31984 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

those provided in this condition. In no

event will the Portfolios purchase any

such securities from the Bond Division

or from the syndicate manager of an

underwriting syndicate of which the

Bond Division is a member in ‘‘group

sales’’ in an underwriting where the

Related Purchasers in the aggregate

purchase a majority or more of any class

of an issue of such securities.

2. Purchases of Tennessee tax-exempt

securities directly from the Bond

Division or from a syndicate manager of

an underwriting syndicate of which the

Bond Division is a member when the

purchases are designated as ‘‘group

sales’’ be effected only in Tennessee taxexempt securities which at the time of

purchase have one of the following

investment grade ratings from at least

one nationally recognized rating agency:

(a) one of the two highest investment

grade ratings in the case of securities

with remaining maturities of one year or

less; and (b) one of the top three

investment grade ratings in the case of

securities with remaining maturities

greater than one year.

3. Purchases of Tennessee tax-exempt

securities directly from the Bond

Division or from a syndicate manager of

an underwriting syndicate of which the

Bond Division is a member when the

purchases are designated as ‘‘group

sales’’ will be limited so that no such

transaction will be effected if, as a

result, the aggregate value of securities

held by a Portfolio acquired pursuant to

such transactions would exceed 50% of

the total net assets of the Portfolio.

4. Purchases of Tennessee tax-exempt

securities directly from the Bond

Division or from a syndicate manager of

an underwriting syndicate of which the

Bond Division is a member when the

purchases are designated as ‘‘group

sales’’ will be effected only when the

Tennessee tax-exempt securities

acquired are otherwise unavailable for

purchase. If the Bond Division is the

sole underwriter of the securities, this

condition is automatically fulfilled

because there is no other potential

seller. When the Bond Division is a

member of an underwriting syndicate,

the Investment Adviser will observe the

following procedures to determine

when the securities are unavailable from

other members of the syndicate.

Initially, the Investment Adviser will

determine the aggregate number of

securities which the Portfolios wish to

acquire. Next, the Investment Adviser

will attempt to purchase as much of this

number as possible from members of the

syndicate other than the Bond Division.

After acquiring as many securities as

possible from such other members, the

Investment Adviser will attempt to

purchase from the Bond Division the

number of securities which the

Portfolios wish to acquire and have been

unable to obtain from such other

members. The securities acquired from

such other members will be allocated

first to the Portfolios to the extent of the

number of securities it is entitled to

acquire, based upon the relative needs

of the Related Purchasers and the total

number of securities purchased from

such other members and from the Bond

Division, whichever is less.

5. When the Portfolios purchase

Tennessee tax-exempt securities from a

syndicate manager of an underwriting

syndicate of which the Bond Division is

a member, the Portfolios will not: (a)

Submit designated orders to a syndicate

manager which are allocated to the

Bond Division; (b) submit group orders

to a syndicate manager which designate

the Bond Division to receive any portion

of the commission; or (c) otherwise

allocate orders to the Bond Division.

6. The exemption will be valid only

so long as the Investment Adviser and

the Bond Division operate as separate

and independent profit centers within

the framework of First Tennessee Bank

National Association (or become

separate subsidiaries or affiliates

thereof). The Investment Adviser will

maintain offices physically separate

from those of the Bond Division.

Personnel assigned to the Investment

Adviser will be devoted exclusively to

the business and affairs of the

Investment Adviser and will not receive

compensation based on the volume or

nature of transactions effected for the

Portfolios with the Bond Division or an

underwriting syndicate of which the

Bond Division is a member, except to

the extent that such transactions may

affect the profits and losses of the Bank.

The Bond Division will not share with

the Investment Adviser any of its profits

or losses on transactions effected by the

Portfolios with the Bond Division or an

underwriting syndicate of which the

Bond Division is a member, provided

that general compensation to the officers

and employees of the Bank, including

the Investment Adviser and the Bond

Division, will not be affected by this

undertaking. Personnel assigned to the

Bond Division will not participate in or

otherwise seek to influence the

Investment Adviser other than in the

normal course of sales activities of the

same nature that are being carried out

simultaneously with respect to

unaffiliated institutional clients of the

Bond Division. Senior executives of the

Bank and/or First Tennessee National

Corporation with responsibility for

overseeing the operations of various

divisions and subsidiaries are not

precluded from exercising those

functions over the Investment Adviser

because they oversee the Bond Division

as well, provided that such persons

shall not have any involvement with

respect to transactions effected pursuant

to the exemption and will not attempt

to influence or control the purchase of

securities by the Portfolios from the

Bond Division or an underwriting

syndicate of which the Bond Division is

a member.

