[Federal Register Volume 63, Number 160 (Wednesday, August 19, 1998)]
[Notices]
[Pages 44480-44483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22296]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23389; 812-11244]


Zurich Insurance Company, et al.; Notice of Application

August 14, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 15(a) 
of the Act.

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SUMMARY OF THE APPLICATION: The requested order would permit the 
implementation, without prior shareholder approval, of new investment 
advisory and sub-advisory agreements for a period of up to 150 days 
following the later of: (i) consummation of the merger between Zurich 
Insurance Company (``Zurich'') and B.A.T Industries p.l.c. (``B.A.T''), 
or (ii) the date on which the requested

[[Page 44481]]

order is issued (but in no event later than March 31, 1999) (the 
``Interim Period''). The order also would permit, following shareholder 
approval, Scudder Kemper Investments, Inc. (``Scudder Kemper'') to 
receive all fees earned during the Interim Period.

APPLICANTS: Zurich and Scudder Kemper.

FILING DATES: The application was filed on August 4, 1998, and amended 
on August 14, 1998.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission'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 3, 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 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Zurich Financial Services, Mythenquai 2, 8022 Zurich, 
Switzerland. Scudder Kemper Investments, Inc., 345 Park Avenue, New 
York, NY 10154.

FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney, 
at (202) 942-0517, or Nadya B. Roytblat, Assistant Director, 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 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549 (tel. 202-942-8090).

