[Federal Register Volume 59, Number 110 (Thursday, June 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13961]


[[Page Unknown]]

[Federal Register: June 9, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20333; 813-128]

 

ABS Employees' Venture Fund Limited Partnership and Alex. Brown 
Investments Incorporated; Notice of Application

June 2, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``Act'').

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APPLICANTS: ABS Employees' Venture Fund Limited Partnership (the 
``Venture Partnership'') and Alex. Brown Investments Incorporated (the 
``General Partner''), on behalf of themselves and all partnerships 
identical in all material respects (other than investment objective and 
strategy) that may be offered in the future to the same class of 
investors as those investing in the Venture Partnership (the 
``Subsequent Partnerships'') (the Venture Partnership and the 
Subsequent Partnerships, collectively ``the Partnerships'') and any 
direct or indirect wholly-owned subsidiaries of Alex. Brown 
Incorporated that may be formed to serve as general partners of the 
Subsequent Partnerships.

RELEVANT ACT SECTIONS: Exemption requested under section 6(b) from all 
of the provisions of the Act except sections 9, 17 (except for certain 
provisions of sections 17(a), (d), (f), (g), and (j) as described 
herein), 30 (except for certain provisions of sections 30(a), (b), (d), 
and (f) as described herein), and 36-53, and the rules and regulations 
thereunder.

SUMMARY OF APPLICATION: Applicants seek an order exempting them from 
most of the provisions of the Act and permitting certain joint 
transactions. Each Partnership will be an employees' securities company 
within the meaning of section 2(a)(13) of the Act.

FILING DATE: The application was filed on January 13, 1994, and amended 
on May 17, 1994.

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 27, 1994, 
and should be a accompanied by proof of service on 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 who wish to be 
notified of a hearing may request such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 135 East Baltimore Street, Baltimore, Maryland 21202.

FOR FURTHER INFORMATION CONTACT:
James E. Anderson, Staff Attorney, at (202) 942-0573, or Robert A. 
Robertson, 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.

Applicants' Representations

    1. The Venture Partnership is a limited partnership organized under 
the laws of the State of Maryland. The General Partner, a wholly-owned 
subsidiary of Alex. Brown Incorporated, is a Maryland corporation that 
acts as the general partner of the Venture Partnership. All of the 
executive officers and directors of the General Partner and any 
corporation created to serve as general partner of the Subsequent 
Partnerships will be employees of Alex. Brown Incorporated or its 
subsidiaries.
    2. The Venture Partnership's investment strategy will be to invest 
in particular securities in which each individual limited partner has 
elected to participate on a case-by case basis. The General Partner 
will screen investment opportunities that come to its attention through 
Alex. Brown & Sons Incorporated (``Alex. Brown'') or other affiliates 
of Alex. Brown, and will inform the limited partners of the 
availability of certain of these opportunities for investment through 
the Venture Partnership. The General Partner will not recommend 
investments or exercise investment discretion. Capital contributions 
made to the Venture Partnership by participating limited partners will 
be allocated pro rata to the capital sub-accounts relating to a 
particular investment, and limited partners who elect not to 
participate in particular investment will have no interest therein.
    3. Each Subsequent Partnership will be structured as a limited 
partnership. Certain Subsequent Partnerships may have an investment 
strategy similar to that of the Venture Partnership and will invest in 
securities in which individual limited partners have elected to 
participate on a case-by-case basis through allocations to capital sub-
accounts. Other Subsequent Partnerships may be operated as pooled 
entities managed by their general partners. The General Partner is 
expected to serve as general partner for the Subsequent Partnerships, 
although one or more separate, wholly-owned subsidiaries of Alex. Brown 
Incorporated may be created to serve as general partner of the 
Subsequent Partnerships.
    4. Each Partnership will offer limited partnership interests only 
to persons who are: (a) Employees of Alex. Brown who are present or 
former managing directors or principals of Alex. Brown or partners of 
Alex. Brown's predecessor, Alex. Brown Partners, or employees holding 
positions equivalent to managing director or principal with other 
wholly-owned subsidiaries of Alex. Brown Incorporated; (b) ``accredited 
investors'' as defined in rule 501(a)(6) of regulation D under the 
Securities Act of 1933; and (c) in the opinion of the General Partner 
(or in the case of any Subsequent Partnership, its general partner), 
sufficiently knowledgeable, sophisticated, and experienced in business 
and financial matters to be capable of evaluating the merits and risk 
of the partnership investment, able to bear the economic risk of such 
investment, and able to afford a complete loss of such investment. The 
Partnerships are intended to allow the participants to diversify their 
investments and to have the opportunity to participate in investments 
that might not otherwise be available to them or that might be beyond 
their individual means.
    5. Alex. Brown Incorporated or its affiliates will bear all 
expenses incurred in connection with the organization of each 
Partnership. The Venture Partnership will bear its own operating 
expenses. No compensation will be paid to the General Partner for its 
services to the Venture Partnership and the General Partner will not 
receive reimbursement for its own expenses. Because the General Partner 
receives no compensation for its services to the Venture Partnership, 
it will not register as an investment adviser under the Investment 
Advisers Act of 1940. Applicants will consider at the time of formation 
of any Subsequent Partnership whether the General Partner (or any 
entity acting as general partner for such Subsequent Partnership) will 
be required to register as an investment adviser.
    6. The General Partner of each Partnership will contribute capital 
to the Partnership in an amount equal to at least 1% of the aggregate 
initial capital contributions of that Partnership's initial limited 
partners. Each general partner will be capitalized so as to satisfy 
existing Internal Revenue Service guidelines regarding the 
characterization of an entity for federal income tax purposes as a 
partnership, rather than as an association taxable as a corporation.
    7. Each Partnership will send its limited partners an annual report 
regarding its operations and valuation of Partnership assets as carried 
on the books of the Partnership. The report will set out information 
with respect to each limited partner's distributive share of income, 
gains, losses, credits, and other items for federal income tax 
purposes. The annual report of the Venture Partnership and of each 
Subsequent Partnership with a similar investment strategy will contain 
unaudited financial statements because these Partnerships' assets will 
consist only of initial capital contributions and investments selected 
by individual limited partners. These Partnerships will maintain a file 
containing any financial statements and other information received from 
the issuers of the investments held by such Partnerships, and will make 
such file available for inspection by their limited partners. The 
annual report of each other Partnership will contain financial 
statements audited by independent public accountants.

