[Federal Register Volume 60, Number 184 (Friday, September 22, 1995)]
[Notices]
[Pages 49302-49305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23560]



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[[Page 49303]]


SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21363; 812-9494]


Scudder Investment Trust, et al.; Notice of Application

September 18, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Scudder Investment Trust, on behalf of its series Scudder 
Growth and Income Fund (the ``Fund''), Scudder Cash Management 
Investment Trust (the ``Trust''), Scudder Trust Company (the 
``Trustee''), Scudder, Stevens & Clark, Inc. (the ``Adviser''), and any 
other registered management investment company, except for an 
investment company that holds itself out as a money market fund in 
accordance with rule 2a-7, that in the future is advised by the Adviser 
or any person controlled by or under common control with the Adviser 
(together with the Fund, the ``Funds'').\1\

    \1\The Adviser currently advises other investment companies that 
presently do not intend to rely on the requested order, however, any 
such company may rely on the requested order in the future in 
accordance with the representations and conditions of the order.

RELEVANT ACT SECTIONS: Exemption requested under sections 6(c) and 
17(b) of the Act that would grant an exemption from section 17(a), and 
under rule 17d-1 to permit certain transactions in accordance with 
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section 17(d) of the Act and rule 17d-1.

SUMMARY OF APPLICATION: Applicants seek an order that would permit the 
Funds to use cash collateral received from the borrowers of their 
portfolio securities to purchase shares of the Trust, an affiliated 
private investment company, pursuant to a securities lending program.

FILING DATES: The application was filed on February 22, 1995, and 
amended on June 1, 1995 and August 31, 1995.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
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 13, 
1995, 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 of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. 
Applicants, 345 Park Avenue, New York, New York 10154.

FOR FURTHER INFORMATION CONTACT:
Mary Kay Frech, Senior Attorney, at (202) 942-0579, or Alison E. Baur, 
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.

Applicant's Representations

    1. The Fund is a series of Scudder Investment Trust, a registered 
open-end management investment company organized as a Massachusetts 
business trust. The Fund invests in a variety of equity and convertible 
securities in accordance with its investment objectives and policies. 
The Adviser manages the daily investment and business affairs of the 
Funds, subject to the policies established by the trustees of each of 
the Funds.
    2. The Trust is a newly formed New Hampshire investment trust of 
which the Trustee, a New Hampshire banking corporation, is the sole 
trustee. It is a private investment company excluded from the 
definition of ``investment company'' pursuant to section 3(c)(1) of the 
Act. The Trust intends to meet the maturity, quality, and 
diversification requirements set forth in paragraphs (c) (2), (3), and 
(4), and (d) of rule 2a-7 under the Act. The Trust also intends to 
offer daily redemption of its shares and to use the ``amortized cost 
methods,'' as defined in rule 2a-7, to determine the Trust's net asset 
value per share. The Trustee will adopt procedures that are designed to 
stabilize the Trust's net asset value per share at a single value. In 
these respects, the Trust intends to operate as a money market fund.
    3. The Trustee will cause the Trust to retain the Adviser to manage 
the investments of the Trust, subject to the Trustee's overall 
supervision. The Adviser owns substantially all of the common stock of 
the Trustee; therefore, the Trustee and the Adviser are affiliated 
persons of one another under section 2(a) (3) of the Act, and the 
Trustee is an affiliated person of an affiliated person of the Funds.
    4. The Fund has the ability to increase its income by lending 
portfolio securities to registered broker-dealers deemed by the Adviser 
to be of good standing. These loans may not exceed one third of the 
Fund's total assets taken at market value. The Fund and NationsBank of 
Texas, N.A. (the ``Agent'') have entered into an agreement pursuant to 
which the Fund is one of the participants in a securities lending 
program (the ``Program'') administered by the Agent. The Program 
conforms to the securities lending guidelines established in a number 
of no-action letter issued by the SEC staff.\2\ The Agent has been 
appointed subcustodian of the Fund and has entered into a subcustody 
agreement with State Street Bank and Trust Company, the custodian of 
the Fund.

