[Federal Register Volume 67, Number 204 (Tuesday, October 22, 2002)]
[Notices]
[Pages 64929-64933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26780]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25768; 813-240]


GDC Partners Fund, LLC, et al.; Notice of Application

October 15, 2002.
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 (``Act'') exempting applicant 
from all provisions of the Act and the rules and regulations under the 
Act, except section 9, section 17 (other than certain provisions of 
paragraphs (a), (d), (f), (g), and (j)), section 30 (except for certain 
provisions of paragraphs (a), (b), (e), and (h)), and section 36 
through 53, and the rules and regulations under those sections.

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SUMMARY OF APPLICATION: Applicants request an order to exempt certain 
limited liability companies and other entities formed for the benefit 
of eligible current and former employees of Gibson, Dunn & Crutcher LLP 
(``GDC'') and its affiliates from certain provisions of the Act. Each 
such entity will be an ``employees' securities company'' within the 
meaning of section 2(a)(13) of the Act.

APPLICANTS: GDC Partners Fund, LLC (``Fund'') and GDC.

FILING DATES: The application was filed on March 6, 2000, and amended 
on October 15, 2002.

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 applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on November 11, 2002, and should be accompanied by proof of 
service on applicant, 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. Applicant, 333 South Grand Avenue, Los Angeles, CA 90071.

FOR FURTHER INFORMAITON CONTACT: John L. Sullivan, Senior Counsel, at 
(202)

[[Page 64930]]

942-0681, or Nadya B. Roytblat, Assistant Director, 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. The Fund is a Delaware limited liability company formed pursuant 
to a limited liability company agreement (``Investment Fund 
Agreement''). The applicants may in the future offer additional pooled 
investment vehicles identical in all material respects (other than form 
of organization, investment objective and strategy) to the Fund (each, 
a ``Subsequent Fund'') (together, the Fund and the Subsequent Fund are 
sometimes referred to as the ``Investment 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 domestic or offshore general partnership, limited 
partnership or corporation. Each Investment Fund will operate as a non-
diversified, closed-end management investment company.
    2. The Fund was established to enable the Eligible Investors (as 
defined below) to participate in certain investment opportunities that 
come to the attention of GDC, a law firm organized as a California 
limited liability partnership. The investment opportunities may include 
separate accounts with registered and unregistered investment advisers, 
investments in other pooled investment vehicles such as registered 
investment companies, investment companies exempt from registration 
under the Act, commodity pools, and other securities investments (each 
particular investment being referred to herein as an ``Investment.''). 
Participation as investors in an Investment Fund will allow the 
Eligible Investors, as defined below, who are members of the Investment 
Fund (each, a ``Member'') 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. Interests in an Investment Fund (``Units'') will be offered and 
sold in reliance upon the exemption from registration under the 
Securities Act of 1933 (the ``Securities Act'') contained in Section 
4(2) of the Securities Act or Regulation D under the Securities Act. 
Units will be offered only to GDC, any entity controlling, controlled 
by, or under common control with GDC (``GDC Entity'') or persons (each 
an ``Eligible Investor'') who meet the following criteria: (a) Current 
or former partners of, or key administrative employees of, GDC or a GDC 
Entity (``Eligible Employees''), the immediate family members of 
Eligible Employees, which are parents, children, spouses of children, 
spouses, and siblings, including step or adoptive relationships 
(``Immediate Family Members''), and trusts or other entities the sole 
beneficiaries of which consist of Eligible Employees or their Immediate 
