[Federal Register Volume 64, Number 32 (Thursday, February 18, 1999)]
[Notices]
[Pages 8153-8156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3957]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-23691; 812-11240]
Scudder Kemper Investments, Inc., et al.; Notice of Application
February 11, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of an application under section 12(d)(1)(J) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 12(d)(1) of the Act, and under sections 6(c) and 17(b) of the
Act for an exemption from section 17(a) of the Act.
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Summary of Application: Applicants request an order that would
permit them to implement a ``fund of funds''
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arrangement. The fund of funds would invest in funds in the same group
of investment companies, and in funds that are not part of the same
group of investment companies in reliance on section 12(d)(1)(F) of the
Act. The order also would permit the fund of funds to offer its shares
to the public with a sales load that exceeds the 1.5% limit of section
12(d)(1)(F)(ii) of the Act.
Applicants: Scudder Kemper Investments, Inc. (``Adviser''); Kemper
Distributors, Inc. (``Distributor''); Farmers Investment Trust
(``Trust''), on behalf of its series (Income Portfolio, Income with
Growth Portfolio, Balanced Portfolio, Growth with Income Portfolio, and
Growth Portfolio); and Investment Trust, on behalf of its series
(Scudder Growth and Income Fund); Scudder Securities Trust, on behalf
of its series (Scudder Small Company Value Fund); Scudder International
Fund, Inc., on behalf of its series (Scudder International Fund);
Kemper Value Series, Inc., on behalf of its series (Kemper-Dreman High
Return Equity Fund); Scudder Portfolio Trust, on behalf of its series
(Scudder Income Fund); Kemper U.S. Government Securities Fund; Kemper
High Yield Series, on behalf of its series (Kemper High Yield Fund);
and Cash Account Trust, on behalf of its series (Money Market
Portfolio) (collectively, the ``Funds'').
Filing Dates: The application was filed on July 31, 1998, and an
amendment to the application was filed on January 12, 1999. Applicants
also 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 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 March 5,
1999, and should be accompanied by proof of service on the 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, N.W., Washington, D.C.
20549. Applicants: Adviser, 345 Park Avenue, New York, NY 10154-0010;
Trust, Distributor, and Funds, 222 South Riverside Plaza, Chicago, IL
60606-5808.
FOR FURTHER INFORMATION CONTACT: Timothy R. Kane, Senior Counsel, at
(202) 942-0615, or Edward P. Macdonald, 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 at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (telephone 202-942-8090).
Applicants' Representations
1. The Trust and the Funds are organized as either Massachusetts
business trusts or Maryland corporations and are registered under the
Act as open-end management investment companies. The Adviser is
registered under the Investment Advisers Act of 1940 (``Advisers Act'')
and serves as investment adviser to the Trust and the Funds.
2. Applicants request relief to permit the series of the Trust and
any other registered open-end management investment company that is
part of the same ``group of investment companies'' (as defined in
section 12(d)(1)(G)(ii) of the Act) as the Trust (collectively, the
``Asset Allocation Funds''), to purchase shares of series of the Funds
and other registered open-end management investment companies or series
thereof that are part of the same ``group of investment companies'' as
the Asset Allocation Funds (collectively, the ``Underlying
Portfolios'').\1\ The Asset Allocation Funds also would invest in other
registered open-end management investment companies that are not part
of the same group of investment companies as the Asset Allocation Funds
(the ``Other Portfolios'') in reliance on section 12(d)(1)(F) of the
Act, discussed below.
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\1\ Applicants request relief for each existing or future
registered open-end management investment company or series of such
a company that is part of the same ``group of investment companies''
(as defined in section 12(d)(1)(G)(ii) of the Act) as the Trust, and
(1) is, or will be advised by the Adviser or by any entity
controlling, controlled by, or under common control with the
Adviser; or (2) for which the Distributor or any entity controlling,
controlled by, or under common control with the Distributor serves
as principal underwriter. Each existing registered open-end
management investment company that currently intends to rely on the
order is named as an applicant. Any registered open-end management
investment company that relies on the order in the future will do so
only in accordance with the terms and conditions of the application.
