[Federal Register Volume 59, Number 239 (Wednesday, December 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30710]
[[Page Unknown]]
[Federal Register: December 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20759; 813-134]
Employee Incentive Partnership, L.P. et al.; Notice of
Application
December 8, 1994.
agency: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
action: Notice of application for an order under the Investment Company
Act of 1940 (the ``Act'').
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applicants: Employee Incentive Partnership, L.P. (the ``Incentive
Partnership''), a New York limited partnership, and Tiger Management
Corporation, the general partner of the Incentive Partnership (the
``General Partner'').
Relevant Act Sections: Order requested 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, and sections 36 through 53,
and the rules and regulations thereunder.
summary of application: Applicants request an order that would exempt
the Incentive Partnership from most provisions of the Act and would
permit certain affiliated and joint transactions. Applicants also
request that the order apply to (1) other partnerships that will be
identical in all material respects to the Incentive Partnership and
that may be formed from time to time (the ``Subsequent Incentive
Partnerships'') on the terms and conditions applicable to the Incentive
Partnership, and (2) other entities directly or indirectly controlled
by the General Partner that may serve as general partner of the
Subsequent Incentive Partnerships. The Incentive Partnership and the
Subsequent Incentive Partnerships are collectively referred to as the
``Partnerships.'' Each Partnership will be an employees' securities
company within the meaning of section 2(a)(13) of the Act.
filing date: The application was filed on September 8, 1994 and amended
on December 5, 1994. By supplemental letter dated December 7, 1994,
counsel, on behalf of applicants, agreed to file an amendment during
the notice period to make certain technical changes to the application.
This notice reflects the changes that will be made in the amendment.
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 December 29,
1994, 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
reasons for the request, and the issues contested. Persons who wish to
be notified of a hearing may request such notification by writing to
the SEC's Secretary.
addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Robert E. Fink, 101 Park Avenue, 47th Floor, New
York, New York 10178.
For Further Information Contact: Marilyn Mann, Special Counsel, at
(202) 942-0582, or Barry D. Miller, Senior Special Counsel, at (202)
942-0564 (Division of Investment Management, Office of Investment
Company Regulation).
Supplementary Information: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Incentive Partnership is a limited partnership newly formed
under the laws of the State of New York. The General Partner believes
that the best way to motivate its staff is to provide them with a means
to share in some of the gains that they reap for the General Partner's
clients. The General Partner will provide this financial incentive to
key personnel through the Incentive Partnership and any Subsequent
Incentive Partnerships established in the future. Each Partnership will
be formed for the benefit of present and former employees, officers,
and directors of the General Partner and any entity that is directly or
indirectly controlled by it who meet certain income and sophistication
standards described below (``Eligible employees''). Eligible Employees
and any trusts established by such Eligible Employees for the benefit
of their immediate family that will be admitted to any or all of the
Partnerships as limited partners are referred to as the ``Limited
Partners.''
2. The General Partner currently is expected to serve as general
partner for the Subsequent Incentive Partnerships. In the future,
however, one or more separate entities directly or indirectly
controlled by the General Partner may serve as general partner of one
or more of the Subsequent incentive Partnerships. The general partner
of each Partnership, including the Incentive Partnership, will make the
investment decisions for that Partnership.
3. The General Partner is a corporation that is registered as an
investment adviser under the Investment Advisers Act of 1940 (the
``Advisers Act'').\1\ It is a global asset manager providing advisory
services to large institutional clients and wealthy individuals. The
business and affairs of the General Partner are managed by or under the
direction of its management committee (the ``Committee''), members of
which qualify as Eligible Employees.
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\1\To the extent that any subsequent Incentive Partnership is
managed by any person neither listed on the General Partner's Form
ADV nor registered as an investment adviser under the Advisers act,
applicants will consider, at the time of formation of such
Subsequent Incentive Partnership, whether that person will be
required to register as an investment adviser under the Advisers
Act.
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4. In recent years the General Partner has organized certain
private investment funds with institutional and individual investors
(the ``Private Funds'') that are excluded from the definition of
investment company under the Act by virtue of section 3(c)(1). In its
capacity as a general partner of the Private Funds, the General Partner
receives a performance allocation equal to a percentage of the Private
Funds' net profits. Such allocation is not paid to the General Partner
directly in cash. Instead, a portion of the Private Fund's income,
gain, and unrealized appreciation is credited to the General Partner's
capital accounts in an amount equal to the performance allocation.
