Special Situations Fund III, L.P., et al., Notice of Application, 67762-67765 [05-22163]

Download as PDF 67762 Federal Register / Vol. 70, No. 215 / Tuesday, November 8, 2005 / Notices the focus of these meetings will be discussion of working group findings and recommendations. The Panel welcomes oral public comments at any of these meetings and has reserved one hour for this purpose at each meeting. Members of the public wishing to address the Panel during the meeting must contact Ms. Anne Terry, in writing, as soon as possible to reserve time (see contact information above). (b) Posting of Draft Reports: Members of the public are encouraged to regularly visit the Panel’s Web site for draft reports. Currently, the working groups are staggering the posting of various sections of their draft reports at https:// www.acqnet.gov/aap under ‘‘Working Group Reports.’’ (c) Availability of Materials for the Meetings: Please see the Panel’s Web site for any available materials, including draft agendas and minutes (https://www.acqnet.gov/aap). Questions/issues of particular interest to the Panel are also available to the public on this Web site on its front page, including ‘‘Questions for Government Buying Agencies,’’ ‘‘Questions for Contractors that Sell Commercial Goods or Services to the Government,’’ ‘‘Questions for Commercial Organizations,’’ and an issue raised by one Panel member regarding the rules of interpretation and performance of contracts and liabilities of the parties entitled ‘‘Proposal for Public Comment.’’ The Panel encourages the public to address any of these questions/issues when presenting either oral public comments or written statements to the Panel. (d) Procedures for Providing Public Comments: It is the policy of the Panel to accept written public comments of any length, and to accommodate oral public comments whenever possible. The Panel Staff expects that public statements presented at Panel meetings will be focused on the Panel’s statutory charter and working group topics, and not be repetitive of previously submitted oral or written statements, and that comments will be relevant to the issues under discussion. Oral Comments: Speaking times will be confirmed by Panel staff on a ‘‘firstcome/first-served’’ basis. To accommodate as many speakers as possible, oral public comments must be no longer than 10 minutes. Because Panel members may ask questions, reserved times will be approximate. Interested parties must contact Ms. Anne Terry, in writing (via mail, e-mail, or fax identified above for Ms. Terry) at least one week prior to the meeting in order to be placed on the public speaker list for the meeting. Oral requests for VerDate Aug<31>2005 16:11 Nov 07, 2005 Jkt 208001 speaking time will not be taken. Speakers are requested to bring extra copies of their comments and presentation slides for distribution to the Panel at the meeting. Speakers wishing to use a Power Point presentation must e-mail the presentation to Ms. Terry one week in advance of the meeting. Written Comments: Although written comments are accepted until the date of the meeting (unless otherwise stated), written comments should be received by the Panel Staff at least one week prior to the meeting date so that the comments may be made available to the Panel for their consideration prior to the meeting. Written comments should be supplied to the DFO at the address/ contact information given in this FR Notice in one of the following formats (Adobe Acrobat, WordPerfect, Word, or Rich Text files, in IBM–PC/Windows 98/2000/XP format). Please note: Since the Panel operates under the provisions of the Federal Advisory Committee Act, as amended, all public presentations will be treated as public documents and will be made available for public inspection, up to and including being posted on the Panel’s Web site. (e) Meeting Accommodations: Individuals requiring special accommodation to access the public meetings listed above should contact Ms. Auletta at least five business days prior to the meeting so that appropriate arrangements can be made. Laura Auletta, Designated Federal Officer (Executive Director), Acquisition Advisory Panel. [FR Doc. 05–22238 Filed 11–7–05; 8:45 am] BILLING CODE 3110–01–P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27140; 812–13190] Special Situations Fund III, L.P., et al., Notice of Application November 2, 2005. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order under section 17(b) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from section 17(a) of the Act. AGENCY: Applicants: Special Situations Fund III, L.P. (‘‘SSF III’’), Special Situations Fund III QP, L.P. (‘‘SSF QP,’’ and together with SSF III, the ‘‘Funds’’) and MGP Advisers Limited Partnership (‘‘Adviser’’). PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 Summary of Application: Applicants request an order to permit certain purchase and sale transactions in connection with a proposed division of a registered closed-end management investment company into two separate companies (the ‘‘Transaction’’). Filing Dates: The application was filed on May 19, 2005, and amended on November 2, 2005. 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 November 25, 2005, 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 may request notification of a hearing by writing to the Commission’s Secretary. ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549– 0609. Applicants, c/o Austin W. Marxe, MGP Advisers Limited Partnership, 153 East 53rd Street, 55th Floor, New York, NY 10022. FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel (202– 551–6817), or Stacy L. Fuller, Branch Chief (202–551–6821) (Office of Investment Company Regulation, Division of Investment Management). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee from the Commission’s Public Reference Branch, 100 F Street, NE., Washington, DC 20549–0102 (202–551–5850). Applicants’ Representations 1. SSF III, a Delaware limited partnership, is a closed-end management investment company that is registered under the Act and operates as an ‘‘interval fund’’ under rule 23e–3 under the Act. Partnership interests (‘‘Units’’) in SSF III are not registered under the Securities Act of 1933 (‘‘1933 Act’’) and are sold in private offerings pursuant to Regulation D under the 1933 Act generally to ‘‘accredited investors,’’ as defined in Regulation D. Each investor in SSF III that pays the Adviser an incentive allocation is also a ‘‘qualified client,’’ as defined in rule 205–3 under the Investment Advisers Act of 1940, as amended (‘‘Advisers E:\FR\FM\08NON1.SGM 08NON1 Federal Register / Vol. 70, No. 215 / Tuesday, November 8, 2005 / Notices Act’’). Under SSF III’s fundamental policies and rule 23c–3, as well as its partnership agreement (the ‘‘Partnership Agreement’’), SSF III conducts semiannual repurchase offers for between 10% and 25% of outstanding Units, as determined by the individual general partners of SSF III (each, an ‘‘Individual General Partner,’’ collectively, the ‘‘Board,’’ and the Board together with the Adviser, the ‘‘General Partners’’), who are responsible for the overall management and supervision of SSF III. SSF III may