[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Notices]
[Pages 69969-69974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29823]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24741; 813-232]


ML Taurus, Inc.; Notice of Application

November 15, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under sections 6(b) and 6(e) 
of the Investment Company Act of 1940 (the ``Act'') exempting the 
applicant from all provisions of the Act, except section 9, section 17 
(other than certain provisions of sections 17(a), (d), (e), (f), (g), 
and (j)), section 30 (except for certain provisions of sections 30(a), 
(b), (e), and (h)), sections 36 through 53, and the rules and 
regulations under the Act.

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    Summary of Application: Applicant requests an order to exempt 
certain limited partnerships and other entities (``Partnerships'') 
formed for the benefit of key employees of Merrill Lynch & Co., Inc. 
(``ML & Co.'') and its affiliates from certain provisions of the Act. 
Each Partnership will be an ``employees' securities company'' within 
the meaning of section 2(a)(13) of the Act.
    Applicant: ML Taurus, Inc. (``ML Taurus'').
    Filing Dates: The application was filed on February 8, 2000, and 
amended on November 9, 2000.
    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 applicant 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 11, 2000, 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicant, c/o Leonard B. Mackey, Jr., Esquire, Clifford 
Chance Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166-
0153.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Janet M. Grossnickle, Branch Chief, at (202) 942-
0526 (Division of Investment Management, Office of Investment Company 
Regulation).

[[Page 69970]]


