[Federal Register Volume 64, Number 112 (Friday, June 11, 1999)]
[Notices]
[Pages 31654-31658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14874]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23861; 812-11410]


Emerging Markets Growth Fund, Inc., et al.; Notice of Application

June 7, 1999.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application under sections 6(c) and 17(b) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 2(a)(3)(A) and (D) and 17(a) of the Act, and under section 
17(d) of the Act and rule 17d-1 under the Act to permit certain joint 
transactions.

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SUMMARY OF APPLICATION: The order would permit applicant, Emerging 
Markets Growth Fund, Inc. (the ``Fund''), to invest in an affiliated 
investment vehicle, Capital International Global Emerging Markets 
Private Equity Fund, L.P. (the ``Partnership'').

APPLICANTS: The Fund, the Partnership, Capital International 
Investments, LLC (the ``General Partner''), Capital International, Inc. 
(the ``Manager''), Capital Group International, Inc. (``CGII''), and 
CGPE LLC (``CGPE'').

FILING DATES: The application was filed on November 17, 1998. 
Applicants have agreed to file an amendment, the substance of which is 
reflected in this notice, 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 June 29, 1999, 
and should be 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549-0609. Applicants, c/o Capital International, Inc., 11100 Santa 
Monica Boulevard, Los Angeles, CA 90025.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Attorney, at 
(202) 942-0572 or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Fund, a Maryland corporation, currently is a closed-end 
management investment company registered under the Act. The Fund's 
shares are

[[Page 31655]]

