PanAgora confirmed
Last year, the
Securities and Exchange Commission staff, in a No-Action letter
dated April 29, 1994 by the name of The PanAgora Group Trust
(the "PanAgora Letter") took steps to restrict the
use of Section 3(c)(1) of the Investment Company Act of 1940
(the "Act") as it applies to certain defined contribution
employee benefit plans (e.g.. profit sharing plans, stock bonus
plans, 401k plans and the like). Generally, Section 3(c)(1) excludes
from the definition of an investment company an issuer whose
securities are owned by less than 100 "persons" and
which is not making nor proposing to make a public offering of
its securities (such an issuer is hereinafter referred to as
the "Fund") and in this way excuses such "private"
investment companies from the otherwise onerous regulatory constraints
of the Act.
To properly comply with Section
3(c)(1), it is important to know how to count the 100 beneficial
owners of the Fund. At issue, is how to count owners which are
entities rather than individuals. Under Section 3(c)(1), an entity
(i.e., a pension plan, corporation, trust) is generally counted
as one beneficial owner if it owns less than 10% of the Fund.
If the entity owns 10% or more of the outstanding voting securities
of the Fund and that entity has also invested more than 10% of
its total assets in the Fund and other investment vehicles relying
on Section 3(c)(1), then all of the beneficial owners of interest
in the entity will be counted toward the 100 person limit.
In the PanAgora Letter, the SEC
staff determined that the number of beneficial owners, pursuant
to Section 3(c)(1), in a self directed plan that
Continued
on page 4
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To Our Clients and Friends:
This premier issue of GlobalNote,
a publication of the Financial Services Capital Markets Group
of our law firm, is devoted to current items of interest recognizing
the global aspect of this area of law. Each quarter we will describe
items that we think are of general interest to our financial
services clients and industry friends.
This month's feature, PanAgora
Trust, a new ruling issued by the SEC, is receiving considerable
attention for its potentially adverse impact on the financial
services industry.
Attention is also focused on the
Chancellor ruling which shows the need for investment advisers
to give special care to disclosing conflicts of interest and
to family partnerships which continue to be an effective estate
planning tool especially for high net worth individuals, regardless
of age.
Lastly, we thought you would be
interested in highlights of the expected Netherlands Antilles
limited liability company statute.
We hope you enjoy this GlobalNote.
Please call me if you would like further information.
Sincerely,
Michael G. Tannenbaum
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