[Federal Register Volume 59, Number 90 (Wednesday, May 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11342]
[[Page Unknown]]
[Federal Register: May 11, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20280; 812-8640]
Merrill Lynch KECALP Growth Investments L.P. 1983, et al.;
Application
May 5, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemptive Order under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Merrill Lynch KECALP Growth Investments L.P. 1983, Merrill
Lynch KECALP L.P. 1984, Merrill Lynch KECALP L.P. 1986, Merrill Lynch
KECALP L.P. 1987, Merrill Lynch KECALP L.P. 1989, Merrill Lynch KECALP
L.P. 1991 (The ``Partnerships''), KECALP Inc. (the ``General
Partner''), Merrill Lynch & Co., Inc. (``ML & Co.'').
RELEVANT 1940 ACT SECTIONS: Exemption requested pursuant to section
6(b) of the Act and rule 17d-1 thereunder to permit certain
transactions otherwise prohibited by section 17(d) of the Act and rule
17d-1. The requested order would amend a prior order.
SUMMARY OF APPLICATION: Applicants request an order that would permit
the Partnerships to make certain joint investments with ML & Co. or an
affiliate of ML & Co. and to co-invest with certain limited
partnerships in which ML & Co. is an investor.
FILING DATE: The application was filed on October 9, 1993. Applicants
have agreed to file an additional amendment, the substance of which is
incorporated herein, during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 31, 1994,
and should be accompanied by proof of service for applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, South Tower, World Financial Center, 225 Liberty Street,
New York, New York 10080-6123.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 272-3026, or Robert A.
Robertson, Branch Chief, at (202) 272-3030 (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. Each of the Partnerships is a closed-end management investment
company. Each Partnership also is an ``employees' securities company,''
as defined in section 2(a)(13) of the Act, and is exempt from certain
provisions of the Act pursuant to a prior order of the SEC (the
``KECALP Order'').\1\ Partnership interests in the Partnerships were
offered exclusively to certain employees of ML & Co. and its
subsidiaries and to non-employee directors of ML & Co. Applicants
request that any relief relating to the present application be extended
to partnerships commencing operations in the future that operate under
the terms of the KECALP Order. These partnerships are also referred to
as the ``Partnerships.''
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\1\Investment Company Act Release Nos. 12290 (Mar. 11, 1982)
(notice) and 12363 (Apr. 8, 1982) (order).
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2. ML & Co. is a diversified financial services holding company.
The General Partner, a registered investment adviser, is an indirect,
wholly-owned subsidiary of ML & Co. and acts as the general partner of
the Partnerships. All investments and dispositions of investments by
each Partnership are approved by the board of directors of the General
Partner.
3. Applicants request an amendment to the KECALP Order to permit
the Partnerships to co-invest with ``Affiliated Co-investors,'' defined
as: Limited partnerships or other investment vehicles that (a) are not
sponsored or managed by ML & Co. or one of its affiliates; (b) are an
``affiliated person'' of ML & Co. or one of its affiliates by virtue of
the ownership by ML & Co. or its affiliate of 5% or more of the voting
securities or partnership interests in such entity; and (c) are not
controlled by ML & Co. or one of its affiliates (within the meaning of
section 2(a)(9) of the Act).
4. The requested amendment also would permit ML & Co. or its
affiliates to participate in co-investments with a Partnership and an
Affiliated Co-investor may make additional investment opportunities
available to its security holders, which would include ML & Co. or an
affiliate.
5. The Kecalp Order approves certain transactions in accordance
with rule 17d-1. Specifically, the Partnerships may invest in (a) any
other partnerships or investment vehicles which are sponsored or
managed by ML & Co. or its affiliates or (b) investments in which a
partnership described in clause (a) is a participant or plans to become
a participant and which would not be prohibited investments except that
ML & Co. or any of its subsidiaries, or one or more officers,
directors, or employees of the General Partner, have a partnership
interest in or compensation arrangement with such partnership. Since
the Affiliated Co-investors are not, by definition, sponsored or
managed by ML & Co. or its affiliates, co-investments by the
Partnerships with the Affiliated Co-investors are not permitted under
the terms of the Kecalp Order.
6. Employees of ML & Co. and its subsidiaries must meet the
suitability standards of a Partnership in order to be eligible to
purchase units in a Partnership. In addition, the Partnerships'
prospectuses have stated prominently that the units are speculative and
are not a suitable investment for all qualified investors. Partnership
interests in Partnerships formed after 1991 will not be offered to
employees who earned, or whose annualized salary was, less than $75,000
with respect to the calendar year preceding the offering of such
Partnership. In addition, no employee meeting the salary requirement
will be permitted to invest more than 15% of his or her cash
compensation from ML & Co. or its subsidiaries in any Partnership
unless such employee is an ``accredited investor,'' as defined in rule
501(a) promulgated under the Securities Act of 1933, as amended.
Applicants' Legal Analysis
1. Applicants request an order under sections 6(b) and 17(d) of the
Act and rule 17d-1 thereunder to permit the Partnerships to co-invest
with the Affiliated Co-investors. Section 6(b) provides that the SEC
shall, upon application, exempt any employees' securities company from
the provisions of the Act if and to the extent that the exemption is
consistent with the protection of investors. Section 17(d) of the Act
and rule 17d-1 thereunder prohibit an affiliated person of an
investment company, acting as principal, from participating in or
effecting any transaction in connection with any joint enterprise or
joint arrangement in which the investment company participates.
