[Federal Register Volume 62, Number 175 (Wednesday, September 10, 1997)]
[Notices]
[Pages 47706-47709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23953]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 22808; 813-154]


Credit Suisse First Boston, Inc.; Notice of Application

September 3, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for 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, section 17 (except 
for certain provisions of paragraphs (a), (d), (f), (g), and (j) of 
section 17), sections 36 through 53, and the rules thereunder.

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SUMMARY OF APPLICATION: Applicant Credit Suisse First Boston, Inc. 
requests an order to exempt certain investment funds formed for the 
benefit of key employees of applicant and its affiliates from most of 
the provisions of the Act, and to permit the funds to engage in certain 
joint arrangements. Each fund will be an ``employees' securities 
company'' as defined in section 2(a)(13) of the Act.

FILING DATES: The application was filed on October 9, 1996, and amended 
on March 17, June 13, and July 15, 1997. Applicant has agreed to file 
an amendment during the notice period, the substance of which is 
included in this notice.

HEARING OF 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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on September 26, 
1997, and should be accompanied by proof of service on applicant, 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, NW., Washington, DC 20549. 
Applicant, 11 Madison Avenue, New York, New York 10010.

FOR FURTHER INFORMATION CONTACT: H.R. Hallock, Jr., Special Counsel, at 
(202) 942-0564, or Mercer E. Bullard, 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 by 
writing the SEC's Public Reference Branch at 450 Fifth Street, NW., 
Washington, DC 20549, or by telephone at (202) 942-8090.

Applicant's Representations

    1. Applicant, a Delaware corporation, is a subsidiary of Credit 
Suisse First Boston, a Swiss bank. Credit Suisse First Boston is in 
turn a subsidiary of Credit Suisse Group (formerly CS Holding), a 
publicly-held Swiss corporation. Applicant and its affiliates (as 
defined in rule 12b-2 under the Securities Exchange Act of 1934 (the 
``1934 Act'')) (the ``CSFB Companies'') provide a range of banking, 
investment, and financial services to corporations, governments, and 
other clients throughout the world. Credit Suisse First Boston 
Corporation (``CSFB Corporation''), a registered broker-dealer under 
the 1934 Act and a registered investment adviser under the Investment 
Advisers Act of 1940, is one of applicant's principal subsidiaries.
    2. Applicant proposes to form one or more limited partnerships, 
business trusts or limited liability companies (``Partnerships'').\1\ 
The Partnerships, each of which will operate as a closed-end investment 
company, will enable certain key employees of the CSFB Companies to 
participate in investment opportunities that come to the Companies' 
attention. The investment objectives and strategies for each 
Partnership will be set forth in a private placement memorandum given 
to investors in the Partnership (``Limited Partners'').
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    \1\ The constituent agreements of the Partnerships are referred 
to in this notice as ``limited partnership agreements.''
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    3. Each Partnership will have a general partner or manager 
(``General

[[Page 47707]]

