There are skeletons in every closet.

In a filing with the Securities and Exchange Commission Tuesday, Scudder Investments acknowledged that an internal investigation uncovered a market-timing arrangement that has since been terminated.

An unidentified investment advisory firm had an arrangement with Scudder that resulted in "frequent trading ... inconsistent with registration statement policies," according to the filing. The fund at issue is the ( BTEQX) Scudder International Equity fund.

Scudder is currently determining the extent of such trading and whether it caused dilution in the fund. The firm said it would reimburse any losses attributable to the market-timing deal.

The arrangement with the outside investment advisory firm began before the new Scudder management team took over in 2002. Management terminated the arrangement in early 2003.

Market-timing generally refers to the frequent trading in and out of mutual fund shares in order to take advantage of price inefficiencies. Such inefficiencies are often found in international funds, which hold shares of stock traded on various exchanges around the world. Stale pricing can occur when news that would affect the price of a stock or group of stocks happens after the local exchange has closed.

Scudder wouldn't comment beyond the language in its SEC documents.

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