[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Notices]
[Pages 69969-69974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29823]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-24741; 813-232]
ML Taurus, Inc.; Notice of Application
November 15, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under sections 6(b) and 6(e)
of the Investment Company Act of 1940 (the ``Act'') exempting the
applicant from all provisions of the Act, except section 9, section 17
(other than certain provisions of sections 17(a), (d), (e), (f), (g),
and (j)), section 30 (except for certain provisions of sections 30(a),
(b), (e), and (h)), sections 36 through 53, and the rules and
regulations under the Act.
-----------------------------------------------------------------------
Summary of Application: Applicant requests an order to exempt
certain limited partnerships and other entities (``Partnerships'')
formed for the benefit of key employees of Merrill Lynch & Co., Inc.
(``ML & Co.'') and its affiliates from certain provisions of the Act.
Each Partnership will be an ``employees' securities company'' within
the meaning of section 2(a)(13) of the Act.
Applicant: ML Taurus, Inc. (``ML Taurus'').
Filing Dates: The application was filed on February 8, 2000, and
amended on November 9, 2000.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on December 11, 2000, and should be accompanied by proof of
service on applicant, 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC
20549-0609. Applicant, c/o Leonard B. Mackey, Jr., Esquire, Clifford
Chance Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166-
0153.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel,
at (202) 942-0714, or Janet M. Grossnickle, Branch Chief, at (202) 942-
0526 (Division of Investment Management, Office of Investment Company
Regulation).
[[Page 69970]]
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 450 Fifth Street, NW.,
Washington, DC 20549-0102 (tel. 202-942-8090).
Applicant's Representations
1. ML & Co. is a diversified financial services holding company
which provides investment, financing, insurance and related services
through subsidiaries. Its principal subsidiary, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, is a broker-dealer registered under the
Securities Exchange Act of 1934 (the ``Exchange Act''). ML & Co. and
its affiliates as defined in rule 12b-2 of the Exchange Act are
referred to collectively as the ``Merrill Lynch Group.''
2. ML Taurus, an indirect wholly-owned subsidiary of ML & Co.,
intends to establish Partnerships from time to time. Each Partnership
will be organized as either a Delaware limited partnership, a Delaware
limited liability company or another appropriate entity, will be an
``employees' securities company'' within the meaning of section
2(a)(13) of the Act, and each will operate as a closed-end, management
investment company which may be diversified or non-diversified. The
Partnerships will be established for the benefit of highly compensated
employees, officers, directors and current Consultants \1\ of ML & Co.
and its affiliates, primarily to create capital building opportunities
that are competitive with those at other financial services firms and
to facilitate the recruitment and retention of high caliber
professionals. The investment objectives and policies for each
Partnership may vary from Partnership to Partnership. Participation in
a Partnership will be voluntary.
---------------------------------------------------------------------------
\1\ A ``Consultant'' is a person or entity whom a Merrill Lynch
Group member has engaged on a retainer to provide services and
professional expertise on an ongoing basis as a regular consultant
or as a business or legal adviser and who shares a community of
interest with the Merrill Lynch Group and its employees.
---------------------------------------------------------------------------
3. ML Taurus, another direct or indirect wholly-owned subsidiary of
ML & Co. or an entity within the Merrill Lynch Group may serve as
general partner to one or more of the Partnerships (``General
Partner''). The General Partner will manage, operate and control each
Partnership. The executive offices and directors of the General Partner
or of any entity controlling the General Partner will be employees of
the Merrill Lynch Group who are eligible to invest in the Partnership.
The General Partner may delegate certain management responsibilities to
a manager (``Manager''), which will be either ML & Co., a person
controlling, controlled by or under common control with ML & Co. or an
investment committee composed of ``Eligible Employees'' as defined
below. The General Partner or Manager will act as the investment
adviser to a Partnership and will register as an investment adviser
under the Investment Advisers Act of 1940 (``Advisers Act''), if
required under applicable law.