    \2\See, e.g., Washington Square Cash Fund, Inc. (pub. avail. 
July 9, 1990); The Adams Express Company (pub. avail. Oct. 8, 1984); 
and State Street Bank & Trust Co. (pub. avail. Sept. 29, 1972).
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    5. Under the Program, the Agent enters into agreements with 
borrowers to lend them portfolio securities of the Fund (``Securities 
Loan Agreements''). Pursuant to the Securities Loan Agreements, the 
Agent delivers Fund portfolio securities to borrowers, who agree to 
return such securities on demand. The Agent may enter into Securities 
Loan Agreements only with borrowers from a list approved by the Fund's 
board of trustee's. The list also provides the maximum percentage of 
the Fund's total lendable assets that may be loaned to each borrower.
    6. The Agent currently is authorized to accept only cash collateral 
for the loaned securities, although it may accept securities or letters 
of credit if the Fund consents. The Fund may invest the cash collateral 
itself or direct the Agent to invest the collateral. The cash 
collateral received for the securities loaned by the Fund may be 
reinvested in shares of registered or unregistered investment companies 
acceptable to the Adviser that meet the quality, maturity, and 
diversification requirements of rule 2a-7 under the Act. The Agent also 
may invest cash collateral in other instruments, subject to certain 
parameters.
    7. Net annual interest income earned from the investment of cash 
collateral is divided between the Fund and the Agent. The Adviser 
receives no part of this return. Under each Securities Loan Agreement, 
the borrower receives a specified cash collateral fee, computed daily 
based on the amount of cash held as collateral at such rates as the 
borrower and the Agent may agree. The cash collateral fee is not based 
on the investment return of the cash collateral. Any excess return is 
divided between the Agent and the Fund. The Agent may receive a fee to 
pass on to the providers 

[[Page 49304]]
of related services, such as investment management, custody, and 
accounting or audit services.
    8. Applicants seek an order to permit the Fund (and any other Funds 
that in the future determine to lend their portfolio securities) to 
purchase shares of the Trust using cash collateral received from the 
borrowers of its portfolio securities. By investing cash collateral in 
shares of the Trust, applicants anticipate that the Fund can reduce its 
transaction costs, create more liquidity, enjoy greater returns on the 
cash collateral, and achieve greater diversification with respect to 
its investment. Therefore, the board of trustees of the Fund has 
approved the investment of cash collateral in shares of the Trust.
    9. Shares of the Trust are offered to participants in the Program, 
as well as to other institutional investors in reliance on the 
exemption provided by Regulation D under the Securities Act of 1933. 
The shares, together with any other outstanding securities (other than 
short-term paper) of the Trust, will not be beneficially owned by more 
than one hundred persons. the Trust is not making and presently does 
not propose to make a public offering of its shares or other 
securities. The Trust intends to enter into an advisory contract with 
the Adviser, under which the Adviser will make investment decisions 
with respect to Trust assets and administer the Trust in accordance 
with the declaration of trust and the policies of the Trust.
    10. The Adviser will receive an annualized fee from the Trust. The 
shareholders of the Fund, however, will not be subject to the 
imposition of duplicative advisory fees. An amount of advisory fee 
equal to the net asset value of the Fund's holdings in the Trust 
multiplied by the applicable Trust management fee rate charged by the 
Adviser will be waived in the overall calculation of the Fund's 
advisory fees.
    11. The Agent will be paid a fee by the Trust for performing 
custodial, administrative, and transfer agency functions. Scudder Fund 
Accounting, a subsidiary of the Adviser, will be paid a fee by the 
Trust for providing accounting and other administrative services to the 
Trust. Together, the fees paid by the Trust to the Agent and Scudder 
Fund Accounting will not exceed three basis points. In addition, the 
Trustee will receive compensation from the Trust equal to one basis 
point of the market value of the assets of the Trust.