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, NW., 
Washington, DC 20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. ML & Co. is a diversified financial services holding company 
which provides investment, financing, insurance and related services 
through subsidiaries. Its principal subsidiary, Merrill Lynch, Pierce, 
Fenner & Smith Incorporated, is a broker-dealer registered under the 
Securities Exchange Act of 1934 (the ``Exchange Act''). ML & Co. and 
its affiliates as defined in rule 12b-2 of the Exchange Act are 
referred to collectively as the ``Merrill Lynch Group.''
    2. ML Taurus, an indirect wholly-owned subsidiary of ML & Co., 
intends to establish Partnerships from time to time. Each Partnership 
will be organized as either a Delaware limited partnership, a Delaware 
limited liability company or another appropriate entity, will be an 
``employees' securities company'' within the meaning of section 
2(a)(13) of the Act, and each will operate as a closed-end, management 
investment company which may be diversified or non-diversified. The 
Partnerships will be established for the benefit of highly compensated 
employees, officers, directors and current Consultants \1\ of ML & Co. 
and its affiliates, primarily to create capital building opportunities 
that are competitive with those at other financial services firms and 
to facilitate the recruitment and retention of high caliber 
professionals. The investment objectives and policies for each 
Partnership may vary from Partnership to Partnership. Participation in 
a Partnership will be voluntary.
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    \1\ A ``Consultant'' is a person or entity whom a Merrill Lynch 
Group member has engaged on a retainer to provide services and 
professional expertise on an ongoing basis as a regular consultant 
or as a business or legal adviser and who shares a community of 
interest with the Merrill Lynch Group and its employees.
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    3. ML Taurus, another direct or indirect wholly-owned subsidiary of 
ML & Co. or an entity within the Merrill Lynch Group may serve as 
general partner to one or more of the Partnerships (``General 
Partner''). The General Partner will manage, operate and control each 
Partnership. The executive offices and directors of the General Partner 
or of any entity controlling the General Partner will be employees of 
the Merrill Lynch Group who are eligible to invest in the Partnership. 
The General Partner may delegate certain management responsibilities to 
a manager (``Manager''), which will be either ML & Co., a person 
controlling, controlled by or under common control with ML & Co. or an 
investment committee composed of ``Eligible Employees'' as defined 
below. The General Partner or Manager will act as the investment 
adviser to a Partnership and will register as an investment adviser 
under the Investment Advisers Act of 1940 (``Advisers Act''), if 
required under applicable law.
    4. Interests in the Partnerships (``Interests'') will be offered 
without registration in reliance on section 4(2) of the Securities Act 
of 1933 (the ``Securities Act''), or Regulation D under the Securities 
Act, and will be sold only to ``Eligible Employees,'' and other 
``Qualified Participants,'' each as defined below, or members of the 
Merrill Lynch Group (collectively, the ``Limited Partners''). Prior to 
offering Interests to an Eligible Employee or ``Qualified Family 
Member,'' as defined below, the General Partner must reasonably believe 
that such individual has such knowledge, sophistication and experience 
in business and financial matters to be capable of evaluating the 
merits and risks of participating in the Partnership, is able to bear 
