[Federal Register Volume 79, Number 78 (Wednesday, April 23, 2014)]
[Notices]
[Pages 22728-22734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09212]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31019; File No.813-336]
UBS AG, et al.; Notice of Application
April 17, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under sections 6(b) and 6(e)
of the Investment Company Act of 1940 (the ``Act'') exempting the
applicants from all provisions of the Act, except section 9 and
sections 36 through 53, and the rules and regulations under the Act.
With respect to sections 17 and 30 of the Act, and the rules and
regulations thereunder, and rule 38a-1 under the Act, the exemption
would be limited as set forth in the application.
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Summary of Application: Applicants request an order to exempt
certain investment vehicles (``Funds'') formed for the benefit of key
employees of UBS AG (``UBS'') and its affiliates from certain
provisions of the Act. Each Fund will be an ``employees' securities
company'' within the meaning of section 2(a)(13) of the Act.
Applicants: UBS, UBS IB Co-Investment 2001 Limited Partnership
(``CLP1'') and UBS IB Co-Investment 2001 (No. 1) Feeder L.P. (``Feeder
L.P.'').
DATES: Filing Dates: The application was filed on July 6, 2001, and
amended on January 9, 2004, May 8, 2008, November 20, 2012 and January
22, 2014.
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 May 12, 2014, and should be accompanied by proof of
service on applicants, in the form of an
[[Page 22729]]
affidavit or, for lawyers, a certificate of service. Hearing requests
should state the nature of the writer's interest, the reason for the
request, and the issues contested. Persons who wish to be notified of a
hearing may request notification by writing to the Commission's
Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090. Applicants, 677 Washington
Boulevard, Stamford, CT 06901.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870, or David P. Bartels, at (202) 551-6821 (Division of
Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling 202-551-8090.
Applicants' Representations
1. UBS is a bank established under the laws of Switzerland that
offers a range of financial services including private banking, asset
management and investment banking services.
2. UBS has organized CLP1, a Cayman Island limited partnership, and
Feeder L.P., a Delaware limited partnership, as the Initial Funds. UBS
intends to organize additional Funds from time to time for the benefit
of highly compensated current and former employees, officers and
directors of UBS and its affiliates (as defined in rule 12b-2 under the
Securities Exchange Act of 1934 (the ``Exchange Act'')) (collectively,
the ``UBS Group'') who have been approved to purchase interests by UBS
(``Eligible Employees''). Each Fund will be an ``employees' securities
company'' within the meaning of section 2(a)(13) of the Act and will
operate as a closed-end, management investment company, which may be
diversified or nondiversified. Applicants state that the Funds are
designed primarily to create capital appreciation opportunities that
are competitive with those at other financial services firms and to
facilitate the recruitment and retention of high caliber professionals.
Applicants assert that participation by Eligible Employees in the Funds
may allow them to diversify their investments or to participate in
investments that might not otherwise be available to them or that might
be beyond their individual means. The investment objectives and
policies for each Fund may vary from Fund to Fund, and participation in
a Fund will be voluntary.
3. Applicants state that each Fund will be organized as a limited
partnership, a limited liability company, a corporation, or another
appropriate entity, in each case organized under the laws of a state of
the United States or of a jurisdiction outside the United States.
Applicants state that, because a large portion of Eligible Employees
reside outside of the United States, applicants expect that most, if
not all, of the Funds will be organized under the laws of jurisdictions
outside of the United States for various tax, regulatory, and other
reasons.\1\
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\1\ Applicants state that, for tax, regulatory or other reasons,
a Fund organized for employees residing in a particular country may
have different terms than other Funds organized for employees
residing in other countries, and Funds that are organized at
different times are likely to have different terms. However, no
organizational document for, or any other contractual arrangement
regarding, a Fund will contain any provision that protects or
purports to protect UBS AG, the General Partner or their delegates
against any liability with respect to the Fund or its security
holders to which such person would otherwise be subject by reason of
willful malfeasance, bad faith, or gross negligence in the
performance of such person's duties, or by reason of such person's
reckless disregard of such person's obligations and duties under
such contract or organizational documents. Moreover, all Funds will
be subject to, and comply with, the terms and conditions of the
application.
