[Federal Register Volume 63, Number 199 (Thursday, October 15, 1998)]
[Notices]
[Pages 55418-55421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27624]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23482; 812-10828]
Scudder Global Fund, Inc., et al.; Notice of Application
October 7, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 17(d) of the
Investment Company Act of 1940 (the ``Act'') and rule 17d-1 under the
Act.
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SUMMARY OF APPLICATION: Applicants request an order to permit certain
registered management investment companies to deposit their uninvested
cash balances in joint accounts investing in short-term repurchase
agreements.
APPLICANTS: Scudder Global Fund, Inc., Scudder International Fund,
Inc., Scudder Institutional Fund, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Global High Income Fund, Inc.,
The Argentina Fund, Inc., The Brazil Fund, Inc., Scudder Spain and
Portugal Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc.,
Scudder California Tax Free Trust, Scudder Cash Investment Trust,
Scudder Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder
GNMA Fund, Scudder Investment Trust, Scudder Municipal Trust,
[[Page 55419]]
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, AARP Growth Trust,
AARP Income Trust, AARP Managed Investment Portfolios Trust, AARP Tax
Free Income Trust and AARP Cash Investment Funds, (the ``Scudder
Funds''), Kemper Equity Trust, Kemper Global/International Series,
Inc., Kemper Securities Trust, Investor Fund Series (with the Scudder
Funds, the ``Investment Companies''), Scudder Kemper Investments, Inc.,
(``SKI'') and Scudder Service Corporation (``Service Corp'').
FILING DATES: The application was filed on October 23, 1997. Applicants
have agreed to file an amendment during the notice period, the
substance of which is included 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 November 4,
1998, 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.
Applicants: c/o Philip H. Newman, Esq., Goodwin, Procter & Hoar LLP,
Exchange Place, Boston, MA 02109.
FOR FURTHER INFORMATION CONTACT: John K. Forst, Attorney Advisor, at
(202) 942-0569, or Mary Kay Frech, 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
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. Each Investment Company is organized as a Massachusetts business
trust or Maryland corporation and registered under the Act as a
management investment company.\1\ SKI, a Delaware corporation
registered as an investment adviser under the Investment Advisers Act
of 1940 (the ``Advisers Act''), serves as investment adviser to the
Investment Companies. Service Corp., a wholly owned subsidiary of SKI,
serves as transfer agent for the Scudder Funds.
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\1\ Applicants requests that the relief also apply to any future
series of the Investment Companies and all other registered
management investment companies and their series that are advised by
SKI or any person controlling, controlled by or under common control
with SKI (``Future Funds''). Any Future Fund that relies on the
requested order will do so only in accordance with the terms and
conditions of the application.
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2. At the end of each trading day, applicants expect that the
Investment Companies will have uninvested cash balances in their
accounts with their custodians that would not otherwise be invested in
portfolio securities. All of the Investment Companies currently are
authorized by their investment policies and restrictions to invest at
least a portion of their uninvested cash balances in short-term
investments, including repurchase agreements.
3. Certain accounts also have been established by Service Corp., as
transfer agent for each of the Scudder Funds, for money received by
Service Corp. in connection with (a) the purchase of shares of the
Scudder Funds prior to the purchase money being moved to the relevant
custodian, (b) capital gains distributions payable by, or redemption
proceeds from, the Scudder Funds, and (c) income dividends payable by
the Scudder Funds (the ``TA Accounts'').
4. Applicants propose to deposit certain uninvested cash balances
in the Investment Companies that remain at the end of the trading day
and are held by the custodians, cash in the TA Accounts, and cash for
investment purposes, into one or more joint trading accounts and to
invest the daily balance of the joint trading accounts in overnight in
term repurchase agreements which are ``collateralized fully,'' as
defined in rule 2a-7 under the Act (``Joint Accounts''). Cash in the TA
Accounts will be deposited in Joint Accounts that invest in overnight
repurchase agreements. Uninvested cash balances and cash for investment
purposes will be deposited in Joint Accounts that invest in repurchase
agreements with a remaining maturity of 60 days or less, calculated in
accordance with rule 2a-7 under the Act (``Joint Repo Accounts''). A
Joint Account would consist of a separate cash account established at a
custodian bank.
5. An Investment Company will invest through a Joint Account only
to the extent that doing so is consistent with the Investment Company's
investment objectives, policies and restrictions. An Investment
Company's decision to use the Joint Accounts be based on the same
factors as its decision to enter into any other repurchase agreement.