registered under the Securities Act of 1933. The Fund's investment 
objective is to seek long-term capital growth by investing in equity 
securities of issuers in developing countries. The Fund may invest up 
to 10% of its assets in developing country securities that are not 
readily marketable. The Fund currently invests in nine private equity 
funds that invest in various regions globally and that are sponsored 
and advised by entities unaffiliated with the Manager.\1\
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    \1\ None of the Fund's current commitments to any single private 
equity fund exceeds 1% of the Fund's net assets.
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    2. The Fund offers new shares for sale on a limited basis to 
investors that meet certain suitability criteria prescribed by the 
Fund. Pursuant to an SEC exemptive order, on or about July 1, 1999, the 
Fund intends to convert from a closed-end fund to a registered open-end 
interval fund with monthly redemptions.\2\ In anticipation of the 
conversion, as of January 1, 1999, all new investors in the Fund must 
be ``qualified purchasers,'' within the meaning of section 2(a)(51) of 
the Act and the rules and interpretive positions under the Act.
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    \2\ Investment Company Act Release Nos. 23433 (Sept. 11, 1998) 
(notice) and 23481 (Oct. 7, 1998) (order).
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    3. The Partnership is organized as a limited partnership under the 
laws of Delaware. The Partnership relies on the exception from the 
definition of investment company in section 3(c)(7) of the Act. The 
investment objective of the Partnership is to seek long-term capital 
appreciation through privately negotiated equity and equity-related 
investments in emerging market companies (``Equity Investments''). The 
General Partner of the Partnership is a Delaware limited liability 
company wholly-owned by CGII, CGPE, and the Manager. CGII is a wholly-
owned subsidiary of The Capital Group Companies, Inc. (``Capital 
Group''). CGPE is wholly-owned by the Manager and officers and 
employees of companies controlled by the Capital Group (collectively, 
the ``Associates''). The General Partner has made a U.S. $35.06 million 
capital commitment to the Partnership.
    4. The Fund proposes to invest up to U.S. $95 million (less than 1% 
of the Fund's total assets as of March 1, 1999, and less than 10% of 
the Partnership's interests) in the Partnership. Applicants state that 
investing through the Partnership in Equity Investments would enable 
the Fund to achieve greater diversification by participating in many 
more investments than would be the case if the Fund invested directly 
in Equity Investments. In addition, applicants state that, given the 
Fund's current fee and expense structure, and the resource-intensive 
nature of the investment process for Equity Investments, it is not 
cost-effective for the Fund to invest directly in Equity Investments on 
a diversified basis. The Fund's board of directors (the ``Board''), 
including a majority of the directors who are not ``interested 
persons'' of the Fund, as defined in section 2(a)(19) of the Act 
(``Independent Directors''), has authorized the proposed investment by 
the Fund in the Partnership. Of the Fund's fourteen member Board, ten 
are Independent Directors. Of the ten Independent Directors, none is or 
will be a direct investor in CGPE. and nine are neither directors nor 
officers of any investor in the Partnership.
    5. The Partnership has an advisory board comprised exclusively of 
representatives of current limited partners (together with future 
limited partners, ``Limited Partners'') that have a capital commitment 
of at least $40 million to the Partnership and other Limited Partners 
that are selected by the General Partner (``Advisory Committee''). A 
representative of the Fund, who is an Independent Director of the Fund 
and is not otherwise affiliated with the Partnership or any of the 
Limited Partners, will become a member of the Advisory Committee if the 
requested relief is granted. The Advisory Committee is responsible for, 
among other things: (a) providing advice and counsel to the Partnership 
and the General Partner in connection with potential conflicts of 
interest and other matters relating to the Partnership as may be 
requested by the General Partner or as provided in the partnership 
agreement, as modified by side letters (``Partnership Agreement''); and 
(b) approving certain valuation determinations of the Partnership's 
assets or interests.
    6. The Manager, a wholly-owned subsidiary of CGII, serves as 
investment adviser to the Fund and the Partnership and is registered 
under the Investment Advisers Act of 1940 (the ``Advisers Act''). The 
Manager will waive its management fee, including administrative fees, 
with respect to the Fund's net assets represented by the investment in 
the Partnership. Specifically, the Fund's aggregate net assets will be 
adjusted downward by the amount invested in the Partnership prior to 
determining the Manager's fee.
    7. The Manager is responsible for all direct and indirect expenses 
incurred by the Manager in connection with identifying investments for 
the Partnership and all direct and indirect routine administrative 
expenses of the Partnership incurred in connection with managing the 
Partnership following the first closing, which occurred on July 10, 
1998. For its services, the Manager receives an advisory fee throughout 
the term of the Partnership. In addition, the Manager, as a member of 
the General Partner, will be entitled to receive certain fees which may 
be characterized as a ``performance fee.'' The Partnership is 
responsible for all expenses except routine administrative expenses 
incurred in connection with the operation of the Partnership.
    8. Each Limited Partner must execute a subscription agreement 
(``Subscription Agreement'') to invest in the Partnership. The term of 
the Partnership is ten years from the final closing, which occurred on 
January 19, 1999, but the General Partner may extend the term for one 
one-year period at its discretion and for an additional one-year period 
with the approval of a majority in interest of the Limited partners. 
Limited Partners generally may not withdraw from the Partnership nor 
transfer any of their interests, rights, or obligations under the 
Partnership, except with the express written consent of the General 
Partner.\3\
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    \3\ Notwithstanding the foregoing, for regulatory compliance 
reasons, Limited Partners that are subject to fiduciary obligations 
under the Employee Retirement Income Security Act of 1974, as 
amended (``ERISA''), may withdraw from the Partnership in the event 
it becomes reasonably likely that the assets of the Partnership are 
deemed to be ``plan assets'' under ERISA rules and regulations. If 
Limited Partners subject to ERISA withdraw in the aggregate over 50% 
of the capital commitments of all Limited Partners subject to ERISA, 
any Limited Partner may elect to withdraw from the Partnership in 
accordance with the terms and procedures set forth in the 
Partnership Agreement.
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    9. All Limited Partners that enter into the Partnership Agreement 
after the first closing date will make a capital contribution to the 
Partnership on the date of their admission so that the percentage of 
their capital commitment that is contributed to the Partnership is 
equal to the percentage of the other Limited Partners' and General 
Partner's (together, the ``Partners'') capital commitments (a ``Catch-
up Contribution''). Any Limited Partner, other than the Fund, that is 
admitted to the Partnership after the fifteenth business day following 
the first closing date will be required to pay to all previously 
admitted Partners (in accordance with their respective percentage 
interests) an additional amount equal to a 1% monthly rate on the 
Catch-up Contribution from the date capital contributions were made by 
the previously admitted Partners to the date of its admission (the 
``Additional Amount``). The Additional Amount which