also sell Units to existing Unit holders with a limited partnership interest (‘‘Limited Partners,’’ and together with the General Partners, ‘‘Partners’’) and other investors in the future. SSF III’s investment objectives are to maximize long-term capital appreciation by investing primarily in equity securities and securities with equity features, which are traded on a national securities exchange or Nasdaq. As of June 30, 2005, SSF III had approximately 451 Unit holders (92% of whom were qualified purchasers, as defined in section 2(a)(51) of the Act (‘‘Qualified Purchasers,’’ and such Unit holders, ‘‘Qualified Purchaser Unit Holders’’)) and approximately $500 million in assets. SSF III’s fees and expenses for the year ended December 31, 2004, as a percentage of average net assets, totaled 5.41% (including the Adviser’s incentive allocation of 20% of net profits).1 2. SSF QP, a Delaware limited partnership that was formed on May 17, 2005 to effect the Transaction is excluded from regulation under the Act pursuant to section 3(c)(7) of the Act.2 SSF QP has the same investment objectives as SSF III. SSF QP will have no assets until after the consummation of the Transaction. SSF QP will have the same administration fee and incentive allocation structure as SSF III. Applicants estimate that the fees and expenses for SSF QP (excluding any incentive allocation to the Adviser but including all other fees) would have been on a pro forma basis approximately 0.81% of average net assets for the calendar year ended December 31, 2004.3 Beginning June 30, 2006, limited 1 Excluding the Adviser’s incentive allocation, SSF III’s fees totaled approximately .84% of average net assets. The Adviser’s incentive allocation is subject to a high water mark. 2 SSF QP has been formed in compliance with, and will be bound by the terms and conditions of, the application. 3 For purposes of projecting the effects of the Transaction, the Applicants have assumed the Cash Repurchase Offer and the Exchange Tender Offer (each as defined below) were consummated as follows (collectively, the ‘‘Transaction Participation Assumptions’’): (a) All Qualified Purchaser Unit Holders other than the Adviser and the Principals VerDate Aug<31>2005 16:11 Nov 07, 2005 Jkt 208001 partners of SSF QP may redeem their Units of SSF QP semi-annually on June 30 and December 31 of each calendar year, by providing written notice to the Adviser on or before June 15 or December 15, respectively, of such calendar year. The Adviser has the right to limit the aggregate redemptions of Units of SSF QP by limited partners in any semi-annual fiscal period to 10% of the outstanding Units at the last day of the period (after the redetermination of Units to reflect SSF QP’s profit or loss as of the end of such period). 3. The Adviser, a Delaware limited partnership, is registered as an investment adviser under the Advisers Act. The Adviser is the investment adviser to the Funds. The Adviser is also a General Partner of SSF III and will be the general partner of SSF QP upon completion of the Transaction. AWM Investment Company, Inc. (‘‘AWM’’) is the general partner of the Adviser and Austin W. Marxe, David Greenhouse and Adam Stettner are limited partners of the Adviser (each, including AWM, a ‘‘Principal’’). The Adviser and Mr. Marxe each own a general partnership interest in SSF III totaling in the aggregate approximately 7% of outstanding Units. The other Principals each own a limited partnership interest in SSF III totaling approximately less than 1% of outstanding Units. 4. A provision in the applicable Treasury regulations,4 which has allowed SSF III to operate as a registered investment company but not be taxed as a publicly traded partnership for federal income tax purposes (‘‘Grandfather Clause’’), will expire on December 31, 2005.5 Unless SSF III satisfies a safe harbor in the Treasury regulations, any future determination of whether it (as defined below) fully participated in the Exchange Tender Offer; (b) approximately 4.2% of the outstanding Units of SSF III (representing half of the Units of non-Qualified Purchaser Unit Holders (as defined below)) participated in the Cash Repurchase Offer; (c) the Adviser did not participate in the Cash Repurchase Offer; (d) the Adviser, and two Principals, Austin Marxe and David Greenhouse, participated in the Exchange Tender Offer in the same proportion as other Limited Partners, as further described below; and (e) Adam Stettner, a Principal, did not participate in the Cash Repurchase Offer or the Exchange Tender Offer. The net result of the Transaction Participation Assumptions is that approximately 91.3% of SSF III’s outstanding Units would be exchanged for Units of SSF QP, approximately 4.5% would remain in SSF III, and approximately 4.2% would be repurchased for cash. There can be no assurance that participation in the Cash Repurchase Offer and the Exchange Tender Offer will be similar to the Transaction Participation Assumptions. 4 26 CFR 1.7704–1. 5 A publicly traded partnership is generally taxed as a corporation, i.e. subject to a double level of taxation. PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 67763 would be taxed as a publicly traded partnership would be made by applying a facts-and-circumstances test. To continue to rely on a safe harbor and thereby avoid the uncertainty of a factsand-circumstances test, SSF III may amend its repurchase policies to, among other things, reduce the repurchase offer amount on a semi-annual and annual basis to, respectively, 5% and 10% of outstanding Units.6 Amending the repurchase policies as applicants intend to do to qualify for the safe harbor is not satisfactory to the largest Limited Partners, all of whom are Qualified Purchasers, because of the resulting decrease in the liquidity of their Units. 5. Applicants propose to conduct the Transaction to divide SSF III into two separate companies to accommodate the needs of the Qualified Purchaser Unit Holders and those Unit holders that are not Qualified Purchasers (‘‘nonQualified Purchaser Unit Holders’’).7 Pursuant to the Transaction, SSF III would conduct an exchange offer for the Units of Qualified Purchaser Unit Holders in which they may tender their Units of SSF III and receive, in exchange, Units of SSF QP (‘‘Exchange Tender Offer’’). The Exchange Tender Offer will not be a taxable transaction for the Funds. In the Transaction, (a) SSF III would accept from Qualified Purchaser Unit Holders who elect to participate in the Exchange Tender Offer (‘‘Exchanging Holders’’) Units of SSF III, (b) SSF III would transfer to SSF QP, on a strict pro rata basis, portfolio securities having a total net asset value (‘‘NAV’’) equal to the total NAV of the SSF III Units, as calculated on December 30, 2005 (the ‘‘Valuation Date’’), tendered in the Exchange Tender Offer, (c) SSF III would receive Units of SSF QP having a total NAV equal to both the total NAV of the SSF III Units tendered by Exchanging Holders and the total NAV of the portfolio securities transferred from SSF III to SSF QP,8 and (d) SSF III would distribute the SSF QP Units to Exchanging Holders on a pro rata basis.9 6. Simultaneous with the Exchange Tender Offer, SSF III would conduct a 6 Changes to SSF III’s repurchase policies will be subject to the approval of a majority of the outstanding Units held by Limited Partners after completion of the Offers, as defined below. 