[Federal Register Volume 66, Number 127 (Monday, July 2, 2001)]
[Notices]
[Pages 34966-34971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-16556]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25050; 813-238]


Community Investment Partners IV, L.P., LLLP and The Jones 
Financial Companies, L.L.L.P.; Notice of Application

June 26, 2001.
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 
applicants 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, and the rules and 
regulations under those sections.

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SUMMARY OF APPLICATION: Applicants request an order to exempt certain 
limited liability companies or other entities (``Partnerships'') formed 
for the benefit of key employees of The Jones Financial Companies 
L.L.L.P. and its affiliates from certain provisions of the Act. Each 
Partnership will be an ``employees' securities company'' as defined in 
section 2(a)(13) of the Act.
    Applicants:Community Investment Partners IV, L.P., LLLP (the 
``Initial Partnership'') and The Jones Financial Companies, L.L.L.P 
(``Jones Financial'').
    Filing Date:The application was filed on March 1, 2000 and amended 
on May 21, 2001. Applicants have agreed to file an 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 July 23, 2001, 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 
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. Applicants, 12555 Manchester Road, St. Louis, MO 63131.

FOR FURTHER INFORMATION CONTACT: Sara Crovitz, Senior Counsel, at (202) 
942-0667 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0101, (202) 942-8090.

Applicants' Representations

    1. Jones Financial is a full-service provider of securities 
brokerage, insurance brokerage, planning and other financial services 
and also has a specialized investment banking practice. Jones Financial 
is a member of the New York, American, Chicago, Toronto, Montreal and 
London stock exchanges and is a broker-dealer registered under the 
Securities Exchange Act of 1934 (the ``1934 Act''). Jones Financial and 
its affiliates, as defined in rule 12b-2 under the 1934 Act, are 
referred to collectively as the ``Jones Financial Companies.'' 
Community Investment Partners IV, L.P., LLLP is a limited partnership 
registered under the laws of the state of Missouri.
    2. Applicants intend to establish investment programs for the 
benefit of certain individual current or former partners of the Jones 
Financial Companies. The Initial Partnership and other partnerships 
that may in the future be offered to the same class of investors will 
be limited liability companies or other entities formed under the laws 
of the state of Missouri, Delaware or another jurisdiction (such other 
partnerships or other investment vehicles being referred to as ``Other 
Partnerships'' and together with the Initial Partnerships, the 
``Partnership(s)''). Each Partnership is or will be an ``employees' 
securities company'' within the meaning of section 2(a)(13) of the Act 
and will operate as a closed-end management investment company. The 
goal of the Partnerships is to create investment opportunities that are 
competitive with those at other brokerage, insurance, investment 
banking and financial services firms and to facilitate recruitment and 
retention of high

[[Page 34967]]

