[Federal Register Volume 66, Number 173 (Thursday, September 6, 2001)]
[Notices]
[Pages 46660-46666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-22387]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25146; 813-252]


WS Investment Company, L.L.C. et al. Notice of Application

August 29, 2001.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an 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

[[Page 46661]]

provisions of the Act, except section 9, section 17 (other than certain 
provisions of paragraphs (a), (d), (f), (g) and (j)), section 30) 
(other than certain provisions of paragraphs (a), (b), (e), and (h)), 
sections 36 through 53, and the rules and regulations under the Act.

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SUMMARY OF THE APPLICATION: Applicants request an order to exempt 
certain investment funds formed for the benefit of eligible current and 
former employees of Wilson Sonsini Goodrich & Rosati, Professional 
Corporation, and its affiliates from certain provisions of the Act. 
Each fund will be an ``employees' securities company'' as defined in 
section 2(a)(13) of the Act.
    Applicants: WS Investment Company, L.L.C. (the ``Investment Fund'') 
and Wilson Sonsini Goodrich & Rosati, Professional Corporation 
(together with any business organization that results from a 
reorganization of Wilson Sonsini Goodrich & Rosati, Professional 
Corporation, into a different type of business organization or into an 
entity organized under the laws of another jurisdiction, ``WSGR'').
    Filing Dates: The application was filed on March 27, 2000 and 
amended on August 28, 2001.
    Hearing or Notificaton 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 September 24, 2001, 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, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, 650 Page Mill Road, 
Palo Alto, CA 94304.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0564, (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 for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. WSGR is a law firm organized as a California professional 
corporation. WSGR 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 ``WSGR Group'' and individually as a 
``WSGR entity.'' The shareholders of WSGR are referred to as 
``Members.''
    2. The Investment Fund is a Delaware limited liability company 
established pursuant to a limited liability company agreement. The 
applicants may in the future offer additional pooled investment 
vehicles identical in all material respects to the Investment Fund 
(other than investment objectives and strategies) (the ``subsequent 
Funds'') (together, the Investment Fund and the Subsequent Funds are 
referred to as the ``Funds''). The applicants anticipate that each 
Subsequent Fund will also be structured as a limited liability company, 
although a Subsequent Fund could be structured as a limited 
partnership, corporation, trust or other business organization formed 
as an ``employees' securities company'' within the meaning of section 
2(a)(13) of the Act. The Funds will operate as non-diversified, closed-
end management investment companies. The Funds will be established to 
enable the Members and certain attorney and non-attorney employees of 
WSGR Group to participant in certain investment opportunities that come 
to the attention of WSGR Group. Participation as investors in the Funds 
will allow the Eligible Investors, as defined below, to diversify their 
investments and to have the opportunity to participate in investments 
that might not otherwise be available to them or that might be beyond 
their individual means.
    3. WSGR or a wholly-owned subsidiary of WSGR will serve as the sole 
manager (the ``Manager'') or each Fund. The Funds will have one or more 
investment committees (``Investment Committees''), each member of which 
shall be a Member. The Manager or WSGR shall appoint the members of 
each Investment Committee. If the Manager is a wholly-owned subsidiary 
of WSGR, the members of each Investment Committee will be officers and/
or directors of the subsidiary. The Manager or any person involved in 
the operation of the Funds will register as an investment adviser if 
required under the Investment Advisers Act of 1940, or the rules under 
that Act.
    4. Interests in the Funds (``Interests'') will be offered without 
registration in reliance on section 4(2) of the Securities Act of 1933 
(the ``Securities Act''), Regulation D under the Securities Act or rule 
701 under the Securities Act, or any successor rule, and will be sold 
solely to Eligible Investors. Eligible Investors consist of ``Eligible 
Employees,'' ``Qualified Investment Vehicles,'' ``Immediate Family 
Members,'' each as defined below, and WSGR entities. The term ``Fund 
Investors'' refers to Eligible Investors who invest in the Funds. Prior 
to offering Interests in a Fund to an individual, the Manager must 
reasonable believe that the individual is a sophisticated investor 
capable of understanding and evaluating the risks of participating in 
the Fund without the benefit or regulatory safeguards. An ``Eligible 
Employee'' is a person who is, at the time of investment, a current or 
former Member of WSGR or employee of WSGR Group who (a) meets the 
standards of an ``accredited investor'' set forth in rule 501(a)(5) or 
rule 501(a)(6) of Regulation D under the Securities Act, (b) is one of 
35 or fewer employees of WSGR Group who meets certain salary and other 
requirements (``Category 2 investors''), or (c) is a lawyer employed by 
WSGR who purchase Interests pursuant to an offering under rule 701 
under the Securities Act (``rule 701'') (``Category 3 investors'').
    5. Each Category 2 investor will be an employee of WSGR Group, but 
not a lawyer employed by WSGR, who meets the sophistication 
requirements set forth in rule (506)(b)(2)(ii) of Regulation D under 
the Securities Act \1\ and who (a) has a graduate degree, has a minimum 
of 3 years of business experience, has had compensation of at least 
$150,000 in the preceding 12 month period, and has a reasonable 
expectation of compensation at a least $150,000 in each of the 2 
immediately succeeding 12 month periods, or (b) is a ``knowledgeable 
employee,'' as defined rule 3c-5 under the Act, of the Fund (with the 
Fund treated as though it were a ``Covered Company'' for purposes of 
the rule). In addition, a Category 2 investor qualifying under (a) 
above will not be permitted to invest in any calendar or fiscal year 
(as determined by WSGR) more than 10% of his or her income from all 
sources for the immediately preceding calendar or fiscal year in one or 
more Funds.
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    \1\ Some or all Category 2 investors may purchase their 
Interests in an offering under rule 701 rather than under Regulation 
D.
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    6. Each Category 3 investor will be a lawyer employed by WSGR who 
reasonable expects to have compensation of at least $120,000 in the

