[Federal Register Volume 61, Number 224 (Tuesday, November 19, 1996)]
[Notices]
[Pages 58917-58919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29516]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22327; 812-10330]
TCW Convertible Limited Partnership, et al.; Notice of
Application
November 12, 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: TCW Convertible Limited Partnership (``Partnership''), TCW
Galileo Funds, Inc. (``Company''), TCW Asset Management Company
(``TAMCO''), and TCW Funds Management, Inc. (``Adviser'').
RELEVANT ACT SECTION: Order requested under section 17(b) of the Act
for an exemption from the provisions of section 17(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit the
exchange of shares of the Company's common stock for portfolio
securities and other assets of the Partnership.
FILING DATES: The application was filed on September 5, 1996.
Applicants have agreed to file an amendment during the notice period,
the substance of which is included in this notice.
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 December 2,
1996, 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 who wish to
be notified of a hearing may request notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, DC 20549.
Applicants, 865 South Figueroa Street, Suite 1800, Los Angeles,
California 90017.
FOR FURTHER INFORMATION CONTACT: Harry Eisenstein, Staff Attorney, at
(202) 942-0552, or Mercer E. Bullard, Branch Chief, (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
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.
Applicants' Representations
1. The Partnership was organized as a California limited
partnership on November 17, 1988. Its investment objective is to
generate returns competitive with those of the S&P 500 with lower
volatility and greater capital protection by investing in a diversified
portfolio of convertible securities. The Partnership allows investors
to purchase and redeem Partnership interests (``Units'') at net asset
value on a monthly basis. The offering of the Units was structured as a
private placement under section 4(2) of the Securities Act of 1933, and
Regulation D promulgated thereunder. The Partnership is not registered
under the Act in reliance on section 3(c)(1) of the Act. Units are sold
to institutional investors and high net worth individuals. The
Partnership has a minimum initial purchase requirement of $250,000,
subject to reduction by TAMCO (but not below $50,000). On June 30,
1996, the net asset value of the Partnership was $29,614,782 and there
were 31 limited partners.
2. TAMCO serves as the sole general partner of the Partnership and
has exclusive responsibility for its overall management, control and
administration. TAMCO, a registered investment adviser under the
Investment Advisers Act of 1940, also serves as investment manager with
respect to the Partnership assets. TAMCO and the Adviser are wholly
owned subsidiaries of The TCW Group, Inc. As compensation for its
services, TAMCO is paid a monthly management fee with respect to each
limited partner's pro rata share of the Partnership's net asset value
(``Attributable Value'').\1\
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\1\ The annual management fees payable to TAMCO by the
Partnership are 1.00% on the first $2 million or less of
Attributable Value, .75% on Attributable Value exceeding $2 million
and less than $5 million, and .50% on Attributable Value exceeding
$5 million.
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[[Page 58918]]
3. The Company, a Maryland corporation, is a no-load, open-end
investment company registered under the Act. The Company currently
offers twelve series (``Existing Funds''), ten of which were formed in
connection with the transfer of interests in certain limited
partnerships in exchange for shares of those series. TAMCO served as
general partner for each of such limited partnerships. One of the
Existing Funds was formed in connection with an exchange of shares
between the Company and TCW Investment Funds, Inc., another registered
investment company. The Company is managed by a board of directors
(``Board''), currently consisting of five members. Three members of the
Board are persons who are not ``interested persons'' (as defined in the
Act) of the Company (``Independent Directors'').
4. The Company proposes to offer an additional series (``Fund''),
which will correspond to the Partnership in terms of its investment
objective and policies. The Fund will acquire assets from the
Partnership in exchange for Fund shares (``Exchange''), pursuant to an
Agreement and Plan of Exchange (``Plan''). The Plan permits the
Partnership to retain sufficient assets to pay any Partnership-accrued
expenses and retain any assets that the Company is not permitted to
purchase or that are reasonably determined to be unsuitable for it. No
liabilities of the Partnership will be transferred to the Fund; all
known liabilities, other than accrued expenses discussed immediately
above, will be paid by the Partnership prior to the transfer of its
assets to the Fund. The general partner, TAMCO, will be responsible for
any unknown liabilities of the Partnership. Prior to effecting the
Exchange, a private placement memorandum will be distributed to each
limited partner in the Partnership. The memorandum will describe the
nature and reasons for the Exchange, the tax and other consequences to
the limited partners, and other relevant matters, including a
comparison of the Fund and the Partnership in terms of their investment
objectives and policies, fee structures, management structures, and
other aspects of their operations.
5. Fund 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 certain organizational expenses paid by the Company, as
discussed below). Upon consummation of the Exchange, Fund shares
received by the Partnership will be distributed by the Partnership to
its partners, with each partner receiving shares having an aggregate
net asset value equivalent to the net asset value of the Units held by
such partner prior to the Exchange (except for the effect of certain
organizational expenses paid by the Company and the effect of any
assets retained by the Partnership to pay accrued expenses). After
payment of any accrued expenses from retained assets, the Partnership
will be liquidated and dissolved. Assets retained by the Partnership
that are not needed to pay expenses will be distributed pro rata to the
partners of the Partnership.
