[Federal Register Volume 61, Number 213 (Friday, November 1, 1996)]
[Notices]
[Pages 56580-56581]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28075]
[[Page 56580]]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22300; 812-10368]
HLM Global Equity Limited Partnership, et al.; Notice of
Application
October 28, 1996.
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: HLM Global Equity Limited Partnership (the
``Partnership''), Harding, Loevner Funds, Inc. (the ``Company''), and
Harding Loevner Management, L.P. (``HLM'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act
for an exemption from section 17(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Partnership to transfer substantially all of its assets and
liabilities to a series of the Company in exchange for the series'
shares, which then would be distributed pro rata to partners of the
Partnership.
FILING DATES: The application was filed on September 27, 1996. By
letter dated October 24, 1996, applicants' counsel stated that an
amendment, the substance of which is incorporated herein, will be filed
during the notice period.
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 November 22,
1996, and should be accompanied by proof of service on the 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, N.W., Washington, D.C.
20549. Applicants, 600 Fifth Avenue, 26th Floor, New York, New York
10020.
FOR FURTHER INFORMATION CONTACT:
Brian T. Hourihan, Senior Counsel, at (202) 942-0526, 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 SEC's Public Reference Branch.
Applicants' Representations
1. The Partnership is a New Jersey limited partnership with an
investment objective of seeking long-term capital appreciation through
investments in equity securities of companies based both in and outside
the United States. Investors may purchase or redeem Partnership
interests (``Units'') at net asset value on a quarterly basis. The
Partnership is not registered under the Act in reliance on section
3(c)(1) of the Act. The Units are offered as private placements under
section 4(2) of the Securities Act of 1933 and Regulation D promulgated
thereunder, and are sold to institutional investors and high net worth
individuals. The Partnership's operations are governed by a limited
partnership agreement (the ``Partnership Agreement'').
2. HLM is a registered investment adviser under the Investment
Advisers Act of 1940. HLM serves as the sole general partner of the
Partnership and has exclusive management and control of the business
and assets of the Partnership. HLM has authority, on behalf of the
Partnership, to do any acts that it deems advisable to further the
purposes of the Partnership and that are not prohibited by the
Partnership Agreement or applicable law.
3. The Company, a Maryland corporation, is a registered open-end
investment company formed as a series company. Currently, the Company
has four portfolios in registration. The Company proposes to offer a
portfolio designated as the Global Equity Portfolio (the ``GE
Portfolio''), which will correspond to the Partnership in terms of
investment to objectives and policies.
4. The Company proposes to enter into an advisory agreement with
HLM, which will provide advisory and portfolio management services to
the Company that are substantially the same as those it currently
renders to the Partnership. In addition, the Company proposes to enter
into an administration agreement with AMT Capital Services, Inc. (``AMT
Capital'') for the provision of administrative services to, and
assistance in managing and supervising all aspects of, the general day-
to-day business activities and operations of the Company other than
investment advisory activities. The Company will pay AMT Capital a
monthly fee based on the average daily net assets of the Company. The
GE Portfolio will pay a proportionate share of the fee based on its
relative net assets.
5. Applicants propose that, pursuant to an Agreement and Plan of
Exchange (the ``Plan''), the Company, on behalf of the GE Portfolio,
will acquire the assets and liabilities of the Partnership in exchange
for GE Portfolio shares (the ``Exchange''). The GE Portfolio shares
delivered to the Partnership in the Exchange will have an aggregate net
asset value equivalent to the net asset value of the assets transferred
by the Partnership to the Company (except for the effect of
organizational expenses paid by the GE Portfolio). Upon the
consummation of the Exchange, the Partnership will distribute the GE
Portfolio shares to its partners, with each partner receiving a number
of shares having an aggregate net asset value equivalent to the net
asset value of the Units in the Partnership held by such partner prior
to the Exchange (except for the effect of organizational expenses paid
by the GE Portfolio and the effect of any retained assets and
liabilities). The Partnership may retain sufficient assets to pay any
accrued expenses that are not transferred to the GE Portfolio and may
retain any assets that the GE Portfolio is not permitted to purchase or
that are reasonably determined to be unsuitable for it. Assets retained
in excess of any amounts needed to pay expenses will be distributed pro
rata to the partners of the Partnership. The Partnership will be
liquidated and dissolved following the distribution.
6. The Partnership Agreement does not contemplate the conversion of
the Partnership into a mutual fund format. Accordingly, the general
partner, HLM, could be deemed not to have the authority under the terms
of the Partnership Agreement to carry out the Plan unilaterally. HLM,
therefore, has proposed in the proxy materials to be delivered to each
limited partner that the limited partners approve the Plan and an
amendment to the Partnership Agreement to allow it to carry out the
terms of the Plan. The proxy materials will describe the nature of and
reasons for the Exchange, the tax and other consequences to the limited
partners, and other relevant matters, including investment objectives
and policies, fee structures, and financial information. Limited
partners who do not wish to participate in the conversion of the
Partnership will have adequate opportunity to redeem their Partnership
Units before the conversion occurs. As a result, no limited partner
will receive GE Portfolio shares in exchange for his or her Partnership
Units unless such limited partner determines to retain his or her
investment.