7 The Transaction is subject to the approval of a majority of the outstanding Units held by Limited Partners. 8 SSF III is a Qualified Purchaser. 9 Limited Partners and General Partners that tender in the Exchange Tender Offer will receive, respectively, limited and general partnership Units of SSF QP. The Adviser and two Principals will participate in the Exchange Tender Offer, tendering the same percentage of the Units they hold as all other Limited Partners tender of the Units they hold. E:\FR\FM\08NON1.SGM 08NON1 67764 Federal Register / Vol. 70, No. 215 / Tuesday, November 8, 2005 / Notices cash repurchase offer (‘‘Cash Repurchase Offer,’’ and together with the Exchange Tender Offer, the ‘‘Offers’’), which would constitute the semi-annual cash repurchase offer currently required by rule 23c–3 and SSF III’s fundamental policies, as well as by the Partnership Agreement. The Cash Repurchase Offer would enable all Unit holders to tender their Units to SSF III in exchange for a cash payment equal to the NAV of the Units on the Valuation Date. The Cash Repurchase Offer would not be limited by the Exchange Tender Offer. The Cash Repurchase Offer would be for 10% of SSF III’s outstanding Units. If Limited Partners tender for repurchase in the Cash Repurchase Offer more than 10% of the outstanding Units, the Board would exercise its discretion to increase the Cash Repurchase Offer by 2% (for a total of 12% of Units outstanding). If Limited Partners tender more than 12% of the outstanding Units in the Cash Repurchase Offer, SSF III will repurchase Units tendered on a pro rata basis.10 The Individual General Partners, Adviser and Principals will not participate in the Cash Repurchase Offer. Applicants believe that any nonQualified Purchaser Unit Holder who tenders Units in the Cash Repurchase Offer will be able to receive cash for all Units tendered. The Adviser and two of its Principals, Austin Marxe and David Greenhouse (in their individual capacities), will participate in the Exchange Tender Offer in the same proportion as the Limited Partners after giving effect to the Cash Repurchase Offer, that is, they will exchange Units in the same proportion as the Units held by all Limited Partners (other than Mr. Greenhouse) are exchanged, subject to the Adviser and the Individual General Partners holding collectively at least 1% of SSF III’s outstanding Units. Making the Transaction Participation Assumptions, following the Transaction, the Adviser and the Principals collectively would own approximately 7.7% of SSF III’s outstanding Units. 7. Applicants propose for the Offers to begin on November 17, 2005, and expire 10 In the semi-annual repurchase offers made by SSF III over the last five years, which have typically been for 10% of outstanding Units, Limited Partners have never tendered for repurchase more than 4.13% of outstanding Units. In connection with SSF III’s most recent cash repurchase offer, after having received notice from SSF III of the expiration of the Grandfather Clause and the effect thereof on the operations of SSF III, SSF III Unit holders tendered less than 2% of outstanding Units for repurchase. Requests for repurchase have exceeded 5% of outstanding Units on a semi-annual basis and 10% of outstanding Units on an annual basis three times, in all cases resulting from significant tenders by the Adviser. VerDate Aug<31>2005 16:11 Nov 07, 2005 Jkt 208001 on December 16, 2005. For purposes of both Offers, the NAV of SSF III’s Units would be determined on the Valuation Date. Applicants intend to complete the Transaction on December 31, 2005, and to distribute proceeds of the Cash Repurchase Offer by January 6, 2006. Any and all costs and expenses incurred by SSF III in connection with the Cash Repurchase Offer will be incurred before SSF III calculates its NAV, and therefore will be reflected in the NAV, on the Valuation Date. All expenses associated with the Transaction will be paid by the Adviser or SSF QP. No repurchase fees, brokerage commissions, fees or other remuneration will be paid by SSF III, SSF QP or any Unit holder in connection with the Transaction. The Transaction will not be consummated until the Commission has issued an order relating to the application. Applicants have agreed not to make any material changes to the Transaction without prior approval of the Commission or its staff. 8. On May 2, 2005, the Board, including a majority of the Individual General Partners who are not ‘‘interested persons,’’ as defined in section 2(a)(19) of the Act (‘‘Independent General Partners’’), approved the Transaction on behalf of SSF III, subject to the Commission issuing an order pursuant to the application. Prior to approving the Transaction, the Board considered other alternatives. Specifically, the Board considered converting SSF III into a ‘‘regulated investment company’’ under the Internal Revenue Code of 1986, as amended, but rejected the alternative as inconsistent with its operations, including its treatment of operating losses and net capital losses. The Board also considered liquidating SSF III, but rejected the alternative in light of, among other things, the likelihood of liquidation causing Limited Partners to recognize taxable gain. In approving the Transaction, the Board concluded that: (a) The Transaction is consistent with the policies of SSF III, as recited in its registration statement, (b) the terms of the Transaction, including the consideration to be received by the Funds, are reasonable and fair and do not involve overreaching on the part of any person concerned, and (c) participation in the Transaction is in the best interests of SSF III and its Limited Partners, and the interests of existing Limited Partners of SSF III will not be diluted as a result of the Transaction. Applicants state that the Board, in reaching its conclusions, considered that SSF III is likely to be significantly smaller after the Transaction and that PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 there may, as a result, be a material increase in SSF III’s expense ratio. The Applicants estimate, making the Transaction Participation Assumptions and assuming the transactions were consummated on December 31, 2003, that the fees and expenses of SSF III (excluding any incentive allocation to the Adviser but including all other fees) for the calendar year ended December 31, 2004 would have been 1.57% of average net assets, rather than 0.84% of average net assets. Although this relative increase in SSF III’s expense ratio of 0.73% may be material, the Applicants state that the Board believes that the benefits of the Transaction to all Partners (including the continued service of the Adviser) outweigh the burden of any such increase in SSF III’s expense ratio. Applicants’ Legal Analysis 1. Section 17(a) of the Act prohibits any affiliated person of a registered investment company, or any affiliated person of that person (‘‘second