[Federal Register Volume 61, Number 86 (Thursday, May 2, 1996)]
[Notices]
[Pages 19646-19648]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10923]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21920; 812-10080]


Morgan Grenfell Investment Trust; Notice of Application

April 26, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

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

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APPLICANT: Morgan Grenfell Investment Trust (the ``Trust''), on behalf 
of Morgan Grenfell International Small Cap Equity Fund (``International 
Small Cap Fund'') and Morgan Grenfell Emerging Markets Equity Fund 
(``Emerging Markets Fund'') (collectively, the ``Funds'').

RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act 
for an exemption from the provisions of section 17(a).

SUMMARY OF APPLICATION: Applicant seeks an order to permit the in-kind 
redemption of Fund shares held by a shareholder who is an ``affiliated 
person'' of the Funds solely by reason of owning, controlling, or 
holding with power to vote 5% or more of the Funds' outstanding shares.


[[Page 19647]]


FILING DATE: The application was filed on April 11, 1996.

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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on May 21, 1996, 
and should be accompanied by proof of service on applicant, 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 5th Street, NW., Washington, DC 20549. 
Applicant, 885 Third Avenue, New York, New York 10022.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 942-0583, 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 Trust, an open-end management investment company established 
as a Delaware business trust under an agreement and declaration of 
trust dated September 13, 1993, currently offers twelve investment 
portfolios. The investment objective of two of these portfolios, the 
International Small Cap Fund and the Emerging Markets Fund, is to 
maximize capital appreciation. The International Small Cap Fund seeks 
to achieve this objective by investing primarily in equity and equity-
related securities of small capitalization companies in countries other 
than the United States. The Emerging Markets Fund seeks to achieve its 
objective by investing primarily in equity and equity-related 
securities of companies in countries with emerging securities markets.
    2. Morgan Grenfell Investment Services Limited (the ``Adviser'') 
has acted as the Funds' investment adviser since their respective dates 
of inception pursuant to an advisory agreement dated January 3, 1994. 
The Adviser is registered as an investment adviser under the Investment 
Advisers Act of 1940.
    3. Allied Signal Inc. Master Pension Trust (the ``Pension Trust''), 
a trust fund that is exempt from federal income tax pursuant to section 
501(a) of the Internal Revenue Code of 1986 (``Code''), consists of all 
the assets of certain pension plans qualified under the Code and 
adopted by Allied Signal Inc. (``Allied Signal'').\1\ As of March 1, 
1996, the Pension Trust owned beneficially and of record approximately 
26.73% of the outstanding shares of the International Small Cap Fund 
(which were then valued at approximately $31,474,738.44), and 
approximately 20.94% of the outstanding shares of the Emerging Markets 
Fund (which were then valued at approximately $22,385,901.35). At such 
time, the Pension Trust was an ``affiliated person'' of each Fund, as 
defined in section 2(a)(3)(A) of the Act because it owned more than 5% 
of the shares of each Fund. The Pension Trust will continue to be an 
affiliated person of each Fund until the redemptions described herein 
are effected.
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    \1\ Four of the Trust's seven trustees are not ``interested 
persons'' (as defined in section 2(a)(19) of the Act) of the Trust. 
One trustee is considered an interested person of the Trust because 
he is an employee of Allied Signal, the sponsor of the Pension 
Trust, which is a shareholder and an ``affiliated person'' of each 
Fund. This trustee did not vote on any matter in connection with the 
proposed in-kind redemptions described in the application.
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    4. Allied Signal, acting in its fiduciary capacity with respect to 
the Pension Trust, has concluded that the assets of the Pension Trust 
currently managed by the Adviser indirectly through investment in the 
Funds should be managed directly by the Adviser in the form of two 
separate investment advisory accounts with investment objectives 
similar to those of the Funds. Consequently, Allied Signal, on behalf 
of the Pension Trust, has notified the Trust that it expects to redeem 
the Pension Trust's share of each Fund and place the respective 
proceeds in two separate investment advisory accounts to be managed by 
the Adviser.
    5. Shares of each Fund may be redeemed at the net asset value per 
share next determined after the Funds' transfer agent receives a proper 
redemption request. The Funds' prospectus and statement of additional 
information provide that either Fund may satisfy all or part of a 
redemption request by delivering portfolio securities to a redeeming 
shareholder if the board of trustees of the Trust (the ``Board'') 
determines that it is appropriate in order to protect the best 
interests of the Fund and its shareholders. The Board has determined 
that it would be in the best interests of each Fund and its 
shareholders to pay to the Pension Trust the redemption price for its 
shares substantially in kind as described below.
    6. The Trust, on behalf of each Fund, has elected to be governed by 
rule 18f-1 under the Act. This election commits each Fund, during any 
90-day period for any one shareholder, to redeem its shares solely in 
cash up to the lesser of $250,000 or 1% of the Fund's net asset value 
at the beginning of such period. Only redemption proceeds in excess of 
this limit may be paid in kind by a Fund.
    7. In order to reduce the impact of the redemptions by the Pension 
Trust upon the Funds and their respective shareholders, the Board, in 
accordance with each Fund's redemption policies, proposes to pay the 
first $250,000 of each such redemption in cash and the remainder in the 
form of a proportionate distribution of each of the portfolio 
securities held by the Fund (the ``Proposed In-Kind Redemptions'') 
after excluding: (a) Securities that, if distributed, would be required 
to be registered under the Securities Act of 1933 (``Securities Act''); 
(b) securities issued by entities in countries that (i) restrict or 
prohibit the holding of securities by non-nationals other than through 
qualified investment vehicles such as the Fund, or (ii) permit 
transfers of ownership of securities to be effected only by 
transactions conducted on a local stock exchange; and (c) certain 
portfolio assets (such as forward foreign currency exchange contracts, 
futures and options contracts and repurchase agreements) that, although 
they may be liquid and marketable, must be traded through the 
marketplace or with the counterparty to the transaction in order to 
effect a change in beneficial ownership. Securities to be distributed 
pursuant to the Proposed In-Kind Redemptions will be further limited to 
securities that are traded on a public securities market or for which 
quoted bid prices are available. Cash will be paid for that portion of 
each Fund's assets represented by cash equivalents (such as 
certificates of deposit, commercial paper and repurchase agreements) 
and other assets that are not readily distributable (including 
receivables and prepaid expenses), net of all liabilities (including 
accounts payable). In addition, each Fund will distribute cash in lieu 
of securities held in the Fund's portfolio not amounting to round lots 
(or which would not amount to round lots if included in the Proposed 
In-Kind Redemptions),

