[Federal Register Volume 66, Number 250 (Monday, December 31, 2001)]
[Notices]
[Pages 67575-67580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-32075]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25324; 813-202]


Greenwich Street Employees Fund, L.P., et al.; Notice of 
Application

December 21, 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 (``Act'') exempting applicants 
from all provisions of the Act and the rules and regulations under the 
Act, except section 9, section 17 (other than certain provisions of 
paragraphs (a), (d), (e), (f), (g), and (j)), section 30 (except for 
certain provisions of paragraphs (a), (b), (e), and (h)), and section 
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 partnerships and other entities (each a ``Partnership'') formed 
for the benefit of key employees of Citigroup Inc. 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.
    Applicants: Greenwich Street Employees Fund, LP (``Initial 
Partnership''); Citigroup Inc.; Citigroup Employee Fund of Funds I, LP; 
Citigroup Employee Fund of Funds (US-UK) I, LP; Citigroup Employee Fund 
of Funds (Cayman) I, LP; Citigroup Employee Fund of Funds (DE-UK) I, 
LP; SSB Capital Partners I, LP; SSB Capital Partners (US-UK) I, LP; SSB 
Capital Partners (Cayman) I, LP; and SSB Capital Partners (DE-UK) I, 
LP.

FILING DATES: The application was filed on February 10, 1999 and 
amended on August 18, 1999, October 31, 2000, April 16, 2001 and 
December 20, 2001.
    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 January 15, 2002, 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, 399 Park Avenue, New York, New York 10043.

FOR FURTHER INFORMATION CONTACT: John L. Sullivan, Senior Counsel, at 
(202) 942-0681, or Nadya B. Roytblat, Assistant Director, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

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

Applicants' Representations

    1. Citigroup Inc. is a financial holding company whose businesses 
provide a broad range of financial services. Citigroup Inc. and its 
affiliates (as defined under rule 12b-2 under the Securities Exchange 
Act of 1934 (``Exchange Act'')) (``Citigroup'') have organized and will 
organize Partnerships primarily for the benefit of eligible current and 
former employees, officers, directors, and persons on retainer of 
Citigroup (an ``Eligible Employee''). The Partnerships are part of a 
program designed to create capital building opportunities that are 
competitive with those at other financial services firms and to 
facilitate the recruitment of high caliber professionals. Participation 
in a Partnership is voluntary.
    2. A Partnership will be a limited partnership, a limited liability 
company, business trust or other entity organized under the laws of 
Delaware or another state. Citigroup also will form Partnerships 
organized under the laws of jurisdictions outside the United States to 
create the same investment opportunities for Eligible Employees who are 
not U.S. residents. The Partnerships will be operated in accordance 
with their respective limited partnership agreements or other 
organizational documents (each, a ``Partnership Agreement''). Each 
Partnership will be formed as 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, which may be diversified or 
non-diversified.
    3. Each Partnership will be managed, operated and controlled by its 
general partner, managing member or other similar entity (``General 
Partner''). Each General Partner, with the exception of the Initial 
General Partner (as defined below), will be a Citigroup entity. The 
General Partner or another entity will serve as investment adviser 
(``Investment Adviser'') to a Partnership. The Investment Adviser will 
be (a) registered as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act''), (b) exempt from Advisers Act 
registration requirements by virtue of section 203(b)(3) of the 
Advisers Act, or (c) excluded from the definition of investment adviser 
under the Advisers Act because it is a bank or a bank holding company 
(as defined in the Bank Holding Company Act of 1956). Any entity 
serving as Investment Adviser to any Partnership (other than the 
Initial Partnership as described below) will be a Citigroup entity.
    4. The Initial Partnership is a limited partnership that first 
offered Interests (as defined below) in Feburary 1999. The Initial 
Partnership invests concurrently with Greenwich Street Capital Partners 
II, LP (``Fund II'') and other investors organized or managed by 
Citigroup or its designees that generally co-invest with Fund II 
(``Fund II Co-Investors''). Pursuant to their respective limited 
partnership agreements, the Initial Partnership, Fund II and Fund II 
Co-Investors must each, to the extent possible, make investments in 
securities of portfolio companies on a pari passu basis with each other 
on the same terms and at the same times and dispose of such securities 
at the same time, on the terms and conditions no more favorable than 
the terms and conditions of any other such disposition by any other 
such party. Both the Initial Partnership and Fund II are advised by 
GSCP (NJ), LP (``Initial Investment Adviser''). The Initial Investment 
Adviser is wholly owned by individuals who are managing members of 
Greenwich Street Investments II, L.L.C., which is the general partner 
of the Initial Partnership (``Initial General Partner'') and the

