Capital International, Inc., et al.;, 9057-9062 [2011-3494]
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Federal Register / Vol. 76, No. 32 / Wednesday, February 16, 2011 / Notices
9057
PROCEDURAL SCHEDULE
February 8, 2011 ................
February 23, 2011 ..............
March 7, 2011 ....................
March 15, 2011 ..................
April 4, 2011 .......................
April 19, 2011 .....................
April 26, 2011 .....................
June 7, 2011 ......................
Filing of Appeal.
Deadline for Postal Service to file administrative record in this appeal.
Deadline for notices to intervene (see 39 CFR 3001.111(b)).
Deadline for Petitioner’s Form 61 or initial brief in support of petition (see 39 CFR 3001.115(a) and (b)).
Deadline for answering brief in support of Postal Service (see 39 CFR 3001.115(c)).
Deadline for reply briefs in response to answering briefs (see 39 CFR 3001.115(d)).
Deadline for motions by any party requesting oral argument; the Commission will schedule oral argument only
when it is a necessary addition to the written filings (see 39 CFR 3001.116).
Expiration of the Commission’s 120-day decisional schedule (see 39 U.S.C. 404(d)(5)).
By the Commission.
Ruth Ann Abrams,
Acting Secretary.
[FR Doc. 2011–3414 Filed 2–15–11; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29577; 813–353]
Capital International, Inc., et al.; Notice
of Application
February 10, 2011.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order under sections 6(b) and 6(e) of the
Investment Company Act of 1940 (the
‘‘Act’’) granting an exemption from all
provisions of the Act, except section 9,
and sections 36 through 53, and the
rules and regulations under the Act.
With respect to sections 17 and 30 of the
Act, and the rules and regulations
thereunder, and rule 38a–1 under the
Act, the exemption is limited as set
forth in the application.
AGENCY:
Applicants
request an order to exempt certain
limited partnerships and other entities
(‘‘Partnerships’’) formed for the benefit
of eligible employees of Capital
International, Inc. (‘‘Capital’’) and its
affiliates from certain provisions of the
Act. Each Partnership will be an
‘‘employees’ securities company’’ within
the meaning of section 2(a)(13) of the
Act.
APPLICANTS: CGPE IV, L.P. (‘‘CGPE IV’’),
CGPE V, L.P. (‘‘CGPE V’’), Capital
International Investments IV, LLC (‘‘CII
IV’’), Capital International Investments
V, LLC (‘‘CII V’’), and Capital.
DATES: Filing Dates: The application was
filed on October 1, 2003 and amended
on September 30, 2004, April 6, 2007,
April 16, 2010, and February 1, 2011.
HEARING OR NOTIFICATION OF HEARING: An
order granting the application will be
issued unless the Commission orders a
hearing. Interested persons may request
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SUMMARY OF APPLICATION:
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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 March 7, 2011, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Hearing requests should state
the nature of the writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090; Applicants: Capital, 11100 Santa
Monica Blvd., 15th Floor, Los Angeles,
CA 90025–3384; CGPE IV, CGPE V, CII
IV, and CII V, 6455 Irvine Center Drive,
Irvine, CA 92618–4518.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel,
at (202) 551–6879, or Janet M.
Grossnickle, Assistant Director, at (202)
551–6821 (Division of Investment
Management, Office of Investment
Company Regulation).
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. Capital, a California corporation, is
an indirect wholly-owned subsidiary of
The Capital Group Companies, Inc., a
holding company and one of the largest
investment management firms in the
world. Capital and its ‘‘affiliates,’’ as
defined in rule 12b–2 under the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’), are referred to
collectively as the ‘‘Capital Group’’ and
each, a ‘‘Capital Group entity.’’
Investment management and related
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financial services are Capital
International, Inc.’s only businesses.
2. A Partnership will be structured as
a limited partnership, limited liability
company, business trust or other entity
organized under the laws of the state of
Delaware, another state, or of a
jurisdiction outside the United States.
Capital Group may also form parallel
Partnerships organized under the laws
of various jurisdictions in order to
create the same investment
opportunities for Eligible Employees (as
defined below) in other jurisdictions.
Interests in a Partnership (‘‘Interests’’)
may be issued in one or more series,
each of which corresponds to particular
Partnership investments (each, a
‘‘Series’’). Each Series will be an
‘‘employees’ securities company’’ within
the meaning of section 2(a)(13) of the
Act. Each Partnership will operate as a
closed-end management investment
company, and a particular Partnership
may operate as a diversified or nondiversified vehicle within the meaning
of the Act. The Partnerships are
intended to provide investment
opportunities for Eligible Employees
(defined below) that are competitive
with those at other investment
management and financial services
firms and to facilitate the recruitment
and retention of high caliber
professionals. Capital Group will
control each Partnership within the
meaning of section 2(a)(9) of the Act.
3. Capital Group formed CGPE IV
under the laws of the state of Delaware.
CGPE IV invests concurrently with
Capital International Private Equity
Fund IV, L.P. (‘‘Fund IV’’) and other
investors organized or managed by
Capital Group or its designees that
generally co-invest with Fund IV (the
‘‘Fund IV Co-Investors’’) in various
investment opportunities, described in
the application. Capital Group formed
CGPE V under the laws of the Cayman
Islands. CGPE V invests concurrently
with Capital International Private Equity
Fund V, L.P. (‘‘Fund V’’) and other
investors organized or managed by
Capital Group or its designees that
generally co-invest with Fund V (the
‘‘Fund V Co-Investors’’) in various
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investment opportunities, described in
the application. CGPE IV and CGPE V
(collectively, the ‘‘Initial Partnerships’’)
may also co-invest with each other as
well as with Fund IV, Fund V, the Fund
IV Co-Investors and the Fund V CoInvestors. The Initial Partnerships are
organized as limited partnerships.
4. Each Partnership will have a
general partner, managing member or
other such similar entity (a ‘‘General
Partner’’). All potential investors in a
Partnership will be ‘‘Limited Partners.’’
The General Partner will manage,
operate, and control each Partnership
and will have the authority to make all
decisions regarding the acquisition,
management and disposition of
Partnership investments. A Capital
Group entity will be a General Partner
of each Partnership. The General Partner
may be permitted to delegate certain of
its responsibilities regarding the
acquisition, management and
disposition of Partnership investments
to an Investment Adviser (as defined
below).
5. The General Partner or another
entity will serve as investment adviser
to a Partnership (the ‘‘Investment
Adviser’’). The Investment Adviser will
be (i) Registered as an investment
adviser under the Investment Advisers
Act of 1940 (the ‘‘Advisers Act’’), (ii)
exempt from Advisers Act registration
requirements by virtue of section
203(b)(3) of the Advisers Act, or (iii)
excluded from the definition of
investment adviser under the Advisers
Act because it is a bank or bank holding
company, as defined in the Bank
Holding Company Act of 1056, as
amended, and does not serve or act as
an investment adviser to a registered
investment company. Any entity serving
as Investment Adviser to any
Partnership will be a Capital Group
entity.
6. If the Investment Adviser elects to
recommend that a Partnership enter into
any side-by-side investment with an
unaffiliated entity, the Investment
Adviser will be permitted to engage as
sub-investment adviser the unaffiliated
entity (an ‘‘Unaffiliated Subadviser’’),
which will be responsible for the
management of such side-by-side
investment. An Investment Adviser may
be paid a management fee, which will
generally be determined as a percentage
of the capital commitments of the
Limited Partners. A General Partner or
Investment Adviser may receive a
performance-based fee (a ‘‘Carried
Interest’’) based on the net gains of the
Partnership’s investments in addition to
any amount allocable to the General
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Partner’s or Investment Adviser’s capital
contribution.1
7. Interests in a Partnership will be
offered without registration in reliance
on section 4(2) of the Securities Act of
1933 (the ‘‘Securities Act’’), or
Regulation D or Regulation S under the
Securities Act, and will be sold only to
‘‘Qualified Participants’’ (as defined
below). Prior to offering Interests to an
Eligible Individual (as defined below), a
General Partner must reasonably believe
that the Eligible Employee or Eligible
Family Member will be capable of
understanding and evaluating the merits
and risks of participation in a
Partnership and that each such
individual is able to bear the economic
risk of such participation and afford a
complete loss of his or her investment.