7. The Bond Division and the

Investment Adviser will adopt a set of

guidelines for their respective personnel

to make certain that transactions

conducted pursuant to the order comply

with the conditions set forth in the

application and that the parties

generally maintain arm’s length

relationships. Compliance officer(s) in

conjunction with the Bank’s audit

division periodically will monitor the

activities of the Bond Division and the

Investment Adviser to make certain that

they adhere to such guidelines and the

conditions set forth in the application.

8. The trustees, including a majority

of the independent trustees of the Trust

who are not ‘‘interested persons’’ of the

Trust and have no direct or indirect

financial interest in the transaction, will

review no less frequently then quarterly

each purchase of Tennessee tax-exempt

securities directly from the Bond

Division or from a syndicate manager of

an underwriting syndicate of which the

Bond Division is a member when the

purchases are designated as ‘‘group

sales’’ since the last review and will

determine that the terms of such

transactions were reasonable and fair to

the shareholders of the Portfolios and

did not involve overreaching of the

Portfolios or their shareholders on the

part of any person concerned. In

considering whether the price paid for

the security was reasonable and fair, the

price of the security will be analyzed

with respect to comparable transactions

involving similar securities being

purchased or sold during a comparable

period of time.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 96–15909 Filed 6–20–96; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–22021; 813–146]

George K. Baum Employee Equity

Fund, L.P.; Notice of Application

June 17, 1996.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 31985

1Section 4(2) exempts certain transactions by an

issuer not involving any public offering from the

Securities Act’s registration requirement.

ACTION: Notice of Application for

Exemption under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANT: George K. Baum Employee

Equity Fund, L.P. (the ‘‘Partnership’’).

RELEVANT ACT SECTIONS: Order requested

under sections 6(b) and 6(e) granting an

exemption from all provisions of the Act

and the rules and regulations

thereunder except section 9, certain

provisions of sections 17 and 30, and

sections 36 through 53.

SUMMARY OF APPLICATION: The

Partnership requests an order that

would grant an exemption from most

provisions of the Act and would permit

certain affiliated and joint transactions.

The Partnership will be an employees’

securities company within the meaning

of section 2(a)(13) of the Act.

FILING DATES: The application was filed

on December 4, 1995, and amended on

June 17, 1996.

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 applicants with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on July

12, 1996, and should be accompanied

by proof of service on the 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 SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, N.W., Washington, D.C. 20549.

Applicant, 120 West 12th Street, Kansas

City, MO 64105.

FOR FURTHER INFORMATION CONTACT:

Elaine M. Boggs, Staff Attorney, at (202)

942–0572, or Robert A. Robertson,

Branch Chief, at (202) 942–0564

(Dvision 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 from the SEC’s

Public Reference Branch.

Applicant’s Representations

1. The Partnership was formed for the

benefit of certain officers who are

experienced professionals in the

investment banking, merchant banking

or securities business, or in

administrative, financial, accounting, or

operations activities related thereto

(‘‘Eligible Officers’’) of George K. Baum

Holdings Inc. (‘‘GKB Holdings’’), a

Delaware corporation, and its affiliates

(as defined in rule 12b–2 promulgated

under the Securities Exchange Act of

1934 (the ‘‘Exchange Act’’) (GKB

Holdings and its affiliates are referred to

herein as the ‘‘Baum Entities’’). The

Partnership is intended to be a means of

rewarding and retaining key

professionals of the Baum Entities by

enabling them to pool their investment

resources to invest in opportunities

which come to the attention of the

Partnership. The pooling of resources

permits diversification and participation

in investments that usually would not

be offered to individual investors. The

preeminent purpose of the Partnership

is to reward and retain key officers of

the Baum Entities and to attract other

qualified professionals to the Baum

Entities.

2. George K. Baum & Company

(‘‘Baum’’), a Missouri corporation and a

wholly-owned subsidiary of GKB

Holdings, is a full-line investment

banking firm with headquarters in

Kansas City, Missouri. Baum is the

broker-dealer affiliate of the Baum

Entities and is registered as a brokerdealer under the Exchange Act and is a

registered investment adviser under the

Investment Advisers Act of 1940 (the

‘‘Advisers Act’’).