4. Interests in the Partnerships (``Interests'') will be offered
without registration in reliance on section 4(2) of the Securities Act
of 1933 (the ``Securities Act''), or Regulation D under the Securities
Act, and will be sold only to ``Eligible Employees,'' and other
``Qualified Participants,'' each as defined below, or members of the
Merrill Lynch Group (collectively, the ``Limited Partners''). Prior to
offering Interests to an Eligible Employee or ``Qualified Family
Member,'' as defined below, the General Partner must reasonably believe
that such individual has such knowledge, sophistication and experience
in business and financial matters to be capable of evaluating the
merits and risks of participating in the Partnership, is able to bear
the economic risk of such investment and is able to afford a complete
loss of such investment. An Eligible Employee is an individual who is
former or current employee, officer, director or current Consultant of
the Merrill Lynch Group who meets the standards of an ``accredited
investor'' as defined in rule 501(a)(5) or 501(a)(6) of Regulation D
under the Securities Act (an ``Accredited Investor'') or one of 35 or
fewer employees of the Merrill Lynch Group who meets certain salary and
other requirements (``Other Investors'').
5. Each Other Investor will be an employee of the Merrill Lynch
Group who (a) is a ``knowledgeable employee,'' as defined in rule 3c-5
under the Act, of such Partnership (with the Partnership treated as
though it were a ``Covered Company'' for purposes of the rule), or (b)
has a graduate degree in business, law or accounting, has a minimum of
five years of consulting, investment banking or similar business
experience, and has a reportable income from all sources in the two
calendar years immediately preceding the Other Investor's participation
in the Partnership of at least $100,000 and has a reasonable
expectation of reportable income of at least $140,000 per year in each
year in which the Other Investor invests in a Partnership. In addition,
an Other Investor qualifying under (b) above will not be permitted to
invest in any year more than 10% of such person's income from all
sources for the immediately preceding year in aggregate in a
Partnership and in all other Partnerships in which that Other Investor
has previously invested.
6. A Qualified Participant is an Eligible Employee, Qualified
Family Member (as defined below) or Qualified Investment Vehicle (as
defined below). A ``Qualified Family Member'' is a spouse, parent,
child, spouse of child, brother, sister, or grandchild of an Eligible
Employee, and must be an Accredited Investor. A ``Qualified Investment
Vehicle'' is a trust or other investment vehicle established solely for
the benefit of an Eligible Employee or Qualified Family Members. A
Qualified Investment Vehicle must be either (a) an Accredited Investor
or (b) an entity for which an Eligible Employee or Qualified Family
Member is a settlor and principal investment decision-maker.
7. The terms of investment in a Partnership will be fully disclosed
to each prospective Limited Partner at the time the Limited Partner is
invited to participate in the Partnership. Each Partnership will send
annual reports, which will contain audited financial statements, as
soon as practicable after the end of each of its fiscal year to Limited
Partners. In addition, as soon as practicable after the end of each tax
year of a Partnership, each Limited Partner will receive a report
setting forth such tax information as shall be necessary for the
preparation by the Limited Partner of his or her federal tax returns.
8. The specific investment objectives and strategies for a
particular Partnership will be set forth in a private placement
memorandum relating to the Interests offered by the Partnership and
each Qualified Participant will receive a copy of the private placement
memorandum and the limited partnership agreement (or other constitutive
document) of the Partnership.
9. Interests in a Partnership will be non-transferable except with
the prior written consent of the General Partner. No person will be
admitted into a Partnership unless the person is a Qualified
Participant or member of the Merrill Lynch Group. No fee of any kind
will be charged in connection with the sale of Interests.
10. The General Partner may have the right, but not the obligation,
to repurchase or cancel the Interest of an Eligible Employee who ceases
to be an employee, officer, director or current Consultant of any
member of the Merrill
[[Page 69971]]
Lynch Group for any reason. Upon repurchase or cancellation, such
Limited Partner's Interest will be purchased by the General Partner for
cash in an amount at least equal to the lessor of (a) the amount of
such Partner's capital contributions less prior distributions from the
Partnership together (plus interest, as determined by the General
Partner) or (b) the value of the Interest, as determined by the General
Partner in good faith as of the date of termination.
11. Subject to the terms of the applicable limited partnership
agreement (or other constitutive documents), a Partnership will be
permitted to enter into transactions involving (a) a Merrill Lynch
Group entity, (b) a Client Fund (as defined below) or other portfolio
company, (c) a Limited Partner or any person or entity affiliated with
a Limited Partner, or (d) any partner or other investor in any entity
in which a Partnership invests. These transactions may include a
Partnership's purchase or sale of an investment or an interest from or
to any Merrill Lynch Group entity or Client Fund, acting as principal.
Prior to entering into these transactions, the General Partner must
determine that the terms are fair to the Limited Partners.