the economic risk of such investment and is able to afford a complete 
loss of such investment. An Eligible Employee is an individual who is 
former or current employee, officer, director or current Consultant of 
the Merrill Lynch Group who meets the standards of an ``accredited 
investor'' as defined in rule 501(a)(5) or 501(a)(6) of Regulation D 
under the Securities Act (an ``Accredited Investor'') or one of 35 or 
fewer employees of the Merrill Lynch Group who meets certain salary and 
other requirements (``Other Investors'').
    5. Each Other Investor will be an employee of the Merrill Lynch 
Group who (a) is a ``knowledgeable employee,'' as defined in rule 3c-5 
under the Act, of such Partnership (with the Partnership treated as 
though it were a ``Covered Company'' for purposes of the rule), or (b) 
has a graduate degree in business, law or accounting, has a minimum of 
five years of consulting, investment banking or similar business 
experience, and has a reportable income from all sources in the two 
calendar years immediately preceding the Other Investor's participation 
in the Partnership of at least $100,000 and has a reasonable 
expectation of reportable income of at least $140,000 per year in each 
year in which the Other Investor invests in a Partnership. In addition, 
an Other Investor qualifying under (b) above will not be permitted to 
invest in any year more than 10% of such person's income from all 
sources for the immediately preceding year in aggregate in a 
Partnership and in all other Partnerships in which that Other Investor 
has previously invested.
    6. A Qualified Participant is an Eligible Employee, Qualified 
Family Member (as defined below) or Qualified Investment Vehicle (as 
defined below). A ``Qualified Family Member'' is a spouse, parent, 
child, spouse of child, brother, sister, or grandchild of an Eligible 
Employee, and must be an Accredited Investor. A ``Qualified Investment 
Vehicle'' is a trust or other investment vehicle established solely for 
the benefit of an Eligible Employee or Qualified Family Members. A 
Qualified Investment Vehicle must be either (a) an Accredited Investor 
or (b) an entity for which an Eligible Employee or Qualified Family 
Member is a settlor and principal investment decision-maker.
    7. The terms of investment in a Partnership will be fully disclosed 
to each prospective Limited Partner at the time the Limited Partner is 
invited to participate in the Partnership. Each Partnership will send 
annual reports, which will contain audited financial statements, as 
soon as practicable after the end of each of its fiscal year to Limited 
Partners. In addition, as soon as practicable after the end of each tax 
year of a Partnership, each Limited Partner will receive a report 
setting forth such tax information as shall be necessary for the 
preparation by the Limited Partner of his or her federal tax returns.
    8. The specific investment objectives and strategies for a 
particular Partnership will be set forth in a private placement 
memorandum relating to the Interests offered by the Partnership and 
each Qualified Participant will receive a copy of the private placement 
memorandum and the limited partnership agreement (or other constitutive 
document) of the Partnership.
    9. Interests in a Partnership will be non-transferable except with 
the prior written consent of the General Partner. No person will be 
admitted into a Partnership unless the person is a Qualified 
Participant or member of the Merrill Lynch Group. No fee of any kind 
will be charged in connection with the sale of Interests.
    10. The General Partner may have the right, but not the obligation, 
to repurchase or cancel the Interest of an Eligible Employee who ceases 
to be an employee, officer, director or current Consultant of any 
member of the Merrill

