[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