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4. Each Fund will be managed, operated and controlled by a general
partner that is controlled, directly or indirectly, by UBS (a ``General
Partner'').\2\ Applicants state that the General Partner will be
responsible for the overall management of each Fund and will have the
authority to make all decisions regarding the acquisition, management
and disposition of Fund investments. The executive officers and
directors of the General Partner or of any entity controlling the
General Partner will be employees of UBS Group, a majority of whom will
be eligible to invest in the Fund. Applicants state that the General
Partner may delegate all management responsibilities, including
responsibility for investment decisions in respect of the Fund, to UBS
or another entity that is part of the UBS Group as investment manager
(the ``Investment Manager''). The General Partner or Investment Manager
will register as an investment adviser under the Investment Advisers
Act of 1940 (``Advisers Act''), if required under applicable law.\3\
Whenever UBS, the General Partner or any other person acting for or on
behalf of a Fund is required or permitted to make a decision, take or
approve an action, or omit to do any of the foregoing in such person's
discretion, such person will act in the best interest of the Fund and
its security holders and will exercise such discretion in accordance
with reasonableness and good faith and any fiduciary duties owed to the
Fund and its security holders.
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\2\ If a form of organization other than a limited partnership
is used, the functions of the General Partner will be performed by a
corresponding entity or governing body.
\3\ Applicants acknowledge that no relief in respect of such
determination is requested.
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5. The Investment Manager may, from time to time, be presented with
investment opportunities by one or more investment advisers
(``Investment Advisers'') that are engaged by the Investment Manager
that may be affiliated or not affiliated with UBS (any such non-
affiliated Investment Adviser being referred to as an ``Outside
Investment Adviser''). If the Investment Manager elects to enter into
any side-by-side investment with a party that is not a member of the
UBS Group, the Investment Manager will be permitted to engage as an
Investment Adviser the Outside Investment Adviser responsible for the
management of such side-by-side investment. In each of the foregoing
cases, however, all decisions with respect to the purchase, holding or
disposition of investments by each Fund will be made by either the
General Partner or the Investment Manager alone, and not by any
Investment Adviser.
6. Interests in the Funds (``Interests'') will be offered without
registration in reliance on section 4(a)(2) of the Securities Act of
1933 (the ``Securities Act''), or Regulation D under the Securities
Act, and will be sold only to Qualified Participants, as defined below,
and members of the UBS Group.\4\ The term ``Qualified Participant''
means: (a) Eligible Employees, (b) spouses, parents, children, spouses
of children, brothers, sisters and grandchildren of Eligible Employees
(``Qualified Family Members'') and (c) trusts or other investment
vehicles established solely for the benefit of Eligible Employees or
Qualified Family Members (``Qualified Investment Vehicles'').
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\4\ Any member of the UBS Group that acquires Interests will be
an ``accredited investor,'' as defined in rule 501(a) of Regulation
D under the 1933 Act.
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7. An Eligible Employee must be either (a) an ``accredited
investor'' as defined in rule 501(a)(6) or 501(a)(5) of Regulation D
under the Securities Act (an ``Accredited Investor'') or (b) one of not
more than 35 employees of the UBS Group who meets the salary and other
requirements as described below (``Other Investors''). Each Other
Investor
[[Page 22730]]
will, at the time of investment in a Fund, (x) be a ``knowledgeable
employee,'' as defined in rule 3c-5 under the Act, of such Fund (with
the Fund treated as though it were a ``Covered Company'' for purposes
of such rule) or (y) have (i) a graduate degree in business, law or
accounting, (ii) a minimum of five years of consulting, investment
banking, legal or similar business experience and (iii) a reportable
income from all sources in the two calendar years immediately preceding
their participation of at least $100,000 and a reasonable expectation
of income from all sources of at least $140,000 per year in each year
in which the person invests in a Fund. An Other Investor qualifying
under (y) above will not be permitted to invest in any year more than
10% of such person's income from all sources for the immediately
preceding year in the aggregate in a Fund and in all other Funds in
which that Other Investor has previously invested. A Qualified Family
Member who purchases an Interest must be an Accredited Investor.
8. An Eligible Employee or a Qualified Family Member may purchase
an Interest through a Qualified Investment Vehicle only if either (a)
such investment vehicle is an ``accredited investor,'' as defined in
rule 501(a) of Regulation D under the Securities Act or (b) such
Eligible Employee or Qualified Family Member is a settlor and principal
investment decision-maker with respect to such investment vehicle.