Applicants' Representations

    1. Zurich, A Swiss corporation, is engaged directly and through its 
subsidiaries and affiliates in various financial services businesses. 
Zurich, through its subsidiaries, owns approximately 70% of the 
outstanding voting securities of Scudder Kemper. The remaining 30% is 
owned by officers and employees of Scudder Kemper. Scudder Kemper, a 
Delaware corporation, is an investment adviser registered under the 
Investment Advisers Act of 1940 and currently serves as investment 
adviser or sub-adviser to various investment companies registered under 
the Act (``Funds'').\1\
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    \1\ Scudder Kemper serves as investment adviser to the following 
Funds: Kemper Adjustable Rate U.S. Government Fund, Kemper 
Aggressive Growth Fund, Kemper Asian Growth Fund, Kemper Blue Chip 
Fund, Kemper Diversified Income Fund, Kemper Equity Trust, Kemper 
Europe Fund, Kemper Global Income Fund, Kemper Global/International 
Series, Inc., Kemper Growth Fund, Kemper High Income Trust, Kemper 
High Yield Series, Kemper Horizon Fund, Kemper Income and Capital 
Preservation Fund, Kemper International Fund, Kemper National Tax-
Free Income Series, Kemper Portfolios, Kemper Quantitative Equity 
Fund, Kemper Securities Trust, Kemper Small Capitalization Equity 
Fund, Kemper State Tax-Free Income Series, Kemper Target Equity 
Fund, Kemper Technology Fund, Kemper Total Return Fund, Kemper U.S. 
Government Securities Fund, Kemper Value Series, Inc., Kemper 
Value+Growth Fund, Tax-Exempt California Money Market Fund, Zurich 
Money Funds, Zurich YieldWise Money Fund, AARP Cash Investment 
Funds, AARP Income Trust, AARP Tax Free Income Trust, AARP Growth 
Trust, AARP Managed Investment Portfolios Trust, Global/
International Fund, Inc., Investment Trust, Scudder California Tax 
Free Trust, Scudder Cash Investment Trust, Scudder Fund, Inc., 
Scudder Funds Trust, Scudder GNMA Fund, Scudder Institutional Fund, 
Inc., Scudder International Fund, Inc., Scudder Municipal Trust, 
Scudder Mutual Funds, Inc., Scudder Pathway Series, Scudder 
Portfolio Trust, Scudder Securities Trust, Scudder State Tax Free 
Trust, Scudder Tax Free Money Fund, Scudder Tax Free Trust, Scudder 
U.S. Treasury Money Fund, Scudder Variable Life Investment Fund, The 
Japan Fund, Inc., Value Equity Trust, The Growth Fund of Spain, 
Inc., Kemper Strategic Income Fund, Kemper Strategic Municipal 
Income Trust, Kemper Intermediate Government Trust, Kemper Multi-
Market Income Trust, Kemper Municipal Income Trust, The Argentina 
Fund, Inc., Montgomery Street Income Securities, Scudder Global High 
Income Fund, Inc., Scudder New Asia Fund, Inc., Scudder New Europe 
Fund, Inc., Scudder Spain & Portugal Fund, Inc., The Brazil Fund, 
Inc., The Korea Fund, Inc. Scudder Kemper serves as sub-adviser to 
the following Funds: Alameda-Contra Costa Medical Association 
Collective Investment Trust Retirement Plans, Portfolio Partners, 
Inc.'s Scudder International Growth Portfolio, Pacific Innovations 
Managed Bond Fund, The Horace Mann Mutual Funds, Managers 
International Equity Fund, Managers Income Equity Fund, Metropolitan 
Series Fund, Inc., Touchstone Growth & Income Fund A, Touchstone 
Growth & Income Fund C, Global Advisory Network Trust, Portfolios 
Select Advisors Variable Insurance Trust, John Hancock Variable 
Series Trust I, The Legends Fund, Inc., Rodney Square Strategic 
Equity Fund.
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    2. On December 22, 1997, Zurich and B.A.T entered into a merger 
agreement (``Merger Agreement''), pursuant to which the financial 
services businesses of B.A.T will be combined with Zurich's financial 
services businesses, through a series of transactions (collectively, 
the ``Transaction''). In the Transaction, Zurich intends to establish a 
holding company, Zurich Allied AG, a Swiss corporation (``Zurich 
Allied''), the shares of which will be exchanged for Zurich shares by 
way of a public exchange offer to the Zurich shareholders. Zurich 
Allied will then contribute all of the Zurich shares exchanged by the 
Zurich shareholders to Zurich Financial Services (``ZFS''), a newly 
formed Swiss corporation, and receive in exchange securities 
representing 57% of the voting capital stock of ZFS. B.A.T will 
establish a new holding company, Allied Zurich p.l.c., a United Kingdom 
corporation (``Allied Zurich''). B.A.T shareholders will receive shares 
of Allied Zurich in exchange for their shares of B.A.T. Allied Zurich 
will then contribute all the B.A.T shares to ZFS in exchange for 
securities representing the remaining 43% of the voting capital stock 
of ZFS. Zurich Allied, Allied Zurich, and ZFS initially will have 
separate boards of directors.
    3. Applicants state that the acquisition by Allied Zurich of the 
43% interest in ZFS upon consummation of the Transaction may constitute 
a change in control of Scudder Kemper under the Act. Applicants thus 
state that the Transaction may therefore result in an assignment of 
Scudder Kemper's existing advisory and subadvisory agreements with the 
Funds (``Existing Advisory Agreements'') and their automatic 
termination. Applicants expect the Transaction to be consummated in 
early September, 1998 (``Closing Date'').
    4. Applicants request an exemption to permit the implementation 
prior to obtaining shareholder approval, of new investment advisory and 
sub-advisory agreements between Scudder Kemper and the Funds (``New 
Advisory Agreements''). The requested exemption would cover the Interim 
Period, which would begin on the later of the Closing Date, or the date 
on which the requested order is issued and would continue through the 
earlier of (i) 150 days or (ii) the date on which the New Advisory 
Agreement is approved or disapproved by the Fund's shareholders (but in 
no event later than March 31, 1999).\2\ The requested exemption also 
would permit Scudder Kemper to receive all fees that it earns under the 
New Advisory Agreements during the Interim Period, upon approval of the 
New Advisory Agreements by the Fund's shareholders. Applicants 
represent that the New Advisory Agreements will have the same terms and 
conditions as the

[[Page 44482]]