3. The Partnership will operate as a

closed-end management investment

company. The sole investment option of

the Partnership will be to co-invest with

George K. Baum Capital Partners, L.P.

(the ‘‘Investor Fund’’), a limited

partnership to be formed under the laws

of Delaware. The Investor Fund will

seek to achieve long-term capital growth

through investments in leveraged

buyout and recapitalization transactions

primarily involving manufacturing

companies with revenues of between

$25 and $100 million. Oversight

required by the Investor Fund

partnership agreement in connection

with the Investor Fund’s investments,

potential conflicts of interest, and other

matters will be provided by an advisory

board consisting of at least three

independent representatives of limited

partners of the Investor Fund (‘‘Investor

Fund Advisory Board’’). The Investor

Fund will be exempt from registration

under the Act by reason of the

exemption afforded by section 3(c)(1) of

the Act. The Investor Fund and the

Partnership will be separate legal

entities and will be administered

separately. No person will be permitted

to invest as a limited partner in both the

Investor Fund and the Partnership.

4. The general partner of the

Partnership is GKB Equity, Inc., a

Missouri corporation (the ‘‘General

Partner’’), and a wholly-owned

subsidiary of GKB Holdings. George K.

Baum Merchant Banc, L.L.C., a Missouri

limited liability company and an

affiliate of GKB Holdings, will be the

investment adviser (the ‘‘Adviser’’) to

both the Investor Fund and the

Partnership. The Adviser has filed an

application to become registered as an

investment adviser under the Advisers

Act.

5. Interests in the Partnership will be

offered without registration under a

claim of exemption pursuant to section

4(2) of the Securities Act of 1933 (the

‘‘Securities Act’’).1 Interests will be

offered and sold only to Eligible Officers

of the Baum Entities or trusts

established by such Eligible Officers for

their benefit or the benefit of their

immediate families.

6. To be an Eligible Officer an

individual must be (at the time of his or

her subscription for and admission to

the Partnership) an officer at the level of

vice president or above of one or more

of the Baum Entities and must satisfy

the requirements to be either an

‘‘Accredited Officer’’ or a ‘‘NonAccredited Officer.’’ To be an

Accredited Officer, an individual must

be (at the time of his or subscription for

and admission to the Partnership) an

‘‘accredited investor’’ meeting the

standards set forth in rule 501(a)(6) of

Regulation D under the Securities Act.

To be a Non-Accredited Officer, an

individual must have had an individual

income in excess of $100,000 in each of

the two most recent years, or joint

income with that person’s spouse in

excess of $150,000 in each of those

years, and in both cases must have a

reasonable expectation of reaching the

same income level in the current year.

In addition, Non-Accredited Officers

will be limited to officers who meet one

of the following criteria: (a) he or she is

in charge of a principal business

function of one of the Baum Entities and

directly reports to either the CEO of

Baum or the executive directors of the

Adviser, or (b) he or she is an

experienced vice president in Baum’s

corporate finance group who regularly

works with clients in mergers and

acquisitions and financings in the

public and private equity markets and

who has direct access to the managers

of the Adviser on a regular basis.

7. The Eligible Officers are

experienced professionals in the

investment banking, merchant banking

or securities business, or in the
31986 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

administrative, financial accounting, or

operational activities related thereto.

Each Non-Accredited Officer will have

such knowledge and experience in

financial and business matters that he or

she is capable of evaluating the merits

and risks of an investment in the

Partnership, or the Partnership

reasonably believes immediately prior

to making any sale that such person

comes within this description. The

limitations on the class of persons who

may acquire interests (‘‘Limited

Partners’’), in conjunction with the

other characteristics of the Partnership,

will result in the Partnership meeting

the definition of an ‘‘employees’

securities company’’ under section

2(a)(13) of the Act. No Eligible Officer

will be required to invest in the

Partnership.

8. Each Limited Partner will make a

commitment to invest in the Partnership

(a ‘‘Commitment’’). An Accredited

Officer’s Commitment will expire on the

sixth anniversary of the initial closing of

the Investor Fund (the ‘‘Commitment

Period’’). During the 30 day period at

the beginning of each fiscal year (the

‘‘Adjustment Period’’), Accredited

Officers may increase, but not decrease,

the amount of their Commitment. NonAccredited Officers may only make

Commitments for up to 10% of his or

her W–2 income derived from the Baum

Entities in the prior fiscal year. On each

anniversary date, Non-Accredited

Officers may increase (subject to the

10% income maximum) or decrease the

amount of their Commitment. If a NonAccredited Officer qualifies as an

Accredited Officer at any time during

the Commitment Period, he or she must

make a Commitment during the next

Adjustment Period for the balance of the

Commitment Period in accordance with

the terms applicable to Accredited

Officers or may choose not to make any

further investment in the Partnership.