8. ‘‘Qualified Participants’’ are (a)
current and former employees, officers,
directors and current Consultants 2 of
Capital Group (collectively, ‘‘Eligible
Employees’’), (b) spouses, parents,
children, spouses of children, brothers,
sisters and grandchildren of Eligible
Employees (‘‘Eligible Family Members’’
and, together with Eligible Employees
who are natural persons, ‘‘Eligible
Individuals’’), (c) trusts or other
investment vehicles established solely
for the benefit of Eligible Individuals
(‘‘Eligible Investment Vehicles’’), and (d)
Capital Group. Each Eligible Individual
will be an ‘‘accredited investor’’ under
rule 501(a)(5) or rule 501(a)(6) of
Regulation D (‘‘Accredited Investor’’),
except that a maximum of 35 Eligible
Employees who are sophisticated
investors but who are not Accredited
Investors may become Limited Partners
if each of them falls into one of the
following two categories: (A) Eligible
Employees who (i) have a graduate
degree in business, law or accounting,
(ii) have a minimum of five years of
consulting, investment management,
investment banking, legal or similar
business experience, and (iii) had
reportable income from all sources
(including any profit shares or bonus) of
$100,000 in each of the two most recent
years immediately preceding the
1 If a General Partner or Investment Adviser is
registered under the Advisers Act, the Carried
Interest payable to it by a Partnership will be
pursuant to an arrangement that complies with rule
205–3 under the Advisers Act. If the General
Partner or Investment Adviser is not required to
register under the Advisers Act, the Carried Interest
payable to it will comply with section 205(b)(3) of
the Advisers Act, with the Partnership treated as a
business development company solely for the
purpose of that section.
2 A ‘‘Consultant’’ is a person or entity whom
Capital Group has engaged on retainer to provide
services and professional expertise on an ongoing
basis as a regular consultant or as a business or legal
adviser and who shares a community of interest
with Capital Group and its employees.
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Eligible Employee’s admission as a
Limited Partner and have a reasonable
expectation of income from all sources
of at least $140,000 in each year in
which the Eligible Employee will be
committed to make investments in a
Partnership; or (B) Eligible Employees
who are ‘‘knowledgeable employees,’’ as
defined in rule 3c–5 of the Act, of the
Partnership (with the Partnership
treated as though it were a ‘‘covered
company’’ for purposes of the rule). An
Eligible Employee who is described in
category (A) above will not be permitted
to invest in any year more than 10% of
his or her income from all sources for
the immediately preceding year in the
aggregate in a Partnership and in all
other Partnerships in which that
investor has previously invested.
9. An Eligible Individual may
purchase an Interest through an Eligible
Investment Vehicle only if either (i) the
investment vehicle is an ‘‘accredited
investor,’’ as defined in rule 501(a) of
Regulation D under the 1933 Act, or (ii)
the Eligible Individual is a settlor 3 and
principal investment decision-maker
with respect to the investment vehicle.
Eligible Investment Vehicles that are not
accredited investors will be included in
the 35 non-accredited investor limit
discussed above. Any Capital Group
entity or a Consultant entity will be an
‘‘accredited investor’’ as defined in rule
501(a) of Regulation D under the 1933
Act.
10. The terms of a Partnership will be
disclosed to the Eligible Employees at
the time they are offered the right to
subscribe for Interests, and they will be
furnished with a copy of the partnership
agreement. A Partnership will send its
Limited Partners an annual financial
statement audited by independent
accountants as soon as practicable after
the end of its fiscal year.4 In addition,
as soon as practicable after the end of
each fiscal year of a Partnership, a
report will be sent to each Limited
Partner setting forth the information
with respect to his or her share of
income, gains, losses, credits, and other
items for federal and state income tax
purposes.
11. Interests in the Partnerships will
not be transferable except with the
express consent of the General Partner,
and then only to a Qualified Participant.
All of the Partnerships will have only
Qualified Participants as Limited
3 If such investment vehicle is an entity other
than a trust, the term ‘‘settlor’’ will be read to mean
a person who created such vehicle, alone or
together with other Eligible Individuals, and
contributed funds to such vehicle.
4 ‘‘Audit’’ will have the meaning defined in rule
1–02(d) of Regulation S–X.
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Partners. No sales load will be charged
in connection with the sale of Interests.
12. The General Partner may have the
right to repurchase or cancel the Interest
of an Eligible Employee who ceases to
be an employee, officer, director, or
current Consultant of any member of
Capital Group for any reason. In the case
of Interests held by a Consultant whose
retainer has been terminated or has
expired, such Interests will be subject to
mandatory redemption or repurchase by
Capital Group, or Capital Group may
require the former Consultant to sell
such Interests to an Eligible Investor. A
Limited Partner, other than the Initial
Partnerships for which no right to
repurchase or cancellation exists, would
receive upon repurchase or cancellation
of its Interest, the lesser of (a) the
amount actually paid by the Limited
Partner to acquire the Interest plus
interest, less any distributions, and (b)
the fair market value of the Interest
determined at the time of the repurchase
or cancellation as determined in good
faith by the General Partner.
13. A Partnership may make
investments side-by-side with Capital
Group entities and through investment
pools sponsored by or managed by a
Capital Group entity or an unaffiliated
entity. A Partnership may also co-invest
directly in a company with Capital
Group or an investment fund or separate
account organized for the benefit of
investors who are not affiliated with
Capital Group over which a Capital
Group entity or an Unaffiliated
Subadviser exercises investment
discretion (‘‘Third Party Funds’’).
14. If Capital Group makes loans to
any Partnership, the lender will be
entitled to receive interest at a rate no
less favorable to the borrower than the
rate that could be obtained on an arm’s
length basis. A Partnership will not
borrow from any person if the
borrowing would cause any person not
named in section 2(a)(13) of the Act to
own outstanding securities of the
Partnership (other than short-term
paper). Any indebtedness of a
Partnership will be without recourse to
the Limited Partners of the Partnership.
15. A Partnership will not acquire any
security issued by a registered
investment company if, immediately
after the acquisition, the Partnership
will own, in the aggregate, more than
3% of the outstanding voting stock of
the registered investment company.
Applicants’ Legal Analysis
1. Section 6(b) of the Act provides, in
part, that the Commission will exempt
employees’ securities companies from
the provisions of the Act to the extent
that the exemption is consistent with
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the protection of investors. Section 6(b)
provides that the Commission will
consider, in determining the provisions
of the Act from which the company
should be exempt, the company’s form
of organization and capital structure, the
persons owning and controlling its
securities, the price of the company’s
securities and the amount of any sales
load, how the company’s funds are
invested, and the relationship between
the company and the issuers of the
securities in which it invests. Section
2(a)(13) defines an employees’ securities
company, in relevant part, as any
investment company all of whose
securities (other than short-term paper)
are beneficially owned (a) by current or
former employees, or persons on
retainer, of one or more affiliated
employers, (b) by immediate family
members of such persons, or (c) by such
employer or employers together with
any of the persons in (a) or (b).
2. Section 7 of the Act generally
prohibits investment companies that are
not registered under section 8 of the Act
from selling or redeeming their
securities. Section 6(e) of the Act
provides that, in connection with any
order exempting an investment
company from any provision of section
7, certain provisions of the Act, as
specified by the Commission, will be
applicable to the company and other
persons dealing with the company as
though the company were registered
under the Act. Applicants request an
order under sections 6(b) and 6(e) of the
Act exempting the Partnerships from all
provisions of the Act, except section 9
and sections 36 through 53 of the Act,
and the rules and regulations under the
Act. With respect to sections 17 and 30
of the Act, and the rules and regulations
thereunder, and rule 38a–1 under the
Act, the exemption is limited as set
forth in the application.
3. Section 17(a) generally prohibits
any affiliated person of a registered
investment company, or any affiliated
person of an affiliated person, acting as
principal, from knowingly selling or
purchasing any security or other
property to or from the company.
Applicants request an exemption from
section 17(a) to permit: (a) A Capital
Group entity or a Third Party Fund (or
any affiliated person of such Third Party
Fund), acting as principal, to engage in
any transaction directly or indirectly
with any Partnership or any company
controlled by such Partnership; (b) a
Partnership to invest in or engage in any
transaction with any entity, acting as
principal, (i) in which such Partnership,
any company controlled by such
Partnership, or any Capital Group entity
or Third Party Fund has invested or will
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invest, or (ii) with which such
Partnership, any company controlled by
such Partnership, or any Capital Group
entity or Third Party Fund is or will
otherwise become affiliated; and (c) a
Third Party Investor, acting as principal,
to engage in any transaction directly or
indirectly with any Partnership or any
company controlled by such
Partnership. The term ‘‘Third Party
Investor’’ refers to any person or entity
that is not a Capital Group entity or
affiliated with Capital Group and is a
partner or other investor in a Third
Party Fund.
