[Federal Register Volume 63, Number 102 (Thursday, May 28, 1998)]
[Notices]
[Pages 29260-29264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14112]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23202; 813-174]
Chase Global Co-Invest Partners 1997, L.P., et al.; Notice of
Application
May 21, 1998.
agency: Securities and Exchange Commission (``SEC'').
action: Notice of application for an order under sections 6(b) and 6(e)
of the Investment Company Act of 1940 (the ``Act'') granting an
exemption from all provisions of the Act, except section 9, certain
provisions of sections 17 and 30, sections 36 through 53, and the rules
and regulations under those sections.
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Summary of Application: Applicants request an order to exempt
certain investment funds formed for the benefit of key employees of the
The Chase Manhattan Corporation (``Chase'') and its affiliates from
certain provisions of the Act, and to permit the funds to engage in
certain joint transactions. Each fund will be an ``employees'
securities company'' as defined in section 2(a)(13) of the Act.
Applicants: Chase Global Co-Invest Partners 1997, L.P. (the ``1997
Partnership'') and Chase.
Filing Dates: The application was filed on August 12, 1997 and
amended on February 9, 1998. Applicants have agreed to file an
additional amendment, the substance of which is incorporated this
notice, during the notice period.
[[Page 29261]]
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 June 15,
1998 and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: 1997 Partnership, 380 Madison Avenue, New York, NY
10017; and Chase, 270 Park Avenue, New York, NY 10017.
for further information contact: Mary T. Geffroy, Senior Counsel, at
(202) 942-0553, or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company
Regulation).
supplementary information: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington,
D.C. 20549 (tel. (202) 942-8090).
Applicants' Representations
1. Chase is a bank holding company. Chase and its affiliates, as
defined in rule 12b-2 under the Securities Exchange Act of 1934 (the
``Exchange Act'') (collectively, the ``Chase Group''), provide
diversified financial services internationally through various bank and
non-bank subsidiaries.
2. The 1997 Partnership is a Delaware limited partnership. The 1997
Partnership was the first of several anticipated investment programs
(each an ``Investment Program'') that was established to enable certain
key employees of the Chase Group to participate in a variety of
investment opportunities that would not be offered to them as
individual investors. Applicants propose to establish one or more
partnerships or investment vehicles for the same purpose (the
``Subsequent Partnerships'' and collectively with the 1997 Partnership,
the ``Partnerships''). Each Partnership will be an ``employees'
securities company'' within the meaning of section 2(a)(13) of the Act,
and will operate as a closed-end non-diversified management investment
company.
3. The goal of the Partnerships is to reward and retain certain key
employees and to attract qualified employees to the Chase Group. Chase
believes that the Partnerships will meet the desire of these employees
for an in-house investment program similar to those offered by other
financial institutions to their employees.
4. Each Partnership will have a general partner or a similar entity
(the ``General Partner''), that will be (i) registered as an investment
adviser under the Investment Advisers Act of 1940 (the ``Advisers
Act''), (ii) exempt from registration by virtue of section 203(b)(3) of
the advisers Act, or (iii) excluded from the registration requirements
because it is a bank or bank holding company. The General Partner will
be an entity within the Chase Group, and will manage, control, and make
investment decisions for the Partnerships.
5. Interests in the Partnerships (``Interests'') will be offered
without registration in reliance on section 4(2) of the Securities Act
of 1933 (the ``Securities Act''), and will be sold without a sales load
or any similar fee. Interests will be offered and sold only to (i)
current or former key employees, officers, directors, partners or
persons on retainer of an entity within the Chase Group (``Eligible
Employees''), (ii) spouses, parents, children, spouses of children,
brothers, sisters and grandchildren of Eligible Employees (``Qualified
Family Members'' and collectively with Eligible Employees, the
``Limited Partners''), or (iii) trusts or other investment vehicles
established for the benefit of Limited Partners (``Qualified Investment
Vehicles'' and collectively with Qualified Family Members, ``Qualified
Participants''). Prior to offering Interests to Limited Partners, the
General Partner must reasonably believe that the Limited Partners will
be capable of understanding and evaluating the merits and risks of
participation in the Partnership. Eligible Employees will be
professionals engaged in various aspects of the banking or financial
services business, or in related administrative, financial, accounting
or operational activities.