12. A Partnership will not invest more than 15% of its assets in
securities issued by registered investment companies except for
temporary investments in money market funds. A Partnership will not
acquire any security issued by a registered investment company if
immediately after the acquisition, the Partnership will own more than
3% of the outstanding voting stock of the registered investment
company. The Partnership may also invest in Client Funds that are not
registered under the Act by virtue of section 3(c)(1) or section
3(c)(7) of the Act.
13. The General Partner or Manager of a Partnership may charge the
Partnership an annual management fee, a flat administrative charge or a
``carried interest.'' \2\ A General Partner or Manager may receive
reimbursement of its out-of-pocket expenses, including the allocable
portion of the salaries of Merrill Lynch Group employees who work on
the Partnerships' affairs. Directors or officers of the General Partner
or Manager, or of any entity controlling the General Partner or
Manager, may also be compensated for their services to the General
Partner or Manager, including reimbursement for out-of-pocket expenses,
and may be allocated a portion of any carried interest paid by such
Partnership.
---------------------------------------------------------------------------
\2\ A ``carried interest'' is an allocation to the General
Partner or Manager based on the net gains in addition to the amount
allocable to the General Partner or Manager that is in proportion to
its capital contributions. Depending on whether the General Partner
or Manager is registered as an investment adviser under the Advisers
Act, any ``carried interest'' will be charged only if permitted by
rule 205-3 under the Advisers Act (in the case of a General Partner
or Manager registered under the Advisers Act) or will comply with
section 205(b)(3) of the Advisers Act (with the Partnership treated
as though it were a ``business development company'' solely for the
purpose of that section) in the case of a General Partner or Manager
not registered under the Advisers Act.
---------------------------------------------------------------------------
14. If a Partnership becomes a limited partner or otherwise holds
an interest in an investment fund organized or managed by the Merrill
Lynch Group in which unaffiliated third parties also are limited
partners or otherwise hold interests (a ``Client Fund''), the
Partnership may be obligated to pay a pro rata share of any fees
(including carried interest) charged to the unaffiliated limited
partners or interest holders of such Client Fund. A Partnership may
also invest in funds managed or advised by persons not affiliated with
ML & Co. in which case such unaffiliated persons may also be entitled
to fees (including carried interest) from the Partnership. In all such
cases, the Partnerships will enter into commercially reasonable arm's
length arrangements with respect to the payment of the fees and the
potential for payment of any such management fees or carried interest
will be fully described in the applicable offering documents.
15. Members of the Merrill Lynch Group and/or unaffiliated third
parties may make loans to the Partnerships and/or to Limited Partners
in connection with their purchase of Partnership Interests, provided
that a Partnership will not borrow from any person if the borrowing
would cause any person not named in section 2(a)(13) of the Act to own
outstanding securities of the Partnership (other than short-term
paper). In connection with any leverage of the Partnership or preferred
contributions, Eligible Employees will not have any personal liability
in excess of the amounts payable under their respective subscription
agreements for the repayment of the preferred capital contribution,
including in the event that, upon liquidation of the Partnership, the
assets of the Partnership are insufficient to permit the Partnership to
repay such preferred capital contribution in full. Members of the
Merrill Lynch Group may also make preferred capital contributions to
the Partnerships either through the General Partner or as Limited
Partners. Any leverage or preferred capital contributions will bear
interest at a rate no less favorable to a Partnership or its Limited
Partners than that could be obtained on an arm's length basis.
16. Eligible Employees may be able to defer compensation under a
deferred compensation plan established in connection with the
Partnerships and receive a return on such deferred compensation
determined by reference to the performance of a Partnership. Such
employees also may be able to leverage their deferred compensation
through ``borrowings'' from members of the Merrill Lynch Group
structured in a manner similar to direct loads to Limited Partners. The
deferred compensation plans/or an Eligible Employee's interest in such
plans: (a) Will be subject to the applicable terms and conditions of
this application; \3\ (b) will only be offered to Eligible Employees
who are current employees, officers, directors or consultants of the
Merrill Lynch Group; (c) will have restrictions on transferability,
including prohibitions on assignment or transfer except in the event of
the Eligible Employee's death or as otherwise required by law; and (d)
will provide information to participants equivalent to that provided to
investors and prospective investors in the corresponding Partnership,
including, without limitation, disclosure documents and audited
financial information.
