[Federal Register Volume 63, Number 231 (Wednesday, December 2, 1998)]
[Notices]
[Pages 66610-66615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32043]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23572; 813-186]


KECALP Inc., et al.; Notice of Application

November 24, 1998.
Agency: Securities and Exchange Commission (``Commission'').

Action: Notice of application for an order under sections 6(b) and 
17(b) of the Investment Company Act of 1940 (the ``Act'') and rule 17d-
1 under the Act to amend a prior order and under sections 6(b) and 
17(b) to permit certain transaction otherwise prohibited by section 
17(a) of the Act.

-----------------------------------------------------------------------

Summary of the Application: Applicant request an order to exempt 
certain limited partnerships registered under the Act as closed-end 
management investment companies form certain provisions of the Act and 
permit the partnerships to engage in certain joint transactions. Each 
partnership is an ``employees' securities company'' as defined in 
section 2(a)(13) of the Act. The requested order amends several 
previous orders (collectively, the ``KECALP Order'').\1\ In addition, 
applicant request relief to permit two partnerships to transfer 
interests in certain investments to an affiliated entity in exchange 
for limited partnership interests in that entity.

    \1\ Merrill Lynch KECALP Ventures Limited Partnership 1982, et 
al., Investment Company Act Rel. Nos. 12290 (Mar. 11, 1982) (notice) 
and 12363 (Apr. 8, 1982) (order); Merrill Lynch KECALP Growth 
Investments Limited Partnership 1983, et al., Investment Company Act 
Rel. Nos. 18082 (Apr. 8, 1991) (notice) and 18137 (May 7, 1991) 
(order); Merrill Lynch KECALP Growth Investments L.P. 1983, et al., 
Investment Company Act Rel. Nos. 20280 (May 5, 1994) (notice) and 
20328 (June 1, 1994) (order); Merrill Lynch KECALP L.P. 1994, et 
al., Investment Company Act Rel. Nos. 21124 (June 8, 1995) (notice) 
and 21187 (Jul. 5, 1995) (order); and Merrill Lynch KECALP L.P. 
1997, et al., Investment Company Act Rel. Nos. 22647 (Apr. 30, 1997) 
(notice) and 22689 (May 28, 1997) (order).
---------------------------------------------------------------------------

Applicants: KECALP Inc. (``General Partner''); Merrill Lynch KECALP 
L.P. 1986 (``1986 Partnership''), Merrill Lynch KECALP L.P. 1987 
(``1987 Partnership''), Merrill Lynch KECALP L.P. 1989 (``1989 
Partnership''), Merrill Lynch KECALP L.P. 1991 (``1991 Partnership''), 
Merrill Lynch KECALP L.P. 1994 (``1994 Partnership''), Merrill Lynch 
KECALP L.P. 1997 (``1997 Partnership''), and Merrill Lynch KECALP L.P. 
1999 (``1999 Partnership'') (collectively, together with other 
partnerships that may be organized by the General Partner in the 
future, the ``Partnerships''); and Merrill Lynch Global Emerging 
Markets Partners, L.P. (``Global Investment Fund'').

Filing Dates: The application was filed on April 14, 1998, and amended 
on September 15, 1998. Applicants have agreed to file and amendment 
during the notice period, the substance of which is reflected in this 
notice.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on December 16, 1998, and should be accompanied by proof of 
service on applicants in the form of a affidavit or, for lawyers, a 
certificate of service. Hearing request 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 
notification by writing tot he Commission's Secretary.

Addresses: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Applicants, South Tower, World Financial Center, 225 
Liberty Street, New York, NY 10080-6123.

For Further Information Contact: Michael W. Mundt, Staff Attorney, at 
(202) 942-0578, or Edward P. Macdonald, Branch Chief, at (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

Supplementary Information: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, D.C. 20549 (tel. (202) 942-8090).

