[Federal Register Volume 67, Number 5 (Tuesday, January 8, 2002)]
[Notices]
[Pages 941-945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-401]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25353; 813-226]


DRW Venture Partners LP and RBC Dain Rauscher Corp.; Notice of 
Application

January 2, 2002.
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 provisions of the Act, except section 9, section 17 
(other than certain provisions of paragraphs (a), (d), (e), (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 thereunder.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants request an order to exempt certain 
limited partnerships and limited liability companies (``Partnerships'') 
formed for the benefit of key employees of RBC Dain Rauscher Corp. 
(``DRC'') and certain of its affiliates from certain provisions of the 
Act. Each Partnership will be an ``employees' securities company'' as 
defined in section 2(a)(13) of the Act.

APPLICANTS: DRW Venture Partners LP (the ``Initial Partnership'') and 
DRC.

FILING DATES: The application was filed on January 20, 2000 and amended 
on December 28, 2001.

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 January 28, 2002, 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, Commission, 450 Fifth Street, NW, Washington, DC 
20549-0609; Applicants, 60 South Sixth Street, Minneapolis, MN 55402.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574 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 (telephone (202) 942-8090).

Applicants' Representations

    1. DRC is a holding company that provides investment advice and 
services to individual and institutional investors and investment 
banking services to corporate and governmental clients through its 
principal subsidiary, Dain Rauscher Incorporated. Dain Rauscher 
Incorporated is a wholly-owned subsidiary of DRC and is a broker-dealer 
registered under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') and an investment adviser registered under the Investment 
Advisers Act of 1940 (the ``Advisers Act''). DRC and its affiliates as 
defined in rule 12b-2 under the Exchange Act are referred to 
collectively in this notice as the ``DRC Group.''
    2. DRC Group has offered and proposes to continue to offer various 
investment programs for the benefit of its Eligible Employees (as 
defined below). These programs may be structured as different 
Partnerships, as separate plans within a Partnership, or as investments 
by the Partnerships in investment entities formed by DRC Group, from 
time to time, which are exempt from registration under the Act in 
reliance on sections 3(c)(1), 3(c)(6), or 3(c)(7) of the Act and which 
are managed by DRC employees (the ``DRC Funds''). Each Partnership will 
be a limited partnership or limited liability company formed as an 
``employees' securities company'' within the meaning of section 
2(a)(13) of the Act, and will operate as a closed-end, non-diversified 
management investment company. The Partnerships have been or will be 
established primarily for the benefit of highly compensated employees 
of DRC Group as part of a program designed to create capital building 
opportunities that are competitive with those at other investment 
banking firms and to facilitate the recruitment of high caliber 
professionals. Participation in a Partnership will be voluntary.
    3. DRC, a Delaware corporation, is the general partner of the 
Initial Partnership (together with any DRC Group entity which acts as 
the general partner of a Partnership, ``General Partner''). The General 
Partner of the Initial Partnership will not be registered under

[[Page 942]]

the Advisers Act pursuant to section 203(b)(3) of the Advisers Act and 
rule 203(b)(3)-1 thereunder. The General Partner of other Partnerships 
will register as an investment adviser under the Advisers Act if 
required under applicable law. The General Partner will manage, 
operate, and control each of the Partnerships. The General Partner will 
be authorized to delegate management responsibility to a DRC Group 
entity or to a committee of DRC Group employees (including, without 
limitation, the managers of other Partnerships). The General Partner 
will not receive a performance-based fee, or carried interest, from the 
Initial Partnership, and the General Partner does not currently 
anticipate receiving a performance-based fee, or carried interest, from 
any Partnership.\1\
---------------------------------------------------------------------------

    \1\ A ``carried interest'' is an allocation to the General 
Partner based on the net gains of an investment program and is in 
addition to the amount that is allocable to the General Partner in 
proportion to its capital contributions. Any carried interest 
payable to a General Partner that is registered under the Advisers 
Act will be charged only to the extent permitted by section 205(a) 
of the Advisers Act and rule 205-3 under the Advisers Act. Any 
``carried interest'' payable to a General Partner that is not 
registered under the Advisers Act will comply with the requirements 
of section 205(b)(3) of the Advisers Act (with the Partnership 
treated as though it were a business development company for 
purposes of that section).
---------------------------------------------------------------------------

