[Federal Register Volume 64, Number 85 (Tuesday, May 4, 1999)]
[Notices]
[Pages 23881-23883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11079]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23811; 812-11558]


Kemper Floating Rate Fund, et al.; Notice of Application

April 27, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940

[[Page 23882]]

(``Act'') for an exemption from sections 18(c) and 18(i) of the Act, 
under sections 6(c) and 23(c)(3) of the Act for an exemption from rule 
23c-3 under the Act, and pursuant to section 17(d) of the Act and rule 
17d-1 under the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered closed-end investment companies to issue multiple classes of 
shares, and impose asset-based distribution fees and early withdrawal 
charged.
    Applicants: Kemper Floating Rate Fund (``Fund''), Kemper 
Distributors, Inc. (``Distributor''), and Scudder Kemper Investments, 
Inc. (``Adviser'').
    Filing Dates: The application was filed on April 1, 1999. 
Applicants have agreed to file an amendment during the notice period, 
the substance of which is reflected 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 May 21, 
1999, 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 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, N.W., Washington, D.C. 
20549-0609; Applicants, 222 South Riverside Plaza, Chicago, Illinois 
60606.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574, or Christine Y. Greenlees, 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, 450 Fifth Street, N.W., Washington, D.C. 
20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Fund is a closed-end management investment company 
registered under the Act and organized as a Massachusetts business 
trust. The Adviser is registered under the Investment Advisers Act of 
1940 and will serve as investment adviser to the Fund. The Distributor, 
a broker-dealer registered under the Securities Exchange Act of 1934, 
will distribute the Fund's shares and provide certain administrative 
services to the Fund. Both the Adviser and the Distributor are indirect 
subsidiaries of Zurich Financial Services, Inc. Applicants request that 
the order also apply to any other registered closed-end investment 
company for which the Adviser or the Distributor or any entity 
controlling, controlled by, or under common control with the Adviser or 
the Distributor acts as investment adviser, principal underwriter, or 
administrator.\1\
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    \1\ Any registered closed-end investment company relying on this 
relief in the future will do so in a manner consistent with the 
terms and conditions of the application. Applicants represent that 
each investment company presently intending to rely on the relief 
requested in this application is listed as an applicant.
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    2. The Fund's investment objective is to seek as high a level of 
current income as is consistent with the preservation of capital. The 
Fund will invest primarily in senior secured floating rate loans made 
by commercial banks, investment banks and finance companies to 
commercial and industrial borrowers (``Loans''). Under normal 
circumstances, at least 80% of the Fund's total assets will be invested 
in Loans. Up to 20% of the Fund's total assets may be held in cash, or 
invested in fixed-rate debt obligations, short-to-medium-term notes, 
high yield securities, asset-backed securities, and equity securities.
    3. The Fund intends to continuously offer its shares to the public 
at net asset value. The Fund's shares will not be offered or traded in 
the secondary market and will not be listed on any exchange or quoted 
on any quotation medium. The Fund intends to operate as an ``interval 
fund'' pursuant to rule 23c-3 under the Act and make periodic 
repurchase offers to its shareholders.
    4. The Fund seeks the flexibility to be structured as a multiple-
class fund, although initially it will only offer one class of shares. 
The Fund will offer Class B Shares and may in the future offer Class C 
Shares with no front-end sales charge but subject to an early 
withdrawal charge (``EWC'') that declines over time to 0%. Class B 
Shares will automatically convert to Class A Shares six years from the 
date of purchase. The Fund may in the future offer Class A Shares with 
a front-end sales charge but with no EWC. Class A, Class B, and Class C 
Shares will be subject to an annual service fee of up to .25% of 
average daily net assets. Class B Shares may be subject to an annual 
distribution fee of up to .60% of average daily net assets. Class C 
Shares also may be subject to an asset-based distribution fee. 
Applicants represent that the service and distribution fees will comply 
with the provisions of rule 2830(d) of the Conduct Rules of the 
National Association of Securities Dealers, Inc. (``NASD'') as if the 
Fund were an open-end investment company. Applicants also represent 
that the Fund will disclose in its prospectus the fees, expenses and 
other characteristics of each class of shares offered for sale, as is 
required for open-end multi-class funds under Form N-1A.
    5. All expenses incurred by the Fund will be allocated among the 
various classes of shares based on the net assets of the Fund 
attributable to each class, except that the net asset value and 
expenses of each class will reflect distribution fees, service fees 
(including transfer agency fees), and any other incremental expenses 
attributable to that class. Expenses of the Fund allocated to a 
particular class of shares will be borne on a pro rata basis by each 
outstanding share of that class. The Fund may create additional classes 
of shares in the future that may have different terms from Class A, 
Class B, and Class C Shares. Applicants state that the Fund will comply 
with the provisions of rule 18f-3 as if it were an open-end fund.
    6. The Fund may waive the EWC for certain categories of 
shareholders or transactions to be established from time to time. With 
respect to any waiver of, scheduled variation in, or elimination of the 
EWC, the Fund will comply with rule 22d-1 under the Act as if the Fund 
were an open-end investment company.
    7. The Fund may offer its shareholders an exchange feature under 
which shareholders of the Fund may exchange their shares for shares of 
the same class of other funds in the Scudder Kemper group of investment 
companies. Any exchange option will comply with rule 11a-3 under the 
Act as if the Fund were an open-end investment company subject to that 
rule. In complying with rule 11a-3, the Fund will treat the EWC as if 
it were a contingent deferred sales charge (``CDSC'').