[[Page 46662]]

next 12 months and who has a reasonable expectation of compensation of 
at least $150,000 in each of the 2 immediately succeeding 12 month 
periods. (In addition, any Category 3 investors who is not a Member 
will not be permitted to invest in any calendar or fiscal year (as 
determine by WSGR) more than 10% (or 5%, if he or she has been employed 
as a lawyer for less than 3 years) of his or her reasonably expected 
income from all sources for that year in one or more Funds. Category 3 
investors will purchase Interests pursuant to an offering under rule 
701. Prior to receiving a subscription agreement from any potential 
Fund Investor pursuant to an offering in reliance on rule 701, WSGR 
will make available at no charge to potential Fund Investors the 
services of an independent third party (``Financial Consultant'') 
qualified to provide advice concerning the appropriateness of investing 
in a Fund.
    7. A Qualified Investment Vehicle is a trust or other entity the 
sole beneficiaries of which are Eligible Employees or their Immediate 
Family Members or the settlers and trustees of which consist of 
Eligible Employees or Eligible Employees together with Immediate Family 
Members.\2\ Immediate Family Members include any parent, child, spouse 
of a child, spouse, brother or sister, and includes any step and 
adoptive relationships. A Qualified Investment Vehicle must be either 
(a) an accredited investor as defined in rule 501(a) of Regulation D or 
(b) an entity for which an Eligible Employee is a settlor and principal 
investment decisionmaker. An Immediate Family Member who purchases 
Interests must be an accredited investor as defined in rule 501(a)(5) 
or rule 501(a)(6) of Regulation D.
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    \2\ A Qualified Investment Vehicle is not permitted to 
participate in a rule 701 offering. WSGR or the Manager may, 
however, in their discretion and in compliance with rule 701, permit 
an Eligible Employee who purchases Interests in the Fund in a rule 
701 offering to transfer some or all of those Interests to a 
Qualified Investment Vehicle.
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    8. Each Fund may issue its Interests in series (each, a ``Series'' 
and collectively, the ``Series'') with new Series of Interests being 
offered from time to time. Each Series may be further divided into two 
or more separate classes (each, a ``Class''), having such terms and 
conditions as the Manager may establish. Each Series will represent an 
interest in some or all of those Fund investments made by the Fund 
during a specified period of time (the ``Investment Period''). 
Following the end of a Series' Investment Period, no new investment 
will be made for that Series, although following a Series' Investment 
Period additional money may be contributed to an existing investment.
    9. The Manager may determine, in its sole discretion, that in cases 
when the Investment Periods for two or more Series are open 
concurrently and when a limited amount of securities of an investee 
company is available, the Investment Committee for one Series (the 
``Mandatory Series'') will have the right to determine whether, and to 
what extent, the Mandatory Series will invest in the securities prior 
to one or more other Series having the right to invest. In such a case, 
the Mandatory Series shall be the Series in which Members have a 
mandatory obligation to invest. Each Member is required to purchase 
Interests in each Mandatory Series in an amount equal to a specified 
percentage of the investments made by that Mandatory Series based 
generally on his or her annual compensation. Members have a right, but 
not an obligation, to invest in Series other than the Mandatory Series 
(the ``Voluntary Series''). Associates of WSGR will have the right to 
invest in Mandatory Series and may have the right to invest in 
Voluntary Series.
    10. Currently, the Mandatory Series consists of two separate 
