[Federal Register Volume 63, Number 231 (Wednesday, December 2, 1998)]
[Notices]
[Pages 66610-66615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32043]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23572; 813-186]
KECALP Inc., et al.; Notice of Application
November 24, 1998.
Agency: Securities and Exchange Commission (``Commission'').
Action: Notice of application for an order under sections 6(b) and
17(b) of the Investment Company Act of 1940 (the ``Act'') and rule 17d-
1 under the Act to amend a prior order and under sections 6(b) and
17(b) to permit certain transaction otherwise prohibited by section
17(a) of the Act.
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Summary of the Application: Applicant request an order to exempt
certain limited partnerships registered under the Act as closed-end
management investment companies form certain provisions of the Act and
permit the partnerships to engage in certain joint transactions. Each
partnership is an ``employees' securities company'' as defined in
section 2(a)(13) of the Act. The requested order amends several
previous orders (collectively, the ``KECALP Order'').\1\ In addition,
applicant request relief to permit two partnerships to transfer
interests in certain investments to an affiliated entity in exchange
for limited partnership interests in that entity.
\1\ Merrill Lynch KECALP Ventures Limited Partnership 1982, et
al., Investment Company Act Rel. Nos. 12290 (Mar. 11, 1982) (notice)
and 12363 (Apr. 8, 1982) (order); Merrill Lynch KECALP Growth
Investments Limited Partnership 1983, et al., Investment Company Act
Rel. Nos. 18082 (Apr. 8, 1991) (notice) and 18137 (May 7, 1991)
(order); Merrill Lynch KECALP Growth Investments L.P. 1983, et al.,
Investment Company Act Rel. Nos. 20280 (May 5, 1994) (notice) and
20328 (June 1, 1994) (order); Merrill Lynch KECALP L.P. 1994, et
al., Investment Company Act Rel. Nos. 21124 (June 8, 1995) (notice)
and 21187 (Jul. 5, 1995) (order); and Merrill Lynch KECALP L.P.
1997, et al., Investment Company Act Rel. Nos. 22647 (Apr. 30, 1997)
(notice) and 22689 (May 28, 1997) (order).
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Applicants: KECALP Inc. (``General Partner''); Merrill Lynch KECALP
L.P. 1986 (``1986 Partnership''), Merrill Lynch KECALP L.P. 1987
(``1987 Partnership''), Merrill Lynch KECALP L.P. 1989 (``1989
Partnership''), Merrill Lynch KECALP L.P. 1991 (``1991 Partnership''),
Merrill Lynch KECALP L.P. 1994 (``1994 Partnership''), Merrill Lynch
KECALP L.P. 1997 (``1997 Partnership''), and Merrill Lynch KECALP L.P.
1999 (``1999 Partnership'') (collectively, together with other
partnerships that may be organized by the General Partner in the
future, the ``Partnerships''); and Merrill Lynch Global Emerging
Markets Partners, L.P. (``Global Investment Fund'').
Filing Dates: The application was filed on April 14, 1998, and amended
on September 15, 1998. Applicants have agreed to file and amendment
during the notice period, the substance of which is reflected in this
notice.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on December 16, 1998, and should be accompanied by proof of
service on applicants in the form of a affidavit or, for lawyers, a
certificate of service. Hearing request should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing tot he Commission's Secretary.
Addresses: Secretary, Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549. Applicants, South Tower, World Financial Center, 225
Liberty Street, New York, NY 10080-6123.
For Further Information Contact: Michael W. Mundt, Staff Attorney, at
(202) 942-0578, or Edward P. Macdonald, Branch Chief, at (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
Supplementary Information: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549 (tel. (202) 942-8090).
Applicants' Representations
1. Each Partnership is a Delaware limited partnership registered
under the Act as a non-diversified, closed-end management investment
company. Each Partnership is an ``employees' securities company'' with
in the meaning of section 2(a)(13) of the Act and operates according to
the terms of the KECALP Order. Limited partnership interests in the
Partnerships were offered to certain employees of Merrill Lynch & Co.,
Inc. (``ML & Co.'') and its subsidiaries and to non-employee directors
of ML & Co. The 1997 Partnership also offered limited partnership
interests to ML & Co. in connection with certain deferred compensation
arrangements. Applicants state that the Partnerships enable directors
and certain officers and other employees to pool their investment
resources and to receive the benefit of certain investment
opportunities that come to the attention of ML & Co. or its
subsidiaries. Applicants assert that the Partnerships are primarily for
the benefit of the employee/director limited partners and are a
significant way for ML & Co. and its subsidiaries to attract and retain
qualified personnel.