---------------------------------------------------------------------------
\3\ For purposes of this application, a Partnership will be
deemed to be formed with respect to each deferred compensation plan
and each reference to ``Partnership,'' ``capital contribution,''
``General Partner,'' ``Limited Partner,'' ``loans'' or ``leverage''
and ``Interest'' in this application will be deemed to refer to the
deferred compensation plan, the notional capital contribution to the
deferred compensation plan, the Merrill Lynch Group, a participant
of the deferred compensation plan, notional loans or leverage and
participation rights in the deferred compensation plan,
respectively.
---------------------------------------------------------------------------
Applicant's Legal Analysis
1. Section 6(b) of the Act provides, in part, that the Commission
will exempt employees' securities companies from the provisions of the
Act to the extent that the exemption is consistent with the protection
of investors. Section 6(b) provides that the Commission will consider,
in determining the provisions of the Act from which the company should
be exempt, the company's form of organization and capital structure,
the persons owning and controlling its securities, the price of the
company's securities and the amount of any sales load, how the
company's funds are invested, and the relationship between the company
and the issuers of the securities in which it invests. Section 2(a)(13)
defines an employees' securities
[[Page 69972]]
company, in relevant part, as any investment company all of whose
securities are beneficially owned (a) by current or former employees,
or persons on retainer, of one of more affiliated employers, (b) by
immediate family members of such persons, or (c) by such employer or
employers together with any of the persons in (a) or (b).
2. Section 7 of the Act generally prohibits investment companies
that are not registered under section 8 of the Act from selling or
redeeming their securities. Section 6(e) provides that, in connection
with any order exempting an investment company from any provision of
section 7, certain provisions of the Act, as specified by the
Commission, will be applicable to the company and other persons dealing
with the company as though the company were registered under the Act.
Applicant requests an order under sections 6(b) and 69e) of the Act
exempting the Partnerships from all provisions of the Act, except
section 9, section 17 (other than certain provisions of paragraphs (a),
(d), (e), (f), (g), and (j)), section 30 (other than certain provisions
of paragraphs (a), (b), (e), and (h)), sections 36 through 53 of the
Act, and the rules and regulations under the Act and approving
transactions pursuant to section 17(d) of the Act and rule 17d-1
thereunder.
3. Section 17(a) generally prohibits any affiliated person of a
registered investment company, or any affiliated person of an
affiliated person, acting as principal, from knowingly selling or
purchasing any security or other property to or from the company.
Applicant requests an exemption from section 17(a) to permit: (a) A
member of the Merrill Lynch Group or a Client Fund, acting as
principal, to engage in any transaction directly or indirectly with any
Partnership or any entity controlled by such Partnership; (b) a
Partnership to invest in or engage in any transaction with any entity,
acting as principal (i) in which such Partnership, and company
controlled by such Partnership, or any entity within the Merrill Lynch
Group or a Client Fund has invested or will invest or (ii) with which
such Partnership, any company controlled by such Partnership or any
Merrill Lynch Group entity or a Client Fund is or will otherwise become
affiliated; and (c) a partner or other investor in any entity in which
a Partnership invests, acting as principal, to engage in transactions
directly or indirectly with the related Partnership or any company
controlled by such Partnership.
4. Applicant states that an exemption from section 17(a) is
consistent with the protection of investors and the purposes of the
Partnerships. Applicant states that the Limited Partners in each
Partnership will be informed of the possible extent of the
Partnership's dealings with the Merrill Lynch Group and of the
potential conflicts of interest that may exist. Applicant also asserts
that the community of interest among the Limited Partners and Merrill
Lynch Group will serve to reduce any risk of abuse in transactions
involving a Partnership and the Merrill Lynch Group.
5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of a registered investment company, or any
affiliated person of an affiliated person, acting as principal, from
participating in any joint enterprise, or other joint arrangement,
unless approved by the Commission. Applicant requests approval to
permit affiliated persons of each Partnership, or affiliated persons of
such persons, to participate in any joint arrangement in which the
Partnership or an entity controlled by the Partnership is a
participant.
6. Applicant submits that it is likely that suitable investments
will be brought to the attention of a Partnership because of its
affiliation with the Merrill Lynch Group, the Merrill Lynch Group's
large capital resources, and its experience in structuring complex
transactions. Applicant also submits that the types of investment
opportunities considered by a Partnership often require each investor
to make funds available in an amount that may be substantially greater
than what a Partnership may make available on its own. Applicant
contends that, as a result, the only way in which a Partnership may be
able to participate in these opportunities may be to co-invest with
other persons, including its affiliates. Applicant notes that each
Partnership will be primarily organized for the benefit of Eligible
Employees as an incentive for them to remain with the Merrill Lynch
Group and for the generation and maintenance of goodwill. Applicant
believes that, if co-investments with the Merrill Lynch Group are
prohibited, the appeal of the Partnerships would be significantly
diminished.