5. Upon receipt of the order (or such earlier date, if any, as
applicants determine to rely on rule 6b-1 under the Act), the General
Partner will cause the Incentive Partnership to be admitted as a
partner of one of the Private Funds and, pursuant to its authority as a
general partner of the Private Fund, the General Partner expects to
cause part of the performance allocation to which it otherwise would be
entitled in a given year to be allocated to the capital accounts of the
Incentive Partnership. The performance allocation will be sub-allocated
by the General Partner among the capital accounts of the individual
Limited Partners of the Incentive Partnership.\2\ At the discretion of
the General Partner, eligible Employees also may be permitted to make
capital contributions to the Incentive Partnership.
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\2\The General Partner will not receive any performance
allocation from the capital accounts of the Incentive partnership.
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6. The General Partner will have all powers necessary, proper,
suitable, or advisable to carry out the purposes and business of the
Incentive Partnership. No compensation will be paid to the General
Partner by the Incentive Partnership for its services.\3\ The General
Partner will bear all normal operating expenses incurred, including but
not limited to office rent, supplies, secretarial services, travel and
entertainment, telephone (local and long distance), printing, and
stationery. Certain expenses designated as ``investment expenses,''
including commissions, the accounting and legal fees and disbursements
related to any actual or threatened legal action or proceeding in
connection with purchasing, selling, or holding any investment,
borrowing charges on any securities sold short, custodial fees, bank
service fees, organizational expenses of the Incentive Partnership, and
any other reasonable expenses related to the purchase, sale, or
transmittal of the Incentive Partnership assets, will be taken into
account in determining net increases or net decreases in net worth of
the Incentive Partnership.
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\3\The General Partner receives from each Private Fund a
management fee, currently at an annual rate equal to one percent
(1.0%) per annum of the Private Fund's net worth. The Incentive
Partnership or any Subsequent Incentive Partnership that will invest
in any of the Private Funds will incur a proportionate share of such
management fee on the same economic terms as those applicable to
third party investors.
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7. Limited partner interests in the Partnerships (the
``Interests'') will be offered without registration under a claim of
exemption under section 4(2) of the Securities Act of 1933, as amended
(the ``1933 Act'') and will be offered only to Eligible Employees and
any trusts established by such Eligible Employees for the benefit of
their immediate family. To be an Eligible Employee, an individual must
be a present or former employee or officer of the General Partner or a
person directly or indirectly controlled by the General Partner and an
``accredited investor'' meeting the income requirements set forth in
rule 501(a)(6) of Regulation D under the 1933 Act. The limitations on
the class of person who may hold the Interests, in conjunction with
other characteristics of the Partnerships, will qualify each
Partnership as an ``employees' securities company'' under section
2(a)(13) of the Act.
8. The General Partner and the Limited Partners each have or will
have a basic capital account (``Basic Capital Account'') established on
the books of the Incentive Partnership reflecting their initial capital
contributions.\4\ The Incentive Partnership may cause a portion of each
partner's capital to be carried in one or more special capital accounts
(hereinafter referred to as ``Special Situation Account'') consisting
of such partner's indirect participation, in the same proportion as his
or her Basic Capital Account, in each special situation investment made
by one of the Private Funds that the Incentive Partnership intends to
invest in.\5\ If a ``follow-up investment''\6\ to any such special
situation investment is made, each partner will share proportionately
in the resulting increase in his or her Special Situation Account that
such follow-up investment relates to. Notwithstanding the foregoing, if
any partner shall have given notice of his or her complete withdrawal,
received notice or required retirement, or shall be deemed to retire
from the Incentive Partnership by reason of death, such partner will
not participate in any subsequent special situation investment that
would establish new Special Situation Account or any subsequent follow-
up investment that would increase an existing Special Situation
Account.
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\4\The Partnerships will be similar structurally and
operationally in all material respects (other than investment
objective and/or strategy) to the Incentive Partnership. The
management and control of each Partnership, including all investment
decisions, will be vested, directly or indirectly, in the General
Partner. The Limited Partners, in their capacity as such, will have
no part in the management and control of any Partnership.
\5\These special situation investment activities generally
involve interests that are illiquid or otherwise subject in the
hands of the Private Fund to restrictions on disposition. The cost
of, and any contractual commitment with respect to, all such special
situation investment activities is currently restricted to 15% of
the Private Fund's net assets.
\6\The term ``follow-up investment'' refers to the subsequent
acquisition by the Private Fund of additional interests relating to
the original special situation investment, where such acquisition is
undertaken on a voluntary basis, not pursuant to any preexisting
capital commitment.