Applicants' Legal Analysis

Multiple Classes of Shares

    1. Section 18(c) of the Act provides, in relevant part, that a 
closed-end investment company may not issue or sell any senior security 
if, immediately thereafter, the company has outstanding more than one 
class of senior security. Applicants state that the creation of 
multiple classes of shares of the Fund may be prohibited by section 
18(c).

[[Page 23883]]

    2. Section 18(i) of the Act provides that each share of stock 
issued by a registered management company will be a voting stock and 
have equal voting rights with every other outstanding voting stock. 
Applicants state that multiple classes of shares of the Fund may 
violate section 18(i) of the Act because each class would be entitled 
to exclusive voting rights with respect to matters solely related to 
that class.
    3. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction 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. 
Applicants request an exemption under section 6(c) of the Act from 
sections 18(c) and 18(i) of the Act to permit the Fund to issue 
multiple classes of shares.
    4. Applicants submit that the proposed allocation of expenses and 
voting rights among multiple classes is equitable and will not 
discriminate against any group or class of shareholders. Applicants 
submit that the proposed arrangements would permit the Fund to 
facilitate the distribution of its securities and provide investors 
with a broader choice of shareholder services. Applicants asserts that 
their proposal does not raise the concerns underlying section 18 of the 
Act to any greater degree than open-end investment companies' multiple 
class structures that are permitted by rule 18f-3 under the Act. 
Applicants state that the Fund will comply with the provisions of rule 
18f-3 as if it were an open-end fund.

Early Withdrawal Charges

    5. Section 23(c) of the Act provides, in relevant part, that no 
registered closed-end fund will purchase any securities of which it is 
the issuer except: (a) on a securities exchange or other open market; 
(b) pursuant to tenders, after reasonable opportunity to submit tenders 
given to all holders of securities of the class to be purchased; or (c) 
under other circumstances as the SEC may permit by rules and 
regulations or orders for the protection of investors.
    6. Rule 23c-3 under the Act permits a registered closed-end fund 
(an ``interval fund'') to make repurchase offers of between five and 
twenty-five percent of its outstanding shares at net asset value at 
periodic intervals pursuant to a fundamental policy of the fund. Rule 
23c-3(b)(1) under the Act provides that an interval fund may deduct 
from repurchase proceeds only a repurchase fee, not to exceed two 
percent of the proceeds, that is reasonably intended to compensate the 
fund for expenses directly related to the repurchase.
    7. Section 23(c)(3) provides that the SEC may issue an order that 
would permit a closed-end investment company to repurchase its shares 
in circumstances in which the repurchase is made in a manner or on a 
basis which does not unfairly discriminate against any holders of the 
class or classes of securities to be purchased. As noted above, section 
6(c) provides that the SEC may exempt any person, security, or 
transaction from any provision of the Act, if and to the extent that 
the exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposed fairly 
intended by the policy and provisions of the Act. Applicants request 
relief under section 6(c) and 23(c) from rule 23c-3 to permit them to 
impose EWCs on shares submitted for repurchase that have been held for 
less than a specified period.
    8. Applicants believe that the requested relief meets the standards 
of sections 6(c) and 23(c)(3). Rule 6c-10 under the Act permits open-
end funds to impose deferred sales charges, subject to certain 
conditions. Applicants state that EWCs are functionally similar to 
CDSCs imposed by open-end funds under rule 6c-10 under the Act. 
Applicants state that EWCs may be necessary for the Distributor to 
recover distribution costs and the EWCs may discourage investors from 
moving their money quickly in and out of the Fund, a practice that 
applicants submit imposes costs on all shareholders. Applicants will 
comply with rule 6c-10 under the Act as if that rule applied to closed-
end funds. The Fund also will disclose EWCs in accordance with the 
requirements of Form N-1A concerning CDSCs. Applicants further state 
that the Fund will apply the EWC (and any waivers or scheduled 
variations of the EWC) uniformly to all shareholders in a given class 
and consistent with the requirements of rule 22d-1 under the Act.

Asset-based Distribution Fees

    9. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered 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 unless the SEC issues an order 
permitting the transaction. In reviewing applications submitted under 
section 17(d) and rule 17d-1, the SEC considers whether the 
participation of the investment company in a joint enterprise or joint 
arrangement is consistent with the provisions, policies, and purposes 
of the Act, and to the extent to which the participation is on a basis 
different from or less advantageous than that of other participants.
    10. Rule 17d-3 under the Act provides an exemption from section 
17(d) and rule 17d-1 to permit open-end funds to enter into 
distribution arrangements pursuant to rule 12b-1. Applicants also 
request an order under section 17(d) and rule 17d-1 to permit the Fund 
to impose asset-based distribution fees. Applicants have agreed to 
comply with rules 12b-1 and 17d-3 as if those rules applied to closed-
end investment companies.

Applicants' Condition

    Applicants agree that any order granting the requested relief will 
be subject to the following condition:
    Applicants will comply with the provisions of rules 6c-10, 11a-3, 
12b-1, 17d-3, 18f-3, and 22d-1 under the Act and NASD Conduct Rule 
2830(d), as amended from time to time, as if those rules applied to 
closed-end investment companies.

    For the SEC, by the Division of Investment Management, pursuant 
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-11079 Filed 5-3-99; 8:45 am]
BILLING CODE 8010-01-M