[Federal Register Volume 60, Number 67 (Friday, April 7, 1995)]
[Notices]
[Pages 17838-17840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8543]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20982; 812-9166]


Pitcairn Group L.P., et al.; Notice of Application

March 31, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').

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

-----------------------------------------------------------------------

APPLICANTS: Pitcairn Group L.P. (``Pitcairn''), and Johnstone L.P. 
(``Johnstone'').

RELEVANT ACT SECTIONS: Exemption requested under section 23(c)(3) from 
the provisions of section 23(c), and under section 57(c) from the 
provisions of section 57(a)(2).

SUMMARY OF APPLICATION: Applicants seek an order permitting Pitcairn to 
acquire 221,954 (approximately 39%) of its limited partnership units 
(the ``Units'') from Johnstone, a limited partnership formed by former 
Pitcairn unitholders to liquidate their ownership interests in 
Pitcairn, in exchange for a pro rata portion of the total assets of 
Pitcairn (the ``Redemption''). The order also would permit Johnstone to 
acquire assets from Pitcairn in the Redemption and to acquire a pro 
rata portion of the total assets of Moreland L.P. (``Moreland''), a 
limited partnership controlled by Pitcairn, in exchange for the 222,553 
Moreland limited partnership units owned by Johnstone (the ``Related 
Transaction'').

FILING DATES: The application was filed on August 15, 1994, and amended 
on December 9, 1994, and March 29, 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 April 25, 1995, 
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 such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: Pitcairn, One Pitcairn Place, Suite 3000, 165 
Township Line Road, Jenkintown, Pennsylvania 19046; Johnstone, 75 James 
Way, Southampton, Pennsylvania 18966.

FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Attorney, at (202) 942-0583, or Barry D. 
Miller, Senior Special Counsel, 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. Pitcairn, a Delaware limited partnership that has elected to be 
regulated as a business development company (``BDC'') under section 54 
of the Act, was organized in 1986 as a vehicle for private investments 
for the Pitcairn family. It was capitalized with assets derived from 
the liquidation of The Pitcairn Company, a Delaware corporation formed 
in 1923 by members of the Pitcairn family to hold and manage the estate 
of John Pitcairn, one of the founders of Pittsburgh Plate Glass 
Company. Units in Pitcairn were distributed to the former shareholders 
of The Pitcairn Company.\1\

    \1\There are 576,124 units of general and limited partnership 
interests of Pitcairn issued and outstanding, approximately 70% of 
which are held in irrevocable trusts for members of the Pitcairn 
family, and approximately 30% of which are owned directly by family 
members and their churches. The units are registered under section 
12 of the Securities Exchange Act of 1934, but there is no market 
for the units, and there are generally fewer than ten transfers per 
year. These transfers typically arise from terminating trusts or 
estates, interfamily gifts, or similar transactions involving one or 
more members of the Pitcairn family or trusts for their benefit.
---------------------------------------------------------------------------

    2. Pitcairn is the sole shareholder of Pitcairn Company 
(``Pitco''), an investment adviser formed in 1986 and registered under 
the Investment Advisers Act of 1940. Pitco serves as the managing 
general partner of Pitcairn. Pitcairn also has four individual general 
partners, each of whom is a member of the Pitcairn family. In addition, 
Pitco serves as the general partner of Moreland, a Pennsylvania limited 
partnership that owns undeveloped land in and near the Borough of Bryn 
Athyn, Pennsylvania (where a large number of Pitcairn family members 
reside), and One Place L. P. (``One Place''), a Pennsylvania limited 
partnership that owns the land and building in which the offices of 
Pitcairn, Pitco, and Pitcairn Trust Company (``PTC'') (a Pennsylvania 
chartered trust company formed as a subsidiary of Pitco in 1987 to 
provide trust and related services to the Pitcairn family and other 
high net worth individuals) are situated.\2\

    \2\Pitcairn was the sole initial limited partner of Moreland and 
One Place; it spun off its interests in the partnerships to the 
owners of its Units in 1992. As a result, ownership of Pitcairn, 
Moreland, and One Place is nearly identical.
---------------------------------------------------------------------------