9. The General Partner will determine

in its sole discretion the amount and

timing of capital contributions to be

made by the Limited and General

Partners to the Partnership. Capital

contributions will fund Partnership

investments and the payment of

Partnership expenses. The maximum

amount of capital contributions that a

Limited Partner may be required to

make during the life of the Partnership

will be limited to the Limited Partner’s

Commitment. The minimum

Commitment of each Accredited Officer

will be $10,000, subject to waiver by the

General Partner in its sole discretion.

There will be no assurance of the

precise timing or amount of capital calls

but the General Partner expects that

investments by the Partnership will be

made over a four to six-year period and

the Partners’ Commitments will be

called over this period.

10. The management and control of

the Partnership, including all

investment decisions, will be vested in

the General Partner. The management

and control of the General Partner will,

in turn, be vested in the board of

directors of the General Partner, all of

whom are Eligible Officers. The General

Partner will enter into a management

agreement (the ‘‘Management

Agreement’’) with the Adviser. The

Adviser will make all investment

decisions on behalf of the Investor Fund

and the Partnership, as well as provide

personnel, office space and business

facilities to the Investor Fund and the

Partnership.

11. Until the end of the Commitment

Period, the Partnership will pay the

Adviser a management fee, payable

quarterly in advance, equal to 3% per

year of the aggregate amount of the

Commitments, and thereafter the

management fee will be equal to 3% per

year of the aggregate amount of the cost

basis of securities owned by the

Partnership. The management fee will

comply with all provisions of the

Investment Adviser’s Act of 1940. To

the extent not otherwise reimbursed, the

Adviser will have the right to be

reimbursed by the Investor Fund and

the Partnership for its out-of-pocket

expenses incurred in connection with

the transactions proposed on behalf of

the Investor Fund and the Partnership.

These expenses will be shared between

the Investor Fund and the Partnership

pro rata according to the aggregated

capital commitments of each.

12. Prior to selling interests to Eligible

Officers, the Partnership will distribute

to Eligible Officers a copy of offering

memorandum for the Investor Fund,

memorandum containing a summary

description of the terms of the

Partnership, and a copy of the

Partnership Agreement. In addition,

each Eligible Officer will be provided a

copy of the application for the requested

exemptive relief and will be given the

opportunity to ask questions of the

Partnership and the Adviser.

13. Except for short-term cash

investments, the Partnership will coinvest its capital in investments in

which the Investor Fund invests. The

amount of the Partnership coinvestment will bear the same

proportion to the aggregate investments

of the Investor Fund and the Partnership

as the aggregate capital commitments of

the Partnership bear to the aggregate

capital commitments of the Investor

Fund and the Partnership. (Any entity

in which the Partnership and the

Investor Fund invests is a ‘‘Portfolio

Company’’.) It is expected that the

economic terms applicable to the

Partnership’s investments will be

identical to the corresponding

investments by the Investor Fund;

however, investments of the Investor

Fund may have more favorable noneconomic terms (e.g., the right to

representation on the board of directors

of a Portfolio Company) if required for

the Investor Fund to qualify as a venture

capital operating company under the

Employees’ Retirement Income

Securities Act or for other regulatory

reasons.

14. The Partnership and the Investor

Funds will not be permitted, except

with the consent of the Investor Fund

Advisory Board, to make an investment

in any company in which a member of

the Baum Entities previously has made

an investment, or in which a member is

a director or officer. The Partnership

and the Investor Fund also will not be

permitted, except with the consent of

the Investor Fund Advisory Board, to

make a follow-on investment in a

Portfolio Company previously

participated in by a member of the

Baum Entities if, in such round, the

member of the Baum Entities is

acquiring more or less than its pro rata

position from the previous round.

