[Federal Register Volume 68, Number 215 (Thursday, November 6, 2003)]
[Notices]
[Pages 62851-62853]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27985]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26244; 812-12961]


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

October 31, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

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

-----------------------------------------------------------------------

Summary of Application:  Applicants have received a temporary order 
exempting them from section 9(a) of the Act, with respect to an 
injunction entered against Merrill Lynch, Pierce, Fenner & Smith 
Incorporated (``MLPF&S') on October 31, 2003, by the U.S. District 
Court for the Southern District of New York (the ``Injunction''), until 
the Commission takes action on an application for a permanent order. 
Applicants have requested a permanent order.

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''), Roszel Advisors, LLC (``Roszel,'' and with MLIM, 
FAM, MLIMIL and MLAM UK, the ``Advisers''), MLPF&S and FAM 
Distributors, Inc. (``FAMD,'' and with MLPF&S, the ``Underwriters''), 
KECALP Inc. (``KECALP''), ML Taurus, Inc. (``Taurus'') and Merrill 
Lynch Ventures, LLC (``Ventures'') (together, the ``Applicants'').\1\
---------------------------------------------------------------------------

    \1\ Applicants request that any relief granted pursuant to the 
application also apply to any other company of which MLPF&S is or 
hereafter becomes an affiliated person (included in the term 
Applicants).

---------------------------------------------------------------------------
Filing Dates: The application was filed on April 28, 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

[[Page 62852]]

by 5:30 p.m. on November 25, 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, c/o Jerry Weiss, Esq., Merrill Lynch Investment 
Managers, L.P., 800 Scudders Mill Road, Princeton, NJ 08536.

FOR FURTHER INFORMATION CONTACT: Marc R. Ponchione, Senior Counsel, or 
Todd F. Kuehl, Branch Chief, at (202) 942-0564 (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 (telephone: 202-942-8090).

Applicants' Representations

    1. MLPF&S, a Delaware corporation, is a leading global investment 
banking firm. Certain Applicants serve as investment adviser or sub-
adviser for one or more registered investment companies (``Funds''). 
Certain Applicants act as the depositor or principal underwriter for 
Funds.\2\
---------------------------------------------------------------------------

    \2\ Any registered unit investment trust (``UIT'') or registered 
face amount certificate company for which Applicants may serve as 
principal underwriter or depositor are also included in the defined 
term Funds.
---------------------------------------------------------------------------

    2. On October 31, 2003, the U.S. District Court for the Southern 
District of New York entered the Injunction against MLPF&S in a matter 
brought by the Commission.\3\ The Commission alleged in the complaint 
(``Complaint'') that MLPF&S violated certain Conduct Rules of the 
National Association of Securities Dealers (``NASD'') and Rules of the 
New York Stock Exchange (``NYSE'') (the NASD Conduct Rules and NYSE 
Rules together, the ``Exchange Rules'') by engaging in acts and 
practices that created or maintained inappropriate influence by 
MLPF&S'' investment banking business (the ``Investment Banking 
Department'') over the research analysts in MLPF&S' research department 
(the ``Research Department''). The Injunction enjoined MLPF&S directly 
or through its officers, directors, agents and employees, from 
violating the specific rules cited in the Complaint. Without admitting 
or denying the allegations in the Complaint, MLPF&S consented to the 
entry of the Injunction as well as the payment of disgorgement and 
penalties and other equitable relief.
---------------------------------------------------------------------------

    \3\ Securities and Exchange Commission v. Merrill Lynch, Pierce, 
Fenner & Smith Incorporated, 03 Civ. 2941 (WHP) (S.D.N.Y., filed 
April 28, 2003) (the ``Action'').
---------------------------------------------------------------------------

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 UIT 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. Applicants state that 
MLPF&S is an affiliated person of each of the other Applicants within 
the meaning of section 2(a)(3) of the Act. Applicants further state 
that the entry of the Injunction would result in Applicants being 
subject to the disqualification provisions of section 9(a) of the Act.
    2. Section 9(c) of the Act provides that the Commission shall grant 
an application for exemption from the disqualification provisions of 
section 9(a) if it is established that these provisions, as applied to 
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) seeking a 
temporary and permanent order exempting them from the disqualification 
provisions of section 9(a) of the Act.
    3. Applicants believe they meet the standard 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 the conduct giving rise to the Injunction 
did not involve activities of any of the Applicants acting in the 
capacity of investment adviser, depositor, or principal underwriter for 
a Fund. Applicants state that none of their current or former officers 
or employees who are engaged in the provision of investment advisory or 
principal underwriting services was involved in the conduct that forms 
the basis of the Injunction. Applicants state that, while the Advisers 
had access to research reports issued by the Research Department, the 
fact that the source of a particular research report might be MLPF&S 
causes it to receive no more weight than research received from other 
sources in their analysis of a particular investment.\4\ Although some 
of the Funds held securities in their portfolios at the time that 
MLPF&S issued research reports concerning the issuers of such 
securities, as far as Applicants are aware, none of the officers, 
portfolio managers, or any other investment personnel employed by the 
Advisers has any knowledge of any non-public information relating to, 
or had any involvement in, the conduct underlying the Injunction. In 
addition, each of the Advisers has adopted policies regarding 
information barriers (the ``Policies'') designed to protect the 
Advisers' clients, including Fund shareholders, from any conflict of 
interest that may arise between the Advisers' portfolio managers and 
other employees of Merrill Lynch & Co., Inc. (``ML&Co.'').\5\ The 
Policies, which were in effect at the time of the conduct described in 
the Complaint, restrict communications between portfolio managers and 
certain other employees of ML&Co.
---------------------------------------------------------------------------

    \4\ Applicants state that they formerly acted as principal 
underwriter or depositor to one UIT whose portfolio selection 
process placed special emphasis on equity research issued by the 
Research Department.
    \5\ 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. Each of 
the Applicants is a direct or indirect wholly owned subsidiary of 
ML&Co.
---------------------------------------------------------------------------

    5. The Applicants have distributed written materials, including an 
offer to meet in person to discuss the materials, to the board of 
directors or trustees of each Fund (each, a ``Board''), including the 
directors who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act, of the Fund, and their independent legal counsel, 
if any, regarding the Injunction, any impact on the Funds, and this 
application.\6\ The

[[Page 62853]]

Applicants will provide the Boards with all information concerning the 
Injunction and this application that is necessary for the Funds to 
fulfill their disclosure and other obligations under the federal 
securities laws.
---------------------------------------------------------------------------

    \6\ With respect to the UIT discussed in footnote 4, Applicants 
state that they will provide written notification to the trustee of 
the UIT concerning the Injunction, any impact on the UIT, and this 
application, and will provide any other related information that may 
be requested by the trustee.
---------------------------------------------------------------------------

    6. Applicants state that the inability to continue providing 
advisory services to the Funds and the inability to continue serving as 
principal underwriter to the Funds would result in potentially severe 
hardships for the Funds and their shareholders. Applicants also assert 
that, if they were barred from providing services to the Funds, the 
effect on their businesses and employees would be severe. The 
Applicants state that they have committed substantial resources to 
establish an expertise in advising and distributing Funds. Certain 
affiliated persons of MLPF&S previously have received exemptions under 
section 9(c) as the result of conduct that triggered section 9(a) as 
described in greater detail in the application.

Applicants' Condition

    Applicants agree that any 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 date 
the Commission takes final action on their application for a permanent 
order.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-27985 Filed 11-5-03; 8:45 am]
BILLING CODE 8010-01-P