    3. As a result of general change in the Pitcairn family and 
divergence of points of view as to investment philosophy, among other 
things, it became apparent in the early 1990s that a separation of 
family members from the family partnerships would occur. Consequently, 
in February 1993, the board of directors of Pitco asked its management 
to recommend a plan for a buy-out of the interests of certain Pitcairn 
family members in certain family assets. This recommendation, through 
arms' length negotiations, resulted in the proposed Redemption and 
Related Transaction.
    4. The series of transactions contemplated by the Redemption and 
the Related Transaction are as follows:
    a. Four individuals formed Johnstone, a Pennsylvania limited 
partnership, for the purpose of receiving, with the intent to 
liquidate, their and other Pitcairn family members' (collectively, the 
``Separating Members'') limited partnership interests in Pitcairn, 
Moreland, and One Place. The Separating Members, together with their 
spouses and related trusts, are no longer clients of PTC and have 
contributed their limited partnership interests in Pitcairn, Moreland, 
and One Place to Johnstone in exchange for limited partnership 
interests in Johnstone.\3\ Accordingly, Johnstone has become a 
substitute limited partner in Pitcairn, Moreland, and One Place, owning 
approximately 39%, 38.6%, and 39%, respectively, of the limited 
partnership units. Assets received by Johnstone in the Redemption and 
the Related Transaction are intended to be held by Johnstone only until 
they can be liquidated and the proceeds distributed to the Separating 
Members.

    \3\The only connection of the Separating Members with the 
remaining unitholders after consummation of the transactions 
described herein will be that two of the Separating Members will 
serve as trustees of trusts holding Units. These two Separating 
Members will continue to serve as trustees at the request of the 
beneficiaries of those trusts, notwithstanding their status as 
Separating Members.
---------------------------------------------------------------------------

    b. In the Redemption, Johnstone will transfer to Pitcairn all of 
the Units [[Page 17839]] owned by Johnstone, and Pitcairn will transfer 
to Johnstone approximately 39% of its total assets (consisting of 
certain limited partnership interests, a non-recourse note of Moreland 
and a related mortgage, and cash) in redemption of the Units.
    c. In the Related Transaction, Johnstone will transfer to Moreland 
all the limited partnership interests in Moreland owned by Johnstone, 
and Moreland will transfer to Johnstone approximately 38.6% of its 
total assets (consisting of certain real estate, a mortgage, and cash) 
in redemption of these limited partnership interests.\4\

    \4\Prior to the redemption of the Moreland units owned by 
Johnstone, Pitcairn will lend to Moreland a total of $3,450,000 in 
exchange for two non-recourse notes. The first note, in the amount 
of $2,250,000, will be secured by the portion of Moreland's real 
estate that ultimately will be transferred to Johnstone in the 
Related Transaction. The second note, in the amount of $1,200,000, 
will be secured by a different parcel of real estate, which will 
remain the property of Moreland. Using a portion of the proceeds of 
the first note, Moreland will buy newly issued limited partnership 
interests in One Place for cash, enabling One Place to redeem its 
units owned by Johnstone for cash. In redeeming its units from 
Johnstone, Moreland will transfer the mortgage liability on the 
first parcel of real estate to Johnstone along with the real estate 
itself. When Pitcairn redeems its Units from Johnstone, Pitcairn 
will transfer to Johnstone the note secured by the mortgage on the 
real estate Johnstone received from Moreland, and Johnstone will be 
able to extinguish the mortgage and cancel the note.
---------------------------------------------------------------------------

    d. Johnstone will transfer to One Place all the limited partnership 
interests in One Place owned by Johnstone, and One Place will transfer 
cash in an amount equal to approximately 39% of the value of its total 
assets to Johnstone in redemption of these limited partnership 
interests.
    e. Pitcairn has completed, in escrow, a private offering, in 
reliance on section 4(2) of the Securities Act of 1993 (the 
``Securities Act'') and rules 502 and 506 of Regulation D under the 
Securities Act, and has received binding subscription agreements for 
$5,337,000 from a small group of qualified investors for additional 
Units. The proceeds of this offering will be used to replace capital 
used in the Redemption and to provide for additional working capital.
    5. The redemptions of the Johnstone-owned limited partnership 
interests of Pitcairn, Moreland, and One Place will be effected at 
values that have been agreed upon by representatives of those Pitcairn 
family members who, with their spouses and related trusts, wish to 
continue to be clients of PTC and owners of Pitcairn (the 
``Remaindermen'') and by representatives of the separating Members in 
arms' length negotiations conducted during 1993. A committee (the 
``Sellers' Committee'') was formed to negotiate the value of the 
Separating Members' interests; the potential group of family members 
willing to buy the interests of the Separating Members also formed a 
committee (the ``Buyers' Committee). All family members were informed 
about the committees and were urged to contact them about buying or 
selling their interests.
    6. Various methods were used to determine the value of the 
underlying assets held by Pitcairn, Moreland, and One Place.\5\