[[Page 19648]]

fractional shares, and accruals on such securities.

Applicant's Legal Analysis

    1. Section 17(a)(2) of the Act makes it unlawful for an affiliated 
person of a registered investment company or an affiliated person of 
such a person, acting as principal, to knowingly purchase from such 
registered investment company any security or other property (except 
securities of which the seller is the issuer). Section 2(a)(3)(A) of 
the Act defines ``affiliated person'' to include any person owning 5% 
or more of the outstanding voting securities of such other person. The 
Pension Trust owns beneficially and of record in excess of 5% of each 
Fund's shares and, thus, is an affiliated person of each Fund. To the 
extent that a Proposed In-Kind Redemption would be considered to 
involve the purchase of portfolio securities (of which the applicable 
Fund is not the issuer) by the Pension Trust, the Proposed In-Kind 
Redemption would be prohibited by section 17(a)(2).
    2. Section 17(b) provides that the SEC shall exempt proposed 
transactions from the restrictions of section 17(a) if evidence 
establishes that: (a) The terms of the proposed transaction are 
reasonable and fair and do not involve overreaching; (b) the proposed 
transaction is consistent with the policy of each registered investment 
company involved; and (c) the proposed transaction is consistent with 
the general purposes of the Act.
    3. Applicant submits that the terms of each Proposed In-Kind 
Redemption meet the standards set forth in section 17(b). Applicant 
believes that the terms of each Proposed In-Kind Redemption do not 
involve overreaching on the part of any person and are reasonable and 
fair to the affected Fund, its shareholders, and the Pension Trust 
because the portfolio securities to be distributed will be valued 
according to an objective, verifiable standard. Similarly, each 
Proposed In-Kind Redemption is consistent with the investment policies 
of the Trust and the applicable Fund, as set forth in the Funds' 
Prospectus, which expressly discloses each Fund's ability to redeem 
shares in kind. Finally, applicant believes that the Proposed In-Kind 
Redemptions are consistent with the general purposes of the Act to 
protect security holders of investment companies from discrimination 
among holders of securities issued by such companies and from self-
dealing on the part of investment company affiliates to the detriment 
of other security holders. Applicants assert that neither the Adviser 
nor the Pension Trust has any opportunity to select the portfolio 
securities to be distributed to the Pension Trust. In addition, 
applicants state that the Pension Trust would receive the same ``in 
kind'' distribution of portfolio securities and cash on the same basis 
as any other shareholder wishing to redeem shares valued in excess of 
$250,000 in any 90-day period. Thus, the Pension Trust would not 
receive any advantage not available to any other shareholder requesting 
a comparable redemption.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    1. The portfolio securities of each Fund distributed to the Pension 
Trust pursuant to a redemption in king (the ``In-Kind Securities'') 
will be limited to securities that are traded on a public securities 
market or for which quoted bid prices are available.
    2. The In-Kind Securities will be distributed by each Fund on a pro 
rata basis after excluding: (a) Securities that, if distributed, would 
be required to be registered under the Securities Act; (b) securities 
issued by entities in countries that (i) restrict or prohibit the 
holding of securities by non-nationals other than through qualified 
investment vehicles such as the Fund, or (ii) permit transfers of 
ownership of securities to be effected only by transactions conducted 
on a local stock exchange; and (c) certain portfolio assets (such as 
forward foreign currency exchange contracts, futures and options 
contracts and repurchase agreements) that, although they may be liquid 
and marketable, must be traded through the marketplace or with the 
counterparty to the transaction in order to effect a change in 
beneficial ownership. Cash will be paid for that portion of each Fund's 
assets represented by cash equivalents (such as certificates of 
deposit, commercial paper, and repurchase agreements) and other assets 
that are not readily distributable (including receivables and prepaid 
expenses), net of all liabilities (including accounts payable). In 
addition, each Fund will distribute cash in lieu of any securities held 
in the Fund's portfolio not amounting to round lots (or that would not 
amount to round lots if included in the in-kind distribution), 
fractional shares, and accruals on such securities.
    3. The In-Kind Securities distributed to the Pension Trust will be 
valued in the same manner as they would be valued for purposes of 
computing each Fund's net asset value, which, in the case of securities 
traded on a public securities market for which quotations are 
available, is their last reported trade price on the exchange on which 
the securities are principally traded, or, if there is no such reported 
price, is the last quoted bid price.
    4. Each Fund will maintain and preserve for a period of not less 
than six years from the end of the fiscal year in which the applicable 
Proposed In-Kind Redemption by the Pension Trust occurred, the first 
two years in an easily accessible place, a written record of such 
redemption setting forth a description of each security distributed, 
the terms of the distribution, and the information or materials upon 
which the valuation was made.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-10923 Filed 5-1-96; 8:45 am]
BILLING CODE 8010-01-M