6. Limited Partners must meet the standards for an ``accredited
investor'' under rule 501(a) (5) or (6) of Regulation D of the
Securities Act, except that a maximum of 35 persons who are
sophisticated investors but who do not meet the definition of an
accredited investor may become Limited Partners if approved by the
General Partner after taking into consideration such factors as income
level, investment experience, risk tolerance, professional background
and length of employment with the Chase Group. Eligible Employees who
satisfy the net worth requirements of rule 501(a)(5) of Regulation D
will typically be senior Chase employees who have accumulated
significant individual net worth. Generally, those Eligible Employees
who satisfy the requirements of rule 501(a)(5) also would be expected
to satisfy the requirements of rule 501(a)(6).
7. At the time an Eligible Employee is offered the right to
subscribe for Interests in a Partnership, the Eligible Employee will be
given a copy of the limited partnership agreement or other
organizational documents (the ``Partnership Agreement'') and any
investment agreement relating to the Partnership's co-investment with
the entities described below (the ``Co-Investment Agreement''). The
Partnership Agreement and the Co-Investment Agreement will set forth
fully the terms applicable to the Limited Partners.
8. The General Partner of the 1997 Partnership will not receive any
fees or other compensation for serving as the General Partner.. A
General Partner of a Subsequent Partnership may be paid an annual
management fee, which may be determined as a percentage of assets under
management, invested capital or aggregate commitments. In addition, a
General Partner may be entitled to a performance-based fee (``carried
interest''), based on the Partnership's gains and losses.
9. General Partner will be required to make capital contributions
to the Partnership that generally will be equal to at least 1% of the
Partnership's aggregate capital commitments. The General Partner of the
1998 Partnership may contribute capital to the 1997 Partnership in a
multiple of the aggregate amount of capital contributed by the Limited
Partners.
10. The 1997 Partnership will make distributions to the Limited
Partners and the General Partner annually with respect to tax
liabilities and at other times and in other amounts as determined by
the General Partner in its discretion. After distributions with respect
to taxes, distributions from the 1997 Partnership will be made, first,
100% to the General Partner in respect of a portion of its capital
contribution (the ``Preferred Capital Contribution'') until 90% of the
amounts received by the General Partner equals three times the
aggregate capital contributions of the Limited Partners plus an 8%
annum return on the Preferred Capital
[[Page 29262]]
Contribution and, thereafter, 90% to the Limited Partners and 10% to
the General Partner. Subsequent Partnerships will make distributions to
the General Partners and the Limited Partners in a similar manner,
provided that the priorities, amounts and percentages may differ. A
more complete description of the method and timing of distributions
will be contained in each Partnership's private placement memorandum.
11. The General Partner or another entity of the Chase Group may
lend money to a Partnership at an interest rate no less favorable than
the rate obtainable on an arm's-length basis.
12. Partnerships generally will co-invest alongside a wholly-owned
subsidiary of Chase in various affiliated limited partnerships through
which underlying portfolio investments are made. Except for variations
in management fees or carried interests, a Partnership will co-invest
on a least as favorable terms as an entity of the Chase Group. It also
is possible that Chase and a Partnership may co-invest in a portfolio
company alongside an investment fund or account organized for the
benefit of investors who are not affiliated with the Chase Group, over
which an entity within the Chevy Chase Group (other than Chase Capital
Partners \1\) exercises investment discretion (a ``Third Party Fund'').
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\1\ Chase Capital Partners is the general partner of a separate
limited partnership, the CCP Limited Partnership, into which certain
partners and principals of Chase Capital Partners, and certain
employees of the Chase Group, invest. The CCP Limited Partnership is
not included as a Partnership for purposes of this application.
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13. Interests in a Partnership will be non-transferable except with
the prior written consent of the General Partner in its sole
discretion. No person or entity will be admitted into a Partnership
unless the person or entity is (i) an Eligible Employee, (ii) a
Qualified Participant, or (iii) an entity within the Chase Group (as a
General Partner or through the reallocation of a Limited Partner's
Interest as described below). A portion of a Limited Partner's Interest
in profits and losses may be reallocated to the General Partner upon
the Limited Partner's termination of employment with the Chase Group.
