[Federal Register Volume 64, Number 230 (Wednesday, December 1, 1999)]
[Notices]
[Pages 67357-67362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-31162]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24174; 812-11700]


Scudder California Tax Free Trust, et al.; Notice of Application

November 23, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under the Investment Company 
Act of 1940 (the ``Act'') under (i) section 6(c) of the Act granting an 
exemption from sections 18(f) and 21(b) of the Act; (ii) section 
12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of 
the Act; (iii) sections 6(c) and 17(b) of the Act granting an exemption 
from sections 17(a)(1) and 17(a)(3) of the Act; and (iv) section 17(d) 
of the Act and rule 17d-1 under the Act to permit certain joint 
arrangements.

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    Summary of Application: Applicants request an order that would 
permit certain registered investment companies to participate in a 
joint lending and borrowing facility.
    Applicants: Scudder California Tax Free Trust, Scudder Cash 
Investment Trust, Schudder Fund, Inc., Scudder Funds Trust, Scudder 
GNMA Fund, 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, Farmers Investment 
Trust, Global/International Fund, Inc., Investment Trust, Value Equity 
Trust, The Japan Fund, Inc. (collectively, the ``Scudder Funds''), AARP 
Cash Investment Funds, AARP Growth Trust, AARP Income Trust, AARP 
Managed Investment Portfolios Trust, AARP Tax Free Income Trust 
(collectively, the ``AARP Funds''), Cash Account Trust, Cash Equivalent 
Fund, Investors Cash Trust, Investors Municipal Cash Fund, Kemper 
Aggressive Growth Fund, Kemper Asian Growth Fund, Kemper Blue Chip 
Fund, Kemper Equity Trust, Kemper Europe Fund, Kemper Floating Rate 
Fund, Kemper Funds Trust, Kemper Global Income Fund, Kemper Global/
International Series, Inc., Kemper Growth Fund, Kemper High Yield 
Series, Kemper Horizon Fund, Kemper Income and Capital Preservation 
Fund, Kemper Income Trust, Kemper International Fund, Kemper National 
Tax-Free Income Series, Kemper Portfolios, Kemper Securities Trust, 
Kemper Short-Term US Government

[[Page 67358]]

Fund, Kemper Small Capitalization Equity Fund, Kemper State Tax-Free 
Income Series, Kemper Strategic Income Fund, Kemper Target Equity Fund, 
Kemper Technology Fund, Kemper Total Return Fund, Kemper U.S. 
Government Securities Fund, Kemper Value Plus Growth Fund, Kemper Value 
Series, Inc., Kemper Variable Series, Tax-Exempt California Money 
Market Fund, Zurich Money Funds, Zurich Yieldwise Money Fund 
(collectively, the ``Kemper Funds'' and, together with the Scudder 
Funds and the AARP Funds, the ``Investment Companies''), Scudder Kemper 
Investments, Inc. (``Scudder Kemper''), and all other open-end 
registered investment companies and their series that are advised by 
Scudder Kemper or a person controlling, controlled by, or under common 
control with Scudder Kemper (together with the Investment Companies, 
the ``Funds'').\1\
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    \1\ All existing Funds that currently intend to rely on the 
requested order are named as applicants, and any Fund that relies on 
the order in the future will comply with the terms and conditions of 
the application.

    Filing Dates: The application was filed on July 16, 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 requested 
relief 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 December 
20, 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 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-
0609.
    Applicants: AARP Funds, Two International Place, Boston, 
Massachusetts 02110; Scudder Funds, Two International Place, Boston, 
Massachusetts 02110 or 345 Park Avenue, New York, New York 10154; 
Kemper Funds, 222 South Riverside Plaza, Chicago, Illinois 60606; 
Scudder Kemper, 345 Park Avenue, New York, New York 10154.

FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, 
(202) 942-7120, or Mary Kay Frech, Branch Chief, (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 5th Street, NW, Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each Investment Company is registered under the Act as an open-
end management investment company and is organized either as a Maryland 
corporation or a Massachusetts business trust. Scudder Kemper is 
registered under the Investment Advisers Act of 1940 and serves as 
investment adviser to the Funds.
    2. Some Funds may lend money to banks to other entities by entering 
into repurchase agreements, either directly or through a joint account. 
Under an existing order, each Fund can deposit its uninvested daily 
cash balances into a joint account administered by Scudder Kemper 
(``Joint Account'').\2\ The funds in the Joint Account are used to 
enter into repurchase agreements. Scudder Kemper determines the amount 
of cash balances to be invested in the Joint Account each day, and 
receives no additional compensation for managing the Joint Account. In 
addition, the Funds and Scudder Kemper have filed and application for 
an order to permit certain non-money market Funds to use their 
uninvested cash to purchase shares of certain affiliated funds for cash 
management purposes (collectively, the ``Central Funds'').
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    \2\ Scudder Global Fund, Inc., Investment Company Act Release 
Nos. 23482 (Oct. 7, 1998) (notice) and 23525 (Nov. 5, 1998) (order).
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    3. Other Funds may borrow money from the same or other banks for 
temporary purposes, such as to satisfy redemption requests. Currently, 
most Funds have a committed line of credit with certain banks through 
which each Fund may borrow money for temporary or emergency purposes, 
including funding shareholder redemptions and the payment of dividends 
(``Committed Credit Facility''). The rate of interest paid by the Funds 
when they borrow under the Committed Credit Facility is significantly 
higher than the rate of interest earned on repurchase agreements 
entered into by the Funds. Applicants state that this differential 
represents the bank's profit for serving as a middleman between a 
borrower and lender.
    4. Applicants request an order that would permit the Funds to enter 
into lending agreements under which the Funds would lend and borrow 
money for temporary purposes directly to and from each other through a 
credit facility (``Proposed Credit Facility''). Applicants believe that 
the Proposed Credit Facility would substantially reduce the Funds' 
potential borrowing costs and enhance their ability to earn higher 
rates of interest on short-term lendings. Although the Proposed Credit 
Facility would substantially reduce the Funds' need to borrow from 
banks, bank loans will continue to be available to the Funds.
    5. Applicants anticipate that the Proposed Credit Facility would 
provide the Funds with significant savings when the cash position of 
any Fund is insufficient to meet temporary cash requirements. This 
situation could arise when redemptions exceed anticipated volumes and 
the Funds have insufficient cash on hand to satisfy such redemptions. 
When the Funds liquidate portfolio securities to meet redemption 
requests, which normally are effected immediately, they often do not 
receive payment in settlement for up to three days (or longer for 
certain foreign transactions). The Proposed Credit Facility would 
provide a source of immediate, short-term liquidity pending settlement 
of the sale of portfolio securities.
    6. While borrowing arrangements with banks will continue to be 
available to cover unanticipated redemptions, under the Proposed Credit 
Facility a borrowing Fund would pay lower interest rates than those 
offered by banks on short-term loans. In addition, Funds making short-
term loans directly to other Funds would earn interest at a rate higher 
than they otherwise could obtain from investing their cash in 
repurchase agreements or the Central Funds. Thus, applicants believe 
that the Proposed Credit Facility would benefit both borrowing and 
lending Funds.
    7. The interest rate charged to the Funds on any loan under the 
Proposed Credit Facility (the ``Interfund Loan Rate'') would be the 
average of the current overnight repurchase agreement rate available 
through the Joint Account (the ``Joint Account Repo Rate'') and a 
single benchmark rate set for all Funds. The benchmark rate would be 
calculated by Scudder Kemper each day that a Fund borrows or lends, 
according to a formula established by each Fund's board of directors or 
trustees (collectively, ``Boards'') to approximate the lowest interest 
rate at which bank loans would be available to the Funds (``Bank Loan 
Rate''). The formula would