[[Page 67576]]

general partner of Fund II. At the time the Initial Partnership was 
formed, the Initial General Partner was a Citigroup entity. In June 
1999, Citigroup restructured its interest in the Initial General 
Partner as a condition to an order of the Federal Reserve Board 
prompted by the merger of Citicorp and Travelers Group Inc. The 
restructuring involved (a) a reduction in the voting interest of The 
Travelers Insurance Company (``Travelers Insurance'') and certain of 
its affiliates in the Initial General Partner to 24.9%, (b) Travelers 
Insurance ceasing to be a managing member of the Initial General 
Partner, and (c) the management and employees of the Initial Investment 
Adviser ceasing to be employed by Citigroup. When the restructuring 
occurred, 42.5% of the Initial Partnership's capital had been invested 
or committed for investment. Citigroup continues to own a 50% economic 
interest in the equity of the Initial General Partner.
    5. 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''), Regulation D or Regulation S under 
the Securities Act, and will be sold only to Eligible Employees, and 
other ``Qualified Participants,'' each as defined below, (collectively, 
the ``Limited Partners''). Prior to offering Interests to an Eligible 
Employee or Eligible 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. Each Eligible Employee will meet 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 
be one of 35 or fewer employees of Citigroup who meets certain other 
requirements (``Other Investors'').
    6. Each Other Investor will be an Eligible Employee who (a) is a 
``knowledgeable employee,'' as defined in rule 3c-5 under the Act, of 
the 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, legal or similar business experience, 
and has a reportable income from all sources in each of 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 will be committed to make investments 
in a Partnership. 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 the 
aggregate in a Partnership and in all other Partnerships in which that 
Other Investor has previously invested.
    7. A Qualified Participant is an Eligible Employee, Eligible Family 
Member, Eligible Investment Vehicle, or Citigroup. An ``Eligible Family 
Member'' is a spouse, parent, child, spouse of child, brother, sister, 
or grandchild of an Eligible Employee, and must be an Accredited 
Investor. An ``Eligible Investment Vehicle'' is a trust or other 
investment vehicle established solely for the benefit of an Eligible 
Employee or Eligible Family Members. An Eligible Investment Vehicle 
must be either (a) an Accredited Investor or (b) an entity for which an 
Eligible Employee or Eligible Family Member (each, an ``Eligible 
Individual'') is a settlor and principal investment decision-maker.\1\ 
Any member of Citigroup that acquires an Interest will be an Accredited 
Investor.
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    \1\ A limited number of Eligible Employees who were Accredited 
Investors invested in the Initial Partnership through estate 
planning vehicles that may or may not have been Accredited 
Investors. There were significantly fewer than 35 such vehicles 
investing in the Initial Partnership, all of which were established 
for the exclusive benefit of Eligible Individuals.
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    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 before making an investment in the Partnership. The terms of 
a Partnership will be disclosed to each Eligible Employee at the time 
the Eligible Employee is invited to participate in the Partnership. 
Each Partnership will send audited financial statements to the Limited 
Partners as soon as practicable after the end of its fiscal year. In 
addition, a report will be sent to each Limited Partner setting forth 
the information with respect to his or her share of income, gains, 
losses, credits and other items for federal income tax purposes, 
resulting from the operation of the Partnership during that year.
    9. Interests in a Partnership will be non-transferable except with 
the express consent of the General Partner. No person will be admitted 
into a Partnership unless the person is a Qualified Participant. 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 Citigroup for any reason.
    11. 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.
    12. An Investment Adviser may be paid a management fee for its 
services to a particular Partnership, which may be determined as a 
percentage of aggregate commitments. In addition, a General Partner may 
be entitled to a performance-based fee or ``carried interest.'' \2\ If 
the General Partner 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. Except for the Initial Partnership, 
if the General Partner is not registered under the Advisers Act, the 
carried interest 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).\3\ Certain of the 
Partnerships may not pay a management fee or a carried interest but 
will pay a fee for administrative services to a Citigroup entity.
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    \2\ A ``carried interest'' is an allocation to the General 
Partner based on the net gains in addition to the amount allocable 
to the General Partner that is in proportion to its capital 
contributions.
    \3\ The management fee and carried interest payable to the 
Initial Investment Adviser and Initial General Partner, 
respectively, by the Limited Partners in the Initial Partnership are 
on the same terms in all material respects as the management fee and 
carried interest payable to the investment adviser and general 
partner, respectively, of Fund II, as negotiated by Citigroup for 
its own account and by other institutional investors. In calculating 
the carried interest payable to the Initial General Partner, 
unrealized capital depreciation is taken into account as 
periodically determined by the Initial General Partner in its 
discretion. The Partnership Agreement for the Initial Partnership 
Agreement contains a ``clawback'' provision that requires the 
Initial General Partner to return to a Limited Partner any amount 
retained by the Initial General Partner and attributable to the 
Limited Partner that is in excess of 20% of distributions payable to 
that Limited Partner.
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    13. A Partnership will not borrow from any person if the borrowing 
would