After a reallocation, the Interest retained by the Limited Partner will
be at least equal in value to the lesser of (i) the amount invested by
the Limited Partner, or (ii) the fair market value of the Interest
prior to the reallocation.
14. Limited Partners' Interests initially will be partially vested
and will vest in greater proportion over time as specified percentages
and at specified intervals, as set forth in the applicable Partnership
Agreement. The vesting terms will be disclosed to the Limited Partner
at the time the Limited Partner is offered the right to purchase
Interest in the Partnership.
15. The term of each Partnership generally is expected to be fixed
for a period less than 30 years from the date of its creation, but may
be subject to earlier termination by the General Partner. In addition,
each Partnership may be dissolved upon (i) the resignation, withdrawal,
dissolution or bankruptcy of the General Partner, (ii) the insolvency
or bankruptcy of the Partnership, (iii) the sale of all or
substantially all of the Partnership's assets, or (iv) the conversion
of the Partnership to corporate form pursuant to the terms of the
applicable Partnership Agreement. Upon dissolution of the Partnership,
the Partnership's assets will be distributed in accordance with the
applicable Partnership Agreement.
16. A Partnership will not acquire any security issued by a
registered investment company if, immediately after the acquisition,
the Partnership will own more than 3% of the outstanding voting stock
of the registered investment company.
17. As soon as practicable after the end of each fiscal year of
each Partnership, the General Partner will mail or otherwise furnish a
copy of a certified public accountant's report, which will include the
Partnership's financial statements, to each Limited Partner of the
Partnership. In addition, each Partnership will supply the Limited
Partners with all information reasonably necessary to enable the
Limited Partners to prepared their federal and state income tax
returns.
Applicants' Legal Analysis
1. Section 6(b) of the Act provides that the SEC 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 SEC 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 owning and controlling its securities, the price of the
company's securities and the amount of any sales load, how the
company's funds are invested, and the relationship between the company
and the issuers of the securities in which it invests. Section 2(a)(13)
defines an employees' securities company, in relevant part, as any
investment company all of whose securities are beneficially owned by
(i) current or former employees, or persons on retainer, of one or more
affiliated employers, (ii) immediate family members of those persons,
or (iii) the employer or employers together with any of the persons in
(i) or (ii).
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 SEC, will
be applicable to the company and other persons dealing with the company
as though that company was registered under the Act.
3. Applicants request an order under sections 6(b) and 6(e) of the
Act exempting the Partnerships from all provisions of the Act, except
section 9, certain provisions of sections 17 and 30, sections 36
through 53, and the rules and regulations under those sections.
4. Section 17(a) generally prohibits any affiliated person of a
registered investment company, or any affiliated person of that person,
acting is principal, from knowingly selling or purchasing any security
or other property to or from that company. Applicants request an
exemption from section 17(a) to permit (i) an entity within the Chase
Group (including a Third Party Fund) to engage in any transaction with
a Partnership, or a company controlled by the Partnership (``Controlled
Company''), (ii) a Partnership to invest in or engage in any
transaction with any entity in which a Partnership, a Controlled
Company, or an entity within the Chase Group (a) has invested or will
invest, or (b) is or will become otherwise affiliated, and (iii) a
Third Party Investor \2\ to engage in any transaction with a
Partnership or Controlled Company.
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\2\ A Third Party Investor is a partner or other investor of a
Third Party Fund that is not an entity within the Chase Group, or
any affiliate of that partner or investor.
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5. Applicants submit that an exemption from section 17(a) is
consistent with the policy of each Partnership and the protection of
investors. Applicants believe that an exemption is necessary to enable
the Partnerships to participate in attractive investments that may be
offered by the Chase Group. Applicants assert that the Limited Partners
will have been fully informed of the possible extent of the
Partnership's investments with affiliates and will be able to
understand and
[[Page 29263]]
evaluate the risks associated with those investments.
6. Section 17(d) and rule 17d-1 prohibit any affiliated person or
principal underwriter of a registered investment company, or any
affiliated person of that person or underwriter, acting as principal,
from participating in any joint arrangement with the company unless
authorized by the SEC. Applicants request exemptive relief to permit
affiliated persons of each Partnership, or affiliated persons of any of
these persons, to participate in any joint arrangement in which the
Partnership or a company controlled by the Partnership is a
participant.