Applicants' Representations

    1. Each Partnership is a Delaware limited partnership registered 
under the Act as a non-diversified, closed-end management investment 
company. Each Partnership is an ``employees' securities company'' with 
in the meaning of section 2(a)(13) of the Act and operates according to 
the terms of the KECALP Order. Limited partnership interests in the 
Partnerships were offered to certain employees of Merrill Lynch & Co., 
Inc. (``ML & Co.'') and its subsidiaries and to non-employee directors 
of ML & Co. The 1997 Partnership also offered limited partnership 
interests to ML & Co. in connection with certain deferred compensation 
arrangements. Applicants state that the Partnerships enable directors 
and certain officers and other employees to pool their investment 
resources and to receive the benefit of certain investment 
opportunities that come to the attention of ML & Co. or its 
subsidiaries. Applicants assert that the Partnerships are primarily for 
the benefit of the employee/director limited partners and are a 
significant way for ML & Co. and its subsidiaries to attract and retain 
qualified personnel.
    2. Applicants expect that the General Partner will organize 
additional partnerships in the future (such partnerships, together with 
the 1999 Partnership, ``Future Partnerships''). \2\ Interests in Future 
Partnerships will be offered to employees of ML& Co. and its 
subsidiaries who earn, or whose annualized salary is, at least $100,000 
for the calendar year preceding the offering. No employee meting this 
requirement will be permitted to invest more than 15% of the employee's 
cash compensation form ML & Co. and its subsidiaries in any partnership 
unless such employee is an ``accredited investor,'' as defined in rule 
501(a) of Regulation D under the Securities Act of 1933 (``1933 Act''). 
Future Partnerships also may offer limited partnership interests to 
persons on retainer with ML & Co. or its subsidiaries if the persons 
qualify as ``accredited investors'' Other than the requirement that 
they be ``accredited investors,'' persons on retainer will participate 
in Future Partnerships on the same terms as employees of ML & Co. In 
addition, ML & Co. and its affiliates may acquire limited partnership 
interests in Future Partnerships to mirror the election by select 
employees of ML & Co. and its subsidiaries to participate in 
compensation or investment programs where the return is linked to the 
performance of a Partnership. To make such an investment, ML & Co. or 
its affiliate must (i) determine that the eligibility requirements for 
employee participation in the compensation or investment program are at 
least equal to the standards for direct investment by employees of ML & 
Co. in the Partnership and (ii) agree to vote its interests in 
Partnership in identical proportions to other limited partners. Persons 
eligible to invest in the

[[Page 66611]]

Partnerships are referred to as ``Limited Partners.'' Interests in the 
Partnerships are non-transferable except with the express consent of 
the General Partner and, in any event, are not transferable to persons 
who are not Limited Partners, except that interests may be transferred 
to members of a Limited Partner's immediate family or, by operation of 
law, to certain other parties under special circumstances.
---------------------------------------------------------------------------

    \2\ Any entity that currently intends to rely on the requested 
order is named as an applicant. Any other existing or future entity 
that relies on the requested order will comply with the terms and 
conditions of the application.
---------------------------------------------------------------------------