[[Page 69971]]

Lynch Group for any reason. Upon repurchase or cancellation, such 
Limited Partner's Interest will be purchased by the General Partner for 
cash in an amount at least equal to the lessor of (a) the amount of 
such Partner's capital contributions less prior distributions from the 
Partnership together (plus interest, as determined by the General 
Partner) or (b) the value of the Interest, as determined by the General 
Partner in good faith as of the date of termination.
    11. Subject to the terms of the applicable limited partnership 
agreement (or other constitutive documents), a Partnership will be 
permitted to enter into transactions involving (a) a Merrill Lynch 
Group entity, (b) a Client Fund (as defined below) or other portfolio 
company, (c) a Limited Partner or any person or entity affiliated with 
a Limited Partner, or (d) any partner or other investor in any entity 
in which a Partnership invests. These transactions may include a 
Partnership's purchase or sale of an investment or an interest from or 
to any Merrill Lynch Group entity or Client Fund, acting as principal. 
Prior to entering into these transactions, the General Partner must 
determine that the terms are fair to the Limited Partners.
    12. A Partnership will not invest more than 15% of its assets in 
securities issued by registered investment companies except for 
temporary investments in money market funds. A Partnership will not 
acquire any security issued by a registered investment company if 
immediately after the acquisition, the Partnership will own more than 
3% of the outstanding voting stock of the registered investment 
company. The Partnership may also invest in Client Funds that are not 
registered under the Act by virtue of section 3(c)(1) or section 
3(c)(7) of the Act.
    13. The General Partner or Manager of a Partnership may charge the 
Partnership an annual management fee, a flat administrative charge or a 
``carried interest.'' \2\ A General Partner or Manager may receive 
reimbursement of its out-of-pocket expenses, including the allocable 
portion of the salaries of Merrill Lynch Group employees who work on 
the Partnerships' affairs. Directors or officers of the General Partner 
or Manager, or of any entity controlling the General Partner or 
Manager, may also be compensated for their services to the General 
Partner or Manager, including reimbursement for out-of-pocket expenses, 
and may be allocated a portion of any carried interest paid by such 
Partnership.
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    \2\ A ``carried interest'' is an allocation to the General 
Partner or Manager based on the net gains in addition to the amount 
allocable to the General Partner or Manager that is in proportion to 
its capital contributions. Depending on whether the General Partner 
or Manager is registered as an investment adviser under the Advisers 
Act, any ``carried interest'' will be charged only if permitted by 
rule 205-3 under the Advisers Act (in the case of a General Partner 
or Manager registered under the Advisers Act) or will comply with 
section 205(b)(3) of the Advisers Act (with the Partnership treated 
as though it were a ``business development company'' solely for the 
purpose of that section) in the case of a General Partner or Manager 
not registered under the Advisers Act.
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    14. If a Partnership becomes a limited partner or otherwise holds 
an interest in an investment fund organized or managed by the Merrill 
Lynch Group in which unaffiliated third parties also are limited 
partners or otherwise hold interests (a ``Client Fund''), the 
Partnership may be obligated to pay a pro rata share of any fees 
(including carried interest) charged to the unaffiliated limited 
partners or interest holders of such Client Fund. A Partnership may 
also invest in funds managed or advised by persons not affiliated with 
ML & Co. in which case such unaffiliated persons may also be entitled 
to fees (including carried interest) from the Partnership. In all such 
cases, the Partnerships will enter into commercially reasonable arm's 
length arrangements with respect to the payment of the fees and the 
potential for payment of any such management fees or carried interest 
will be fully described in the applicable offering documents.
    15. Members of the Merrill Lynch Group and/or unaffiliated third 
parties may make loans to the Partnerships and/or to Limited Partners 
in connection with their purchase of Partnership Interests, provided 
that a Partnership will not borrow from any person if the borrowing 
would cause any person not named in section 2(a)(13) of the Act to own 
outstanding securities of the Partnership (other than short-term 
paper). In connection with any leverage of the Partnership or preferred 
contributions, Eligible Employees will not have any personal liability 
in excess of the amounts payable under their respective subscription 
agreements for the repayment of the preferred capital contribution, 
including in the event that, upon liquidation of the Partnership, the 
assets of the Partnership are insufficient to permit the Partnership to 
repay such preferred capital contribution in full. Members of the 
Merrill Lynch Group may also make preferred capital contributions to 
the Partnerships either through the General Partner or as Limited 
Partners. Any leverage or preferred capital contributions will bear 
interest at a rate no less favorable to a Partnership or its Limited 
Partners than that could be obtained on an arm's length basis.
    16. Eligible Employees may be able to defer compensation under a 
deferred compensation plan established in connection with the 
Partnerships and receive a return on such deferred compensation 
determined by reference to the performance of a Partnership. Such 
employees also may be able to leverage their deferred compensation 
through ``borrowings'' from members of the Merrill Lynch Group 
structured in a manner similar to direct loads to Limited Partners. The 
deferred compensation plans/or an Eligible Employee's interest in such 
plans: (a) Will be subject to the applicable terms and conditions of 
this application; \3\ (b) will only be offered to Eligible Employees 
who are current employees, officers, directors or consultants of the 
Merrill Lynch Group; (c) will have restrictions on transferability, 
including prohibitions on assignment or transfer except in the event of 
the Eligible Employee's death or as otherwise required by law; and (d) 
will provide information to participants equivalent to that provided to 
investors and prospective investors in the corresponding Partnership, 
including, without limitation, disclosure documents and audited 
financial information.
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    \3\ For purposes of this application, a Partnership will be 
deemed to be formed with respect to each deferred compensation plan 
and each reference to ``Partnership,'' ``capital contribution,'' 
``General Partner,'' ``Limited Partner,'' ``loans'' or ``leverage'' 
and ``Interest'' in this application will be deemed to refer to the 
deferred compensation plan, the notional capital contribution to the 
deferred compensation plan, the Merrill Lynch Group, a participant 
of the deferred compensation plan, notional loans or leverage and 
participation rights in the deferred compensation plan, 
respectively.
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Applicant's Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the Commission 
will exempt employees' securities companies from the provisions of the 
Act to the extent that the exemption is consistent with the protection 
of investors. Section 6(b) provides that the Commission will consider, 
in determining the 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' securities