Existing Advisory Agreements, except for the dates of execution and 
termination and, as applicable, the addition of certain break points in 
the fee structure.\3\
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    \2\ Applicants state that if the Closing Date precedes the 
issuance of the order, Scudder Kemper will serve as investment 
adviser after the Closing Date and prior to the issuance of the 
order in a manner consistent with its fiduciary duty to provide 
investment advisory services to the funds even though approval of 
the New Advisory Agreements has not yet been secured from the Funds' 
respective shareholders. Applicants submit that in such event 
Scudder Kemper will be entitled to receive from the Funds, with 
respect to the period from the Closing Date until the receipt of the 
order, no more than the actual out-of-pocket cost to Scudder Kemper 
for providing investment advisory services to the Funds.
    \3\ Applicants have determined that the addition of break points 
to certain of Scudder Kemper's Existing Advisory Agreements need not 
be approved by the shareholders of the affected Funds as the break 
points will only reduce the advisory fees otherwise payable by those 
Funds as each Fund's assets increase. See Limited Term Municipal 
Fund, Inc. (pub. avail. Nov. 17, 1992).
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    5. Applicants state that the board of directors of the Funds 
(collectively, ``Boards'') will hold a meeting prior to the Closing 
Date to consider and evaluate the New Advisory Agreements and determine 
whether the terms of the New Advisory Agreements are in the best 
interest of the Funds and their respective shareholders. Applicants 
state that at this meeting the Boards will receive from applicants all 
information reasonably necessary to evaluate whether the terms of the 
New Advisory Agreements are in the best interests of the Funds and 
their respective shareholders. Applicants state that each New Advisory 
Agreement will not be implemented unless (i) the respective Board, 
including in each case a majority of the board members who are not 
``interested persons,'' as that term is defined in section 2(a)(19) of 
the Act (``Independent Directors''), votes in accordance with section 
15(c) of the Act, to approve the New Advisory Agreement; and (ii) the 
Board votes to recommend that shareholders of the Fund approve the New 
Advisory Agreement.\4\
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    \4\ To the extent that a Fund's Board cannot meet prior to the 
Closing Date, applicants acknowledge that the Fund may not rely on 
the exemptive relief requested in the application.
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    6. Fees earned under the New Advisory Agreements during the Interim 
Period will be maintained in an interest-bearing escrow account with an 
unaffiliated bank. The escrow agent will release the amounts held in 
the escrow account (including any interest earned): (i) to Scudder 
Kemper, only upon approval of the New Advisory Agreements by the 
shareholders of the relevant Fund; or (ii) to the relevant Fund, in 
absence of approval by its shareholders. Before amounts are released 
from the escrow account, the Board will be notified.