    3. The General Partner is an indirect, wholly-owned subsidiary of 
ML & Co. that is registered as an investment adviser under the 
Investment Advisers Act of 1940. The General Partner is responsible for 
the management of the Partnerships and has the authority to make all 
decisions regarding the acquisition, management, and disposition of the 
partnerships' investments. The board of directors of the General 
Partner (``Board'') will continue to have overall responsibility for a 
Partnerships' investments.
    4. Under the partnership agreements of the Partnerships, the 
General Partner pays operating expenses in connection with the 
Partnerships and is entitled to receive annual reimbursements from the 
Partnerships of up to 1.5% of the Limited Partners' capital 
contributions. In addition, the General Partner is responsible for any 
commissions chargeable to the Partnerships with respect to portfolio 
transactions. Future partnership may pay operating expenses directly 
and reimburse the General partner for personnel, overhead and other 
administrative expenses. Amounts paid by the Future Partnership for 
operating expenses and reimbursements to the General Partner will be 
subject to an annual aggregate limit of 1.5% of Limited Partners' 
capital commitments. Appropriate disclosure regarding payments and 
reimbursements will be set forth in a Future Partnership's offering 
documents. To the extent provided in their organizational documents, 
Future Partnerships also may be responsible for payment of commissions 
and other fees and expenses relating to the acquisition, monitoring and 
disposition of portfolio investments.
    5. The Global Investment Fund is a Delaware limited partnership 
formed to achieve capital appreciation principally through privately 
negotiated equity and equity-linked investments in companies operating 
primarily in emerging markets. ML Global Capital L.L.C., an affiliate 
of ML & Co., is the general partner of the Global Investment Fund, and 
ML Global Partners, Inc., a subsidiary of ML & Co., performs the 
management services. The Global Investment Fund is exempt from 
regulation under the Act in reliance on section 3(c)(7) of the Act. The 
Global Investment Fund seeks relief so that the 1994 Partnership and 
1997 Partnership may transfer interests in certain investments to the 
Global Investment Fund in exchange for limited partnership interests in 
the Global Investment Fund.
    6. Under the KECALP Order, ML & Co. or a subsidiary may acquire an 
investment approved by the General Partner for acquisition by the 
Partnership and hold the investment (``Warehoused Investment'') until 
the closing of the Partnership's offering to Limited Partners. Upon 
completion of its offering, the Partnership would purchase each 
Warehoused Investment from ML & Co. or the subsidiary at the lesser of 
each Warehoused Investment's (a) fair value on the date of purchase by 
the Partnership or (b) purchase cost paid by ML & Co. and its 
subsidiaries. Applicants assert that the Warehoused Investment 
procedure facilitates the Partnerships' investment process. The 
requested order would permit the Partnerships to acquire Warehoused 
Investments from ML & Co. and its subsidiaries subject to modified 
conditions that would afford the Partnerships greater flexibility.
    7. Under the KECALP Order, the Partnerships also may engage in 
certain joint transactions and investments with affiliates of the 
Partnerships. Applicants seek relief to permit certain joint 
transactions, including transactions involving restructurings and 
recapitalizations, (collectively, ``Merrill Lynch Investments'') in 
which the Partnerships are participants with ML & Co. and other 
affiliated persons of the Partnerships (``Affiliated Co-Investors'') 
subject to the conditions detailed below.

Applicants' Legal Analysis

A. Warehoused Investments

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and any 
affiliated person of that company. ML & Co. and each of its direct and 
indirect wholly-owned subsidiaries, including the General Partner, are 
affiliated persons under section 2(a)(3)(C) of the Act. The General 
Partner is an affiliated person of the Partnerships under section 
2(a)(3)(D) of the Act. As a result of these affiliations, sales of 
securities or other property on a principal basis by the General 
Partner or an affiliate to the Partnership may be prohibited under 
section 17(a).
    2. Section 6(b) of the Act provides that the Commission 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 17(b) of the Act permits the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that the terms of the proposed transaction are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned, the proposed transaction is consistent with the policy of 
each investment company concerned, and the proposed transaction is 
consistent with the general purposes of the Act.
    3. Applicants request relief from section 17(a) pursuant to 
sections 6(b) and 17(b) of the Act to permit the Partnerships to 
acquire Warehoused Investments from ML & Co. and direct and indirect 
wholly-owned subsidiaries of ML & Co. (including the General Partner) 
subject to conditions modified from the KECALP Order. Under the 
requested order, (i) the warehouse period during which ML & Co. or a 
subsidiary may hold a Warehoused Investment would be increased from 12 
to 18 months; (ii) the purchase price paid by a Partnership for the 
Warehoused Investments would be calculated on an aggregate basis, 
rather than for each Warehoused Investment individually; and (iii) the 
approval of a Warehoused Investment by the Board for acquisition by a 
Partnership would be made either prior to or within 30 days of the 
acquisition of the Warehoused Investment by ML & Co. or its 
subsidiary.\3\
---------------------------------------------------------------------------

    \3\ Under the KECALP Order, the Board approved the acquisition 
of a Warehoused Investment prior to its purchase by ML & Co. or a 
subsidiary and approved the acquisition a second time after the 
closing of the Partnership's offering to the Limited Partners.
---------------------------------------------------------------------------