tier affiliate’’), acting as principal, from selling to or purchasing from the registered investment company any security or other property. Section 2(a)(3) of the Act defines an ‘‘affiliated person’’ as, among other things, any person directly or indirectly owning, controlling or holding with power to vote 5% or more of the outstanding voting securities of the other person; any person controlling, controlled by or under common control with the other person; any officer, director, partner, copartner or employee of the other person; and, if the other person is an investment company, its investment adviser. Section 2(a)(9) of the Act defines control to mean the power to exercise a controlling influence over the management or policies of a company. Applicants state that the Adviser and Principals may each be deemed to be an affiliated person of SSF III and SSF QP, and that SSF III and SSF QP may be deemed to be affiliated persons of each other as both are under common control of the Adviser and the Principals. Applicants also state that to the extent that an Exchanging Holder owns 5% or more of the outstanding Units of SSF III, the Exchanging Holder could be deemed to be an affiliated person of SSF III (such Exchanging Holder, a ‘‘5% Affiliate’’), and a second tier affiliate of SSF QP. Thus, applicants state, section 17(a) of the Act may prohibit the Adviser, Principals and 5% Affiliates from purchasing Units of SSF QP from SSF III, and prohibit SSF QP from purchasing portfolio securities of SSF III in exchange for SSF QP Units. E:\FR\FM\08NON1.SGM 08NON1 Federal Register / Vol. 70, No. 215 / Tuesday, November 8, 2005 / Notices 2. Section 17(b) of the Act authorizes the Commission to exempt a transaction from the provisions of section 17(a) if the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned and the proposed transaction is consistent with the policies of each registered investment company concerned and with the general purposes of the Act. Applicants submit that the Transaction has been approved by the Board, including a majority of the Independent General Partners, is reasonable and fair to SSF III and its Unit holders and meets the requirements of section 17(b) of the Act. Applicants state that the Transaction will not result in dilution to Unit holders of SSF III because (a) it will be effected at the NAV of SSF III’s Units, which NAV will be calculated in accordance with SSF III’s policies and procedures, as set forth in its registration statement, and computed using the same methodologies that SSF III has used to calculate its NAV in connection with each routine repurchase offer since its inception,11 and (b) it will involve a pro rata transfer of SSF III’s portfolio securities to SSF QP. Applicants further state that, prior to the Transaction, any Limited Partner not wishing to remain invested in SSF III or become invested in SSF QP will be able to have his or her Units repurchased for cash at the NAV of the Units, and all expenses of the Transaction will be paid by the Adviser or SSF QP, including the cost of separating SSF III’s portfolio between SSF III and SSF QP in the Transaction. Applicants’ Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. The Exchange Tender Offer will be effected at the NAV of SSF III’s Units determined in accordance with its registration statement under the Act. 2. The sale of portfolio securities by SSF III to SSF QP in the Transaction will comply with the terms of rule 17a– 7(c), (d) and (f) under the Act. 3. At its next regular meeting following the Transaction, the Board of SSF III, including a majority of the Independent General Partners, will determine whether the Units were valued in accordance with condition 1 above. 4. SSF III will maintain and preserve for a period of not less than six years 11 SSF QP has the same policies and procedures, and will employ the same methodologies to compute its NAV, as SSF III. VerDate Aug<31>2005 16:11 Nov 07, 2005 Jkt 208001 from the end of the fiscal year in which the Transaction occurs, the first two years in an easily accessible place, a written record of the Transaction setting forth a description of each security transferred, the terms of the Transaction, and the information or materials upon which the determination required by condition 3 was made. 5. In the Transaction, the portfolio securities will be distributed by SSF III to SSF QP on a pro rata basis, except that cash may be distributed in lieu of fractional shares. For the Commission, by the Division of Investment Management, under delegated authority. Jonathan G. Katz, Secretary. [FR Doc. 05–22163 Filed 11–7–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94–409, that the Securities and Exchange Commission will hold the following meeting during the week of November 7, 2005: A Closed Meeting will be held on Thursday, November 10, 2005 at 10 a.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters may also be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(5), (6), (7), (9)(B), and (10) and 17 CFR 200.402(a)(5), (6), (7), 9(ii) and (10) permit consideration of the scheduled matters at the Closed Meeting. Commissioner Glassman, as duty officer, voted to consider the items listed for the closed meeting in closed session. The subject matter of the Closed Meeting scheduled for Thursday, November 10, 2005 will be: Formal orders of investigations; Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings of an enforcement nature; Opinion; and a Regulatory matter bearing enforcement implications. At times, changes in Commission priorities require alterations in the scheduling of meeting items. PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 67765 For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: November 3, 2005. Jonathan G. Katz, Secretary. [FR Doc. 05–22292 Filed 11–3–05; 4:11 pm] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52718; File No. SR–Amex– 2005–060] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendments Nos. 1, 2, and 3 Thereto Relating to Amendments to the Obvious Error Rules November 2, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 31, 2005, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On September 21, 2005, the Amex submitted Amendment No. 1 to the proposed rule change.3 On October 4, 2005, the Amex submitted Amendment No. 2 to the proposed rule change.4 On October 27, 2005, the Amex submitted Amendment No. 3 to the proposed rule change.5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Amex proposes to: (i) Amend the equity and index options obvious error rules to revise the manner in which an obvious price error is determined for both equity and index options; (ii) 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Form 19b–4 dated September 21, 2005, which replaced the original filing in its entirety (‘‘Amendment No. 1’’). 4 Amendment No. 2 corrected technical errors in the proposed rule text. 5 Amendment No. 3 incorporated certain proposed revisions to Amex Rules 936 and 936— ANTE contained in Amendment No. 1 to Amex Rules 936C and 936C—ANTE and corrected an error in the proposed rule text of Amex Rules 936C and 936C—ANTE. 2 17 E:\FR\FM\08NON1.SGM 08NON1

