[Federal Register Volume 64, Number 190 (Friday, October 1, 1999)]
[Notices]
[Pages 53426-53428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-25502]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24052; 812-11784]
Daewoo Capital Management Co., Ltd., et al.; Notice of
Application
September 24, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act.
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SUMMARY OF THE APPLICATION: The requested order would permit the
implementation, without prior shareholder approval, of a new investment
subadvisory agreement (``New Agreement'') for a period continuing until
the New Agreement is approved or disapproved by shareholders of the
investment company (but in no event later than December 31, 1999).
Applicants: Daewoo Capital Management Co., Ltd. (``Subadviser'')
and Scudder Kemper Investments, Inc. (``Adviser'').
Filing Date: The application was filed on September 24, 1999.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested person may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 18, 1999 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 may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants: c/o Adviser, Attn:
Bruce H. Goldfarb, Esq., 345 Park Avenue, New York, NY 10154.
FOR FURTHER INFORMATION CONTACT:
Rachel H. Graham, Senior Counsel, at (202) 942-0583, or Mary Kay Frech,
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, NW,
Washington, DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. The Korea Fund, Inc. (``Fund'') is registered under the Act as a
closed-end management investment company. The Adviser is registered
under the Investment Advisers Act of 1940 (``Advisers Act'') and serves
as investment adviser to the Fund.
2. The Subadviser, a Korean corporation and a subsidiary of Daewoo
Securities Co., Ltd. (``Daewoo Securities''), is registered as an
investment adviser under the Advisers Act. The Subadviser serves as
subadviser to the Fund pursuant to an investment subadvisory agreement
with the Adviser (``Existing Agreement''). The Adviser pays the
Subadviser out of the fee that the Adviser receives from the Fund.
3. Prior to August 30, 1999, approximately 15% of the common stock
of Daewoo Securities was owned by Daewoo Corporation and certain of its
affiliates which are members of the Daewoo Group, a Korean chaebol.
Because of financial difficulties, certain members of the Daewoo Group
agreed on August 30, 1999 to transfer their interests in Daewoo
Securities to a group of six Korean creditor banks. As a result of this
transfer, the six banks jointly acquired ownership of approximately
14.4% of the outstanding common stock of Daewoo Securities. On
September 7, 1999, Daewoo Securities conducted a rights issuance
pursuant to which the six Korean banks and three additional Korean
banks (collectively, the ``Creditor Banks'') subscribed on an
individual basis to each acquire, on September 21, 1999 (``Acquisition
Date''), newly issued shares of common stock of Daewoo Securities. The
Creditor Banks also agreed to each acquire, on an individual basis,
additional shares of Daewoo Securities stock through third-party
allotments. The two acquisitions by the Creditor Banks collectively are
referred to as the ``Acquisition.'' Upon completion of the Acquisition,
the Creditor Banks will own in the aggregate approximately 32.58% of
the common stock of Daewoo Securities. The proposed terms and timing of
the Acquisition were not available to the Subadviser until
approximately September 9, 1999 and to
[[Page 53427]]
the Adviser until approximately September 13, 1999.
4. Applicants understand that the Creditor Banks have agreed to act
in concert in certain respects as to their holdings in Daewoo
Securities. Applicants state that the Acquisition may involve the
transfer of a controlling block of Daewoo Securities stock by certain
members of the Daewoo Group and the acquisition of a controlling block
of that stock by the Creditor Banks. Applicants state that the
Acquisition therefore may result in an assignment, and thus the
automatic termination, of the Existing Agreement. Applicants request an
exemption to permit the implementation, during the Interim Period and
prior to obtaining shareholder approval, of the New Agreement. The
requested exemption would cover a period commencing on the filing date
of the application \1\ and continuing until the New Agreement is
approved or disapproved by Fund shareholders (but in no event later
than December 31, 1999) (``Interim Period''). The requested order also
would permit the Subadviser to receive from the adviser all fees earned
under the New Agreement during the Interim Period, if and to the extent
that the New Agreement is approved by Fund shareholders. Applicants
represent that the New Agreement will contain substantially the same
terms and conditions as the Existing Agreement, except for the
effective and termination dates. Applicants further represent that the
Fund will receive, during the Interim Period, the same scope and
quality of investment subadvisory services, provided in the same manner
by substantially the same personnel, at the same fee levels as it
received prior to the Acquisition.
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\1\ Applicants state that, since the Acquisition Date precedes
issuance of the requested order, the Subadviser will continue to
serve as subadviser after the Acquisition Date (and prior to the
issuance of the order) in a manner consistent with its fiduciary
duty to provide investment subadvisory services to the Fund even
though approval of the New Agreement has not yet been secured from
the Fund's shareholders.
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5. Applicants state that the Fund's board of directors (``Board'')
will meet within one week of the Acquisition Date to consider approval
of the New Agreement and submission of the New Agreement to the
shareholders for their approval, in accordance with section 15(c) of
the Act.\2\ Applicants state that the Board will evaluate whether the
terms of the New Agreement are in the best interests of the Fund and
its shareholders.
