[Federal Register Volume 64, Number 147 (Monday, August 2, 1999)]
[Notices]
[Pages 41982-41983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19721]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23921; 812-11596]
Scudder New Europe Fund, Inc.; Notice of Application
July 27, 1999
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under sections 6(c) and 17(b) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
section 17(a) of the Act.
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SUMMARY OF APPLICATION: Scudder New Europe Fund, Inc. (the ``Fund'')
seeks an order to permit in-kind redemptions of shares by certain
affiliated shareholders of the Fund.
FILING DATES: The application was filed on April 29, 1999. Applicant
has agreed to file an amendment to the application 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 applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on August 23, 1999, and should be accompanied by proof of service
on the applicant, 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 Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549-0609. Applicant, c/o Yvette M.
Garcia, Esq., Willkie Farr & Gallagher, 787 Seventh Avenue, New York
10019-6099.
FOR FURTHER INFORMATION CONTACT: George J. Zornada, Branch Chief, at
(202) 942-0564 (Division of Investment Management, Office of Investment
Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the Commission's Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549-0102 (telephone (202) 942-8090).
Applicant's Representations
1. The Fund, a Maryland corporation, is registered under the Act as
a closed-end management investment company. On July 20, 1999,
shareholders of the Fund approved a proposal to convert the Fund to an
open-end management investment company (the ``Conversion''). The
Conversion is expected to occur on or about September 1, 1999
(``Conversion Date''). Scudder Kemper Investments, Inc. (the
``Manager''), an investment adviser registered under the Investment
Advisers Act of 1940, is investment adviser to the Fund.
2. In conjunction with the Conversion, the Fund intends to combine
with Kemper Europe Fund (``KEF''), a registered open-end management
investment company, and change the Fund's name to Scudder Europe Fund,
Inc. (the ``Reorganization'').\1\ The Fund's shareholders prior to the
Conversion will have their shares redesignated as Class M shares of the
Fund after the Conversion.
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\1\ The Reorganization is subject to approval by KEF's
shareholders. The Conversion is not contingent on the approval of
the Reorganization by KEF's shareholders.
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3. Applicant states that one shareholder currently owns 5% or more
of the outstanding shares of the Fund, and is expected to own 5% or
more of the Fund following the Conversion and the Reorganization.
Applicant requests relief to permit the Fund to satisfy redemption
requests made by any shareholder of the Fund who, at the time of such
redemption request, is an ``affiliated person'' of the Fund solely by
reason of owning, controlling, or holding with the power to vote, five
percent or more of the Fund's shares (``Affiliated Shareholders'') by
distributing portfolio securities in-kind.\2\ The board of directors of
the Fund (``Board''), including all of the directors who are not
``interested persons'' as defined in section 2(a)(19) of the Act
(``Disinterested Directors''), has determined that it would be in the
best interests of the Fund and its shareholders to pay to an Affiliated
Shareholder the redemption price for its shares in-kind.\3\
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\2\ The relief sought would not extend to shareholders who are
``affiliated persons'' of the Fund within the meaning of sections
2(a)(3)(B) through (F) of the Act (e.g. shareholders who are
officers, directors or employees of the Fund, or shareholders who
have a control relationship with the Fund).
\3\ Upon Conversion, the Fund will elect to be governed by the
provisions of rule 18f-1 under the Act. Election under rule 18f-1
commits the Fund, during any 90-day period with respect to one
shareholder, to redeem its shares in cash up to the lesser of
$250,000 or one percent of the Fund's net asset value. Applicant
states that with respect to Class M shareholders of the Fund, all
redemption requests in excess of $500,000 will be redeemed in-kind
during any 90-day period within the one-year period following the
Conversion. The Fund will impose a 2% redemption fee on redemptions
by Class M shareholders during the one-year period following the
Conversion.
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Applicant's Legal Analysis
1. Section 17(a)(2) of the Act prohibits an affiliated person of a
registered investment company, or an affiliated person of such person,
acting as principal, from knowingly purchasing any security or other
property (except securities of which the seller is the issuer) from the
registered investment company. Section 2(a)(3)(A) of the Act defines an
``affiliated person'' to include any person owning 5% or more of the
outstanding voting securities of the other person. Applicant states
that to the extent that an in-kind redemption could be deemed to
involve the purchase of portfolio securities (of which the Fund is not
the issuer) by an Affiliated Shareholder, the proposed redemptions in-
kind would be prohibited by section 17(a)(2).
