[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Notices]
[Pages 55636-55642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27128]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21451; 813-140]
Sixty Wall Street Fund 1995, L.P., et al.; Notice of Application
October 25, 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: Sixty Wall Street Fund 1995, L.P. (the ``1995
Partnership''), Sixty Wall Street SBIC Fund, L.P. (the ``SBIC
Partnership,'' and together with the 1995 Partnership, the ``Initial
Partnerships''), and J.P. Morgan & Co. Incorporated (``JP Morgan'').
RELEVANT ACT SECTIONS: Applicants request an order under sections 6(b)
and 6(e) granting an exemption from all provisions of the Act except
section 9, certain provisions of sections 17 and 30, sections 36
through 53, and the rules and regulations thereunder.
SUMMARY OF APPLICATION: Applicants request an order, on behalf of the
Initial Partnerships and certain other partnerships or other investment
vehicles organized by JP Morgan that
[[Page 55637]]
may be offered to the same class of investors (the ``Subsequent
Partnerships,'' and together with the Initial Partnerships, the
``Partnerships''), that would grant an exemption from most provisions
of the Act, and would permit certain affiliated and joint transactions.
Each Partnership will be an employees' securities company within the
meaning of section 2(a)(13) of the Act. Partnership interests will be
offered to eligible employees, officers, directors, and persons on
retainer of JP Morgan and its affiliates.
FILING DATES: The application was filed on March 17, 1995 and amended
on August 4, 1995. By letter dated October 20, 1995, applicants'
counsel stated that an additional amendment, the substance of which is
incorporated herein, will be filed 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 November 20,
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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 60 Wall Street, New York, New York 10260.
FOR FURTHER INFORMATION CONTACT:
Mary Kay Frech, Senior Attorney, at (202) 942-0579, 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. JP Morgan and its affiliates, as defined in rule 12b-2 under the
Securities Exchange Act of 1934 (the ``Exchange Act''), (the ``JP
Morgan Group'') constitute a global financial services firm. J.P.
Morgan Securities Inc. (``JP Morgan Securities''), a wholly-owned
subsidiary of JP Morgan, is the principal broker-dealer affiliate of
the JP Morgan Group and is registered as a broker-dealer under the
Exchange Act.
2. The Initial Partnerships are Delaware limited partnerships that
represent the first of several anticipated annual investment programs
(each, an ``Annual Investment Program'') that are to be formed to
enable certain employees, officers, directors, and persons on retainer
of the JP Morgan Group to pool their investment resources and to
participate in various types of investment opportunities. The pooling
of resources permits diversification and participation in investments
that usually would not be offered to individual investors. The goal of
the Partnerships is to reward and retain personnel by enabling them to
participate in investment opportunities that otherwise would not be
available to them and to attract other individuals to the JP Morgan
Group.
3. The Partnerships will operate as closed-end management
investment companies. The Partnerships will seek to achieve a high rate
of return through long-term capital appreciation in risk capital
opportunities. The Initial Partnerships will co-invest alongside J.P.
Morgan Capital Corporation, a Delaware corporation and wholly-owned
subsidiary of JP Morgan (``JPMCC'') and its subsidiaries (collectively
with JPMCC, ``JP Morgan Capital''), in investments made by JP Morgan
Capital during the 1995 calendar year. Similarly, with respect to a
subsequent Annual Investment Program, it is anticipated that a
Subsequent Partnership and the SBIC Partnership will co-invest
alongside JP Morgan Capital pursuant to such Annual Investment Program
in investments made by JP Morgan Capital.
4. The general partner or other investment manager of each
Partnership (the ``General Partner'') will be an affiliate of JP Morgan
and will be registered as an investment advisor under the Investment
Advisers Act of 1940 (the ``Advisers Act''), or will be excluded from
the definition of investment adviser under the Advisers Act because it
is a bank or a bank holding company.