7. Applicants assert that the flexibility to structure co-
investments and joint investments in the manner described in the
application will not involve abuses of the type that section 17(d) and
rule 17d-1 were designed to prevent. Applicants state that the concern
that permitting co-investments by Chase and the Partnership might lead
to less advantageous treatment of the Partnership, should be mitigated
by the community of interest among the Chase Group and the personnel
who invest in the Partnership, and the fact that officers, directors,
and partners of entities within the Chase Group will be investing in
the Partnership. In addition, applicants assert that strict compliance
with section 17(d) would prevent the Partnerships from participating in
attractive investments solely because an affiliate of the Partnership
also may participate in the investment. Finally, applicants contend
that the ``lock-step'' procedures described in condition 3 below, align
the interests of the Eligible Employees with those of the Chase Group
and, therefore, minimize the possibility that a Partnership may be
disadvantaged by an affiliate's participation in a transaction.
8. Co-investments with Third Party Funds will not be subject to
Condition 3. Applicants believe it is important that the Third Party
Fund not be burdened or otherwise affected by a Partnership's
participation in an investment opportunity. In addition, applicants
believe that the relationship of a Partnership to a Third Party Fund is
fundamentally different from a Partnership's relationship to the Chase
Group. Applicants contend that the focus of, and the rationale for, the
protections contained in the requested relief are to protect the
Partnerships from any overreaching by the Chase Group in the employer/
employee context, whereas the same concerns are not present with
respect to the Partnerships vis-a-vis the investors of a Third Party
Fund.
9. Section 17(f) of the Act 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 to the extent necessary to permit an entity within the Chase
Group to act as custodian of Partnership assets without a written
contract, as would be required by rule 17f-1(a). Applicants also
request an exemption from the rule 17f-1(b)(4) requirement that
independent accountants periodically verify the assets held by the
custodian. Applicants believe that, because of the community of
interest of all the parties involved and the existing requirement for
an independent annual audit, compliance with these requirements would
be unnecessarily burdensome and expensive. Each Partnership will comply
with all other requirements of rule 17f-1.
10. 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
exemptive relief to permit the members of a related board of directors
or other committee serving similar functions (the ``Board''), who may
be deemed interested persons, to take actions and make determinations
set forth in the rule. Applicants state that, because all of the
members of a related Board will be affiliated persons, a Partnership
could not comply with rule 17g-1 without the requested relief.
Specifically, each Partnership will comply with rule 17g-1 by having a
majority of the members of the related Board take such actions and make
such approvals as are set forth in rule 17g-1. Applicants also state
that each Partnership will comply with all other requirements of rule
17g-1.
11. Section 17(j) and paragraph (a) of rule 17j-1 prohibit certain
enumerated persons from engaging in fraudulent or deceptive practices
in connection with the purchase and 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 rule 17j-1(a)) because they are
unnecessarily burdensome as applied to the Partnerships.
12. 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 SEC and
mail to their shareholders certain periodic reports and financial
statements. Applicants believe that the forms prescribed by the SEC for
periodic reports have little relevance to a Partnership and would
entail administrative and legal costs that outweigh any benefit to the
Limited Partners in a Partnership. Applicants request exemptive relief
to the extent necessary to permit each Partnership to report annually
to its Limited Partners. Applicants also request an exemption from
section 30(h) to the extent necessary to exempt the General Partner of
each Partnership and any others who may be deemed to be members of an
advisory board of a Partnership from filing Forms 3, 4 and 5 under
section 16(a) of the Exchange Act with respect to their ownership of
Interests in the Partnership. 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.