    4. Limited partner interests in the Partnerships (``Interests'') 
will be offered without registration in reliance on section 4(2) of the 
Securities Act of 1933 (the ``Securities Act'') or Regulation D under 
the Securities Act, and will be sold only to ``Eligible Employees'' or, 
if permitted by DRC, to ``Qualified Participants'' (in each case as 
defined below) (collectively, ``Participants''). Prior to offering 
Interests to an Eligible Employee, the General Partner must reasonably 
believe that the Eligible Employee will be a sophisticated investor 
capable of understanding and evaluating the risks of participating in a 
Partnership. An Eligible Employee is (a) an individual who is a current 
or former employee, officer, director, or ``Consultant'' of DRC Group 
and, except for a maximum of 35 individuals who either manage the day-
to-day affairs of the Partnership in question (``Managing Employees'') 
or who meet the alternative standards set forth in paragraph 5 below, 
meets the standards of an accredited investor under rule 501(a)(6) of 
Regulation D, or (b) an entity that is a current or former 
``Consultant'' of DRC Group and meets the standards of an accredited 
investor under rule 501(a) of Regulation D.\2\ Eligible Employees will 
be experienced professionals in the investment banking and securities, 
investment management or financial services businesses, or in the 
related administrative, financial, accounting, legal, or operational 
activities.
---------------------------------------------------------------------------

    \2\ A ``Consultant'' is a person or entity whom DRC 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 to DRC Group and who shares a community of interest 
with DRC Group and DRC Group employees.
---------------------------------------------------------------------------

    5. In order for an individual who is not an accredited investor 
under rule 501(a)(6) of Regulation D to qualify as an Eligible 
Employee, the individual must (a) have a graduate degree in business, 
law, or accounting, (b) have a minimum of five years of consulting, 
investment banking or similar business experience, and (c) have had 
reportable income from all sources (including any profit shares or 
bonus) in the calendar year immediately preceding such individual's 
admission as a Limited Partner in excess of $120,000 and have a 
reasonable expectation of reportable income of at least $150,000 in the 
years in which such individual invests in a Partnership. In addition, 
an Eligible Employee in this category 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 Partnership and in all other 
Partnerships in the aggregate in which he or she has previously 
invested.
    6. Managing Employees will have primary responsibility for 
operating the Partnership. These individuals will be officers or 
employees of DRC Group who meet the definition of Knowledgeable 
Employee in rule 3c-5(a)(4) under the Act with respect to a Partnership 
as if it were a ``covered company'' within the meaning of the rule.
    7. A Qualified Participant (a) is an Eligible Family Member or 
Qualified Entity, (in each case as defined below) of an Eligible 
Employee, and (b) if purchasing an Interest from a Partner \3\ or 
directly from the Partnership, comes within one of the categories of an 
``accredited investor'' under rule 501(a) of Regulation D. An 
``Eligible Family Member'' is a spouse, parent, child, spouse of child, 
brother, sister, or grandchild of an Eligible Employee. A ``Qualified 
Entity'' is (a) a trust of which the trustee, grantor, and/or 
beneficiary is an Eligible Employee; (b) a partnership, corporation, or 
other entity controlled by an Eligible Employee;\4\ or (c) a trust or 
other entity established solely for the benefit of Eligible Family 
Members of an Eligible Employee.
---------------------------------------------------------------------------

    \3\ ``Partner'' means any partner of a Partnership, including 
the General Partner.
    \4\ The inclusion of partnerships, corporations, or other 
entities controlled by an Eligible Employee in the definition of 
``Qualified Entity'' is intended to enable Eligible Employees to 
make investments in the Partnerships through personal investment 
vehicles for the purpose of personal and family investment and 
estate planning objectives. Eligible Employees will exercise 
investment discretion or control over these investment vehicles, 
thereby creating a close nexus between DRC Group and these 
investment vehicles. In the case of a partnership, corporation, or 
other entity controlled by a Consultant, individual participants 
will be limited to senior level employees, members, or partners of 
the Consultant who will be required to qualify as an ``accredited 
investor'' under rule 501(a)(6) of Regulation D and who will have 
access to the General Partner or DRC Group.
---------------------------------------------------------------------------

