[Federal Register Volume 67, Number 221 (Friday, November 15, 2002)]
[Notices]
[Pages 69261-69266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29041]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25799; 813-272]


GC&H Investments, LLC, et al.; Notice of Application

November 8, 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), (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 Cooley Godward LLP 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: GC&H Investments, LLC (the ``Investment Fund'') and Cooley 
Godward LLP (together with any entity that results from a 
reorganization of Cooley Godward LLP into a different type of business 
organization or into an entity organized under the laws of another 
jurisdiction, the ``Company'').

Filing Dates: The application was filed on May 30, 2000 and amended on 
November 7, 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 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 December 3, 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

[[Page 69262]]

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 5th 
Street, NW., Washington, DC 20549-0609. Applicants, One Maritime Plaza, 
20th Floor, San Francisco, CA 94111-3580.

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 5th Street, NW., Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Company is a law firm organized as a California limited 
liability partnership. The Company 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 ``Cooley Godward Group'' 
and individually as a ``Cooley Godward Entity.'' The Company's equity 
owners are partners (``Partners'').
    2. The Investment Fund is a California 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,'' and together with the Investment Fund, 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 Partners and certain 
attorney and non-attorney employees of Cooley Godward Group to 
participate in certain investment opportunities that come to the 
attention of Cooley Godward 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. A group of Eligible Investors (as defined below), appointed by 
the Company, who are current or former Partners of the Company (the 
``Managers''), will manage the Funds. The Funds will have one or more 
investment committees (``Investment Committees''), each member of which 
shall be a current or former Partner. The Managers shall appoint the 
members of each Investment Committee. The Managers or any person 
involved in the operation of the Funds will register as investment 
advisers if required under the Investment Advisers Act of 1940 (the 
``Advisers Act''), or the rules under the Advisers 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 Cooley Godward Entities. The term 
``Fund Investors'' refers to Eligible Investors who invest in the 
Funds. Prior to receiving a subscription agreement from an individual, 
the Managers must reasonably believe that the individual is a 
sophisticated investor capable of understanding and evaluating the 
risks of participating in the Fund without the benefit of regulatory 
safeguards. An ``Eligible Employee'' is a person who is, at the time of 
investment, a current or former Partner or an employee of Cooley 
Godward 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 Cooley Godward 
Group who meets certain salary and other requirements (``Category 2 
investors''), or (c) is a lawyer employed by the Company who purchases 
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 Cooley Godward 
Group, but not a lawyer employed by the Company, 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 of at least $150,000 in 
each of the 2 immediately succeeding 12 month periods, or (b) is a 
``knowledgeable employee,'' as defined in 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 the Company) 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 the 
Company who reasonably expects to have compensation of at least 
$120,000 in the 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 investor who 
is not a Partner will not be permitted to invest in any calendar or 
fiscal year (as determined by the Company) 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, the Company 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 settlors and trustees of which consist of 
Eligible Employees or Eligible Employees together with Immediate Family 
Members.\2\ Immediate Family Members include any parent, child, 
grandchild, 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

[[Page 69263]]