[[Page 67359]]

be based upon a publicly available rate and would vary with this rate 
so as to reflect changing bank loan rates. Each Fund's Board 
periodically would review the continuing appropriateness of using the 
formula to determine the Bank Loan Rate, as well as the relationship 
between the Bank Loan Rate and current Bank loan rates that would be 
available to the Funds. The initial formula and any subsequent 
modifications to the formula would be subject to the approval of each 
Fund's Board.
    8. The Proposed Credit Facility would be administered by the 
officers and employees of Scudder Kemper responsible for overseeing 
short-term trading for the Joint Account (including a money market Fund 
portfolio manager) (``Cash Management Group''). A Fund would not 
participate in the Proposed Credit Facility as a lender unless it also 
elected to participate in the Joint Account or, in the case of money 
market Funds, unless the fund would invest on any given day in the 
Joint Account. Under the proposed Credit Facility, the portfolio 
managers for each participating Fund, other than the money market 
Funds, may provide standing instructions to participate daily as a 
borrower or lender. As in the case of the Joint Account, the Cash 
Management Group on each business day would collect data on the 
uninvested cash and borrowing requirements of all participating Funds, 
other than the money market Funds, from the Funds' custodians. The 
portfolio managers for the money market Funds would inform the Cash 
Management Group directly each day of the amount of cash, if any, they 
wished to make available under the Proposed Credit Facility as a 
lender. The money market Funds typically would not participate as a 
borrower because they rarely need to borrow cash to meet redemptions. 
Once it had determined the aggregate amount of cash available for loans 
and borrowing demand, the Cash Management Group would allocate loans 
among borrowing Funds without any further communication from portfolio 
managers. Applicants expect far more available uninvested cash each day 
than borrowing demand. After allocating cash for interfund loans, the 
Cash Management Group will inform the money market Fund managers of the 
amount of loans, if any, made for each money market Fund so that the 
Fund managers may invest any remaining cash in the Joint Account or 
other available instruments. With respect to other participating Funds, 
the Cash Management Group will follow standing instructions from the 
portfolio managers to invest the remaining amounts daily through the 
Joint Account.
    9. The Cash Management Group would allocate borrowing demand and 
cash available for lending among the Funds on what it believes to be an 
equitable basis, subject to certain administrative procedures 
applicable to all Funds, such as the time of filing requests to 
participate, minimum loan lot sizes, and the need to minimize the 
number of transactions and associated administrative costs. To reduce 
transaction costs, each loan normally would be allocated in a manner 
intended to minimize the number of participants necessary to complete 
the loan transaction. The method of allocation and related 
administrative procedures would be approved by each Fund's Board, 
including a majority of directors who are not ``interested persons'' of 
the Funds, as defined in section 2(a)(19) of the Act (``Independent 
Directors''), to ensure that both borrowing and lending Funds 
participate on an equitable basis.
    10. Scudder Kemper would (i) monitor the interest rates charged and 
the other terms and conditions of the loans, (ii) limit the borrowings 
and loans entered into by each Fund to ensure that they comply with the 
Fund's investment policies and limitations, (iii) ensure equitable 
treatment of each Fund, and (iv) make quarterly reports to the Boards 
of the Funds concerning any transactions by the Funds under the 
Proposed Credit Facility and the interest rates charged. Scudder Kemper 
would administer the Proposed Credit Facility as part of its duties 
under its existing management or advisory and service contract with 
each Fund and would receive no additional fee as compensation for its 
services.
    11. Each Fund's participation in the Proposed Credit Facility will 
be consistent with its organizational documents and its investment 
policies and limitations. The current investment limitations of certain 
Funds provide that they may borrow money as a temporary measure for 
extraordinary or emergency purposes in amounts up to 33\1/3\% of total 
assets in order to meet redemption requests. To the extent the 
fundamental investment limitations of a Fund are inconsistent with 
participation in the Proposed Credit Facility, the fund would seek 
shareholder approval, where necessary, to participate in the Proposed 
Credit Facility. No Fund would be permitted to participate in the 
Proposed Credit Facility unless the Fund had fully disclosed all 
material information concerning the Proposed Credit Facility in its 
prospectus and/or statement of additional information (``SAI'').
    12. In connection with the Proposed Credit Facility, applicants 
request an order under (i) section 6(c) of the Act granting relief from 
sections 18(f) and 21(b) of the Act; (ii) section 12(d)(1)(J) of the 
Act granting relief from section 12(d)(1) of the Act; (iii) sections 
6(c) and 17(b) of the Act granting relief from sections 17(a)() and 
17(a)(3) of the Act; and (iv) section 17(d) of the Act and rule 17d-1 
under the Act to permit certain joint arrangements.