Classes: one Class, which is assessable, for Members and certain senior 
non-attorney employees of WSGR who are accredited investors; and one 
Class, which is non-assessable, for other Fund Investors. Assessments 
may be made against assessable interests solely during the Investment 
Period, and solely for the purpose of funding investments that the Fund 
otherwise does not have sufficient capital to make.
    11. In order to comply with the requirements of rule 701, at the 
beginning of each Investment Period, the Fund will accept capital 
contributions or irrevocable commitments for the relevant Series from 
those Eligible Investors investing pursuant to Regulation D (the 
``Regulation D Investors''), and then prepare a balance sheet as 
required by rule 701. The fund may then receive and accept subscription 
agreements, and thereafter accept capital contributions or commitments 
for that Series from those Eligible Investors investing pursuant to 
rule 701 (the ``rule 701 Investors''). The capital contributions and 
commitments of the Rule 701 Investors, in the aggregate, will not 
exceed 15% of the total amount of capital contributions and irrevocable 
commitments received from the Regulation D Investors. Because the 
capital commitments of the rule 701 Investors may be funded, in whole 
or in part, through periodic payroll deductions, the Rule 701 Investors 
may from time to time contribute money prior to the time the fund is 
able to invest that money. It currently is anticipated that any such 
amounts will be placed in a separate bank or escrow account, opening 
the delivery of the money to the Fund for investment or other 
authorized purposes.\3\ No more than approximately 13% (i.e., 15% of 
the total amount of capital contributions and irrevocable commitments 
received from the Regulation D Investors) of all Fund investments and 
other authorized expenditures for each Series will at any time be paid 
for out of money contributed to the Fund by Rule 701 Investors.
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    \3\ Applicants state that in the future, the Fund may not need 
to use the separate bank account or escrow arrangements, if (for 
example) Regulation D Investors make sufficient capital 
contributions to a Fund at the beginning of the Investment Period.
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    12. The terms of a Fund will be fully disclosed in the private 
placement memorandum of the Fund, and each Eligible Investor will 
receive a private placement memorandum and Fund's limited liability 
company agreement (or other organizational documents) prior to his or 
her investment in the Fund. Each Fund will send its Fund Investors 
annual reports, which will contain audited financial statements with 
respect to those Series in which the Fund Investor has Interests, as 
soon as practicable after the end of each fiscal year. In addition, as 
soon as practicable after the end of each fiscal year, the Funds will 
send a report to each Fund Investor setting forth such tax information 
as shall be necessary for the preparation by the Fund Investor of his 
or her federal and state tax returns.
    13. Eligible Investors will be permitted to transfer their 
Interests only with the express consent of the Manager. Any such 
transfer must be to another Eligible Investor. No fee of any kind will 
be charged in connection with the sale of Interests.
    14. An Eligible Employee's Interests may be subject to repurchase 
or cancellation if: (a) A Fund Investor ceases to be an Eligible 
Investor; (b) a Fund Investor is no longer deemed to be able to bear 
the economic risk of investment in a Fund; (c) adverse tax consequences 
were to inure to the Fund were a particular Fund Investor to remain; or 
(d) the continued membership of the Fund Investor would violate 
applicable law or regulations. In addition, WSGR reserves the right to 
impose vesting provisions on a Fund Investor's investments in a Fund. 
In an investment program that provides for