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9. The General Partner will periodically increase Basic Capital
Accounts of the partners of the Incentive Partnership by amounts which,
in aggregate, are equal to the Incentive Partnership's share of any
performance allocation. Because an Eligible Employee's interest in a
performance allocation-based increase in the assets of the Incentive
Partnership essentially will be non-contributory, the performance
allocation indirectly credited to each Eligible Employee will be
determined by the General Partner in its sole discretion.\7\
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\7\Although an Eligible Employee may be required to make a
nominal capital contribution for the purpose of becoming a limited
partner under state law, the Eligible Employee otherwise will not be
required to contribute capital in order to receive a performance
allocation.
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10. At the beginning of each accounting period, the General Partner
will determine the percentage (the ``Capital Account Percentage'') of
each partner with respect to Basic Capital Accounts and each category
of Special Situation Accounts by dividing the amount of his or her
opening capital in each such account by the sum of all capital carried
by the partners in the same set of capital accounts.
11. All partners will share any increase or decrease in the net
worth of the Incentive Partnership, not attributable to the current
fiscal year's performance allocation or any addition or withdrawal of
capital, in proportion to their pro rata interest in each such account
at the beginning of each accounting period.\8\ Because the Incentive
Partnership will be entitled to an increased partnership interest in
the Private Fund as performance allocation only at the end of a fiscal
year (which also will be the last day of an accounting period), the
current performance allocation will not influence a partner's share of
that period's increase or decrease in the Incentive Partnership's net
worth from other sources.
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\8\As noted previously, each partner's share of any special
Situation Account initially will equal such partner's interest in
his or her Basic Capital Account. Only persons who are partners at
the time a Special Situation Account is created will participate in
the account. In addition, future participation in, and additions of
capital to or withdrawals from, a Special Situation Account will be
limited as further described in the application. Accordingly, each
partner's percentage interest (if any) in Special Situation Accounts
may vary from such partner's percentage interest in Basic Capital
Accounts.
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12. The respective portion of the performance allocation that a
partner of the Incentive Partnership may receive at the end of a given
fiscal year that is not immediately withdrawn will be reflected in his
or her Basic Capital Account on the first day of the following
accounting period, leading to an appropriate adjustment in that
partner's Capital Account Percentage with respect to Basic Capital
Accounts. Similarly, because a withdrawal of capital from a Basic
Capital Account by any partner of the Incentive Partnership may occur
only on the last day of an accounting period, any withdrawal will
decrease the relevant partner's Capital Account Percentage starting
with the following, but not the current, accounting period. In this
manner, each partner will share in the incentive Partnership's holdings
on a pro rata basis.\9\
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\9\Each Subsequent Incentive Partnership, irrespective of
whether it will receive any performance compensation allocation from
the Private Funds, will be subject to all applicable representations
and conditions made herein, including but not limited to the pro
rata allocation of any increase or decrease in the net worth of such
Partnership.
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13. The Interest reflected in any Limited Partner's capital
accounts not attributable to a performance allocation will vest
immediately. The portion attributable to a performance allocation may
be subject to a vesting schedule agreed to between the General Partner
(or a person directly or indirectly controlled by it) and such Limited
Partner. The vesting schedule, which will be no longer than five years,
will be governed by the terms of the Limited Partner's written
agreement executed prior to his or her admission to the Incentive
Partnership. The schedule may be modified only with respect to any
performance allocation effected subsequent to the modification. Any
amount attributable to a performance allocation previously credited
will continue to be subject to the vesting schedule in effect at the
time such allocation was done.
14. No Limited Partner, including one who, subsequent to admission
to the Incentive Partnership, ceases to be an employee of the Genereal
Partner or a person directly or indirectly controlled by the General
Partner, will forfeit any vested interest. The unvested share of a
performance allocation may be forfeited only if the Limited Partner
(or, in the case of any Limited Partner that is a trust, the Eligible
Employee who established such trust) is terminated for cause or
voluntarily resigns from his or her employment prior to the relevant
vesting dates. If the Limited Partner dies, becomes incapacitated, or
is terminated by the General Partner other than for cause, such Limited
Partner will not forfeit any unvested share of a performance
allocation. If such Limited Partner (or his or her estate) is deemed to
withdraw or required to retire from the Partnership as a result of such
an event, the remaining performance allocation will be treated as
vested and accordingly will be distributed in the manner described
below.
15. The Limited Partners may make withdrawals from their vested
capital accounts on a quarterly basis, provided that they deliver sixty
days written notice. In addition, immediately after the last day of any
fiscal quarter, the Limited Partners may withdraw, after notifying the
General Partner only five days in advance, all or any part of their
capital accounts attributable to a performance allocation that has been
credited to them and has vested but has not yet been withdrawn,
provided that the amounts so credited must have been also realized for
income tax purposes. No Limited Partner may make a capital account
withdrawal based on a performance allocation that has not yet vested,
except as may be permitted by the General Partner in its sole
discretion.