Partner'') whose executive officers and directors will be employees of 
CSFB Companies who are eligible to invest in the Partnership. The 
General Partner will manage and make all investment decisions for the 
Partnerships, except for certain responsibilities delegated to a 
manager or administrator.
    4. Interests in the Partnerships (``Units'') will be offered 
without registration in reliance on section 4(2) or another exemption 
in the Securities Act of 1933 (the ``1933 Act'') and will be sold 
without a sales load. Units will be sold only (a) to current and former 
officers, directors, employees, and persons on retainer of a CSFB 
Company who have been approved to purchase Units by the General Partner 
(``Eligible Employees''); (b) to immediate family members of such 
Eligible Employees (``Qualified Family Members''), and (c) to trusts or 
other investment vehicles established by such Eligible Employees for 
their benefit and/or the benefit of their immediate families 
(collectively with Eligible Employees and Qualified Family Members, 
``Qualified Participants'').
    5. Eligible Employees and Qualified Family Members must be 
``accredited investors'' meeting the income requirements set forth in 
rule 501(a)(6) of Regulation D under the 1933 Act. In addition, the 
General Partner must reasonably believe, prior to offering Units to an 
Eligible Employee or Qualified Family Member, that the individual is 
capable of evaluating the merits and risks of the partnership 
investment and is able to bear the economic risk and afford a complete 
loss of the investment.
    6. The General Partner may be paid an annual management fee by the 
Partnership. The General Partner or another CSFB Company also may 
receive a performance-based fee (``carried interest''), based on 
Partnership gains and losses, as well as other compensation, such as 
fees in connection with Partnership investments. CSFB Corporation and 
other CSFB Companies may be compensated for services to companies in 
which the Partnerships invest and may otherwise engage in normal 
business activities that conflict with the interests of the 
Partnerships. Applicant believes these conflicts will be mitigated by 
the community of interest among the CSFB Companies and the Limited 
Partners.
    7. Partnership net profits and losses will be allocated to the 
General Partner and the Limited Partners in the same proportion as 
their respective paid-in capital to the Partnership, except that 
Limited Partner capital accounts will not be reduced below zero, the 
General Partner may receive a carried interest, and certain adjustments 
may be made for federal income tax purposes. A General Partner or 
another CSFB Company may contribute capital to a Partnership in an 
amount up to 10 times the amount contributed by Limited Partners. The 
General Partner or other CSFB Company may receive, instead of an 
allocation of profits and losses, a cumulative return on part of such 
contribution at a rate based on the prime lending rate or similar 
measure. A CSFB Company also may lend money to a Partnership at an 
annual rate no less favorable than the rate obtainable on an arm's-
length basis.
    8. Partnerships generally will co-invest with CSFB Companies in 
investment funds sponsored or advised by the CSFB Companies or third 
parties, or directly in securities of operating companies. A 
Partnership will co-invest side-by-side and pro rata with, and on at 
least as favorable terms as, a CSFB Company. A co-investment by a 
Partnership generally will not exceed 50% of the combined investments 
of the Partnership and CSFB Company. In the event a Partnership 
participates in an investment in which no CSFB Company participates but 
in connection with which a CSFB Company may receive some economic 
benefit, the Partnership will invest the lesser of (a) 20% of the total 
investment made by all investors, (b) 20% of the Partnership's 
committed capital, and (c) the largest investment made by any other 
investor not affiliated with CS First Boston.
    9. Limited Partners will not be allowed to transfer their Units 
without the consent of the General Partner, and then only to Qualified 
Participants. If a limited Partner terminates employment with a CSFB 
Company, the Units may be redeemed by the Partnership or purchased by 
the CSFB Company. The terms of such redemptions or purchases, including 
the possibility of forfeiture for failure to make required capital 
contributions, will be fully disclosed when Partnership Units are 
offered. The purchase or redemption price will not be less than the 
lower of (a) the amount invested plus interest or (b) the fair value 
(as determined by the General Partner) of the Units at the end of the 
Partnership's fiscal year in which such termination occurs, less any 
amounts forfeited for failure to make required capital contributions. 
The General Partner will limit any forfeiture to not more than 25% of a 
defaulting Limited Partner's capital account balance.
    10. Partnerships will have a scheduled term that may be extended 
for additional periods by the General Partner or by vote of the Limited 
Partners. A Partnership will be dissolved upon (a) the Partnership's 
insolvency or sale of substantially all of its assets; (b) a 
determination by the General Partner that continued operation of the 
Partnership might be inconsistent with its fundamental investment 
purpose or involve a violation of law; (c) the vote of Limited Partners 
holding a majority of Units; or (d) the Limited Partners' failure to 
replace a General Partner. In the event of dissolution, the 
Partnership's net assets will be distributed to partners pro rata based 
on their respective capital accounts as provided in the limited 
partnership agreement.
    11. The General Partner will send the Limited Partners of each 
Partnership annual reports regarding its operations, investment 
activities, and current valuation of assets. Except for Partnerships 
formed to make a single investment, such reports will contain audited 
financial statements with disclosure of outstanding borrowings. The 
General Partner also will send annual reports to Limited Partners 
setting forth tax information necessary for the preparation of tax 
returns.