    4. Applicants state that with the proposed changes, the 
transactions involving Warehoused Investments will continue to meet the 
standards of sections 6(b) and 17(b). Applicants assert that the 
revised conditions would allow for a valuation method for Warehoused 
Investments that is more fair to the public shareholders of ML & Co. 
and that will not cause a Partnership to pay more than the aggregate 
fair value of Warehoused Investments acquired on its behalf. In 
addition, applicants state that the change in the timing of the Board 
approval will provide the Partnerships with increased investment 
flexibility by allowing for circumstances where a Partnership has been 
presented with the opportunity to invest in a transaction, but the 
Board of Directors of the General Partner has not been able to make all 
of the required findings prior

[[Page 66612]]

to the purchase by ML & Co. or its subsidiaries.

B. Transaction with the Global Investment Fund

    1. Applicants request relief pursuant to sections 6(b) and 17(b) of 
the Act from section 17(a) of the Act to permit the 1994 Partnership 
and 1997 Partnership to transfer their interests in certain investments 
to the Global Investment Fund in exchange for limited partnership 
interests in the Global Investment Fund. The 1994 Partnership and the 
1997 Partnership are invested in certain portfolio companies in which 
the Global Investment Fund also is invested. Applicants state that the 
exchange will have no economic effect on the Partnerships because it 
would be structured so that each Partnership would only change the 
vehicle through which the Partnerships hold these investments, and the 
Partnerships' interests in the Global Investment Fund would correspond 
only to the transferred investments. The transfer of the Partnerships' 
investments to the Global Investment Fund would not be deemed by the 
Partnerships to be an event requiring any change in the valuation of 
the Partnerships' interests in the investments. The Partnerships will 
not pay any fees to ML & Co. or its affiliates in connection with the 
transfer. Upon disposition of an investment by the Global Investment 
Fund, each Partnership would receive the portion of any net proceeds 
corresponding to its indirect interest in the investments.

C. Joint Investments by the Partnerships and their Affiliates

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
affiliated persons from participating in joint arrangements with a 
registered investment company unless authorized by the Commission. Rule 
17d-1 provides that in passing on applications for such orders, the 
Commission will consider whether the participation by the investment 
company is consistent with the provisions, policies, and purpose of the 
Act, and the extent to which the participation is on a basis different 
from or less advantageous than that of the other participants.
    2. Applicants seek relief pursuant to section 6(b) and rule 17d-1 
to permit Merrill Lynch Investments in which the Partnerships are 
participants with Affiliated Co-Investors. Applicants assert that the 
proposed conditions that would govern these transactions would assure 
that the Partnerships participate on a basis no less advantageous than 
that of Affiliated Co-Investors. Applicants also assert that the 
community of interest between the Partnerships and ML & Co. would 
further assure that the transactions would be in the best interests of 
the Partnerships.

D. Certain Compensation to ML & Co. or Affiliates

    1. Section 17(e) of the Act and rule 17e-1 under the Act limit the 
compensation an affiliated person may receive when acting as agent or 
broker for a registered investment company. Applicants request an 
exemption from section 17(e) pursuant to section 6(b) to permit ML & 
Co. or an affiliated person, acting as an agent or broker, to receive 
placement fees, financial advisory fees or other compensation in 
connection with the purchase and sale of securities by a Partnership, 
provided that the fees or other compensation can be deemed ``usual and 
customary.'' Applicants state that fees or other compensation will be 
deemed ``usual and customary'' only if: (i) the Partnership is 
purchasing or selling securities alongside other unaffiliated third 
parties who are also similarly purchasing or selling securities; (ii) 
the fees or other compensation that are being charged to the 
Partnership are also being charged to the unaffiliated third parties; 
and (iii) the amount of securities being purchased or sold by a 
Partnership does not exceed 50% of the total amount of securities being 
purchased or sold by the Partnership and the unaffiliated third 
parties. Applicants assert that compliance with section 17(e) could 
prevent a Partnership from participating in a transaction in which ML & 
Co. or an affiliate does not, for other business reasons, wish a 
Partnership to be treated in a more favorable manner than unaffiliated 
parties also participating in the transaction.
    2. Applicants also request an exemption from rule 17e-1 to the 
extent necessary to permit each Partnership to comply with rule 17e-1 
without the necessity of having a majority of the directors of the 
General Partner who are not ``interested persons'' take the actions and 
make the approvals specified in the rule. Because all the directors of 
the General Partner will be affiliated persons, a Partnership could not 
comply with rule 17e-1 without the requested relief. Applicants state 
that each Partnership will have a majority of the directors of the 
General Partner take the actions and make the approvals required in the 
rule. Each Partnership will otherwise comply with the requirements of 
rule 17e-1.