5. Interests in each Partnership will be offered without
registration under a claim of exemption pursuant to section 4(2) of the
Securities Act of 1933 (the ``Securities Act'').\1\ Interests will be
offered and sold only to (a) ``Eligible Employees'' of the JP Morgan
Group, (b) immediate family members of an Eligible Employee (at the
discretion of JP Morgan and at the request of an Eligible Employee)
(``Qualified Family Members''), or (c) trusts or other investment
vehicles for the benefit of such Eligible Employees and/or the benefit
of their immediate families (``Qualified Investment Vehicles'' and,
collectively with Qualified Family Members, ``Qualified
Participants''). To be an Eligible Employee, an individual must be a
current or former employee, officer, director, or person on retainer of
an entity within the JP Morgan Group and, except for certain
individuals described in paragraph 6 below, an ``accredited investor''
meeting the income requirements set forth in rule 501(a)(6) of
Regulation D under the Securities Act. To be a Qualified Family Member,
the immediate family member also must be an ``accredited investor''
meeting the income requirements set forth in rule 501(a)(6) of
Regulation D. The limitations on the class of persons who may acquire
interests (``Limited Partners''), in conjunction with other
characteristics of the Partnership, will qualify the Partnership as an
``employees' securities company'' under section 2(a)(13) of the Act.
\1\Section 4(2) exempts transactions by an issuer not involving
any public offering from the Securities Act's registration
requirement.
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6. Eligible Employees who are not accredited investors but who
manage the day-to-day affairs of a Partnership may be permitted to
invest their own funds through the General Partner of the Partnership
if such individuals had reportable income from all sources in the
calendar year immediately preceding such person's participation in
excess of $120,000, and have a reasonable expectation of reportable
income in the years in which such person will be required to invest his
or her own funds of at least $150,000. These individuals will have
primary responsibility for operating the partnership. Such
responsibility will include, among other things, evaluating and
monitoring investments for the Partnership, communicating with the
Limited Partners, and maintaining the books and records of the
Partnership. Accordingly, all such individuals will be closely involved
with, and knowledgeable with respect to, the Partnership's affairs and
the status of Partnership investments.
7. Only a small portion of the JP Morgan Group's personnel qualify
as Eligible Employees. The Eligible Employees are experienced
professionals in the banking or financial services business, or in the
administrative, financial, accounting, or operational activities
related thereto. No Eligible Employee will be required to invest in any
Partnership.
8. The management and control of each Partnership, including all
[[Page 55638]]
investment decisions, will be vested in the General Partner. The
General Partner of each Partnership will be an entity (the ``JPM
Subsidiary Corporation'') that is directly or indirectly controlled by
JP Morgan. Thus, the investment discretion over a Partnership's
investment portfolio will be exercised by or, directly or indirectly,
under the direction of the board of directors or other committee
serving similar functions (the ``Board'') of the JPM Subsidiary
Corporation. Each Board, among other things, will act as the investment
committee of the Partnership responsible for approving all investment
and valuation decisions. The day-to-day affairs of each Partnership
will be managed by individuals who are officers or employees of an
entity within the JP Morgan Group.
9. The General Partner of each Partnership will pay its normal
operating expenses, including rent and salaries of its personnel and
certain expenses. To the extent any expenses are not borne by the
General Partner, the Partnership will be required to pay such expenses.
Such expenses may include, without limitation, the fees, commissions,
and expenses of an entity within the JP Morgan Group for services
performed by such entity for the Partnership such as, for example,
brokerage or clearing services in the Partnership's portfolio
securities.
10. In the case of an Annual Investment Program (other than the
1995 Annual Investment Program), the General Partner of a Partnership
may be paid an annual management fee, generally determined as a
percentage of assets under management, invested capital, or aggregate
commitments. The General Partner of a Partnership also may be entitled
to receive a performance-based fee (or ``carried interest'') of a
specified percentage based on the gains and losses of such
Partnership's or each Limited Partner's investment portfolio.\2\ In
addition, the General Partner may be entitled to other compensation,
such as acquisition fees in connection with the purchase of Partnership
investments and disposition fees in connection with the disposition of
Partnership investments.