Applicants' Legal Analysis

    1. Section 15(a) of the Act provides, in pertinent part, that it 
shall be unlawful for any person to serve or act as investment adviser 
of a registered investment company except pursuant to a written contact 
that has been approved by the vote of a majority of the outstanding 
voting securities of the registered investment company. Section 15(a) 
further requires that the written contract provide for its automatic 
termination in the event of its ``assignment.'' Section 2(a)(4) of the 
Act defines ``assignment'' to include any direct or indirect transfer 
of a contract by the assignor, or of a controlling block of the 
assignor's outstanding voting securities by a security holder of the 
assignor.
    2. Applicants state that the acquisition of voting securities of 
ZFS by Allied Zurich could be deemed to result in a change of control 
of Scudder Kemper. Applicants believe, therefore, that the Transaction 
may result in the ``assignment'' of the existing agreements, thus 
terminating the agreements pursuant to their terms and the Act.
    3. Rule 15a-4 under the Act provides, in pertinent part, that if an 
investment advisory contract with a registered investment company is 
terminated by assignment, the adviser may continue to serve for 120 
days under a written contract that has not been approved by the 
company's shareholders, provided that: (1) the new contract is approved 
by that company's board of directors (including a majority of non-
interested directors); (ii) the compensation to be paid under the new 
contract does not exceed the compensation that would have been paid 
under the contract most recently approved by the company's 
shareholders; and (iii) neither the adviser nor any controlling person 
of the adviser ``directly or indirectly receives money or other 
benefit'' in connection with the assignment. Applicant state that they 
nay not be entitled to rely on rule 15a-4 because of the benefits that 
Zurich and Scudder Kemper will receive from the Transaction.
    4. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or traction from any provision of the Act, if and 
to the extent that such 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.
    5. Applicants request an exemption under section 6(c) from section 
15(a) to permit the implementation, prior to shareholder approval, of 
New Advisory Agreements. Applicants state the timing of the Transaction 
was determined in response to a number of business concerns 
substantially unrelated to the Funds or Scudder Kemper. Applicants also 
state that there is not a sufficient opportunity prior to the Closing 
Date to secure prior approval of the New Advisory Agreements by the 
Funds' shareholders. Applicants assert that the granting of the 
requested order will ensure the continuity of investment advisory 
services to the Funds, and permit applicants to obtain sufficient 
shareholder response to proxy solicitations.
    6. Applicants submit that they take all appropriate actions to 
prevent any diminution in the scope of quality of services provided to 
the Funds during the Interim Period. Applicants state that the Existing 
Advisory Agreements were approved by the Boards and the shareholders of 
the Funds. Applicants represent that the New Advisory Agreements will 
have the same terms and conditions as the Existing Advisory Agreements, 
except for the dates of execution and termination, and as applicable, 
the addition of certain break points in the fee structure. Accordingly, 
applicants assert that each Fund will receive, during the Interim 
Period, substantially identical investment advisory and/or sub-advisory 
services, provided in the same manner, as it received prior to the 
Closing Date. Applicants state that, in the event there is any material 
change in the personnel providing services under the New Advisory 
Agreements during the Interim Period, Scudder Kemper will apprise and 
consult the Board of the affected Fund to assure that the Board, 
including a majority of Independent Directors, are satisfied that the 
services provided by Scudder Kemper will not be diminished in scope or 
quality.
    7. Applicants contend that to deprive Scudder Kemper of its 
customary fees during the Interim Period would be an unduly harsh and 
unreasonable penalty. Applicants note that the fees payable to Scudder 
Kemper under the New Advisory Agreements will not be released to 
Scudder Kemper by escrow agent without the approval of the Fund 
shareholders.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The New Advisory Agreements will contain the same terms and 
conditions as the Existing Advisory Agreements, except for the dates of 
execution and termination and, as applicable, the addition of certain 
break points in the fee structure.
    2. Fees earned by Scudder Kemper during the Interim Period will be 
maintained in an interest-bearing escrow account with an unaffiliated 
escrow agent, and amounts in the account (including interest earned on

[[Page 44483]]

such amounts) will be paid (a) to Scudder Kemper only upon approval of 
each New Advisory Agreement by a Fund's shareholder or (b) in the 
absence of such approval prior to the expiration of the Interim Period, 
to the Fund.
    3. Each Fund will promptly schedule a meeting of shareholders to 
vote on the approval of the New Advisory Agreements to be held within 
150 days following the commencement of the Interim Period (but in no 
event later than March 31, 1999).
    4. Applicants will pay the costs of preparing and filing the 
application and the costs relating to the solicitation of approval of 
Fund shareholders of the New Advisory Agreements necessitated by the 
Transaction.
    5. Applicants will take all appropriate steps to ensure that the 
scope and quality of investment advisory and other services provided to 
the Funds by Scudder Kemper during the Interim Period will be at least 
equivalent, in the judgment of the Boards, including a majority of 
Independent Directors, to the scope and quality of services currently 
provided by Scudder Kemper. In the event of any material change in the 
personnel providing services pursuant to the New Advisory Agreements, 
Scudder Kemper will apprise and consult with the Board of the affected 
Funds, to ensure that the Boards, including a majority of Independent 
Directors, are satisfied that the services provided will not be 
diminished in scope or quality.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-22296 Filed 8-18-98; 8:45 am]
BILLING CODE 8010-01-M