15. Subject to the limitations

described above, the Partnership will be

permitted to enter into transactions

involving (a) a member of the Baum

Entities (including without limitation

the Investor Fund), (b) a Portfolio

Company, (c) any partner of the Investor

Fund that is not a member of the Baum

Entities (together with the affiliates of

such partner, a ‘‘Non-Baum Investor

Fund Partner’’), or (d) the General

Partner or any Limited Partner

(collectively the ‘‘Partners’’) or person

or entity related to any Partner. Any

such transaction, however, must be on

terms no less favorable to the

Partnership than are generally afforded

to unrelated third parties in comparable

transactions. Such transactions include,

without limitation, the purchase or sale

by the Partnership of an investment, or

an interest therein, from or to any

member of the Baum Entities acting as

principal. With respect to any

investment purchased by the

Partnership from a member of the Baum

Entities acting as principal, the

Partnership will acquire the investment

for no more than the fair value at the

time of purchase, plus customary fees

and expenses. The fair value at the time

of such purchase may be more or less

than the price paid by the member of

the Baum Entities, depending on the
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 31987

appreciation or depreciation in the

particular investment.

16. Distributions of cash and

securities will be made at the discretion

of the General Partner. All distributions

will be made to the Partners in

proportion to their respective capital

contributions. When distributing cash or

securities or both to the Partners, the

General Partner will be required to

distribute the cash and securities to all

Partners in the same proportions. 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 and a copy of the valuation

will be delivered to each of the Partners.

17. The Partnership will not be

permitted to incur indebtedness for

borrowed money in an amount in excess

of 10% of the sum of the cost basis of

the Partnership’s investments plus the

sum of the remaining Commitments.

The Partnership will not make loans to

the Investor Fund or any other member

of the Baum Entities, or any employee,

officer, director, or advisory director of

one of the Baum Entities.

18. A Limited Partner may not

withdraw from the Partnership prior to

the dissolution of the Partnership,

except under certain limited

circumstances. The General Partner may

require a Limited Partner to withdraw if

(a) the Limited Partner is a Defaulting

Partner (as defined below), (b) the

Limited Partner violates the restrictions

on transfer described below, or (c) if the

General Partner determines in its

reasonable discretion that continued

membership of the Limited Partner in

the Partnership would subject the

Partnership to material onerous legal or

other regulatory requirements that

cannot reasonably be avoided. In

addition, a Limited Partner will cease to

be a Limited Partner upon termination

of employment with any of the Baum

Entities, other than due to death,

retirement, or permanent disability. If a

Limited Partner terminates his or her

employment with any of the Baum

Entities for any reason, no further

capital contributions will be made

pursuant to the remaining uncalled

Commitment and the holder of such

interest will not participate in

subsequent Partnership investments or

pay subsequent management fees.

19. If a Limited Partner dies, retires

after age 60, or becomes permanently

disabled, the Partnership Agreement

will provide that the Limited Partner (or

his or her estate in the case of death)

will continue to hold his or her interest.

Upon termination of a Limited Partner’s

interest resulting from a termination of

employment with the Baum Entities for

any reason other than death, retirement,

or permanent disability, the Partnership

Agreement will provide that the

Partnership may redeem, in its

discretion, that Limited the Partner’s

interest for cash and/or a promissory

note. The amount payable to terminated

Limited Partner will be the lower of (a)

such Limited Partner’s capital account

balance on the date of termination or (b)

the then fair value (as determined by the

General Partner) of the interest.

20. Interests in the Partnership will be

non-transferable except with the prior

written consent of the General Partner,

which consent may be withheld in its

sole discretion, and in any event, will

not be transferable to persons other than

(a) other Partners or Eligible Officers, (b)

trusts established by the transferor

Limited Partner primarily for the benefit

of such Limited Partner or such Limited

Partner’s immediate family, or (c) by

succession or testamentary disposition

upon the death of the transferor Limited

Partners.

21. During the existence of the Partnership,

books of account will be kept, in which the

General Partner will enter, or cause to be

entered, all business transacted by the

Partnership and all moneys and other things

received, advanced, paid out, or delivered on

behalf of the Partnership, the results of the

Partnership’s operations, and each partner’s

capital. Such books will at all times be

accessible to all Partners at the Partnership’s

principal place of business during normal

working hours.

Applicant’s Legal Analysis

1. The Partnership requests an

exemption under section 6(b) and 6(e) of

the Act from all provisions of the Act

and the rules and regulations

thereunder except section 9, certain

provisions of section 17 and 30, and

sections 36 through 53.

