[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]


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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'').

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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\
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    \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).
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    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.
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    \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.
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    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

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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