[Federal Register Volume 61, Number 149 (Thursday, August 1, 1996)]
[Notices]
[Pages 40263-40266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19567]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22104; 812-9100]


Scudder Global Fund, Inc., et al; Notice of Application

July 26, 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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SUMMARY: Scudder Global Fund, Inc., Scudder International Fund, Inc., 
Scudder Mutual Funds, Inc., Scudder Equity Trust, Scudder Investment 
Trust, Scudder Funds Trust, Scudder Portfolio Trust, Scudder Securities 
Trust, Scudder GNMA Fund, Scudder Cash Investment Trust, Scudder 
Pathway Series (``Pathway Series,'' collectively the foregoing are the 
``Scudder Funds''), Scudder, Stevens & Clark, Inc. (``SSC''), Scudder 
Service Corporation (``Scudder Service''), Scudder Investor Services, 
Inc. (``SIS''), Scudder Trust Company

[[Page 40264]]

(``STC''), and Scudder Fund Accounting Corporation (``SFAC''), and 
Scudder Fund Accounting Corporation (``SFAC'').

RELEVANT ACT SECTIONS: Order requested under section 6(c) to exempt the 
applicants from sections 12(d)(1) (A) and (B), sections 6(c) and 17(b) 
to exempt applicants from section 17(a), and rule 17d-1 under the Act 
to permit certain joint transactions.

SUMMARY OF APPLICATION: The requested order would permit the Pathway 
Series to operate as a ``fund of funds.''

FILING DATES: The application was filed on October 24, 1994, and 
amended on January 27, 1995, June 6, 1996, and July 24, 1996.

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 August 22, 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 5th Street, NW., Washington, DC 20549. 
Applicants: Scudder Global Fund, Inc., Scudder International Fund, 
Inc., and Scudder Mutual Funds, Inc., 345 Park Avenue, New York, New 
York 10154-0010 and Scudder Equity Trust, Scudder Investment Trust, 
Scudder Funds Trust, Scudder Portfolio Trust, Scudder Securities Trust, 
Scudder GNMA Fund, Scudder Cash Investment Trust, Pathway Series, SSC, 
Scudder Service, SIS, STC, and SFAC, Two International Place, Boston, 
Massachusetts 02110-4103.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or Alison E. Baur, 
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.