The Investment Companies that are eligible and that elect to
participate in a Joint Account are referred to as ``Participants.''
6. SKI will not participate in the Joint Accounts and will receive
no additional fee for administering them, but, with regard to assets
invested by the Participants in the Joint Repo Accounts, will continue
to receive from the Participants its asset-based advisory fee. SKI will
be responsible for investing cash held by the Joint Accounts,
establishing accounting and control procedures, and ensuring fair
treatment of Participants.
7. All purchases through the Joint Accounts will be subject to the
same systems and standards for acquiring investments for individual
participants. Any repurchase agreements entered into through the Joint
Accounts will comply with the terms of Investment Company Act Release
No. 13005 (February 2, 1983) and any other applicable future positions
of the SEC or its staff regarding repurchase agreements.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, or an
affiliated person of such person, from participating in any joint
enterprise or arrangement in which such investment company is a
participant, unless an application regarding the joint arrangement has
been filed with and approved by the SEC. In passing on such
applications, the SEC considers whether the participation of the
registered investment company in the proposed joint arrangement is
consistent with the provisions, policies, and purposes of the Act and
the extent to which the participation is on a basis different from or
less advantageous than that of other participants.
2. Section 2(a)(3) of the Act defines an ``affiliated person'' of
another person to include any person directly or indirectly owning,
controlling, or holding with power to vote 5% or more of the
outstanding voting securities of the other person, as well as 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. Under section 2(a)(3) of the Act, the
Participants may
[[Page 55420]]
be deemed ``affiliated persons'' because they may be deemed to be under
the common control of SKI. Applicants state that the Participants, by
participating in the Joint Accounts, and SKI, by managing the Joint
Accounts, could be deemed to be ``joint participants'' in a transaction
within the meaning of section 17(d)(1) of the Act. In addition,
applicants state that the Joint Accounts could be deemed to be a
``joint enterprise or other joint arrangement'' within the meaning of
rule 17d-1 under the Act.
3. Applicants request an order under section 17(d) and rule 17d-1
permitting the proposed transactions. Applicants believe that no
Participant will receive fewer relative benefits from the operation of
the Joint Accounts than any other Participant. Applicants also believe
that the operation of the Joint Accounts will not result in any
conflicts of interest among Participants. Applicants state that each
Participant's liability on any repurchase agreement held in a Joint
Account will be limited to its interest in the repurchase agreement.
4. Applicants believe that the proposed Joint Accounts could result
in certain benefits to Participants. The Participants may earn a higher
return on investments through the Joint Accounts relative to the
returns they could earn individually. Under most market conditions, it
is possible to negotiate a higher rate of return on larger repurchase
agreements than the rate available on smaller repurchase agreements. In
addition, the Joint Accounts may increase the number of dealers willing
to enter into repurchase agreements with the Participants because
larger denominations could be sold. The Joint Accounts also may result
in certain administrative efficiencies and a reduction of the potential
for errors by reducing the number of cash and securities transfers that
must be processed in connection with repurchase agreements.
5. For the reasons set forth above, applicants submit that the
proposed Joint Accounts meet the criteria of rule 17d-1 for issuance of
an order.
Applicant's Conditions
Applicants will comply with the following as conditions to any
order granted by the SEC:
1. The Joint Accounts will not be distinguishable from any other
accounts maintained by Participants at their custodians except that
money from Participants will be deposited in the Joint Accounts on a
commingled basis. The Joint Accounts will not have a separate existence
and will not have indicia of a separate legal entity. The sole function
of the Joint Accounts will be to provide a convenient way of
aggregating individual transactions which would otherwise require daily
management by SKI of uninvested cash balances.
2. Cash in the Joint Accounts will be invested in overnight and
term repurchase agreements that are ``collateralized fully'' as defined
in rule 2a-7 under the Act and which will have a remaining maturity of
60 days or less as calculated in accordance with rule 2a-7 under the
Act. No Participant will be permitted to invest in a Joint Account
unless the repurchase agreements in such Joint Account satisfy the
investment policies and guidelines of that Participant.
3. All assets held in the Joint Accounts will be valued on an
amortized cost basis to the extent permitted by applicable SEC
releases, rules or orders.
4. Each Participant valuing its net assets in reliance on rule 2a-7
under the Act will use the average maturity of the instruments in the
Joint Accounts in which such Participant has an interest (determined on
a dollar weighted basis) for the purpose of computing its average
portfolio maturity with respect to its portion of the assets held in a
Joint Account on that day.