16. Notwithstanding the foregoing, the General Partner may limit
withdrawals on any particular day if and to the extent that the
Incentive Partnership is not permitted to effect (or is otherwise
restricted regarding) a withdrawal from the Private Funds. At such
time, the limitation shall be applicable pro rata to all partners
withdrawing on such date in proportion to the amounts requested to be
withdrawn.
17. In the event of a withdrawal of capital from any Limited
Partner's capital accounts, such withdrawal will be deemed to be made
first from such Limited Partner's Basic Capital Account, and only after
such Basic Capital Account has been exhausted will such withdrawal be
deemed made from any Special Situation Account. If any such withdrawal
is deemed to be made from any special Situation Account payment may be
postponed until no later than the last day of the fiscal quarter in
which the investment in such Special Situation Account is liquidated,
prior to which liquidation, the withheld amount will continue to be
held for the benefit of such Limited Partner. In addition, if any
Limited Partner withdraws an amount which is deemed to be from a
Special Situation Account, or otherwise withdraws a substantial portion
of his or her capital accounts as described above, the General Partner
may withhold from the proceeds an amount equal to such Limited
Partner's pro rata share of the Incentive Partnership's obligation to
fund the Private Fund's outstanding capital commitment with respect to
such special Situation Accounts and retain such amount in the Incentive
Partnership as a liability to the Limited Partner. Such amount withheld
will be invested in money market instruments (with interest earned
thereon to be distributed to the Limited Partner annually) until the
capital commitment is called, and will be returned to the Limited
Partner if the investment in the Special Situation Account is
liquidated without funding the outstanding capital commitment.
18. The Limited Partners who withdraw all of their capital accounts
will be deemed to have retired from the Incentive Partnership and will
receive the net worth of their capital accounts, subject to the
provisions relating to vesting and the withdrawal from any Special
Situation Account described above. In the event that the beneficial
interest of any Limited Partner passes to his or her estate or another
person by reason of such Limited Partner's death, the deceased Limited
Partner will be deemed to have elected to withdraw all of his or her
capital accounts immediately after the last day of the year in which
such Limited Partner has died and will receive the net worth of his or
her capital accounts, subject to the provisions relating to the
withdrawal from any Special Situation Account described above. No
person may become a transferee or substitute Limited Partner of the
Incentive Partnership unless the person is a member of one of the
classes of persons listed in section 2(a)(13) of the Act, except that a
legal representative or executor may hold the Interest in order to
settle an estate of a decedent or bankrupt or for similar purposes.
19. Distributions pursuant to any withdrawal from capital accounts
will be made in cash, in kind, or partly in cash and partly in kind,
and the determination as to the manner in which such distribution will
be made will be in the sole discretion of the General Partner.
Distributions in kind ordinarily will consist of securities for which
market quotations are readily available within the meaning of rule 17a-
7 of the Act. The General Partner will use its best efforts to
distribute other forms of property pro rata and will not effect any in-
kind distribution on a non-pro-rata basis unless it determines that the
terms of the distribution are fair and reasonable to all the Limited
Partners in light of tax and other considerations.
20. If the General Partner requires any Limited Partner to retire
from the Incentive Partnership, subject to provisions relating to
forfeiture to the extent that such provisions are applicable, at least
ninety percent of such Limited Partner's capital accounts shall be paid
within ten days after the effective day of his or her retirement, and
the balance shall be paid within ninety days after such date; provided
that payment from any Special Situation Account will be subject to the
provisions relating to the withdrawal from any Special Situation
Account described above, and provided, further, that in lieu of such
continuing interest, the General Partner may, in its sole discretion,
determine that such Limited Partner will receive the fair value of the
Special Situation Account (after taking into account such Limited
Partner's pro rata share of any unfunded capital commitment relating
thereto) as of the effective date of retirement. If the General Partner
pays such Limited Partner the fair value of a Special Situation
Account, the General Partner either will purchase the retiring Limited
Partner's interest in the Special Situation Account out of its own
funds or reduce its Basic Capital Account and concurrently increase its
interest in the applicable Special Situation Account by a like amount.
In this way, the pro rata participation in the Special Situation
Accounts by the remaining Limited Partners will not be altered.