Agencies

[Federal Register Volume 70, Number 215 (Tuesday, November 8, 2005)]
[Notices]
[Pages 67762-67765]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-22163]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27140; 812-13190]


Special Situations Fund III, L.P., et al., Notice of Application

November 2, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 17(b) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 17(a) of the Act.

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    Applicants: Special Situations Fund III, L.P. (``SSF III''), 
Special Situations Fund III QP, L.P. (``SSF QP,'' and together with SSF 
III, the ``Funds'') and MGP Advisers Limited Partnership (``Adviser'').
    Summary of Application: Applicants request an order to permit 
certain purchase and sale transactions in connection with a proposed 
division of a registered closed-end management investment company into 
two separate companies (the ``Transaction'').
    Filing Dates: The application was filed on May 19, 2005, and 
amended on November 2, 2005.
    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 November 25, 2005, 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-0609. Applicants, c/o Austin W. 
Marxe, MGP Advisers Limited Partnership, 153 East 53rd Street, 55th 
Floor, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel (202-
551-6817), or Stacy L. Fuller, Branch Chief (202-551-6821) (Office of 
Investment Company Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Commission's Public Reference Branch, 100 F Street, NE., 
Washington, DC 20549-0102 (202-551-5850).

Applicants' Representations

    1. SSF III, a Delaware limited partnership, is a closed-end 
management investment company that is registered under the Act and 
operates as an ``interval fund'' under rule 23e-3 under the Act. 
Partnership interests (``Units'') in SSF III are not registered under 
the Securities Act of 1933 (``1933 Act'') and are sold in private 
offerings pursuant to Regulation D under the 1933 Act generally to 
``accredited investors,'' as defined in Regulation D. Each investor in 
SSF III that pays the Adviser an incentive allocation is also a 
``qualified client,'' as defined in rule 205-3 under the Investment 
Advisers Act of 1940, as amended (``Advisers

[[Page 67763]]