Prior to offering Interests to an Eligible Employee or Qualified Family
Member, UBS must reasonably believe that such individual has such
knowledge, sophistication and experience in business and financial
matters to be capable of evaluating the merits and risks of
participating in the Fund, is able to bear the economic risk of such
investment and is able to afford a complete loss of such investment.
9. Applicants represent that the material terms of investment in a
Fund, including without limitation, the terms and conditions of any and
all transfers of Interests in any Fund, will be fully disclosed to each
Qualified Participant and member of the UBS Group when Interests are
offered to that person. The specific investment objectives and
strategies for a particular Fund will be set forth in a private
placement memorandum relating to the Interests offered by a Fund. In
connection with an investment in a Fund, each Qualified Participant and
member of the UBS Group will receive the private placement memorandum,
form of application and the limited partnership agreement (or other
constitutive document) of the Fund. Each Fund will send its investors
(``Investors'') annual reports, which will contain audited financial
statements, as soon as practicable after the end of each fiscal
year.\5\ In addition, as soon as practicable after the end of each tax
year of a Fund, a report will be transmitted to each Investor setting
forth such tax information as shall be necessary for the preparation by
the Investor of his or her federal tax returns.
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\5\ For the purposes of the application, ``audit'' has the
meaning provided in rule 1-02(d) of Regulation S-X.
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10. Interests in a Fund will not be transferable by an Investor
except with the prior written consent of UBS or a Fund's General
Partner and then only to Qualified Participants or to members of the
UBS Group. Applicants expect that interests in the Funds will generally
not be redeemable at the option of an Investor (except on liquidation
of a Fund) but state that it is possible that one or more Funds may
offer Interests with certain redemption rights. With respect to certain
Funds, UBS may have the right, but not the obligation, to repurchase or
cancel the Interest of an Eligible Employee who ceases to be an
employee, officer or director of any member of the UBS Group for any
reason. Upon repurchase or cancellation, such Investor's Interest will
be purchased by the General Partner for cash in an amount at least
equal to the lesser of (a) the amount of such Investor's capital
contributions less prior distributions from the Fund (plus interest, as
determined by UBS) or (b) the value of the Interest, as determined by
UBS in good faith as of the date of termination. For other Funds, UBS
AG may be permitted to exercise this right only under particular
circumstances, such as if an employee resigns to join a competitor of
the UBS Group, or not at all.
11. UBS may establish one or more deferred compensation plans in
connection with the Funds. Applicants state that Eligible Employees may
be able to defer compensation and receive a return on such deferred
compensation determined by reference to the performance of a Fund. The
deferred compensation plans and/or an Eligible Employee's interest in
such plans: (a) Will be subject to the applicable terms and conditions
of the application; \6\ (b) will only be offered to Eligible Employees
who are current employees, officers or directors of the UBS Group; (c)
will have restrictions on transferability, including prohibitions on
assignment or transfer except in the event of the Eligible Employee's
death or as otherwise required by law; and (d) will provide information
to participants equivalent to that provided to investors and
prospective investors in the corresponding Fund, including, without
limitation, disclosure documents and audited financial information.
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\6\ For purposes of this application, a Fund will be deemed to
be formed with respect to each deferred compensation plan and each
reference to ``Fund,'' ``capital contribution,'' ``General
Partners,'' ``Investor,'' ``loans'' or ``leverage'' and ``Interest''
in this application will be deemed to refer to the deferred
compensation plan, the notional capital contribution to the deferred
compensation plan, the UBS Group, a participant of the deferred
compensation plan, notional loans or leverage and participation
rights in the deferred compensation plan, respectively.
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12. The General Partner or Investment Manager of a Fund may charge
the Fund an annual management fee, a flat administrative charge or an
expense reimbursement, but will not charge a carried interest. Any
expense reimbursement may cover out-of-pocket expenses of the General
Partner or Investment Manager, including allocable portions of the
salaries of UBS Group employees who work on the Funds' affairs.
Directors or officers of the General Partner or Investment Manager, or
of any entity controlling the General Partner or Investment Manager,
may also be compensated for their services to the General Partner or
Investment Manager, including reimbursement for out-of-pocket expenses.