2. Applicants expect that the General Partner will organize
additional partnerships in the future (such partnerships, together with
the 1999 Partnership, ``Future Partnerships''). \2\ Interests in Future
Partnerships will be offered to employees of ML& Co. and its
subsidiaries who earn, or whose annualized salary is, at least $100,000
for the calendar year preceding the offering. No employee meting this
requirement will be permitted to invest more than 15% of the employee's
cash compensation form ML & Co. and its subsidiaries in any partnership
unless such employee is an ``accredited investor,'' as defined in rule
501(a) of Regulation D under the Securities Act of 1933 (``1933 Act'').
Future Partnerships also may offer limited partnership interests to
persons on retainer with ML & Co. or its subsidiaries if the persons
qualify as ``accredited investors'' Other than the requirement that
they be ``accredited investors,'' persons on retainer will participate
in Future Partnerships on the same terms as employees of ML & Co. In
addition, ML & Co. and its affiliates may acquire limited partnership
interests in Future Partnerships to mirror the election by select
employees of ML & Co. and its subsidiaries to participate in
compensation or investment programs where the return is linked to the
performance of a Partnership. To make such an investment, ML & Co. or
its affiliate must (i) determine that the eligibility requirements for
employee participation in the compensation or investment program are at
least equal to the standards for direct investment by employees of ML &
Co. in the Partnership and (ii) agree to vote its interests in
Partnership in identical proportions to other limited partners. Persons
eligible to invest in the
[[Page 66611]]
Partnerships are referred to as ``Limited Partners.'' Interests in the
Partnerships are non-transferable except with the express consent of
the General Partner and, in any event, are not transferable to persons
who are not Limited Partners, except that interests may be transferred
to members of a Limited Partner's immediate family or, by operation of
law, to certain other parties under special circumstances.
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\2\ Any entity that currently intends to rely on the requested
order is named as an applicant. Any other existing or future entity
that relies on the requested order will comply with the terms and
conditions of the application.
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3. The General Partner is an indirect, wholly-owned subsidiary of
ML & Co. that is registered as an investment adviser under the
Investment Advisers Act of 1940. The General Partner is responsible for
the management of the Partnerships and has the authority to make all
decisions regarding the acquisition, management, and disposition of the
partnerships' investments. The board of directors of the General
Partner (``Board'') will continue to have overall responsibility for a
Partnerships' investments.
4. Under the partnership agreements of the Partnerships, the
General Partner pays operating expenses in connection with the
Partnerships and is entitled to receive annual reimbursements from the
Partnerships of up to 1.5% of the Limited Partners' capital
contributions. In addition, the General Partner is responsible for any
commissions chargeable to the Partnerships with respect to portfolio
transactions. Future partnership may pay operating expenses directly
and reimburse the General partner for personnel, overhead and other
administrative expenses. Amounts paid by the Future Partnership for
operating expenses and reimbursements to the General Partner will be
subject to an annual aggregate limit of 1.5% of Limited Partners'
capital commitments. Appropriate disclosure regarding payments and
reimbursements will be set forth in a Future Partnership's offering
documents. To the extent provided in their organizational documents,
Future Partnerships also may be responsible for payment of commissions
and other fees and expenses relating to the acquisition, monitoring and
disposition of portfolio investments.
5. The Global Investment Fund is a Delaware limited partnership
formed to achieve capital appreciation principally through privately
negotiated equity and equity-linked investments in companies operating
primarily in emerging markets. ML Global Capital L.L.C., an affiliate
of ML & Co., is the general partner of the Global Investment Fund, and
ML Global Partners, Inc., a subsidiary of ML & Co., performs the
management services. The Global Investment Fund is exempt from
regulation under the Act in reliance on section 3(c)(7) of the Act. The
Global Investment Fund seeks relief so that the 1994 Partnership and
1997 Partnership may transfer interests in certain investments to the
Global Investment Fund in exchange for limited partnership interests in
the Global Investment Fund.