4. Applicants submit that an
exemption from section 17(a) is
consistent with the purposes of the
Partnerships and the protection of
investors. Applicants state that the
Limited Partners will be informed of the
possible extent of the Partnership’s
dealings with Capital Group and of the
potential conflicts of interest that may
exist. Applicants also state that, as
professionals engaged in financial
services businesses, the Limited
Partners will be able to evaluate the
risks associated with those dealings.
Applicants assert that the community of
interest among the Limited Partners and
Capital Group will serve to reduce the
risk of abuse. Applicants represent that
the requested relief will not extend to
any transactions between a Partnership
and an Unaffiliated Subadviser or an
affiliated person of an Unaffiliated
Subadviser, or between a Partnership
and any person who is not an employee,
officer or director of the Capital Group
or is an entity outside of the Capital
Group and is an affiliated person of the
Partnership as defined in section
2(a)(3)(E) of the Act (‘‘Advisory Person’’)
or any affiliated person of such a
person.
5. Section 17(d) of the Act and rule
17d–1 under the Act prohibit any
affiliated person of a registered
investment company, or any affiliated
person of such person, acting as
principal, from participating in any joint
arrangement with the company unless
authorized by the Commission.
Applicants request relief to permit
affiliated persons of each Partnership, or
affiliated persons of any of these
persons, to participate in, or effect any
transaction in connection with, any
joint enterprise or other joint
arrangement or profit-sharing plan in
which the Partnership or a company
controlled by the Partnership is a
participant. Applicants acknowledge
that the requested relief will not extend
to any transaction in which an
Unaffiliated Subadviser or an Advisory
Person, or an affiliated person of either
such person, has an interest, except in
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connection with a Third Party Fund
sponsored by an Unaffiliated
Subadviser.
6. Applicants assert that compliance
with section 17(d) would cause the
Partnership to forego attractive
investment opportunities simply
because a Limited Partner, the General
Partner or any other affiliated person of
the Partnership (or any affiliate of the
affiliated person) made a similar
investment. Applicants also submit that
the types of investment opportunities
considered by a Partnership often
require each investor to make funds
available in an amount that may be
substantially greater than what a
Partnership may be able to make
available on its own. Applicants
contend that, as a result, the only way
in which a Partnership may be able to
participate in these opportunities may
be to co-invest with other persons,
including its affiliates. Applicants assert
that the flexibility to structure coinvestments and joint investments will
not involve abuses of the type section
17(d) and rule 17d–1 were designed to
prevent.
7. Co-investments with Third Party
Funds, or by a Capital Group entity
pursuant to a contractual obligation to a
Third Party Fund, will not be subject to
condition 3 below. Applicants note that
it is common for a Third Party Fund to
require that Capital Group invest its
own capital in Third Party Fund
investments, and that Capital Group
investments be subject to substantially
the same terms as those applicable to
the Third Party Fund. Applicants
believe it is important that the interests
of the Third Party Fund take priority
over the interests of the Partnerships,
and that the Third Party Fund not be
burdened or otherwise affected by
activities of the Partnerships. In
addition, applicants assert that the
relationship of a Partnership to a Third
Party Fund is fundamentally different
from a Partnership’s relationship to
Capital Group. Applicants contend that
the focus of, and the rationale for, the
protections contained in the requested
relief are to protect the Partnerships
from any overreaching by Capital Group
in the employer/employee context,
whereas the same concerns are not
present with respect to the Partnerships
vis-a-vis a Third Party Fund.
8. Section 17(e) of the Act and rule
17e–1 under the Act limit the
compensation an affiliated person may
receive when acting as agent or broker
for a registered investment company.
Applicants request an exemption from
section 17(e) to permit a Capital Group
entity (including the General Partner)
that acts as an agent or broker to receive
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placement fees, advisory fees, or other
compensation from a Partnership in
connection with the purchase or sale by
the Partnership of securities, provided
that the fees or other compensation are
deemed ‘‘usual and customary.’’
Applicants state that for purposes of the
application, fees or other compensation
that are charged or received by a Capital
Group entity will be deemed ‘‘usual and
customary’’ only if (a) The Partnership is
purchasing or selling securities with
other unaffiliated third parties,
including Third Party Funds, (b) the
fees or compensation being charged to
the Partnership are also being charged to
the unaffiliated third parties, including
Third Party Funds, and (c) the amount
of securities being purchased or sold by
the Partnership does not exceed 50% of
the total amount of securities being
purchased or sold by the Partnership
and the unaffiliated third parties,
including Third Party Funds.
Applicants assert that, because Capital
Group does not wish to appear to be
favoring the Partnerships, compliance
with section 17(e) would prevent a
Partnership from participating in
transactions where the Partnership is
being charged lower fees than
unaffiliated third parties. Applicants
assert that the fees or other
compensation paid by a Partnership to
a Capital Group entity will be the same
as those negotiated at arm’s length with
unaffiliated third parties.
9. Rule 17e–1(b) under the Act
requires that a majority of directors who
are not ‘‘interested persons’’ (as defined
in section 2(a)(19) of the Act) take
actions and make approvals regarding
commissions, fees, or other
remuneration. Rule 17e–1(c) under the
Act requires each investment company
relying on the rule to satisfy the fund
governance standards defined in rule 0–
1(a)(7) under the Act (the ‘‘Fund
Governance Standards’’). Applicants
request an exemption from rule 17e–1 to
the extent necessary to permit each
Partnership to comply with the rule
without having a majority of the
directors of the General Partner who are
not interested persons take actions and
make determinations as set forth in
paragraph (b) of the rule, and without
having to satisfy the standards set forth
in paragraph (c) of the rule. Applicants
state that because all the directors of the
General Partner will be affiliated
persons, without the relief requested, a
Partnership could not comply with rule
17e–1. Applicants state that each
Partnership will comply with rule 17e–
1 by having a majority of the directors
of the General Partner take actions and
make approvals as set forth in the rule.
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Applicants state that each Partnership
will otherwise comply with rule 17e–1.
10. Section 17(f) of the Act designates
the entities that may act as investment
company custodians, and rule 17f–1
under the Act imposes certain
requirements when the custodian is a
member of a national securities
exchange. Applicants request an
exemption from section 17(f) and rule
17f–1 to permit a Capital Group entity
to act as custodian of Partnership assets
without a written contract. Applicants
also request an exemption from the rule
17f–1(b)(4) requirement that an
independent accountant periodically
verify the assets held by the custodian.
Applicants state that, because of the
community of interest between Capital
Group and the Partnerships and the
existing requirement for an independent
audit, compliance with this requirement
would be unnecessary. Applicants will
comply with all other requirements of
rule 17f–1.
11. Applicants also request an
exemption from rule 17f–2 to permit the
following exceptions from the
requirements of rule 17f–2: (a) A
Partnership’s investments may be kept
in the locked files of the General
Partner; (b) for purposes of paragraph
(d) of the rule, (i) Employees of the
General Partner (or Capital Group) will
be deemed to be employees of the
Partnerships, (ii) officers or managers of
the General Partner of a Partnership (or
Capital Group) will be deemed to be
officers of the Partnership and (iii) the
General Partner of a Partnership or its
board of directors will be deemed to be
the board of directors of a Partnership
and (c) in place of the verification
procedure under paragraph (f) of the
rule, verification will be effected
quarterly by two employees of the
General Partner (or Capital Group).
Applicants expect that with respect to
certain Partnerships, some of their
investments may be evidenced only by
partnership agreements, participation
agreements or similar documents, rather
than by negotiable certificates that could
be misappropriated. Applicants assert
that for such a Partnership, these
instruments are most suitably kept in
the files of the General Partner, where
they can be referred to as necessary.
12. Section 17(g) of the Act and rule
17g–1 under the Act generally require
the bonding of officers and employees of
a registered investment company who
have access to its securities or funds.
Rule 17g–1 requires that a majority of
directors who are not interested persons
take certain actions and give certain
approvals relating to fidelity bonding.
The rule also requires that the board of
directors of an investment company
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relying on the rule satisfy the Fund
Governance Standards. Applicants
request relief to permit the General
Partner’s board of directors, who may be
deemed interested persons, to take
actions and make determinations as set
forth in the rule. Applicants state that,
because all directors of the General
Partner will be affiliated persons, a
Partnership could not comply with rule
17g–1 without the requested relief.
