[Federal Register Volume 61, Number 105 (Thursday, May 30, 1996)]
[Notices]
[Pages 27116-27118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13547]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21980; 812-10104]
THC Partners; Notice of Application
May 23, 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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APPLICANT: THC Partners.
RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act
for an exemption from all provisions of the Act.
SUMMARY OF APPLICATION: Applicant requests an exemption from all
provisions of the Act. Applicant is a private family-controlled special
purpose investment vehicle whose interests are owned by the family and
certain other persons.
FILING DATES: The application was filed on April 23, 1996 and amended
on May 23, 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
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 June 17, 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. Applicant: 4200 Texas Commerce Tower, 600 Travis, Houston, Texas
77002.
FOR FURTHER INFORMATION CONTACT:
Marianne H. Khawly, Staff Attorney, at (202) 942-0562, or Alison E.
Baur, Branch Chief, at (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.
Applicant's Representations
1. Applicant is a Texas general partnership organized in 1977.
Applicant's partners consist of the maternal heirs of Howard R. Hughes,
Jr. (``Howard Hughes''), including trusts established for family
members of maternal heirs and estates of deceased maternal heirs
(collectively, the ``Hughes Maternal Heirs'') and partners and former
partners of Andrews & Kurth, L.L.P. (``Andrews & Kurth''), a Houston
law firm, including trusts established for Andrews & Kurth family
members and heirs of deceased Andrews & Kurth partners (collectively,
``A&K''). Applicant's assets presently consist of common stock of The
Hughes Corporation (``THC'') and limited partnership interests in
Howard Hughes Properties, L.P. (``HHPLP'') (collectively, ``Hughes'').
Hughes was formed to hold, manage, and develop the assets of the estate
of Howard Hughes (the ``Hughes Estate'') including casinos, a large
military aircraft manufacturer, and widespread real estate holdings.
2. Howard Hughes dies in April 1976 unmarried and childless. A
complex estate battle began when 32 wills were offered for probate, and
California, Nevada, and Texas each claimed domicile for purposes of
subjecting Howard Hughes' assets to death taxes. Andrews & Kurth
represented Howard Hughes and various of his companies for over 50
years. William R. Lummis, son of Annette Gano Lummis, Howard Hughes'
aunt, and a senior partner at Andrews & Kurth, left the firm shortly
after Howard Hughes' death to undertake management of the Hughes Estate
and serve as executive officer of Hughes.
3. The Hughes Maternal Heirs, claiming through Annette Gano Lummis,
the beneficiary holding the largest single interest in the Hughes
Estate, did not possess the resources to finance the long, complicated,
multi-jurisdictional legal defense of their claim. The Hughes Maternal
Heirs and A&K formed applicant to prosecute and defend the claims of
the Hughes Maternal Heirs. In return for the contribution of their
interests in the Hughes Estate, the Hughes Maternal Heirs collectively
received 66\2/3\% of the interests in applicant. In return for
undertaking to defend, or cause to be defended, and otherwise to
provide the financial resources to further applicant's purposes, A&K
received a 33\1/3\% interest in applicant. In 1983, the last of the
final, non-appealable orders establishing ownership of the Hughes
Estate was issued that decreed that applicant was the beneficiary of
approximately 71% of the Hughes Estate's assets. Other than through
gifts and testamentary dispositions, applicant has not changed
composition since its inception. As of the date of the filing of this
application, the Hughes Maternal Heirs owned 67.279% of the interests
in
[[Page 27117]]
applicant and A&K owned 32.721%. Currently, there are 86 Maternal Heirs
and 124 members of A&K.\1\
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\1\ The method chosen by Andrews & Kurth to determine the
relative interests of each of its partners in the firm's interest in
the Partnership resulted in an allocation to every person who was a
partner of the firm from 1976 to 1983.
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4. Applicant is internally managed by three of the general partners
(the ``Managing Partners'') who receive no compensation. The current
Managing Partners are Platt W. Davis, III (``Davis''), Frederick R.
Lummis, Jr. (``Frederick Lummis''), and Milton H. West, Jr. (``West'').
Davis holds interests in applicant both as a donee of his mother, an
original Hughes Maternal Heir, and as a legatee under the will of
Annette Gano Lummis. Frederick Lummis is William Lummis' brother. West
has been a partner of Andrews & Kurth for over 50 years and was the
partner in charge of the firm's representation of Howard Hughes. The
Managing Partners originally were selected through informal discussions
among the Hughes Maternal Heirs and A&K. The Managing Partners are
elected at large from among applicant's partners every three years and
were most recently elected in 1995. A committee nominates proposed
Managing Partners for election but partners holding interests
aggregating 10% or more may propose competing slates. Election is by
secret written ballot. Currently, the Managing Partners receive no
compensation for their services.
5. Hughes has entered into a merger agreement with The Rouse
Company (``Rouse'') that will result in Rouse acquiring all of Hughes
(the ``Rouse Transaction''). After consummation of the Rouse
Transaction, applicant's assets will consist of: (a) Cash consideration
of approximately $85 million; (b) approximately 9 million shares of
Rouse (approximately 20% of the outstanding Rouse shares); and (c)
contingent rights to receive additional Rouse shares based on the
future cash flow generated from, and appraised value of, certain
properties acquired by Rouse in the mergers (the ``Earn-Out Rights'').