[[Page 69972]]

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 of 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 of the Act 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 7, certain provisions of the Act, as specified by the 
Commission, will be applicable to the company and other persons dealing 
with the company as though the company were registered under the Act. 
Applicant requests an order under sections 6(b) and 69e) of the Act 
exempting the Partnerships from all provisions of the Act, except 
section 9, section 17 (other than certain provisions of paragraphs (a), 
(d), (e), (f), (g), and (j)), section 30 (other than certain provisions 
of paragraphs (a), (b), (e), and (h)), sections 36 through 53 of the 
Act, and the rules and regulations under the Act and approving 
transactions pursuant to section 17(d) of the Act and rule 17d-1 
thereunder.
    3. Section 17(a) generally prohibits any affiliated person of a 
registered investment company, or any affiliated person of an 
affiliated person, acting as principal, from knowingly selling or 
purchasing any security or other property to or from the company. 
Applicant requests an exemption from section 17(a) to permit: (a) A 
member of the Merrill Lynch Group or a Client Fund, acting as 
principal, to engage in any transaction directly or indirectly with any 
Partnership or any entity controlled by such Partnership; (b) a 
Partnership to invest in or engage in any transaction with any entity, 
acting as principal (i) in which such Partnership, and company 
controlled by such Partnership, or any entity within the Merrill Lynch 
Group or a Client Fund has invested or will invest or (ii) with which 
such Partnership, any company controlled by such Partnership or any 
Merrill Lynch Group entity or a Client Fund is or will otherwise become 
affiliated; and (c) a partner or other investor in any entity in which 
a Partnership invests, acting as principal, to engage in transactions 
directly or indirectly with the related Partnership or any company 
controlled by such Partnership.
    4. Applicant states that an exemption from section 17(a) is 
consistent with the protection of investors and the purposes of the 
Partnerships. Applicant states that the Limited Partners in each 
Partnership will be informed of the possible extent of the 
Partnership's dealings with the Merrill Lynch Group and of the 
potential conflicts of interest that may exist. Applicant also asserts 
that the community of interest among the Limited Partners and Merrill 
Lynch Group will serve to reduce any risk of abuse in transactions 
involving a Partnership and the Merrill Lynch Group.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person of a registered investment company, or any 
affiliated person of an affiliated person, acting as principal, from 
participating in any joint enterprise, or other joint arrangement, 
unless approved by the Commission. Applicant requests approval to 
permit affiliated persons of each Partnership, or affiliated persons of 
such persons, to participate in any joint arrangement in which the 
Partnership or an entity controlled by the Partnership is a 
participant.
    6. Applicant submits that it is likely that suitable investments 
will be brought to the attention of a Partnership because of its 
affiliation with the Merrill Lynch Group, the Merrill Lynch Group's 
large capital resources, and its experience in structuring complex 
transactions. Applicant also submits that the types of investment 
opportunities considered by a Partnership often require each investor 
to make funds available in an amount that may be substantially greater 
than what a Partnership may make available on its own. Applicant 
contends that, as a result, the only way in which a Partnership may be 
able to participate in these opportunities may be to co-invest with 
other persons, including its affiliates. Applicant notes that each 
Partnership will be primarily organized for the benefit of Eligible 
Employees as an incentive for them to remain with the Merrill Lynch 
Group and for the generation and maintenance of goodwill. Applicant 
believes that, if co-investments with the Merrill Lynch Group are 
prohibited, the appeal of the Partnerships would be significantly 
diminished.
    7. Applicant states that the possibility that permitting co-
investments by an affiliated person or an affiliated person of an 
affiliated person might lead to less advantageous treatment of the 
Partnership is mimimal in light of (a) the Merrill Lynch Group's 
intention in establishing a Partnership so as to reward Eligible 
Employees and to attract and retain highly qualified personnel, (b) the 
Merrill Lynch Group's capital contributions to the Partnerships, (c) 
the liability of the General Partner to the extent that a Partnership's 
losses exceed its assets and (d) the fact that executive officers and 
directors of the General Partners or of the entity controlling the 
General Partner may themselves invest in the Partnership. In addition, 
applicant asserts that strict compliance with section 17(d) could cause 
a Partnership to forgo attractive investment opportunities simply 
because an affiliated person of the Partnership has made, or may make, 
the same investment.
    8. Applicant believes that the interests of the Eligible Employees 
participating in a Partnership will be adequately protected in 
situations where condition 3 in the application does not apply. A 
Partnership may also co-invest with an investment fund or separate 
account, organized for the benefit of investors who are not affiliated 
with the Merrill Lynch Group, over which a member of the Merrill Lynch 
Group exercises investment discretion (a ``Third-Party Fund''). 
Applicant states that in structuring a Third-Party Fund, it is common 
for unaffiliated investors of such fund to require that the Merrill 
Lynch Group invest its own capital in fund investments, either through 
the fund or on a side-by-side basis, and that such Merrill Lynch Group 
investment be subject to substantially the same terms as those 
applicable to the fund's investment. Applicant states that it is 
important to the Merrill Lynch Group that the interests of the Third-
Party Fund take priority over the interests of the Partnerships, and 
that the activities of the Third-Party Fund not be burdened or 
otherwise affected by the activities of the Partnerships. In addition, 
the relationship of a Partnership to a Third-Party Fund, in the context 
of this application, is fundamentally different from such Partnership's 
relationship to the Merrill Lynch Group. The focus of, and the 
rationale for, the protections contained in this application are to 
protect the Partnerships from any overreaching by the Merrill Lynch 
Group in the employer/employee context, whereas the same concerns are 
not present with respect to the Partnerships vis-a-vis the investors of 
a Third-Party Fund.
    9. 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. Applicant requests an 
exemption from section 17(e) to permit a Merrill Lynch Group member 
(including the General Partner) acting as agent or broker, to receive 
placement fees, financial

