[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