[Federal Register Volume 60, Number 132 (Tuesday, July 11, 1995)]
[Notices]
[Pages 35782-35783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16926]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21180; 812-9606]
Smith Hayes Trust, Inc.-Capital Builder Fund, et al.; Notice of
Application
June 30, 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: Smith Hayes Trust, Inc.-Capital Builder Fund (the
``Company''), Conley Partners Limited Partnership (the
``Partnership''), Conley Investment Counsel, Inc. (``CIC''), and John
H. Conley (``Conley'').
RELEVANT ACT SECTIONS: Orders 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, a private investment company, to merge into a series
of the Company, an affiliated registered investment company.
FILING DATE: The application was filed on May 15, 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 July 25, 1995 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 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 500 Centre Terrace, 1225 ``L'' Street, Lincoln,
Nebraska 68508.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Robert A. Robertson, 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.
Applicants' Representations
1. The Company is a registered open-end investment company
organized as a Minnesota corporation. The Company currently is
comprised of nine portfolios, including the Capital Builder Fund (the
``CB Fund''). The CB Fund became effective on April 4, 1995, and no
offering of shares has commenced. Conley Smith, Inc. (the ``Adviser''),
a subsidiary of Consolidated Investment Corporation, will act as
investment adviser to the CB Fund. Conley is the president of the
Adviser and owns approximately 5% of the voting securities of
Consolidated Investment Corporation. The principal underwriter for the
shares of the CB Fund will be Smith Hayes Financial Services
Corporation (the ``Distributor'').
2. The Partnership was formed in 1989 as a limited partnership
under Nebraska state law. The Partnership has not been registered under
the Act in reliance upon section 3(c)(1) of the Act, and the
Partnership interests have not been registered under the Securities Act
of 1933 in reliance upon section 4(2) of the Act. CIC is the sole
general partner of the Partnership and has exclusive control over the
management of its business. Conley is the sole shareholder of CIC and
the portfolio manager for the Partnership. No person who is an officer
or director of the Distributor or the Adviser (except Conley) and no
person who is an officer or director of the CB Fund is a limited
partner of the Partnership.
3. Applicants propose that, prior to the offering of CB Fund shares
to the public, the CB Fund would exchange shares for portfolio
securities of the Partnership. After the exchange (the ``Exchange''),
the Partnership would dissolve and distribute the shares of the CB Fund
pro rata, based on the net asset value of the Partnership, to the
partners of the Partnership, along with cash received, if any, from the
sale of the portfolio securities of the Partnership not acquired by the
CB Fund. Following the Exchange, partners of the Partnership will
constitute all of the shareholders of the CB Fund. The CB Fund has been
designed as a successor investment vehicle to the Partnership, with
investment objectives and policies substantially the same as those of
the Partnership.
4. The proposed Exchange will be effected pursuant to an agreement
and plan of exchange (the ``Plan'') to be approved by the limited
partners of the Partnership. Solicitation of the limited partners for
approval of the Plan will be made by means of a Prospectus/Information
Statement and will be accompanied by a current CB Fund prospectus.
Under the Plan, the portfolio securities of the Partnership will be
acquired at their independent ``current market price,'' as defined in
rule 17a-7 under the Act. The CB Fund will not acquire securities that,
in the opinion of the Adviser, would result in a violation of the CB
Fund's investment objectives, policies, or restrictions.
5. The Company's board of directors has considered the desirability
of the Exchange from the point of view of the Company and the
Partnership, and a majority of the board, including a majority of the
non-interested members, has concluded that (a) the Exchange is in the
best interest of the CB Fund, the Partnership, and the limited partners
of the Partnership; (b) the Exchange will not dilute the interests of
the partners of the Partnership when their interests are converted into
shares of the CB Fund; and (c) the terms of the Exchange as reflected
in the Plan have been designed to meet the criteria set forth in
section 17(b) of the Act that the Exchange be reasonable and fair, not
involve overreaching, and be consistent with the
[[Page 35783]]
policies of the CB Fund and the Partnership. The board considered each
aspect of the Exchange, including (i) the method of valuing the
portfolio securities to be acquired from the Partnership; (ii) the net
asset value of the shares to be delivered to the Partnership; (iii) the
procedure for selecting among the portfolio securities of the
Partnership; (iv) the possibility of incurring excessive brokerage
costs as a result of redemptions of CB Fund shares by former partners
of the Partnership; (v) the allocation of the costs of the Exchange;
(vi) the possibility of adverse tax consequences to future shareholders
of the CB Fund; and (vii) the benefits from the Exchange accruing to
CIC and Conley.
6. The Exchange will not be effected unless: (a) The registration
statement of the CB Fund has been declared effective; (b) the Plan has
been approved by a majority in interest of the limited partners of the
Partnership; (c) the requested order has been granted; and (d) the
limited partners have received an opinion of counsel that (i) the
distribution of CB Fund shares, which will be in liquidation of the
Partnership interests in the Partnership, will not cause taxable gain
or loss to be recognized by the limited partners; (ii) the basis of the
limited partners in CB Fund shares will be equal to the adjusted basis
of the limited partners' interests in the Partnership; and (iii) the
limited partners' holding periods with respect to CB Fund shares will
include the Partnership's holding period with respect to such shares.
7. The Adviser will assume the costs of the Exchange, except for
registration and filing fees of the CB Fund shares, and will assume the
legal fees and expenses relating to the requested order and the
obtaining of the opinion of counsel on certain tax matters. No
brokerage commission, fee, or other remuneration will be paid in
connection with the Exchange.
8. After the Exchange is accomplished, the Adviser intends for the
foreseeable future to manage the assets of the CB Fund in substantially
the same manner as the Partnership's assets were managed, except as may
be necessary or desirable (a) to qualify the CB Fund as a regulated
investment company under the Internal Revenue Code of 1986, as amended;
(b) to comply with the investment restrictions adopted by the CB Fund
in accordance with the requirements of the Act or securities laws of
states where CB Fund shares will be offered; or (c) in light of changed
market conditions.
Applicants' Legal Conclusions
1. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company from selling to or purchasing
from such investment company any security. The Partnership may be an
affiliated person of the Company because the Partnership and the
Company may be deemed under the control of CIC (and, indirectly,
Conley) because of its role as general partner of the Partnership,
Conley's ownership of stock in the parent of the Adviser, and Conley's
position as an officer of the Adviser. Thus, the proposed Exchange may
be prohibited by section 17(a). Section 17(b) authorizes the SEC to
exempt a proposed transaction from section 17(a) if evidence
establishes that 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, the
transaction is consistent with the policies of the registered
investment company, and the transaction is consistent with the general
purposes of the Act.
2. Applicants believe that the proposed transaction satisfies the
criteria of section 17(b). The investment objectives of the CB Fund and
the Partnership are substantially similar. In addition, the CB Fund
will acquire the Partnership portfolio securities at their independent
``current market price.'' Applicants believe that the Exchange can be
viewed as a change in the form in which the assets are held, rather
than as a disposition giving rise to section 17(a) concerns.
For the Commission, by the Division of Investment Management,
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16926 Filed 7-10-95; 8:45 am]
BILLING CODE 8010-01-M