Investment Company Act of 1940: Scudder Pathway Series et al.,

[Federal Register: October 11, 2000 (Volume 65, Number 197)]

[Notices]

[Page 60489-60491]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr11oc00-113]

SECURITIES AND EXCHANGE COMMISSION

[Rel No. IC-24675; 812-12176]

Scudder Pathway Series, et al; Notice of Application

October 3, 2000. AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application under section 17(b) of the Investment Company Act of 1940 (the ``Act'') for an exemption from section 17(a) of the Act.

Summary of Application: Applicants request an order to permit Scudder Income Fund (``Income''), a series of Scudder Portfolio Trust (the ``Trust''), to acquire substantially all of the assets and all of the liabilities of Scudder Corporate Bond Fund (``Corporate Bond''), also a series of the Trust (the ``Reorganization''). Because of certain

[[Page 60490]]

affiliations, applicants may not rely on rule 17a-8 under the Act.

Applicants: Scudder Pathway Series (``Pathway''), the Trust, and Scudder Kemper Investments, Inc. (``Scudder Kemper'').

Filing Dates: The application was filedon July 21, 2000 and amended on October 2, 2000.

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 October 26, 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 SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549- 0609. Applicants, Two International Place, Boston, Massachusetts, 02110.

FOR FURTHER INFORMATION CONTACT: Julia H. Kim, Senior Counsel, at (202) 942-0528, or Janet M. Grossnickle, 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, NW., Washington, DC 20549-0102 (tel. 202-942-8090).

Applicants' Representation

1. The Trust, a Massachusetts business trust, is registered under the Act as an open-end management investment company and currently offers four series. Corporate Bond and Income (each a ``Fund,'' and together, the ``Funds'') are two of the four series of the Trust. Pathway, a Massachusetts business trust registered under the Act as an open-end management investment company, has three series, each of which operates as a fund of funds pursuant to an order from the SEC.\1\ One series offered by pathway, the Balanced Portfolio, owns more than 5% of the outstanding voting shares of each of Corporate Bond and Income. Scudder Kemper, a Delaware corporation, is registered as an investment adviser under the Investment Advisers Act of 1940, and serves as the investment adviser to the Funds and Pathway.

   \1\ Scrudder Global Fund, Inc., Investment Company Act Rels. No. 222104 (July 26, 1996) (notice) and 22168 (August 23, 1996) (order).

2. On February 7, 2000, the board of trustees of the Trust (the ``Board''), including the trustees who are not ``interested persons,'') as defined in section 2(a)(19) of the Act (``Independent Trustees''), unanimously approved an agreement and plan of reorganization (the ``Plan'') between the Funds. Under the Plan, Income will acquire all or substantially all of the assets and all of the liabilities of Corporate Bond, in exchange for Class S shares of Income (the ``Reorganization''). The shareholders of Corporate Bond will receive Class S shares of Income having an aggregate net asset value equal to the aggregate net asset value of Corporate Bond shares held by the shareholders, as determined at the close of business on the business day immediately preceding the day of the closing of the Reorganization (``Closing Date''). The value of the assets of the Funds will be determined in accordance with the valuation procedures described in each Fund's then-current prospectus and statement of additional information. Corporate Bond will distribute Class S shares of Income, pro rata, to Corporate Bond's shareholders and will liquidate. The Closing Date is expected to be at the end of October.

3. Applicants state that the investment objectives and policies of Income and Corporate Bond are substantially similar and that both have identical investment restrictions. No sales charges will be imposed on Corporate Bond shareholders in connection with the Reorganization.