Applicant's Legal Analysis

    1. Section 6(b) of the Act provides, in part, 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 6(b) provides that the Commission shall consider, in 
determining which 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' security 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 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

[[Page 47708]]

7, certain provisions of the Act, as specified by the SEC, shall be 
applicable to the company and other persons dealing with the company as 
though such company were registered under the Act. Applicant requests 
an order under sections 6(b)) and 6(e) exempting the Partnerships from 
all provisions of the Act except section 9, section 17 (except for 
certain provisions of sections 17(a), (d), (f), (g), and (j)), sections 
36 through 53, and the rules and regulations thereunder.
    3. Applicant believes that, under the factors set forth in section 
6(b)), it is appropriate to grant the requested exemption. Applicant 
notes that all directors and senior officers of the General Partner 
will be eligible employees, all Limited Partners will be Qualified 
Participants, and the General Partner itself will invest in the 
Partnerships. Applicant also notes that Units will be sold without a 
sales load and that no compensation will be paid to the General Partner 
other than as provided in the limited partnership agreement.
    4. Applicant submits that the protections of the Act generally are 
unnecessary in view of the community of interest among the CSFB 
Companies and the Limited Partners. Applicant also notes that the CSFB 
Companies generally will invest side by side with the Partnerships, and 
the Partnerships will be managed by persons who will also be Limited 
Partners and not third parties seeking to benefit from providing 
services to or engaging in transactions with the Partnership. Applicant 
states that the Partnerships are designed to provide capital building 
opportunities to key employees that are competitive with those at other 
financial services firms and to facilitate the recruitment of high 
caliber professionals. Applicant notes that the Partnerships will 
benefit the Limited Partners by providing the opportunity to 
participate in investments that would not otherwise be available to 
them.
    5. Applicant contends that requiring the Partnerships to comply 
with various provisions of the Act would be unnecessarily burdensome. 
Applicant asserts that the Partnerships' operation is not likely to 
present the abuses the Act is intended to address, and that the limited 
partnership agreements will provide substantial protection to the 
Limited Partners, including specific requirements regarding appraisals 
and access to Partnership reports and limits on the authority of the 
General Partner. Applicant also believes that Eligible Employees and 
Qualified Family Members, as financially sophisticated persons, 
generally do not require the protections of the Act.
    6. Section 17(a) generally prohibits any affiliated person of a 
registered investment company, or any affiliated person of such person, 
acting as principal, from knowingly selling or purchasing any security 
or other property to or from such company. Applicant requests an 
exemption from section 17(a) to permit a Partnership generally to 
purchase securities owned or issued by, and to sell securities and lend 
money to: (a) Any CSFB Company or other affiliated person of applicant 
(a ``Section 17(a) Affiliate''); (b) entities sponsored, managed, or 
advised by a Section 17(a) Affiliate; (c) entities whose securities are 
underwritten by a Section 17(a) Affiliate or an affiliated person of 
such Affiliate; and (d) entities with certain other business 
relationships with Section 17(a) Affiliates.
    7. Applicant submits that the requested exemptions from section 
17(a) are consistent with the purposes of the Partnerships and the 
protection of investors. Applicant believes that an exemption from 
section 17(a) is necessary to enable the Partnerships to participate in 
attractive investments that may be offered by CSFB Companies. Applicant 
asserts that the private placement memorandum will describe the 
possible extent of a Partnership's dealings with Section 17(a) 
Affiliates, and the Limited Partners will be able to evaluate the risks 
associated with those dealings. Applicant also asserts that the 
community of interest among the Limited Partners and CSFB companies 
will reduce the risk of abuse in such transactions.
    8. Section 17(d) and rule 17d-1 prohibit any affiliated person or 
principal underwriter of a registered investment company, or any 
affiliated person of such person or principal underwriter, acting as 
principal, from participating in any joint arrangement with the company 
unless authorized by the SEC. Applicant requests exemptive relief to 
permit a Partnership to invest in an entity in which another 
Partnership, CSFB Company, or certain affiliated persons also invest. 
Applicant submits that the requested relief for co-investments is 
consistent with section 17(d)'s objective of preventing an investment 
company affiliate from causing the company to participate in a joint 
endeavor on a disadvantageous basis. Applicant also submits that the 
community of interest among the Limited Partners and the CSFB companies 
makes it unlikely that a co-investor would enter into a transaction 
with a Partnership with an intent to disadvantage the Partnership. In 
addition, applicant claims that strict compliance with section 17(d) 
and rule 17d-1 would prevent the Partnerships from participating in 
attractive investments solely because an affiliate of the Partnership 
also may participate in the investment. Finally applicant contends that 
the possibility that a Partnership may be disadvantaged by the 
participation of an affiliate in a transaction will be minimized by 
compliance with the lockstep procedures described above.
    9. 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. To the 
extent that a Partnership's assets may be held in custody by an 
exchange member, applicant requests an exemption from the requirements 
of paragraphs (a) and (c) of rule 17f-1 that the custodial agreement be 
in writing and transmitted to the SEC. Applicant also requests an 
exemption from the requirement of paragraph (b)(4) of rule 17f-1 that 
independent accountants periodically verify the assets held by the 
custodian. Applicant submits that, because of the community of interest 
of the Partnerships and the CSFB Companies and applicant's commitment 
to arrange for an annual audit, compliance with these requirements of 
the rule would be unnecessarily burdensome and expensive.
    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'' (as defined in section 
2(a)(19)) take certain actions and give certain approvals relating to 
fidelity bonding. Applicant requests relief from this requirement 
because all the directors of the entity controlling the General Partner 
will be interested persons, and the Partnerships therefore could not 
comply with this bonding requirement. Applicant believes that the 
community of interest among the directors and officers of the General 
Partner, some of whom will likely be Limited Partners, and other 
Limited Partners makes it unnecessary to comply with the requirements.
    11. Section 17(j) and paragraph (a) 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