Applicant's Representations

    1. The Pathway Series is a registered, No-load, open-end, 
management investment company organized as a Massachusetts business 
trust. The Pathway Series will initially consist of six portfolios. 
Each Portfolio will invest substantially all of its assets in certain 
Scudder Funds (the ``Underlying Funds''). The Underlying Funds are no-
load, open-end investment companies which have not adopted plans under 
rule 12b-1 to finance their distribution and, in some cases, are 
organized as series investment companies. Applicants request that the 
relief sought herein also apply to any future open-end management 
investment company or series thereof, which is advised by SSC or 
distributed by SIS which are part of the same group of investment 
companies as defined in rule 11a-3 under the Act (such funds are also 
the ``Scudder Funds'').
    2. SSC serves as the investment adviser to each of the Scudder 
Funds. SIS serves as principal underwriter of the Scudder Funds. 
Scudder Service performs certain shareholder services for the Scudder 
Funds. SFAC provides fund accounting services for certain Scudder 
Funds. STC provides recordkeeping services with respect to certain 
shares of the Scudder Funds. SIS, SFAC, STC, and Scudder Service are 
all subsidiaries of SSC.
    3. Applicants propose that, subject to the conditions to the 
requested order, the Pathway Series be permitted to purchase and redeem 
shares of the Underlying Portfolios, and that each Underlying Portfolio 
be permitted to sell and redeem shares from each of the Pathway Series. 
The Pathway Series will invest almost exclusively in shares of 
Underlying Funds.
    4. SSC does not currently intend to charge an additional advisory 
fee for the Pathway Series, earning only those advisory fees accruing 
to the Underlying Fund holdings. As currently contemplated, the Pathway 
Series will be sold on a no-load basis and without rule 12b-1 fees, 
although the Pathway Series and the Underlying Funds may charge sales 
loads or service fees in the future. It is also currently contemplated 
that all other expenses (shareholder servicing, legal, accounting, 
etc.) will be paid for in accordance with a special servicing agreement 
(``Agreement'') to be entered into between SSC, SIS, Scudder Service, 
STC, SFAC, the Pathway Series, and the Underlying Funds.
    5. Under the Agreement, SSC will arrange for all of the services 
pertaining to the operation of the Pathway Series. In addition, the 
Agreement will provide that, if the officers of any Underlying Fund, at 
the direction of its board of director/trustees, determine that the 
aggregate expenses of the Pathway Series are less than the estimated 
savings to the Underlying Fund from the operation of the Pathway 
Series, the Underlying Fund will bear those expenses in proportion to 
the average daily value of its shares owned by each Pathway Series 
portfolio, provided that no Underlying Fund bears expenses in excess of 
the estimated savings to it. In the event that the aggregate financial 
benefits to the Underlying Funds do not exceed the costs of the Pathway 
Series, the Agreement will provide either that SSC or the Pathway 
Series will bear that portion of costs determined to be greater than 
the benefits. The determination of whether and the extent to which the 
benefits to the Underlying Funds from the organization and operation of 
the Pathway Series will exceed the costs to the Underlying Funds will 
be made based on an analysis described in the application. The board of 
directors/trustees for each Underlying Fund, prior to authorizing its 
fund to be a party to the Agreement, will review and approve this 
analysis, and afterwards, upon annual review of the Agreement, 
determine its continued appropriateness for each Underlying Fund. If 
the Pathway Series determines not to enter into the Agreement, it will 
bear its own expenses in connection with fund operations and separately 
contract with various service providers.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an 
exemption from section 12(d)(1) of the Act, under sections 6(c) and 
17(b) for an exemption from section 17(a), and pursuant to section 
17(d) and rule 17d-1 under the Act to permit the Funds to enter into 
the Agreement, which would otherwise be prohibited by section 17(d) and 
rule 17d-1. The requested relief would permit the Pathway Series to 
acquire up to 100% of the voting shares of any Underlying Fund.
    2. Section 12(d)(1)(A) of the Act would prohibit the Pathway Series 
from purchasing more than 3% of the outstanding voting securities of an 
Underlying Fund, securities issued by all Underlying Funds having an 
aggregate value in excess of 5% of the value of the total assets of the 
Pathway Series, or securities issued by the Underlying Funds and all 
other investment companies having an aggregate value in excess of 10% 
of the value of the total assets of the Pathway Series. Section 
12(d)(1)(B) would prohibit the Underling Funds from selling more than 
3% of their outstanding voting securities to the Pathway Series and 
more than 10% to

[[Page 40265]]