Act''). Under SSF III's fundamental policies and rule 23c-3, as well as 
its partnership agreement (the ``Partnership Agreement''), SSF III 
conducts semi-annual repurchase offers for between 10% and 25% of 
outstanding Units, as determined by the individual general partners of 
SSF III (each, an ``Individual General Partner,'' collectively, the 
``Board,'' and the Board together with the Adviser, the ``General 
Partners''), who are responsible for the overall management and 
supervision of SSF III. SSF III may also sell Units to existing Unit 
holders with a limited partnership interest (``Limited Partners,'' and 
together with the General Partners, ``Partners'') and other investors 
in the future. SSF III's investment objectives are to maximize long-
term capital appreciation by investing primarily in equity securities 
and securities with equity features, which are traded on a national 
securities exchange or Nasdaq. As of June 30, 2005, SSF III had 
approximately 451 Unit holders (92% of whom were qualified purchasers, 
as defined in section 2(a)(51) of the Act (``Qualified Purchasers,'' 
and such Unit holders, ``Qualified Purchaser Unit Holders'')) and 
approximately $500 million in assets. SSF III's fees and expenses for 
the year ended December 31, 2004, as a percentage of average net 
assets, totaled 5.41% (including the Adviser's incentive allocation of 
20% of net profits).\1\
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    \1\ Excluding the Adviser's incentive allocation, SSF III's fees 
totaled approximately .84% of average net assets. The Adviser's 
incentive allocation is subject to a high water mark.
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    2. SSF QP, a Delaware limited partnership that was formed on May 
17, 2005 to effect the Transaction is excluded from regulation under 
the Act pursuant to section 3(c)(7) of the Act.\2\ SSF QP has the same 
investment objectives as SSF III. SSF QP will have no assets until 
after the consummation of the Transaction. SSF QP will have the same 
administration fee and incentive allocation structure as SSF III. 
Applicants estimate that the fees and expenses for SSF QP (excluding 
any incentive allocation to the Adviser but including all other fees) 
would have been on a pro forma basis approximately 0.81% of average net 
assets for the calendar year ended December 31, 2004.\3\ Beginning June 
30, 2006, limited partners of SSF QP may redeem their Units of SSF QP 
semi-annually on June 30 and December 31 of each calendar year, by 
providing written notice to the Adviser on or before June 15 or 
December 15, respectively, of such calendar year. The Adviser has the 
right to limit the aggregate redemptions of Units of SSF QP by limited 
partners in any semi-annual fiscal period to 10% of the outstanding 
Units at the last day of the period (after the redetermination of Units 
to reflect SSF QP's profit or loss as of the end of such period).
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    \2\ SSF QP has been formed in compliance with, and will be bound 
by the terms and conditions of, the application.
    \3\ For purposes of projecting the effects of the Transaction, 
the Applicants have assumed the Cash Repurchase Offer and the 
Exchange Tender Offer (each as defined below) were consummated as 
follows (collectively, the ``Transaction Participation 
Assumptions''): (a) All Qualified Purchaser Unit Holders other than 
the Adviser and the Principals (as defined below) fully participated 
in the Exchange Tender Offer; (b) approximately 4.2% of the 
outstanding Units of SSF III (representing half of the Units of non-
Qualified Purchaser Unit Holders (as defined below)) participated in 
the Cash Repurchase Offer; (c) the Adviser did not participate in 
the Cash Repurchase Offer; (d) the Adviser, and two Principals, 
Austin Marxe and David Greenhouse, participated in the Exchange 
Tender Offer in the same proportion as other Limited Partners, as 
further described below; and (e) Adam Stettner, a Principal, did not 
participate in the Cash Repurchase Offer or the Exchange Tender 
Offer. The net result of the Transaction Participation Assumptions 
is that approximately 91.3% of SSF III's outstanding Units would be 
exchanged for Units of SSF QP, approximately 4.5% would remain in 
SSF III, and approximately 4.2% would be repurchased for cash. There 
can be no assurance that participation in the Cash Repurchase Offer 
and the Exchange Tender Offer will be similar to the Transaction 
Participation Assumptions.
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    3. The Adviser, a Delaware limited partnership, is registered as an 
investment adviser under the Advisers Act. The Adviser is the 
investment adviser to the Funds. The Adviser is also a General Partner 
of SSF III and will be the general partner of SSF QP upon completion of 
the Transaction. AWM Investment Company, Inc. (``AWM'') is the general 
partner of the Adviser and Austin W. Marxe, David Greenhouse and Adam 
Stettner are limited partners of the Adviser (each, including AWM, a 
``Principal''). The Adviser and Mr. Marxe each own a general 
partnership interest in SSF III totaling in the aggregate approximately 
7% of outstanding Units. The other Principals each own a limited 
partnership interest in SSF III totaling approximately less than 1% of 
outstanding Units.
    4. A provision in the applicable Treasury regulations,\4\ which has 
allowed SSF III to operate as a registered investment company but not 
be taxed as a publicly traded partnership for federal income tax 
purposes (``Grandfather Clause''), will expire on December 31, 2005.\5\ 
Unless SSF III satisfies a safe harbor in the Treasury regulations, any 
future determination of whether it would be taxed as a publicly traded 
partnership would be made by applying a facts-and-circumstances test. 
To continue to rely on a safe harbor and thereby avoid the uncertainty 
of a facts-and-circumstances test, SSF III may amend its repurchase 
policies to, among other things, reduce the repurchase offer amount on 
a semi-annual and annual basis to, respectively, 5% and 10% of 
outstanding Units.\6\ Amending the repurchase policies as applicants 
intend to do to qualify for the safe harbor is not satisfactory to the 
largest Limited Partners, all of whom are Qualified Purchasers, because 
of the resulting decrease in the liquidity of their Units.
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    \4\ 26 CFR 1.7704-1.
    \5\ A publicly traded partnership is generally taxed as a 
corporation, i.e. subject to a double level of taxation.
    \6\ Changes to SSF III's repurchase policies will be subject to 
the approval of a majority of the outstanding Units held by Limited 
Partners after completion of the Offers, as defined below.
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    5. Applicants propose to conduct the Transaction to divide SSF III 
into two separate companies to accommodate the needs of the Qualified 
Purchaser Unit Holders and those Unit holders that are not Qualified 
Purchasers (``non-Qualified Purchaser Unit Holders'').\7\ Pursuant to 
the Transaction, SSF III would conduct an exchange offer for the Units 
of Qualified Purchaser Unit Holders in which they may tender their 
Units of SSF III and receive, in exchange, Units of SSF QP (``Exchange 
Tender Offer''). The Exchange Tender Offer will not be a taxable 
transaction for the Funds. In the Transaction, (a) SSF III would accept 
from Qualified Purchaser Unit Holders who elect to participate in the 
Exchange Tender Offer (``Exchanging Holders'') Units of SSF III, (b) 
SSF III would transfer to SSF QP, on a strict pro rata basis, portfolio 
securities having a total net asset value (``NAV'') equal to the total 
NAV of the SSF III Units, as calculated on December 30, 2005 (the 
``Valuation Date''), tendered in the Exchange Tender Offer, (c) SSF III 
would receive Units of SSF QP having a total NAV equal to both the 
total NAV of the SSF III Units tendered by Exchanging Holders and the 
total NAV of the portfolio securities transferred from SSF III to SSF 
QP,\8\ and (d) SSF III would distribute the SSF QP Units to Exchanging 
Holders on a pro rata basis.\9\
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    \7\ The Transaction is subject to the approval of a majority of 
the outstanding Units held by Limited Partners.
    \8\ SSF III is a Qualified Purchaser.
    \9\ Limited Partners and General Partners that tender in the 
Exchange Tender Offer will receive, respectively, limited and 
general partnership Units of SSF QP. The Adviser and two Principals 
will participate in the Exchange Tender Offer, tendering the same 
percentage of the Units they hold as all other Limited Partners 
tender of the Units they hold.
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    6. Simultaneous with the Exchange Tender Offer, SSF III would 
conduct a