caliber professionals. Participation in a Partnership will be 
voluntary.
    3. CIP Management L.P., LLLP, which is controlled by Jones 
Financial, will act as the general partner of the Initial Partnership 
(together with any Jones Financial Companies entity that acts as the 
general partner of a Partnership, the ``General Partner''). The General 
Partner of the Initial Partnership will not be registered under the 
Investment Advisers Act of 1940 (the ``Advisers Act'') pursuant to an 
exemption from registration set forth in section 203(b)(3) of the 
Advisers Act and rule 203(b)(3)-1 under the Advisers Act, but will 
register as an investment adviser if required under applicable law. The 
General Partner, or another Jones Financial Companies entity, will 
manage, operate and control each of the Partnerships. The General 
Partner will be authorized to delegate to another Jones Financial 
Companies entity or to a committee of Jones Financial Companies 
employees such management responsibilities.
    4. Limited partner interests in the Partnerships (``Interests'') 
will be offered without registration in reliance on section 4(2) of the 
Securities Act of 1933 (the ``1933 Act''), or Regulation D under the 
1933 Act and will be sold only to ``Eligible Employees'' and 
``Qualified Participants'' (collectively ``Participants,'' in each case 
as defined below). Prior to offering Interests, the General Partner 
must reasonably believe that each Eligible Employee or Eligible Family 
Member, as defined below, is a sophisticated investor capable of 
understanding and evaluating the risks of participating in such 
Partnership without the benefit of regulatory safeguards and can afford 
a complete loss of such investment. An Eligible Employee is an 
individual who is a former or current partner of Jones Financial 
Companies and who meets the standards of an ``accredited investor'' 
under Rules 501(a)(5) or 501(a)(6) of Regulation D, or one of no more 
than 35 partners who meet certain salary and other requirements 
(``Other Investor'').
    5. An Other Investor will be permitted to invest in a Partnership 
if each such person (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 such 
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 will have a 
reasonable expectation of reportable income from all sources of at 
least $140,000 in each year in which the Other Investor will be 
committed to make investments in a Partnership. In addition, an Other 
Investor qualifying under (b) in the immediately preceding sentence 
will not be permitted to invest or commit to invest in any calendar 
year more than 10% (or such lesser percentage as shall be determined by 
the General Partner and set forth in the private placement memorandum 
relating to such Partnership) of such person's income from all sources 
for the immediately preceding calendar year in the aggregate in a 
Partnership and in all other Partnerships in which such Other Investor 
has previously invested.
    6. A Qualified Participant is an Eligible Family Member or 
Qualified Entity (in each case as defined below) of an Eligible 
Employee. An ``Eligible Family Member'' is a spouse, parent, child, 
spouse of child, brother, sister, or grandchild of an Eligible 
Employee. An Eligible Family Member, if such individual or entity is 
purchasing an Interest from a partner of the Partnership (``Partner'' 
or ``Participant'') or directly from the Partnership, must be an 
accredited investor. A ``Qualified Entity'' is (a) a trust of which the 
trustee, grantor and/or beneficiary is an Eligible Employee; (b) a 
partnership corporation or other entity controlled by an Eligible 
employee \1\ or (c) a trust or other entity established solely for the 
benefit of Eligible Family Members of an Eligible Employee. A Qualified 
Entity must be either an accredited investor or an entity for which an 
Eligible Employee or Eligible Family Member is a settlor and principal 
investment decision-maker.
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    \1\ The inclusion of partnerships, corporations or other 
entities that are controlled by Eligible Employees in the definition 
of ``Qualified Entity'' is to enable such individuals to make 
investments in the Partnerships through personal investment vehicles 
for the purpose of implementing their personal and family investment 
and estate planning objectives. Eligible Employees will exercise 
investment discretion or control over these investment vehicles, 
thereby creating a close nexus between Jones Financial Companies and 
these investment vehicles.
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    7. The terms of a Partnership will be fully disclosed to each 
Eligible Employee and, if applicable, to a Qualified Participant of the 
Eligible Employee, at the time the Eligible Employee is invited to 
participate in the Partnership. Each Partnership will send annual 
reports, which will contain audited financial statements, to each 
Participant within 120 days after the end of the fiscal year of each of 
the Partnerships or as soon as practicable thereafter. In addition, 
each Participant will receive a copy of Schedule K-1 showing the 
Participant's share of income, credits, deductions and other tax items.
    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 Eligible Employee and 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 each Partnership will be non-transferable except 
with the prior written consent of the General Partner. No person or 
entity will admitted into a Partnership unless such person is an 
Eligible Employee, Qualified Participant of an Eligible Employee or a 
Jones Financial Companies entity. Interests in each Partnership will 
not be subject to repurchase, cancellation or redemption. No sales load 
or similar fee of any kind will be charged in connection with the sale 
of Interests. The General Partner, the Jones Financial Companies or any 
employees of the General Partner or the Jones Financial Companies will 
be entitled to receive any compensation from, or a performance-based 
fee (``carried interest'') \2\ based on, the gains and losses of the 
investment program or the Partnership's investment portfolio.
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    \2\ A ``carried interest in an allocation to the General Partner 
based on the net gains of an investment program and is in addition 
to the amount that is allocable to the General Partner in proportion 
to its capital contributions. With respect to a General Partner that 
is registered under the Advisers Act, any carried interest may be 
charged only if it is permitted under Rule 205-3 under the Advisers 
Act; with respect to a General Partner that is not registered under 
the Advisers Act, any carried interest charged 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 purposes 
of that section). The General Partner of the Initial Partnership is 
not eligible to register as an investment adviser under the Advisers 
Act pursuant to section 203A(1) of the Advisers Act.
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    10. 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 Jones Financial 
Companies entity, (b) a portfolio company, (c) any Partner or person or 
entity affiliated with a Partner, (d) an investment fund or separate 
account that is organized for the benefit of investors who are not 
affiliated with Jones Financial Companies and over which a Jones 
Financial Companies entity exercises investment discretion (a ``Third-
Party Fund''), or (e) any partner

