[Federal Register Volume 60, Number 9 (Friday, January 13, 1995)]
[Notices]
[Pages 3287-3288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-914]



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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20823; 812-9322]


Croft-Leominster Income Fund, et al.; Notice of Application

January 9, 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: Croft-Leominster Income Fund (the ``Fund''), Leominster 
Income, L.P. (the ``Partnership''), and Croft Leominster, Inc. (the 
``Adviser'').

RELEVANT ACT SECTIONS: Order 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 exchange of shares of the Fund for portfolio securities of the 
Partnership. Thereafter, the Partnership will dissolve and distribute 
the shares it received in the exchange pro rata to its partners.

FILING DATES: The application was filed on November 14, 1994. 
Applicants agree to file an additional amendment, the substance of 
which is incorporated herein, during the notice period.

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 February 3, 1995 
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. Applicants, 207 East Redwood Drive, Suite 802, Baltimore, 
Maryland 21202.

FOR FURTHER INFORMATION CONTACT: Sarah A. Buescher, Staff Attorney, at 
(202) 942-0573, 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 from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. The Partnership was organized in 1991 as a limited partnership 
under Maryland law. It 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 (the 
``Securities Act'') in reliance upon section 4(2) thereof. The Adviser 
is the sole general partner of the Partnership and has exclusive 
control over the management of its business. The Adviser has maintained 
an investment in the Partnership not less than 1% of the net assets of 
the Partnership, and is allocated net income, gains, and losses of the 
Partnership in proportion with its investment.
    2. The Fund is one of two initial series of the Croft Funds 
Corporation, an open-end investment company organized under Maryland 
law (the ``Corporation''). The Fund filed a notification of 
registration under the Act on Form N-8A and a registration statement 
under the Act and the Securities Act on Form N-1A on July 22, 1994. The 
N-1A registration statement has not yet been declared effective, and no 
offering of shares has commenced. The Adviser will act as investment 
adviser to the Fund.
    3. Applicants propose that the Partnership exchange its assets, 
less funds required to pay the liabilities of the Partnership, for 
shares of the Fund. Thereafter, the Partnership will dissolve and 
distribute the shares of the Fund it receives to its partners pro rata. 
The exchange was proposed to permit the limited partners of the 
Partnership to invest in a larger fund, and to eliminate administrative 
burdens, filing requirements, and complicated allocation calculations 
currently faced by the Partnership. The Fund was designed as a 
successor investment vehicle to the Partnership, with investment 
objectives and policies substantially the same as those of the 
Partnership. The same persons who selected the investments for the 
Partnership will select them for the Fund.
    4. The Fund will be sold without any load or sales charge, and will 
adopt a plan of distribution pursuant to rule 12b-1 under the Act. 
Under the rule 12b-1 plan, the Fund will pay a rule 12b-1 distribution 
fee of up to 0.25% of its average daily net assets. Applicants 
anticipate that shares of the Fund will be marketed to essentially the 
same classes of persons and in the same manner as the interests in the 
Partnership have been marketed.
    5. The proposed exchange will be effected pursuant to an agreement 
and plan of reorganization (the ``Plan'') to be approved by the limited 
partners of the Partnership. 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 Fund will 
not acquire securities that, in the opinion of the Adviser, would 
result in a violation of the Fund's investment objectives, policies, or 
restrictions. Any remaining securities will be liquidated by the 
Partnership for cash and these proceeds distributed pro rata to the 
partners of the Partnership.
    6. The general partner of the Partnership will consider the 
desirability of the exchange from the point of view of the Partnership 
and must conclude that (a) the exchange is in the best interests of the 
Partnership and its partners and (b) upon the exchange, the interests 
of the partners of the Partnership will not be diluted as a result of 
the exchange.
    7. The board of directors of the Fund will consider the 
desirability of the exchange from the point of view of the Fund, and a 
majority of the directors, including a majority of the non-interested 
directors, must conclude that (a) the exchange is desirable as a 
business matter from the point of view of the Fund, (b) the exchange is 
in the best interest of the Fund, (c) upon the exchange, the interests 
of existing shareholders of the Fund will not be diluted as a result of 
the exchange, and (d) the terms of the exchange as reflected in the 
Plan have been designed to meet the criteria contained in section 17(b) 
of the Act.
    8. The exchange will not be effected unless: (a) the registration 
statements of the Fund have been declared effective; (b) the limited 
partners of the Partnership have approved the Plan and an amendment to 
the partnership agreement authorizing the general partner to take such 
actions as it deems necessary or appropriate to effect the 
[[Page 3288]] exchange; (c) the requested order has been granted; and 
(d) the limited partners have received an opinion of counsel that: (i) 
The distribution of Fund shares from the Partnership to its limited 
partners, which will be in liquidation of the Partnership, will not 
cause taxable gain or loss to be recognized by the limited partners, 
which will be in liquidation of the Partnership, will not cause taxable 
gain or loss to be recognized by the limited partners; (ii) the basis 
to the limited partners for the 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 the 
Fund shares will include their holding periods for their Partnership 
interests.
    9. If the Plan is approved and consummated, the Partnership, the 
Fund, and the Adviser will each pay their respective costs in 
connection with the forming of the Fund and completing the exchange. No 
brokerage commission, fee, or other remuneration will be paid in 
connection with the exchange.
    10. After the exchange is accomplished, the Adviser intends for the 
foreseeable future to manage the assets of the Fund in substantially 
the same manner as it did for the Partnership, except as may be 
necessary or desirable to qualify the Fund as a regulated investment 
company under the Internal Revenue Code of 1986, as amended, to comply 
with the investment restrictions adopted by the Fund in accordance with 
the requirements of the Act or securities laws of states where the Fund 
shares will be offered, or in light of changed market conditions.

Applicants' Legal Analysis

    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 or other property. The Fund 
and the Partnership may be deemed to be affiliated persons of each 
other because they are under the common control 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). They contend that, because the Fund and the 
Partnership have similar investment objectives and policies, the Fund 
will attempt to assemble a portfolio of securities substantially 
similar to that held by the Partnership. The Fund will acquire the 
Partnership's portfolio securities at their independent ``current 
market price.'' In addition, by acquiring suitable securities from the 
Partnership, the Fund will avoid incurring brokerage and other 
transactions costs. Applicants believe that neither the limited 
partners nor the Adviser will be in a position to influence the 
valuation of the securities acquired by the Fund. 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-914 Filed 1-12-95; 8:45 am]
BILLING CODE 8010-01-M