[[Page 67764]]

cash repurchase offer (``Cash Repurchase Offer,'' and together with the 
Exchange Tender Offer, the ``Offers''), which would constitute the 
semi-annual cash repurchase offer currently required by rule 23c-3 and 
SSF III's fundamental policies, as well as by the Partnership 
Agreement. The Cash Repurchase Offer would enable all Unit holders to 
tender their Units to SSF III in exchange for a cash payment equal to 
the NAV of the Units on the Valuation Date. The Cash Repurchase Offer 
would not be limited by the Exchange Tender Offer. The Cash Repurchase 
Offer would be for 10% of SSF III's outstanding Units. If Limited 
Partners tender for repurchase in the Cash Repurchase Offer more than 
10% of the outstanding Units, the Board would exercise its discretion 
to increase the Cash Repurchase Offer by 2% (for a total of 12% of 
Units outstanding). If Limited Partners tender more than 12% of the 
outstanding Units in the Cash Repurchase Offer, SSF III will repurchase 
Units tendered on a pro rata basis.\10\ The Individual General 
Partners, Adviser and Principals will not participate in the Cash 
Repurchase Offer. Applicants believe that any non-Qualified Purchaser 
Unit Holder who tenders Units in the Cash Repurchase Offer will be able 
to receive cash for all Units tendered. The Adviser and two of its 
Principals, Austin Marxe and David Greenhouse (in their individual 
capacities), will participate in the Exchange Tender Offer in the same 
proportion as the Limited Partners after giving effect to the Cash 
Repurchase Offer, that is, they will exchange Units in the same 
proportion as the Units held by all Limited Partners (other than Mr. 
Greenhouse) are exchanged, subject to the Adviser and the Individual 
General Partners holding collectively at least 1% of SSF III's 
outstanding Units. Making the Transaction Participation Assumptions, 
following the Transaction, the Adviser and the Principals collectively 
would own approximately 7.7% of SSF III's outstanding Units.
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    \10\ In the semi-annual repurchase offers made by SSF III over 
the last five years, which have typically been for 10% of 
outstanding Units, Limited Partners have never tendered for 
repurchase more than 4.13% of outstanding Units. In connection with 
SSF III's most recent cash repurchase offer, after having received 
notice from SSF III of the expiration of the Grandfather Clause and 
the effect thereof on the operations of SSF III, SSF III Unit 
holders tendered less than 2% of outstanding Units for repurchase. 
Requests for repurchase have exceeded 5% of outstanding Units on a 
semi-annual basis and 10% of outstanding Units on an annual basis 
three times, in all cases resulting from significant tenders by the 
Adviser.
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    7. Applicants propose for the Offers to begin on November 17, 2005, 
and expire on December 16, 2005. For purposes of both Offers, the NAV 
of SSF III's Units would be determined on the Valuation Date. 
Applicants intend to complete the Transaction on December 31, 2005, and 
to distribute proceeds of the Cash Repurchase Offer by January 6, 2006. 
Any and all costs and expenses incurred by SSF III in connection with 
the Cash Repurchase Offer will be incurred before SSF III calculates 
its NAV, and therefore will be reflected in the NAV, on the Valuation 
Date. All expenses associated with the Transaction will be paid by the 
Adviser or SSF QP. No repurchase fees, brokerage commissions, fees or 
other remuneration will be paid by SSF III, SSF QP or any Unit holder 
in connection with the Transaction. The Transaction will not be 
consummated until the Commission has issued an order relating to the 
application. Applicants have agreed not to make any material changes to 
the Transaction without prior approval of the Commission or its staff.
    8. On May 2, 2005, the Board, including a majority of the 
Individual General Partners who are not ``interested persons,'' as 
defined in section 2(a)(19) of the Act (``Independent General 
Partners''), approved the Transaction on behalf of SSF III, subject to 
the Commission issuing an order pursuant to the application. Prior to 
approving the Transaction, the Board considered other alternatives. 
Specifically, the Board considered converting SSF III into a 
``regulated investment company'' under the Internal Revenue Code of 
1986, as amended, but rejected the alternative as inconsistent with its 
operations, including its treatment of operating losses and net capital 
losses. The Board also considered liquidating SSF III, but rejected the 
alternative in light of, among other things, the likelihood of 
liquidation causing Limited Partners to recognize taxable gain. In 
approving the Transaction, the Board concluded that: (a) The 
Transaction is consistent with the policies of SSF III, as recited in 
its registration statement, (b) the terms of the Transaction, including 
the consideration to be received by the Funds, are reasonable and fair 
and do not involve overreaching on the part of any person concerned, 
and (c) participation in the Transaction is in the best interests of 
SSF III and its Limited Partners, and the interests of existing Limited 
Partners of SSF III will not be diluted as a result of the Transaction. 
Applicants state that the Board, in reaching its conclusions, 
considered that SSF III is likely to be significantly smaller after the 
Transaction and that there may, as a result, be a material increase in 
SSF III's expense ratio. The Applicants estimate, making the 
Transaction Participation Assumptions and assuming the transactions 
were consummated on December 31, 2003, that the fees and expenses of 
SSF III (excluding any incentive allocation to the Adviser but 
including all other fees) for the calendar year ended December 31, 2004 
would have been 1.57% of average net assets, rather than 0.84% of 
average net assets. Although this relative increase in SSF III's 
expense ratio of 0.73% may be material, the Applicants state that the 
Board believes that the benefits of the Transaction to all Partners 
(including the continued service of the Adviser) outweigh the burden of 
any such increase in SSF III's expense ratio.