F. Custody of Partnership's Assets

    1. Section 17(f) of the Act prescribes certain requirements as to 
the custody of assets of registered investment companies. The KECALP 
Order permits certain subsidiaries of ML & Co. to act as custodians of 
the Partnerships' assets without a written contract required by section 
17(f). Rule 17f-1(b)(4) under the Act requires that securities held by 
a custodian that is a member of a national securities exchange be 
verified periodically by independent public accountants. Applicants 
request relief from this requirement pursuant to section 6(b) with 
respect to the Partnerships' assets held by an ML & Co. subsidiary 
pursuant to the rule. Applicants state that the Partnerships' assets so 
held are subject to an annual independent audit and that in light of 
the community of interest between ML & Co. and the Partnerships, 
compliance with this requirement in the rule would be unduly 
burdensome.

F. Periodic Reporting

    1. Section 30(h) of the Act requires that every officer, director, 
and member of an advisory board of a closed-end investment company be 
subject to the same duties and liabilities as those imposed upon 
similar classes of persons under section 16 of the Securities Exchange 
Act of 1934. As a result, the General Partner of each Partnership and 
certain other persons are required to file Forms 3, 4, and 5 with 
respect to their ownership of interests in a Partnership. Applicants 
request an exemption pursuant to section 6(b) from the requirements of 
section 30(h) to the extent necessary to exempt the General Partner, 
directors and officers of the General Partner, and any other persons 
who may be deemed members of an advisory board of a Partnership from 
filing these forms. Applicants assert that the requirement is not 
necessary for the protection of investors because there is no trading 
market for the Partnerships' interests and transfers of these interests 
are severely restricted.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:

Condition Relating to Warehoused Investments

    1. (a) In order for an investment to quality as a Warehoused 
Investment to be purchased pursuant to the requested relief, (i)(A) the 
Board must approve such investment for the subsequent Partnership in 
the manner described in sub-paragraph (b) of condition 1 prior to the 
time the investment is acquired by

[[Page 66613]]