[[Page 46663]]

vesting provisions, all or a portion of a Fund Investor's Interests 
will be treated as unvested, and vesting will occur through the passage 
of a specified period of time. The portion of a Fund Investor's 
Interests that are unvested at the time of the termination of a Fund 
Investor's employment with WSGR may be subject to repurchase or 
cancellation. Upon any repurchase or cancellation of all or a portion 
of a Fund Investor's Interests, a Fund will at a minimum pay to the 
Fund Investor the lesser of (a) the amount actually paid by the Fund 
Investor to acquire the Interests less the amount of any distributions 
received by that Fund Investor from the Fund (plus interest at or above 
the prime rate, as determined by the Manager) and (b) the fair market 
value of the Interests determined at the time of repurchase or 
cancellation, as determined in good faith by the Manager. Any interest 
owed to a Fund Investor pursuant to (a) above will begin to accrue at 
the end of the Investment Period.
    15. WSGR may be reimbursed by a Fund for reasonable and necessary 
out-of-pocket costs directly associated with the organization and 
operation of the Funds, including administrative and overhead expenses. 
There will be no allocation of any of WSGR's operating expenses to a 
Fund. In addition, WSGR may allocate to a Series any out-of-pocket 
expenses specifically attributable to the organization and operation of 
that Series. No separate management fee will be charged to a Fund by 
the Manager, and no compensation will be paid by a Fund or by Fund 
Investors currently employed by WSGR Group to the Manager for its 
services. The Manager may impose a fixed fee or a management fee, in 
either case not to exceed one percent of the value of the Interests 
held by any Fund Investor. Such a fee will be charged only to a person 
who becomes a former employee of WSGR Group and any Qualified 
Investment Vehicle associated with that Fund Investor, so that these 
Fund Investors bear their fair share of the costs of managing the 
Funds.
    16. WSGR may in its discretion advance funds to Eligible Investors 
for the purpose of making their capital contributions. WSGR currently 
expects that no interest will be charged on such loans, but WSGR 
reserves the right to charge interest on such loans in the future. The 
interest rate charged on such loans will not exceed the prime rate. The 
Funds may borrow from WSGR Group, Members, or a bank or other financial 
institution, provided that a Fund 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 Fund (other than short-
term paper). Any borrowings by a Fraud will be non-recourse other than 
to WSGR or a WSGR entity. If WSGR or a WSGR entity or a Member makes a 
loan to the Funds, the interest rate on the loan will be no less 
favorable to the Funds than the rate that could be obtained on an arm's 
length basis.
    17. No Fund will acquire any security issued by a registered 
investment company if immediately after the acquisition the Fund would 
own 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 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) 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 section 6(b) and 6(e) of the Act 
exempting the Funds from all provisions of the Act, except section 9, 
section 17 (other than certain provisions of paragraphs (a), (d), (f), 
(g), and (j)), section 30 (other than certain provisions of paragraphs 
(a), (b), (e) and (h)), sections 36 through 53 of the Act, and the 
rules and regulations under the Act.
    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 Fund to: 
(1) Purchase, from WSGR or any affiliated person thereof, securities or 
interests in properties previously acquired for the account of WSGR or 
any affiliated person thereof; (b) sell, to WSGR or any affiliated 
person thereof, securities or interested in properties previously 
acquired by the Funds; (c) invest in companies, partnerships or other 
investment vehicles offered, sponsored or managed by WSGR or any 
affiliated person thereof; and (d) purchase interests in any company or 
other investment vehicle (i) in which WSGR owns 5% or more of the 
voting securities, or (ii) that otherwise is an affiliated person of 
the Fund (or an affiliated person of such a person) or any affiliated 
person of WSGR.
    4. Applicants state that an exemption from section 17(a) is 
consistent with the protection of investors and the purposes of the 
Act. Applicants state that the Fund Investors will be informed in the 
Fund's private placement memorandum of the possible extent of the 
Fund's dealings with WSGR or any affiliated person thereof. Applicants 
also state that, as financially sophisticated professionals, Fund 
Investors will be able to evaluate the attendant risks. Applicants 
assert that the community of interest among the Fund Investors and WSGR 
will provide the best protection against any risk of abuse.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person or principal underwriter of a registered 
investment company, or any affiliated person of an affiliated person or 
principal underwriter, 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 Fund, or 
affiliated persons of any of these persons, to participate in any joint 
arrangement in which the Fund is a participant. Joint transactions in 
which a Fund may participate could include the following: (a) An 
investment by one or more Funds in a security in which WSGR or its 
affiliated person, or another Fund, is a participant, or with respect 
to which WSGR or an affiliated person is entitled to receive fees 
(including, but not limited to, legal fees, placement fees, investment 
banking fees, brokerage commissions, or other economic