[[Page 34968]]

or other investor in a Third-Party Fund that is not affiliated with 
Jones Financial Companies (``Third-Party Investor''). These 
transactions may include a Partnership's purchase or sale of an 
investment or an interest from or to any Jones Financial Companies 
entity or Third-Party Fund, acting as principal. Prior to entering 
these transactions, the General Partner must determine that the terms 
are fair to the Partners.
    11. A Partnership will not invest more than 15% of its assets in 
securities issued by registered investment companies (with the 
exception of temporary investments in money market funds). A 
Partnership will not acquire any security issued by a registered 
investment company if immediately after such acquisition, such 
Partnership will own more than 3% of the outstanding voting stock of 
the registered investment company.
    12. A Jones Financial Companies entity, acting as an agent or 
broker, may receive placement fees, advisory fees or other compensation 
from a Partnership in connection with the purchase or sale by the 
Partnership of securities; provided that such placement fees, advisory 
fees or other compensation can be deemed ``reasonable and customary'' 
Fees or other compensation will be deemed ``reasonable and customary'' 
only if (a) the Partnership is purchasing or selling securities 
alongside other unaffiliated third parties (including Third-Party 
Funds), (b) the fees or other compensation that are being charged to 
the Partnership are also being charged to the unaffiliated third 
parties (including Third-Party Funds), and (c) the amount of securities 
being purchased or sold by the Fund does not exceed 50% of the total 
amount of securities being purchased or sold by the Partnership and the 
unaffiliated third parties (including Third-Party Funds). Jones 
Financial Companies entities (including the General Partner) also may 
be compensated for services to entities in which the Partnerships 
invest and to entities that are competitors of these entities and may 
otherwise engage in normal business activities that conflict with the 
interests of the Partnerships.

Applicants' Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the Commission 
will exempt employee's securities companies from the provisions of the 
Act to the extent that the exemption is consistent with the production 
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 company, in relevant part, as any 
investment company all of whose securities are beneficially owned (a) 
by current or former employees, or persons on retainer, of one or more 
affiliated employers, (b) by immediate family members of such persons, 
or (c) by such employer or employers together with any of the persons 
in (a) or (b).
    2. Section 7 of the Act generally prohibits an investment company 
that is not registered under section 8 of the Act from selling or 
redeeming its securities. Section 6(e) provides that, in connection 
with any order exemptions 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. 
Applicants request an order under sections 6(b) and 6(e) of the Act for 
an exemption 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, and the rules and 
regulations under those sections.
    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. 
Applicants request an exemption from section 17(a) to permit (a) a 
Jones Financial Companies entity or a Third-Party Fund, acting as 
principal, to engage in any transaction directly or indirectly with any 
Partnership or any company controlled by the Partnership; (b) any 
Partnership to invest in or engage in any transaction with any entity 
acting as principal, (1) in which the Partnership, any company 
controlled by the Partnership, or any Jones Financial Companies entity, 
or a Third-Party Fund has invested or will invest, or (2) with which 
the Partnership, any company controlled by the Partnership, or any 
Jones Financial Companies entity, or a Third-Party Fund is or will 
become affiliated; and (c) a Third Party Investor, acting as principal, 
to engage in any transaction directly or indirectly with any 
Partnership or any company controlled by the Partnership.
    4. Applicants state that an exemption from section 17(a) is 
consistent with the protection of investors and the purpose of the 
Partnerships. Applicants state that the Participants in each 
Partnership will be fully informed of the extent of the Partnership's 
dealings with Jones Financial Companies. Applicants also state that, as 
professionals employed in the securities and insurance brokerage, 
investment banking, investment management or financial services 
businesses, or in the administrative, financial, accounting, legal or 
operational activities related thereto, Participants will be able to 
understand and evaluate the attendant risks. Applicants assert that the 
community of interest among the Participants and Jones Financial 
Companies will provide the best protection against any risk of abuse.
    5. Section 17(d) of the Act and rule 17d-1 prohibit any affiliated 
person or principal underwriter of a registered investment company, or 
any affiliated person of an affiliated person or principal underwriter, 
acting as principal, from participating in any joint enterprise or 
other joint arrangement unless authorized by the Commission. Applicants 
request approval to permit affiliated persons of each Partnership or 
affiliated persons of any of these persons, to participate in any joint 
arrangement in which the Partnership or a company controlled by such 
Partnership is a participant.
    6. Applicants submit that it is likely that suitable investments 
will be brought to the attention of a Partnership because of its 
affiliation with Jones Financial Companies or Jones Financial 
Companies' large geographic scope, capital resources and experience in 
business. In addition, attractive investment opportunities of the types 
considered by a Partnership often require each participant in the 
transaction to make available funds in an amount that may be 
substantially greater than may be available to such Partnership alone. 
Applicants contend that, as a result, the only way in which a 
Partnership may be able to participate in such opportunities may be to 
co-invest with other persons, including affiliates. Applicant note that 
each Partnership primarily will be organized for the benefit of the 
limited partner employee participants, as an incentive for them to 
remain with Jones Financial Companies and for the generation and 
maintenance of goodwill. Applicants believe that if co-investments with 
Jones Financial Companies are prohibited, the appeal of a Partnership 
for Eligible Employees will be significantly diminished. Applicants 
assert that