Applicants' Legal Analysis

    1. Section 17(a)(3) generally prohibits any affiliated person, or 
affiliated person of an affiliated person, from borrowing money or 
other property from a registered investment company. Section 21(b) 
generally prohibits any registered management investment company from 
lending money or other property to any person if that person controls 
or is under common control with the company. Section 2(a)(3)(C) of the 
Act defines an ``affiliated person'' of another person, in part, to be 
any person directly or indirectly controlling, controlled by, or under 
common control with, the other person. Applicants state that the Funds 
may be under common control by virtue of having Scudder Kemper as their 
common investment adviser and, in some instances, the same Board.
    2. Section 6(c) provides that an exemptive order may be granted 
where an 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. Section 17(b) 
authorizes the SEC to exempt a proposed transaction from section 17(a) 
provided that the terms of the transaction, including the consideration 
to be paid or received, are fair and reasonable and do not involve 
overreaching on the part of any person concerned, and the transaction 
is consistent with the policy of the investment company as recited in 
its registration statement and with the general purposes of the Act. 
Applicants believe that the proposed arrangements satisfy these 
standards for the reasons discussed below.
    3. Applicants submit that sections 17(a)(3) and 21(b) of the Act 
were intended to prevent a person with strong potential adverse 
interests to and some influence over the investment decisions of a 
registered investment company from causing or inducing the investment 
company to engage in lending transactions that unfairly inure to the 
benefit of that person and that are detrimental to the best interests 
of the investment company and its

[[Page 67360]]