[[Page 46664]]

benefits or interests); (b) an investment by one or more Funds in an 
investment vehicle sponsored, offered or managed by WSGR; and (c) an 
investment by one or more Funds in a security in which an affiliate is 
or may become a participant.
    6. Applicants state that strict compliance with section 17(d) would 
cause the Funds to forego investment opportunities simply because a 
Fund Investor, WSGR or other affiliates of the Fund also had made or 
contemplated making a similar investment. In addition, because 
investment opportunities of the types considered by the Funds often 
require that each participant make available funds in an amount that 
may be substantially greater than that available to the investor alone, 
there may be certain attractive opportunities of which a Fund may be 
unable to take advantage except as a co-participant with other persons, 
including affiliates. Applicants note that, in light of WSGR's purpose 
of establishing the Funds so as to reward Eligible Investors and to 
attract highly qualified personnel to WSGR, the possibility is minimal 
that an affiliated party investor will enter into a transaction with a 
Fund with the intent of disadvantaging the Fund. Finally, applicants 
contend that the possibility that a Fund may be disadvantaged by the 
participation of an affiliate in a transaction will be minimized by 
compliance with the lockstep procedures described in condition 4 below. 
Applicants assert that the flexibility to structure co-investments and 
joint investments will not involved abuses of the type section 17(d) 
and rule 17d-1 were designed to prevent.
    7. Section 17(f) of the Act designate the entities that may act as 
investment company custodians, and rule 17f-2 allows an investment 
company to act as self-custodian, subject to certain requirements. 
Applicants request an exemption from section 17(f) and rule 17f-2 to 
permit the following exceptions from the requirements of rule 17f-2: 
(a) A Fund's investments may be kept in the locked files of WSGR or of 
a Member; (b) for purposes of paragraph (d) of the rule, (i) employees 
of WSGR will be deemed employees of the Funds, (ii) officers of the 
Manager and the Manager of a Fund will be deemed to be officers of the 
Fund, and (iii) the Manager of a Fund will be deemed to be the board of 
directors of the Fund; and (c) in place of the verification procedure 
under paragraph (f) of the rule, verification will be effected 
quarterly by two employees of WSGR. Applicants assert that the 
securities held by the Funds are most suitably kept in WSGR's files, 
where they can be referred to as necessary.
    8. Section 17(g) and rule 17g-1 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 (``disinterested 
directors'') take certain actions and give certain approvals relating 
to fidelity bonding. Paragraph (g) of rule 17g-1 sets forth certain 
materials relating to the fidelity bond that must be filed with the 
Commission and certain notices relating to the fidelity bond that must 
be given to each member of the investment company's board of directors. 
Paragraph (h) of rule 17g-1 provides that an investment company must 
designate one of its officers to make the filings and give the notices 
required by paragraph (g). Paragraph (j) of rule 17g-1 exempts a joint 
insured bond provided and maintained by an investment company and one 
or more other parties from section 17(d) of the Act and the rules 
thereunder. Rule 17g-1(j)(3) requires that investment companies relying 
on this exemption have a majority of disinterested directors, that 
those disinterested directors select and nominate any other 
disinterested directors, and that any legal counsel of those 
disinterested directors be independent. Applicants request an exemption 
from section 17(g) and rule 17g-1 to the extent necessary to permit 
each Fund to comply with rule 17g-1 without the necessity of having a 
majority of the disinterested directors take such action and make such 
approvals as are set forth in the rule. Specifically, each Fund will 
comply with rule 17g-1 by having the Manager take such actions and make 
such approvals as are set forth in rule 17g-1. Applicants state that, 
because the Manager will be an interested person of the Fund, a Fund 
could not comply with rule 17g-1 without the requested relief. 
Applicants also request an exemption from the requirements of rule 17g-
1(g) and (h) 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 and from the requirements of rule 17g-1(j)(3). 
Applicants believe the filing requirements are burdensome and 
unnecessary as applied to the Funds. The Manager will maintain the 
materials otherwise required to be filed with the Commission by rule 
17g-1(g) and agree that all such material will be subject to 
examination by the Commission and its staff. The Manager will designate 
a person to maintain the records otherwise required to be filed with 
the Commission under paragraph (g) of the rule. Applicants also state 
that the notices otherwise required to be given to the board of 
directors would be unnecessary as the Funds will not have boards of 
directors. The Funds will comply with all other requirements of rule 
17g-1.
    9. Section 17(j) and paragraph (b) of rule 17j-1 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 requirements of rule 17j-1, except for the anti-
fraud provisions of paragraph (b), because they are unnecessarily 
burdensome as applied to the Funds.
    10. Applicants request an exemption from the requirements in 
sections 30(a), 30(b), and 30(e), 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 relevant to the Funds 
and would entail administrative and legal costs that outweigh any 
benefit to the Fund Investors. Applicants request exemptive relief to 
the extent necessary to permit each Fund to report annually to its Fund 
Investors. Applicants also request an exemption from section 30(h) to 
the extent necessary to exempt the Manager of each Fund and any other 
persons who may be deemed members of an advisory board of a Fund from 
filing Forms 3, 4 and 5 under section 16 of the Exchange Act with 
respect to their ownership of Interests in the Fund. Applicants assert 
that, because there will be no trading market and the transfers of 
Interests will be severely restricted, these filing are unnecessary for 
the protection of investors and burdensome to those required to make 
them.