A Fund will not pay both a fee to the General Partner of the Fund and a
fee to the Investment Manager of the Fund for providing the same
services or bearing the same expenses. An Investment Adviser to the
Investment Manager may charge the Fund an advisory fee; however, such
advisory fee will not be duplicative of any fees paid to the General
Partner. No fee of any kind will be charged in connection with the sale
of Interests.
13. If a Fund becomes a limited partner or otherwise holds an
interest in an investment fund organized or managed by the UBS Group in
which affiliated third parties also are limited partners or otherwise
hold interests (a ``Client Fund''), the Fund may be obligated to pay a
pro rata share of any fees (including carried interest) charged to the
unaffiliated limited partners or interest holders of such Client Fund.
A Fund may also invest in funds managed or advised by an Outside
Investment Adviser, which may be entitled to fees (including carried
interest) from the Fund. In all such cases, the Fund will enter into
commercially reasonable arm's length arrangements with respect to the
payment of the fees, and the potential for payment of any such
[[Page 22731]]
management fees or carried interest will be fully described in the
applicable offering documents.
14. Subject to the terms of the applicable limited partnership
agreement (or other constitutive documents), a Fund will be permitted
to enter into transactions involving (a) a UBS Group entity, (b) a
Client Fund or other portfolio company, (c) any Investor or any person
or entity affiliated with an Investor, or (d) any partner or other
investor in any entity in which a Fund invests. These transactions may
include a Fund's purchase or sale of an investment or an interest from
or to any UBS Group entity or Client Fund, acting as principal. Prior
to entering into these transactions, the General Partner (or the
Investment Manager, to whom the General Partner may delegate this
responsibility) must determine that the terms are fair to Investors.
15. A Fund will not invest more than 15% of its assets in
securities issued by registered investment companies except for
temporary investments in money market funds. A Fund will not acquire
any security issued by a registered investment company if, immediately
after the acquisition, the Fund will own more than 3% of the
outstanding voting stock of the registered investment company.
Applicants state that a Fund may also invest in Client Funds that are
not registered under the Act by virtue of section 3(c)(1) or section
3(c)(7) of the Act.\7\
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\7\ Applicants are not requesting any exemption from any
provision of the Act or any rule thereunder that may govern a Fund's
eligibility to invest in a Client Fund relying on section 3(c)(1) or
3(c)(7) of the Act or a Client Fund's status under the Act.
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16. Members of the UBS Group and/or unaffiliated third parties may
make loans to Funds and/or to Investors in connection with their
purchase of Interests, provided that a Fund will not borrow from any
person if the borrowing would cause any person not named in section
2(a)(13) of the Act to own outstanding securities of the Fund (other
than short-term paper). Members of the UBS Group may also make
preferred capital contributions to the Funds. In connection with any
leverage of the Fund or preferred capital contributions, Eligible
Employees will not have any personal liability in excess of the amounts
payable under their respective subscription agreements for the
repayment of the loan or preferred capital contribution, including in
the event that, upon liquidation of the Fund, the assets of the Fund
are insufficient to permit the Fund to repay such loan preferred
capital contribution in full. Any leverage or preferred capital
contributions will bear interest at a rate no less favorable to a Fund
or its Investors than that could be obtained on an arm's length basis.
The terms of any leverage or preferred capital contribution provided by
any member of the UBS Group (or third party lender) will be described
in the applicable private placement memorandum and partnership
agreement (or other constitutive documents) as appropriate.
Applicants' Legal Analysis
1. Section 6(b) of the Act provides, in part, that the Commission
will exempt employees' securities companies from the provisions of the
Act to the extent that the exemption is consistent with the protection
of investors. Section 6(b) provides that the Commission will consider,
in determining the provisions of the Act from which the company should
be exempt, the company's form of organization and capital structure,
the persons who will own and control the company's voting securities,
evidences of indebtedness and other securities, the prices at which
securities issued by the company will be sold and any applicable sales
load, the disposition of the proceeds of the securities issued by the
company, the character of securities in which those proceeds will be
invested, and any relationship between the company and the issuers of
the securities. Section 2(a)(13) defines an employees' securities
company, in relevant part, as any investment company all of whose
securities are beneficially owned (a) by current or former employees,
or persons on retainer, of one or more affiliated employers, (b) by
immediate family members of such persons, or (c) by such employer or
employers, together with any of the persons in (a) or (b).