[[Page 34969]]

Eligible Employee wish to participate in such co-investment 
opportunities because they believe that (a) the resources of Jones 
Financial Companies enable it to analyze investment opportunities to an 
extent that individual employees would have neither the time nor 
resources to duplicate, (b) investments made by Jones Financial 
Companies will not be generally available to investors even of the 
financial status of the Eligible Employees, and (c) Eligible Employees 
will be able to pool their investment resources, thus achieving greater 
diversification of their individual investment portfolios.
    7. Applicants assert that the flexibility to structure co-
investments and joint investments will not involve abuses of the type 
section 17(d) and rule 17d-1 were designed to prevent. Applicants state 
that the concern that permitting co-investments by Jones Financial 
Companies, on the one hand, and a Partnership on the other, might lead 
to less advantageous treatment of the Partnership should be mitigated 
by the fact that Jones Financial Companies, in addition to its stake 
through the General Partner and its co-investment, will be acutely 
concerned with its relationship with the personnel who invest in such 
Partnership and senior officials and directors of Jones Financial 
Companies entities will be investing in such Partnership. In addition, 
applicants assert that strict compliance with section 17(d) would cause 
the Partnerships to forego investment opportunities simply because a 
Participant or other affiliated person of the Partnership (or any 
affiliate of the affiliated person) made or may make a similar 
investment.
    8. Co-investments with Third-Party Funds, or by a Jones Financial 
Companies entity pursuant to a contractual obligation to a Third Party 
Fund, will not be subject to condition 3 below. Applicants note that it 
is common for unaffiliated investors in Third-Party Funds to require 
that Jones Financial Companies invest their own capital in Third-Party 
Fund investments, and that such Jones Financial Companies investments 
will be subject to substantially the same terms as those applicable to 
the Third-Party Fund. Applicants state that it is important that the 
interests of the Third-Party Funds take priority over the interests of 
the Partnerships, and that the activities of the Third-Party Funds not 
be burdened or otherwise affected by activities of the Partnerships. In 
addition, applicants assert that the relationship of a Partnership to a 
Third-Party Fund is fundamentally different from such Partnership's 
relationship with Jones Financial Companies. Applicants contend that 
the focus of, and the rationale for, the protections contained in the 
requested relief are to protect the Partnerships from any overreaching 
by Jones Financial Companies in the employer/employee context, whereas 
the same concerns are not present with respect to the Partnerships and 
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. Applicants request an 
exemption from section 17(e) to permit a Jones Financial Companies 
entity (including the General Partner) that acts as an agent or broker, 
to receive placement fees, advisory fees or other compensation from a 
Partnership in connection with the purchase or sale by the Partnership 
of securities, provided that such fees are deemed ``reasonable and 
customary.'' Applicants state that for the purposes of the application, 
fees or other compensation that is charged or received by a Jones 
Financial Companies entity will be deemed ``reasonable and customary'' 
only if (a) the Partnership is purchasing or selling securities 
alongside other unaffiliated third parties (including Third-Party 
Funds) who are also similarly purchasing or selling securities, (b) the 
fees or other compensation that are being charged to the Partnership 
are also being charged to the unaffiliated third parties (including 
Third-Party Funds), and (c) the amount of securities being purchased or 
sold by the Partnership does not exceed 50% of the total amount of 
securities being purchased or sold by the Partnership and the 