6. Under the KECALP Order, ML & Co. or a subsidiary may acquire an
investment approved by the General Partner for acquisition by the
Partnership and hold the investment (``Warehoused Investment'') until
the closing of the Partnership's offering to Limited Partners. Upon
completion of its offering, the Partnership would purchase each
Warehoused Investment from ML & Co. or the subsidiary at the lesser of
each Warehoused Investment's (a) fair value on the date of purchase by
the Partnership or (b) purchase cost paid by ML & Co. and its
subsidiaries. Applicants assert that the Warehoused Investment
procedure facilitates the Partnerships' investment process. The
requested order would permit the Partnerships to acquire Warehoused
Investments from ML & Co. and its subsidiaries subject to modified
conditions that would afford the Partnerships greater flexibility.
7. Under the KECALP Order, the Partnerships also may engage in
certain joint transactions and investments with affiliates of the
Partnerships. Applicants seek relief to permit certain joint
transactions, including transactions involving restructurings and
recapitalizations, (collectively, ``Merrill Lynch Investments'') in
which the Partnerships are participants with ML & Co. and other
affiliated persons of the Partnerships (``Affiliated Co-Investors'')
subject to the conditions detailed below.
Applicants' Legal Analysis
A. Warehoused Investments
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between a registered investment company and any
affiliated person of that company. ML & Co. and each of its direct and
indirect wholly-owned subsidiaries, including the General Partner, are
affiliated persons under section 2(a)(3)(C) of the Act. The General
Partner is an affiliated person of the Partnerships under section
2(a)(3)(D) of the Act. As a result of these affiliations, sales of
securities or other property on a principal basis by the General
Partner or an affiliate to the Partnership may be prohibited under
section 17(a).
2. Section 6(b) of the Act provides that the Commission 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 17(b) of the Act permits the Commission to grant an
order permitting a transaction otherwise prohibited by section 17(a) if
it finds that the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned, the proposed transaction is consistent with the policy of
each investment company concerned, and the proposed transaction is
consistent with the general purposes of the Act.
3. Applicants request relief from section 17(a) pursuant to
sections 6(b) and 17(b) of the Act to permit the Partnerships to
acquire Warehoused Investments from ML & Co. and direct and indirect
wholly-owned subsidiaries of ML & Co. (including the General Partner)
subject to conditions modified from the KECALP Order. Under the
requested order, (i) the warehouse period during which ML & Co. or a
subsidiary may hold a Warehoused Investment would be increased from 12
to 18 months; (ii) the purchase price paid by a Partnership for the
Warehoused Investments would be calculated on an aggregate basis,
rather than for each Warehoused Investment individually; and (iii) the
approval of a Warehoused Investment by the Board for acquisition by a
Partnership would be made either prior to or within 30 days of the
acquisition of the Warehoused Investment by ML & Co. or its
subsidiary.\3\
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\3\ Under the KECALP Order, the Board approved the acquisition
of a Warehoused Investment prior to its purchase by ML & Co. or a
subsidiary and approved the acquisition a second time after the
closing of the Partnership's offering to the Limited Partners.
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4. Applicants state that with the proposed changes, the
transactions involving Warehoused Investments will continue to meet the
standards of sections 6(b) and 17(b). Applicants assert that the
revised conditions would allow for a valuation method for Warehoused
Investments that is more fair to the public shareholders of ML & Co.
and that will not cause a Partnership to pay more than the aggregate
fair value of Warehoused Investments acquired on its behalf. In
addition, applicants state that the change in the timing of the Board
approval will provide the Partnerships with increased investment
flexibility by allowing for circumstances where a Partnership has been
presented with the opportunity to invest in a transaction, but the
Board of Directors of the General Partner has not been able to make all
of the required findings prior
[[Page 66612]]
to the purchase by ML & Co. or its subsidiaries.