Family Members (``Eligible Trusts''); and (b) who are (i) ``accredited 
investors'' as that term is defined in Regulation D under the 
Securities Act, and (ii) sophisticated in investment matters. Any GDC 
Entity that acquires interests in an Investment Fund will be an 
accredited investor.
    4. An Eligible Employee or Immediate Family Member must meet the 
standards of an ``accredited investor'' in rule 501(a)(5) or 501(a)(6) 
of Regulation D under the Securities Act, and an Eligible Trust must be 
an accredited investor under rule 501(a) of Regulation D. An Eligible 
Investor must have sufficient knowledge, sophistication and experience 
in business and financial matters to be capable of evaluating the 
merits and risk of an investment in an Investment Fund and be able to 
bear the economic risk of such investment and to afford a complete loss 
of such investment.
    5. An Investment Fund will have an investment committee 
(``Investment Committee'') which will consist of not less than two 
persons (``Managers''), all of whom will also be Members. The chief 
function of the Investment Committee will be to review and select 
Investments for the Investment Fund.
    6. The specific investment objectives and strategies for a 
particular Investment Fund will be set forth in an informative 
memorandum relating to the Units offered by the Investment Fund, and 
each Eligible Investor will receive a copy of the informative 
memorandum before making an investment in the Investment Fund. The 
terms of an Investment Fund will be disclosed to each Eligible Investor 
at the time the investor is invited to participate in the Investment 
Fund. Each Investment Fund will send its Members an annual report 
regarding its operations. The annual report of the Investment Fund will 
contain audited financial statements. In addition, the Investment Fund 
will transmit a report to each Member setting out information with 
respect to the Member's distributive share of income, gains, losses, 
credits and other items for federal income tax purposes, resulting from 
the operation of the Investment Fund during that year.
    7. Members will not be entitled to redeem their respective 
interests in an Investment Fund. A Member will be permitted to transfer 
his or her interest only with the express consent of the Managers and 
then only to a GDC Entity or an Eligible Investor. No fee of any kind 
will be charged in connection with the sale of Units of an Investment 
Fund.
    8. The Investment Fund Agreement provides that the Managers may 
require a Member to withdraw from the Fund if they, in their sole 
discretion, deem such withdrawal in the best interest of the Investment 
Fund. Upon withdrawal, a Member will be paid at least the lesser of (a) 
the amount actually paid by the Member to acquire the Units, or (b) the 
fair market value of the Units determined in good faith by the 
Managers.
    9. An Investment Fund will not acquire any security issued by a 
registered investment company if immediately after the acquisition, the 
Investment Fund would own more than 3% of the total outstanding voting 
stock of the registered investment company.
    10. Administration of each Investment Fund will be vested in the 
Managers. The Investment Fund Agreement provides that the Fund will 
bear its own expenses or that such expenses shall be borne by GDC. An 
Investment Fund may reimburse GDC for direct costs of disbursements and 
expenses incurred by GDC on behalf of the Investment Fund. No 
management fee or other compensation will be paid by the Investment 
Fund or the Members to the Managers or the Investment Committee.
    11. An Investment 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 any outstanding securities of the Investment Fund (other 
than short-term paper). All borrowings by an Investment Fund with 
respect to the funding of Investments will be non-recourse to the 
Members but generally will be secured by a pledge of the Members' 
respective capital accounts and unfunded capital commitments. If GDC or 
a GDC entity makes a loan to an Investment Fund, the lender will be 
entitled to receive interest at a rate that is permissible under 
applicable banking or tax regulations, provided that the rate will be 
no less favorable to the borrower than the rate obtainable on an arm's 
length basis.