unaffiliated third parties (including Third-Party Funds). Applicants 
assert that because Jones Financial Companies does not wish to appear 
as if the Partnership is being treated in a more favorable manner, 
compliance with section 17(e) would prevent a Partnership from 
participating in a transaction where the Partnership is being charged 
lower fees than unaffiliated third parties. Applicants assert that the 
fees or other compensation paid by a Partnership to a Jones Financial 
Companies entity will be the same as those negotiated at arm's length 
with unaffiliated third parties.
    10. Rule 17e-1(b) requires that a majority of the directors who are 
not ``interested persons'' (as defined in section 2(a)(19) of the Act) 
take actions and make approvals regarding commissions, fees or other 
remuneration. Applicants request 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 approvals as set 
forth in the rule. Applicants state that because all the directors of 
the General Partner will be affiliated persons, without the relief 
requested, a Partnership could not comply with rule 17e-1. Applicants 
state that each Partnership will comply with rule 17e-1 by having a 
majority of the directors of the General Partner take such actions and 
make such approvals as are set forth in rule 17e-1. Applicants state 
that each Partnership will comply with all other 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. Applicants request an exemption from section 17(f) and rule 
17f-1 to the extent necessary to permit a Jones Financial Companies 
entity to act as custodian without a written contract. Applicants also 
request an exemption from the rule 17f-1(b)(4) requirement that an 
independent account conduct periodic verifications. Applicants state 
that, because of the community of interest between Jones Financial 
Companies and the Partnerships and the existing requirement of an 
independent audit, compliance with these requirements would be 
unnecessarily burdensome and expensive. Applicants 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. Applicants 
requests relief to permit the General Partner's directors, who may be 
deemed interested persons, to take actions and make determinations as 
set forth in the rule. Applicants state that, because all of the 
directors of the General Partner will be affiliated persons, a 
Partnership could not comply with rule 17g-1 without the requested 
relief. Specifically, each Partnership will comply with rule 17g-1 by 
having a majority of the directors of the General Partner take such 
actions and make such approvals as are set forth in rule 17g-1. 
Applicants also state that each

[[Page 34970]]

Partnership will comply with all other requirements of rule 17g-1.
    13. Section 17(j) and 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 the investment company report personal 
securities transaction. Applicants request an exemption from the 
provisions of rule 17j-1, except for the anti-fraud provisions of 
paragraph (b), because they are unnecessarily burdensome as applied to 
the Partnerships.
    14. Applicants request 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. Applicants contend that the forms prescribed by 
the Commission for periodic reports have little relevance to a 
Partnership and would entail administrative and legal costs that 
outweigh any benefit to the Participants. Applicants request exemptive 
relief to the extent necessary to permit each Partnership to report 
annually to its Participants. Applicants also request an exemption from 
section 30(h) to the extent necessary to exempt the General Partner of 
each Partnership or others who may be deemed members of an advisory 
board of such Partnership from filing Forms 3, 4 and 5 under section 
16(a) of the 1934 Act with respect to their ownership of Interests in 
such Partnership. Applicants assert that, because there will be no 
trading market and the transfers of Interests are severely restricted, 
these filings are unnecessary for the protection of investors and 
burdensome to those required to make them.