21. The Incentive Partnership's books of account will be open to
inspection by any Limited Partner or his or her duly authorized
representative at any reasonable time. At the end of each fiscal year,
the General Partner will cause an audit of the books and records of the
Incentive Partnership by a certified public accountant. A copy of the
accountant's report with respect to the fiscal year will be mailed to
each Limited Partner within ninety days after the end of such fiscal
year, which report will include a statement of (1) the Incentive
Partnership's assets and liabilities, (ii) the Incentive Partnership's
net profit or loss, and (iii) the capital account balances of such
Limited Partner.
22. For purposes of determining the net worth of the Incentive
Partnership at any time, the partnership assets will be valued as
follows: (i) securities that are listed on a national securities
exchange and that are freely marketable will be valued at their last
sale price on the date of determination, or if no sales occurred on
such day, at the mean between the bid and asked prices on such day;
(ii) other publicly traded and freely marketable securities will be
valued at their last closing bid prices if held long and their last
closing asked prices if sold short as supplied by the National
Association of Securities Dealers, Inc. (or, if necessary, other
sources); and (iii) any securities and assets other than those
described above will be assigned a fair value as determined by the
General Partner in its sole discretion in accordance with generally
accepted accounting principles; provided that an interest in any
Private Fund that values its own assets as otherwise provided in this
paragraph will be carried at the value assigned by such Private Fund.
23. The Interests in the Incentive Partnership will be non-
transferable except with the prior written consent of the General
Partner, which consent may be withheld in its sole discretion, and in
any event, will not be transferable to persons other than Eligible
Employees, any trusts established by such Eligible Employees for the
benefit of their immediate family, or the General Partner.
24. Each Partnership will operate as a nondiversified, closed-end
investment company of the management type within the meaning of the
Act. The Partnerships will not be limited in the percentage of assets
that may be invested in a particular investment. No Partnership,
however, will invest more than fifteen percent of its assets in
securities issued by registered investment companies (with the
exception of temporary investments in money market funds), and no
Partnership will acquire any security issued by a registered investment
company if immediately after such acquisition, the Partnership owns
more than three percent of the outstanding voting stock of the
registered investment company.
25. The investment objectives and capital structures of the Private
Funds vary from one Private Fund to another. Accordingly, the
Partnerships that will invest in the different Private Funds will have
different investment policies. The particular investment objectives of
each Private Fund will be set forth in an information memorandum
relating to the interests offered by that Private Fund. Prior to being
admitted to any Partnership, Eligible Employees will received a copy of
such memorandum about any Private Fund in which the Partnership will
invest.
26. The Partnerships may engage in certain business dealings
incidental to their operation, including but not limited to the payment
of brokerage commissions, research fees and other expenses, with any
company or persons that the General Partner (or any officer or employee
thereof) or one or more of the Limited Partners may be directly or
indirectly interested in. Any such transactions will comply with
section 17(e) of the Act when applicable, and must be on terms no less
favorable to the Partnerships than are generally afforded to unrelated
third parties in comparable transactions. With respect to any
securities purchased or sold by the Partnerships from or to the General
Partner (or any officer or employee thereof) or any Limited Partner,
acting as principal, the purchase or disposition of such securities
will be made at their fair value.
Applicants' Legal Analysis
1. On behalf of the Partnerships, Applicants request exemptions
from all the provisions of the Act, and the rules and regulations
thereunder, except section 9, certain provisions of sections 17 and 30,
and sections 36 through 53, and the rules and regulations thereunder.
2. The principal reason for the requested exemption is to ensure
that the Partnerships will be able to share in a performance allocation
that the General Partner is entitled to in a manner described above and
to invest in attractive companies, properties or vehicles in which the
General Partner or its individual employees, officers, or directors, or
the limited partners of any of the Private Funds may make or have
already made an investment. In addition, relief is requested to permit
the Partnerships the flexibility to deal with their investments in the
manner the General Partner deems most advantageous to each Partnership
or as required by the terms of the limited partnership agreements of
the Private Funds, including without limitation restructuring the
Partnership investments, having such investments redeemed, tendering
the Partnership securities or negotiating options or implementing exist
strategies with respect to the Partnership investments.
3. An exemption is requested from section 17(a) of the Act to the
extent necessary to (a) permit the General Partner, acting as
principal, to engage in any transaction directly or indirectly with any
Partnership; (b) permit any Partnership to invest in an entity that is
directly or indirectly controlled by the General Partner or in which
the General Partner or any other Partnership has invested or will
invest, or with which the General Partner or any other Partnership is
or will become otherwise affiliated; and (c) permit a third party
investor in the Private Funds, acting as principal, to engage in any
transaction directly or indirectly with any Partnership. The
transactions to which any Partnership is a party will be effected only
after a determination by the General Partner that the requirements of
condition 1 set forth below have been satisfied. To the extent any of
the transactions described under the request for exemption from section
17(d) (and rule 17d-1) would come within the purview of section 17(a),
such transactions are incorporated hereunder and an exemption from such
section also is requested.