[[Page 69973]]

advisory fees or other compensation in connection with the purchase or 
sale by a Partnership of securities, subject to the requirement that 
placement fees, financial advisory fees or other compensation is deemed 
``usual and customary.'' Applicant states that for the purposes of the 
application, fees and other compensation that is being charged or 
received by the Merrill Lynch Group will be deemed ``usual and 
customary'' only if (a) the Partnership is purchasing or selling 
securities with other unaffiliated third parties, (b) the fees or 
compensation being charged to the Partnership are also being charged to 
the unaffiliated third parties, and (c) the amount of securities being 
purchased or sold by the Partnership does not exceed 50 percent of the 
total amount of securities being purchased or sold by the Partnership 
and unaffiliated third parties. Applicant asserts that compliance with 
section 17(e) would prevent a Partnership from participating in a 
transaction in which a member of the Merrill Lynch Group does not, for 
other business reasons, wish a Partnership to be treated in a more 
favorable manner (in terms of lower fees) than unaffiliated third 
parties. Applicant asserts that fees or other compensation paid by a 
Partnership to a Merrill Lynch Group entity will be the same as those 
negotiated at arm's length with unaffiliated third parties and the 
unaffiliated third parties will have as great or greater interest as 
the Partnership in the transaction as a whole.
    10. Rule 17e-1(b) requires that a majority of directors who are not 
``interested persons'' (as defined by section 2(a)(19) of the Act) take 
actions and make approvals regarding commissions, fees, or other 
remuneration. Applicants requests an exemption from rule 17e-1 to the 
extent necessary to permit each Partnership to comply with the rule 
without having a majority of the directors of the General Partner who 
are not interested persons take actions and make determinations as set 
forth in the rule. Applicant states that because all of the directors 
of a General Partner will be affiliated persons, without such relief 
requested, a Partnership could not comply with rule 17e-1. Applicant 
states that each Partnership will comply with rule 17e-1(b) by having a 
majority of the directors of the Partnership take actions and make 
approvals as set forth in rule 17e-1. Applicants states that each 
Partnership will otherwise comply with the requirements of rule 17e-1.
    11. 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. Applicant requests an exemption from section 17(f) and rule 
17f-1(a) to the extent necessary to permit a member of the Merrill 
Lynch Group to act as custodian without a written contract. Applicant 
also requests an exemption from the rule 17f-1(b)(4) requirement that 
an independent accountant periodically verify the assets held by the 
custodian. Applicant further requests an exemption from rule 17f-1(c)'s 
requirement of transmitting to the Commission a copy of any contract 
executed pursuant to rule 17f-1. Applicant believes that because of the 
community of interest of all of the parties involved, compliance with 
these requirements would be unnecessary. Applicant states that it will 
comply with rule 17f-1(d), provided that ratification by the General 
Partner of any Partnership will be deemed to be ratification by a 
majority of a board of directors. Applicant states that it will comply 
with all other requirements of rule 17f-1.
    12. 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 take certain actions and 
give certain approvals relating to fidelity bonding. Applicant requests 
relief from rule 17g-1(d), (e) and (g) of the extent necessary to 
permit the General Partner's officers and directors, who may be deemed 
to be interested persons, to take the actions and make the 
determinations set forth in the rule. Applicant states that, because 
all the directors of the General Partner will be affiliated persons, a 
Partnership could not comply with rule 17g-1 without the requested 
relief. Applicant also states that each Partnership will comply with 
all other requirements of rule 17g-1.
    13. Section 17(j) and paragraph (b) 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 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 anti-fraud 
provisions of paragraph (b), because they are unnecessarily burdensome 
because of the community of interest among the Limited Partners.
    14. Applicant requests an exemption from the requirements in 
sections 30(a), 30(b) and 30(e), and the rules under those sections, 
that registered investment companies prepare and file with the 
Commission and mail to their shareholders certain periodic reports and 
financial statements. Applicant contends that the forms prescribed by 
the Commission for periodic reports have little relevance to the 
Partnerships and would entail administrative and legal costs that 
ourweigh any benefit to the Limited Partners. Applicant requests 
exemptive relief to the extent necessary to permit each Partnership to 
report annually to its Limited Partners. Applicant also requests also 
an exemption from section 30(h) to the extent necessary to exempt the 
General Partner of each Partnership and any other person who may be 
deemed to be a member of an advisory board of a Partnership from filing 
Forms 3, 4, and 5 under section 16(a) of the Exchange Act with respect 
to their ownership of Interests in a Partnership. Applicant asserts 
that, because there will be no trading markets and the transfers of 
Interests will be severely restricted, these filings are unnecessary 
for the protection of investors and burdensome to those required to 
make them.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
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 reason 
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 of each Partnership will record and preserve a 
description of all Section 17 Transactions, their findings, the 
information or materials upon which their findings are based and the 
basis therefor. All such records will be maintained for the life of the 
Partnerships and at least two years thereafter, and will be subject to