Applicants' Legal Analysis

    1. Section 6(b) provides that the SEC shall exempt employees' 
securities companies from the provisions of the Act to the extent that 
such exemption is consistent with the protection of investors. Section 
2(a)(13) defines an employees' security company, among other things, as 
any investment company all of the outstanding securities of which are 
beneficially owned by the employees or persons on retainer of a single 
employer or affiliated employers or by former employees of such 
employers.
    2. Applicants submit that the exemptions requested are consistent 
with the protection of investors in view of the substantial community 
of interest among all of the parties and the fact that each Partnership 
is an ``employees securities' company'' as defined in section 2(a)(13) 
of the Act. The Partnerships are organized and managed by persons who 
will be investing in the Partnerships, and will not be promoted by 
persons seeking to profit from fees or investment advice or from the 
distribution of securities.
    3. On behalf of the Partnerships, applicants request relief from 
all of the provisions of the Act, and the regulations thereunder, 
except sections 9, 17 (except for certain provisions of sections 17 
(a), (d), (f), (g), and (j) as described herein), 30 (except for 
certain provisions of sections 30 (a), (b), (d), and (f) as described 
herein), and 36-53, and the rules thereunder.
    4. Section 17(a) provides, in relevant part, that it is unlawful 
for any affiliated person of a registered investment company, or any 
affiliated person of such person, acting as principal, knowingly to 
sell any security or other property to such registered investment 
company or to purchase from such registered investment company any 
security or other property. An exemption is requested from section 
17(a) to permit the Partnerships to: (a) Purchase from Alex. Brown, or 
from an Alex. Brown affiliate, securities or interests in properties 
previously acquired for the account of Alex. Brown or the Alex. Brown 
affiliate; (b) sell to Alex. Brown or Alex. Brown affiliates securities 
or interests in properties previously acquired by the Partnerships; (c) 
invest in companies, partnerships, or other investment vehicles 
offered, sponsored, or managed by Alex. Brown or by an Alex. Brown 
affiliate (``Alex. Brown Sponsored Vehicles''); (d) purchase securities 
from Alex. Brown Sponsored Vehicles, except that bridge financing in 
Alex. Brown Sponsored Vehicles will be limited to 50% of the assets of 
a Partnership; (e) invest in securities of entities for which Alex. 
Brown or its affiliated persons have performed investment banking or 
other services and from which they may have received fees; (f) purchase 
interests in a company or other investment vehicle in which Alex. Brown 
or Alex. Brown affiliates or their respective employees own 5% or more 
of the voting securities, or that is otherwise affiliated with the 
Partnership or Alex. Brown; (g) purchase securities that are 
underwritten by Alex. Brown (including a member of a selling group) on 
terms at least as favorable to the Partnership as those offered to 
investors other than ``affiliated persons'' (as defined in the Act) of 
Alex. Brown; (h) participate as a selling securityholder in a public 
offering that is underwritten by Alex. Brown or by an Alex. Brown 
affiliate or in which Alex. Brown or an Alex. Brown affiliate acts as a 
member of the selling group; (i) invest in money market funds managed 
or underwitten by Alex. Brown or Alex. Brown affiliates; (j) purchase 
short-term instruments from, or sell such instruments to, Alex. Brown 
or Alex. Brown affiliates at market value; and (k) enter into 
repurchase transactions with Alex. Brown or Alex. Brown affiliates.
    5. Any assets of a Partnership invested in a money market fund 
managed by an Alex. Brown affiliate will be invested in only those 
money market funds that do not impose sales loads or redemption fees, 
and will be subject only to those fees charged to and paid by persons 
unaffiliated with Alex. Brown investing in that fund. Furthermore, a 
Partnership purchasing any other short-term instrument from Alex. Brown 
or an Alex. Brown affiliate will pay no fee in connection with that 