7. Applicant states that the possibility that permitting co-
investments by an affiliated person or an affiliated person of an
affiliated person might lead to less advantageous treatment of the
Partnership is mimimal in light of (a) the Merrill Lynch Group's
intention in establishing a Partnership so as to reward Eligible
Employees and to attract and retain highly qualified personnel, (b) the
Merrill Lynch Group's capital contributions to the Partnerships, (c)
the liability of the General Partner to the extent that a Partnership's
losses exceed its assets and (d) the fact that executive officers and
directors of the General Partners or of the entity controlling the
General Partner may themselves invest in the Partnership. In addition,
applicant asserts that strict compliance with section 17(d) could cause
a Partnership to forgo attractive investment opportunities simply
because an affiliated person of the Partnership has made, or may make,
the same investment.
8. Applicant believes that the interests of the Eligible Employees
participating in a Partnership will be adequately protected in
situations where condition 3 in the application does not apply. A
Partnership may also co-invest with an investment fund or separate
account, organized for the benefit of investors who are not affiliated
with the Merrill Lynch Group, over which a member of the Merrill Lynch
Group exercises investment discretion (a ``Third-Party Fund'').
Applicant states that in structuring a Third-Party Fund, it is common
for unaffiliated investors of such fund to require that the Merrill
Lynch Group invest its own capital in fund investments, either through
the fund or on a side-by-side basis, and that such Merrill Lynch Group
investment be subject to substantially the same terms as those
applicable to the fund's investment. Applicant states that it is
important to the Merrill Lynch Group that the interests of the Third-
Party Fund take priority over the interests of the Partnerships, and
that the activities of the Third-Party Fund not be burdened or
otherwise affected by the activities of the Partnerships. In addition,
the relationship of a Partnership to a Third-Party Fund, in the context
of this application, is fundamentally different from such Partnership's
relationship to the Merrill Lynch Group. The focus of, and the
rationale for, the protections contained in this application are to
protect the Partnerships from any overreaching by the Merrill Lynch
Group in the employer/employee context, whereas the same concerns are
not present with respect to the Partnerships vis-a-vis the investors of
a Third-Party Fund.
9. Section 17(e) of the Act and rule 17e-1 under the Act limit the
compensation an affiliated person may receive when acting as agent or
broker for a registered investment company. Applicant requests an
exemption from section 17(e) to permit a Merrill Lynch Group member
(including the General Partner) acting as agent or broker, to receive
placement fees, financial
[[Page 69973]]
advisory fees or other compensation in connection with the purchase or
sale by a Partnership of securities, subject to the requirement that
placement fees, financial advisory fees or other compensation is deemed
``usual and customary.'' Applicant states that for the purposes of the
application, fees and other compensation that is being charged or
received by the Merrill Lynch Group will be deemed ``usual and
customary'' only if (a) the Partnership is purchasing or selling
securities with other unaffiliated third parties, (b) the fees or
compensation being charged to the Partnership are also being charged to
the unaffiliated third parties, and (c) the amount of securities being
purchased or sold by the Partnership does not exceed 50 percent of the
total amount of securities being purchased or sold by the Partnership
and unaffiliated third parties. Applicant asserts that compliance with
section 17(e) would prevent a Partnership from participating in a
transaction in which a member of the Merrill Lynch Group does not, for
other business reasons, wish a Partnership to be treated in a more
favorable manner (in terms of lower fees) than unaffiliated third
parties. Applicant asserts that fees or other compensation paid by a
Partnership to a Merrill Lynch Group entity will be the same as those
negotiated at arm's length with unaffiliated third parties and the
unaffiliated third parties will have as great or greater interest as
the Partnership in the transaction as a whole.