4. An exemption from section 17(a) is consistent with the policy of
each Partnership and the protection of investors and necessary to
promote the basic purpose of the Partnership, as more fully discussed
with respect to section 17(d) below. The Limited Partners will have
been fully informed of the possible extent of the Partnership's
dealings with the Private Funds or with a third party investor in the
Private Funds and, as successful professionals employed in the
securities business, will be able to understand and evaluate the
attendant risks. The community of interest among the Limited Partners,
the General Partner and the Private Funds is the best insurance against
any risk of abuse in this regard.
5. The foregoing exemption is requested on the undertaking that the
Partnerships will not make any loans to the Private Funds, the General
Partner, any general partner of any Subsequent Incentive Partnership,
or any employee, officer or director of the General Partner or any
person controlled directly or indirectly by the General Partner. In
addition, the Partnerships will not sell or lease any property to any
Private Fund or any other person controlled directly or indirectly by
the General Partner except on terms at least as favorable as those
obtainable from unaffiliated third parties. The considerations
described above will protect the Partnership and limit the
possibilities of conflict of interest and abuse of the type that
section 17(a) was designed to prevent.
6. An exemption is requested from section 17(d) of the Act and rule
17d-1 thereunder to the extent necessary to permit the Partnerships to
engage in any transactions in which affiliated persons of the
Partnerships (including without limitation the General Partner and the
Private Funds) or affiliated persons of such affiliated persons,
(including without limitation the third party investors in the Private
Funds) are participants. The exemption requested would permit, among
other things, co-investments by the Partnerships, the General Partner,
and the individual employees, officers, or directors thereof making
their own individual investment decisions apart from the Partnerships.
To the extent any of the transactions described under the request for
exemption from section 17(a) would come within the purview of section
17(d) (and rule 17d-1) such transactions are incorporated hereunder and
an exemption for such section and rule is also requested.
7. 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 or joint investments by the
General Partner or by third party investors in the Private Funds might
lead to less advantageous treatment of the Partnerships should be
mitigated by the fact that (a) the General Partner, in addition to its
substantial economic interest as general partner of the Private Funds
and the Partnerships, will be acutely concerned with its relationship
with the key personnel who invest in the Partnerships; and (b) senior
officers and directors of the General Partner will be investing in the
Partnerships.
8.The Partnerships will maintain their assets with either a bank
qualified to serve as a custodian under section 17(f) of the Act or a
registered broker-dealer. To the extent that the Partnerships maintain
custody of their assets with a registered broker-dealer, applicants
will comply with rule 17f-1 as described below.
9. Pursuant to paragraph (a) of rule 17f-1, each Partnership will
enter into a written contract with an independent registered broker-
dealer, provided that approval by the General Partner or any general
partner of any Subsequent Incentive Partnership will be deemed to be
approved by a majority of the board of directors of that Partnership.
10. Pursuant to paragraph (b)(1) of rule 17f-1, to the extent that
any investment in the Private Funds will be evidenced only by
partnership agreements and similar documents, the Partnership's copies
of such documents will be kept in the registered broker-dealer's locked
files. To the extent that the Partnerships invest in any securities
that are either uncertificated or held in book-entry form, such
investments will be maintained by the broker-dealer in the same manner
as similar investments for other third parties are maintained.
11. Applicants will comply with paragraphs (b)(2) and (b)(3) of
rule 17f-1.
12. Applicants request relief from paragraph (b)(4) of rule 17f-1
to permit the Partnerships to enter into the arrangement discussed
below without periodic verifications. Given the community of interest
of all the parties involved, the existing requirement for an annual
audit, and the protections and procedures described below, applicants
submit that the burden of complying with such a requirement is
unwarranted.
13. Applicants will comply with paragraphs (b)(5) and (b)(6) of
rule 17f-1.
14. Applicants request relief from paragraph (c) of rule 17f-1.
Applicants believe that the transmission to the Commission of a copy of
any contract executed thereunder is unnecessary because of the
community of interest of all the parties involved. Instead, such
records will be maintained for the life of the Partnership and at least
two years thereafter, and will be subject to examination by the
Commission and its staff. Each Partnership will maintain all such
records in an easily accessible place for at least the first two years.