2. Section 7 of the Act generally prohibits investment companies
that are not registered under section 8 of the Act from selling or
redeeming their securities. Section 6(e) provides that, in connection
with any order exempting an investment company from any provision of
section 7, certain provisions of the Act, as specified by the
Commission, will be applicable to the company and other persons dealing
with the company as though the company were registered under the Act.
Applicants request an order under sections 6(b) and 6(e) of the Act
exempting the Funds from all provisions of the Act, except section 9
and sections 36 through 53 of the Act, and the rules and regulations
thereunder. With respect to sections 17 and 30 of the Act, and the
rules and regulations thereunder, and rule 38a-1 under the Act, the
exception is limited as set forth in the application.
3. Section 17(a) generally prohibits any affiliated person of a
registered investment company, or any affiliated person of that person,
acting as principal, from knowingly selling or purchasing any security
or other property to or from the company. Applicants request an
exemption from section 17(a) to permit: (a) A member of the UBS Group
or a Client Fund, acting as principal, to engage in any transaction
directly or indirectly with any Fund or entity controlled by such Fund;
(b) a Fund to invest in or engage in any transaction with any entity,
acting as principal (i) in which such Fund, any company controlled by
such Fund, or any entity within the UBS Group or a Client Fund has
invested or will invest or (ii) with which such Fund, any company
controlled by such Fund or any entity within the UBS Group or a Client
Fund is or will otherwise become affiliated; and (c) a partner or other
investor in any entity in which a Fund invests, acting as principal, to
engage in transactions directly or indirectly with the related Fund or
any company controlled by such Fund.
4. Applicants state that an exemption from section 17(a) is
consistent with the protection of investors and the purposes of the
Funds. Applicants state that the Investors in each Fund will be
informed of the possible extent of the Fund's dealings with the UBS
Group and of the potential conflicts of interest that may exist.
Applicants also assert that the community of interest among the
Investors and UBS Group will serve to reduce any risk of abuse in
transactions involving a Fund and the UBS Group. Applicants represent
that the requested relief will not extend to any transaction between a
Fund and an Outside Investment Adviser or an affiliated person of the
Outside Investment Adviser, or between a Fund and who is not a member
of the UBS Group or an employee, officer or director of a member of the
UBS Group and is an affiliated person of the Fund as defined in section
2(a)(3)(E) of the Act (``Advisory Person'') or any affiliated person of
such person.
5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of a registered investment company, or any
affiliated person of an affiliated person, acting as principal, from
participating in any joint enterprise, or other joint arrangement,
unless approved by the Commission. Applicants request relief to permit
affiliated persons of each Fund, or affiliated persons of such persons,
to
[[Page 22732]]
participate in any joint arrangement in which the Fund or an entity
controlled by the Fund is a participant. Applicants acknowledge that
the requested relief will not extend to any transaction in which an
Outside Investment Adviser or an Advisory Person, or an affiliated
person of either, has an interest.
6. Applicants assert that compliance with section 17(d) could cause
a Fund to forego investment simply because an affiliate of the Fund has
made, or is contemplating making, the same investment. Applicants also
submit that the types of investment opportunities considered by a Fund
often require each investor to make funds available in an amount that
may be substantially greater than what a Fund may make available on its
own. Applicants state that the possibility that permitting co-
investments by an affiliated person or an affiliated person of an
affiliated person might lead to less advantageous treatment of the Fund
is minimal in light of (a) the UBS Group's intention in establishing a
Fund so as to reward Eligible Employees and to attract and retain
highly qualified personnel, (b) the UBS Group's capital contributions
to the Funds, and (c) the fact that a majority of the directors of the
General Partner or Investment Manager or of the entity controlling the
General Partner or Investment Manager may themselves invest in the
Fund.