2. Section 6(b) of the Act provides

that the SEC shall exempt employees’

securities companies from the

provisions of the Act to the extent that

such exemption is consistent with the

protection of investors. Section 2(a)(13)

of the Act defines an employee’s

security company, among other things,

as any investment company all of the

outstanding securities of which are

beneficially owned by the employees or

persons on retainer of a single employer

or affiliated employers or by former

employees of such employers; or by

members of the immediate family of

such employers, persons on retainer, or

former employees.

3. Section 6(e) of the Act provides that

in connection with any order exempting

an investment company from any

provision of section 7, certain specified

provisions of the Act shall be applicable

to such company, and to other persons

in their transactions and relations with

such company, as though such company

were registered under the Act, if the

SEC deems it necessary or appropriate

in the public interest or for the

protection of investors.

4. Section 17(a) of the Act provides,

in relevant part, that it is unlawful for

any affiliated person of a registered

investment company acting as principal,

knowingly to sell any security or other

property to such registered investment

company or to purchase from such

registered investment company any

security or other property. The

Partnership requests an exemption from

section 17(a) to the extent necessary to:

(a) permit a member of the Baum

Entities, acting as principal, to engage in

any transaction with the Partnership or

any company controlled by the

Partnership; (b) permit the 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

member of the Baum Entities has

invested or will invest or (ii) with which

the Partnership, any company

controlled by the Partnership or any

member of the Baum Entitles is or will

become otherwise affiliated; and (c)

permit a Non-Baum Investor Fund

Partner, acting as principal, to engage in

any transaction with the Partnership or

any company controlled by the

Partnership. The transaction in which

the Partnership is a party will be

effected only after a determination by

the Adviser and the General Partner that

the requirements of condition 1 below

have been satisfied.

5. The principal reason for the

requested exemption is to ensure that

the Partnership will be able to invest in

companies, properties, or vehicles in

which a member of the Baum Entities or

the Baum Entities’ individual

employees, officers, directors or

advisory directors, or the partners of the

Investor Fund may make or have

already made an investment. In

addition, relief is requested to permit

the Partnership the flexibility to deal

with the Portfolio Companies in the

manner the General Partner deems most

advantageous to all Partners or as

required by the Investor Fund or the

Partnership’s other co-investors.

6. The Partners will have been fully

informed of the possible extent of the

Partnership’s dealings with the Investor

Fund, another member of the Baum

Entities, or with a Non-Baum Investor

Fund Partner and, as successful

professionals employed in the securities

business, will be able to understand and

evaluate the attendant risks. The
31988 Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices

Partnership believes that the community

of interest among the Partners, on the

one hand, and the Investor Fund or

another member of the Baum Entities or

the Non-Baum Investor Fund Partners,

on the other hand, is the best insurance

against any risk of abuse in this regard.

7. Section 17(d) of the Act makes it

unlawful for any affiliated person of a

registered investment company, acting

as principal, to effect any transaction in

which the company is a joint or joint

and several participant with the

affiliated person in contravention of

such rules and regulations as the SEC

may prescribe for the purpose of

limiting or preventing participation by

such companies. Rule 17d–1 under

section 17(d) prohibits most joint

transactions unless approved by order of

the SEC.

8. The Partnership requests an

exemption from section 17(d) and rule

17d–1 to the extent necessary to permit

affiliated persons of the Partnership

(including without limitation the

General Partner, the Investor Fund, and

other members of the Baum Entities) or

affiliated persons of any of these

persons (including without limitation of

the Non-Investor Fund Partners) to

participate in, or effect any transaction

in connection with, any joint enterprise

or other joint arrangement or profitsharing plan in which the Partnership or

a company controlled by the

Partnership is a participant. The

exemption requested would permit,

among other things, co-investments by

individual partners or employees,

officers, directors, or advisory directors

of the Baum Entities with the

Partnership.

9. Compliance with section 17(d)

would prevent the Partnership from

achieving its only investment purpose.

Because of the number and

sophistication of the potential Partners

and persons affiliated with such

Partners, compliance with section 17(d)

would cause the partnership to forego

investment opportunities simply

because a Partner or other affiliated

person of the Partnership (or any

affiliate of such a person) also had, or

contemplated making, a similar

investment. In addition, the Partnership

asserts that it is the existence of the

Investor Fund and the Baum Entities’

experience in structuring transactions

which will result in the Partnership

having the opportunity to make

attractive investments. As a result, the

only way in which the Partnership will

be able to participate in such

opportunities will be to co-invest with

its affiliates.