The properties subject to the Earn-Out Rights consist of undeveloped
land, rental properties, and interests therein held in four discrete
business units in Las Vegas and Los Angeles. The earn-out periods range
from 5 to 14 years.
6. Applicant proposes to incur administrative expenses in an amount
not to exceed \1/4\ of 1% of assets following consummation of the Rouse
Transaction (the ``Administrative Expense Cap''). Any compensation paid
to the Managing Partners will be within the Administrative Expense Cap.
7. Applicant contemplates continuing its existence after the
consummation of the Rouse Transaction for several reasons. First,
applicant believes that it can coordinate sales of Rouse shares in the
future by arranging block trades and thereby avoid the disruptive
effect of the uncoordinated sale of a large amount of stock by various
partners acting independently.\2\ Second, applicant believes that
significant cost savings can be achieved through the joint investment
of the cash received in the Rouse Transaction which would be invested
by the Managing Partners in shares of a number of registered open-end
investment companies. Third, applicant believes that issues involved in
the determination of the amount of the Earn-Out Rights can be more
effectively managed by applicant than by its partners individually.
Fourth, applicant, on behalf of its partners, is presently involved in
a controversy with the Internal Revenue Service and anticipates that
litigation of the matter will ensue (the ``Federal Tax Proceedings'').
The Internal Revenue Service (``IRS'') has questioned applicant's
partners' reporting of their income relative to applicant's formation
and operation for its tax year 1987 and subsequent years.
Administrative proceedings with respect to these allegations recently
have been concluded without resolution of the matter. The IRS may issue
a notice of final partnership administrative adjustments which would be
a predicate to institution of litigation by applicant.
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\2\ The Partnership is contractually restricted from selling
more than 50% of such shares for a period of one year after
consummation of the Rouse Transaction.
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Applicant's Legal Analysis
1. Section 3(a)(3) of the Act defines investment company to include
any issuer that is engaged in the business of investing, reinvesting,
owning, holding, or trading in securities, and owns or proposes to
acquire investment securities having a value exceeding 40% of the value
of such issuer's total unconsolidated assets. Applicant submits that it
has been exempt from registration under the Act because its business
has primarily consisted of its interests in THC and HHPLP, both
majority-owned operating companies engaged in real estate development.
Upon the consummation of the Rouse Transaction, however, applicant will
become an ``investment company'' as that term is defined in section
3(a)(3) of the Act.
2. Applicant was established as a joint venture between the Hughes
Maternal Heirs and A&K to pursue the Hughes Maternal Heirs' interest in
the Hughes Estate. Applicant contends that since establishing a 70%
interest in the Hughes Estate, applicant has operated as a privately
owned and family-controlled special purpose entity to which the Act was
not intended to apply. Applicant represents that it has not sought, and
will not seek, new public or private investors. In addition, each of
the partners is related to either the Hughes Maternal Heirs or A&K.
3. Section 3(c)(1) of the Act excepts from the definition of
investment company any issuer whose outstanding securities are
beneficially owned by not more than 100 persons and which is not
making, and does not presently propose to make, a public offering of
its securities. Applicant asserts that the SEC may exempt private
investment companies that have more than 100 beneficial owners under
section 6(c) of the Act.\3\ Applicant contends that its request for a
conditional order under section 6(c) of the Act is consistent with
relief granted to other private investment companies substantially
owned and controlled by a single family.\4\ Applicant asserts that it
will continue to operate as a private investment vehicle not intended
to be within the scope of the Act.
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\3\ See Maritime Corporation, 9 SEC 906, 909 (1941).
\4\ See, e.g., Pitcairn Group L.P, Investment Company Act
Release Nos. 21525 (Nov. 20, 1995) (notice) and 21616 (Dec. 20,
1995) (order); Heber J. Grant & Company, Investment Company Act
Release Nos. 20040 (Jan. 27, 1994) (notice) and 20091 (Feb. 23,
1994) (order); and Bessemer Securities Corporation, Investment
Company Act Release Nos. 18529 (Feb. 5, 1992) (notice) and 18594
(Mar. 3, 1992) (order).
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4. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act, if and
to the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Applicant believes that the requested exemption meets these standards.
Applicant's Conditions
Applicant agrees that the order granting the requested relief shall
be subject to the following conditions:
1. Applicant will provide each partner annual financial statements
audited by an accounting firm of recognized national standing.
2. The Partnership shall not issue interests to a new investor who
is not
[[Page 27118]]
a member of the Hughes' Maternal Heirs or A&K and will not permit the
assignment or transfer of any interest therein except by bequest, gift,
or operation of law, and in the case of gifts, only to persons who are
members of the donor's family.
3. Applicant will have a ten-year duration from the date of the
granting of the order unless earlier terminated pursuant to the terms
of the restated partnership agreement or unless it: (a) ceases to be an
investment company as such term is defined in the Act; (b) qualifies
for a statutory exception from such definition under the Act; (c)
obtains an amended exemptive order permitting it to continue as an
exempt entity; or (d) registers as an investment company under the Act.
4. Applicant shall not have elected any new Managing Partner
without the approval of a majority in interest of the partners, and
such new Managing Partner must be a partner of applicant.
5. Applicant shall not knowingly make available to any broker or
dealer registered under the Securities Exchange Act of 1934, any
financial information concerning applicant for the purpose of knowingly
enabling such broker or dealer to initiate any regular trading market
in any units of partnership interest.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13547 Filed 5-29-96; 8:45 am]
BILLING CODE 8010-01-M