10. Rule 17e-1(b) requires that a majority of directors who are not
``interested persons'' (as defined by section 2(a)(19) of the Act) take
actions and make approvals regarding commissions, fees, or other
remuneration. Applicants requests an exemption from rule 17e-1 to the
extent necessary to permit each Partnership to comply with the rule
without having a majority of the directors of the General Partner who
are not interested persons take actions and make determinations as set
forth in the rule. Applicant states that because all of the directors
of a General Partner will be affiliated persons, without such relief
requested, a Partnership could not comply with rule 17e-1. Applicant
states that each Partnership will comply with rule 17e-1(b) by having a
majority of the directors of the Partnership take actions and make
approvals as set forth in rule 17e-1. Applicants states that each
Partnership will otherwise comply with the requirements of rule 17e-1.
11. Section 17(f) designates the entities that may act as
investment company custodians, and rule 17f-1 imposes certain
requirements when the custodian is a member of a national securities
exchange. Applicant requests an exemption from section 17(f) and rule
17f-1(a) to the extent necessary to permit a member of the Merrill
Lynch Group to act as custodian without a written contract. Applicant
also requests an exemption from the rule 17f-1(b)(4) requirement that
an independent accountant periodically verify the assets held by the
custodian. Applicant further requests an exemption from rule 17f-1(c)'s
requirement of transmitting to the Commission a copy of any contract
executed pursuant to rule 17f-1. Applicant believes that because of the
community of interest of all of the parties involved, compliance with
these requirements would be unnecessary. Applicant states that it will
comply with rule 17f-1(d), provided that ratification by the General
Partner of any Partnership will be deemed to be ratification by a
majority of a board of directors. Applicant states that it will comply
with all other requirements of rule 17f-1.
12. Section 17(g) and rule 17g-1 generally require the bonding of
officers and employees of a registered investment company who have
access to its securities or funds. Rule 17g-1 requires that a majority
of directors who are not interested persons take certain actions and
give certain approvals relating to fidelity bonding. Applicant requests
relief from rule 17g-1(d), (e) and (g) of the extent necessary to
permit the General Partner's officers and directors, who may be deemed
to be interested persons, to take the actions and make the
determinations set forth in the rule. Applicant states that, because
all the directors of the General Partner will be affiliated persons, a
Partnership could not comply with rule 17g-1 without the requested
relief. Applicant also states that each Partnership will comply with
all other requirements of rule 17g-1.
13. Section 17(j) and paragraph (b) of rule 17j-1 make it unlawful
for certain enumerated persons to engage in fraudulent or deceptive
practices in connection with the purchase or sale of a security held or
to be acquired by a registered investment company. Rule 17j-1 also
requires that every registered investment company adopt a written code
of ethics and that every access person of a registered investment
company report personal securities transactions. Applicant requests an
exemption from the provisions of rule 17j-1, except for the anti-fraud
provisions of paragraph (b), because they are unnecessarily burdensome
because of the community of interest among the Limited Partners.
14. Applicant requests an exemption from the requirements in
sections 30(a), 30(b) and 30(e), and the rules under those sections,
that registered investment companies prepare and file with the
Commission and mail to their shareholders certain periodic reports and
financial statements. Applicant contends that the forms prescribed by
the Commission for periodic reports have little relevance to the
Partnerships and would entail administrative and legal costs that
ourweigh any benefit to the Limited Partners. Applicant requests
exemptive relief to the extent necessary to permit each Partnership to
report annually to its Limited Partners. Applicant also requests also
an exemption from section 30(h) to the extent necessary to exempt the
General Partner of each Partnership and any other person who may be
deemed to be a member of an advisory board of a Partnership from filing
Forms 3, 4, and 5 under section 16(a) of the Exchange Act with respect
to their ownership of Interests in a Partnership. Applicant asserts
that, because there will be no trading markets and the transfers of
Interests will be severely restricted, these filings are unnecessary
for the protection of investors and burdensome to those required to
make them.
Applicant's Conditions
Applicant agrees that any order granting the requested relief will
be subject to the following conditions:
1. Each proposed transaction involving a Partnership otherwise
prohibited by section 17(a) or section 17(d) of the Act and rule 17d-1
thereunder (the ``Section 17 Transactions'') will be effected only if
the General Partner determines that: (a) The terms of the transaction,
including the consideration to be paid or received, are fair and
reasonable to the Limited Partners and do not involve overreaching of
the Partnership or its Limited Partners on the part of any reason
concerned; and (b) the transaction is consistent with the interests of
the Limited Partners, the Partnership's organizational documents and
the Partnership's reports to its Limited Partners. In addition, the
General Partner of each Partnership will record and preserve a
description of all Section 17 Transactions, their findings, the
information or materials upon which their findings are based and the
basis therefor. All such records will be maintained for the life of the
Partnerships and at least two years thereafter, and will be subject to
[[Page 69974]]
examination by the Commission and its staff. \4\
---------------------------------------------------------------------------
\4\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
---------------------------------------------------------------------------
2. In connection with the Section 17 Transactions, the General
Partner of each Partnership will adopt, and periodically review and
update, procedures designed to ensure that reasonable inquiry is made,
before the consummation of any such transaction, with respect to the
possible involvement in the transaction of any affiliated person or
promoter of or principal underwriter for the Partnership, or any
affiliated person of an affiliated person, promoter, or principal
underwriter.