the General Partner or an affiliate thereof and (B) such investment 
must be acquired by ML & Co. (which term, in these conditions, includes 
its subsidiaries) with the intention of acquiring the Warehoused 
Investment for the subsequent Partnership and selling it to such 
Partnership after the completion of its initial offering or (ii)(A) the 
Board must approve such investment in the manner described in sub-
paragraph (b) of condition 1 within 30 days after the date of the 
acquisition by ML & Co. and (B) ML & Co. must thereafter hold such 
investment with the intention of selling it to a Partnership after the 
completion of the initial offering of the Partnership. The General 
Partner will maintain at the Partnerships' office written records 
stating ML & Co.'s intention in acquiring such security, and stating 
the factors considered by the Board in approving the investment.
    (b) Prior to the acquisition of a Warehoused Investment by a 
Partnership, (i) the Board must make the following fundings: (A) The 
terms of the Warehoused Investment, including the consideration to be 
paid, are reasonable and fair and do not involve overreaching of the 
Partnership or its Limited Partners on the part of any person 
concerned; (B) the proposed transaction is consistent with the policy 
of the Partnership as indicated in its filings under the 1933 Act and 
its reports to Limited Partners; and (C) participation by the 
Partnership in the proposed transaction is in the best interest of the 
Limited Partners of the Partnership; and (ii) with respect to any 
Warehoused Investment that is part of a co-investment with an 
affiliate, the Board must approve the investment in accordance with the 
terms of any orders issued by the Commission that are applicable to 
such co-investment, including the required findings by the Board. The 
General Partner will maintain at the Partnerships' office written 
records of the factors considered in any decision regarding a 
Warehoused Investment.
    (c) The purchase price to be paid by a Partnership for Warehoused 
Investments acquired for the Partnership prior to the closing of its 
initial offering shall be the lower of (i) the aggregate cost to ML & 
Co. of purchasing the Warehoused Investments, plus carrying costs as 
described below in sub-paragraph (d) or (ii) the aggregate fair value 
of the Warehoused Investments at the time of purchase by the 
Partnership (as determined by the Board). The General Partner will 
maintain at the Partnerships' office written records of the factors 
considered in any determination regarding the value of a Warehoused 
Investment.
    (d) Carrying costs shall be calculated from the date ML & Co. 
acquired the Warehoused Investment to the date of the acquisition of 
the proposed investment by the Partnership from ML & Co. and shall 
consist of interest charges computed at the lower of (i) the prime 
commercial lending rate charged by Citibank, N.A. (or any successor), 
during the period for which carrying costs are permitted to be paid 
until the Partnership acquires the securities or (ii) the effective 
cost of borrowings by ML & Co. during such period. The effective cost 
of borrowings by ML & Co. is its actual ``Average Cost of Funds,'' 
which it calculates on a daily basis by dividing its consolidated 
financing expenses by the total amount of borrowings during this 
period.
    (e) A Partnership may only acquire a Warehoused Investment from ML 
& Co. during the lesser of (i) 18 months from the time ML & Co. 
purchases the Warehoused Investment or (ii) 30 days from the date of 
closing of the Partnership's initial offering.

Conditions Relating to Joint Transactions

    2. (a) To the extent that a Partnership has funds available for 
investment, the Board will review, among other investments, co-
investments with Affiliated Co-investors that may be brought to the 
attention of the General Partner. The Board 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, by a majority vote at a 
properly called and held meeting 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 
Limited 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 1933 Act, its registration statement, 
and reports to its Limited Partners; and
    (iii) The investment by an Affiliated Co-investor in such 
transaction would not disadvantage the Partnership in the making of its 
investment, maintaining its investment position, or disposing of the 
investment.
    3. The General Partner will not invest the funds of any Partnership 
in any investments in which ML & Co. or an affiliate has or proposes to 
acquire the same class of securities of the same issuer, when the 
investment involves a joint enterprise or other joint arrangement 
within the meaning of rule 17d-1 in which the Partnership and ML & Co. 
or an affiliate are participants, unless ML & Co. or any such affiliate 
agrees that, prior to disposing of all or part of its investment, it 
will (i) give the General Partner sufficient, but not less than one 
day, notice of its intention to dispose of such investment and (ii) 
refrain 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 ML & Co. or 
such affiliate; provided, however, that the requirements specified in 
clauses (i) and (ii) will not be deemed to limit or prevent the 
disposition of an investment by an affiliate to its direct or indirect 
subsidiary, to any company (a ``Parent'') of which the affiliate is a 
direct or indirect wholly-owned subsidiary or to a direct or indirect 
wholly-owned subsidiary of its Parent. For purposes of this condition 
3, 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 as contemplated by this condition 3.
    4. The Board 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 conditions 2 and 3.
    5. 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.
    6. 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.

[[Page 66614]]

    7. In connection with proposed transactions otherwise prohibited by 
section 17(d) of the Act and rule 17d-1 under the Act, 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.
    8. Each Partnership and the 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 Commission and its staff. 
Each Partnership will preserve the accounts, books and other documents 
required to be maintained in an easily accessible place for the first 
two years.
    9. 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. The statements will be audited 
by the Partnership's independent accountants. At 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 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 such 
year.