15. Applicants will comply with paragraph (d) of rule 17f-1,
provided that ratification by the General Partner or any general
partner of any Subsequent Incentive Partnership will be deemed to be
ratification by a majority of the Board of directors of that
Partnership.
16. In addition to compliance with rule 17f-1 in the manner and to
the extent described above, applicants will adopt the following
procedures. Each Partnership will engage an attorney or certified
public accountant to act as an independent representative to review and
authorize the transfer of Partnership funds or securities to its
partners. The custodian will transfer funds or securities to the
General Partner or any Limited Partner only in connection with the
withdrawal of all or part of such person's partnership interest. Before
the Partnership makes any distribution of Partnership funds or
securities to either the General Partner or any Limited Partner, the
General Partner will submit a written request to the independent
representative showing (i) the amount of the withdrawal in dollars,
(ii) the Capital Account Percentages of the partner in all Basic
Capital Accounts and Special Situation Accounts before the withdrawal,
and (iii) the Capital Account Percentages of the Partner in all Basic
Capital Accounts and Special Situation Accounts after the withdrawal.
The General Partner will give the independent representative
information sufficient to permit him or her to determine whether the
withdrawal is being effected in accordance with the provisions of the
Partnership Agreement. The General Partner will send copies of all
written requests for capital withdrawals of the custodian. The
agreement with the custodian will require that the custodian transfer
funds or securities to the General Partner or any Limited Partner only
after receiving written authorization from the independent
representative. The custodian will provide the independent
representative and the Partnership with statements listing all amounts
disbursed from the Partnership account at least quarterly. Applicants
believe that these conditions and procedures will provide substantial
protection against any risk of abuse and overreaching of investors.
17. An exemption is requested from section 17(g) and rule 17g-1 to
the extent necessary to permit the Partnerships to comply with rule
17g/1 without the necessity of having a majority of the General
Partner's Committee who are not ``interested persons'' take such action
and make such approvals as are set forth in such rule 17g-1. Since all
the members of the Committee will be affiliated persons, without the
relief requested the Partnerships could not comply with rule 17g-1. The
Partnerships will, except for the requirements of such approvals by
``not interested'' persons, otherwise comply with rule 17g-1.
18. Section 17(j) and rule 17j-1 require that every registered
investment company adopt a written code of ethics requiring that every
access person of the investment company report to the investment
company with respect to transactions in any security in which the
access person has, or by reason of the transaction acquires, any direct
or indirect beneficial ownership in the security. Applicants request an
exemption from rule 17j-1 (except rule 17j-1(a)). Requiring the
Partnerships 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 participants of
the Partnerships; the concern of the General Partner that personnel who
participant in the Partnerships actually receive the benefits they
expect to receive when investing in the Partnerships; and the fact that
the investments of the Partnerships will be investments that ordinarily
would not be offered to the Limited Partners, including those Partners
who would be deemed access persons, as individual investors.
19. Sections 30(a), 30(b) and 30(d), and the rules under those
sections, generally require that registered investment companies
prepare and file with the Commission and mail to their shareholders
certain periodic reports and financial statements. The forms prescribed
by the Commission for periodic reports have little relevance to the
Partnerships and would entail administrative and legal costs that
outweigh any benefit to the Limited Partner. The pertinent information
contained in such filings will be furnished to the Limited Partners,
the only class of people truly interested in such material. In view of
the community of interest among all parties concerned with the
Partnerships and the fact that the Interests are not available to the
public, but rather a specific group of people, it would seem that the
protection afforded by sections 30(a) and (b) (i.e., public
dissemination of information to ensure orderly markets and equality of
information among the public) is not relevant to the Partnerships or
their operations. Consequently, applicants respectfully request that
the exemptive relief be granted. Exemptive relief is also requested
under section 30(d) to the extent necessary to permit each Partnership
to report annually in the manner described herein. In light of the lack
of trading or public market for the Interests held by the Limited
Partners, it is respectfully submitted that to allow annual reports,
rather than semi-annual reports, would be consistent with the
protection of investors and the policy fairly intended by the Act.
20. Section 30(f) of the Act requires that every officer, director
and member of an advisory board of a closed-end investment company be
subject to the same duties and liabilities as those imposed upon
similar classes of persons under section 16(a) of the 1934 Act. As a
result, the General Partner and others who may be deemed members of an
advisory board of any Partnership may be required to file Forms 3, 4
and 5 with respect to their interests in the Partnerships, even though
no trading market for such interests would exist and transferability of
such interests would be severely restricted. These filings are
unnecessary for the protection of investors and burdensome to those
required to make them. Because there would be no trading market and the
transfers of any Interests are severely restricted, the purpose
intended to be served by section 16(a) is not apparent. Accordingly,
exemption from the requirements of section 30(f), to the extent
necessary to exempt the General Partner and the members of the
Committee and any other persons who may be deemed members of an
advisory board of any Partnership from filing Forms 3, 4 and 5 under
section 16 of the 1934 Act with respect to their ownership interests in
the Partnerships, is appropriate and consistent with the protection of
investors.