Applicants' Legal Analysis

    1. Sections 17(a)(1) and (2) of the Act make it unlawful for any 
affiliated person of a registered investment company, or any affiliated 
person of such affiliated person, acting as principal, to sell or 
purchase any security to or from such investment company. As the 
investment manager of the Funds, the Adviser is an affiliated person of 
the Funds under section 2(a)(3) of the Act. Because the Adviser owns 
substantially all the shares of common stock of the Trustee, the 
Trustee may be considered an affiliated person of an affiliated person 
of the Funds. The Trust may be considered an affiliated person of an 
affiliated person of the Funds under section 2(a)(3) because the 
Adviser, as owner of substantially all the shares of common stock of 
the Trustee, may be deemed to control the Trust. Accordingly, the sale 
of shares of the Trust to the Funds, and the redemption of such shares 
from the Funds, would be prohibited under section 17(a).
    2. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) if 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, the proposed transaction is consistent with the 
policy of each registered investment company concerned, and the 
proposed transaction is consistent with the general policy of the Act. 
Section 17(b) could be interpreted to exempt only a single transaction. 
However, the Commission, under section 6(c) of the Act, may exempt a 
series of transactions that otherwise would be prohibited by section 
17(a).
    3. Applicants believe that the terms of the proposed transactions 
are reasonable and fair and consistent with the general purposes of the 
Act as well as with the policy of the Fund as recited in its 
registration statement. The Fund will be treated like any other 
investor in the Trust. The Fund will purchase and sell shares of the 
Trust on the same terms and on the same basis as shares are purchased 
and sold by all other shareholders of the Trust. Applicants also state 
that the transactions will not involve any duplicative advisory fees 
because an amount equal to the net asset value of the Fund's holdings 
in the Trust multiplied by the applicable Trust advisory fee rate 
charged by the Adviser will be waived in the overall calculation of the 
advisory fees of the Fund. Permitting the Fund to invest cash 
collateral in the Trust enables the Fund to invest in a vehicle that is 
similar to a money market fund in terms of the liquidity, diversity, 
and quality of its investment at a cost that is expected to be 
significantly lower than the cost typically incurred when investing in 
a registered money market fund. Therefore, applicants believe that the 
proposed transactions are in the best interests of the Fund and its 
shareholders.
    4. Section 17(d) of the Act and rule 17d-1 thereunder prohibit an 
affiliated person of an investment company, acting as principal, from 
participating in or effecting any transaction in connection with any 
joint enterprise or joint arrangement in which the investment company 
participates. The Funds, by purchasing shares of the Trust, the 
Adviser, by managing the portfolio securities of the Funds and the 
Trust at the same time that the Funds' collateral is invested in shares 
of the Trust, the Trust, by selling shares to and redeeming them from 
the Funds, and the Trustee, by serving as trustee of the Trust at the 
same time that the Trust sells shares to and redeems them from the 
Funds, could be participants in a joint enterprise or other joint 
arrangement within the meaning of section 17(d)(1) and rule 17d-1.
    5. Rule 17d-1 permits the Commission to approve a proposed joint 
transaction covered by the terms of section 17(d). In determining 
whether to approve a transaction, the Commission is to consider whether 
the proposed transaction is consistent with the provisions, policies, 
and purposes of the Act, and the extent to which the participation of 
the investment companies is on a basis different from or less 
advantageous than that of the other participants.
    6. Applicants believe that the proposal satisfies these standards. 
The Fund will invest in shares of the Trust on the same basis as any 
other shareholder. All investors in the Trust will be subject to the 
same eligibility requirements imposed by the Trust and all shares of 
the Trust will be priced in the same manner and will be redeemable 
under the same terms. In addition, the Fund will be able to invest in a 
vehicle that is similar to a registered money market fund at a cost 
that is expected to be significantly lower.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. None of the Funds will enter into a securities lending program 
without the approval of a majority of their independent directors or 
trustees. Such directors or trustees will also evaluate the securities 
lending arrangement and its results no less frequently than annually, 
and determine that any 

