[Federal Register Volume 63, Number 199 (Thursday, October 15, 1998)]
[Notices]
[Pages 55418-55421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27624]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23482; 812-10828]


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

October 7, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 17(d) of the 
Investment Company Act of 1940 (the ``Act'') and rule 17d-1 under the 
Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered management investment companies to deposit their uninvested 
cash balances in joint accounts investing in short-term repurchase 
agreements.

APPLICANTS: Scudder Global Fund, Inc., Scudder International Fund, 
Inc., Scudder Institutional Fund, Inc., Scudder New Asia Fund, Inc., 
Scudder New Europe Fund, Inc., Scudder Global High Income Fund, Inc., 
The Argentina Fund, Inc., The Brazil Fund, Inc., Scudder Spain and 
Portugal Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc., 
Scudder California Tax Free Trust, Scudder Cash Investment Trust, 
Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder 
GNMA Fund, Scudder Investment Trust, Scudder Municipal Trust,

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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, AARP Growth Trust, 
AARP Income Trust, AARP Managed Investment Portfolios Trust, AARP Tax 
Free Income Trust and AARP Cash Investment Funds, (the ``Scudder 
Funds''), Kemper Equity Trust, Kemper Global/International Series, 
Inc., Kemper Securities Trust, Investor Fund Series (with the Scudder 
Funds, the ``Investment Companies''), Scudder Kemper Investments, Inc., 
(``SKI'') and Scudder Service Corporation (``Service Corp'').

FILING DATES: The application was filed on October 23, 1997. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is included in this notice.

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 November 4, 
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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants: c/o Philip H. Newman, Esq., Goodwin, Procter & Hoar LLP, 
Exchange Place, Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: John K. Forst, Attorney Advisor, at 
(202) 942-0569, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

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, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. Each Investment Company is organized as a Massachusetts business 
trust or Maryland corporation and registered under the Act as a 
management investment company.\1\ SKI, a Delaware corporation 
registered as an investment adviser under the Investment Advisers Act 
of 1940 (the ``Advisers Act''), serves as investment adviser to the 
Investment Companies. Service Corp., a wholly owned subsidiary of SKI, 
serves as transfer agent for the Scudder Funds.
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    \1\ Applicants requests that the relief also apply to any future 
series of the Investment Companies and all other registered 
management investment companies and their series that are advised by 
SKI or any person controlling, controlled by or under common control 
with SKI (``Future Funds''). Any Future Fund that relies on the 
requested order will do so only in accordance with the terms and 
conditions of the application.
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    2. At the end of each trading day, applicants expect that the 
Investment Companies will have uninvested cash balances in their 
accounts with their custodians that would not otherwise be invested in 
portfolio securities. All of the Investment Companies currently are 
authorized by their investment policies and restrictions to invest at 
least a portion of their uninvested cash balances in short-term 
investments, including repurchase agreements.
    3. Certain accounts also have been established by Service Corp., as 
transfer agent for each of the Scudder Funds, for money received by 
Service Corp. in connection with (a) the purchase of shares of the 
Scudder Funds prior to the purchase money being moved to the relevant 
custodian, (b) capital gains distributions payable by, or redemption 
proceeds from, the Scudder Funds, and (c) income dividends payable by 
the Scudder Funds (the ``TA Accounts'').
    4. Applicants propose to deposit certain uninvested cash balances 
in the Investment Companies that remain at the end of the trading day 
and are held by the custodians, cash in the TA Accounts, and cash for 
investment purposes, into one or more joint trading accounts and to 
invest the daily balance of the joint trading accounts in overnight in 
term repurchase agreements which are ``collateralized fully,'' as 
defined in rule 2a-7 under the Act (``Joint Accounts''). Cash in the TA 
Accounts will be deposited in Joint Accounts that invest in overnight 
repurchase agreements. Uninvested cash balances and cash for investment 
purposes will be deposited in Joint Accounts that invest in repurchase 
agreements with a remaining maturity of 60 days or less, calculated in 
accordance with rule 2a-7 under the Act (``Joint Repo Accounts''). A 
Joint Account would consist of a separate cash account established at a 
custodian bank.
    5. An Investment Company will invest through a Joint Account only 
to the extent that doing so is consistent with the Investment Company's 
investment objectives, policies and restrictions. An Investment 
Company's decision to use the Joint Accounts be based on the same 
factors as its decision to enter into any other repurchase agreement. 
The Investment Companies that are eligible and that elect to 
participate in a Joint Account are referred to as ``Participants.''
    6. SKI will not participate in the Joint Accounts and will receive 
no additional fee for administering them, but, with regard to assets 
invested by the Participants in the Joint Repo Accounts, will continue 
to receive from the Participants its asset-based advisory fee. SKI will 
be responsible for investing cash held by the Joint Accounts, 
establishing accounting and control procedures, and ensuring fair 
treatment of Participants.
    7. All purchases through the Joint Accounts will be subject to the 
same systems and standards for acquiring investments for individual 
participants. Any repurchase agreements entered into through the Joint 
Accounts will comply with the terms of Investment Company Act Release 
No. 13005 (February 2, 1983) and any other applicable future positions 
of the SEC or its staff regarding repurchase agreements.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, or an 
affiliated person of such person, from participating in any joint 
enterprise or arrangement in which such investment company is a 
participant, unless an application regarding the joint arrangement has 
been filed with and approved by the SEC. In passing on such 
applications, the SEC considers whether the participation of the 
registered investment company in the proposed joint arrangement is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which the participation is on a basis different from or 
less advantageous than that of other participants.
    2. Section 2(a)(3) of the Act defines an ``affiliated person'' of 
another person to include any person directly or indirectly owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person, as well as any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person, and in the case of an investment 
company, its investment adviser. Under section 2(a)(3) of the Act, the 
Participants may

