[Federal Register Volume 65, Number 27 (Wednesday, February 9, 2000)]
[Notices]
[Pages 6420-6423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2965]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24276; 812-11458]


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

February 3, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 12(d)(1)(J) 
of the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from section 17(a) of the Act and under 
section 17(d) of the Act and rule 17d-1 under the Act to permit certain 
joint transactions.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
registered management investment companies and certain entities that 
are excluded from the definition of investment company by section 
3(c)(1), 3(c)(7) or 3(c)(11) of the Act to invest uninvested cash in 
(a) affiliated money market funds and/or short-term bond funds or (b) 
one or more affiliated entities that operate as cash management 
investment vehicles and that are excluded from the definition of 
investment company by section 3(c)(1) or 3(c)(7) of the Act.


Applicants:  Scudder Global Fund, Inc., Scudder International Fund, 
Scudder New Asia Fund, Inc., Scudder Global High Income Fund, Inc., The 
Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., The 
Japan Fund, Inc., Scudder California Tax Free Trust, Scudder Cash 
Investment Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder 
GNOME Fund, Scudder Investment Trust, 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 US Treasury Money 
Fund, Scudder Variable Life Investment Fund, CARP Growth Trust, CARP 
Income Trust, CARP Managed Investment Portfolios Trust, CARP Tax Free 
Income Trust, CARP Cash Investment Funds, Kemper Equity Trust, Kemper 
Global/International Series, Inc., Kemper Securities Trust, Kemper 
Europe Fund, Investor Fund Series (collectively, the ``Investment 
Companies''), Scudder Cash Management Investment Trust (``SCMIT'') 
(together with the Investment Companies, the ``Funds''), Scudder Trust 
Company (``STC''), and Scudder Kemper Investments, Inc. (``SKI'').

FILING DATES:  The application was filed on January 8, 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 Commission orders a hearing. Interested 
persons 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 February 28, 2000, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609. Applicants, c/o Philip H. Newsman, Esq., Goodwill, Proctor 
& Oar LPL, Exchange Place, Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: Lawrence W. Pisto, Senior Counsel, at 
(202) 942-0527, or George J. Zornada, 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 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. (202) 942-8090).

Applicants' Representations

    1. Each Investment Company is organized as a Massachusetts business 
trust or a Maryland corporation and is registered under the Act as a 
management investment company.\1\ SCMIT is a New Hampshire investment 
trust that is relying on section 3(c)(1) of the Act. STC, a New 
Hampshire banking corporation, is the trustee of SCMIT and is 
controlled by SKI. SKI is registered under the Investment Advisers Act 
of 1940 and serves as the investment adviser to the Funds (SKI and all 
entities controlling, controlled by, or under common control with SKI, 
collectively, ``SKI'').\2\
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    \1\ The following Investment companies are registered under the 
act as closed-end companies: The Argentina Fund, Inc.; The Brazil 
Fund, Inc.; The Korea Fund, Inc.; Scudder Global High Income Fund, 
Inc.; and Scudder New Asia Fund, Inc. The other Investment Companies 
are registered under the Act as open-end companies.
    \2\ Applicants also request relief for all other existing or 
future registered investment companies and series thereof that are 
advised by SKI and all other trusts or other entities excluded from 
the definition of ``investment company'' under section 3(c)(1), 
3(c)(7) or 3(c)(11) of the Act now existing or hereafter established 
for which SKI acts as trustee or investment adviser. All Funds that 
currently intend to rely on the relief have been named as 
applicants, and any other existing or future Fund that relies on the 
relief will comply with the terms and conditions of the application.

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[[Page 6421]]