5. In order to assure that there will be no opportunity for any
Participant to use any part of a balance of a Joint Account credited to
another Participant, no Participant will be allowed to create a
negative balance in any Joint Account for any reason, although each
Participant will be permitted to draw down its entire balance at any
time. Each Participant's decision to invest in a Joint Account will be
solely at its option, and no Participant will be obliged to invest in
the Joint Accounts or to maintain any minimum balance in the Joint
Accounts. In addition, each Participant will retain the sole rights of
ownership of any of its assets invested in the Joint Accounts,
including interest payable on such assets invested in the Joint
Accounts.
6. SKI will administer the investment of cash balances in and
operation of the Joint Accounts as part of its general duties under its
advisory agreements with Participants and will not collect any
additional or separate fees for providing such services.
7. The administration of the Joint Accounts will be within the
fidelity bond coverage required by section 17(g) of the Act and rule
17g-1 under the Act.
8. The board of directors or trustees of each Participant (the
``Board'') will adopt procedures pursuant to which the Joint Accounts
will operate, which will be reasonably designed to provide that the
requirements of the application will be met. Each Board will make and
approve such changes as they deem necessary to ensure that such
procedures are followed. In addition, each Board will determine, no
less frequently than annually, that the Joint Accounts have been
operated in accordance with the procedures adopted and will only permit
a Participant to continue to participate therein if it determines that
there is a reasonable likelihood that the Participant and its
shareholders will benefit from continued participation.
9. SKI and the custodian of each Participant will maintain records
documenting, for any given day, each Participant's aggregate investment
in a Joint Account and each Participant's pro rata share of each
investment made through such Joint Account. The records maintained for
each Participant shall be maintained in conformity with Section 31 of
the Act and the rules and regulations thereunder.
10. Every Participant in the Joint Accounts will not necessarily
have its cash invested in every repurchase agreement. However, to the
extent that a Participant's cash is applied to a particular repurchase
agreement, the Participant will participate in and own its
proportionate share of such repurchase agreement, and any income earned
or accrued thereon, based upon the percentage of such investment
purchased with money contributed by the Participant.
11. Each repurchase agreement held in a Joint Account generally
will be held to maturity, except if: (i) SKI believes the investment no
longer presents minimal credit risks; (ii) the investment no longer
satisfies the investment criteria of all Participants in the investment
because of a credit downgrade or otherwise; or (iii) the counterparty
to such repurchase agreement defaults. SKI may, however, sell any
repurchase agreement (or any fractional portion thereof) on behalf of
some or all Participants prior to the maturity of the investment if the
cost of such transaction will be borne solely by the selling
Participants and the transaction will not adversely affect other
Participants participating in that Joint Account. In no case will an
early termination by less than all Participants be permitted if it
would reduce the principal amount or yield received by other
Participants in a particular Joint Account or otherwise adversely
affect the other Participants. Each Participant in a Joint Account will
be deemed to have consented to such sale and
[[Page 55421]]
partition of the investment in the Joint Account.
12. Repurchase agreements held through a Joint Account with a
remaining maturity of more than seven days, as calculated pursuant to
rule 2a-7 under the Act, will be considered illiquid and subject to the
restriction that a Participant may not invest more than 15% or, in the
case of a money market fund, 10% (or such other percentage as set forth
by the SEC from time to time) of its net assets in illiquid securities,
and any similar restrictions set forth in the Fund's investment
restrictions and policies, if SKI cannot sell the instrument, or a
Participant's fractional interest in such instrument, pursuant to the
preceding condition.
13. The Joint Accounts will be established as one or more separate
cash accounts on behalf of the Participants at a custodian bank. Each
Participant may deposit daily all or a portion of its uninvested cash
balances into the Joint Accounts. Each Participant whose regular
custodian is a custodian other than the bank at which a proposed Joint
Account would be maintained, and that wishes to participate in the
Joint Account, would appoint the latter bank as a separate custodian
for the limited purposes of: (a) receiving and disbursing cash; (b)
holding any securities that are the subject of a repurchase agreement;
and (c) holding any collateral received from a transaction effected
through a Joint Account. Each Participant that appoints such a
custodian will have taken all necessary actions to authorize such bank
as its legal custodian, including all actions required under the Act.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27624 Filed 10-14-98; 8:45 am]
BILLING CODE 8010-01-M