Specifically, each Partnership will
comply with rule 17g–1 by having a
majority of the General Partner’s
directors take actions and make
determinations as set forth in rule 17g–
1. Applicants also request an exemption
from the requirements of paragraph (g)
of rule 17g–1 relating to the filing of
copies of fidelity bonds and related
information with the Commission and
the provision of notices to the board of
directors, paragraph (h) of rule 17g–1
relating to the appointment of a person
to make the filings and provide the
notices required by paragraph (g), and
paragraph (j)(3) of rule 17g–1 relating to
compliance with the Fund Governance
Standards. Applicants state that the
Partnerships will comply with all other
requirements of rule 17g–1.
13. Section 17(j) of the Act and
paragraph (b) of rule 17j–1 under the
Act make it unlawful for certain
enumerated persons to engage in
fraudulent or deceptive practices in
connection with the purchase or sale of
a security held or to be acquired by a
registered investment company. Rule
17j–1 also requires that every registered
investment company adopt a written
code of ethics and that every access
person of a registered investment
company report personal securities
transactions. Applicants request an
exemption from the provisions of rule
17j–1, except for the anti-fraud
provisions of paragraph (b), because
they are unnecessarily burdensome as
applied to the Partnerships. The relief
requested will only extend to Capital
Group entities and is not requested with
respect to any Unaffiliated Subadviser
or Advisory Person.
14. Applicants request an exemption
from the requirements in sections 30(a),
30(b), and 30(e) of the Act, and the rules
under those sections, that registered
investment companies prepare and file
with the Commission and mail to their
shareholders certain periodic reports
and financial statements. Applicants
contend that the forms prescribed by the
Commission for periodic reports have
little relevance to the Partnerships and
would entail administrative and legal
costs that outweigh any benefit to the
Limited Partners. Applicants request
exemptive relief to the extent necessary
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17:10 Feb 15, 2011
Jkt 223001
to permit each Partnership to report
annually to its Limited Partners.
Applicants also request an exemption
from section 30(h) of the Act to the
extent necessary to exempt the General
Partner of each Partnership, members of
the General Partner or any board of
managers or directors or committee of
Capital Group employees to whom the
General Partner may delegate its
functions, and any other persons who
may be deemed to be members of an
advisory board of a Partnership, from
filing Forms 3, 4, and 5 under section
16(a) of the Exchange Act with respect
to their ownership of Interests in the
Partnership. Applicants assert that,
because there will be no trading market
and the transfers of Interests will be
severely restricted, these filings are
unnecessary for the protection of
investors and burdensome to those
required to make them.
15. Rule 38a–1 requires investment
companies to adopt, implement and
periodically review written policies
reasonably designed to prevent violation
of the federal securities law and to
appoint a chief compliance officer. Each
Partnership will comply will rule 38a–
1(a), (c) and (d), except that (a) since the
Partnership does not have a board of
directors, the board of directors of the
General Partner will fulfill the
responsibilities assigned to the
Partnership’s board of directors under
the rule, (b) since the board of directors
of the General Partner does not have any
disinterested members, approval by a
majority of the disinterested board
members required by rule 38a–1 will
not be obtained, and (c) since the board
of directors of the General Partner does
not have any disinterested members, the
Partnerships will comply with the
requirement in rule 38a–1(a)(4)(iv) that
the chief compliance officer meet with
the independent directors by having the
chief compliance officer meet with the
board of directors of the General Partner
as constituted.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. Each proposed transaction
involving a Partnership otherwise
prohibited by section 17(a) or section
17(d) of the Act and rule 17d–1 under
the Act to which a Partnership is a party
(the ‘‘Section 17 Transactions’’) will be
effected only if the General Partner
determines that:
(a) the terms of the Section 17
Transaction, including the
consideration to be paid or received, are
fair and reasonable to the Limited
Partners of the Partnership and do not
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
9061
involve overreaching of the Partnership
or its Limited Partners on the part of any
person concerned; and
(b) the Section 17 Transaction is
consistent with the interests of the
Limited Partners, the Partnership’s
organizational documents and the
Partnership’s reports to its Limited
Partners.
In addition, the General Partner of the
Partnership will record and preserve a
description of all Section 17
Transactions, the General Partner’s
findings, the information or materials
upon which the findings are based and
the basis for the findings. All such
records will be maintained for the life
of the Partnership and at least six years
thereafter and will be subject to
examination by the Commission and its
staff.5
2. The General Partner of each
Partnership will adopt, and periodically
review and update, procedures designed
to ensure that reasonable inquiry is
made, prior to the consummation of any
Section 17 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 person, promoter or principal
underwriter.
3. The General Partner of each
Partnership will not invest the funds of
the Partnership in any investment in
which an ‘‘Affiliated Co-Investor’’ (as
defined below) has acquired or proposes
to acquire the same class of securities of
the same issuer and where the
investment transaction involves a joint
enterprise or other joint arrangement
within the meaning of rule 17d–1 in
which the Partnership and an Affiliated
Co-Investor are participants, unless any
such Affiliated 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, on the same terms as,
and pro rata with the Affiliated CoInvestor. The term ‘‘Affiliated CoInvestor’’ with respect to any
Partnership means any person who is:
(a) An ‘‘affiliated person’’ (as such term
is defined in section 2(a)(3) of the Act)
of the Partnership (other than a Third
Party Fund); (b) Capital Group; (c) an
officer or director of Capital Group; or
5 Each Partnership will preserve the accounts,
books and other documents required to be
maintained in an easily accessible place for the first
two years.
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(d) an entity (other than a Third Party
Fund) in which a Capital Group entity
acts as a general partner or has a similar
capacity to control the sale or other
disposition of the entity’s securities.
The restrictions contained in this
condition, however, shall not be
deemed to limit or prevent the
disposition of an investment by an
Affiliated Co-Investor (a) To its direct or
indirect wholly-owned subsidiary, to
any company (a ‘‘Parent’’) of which the
Affiliated Co-Investor is a direct or
indirect wholly-owned subsidiary or to
a direct or indirect wholly-owned
subsidiary of its Parent, (b) to immediate
family members of the Affiliated CoInvestor or a trust or other investment
vehicle established for any Affiliated
Co-Investor or any such immediate
family member, or (c) when the
investment is comprised of securities
that are (i) listed on a national securities
exchange registered under section 6 of
the Exchange Act, (ii) NMS stocks
pursuant to section 11A(a)(2) of the
Exchange Act and rule 600(a) of
Regulation NMS thereunder, (iii)
government securities as defined in
section 2(a)(16) of the Act or other
securities that meet the definition of
‘‘Eligible Security’’ in rule 2a–7 under
the Act, or (iv) listed or traded on any
foreign securities exchange or board of
trade that satisfies regulatory
requirements under the law of the
jurisdiction in which such foreign
securities exchange or board of trade is
organized similar to those that apply to
a national securities exchange or a
national market system for securities.
4. Each Partnership and its General
Partner will maintain and preserve, for
the life of each Series of the Partnership
and at least six years thereafter, such
accounts, books and other documents
constituting the record forming the basis
for the audited financial statements that
are to be provided to the Limited
Partners in the Partnership, and each
annual report of the Partnership
required to be sent to the Limited
Partners, and agree that all such records
will be subject to examination by the
Commission and its staff.6
5. The General Partner of each
Partnership will send to each Limited
Partner having an Interest in the
Partnership at any time during the fiscal
year then ended, Partnership financial
statements audited by the Partnership’s
independent accountants with respect
to those Series in which the Limited
Partner had an Interest. At the end of
6 Each Partnership will preserve the accounts,
books and other documents required to be
maintained in an easily accessible place for the first
two years.
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17:10 Feb 15, 2011
Jkt 223001
each fiscal year, the General Partner will
make or cause to be made a valuation
of all of the assets of the Partnership as
of such fiscal year end in a manner
consistent with customary practice with
respect to the valuation of assets of the
kind held by the Partnership. In
addition, as soon as practicable after the
end of each fiscal year of the
Partnership, the General Partner will
send a report to each person who was
a Limited Partner at any time during the
fiscal year then ended, setting forth such
tax information as shall be necessary for
the preparation by the Limited Partner
of that partner’s federal and state
income tax returns and a report of the
investment activities of the Partnership
during that fiscal year.
6. If a Partnership makes purchases or
sales from or to an entity affiliated with
the Partnership by reason of an officer,
director or employee of a Capital Group
entity (a) serving as an officer, director,
general partner or investment adviser of
the entity, or (b) having a 5% or more
investment in the entity, such
individual will not participate in the
Partnership’s determination of whether
or not to effect the purchase or sale.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–3494 Filed 2–15–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63885; File No. SR–FINRA–
2010–055]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Disapproving
Proposed Rule Change To Amend
FINRA Rule 6140 (Other Trading
Practices)
February 10, 2011.