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3. With respect to an Asset Allocation Fund's investment in Other
Portfolios, applicants also seek an exemption from the sales load
limitation in section 12(d)(1)(F) of the Act. Applicants state that the
proposed structure of the Asset Allocation Funds will provide a
consolidated and efficient means through which investors can have
access to a comprehensive investment vehicle.
Applicants' Legal Analysis
A. Section 12(d)(1) of the Act
1. Section 12(d)(1)(A) of the Act provides that no registered
investment company may acquire securities of another 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 any
other acquired investment companies, represent more than 10% of the
acquiring company's total assets. Section 12(d)(1)(B) of the Act
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.
2. Section 12(d)(1)(G) of the Act provides that section 12(d)(1)
shall not apply to the securities of an acquired company purchased by
an acquiring company if: (i) the acquiring company and the acquired
company are part of the same group of investment companies; (ii) the
acquiring company holds only securities of acquired companies that are
part of the same group of investment companies, government securities,
and short-term paper; (iii) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not
excessive under rules adopted pursuant to section 22(b) or section
22(c) of the Act by a securities association registered under section
15A of the Securities Exchange Act of 1934, or the SEC; and (iv) the
acquired company has a policy that prohibits it from acquiring
securities of registered open-end investment companies or registered
unit investment trusts in reliance on section 12(d)(1)(F) or (G).
Section 12(d)(10(G)(ii) defines the term ``group of investment
companies'' to mean any two or more registered investment companies
that hold themselves out to investors as related companies for purposes
of investment and investor services. Because the Asset Allocation Funds
will invest in shares of the Other Portfolios, they cannot rely
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on the exemption from section 12(d)(1) (A) and (B) afforded by section
12(d)(1)(G).
3. Section 12(d)(1)(F) of the Act provides that section 12(d)(1)
shall not apply to securities purchased by an acquiring company if the
company and its affiliates own no more than 3% of an acquired company's
securities, provided that the acquiring company does not impose a sales
load of more than 1.5% on its shares. In addition, section 12(d)(1)(F)
provides that no acquired company is obligated to honor any acquiring
company redemption request in excess of 1% of the acquired company's
securities during any period of less than 30 days, and the acquiring
company must vote its acquired company shares either in accordance with
instructions from its shareholders or in the same proportion as all
other shareholders of the acquired company. The Asset Allocation Funds
will invest in Other Portfolios in reliance on section 12(d)(1)(F). If
the requested relief is granted, shares of the Asset Allocation Funds
will be sold with a sales load that exceeds 1.5%, subject to
applicants' compliance with condition 3 of the application.
4. Section 12(d)(1)(J) of the Act provides that the SEC may exempt
persons or transactions from any provision of section 12(d)(1) if and
to the extent such exemption is consistent with the public interest and
the protection of investors.
5. Applicants request relief under section 12(d)(1)(J) of the Act
from the limitations of sections 12(d)(1)(A) and (B) to permit the
Asset Allocation Funds to invest in the Underlying Portfolios and from
section 12(d)(1)(F) to permit the Asset Allocation Funds to sell shares
to the public with a sales load that exceeds 1.5%.
6. Applicants state that the Asset Allocation Funds' investments in
the Underlying Portfolios do not raise the concerns about undue
influence that sections 12(d)(1)(A) and (B) were designed to address.
Applicants further state that the proposed conditions would
appropriately address any concerns about the layering of sales charges
or other fees.
7. The Asset Allocation funds will invest in Other Portfolios only
within the limits of section 12(d)(1)(F). Applicants believe that an
exemption from the sales load limitation in that section is consistent
with the protection of investors because applicants' proposed sales
load limit would cap the aggregate sales charges of the Asset
Allocation Fund and the Other Portfolio in which it invests. Applicants
have agreed, as a condition to the relief, that any sales charges,
asset-based distribution and service fees relating to the Asset
Allocation Funds' shares, when aggregated with any sales charges,
asset-based distribution and service fees paid by the Asset Allocation
Fund relating to its acquisition, holding, or disposition of shares of
the Underlying Portfolios and Other Portfolios, will not exceed the
limits set forth in rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc. (``NASD Conduct Rules'').