Applicant's Conditions

    The applicants agree that any order granting the requested relief 
will be subject toe the following conditions:

Fund Operations

    1. Each proposed transaction to which a Fund is a party otherwise 
prohibited

[[Page 46665]]

by section 17(a) or section 17d-1 (each a ``Section 17 Transactions'') 
will be effected only if the Manager determines that: (a) the terms of 
Section 17 Transaction, including the consideration to be paid or 
received, are fair and reasonable to the Fund Investors of the 
participating Fund and do not involve overreaching of the Fund of its 
Fund Investors on the part of any person concerned; and (b) the Section 
17 Transaction is consistent with the interests of the Fund Investors 
of the participating Fund, the Fund's organizational documents and the 
Fund's reports to its Fund Investors.
    In addition, the Manager will record and preserve a description of 
such Section 17 Transactions, its findings, the information or 
materials upon which its findings are based and the basis therefore. 
All such records will be maintained for the life of a Fund and at least 
two years thereafter, and will be subject to examination by the 
Commission and its staff. All such records will be maintained in an 
easily accessible place for at least the first two years.
    2. If purchases or sales are made by a Fund from or to an entity 
affiliated with the Fund by reason of a Member or employee of the WSGR 
Group (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 Fund's 
determination of whether or not to effect the purchase or sale.
    3. The Manager 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 Funds, or any affiliated 
person of such a person, promoter, or principal underwriter.
    4. The Manager will not make on behalf of a Fund any investment in 
which a Co-Investor, as defined below, has or proposes to acquire the 
same class of securities of the same issuer, where the investment 
involves a joint enterprise or other joint arrangement within the 
meaning of rule 17d-1 in which the Fund and the Co-Investor are 
participants, unless any such Co-Investor, prior to disposing of all or 
part of its investment, (a) gives the Manager 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 participating 
Fund holding such investment has the opportunity to dispose of its 
investment prior to or concurrently with, on the same terms as, on a 
pro rata basis with the Co-Investor. The term ``Co-Investor'' with 
respect to any Fund means any person who is (a) an ``affiliated 
person'' (as defined in section 2(a)(3) of the Act) of the Fund; (b) 
the WSGR Group; (c) a Member, lawyer, or employee of the WSGR Group; 
(d) an investment vehicle offered, sponsored, or managed by WSGR or an 
affiliated person of WSGR; or (e) an entity in which a WSGR 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 a Co-
Investor; (a) To its direct or indirect wholly-owned subsidiary, to any 
company (a ``parent'') of which the 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 Co-
Investor or a trust established for any such Immediate Family Member; 
(c) when the investment is comprised of securities that are listed on a 
national securities exchange registered under section 6 of the Exchange 
Act; (d) when the investment is comprised of securities that are 
national market system securities pursuant to section 11A(a)(2) of the 
Exchange Act and rule 11Aa2-1 thereunder; or (e) when the investment is 
comprised of securities (i) that meet the requirements of and are 
authorized as Nasdaq SmallCap Market securities by The Nasdaq Stock 
Market, Inc., (ii) that have an average daily trading volume value over 
the last 60 calendar days of at least $1 million, and (iii) are issued 
by an issuer whose common equity securities have a public float value 
of at least $150 million.
    5. The Manger of each Fund will send to each person who was a Fund 
Investor in such Fund at any time during the fiscal year then ended 
audited financial statements with respect to those Series in which the 
Fund Investor held Interests. At the end of each fiscal year, the 
Manager will make a valuation or have a valuation made of all of the 
assets of the Fund as of the fiscal year end in a manner consistent 
with customary practice with respect to the valuation of assets of the 
kind held by the Fund. In addition, as soon as practicable after the 
end of each fiscal year of each Fund, the Manager of the Fund shall 
send a report to each person who was a Fund Investor at any time during 
the fiscal year then ended, setting forth such tax information as shall 
be necessary for the preparation by the Fund Investor of his or her 
federal and state income tax returns and a report of the investment 
activities of such Fund during such year.
    6. Each Fund and the Manager will maintain and preserve, for the 
life of each Series of that Fund and at least two years thereafter, 
such accounts, books, and other documents as constitute the record 
forming the basis for the audited financial statements and annual 
reports of such Series to be provided to its Fund Investors, and agree 
that all such records will be subject to examination by the Commission 
and its staff. All such records will be maintained in an easily 
accessible place for at least the first two years.