[[Page 31656]]

the Fund will be required to pay on its admission will be an additional 
amount on its Catch-up Contribution at a rate equal to the then prime 
rate plus 2% per year (or a pro rata portion thereof) from the date 
capital contributions were made by the previously admitted Partners to 
the date of the Fund's admission. In addition, all new Limited Partners 
(including the Fund) will be required to pay to the Manager their share 
of current management fees as well as management fees from the first 
closing date. With respect to management fees allocable to the period 
prior to its admission, each new Limited Partner will pay an additional 
amount on the allocable amount of management fees at the rate of the 
then prime rate plus 2% per year (or a pro rata portion thereof) from 
the date the management fees were made by the previously admitted 
Partners to the date of its admission. Any such retroactive management 
fee allocated to the Fund will be credited against the management fees 
it pays to the Manager.
    10. Applicants request relief to permit: (a) the Fund to invest as 
a Limited Partner up to U.S. $95 million (less than 1% of the Fund's 
total assets and less than 10% of the Partnership's interests) in the 
Partnership; (b) the General Partner to invest as a general partner in 
the Partnership; (c) the Chase Manhattan Bank, as trustee for the 
Second Plaza Group Trust (together with any successor trustee or trust, 
``Plaza Trust''), any investor in the Fund who in the future may become 
an ``affiliated person'' (as defined in section 2(a)(3) of the Act) of 
the Fund by virtue of the investor's ownership of 5% or more of the 
Fund's outstanding securities (``Future Affiliates'') and any 
affiliated person of a Future Affiliate (also, ``Future Affiliates''), 
to invest as a Limited Partner in the Partnership under the terms and 
conditions of the Partnership Agreement and the Subscription Agreement; 
(d) the Manager, as investment adviser to the Fund and the Partnership, 
to effect the transactions described above in (a); (e) the Manager, 
CGII, and CGPE to exercise ownership rights in the General Partner and 
to invest in the Partnership indirectly through their ownership of the 
General Partner; (f) the Manager and the Associates to invest and 
exercise ownership rights in CGPE; (g) each of applicants, Plaza Trust, 
General Motors Investment Management Corporation (``Plaza Advisers''), 
current and future Limited Partners, and the Future Affiliates to 
exercise its rights and obligations under the Partnership Agreement and 
Subscription Agreement; and (h) any officer, director, or employee of 
the Fund or of any affiliated person of the Fund to participate as a 
member of the Advisory Committee of the Partnership and to exercise 
their rights and fulfill their obligations with respect to the Advisory 
Committee in accordance with the terms and conditions of the 
Partnership Agreement.
    11. Applicants also request relief to allow the Limited Partners, 
the Chase Manhattan Bank, as trustee for General Motors Employees 
Global Group Pension Trust (together with any successor trustee or 
trust, the ``Pension Trust''), and any affiliated person of Plaza Trust 
or Pension Trust, including Plaza Advisers (``Trust Affiliates''), not 
to be considered affiliated persons, or affiliated persons of 
affiliated persons, of the Fund, either because: (a) the Limited 
Partners (including Plaza Trust) are `'partners'' or ``copartners'' of 
the Fund in the Partnership; or (b) they own (or are deemed to own) 5% 
or more of the Partnership's outstanding voting securities.\4\
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    \4\ Plaza Trust and Pension Trust are group trusts formed under 
and for the benefit of certain employee benefit plans of General 
Motors Corporation and its affiliates. Plaza Advisers serves as the 
investment adviser for both the Plaza Trust and Pension Trust and, 
in that capacity, has discretionary authority over their respective 
interests in the Partnership and the Fund. As of March 31, 1999, 
Pension Trust also owned approximately 7.4% of the Fund's 
outstanding securities.
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Applicants' Legal Analysis