    2. Each Investment Company that is not a money market fund (a 
``Registered Participating Fund'') has, or may be expected to have, 
cash balances that have not been invested in portfolio securities 
(``Uninvested Cash''). Uninvested Cash may result from a variety of 
sources, including dividends or interest received from portfolio 
securities, unsettled securities transactions, reserves held for 
investment strategy purposes, scheduled maturity of investments, 
liquidation of investment securities to meet anticipated redemptions's 
and dividend payments, and new cash received from investors. Currently, 
the Participating Funds can invest Uninvested Cash directly in money 
market instruments or other short-term debt obligations.\3\ Applicants 
state that certain other entities that are excluded from the definition 
of investment company pursuant to section 3(c)(1), 3(c)(7) or 3(c)(11) 
of the Act for which SKI acts as trustee or investment adviser (the 
``Private Participating Funds'') also may have uninvested cash.
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    \3\ Certain of the applicants also have received an order under 
section 17(d) and rule 17d-1 under the Act which permits them to 
establish one or more joint trading accounts for purposes of 
engaging in joint repurchase agreement transactions. Scudder Global 
Fund, Inc. et al., Investment Company Act Release Nos. 10828 
(October 7, 1998) (order) and 23525 (November 5, 1998) (order).
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    3. Applicants request an order to permit: (i) Registered 
Participating Funds and Private Participating Funds (collectively, 
``Participating Funds'') to use their Uninvested Cash to purchase 
shares of one or more of the Investment Companies that are money market 
funds or short-term bond funds (the ``Registered Central Funds'') and 
shares of SCMIT or one or more future entities for which SKI acts as 
trustee or investment adviser that operate as cash management 
investment vehicles and that are excluded from the definition of 
investment company pursuant to section 3(c)(1) or 3(c)(7) of the Act 
(the ``Private Central Funds'') (the Registered Central Funds and the 
Private Central Funds, collectively, the ``Central Funds''); \4\ (ii) 
the Central Funds to sell their shares to and purchase (redeem) such 
shares from the Participating Funds; (iii) certain of the Participating 
Funds and Central Funds to engage in Interfund purchase and sale 
transactions (``Interfund Transactions''); and (iv) SKI to effect the 
above transactions.
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    \4\ SCMIT is the only currently existing Non-Registered Central 
Fund.
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    4. The investment by each Registered Participating Fund in shares 
of the Central Funds will be in accordance with that Registered 
Participating Fund's investment policies and restrictions as set forth 
in its registration statement. Certain of the Registered Central Funds 
are or will be taxable or tax-exempt money market funds that comply 
with rule 2a-7 under the Act. The other Registered Central Funds are or 
will be short-term bond funds that invest in fixed-income securities 
and maintain a dollar weighted average maturity of three years or less. 
The Private Central Funds will comply with rule 2a-7 under the Act.

Applicant's Legal Analysis

I. Investment of Uninvested Cash by the Participating Funds in the 
Central Funds

A. Section 12(d)(1)
    1. Section 12(d)(1)(A) of the Act provides that an investment 
company may not acquire securities of a registered investment company 
if such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
acquired investment companies, represent more than 10% of the acquiring 
company's assets. Section 12(d)(1)(B) provides that no registered open-
end investment company may sell its securities to another investment 
company if the sale will cause the acquiring company to own more than 
3% of the acquired company's voting stock, or if the sale will cause 
more than 10% of the acquired company's voting stock to be owned by 
investment companies. Any entity that is excluded from the definition 
of investment company under section 3(c)(1) or 3(c)(7) of the Act is 
deemed to be an investment company for the purposes of the 3% 
limitations specified in section 12(d)(1)(A) and (B) with respect to 
purchases by and sales to such company.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any persons or transactions from any provision of section 
12(d)(1) to the extent that the exemption is consistent with the public 
interest and the protection of investors. Applicants request an order 
under section 12(d)(1)(J) of the Act to permit the Participating Funds 
to purchase shares of the Registered Central Funds in excess of the 
limits of section 12(d)(1)(A) and the Registered Central Funds to sell 
their shares to the Participating Funds in excess of the limits of 
section 12(d)(1)(B).
    3. Applicants maintain that the proposed arrangement will not 
result in the abuses that sections 12(d)(1)(A) and (B) were intended to 
address. Applicants state that each of the Registered Central Funds 
will be managed specifically to maintain a highly liquid portfolio, and 
access to them will enhance each Participating Fund's ability to manage 
Uninvested Cash. Applicants state that there will not be an 
inappropriate layering of fees because shares of the Registered Central 
Funds sold to or redeemed by the Participating Funds will not be 
subject to a sales charge load, redemption fee, asset-based 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act, or a service fee. In addition, if SKI collects a fee 
from Registered Central Fund for acting as its investment adviser with 
respect to assets invested by a Registered Participating Fund, when 
approving an investment advisory contract under section 15 of the Act, 
the Board of the Registered Participating Fund will consider to what 
extent the advisory fees paid by the Registered Participating Fund to 
SKI should be reduced to account for the reduced services provided to 
the Registered Participating Fund as a result of Uninvested Cash being 
invested in the Registered Central Fund. Each Registered Participating 
Fund also will invest Uninvested Cash in Central Funds only to the 
extent that the Registered Participating Fund's aggregate investment in 
the Central Funds does not exceed 25% of its total assets in shares of 
the Central Funds. Applicants also state that no Central Fund will 
acquire securities of any investment company in excess of the limits of 
section 12(d)(1)(A).
B. Section 17(a)
    1. Sections 17(a)(1) and (2) of the Act make it unlawful for any 
affiliated person of a registered investment company, or an affiliated 
person of the affiliated person, acting as principal, to sell or 
purchase any security to or from the company. Section 2(a)(3) of the 
Act defines an ``affiliated person'' of another person to include any 
person 5% or more of whose outstanding voting securities are directly 
or indirectly owned, controlled, or held with power to vote by the 
other person; 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.
    2. Because SKI serves as, or will serve as, each Fund's investment 
adviser or trustee exercising investment discretion, the Funds may be 
deemed to be under common control and therefore affiliated persons, or 
affiliated persons of an affiliated person, of each other. In