B. Transaction with the Global Investment Fund
1. Applicants request relief pursuant to sections 6(b) and 17(b) of
the Act from section 17(a) of the Act to permit the 1994 Partnership
and 1997 Partnership to transfer their interests in certain investments
to the Global Investment Fund in exchange for limited partnership
interests in the Global Investment Fund. The 1994 Partnership and the
1997 Partnership are invested in certain portfolio companies in which
the Global Investment Fund also is invested. Applicants state that the
exchange will have no economic effect on the Partnerships because it
would be structured so that each Partnership would only change the
vehicle through which the Partnerships hold these investments, and the
Partnerships' interests in the Global Investment Fund would correspond
only to the transferred investments. The transfer of the Partnerships'
investments to the Global Investment Fund would not be deemed by the
Partnerships to be an event requiring any change in the valuation of
the Partnerships' interests in the investments. The Partnerships will
not pay any fees to ML & Co. or its affiliates in connection with the
transfer. Upon disposition of an investment by the Global Investment
Fund, each Partnership would receive the portion of any net proceeds
corresponding to its indirect interest in the investments.
C. Joint Investments by the Partnerships and their Affiliates
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons from participating in joint arrangements with a
registered investment company unless authorized by the Commission. Rule
17d-1 provides that in passing on applications for such orders, the
Commission will consider whether the participation by the investment
company is consistent with the provisions, policies, and purpose of the
Act, and the extent to which the participation is on a basis different
from or less advantageous than that of the other participants.
2. Applicants seek relief pursuant to section 6(b) and rule 17d-1
to permit Merrill Lynch Investments in which the Partnerships are
participants with Affiliated Co-Investors. Applicants assert that the
proposed conditions that would govern these transactions would assure
that the Partnerships participate on a basis no less advantageous than
that of Affiliated Co-Investors. Applicants also assert that the
community of interest between the Partnerships and ML & Co. would
further assure that the transactions would be in the best interests of
the Partnerships.
D. Certain Compensation to ML & Co. or Affiliates
1. Section 17(e) of the Act and rule 17e-1 under the Act limit the
compensation an affiliated person may receive when acting as agent or
broker for a registered investment company. Applicants request an
exemption from section 17(e) pursuant to section 6(b) to permit ML &
Co. or an affiliated person, acting as an agent or broker, to receive
placement fees, financial advisory fees or other compensation in
connection with the purchase and sale of securities by a Partnership,
provided that the fees or other compensation can be deemed ``usual and
customary.'' Applicants state that fees or other compensation will be
deemed ``usual and customary'' only if: (i) the Partnership is
purchasing or selling securities alongside other unaffiliated third
parties who are also similarly purchasing or selling securities; (ii)
the fees or other compensation that are being charged to the
Partnership are also being charged to the unaffiliated third parties;
and (iii) the amount of securities being purchased or sold by a
Partnership does not exceed 50% of the total amount of securities being
purchased or sold by the Partnership and the unaffiliated third
parties. Applicants assert that compliance with section 17(e) could
prevent a Partnership from participating in a transaction in which ML &
Co. or an affiliate does not, for other business reasons, wish a
Partnership to be treated in a more favorable manner than unaffiliated
parties also participating in the transaction.
2. Applicants also request an exemption from rule 17e-1 to the
extent necessary to permit each Partnership to comply with rule 17e-1
without the necessity of having a majority of the directors of the
General Partner who are not ``interested persons'' take the actions and
make the approvals specified in the rule. Because all the directors of
the General Partner will be affiliated persons, a Partnership could not
comply with rule 17e-1 without the requested relief. Applicants state
that each Partnership will have a majority of the directors of the
General Partner take the actions and make the approvals required in the
rule. Each Partnership will otherwise comply with the requirements of
rule 17e-1.
F. Custody of Partnership's Assets
1. Section 17(f) of the Act prescribes certain requirements as to
the custody of assets of registered investment companies. The KECALP
Order permits certain subsidiaries of ML & Co. to act as custodians of
the Partnerships' assets without a written contract required by section
17(f). Rule 17f-1(b)(4) under the Act requires that securities held by
a custodian that is a member of a national securities exchange be
verified periodically by independent public accountants. Applicants
request relief from this requirement pursuant to section 6(b) with
respect to the Partnerships' assets held by an ML & Co. subsidiary
pursuant to the rule. Applicants state that the Partnerships' assets so
held are subject to an annual independent audit and that in light of
the community of interest between ML & Co. and the Partnerships,
compliance with this requirement in the rule would be unduly
burdensome.