I. Introduction
On October 29, 2010, Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend FINRA Rule 6140, Other Trading
Practices. The proposed rule change was
published for comment in the Federal
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00067
Fmt 4703
Sfmt 4703
Register on November 12, 2010.3 The
Commission received two comments on
the proposal.4 On December 21, 2010,
the Commission extended the time
period in which to either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether to
disapprove the proposed rule change, to
February 10, 2011.5 On January 24,
2011, FINRA submitted a response letter
to the comments.6 This order
disapproves the proposed rule change.
II. Description of the Proposal
FINRA Rule 6140 provides that
FINRA members may, but are not
obligated to, accept stop orders in NMS
stocks, as that term is defined in Rule
600(b)(47) of Regulation NMS.7 In
addition, FINRA Rule 6140 provides
that a stop order becomes a market
order, or a stop limit order becomes a
limit order, when a transaction takes
place at or above the stop price (in the
case of a buy stop order) or at or below
the stop price (in the case of a sell stop
order).8 Thus, under FINRA Rule 6140,
a stop order cannot be triggered by the
publication of a quotation at the stop
price, but only by a transaction.9 FINRA
proposes to eliminate these provisions
governing the handling of stop orders in
their entirety.
In support of its proposal to eliminate
entirely from its rules those provisions
governing the handling of stop orders,
FINRA states that its members believe
quotations may be a better indicator of
the current price of a security than
transactions, and have requested that
FINRA provide members the flexibility
to determine whether the trigger of a
stop order will be based on transactions
or quotations at the stop price. FINRA
represents that its rules do not typically
define the parameters of the various
order types that members may accept
and that FINRA believes that members
should have the ability to define the
triggering event for stop orders as well
as to design their systems consistent
with such determination. In addition,
3 See Securities Exchange Act Release No. 63256
(November 5, 2010), 75 FR 69503 (‘‘Notice’’).
4 See Letters from Gary S. Sheller, CFP, Sheller
Financial Services, dated November 24, 2010
(‘‘Sheller Letter’’); and Michael S. Nichols, PhD,
Principal/Financial Advisor, Cutter Advisors
Group, dated November 29, 2010 (‘‘Cutter Letter’’).
5 See Securities Exchange Act Release No. 63582
(December 21, 2010), 75 FR 81704 (December 28,
2010).
6 See Letter to Elizabeth M. Murphy, Secretary,
Commission, from Stephanie M. Dumont, Senior
Vice President and Director of Capital Markets
Policy, FINRA, dated January 24, 2011 (‘‘FINRA
Response Letter’’).
7 See FINRA Rule 6140(h) and (i).
8 See FINRA Rule 6140(h).
9 See FINRA Rule 6140(h) and (i).
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]]>Agencies
[Federal Register Volume 76, Number 32 (Wednesday, February 16, 2011)]
[Notices]
[Pages 9057-9062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3494]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29577; 813-353]
Capital International, Inc., et al.; Notice of Application
February 10, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under sections 6(b) and 6(e)
of the Investment Company Act of 1940 (the ``Act'') granting an
exemption from all provisions of the Act, except section 9, and
sections 36 through 53, and the rules and regulations under the Act.
With respect to sections 17 and 30 of the Act, and the rules and
regulations thereunder, and rule 38a-1 under the Act, the exemption is
limited as set forth in the application.
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Summary of Application: Applicants request an order to exempt certain
limited partnerships and other entities (``Partnerships'') formed for
the benefit of eligible employees of Capital International, Inc.
(``Capital'') and its affiliates from certain provisions of the Act.
Each Partnership will be an ``employees' securities company'' within
the meaning of section 2(a)(13) of the Act.
Applicants: CGPE IV, L.P. (``CGPE IV''), CGPE V, L.P. (``CGPE V''),
Capital International Investments IV, LLC (``CII IV''), Capital
International Investments V, LLC (``CII V''), and Capital.
DATES: Filing Dates: The application was filed on October 1, 2003 and
amended on September 30, 2004, April 6, 2007, April 16, 2010, and
February 1, 2011.
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 March 7, 2011, and should be accompanied by proof of service on
applicants, in the form of an affidavit or, for lawyers, a certificate
of service. Hearing requests should state the nature of the writer's
interest, the reason for the request, and the issues contested. Persons
who wish to be notified of a hearing may request notification by
writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090; Applicants: Capital, 11100
Santa Monica Blvd., 15th Floor, Los Angeles, CA 90025-3384; CGPE IV,
CGPE V, CII IV, and CII V, 6455 Irvine Center Drive, Irvine, CA 92618-
4518.
FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior
Counsel, at (202) 551-6879, or Janet M. Grossnickle, Assistant
Director, at (202) 551-6821 (Division of Investment Management, Office
of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Capital, a California corporation, is an indirect wholly-owned
subsidiary of The Capital Group Companies, Inc., a holding company and
one of the largest investment management firms in the world. Capital
and its ``affiliates,'' as defined in rule 12b-2 under the Securities
Exchange Act of 1934 (the ``Exchange Act''), are referred to
collectively as the ``Capital Group'' and each, a ``Capital Group
entity.'' Investment management and related financial services are
Capital International, Inc.'s only businesses.
2. A Partnership will be structured as a limited partnership,
limited liability company, business trust or other entity organized
under the laws of the state of Delaware, another state, or of a
jurisdiction outside the United States. Capital Group may also form
parallel Partnerships organized under the laws of various jurisdictions
in order to create the same investment opportunities for Eligible
Employees (as defined below) in other jurisdictions. Interests in a
Partnership (``Interests'') may be issued in one or more series, each
of which corresponds to particular Partnership investments (each, a
``Series''). Each Series will be an ``employees' securities company''
within the meaning of section 2(a)(13) of the Act. Each Partnership
will operate as a closed-end management investment company, and a
particular Partnership may operate as a diversified or non-diversified
vehicle within the meaning of the Act. The Partnerships are intended to
provide investment opportunities for Eligible Employees (defined below)
that are competitive with those at other investment management and
financial services firms and to facilitate the recruitment and
retention of high caliber professionals. Capital Group will control
each Partnership within the meaning of section 2(a)(9) of the Act.
3. Capital Group formed CGPE IV under the laws of the state of
Delaware. CGPE IV invests concurrently with Capital International
Private Equity Fund IV, L.P. (``Fund IV'') and other investors
organized or managed by Capital Group or its designees that generally
co-invest with Fund IV (the ``Fund IV Co-Investors'') in various
investment opportunities, described in the application. Capital Group
formed CGPE V under the laws of the Cayman Islands. CGPE V invests
concurrently with Capital International Private Equity Fund V, L.P.
(``Fund V'') and other investors organized or managed by Capital Group
or its designees that generally co-invest with Fund V (the ``Fund V Co-
Investors'') in various
[[Page 9058]]
investment opportunities, described in the application. CGPE IV and
CGPE V (collectively, the ``Initial Partnerships'') may also co-invest
with each other as well as with Fund IV, Fund V, the Fund IV Co-
Investors and the Fund V Co-Investors. The Initial Partnerships are
organized as limited partnerships.
4. Each Partnership will have a general partner, managing member or
other such similar entity (a ``General Partner''). All potential
investors in a Partnership will be ``Limited Partners.'' The General
Partner will manage, operate, and control each Partnership and will
have the authority to make all decisions regarding the acquisition,
management and disposition of Partnership investments. A Capital Group
entity will be a General Partner of each Partnership. The General
Partner may be permitted to delegate certain of its responsibilities
regarding the acquisition, management and disposition of Partnership
investments to an Investment Adviser (as defined below).
5. The General Partner or another entity will serve as investment
adviser to a Partnership (the ``Investment Adviser''). The Investment
Adviser will be (i) Registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act''), (ii) exempt
from Advisers Act registration requirements by virtue of section
203(b)(3) of the Advisers Act, or (iii) excluded from the definition of
investment adviser under the Advisers Act because it is a bank or bank
holding company, as defined in the Bank Holding Company Act of 1056, as
amended, and does not serve or act as an investment adviser to a
registered investment company. Any entity serving as Investment Adviser
to any Partnership will be a Capital Group entity.