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\2\ Applicants acknowledge that, to the extent that the Board
has not met to approve the New Agreement prior to the Acquisition
Date, any relief granted by the Commission will allow the Subadviser
to receive fees under the New Agreement only for the period
following approval of the New Agreement by the Board, including a
majority of the directors who are not ``interested persons'' of the
Fund, as that term is defined in section 2(a)(19) of the Act
(``Independent Directors''), but in no event earlier than the filing
date of the application.
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6. Applicants submit that it will not be possible to obtain
shareholder approval of the New Agreement in accordance with section
15(a) of the Act prior to the Acquisition Date. Applicants state that
the shareholders will vote on approval of the New Agreement at the
annual meeting previously scheduled to be held on October 20, 1999.
Proxy materials concerning the shareholder vote on the New Agreement
will be mailed on or about October 5, 1999.
7. The fees earned by the Subadviser under the New Agreement during
the Interim Period will be maintained in an interest-bearing escrow
account with an unaffiliated financial institution. The amounts in the
escrow account (including any interest earned) will be paid: (i) to the
Subadviser upon approval of the New Agreement by the Fund's
shareholders; or (ii) to the Fund, if shareholder approval is not
obtained and the Interim Period has ended. Before any such release is
made, the Board will be notified.
Applicant's Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to serve as an investment adviser to a
registered investment company, except pursuant to a written contract
that has been approved by the vote of a majority of the outstanding
voting securities of the investment company. Section 15(a) further
requires the written contract to provide for its automatic termination
in the event of its assignment. Section 2(a)(4) of the Act defines
``assignment'' to include any direct or indirect transfer of a
controlling block of the assignor's outstanding voting securities by a
security holder of the assignor. Section 2(a)(9) of the Act defines
``control'' as the power to exercise a controlling influence over the
management or policies of a company, and beneficial ownership of more
than 25% of the voting securities of a company is presumed under
Section 2(a)(9) to reflect control. Applicants state that the
Acquisition may result in an assignment of the Existing Agreement and
that such agreement will terminate according to its terms.
2. Rule 15a-4 under the Act provides, in relevant part, that if an
investment advisory contract with a registered investment company is
terminated by an assignment, the adviser may continue to serve for 120
days under a written contract that has not been approved by the
company's shareholders, provided that: (i) the new contract is approved
by that company's board of directors, including a majority of the non-
interested directors; (ii) the compensation to be paid under the new
contract does not exceed the compensation that would have been paid
under the contract most recently approved by the company's
shareholders; and (iii) neither the adviser nor any controlling person
of the adviser ``directly or indirectly receives money or other
benefit'' in connection with the assignment. The Subadviser states that
it may not rely on rule 15a-4 because of the benefits to Daewoo
Securities arising from the Acquisition.
3. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction from any provision of the Act if
and to the extent that such exemption is necessary or appropriate in
the public interest and consistent with both the protection of
investors and the purposes fairly intended by the policy and provisions
of the Act. The Subadviser believes that the requested relief meets
this standard.
4. Applicants state that the terms and timing of the Acquisition
were determined in response to a number of factors beyond the scope of
the Act and substantially unrelated to the Fund. Applicants state that
it will not be possible for the Fund to obtain shareholder approval of
the New Agreement prior to the Acquisition Date. Applicants assert that
the requested relief would prevent any disruption in the delivery of
investment subadvisory services to the Fund during the Interim Period.
5. Applicants submit that they will take all appropriate actions to
ensure that the scope and quality of advisory and other services
provided to the Fund during the Interim Period will be at least
equivalent to the scope and quality of services previously provided.
During the Interim Period, the Subadviser will operate under the New
Agreement, which will be substantially the same as the Existing
Agreement, except for the effective and termination dates. Applicants
state that the fees payable to the Subadviser under the New Agreement
during the Interim Period will be at the same rate as the fees paid
under the Existing Agreement.
[[Page 53428]]
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. The New Agreement will contain substantially the same terms and
conditions as the Existing Agreement, except for the dates of execution
and termination.
2. The fees earned by the Subadsviser under the New Agreement
during the Interim Period will be maintained in an interest-bearing
escrow account (including interest earned on such amounts), and amounts
in the account will be paid: (i) to the Subadviser after the requisite
approval of the New Agreement by the Fund's shareholders is obtained;
or (ii) in the absence of such approval by the end of the Interim
Period, to the Fund.
3. The shareholders of the Fund will vote on the approval of the
New Agreement at the annual meeting scheduled to be held on October 20,
1999, or any adjournment thereof (but in no event later than December
31, 1999).
4. The Subadviser or its affiliates will pay the costs of preparing
and filing the application and the costs relating to the solicitation
and approval of the Fund's shareholders of the New Agreement.
5. The Subadviser will take all appropriate actions to ensure that
the scope and quality of subadvisory and other services provided to the
Fund by the Subadviser during the Interim Period under the New
Agreement will be at least equivalent, in the judgment of the Board,
including a majority of the Independent Directors, to the scope and
quality of services currently provided under the Existing Agreement. In
the event of any material change in personnel providing services
pursuant to the New Agreement during the Interim Period, the Subadviser
will apprise and consult with the Board to assure that the Board,
including a majority of the Independent Directors, is satisfied that
the services provided by the Subadviser will not be diminished in scope
or quality.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-25502 Filed 9-30-99; 8:45 am]
BILLING CODE 8010-01-M