[Federal Register Volume 64, Number 147 (Monday, August 2, 1999)]
[Notices]
[Pages 41982-41983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19721]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23921; 812-11596]


Scudder New Europe Fund, Inc.; Notice of Application

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

ACTION: Notice of an application under sections 6(c) and 17(b) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 17(a) of the Act.

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SUMMARY OF APPLICATION: Scudder New Europe Fund, Inc. (the ``Fund'') 
seeks an order to permit in-kind redemptions of shares by certain 
affiliated shareholders of the Fund.

FILING DATES: The application was filed on April 29, 1999. Applicant 
has agreed to file an amendment to the application 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 Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on August 23, 1999, and should be accompanied by proof of service 
on the applicant, 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 Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, D.C. 20549-0609. Applicant, c/o Yvette M. 
Garcia, Esq., Willkie Farr & Gallagher, 787 Seventh Avenue, New York 
10019-6099.

FOR FURTHER INFORMATION CONTACT: George J. Zornada, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549-0102 (telephone (202) 942-8090).

Applicant's Representations

    1. The Fund, a Maryland corporation, is registered under the Act as 
a closed-end management investment company. On July 20, 1999, 
shareholders of the Fund approved a proposal to convert the Fund to an 
open-end management investment company (the ``Conversion''). The 
Conversion is expected to occur on or about September 1, 1999 
(``Conversion Date''). Scudder Kemper Investments, Inc. (the 
``Manager''), an investment adviser registered under the Investment 
Advisers Act of 1940, is investment adviser to the Fund.
    2. In conjunction with the Conversion, the Fund intends to combine 
with Kemper Europe Fund (``KEF''), a registered open-end management 
investment company, and change the Fund's name to Scudder Europe Fund, 
Inc. (the ``Reorganization'').\1\ The Fund's shareholders prior to the 
Conversion will have their shares redesignated as Class M shares of the 
Fund after the Conversion.
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    \1\ The Reorganization is subject to approval by KEF's 
shareholders. The Conversion is not contingent on the approval of 
the Reorganization by KEF's shareholders.
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    3. Applicant states that one shareholder currently owns 5% or more 
of the outstanding shares of the Fund, and is expected to own 5% or 
more of the Fund following the Conversion and the Reorganization. 
Applicant requests relief to permit the Fund to satisfy redemption 
requests made by any shareholder of the Fund who, at the time of such 
redemption request, is an ``affiliated person'' of the Fund solely by 
reason of owning, controlling, or holding with the power to vote, five 
percent or more of the Fund's shares (``Affiliated Shareholders'') by 
distributing portfolio securities in-kind.\2\ The board of directors of 
the Fund (``Board''), including all of the directors who are not 
``interested persons'' as defined in section 2(a)(19) of the Act 
(``Disinterested Directors''), has determined that it would be in the 
best interests of the Fund and its shareholders to pay to an Affiliated 
Shareholder the redemption price for its shares in-kind.\3\
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    \2\ The relief sought would not extend to shareholders who are 
``affiliated persons'' of the Fund within the meaning of sections 
2(a)(3)(B) through (F) of the Act (e.g. shareholders who are 
officers, directors or employees of the Fund, or shareholders who 
have a control relationship with the Fund).
    \3\ Upon Conversion, the Fund will elect to be governed by the 
provisions of rule 18f-1 under the Act. Election under rule 18f-1 
commits the Fund, during any 90-day period with respect to one 
shareholder, to redeem its shares in cash up to the lesser of 
$250,000 or one percent of the Fund's net asset value. Applicant 
states that with respect to Class M shareholders of the Fund, all 
redemption requests in excess of $500,000 will be redeemed in-kind 
during any 90-day period within the one-year period following the 
Conversion. The Fund will impose a 2% redemption fee on redemptions 
by Class M shareholders during the one-year period following the 
Conversion.
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Applicant's Legal Analysis

    1. Section 17(a)(2) of the Act prohibits an affiliated person of a 
registered investment company, or an affiliated person of such person, 
acting as principal, from knowingly purchasing any security or other 
property (except securities of which the seller is the issuer) from the 
registered investment company. Section 2(a)(3)(A) of the Act defines an 
``affiliated person'' to include any person owning 5% or more of the 
outstanding voting securities of the other person. Applicant states 
that to the extent that an in-kind redemption could be deemed to 
involve the purchase of portfolio securities (of which the Fund is not 
the issuer) by an Affiliated Shareholder, the proposed redemptions in-
kind would be prohibited by section 17(a)(2).