the Pathway Series and other investment companies.
    3. Section 6(c) permits the SEC to exempt any person or transaction 
from any provision of the Act, if such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policies of the 
Act. For the reasons provided below, applicants argue that the 
requested order meets the section 6(c) standards.
    4. Section 12(d)(1) is intended to prevent the pyramiding of 
investment companies, the layering of fees, and undue organizational 
complexities. Applicants state that none of these abuses associated 
with fund holding companies are present with respect to the proposed 
arrangement, and that the Pathway Series will provide the benefits of 
diversification and cost savings to its investors.
    5. Applicants believe that the concern over potential large scale 
redemptions is not present in the context of the Funds. Because the 
Pathway Series will only acquire shares of Underlying Funds that are in 
the Scudder family of funds, a redemption from one Underlying Fund will 
simply lead to the investment of the proceeds in another Underlying 
Fund. Applicants also believe that the proposed arrangement will not 
result in disruptive redemptions because the Pathway Series will be 
designed for long-term investors. This will reduce the possibility of 
the Pathway Series being used as short-term trading vehicles and 
further protect the Pathway Series and the Underlying Funds from 
unexpected large redemptions.
    6. While applicants currently do not anticipate that the Pathway 
Series will be subject to sales loads, distribution fees, or 
shareholder servicing fees, any sales charges or service fees relating 
to the shares of the Pathway Series will not exceed the limits set 
forth in Article III, section 26 of the NASD's Rules of Fair Practice, 
when aggregated with any sales charges or service fees that the Pathway 
Series may pay relating to the Underlying Portfolio shares. The 
aggregate sales charges at both levels, therefore, will not exceed the 
limit that otherwise lawfully could be charged at any single level.
    7. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of that company. The sale by the Underlying Funds of 
their shares to the Pathway Series could be deemed to be a principal 
transaction between affiliated persons that are prohibited under 
section 17(a). Because the Pathway Series and the Underlying Funds are 
each advised by SSC they could be deemed to be affiliates of one 
another. Therefore, applicants request an order to permit the 
Underlying Funds to sell their shares to the Pathway Series.
    8. Section 17(b) permits the SEC to grant an order permitting a 
transaction otherwise prohibited by section 17(a) if it finds that the 
terms of the proposed transaction are fair and reasonable and do not 
involve overreaching on the part of any person concerned. Section 17(b) 
could be interpreted to exempt only a single transaction. However, the 
Commission, under section 6(c) of the Act, may exempt a series of 
transactions that otherwide would be prohibited by section 17(a). 
Applicants believe that the terms of the transactions meet the 
standards of sections 6(c) and 17(b).
    9. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an 
affiliated person of an investment company, acting as principal, from 
participating in or effecting any transaction in connection with any 
joint enterprise or joint arrangement in which the investment company 
participates. The Agreement contemplates the Pathway Series, the 
Underlying Funds, and various other affiliated ``Scudder'' entities may 
jointly participate in an arrangement whereby the fees and expenses of 
operating the Pathway Series would be shared among the Underlying Funds 
or, in certain cases, borne by SSC. Accordingly, the arrangements 
contemplated by the Agreement could be viewed as constituting a ``joint 
or joint and several participation.'' Accordingly, applicants request 
relief under section 17(d) and rule 17d-1 to permit the Pathway Series 
to enter into the Agreement.
    10. Rule 17d-1 permits the SEC to approve a proposed joint 
transaction. In determining whether to approve a transaction, the SEC 
is to consider whether the proposed transaction is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
the participation of the investment companies is on a basis different 
from or less advantageous than that of the other participants. 
Applicants believe that the requested relief meets these standards.
    11. The Pathway Series and all of the Underlying Funds will 
participate in the arrangement on the same, or substantially the same, 
basis. Under the Agreement, each Underlying Fund and all Underlying 
Funds in the aggregate will bear the expenses of the Pathway Series 
only to the extent that such expenses are less than the benefits of the 
Pathway Series to the Underlying Funds. The payment of Pathway Series 
expenses by any Underlying Fund will be subject to review and approval 
by that Fund's board of directors/trustees, including a majority of an 
Underlying Fund's independent directors/trustees. Shareholders of the 
Pathway Series will be on the same footing as shareholders of the 
Underlying Funds in that their proportionate shares of the expenses of 
the Underlying Funds, as paid indirectly by the Pathway Series, will be 
no more, or less, than the fund expenses incurred directly by 
shareholders of the Underlying Funds.

Applicants' Conditions

    Applicants will abide by the following conditions to the relief 
requested:
    1. The Pathway Series and each Underlying Fund will be part of the 
same ``group of investment companies,'' as defined in rule 11a-3 under 
the Act.
    2. No Underlying Fund shall acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act.
    3. A majority of the trustees of the Pathway Series will not be 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees'').
    4. Before approving any advisory contract under section 15, the 
board of trustees of the Pathway Series, including a majority of the 
Independent Trustees, shall find that advisory fees charged under such 
contract are based on services provided that are in addition to, rather 
than duplicative of, services provided pursuant to any Underlying 
Fund's advisory contract. Such finding, and the basis upon which the 
finding was made, will be recorded fully in the minute books of the 
Pathway Series.
    5. Any sales charges and other service fees charged with respect to 
securities of the Pathway Series, when aggregated with any sales 
charges and service fees paid by the Pathway Series with respect to 
securities of the Underlying Funds, shall not exceed the limits set 
forth in Article III, section 26, of the Rules of Fair Practice of the 
National Association of Securities Dealers, Inc.
    6. Applicants agree to provide the following information, in 
electronic format, to the Chief Financial Analyst of the SEC's Division 
of Investment Management: monthly average total assets for each Pathway 
portfolio and each of its Underlying Funds; monthly purchases and 
redemptions (other than by exchange) for each Pathway portfolio and 
each of its Underlying Funds; monthly exchanges into and out of each 
Pathway portfolio and each of its Underlying Funds; month-end

[[Page 40266]]

allocations of each Pathway Series portfolio's assets among its 
Underlying Funds; annual expense ratios for each Pathway portfolio and 
each of its Underlying Funds; and a description of any vote taken by 
the shareholders of any Underlying Fund, including a statement of the 
percentage of votes cast for and against the proposal by the Pathway 
Series and by the other shareholders of the Underlying Funds. Such 
information will be provided as soon as reasonably practicable 
following each fiscal year-end of the Pathway Series (unless the Chief 
Financial Analyst shall notify applicants in writing that such 
information need no longer be submitted).

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19567 Filed 7-31-96; 8:45 am]
BILLING CODE 8010-01-M