6. If the Investment Adviser elects to recommend that a Partnership
enter into any side-by-side investment with an unaffiliated entity, the
Investment Adviser will be permitted to engage as sub-investment
adviser the unaffiliated entity (an ``Unaffiliated Subadviser''), which
will be responsible for the management of such side-by-side investment.
An Investment Adviser may be paid a management fee, which will
generally be determined as a percentage of the capital commitments of
the Limited Partners. A General Partner or Investment Adviser may
receive a performance-based fee (a ``Carried Interest'') based on the
net gains of the Partnership's investments in addition to any amount
allocable to the General Partner's or Investment Adviser's capital
contribution.\1\
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\1\ If a General Partner or Investment Adviser is registered
under the Advisers Act, the Carried Interest payable to it by a
Partnership will be pursuant to an arrangement that complies with
rule 205-3 under the Advisers Act. If the General Partner or
Investment Adviser is not required to register under the Advisers
Act, the Carried Interest payable to it will comply with section
205(b)(3) of the Advisers Act, with the Partnership treated as a
business development company solely for the purpose of that section.
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7. Interests in a Partnership will be offered without registration
in reliance on section 4(2) of the Securities Act of 1933 (the
``Securities Act''), or Regulation D or Regulation S under the
Securities Act, and will be sold only to ``Qualified Participants'' (as
defined below). Prior to offering Interests to an Eligible Individual
(as defined below), a General Partner must reasonably believe that the
Eligible Employee or Eligible Family Member will be capable of
understanding and evaluating the merits and risks of participation in a
Partnership and that each such individual is able to bear the economic
risk of such participation and afford a complete loss of his or her
investment.
8. ``Qualified Participants'' are (a) current and former employees,
officers, directors and current Consultants \2\ of Capital Group
(collectively, ``Eligible Employees''), (b) spouses, parents, children,
spouses of children, brothers, sisters and grandchildren of Eligible
Employees (``Eligible Family Members'' and, together with Eligible
Employees who are natural persons, ``Eligible Individuals''), (c)
trusts or other investment vehicles established solely for the benefit
of Eligible Individuals (``Eligible Investment Vehicles''), and (d)
Capital Group. Each Eligible Individual will be an ``accredited
investor'' under rule 501(a)(5) or rule 501(a)(6) of Regulation D
(``Accredited Investor''), except that a maximum of 35 Eligible
Employees who are sophisticated investors but who are not Accredited
Investors may become Limited Partners if each of them falls into one of
the following two categories: (A) Eligible Employees who (i) have a
graduate degree in business, law or accounting, (ii) have a minimum of
five years of consulting, investment management, investment banking,
legal or similar business experience, and (iii) had reportable income
from all sources (including any profit shares or bonus) of $100,000 in
each of the two most recent years immediately preceding the Eligible
Employee's admission as a Limited Partner and have a reasonable
expectation of income from all sources of at least $140,000 in each
year in which the Eligible Employee will be committed to make
investments in a Partnership; or (B) Eligible Employees who are
``knowledgeable employees,'' as defined in rule 3c-5 of the Act, of the
Partnership (with the Partnership treated as though it were a ``covered
company'' for purposes of the rule). An Eligible Employee who is
described in category (A) above will not be permitted to invest in any
year more than 10% of his or her income from all sources for the
immediately preceding year in the aggregate in a Partnership and in all
other Partnerships in which that investor has previously invested.
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\2\ A ``Consultant'' is a person or entity whom Capital Group
has engaged on retainer to provide services and professional
expertise on an ongoing basis as a regular consultant or as a
business or legal adviser and who shares a community of interest
with Capital Group and its employees.
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9. An Eligible Individual may purchase an Interest through an
Eligible Investment Vehicle only if either (i) the investment vehicle
is an ``accredited investor,'' as defined in rule 501(a) of Regulation
D under the 1933 Act, or (ii) the Eligible Individual is a settlor \3\
and principal investment decision-maker with respect to the investment
vehicle. Eligible Investment Vehicles that are not accredited investors
will be included in the 35 non-accredited investor limit discussed
above. Any Capital Group entity or a Consultant entity will be an
``accredited investor'' as defined in rule 501(a) of Regulation D under
the 1933 Act.
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\3\ If such investment vehicle is an entity other than a trust,
the term ``settlor'' will be read to mean a person who created such
vehicle, alone or together with other Eligible Individuals, and
contributed funds to such vehicle.
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10. The terms of a Partnership will be disclosed to the Eligible
Employees at the time they are offered the right to subscribe for
Interests, and they will be furnished with a copy of the partnership
agreement. A Partnership will send its Limited Partners an annual
financial statement audited by independent accountants as soon as
practicable after the end of its fiscal year.\4\ In addition, as soon
as practicable after the end of each fiscal year of a Partnership, a
report will be sent to each Limited Partner setting forth the
information with respect to his or her share of income, gains, losses,
credits, and other items for federal and state income tax purposes.
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\4\ ``Audit'' will have the meaning defined in rule 1-02(d) of
Regulation S-X.
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11. Interests in the Partnerships will not be transferable except
with the express consent of the General Partner, and then only to a
Qualified Participant. All of the Partnerships will have only Qualified
Participants as Limited
[[Page 9059]]
Partners. No sales load will be charged in connection with the sale of
Interests.
12. The General Partner may have the right to repurchase or cancel
the Interest of an Eligible Employee who ceases to be an employee,
officer, director, or current Consultant of any member of Capital Group
for any reason. In the case of Interests held by a Consultant whose
retainer has been terminated or has expired, such Interests will be
subject to mandatory redemption or repurchase by Capital Group, or
Capital Group may require the former Consultant to sell such Interests
to an Eligible Investor. A Limited Partner, other than the Initial
Partnerships for which no right to repurchase or cancellation exists,
would receive upon repurchase or cancellation of its Interest, the
lesser of (a) the amount actually paid by the Limited Partner to
acquire the Interest plus interest, less any distributions, and (b) the
fair market value of the Interest determined at the time of the
repurchase or cancellation as determined in good faith by the General
Partner.
13. A Partnership may make investments side-by-side with Capital
Group entities and through investment pools sponsored by or managed by
a Capital Group entity or an unaffiliated entity. A Partnership may
also co-invest directly in a company with Capital Group or an
investment fund or separate account organized for the benefit of
investors who are not affiliated with Capital Group over which a
Capital Group entity or an Unaffiliated Subadviser exercises investment
discretion (``Third Party Funds'').
14. If Capital Group makes loans to any Partnership, the lender
will be entitled to receive interest at a rate no less favorable to the
borrower than the rate that could be obtained on an arm's length basis.
A Partnership will not borrow from any person if the borrowing would
cause any person not named in section 2(a)(13) of the Act to own
outstanding securities of the Partnership (other than short-term
paper). Any indebtedness of a Partnership will be without recourse to
the Limited Partners of the Partnership.
15. A Partnership will not acquire any security issued by a
registered investment company if, immediately after the acquisition,
the Partnership will own, in the aggregate, more than 3% of the
outstanding voting stock of the registered investment company.
Applicants' Legal Analysis
1. Section 6(b) of the Act provides, in part, that the Commission
will exempt employees' securities companies from the provisions of the
Act to the extent that the exemption is consistent with the protection
of investors. Section 6(b) provides that the Commission will consider,
in determining the provisions of the Act from which the company should
be exempt, the company's form of organization and capital structure,
the persons owning and controlling its securities, the price of the
company's securities and the amount of any sales load, how the
company's funds are invested, and the relationship between the company
and the issuers of the securities in which it invests. Section 2(a)(13)
defines an employees' securities company, in relevant part, as any
investment company all of whose securities (other than short-term
paper) are beneficially owned (a) by current or former employees, or
persons on retainer, of one or more affiliated employers, (b) by
immediate family members of such persons, or (c) by such employer or
employers together with any of the persons in (a) or (b).
2. Section 7 of the Act generally prohibits investment companies
that are not registered under section 8 of the Act from selling or
redeeming their securities. Section 6(e) of the Act provides that, in
connection with any order exempting an investment company from any
provision of section 7, certain provisions of the Act, as specified by
the Commission, will be applicable to the company and other persons
dealing with the company as though the company were registered under
the Act. Applicants request an order under sections 6(b) and 6(e) of
the Act exempting the Partnerships from all provisions of the Act,
except section 9 and sections 36 through 53 of the Act, and the rules
and regulations under the Act. With respect to sections 17 and 30 of
the Act, and the rules and regulations thereunder, and rule 38a-1 under
the Act, the exemption is limited as set forth in the application.