A. Section 2(a)(3)

    1. Section 2(a)(3) of the Act defines an ``affiliated person'' of 
another person to include: (a) any person holding 5% or more of the 
outstanding voting securities of the other person; (b) any person 5% or 
more of whose outstanding voting securities are held by the other 
person; (c) any person directly or indirectly controlling, controlled 
by, or under common control with, the other person; (d) any officer, 
director, partner, copartner, or employee of the other person; and (e) 
any investment adviser to an investment company or member of an 
advisory board to an investment company (collectively, the ``first-tier 
affiliates'').
    2. The Manager, as the investment adviser to the Fund and the 
Partnership and as the manager of the General Partner, is a first-tier 
affiliate of each. The General Partner would be a first-tier affiliate 
of the Fund. The Manager, CGII, and CGPE are members of the General 
Partner. Applicants state that the General Partner may be controlled by 
each, and the Partnership is likely controlled by the General Partner, 
perhaps making the Manager, CGII, and CGPE first-tier affiliates of the 
Partnership and, hence, affiliated persons of first-tier affiliates 
(``second-tier affiliates'') of the Fund.
    3. Applicants state that each Limited Partner who owns 5% or more 
of the interests in the Partnership, to the extent that the interests 
are deemed voting securities, may be a first-tier affiliate of the 
Partnership. Further, applicants state that because the Fund also will 
own more than 5% of the interests in the Partnership if the requested 
relief is granted, it also may be a first-tier affiliate of the 
Partnership. Therefore, each other Limited Partner could be a second-
tier affiliate of the Fund. In addition, each Limited Partner would, 
absent exemptive relief, be a first-tier affiliate of every other 
Partner in the Partnership, including the Fund, making the affiliated 
persons of each Limited Partner second-tier affiliates of the Fund.
    4. Applicants state that Pension Trust is an owner with the power 
to vote 5% or more of the outstanding voting securities of the Fund 
and, together with Pension Trust's investment adviser, Plaza Advisers, 
may be a first-tier affiliate of the Fund. Applicants also state that 
Plaza Trust owns more than 5% of the outstanding Limited Partner 
interests in the Partnership, and, thus, may be a first-tier affiliate 
of the Partnership. Applicants further state that Plaza Trust and 
Pension Trust may be under common control and, therefore, Plaza Trust 
and certain other persons that make up the Trust Affiliates may be 
second-tier affiliates of the Fund. In addition, applicants state that 
some Associates may be directors, officers, or employees of the Manager 
or the Fund, arguably making them second-tier affiliates of the Fund.

B. Exemption From Sections 2(a)(3)(A) and (D)

    1. The Fund requests an exemption under section 6(c) from sections 
2(a)(3)(A) and (D) so that Limited Partners in the Partnership who are 
not otherwise first- or second-tier affiliates of the Fund would not, 
solely by reason of their status as Limited Partners or 5% holders of 
the Partnership's interests, be deemed to be first- or second-tier 
affiliates of the Fund. Section 6(c) of the Act permits the SEC to 
exempt any person or transaction from any provision of the Act, if such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policies of the Act. Applicants state that the 
requested

[[Page 31657]]

relief meets the standards of section 6(c) and would relieve certain 
Limited Partners and their affiliated persons (and the Fund) of the 
burden of monitoring for compliance with the Act in connection with 
their independent and legitimate business and investment activities.

