[Federal Register Volume 69, Number 218 (Friday, November 12, 2004)]
[Notices]
[Pages 65477-65478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3148]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IA-2321/803-178]


The Charles Talbot Fund; Notice of Application

November 5, 2004.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Advisers Act of 1940 (``Advisers Act'' or ``Act'').

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Applicant: The Charles Talbot Fund (the ``Fund'' or ``Applicant'').

Relevant Advisers Act Sections: Exemption requested under section 
205(e) of the Advisers Act from section 205(a)(1) of that Act.

Summary of Application: Applicant requests an order under section 
205(e) of the Advisers Act to permit registered investment advisers to 
charge it performance-based advisory fees notwithstanding the 
prohibition set forth in section 205(a)(1) of the Act.

Filing Dates: The application was filed on October 28, 2003, and 
amended on March 12, 2004, and amended further on May 7, 2004.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving the 
Applicant with a copy of the request, either personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m., on 
November 30, 2004, and should be accompanied by proof of service on 
Applicant, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
may request notification of a hearing by writing to the SEC's 
Secretary.

ADDRESSES: Secretary: SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicant: The Charles Talbot Fund, 46775 Ann Arbor Trail, Plymouth, 
Michigan, 48170.

FOR FURTHER INFORMATION CONTACT: Marilyn Barker, Senior Counsel, or 
Jennifer L. Sawin, Assistant Director, Division of Investment 
Management, Office of Investment Adviser Regulation, at (202) 942-0719.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicant's Representations

    1. Applicant is a Michigan limited partnership formed in 1978 for 
general investment purposes so as to facilitate and simplify the 
investment of assets owned by the Talbot family. Applicant represents 
that the Fund is the Talbot family's principal investment vehicle, and 
is exempt from registration as an investment company under section 
3(c)(1) of the Investment Company Act of 1940 (the ``Investment Company 
Act'').\1\
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    \1\ Section 3(c)(1) generally excepts from the definition of 
investment company under the Investment Company Act any issuer whose 
outstanding securities are beneficially owned by not more than 100 
persons and which is not making, and does not presently propose to 
make, a public offering of its securities.
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    2. Charles F. Talbot, Jr., is the Fund's general partner. Mr. 
Talbot is compensated for services as general partner by pro rata 
participation in the gain or loss of the partnership. He is reimbursed 
for actual hours spent in the partnership business such as accounting. 
The Fund has no other executives or employees.

[[Page 65478]]

    3. Applicant represents that Mr. Talbot is solely responsible for 
making the investment decisions for the Fund. At present, Mr. Talbot 
owns more than 90 percent of the Fund's capital.
    4. The Fund's limited partners currently consist of Mr. Talbot's 
wife, three of Mr. Talbot's adult children and one of their spouses, 
eight of Mr. Talbot's grandchildren, and a small partnership (``BIF'') 
whose partners currently consist of Mr. Talbot and one of his adult 
children.\2\ Mr. Talbot's children acquired their interests in the Fund 
with assets received as gifts from Mr. Talbot's parents; Mr. Talbot's 
grandchildren acquired their interests as gifts from Mr. Talbot or from 
him and his former spouse. Mr. Talbot's daughter acquired her interest 
in the BIF partnership as a gift from Mr. Talbot.
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    \2\ Applicant represents that Mr. Talbot is the general partner 
of, and is solely responsible for the investment decisions for, the 
BIF partnership.
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    5. Applicant represents that the partners of the Fund will be 
limited to Mr. Talbot, his siblings, spouse, direct lineal descendants 
by birth or adoption, spouses of such persons, estates of such persons, 
and trusts established by or for the benefit of such persons 
(collectively, ``Family Members''), as well as partnerships whose 
partners consist only of Family Members.
    6. Applicant states that it wants to participate in investment 
opportunities managed by registered investment advisers that seek to 
charge it a performance-based advisory fee pursuant to rule 205-3 under 
the Advisers Act. Applicant represents further that neither it nor any 
of its partners has any relationship (other than a present investment 
relationship) with, or is an affiliate or an interested person of, any 
registered investment adviser that would seek to charge it a 
performance fee pursuant to rule 205-3.
    7. Applicant represents that the Fund is a ``qualified purchaser'' 
as defined in section 2(a)(51)(A)(ii) of the Investment Company Act \3\ 
and satisfies the net worth requirement for a ``qualified client'' as 
set forth in rule 205-3(d)(1) under the Advisers Act.\4\ Applicant 
represents further that Mr. Talbot is a ``qualified client'' as defined 
in rule 205-3(d)(1) under the Advisers Act.
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    \3\ Applicant asserts that limiting partnership in the Fund to 
Family Members will assure that the Fund will continue to be a 
qualified purchaser under section 2(a)(51)(A)(ii).
    \4\ Rule 205-3(d)(1) includes, as ``qualified clients,'' a 
natural person who or a company that immediately after entering into 
the contract has at least $750,000 under the management of the 
investment adviser; a natural person who or a company that the 
investment adviser reasonably believes, immediately prior to 
entering into the contract, to have a net worth exceeding $1.5 
million or to be a ``qualified purchaser'' as defined in section 
2(a)(51)(A) of the Investment Company Act at the time the contract 
is entered into; and certain personnel of the investment adviser.
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    8. Applicant states that, of Mr. Talbot's children and 
grandchildren, only one is a ``qualified client.''