[[Page 41983]]

    2. Section 17(b) of the Act provides that, notwithstanding section 
17(a) of the Act, the Commission shall exempt a proposed transaction 
from section 17(a) if evidence establishes that: (a) the terms of the 
proposed transaction are reasonable and fair and do not involve 
overreaching; (b) the proposed transaction is consistent with the 
policy of each registered investment company involved; and (c) the 
proposed transaction is consistent with the general purposes of the 
Act.
    3. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction, or any class or classes of 
persons, securities or transactions, from the provisions of the Act, 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.
    4. Applicant requests an order under sections 6(c) and 17(b) of the 
Act to permit Affiliated Shareholders to redeem their shares in-kind. 
The requested order would not apply to redemptions by shareholders who 
are affiliated persons of the Fund within the meaning of sections 
2(a)(3)(B) through (F) of the Act.
    5. Applicant submits that the terms of the proposed in-kind 
redemptions by Affiliated Shareholders meet the standards set forth in 
sections 6(c) and 17(b) of the Act. Applicant asserts that neither the 
Manager nor an Affiliated Shareholders will have any choice as to the 
type of consideration to be received in connection with a redemption 
request, and neither the Manager nor the Affiliated Shareholder will 
have any opportunity to select the specific portfolio securities to be 
distributed. Applicant further states that the portfolio securities to 
be distributed in the proposed in-kind redemptions will be valued 
according to an objective, verifiable standard and the in-kind 
redemptions are consistent with the investment policies of the Fund. 
Applicant also states that the proposed in-kind redemptions are 
consistent with the general purposes of the Act because the Affiliated 
Shareholders would not receive any advantage not available to other 
redeeming shareholders.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    1. The securities distributed to Affiliated Shareholders and non-
Affiliated Shareholders pursuant to a redemption in-kind (the ``In-Kind 
Securities'') will be limited to securities that are traded on a public 
securities market or for which quoted bid and asked prices are 
available.
    2. The In-Kind Securities will be distributed on a pro rata basis 
after excluding: (a) securities which, if distributed, would be 
required to be registered under the Securities Act of 1933; (b) 
securities issued by entities in countries which restrict or prohibit 
the holdings of securities by non-nationals other than through 
qualified investment vehicles; and (c) certain portfolio assets (such 
as forward foreign currency exchange contracts, futures and options 
contracts, and repurchase agreements) that, although they may be liquid 
and marketable, involve the assumption of contractual obligations, 
require special trading facilities or can only be traded with the 
counterparty to the transaction in order to effect a change in 
beneficial ownership. Cash will be paid for that portion of the Fund's 
assets represented by cash equivalents (such as certificates of 
deposits, commercial paper and repurchase agreements) and other assets 
which are not readily distributable (including receivables and prepaid 
expenses), net of all liabilities (including accounts payable). In 
addition, cash will be distributed in lieu of portfolio securities not 
amounting to round lots (e.g., 100 shares) (or which would not amount 
to round lots if included in the in-kind distribution), or fractional 
shares and accruals on such securities.
    3. The Board, including a majority of the Disinterested Directors, 
will determine no less frequently than annually: (a) whether the In-
Kind Securities, if any, have been distributed in accordance with 
conditions 1 and 2 above; (b) whether the In-Kind Securities, if any, 
have been valued in accordance with condition 5 below; and (c) whether 
the distribution of any In-Kind Securities is consistent with the 
policies of the Fund as reflected in its prospectus. In addition, the 
Board shall make and approve such changes as it deems necessary in its 
procedures for monitoring compliance by the applicant with the terms 
and conditions of the application.
    4. The Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any redemption 
in-kind to an Affiliated Shareholder occurred, the first two years in 
an easily accessible place, a written record of each such redemption 
setting forth the terms of the distribution and the information or 
materials upon which the valuation was made.
    5. The In-Kind Securities will be valued in the same manner as they 
would be valued for the purposes of computing the Fund's net asset 
value per share, which, in the case of securities traded as a public 
securities market for which quotations are available, is their last 
reported sales price on the exchange on which the securities are 
primarily traded or at the last sales price on the national securities 
market, or, if the securities are not listed on an exchange or the 
national securities market or if there is no such reported price, the 
average of the most recent bid and asked price (or, if no such asked 
price is available, the last quoted bid price).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19721 Filed 7-30-99; 8:45 am]
BILLING CODE 8010-01-M