[Federal Register Volume 64, Number 190 (Friday, October 1, 1999)]
[Notices]
[Pages 53426-53428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-25502]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24052; 812-11784]


Daewoo Capital Management Co., Ltd., et al.; Notice of 
Application

September 24, 1999.

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``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 a new investment 
subadvisory agreement (``New Agreement'') for a period continuing until 
the New Agreement is approved or disapproved by shareholders of the 
investment company (but in no event later than December 31, 1999).
    Applicants: Daewoo Capital Management Co., Ltd. (``Subadviser'') 
and Scudder Kemper Investments, Inc. (``Adviser'').
    Filing Date: The application was filed on September 24, 1999.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested person 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 Commission by 
5:30 p.m. on October 18, 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 the issues 
contested. Persons may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants: c/o Adviser, Attn: 
Bruce H. Goldfarb, Esq., 345 Park Avenue, New York, NY 10154.

FOR FURTHER INFORMATION CONTACT:
Rachel H. Graham, Senior Counsel, at (202) 942-0583, or Mary Kay Frech, 
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, NW, 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Korea Fund, Inc. (``Fund'') is registered under the Act as a 
closed-end management investment company. The Adviser is registered 
under the Investment Advisers Act of 1940 (``Advisers Act'') and serves 
as investment adviser to the Fund.
    2. The Subadviser, a Korean corporation and a subsidiary of Daewoo 
Securities Co., Ltd. (``Daewoo Securities''), is registered as an 
investment adviser under the Advisers Act. The Subadviser serves as 
subadviser to the Fund pursuant to an investment subadvisory agreement 
with the Adviser (``Existing Agreement''). The Adviser pays the 
Subadviser out of the fee that the Adviser receives from the Fund.
    3. Prior to August 30, 1999, approximately 15% of the common stock 
of Daewoo Securities was owned by Daewoo Corporation and certain of its 
affiliates which are members of the Daewoo Group, a Korean chaebol. 
Because of financial difficulties, certain members of the Daewoo Group 
agreed on August 30, 1999 to transfer their interests in Daewoo 
Securities to a group of six Korean creditor banks. As a result of this 
transfer, the six banks jointly acquired ownership of approximately 
14.4% of the outstanding common stock of Daewoo Securities. On 
September 7, 1999, Daewoo Securities conducted a rights issuance 
pursuant to which the six Korean banks and three additional Korean 
banks (collectively, the ``Creditor Banks'') subscribed on an 
individual basis to each acquire, on September 21, 1999 (``Acquisition 
Date''), newly issued shares of common stock of Daewoo Securities. The 
Creditor Banks also agreed to each acquire, on an individual basis, 
additional shares of Daewoo Securities stock through third-party 
allotments. The two acquisitions by the Creditor Banks collectively are 
referred to as the ``Acquisition.'' Upon completion of the Acquisition, 
the Creditor Banks will own in the aggregate approximately 32.58% of 
the common stock of Daewoo Securities. The proposed terms and timing of 
the Acquisition were not available to the Subadviser until 
approximately September 9, 1999 and to

[[Page 53427]]

the Adviser until approximately September 13, 1999.
    4. Applicants understand that the Creditor Banks have agreed to act 
in concert in certain respects as to their holdings in Daewoo 
Securities. Applicants state that the Acquisition may involve the 
transfer of a controlling block of Daewoo Securities stock by certain 
members of the Daewoo Group and the acquisition of a controlling block 
of that stock by the Creditor Banks. Applicants state that the 
Acquisition therefore may result in an assignment, and thus the 
automatic termination, of the Existing Agreement. Applicants request an 
exemption to permit the implementation, during the Interim Period and 
prior to obtaining shareholder approval, of the New Agreement. The 
requested exemption would cover a period commencing on the filing date 
of the application \1\ and continuing until the New Agreement is 
approved or disapproved by Fund shareholders (but in no event later 
than December 31, 1999) (``Interim Period''). The requested order also 
would permit the Subadviser to receive from the adviser all fees earned 
under the New Agreement during the Interim Period, if and to the extent 
that the New Agreement is approved by Fund shareholders. Applicants 
represent that the New Agreement will contain substantially the same 
terms and conditions as the Existing Agreement, except for the 
effective and termination dates. Applicants further represent that the 
Fund will receive, during the Interim Period, the same scope and 
quality of investment subadvisory services, provided in the same manner 
by substantially the same personnel, at the same fee levels as it 
received prior to the Acquisition.
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    \1\ Applicants state that, since the Acquisition Date precedes 
issuance of the requested order, the Subadviser will continue to 
serve as subadviser after the Acquisition Date (and prior to the 
issuance of the order) in a manner consistent with its fiduciary 
duty to provide investment subadvisory services to the Fund even 
though approval of the New Agreement has not yet been secured from 
the Fund's shareholders.
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    5. Applicants state that the Fund's board of directors (``Board'') 
will meet within one week of the Acquisition Date to consider approval 
of the New Agreement and submission of the New Agreement to the 
shareholders for their approval, in accordance with section 15(c) of 
the Act.\2\ Applicants state that the Board will evaluate whether the 
terms of the New Agreement are in the best interests of the Fund and 
its shareholders.
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    \2\ Applicants acknowledge that, to the extent that the Board 
has not met to approve the New Agreement prior to the Acquisition 
Date, any relief granted by the Commission will allow the Subadviser 
to receive fees under the New Agreement only for the period 
following approval of the New Agreement by the Board, including a 
majority of the directors who are not ``interested persons'' of the 
Fund, as that term is defined in section 2(a)(19) of the Act 
(``Independent Directors''), but in no event earlier than the filing 
date of the application.
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    6. Applicants submit that it will not be possible to obtain 
shareholder approval of the New Agreement in accordance with section 
15(a) of the Act prior to the Acquisition Date. Applicants state that 
the shareholders will vote on approval of the New Agreement at the 
annual meeting previously scheduled to be held on October 20, 1999. 
Proxy materials concerning the shareholder vote on the New Agreement 
will be mailed on or about October 5, 1999.
    7. The fees earned by the Subadviser under the New Agreement during 
the Interim Period will be maintained in an interest-bearing escrow 
account with an unaffiliated financial institution. The amounts in the 
escrow account (including any interest earned) will be paid: (i) to the 
Subadviser upon approval of the New Agreement by the Fund's 
shareholders; or (ii) to the Fund, if shareholder approval is not 
obtained and the Interim Period has ended. Before any such release is 
made, the Board will be notified.