[[Page 6422]]

addition, certain Investment Companies could be deemed to be under 
common control by virtue of the fact that they share a common board of 
directors or trustees (``Board''). In addition, if a Participating Fund 
purchases more than 5% of the voting securities of a Central Fund, the 
Participating and Central Funds would be affiliated persons of each 
other. Accordingly, applicants state that the sale and redemption of 
shares of the Central Funds by the Registered Participating Funds may 
be prohibited by section 17(a)(1) and (a)(2).
    3. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policy of each investment company concerned and the general purposes of 
the Act. Section 6(c) of the Act authorizes the Commission to exempt 
persons or transactions, or classes of persons or transactions, from 
the provisions of the Act to the extent that such exemptions are 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policies and 
provisions of the Act.
    4. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Registered Participating Funds to purchase and redeem 
shares of the Central Funds. Applicants state that the proposed 
transactions satisfy the standards of sections 6(c) and 17(b) of the 
Act. Applicants state that the consideration paid and received on the 
sale and redemption of shares of the Central Funds will be based on the 
net asset value per share of the Central Funds. Applicants also state 
that the Participating Funds will retain their ability to invest their 
Uninvested Cash directly in money market instruments and other short 
term obligations if they believe they can obtain a higher rate of 
return or for any other reason. Each of the Central Funds also reserves 
the right to discontinue selling shares to any of the Participating 
Funds if the Central Fund's Board determines that the sales would 
adversely affect the Central Fund's management and operations. In 
addition, applicants state that the investment of assets of the 
Registered Participating Funds in shares of the Central Funds, and the 
issuance of shares of the Central Funds, will be effected in accordance 
with each Registered Participating Fund's investment guidelines and 
will be consistent with each Registered Participating Fund's policies 
as set forth in its registration statement. Applicants also state that 
the Non-Registered Central Funds will comply with the provisions of the 
Act relating to prohibitions on affiliated transactions, leveraging, 
the issuance of senior securities, and rights of redemption.
C. Section 17(d) and Rule 17d-1
    1. Section 17(d) of the Act and rule 17d-1 under the Act generally 
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 Commission has approved 
the joint arrangement by an order. Applicants state that the 
Participating Funds and Central Funds, by participating in the proposed 
transactions, and SKI, by effecting the proposed transactions, could be 
deemed to be participants in a joint enterprise for the purposes of 
section 17(d) of the Act and rule 17d-1 under the Act.
    2. In passing on applications for orders under section 17(d), rule 
17d-1 requires that the Commission consider whether an investment 
company's participation in a joint enterprise or joint arrangement is 
consistent with the provisions, policies, and purposes of the Act, and 
the extent to which such participation is on a basis different from or 
less advantageous than that of other participants. Applicants state 
that, for the reasons discussed above, the proposed transactions meet 
the standards for an order under rule 17d-1.

II. Interfund Transactions

    1. Applicants state that they currently rely on rule 17a-7 under 
the Act to conduct Interfund Transactions. Rule 17a-7 under the Act 
excepts from the prohibitions of section 17(a) the purchase or sale of 
certain securities between registered investment companies which are 
affiliated persons, or affiliated persons of affiliated persons, of 
each other or between a registered investment company and a person 
which is an affiliated person of such company (or an affiliated person 
of such person) solely by reason of having a common investment adviser, 
common officers, and/or common directors. Applicants state that the 
Participating Funds may become affiliated persons of the Central Funds 
by virtue of a Participating Fund owning 5% or more of the outstanding 
voting securities of a Central Fund. Thus, applicants state that 
certain Funds may not be able to rely on rule 17a-7 to effect Interfund 
Transactions. The Interfund Transactions for which relief is requested 
are transactions between Registered Participating Funds and Private 
Central Funds and between Private Participating Funds and Registered 
Central Funds.
    2. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Interfund Transactions. Applicants state that the 
Funds will comply with rule 17a-7 under the Act in all respects, other 
than the requirement that the registered investment company and the 
affiliated person thereof (or the affiliated person of such person) be 
affiliated solely by reason of having a common investment adviser or 
investment advisers which are affiliated persons of each other, common 
officers, and/or common directors, solely because a Participating Fund 
and a Central Fund might become affiliated persons within the meaning 
of section 2(a)(3)(A) and (B) of the Act. Applicants state that the 
additional affiliation does not effect the other protections provided 
by rule 17a-7, including the integrity of the pricing mechanism 
employed and oversight by each Fund's Board.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. The shares of the Central Funds sold to and redeemed from the 
Participating Funds will not be subject to a sales load, redemption 
fee, asset-based distribution fee under a plan adopted in accordance 
with rule 12b-1 under the Act or service fee (as defined in Section 
2830(b)(9) of the Conduct Rules of the National Association of 
Securities Dealers, Inc.).
    2. If SKI collects a fee from a Central Fund for acting as its 
investment adviser with respect to assets invested by a Registered 
Participating Fund, before the next meeting of the Board of the 
Registered Participating Fund that invests in the Central Funds is held 
for the purpose of voting on an advisory contract pursuant to section 
15 of the Act, SKI will provide the Board with specific information 
regarding the approximate cost to SKI for, or portion of the advisory 
fee under the existing advisory fee attributable to, managing the 
assets of the Registered Participating Fund that can be expected to be 
invested in the Central Fund. Before approving any advisory contract 
pursuant to section 15 of the Act, the Board of the Registered 
Participating Fund, including a majority of the directors or trustees 
who are not