10. The flexibility to structure coinvestments and joint investments in

the manner described above will not

involve abuses of the type section 17(d)

and rule 17d–1 were designed to

prevent. The concern that permitting coinvestments or joint investments by the

Investor Fund or another member of the

Baum Entities or by the Non-Baum

Investor Fund Partners on the other,

might lead to less advantageous

treatment of the Partnership should be

mitigated by the fact that: (a) the Baum

Entities, in addition to their interest

through the General Partner, the

Investor Fund’s general partner, the

Investor Fund, and the Partnership, will

be acutely concerned with their

relationship with the personnel who

invest in the Partnership; and (b) senior

officers and directors of the Baum

Entities will be investing in the

Partnership.

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 SEC

rules. The Partnership requests an

exemption from section 17(f) and rule

17f–1 to the extent necessary to permit

a member of the Baum Entities to act as

custodian without a written contract.

Because there is such a close association

between the Partnership and the Baum

Entities, requiring a detailed, written

contract would expose the Partnership

to unnecessary burden and expense.

Further, any securities of the

Partnership which will be held by the

Baum Entities will have the protection

of fidelity bonds. An exemption is

requested from the terms of rule 17f–

1(b) (4), as the partnership does not

believe that the expense of retaining an

independent accountant to conduct

periodic verifications is warranted given

the community of interest of all the

parties involved and the existing

requirement for an independent annual

audit.

12. Section 17(g) of the Act and rule

17g–1 generally require the bonding of

officers and employees of a registered

investment company who have access to

securities or funds of the company. The

Partnership requests an exemption from

section 17(g) and rule 17g–1 to the

extent necessary to permit the

Partnership to comply with rule 17g–1

without the necessity of having a

majority of the managers of the General

Partner who are not ‘‘interested

persons’’ take such actions and make

such approvals as are set forth in rule

17g–1. Because all of the managers of

the General Partner will be affiliated

persons, without the requested relief,

the Partnership could not comply with

rule 17g–1. The Partnership will except

for the requirements of such approvals

by ‘‘not interested’’ persons, otherwise

comply with rule 17g–1.

13. Section 17(j) of the Act and rule

17j–1 make it unlawful for certain

enumerated persons to engage in

fraudulent, deceitful, or manipulative

practices in connection with the

purchase or sale of a security held or to

be acquired by an investment company.

Rule 17j–1 also requires every registered

investment company, its adviser, and its

principal underwriter to adopt a written

code of ethics with provisions

reasonably designed to prevent

fraudulent activities, and to institute

procedures to prevent violations of the

code. The Partnership requests an

exemption from section 17(j) and rule

17j–1 (except rule 17j–1(a)) because the

requirements contained therein are

burdensome and unnecessary. Requiring

the Partnership to adopt a written code

of ethics and requiring access persons to

report each of their securities

transactions would be time consuming

and expensive, and would serve little

purpose in light of, among other things,

the community of interest among the

Partners by virtue of their common

association in the Baum Entities and the

substantial and largely overlapping

protections afforded by the conditions

with which the Partnership has agreed

to comply. Accordingly, the Partnership

believes that the requested exemption is

consistent with the purposes of the Act

because the dangers against which

section 17(j) and rule 17j–1 are intended

to guard will not be present.

14. Sections 30(a), (b), and (d), and

the rules under these sections, generally

require that registered investment

companies prepare and file with the

SEC and mail to their shareholders

certain periodic reports and financial

statements. The Partnership asserts that

the forms prescribed by the SEC for

periodic reports have little relevance to

the Partnership and would entail

administrative and legal costs that

outweigh any benefit to the Limited

Partners. Exemptive relief is requested

to the extent necessary to permit the

Partnership to report quarterly and

annually in the manner referred to

above. An exemption also is requested

from section 30(f) to exempt the General

Partner, Adviser, employees and

managers of the General Partner and the

Adviser, and any other persons who

may be deemed members of an advisory

board of the Partnership from filing

forms 3, 4, and 5 under section 16 of the

Exchange Act with respect to their

ownership of interests in the

Partnership.
Federal Register / Vol. 61, No. 121 / Friday, June 21, 1996 / Notices 31989

2The Partnership will preserve the accounts,

books, and other documents required to be

maintained in an easily accessible place for the first

two years.

3The Partnership will preserve the accounts,

books, and other documents required to be

maintained in an easily accessible place for the first

two years.