\2\A ``carried interest'' is an allocation to the General
Partner based on net gains in addition to the amount allocable to
the General Partner that is in proportion to its capital
contributions. Any carried interest will be structured to comply
with the requirements of rule 205-3 under the Advisers Act.
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11. With respect to each Annual Investment Program, the terms of
each Partnership will be disclosed to the Eligible Employees at the
time they are offered the right to subscribe for interests in the
Partnership. Each Partnership generally will be required to invest
``lock-step'' in investment opportunities in which JP Morgan Capital
invests in the year of the Annual Investment Program. Such
Partnership's co-investment generally will bear the same proportion to
the aggregate amount of such investment by JP Morgan Capital and such
Partnership as the aggregate capital commitments of the Partnerships
(to which such Annual Investment Program relates) bear to the aggregate
amount of investments made by JP Morgan Capital and such Partnerships
during such year. However, (a) a Partnership will not co-invest ``lock-
step'' with JP Morgan Capital to the extent necessary to address
regulatory, tax, or other legal considerations, (b) certain types of
investments made by JP Morgan Capital, such as investments in certain
foreign issuers, may be excluded from a Partnership's co-investments,
subject to review by the General Partner of such Partnership, and (c)
the amount of any co-investment by a Partnership may be subject to
certain adjustments by the General Partner of such Partnership. The
manner in which investment opportunities will be allocated between a
Partnership and JP Morgan Capital and any exceptions to the requirement
that such Partnership co-invest ``lock-step'' with JP Morgan Capital
will be disclosed to the Eligible Employees at the time they are
offered the right to subscribe for interests in the Partnerships to
which such Annual Investment Program relates.
12. It is possible that JP Morgan Capital and a Partnership may co-
invest in a portfolio company alongside an investment fund or account,
organized for the benefit of investors who are not affiliated with the
JP Morgan Group, over which an entity within the JP Morgan Group (other
than JP Morgan Capital) exercises investment discretion (a ``Third
Party Fund''). These unaffiliated investors include institutional
investors such as public and private pension funds, foundations,
endowments, and corporations, and high net worth individuals, in each
case both domestic and foreign. Notwithstanding the fact that the terms
applicable to the investment by the Third Party Fund may differ from
the terms of the relevant investment held by the Partnership or JP
Morgan Capital, and the ``lock-step'' disposition requirement will not
apply to the Third Party Fund, the interests of the Eligible Employees
participating in a Partnership will be adequately protected because JP
Morgan Capital will continue to be subject to all of the conditions
described herein with respect to the making and disposition of
investments pursuant to any Annual Investment Program. Moreover,
applicants believe that the relationship of the Partnership to the
Third Party Fund, in the context of the application, is fundamentally
different from the Partnerships' relationship to the JP Morgan Group.
The focus of, and the rationale for, the protections contained in the
application are to protect the Partnerships from any overreaching by
the JP Morgan 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.
13. Subject to the terms of the applicable Partnership agreement
and the related co-investment agreement with JP Morgan Capital, a
Partnership will be permitted to enter into transactions involving (a)
an entity within the JP Morgan Group (including without limitation JP
Morgan Capital), (b) a portfolio company, (c) any partner or person or
entity related to any partner, (d) a Third Party Fund, or (e) any
partner or other investor of a Third Party Fund that is not an entity
within the JP Morgan Group, or any affiliate (as defined in rule 12b-2
under the Exchange Act) of such partner or other investor (a ``Third
Party Investor''). Such transactions may include, without limitation,
the purchase or sale by the Partnership of an investment, or an
interest therein, from or to any entity within the JP Morgan Group
(including without limitation JP Morgan Capital or a Third Party Fund),
acting as principal. With regard to such transactions, the Board must
determine prior to entering into such transaction that the terms
thereof are fair to the partners and the Partnership.