Applicants' Conditions
Applicants agree that the order granting the requested relief will
be subject to the following conditions:
1. Each proposed transaction otherwise prohibited by section 17(a)
or section 17(d) and rule 17d-1 to which a Partnership is a party (the
``Section 17 Transactions'') will be effected only if the Board
determines that: (i) the terms of the transaction, including the
consideration to be paid or received, are fair and reasonable to the
Limited Partners and do not involve overreaching of the Partnership or
its Limited Partners on the part of any person concerned; and (ii) the
transaction is consistent with the interests of the Limited Partners,
the Partnership's organizational documents, and the Partnership's
reports to its Limited Partners. In addition, the General Partner will
record and preserve a description of the affiliated transactions, the
Board's findings, the information or materials upon which the Board's
findings are based, and the basis for the findings. All records
relating to an Investment Program will be maintained until the
termination of the Investment Program and at least two
[[Page 29264]]
years thereafter, and will be subject to examination by the SEC and its
staff.\3\
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\3\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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2. In connection with the Section 17 Transactions, the Board,
through 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 transaction, with respect to the
possible involvement in the transaction of any affiliated person,
promoter of, or principal underwriter for the Partnerships, or any
affiliated person of that person, promoter, or principal underwriter.
3. The General Partner will not invest the funds of any Partnership
in any investment in which a ``Co-Investor'' (as defined below) has
acquired, or proposes to acquire, the same class of securities of the
same issuer, where the investment involves a joint enterprise or other
joint arrangement within the meaning of rule 17d-1 in which the
Partnership and the Co-Investor are participants, unless the Co-
Investor, prior to disposing of all or part of its investment (i) gives
the General Partner sufficient, but not less than one day's, notice of
its intent to dispose of its investment, and (ii) refrains 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, the Co-Investor. The
term ``Co-Investor'' means any person who is (i) an ``affiliated
person'' (as that term is defined in the Act) of the Partnership (other
than a Third Party Fund); (ii) Chase Capital Partners or another entity
within the Chase Group; (iii) an officer, director or partner of Chase
Capital Partners or another entity within the Chase Group; or (iv) a
company in which the General Partner of the Partnership acts as a
general partner or has a similar capacity to control the sale or other
disposition of the company's securities. The restrictions contained in
this condition, however, will not be deemed to limit or prevent the
disposition of an investment by a Co-Investor (i) to its direct or
indirect wholly-owned subsidiary, to any company (a ``parent'') of
which the Co-Investor is a direct or indirect wholly-owned subsidiary,
or to a direct or indirect wholly-owned subsidiary of its parent; (ii)
to Qualified Family Members of the Co-Investor or a trust or other
investment vehicle established for a Qualified Family Member; (iii)
when the investment is comprised of securities that are listed on any
exchange registered as a national securities exchange under section 6
of the Exchange Act; (iv) when the investment is comprised of
securities that are national market system securities pursuant to
section 11A(a)(2) of the Exchange Act and rule 11Aa2-1 under that Act,
or (v) 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 the foreign securities exchange or board of trade is organized
similar to those that apply to a national securities exchange or a
national market system for securities.
4. Each Partnership and the General Partner or the investment
manager of the Partnership will maintain and preserve, for the life of
the Partnership and at least two years thereafter, those accounts,
books, and other documents that constitute the record forming the basis
for the audited financial statements that are to be provided to the
Limited Partners, and each annual report of the Partnership required to
be sent to the Limited Partners, and agree that all of those records
will be subject to examination by the SEC and its staff.\4\
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\4\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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5. The General Partner will send to each Limited Partner who had an
interest in any capital account of the Partnership, at any time during
the fiscal year then ended, Partnership financial statements audited by
the Partnership's independent accountants. As of 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 that fiscal year end
in a manner consistent with customary practice with respect to the
valuation of assets of the kind held by the Partnership. In addition,
as soon as practicable after the end of each fiscal year of each
Partnership, the General Partner will send a report to each person who
was a Limited Partner at any time during the fiscal year then ended,
setting forth tax information as will be necessary for the preparation
by the Limited Partner of federal and state income tax returns, and a
report of the investment activities of the Partnership during that
year.
6. In any case where purchases or sales are made by a Partnership
from or to an entity affiliated with that Partnership by reason of a 5%
or more investment in that entity by a Chase Group director, officer or
employee, that individual will not participate in the Partnership's
determination of whether or not to effect the purchase or sale.
For the SEC, by the Division of Investment Management, pursuant
to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14112 Filed 5-27-98; 8:45 am]
BILLING CODE 8010-01-M