Conditions Relating to Certain Other Affiliated Transactions

    10. If a Partnership is presented with the opportunity to invest in 
a transaction where the General Partner has not been able to consider 
the determinations set forth in sub-paragraph (b) of condition 2, the 
Partnership may subsequently acquire the investment from ML & Co. or an 
affiliate to the extent the investment determination of the Board takes 
place as soon as practicable but no more than 30 days after the date of 
the acquisition by ML & Co. or its affiliate and payment by the 
Partnership is made within five business days after approval by the 
Board. The purchase price paid by a Partnership for any such investment 
shall be the lower of (i) the fair value of the investment on the date 
it is acquired by the Partnership (as determined in good faith by the 
Board) or (ii) the cost of ML & Co. or its affiliate of purchasing the 
investment.
    11. (a) Sales or tenders by the Partnership to an issuer that is an 
affiliated person of the Partnership may be made only (i) pursuant to a 
uniform offer by the issuer to purchase its securities on a pro rata 
basis made to all holders of the class of securities held by the 
Partnership (provided that the offer need not be made to employees of 
the issuer) or (ii) pursuant to an offer made to fewer than all holders 
of the class of securities held by the Partnership, provided that the 
Partnership will not participate in such transaction unless a 
securityholder that is an institutional investor with total assets of 
at least $100 million and is not an affiliated person of the 
Partnership or ML & Co. participates in such sale or tender on the same 
terms as the Partnership.
    (b) Prior to entering into any transaction specified in paragraph 
(a) above, the Board must determine, that such action is in the best 
interests of the particular Partnership and does not involve 
overreaching of the Partnership on the part of any person. The General 
Partner shall record in each Partnership's records the basis for such 
decision. Transactions entered into pursuant to this paragraph must be 
effected on the same terms applicable to any affiliate participating in 
the transaction.
    12. The Board will adopt procedures pursuant to which it will 
monitor potential conflicts of interest between the Partnerships and ML 
& Co. and its affiliates, including other partnerships that may invest 
in leveraged buyout investments for which Merrill Lynch MBP Inc. 
(``MBP''), an indirect wholly-owned subsidiary of ML & Co., acts as 
general partner, in connection with the Partnerships' investments. Such 
procedures will provide that the officers of the General Partner will 
annually prepare and present to the Board written information regarding 
all potential investments made available to the Partnership during the 
prior year, including Merrill Lynch Investments. The Board's findings 
regarding potential conflicts of interest, the specific factors 
considered, and any further actions to be taken based on or in order to 
implement the directors' findings will be recorded in each 
Partnership's records.
    13. No person will serve as a member of the Board if such person 
also is a member of the board of directors of MBP.
    14. Each of the 1994 Partnership and the 1997 Partnership may 
transfer its interests in investments it has acquired to the Global 
Investment Fund in exchange for interests in such fund, provided that 
prior to such a transfer the General Partner determines that (i) such 
transfer has no economic effect on the Partnership and (ii) such 
transfer is consistent with the best interests of such Partnership.

Other Conditions

    15. In order for ML & Co. or an affiliate to acquire limited 
partnership interests in a Partnership in connection with a 
compensation or investment program offered to select employees of ML & 
Co. or its subsidiaries, ML & Co. or such affiliate must (i) determine 
that the eligibility requirements for participation in such 
compensation program or investment program are at least equal to the 
standards for direct investment by employees of ML & Co. in the 
Partnership and (ii) agree to vote its interests in a Partnership in 
identical proportions as other Limited Partners in respect of any 
matter submitted for a vote of Limited Partners.
    16. Any Partnership created in the future will not be offered to 
employees of ML & Co. and its subsidiaries who earned, or whose 
annualized salary was, less than $100,000 with respect to the calendar 
year preceding the offering of such Partnership. No employee meeting 
the requirement in the preceding sentence will be permitted to invest 
more than 15% of his cash compensation from ML & Co. and its 
subsidiaries in any Partnership unless such employee is an ``accredited 
investor,'' as defined in rule 501(a) under the 1933 Act.
    17. 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 records referred to or required under this 
order will be available for inspection by the Limited Partners of each 
Partnership and the Commission.


[[Page 66615]]


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32043 Filed 12-1-98; 8:45 am]
BILLING CODE 8010-01-M