F. Periodic Reporting
1. Section 30(h) 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 of the Securities Exchange
Act of 1934. As a result, the General Partner of each Partnership and
certain other persons are required to file Forms 3, 4, and 5 with
respect to their ownership of interests in a Partnership. Applicants
request an exemption pursuant to section 6(b) from the requirements of
section 30(h) to the extent necessary to exempt the General Partner,
directors and officers of the General Partner, and any other persons
who may be deemed members of an advisory board of a Partnership from
filing these forms. Applicants assert that the requirement is not
necessary for the protection of investors because there is no trading
market for the Partnerships' interests and transfers of these interests
are severely restricted.
Applicants' Conditions
Applicants agree that the requested order will be subject to the
following conditions:
Condition Relating to Warehoused Investments
1. (a) In order for an investment to quality as a Warehoused
Investment to be purchased pursuant to the requested relief, (i)(A) the
Board must approve such investment for the subsequent Partnership in
the manner described in sub-paragraph (b) of condition 1 prior to the
time the investment is acquired by
[[Page 66613]]
the General Partner or an affiliate thereof and (B) such investment
must be acquired by ML & Co. (which term, in these conditions, includes
its subsidiaries) with the intention of acquiring the Warehoused
Investment for the subsequent Partnership and selling it to such
Partnership after the completion of its initial offering or (ii)(A) the
Board must approve such investment in the manner described in sub-
paragraph (b) of condition 1 within 30 days after the date of the
acquisition by ML & Co. and (B) ML & Co. must thereafter hold such
investment with the intention of selling it to a Partnership after the
completion of the initial offering of the Partnership. The General
Partner will maintain at the Partnerships' office written records
stating ML & Co.'s intention in acquiring such security, and stating
the factors considered by the Board in approving the investment.
(b) Prior to the acquisition of a Warehoused Investment by a
Partnership, (i) the Board must make the following fundings: (A) The
terms of the Warehoused Investment, including the consideration to be
paid, are reasonable and fair and do not involve overreaching of the
Partnership or its Limited Partners on the part of any person
concerned; (B) the proposed transaction is consistent with the policy
of the Partnership as indicated in its filings under the 1933 Act and
its reports to Limited Partners; and (C) participation by the
Partnership in the proposed transaction is in the best interest of the
Limited Partners of the Partnership; and (ii) with respect to any
Warehoused Investment that is part of a co-investment with an
affiliate, the Board must approve the investment in accordance with the
terms of any orders issued by the Commission that are applicable to
such co-investment, including the required findings by the Board. The
General Partner will maintain at the Partnerships' office written
records of the factors considered in any decision regarding a
Warehoused Investment.
(c) The purchase price to be paid by a Partnership for Warehoused
Investments acquired for the Partnership prior to the closing of its
initial offering shall be the lower of (i) the aggregate cost to ML &
Co. of purchasing the Warehoused Investments, plus carrying costs as
described below in sub-paragraph (d) or (ii) the aggregate fair value
of the Warehoused Investments at the time of purchase by the
Partnership (as determined by the Board). The General Partner will
maintain at the Partnerships' office written records of the factors
considered in any determination regarding the value of a Warehoused
Investment.
(d) Carrying costs shall be calculated from the date ML & Co.
acquired the Warehoused Investment to the date of the acquisition of
the proposed investment by the Partnership from ML & Co. and shall
consist of interest charges computed at the lower of (i) the prime
commercial lending rate charged by Citibank, N.A. (or any successor),
during the period for which carrying costs are permitted to be paid
until the Partnership acquires the securities or (ii) the effective
cost of borrowings by ML & Co. during such period. The effective cost
of borrowings by ML & Co. is its actual ``Average Cost of Funds,''
which it calculates on a daily basis by dividing its consolidated
financing expenses by the total amount of borrowings during this
period.
(e) A Partnership may only acquire a Warehoused Investment from ML
& Co. during the lesser of (i) 18 months from the time ML & Co.
purchases the Warehoused Investment or (ii) 30 days from the date of
closing of the Partnership's initial offering.