    8. The terms of a Partnership will be fully disclosed to each 
Eligible Employee and, if applicable, to a Qualified Participant of the 
Eligible Employee, at the time the Eligible Employee is invited to 
participate in the Partnership. Each Partnership will send audited 
financial statements to each Participant within 120 days or as soon as 
practicable after the end of its fiscal year. In addition, each 
Participant will receive a copy of Schedule K-1 showing the 
Participant's share of income, credits, deductions, and other tax 
items.
    9. Interests in a Partnership will be non-transferable except with 
the prior written consent of the General Partner. No person will be 
admitted into a Partnership unless the person is an Eligible Employee, 
a Qualified Participant of an Eligible Employee, or a DRC Group entity. 
No sales load will be charged in connection with the sale of an 
Interest.
    10. An Eligible Employee's Interest in a Partnership may be subject 
to repurchase or cancellation if (a) the Eligible Employee's 
relationship with DRC Group is terminated for cause; (b) the Eligible 
Employee becomes a consultant to or joins any firm that the General 
Partner determines, in its reasonable discretion, is competitive with 
any business of DRC Group; or (c) the Eligible Employee voluntarily 
resigns from employment with DRC Group. Upon repurchase or 
cancellation, the General Partner will pay to the Eligible Employee at 
least the lesser of (a) the amount actually paid by the Eligible 
Employee to acquire the Interest (plus interest, as determined by the 
General Partner), or (b) the fair market value of the Interest as 
determined at the time of repurchase by the General Partner. The terms 
of any repurchase or cancellation will apply equally to any Qualified 
Participant of an Eligible Employee.
    11. Subject to the terms of the applicable limited partnership 
agreement, a Partnership will be permitted to enter into transactions

[[Page 943]]

involving (a) a DRC Group entity; (b) a portfolio company, (c) any 
Partner or person or entity affiliated with a Partner, (d) an 
investment fund or separate account that is organized for the benefit 
of investors who are not affiliated with DRC Group and over which a DRC 
Group entity will exercise investment discretion (a ``Third Party 
Fund''), or (e) any partner or other investor of a Third Party Fund 
that is not affiliated with DRC Group (a ``Third Party Investor''). 
These transactions may include (a) a Partnership's purchase or sale of 
an investment or an interest from or to any DRC Group entity or Third 
Party Fund, acting as principal. Prior to entering into these 
transactions, the General Partner must determine that the terms are 
fair to the Partners.
    12. No Partnership will acquire any security issued by a registered 
investment company if immediately after the acquisition, the 
Partnership will own more than 3% of the outstanding voting stock of 
the registered investment company.
    13. A DRC Group entity (including the General Partner) acting as 
agent or broker may receive placement fees, advisory fees, or other 
compensation from a Partnership in connection with a Partnership's 
purchase or sale of securities, provided the placement fees, advisory 
fees, or other compensation are ``usual and customary,'' subject to the 
requirements described below. DRC Group entities (including the General 
Partner) also may be compensated for services to entities in which the 
Partnerships invests and entities that are competitors of these 
entities.