purchase. No Partnership will acquire more than 3% of the total 
outstanding voting stock of any investment company.
    6. Section 17(d) makes it unlawful for any affiliated person of a 
registered investment company, acting as principal, to effect any 
transaction in which the company is a joint or joint and several 
participant with the affiliated person in contravention of such rules 
and regulations as the SEC may prescribe. Rule 17d-1 was promulgated 
pursuant to section 17(d) and prohibits most joint transactions unless 
approved by order of the SEC. An exemption is requested pursuant to 
section 17(d) and rule 17d-1 to permit the Partnerships to participate 
in joint transactions, including the following: (a) An investment by 
one or more Partnerships in a non-Alex. Brown Sponsored Vehicle, (i) in 
which Alex. Brown, an Alex. Brown affiliate or an affiliated person 
thereof, an Alex. Brown Sponsored Vehicle, an employee, officer, or 
director of the General Partner, or certain transferees of the 
aforementioned (collectively, ``Affiliates'') is a participant or plans 
to become a participant, and/or (ii) with respect to which Alex. Brown 
or an Alex. Brown affiliate is entitled to receive placement fees, 
investment banking fees, brokerage commissions, or other economic 
benefits or interests; (b) an investment by one or more Partnerships in 
an Alex. Brown Sponsored Vehicle; and (c) an investment by one or more 
Partnerships in an Alex. Brown Sponsored Vehicle in which an Affiliate 
is a participant or plans to become a participant, including situations 
in which an Affiliate has a partnership or other interest in, or 
compensation arrangement with, the Alex. Brown Sponsored Vehicle.
    7. Section 17(f) permits a registered investment company to 
maintain self-custody of its securities and similar investments subject 
to such rules and regulations as the SEC prescribes for the protection 
of investors. An exemption is requested from section 17(f) and rule 
17f-1 to the extent necessary to permit Alex. Brown to act as custodian 
for the Partnerships without a written contract.
    8. Section 17(g) and rule 17g-1 generally require that a majority 
of the board of directors of an investment company who are not 
interested persons take certain actions and make certain approvals 
concerning bonding. An exemption is requested to the extent necessary 
to permit the Partnerships to comply with rule 17g-1 without the 
necessity of having a majority of the board of directors of the General 
Partner who are not ``interested persons'' take such action and make 
such approvals as set forth in rule 17g-1. Except for the requirements 
of approval by non-interested directors, the Partnerships will comply 
with rule 17g-1.
    9. Section 17(j) and rule 17j-1 require that every registered 
investment company adopt a written code of ethics and that every access 
person of a registered investment company report transactions in any 
security in which the access person has, or by reason of the 
transaction acquires, any direct or indirect beneficial ownership. 
Applicants request an exemption from the requirements of rule 17j-1, 
with the exception of rule 17j-1(a), because they are burdensome and 
unnecessary in light of the community of interest among the partners of 
the Partnerships.
    10. Section 30 of the Act generally requires a registered 
investment company to file quarterly and annual reports with the SEC 
and make semi-annual reports to its stockholders. An exemption is 
requested from sections 30(a) and 30(b) to the extent necessary to 
exempt the Partnerships from filing annual and quarterly reports with 
the SEC. The pertinent information that would be contained in such 
filings must, pursuant to the terms of the partnership agreements, be 
sent to the limited partners of the Partnerships. Exemptive relief from 
section 30(d) is necessary to permit the Partnerships to report 
annually, rather than semi-annually, to the limited partners. Exemptive 
relief from section 30(f) is necessary to exempt the General Partner 
and any other persons who may be deemed to be members of an advisory 
board of a Partnership from filing Forms 3, 4, and 5 under section 16 
of the Securities Exchange Act of 1934.

