian, will segregate and hold for the exclusive
benefit of the Portfolio all securities transferred to BT in connection
with ``sweep'' repurchase transactions entered into for the Portfolio.
The Portfolio also will have a perfected security interest in all such
securities. With respect to ``sweep'' time deposits, pending
reconciliation of the day's transaction activity, BT, as the
Portfolio's custodian, will hold for the exclusive benefit of the
Portfolio the entire time deposit investment.
5. Applicants believe that the interest of BT in negotiating the
maximum interest rate available on any ``sweep'' repurchase agreement
or ``sweep'' time deposit for the Portfolio will be the same as that of
the Portfolio. To the extent that BT, as the Portfolio's investment
adviser, is deemed to have any participation in the proposed investment
procedure within the meaning of section 17(d) and rule 17d-1, the
Portfolio's participation is consistent with the provisions, policies,
and purposes of the Act and not on a basis different from or less
advantageous than that of BT. Thus, applicants believe that the
requested relief meets the standards of rule 17d-1.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22006 Filed 8-28-96; 8:45 am]
BILLING CODE 8010-01-M