Applicant's Legal Analysis

    1. Section 15(a) of the Act provides, in relevant part, that it is 
unlawful for any person to serve as an investment adviser to a 
registered investment company, except pursuant to a written contract 
that has been approved by the vote of a majority of the outstanding 
voting securities of the investment company. Section 15(a) further 
requires the written contract to 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 
controlling block of the assignor's outstanding voting securities by a 
security holder of the assignor. Section 2(a)(9) of the Act defines 
``control'' as the power to exercise a controlling influence over the 
management or policies of a company, and beneficial ownership of more 
than 25% of the voting securities of a company is presumed under 
Section 2(a)(9) to reflect control. Applicants state that the 
Acquisition may result in an assignment of the Existing Agreement and 
that such agreement will terminate according to its terms.
    2. Rule 15a-4 under the Act provides, in relevant part, that if an 
investment advisory contract with a registered investment company is 
terminated by an 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: (i) the new contract is approved 
by that company's board of directors, including a majority of the 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. The Subadviser states that 
it may not rely on rule 15a-4 because of the benefits to Daewoo 
Securities arising from the Acquisition.
    3. Section 6(c) of the Act provides that the Commission 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 both the protection of 
investors and the purposes fairly intended by the policy and provisions 
of the Act. The Subadviser believes that the requested relief meets 
this standard.
    4. Applicants state that the terms and timing of the Acquisition 
were determined in response to a number of factors beyond the scope of 
the Act and substantially unrelated to the Fund. Applicants state that 
it will not be possible for the Fund to obtain shareholder approval of 
the New Agreement prior to the Acquisition Date. Applicants assert that 
the requested relief would prevent any disruption in the delivery of 
investment subadvisory services to the Fund during the Interim Period.
    5. Applicants submit that they will take all appropriate actions to 
ensure that the scope and quality of advisory and other services 
provided to the Fund during the Interim Period will be at least 
equivalent to the scope and quality of services previously provided. 
During the Interim Period, the Subadviser will operate under the New 
Agreement, which will be substantially the same as the Existing 
Agreement, except for the effective and termination dates. Applicants 
state that the fees payable to the Subadviser under the New Agreement 
during the Interim Period will be at the same rate as the fees paid 
under the Existing Agreement.

[[Page 53428]]

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The New Agreement will contain substantially the same terms and 
conditions as the Existing Agreement, except for the dates of execution 
and termination.
    2. The fees earned by the Subadsviser under the New Agreement 
during the Interim Period will be maintained in an interest-bearing 
escrow account (including interest earned on such amounts), and amounts 
in the account will be paid: (i) to the Subadviser after the requisite 
approval of the New Agreement by the Fund's shareholders is obtained; 
or (ii) in the absence of such approval by the end of the Interim 
Period, to the Fund.
    3. The shareholders of the Fund will vote on the approval of the 
New Agreement at the annual meeting scheduled to be held on October 20, 
1999, or any adjournment thereof (but in no event later than December 
31, 1999).
    4. The Subadviser or its affiliates will pay the costs of preparing 
and filing the application and the costs relating to the solicitation 
and approval of the Fund's shareholders of the New Agreement.
    5. The Subadviser will take all appropriate actions to ensure that 
the scope and quality of subadvisory and other services provided to the 
Fund by the Subadviser during the Interim Period under the New 
Agreement will be at least equivalent, in the judgment of the Board, 
including a majority of the Independent Directors, to the scope and 
quality of services currently provided under the Existing Agreement. In 
the event of any material change in personnel providing services 
pursuant to the New Agreement during the Interim Period, the Subadviser 
will apprise and consult with the Board to assure that the Board, 
including a majority of the Independent Directors, is satisfied that 
the services provided by the Subadviser 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. 99-25502 Filed 9-30-99; 8:45 am]
BILLING CODE 8010-01-M