14. In order to ensure that Eligible Employees participating in any
Partnership will not be subject to overreaching on the part of JP
Morgan Capital and that the interests of the Eligible Employees are
adequately protected, JP Morgan Capital will be required, except as
permitted under condition 3 below, to give each Partnership the
opportunity to sell or otherwise dispose of its investments prior to or
concurrently with, and on the same terms as, sales or other
dispositions by JP Morgan Capital. By imposing this ``lock-step''
disposition requirement on JP Morgan Capital, the interests of the
Eligible Employees participating in a Partnership are aligned with JP
Morgan Capital's interests, thus creating a substantial
[[Page 55639]]
community of interest among the Eligible Employees and JP Morgan
Capital.
15. Interests in a Partnership will be non-transferable, except
with the prior written consent of the General Partner of the
Partnership, which consent may be withheld in its sole discretion. In
any event, no person or entity will be admitted to the Partnership as a
partner unless such person or entity is: (a) an Eligible Employee, (b)
a Qualified Participant, or (c) an entity within the JP Morgan Group.
Upon the death of a Limited Partner, or such Limited Partner becoming
incompetent, insolvent, incapacitated, or bankrupt, such Limited
Partner's estate or legal representative will succeed to the Limited
Partner's interest as an assignee for the purpose of settling such
Limited Partner's estate or administering such Limited Partner's
property, but may not become a Limited Partner.
16. Interests in a partnership may be redeemable by the Partnership
upon the Limited Partner's termination of employment from the JP Morgan
Group. Alternatively, an entity within JP Morgan Group may have the
right to purchase a Limited Partner's interest upon such termination of
employment. The terms upon which an interest may be so redeemed or
purchased, including the manner in which the redemption or purchase
price will be determined, will be fully disclosed to Eligible Employees
at the time they are offered the right to subscribe for the interest.
In any event, with respect to a redemption or purchase, the redemption
or purchase price will not be less than the lower of (a) the amount
invested plus interest calculated at a rate based on three-month LIBOR
for the period since the investment, and (b) the fair value (as
determined by the General Partner in good faith and in accordance with
its customary valuation practices) of the interest at the end of the
Partnership's's fiscal year in which such termination occurs, less
amounts, if any, forfeited by the Limited Partner for failure to make
required capital contributions. Such forfeited amounts will not include
any penalty amount with respect to such redemption or purchase.
17. With respect to the 1995 Annual Investment Program, except as
described below, the Initial Partnerships will co-invest in all
investments made by JP Morgan Capital in 1995. The 1995 Partnership
will co-invest in investments made by JP Morgan Capital other than
investments made by JP Morgan Investment Corporation (``JPMIC''), a
small business investment company licensed under the Small Business
Investment Act and a wholly-owned subsidiary of JPMCC. The SBIC
Partnership, which also will be licensed as a small business investment
company under the Small Business Investment Act of 1958 (the ``Small
Business Investment Act''), will co-invest in investments made by
JPMIC, thereby increasing the amount of funds available for investments
is small business. Upon receipt of the requested order, the Limited
Partners will be admitted to the 1995 Partnership. After such admission
and pending the making of investments, all funds contributed to the
1995 Partnership by the Limited Partners will be loaned by the 1995
Partnership to JPMCC at a rate of interest equal to 12-month LIBOR plus
\1/2\%.
18. The Initial Partnerships have entered into an investment
agreement with JP Morgan Capital pursuant to which the Initial
Partnerships have agreed to purchase their pro rata share of each
investment made by JP Morgan Capital in 1995, except for the following
limited exceptions. In the case of the 1995 Partnership, the 1995
Partnership generally will not participate in certain foreign
investments where the obligation to make such investment was created on
or before December 31, 1994. In addition, the Limited Partners have
been advised that the 1995 Partnership will not participate in one
specific investment made by JP Morgan Capital in 1995. In the case of
the SBIC Partnership, it is possible that the SBIC Partnership may not
be able to co-invest in all investments made by JPMIC in 1995 because
of regulatory considerations imposed by the Small Business Investment
Act.