Conditions Relating to Joint Transactions
2. (a) To the extent that a Partnership has funds available for
investment, the Board will review, among other investments, co-
investments with Affiliated Co-investors that may be brought to the
attention of the General Partner. The Board will make a determination
as to whether each particular investment meets applicable investment
criteria and is consistent with the existing composition of the
Partnership's portfolio in terms of diversification of investments.
(b) The General Partner will commit to a co-investment with an
Affiliated Co-investor only if the Board, by a majority vote at a
properly called and held meeting prior to making the investment,
concludes, after consideration of all information deemed relevant,
that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair to the Limited Partners of the
Partnership and do not involve overreaching of the Partnership or
Limited Partners on the part of any person concerned;
(ii) The transaction is consistent with the interests of the
Limited Partners of the Partnership and is consistent with the
Partnership's investment objectives and policies as recited in filings
made by the Partnership under the 1933 Act, its registration statement,
and reports to its Limited Partners; and
(iii) The investment by an Affiliated Co-investor in such
transaction would not disadvantage the Partnership in the making of its
investment, maintaining its investment position, or disposing of the
investment.
3. The General Partner will not invest the funds of any Partnership
in any investments in which ML & Co. or an affiliate has or proposes to
acquire the same class of securities of the same issuer, when the
investment involves a joint enterprise or other joint arrangement
within the meaning of rule 17d-1 in which the Partnership and ML & Co.
or an affiliate are participants, unless ML & Co. or any such affiliate
agrees that, prior to disposing of all or part of its investment, it
will (i) give the General Partner sufficient, but not less than one
day, notice of its intention to dispose of such investment and (ii)
refrain from disposing of its investment unless the Partnership has the
opportunity to dispose of the Partnership's investment prior to or
concurrently with, on the same terms as, and pro rata with ML & Co. or
such affiliate; provided, however, that the requirements specified in
clauses (i) and (ii) will not be deemed to limit or prevent the
disposition of an investment by an affiliate to its direct or indirect
subsidiary, to any company (a ``Parent'') of which the affiliate is a
direct or indirect wholly-owned subsidiary or to a direct or indirect
wholly-owned subsidiary of its Parent. For purposes of this condition
3, the term ``affiliate'' of ML & Co. refers to direct and indirect
wholly-owned subsidiaries of ML & Co. and to other entities with
respect to which ML & Co. or any such subsidiary is authorized to cause
such entity to provide the opportunity for a Partnership to participate
in the sale of an investment as contemplated by this condition 3.
4. The Board will review quarterly all information concerning co-
investment transactions by the Partnerships with Affiliated Co-
investors to determine whether all such investments made during the
preceding quarter complied with conditions 2 and 3.
5. At least annually, the General Partner will provide to the
Partnerships' Limited Partners a written list of co-investment
transactions by the Partnerships with Affiliated Co-investors.
6. In any case where co-investments are made with an Affiliated Co-
investor, any individual involved in the management of both the
Partnerships and the Affiliated Co-investor will not participate in the
Partnerships' determination of whether to effect any co-investment
transaction.
[[Page 66614]]
7. In connection with proposed transactions otherwise prohibited by
section 17(d) of the Act and rule 17d-1 under the Act, the General
Partner 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 person, promoter, or principal underwriter.
8. Each Partnership and the General Partner will maintain and
preserve, for the life of each such Partnership and at least two years
thereafter, such accounts, books, and other documents as constitute the
record forming the basis for the audited financial statements that are
to be provided to the Limited Partners, and each annual report of such
Partnership required by the terms of the applicable partnership
agreement, to be sent to the Limited Partners, and agree that all such
records will be subject to examination by the Commission and its staff.
Each Partnership will preserve the accounts, books and other documents
required to be maintained in an easily accessible place for the first
two years.
9. The General Partner will send Partnership financial statements
to each Limited Partner who had an interest in a Partnership at any
time during the fiscal year then ended. The statements will be audited
by the 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 addition, within 90 days after the end of each fiscal year of
each of the Partnerships or as soon as practicable thereafter, the
General Partner shall send a report to each person who was a Limited
Partner at any time during the fiscal year then ended setting forth
such tax information as shall be necessary for the preparation by the
Limited Partner of his or her federal and state income tax returns, and
a report of the investment activities of the Partnership during such
year.
