[Federal Register Volume 65, Number 197 (Wednesday, October 11, 2000)]
[Notices]
[Pages 60489-60491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26034]


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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.

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

[[Page 60491]]

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. 00-26034 Filed 10-10-00; 8:45 am]
BILLING CODE 8010-01-M