[[Page 67577]]

cause any person not named in section 2(a)(13) of the Act to own 
securities of the Partnership (other than short-term paper). If 
Citigroup makes loans to any Partnership, the lender will be entitled 
to receive interest at a rate that is permissible under applicable 
banking or tax regulations, provided that the rate will be no less 
favorable to the borrower than the rate obtainable on an arm's length 
basis. Any indebtedness of the Partnership will be the debt of the 
Partnership and without recourse to the Limited Partners.
    14. 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. The 
deferred compensation plans and/or an Eligible Employee's interest in 
such plans: (a) Will be subject to the applicable terms and conditions 
of the application; \4\ (b) will only be offered to Eligible Employees 
who are current employees, officers, directors, or persons on retainer 
of Citigroup; (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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    \4\ For purposes of the 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,'' and ``Interest'' in the 
application will be deemed to refer to the deferred compensation 
plan, the notional capital contribution to the deferred compensation 
plan, Citigroup, a participant of the deferred compensation plan, 
and participation rights in the deferred compensation plan, 
respectively.
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Applicants' 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 company, in relevant part, as any 
investment company all of whose securities are beneficially owned (a) 
by current or former employees, or persons on retainer, of one or more 
affiliated employers, (b) by immediate family members of such persons, 
or (c) by such employer or employers together with any of the persons 
in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies 
that are not registered under section 8 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. 
Applicants request an order under section 6(b) and 6(e) of the Act 
exempting the Partnerships from all provisions of the Act and the rules 
and regulations under 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 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 
Citigroup entity or a Third Party Fund (as defined below), or any 
affiliated person of such entity or Third Party Fund, acting as 
principal, to engage in any transaction directly or indirectly with any 
Partnership or any company controlled by such Partnership; (b) a 
Partnership to invest in or engage in any transaction with any entity, 
acting as principal (i) in which the Partnership, any company 
controlled by the Partnership, or any Citigroup entity or Third Party 
Fund has invested or will invest or (ii) with which the Partnership, 
any company controlled by the Partnership, or any Citigroup entity or 
Third Party Fund is or will otherwise become affiliated; and (c) a 
Third Party Investor (as defined below), acting as principal, to engage 
in any transaction directly or indirectly with any Partnership or any 
company controlled by such Partnership. The term ``Third Party Fund'' 
refers to an investment fund or separate account that is organized for 
the benefit of investors who are not affiliated with Citigroup over 
which a Citigroup entity will exercise investment discretion. The term 
``Third Party Investor'' refers to any person or entity that is not a 
Citigroup entity or affiliated with Citigroup and is a partner or other 
investor in a Third Party Fund.
    4. Applicants state that an exemption from section 17(a) is 
consistent with the protection of investors and the purposes of the 
Partnerships. Applicants state that the Limited Partners in each 
Partnership will be informed of the possible extent of the 
Partnership's dealings with Citigroup and of the potential conflicts of 
interest that may exist. Applicants also assert that the community of 
interest among the Limited Partners and Citigroup will serve to reduce 
any risk of abuse in transactions involving a Partnership and Citigroup 
or the respective affiliates of Citigroup. With respect to the Initial 
Partnership, applicants state that a sufficient community of interest 
exists between the Limited Partners of that Partnership and Citigroup, 
despite the fact that the Initial General Partner and Initial 
Investment Adviser are no longer Citigroup entities. The Initial 
Partnership operates according to terms that Citigroup negotiated with 
the Initial General Partner when the Initial General Partner was still 
a Citigroup entity. A significant amount of the Initial Partnership's 
committed capital was invested by the Initial General Partner while it 
was still a Citigroup entity, and all of the Partnership's investments 
are made in lockstep with Fund II, in which Citigroup is the largest 
investor.
    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, with 
the company, unless approved by the Commission. Applicants request 
relief to permit affiliated persons of each Partnership, or affiliated 
persons of such persons, to participate in, or effect any transaction 
in connection with, any joint enterprise or other joint arrangement or 
profit-sharing plan in which the Partnership or an company controlled 
by the 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 Citigroup or Citigroup's large capital resources and 
its experience in structuring complex transactions. Applicants also 
submit that the types of investment