6. The expenses of the Exchange will be borne by TAMCO.
Organizational expenses of up to a maximum of $50,000 will be paid by
the Fund and amortized over five years. Organizational expenses in
excess of $50,000 will be paid by the Adviser. To the extent there are
unamortized organizational expenses associated with the organization of
the Fund or the Existing Funds at the time the Adviser withdraws its
initial investment in the Company, those expenses will be borne by the
Adviser and not the Fund or the Existing Funds.
7. The partnership agreement governing the operations of the
Partnership (``Partnership Agreement'') provides that the Partnership
may be converted into a registered investment company, if TAMCO, as
sole general partner of the Partnership, determines such conversion to
be in the best interest of the Partnership. Limited partners who do not
wish to participate in the conversion of the Partnership will have
adequate opportunity to redeem their Partnership interests before the
conversion occurs and, at their request, receive either cash or a pro
rata in-kind distribution.
8. The Company has entered into an advisory agreement with the
Adviser (``Advisory Agreement''), pursuant to which the Adviser renders
advisory services to the Existing Funds. Under the Advisory Agreement,
the Adviser will render to the Fund services substantially the same as
those TAMCO currently renders to the Partnership. The Adviser is a
registered investment adviser under the Investment Advisers Act of
1940.
9. In return for the Adviser's services, the Fund will pay a
management fee to the Adviser on a monthly basis. Applicants expect
that other Fund expenses will generally be higher as a percentage of
net asset value than the expenses of the Partnership, primarily because
of the increased costs of operating a registered investment company and
complying with various additional regulatory requirements and industry
practices. The Adviser will, however, place a limit on the annual
expenses of the Fund through the end of 1997. This limit is generally
intended to cap Fund expense ratios at levels projected to be incurred
during 1996 by the Partnership.
10. The Board and TAMCO have considered the desirability of the
Exchange from the respective points of view of the Company and the
Partnership, and all members of the Board (including all of the
Independent Directors) and TAMCO have approved the Exchange and
concluded that: (i) the terms of the Exchange are designed to meet the
criteria contained in section 17(b) of the Act; (ii) the Exchange is
desirable as a business matter from the respective points of view of
the Company and the Partnership; (iii) the Exchange is in the best
interests of the Company and the Partnership; (iv) the Exchange is
reasonable and fair, does not involve overreaching, and is consistent
with the policies of the Act; (v) the Exchange is consistent with the
policies of the Company and the Partnership; and (vi) the interests of
existing shareholders in the Company and existing partners in the
Partnership will not be diluted as a result of the Exchange. The
Exchange will not be effected until (a) the Company's amended
registration statement has been filed; (b) the Company and the
Partnership have received an opinion of counsel with respect to the tax
consequences of the Exchange; and (c) the SEC has issued the requested
order.
Applicants' Legal Analysis
1. Section 17(a) prohibits affiliated persons of a registered
investment company, or affiliated persons of such persons, from selling
to or purchasing from such company any security or other property.
Section 2(a)(3) of the Act defines an ``affiliated person'' as, among
other things, (1) any person directly or indirectly controlling,
controlled by, or under common control with, such other person, (2) any
officer, director, partner, copartner or employee of such other person,
or, (3) if such other person is an investment company, any investment
company or adviser of such investment company. The Partnership is an
affiliated person of an affiliated person of the Company because TAMCO,
general partner of the Partnership, and the Adviser are under common
control. Thus, the proposed Exchange may be deemed to be prohibited
under section 17(a) of the Act, unless relief is granted.
[[Page 58919]]
2. Section 17(b) of the Act authorizes the Commission to exempt any
person from one or more of the provisions of Section 17(a) if evidence
establishes that (1) 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; (2) the
proposed transaction is consistent with the policy of each registered
investment company concerned; and (3) the proposed transaction is
consistent with the general purposes of the Act.
3. Applicants contend that the Exchange will permit partners to
pursue, as shareholders of the Fund, substantially the same investment
objective and policies they were expecting from the partnership without
sacrificing the pass-through tax features of the Partnership. In
addition, shareholders of the Fund will be able to purchase and redeem
shares on each business day, as opposed to only once per month as is
currently provided under the Partnership Agreement.
4. Applicants assert that the terms of the Exchange should be
considered reasonable and fair to the Partnership, to the Company, and
to the limited partners who, with TAMCO, will be the initial
shareholders of the Fund, and should not be considered to involve
overreaching on the part of any applicant, for the following reasons:
(a) The investment objectives and policies of the Fund are
substantially similar to that of the partnership.
(b) No brokerage commission, fee or other remuneration will be paid
in connection with the Exchange.
(c) If effected in the manner described in the application, the
Exchange will result in no gain or loss being recognized by partners of
the Partnership. The partners of the Partnership 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.
(d) A majority of the members of the Board, including a majority of
the Independent Directors, and the general partner of the Partnership
have approved the Exchange.
(e) Fund shares will be issued at their net asset value.
5. Applicants believe that the terms of the proposed Exchange are
consistent with the provisions, policies and purposes of the Act in
that they are reasonable and fair to all parties, do not involve
overreaching, and are consistent with the investment policies of each
of the applicants.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29516 Filed 11-18-96; 8:45 am]
BILLING CODE 8010-01-M