Conditions Relating to Certain Other Affiliated Transactions
10. If a Partnership is presented with the opportunity to invest in
a transaction where the General Partner has not been able to consider
the determinations set forth in sub-paragraph (b) of condition 2, the
Partnership may subsequently acquire the investment from ML & Co. or an
affiliate to the extent the investment determination of the Board takes
place as soon as practicable but no more than 30 days after the date of
the acquisition by ML & Co. or its affiliate and payment by the
Partnership is made within five business days after approval by the
Board. The purchase price paid by a Partnership for any such investment
shall be the lower of (i) the fair value of the investment on the date
it is acquired by the Partnership (as determined in good faith by the
Board) or (ii) the cost of ML & Co. or its affiliate of purchasing the
investment.
11. (a) Sales or tenders by the Partnership to an issuer that is an
affiliated person of the Partnership may be made only (i) pursuant to a
uniform offer by the issuer to purchase its securities on a pro rata
basis made to all holders of the class of securities held by the
Partnership (provided that the offer need not be made to employees of
the issuer) or (ii) pursuant to an offer made to fewer than all holders
of the class of securities held by the Partnership, provided that the
Partnership will not participate in such transaction unless a
securityholder that is an institutional investor with total assets of
at least $100 million and is not an affiliated person of the
Partnership or ML & Co. participates in such sale or tender on the same
terms as the Partnership.
(b) Prior to entering into any transaction specified in paragraph
(a) above, the Board must determine, that such action is in the best
interests of the particular Partnership and does not involve
overreaching of the Partnership on the part of any person. The General
Partner shall record in each Partnership's records the basis for such
decision. Transactions entered into pursuant to this paragraph must be
effected on the same terms applicable to any affiliate participating in
the transaction.
12. The Board will adopt procedures pursuant to which it will
monitor potential conflicts of interest between the Partnerships and ML
& Co. and its affiliates, including other partnerships that may invest
in leveraged buyout investments for which Merrill Lynch MBP Inc.
(``MBP''), an indirect wholly-owned subsidiary of ML & Co., acts as
general partner, in connection with the Partnerships' investments. Such
procedures will provide that the officers of the General Partner will
annually prepare and present to the Board written information regarding
all potential investments made available to the Partnership during the
prior year, including Merrill Lynch Investments. The Board's findings
regarding potential conflicts of interest, the specific factors
considered, and any further actions to be taken based on or in order to
implement the directors' findings will be recorded in each
Partnership's records.
13. No person will serve as a member of the Board if such person
also is a member of the board of directors of MBP.
14. Each of the 1994 Partnership and the 1997 Partnership may
transfer its interests in investments it has acquired to the Global
Investment Fund in exchange for interests in such fund, provided that
prior to such a transfer the General Partner determines that (i) such
transfer has no economic effect on the Partnership and (ii) such
transfer is consistent with the best interests of such Partnership.
Other Conditions
15. In order for ML & Co. or an affiliate to acquire limited
partnership interests in a Partnership in connection with a
compensation or investment program offered to select employees of ML &
Co. or its subsidiaries, ML & Co. or such affiliate must (i) determine
that the eligibility requirements for participation in such
compensation program or investment program are at least equal to the
standards for direct investment by employees of ML & Co. in the
Partnership and (ii) agree to vote its interests in a Partnership in
identical proportions as other Limited Partners in respect of any
matter submitted for a vote of Limited Partners.
16. Any Partnership created in the future will not be offered to
employees of ML & Co. and its subsidiaries who earned, or whose
annualized salary was, less than $100,000 with respect to the calendar
year preceding the offering of such Partnership. No employee meeting
the requirement in the preceding sentence will be permitted to invest
more than 15% of his cash compensation from ML & Co. and its
subsidiaries in any Partnership unless such employee is an ``accredited
investor,'' as defined in rule 501(a) under the 1933 Act.
17. The General Partner will maintain the records required by
section 57(f)(3) of the Act and will comply with the provisions of
section 57(h) of the Act as if each Partnership were a business
development company. All records referred to or required under this
order will be available for inspection by the Limited Partners of each
Partnership and the Commission.
[[Page 66615]]
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32043 Filed 12-1-98; 8:45 am]
BILLING CODE 8010-01-M