C. Section 17(a)

    1. Section 17(a) of the Act makes it unlawful or any first- or 
second-tier affiliate of a registered investment company, acting as 
principal, to sell or purchase any security to or from the investment 
company. As noted above, applicants state that because the Partnership 
may be deemed to be a first- or second-tier affiliate of the Fund, 
section 17(a) may prohibit the Partnership from selling a limited 
partnership interest in the Partnership to the Fund. In addition, 
applicants state that because Plaza Trust, the Limited Partners, and 
the Future Affiliates may be deemed to be first- or second-tier 
affiliates of the Fund, section 17(a) may prohibit Plaza Trust, the 
Limited Partners, and the Future Affiliates from acting in accordance 
with the terms of the Partnership Agreement and the Subscription 
Agreement.
    2. Section 17(b) of the Act authorizes the SEC to exempt a 
transaction from section 17(a) if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, the proposed transaction is consistent with the 
policy of each registered investment company concerned, and the 
proposed transaction is consistent with the general purposes of the 
Act. Applicants request relief under sections 6(c) and 17(b) to permit 
the Fund to participate in the Partnership, and to permit Plaza Trust, 
the Limited Partners, and the Future Affiliates to act in accordance 
with the terms of the Partnership Agreement and the Subscription 
Agreement.
    3. Applicants submit that the requested relief satisfies the 
standards for relief in sections 6(c) and 17(b). Applicants state that 
each Limited Partner will participate in the Partnership in proportion 
to each Limited Partner's commitment, and each Limited Partner will 
share pro rata in the costs, risks, and any profits earned in 
proportion to its investment, except as noted above. In addition, 
applicants state that the proposed investment by the Fund in the 
Partnership is consistent with the Fund's investment objective and 
policies as recited in the Fund's registration statement. Further, 
applicants state that the proposed investment is consistent with the 
general purposes of the Act.
    4. Applicants state that investing in the Partnership will enable 
the Fund to further diversify its portfolio and to obtain exposure to 
Equity Investments while reducing investment transaction costs. 
Applicants submit that investing in the Partnership will provide the 
Fund with access to investment opportunities that do not exist with 
respect to the public markets in which the Fund principally invests. 
Applicants state that Equity Investments are typically direct 
investments in closely-held enterprises that have either limited or no 
securities publicly outstanding and about which there exists little or 
no publicly available information. Accordingly, the process of 
investing in Equity Investments requires detailed on-site investigation 
of the enterprise and complex negotiations regarding the terms of the 
potential investment.
    5. As noted above, all Limited Partners other than the Fund that 
are admitted after the fifteenth business day following the first 
closing date will be required to pay an Additional Amount equal to a 1% 
monthly rate on their Catch-up Contribution. This monthly rate 
calculated over a one-year period would equal an annual rate of 
approximately 12%. The Fund will be required to pay an Additional 
Amount on its Catch-up Contribution at a rate equal to the then-prime 
rate, plus 2% per year.\5\ Accordingly, if the prime rate were to 
exceed 10% prior to the time the Fund is admitted into the Partnership, 
the Fund would pay an Additional Amount calculated at a higher rate 
than that rate used to calculate the Additional Accounts for the other 
Limited Partners. Notwithstanding that the Fund may have to pay a 
higher Additional Amount than that applicable to other Limited 
Partners, applicants believe that the consideration to be paid by the 
Fund is reasonable and fair and does not involve overreaching. In 
exchange for the ability to gain admission to the Partnership after the 
final closing date (which occurred on January 19, 1999), to which all 
other Limited Partners are subject, applicants believe that it is 
reasonable and fair for the Fund to bear the risk of fluctuations in 
the prime rate between the final closing date and the date the Fund is 
admitted into the Partnership.
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    \5\ Applicants state that as of June 1, 1999, the prime rate was 
7.75%
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D. Section 17(d) and Rule 17d-1