7. Applicants believe that the interests of the Eligible Employees
participating in a Fund will be adequately protected in situations
where condition 3 in the application does not apply. Applicants state
that a Fund may co-invest with an investment fund or separate account,
organized for the benefit of investors who are not affiliated with the
UBS Group, over which a member of the UBS Group exercises investment
discretion (a ``Third-Party Fund''). Applicants assert that, in
structuring a Third-Party Fund, it is common for unaffiliated investors
of such fund to require that the UBS Group invest its own capital in
fund investments, either through the fund or on a side-by-side basis,
and that such UBS Group investment be subject to substantially the same
terms as those applicable to the fund's investment. Applicants state
that it is important to the UBS Group that the interests of the Third-
Party Fund take priority over the interests of the Funds, and that the
activities of the Third-Party Fund not be burdened or otherwise
affected by the activities of the Funds. In addition, applicants
contend that the relationship of a Fund to a Third-Party Fund, in the
context of this application, is fundamentally different from such
Fund's relationship to the UBS Group. Applicants assert that the focus
of, and the rationale for, the protections contained in condition 3 are
to protect the Funds from any overreaching by the UBS Group in the
employer/employee context, whereas the same concerns are not present
with respect to the Funds vis-[agrave]-vis the investors of a Third-
Party Fund.
8. 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) to permit a UBS Group member (including
the General Partner) acting as agent or broker, to receive placement
fees, financial advisory fees or other compensation in connection with
the purchase or sale by a Fund of securities, subject to the
requirement that placement fees, financial advisory fees or other
compensation is deemed ``usual and customary.'' Applicants state that
for the purposes of the application, fees and other compensation that
is being charged or received by the UBS Group entity will be deemed
``usual and customary'' only if (a) the Fund is purchasing or selling
securities with other unaffiliated third parties, (b) the fees or
compensation being charged to the Fund are also being charged to the
unaffiliated third parties, and (c) the amount of securities being
purchased or sold by the Fund does not exceed 50% of the total amount
of securities being purchased or sold by the Fund and unaffiliated
third parties.
9. Applicants assert that compliance with section 17(e) would
prevent a Fund from participating in a transaction in which a member of
the UBS Group does not, for other business reasons, wish a Fund to be
treated in a more favorable manner (in terms of lower fees) than
unaffiliated third parties also participating in the transaction.
Applicants assert that the concerns of overreaching and abuse that
section 17(e) and rule 17e-1 were designed to prevent are alleviated by
the conditions that ensure that fees or other compensation paid to
members of the UBS Group are the same as those negotiated at arm's
length with unaffiliated third parties, and the unaffiliated third
parties have as great or greater interest as the Fund in the
transaction as a whole.
10. Rule 17e-1(b) requires that a majority of directors who are not
``interested persons'' (as defined by section 2(a)(19) of the Act) take
actions and make approvals regarding commissions, fees, or other
remuneration. Applicants request an exemption from rule 17e-1 to the
extent necessary to permit each Fund to comply with the rule without
having a majority of the directors of the General Partner who are not
interested persons take actions and make determinations as set forth in
paragraph (b) of the rule. Applicants state that because all of the
directors of a General Partner will be affiliated persons, without the
relief requested, a Fund could not comply with rule 17e-1. Applicants
state that each Fund will comply with rule 17e-1(b) by having a
majority of the directors of the General Partner take actions and make
approvals as set forth in rule 17e-1. Applicants state that each Fund
will otherwise comply with the requirements of rule 17e-1.
11. Section 17(f) designates the entities that may act as
investment company custodians, and rule 17f-1 imposes certain
requirements when the custodian is a member of a national securities
exchange. Applicants request an exemption from section 17(f) and rule
17f-1(a) to the extent necessary to permit a member of the UBS Group to
act as custodian for a Fund without a written contract. Applicants also
request an exemption from the rule 17f-1(b)(4) requirement that an
independent accountant periodically verify the assets held by the
custodian . Applicants further request an exemption from rule 17f-
1(c)'s requirement of transmitting to the Commission a copy of any
contract executed pursuant to rule 17f-1. Applicants believe that,
because of the community of interest of all of the parties involved and
the requirement to provide annual audited financial reports, compliance
with these requirements would be unnecessary. Applicants state that
they will comply with rule 17f-1(d), provided that ratification by the
General Partner of any Fund will be deemed to be ratification by a
majority of a board of directors. Applicants state that they will
comply with all other requirements of rule 17f-1.