19. Each subsequent Annual Investment Program will be comprised of
a Subsequent Partnership and the SBIC Partnership. Each year a
Subsequent Partnership will be organized to co-invest alongside JP
Morgan Capital (other than JPMIC) in order to participate in
investments in which JP Morgan Capital (other than JPMIC) invests its
own funds during such year. The SBIC Partnership will offer interests
to Eligible Employees and Qualified Participants which will represent
the SBIC Partnership's participation in investments made by JPMIC
during such year. It is anticipated that each Subsequent Partnership
and the SBIC Partnership will enter into an investment agreement at the
beginning of the year pursuant to which such Partnerships will agree to
co-invest with JP Morgan Capital in investments made by JP Morgan
Capital during that year. Each investment agreement will be approved by
the Board of the General Partner with respect to such Partnership. The
terms applicable to subsequent Annual Investment Programs may differ
from the terms applicable to the 1995 Annual Investment Program,
including, but not limited to, the investments in which such Subsequent
Partnerships or the SBIC Partnership will participate, purchase prices
paid for such investments, the interest rate paid on loans made by the
Subsequent Partnerships to JPMCC, and investment limitations.
Applicant's Legal Analysis
1. Section 6(b) of the Act provides that the SEC shall exempt
employees' securities companies from the provisions of the Act to the
extent that such exemption is consistent with the protection of
investors. Section 2(a)(13) of the Act defines an employees' security
company, among other things, as any investment company all of the
outstanding securities of which are beneficially owned by the employees
or persons on retainer of a single employer or affiliated employers or
by former employees of such employers; or by members of the immediate
family of such employers, persons on retainer, or former employees.
2. Section 6(e) of the Act provides that in connection with any
order exempting an investment company from any provision of section 7,
certain specified provisions of the Act shall be applicable to such
company, and to other persons in their transactions and relations with
such company, as though such company were registered under the Act, if
the SEC deems it necessary or appropriate in the public interest or for
the protection of investors.
3. Applicants request an exemption under sections 6(b) and 6(e) of
the Act from all provisions of the Act, and the rules and regulations
thereunder, except section 9, sections 17 and 30 (except as described
below), sections 36 through 53, and the rules and regulations
thereunder.
4. Section 17(a) of the Act provides, in relevant part, that it is
unlawful for any affiliated person of a registered investment company,
or any affiliated person of such person, acting as principal, knowingly
to sell any security or other property to such registered investment
company or to purchase from such registered investment company any
security or other property. Applicants request an exemption from
section 17(a) of the Act to the extent necessary to: (a) permit an
entity within the JP Morgan Group (including without limitation a Third
Party Fund), acting as principal, to engage in any transaction directly
or indirectly with any Partnership or any company controlled
[[Page 55640]]
by such Partnership; (b) permit any Partnership to invest in or engage
in any transaction with any entity, acting as principal, (i) in which
such Partnership, any company controlled by such Partnership, or any
entity within the JP Morgan Group (including without limitation a Third
Party Fund) has invested or will invest, or (ii) with which such
Partnership, any company controlled by such Partnership, or any entity
within the JP Morgan Group (including without limitation a Third Party
Fund) is or will become otherwise affiliated; and (c) permit a Third
Party Investor, acting as principal, to engage in any transaction
directly or indirectly with a Partnership or any company controlled by
the Partnership. The transactions to which any Partnership is a party
will be effected only after a determination by the Board that the
requirements of condition 1 below have been satisfied. In addition,
these transactions will be effected only to the extent not prohibited
by the applicable limited partnership agreement or other organizational
documents of the Partnership.
5. The principal reason for the requested exemption is to ensure
that each Partnership will be able to invest in companies, properties,
or vehicles in which JP Morgan Capital, or its employees, officers,
directors, or advisory directors may make or have already made an
investment. The relief also is requested to permit each Partnership the
flexibility to deal with its portfolio investments in the manner the
General Partner deems most advantageous to all partners of or investors
in such Partnership, or as required by JP Morgan Capital or the
Partnership's other co-investors.