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any first- or second-tier affiliate of a registered investment company, 
acting as principal, from effecting any transaction in connection with 
any joint enterprise or other joint arrangement or profit sharing plan 
in which the investment company participates. As noted above, the 
Partnership, the General Partner, the Limited Partners, Plaza Trust, 
Pension Trust, the Trust Affiliates, the Future Affiliates, the 
Manager, CGII, CGPE, the Associates, and Capital Group may be first- or 
second-tier affiliates of the Fund. Accordingly, an investment in the 
Partnership by the Fund may represent a joint arrangement among these 
entities for the purposes of section 17(d).
    2. Rule 17d-1 under the Act permits the SEC to approve a proposed 
joint transaction covered by the terms of section 17(d). In determining 
whether to approve a transaction, the SEC is to consider whether the 
proposed transaction is consistent with the provisions, policies, and 
purposes of the Act, and the extent to which the participation of the 
investment company is on a basis different from or less advantageous 
than that of the other participants.
    3. Applicants believe that the proposed investment by the Fund in 
the Partnership satisfies the standards of rule 17d-1. Applicants state 
that the Fund will participate in the Partnership on terms that are 
comparable to the terms applicable to the other Limited Partners. 
Furthermore, both the profits to be earned and the risks to be incurred 
will be allocated among each of the Limited Partners pro rata, in 
direct proportion to each Limited Partner's investment. With regard to 
the payment by the Fund of an Additional Amount that could be at a rate 
higher than that for other Limited Partners, applicants state that the 
fund would receive a corresponding benefit not offered to other Limited 
Partners, namely the ability to participate in the Partnership after 
the final closing date.

Applicants' Conditions

    Applicants agree that any other of the SEC granting the requested 
relief will be subject to the following conditions:
    1. The Manager will waive its management fee (which includes 
administrative fees) payable by the Fund with respect to the Fund's net 
assets committed to the Partnership by the Fund's proposed investment 
in the Partnership. To effectuate this waiver, Fund assets represented 
by the Partnership interests purchased by the

[[Page 31658]]

Fund under the proposed investment will be excluded from the net assets 
of the Fund in the calculation of the management fee. As this waiver 
relates to the Manager's fee schedule, any Fund assets invested in the 
Partnership will be excluded from the Fund's assets before any fee 
calculation is made; thus, the Fund's aggregate net assets will be 
adjusted by the amount invested in the Partnership prior to determining 
the fee based on the Manager's fee schedule (the amount waived pursuant 
to this procedure is the ``Reduction Amount'' for purposes of condition 
no. 4, below). In addition, the Manager will credit against any future 
management fees payable to it in conjunction with the management of 
Fund assets other than those represented by the Partnership interests 
under the proposed investment, any amount of retroactive management 
fees, including any other amounts directly related to the retroactive 
management fees, payable to it from the first closing date that the 
Fund is admitted to the Partnership. The credit shall be applied to the 
management fee paid by the Fund for management of its assets after 
exclusion of the Fund's assets represented by its Partnership 
interests.
    2. Any fees payable by the Fund to the Manager so excluded in 
connection with the proposed investment, as described in the 
application, will be excluded for all time, and will not be subject to 
recoupment by the Manager or by any other investment adviser at any 
other time.
    3. The Fund's proposed investment in the Partnership will be no 
more than U.S. $95 million.
    4. If the Manager waives any portion of its fees or bears any 
portion of its expenses in respect of the Fund (an ``Expense Waiver''), 
the adjusted fees for the Fund (gross fees minus Expense Waiver) will 
be calculated without reference to the Reduction Amount. If the 
Reduction Amount exceeds adjusted fees, the Manager will reimburse the 
Fund in an amount equal to such excess.
    5. The Fund's proposed investment in the Partnership will not be 
subject to a sales load, redemption fee, distribution fee analogous to 
those adopted in accordance with rule 12b-1 by an investment company 
registered under the Act, or service fee (analogous to that defined in 
rule 2830(b)(9) of the Conduct Rules of the National Association of 
Securities Dealers, Inc.).
    6. The Fund's proposed investment in the Partnership will be in 
accordance with the Fund's investment restrictions and will be 
consistent with its policies as recited in its registration statement.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14874 Filed 6-10-99; 8:45 am]
BILLING CODE 8010-01-M