15. The Partnership believes that the

exemptions requested are consistent

with the protection of investors in view

of the substantial community of interest

among all the parties and the fact that

the Partnership will be an ‘‘employees’

securities company’’ as that term is

defined in section 2(a)(13).

16. The Partnership states that each

Eligible Officer will be equipped by

experience and education to understand

and evaluate the structure, management,

and plan of the Partnership as compared

to other investment opportunities, to

understand and evaluate the risks of

investing in the Partnership, and to

understand that the Partnership is being

offered without registration under the

Act and the Securities Act and the

protections afforded thereby.

Applicant’s Conditions

The Partnership agrees to comply

with the following as conditions if the

requested order is granted:

1. Each proposed transaction

otherwise prohibited by section 17(a) or

section 17(d) and rule 17d–1 to which

the 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 and do not involve

overreaching of the Partnership or its

Partners on the part of any person

concerned; and (b) the transaction is

consistent with the interests of the

Partners, the Partnership’s

organizational documents, and the

Partnership’s reports to its Partners. In

addition, the General Partner will record

and preserve a description of such

affiliated transactions, their findings,

the information or materials upon

which their findings are based and the

basis therefor. 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 SEC and its staff.2

2. In connection with the Section 17

Transactions, the General Partner, will

adopt and periodically review and

update, procedures designed to ensure

that reasonable inquiry is made, prior to

the consummation of any such

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 a person, promoter or principal

underwriter.

3. The General Partner will not invest

the funds of the Partnership in any

investment in which a ‘‘Co-Investor’’

has or proposes to acquire the same

class of securities of the same issuer,

where the investment involves a joint

enterprise or other joint arrangement

within the meaning of rule 17d–1 in

which the Partnership and the CoInvestor are participants, unless any

such 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, and on the same

terms as, and pro rata with the CoInvestor. The term ‘‘Co-Investor’’ means

any person who is: (a) an ‘‘affiliated

person’’ (as such term is defined in the

Act) of the Partnership; (b) a member of

the Baum Entities; (c) a officer or

director of one or more of the Baum

Entities; or (d) a company in the General

Partner or Adviser acts as a general

partner or has a similar capacity to

control the sale or other disposition of

the company’s securities (including

without limitation other Investor Fund).

The restrictions contained in this

condition 3, however, shall not be

deemed to limit to 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 the CoInvestor in a direct or indirect whollyowned subsidiary, or to a direct or

indirect wholly-owned subsidiary of its

parent; (b) to immediate family

members of the Co-Investor or a trust

established for any such family member;

(c) when the investment is comprised of

securities that are listed of any exchange

registered as a national securities

exchange under section 6 of the

Exchange Act; or (d) when the

investment is comprised of securities

that are national market system

securities pursuant to section 11A(a)(2)

of the Exchange Act and rule 11As2–1

thereunder.

4. The Partnership and the General

Partner will maintain and preserve, for

the life of the Partnership and at least

two years thereafter, such accounts,

books and other document as constitute

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 Partner and each annual

report of the Partnership required to be

sent to the Partners, and agree that all

such records will be subject

examination by the SEC and its staff.3

5. The General Partner will send to

each Partner who had a capital account

interest in 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 a

valuation or have a valuation made of

all of the assets of the Partnership as of

such fiscal year in a manner consistent

with customary practice with respect to

the valuation of assets of the Kind held

by the Partnership. In addition, within

90 days after the end of each fiscal year

of the Partnership or as soon as

practicable thereafter, the General

Partner shall send a report to each

person who was a Partner at any time

during the fiscal year then ended,

setting forth such tax information as

shall be necessary for the preparation by

the Partner of his, her, or its federal and

state income tax returns and a report of

the investment activities of the

Partnership during such year.

6. In any case where purchases or

sales were made by the Partnership from

or to an entity affiliated with the

Partnership by reason of a 5% or more

investment in such entity by an

advisory director, director, officer, or

employee, of any one or more of the

Baum Entities, such individual will not

participate in the Partnership’s

determination of whether or not to effect

such purchase or sale.

For the SEC, by the Division of Investment

Management, under delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 96–15907 Filed 6–20–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37314; File No. SR–DTC–

96–08]

Self-Regulatory Organizations; The

Depository Trust Company; Order

Granting Accelerated Approval of a

Proposed Rule Change To Establish a

Custody Service for Certain NonDepository Eligible Securities

June 14, 1996.

On April 2, 1996, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–DTC–96–08) pursuant to

Section 19(b)(1) of the Securities