[[Page 69974]]

examination by the Commission and its staff. \4\
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    \4\ 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 the Section 17 Transactions, the General 
Partner of each Partnership will adopt, and periodically review and 
update, procedures designed to ensure that reasonable inquiry is made, 
before 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 an affiliated person, promoter, or principal 
underwriter.
    3. The General Partner of each Partnership will not invest the 
funds of the Partnership in any investment in which an ``Affiliated Co-
Investor'' (as defined below) has acquired 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'' with respect to Partnership means (a) an 
``affiliated person,'' as such term is defined in the Act, of the 
Partnership (other than a Third-Party Fund or a person that is an 
affiliated person of the Partnership solely because of section 
2(a)(3)(B) of the Act); (b) the Merrill Lynch Group; (c) an officer or 
director of the Merrill Lynch Group; or (d) an entity (other than a 
Third-Party Fund) in which a member of the Merrill Lynch Group acts as 
a general partner or has a similar capacity to control the sale or 
other disposition of the entity'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 wholly-owned subsidiary, to any company 
(a ``Parent'') of which the Affiliated Co-Investor is a direct or 
indirect wholly-owned subsidiary, or to a direct or indirect wholly-
owned subsidiary of its Parent; (b) to immediate family members of the 
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 any exchange registered 
as a national securities exchange under section 6 of the Exchange Act; 
(ii) national market system securities pursuant to section 11A(a)(2) of 
the Exchange 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 the 
Partnership required to be sent to the Limited Partners, and agree that 
all such records will be subject to examination by the Commission and 
its staff.\5\
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    \5\ 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 of each Partnership will send to each 
Limited Partner who had an Interest in a Partnership, at any time 
during the fiscal year then ended, Partnership financial statements 
that have been audited by 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 a manner consistent with customary practice with 
respect to the valuation of assets of the kind held by the Partnership. 
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 of each Partnership 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 that year.
    6. Whenever a Partnership makes a purchase from or sale to an 
entity affiliated with the Partnership by reason of a 5% or more 
investment in such entity by a Merrill Lynch Group director, officer, 
or employee, such individual will not participate in the General 
Partner's determination of whether or not to effect the purchase or 
sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29823 Filed 11-20-00; 8:45 am]
BILLING CODE 8010-01-M