6. The partners of or investors in each Partnership will have been
fully informed of the possible extent of such Partnership's dealings
with JP Morgan Capital, and, as professionals employed in the banking
and financial services business, will be able to understand and
evaluate the attendant risks. Applicants believe that the community of
interest among the partners of or other investors in each Partnership,
on the one hand, and JP Morgan Capital, on the other hand, is the best
insurance against any risk of abuse.
7. Applicants state that a Partnership will not make loans to JP
Morgan Capital or any other entity within the JP Morgan Group, or to
any employee, officer, director, or advisory director of any entity
within the JP Morgan Group, with the exception of short-term loans and
loans of funds held by the Partnership pending the making of
Partnership investments, in each case, to an entity within the JP
Morgan Group, which will bear interest at a rate then paid by such
entity to unaffiliated third parties for loans on comparable terms, or
short-term repurchase agreements or other fully secured loans to an
entity within the JP Morgan Group. In addition, a Partnership will not
sell or lease any property to JP Morgan Capital or any other entity
within the JP Morgan Group, except on terms at least as favorable as
those obtainable from unaffiliated third parties.
8. Section 17(d) of the Act makes it unlawful for any affiliated
person of a registered investment company, acting as principal, to
effect any transaction in which the company is a joint or joint and
several participant with the affiliated person in contravention of such
rules and regulations as the SEC may prescribe for the purpose of
limiting or preventing participation by such companies. Rule 17d-1
under section 17(d) prohibits most joint transactions unless approved
by order of the SEC. Applicants request an exemption from section 17(d)
and rule 17d-1 thereunder to the extent necessary to permit affiliated
persons of each Partnership or affiliated persons of any of these
persons (including without limitation the Third Party Investors) to
participate in, or effect any transaction in connection with, any joint
enterprise or other joint arrangement or profit-sharing plan in which
such Partnership or a company controlled by such Partnership is a
participant. The exemption requested would permit, among other things,
co-investments by each Partnership and individual partners or other
investors or employees, officers, directors, or advisory directors of
the JP Morgan Group making their own individual investment decisions
apart from the JP Morgan Group.
9. Compliance with section 17(d) would prevent each Partnership
from achieving its principal purpose. Because of the number and
sophistication of the potential partners of or investors in a
Partnership and persons affiliated with such partners or investors,
strict compliance with section 17(d) would cause a Partnership to
forego investment opportunities simply because a partner or investor or
other affiliated person of the Partnership (or any affiliate of such a
person) also had, or contemplated making, a similar investment. In
addition, attractive investment opportunities of the types considered
by a Partnership often require each participant in the transaction to
make available funds in an amount that may be substantially greater
than may be available to the Partnership alone. As a result, the only
way in which a Partnership may be able to participate in such
opportunities may be to co-invest with other persons, including its
affiliates. The flexibility to structure co-investments and joint
investments in the manner described above will not involve abuses of
the type section 17(d) and rule 17d-1 were designed to prevent. The
concern that permitting co-investments by JP Morgan Capital, on the one
hand, and a Partnership on the other, might lead to less advantageous
treatment of the Partnership, should be mitigated by the fact that: (a)
The JP Morgan Group, in addition to its stake through JP Morgan Capital
and as a general partner or manager in such Partnership, will be
acutely concerned with its relationship with the personnel who invest
in the Partnership; and (b) senior officers and directors of entities
within the JP Morgan Group will be investing in such Partnerships.
10. Section 17(f) of the Act provides that the securities and
similar investments of a registered management investment company must
be placed in the custody of a bank, a member of a national securities
exchange, or the company itself in accordance with SEC rules.