12. Section 17(g) and rule 17g-1 generally require the bonding of
officers and employees of a registered investment company who have
access to its securities or funds. Rule 17g-1 requires that a majority
of directors who are not interested persons take certain actions and
give certain approvals relating to fidelity bonding. Applicants request
relief to the extent necessary to permit the General Partner's officers
and directors, who may be deemed to be interested persons, to take the
actions and make the determinations set forth in the rule. Applicants
also request an exemption from the requirements of paragraph (g) of
rule 17g-1 relating to the filing of copies of fidelity bonds and
[[Page 22733]]
related information with the Commission and the provision of notices to
the board of directors, and paragraph (h) of rule 17g-1 relating to the
appointment of a person to make the filings and provide the notices
required by paragraph (g). Applicants state that, because all the
directors of the General Partner will be affiliated persons, a Fund
could not comply with rule 17g-1 without the requested relief. Each
Fund will comply with rule 17g-1 by having a majority of the General
Partner's directors take actions and make determinations as set forth
in rule 17g-1. Applicants also state that the Funds will comply with
all other requirements of rule 17g-1.
13. Section 17(j) and paragraph (b) of rule 17j-1 make it unlawful
for certain enumerated persons to engage in fraudulent or deceptive
practices in connection with the purchase or sale of a security held or
to be acquired by a registered investment company. Rule 17j-1 also
requires that every registered investment company adopt a written code
of ethics and that every access person of a registered investment
company report personal securities transactions. Applicants request an
exemption from the provisions of rule 17j-1, except for the antifraud
provisions of paragraph (b), asserting that these provisions are
unnecessarily burdensome because of the community of interest among the
Investors. The relief requested will only extend to members of the UBS
Group and is not requested with respect to any Outside Investment
Adviser or Advisory Person.
14. Applicants request an exemption from the requirements in
sections 30(a), 30(b) and 30(e), and the rules under those sections,
that registered investment companies prepare and file with the
Commission and mail to their shareholders certain periodic reports and
financial statements. Applicants contend that the forms prescribed by
the Commission for periodic reports have little relevance to the Funds
and would entail administrative and legal costs that outweigh any
benefit to the Investors. Applicants request exemptive relief to the
extent necessary to permit each Fund to report annually to its
Investors. Applicants also request an exemption from section 30(h) to
the extent necessary to exempt the General Partner of each Fund and any
other person who may be deemed to be a member of an advisory board of a
Fund from filing Forms 3, 4, and 5 under section 16(a) of the Exchange
Act with respect to their ownership of Interests in a Fund. Applicants
assert that, because there will be no trading market and the transfers
of Interests will be severely restricted, these filings are unnecessary
for the protection of investors and burdensome to those required to
make them.
15. Rule 38a-1 requires investment companies to adopt, implement
and periodically review written policies and procedures reasonably
designed to prevent violation of the federal securities laws, appoint a
chief compliance officer and maintain certain records. Applicants state
that the Funds will comply with rule 38a-1(a), (c) and (d), except that
(a) the board of directors of the General Partner of each Fund will
fulfill the responsibilities assigned to the Fund's board of directors
under the rule, (b) because all members of the board of directors of
the General Partner would be considered interested persons of the
Funds, approval by a majority of the disinterested directors required
by rule 38a-1 would not be obtained, and (c) because the board of
directors of the General Partner do not have any disinterested members,
the Funds will comply with the requirement in rule 38a-1(a)(4)(iv) that
the chief compliance officer meet with the independent directors by
having the chief compliance officer meet with the board of directors of
the General Partner as constituted. Applicants assert that, in view of
the community of interest between the Funds and the General Partners
and Investment Managers, there is no significant benefits to be gained
from imposing the costs of compliance with the other aspects of the
rule on the Funds.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each proposed transaction to which a Fund is a party otherwise
prohibited by section 17(a) or section 17(d) of the Act and rule 17d-1
thereunder (the ``Section 17 Transactions'') will be effected only if
the General Partner determines that: (a) The terms of the Section 17
Transaction, including the consideration to be paid or received, are
fair and reasonable to the Investors and do not involve overreaching of
the Fund or its Investors on the part of any person concerned; and (b)
the Section 17 Transaction is consistent with the interests of the
Investors, the Fund's organizational documents, and the Fund's reports
to its Investors. In addition, the General Partner will record and
preserve a description of the Section 17 Transactions, the General
Partner's findings, the information or materials upon which the General
Partner's findings are based, and the basis therefore. All such records
will be maintained for the life of the Fund and at least six years
thereafter, and will be subject to examination by the Commission and
its staff. Each Fund will preserve the accounts, books and other
documents required to be maintained in an easily accessible place for
the first two years.