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 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 an investment company 
that is not registered under section 8 of the Act from selling or 
redeeming its 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 sections 6(b) and 6(e) of the Act for 
an exemption from all provisions of the Act except section 9, section 
17 (other than certain provisions of paragraphs (a), (d), (e), (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 thereunder.
    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 DRC 
Group entity or a Third Party Fund, acting as principal, to engage in 
any transaction directly or indirectly with any Partnership or any 
company controlled by the Partnership; (b) any Partnership to invest in 
or engage in any transaction with any DRC Group entity, acting as 
principal, (i) in which the Partnership, any company controlled by the 
Partnership, or any DRC Group entity, or Third Party Fund has invested 
or will invest, or (ii) with which the Partnership, any company 
controlled by the Partnership, or any DRC Group entity, or Third Party 
Fund will become affiliated; and (iii) any Third Party Investor, acting 
as principal, to engage in any transaction directly or indirectly with 
any Partnership or any company controlled by the Partnership.
    4. Applicants state that an exemption from section 17(a) is 
consistent with the protection of investors and is necessary to promote 
the purpose of the Partnerships. Applicants state that the Participants 
in each Partnership will be fully informed of the extent of the 
Partnership's dealings with DRC Group. Applicants also state that, as 
professionals employed in the investment banking, investment management 
or financial services businesses, Participants will be able to 
understand and evaluate the attendant risks. Applicants assert that the 
community of interest among the Participants and DRC Group will provide 
the best protection against any risk of abuse.
    5. Section 17(d) and rule 17d-1 prohibit any affiliated person or 
principal underwriter of a registered investment company, or any 
affiliated person of such 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 Partnership (including without 
limitation, the General Partner, other DRC Group entities, or Third-
Party Fund), or affiliated persons of any of these persons (including 
without limitation, Third-Party Investors) to participate in, or effect 
any transaction in connection with, any joint enterprise or other joint 
arrangement or profit-sharing plan in which a Partnership or a company 
controlled by a Partnership is a participant.
    6. Applicants submit that it is likely that suitable investments 
will be brought to the attention of a Partnership because of its 
affiliation with DRC Group or DRC Group's large capital resources, and 
its experience in structuring complex transactions. 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 
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 note that each Partnership will be primarily 
organized for the benefit of Eligible Employees as an incentive for 
them to remain with DRC Group and for the generation and maintenance of 
goodwill. Applicants believe that, if co-investments with DRC Group are 
prohibited, the appeal of the Partnerships would be significantly 
diminished. Applicants assert that Eligible Employees wish to 
participate in co-investment opportunities because they believe that 
(a) the resources of DRC Group enable it to analyze investment 
opportunities to an extent that individual employees would not be able 
to duplicate; (b) investments made by DRC Group will not be generally 
available to investors even of the financial status of the Eligible 
Employees; and (c) Eligible Employees will be able to pool their 
investment resources, thus achieving greater diversification of their 
individual investment portfolios.

[[Page 944]]

    7. 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. Applicants state 
that the concern that permitting co-investments by DRC Group and a 
Partnership might lead to less advantageous treatment of the 
Partnership will be mitigated by the community of interest among DRC 
Group and the Participants, and the fact that senior officers and 
directors of DRC Group entities will be investing in the Partnership. 
Finally, applicants contend that the possibility that a Partnership may 
be disadvantaged by the participation of an affiliate in a transaction 
will be minimized by compliance with the lockstep procedures described 
in condition 3 below. (p. 16) Applicants believe that this condition 
will ensure that a Partnership will co-invest side-by-side and pro rata 
with, and on at least as favorable terms as, a DRC Group entity.
    8. Co-investments with Third Party Funds, or by a DRC Group entity 
pursuant to a contractual obligation to a Third Party Fund, will not be 
subject to condition 3. Applicants note that it is common for a Third 
Party Fund to require that DRC Group invest its own capital in Third 
Party Fund investments, and that the DRC 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 DRC 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 DRC 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.
    9. Section 17(e) and rule 17e-1 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 DRC 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 is deemed to be ``usual and 
customary.'' Applicants state that for the purposes of the application, 
fees or other compensation that is charged or received by a DRC Group 
entity will be deemed to be ``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 DRC Group 
does not wish it to appear as if it is 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 DRC Group entity 
will be the same as those negotiated at arm's length with unaffiliated 
third parties.
    10. Rule 17e-1(b) requires that a majority of directors of the 
General Partner who are not ``interested persons'' take actions and 
make approvals regarding commissions, fees, or other remuneration. 
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 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 are 
set forth in rule 17e-1. Applicants state that each Partnership will 
comply with all other requirements of rule 17e-1.
    11. Section 17(f) designates the entities that may act as 
investment company custodians, and rule 17f-1 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 DRC Group entity to act as custodian of Partnership 
assets without a written contract, as would be required by rule 17f-
1(a). 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 believe that, because of the 
community of interest between DRC Group and the Partnerships and the 
existing requirement for an independent audit, compliance with these 
requirements would be unnecessarily burdensome and expensive. 
Applicants will comply with all other requirements of rule 17f-1.
    12. 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 take certain actions and 
give certain approvals relating to fidelity bonding. Applicants request 
exemptive relief to permit the General Partner's officers and 
directors, who may be deemed interested persons, to take actions and 
make determinations set forth in the rule. Applicants state that, 
because all the 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 Partnerships' directors take actions 
and make determinations as are set forth in rule 17g-1. Applicants also 
state that each Partnership will comply with all other requirements of 
rule 17g-1.
    13. 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 provisions of rule 17j-1, except for the anti-fraud 
provisions of paragraph (b), because they are unnecessarily burdensome 
as applied to the Partnerships.
    14. 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 relevance to the 
Partnerships and