[[Page 67578]]

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. Applicants 
contend 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. Applicants note that each 
Partnership will be primarily organized for the benefit of Eligible 
Employees as an incentive for them to remain with Citigroup and for the 
generation and maintenance of goodwill. Applicants believe that, if co-
investments with Citigroup are prohibited, the appeal of the 
Partnerships would be significantly diminished. Applicants assert that 
Eligible Employees wish to participate in co-investment opportunities 
because they believe that (a) the resources of Citigroup enable it to 
analyze investment opportunities to an extent that individual employees 
would not be able to duplicate, (b) investments made by Citigroup 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 Citigroup and a 
Partnership might lead to less advantageous treatment of the 
Partnership should be mitigated by the fact that Citigroup will be 
acutely concerned with its relationship with the investors in the 
Partnership and the fact that senior officers and directors of 
Citigroup entities will be investing in the Partnership. In addition, 
applicants assert that strict compliance with section 17(d) would cause 
the Partnership to forego investment opportunities simply because a 
Limited Partner, the General Partner or any other affiliated person of 
the Partnership (or any affiliate of the affiliated person) made a 
similar investment.
    8. Co-investments with Third Party Funds, or by a Citigroup 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 a 
Third Party Fund to require that Citigroup invest its own capital in 
Third Party Fund investments and that Citigroup investments be subject 
to substantially the same terms as those applicable to the Third Party 
Fund. Applicants believe it is important that the interests of the 
Third Party Fund take priority over the interests of the Partnerships 
and that the Third Party Fund not be burdened or otherwise affected by 
activities of the Partnership. In addition, applicants assert that the 
relationship of a Partnership to a Third Party Fund is fundamentally 
different from a Partnership's relationship to Citigroup. 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 Citigroup in the employer/employee context, whereas 
the same concerns are not present with respect to the Partnerships vis-
a-vis 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 Citigroup entity (including 
the General Partner) acting as 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 the fees or other compensation are deemed ``usual and 
customary.'' Applicants state that for the purposes of the application, 
fees or other compensation that are charged or received by a Citigroup 
entity will be deemed ``usual and customary'' only if (a) the 
Partnership is purchasing or selling securities with other unaffiliated 
third parties, including Third Party Funds, (b) the fees or 
compensation 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 unaffiliated third parties, including 
Third Party Funds. Applicants assert that, because Citigroup does not 
wish to appear to be favoring the Partnerships, compliance with section 
17(e) would prevent a Partnership from participating in transactions 
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 Citigroup 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 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. Rule 17e-1(c) requires that a majority of the directors 
not be interested persons, that those directors select and nominate 
other disinterested directors and that any person who acts as legal 
counsel for the disinterested directors be an independent legal 
counsel. 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 determinations as set forth in 
paragraph (b) of the rule and without having to satisfy the standards 
set forth in paragraph (c) of the rule. Applicants state that because 
all of the directors of a 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(b) by having a majority of the board of directors of the General 
Partner take actions and make approvals as set forth in rule 17e-1. 
Applicants state that each Partnership will otherwise comply with rule 
17e-1.
    11. Section 17(f) of the Act provides that the securities and 
similar investments of a registered management investment company must 
be placed in the custody of a bank, a member of a national securities 
exchange, or the company itself in accordance with Commission rules. 
Rule 17f-1 under the Act specifies the requirements that must be 
satisfied when the custodian is a member of a national securities 
exchange. Rule 17f-2 under the Act specifies the requirements that must 
be satisfied for a registered management investment company to act as a 
custodian of its own investments.
    Applicants request an exemption from section 17(f) and subsections 
(a), (b) (to the extent such subsection refers to contractual 
requirements) (c) and (d) of rule 17f-1 to the extent necessary to 
permit a Citigroup entity to act as custodian for a Partnership without 
a written contract. Additionally, applicants request an exemption from 
the rule 17f-1(b)(4) requirement that an independent accountant 
periodically verify the assets held by the custodian. Applicants 
believe that, because of the community of interest between a 
Partnership and Citigroup, compliance with these requirements would be 
unnecessarily burdensome and expensive. Applicants will otherwise 
comply with the provisions of rule 17f-1.