[[Page 64931]]

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 give due 
weight to, 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, 
the disposition of the proceeds of the securities issued by the 
company, the character of securities in which those proceeds will be 
invested, and the existence of any 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) 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 an Investment Fund 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)), and sections 36 through 53 of the 
Act, and the rules and regulations under those sections.
    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 an 
Investment Fund (a) to invest in companies, partnerships or other 
investment vehicles offered, sponsored or managed by GDC or any 
affiliated person as defined in section 2(a)(3) of the Act, (b) to 
invest in securities of issuers for which GDC or any affiliated person 
thereof may perform or have performed legal services and from which 
they may have received fees, (c) to purchase interests in any company 
or other investment vehicle (i) in which GDC or its partners or 
employees owns 5% or more of the voting securities, or (ii) that is 
otherwise an affiliated person of the Investment Fund or GDC; and (d) 
to participate as a selling securityholder in a public offering in 
which GDC or any affiliated person thereof acts as or represents as 
counsel a member of the selling group or the issuer or underwriter of 
such securities.
    4. Applicants state that the exemption sought from section 17(a) is 
consistent with the protection of investors and the purposes of the 
Act. Applicants state that the Members will be informed of the possible 
extent of the dealings by the issuer of such Investments and its 
sponsors with GDC or any affiliated person thereof. Furthermore, since 
the Members are experienced professionals acting on behalf of financial 
services businesses, they will be able to evaluate the risks associated 
with such dealings. Applicants also assert that the community of 
interest among the Members and GDC will serve to reduce any risk of 
abuse in transactions involving an Investment Fund and GDC or any 
affiliated person thereof.
    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 an affiliated person, acting as principal, from 
participating in any joint enterprise, or other joint arrangement, with 
the company, unless approved by the Commission. Applicants request 
relief to permit an Investment Fund to engage in transactions in which 
an affiliated person of the Investment Fund or an affiliated person of 
such person participates as a joint or a joint and several participant 
with the Investment Fund.
    6. Applicants submit that strict compliance with section 17(d) 
would cause an Investment Fund to forego investment opportunities 
simply because a Member, GDC or other affiliated persons of the 
Investment Fund also had or contemplated making a similar investment. 
Applicants also contend that because certain attractive investment 
opportunities 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 
an Investment Fund may be unable to take advantage except as a co-
participant with other persons, including 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. The Investment Funds may be given the opportunity to co-invest 
with entities to which GDC provides, or has provided services, and from 
which it may have received fees, but which are not affiliated persons 
of the Fund or GDC or affiliated persons of such affiliated persons. 
Applicants believe that such entities should not be treated as Co-
Investors (as defined below) for purposes of condition 4 below. When 
such entities permit others to co-invest with them, it is common for 
the transaction to be structured such that all investors have the 
opportunity to dispose of their investment at the same time. It is 
important to GDC that the interests of its clients take priority over 
the interests of the Investment Funds and that the activities of its 
clients not be burdened by activities of the Investment Funds. In 
addition, applicants assert that the relationship of an Investment Fund 
to a client of GDC is fundamentally different from such Investment 
Fund's relationship to GDC and its affiliated persons. Applicants 
contend that the focus of, and the rationale for, the protections 
contained in the requested relief are to protect the Investment Funds 
from overreaching by GDC and its affiliated persons, whereas the same 
concerns are not present with respect to the Investment Funds vis-
[agrave]-vis unaffiliated persons of GDC or the Investment Fund who are 
clients of GDC.
    8. Section 17(f) of the Act requires a registered investment 
company to place and maintain its securities only in the custody of 
certain qualified custodians.
    Applicants request an exemption from the requirements contained in 
section 17(f) and in rule 17f-2 thereunder to permit the following 
exceptions from rule 17f-2: (a) Compliance with paragraph (b) of the 
rule may be achieved through safekeeping in the locked files of GDC or 
of a partner of GDC; (b) for purposes of paragraph (d) of the rule, (i) 
employees of GDC will be deemed to be employees of the Investment 
Funds, (ii) the Managers of an Investment Fund will be deemed to be 
officers of such Investment Fund and (iii) the Managers of an 
Investment Fund will be deemed to be board of directors of such 
Investment Fund, and (c) instead of the verification procedure under 
paragraph (f) of the rule,

[[Page 64932]]

verification will be effected quarterly by two employees of GDC. 
Applicants expect that many of the Investment Funds' investments will 
be evidenced only by partnership agreements or similar documents, 
rather than by negotiable certificates that could be misappropriated. 
Applicants assert that these instruments are most suitably kept in 
GDC's files, where they can be referred to as necessary.
    9. 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 certain persons, none of whom is an interested 
person of an Investment Fund (as defined in section 2(a)(19) of the 
Act), take certain actions and make certain approvals concerning 
bonding. Applicants request exemptive relief so that such actions and 
approvals required to be taken may be taken by the Managers regardless 
of whether they are deemed to be an ``interested person'' of an 
Investment Fund, as each is likely to be considered an interested 
person of the Investment Fund. Applicants could not comply with rule 
17g-1 absent such relief. Applicants also request an exemption from the 
requirement contained in rule 17g-1 that an investment company must 
have a majority of directors who are not ``interested persons'' of the 
company, that those disinterested persons select and nominate any other 
disinterested directors, and that any legal counsel of such 
disinterested persons be independent.
    10. 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 each registered investment 
company to adopt a written code of ethics and to monitor all 
transactions of each access person of such investment company. 
Applicants request an exemption from the provisions of rule 17j-1, 
except for the antifraud provisions of paragraph (b), because they are 
unnecessarily burdensome as applied to an Investment Fund. Requiring an 
Investment Fund to adopt a written code of ethics and requiring access 
persons to report each of their securities transactions would be time-
consuming and expensive and would serve little purpose in light of, 
among other things, the community of interests among the Members of the 
Investment Fund by virtue of their common association with GDC.
    11. Applicants request an exemption from the requirements in 
sections 30(a), 30(b) and 30(e) of the Act, and the rules and 
regulations thereunder, that registered investment companies 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 an 
Investment Fund and would entail administrative and legal costs that 
outweigh any benefit to the Members. Applicants request exemptive 
relief to the extent necessary to permit an Investment Fund to report 
annually to its Members in the manner described in the application. 
Applicants also request an exemption from section 30(h) of the Act to 
the extent necessary to exempt the Managers and any other persons who 
may be deemed to be members of an advisory board of an Investment Fund 
from filing Forms 3, 4 and 5 under section 16 of the Securities 
Exchange Act of 1934, as amended (``Exchange Act''), with respect to 
their ownership of Units in the Investment Fund. Applicants assert 
that, because there is no trading market for Units and the 
transferability of Units is severely restricted, these filings are 
unnecessary for the protection of investors and burdensome to those 
required to file them.