[[Page 945]]

would entail administrative and legal costs that outweigh any benefit 
to the Participants. Applicants request exemptive relief to the extent 
necessary to permit each Partnership to report annually to its 
Participants. Applicants also request an exemption from section 30(h) 
to the extent necessary to exempt the General Partner of each 
Partnership 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.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each proposed transaction otherwise prohibited by section 17(a) 
or section 17(d) and rule 17d-1 to which a Partnership is a party (the 
``Section 17 Transaction'') will be effected only if the General 
Partner determines that: (a) The terms of the transaction, including 
the consideration to be paid or received, are fair and reasonable to 
the Partners of the Partnership and do not involve overreaching of the 
Partnership or its Partners on the part of any person concerned; and 
(b) the transaction is consistent with the interests of the Partners in 
the Partnership, and the Partnership's organizational documents and 
reports to its Partners. In addition, the General Partner of each 
Partnership will record and preserve a description of the Section 17 
Transactions, the General Partner's findings, the information or 
materials upon which the General Partner's findings are based, and the 
basis for the findings. All records relating to an investment program 
will be maintained until the termination of the investment program and 
at least two years thereafter, and will be subject to examination by 
the Commission and its staff.\5\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    2. In connection with the Section 17 Transactions, 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 an affiliated 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 a ``Co-Investor'' 
(as defined below) has acquired or proposes to acquire the same class 
of securities of the same issuer, if the investment involves a joint 
enterprise or other arrangement within the meaning of rule 17d-1 in 
which the Partnership and the Co-Investor are participants, unless the 
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 Co-
Investor. The term ``Co-Investor'' with respect to any Partnership 
means any person who is (a) an ``affiliated person'' (as defined in 
section 2(a)(3) of the Act) of the Partnership (other than a Third 
Party Fund); (b) DRC Group; (c) an officer or director of DRC Group; or 
(d) an entity (other than a Third Party Fund) in which the General 
Partner 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, will 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 or other investment vehicle established for any immediate family 
member; (c) when the investment is comprised of securities that are 
listed on any exchange registered as a national securities exchange 
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 
under the Exchange Act; or (e) when the investment is comprised of 
securities that are listed or traded on any foreign securities exchange 
or board of trade that satisfies regulatory requirements under the law 
of the jurisdiction in which the 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 the General Partner will maintain and 
preserve, for the life of the Partnership and at least two years 
thereafter, the accounts, books, and other documents that constitute 
the record forming the basis for the audited financial statements that 
are to be provided to the Participants in the Partnership, and each 
annual report of the Partnership required to be sent to Participants, 
and agree that these records will be subject to examination by the 
Commission and its staff.\6\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    5. The General Partner of each Partnership will send to each 
Participant in the Partnership who had an interest in any capital 
account of the Partnership, at any time during the fiscal year then 
ended, Partnership financial statements audited by the Partnership's 
independent accountants. At the end of each fiscal year, the General 
Partner will make a valuation or have a valuation made of all of the 
assets of the Partnership as of the 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, within 120 
days after the end of each fiscal year of each Partnership or as soon 
as practicable thereafter, the General Partner of the Partnership will 
send a report to each person who was a Participant in the Partnership 
at any time during the fiscal year then ended, setting forth the tax 
information necessary for the preparation by the Participant of federal 
and state income tax returns and a report of the investment activities 
of the Partnership during that year.
    6. If purchases or sales are made by a Partnership from or to an 
entity affiliated with the Partnership by reason of a 5% or more 
investment in the entity by a DRC Group director, officer, or employee, 
the 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-401 Filed 1-7-02; 8:45 am]
BILLING CODE 8010-01-P