[Federal Register Volume 68, Number 56 (Monday, March 24, 2003)]
[Notices]
[Pages 14267-14269]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6877]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25964; 812-12943]


Merrill Lynch Investment Managers, L.P., et al.; Temporary Order 
and Notice of Application

March 17, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Temporary order and notice of application under section 9(c) of 
the Investment Company Act of 1940 (``Act'').

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Summary of Application: Applicants Merrill Lynch Investment Managers, 
L.P. (``MLIM''), Fund Asset Management, L.P. (``FAM''), Merrill Lynch 
Investment Managers International Limited (``MLIMIL''), Merrill Lynch 
Asset Management U.K. Limited (``MLAM UK'' and with MLIM, FAM and 
MLIMIL, the ``Advisers''), FAM Distributors, Inc. (``FAMD''), Merrill 
Lynch, Pierce, Fenner & Smith Incorporated (``MLPF&S'' and with FAMD, 
the ``Underwriters''), Mezzanine Investments II, L.P. (``Mezzanine''), 
KECALP Inc. (``KECALP''), ML Taurus, Inc. (``Taurus''), Merrill Lynch 
Ventures, LLC (``Ventures''), and Roszel Advisors, LLC 
(``Roszel'')(collectively,

[[Page 14268]]

``Applicants'') \1\ have received a temporary order exempting them from 
section 9(a) of the Act with respect to an injunction entered on March 
17, 2003 by the U.S. District Court for the Southern District of Texas 
(the ``Injunction''), until the Commission takes final action on an 
application for a permanent order. Applicants also have requested a 
permanent order.
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    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which Merrill Lynch & 
Co., Inc. is or hereafter becomes an affiliated person (included in 
the term ``Applicants'').

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Filing Date:  The application was filed on March 17, 2003.

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 April 11, 2003, 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: MLIM, FAM, FAMD, 800 Scudders Mill Road, 
Princeton, NJ 08536; MLAM UK and MLIMIL, 33 King William Street, London 
England EC4R 9AS; MLPF&S, Mezzanine, KECALP, Taurus and Ventures, 4 
World Financial Center, New York, NY 10080; Roszel, 1300 Merrill Lynch 
Drive, Pennington, NJ 08534.

FOR FURTHER INFORMATION CONTACT: Todd F. Kuehl, Branch Chief, at (202) 
942-0610 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a temporary order and 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. MLIM and FAM, registered as investment advisers under the 
Investment Advisers Act of 1940 (the ``Advisers Act''), are limited 
partnerships of which Merrill Lynch & Co., Inc. (``ML&Co.'') is the 
limited partner and Princeton Services, Inc. (``Princeton Services'') 
is the general partner. Princeton Services is an indirect wholly owned 
subsidiary of ML&Co. The Advisers and Roszel serve as investment 
advisers to numerous registered investment companies (the ``Registered 
Companies''), with assets under management of approximately $210 
billion. MLAM UK and MLIMIL, each a wholly owned indirect subsidiary of 
ML&Co, are registered as investment advisers under the Advisers Act and 
provide investment advisory services to certain Registered Companies. 
Mezzanine, KECALP, Taurus and Ventures serve as investment advisers to 
certain business development companies (``BDCs'') and employee 
securities' companies (``ESCs'' and with BDCs and Registered Companies, 
the ``Funds''). FAMD, an indirect wholly owned subsidiary of ML&Co., is 
registered as a broker-dealer under the Securities Exchange Act of 1934 
(the ``1934 Act'') and acts as the principal underwriter for certain of 
the Registered Companies. MLPF&S, a wholly owned subsidiary of ML&Co., 
is a global investment banking firm and a registered broker-dealer, 
investment adviser and futures commission merchant. It serves as the 
principal underwriter for certain Registered Companies (including 
registered unit investment trusts) and as the depositor of 765 
registered unit investment trusts with approximately $4.7 billion in 
assets as of December 31, 2002. ML&Co. is a holding company that, 
through its subsidiaries and affiliates, provides investment, 
financing, advisory, insurance, banking and related products and 
services on a global basis. ML&Co. and its direct and indirect 
subsidiaries are sometimes referred to as ``Merrill Lynch.''
    2. On March 17, 2003, the U.S. District Court for the Southern 
District of Texas entered the Injunction in a matter brought by the 
Commission.\2\ The Commission alleged that ML&Co. aided and abetted 
certain violations by Enron Corp. (``Enron'') of sections 10(b) and 
13(b)(5) of the 1934 Act and rules 10b-5 and 13b2-1 thereunder and 
certain other provisions of the federal securities laws. The alleged 
violations occurred in connection with Enron's recording of revenue in 
its Form 10-K for the fiscal year ended 1999 in connection with a 
Nigerian barge transaction and two energy trades between Merrill Lynch 
and Enron in December 1999. Without admitting or denying the 
allegations in the Commission's complaint, ML&Co. consented to the 
entry of the Injunction as well as the payment of disgorgement and 
civil penalties.
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    \2\ Securities and Exchange Commission v. Merrill Lynch & Co., 
Inc., No. H-03-0946 (S.D.Tx., filed Mar. 17, 2003).
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Applicants' Legal Analysis