3. Section 17(a) generally prohibits any affiliated person of a
registered investment company, or any affiliated person of an
affiliated person, acting as principal, from knowingly selling or
purchasing any security or other property to or from the company.
Applicants request an exemption from section 17(a) to permit: (a) A
Capital Group entity or a Third Party Fund (or any affiliated person of
such Third Party Fund), acting as principal, to engage in any
transaction directly or indirectly with any Partnership or any company
controlled by such Partnership; (b) a Partnership to invest in or
engage in any transaction with any entity, acting as principal, (i) in
which such Partnership, any company controlled by such Partnership, or
any Capital Group entity or Third Party Fund has invested or will
invest, or (ii) with which such Partnership, any company controlled by
such Partnership, or any Capital Group entity or Third Party Fund is or
will otherwise become affiliated; and (c) a Third Party Investor,
acting as principal, to engage in any transaction directly or
indirectly with any Partnership or any company controlled by such
Partnership. The term ``Third Party Investor'' refers to any person or
entity that is not a Capital Group entity or affiliated with Capital
Group and is a partner or other investor in a Third Party Fund.
4. Applicants submit that an exemption from section 17(a) is
consistent with the purposes of the Partnerships and the protection of
investors. Applicants state that the Limited Partners will be informed
of the possible extent of the Partnership's dealings with Capital Group
and of the potential conflicts of interest that may exist. Applicants
also state that, as professionals engaged in financial services
businesses, the Limited Partners will be able to evaluate the risks
associated with those dealings. Applicants assert that the community of
interest among the Limited Partners and Capital Group will serve to
reduce the risk of abuse. Applicants represent that the requested
relief will not extend to any transactions between a Partnership and an
Unaffiliated Subadviser or an affiliated person of an Unaffiliated
Subadviser, or between a Partnership and any person who is not an
employee, officer or director of the Capital Group or is an entity
outside of the Capital Group and is an affiliated person of the
Partnership as defined in section 2(a)(3)(E) of the Act (``Advisory
Person'') or any affiliated person of such a person.
5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of a registered investment company, or any
affiliated person of such person, acting as principal, from
participating in any joint arrangement with the company unless
authorized by the Commission. Applicants request relief to permit
affiliated persons of each Partnership, or affiliated persons of any of
these persons, to participate in, or effect any transaction in
connection with, any joint enterprise or other joint arrangement or
profit-sharing plan in which the Partnership or a company controlled by
the Partnership is a participant. Applicants acknowledge that the
requested relief will not extend to any transaction in which an
Unaffiliated Subadviser or an Advisory Person, or an affiliated person
of either such person, has an interest, except in
[[Page 9060]]
connection with a Third Party Fund sponsored by an Unaffiliated
Subadviser.
6. Applicants assert that compliance with section 17(d) would cause
the Partnership to forego attractive investment opportunities simply
because a Limited Partner, the General Partner or any other affiliated
person of the Partnership (or any affiliate of the affiliated person)
made a similar investment. Applicants also submit that the types of
investment opportunities considered by a Partnership often require each
investor to make funds available in an amount that may be substantially
greater than what a Partnership may be able to make available on its
own. Applicants contend that, as a result, the only way in which a
Partnership may be able to participate in these opportunities may be to
co-invest with other persons, including its affiliates. Applicants
assert that the flexibility to structure co-investments and joint
investments will not involve abuses of the type section 17(d) and rule
17d-1 were designed to prevent.
7. Co-investments with Third Party Funds, or by a Capital Group
entity pursuant to a contractual obligation to a Third Party Fund, will
not be subject to condition 3 below. Applicants note that it is common
for a Third Party Fund to require that Capital Group invest its own
capital in Third Party Fund investments, and that Capital Group
investments be subject to substantially the same terms as those
applicable to the Third Party Fund. Applicants believe it is important
that the interests of the Third Party Fund take priority over the
interests of the Partnerships, and that the Third Party Fund not be
burdened or otherwise affected by activities of the Partnerships. In
addition, applicants assert that the relationship of a Partnership to a
Third Party Fund is fundamentally different from a Partnership's
relationship to Capital Group. Applicants contend that the focus of,
and the rationale for, the protections contained in the requested
relief are to protect the Partnerships from any overreaching by Capital
Group in the employer/employee context, whereas the same concerns are
not present with respect to the Partnerships vis-a-vis a Third Party
Fund.
8. Section 17(e) of the Act and rule 17e-1 under the Act limit the
compensation an affiliated person may receive when acting as agent or
broker for a registered investment company. Applicants request an
exemption from section 17(e) to permit a Capital Group entity
(including the General Partner) that acts as an agent or broker to
receive placement fees, advisory fees, or other compensation from a
Partnership in connection with the purchase or sale by the Partnership
of securities, provided that the fees or other compensation are deemed
``usual and customary.'' Applicants state that for purposes of the
application, fees or other compensation that are charged or received by
a Capital Group entity will be deemed ``usual and customary'' only if
(a) The Partnership is purchasing or selling securities with other
unaffiliated third parties, including Third Party Funds, (b) the fees
or compensation being charged to the Partnership are also being charged
to the unaffiliated third parties, including Third Party Funds, and (c)
the amount of securities being purchased or sold by the Partnership
does not exceed 50% of the total amount of securities being purchased
or sold by the Partnership and the unaffiliated third parties,
including Third Party Funds. Applicants assert that, because Capital
Group does not wish to appear to be favoring the Partnerships,
compliance with section 17(e) would prevent a Partnership from
participating in transactions where the Partnership is being charged
lower fees than unaffiliated third parties. Applicants assert that the
fees or other compensation paid by a Partnership to a Capital Group
entity will be the same as those negotiated at arm's length with
unaffiliated third parties.
9. Rule 17e-1(b) under the Act requires that a majority of
directors who are not ``interested persons'' (as defined in section
2(a)(19) of the Act) take actions and make approvals regarding
commissions, fees, or other remuneration. Rule 17e-1(c) under the Act
requires each investment company relying on the rule to satisfy the
fund governance standards defined in rule 0-1(a)(7) under the Act (the
``Fund Governance Standards''). Applicants request an exemption from
rule 17e-1 to the extent necessary to permit each Partnership to comply
with the rule without having a majority of the directors of the General
Partner who are not interested persons take actions and make
determinations as set forth in paragraph (b) of the rule, and without
having to satisfy the standards set forth in paragraph (c) of the rule.
Applicants state that because all the directors of the General Partner
will be affiliated persons, without the relief requested, a Partnership
could not comply with rule 17e-1. Applicants state that each
Partnership will comply with rule 17e-1 by having a majority of the
directors of the General Partner take actions and make approvals as set
forth in the rule. Applicants state that each Partnership will
otherwise comply with rule 17e-1.
10. Section 17(f) of the Act designates the entities that may act
as investment company custodians, and rule 17f-1 under the Act imposes
certain requirements when the custodian is a member of a national
securities exchange. Applicants request an exemption from section 17(f)
and rule 17f-1 to permit a Capital Group entity to act as custodian of
Partnership assets without a written contract. Applicants also request
an exemption from the rule 17f-1(b)(4) requirement that an independent
accountant periodically verify the assets held by the custodian.
Applicants state that, because of the community of interest between
Capital Group and the Partnerships and the existing requirement for an
independent audit, compliance with this requirement would be
unnecessary. Applicants will comply with all other requirements of rule
17f-1.
11. Applicants also request an exemption from rule 17f-2 to permit
the following exceptions from the requirements of rule 17f-2: (a) A
Partnership's investments may be kept in the locked files of the
General Partner; (b) for purposes of paragraph (d) of the rule, (i)
Employees of the General Partner (or Capital Group) will be deemed to
be employees of the Partnerships, (ii) officers or managers of the
General Partner of a Partnership (or Capital Group) will be deemed to
be officers of the Partnership and (iii) the General Partner of a
Partnership or its board of directors will be deemed to be the board of
directors of a Partnership and (c) in place of the verification
procedure under paragraph (f) of the rule, verification will be
effected quarterly by two employees of the General Partner (or Capital
Group). Applicants expect that with respect to certain Partnerships,
some of their investments may be evidenced only by partnership
agreements, participation agreements or similar documents, rather than
by negotiable certificates that could be misappropriated. Applicants
assert that for such a Partnership, these instruments are most suitably
kept in the files of the General Partner, where they can be referred to
as necessary.