[[Page 67579]]

    Applicants also request an exemption from rule 17f-2 to permit the 
following exceptions from the requirements of rule 17f-2: (a) A 
Partnership's investments may be kept in the locked files of the 
General Partner; (b) for purposes of paragraph (d) of the rule, (i) 
employees of the General Partner will be deemed to be employees of the 
Partnerships, (ii) officers or managers of the General Partner of a 
Partnership will be deemed to be officers of the Partnership and (iii) 
the General Partner of a Partnership or its board of directors will be 
deemed to be the board of directors of the Partnership and (c) in place 
of the verification procedure under paragraph (f) of the rule, 
verification will be effected quarterly by two employees of the General 
Partner. Applicants expect that many of the Partnerships' investments 
will be evidenced only by partnership agreements, participation 
agreements or similar documents, rather than by negotiable certificates 
that could be misappropriated. Applicants assert that these instruments 
are most suitably kept in the files of the General Partner, where they 
can be referred to as necessary.
    12. Section 17(g) of the Act and rule 17g-1 under the Act 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. The rule also requires that a majority of the 
directors not be interested persons, that those directors select and 
nominate other disinterested directors and that any person who acts as 
legal counsel for the disinterested directors be an independent legal 
counsel. Applicants request exemptive relief to permit the General 
Partner's board of directors, who may be deemed interested persons, to 
take actions and make determinations as set forth in the rule. 
Applicants state that, because all 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 General Partner's 
directors take actions and make determinations as are set forth in rule 
17g-1. Applicants also state that each Partnership will otherwise 
comply with rule 17g-1.
    13. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under 
the Act 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 antifraud 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) of the Act, 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 the 
Partnerships and would entail administrative and legal costs that 
outweigh any benefit to the Limited Partners. Applicants request 
exemptive relief to the extent necessary to permit each Partnership to 
report annually to its Limited Partners. Applicants also request an 
exemption from section 30(h) of the Act to the extent necessary to 
exempt the General Partner of each Partnership, members of the General 
Partner or any board of managers or directors or committee of Citigroup 
employees to whom the General Partner may delegate its functions, and 
any other persons who may be deemed to be members 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 the 
Partnership. Applicants assert that, because there will be no trading 
market 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.

Applicants' 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 
under the Act 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 Limited Partners of 
the Partnership and do not involve overreaching of the Partnership or 
its Limited Partners on the part of any person concerned and (b) the 
transaction is consistent with the interests of the Limited Partners, 
the Partnership's organizational documents and the Partnership's 
reports to its Limited Partners. In addition, the General Partner of 
the Partnership will record and preserve a description of all Section 
17 Transactions, the General Partner's findings, the information or 
materials upon which the findings are based, and the basis therefore. 
All such records will be maintained for the life of the Partnership and 
at least two years thereafter and will be subject to examination by the 
Commission and its staff.\5\ With respect to the Initial Partnership, 
the findings required by this condition will be made by Citigroup or a 
designated senior officer(s) of Citigroup. The records relating to 
these findings will be prepared and preserved by Citigroup in 
accordance with this condition and will be subject to examination by 
the Commission and its staff.
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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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    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 the Partnership or any 
affiliated person of such 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, and where the investment 
transaction 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 any 
Partnership means any person who is (a)

[[Page 67580]]

an ``affiliated person'' (as such term is defined in the Act) of the 
Partnership (other than a Third Party Fund), (b) Citigroup, (c) an 
officer or director of Citigroup 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, 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 or 
other investment vehicle established for any Affiliated Co-Investor or 
any such family member or (c) when the investment comprises securities 
that are (i) listed on a national securities exchange registered 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, (iii) government securities as defined in section 2(a)(16) 
of the Act or other money market instruments or (iv) listed 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 its General Partner will maintain and 
preserve, for the life of the Partnership and at least two years 
thereafter, such accounts, books and other documents constituting the 
record forming the basis for the audited financial statements that are 
to be provided to the Limited Partners in the Partnership, 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.\6\
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    \6\ 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 having an interest in any capital account of the 
Partnership, at any time during the fiscal year then ended, Partnership 
financial statements audited by the Partnership's independent 
accountants. At the end of each fiscal year, the General Partner will 
make or cause to be made a valuation 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, as soon as practicable after the 
end of each fiscal year of the Partnership, the General Partner will 
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, her or its federal and state income tax returns and a report of 
the investment activities of the Partnership during that fiscal 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 the entity by a Citigroup director, officer or employee, 
such individual will not participate in the General Partner's 
determination of whether or not to effect such purchase or sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-32075 Filed 12-28-01; 8:45 am]
BILLING CODE 8010-01-P