[[Page 55420]]

be deemed ``affiliated persons'' because they may be deemed to be under 
the common control of SKI. Applicants state that the Participants, by 
participating in the Joint Accounts, and SKI, by managing the Joint 
Accounts, could be deemed to be ``joint participants'' in a transaction 
within the meaning of section 17(d)(1) of the Act. In addition, 
applicants state that the Joint Accounts could be deemed to be a 
``joint enterprise or other joint arrangement'' within the meaning of 
rule 17d-1 under the Act.
    3. Applicants request an order under section 17(d) and rule 17d-1 
permitting the proposed transactions. Applicants believe that no 
Participant will receive fewer relative benefits from the operation of 
the Joint Accounts than any other Participant. Applicants also believe 
that the operation of the Joint Accounts will not result in any 
conflicts of interest among Participants. Applicants state that each 
Participant's liability on any repurchase agreement held in a Joint 
Account will be limited to its interest in the repurchase agreement.
    4. Applicants believe that the proposed Joint Accounts could result 
in certain benefits to Participants. The Participants may earn a higher 
return on investments through the Joint Accounts relative to the 
returns they could earn individually. Under most market conditions, it 
is possible to negotiate a higher rate of return on larger repurchase 
agreements than the rate available on smaller repurchase agreements. In 
addition, the Joint Accounts may increase the number of dealers willing 
to enter into repurchase agreements with the Participants because 
larger denominations could be sold. The Joint Accounts also may result 
in certain administrative efficiencies and a reduction of the potential 
for errors by reducing the number of cash and securities transfers that 
must be processed in connection with repurchase agreements.
    5. For the reasons set forth above, applicants submit that the 
proposed Joint Accounts meet the criteria of rule 17d-1 for issuance of 
an order.