12. Section 17(g) of the Act and rule 17g-1 under the Act generally
require the bonding of officers and employees of a registered
investment company who have access to its securities or funds. Rule
17g-1 requires that a majority of directors who are not interested
persons take certain actions and give certain approvals relating to
fidelity bonding. The rule also requires that the board of directors of
an investment company
[[Page 9061]]
relying on the rule satisfy the Fund Governance Standards. Applicants
request relief to permit the General Partner's board of directors, who
may be deemed interested persons, to take actions and make
determinations as set forth in the rule. Applicants state that, because
all directors of the General Partner will be affiliated persons, a
Partnership could not comply with rule 17g-1 without the requested
relief. Specifically, each Partnership will comply with rule 17g-1 by
having a majority of the General Partner's directors take actions and
make determinations as set forth in rule 17g-1. Applicants also request
an exemption from the requirements of paragraph (g) of rule 17g-1
relating to the filing of copies of fidelity bonds and related
information with the Commission and the provision of notices to the
board of directors, paragraph (h) of rule 17g-1 relating to the
appointment of a person to make the filings and provide the notices
required by paragraph (g), and paragraph (j)(3) of rule 17g-1 relating
to compliance with the Fund Governance Standards. Applicants state that
the Partnerships will comply with all other requirements of rule 17g-1.
13. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under
the Act make it unlawful for certain enumerated persons to engage in
fraudulent or deceptive practices in connection with the purchase or
sale of a security held or to be acquired by a registered investment
company. Rule 17j-1 also requires that every registered investment
company adopt a written code of ethics and that every access person of
a registered investment company report personal securities
transactions. Applicants request an exemption from the provisions of
rule 17j-1, except for the anti-fraud provisions of paragraph (b),
because they are unnecessarily burdensome as applied to the
Partnerships. The relief requested will only extend to Capital Group
entities and is not requested with respect to any Unaffiliated
Subadviser or Advisory Person.
14. Applicants request an exemption from the requirements in
sections 30(a), 30(b), and 30(e) of the Act, and the rules under those
sections, that registered investment companies prepare and file with
the Commission and mail to their shareholders certain periodic reports
and financial statements. Applicants contend that the forms prescribed
by the Commission for periodic reports have little relevance to the
Partnerships and would entail administrative and legal costs that
outweigh any benefit to the Limited Partners. Applicants request
exemptive relief to the extent necessary to permit each Partnership to
report annually to its Limited Partners. Applicants also request an
exemption from section 30(h) of the Act to the extent necessary to
exempt the General Partner of each Partnership, members of the General
Partner or any board of managers or directors or committee of Capital
Group employees to whom the General Partner may delegate its functions,
and any other persons who may be deemed to be members of an advisory
board of a Partnership, from filing Forms 3, 4, and 5 under section
16(a) of the Exchange Act with respect to their ownership of Interests
in the Partnership. Applicants assert that, because there will be no
trading market and the transfers of Interests will be severely
restricted, these filings are unnecessary for the protection of
investors and burdensome to those required to make them.
15. Rule 38a-1 requires investment companies to adopt, implement
and periodically review written policies reasonably designed to prevent
violation of the federal securities law and to appoint a chief
compliance officer. Each Partnership will comply will rule 38a-1(a),
(c) and (d), except that (a) since the Partnership does not have a
board of directors, the board of directors of the General Partner will
fulfill the responsibilities assigned to the Partnership's board of
directors under the rule, (b) since the board of directors of the
General Partner does not have any disinterested members, approval by a
majority of the disinterested board members required by rule 38a-1 will
not be obtained, and (c) since the board of directors of the General
Partner does not have any disinterested members, the Partnerships will
comply with the requirement in rule 38a-1(a)(4)(iv) that the chief
compliance officer meet with the independent directors by having the
chief compliance officer meet with the board of directors of the
General Partner as constituted.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each proposed transaction involving a Partnership otherwise
prohibited by section 17(a) or section 17(d) of the Act and rule 17d-1
under the Act to which a Partnership is a party (the ``Section 17
Transactions'') will be effected only if the General Partner determines
that:
(a) the terms of the Section 17 Transaction, including the
consideration to be paid or received, are fair and reasonable to the
Limited Partners of the Partnership and do not involve overreaching of
the Partnership or its Limited Partners on the part of any person
concerned; and
(b) the Section 17 Transaction is consistent with the interests of
the Limited Partners, the Partnership's organizational documents and
the Partnership's reports to its Limited Partners.
In addition, the General Partner of the Partnership will record and
preserve a description of all Section 17 Transactions, the General
Partner's findings, the information or materials upon which the
findings are based and the basis for the findings. All such records
will be maintained for the life of the Partnership and at least six
years thereafter and will be subject to examination by the Commission
and its staff.\5\
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\5\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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2. The General Partner of each Partnership will adopt, and
periodically review and update, procedures designed to ensure that
reasonable inquiry is made, prior to the consummation of any Section 17
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
person, promoter or principal underwriter.
3. The General Partner of each Partnership will not invest the
funds of the Partnership in any investment in which an ``Affiliated Co-
Investor'' (as defined below) has acquired or proposes to acquire the
same class of securities of the same issuer and where the investment
transaction involves a joint enterprise or other joint arrangement
within the meaning of rule 17d-1 in which the Partnership and an
Affiliated Co-Investor are participants, unless any such Affiliated 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, on the same terms as, and pro rata with the
Affiliated Co-Investor. The term ``Affiliated Co-Investor'' with
respect to any Partnership means any person who is: (a) An ``affiliated
person'' (as such term is defined in section 2(a)(3) of the Act) of the
Partnership (other than a Third Party Fund); (b) Capital Group; (c) an
officer or director of Capital Group; or
[[Page 9062]]
(d) an entity (other than a Third Party Fund) in which a Capital Group
entity acts as a general partner or has a similar capacity to control
the sale or other disposition of the entity's securities. The
restrictions contained in this condition, however, shall not be deemed
to limit or prevent the disposition of an investment by an Affiliated
Co-Investor (a) To its direct or indirect wholly-owned subsidiary, to
any company (a ``Parent'') of which the Affiliated Co-Investor is a
direct or indirect wholly-owned subsidiary or to a direct or indirect
wholly-owned subsidiary of its Parent, (b) to immediate family members
of the Affiliated Co-Investor or a trust or other investment vehicle
established for any Affiliated Co-Investor or any such immediate family
member, or (c) when the investment is comprised of securities that are
(i) listed on a national securities exchange registered under section 6
of the Exchange Act, (ii) NMS stocks pursuant to section 11A(a)(2) of
the Exchange Act and rule 600(a) of Regulation NMS thereunder, (iii)
government securities as defined in section 2(a)(16) of the Act or
other securities that meet the definition of ``Eligible Security'' in
rule 2a-7 under the Act, or (iv) listed or traded on any foreign
securities exchange or board of trade that satisfies regulatory
requirements under the law of the jurisdiction in which such foreign
securities exchange or board of trade is organized similar to those
that apply to a national securities exchange or a national market
system for securities.
4. Each Partnership and its General Partner will maintain and
preserve, for the life of each Series of the Partnership and at least
six years thereafter, such accounts, books and other documents
constituting the record forming the basis for the audited financial
statements that are to be provided to the Limited Partners in the
Partnership, and each annual report of the Partnership required to be
sent to the Limited Partners, and agree that all such records will be
subject to examination by the Commission and its staff.\6\
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\6\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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5. The General Partner of each Partnership will send to each
Limited Partner having an Interest in the Partnership at any time
during the fiscal year then ended, Partnership financial statements
audited by the Partnership's independent accountants with respect to
those Series in which the Limited Partner had an Interest. At the end
of each fiscal year, the General Partner will make or cause to be made
a valuation of all of the assets of the Partnership as of such fiscal
year end in a manner consistent with customary practice with respect to
the valuation of assets of the kind held by the Partnership. In
addition, as soon as practicable after the end of each fiscal year of
the Partnership, the General Partner will send a report to each person
who was a Limited Partner at any time during the fiscal year then
ended, setting forth such tax information as shall be necessary for the
preparation by the Limited Partner of that partner's federal and state
income tax returns and a report of the investment activities of the
Partnership during that fiscal year.
6. If a Partnership makes purchases or sales from or to an entity
affiliated with the Partnership by reason of an officer, director or
employee of a Capital Group entity (a) serving as an officer, director,
general partner or investment adviser of the entity, or (b) having a 5%
or more investment in the entity, such individual will not participate
in the Partnership's determination of whether or not to effect the
purchase or sale.
For the Commission, by the Division of Investment Management,
under delegated authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3494 Filed 2-15-11; 8:45 am]
BILLING CODE 8011-01-P