Applicants request an exemption from section 17(f) and rule 17f-1 to
the extent necessary to permit an entity within the JP Morgan Group to
act as custodian without a written contract. Because there is such a
close association between each Partnership and the JP Morgan Group,
requiring a detailed written contract would expose the Partnership to
unnecessary burden and expense. Furthermore, any securities of a
Partnership held by the JP Morgan Group will have the protection of
fidelity bonds. An exemption is requested from the terms of rule 17f-
1(b)(4), as applicants do not believe the expense of retaining an
independent accountant to conduct periodic verifications is warranted
given the community of interest of all the parties involved and the
existing requirement for an independent annual audit.
11. Section 17(g) of the Act and rule 17g-1 generally require the
bonding of officers and employees of a registered investment company
who have access to securities or funds of the company. Applicants
request an exemption from section 17(g) and rule 17g-1 to the extent
necessary to permit each Partnership to comply with rule 17g-1 without
the necessity of having a majority of the members of the related Board
who are not ``interested persons'' take such actions and make such
approvals as are set forth in rule 17g-1. Because all the members of a
related
[[Page 55641]]
Board will be affiliated persons, without the relief requested, a
Partnership could not comply with rule 17g-1. Each Partnership will,
except for the requirements of such approvals by ``not interested''
persons, otherwise comply with rule 17g-1.
12. Section 17(j) of the Act and rule 17j-1 make it unlawful for
certain enumerated persons to engage in fraudulent, deceitful, or
manipulative practices in connection with the purchase or sale of a
security held or to be acquired by an investment company. Rule 17j-1
also requires every registered investment company, its adviser, and its
principal underwriter to adopt a written code of ethics with provisions
reasonably designed to prevent fraudulent activities, and to institute
procedures to prevent violations of the code. Applicants request an
exemption from section 17(j) and rule 17j-1 (except rule 17j-1(a))
because the requirements contained therein are burdensome and
unnecessary in the context of the Partnerships. Requiring each
Partnership to adopt a written code of ethics and requiring access
persons to report each of their securities transactions would be time
consuming and expensive, and would serve little purpose in light of,
among other things, the community of interest among the partners of or
investors in such Partnership by virtue of their common association in
the JP Morgan Group and the substantial and largely overlapping
protections afforded by the conditions with which applicants have
agreed to comply. Accordingly, the requested exemption is consistent
with the purposes of the Act, because the dangers against which section
17(j) and rule 17j-1 are intended to guard are not present in the case
of any Partnership.
13. Sections 30(a), 30(b) and 30(d) of the Act, and the rules under
those sections, generally require that registered investment companies
prepare and file with the SEC and mail to their shareholders certain
periodic reports and financial statements. The forms prescribed by the
SEC for periodic reports have little relevance to a Partnership and
would entail administrative and legal costs that outweigh any benefit
to partners of or investors in the Partnerships. Exemptive relief is
requested to the extent necessary to permit each Partnership to furnish
annually to its partners or investors a copy of the report prepared by
a nationally recognized firm of certified public accountants, which
will include the Partnership's financial statements, within 90 days
after the end of each fiscal year or as soon thereafter as practicable.
An exemption also is requested from section 30(f) to the extent
necessary to exempt the General Partner, the managing general partner
or manager, if any, of such General Partner, members of the related
Board, and any other persons who may be deemed members of an advisory
board of such Partnership from filing reports under section 16 of the
Exchange Act with respect to their ownership of interests in the
Partnership.
14. Applicants believe that the exemptions requested are consistent
with the protection of investors in view of the substantial community
of interest among all the parties and the fact that each Partnership is
an ``employees' securities company'' as defined in section 2(a)(13).
Each Annual Investment Program will be conceived and organized by
persons who may be investing, directly or indirectly, or may be
eligible to invest, in such Partnership, and will not be promoted by
persons outside the JP Morgan Group seeking to profit from fees for
investment advice or from the distribution of securities. Applicants
also believe that the terms of the proposed affiliated transactions
will be reasonable and fair and free from overreaching.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. Each proposed transaction otherwise prohibited by section 17(a)
or section 17(d) and rule 17d-1 to which a Partnership is a party (the
``Section 17 Transactions'') will be effected only if the Board,
through the General Partner of such Partnership, determines that: (a)
The terms of the transaction, including the consideration to be paid or
received, are fair and reasonable to the partners of or investors in
such Partnership and do not involve overreaching of such Partnership or
its partners or investors on the part of any person concerned; and (b)
the transaction is consistent with the interests of the partners of or
investors in such Partnership, such Partnership's organizational
documents and such Partnership's reports to its partners or investors.