[[Page 47709]]

code of ethics and that every access person of a registered investment 
company report personal securities transactions. Applicant requests an 
exemption from the provisions of rule 17j-1, except for the antifraud 
provisions of paragraph (a), because they were unnecessarily burdensome 
as applied to the Partnerships.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief shall 
be subject to the following conditions:
    1. Each proposed transaction involving a Partnership 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 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 will record and preserve a description of such 
affiliated transactions, its findings, the information or materials 
upon which its findings are based, and the basis for the findings. All 
such records will be maintained for the life of the Partnership and at 
least two years thereafter, and will be subject to examination by the 
SEC and its staff.\2\
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    \2\ 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 Section 17 Transactions, 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 such transaction, with respect to the possible involvement in the 
transaction of any affiliated person or promoter of or principal 
underwriter for the Partnership, or any affiliated person of such 
person, promoter, or principal underwriter.
    3. The General Partner will not invest the funds of any Partnership 
in any investment in which an Affiliated Co-Investor (as defined below) 
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 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 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 
Affiliated Co-Investor. The term ``Affiliated Co-Investor'' means any 
person who is: (a) An affiliated person of the Partnership (other than 
an investment company or other fund which is offered, sponsored, 
advised or managed by a CSFB Company and which includes investors who 
are not CSFB Companies); (b) a CSFB Company; (c) an officer or director 
of a CSFB Company, or (d) a company in which the General Partner of 
such Partnership acts as 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 an Affiliated 
Co-Investor: (a) To its direct or indirect majority-owned subsidiary, 
to any company (a ``Parent'') of which the Affiliated Co-Investor is a 
direct or indirect majority-owned subsidiary, or to a direct or 
indirect majority-owned subsidiary of its Parent; (b) to immediate 
family 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 a national 
securities exchange registered under section 6 of the 1934 Act; (ii) 
national market system securities pursuant to section 11A(a)(2) of the 
1934 Act and rule 11Aa2-1 thereunder; or (iii) government securities as 
defined in section 2(a)(16) of the Act.
    4. 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 audited financial statements that are 
to be provided to the Limited Partners, and each annual report of such 
Partnership required by the terms of the applicable partnership 
agreement, to be sent to the Limited Partners, and agree that all such 
records 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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    5. The General Partner will send Partnership financial statements 
to each Limited Partner who had an interest in a Partnership at any 
time during the fiscal year then ended. Except for Partnerships formed 
to make a single investment, the statements will be audited by the 
Partnership's independent accountants. At the end of each fiscal year, 
the General Partners will make a valuation or have a valuation made of 
all of the assets of the Partnership as of such fiscal year end. In 
addition, within 90 days after the end of each fiscal year of each of 
the Partnerships or as soon as practicable thereafter, the 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 each 
year.
    6. Whenever a Partnership makes a purchase from or sale to an 
entity affiliated with a Partnership by reason of a 5% or more 
investment in such entity by a CSFB Company director, officer, or 
employee, or person on retainer, such individual will not participate 
in the General Partner's determination of whether or not to effect such 
purchase or sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-23953 Filed 9-9-97; 8:45 am]
BILLING CODE 8010-01-M