21. Applicants submit that the exemptions requested are consistent
with the protection of investors in view of the fact that each
Partnership will be an ``employees' securities company'' as that term
is defined in section 2(a)(13) of the Act, organized to provide
incentive compensation and investment opportunities to Eligible
Employees. Applicants further submit that there is a substantial
community of economic and other interests among the General Partner,
the members of the Committee, and the individual Limited Partners of
the Partnerships, and there is no public group of investors.
Applicants' Conditions
Applicants will comply with the following conditions if the
requested order is granted:
1. Proposed transactions otherwise prohibited by section 17(a) or
section 17(d) and rule 17d-1 to which any Partnership is a party (the
``Section 17 Transactions'') will be effected only if the General
Partner or, in the case of any Subsequent Incentive Partnership, its
general partner, determines that:
a. the terms of the transactions, including the consideration to be
paid or received, are fair and reasonable to the Limited Partners and
do not involve overreaching or the Partnership or its Limited Partners
on the part of any person concerned; and
b. the transactions are consistent with the interests of the
Limited Partners, the Partnership's organizational documents and the
Partnership's reports to its partners.
In addition, the General Partner and any general partner of any
Subsequent Incentive Partnership will record and preserve a description
of such affiliated 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 Partnership and
at least two years thereafter, and will be subject to examination by
the Commission and its staff. Each partnership will maintain all such
records in an easily accessible place for at least the first two years.
2. In connection with the Section 17 Transactions, the General
Partner and any general partner of any Subsequent Incentive 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 the Partnership, or any affiliated person of such a
person, promoter, or principal underwriter.
3. As a condition to the relief requested from section 17(d) and
rule 17d-1, the General Partner and any general partner of any
Subsequent Incentive Partnership will not invest the funds of the
Partnership in any investment in which a ``Co-Investor'' has 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 the Co-Investor are participants, unless any such Co-Investor
agrees that, prior to disposing of all or part of its investment, it
will (a) give the General Partner or, in the case of any Subsequent
Incentive Partnership, its general partner, sufficient, but not less
than one day's, notice of its intent to dispose of its investment, and
(b) refrain from disposing of its investment unless the Partnership has
the opportunity to dispose of the Parthership's investment prior to or
concurrently with, and on the same terms as, and pro rata with the Co-
Investor. The term ``Co-Investor'' means any person who is: (a) an
``affiliated person'' (as such term is defined in the Act) of the
Partnership; (b) an officer or director of the General Partner or any
entity directly or indirectly controlled by the General Partner; or (c)
a company in which the General Partner acts as a general partner or has
a similar capacity to control the sale or other disposition of the
company's securities (including without limitation each Private Fund).
The restrictions contained in this condition 3, 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 the 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 Co-
Investor or a trust established for any such family member; (c) when
the investment is comprised of securities that are listed on any
exchange registered as a national securities exchange under section 6
of the 1934 Act; or (d) when the investment is comprised of securities
that are national market system securities pursuant to section
11A(a)(2) of the 1934 Act and rule 11Aa2-1 thereunder.
4. Each Partnership and its general partner will maintain and
preserve, for the life of the 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.\10\
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\10\The 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 and any general partner of any Subsequent
Incentive Partnership will send to each Limited Partner who had an
interest in the Partnership, at any time during the fiscal year then
ended, Partnership financial statements audited by a certified public
accountant. At the end of each fiscal year, the General Partner and any
general partner of any Subsequent Incentive Partnership will make a
valuation or have a valuation made of all of the assets of the
Partnership as of such fiscal year end. In addition, within ninety (90)
days after the end of each fiscal year of the Partnership or as soon as
practicable thereafter, the General Partner or the general partner of
any Subsequent Incentive 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 that partner of his or her federal and state income tax
returns and a report of the investment activities of the Partnership
during such year.
6. If purchases or sales are made by any Partnership from or to an
entity affiliated with the Partnership by reason of a five percent (5%)
or more investment in such entity by any director, officer, or employee
of the general partner of that Partnership, such individual will not
participate in that general partner's determination, under the terms
set forth above in condition 1, concerning 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. 94-30710 Filed 12-13-94; 8:45 am]
BILLING CODE 8010-01-M