In addition, the General Partner of each Partnership will record and
preserve a description of such affiliated transactions, the Board's
findings, the information or materials upon which the Board's findings
are based and the basis therefor. All records relating to an Annual
Investment Program will be maintained until the termination of such
Annual Investment Program and at least two years thereafter, and will
be subject to examination by the SEC and its staff.\3\
\3\Each Partnership will reserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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2. In connection with the Section 17 Transactions, the Board,
through the General Partner of each Partnership, will adopt, and
periodically review and update, procedures designed to ensure that
reasonable inquiry is made, prior to 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 such Partnership, or any affiliated person of such a
person, promoter, or principal underwriter.
3. The General Partner of each Partnership will not invest the
funds of such Partnership in any investment in which a ``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 such Partnership and Co-Investor are participants, unless any
such Co-Investor, prior to disposing of all or part of its investment,
(a) gives such 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 such Partnership has the
opportunity to dispose of the Partnership's investment prior to or
concurrently with, and on the same terms us, and pro rata with the Co-
Investor. The term ``Co-Investor,'' with respect to any Partnership,
means any person who is: (a) An ``affiliated person'' (as such term is
defined in the Act) of such Partnership (other than a Third Party
Fund); (b) JP Morgan Capital; (c) an officer or director of JP Morgan
Capital; or (d) a company in which the General Partner of such
Partnership acts as a general partner or has a similar capacity to
control the sale or other disposition of the company's securities. The
restrictions contained in this condition, however, shall not be deemed
to limit or prevent the disposition of an investment by a Co-Investor:
(a) To its direct or indirect wholly-owned subsidiary, to any company
(a ``parent'') of which such 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 such Co-
Investor or a trust or other investment vehicle established for any
such family member; (c) when
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the investment is comprised of securities that are listed on any
exchange registered as a national securities exchange under section 6
of the Exchange Act; (d) when the investment is comprised of securities
that are national market system securities under section 11A(a)(2) of
the Exchange Act and rule 11Aa2-1 thereunder; or (e) when the
investment is comprised of securities that are listed on or traded on
any foreign securities exchange or board of trade that satisfies
regulatory requirements under the law of the jurisdiction in which such
foreign securities exchange or board of trade is organized similar to
those that apply to a national securities exchange or a national market
system for securities.
4. Each Partnership and the General Partner or investment manager
of such Partnership will maintain and preserve, for the life of 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 partners of
or investors in such Partnership, and each annual report of such
Partnership required to be sent to such partners or investors, and
agree that all such records will be subject to examination by the SEC
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.
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5. The General Partner of each Partnership will send to each
partner of or investor in such Partnership who had an interest in any
capital account of such Partnership at any time during the fiscal year
then ended Partnership financial statements audited by such
Partnership's independent accountants. At the end of each fiscal year,
the General partner 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 Partnership or as soon
as practicable thereafter, the General Partner of such Partnership will
send a report to each person who was a partner or investor in such
Partnership at any time during the fiscal year then ended, setting
forth such tax information as shall be necessary for the preparation by
the partner or investor of his or its federal and state income tax
returns and a report of the investment activities of such Partnership
during such year.
6. In any case where purchases or sales are made by a Partnership
from or to an entity affiliated with such Partnership by reason of a 5%
or more investment in such entity by a JP Morgan Group advisory
director, director, officer or employee, such individual will not
participate in such Partnership's determination of whether or not to
effect such purchase or sale.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27128 Filed 10-31-95; 8:45 am]
BILLING CODE 8010-01-M