2. In connection with the Section 17 Transactions, the General
Partner of each Fund will adopt, and periodically review and update,
procedures designed to ensure that reasonable inquiry is made, before
the consummation of any such transaction, with respect to the possible
involvement in the transaction of any affiliated person or promoter of
or principal underwriter for the Funds, or any affiliated person of
such a person, promoter, or principal underwriter.
3. The General Partner of each Fund will not invest the funds of
the Funds in any investment in which an ``Affiliated Co-Investor'' (as
defined below) has acquired or proposes to acquire the same class of
securities of the same issuer, where the investment involves a joint
enterprise or other joint arrangement within the meaning of rule 17d-1
in which the Fund and an Affiliated Co-Investor are participants,
unless any such Affiliated Co-Investor, prior to disposing of all or
part of its investment, (a) gives the General Partner sufficient, but
not less than one day's notice, of its intent to dispose of its
investment, and (b) refrains from disposing of its investment unless
the Fund has the opportunity to dispose of the Fund's investment prior
to or concurrently with, on the same terms as, and pro rata with the
Affiliated Co-Investor. The term ``Affiliated Co-Investor'' with
respect to a Fund means (a) an ``affiliated person,'' as such term is
defined in section 2(a)(3) of the Act, of the Fund (other than a Third-
Party Fund or a person that is an affiliated person of the Fund solely
because of section 2(a)(3)(B) of the Act); (b) the UBS Group; (c) an
officer or director of a member of the UBS Group; or (d) an entity
(other than a Third-Party Fund) in which a member of the UBS Group acts
as a general partner or has a similar capacity to control the sale or
other disposition of an entity's securities. The restrictions contained
in this condition, however, shall not be deemed to limit or prevent the
disposition of an investment by an Affiliated Co-Investor: (a) to its
direct or indirect wholly-owned subsidiary, to any company (a
``Parent'') of which the Affiliated Co-Investor is a direct or indirect
wholly-owned subsidiary, or to a direct or indirect wholly-owned
subsidiary of its Parent; (b) to immediate family
[[Page 22734]]
members of the Affiliated Co-Investor or a trust established for any
Affiliated Co-Investor or any such family member; or (c) when the
investment is comprised of securities that are (i) listed on any
exchange registered as a national securities exchange under section 6
of the Exchange Act; (ii) national market system securities pursuant to
section 11A(a)(2) of the Exchange Act and rule 11Aa2-1 thereunder;
(iii) government securities as defined in section 2(a)(16) of the Act;
or (iv) 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.
4. Each Fund and its General Partner will maintain and preserve,
for the life of each such Fund and at least six 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 Investors, and each annual report of the Fund required to be
sent to the Investors, and agree that all such records will be subject
to examination by the Commission and its staff. Each Fund will preserve
the accounts, books and other documents required to be maintained in an
easily accessible place for the first two years.
5. The General Partner of each Fund will send to each Investor who
had an Interest in the Fund, at any time during the fiscal year then
ended, Fund financial statements that have been audited by 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
Fund 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 Fund. In addition, within 90 days after the end of each fiscal year
of each of the Funds or as soon as practicable thereafter, the General
Partner of each Fund shall send a report to each person who was a
Investor at any time during the fiscal year then ended, setting forth
such tax information as shall be necessary for the preparation by the
Investor of his or her federal and state income tax returns and a
report of the investment activities of the Fund during that year.
6. If purchases or sales are made by a Fund from or to an entity
affiliated with the Fund solely by reason of a partner or employee of
the UBS Group (a) serving as officer, director, general partner or
investment adviser of the entity, or (b) having a 5% or more investment
in such entity, such individual will not participate in the Fund's
determination of whether or not to effect the purchase or sale.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09212 Filed 4-22-14; 8:45 am]
BILLING CODE 8011-01-P