[[Page 56581]]
7. The expenses of the Exchange will be borne by HLM. GE Portfolio
organizational expenses will be paid by GE Portfolio and amortized over
five years. The amortization of such organizational expenses will be
included in the calculation of annual expenses subject to an expense
limitation. Any unamortized organizational expenses of the Company at
the time HLM withdraws its initial investment in the Company will be
borne by HLM and not the Company.
8. The management fees for the GE Portfolio will not exceed the
maximum fees currently paid by the limited partners in the Partnership.
Applicants expect that other GE Portfolio expenses generally will be
higher as a percentage of net asset value than the expenses of the
Partnership. This is primarily because of the increased costs of
operating as a registered investment company and compliance with
additional regulatory requirements. HLM will, however, place a cap on
annual expenses of the GE Portfolio at 1.25% of the average daily net
assets. This cap will continue at the discretion of, and until further
notice from, HLM.
9. The Exchange will establish the GE Portfolio as a successor
investment vehicle to the Partnership. After the exchange is
accomplished, HLM intends, for the foreseeable future, to manage the
assets of the GE Portfolio in substantially the same manner as it had
previously managed the assets of the Partnership. The Exchange will
permit partners to pursue as shareholders of the GE Portfolio the same
investment objectives and policies they were expecting from the
Partnership without sacrificing the pass-through tax features of the
Partnership. In addition, shareholders of the GE Portfolio will be able
to purchase and redeem shares on each business day, as opposed to only
once per quarter as currently provided under the Partnership Agreement.
10. The Company's board of directors and HLM have considered the
desirability of the Exchange from the respective points of view of the
Company and the Partnership. A majority of the members of the Company's
board (including a majority of the independent directors) and HLM have
approved the Exchange and have concluded respectively that: (a) the
Exchange is desirable as a business matter for both the Company and the
Partnership; (b) the Exchange is in the best interests of the Company
and the Partnership; (c) the Exchange is reasonable and fair, does not
involve overreaching, and is consistent with the policies of the Act;
(d) the Exchange is consistent with the policies of the Company and the
Partnership; and (e) the interests of existing shareholders in the
Company and existing partners in the Partnership will not be diluted as
a result of the Exchange. These findings, and the basis upon which such
findings were made, are fully recorded in the respective minute books
of the Company and HLM.
11. The Exchange will not be effected unless and until the
registration statements have been declared effective, the SEC has
issued the requested order, and the Company has received a favorable
opinion of counsel with respect to the tax consequences of the
Exchange.
Applicants' Legal Analysis
1. Section 17(a) of the Act prohibits any affiliated person of a
registered investment company, or any affiliated person of such a
person, from selling to or purchasing from such company any security or
other property. Section 2(a)(3) of the Act defines an ``affiliated
person,'' among other things, as any person directly or indirectly
controlling, controlled by, or under common control with, such other
person, any officer, director, partner, copartner, or employee of such
other person, and, if such other person is an investment company, any
investment adviser thereof. Therefore, the Partnership may be
considered an affiliated person of the Company because the Partnership
and the Company may be deemed to be under the common control of HLM, as
the investment adviser. Similarly, the Partnership may be an affiliated
person of an affiliated person of the Company because HLM is the
general partner of the Partnership and also is the investment adviser
to the Company. Thus, the proposed Exchange may be prohibited by
section 17(a).
2. Section 17(b) authorizes the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) the
terms of the 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; (b) the proposed transaction is
consistent with the policy of each registered investment company
concerned; and (c) the proposed transaction is consistent with the
general purposes of the Act.
3. Applicants believe that the terms of the proposed Exchange are
consistent with the standards of section 17(b). They represent, among
other things, that the investment objectives and policies of the GE
Portfolio are substantially similar to the Partnership and that the
limited partners will hold substantially the same assets as GE
Portfolio shareholders as they had previously held as limited partners.
Applicants state that the Exchange will result in no gain or loss being
recognized by the partners of the Partnership. Thus, the partners will
become investors in an entity that offers greater liquidity and other
advantages, without immediate tax consequences and without having
incurred transaction and brokerage charges in order to do so. In
addition, the shareholders of the Company will be able to purchase and
redeem shares on each business day, as opposed to only once per quarter
as is currently provided under the Partnership Agreement.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28075 Filed 10-31-96; 8:45 am]
BILLING CODE 8010-01-M