2. ML & Co. and its affiliates (as such term is defined in the Act)
may be deemed to be affiliated persons of the General Partner under the
Act. The General Partner is an affiliated person of the Partnerships
within the meaning of the Act. As a result, joint investments by any
Partnership with ML & Co. or an affiliate of ML & Co. may be subject to
section 17(d). In addition, a co-investment by a Partnership with an
Affiliated Co-investor may be subject to section 17(d) to the extent
the Affiliated Co-investors is an affiliated person of ML & Co.
3. Rule 17d-1 permits the SEC to approve a proposed joint
transaction covered by the terms of section 17(d). Applicants represent
that the General Partner and its affiliates are concerned with the
relationship among themselves and the key employees and directors who
invest in the Partnerships and that the Partnerships were organized by
ML & Co. to generate and maintain goodwill. In addition, the limited
partners of the Partnerships have been informed of the possible
Partnerships' dealing with ML & Co. and its affiliates and as
professionals employed in financial services businesses, the limited
partners are able to evaluate the risks associated with those dealings.
Applicants submit that the composition and operation of the board of
directors of the General Partner also will mitigate any potential for
disadvantageous treatment of the Partnerships. The board is comprised
principally of individuals representing senior management of a diverse
group of subsidiaries of ML & Co. who are selected on the basis of
their substantive area of expertise. Accordingly, applicants believe
that the terms of the relief requested are consistent with the
standards in section 6(b) of the Act and rule 17d-1.
Applicants' Conditions
Applicants agree that any order of the SEC granting the requested
relief will be subject to the following conditions:
1. (a) To the extent that a Partnership has funds available for
investment, the board of directors of the General Partner will review,
among other investments, co-investments with Affiliated Co-investors
that may be brought to the attention of the General Partner. The board
of directors of the General Partner 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 of directors of the General
Partner, by a majority vote at a properly called and held meeting of
the board of directors 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 such
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 Securities Act of 1933, as amended,
its registration statement, and reports to its limited partners; and
(iii) The investment by an Affiliated Co-Investor, or, as permitted
by these terms, ML & Co. or an affiliate thereof, in such transaction
would not disadvantage the Partnership in the making of its investment,
maintaining its investment position, or disposing of the investment and
will be made on the same basis as the Affiliated Co-investors and ML &
Co. or any of its affiliates.
2. Purchases of an investment pursuant to these conditions in a
transaction in which ML & Co. or an affiliate is a participant shall
consist of a class of securities also acquired by ML & Co. and/or its
affiliate on the same terms (excluding terms as to aggregate purchase
price, but including terms as to registration rights, if any, and other
rights provided to the purchasers of such investments). Investments
made pursuant to the order by a Partnership with an Affiliated Co-
investor or with ML & Co. or one of its affiliates will be acquired by
the partnership on the same settlement date as acquired by the
Affiliated Co-investor and ML & Co. or its affiliates.
3. No investment will be made by a Partnership in any entity in
which any other Partnership, ML & Co., or any subsidiary thereof (such
three categories being referred to as ``Affiliates'' for this
condition) has previously acquired an interest, provided that this
prohibition shall not be applicable to (a) any investment specifically
permitted by any other order of the SEC, (b) any investment in a
publicly-traded security that is permissible under the Act or the rules
thereunder, (c) any investment in an entity in which one or more
Affiliates have a prior investment if the securities offered are of the
same or senior class of securities held by each such Affiliate and each
such Affiliate invests in the subsequent offering on the same terms as
a Partnership which does not have a prior investment in that entity, or
(d) any investment by a Partnership in an entity in which an Affiliate
has made a prior investment, if an institutional investor with total
assets of at least $100 million that is not an affiliated person of the
Partnership makes an initial investment with the Partnership on the
same terms as the Partnership making its initial investment in that
entity.
4. If ML & Co. or one of its affiliates\2\ elects to sell,
exchange, or otherwise dispose of an investment acquired pursuant to
these terms that also is held by one or more of the Partnerships,
notice of the proposed disposition will be given to the Partnership at
the earliest practical time and the Partnership will be given the
opportunity to participate in such disposition on a proportionate basis
on the same terms as those applicable to ML & Co. or such affiliate.
Each Partnership will participate in such disposition if such action is
determined by a majority vote at a properly called and held meeting of
the board of directors of the General Partner to be in the best
interests of the Partnership. Each Partnership will bear its own
expenses associated with the disposition of such an investment.
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\2\For purposes of conditions 4 and 5, 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 with such entity as contemplated by condition 4 or a
purchase of a follow-on investment as contemplated by condition 5.
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5. If the board of directors of the General Partner, with respect
to a Partnership, or ML & Co. or one of its affiliates determines to
make a ``follow-on'' investment (i.e., an additional investment in the
same entity) in a particular portfolio company whose securities are
held by an Affiliated Co-investor or to exercise warrants or other
rights to purchase securities of such an issuer, notice of such
transaction will be provided to each Partnership owning securities of
such issuer at the earliest practical time. Each Partnership owning
securities in an issuer in which the opportunity to make follow-on
investments becomes available will participate in such a follow-on
investment if the board of directors of the General Partner determines,
in the manner required by these conditions, that such action is in the
best interests of such Partnership. The acquisition of follow-on
investments as permitted by this condition will be subject to the other
conditions set forth in the application.
6. The board of directors of the General Partner 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 the
conditions set forth above.
7. 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.
8. 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 of which will be available for inspection by
the limited partners of each respective Partnership. All records
referred to or required under these conditions will be available for
inspection by the SEC. All such records, as they relate to a particular
Partnership, will be available for review by limited partners of that
Partnership.
9. 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.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-11342 Filed 5-10-94; 8:45am]
BILLING CODE 8010-01-M