    \5\Lists of all assets held by Pitcairn and Moreland and 
information as to their allocation are contained in the application.
---------------------------------------------------------------------------

    a. The assets of Pitcairn were valued on the basis of the 
methodologies utilized by its general partners in arriving at fair 
values for purposes of periodically computing the net asset value of 
the partnership. These methodologies included (i) valuation of limited 
partnership interests by the general partners of such partnerships; 
(ii) valuation of the stock of Pitco by an independent appraiser, 
adjusted to reflect subsequent business changes; (iii) valuation of 
land based upon values in a joint development agreement and the best 
judgment of the Pitcairn general partners, taking all relevant factors 
into consideration; (iv) valuation of a limited partnership interest in 
a tree nursery based upon the catalogue price of the tree stock less 
harvest and distribution costs; and (v) valuation of a limited 
partnership interest in an office building based upon discontinued cash 
flows from the rental stream generated by the property.
    b. The land owned by Moreland was valued by Pitco as the general 
partner of Moreland on the basis of values assigned in a 1993 market 
research study by an independent firm familiar with the land and 
transactions in the vicinity of the Moreland land. This study was 
commissioned by the Real Estate Advisory Committee of the Pitco board, 
a committee comprised of both Remaindermen and Separating Members. The 
recommended values assigned in the study, together with data from an 
appraisal conducted in 1989 and from comparable sales (where 
appropriate), formed the basis of the values assigned by the parties.
    c. With respect to One Place, Pitco obtained an independent 
appraisal of the land and office building (the primary asset of One 
Place), and the Sellers' Committee obtained its own independent 
appraisal. The board of directors of Pitco subsequently engaged an 
outside real estate consultant who, in June, 1993, reviewed the 
independent appraisal obtained by Pitco and validated the assumptions 
used by the appraiser.
    7. On the evening of December 13, 1993, representatives from the 
Buyers' Committee, the Sellers' Committee, and Pitco (as managing 
general partner of Pitcairn and sole general partner of Moreland and 
One Place) met to allocate the assets between the Remaindermen and the 
Separating Members equitably. These negotiations, which were conducted 
by persons who were fully aware of the attributes, both positive and 
negative, of each of the assets of Pitcairn, Moreland, and One Place, 
culminated in the Agreement in Principle (the ``Agreement''). The 
Agreement provides for the allocation of assets and further provides 
that the costs of forming Johnstone will be borne by Johnstone and that 
all other transaction costs will be shared by Pitcairn (including 
certain affiliated entities) and Johnstone on a pro rata basis. Since 
it is anticipated that Johnstone will sell Pitcairn approximately 39% 
of the Units and buy approximately 39% of Pitcairn's assets, it would 
bear that percentage of the transaction costs (exclusive of any income 
taxes that each party will bear separately and of any additional legal 
expenses incurred by Johnstone) through the reduction in cash to be 
paid by Pitcairn to Johnstone at the closing of the Redemption. The 
Agreement was approved by Pitco (as managing general partner of 
Pitcairn and sole general partner of Moreland and One Place) and by 
individual representatives of the Remaindermen and Separating Members 
who, together, represented over 86% of the outstanding Units. The 
Remaindermen who did not sign the Agreement consisted of 94 ``persons'' 
who own approximately 13.9% of the Units.\6\ These unitholders were 
informed, however, of the transactions contemplated by the Agreement 
(including the proposed allocation of assets), and have not objected.

    \6\Of these ``persons'' 61 are individuals owning approximately 
10% of the Units; 4 are revocable trusts owning approximately 4% of 
the Units; 20 are irrevocable trusts (out of a total of 295 trusts 
that are Remaindermen) owning approximately .2%; one is a guardian 
account owning approximately .05% of the Units; and 8 are charitable 
organizations owning approximately 3% of the Units.
---------------------------------------------------------------------------

    8. There has been no vote of unitholders with respect to the 
Redemption and the Related Transaction inasmuch as such a vote is not 
required under the Pitcairn partnership agreement. However, a majority 
of the respective general partners of Pitcairn and Johnstone have 
approved the Redemption and the Related Transaction as being reasonable 
[[Page 17840]] and fair to the unitholders, as not involving any 
overreaching of Pitcairn or its unitholders, and as serving the broader 
family purpose by permitting a complete separation of the Separating 
Members. Applicants state that, with one exception, no person who 
participated in the negotiations on behalf of Pitco or the Remaindermen 
have interests on both sides of the Redemption and the Related 
Transaction. One individual partner of Pitcairn, who has agreed to 
resign as such, has been aligned with the Separating Members and is a 
general and limited partner of Johnstone. Applicants represent that his 
alignment with the Separating Members was recognized, and he was not a 
member of the Sellers' Committee, nor did he participate in the 
negotiations except as a facilitator for the December 1993 meetings. He 
officially abstained from voting either on behalf of Pitcairn or 
Johnstone with respect to the Redemption and the Related Transaction, 
but has expressed his support for the transactions.