shareholders. Applicants assert that the Proposed Credit Facility 
transactions do not raise these concerns because (i) Scudder Kemper 
will administer the program as a disinterested fiduciary; (ii) all 
interfund loans will consist only of uninvested cash balances that the 
Fund otherwise would invest in short-term repurchased agreements or 
other short-term instruments either directly or through the Joint 
Account; (iii) the interfund loans will not involve a greater risk than 
other similar investments; (iv) the lending Fund will receive interest 
at a rate higher than it could obtain through other similar 
investments; and (v) the borrowing Fund will pay interest at a rate 
lower than otherwise available to it under its bank loan agreements and 
avoid the up-front commitment fees associated with committed line of 
credit. Moreover, applicants believe that the other conditions in the 
application would effectively preclude the possibility of any Fund 
obtaining an undue advantage over any other Fund.
    4. Section 17(a)(1) generally prohibits an affiliated person of a 
registered investment company, or an affiliated person of an affiliated 
person, from selling any securities or other property to the company. 
Section 12(d)(1) of the Act generally makes it unlawful for a 
registered investment company to purchase or otherwise acquire any 
security issued by any other investment company except in accordance 
with the limitations set forth in that section. Applicants believe that 
the obligation of a borrowing Fund to repay an Interfund Loan may 
constitute a security under sections 17(a)(1) and 12(d)(1). Section 
12(d)(1)(J) provides that the SEC may exempt persons or transactions 
from any provision of section 12(d)(1) if and to the extent such 
exception is consistent with the public interest and the protection of 
investors. Applicants contend that the standards under section 6(c), 
17(b) and 12(d)(1) are satisfied for all the reasons set forth above in 
support of their request for relief from sections 17(a)(3) and 21(b) 
and for the reasons discussed below.
    5. Applicants state that section 12(d) was intended to prevent the 
pyramiding of investment companies in order to avoid duplicative costs 
and fees attendant upon multiple layers of investment companies. 
Applicants submit that the Proposed Credit Facility does not involve 
these abuses. Applicants note that there would be no duplicate costs or 
fees to the Funds or shareholders, and that Scudder Kemper would 
receive no additional compensation for its services in administering 
the Proposed Credit Facility. Applicants also note that the purpose of 
the Proposed Credit Facility is to provide economic benefits for all 
the participating Funds.
    6. Section 18(f)(1) prohibits open-end investment companies from 
issuing any senior security except that a company is permitted to 
borrow from any bank, if immediately after the borrowing, there is an 
asset coverage of a least 300 per cent for all borrowing of the 
company. Under section 18(g) of the Act, the term ``senior security'' 
includes any bond, debenture, note, or similar obligation or instrument 
constituting a security and evidencing indebtedness. Applicants request 
exemptive relief from section 18(f)(1) to the limited extent necessary 
to implement the Proposed Credit Facility (because the lending Funds 
are not banks).
    7. Applicants believe that granting relief under section 6(c) is 
appropriate because the Funds would remain subject to the requirement 
of section 18(f)(1) that all borrowings of the Fund, including combined 
credit facility and bank borrowings, have a least 300% asset coverage. 
Based on the conditions and safeguards described in the application, 
applicants also submit that to allow the Funds to borrow from other 
Funds under the Proposed Credit Facility is consistent with the 
purposes and policies of section 18(f)(1).
    8. Section 17(d) and rule 17d-1 generally prohibit any affiliated 
person of a registered investment company, or affiliated person of an 
affiliated person, when acting as principal, from effecting any joint 
transaction in which the company participates unless the transaction is 
approved by the SEC. Rule 17d-1 provides that in passing upon 
applications for exemptive relief from section 17(d), the SEC will 
consider whether the participation of a registered investment company 
in a joint enterprise on the basis proposed is consistent with the 
provisions, policies, and purposes of the Act and the extent to which 
the company's participation is on a basis different from or less 
advantageous than that of other participants.
    9. Applicants submit that the purpose of section 17(d) is to avoid 
overreaching by an unfair advantage to investment company insiders. 
Applicants believe that the Proposed Credit Facility is consistent with 
the provisions, policies and purposes of the Act in that it offers both 
reduced borrowing costs and enhanced returns on loaned funds to all 
participating Funds and their shareholders. Applicants note that each 
Fund would have an equal opportunity to borrow and lend on equal terms 
consistent with its investment policies and fundamental investment 
limitations. Applicants therefore believe that each Fund's 
participation in the Proposed Credit Facility will be on terms which 
are no different from or less advantageous than that of other 
participating Funds.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The interest rate to be charged to the Funds under the Proposed 
Credit Facility will be the average of the Repo Rate and the Bank Loan 
Rate.
    2. On each business day, the Cash Management Group will compare the 
Bank Loan Rate with the Repo Rate and will make cash available for 
interfund loans only if the Interfund Loan Rate is (a) more favorable 
to the lending Fund than the Repo Rate and, if applicable, the yield on 
the Central Funds and (b) more favorable to the borrowing Fund than the 
Bank Loan Rate and, if applicable, the Committed Loan Rate.
    3. If a Fund has outstanding borrowings, any interfund loans to the 
Fund (a) will be at an interest rate equal to or lower than any 
outstanding bank loan, (b) will be secured at least on an equal 
priority basis with at least an equivalent percentage of collateral to 
loan value as any outstanding bank loan than requires collateral, (c) 
will have a maturity no longer than any outstanding bank loan (and in 
no event over seven days), and (d) will provide that, if an event of 
default by the Fund occurs under any agreement evidencing an 
outstanding bank loan to the Fund, that event of default will 
automatically (without need for action or notice by the lending Fund) 
constitute an immediate event of default under the interfund loan 
agreement entitling the lending Fund to call the interfund loan (and 
exercise all rights with respect to any collateral) and that such call 
will be made if the lending bank exercises its right to call its loan 
under its agreement with the borrowing Fund.
    4. A fund may make an unsecured borrowing through the Proposed 
Credit Facility if its outstanding borrowings from all sources 
immediately after the interfund borrowing total less than 10% of its 
total assets, provided that if the Fund has a secured loan outstanding 
from any lender, including but not limited to another Fund, the Fund's 
interfund borrowing will be secured on at least an equal priority basis 
with at least an equivalent percentage of collateral to loan value as 
any outstanding loan that requires collateral. If a Fund's total 
outstanding borrowings immediately after interfund borrowing