[[Page 49305]]
investment of cash collateral in the Trust is in the best interest of 
the shareholders of the Fund.
    2. With respect to any Fund that enters into a securities lending 
program (a ``Lending Fund''), the Adviser will reduce its advisory fees 
charged to the Lending Fund by an amount (the ``Reduction Amount'') 
equal to the net asset value of the Lending Fund's holdings in the 
Trust multiplied by the rate at which advisory fees are charged by the 
Adviser to the Trust. Any fees remitted or waived pursuant to this 
condition will not be subject to recoupment by the Adviser or its 
affiliated persons at a later date.
    3. If the Adviser waives any portion of its fees or bears any 
portion of the expenses of the Lending Fund (an ``Expense Waiver''), 
the adjusted fees for the Lending Fund (gross fees less Expense Waiver) 
will be calculated without reference to the Reduction Amount. Adjusted 
fees then will be reduced by the Reduction Amount. If the Reduction 
Amount exceeds adjusted fees, the Adviser also will reimburse the 
Lending Fund in an amount equal to such excess.
    4. Investment in shares of the Trust will be in accordance with 
each Lending Fund's respective investment restrictions and will be 
consistent with its policies as recited in its registration statement 
and prospectus.
    5. The Trust will maintain a portfolio that complies with the 
maturity, quality, and diversification requirements of rule 2a-7(c) 
(2), (3), (4), and (d) under the Act. A Lending Fund may purchase 
shares of the Trust if the Adviser determines on an ongoing basis that 
the Trust is in compliance with paragraphs (c)(2), (c)(3), (c)(4), 
(c)(6), and (d) of rule 2a-7. The Adviser shall preserve for a period 
not less than six years from the date of determination, the first two 
years in an easily accessible place, a record of such determination and 
the basis upon which such determination was made. This record will be 
subject to examination by the SEC and its staff.
    6. The Trust will comply with the requirements of sections 17 (a), 
(d), and (e), and 18 of the Act as if the Trust were a registered open-
end investment company. With respect to all redemption requests made by 
a Lending Fund, the Trust will comply with section 22(e) of the Act. 
The Adviser shall, subject to approval by the Trustee, adopt procedures 
designed to ensure that the Trust complies with sections 17 (a), (d), 
and (e), 18, and 22(e). The Adviser will also periodically review and 
periodically update as appropriate such procedures and will maintain 
books and records describing such procedures, and maintain the records 
required by rules 31a-1(b)(1), 31a-1(b) (2)(ii), and 31a-1(b)(9) under 
the Act. All books and records required to be made pursuant to this 
condition will be maintained and preserved for a period of not less 
than six years from the end of the fiscal year in which any transaction 
occurred, the first two years in an easily accessible place, and will 
be subject to examination by the SEC and its staff.
    7. The Trust will value its shares, as of the close of business on 
each business day, as follows: The Trust will use the ``amortized cost 
method,'' as defined in rule 2a-7, to determine the Trust's net asset 
value per share. In this regard, the Trust will comply with rule 2a-
7(c)(6), except that the Adviser, subject to approval by the Trustee, 
shall adopt the procedures described in that provision and the Adviser 
shall monitor such procedures and take such other actions as are 
required to be taken by a board of directors pursuant to that 
provision.
    8. The Adviser, subject to approval by the Trustee, will adopt 
procedures that are designed, taking into account current market 
conditions and the Trust's investment objectives, to stabilize the 
Trust's net asset value per share, as computed for the purpose of 
distribution, redemption, and repurchase, at a single value. These 
procedures will be reviewed annually by the board of trustees of each 
Lending Fund.
    9. The shares of the Trust will not be subject to a sales load, 
redemption fee, or any asset-based sales charge.
    10. Each Lending Fund will purchase and redeem shares of the Trust 
as of the same time and at the same price, and will receive dividends 
and bear its proportionate share of expenses on the same basis, as 
other shareholders of the Trust. A separate account will be established 
in the shareholder records of the Trust for the account of each Lending 
Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret M. McFarland,
Deputy Secretary.
[FR Doc. 95-23560 Filed 9-21-95; 8:45 am]
BILLING CODE 8010-01-M