Applicants' Conditions

    1. Each proposed transaction, to which an Investment Fund is a 
party, otherwise prohibited by section 17(a) or section 17(d) and rule 
17d-1 (the ``Section 17 Transactions'') will be effected only if the 
Investment Committee determines that (a) the terms of the transaction, 
including the consideration to be paid or received, are fair and 
reasonable to Members of the Investment Fund and do not involve 
overreaching of the Investment Fund or its Members on the part of any 
person concerned, and (b) the transaction is consistent with the 
interests of the Members of the Investment Fund, the Investment Fund's 
organizational documents and the Investment Fund's reports to its 
Members.
    In addition, the Investment Committee will record and preserve a 
description of such Section 17 Transactions, the findings of the 
Investment Committee, the information or materials upon which the 
findings are based, and the basis therefore. All such records will be 
maintained for the life of the Investment 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. The Investment Committee 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 Investment Fund or any 
affiliated person of such person, promoter or principal underwriter.
    3. An Investment Fund will maintain and preserve, for the life of 
the Investment Fund and at least two years thereafter, such accounts, 
books and other documents constituting the record forming the basis for 
the audited financial statements and annual reports of the Investment 
Fund to be provided to the Members, and agrees 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.
    4. The Investment Committee will not purchase for an Investment 
Fund 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, where the investment involves a joint enterprise or other 
joint arrangement within the meaning of rule 17d-1 in which the 
Investment 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 Investment Fund holding such investment 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 Investment 
Fund holding such investment has the opportunity to dispose of its 
investment prior to or concurrently with, on the same terms as, and on 
a pro rata basis with the Co-Investor. The term ``Co-Investor'' with 
respect to the Investment Fund means any person who is (a) an 
affiliated person of the Investment Fund, (b) GDC and any GDC Entity, 
(c) a current or former partner or employee of GDC or a GDC Entity, (d) 
a company in which a member of the Investment Committee, GDC or a GDC 
Entity acts as an officer, director, or general partner, or has a 
similar capacity to control the sale or disposition of the company's 
securities, or (e) an investment vehicle offered, sponsored, or managed 
by GDC.
    The restrictions contained in this condition, however, shall not be 
deemed to limit or prevent the disposition of an investment by a Co-

[[Page 64933]]

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 the benefit of any such 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, or (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.
    5. An Investment Fund will send to each Member who had an interest 
in the Investment Fund at any time during the fiscal year then ended, 
financial statements audited by the Investment Fund's independent 
accountants. At the end of each fiscal year, the Investment Committee 
will make a valuation or have a valuation made of all of the assets of 
the Investment Fund 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 Investment Fund. In addition, within 90 days after the 
end of each fiscal year of the Investment Fund or as soon as 
practicable thereafter, the Investment Fund will send a report to each 
person who was a Member at any time during the fiscal year then ended, 
setting forth such tax information as shall be necessary for the 
preparation by the Member of his or her federal and state income tax 
returns and a report of the investment activities of the Investment 
Fund during such year.
    6. In any case where purchases or sales are made from or to an 
entity affiliated with an Investment Fund by reason of a 5% or more 
investment in the entity by GDC, a GDC Entity or a GDC or GDC Entity's 
partner or employee, such individual will not participate in the 
Investment Committee'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. 02-26780 Filed 10-21-02; 8:45 am]
BILLING CODE 8010-01-P