[[Page 67361]]

would be greater than 10% of its total assets, the Fund may borrow 
through the Proposed Credit Facility only on a secured basis. A Fund 
may not borrow through the Proposed Credit Facility or from any other 
source if its total outstanding borrowings immediately after the 
interfund borrowing would be more than 33\1/3\% of its total assets.
    5. Before any Fund that has outstanding interfund borrowings may, 
through additional borrowings, cause its outstanding borrowings from 
all sources to exceed 10% of its total assets, the Fund must first 
secure each outstanding interfund loan by the pledge of segregated 
collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan. If the total outstanding 
borrowings of a Fund with outstanding interfund loans exceeds 10% of 
its total assets for any other reason (such as a decline in net asset 
value or because of shareholder redemptions), the Fund will within one 
business day thereafter: (a) Repay all its outstanding interfund loans, 
(b) reduce its outstanding indebtedness to 10% or less of its total 
assets, or (c) secure each outstanding interfund loan by the pledge of 
segregated collateral with a market value at least equal to 102% of the 
outstanding principal value of the loan until the Fund's total 
outstanding borrowings cease to exceed 10% of its total assets, at 
which time the collateral called for by this condition (5) shall no 
longer be required. Until each interfund loan that is outstanding at 
any time that a Fund's total outstanding borrowings exceeds 10% is 
repaid or the Fund's total outstanding borrowings cease to exceed 10% 
of its total assets, the Fund will mark the value of the collateral to 
market each day and will pledge such additional collateral as is 
necessary to maintain the market value of the collateral that secures 
each outstanding interfund loan at least equal to 102% of the 
outstanding principal value of the loan.
    6. No Fund may lend to another Fund through the Proposed Credit 
Facility if the loan would cause its aggregate outstanding loans 
through the Proposed Credit Facility to exceed 15% of its net assets at 
the time of the loan.
    7. A Fund's interfund loans to any one Fund shall not exceed 5% of 
the lending Fund's net assets.
    8. The duration of interfund loans will be limited to the time 
required to receive payment for securities sold, but in no event more 
than seven days. Loans effected within seven days of each other will be 
treated as separate loan transactions for purposes of this condition.
    9. Each interfund loan may be called on one business day's notice 
by the lending Fund and may be repaid on any day by the borrowing Fund.
    10. A Fund's participation in the Proposed Credit Facility must be 
consistent with its investment policies and limitations and 
organizational documents. A Fund may not borrow through the Proposed 
Credit Facility unless the Fund has a policy that prevents the Fund 
from borrowing for other than temporary or emergency purposes (and not 
for leveraging), except that certain Funds may engage in reverse 
repurchase agreements for any purpose.
    11. The Cash Management Group will calculate total Fund borrowing 
and lending demand through the Proposed Credit Facility, and allocate 
interfund loans on an equitable basis among the Funds without the 
intervention of any portfolio manager of any Fund (except the money 
market Fund portfolio manager acting in his capacity as a member of the 
Cash Management Group). The Cash Management Group will not solicit cash 
for the Proposed Credit Facility from any Fund or prospectively publish 
or disseminate loan demand data to portfolio managers (except to the 
text that the money market Fund portfolio manager has access to loan 
demand data). The Cash Management Group will invest amounts remaining 
after satisfaction of borrowing demand in accordance with standing 
instructions from portfolio managers or return remaining amounts for 
investment directly by the portfolio managers of the money market 
Funds.
    12. Scudder Kemper will monitor the interest rates charged and the 
other terms and conditions of the interfund loans and will make a 
quarterly report to the Boards concerning the participation of the 
Funds in the Proposed Credit Facility and the terms and other 
conditions of any extensions of credit thereunder.
    13. Each Fund's Board, including a majority of the Independent 