3. The General Partner of each Partnership will not invest the
funds of the Partnership in any investment in which an ``Affiliated Co-
Investor'' (as defined below) has acquired or proposes to acquire the
same class of securities of the same issuer, where the investment
involves a joint enterprise or other joint arrangement within the
meaning of rule 17d-1 in which the Partnership and an Affiliated Co-
Investor are participants, unless any such Affiliated Co-Investor,
prior to disposing of all or part of its investment, (a) gives the
General Partner sufficient, but not less than one day's notice of its
intent to dispose of its investment, and (b) refrains from disposing of
its investment unless the Partnership has the opportunity to dispose of
the Partnership's investment prior to or concurrently with, on the same
terms as, and pro rata with the Affiliated Co-Investor. The term
``Affiliated Co-Investor'' with respect to Partnership means (a) an
``affiliated person,'' as such term is defined in the Act, of the
Partnership (other than a Third-Party Fund or a person that is an
affiliated person of the Partnership solely because of section
2(a)(3)(B) of the Act); (b) the Merrill Lynch Group; (c) an officer or
director of the Merrill Lynch Group; or (d) an entity (other than a
Third-Party Fund) in which a member of the Merrill Lynch Group acts as
a general partner or has a similar capacity to control the sale or
other disposition of the entity's securities. The restrictions
contained in this condition, however, shall not be deemed to limit or
prevent the disposition of an investment by an Affiliated Co-Investor:
(a) To its direct or indirect wholly-owned subsidiary, to any company
(a ``Parent'') of which the Affiliated Co-Investor is a direct or
indirect wholly-owned subsidiary, or to a direct or indirect wholly-
owned subsidiary of its Parent; (b) to immediate family members of the
Affiliated Co-Investor or a trust established for any Affiliated Co-
Investor or any such family member; or (c) when the investment is
comprised of securities that are (i) listed on any exchange registered
as a national securities exchange under section 6 of the Exchange Act;
(ii) national market system securities pursuant to section 11A(a)(2) of
the Exchange Act and rule 11Aa2-1 thereunder, or (iii) government
securities as defined in section 2(a)(16) of the Act.
4. Each Partnership and its General Partner will maintain and
preserve, for the life of each such Partnership and at least two years
thereafter, such accounts, books, and other documents as constitute the
record forming the basis for the audited financial statements that are
to be provided to the Limited Partners, and each annual report of the
Partnership required to be sent to the Limited Partners, and agree that
all such records will be subject to examination by the Commission and
its staff.\5\
---------------------------------------------------------------------------
\5\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
---------------------------------------------------------------------------
5. The General Partner of each Partnership will send to each
Limited Partner who had an Interest in a Partnership, at any time
during the fiscal year then ended, Partnership financial statements
that have been audited by independent accountants. At the end of each
fiscal year, the General Partners will make a valuation or have a
valuation made of all of the assets of the Partnership as of such
fiscal year end in a manner consistent with customary practice with
respect to the valuation of assets of the kind held by the Partnership.
In addition, within 90 days after the end of each fiscal year of each
of the Partnerships or as soon as practicable thereafter, the General
Partner of each Partnership shall send a report to each person who was
a Limited Partner at any time during the fiscal year then ended,
setting forth such tax information as shall be necessary for the
preparation by the Limited Partner of his or her federal and state
income tax returns and a report of the investment activities of the
Partnership during that year.
6. Whenever a Partnership makes a purchase from or sale to an
entity affiliated with the Partnership by reason of a 5% or more
investment in such entity by a Merrill Lynch Group director, officer,
or employee, such individual will not participate in the General
Partner's determination of whether or not to effect the purchase or
sale.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29823 Filed 11-20-00; 8:45 am]
BILLING CODE 8010-01-M