Compliance With Rule 701

    7. Prior to receiving a subscription agreement from any potential 
Fund Investor pursuant to an offering in reliance on rule 701, WSGR 
will make available at no charge to potential Fund Investors the 
services of a Financial Consultant qualified to provide advice 
concerning the appropriateness of investing in a Fund. Specifically, 
the Financial Consultant will hold one or more group meetings with 
potential Fund Investors at which the Financial Consultant will discuss 
the risks and other considerations relevant to determining whether to 
invest in a Fund. The Financial Consultant also will be available to 
the group of potential Fund Investors to answer general questions 
regarding an investment in the Fund. In addition, potential Fund 
Investors will be given the opportunity to submit relevant questions 
and issues to the Financial Consultant in advance of the group 
meetings, so that the Financial Consultant can address those questions 
and issues at the meetings. WSGR will not need to reveal the specific 
investments made by any Fund to the Financial Consultant, as long as 
the investment objectives, risk characteristics and other material 
information about the Fund of the type that would be disclosed in the 
offering documents for the Fund is made available to the Financial 
Consultant.
    8. WSGR will at all times control each Fund, within the meaning of 
rule 405 under the Securities Act. In this regard, WSGR will, either 
directly or through a wholly-owned subsidiary, be the sole manager of 
the Fund, own at least 95% of the voting Interests of the Fund, and 
make all investment and other operational decisions for the Fund.
    9. WSGR or a wholly-owned subsidiary will own not less than 5% of 
the economic Interests issued each year

[[Page 46666]]

by the Fund, and (as discussed above) at least 95% of the voting 
Interests of the Fund. In addition, WSGR and its Members, directly or 
through Qualified Investment Vehicles, together will own at least 80% 
of the economic Interests of each Series.
    10. WSGR prepares its financial statements on a modified cash 
basis, and does not consolidate the Fund's financial statements with 
its own. If, however, WSGR prepared its financial statements in 
accordance with GAAP, it would consolidate the Fund's financial 
statements with its own.
    11. WSGR, when offering Interests pursuant to rule 701 under the 
Securities Act, will issue Interests in each Series in compliance with 
rule 701(d)(2),\4\ and will comply with all applicable requirements of 
rule 701(e).\5\
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    \4\ If WSGR relies on rule 701(d)(2)(ii), it will not sell 
pursuant to rule 701, during any consecutive 12-month period, 
Interests in the Fund if the sales prices of those Interests exceeds 
15% of the total assets of the Fund.
    \5\ In order to comply with the requirements of rule 701, at the 
beginning of each Investment Period the Fund will accept capital 
contributions or irrevocable commitments from Regulation D Investors 
for the relevant Series, and then prepare a balance sheet as 
required by rule 701. The Fund may then receive and accept 
subscription agreements, and thereafter accept capital contributions 
or commitments, from Rule 701 Investors for that Series, which in 
the aggregate will not exceed 15% of the total amount of capital 
contributions and irrevocable commitments received from Regulation D 
Investors.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-22387 Filed 9-5-01; 8:45 am]
BILLING CODE 8010-01-M