Applicant's Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each proposed transaction otherwise prohibited by section 17(a) 
or section 17(d) and rule 17d-1 to which a Partnership is a party (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 Partners of such Partnership and do not involve overreaching of 
such Partnership or its Partners on the part of any person concerned; 
and (b) the transaction is consistent with the interests of the 
Partners of such Partnership, such Partnership's organizational 
documents and such Partnership's report to its Partners.
    In addition, the General Partner of each Partnership will record 
and preserve a description of Section 17 Transactions, the General 
Partner's findings, the information or materials upon which the General 
Partner's findings are based and the basis for the findings. All 
records relating to an investment program will be maintained until the 
termination of such investment program and at least two years 
thereafter, and will be subject to examination by the Commission and 
its staff.\3\
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    \3\ Each Partnership will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place 
for the first two years.
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    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, 
prior to the consummation of any Section 17 Transaction, with respect 
to the possible involvement in the transaction of any affiliated person 
or promoter of or principal underwriter for such Partnership, or any 
affiliated person of such a person, promoter or principal underwriter.
    3. The General Partner of each Partnership will not invest the 
funds of such Partnership in any investment in which a ``Coinvestor'' 
(as defined below) has acquired or proposes to acquire the same class 
of securities of the same issuer, if the investment involves a joint 
enterprise or other joint arrangement within the meaning of rule 17d-1 
in which such Partnership and the Coinvestor are participants, unless 
any such Coinvestor, prior to disposing of all or part of its 
investment (a) gives such 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 such Partnership has 
the opportunity to dispose of such Partnership's investment prior to or 
concurrently with, and on the same terms as, and pro rata with the 
Coinvestor. The term ``Coinvestor'' with respect to any Partnership 
means any person who is: (a) An ``affiliated person'' (as such term is 
defined in section 2(a)(3) of the Act) of such Partnership (other than 
a Third-Party Fund); (b) Jones Financial Companies; (c) an officer or 
director of Jones Financial Companies; or (d) an entity (other than a 
Third-Party Fund) in which the General Partner 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, will not be deemed to limit or prevent the 
disposition of an investment by a Coinvestor: (a) To its direct or 
indirect wholly owned subsidiary, to any company (a ``parent'') of 
which such Coinvestor 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 such Coinvestor or a trust or other 
investment vehicle established for any such family member; (c) when the 
investment is comprised of securities that are listed on any exchange 
registered as a national securities exchange under section 6 of the 
1934 Act; (d) when the investment is comprised of securities that are 
national market system securities pursuant to section 11A(a)(2) of the 
1934 Act and rule 11Aa2-1 under the 1934 Act; or (e) when the 
investment is comprised of securities that are listed on or traded on 
any foreign securities exchange or board of trade that satisfies 
regulatory requirements under the law of the jurisdiction in which such 
foreign securities exchange or board of trade is organized similar to 
those that apply to a national securities exchange or a national market 
system for securities.
    4. Each Partnership and the General Partner will maintain and 
preserve, for the life of 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 Participants in such Partnership, and each annual 
report of such Partnership required to be sent to such Participants, 
and agree that all such records will be subject to 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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    5. The General Partner of each Partnership will send to each 
Participant in such Partnership who had an interest in any capital 
account of such Partnership, at any time during the fiscal year then 
ended, Partnership financial statements audited by such 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

[[Page 34971]]

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 120 days after the end of each fiscal year of each 
Partnership or as soon as practicable thereafter, the General Partner 
of such Partnership will send a report to each person who was a 
Participant in such Partnership at any time during the fiscal year then 
ended, setting forth such tax information as shall be necessary for the 
preparation by the Participant of his or its federal and state income 
tax forms.
    6. In any case where purchases or sales are made by a Partnership 
from or to an entity affiliated with such Partnership by reason of a 5% 
or more investment in such entity by a Jones Financial Companies 
director, officer or employee, such individual will not participate in 
such Partnership's determination of whether or not to effect such 
purchase or sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-16556 Filed 6-29-01; 8:45 am]
BILLING CODE 8010-01-M