[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