Directors: (a) will review no less frequently than quarterly the Fund's 
participation in the Proposed Credit Facility during the preceding 
quarter for compliance with the conditions of any order permitting the 
transactions; (b) will establish the Bank Loan Rate formula used to 
determine the interest rate on interfund loans and review no less 
frequently than annually the continuing appropriateness of the Bank 
Loan Rate formula; and (c) will review no less frequently than annually 
the continuing appropriateness of the Fund's participation in the 
Proposed Credit Facility.
    14. In the event an interfund loan is not paid according to its 
terms and the default is not cured within two business days from its 
maturity or from the time the lending Fund makes a demand for payment 
under the provisions of the interfund loan agreement, Scudder Kemper 
will promptly refer the loan for arbitration to an independent 
arbitrator selected by the Board of each Fund involved in the loan who 
will serve as arbitrator of disputes concerning interfund loan. The 
arbitrator will resolve any problem promptly, and the arbitrator's 
decision will be binding on both Funds. The arbitrator will submit, at 
least annually, a written report to the Boards setting forth a 
description of the nature of any dispute and the actions taken by the 
Funds to resolve the dispute.
    15. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which any transaction 
under the Proposed Credit Facility occurred, the first two years in an 
easily accessible place, written records of all such transactions 
setting forth a description of the terms of the transaction, including 
the amount, the maturity, and the rate of interest on the loan, the 
rate of interest available at the time on short-term repurchase 
agreements and bank borrowings, the yield on the Central Funds, if 
applicable, and such other information presented to the Fund's Board in 
connection with the review required by conditions 12 and 13.
    16. Scudder Kemper will prepare and submit to the Funds' Boards for 
review an initial report describing the operations of the Proposed 
Credit Facility and the procedures to be implemented to ensure that all 
Funds are treated fairly. After commencement of operations of the 
Proposed Credit Facility, Scudder Kemper will report on the operations 
of the Proposed Credit Facility at the Boards' quarterly meetings.
    In addition, for two years following the commencement of the 
Proposed Credit Facility, the independent public accountant for each 
Fund that is a registered investment company shall prepare an annual 
report that evaluates Scudder Kemper's assertion that it has 
established procedures reasonably designed to achieve compliance with 
the conditions of the order. The report shall be prepared in accordance 
with the Statements on Standards for Attestation Engagements No. 3 and 
it shall be filed pursuant to Item 77Q3 of Form N-SAR. In particular, 
the report shall address procedures designed to achieve the following 
objectives: (a) That the Interfund Loan Rate will be

[[Page 67362]]

higher than the Joint Repo Rate and, if applicable, the yield on the 
Central Funds, but lower than the Bank Loan Rate and, if applicable, 
the Committed Loan Rate; (b) compliance with the collateral requirement 
as set forth in the application; (c) compliance with the percentage 
limitations on interfund borrowing and lending; (d) allocation of 
interfund borrowing and lending demand in an equitable manner and in 
accordance with procedures established by the Boards; and (e) that the 
interest rate on any interfund loan does not exceed the interest rate 
on any third party borrowing of a borrowing Fund at the time of the 
interfund loan.
    After the final report is filed, the Fund's external auditors, in 
connection with their Fund audit examinations, will continue to review 
the operation of the Proposed Credit Facility for compliance with the 
conditions of the application and their review will form the basis, in 
part, of the auditor's report on internal accounting controls in Form 
N-SAR.
    17. No Fund will participate in the Proposed Credit Facility upon 
receipt of requisite regulatory approval unless it has fully disclosed 
in its SAI all material facts about its intended participation.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-31162 Filed 11-30-99; 8:45 am]
BILLING CODE 8010-01-M