B. Section 17(a) of the Act
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company from selling securities to,
or purchasing securities from, the company. Section 2(a) (3) of the Act
defines an ``affiliated person'' of another person to include: (a) Any
person that directly or indirectly owns, controls, or holds with power
to vote 5% or more of the outstanding voting securities of the other
person; (b) 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; (c) person directly or indirectly
controlling, controlled by, or under common control with the other
person; and (d) if the other person is an investment company, any
investment adviser of that company. Applicants state that the Asset
Allocation Funds and the Underlying Portfolios will be advised by the
Adviser. As a result, applicants submit that the Asset Allocation Funds
and Underlying Portfolios may be deemed to be affiliated persons of one
another by virtue of being under the common control of the Adviser, or
because the Asset Allocation Funds own 5% or more of the shares of an
Underlying Portfolio. Applicants state that purchases and redemptions
of shares of the Underlying Portfolios by the Asset Allocation Funds
could be deemed to be principal transactions between affiliated person
under section 17(a).
2. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that (a) the
terms of the proposed transaction, including the consideration to be
paid or received, are reasonable and fair and do not involve
overreaching; (b) the proposed transaction is consistent with the
policies of the registered investment company involved; and (c) the
proposed transaction is consistent with the general purposes of the
Act.
3. Section 6(c) of the Act provides that the SEC may exempt persons
or transactions from any provision of the Act if such exemption is
necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act. Applicants request an exemption under
sections 6(c) and 17(b) of the Act to permit the Asset Allocation Funds
to purchase and redeem shares of the Underlying Portfolios.
4. Applicants state that the terms of the proposed transactions
will be reasonable and fair and will not involve overreaching because
shares of Underlying Portfolios will be sold and redeemed at their net
asset values. Applicants also state that the investment by the Asset
Allocation Funds in the Underlying Portfolios will be effected in
accordance with the investment restrictions of the Asset Allocation
Funds and will be consistent with the policies as set forth in the
registration statement of the Asset Allocation Funds.
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions:
1. All Underlying Portfolios will be part of the same ``group of
investment companies'' (as defined in section 12(d)(1)(G)(ii) of the
Act) as the Asset Allocation Funds.
2. No Underlying Portfolio will acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act, except to the extent that such Underlying
Portfolio (a) receives securities of another investment company as a
dividend or as a result of a plan of reorganization of a company (other
than a plan devised for the purpose of evading section 12(d)(1) of the
Act); or (b) acquires (or is deemed to have acquired) securities of
another investment company pursuant to exemptive relief from the SEC
permitting such Underlying Portfolio to (i) acquire securities of one
or more affiliated investment companies for short-term cash management
purposes; or (ii) engage in interfund borrowing and lending
transactions. No Asset Allocation Fund will acquire securities of an
Other Portfolio if, at the time of acquisition, the Other Portfolio
owns securities of any other investment company in excess of the limits
contained in section 12(d)(1)(A) of the Act.
3. Any sales charges, distribution-related fees, and service fees
relating to the shares of the Asset Allocation Funds, when aggregated
with any sales charges, distribution-related fees, and service fees
paid by the Asset Allocation
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Funds relating to their acquisition, holding, or disposition of shares
of the Underlying Portfolios and Other Portfolios, will not exceed the
limits set forth in rule 2830 of the NASD Conduct Rules.
4. Before approving any advisory contract under section 15 of the
Act, the board of trustees of the Asset Allocation Funds, including a
majority of the trustees who are not ``interested persons'' (as defined
in section 2(a)(19) of the Act), will find that the advisory fees
charged under the contract are based on services provided that are in
addition to, rather than duplicative of, services provided under any
Underlying Portfolio or Other Portfolio advisory contract. This
funding, and the basis upon which the finding was made, will be
recorded fully in the minute books of the Asset Allocation Funds.
5. Each Asset Allocation Fund's investments in Other Portfolios
will comply with section 12(d)(1)(F) in all respects except for the
sales load limitation of section 12(d)(1)(F)(ii).
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3957 Filed 2-17-99; 8:45 am]
BILLING CODE 8010-01-M