Applicants' Legal Analysis

    1. Section 17(a) of the Act prohibits any affiliated person of a 
registered investment company, or any affiliated person of that person 
(``second tier affiliate''), acting as principal, from selling to or 
purchasing from the registered investment company any security or other 
property. Section 2(a)(3) of the Act defines an ``affiliated person'' 
as, among other things, any person directly or indirectly owning, 
controlling or holding with power to vote 5% or more of the outstanding 
voting securities of the other person; any person controlling, 
controlled by or under common control with the other person; any 
officer, director, partner, copartner or employee of the other person; 
and, if the other person is an investment company, its investment 
adviser. Section 2(a)(9) of the Act defines control to mean the power 
to exercise a controlling influence over the management or policies of 
a company. Applicants state that the Adviser and Principals may each be 
deemed to be an affiliated person of SSF III and SSF QP, and that SSF 
III and SSF QP may be deemed to be affiliated persons of each other as 
both are under common control of the Adviser and the Principals. 
Applicants also state that to the extent that an Exchanging Holder owns 
5% or more of the outstanding Units of SSF III, the Exchanging Holder 
could be deemed to be an affiliated person of SSF III (such Exchanging 
Holder, a ``5% Affiliate''), and a second tier affiliate of SSF QP. 
Thus, applicants state, section 17(a) of the Act may prohibit the 
Adviser, Principals and 5% Affiliates from purchasing Units of SSF QP 
from SSF III, and prohibit SSF QP from purchasing portfolio securities 
of SSF III in exchange for SSF QP Units.

[[Page 67765]]

    2. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from the provisions of section 17(a) if the terms of the 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned and the proposed transaction is consistent with the 
policies of each registered investment company concerned and with the 
general purposes of the Act. Applicants submit that the Transaction has 
been approved by the Board, including a majority of the Independent 
General Partners, is reasonable and fair to SSF III and its Unit 
holders and meets the requirements of section 17(b) of the Act. 
Applicants state that the Transaction will not result in dilution to 
Unit holders of SSF III because (a) it will be effected at the NAV of 
SSF III's Units, which NAV will be calculated in accordance with SSF 
III's policies and procedures, as set forth in its registration 
statement, and computed using the same methodologies that SSF III has 
used to calculate its NAV in connection with each routine repurchase 
offer since its inception,\11\ and (b) it will involve a pro rata 
transfer of SSF III's portfolio securities to SSF QP. Applicants 
further state that, prior to the Transaction, any Limited Partner not 
wishing to remain invested in SSF III or become invested in SSF QP will 
be able to have his or her Units repurchased for cash at the NAV of the 
Units, and all expenses of the Transaction will be paid by the Adviser 
or SSF QP, including the cost of separating SSF III's portfolio between 
SSF III and SSF QP in the Transaction.
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    \11\ SSF QP has the same policies and procedures, and will 
employ the same methodologies to compute its NAV, as SSF III.
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Exchange Tender Offer will be effected at the NAV of SSF 
III's Units determined in accordance with its registration statement 
under the Act.
    2. The sale of portfolio securities by SSF III to SSF QP in the 
Transaction will comply with the terms of rule 17a-7(c), (d) and (f) 
under the Act.
    3. At its next regular meeting following the Transaction, the Board 
of SSF III, including a majority of the Independent General Partners, 
will determine whether the Units were valued in accordance with 
condition 1 above.
    4. SSF III will maintain and preserve for a period of not less than 
six years from the end of the fiscal year in which the Transaction 
occurs, the first two years in an easily accessible place, a written 
record of the Transaction setting forth a description of each security 
transferred, the terms of the Transaction, and the information or 
materials upon which the determination required by condition 3 was 
made.
    5. In the Transaction, the portfolio securities will be distributed 
by SSF III to SSF QP on a pro rata basis, except that cash may be 
distributed in lieu of fractional shares.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 05-22163 Filed 11-7-05; 8:45 am]
BILLING CODE 8010-01-P
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