SEC STAFF PERMITS PERFORMANCE FEE FOR ADVISER/GENERAL PARTNER OF INVESTMENT LIMITED PARTNERSHIP

July 25, 1989 TO: INVESTMENT ADVISER MEMBERS NO. 39-89 INVESTMENT ADVISER ASSOCIATE MEMBERS NO. 38-89 RE: SEC STAFF PERMITS PERFORMANCE FEE FOR ADVISER/GENERAL PARTNER OF INVESTMENT LIMITED PARTNERSHIP __________________________________________________________ The staff of the Division of Investment Management of the Securities and Exchange Commission stated on June 22, 1989 in a no-action response that it would not recommend enforcement action if the general partner of a proposed investment limited partnership is compensated by means of a performance or bonus fee. A copy of the no-action request and response is attached. In the no-action request, the adviser stated that each limited partner would invest at least $1 million and have a net worth of at least that amount. The partnership, a private investment company exempt from registration under the Investment Company Act of 1940, would have fewer than 100 beneficial owners and would terminate no later than 3 years after its formation. Units of the private placement limited partnership, registered pursuant to Regulation D under the 1933 Act, will be sold by licensed broker-dealers, one of whom is an affiliate of both the adviser and the general partner (since all three entities would be under common control). With regard to compensation, one percent of the operating income or loss and one percent of the realized and unrealized capital gains or losses will be allocated to the general partner. Additionally, depending on how much greater the amount of the portfolio return is than that achieved by an unaffiliated mutual fund which mirrors the S&P 500, the general partner will receive a fee ranging from one to ten percent. The partnership is expected to appeal primarily to non- individual investors and each limited partner is deemed to be a separate client of the general partner for purposes of the limited partnership. Finally, the private placement memorandum disclosed that the performance fee arrangement "may create an incentive" for the partnership to make riskier or more speculative investments than it would absent a performance fee. Robert L. Bunnen, Jr. Assistant General Counsel Attachment