Applicant's Conditions

    Applicants will comply with the following as conditions to any 
order granted by the SEC:
    1. The Joint Accounts will not be distinguishable from any other 
accounts maintained by Participants at their custodians except that 
money from Participants will be deposited in the Joint Accounts on a 
commingled basis. The Joint Accounts will not have a separate existence 
and will not have indicia of a separate legal entity. The sole function 
of the Joint Accounts will be to provide a convenient way of 
aggregating individual transactions which would otherwise require daily 
management by SKI of uninvested cash balances.
    2. Cash in the Joint Accounts will be invested in overnight and 
term repurchase agreements that are ``collateralized fully'' as defined 
in rule 2a-7 under the Act and which will have a remaining maturity of 
60 days or less as calculated in accordance with rule 2a-7 under the 
Act. No Participant will be permitted to invest in a Joint Account 
unless the repurchase agreements in such Joint Account satisfy the 
investment policies and guidelines of that Participant.
    3. All assets held in the Joint Accounts will be valued on an 
amortized cost basis to the extent permitted by applicable SEC 
releases, rules or orders.
    4. Each Participant valuing its net assets in reliance on rule 2a-7 
under the Act will use the average maturity of the instruments in the 
Joint Accounts in which such Participant has an interest (determined on 
a dollar weighted basis) for the purpose of computing its average 
portfolio maturity with respect to its portion of the assets held in a 
Joint Account on that day.
    5. In order to assure that there will be no opportunity for any 
Participant to use any part of a balance of a Joint Account credited to 
another Participant, no Participant will be allowed to create a 
negative balance in any Joint Account for any reason, although each 
Participant will be permitted to draw down its entire balance at any 
time. Each Participant's decision to invest in a Joint Account will be 
solely at its option, and no Participant will be obliged to invest in 
the Joint Accounts or to maintain any minimum balance in the Joint 
Accounts. In addition, each Participant will retain the sole rights of 
ownership of any of its assets invested in the Joint Accounts, 
including interest payable on such assets invested in the Joint 
Accounts.
    6. SKI will administer the investment of cash balances in and 
operation of the Joint Accounts as part of its general duties under its 
advisory agreements with Participants and will not collect any 
additional or separate fees for providing such services.
    7. The administration of the Joint Accounts will be within the 
fidelity bond coverage required by section 17(g) of the Act and rule 
17g-1 under the Act.
    8. The board of directors or trustees of each Participant (the 
``Board'') will adopt procedures pursuant to which the Joint Accounts 
will operate, which will be reasonably designed to provide that the 
requirements of the application will be met. Each Board will make and 
approve such changes as they deem necessary to ensure that such 
procedures are followed. In addition, each Board will determine, no 
less frequently than annually, that the Joint Accounts have been 
operated in accordance with the procedures adopted and will only permit 
a Participant to continue to participate therein if it determines that 
there is a reasonable likelihood that the Participant and its 
shareholders will benefit from continued participation.
    9. SKI and the custodian of each Participant will maintain records 
documenting, for any given day, each Participant's aggregate investment 
in a Joint Account and each Participant's pro rata share of each 
investment made through such Joint Account. The records maintained for 
each Participant shall be maintained in conformity with Section 31 of 
the Act and the rules and regulations thereunder.
    10. Every Participant in the Joint Accounts will not necessarily 
have its cash invested in every repurchase agreement. However, to the 
extent that a Participant's cash is applied to a particular repurchase 
agreement, the Participant will participate in and own its 
proportionate share of such repurchase agreement, and any income earned 
or accrued thereon, based upon the percentage of such investment 
purchased with money contributed by the Participant.
    11. Each repurchase agreement held in a Joint Account generally 
will be held to maturity, except if: (i) SKI believes the investment no 
longer presents minimal credit risks; (ii) the investment no longer 
satisfies the investment criteria of all Participants in the investment 
because of a credit downgrade or otherwise; or (iii) the counterparty 
to such repurchase agreement defaults. SKI may, however, sell any 
repurchase agreement (or any fractional portion thereof) on behalf of 
some or all Participants prior to the maturity of the investment if the 
cost of such transaction will be borne solely by the selling 
Participants and the transaction will not adversely affect other 
Participants participating in that Joint Account. In no case will an 
early termination by less than all Participants be permitted if it 
would reduce the principal amount or yield received by other 
Participants in a particular Joint Account or otherwise adversely 
affect the other Participants. Each Participant in a Joint Account will 
be deemed to have consented to such sale and

[[Page 55421]]

partition of the investment in the Joint Account.
    12. Repurchase agreements held through a Joint Account with a 
remaining maturity of more than seven days, as calculated pursuant to 
rule 2a-7 under the Act, will be considered illiquid and subject to the 
restriction that a Participant may not invest more than 15% or, in the 
case of a money market fund, 10% (or such other percentage as set forth 
by the SEC from time to time) of its net assets in illiquid securities, 
and any similar restrictions set forth in the Fund's investment 
restrictions and policies, if SKI cannot sell the instrument, or a 
Participant's fractional interest in such instrument, pursuant to the 
preceding condition.
    13. The Joint Accounts will be established as one or more separate 
cash accounts on behalf of the Participants at a custodian bank. Each 
Participant may deposit daily all or a portion of its uninvested cash 
balances into the Joint Accounts. Each Participant whose regular 
custodian is a custodian other than the bank at which a proposed Joint 
Account would be maintained, and that wishes to participate in the 
Joint Account, would appoint the latter bank as a separate custodian 
for the limited purposes of: (a) receiving and disbursing cash; (b) 
holding any securities that are the subject of a repurchase agreement; 
and (c) holding any collateral received from a transaction effected 
through a Joint Account. Each Participant that appoints such a 
custodian will have taken all necessary actions to authorize such bank 
as its legal custodian, including all actions required under the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27624 Filed 10-14-98; 8:45 am]
BILLING CODE 8010-01-M