Applicant's Legal Analysis

    1. Section 205(a)(1) of the Advisers Act generally prohibits a 
registered investment adviser, unless exempt from registration pursuant 
to section 203(b) of the Act, from entering into, extending, renewing, 
or performing under any investment advisory contract that provides for 
compensation based upon ``a share of capital gains upon or capital 
appreciation of the funds or any portion of the funds of the client,'' 
commonly referred to as performance-based compensation or a performance 
fee.
    2. Rule 205-3(a) under the Act provides an exemption from the 
prohibition in section 205(a)(1) provided each client entering into an 
investment advisory contract that provides for performance-based 
compensation is a ``qualified client.'' Under rule 205-3(b), each 
equity owner of a ``private investment company'' is considered a client 
for purposes of rule 205-3(a).\5\ Applicant asserts that the Fund is a 
private investment company.
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    \5\ Under rule 205-3(d)(3), a private investment company is a 
company that would be defined as an investment company under section 
3(a) of the Investment Company Act of 1940 but for the exception 
provided from that definition by section 3(c)(1) of such Act.
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    3. Because a number of the Fund's limited partners are not 
qualified clients, the Fund may not be treated as meeting the 
requirements of rule 205-3(a).
    4. Applicant requests an order under section 205(e) of the Advisers 
Act granting an exemption from section 205(a)(1) of the Act so as to 
permit registered investment advisers to charge the Fund performance 
fees. Applicant asks that the relief requested be applicable to any 
Family Members that are not qualified clients and that are now or may 
later be admitted as partners in the Fund or the BIF partnership.
    5. Section 205(e) of the Advisers Act provides that the Commission, 
by order upon application, may exempt any person, or any class or 
classes of persons, from section 205(a)(1) of the Act, if and to the 
extent that the exemption relates to an investment advisory contract 
with any person that the Commission determines does not need the 
protection of section 205(a)(1), on the basis of such factors as 
financial sophistication, net worth, knowledge of and experience in 
financial matters, and such other factors as the Commission determines 
are consistent with section 205.
    6. Applicant asserts that exemptive relief to permit the Fund to be 
charged performance fees is appropriate and consistent with the 
purposes of 205(a)(1) of the Advisers Act. Applicant asserts that the 
request for relief complies with the factors specified in section 
205(e) of the Act. Applicant states that Mr. Talbot, the sole 
investment decision-maker for the Fund, is a qualified client meeting 
the net worth requirement of rule 205-3(d)(1)(ii)(A) under the Act. 
Applicant asserts that Mr. Talbot is financially sophisticated, has 
substantial knowledge of and experience in financial matters, and is 
fully able to assess the potential risks of performance fees. Applicant 
further asserts that Mr. Talbot has a father's or grandfather's love 
for his family and may be reasonably presumed to act in the best 
interests of the Family Members.
    7. Applicant further asserts that Mr. Talbot's children have 
substantial experience and are financially sophisticated, which 
provides an extra layer of protection for their interests as well as 
those of their children.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3148 Filed 11-10-04; 8:45 am]
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