Applicants' Legal Conclusions

    1. Section 23(c), made applicable to Pitcairn as a BDC by section 
63 of the Act, generally prohibits BDCs from purchasing their 
securities except in the open market or pursuant to a tender offer. 
Absent such circumstances, section 23(c)(3) allows the SEC to issue an 
order for the protection of investors to ensure that such purchases are 
made in a way that does not unfairly discriminate against any holders 
of the class of securities to be purchased.
    2. Applicants concede that the Redemption does not fall within the 
exceptions specified in section 23(c); consequently, Pitcairn must seek 
exemptive relief under section 23(c)(3). Applicants submit that the 
Redemption does not unfairly discriminate against either the 
Remaindermen or the Separating Members, and that the liquidity provided 
to Johnstone in the Redemption and the Related Transaction is not 
inappropriate under the circumstances, given the fairness of the values 
and the objectives of the Remaindermen to use the services of Pitco and 
PTC as a family office.
    3. Section 57(a)(2), in conjunction with section 57(b), prohibits 
certain persons related to a BDC from purchasing any security or other 
property (with the exception of securities of which the seller is the 
issuer) from the BDC or a company controlled by the BDC. Section 57(b) 
provides, in part, that the persons affected by section 57(a) include 
any person that directly or indirectly controls the BDC. Section 
2(a)(9) defines control as the power to exercise a controlling 
influence over the management or policies of a company, and establishes 
a rebuttable presumption that a person owning more than 25% of the 
voting securities of a company controls that company. Since Johnstone, 
which owns approximately 39% of the Units, could be deemed to control 
Pitcairn, section 57(a)(2) would prohibit the Redemption absent an 
exemption. As Moreland may be deemed to be controlled by Pitcairn by 
virtue of the fact that Pitco (a wholly-owned subsidiary of Pitcairn) 
is its sole general partner, section 57(a)(2) also would prohibit 
Johnstone from buying assets from Moreland in the Related Transaction.
    4. Section 57(c) provides that a person may file an application for 
an exemption from the provisions of section 57(a) (1) through (3), and 
that the SEC shall exempt a proposed transaction from the prohibitions 
of section 57(a)(2) if: (a) The terms of the proposed transaction, 
including the consideration to be paid or received, are reasonable and 
fair and do not involve overreaching on the part of anyone involved; 
(b) the proposed transaction is consistent with the policy of the BDC 
as set forth in its filings with the SEC under the Securities Act and 
the Securities Exchange Act of 1934 (the ``Exchange Act''), and its 
reports to shareholders or partners; and (c) the proposed transaction 
is consistent with the general purpose of the Act.
    5. Applicants submit that the Redemption and the Related 
Transaction meet the standards set forth in section 57(c) of the Act 
because: (a) The terms of the proposed purchase of assets by Johnstone 
in the Redemption and Related Transaction, including the consideration 
to be paid, will be reasonable and fair, and no individual will derive 
any personal financial gain from the proposed transaction other than 
benefits that will be realized by all unitholders of Pitcairn on a pro 
rata basis; (b) the proposed Redemption is consistent with Pitcairn's 
policy as set forth in section 4.13 of the partnership agreement, which 
specifically contemplates the withdrawal of limited partners on terms 
approved by the general partners of Pitcairn (which approval has been 
obtained), and also is consistent with Pitcairn's policy as recited in 
its filings with the SEC under the Exchange Act and its reports to 
unitholders; (c) the Redemption and the Related Transaction are both 
consistent with the general purposes of the Act; and (d) given the 
objective of the Remaindermen to continue to use Pitco and PTC as a 
family office for the management of their financial affairs and the 
concomitant desire of the Separating Members to terminate that 
association, it would be impossible to effect the Redemption by 
exchanging a portion of each of Pitcairn's assets for the Units held by 
Johnstone on a pro rata basis or by selling the Units held by Johnstone 
to a third party because no such market exists.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8543 Filed 4-6-95; 8:45 am]
BILLING CODE 8010-01-M