[[Page 41983]]
2. Section 17(b) of the Act provides that, notwithstanding section
17(a) of the Act, the Commission shall exempt a proposed transaction
from section 17(a) if evidence establishes that: (a) the terms of the
proposed transaction are reasonable and fair and do not involve
overreaching; (b) the proposed transaction is consistent with the
policy of each 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 Commission may exempt
any person, security or transaction, or any class or classes of
persons, securities or transactions, from the provisions of the Act, to
the extent that 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.
4. Applicant requests an order under sections 6(c) and 17(b) of the
Act to permit Affiliated Shareholders to redeem their shares in-kind.
The requested order would not apply to redemptions by shareholders who
are affiliated persons of the Fund within the meaning of sections
2(a)(3)(B) through (F) of the Act.
5. Applicant submits that the terms of the proposed in-kind
redemptions by Affiliated Shareholders meet the standards set forth in
sections 6(c) and 17(b) of the Act. Applicant asserts that neither the
Manager nor an Affiliated Shareholders will have any choice as to the
type of consideration to be received in connection with a redemption
request, and neither the Manager nor the Affiliated Shareholder will
have any opportunity to select the specific portfolio securities to be
distributed. Applicant further states that the portfolio securities to
be distributed in the proposed in-kind redemptions will be valued
according to an objective, verifiable standard and the in-kind
redemptions are consistent with the investment policies of the Fund.
Applicant also states that the proposed in-kind redemptions are
consistent with the general purposes of the Act because the Affiliated
Shareholders would not receive any advantage not available to other
redeeming shareholders.
Applicant's Conditions
Applicant agrees that any order granting the requested relief will
be subject to the following conditions:
1. The securities distributed to Affiliated Shareholders and non-
Affiliated Shareholders pursuant to a redemption in-kind (the ``In-Kind
Securities'') will be limited to securities that are traded on a public
securities market or for which quoted bid and asked prices are
available.
2. The In-Kind Securities will be distributed on a pro rata basis
after excluding: (a) securities which, if distributed, would be
required to be registered under the Securities Act of 1933; (b)
securities issued by entities in countries which restrict or prohibit
the holdings of securities by non-nationals other than through
qualified investment vehicles; and (c) certain portfolio assets (such
as forward foreign currency exchange contracts, futures and options
contracts, and repurchase agreements) that, although they may be liquid
and marketable, involve the assumption of contractual obligations,
require special trading facilities or can only be traded with the
counterparty to the transaction in order to effect a change in
beneficial ownership. Cash will be paid for that portion of the Fund's
assets represented by cash equivalents (such as certificates of
deposits, commercial paper and repurchase agreements) and other assets
which are not readily distributable (including receivables and prepaid
expenses), net of all liabilities (including accounts payable). In
addition, cash will be distributed in lieu of portfolio securities not
amounting to round lots (e.g., 100 shares) (or which would not amount
to round lots if included in the in-kind distribution), or fractional
shares and accruals on such securities.
3. The Board, including a majority of the Disinterested Directors,
will determine no less frequently than annually: (a) whether the In-
Kind Securities, if any, have been distributed in accordance with
conditions 1 and 2 above; (b) whether the In-Kind Securities, if any,
have been valued in accordance with condition 5 below; and (c) whether
the distribution of any In-Kind Securities is consistent with the
policies of the Fund as reflected in its prospectus. In addition, the
Board shall make and approve such changes as it deems necessary in its
procedures for monitoring compliance by the applicant with the terms
and conditions of the application.
4. The Fund will maintain and preserve for a period of not less
than six years from the end of the fiscal year in which any redemption
in-kind to an Affiliated Shareholder occurred, the first two years in
an easily accessible place, a written record of each such redemption
setting forth the terms of the distribution and the information or
materials upon which the valuation was made.
5. The In-Kind Securities will be valued in the same manner as they
would be valued for the purposes of computing the Fund's net asset
value per share, which, in the case of securities traded as a public
securities market for which quotations are available, is their last
reported sales price on the exchange on which the securities are
primarily traded or at the last sales price on the national securities
market, or, if the securities are not listed on an exchange or the
national securities market or if there is no such reported price, the
average of the most recent bid and asked price (or, if no such asked
price is available, the last quoted bid price).
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-19721 Filed 7-30-99; 8:45 am]
BILLING CODE 8010-01-M