    1. Section 9(a)(2) of the Act, in relevant part, prohibits a person 
who has been enjoined from engaging in or continuing any conduct or 
practice in connection with the purchase or sale of a security from 
acting, among other things, as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered unit investment 
trust, or registered face-amount certificate company. Section 9(a)(3) 
of the Act makes the prohibition in section 9(a)(2) applicable to a 
company any affiliated person of which has been disqualified under the 
provisions of section 9(a)(2). Section 2(a)(3) of the Act defines 
affiliated person to include any person directly or indirectly 
controlling, controlled by, or under common control, with the other 
person. Because the Applicants are all subsidiaries of the same 
ultimate parent company, Applicants state that they are under common 
control, and as such are affiliated persons of ML&Co. within the 
meaning of section 2(a)(3) of the Act. Applicants state that, as a 
result of the Injunction, they may be subject to the prohibitions of 
section 9(a).
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for an exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
the Applicants, are unduly or disproportionately severe or that the 
Applicants' conduct has been such as not to make it against the public 
interest or the protection of investors to grant the application. 
Applicants have filed an application pursuant to section 9(c) of the 
Act seeking temporary and permanent orders exempting them from the 
provisions of section 9(a) of the Act.
    3. Applicants believe that they meet the standards for exemption 
specified in section 9(c). Applicants state that the prohibitions of 
section 9(a) as applied to them would be unduly and disproportionately 
severe and that the conduct of Applicants has been such as not to make 
it against the public interest or the protection of investors to grant 
the exemption from section 9(a).
    4. Applicants state that none of their current or former officers 
or employees who are engaged in the provision of investment advisory or 
principal

[[Page 14269]]

underwriting services to the Funds participated in any way in the 
conduct described in the Injunction. Certain Funds held securities 
issued by Enron at the time of the conduct described in the Injunction. 
The Applicants state that as far as they are aware, none of the 
officers, portfolio managers or any other investment personnel employed 
by the Advisers had any knowledge of any non-public information 
relating to, or had any involvement in, the conduct complained of in 
the Injunction. Applicants further state that the Advisers had, and 
continue to have, policies and procedures in place designed to prohibit 
or restrict communications with other Merrill Lynch employees.
    5. Applicants state that the inability of the Advisers to continue 
providing advisory services to the Funds and the inability of the 
Underwriters to continue to serve as principal underwriter to the Funds 
would result in potentially severe hardships for the Funds and their 
shareholders. The Applicants also state that they will distribute 
written materials, including an offer to meet in person to discuss the 
materials, to the boards of directors (``Boards'') of the Funds that 
are management investment companies other than BDCs or ESCs, including 
the disinterested directors of such Funds and their independent legal 
counsel, regarding the circumstances of the Injunction, any impact on 
the Funds and this application. The Applicants will provide such Funds' 
Boards with all information concerning the Injunction and this 
application necessary for the Funds to fulfill their disclosure and 
other obligations under the federal securities laws.
    6. Additionally, Applicants assert that if they were barred from 
providing services to registered investment companies, the effect on 
their businesses and employees would be severe. The Applicants state 
that they have committed substantial resources over more than 25 years 
to establish an expertise in advising and distributing registered 
investment companies. One of the Applicants, MLPF&S, previously has 
been subject to an injunction that triggered section 9(a) and received 
an exemption under section 9(c).\3\ On another occasion, an employee of 
another Applicant, FAMD, also received an exemption under section 
9(c).\4\
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    \3\ Merrill, Lynch, Pierce, Fenner & Smith, Inc., Investment 
Company Act Release Nos. 8841 (July 2, 1975)(notice and temporary 
order) and 9022 (Nov. 10, 1975)(permanent order).
    \4\ Charles O. Daly, Investment Company Act Release Nos. 13003 
(Feb. 1, 1983)(notice and temporary order) and 13137 (Apr. 4, 
1983)(permanent order).
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Applicants' Condition

    Applicants agree that the order granting the requested relief will 
be subject to the following condition:
    Any temporary exemption granted pursuant to the application shall 
be without prejudice to, and shall not limit the Commission's rights in 
any manner with respect to, any Commission investigation of, or 
administrative proceedings involving or against, Applicants, including 
without limitation, the consideration by the Commission of a permanent 
exemption from section 9(a) of the Act requested pursuant to the 
application or the revocation or removal of any temporary exemptions 
granted under the Act in connection with the application.

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Applicants are granted a temporary exemption from the provisions of 
section 9(a), effective forthwith, solely with respect to the 
Injunction, subject to the condition in the application, until the 
Commission takes final action on an application for a permanent order.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-6877 Filed 3-21-03; 8:45 am]
BILLING CODE 8010-01-P