[[Page 6423]]

``interested persons,'' as defined in section 2(a)(19) of the Act, 
shall consider to what extent, if any, the advisory fees charged to the 
Registered Participating Fund by SKI should be reduced to account for 
the reduced services provided to the Registered Participating Fund by 
SKI as result of Uninvested Cash being invested in the Central Fund. 
The minute books of the Registered Participating Fund will fully record 
the Board's consideration in approving the advisory contract, including 
the fees referred to above.
    3. Each of the Participating Funds will invest Uninvested Cash in, 
and hold shares of, the Central Funds only to the extent that the 
Participating Fund's aggregate investment in the Central Funds does not 
exceed 25% of the Participating Fund's total assets. For purposes of 
this limitation, each Participating Fund or series thereof will be 
treated as a separate investment company.
    4. Investment in shares of the Central Funds will be in accordance 
with each Registered Participating Fund's policies as set forth in its 
prospectus and statement of additional information.
    5. Each Fund that may rely on the order shall be advised by SKI or 
will have SKI as its trustee.
    6. No Central Fund shall acquire securities of any other investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
1940 Act.
    7. The Private Central Funds will comply with the requirements of 
sections 17(a), (d), and (e), and 18 of the Act as if the Private 
Central Funds were registered open-end investment companies. With 
respect to all redemption requests made by a Participating Fund, the 
Private Central Funds will comply with section 22(e) of the Act. SKI as 
sole trustee of each Private Central Fund has or will adopt procedures 
designed to ensure that each Private Central Fund complies with 
sections 17(a), (d), and (e), 18, and 22(e) of the Act. SKI will also 
periodically review and update as appropriate such procedures and 
maintain books and records describing the procedures, and maintain the 
records required by rules 31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) 
under the Act. All books and records required to be made pursuant to 
this condition will be maintained and preserved for a period of not 
less than six years from the end of the fiscal year in which any 
transaction occurred, the first two years in an easily accessible 
place, and will be subject to examination by the Commission and its 
staff.
    8. Each Private Central Fund will comply with rule 2a-7 under the 
Act. With respect to such Private Central Fund, SKI will adopt and 
monitor the procedures described in rule 2a-7(c)(7) and will take such 
other actions as are required to be taken under those procedures. A 
Participating Fund may only purchase shares of a Private Central Fund 
if SKI determines on an ongoing basis that the Fund is in compliance 
with rule 2a-7. SKI will preserve for a period not less than six years 
from the date of determination, the first two years in an easily 
accessible place, a record of such determination and the basis upon 
which the determination was made. This record will be subject to 
examination by the Commission and its staff.
    9. Each Participating Fund will purchase and redeem shares of any 
Private Central Fund as of the same time and at the same price, and 
will receive dividends and bear its proportionate share of expenses on 
the same basis, as other shareholders of such Private Central Fund. A 
separate account will be established in the shareholder records of each 
Private Central Fund for the account of each Participating Fund that 
invests in such Private Central Fund.
    10. To engage in Interfund Transactions, the Funds will comply with 
rule 17a-7 under the Act in all respects other than the requirement 
that the parties to the transaction be affiliated persons (or 
affiliated persons of affiliated persons) of each other solely by 
reason of having a common investment adviser or investment advisers 
which are affiliated persons of each other, common officers, and/or 
common directors solely because a Participating Fund and a Central Fund 
might become affiliated persons within the meaning of section 
2(a)(3)(A) and (B) of the Act.
    11. The net asset value per share with respect to shares of a 
Private Central Fund will be determined separately for each Private 
Central Fund by dividing the value of the assets belonging to that 
Private Central Fund, less the liabilities of that Private Central 
Fund, by the number of shares outstanding with respect to that Private 
Central Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-2965 Filed 2-8-00; 8:45 am]
BILLING CODE 8010-01-M