Applicants' Conditions

    An order granting the requested exemptions will be subject to the 
following conditions set forth in the application:
    1. Each proposed transaction otherwise prohibited by section 17(a) 
or section 17(d) and rule 17d-1 (the ``section 17 Transactions'') will 
be effected only if the General Partner, or in the case of any 
Subsequent Partnership, its general partner, determines that:

    (a) 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
    (b) 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, and any general partner of any 
Subsequent Partnership, will record and preserve a description of such 
affiliated transactions, their findings, the information or materials 
upon which their findings are based and the basis therefor. All such 
records will be maintained for the life of the Partnerships and at 
least two years thereafter, and will be subject to examination by the 
Commission and its staff. All such records will be maintained in an 
easily accessible place for at least the first two years.
    2. In any case where purchases or sales are made from or to an 
entity affiliated with a Partnership by reason of a 5% or more 
investment in such entity by a director, officer or employee of the 
general partner of that Partnership, such individual will not 
participate in the general partner's determination of whether or not to 
effect such purchase or sale.
    3. The General Partner, and any general partner of any Subsequent 
Partnership, will adopt, and periodically review and update, procedures 
designed to ensure that reasonable inquiry is made, prior to the 
consummation of any section 17 Transaction, with respect to the 
possible involvement in the transaction of any affiliated person or 
promoter of or principal underwriter for the Partnerships, or any 
affiliated person of such a person, promoter, or principal underwriter.
    4. No general partner of any Partnership will invest the funds of 
that Partnership in any investment in which a ``Co-Investor'' has 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 any such Co-Investor, 
prior to disposing of all or part of its investment, (a) gives that 
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 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: (a) An ``affiliated person'' (as such term is 
defined in the Act) of the Partnership; (b) Alex. Brown Incorporated, 
its subsidiaries and controlled entities (``Alex. Brown 
Incorporated''); (c) an employee, officer, or director of Alex. Brown 
Incorporated; (d) Alex. Brown Sponsored Vehicles; (e) any entity with 
respect to which Alex. Brown Incorporated provides management, 
investment management or similar services as manager, investment 
manager, or general partner or in a similar capacity, and for which it 
may receive compensation, including without limitation, management 
fees, performance fees, carried interests entitling it to share 
disproportionately in income and capital gains or similar compensation; 
or (f) a company in which an officer or director of the General Partner 
(or of any other general partner of a Partnership) acts as an officer, 
director, or 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, shall not be deemed to limit or 
prevent the disposition of an investment by a Co-Investor; (a) 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; (b) to immediate family members of the Co-Investor or a 
trust established for any such family member; (c) when the investment 
is comprised of securities that are listed on a national securities 
exchange registered under section 6 of the Securities Exchange Act of 
1934, as amended (the ``1934 Act''); or (d) when the investment is 
comprised of securities that are national market system securities 
pursuant to section 11A(a)(2) of the 1934 Act and rule 11Aa2-1 
thereunder.
    5. The general partner of each Partnership will send to each 
limited partner who had an interest in the Partnership, at any time 
during the fiscal year then ended, Partnership financial statements. 
Such financial statements will be unaudited in the case of the Venture 
Partnership and each Subsequent Partnership with a similar investment 
strategy, but in the case of all other Partnerships will be audited by 
the Partnerships' independent accountants. At the end of each fiscal 
year, the general partner of each Partnership, other than the Venture 
Partnership and each Subsequent Partnership with a similar investment 
strategy, will make an appraisal or have an appraisal made of all of 
the assets of the Partnership as of such fiscal year end. The appraisal 
of the Partnership assets may be by independent third parties appointed 
by the general partner and deemed qualified by the general partner to 
render an opinion as to the value of Partnership assets, using such 
methods and considering such information relating to the investments, 
assets and liabilities of the Partnership as such persons may deem 
appropriate, but in the case of an event subsequent to the end of the 
fiscal year materially affecting the value of any Partnership asset or 
investment, the general partner may revise the appraisal as it, in its 
good faith and sole discretion, deems appropriate. In addition, within 
90 days after the end of each fiscal year of each of the Partnerships 
or as soon as practicable thereafter, its general partner shall send a 
report to each person who was a limited partner at any time during the 
fiscal year then ended, setting forth such tax information as shall be 
necessary for the preparation by the limited partner of his or her 
federal and state income tax returns and a report of the investment 
activities of the Partnership during such year.
    6. Each Partnership and its general partner will maintain and 
preserve, for the life of each such Partnership and at least two years 
thereafter, such accounts, books, and other documents as constitute the 
record forming the basis for the financial statements and annual 
reports of such Partnership to be provided to the limited partners, and 
agree that all such records will be subject to examination by the 
Commission and its staff. All such records will be maintained in an 
easily accessible place for at least the first two years.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13961 Filed 6-8-94; 8:45 am]
BILLING CODE 8010-01-M