4. The Board, including the Independent Trustees, determined that the Reorganization is in the best interests of each Fund and its shareholders, and that the interests of the existing shareholders of each Fund would not be diluted by the Reorganization. In assessing the Reorganization, the Board considers various factors, including: (a) The fee and expense ratios of the Funds; (b) the terms and conditions of the Reorganization; (c) compatibility of each Fund's investment objectives, policies, and restrictions; (d) Scudder Kemper's agreement to provide administrative services at a fixed rate for an initial three-year term; (e) the services available to the shareholders of the Funds; (f) the costs of the Reorganization; (g) the prospects for Income to attract additional assets; (h) the tax consequences of the Reorganization; and (i) the investment performances of the Funds. Scudder Kemper will bear Corporate Bond's costs associated with the Reorganization. Income will bear up to $450,559 for its share of Reorganization costs, with Scudder Kemper paying any Reorganization costs allocated to Income in excess of $450,559.

5. The Reorganization is subject to a number of conditions, including that: (a) The Plan is approved by the shareholders of Corporate Bond; (b) the Funds receive an opinion of counsel that all regulatory consents, authorizations, approvals or filings have been obtained or made; (c) all consents of other parties have been obtained; (d) that all representations and warranties of the Trust on behalf of each Fund in the Plan be true and correct in all material respects; (e) Income adopt a new investment management agreement and enter into an administrative services agreement with Scudder Kemper, each in a form reasonably satisfactory to Corporate Bond; and (f) the Funds receive an opinion from counsel that the Reorganization will be tax-free. Either Fund may terminate the Plan upon a material breach of the Plan by the other or if any condition set forth in the Plan has not been fulfilled or waived by the party entitled to its benefits. Applicants agree not to make any material changes to the Plan without prior Commission approval.

6. A registration statement on Form N-14 containing a combined prospectus/proxy statement was filedwith the Commission on March 3, 2000 and became effective on April 7, 2000. Proxy solicitation materials were mailed to Corporate Bond shareholders on or about April 18, 2000, and definitive proxy materials were filedwith the Commission on April 25, 2000. The shareholders of Corporate Bond approved the Plan at a special meeting held on July 13, 2000.

   Applicants' Legal Analysis

1. Section 17(a) of the Act generally prohibits an affiliated person of a registered investment company, or an affiliated person of that person, acting as principal, from selling any security to, or purchase any security from, that company. Section 2(a)(3) of the Act defines an ``affiliated person'' of another person to include (a) 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; (b) any person 5% or more of whose outstanding voting securities are directly owned a connelled or held with power to vote by the other person; (c) any person directly or indirectly controlling, controlled by or under common control with the other

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   person; and (d) if the other person is an investment company, any investment adviser of that company.

2. Rule 17a-8 under the Act generally exempts from the prohibitions of section 17(a) mergers, consolidations, or purchases or sales of substantially all of the assets of registered investment companies that are affiliated persons, or affiliated persons of an affiliated person, solely by reason of having a common investment adviser, common directors, and/or common officers, provided that certain conditions set forth in the rule are satisfied. Applicants believe that they may not be able to rely on rule 17a-8 in connection with the Reorganization because the Funds may be deemed to be affiliated by reasons other than those set forth in the rule. Applicants state that the Balanced Portfolio of Pathway owns more than 5% of the outstanding voting securities of each of the Funds and did not use mirror or pass-through voting when it voted its Corporate Bond shares in favor of the Reorganization.

3. Section 17(b) of the Act provides, in relevant part, that the Commission may exempt a transaction from the provisions of section 17(a) if the evidence establishes that 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 that the proposed transaction is consistent with the policy of each registered investment company concerned and with the general purposes of the Act.

4. Applicants request an order under section 17(b) of the Act exempting them from section 17(a) to the extent necessary to consummate the Reorganization. Applicants submit that the Reorganization satisfies the standards of section 17(b) of the Act. Applicants also state that the Board, including the Independent Trustees, determined that the participation of each Fund in the Reorganization is in the best interests of each Fund and its shareholders and that such participation will not dilute the interests of shareholders of each Fund. Applicants further state that the terms of the Reorganization are fair and reasonable and do not involve overreaching. Ina ddition, applicanats state that the Reorganization will be based on the Funds' relative net asset values.

   For the Commission, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary.

   [FR Doc. 00-26034Filed10-10-00; 8:45 am]

   BILLING CODE 8010-01-M