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 
decision-maker. 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. The Company or the Managers 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 Managers 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 investments 
will be made for that Series, although following a Series' Investment 
Period additional money may be contributed to an existing investment.
    9. In order to comply with the requirements of rule 701, at the 
beginning of each Investment Period (and, if necessary, periodically 
thereafter), 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. 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.
    10. The terms of a Fund will be fully disclosed in the private 
offering memorandum of the Fund, and each Eligible Investor will 
receive a private offering memorandum and the 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.
    11. Eligible Investors will be permitted to transfer their 
Interests only with the express consent of the Managers. Any such 
transfer must be to another Eligible Investor. No fee of any kind will 
be charged in connection with the sale of Interests.
    12. The Managers may require a Fund Investor to withdraw from a 
Fund 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; (d) the continued 
membership of the Fund Investor would violate applicable law or 
regulations; or (e) the Managers, in their sole discretion, deem such 
withdrawal in the best interest of the Fund. If the Managers require a 
Fund Investor to withdraw, the Fund may (a) directly repurchase the 
Eligible Investor's Interest in any or all Series, or (b) require such 
Eligible Investor to sell his or her Interest in any or all Series to 
any person or entity designated by the Managers who is an Eligible 
Investor and who agrees to pay any remaining capital contributions of 
the withdrawing Eligible Investor and to assume the withdrawing 
Eligible Investor's other obligations under the partnership or other 
governing agreements with respect to such investments.
    13. The Company reserves the right to impose vesting provisions on 
a Fund Investor's investments in a Fund. In an investment program that 
provides for 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 or may be based on certain 
performance milestones (such as admission of an associate lawyer as a 
Partner of the Company). To the extent a Fund Investor's Interests are 
or become vested, the termination of the Fund Investor's employment 
with the Company will not affect the Fund Investor's rights with 
respect to the vested Interests. The portion of a Fund Investor's 
Interests that are unvested at the time of the termination of a Fund 
Investor's employment with the Company may be subject to repurchase or 
cancellation.
    14. 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 Managers) and (b) the fair market 
value of the Interests determined at the time of repurchase or 
cancellation, as determined in good faith by the Managers. Any interest 
owed to a Fund Investor pursuant to (a) above will begin to accrue at 
the end of the Investment Period.
    15. The Company 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 the Company's operating 
expenses to a Fund. In addition, the Company 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 Managers, and no compensation will be 
paid by a Fund or by Fund Investors to the Managers for their services.
    16. The Funds may borrow from Cooley Godward Group, a Partner, 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 Fund will 
be non-recourse other than to the Cooley Godward Group. If a Cooley 
Godward Entity or a Partner 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

[[Page 69264]]

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 sections 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 or 
principal underwriter of a registered investment company, or any 
affiliated person of such an affiliated person or principal 
underwriter, 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: (a) 
Purchase, from the Company or any affiliated person thereof, securities 
or interests in properties previously acquired for the account of the 
Company or any affiliated person thereof; (b) sell, to the Company or 
any affiliated person thereof, securities or interests in properties 
previously acquired by the Funds; (c) invest in companies, partnerships 
or other investment vehicles offered, sponsored or managed by the 
Company or any affiliated person thereof; and (d) purchase interests in 
any company or other investment vehicle (i) in which the Company 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 an affiliated person of the Company.
    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 Eligible Investors will be informed in 
the Fund's private offering memorandum of the possible extent of the 
Fund's dealings with the Company or any affiliated person thereof. 
Applicants also state that, as financially sophisticated professionals, 
Eligible Investors will be able to evaluate the attendant risks. 
Applicants assert that the community of interest among the Fund 
Investors and the Company 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 the Company or 
its affiliated person, or another Fund, is a participant, or with 
respect to which the Company or an affiliated person of the Company is 
entitled to receive fees (including, but not limited to, legal fees, 
consulting fees, or other economic benefits or interests); (b) an 
investment by one or more Funds in an investment vehicle sponsored, 
offered or managed by the Company; 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, the Company 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 the Company's 
purpose of establishing the Funds so as to reward Eligible Investors 
and to attract highly qualified personnel to the Company, 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 involve abuses 
of the type section 17(d) and rule 17d-1 were designed to prevent.
    7. Section 17(f) of the Act designates 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 the Company 
or of a Partner; (b) for purposes of paragraph (d) of the rule, (i) 
employees of the Company will be deemed employees of the Funds, (ii) 
the Managers of a Fund will be deemed to be officers of the Fund, and 
(iii) the Managers 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 the Company. Applicants assert that the 
securities held by the Funds are most suitably kept in the Company'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).

[[Page 69265]]

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 for those disinterested directors be independent.
    9. 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 actions and make such approvals as are set forth in 
the rule. Specifically, each Fund will comply with rule 17g-1 by having 
the Managers take such actions and make such approvals as are set forth 
in rule 17g-1. Applicants state that, because the Managers will be 
interested persons 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 Managers 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 
Managers 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.
    10. 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.
    11. 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 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 Managers 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 for Interests and 
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

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

Fund Operations

    1. Each proposed transaction to which a Fund is a party otherwise 
prohibited by section 17(a) or section 17(d) and rule 17d-1 (each, a 
``Section 17 Transaction'') will be effected only if the Managers 
determine that: (a) The terms of the 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 or 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 Managers will record and preserve a description of 
such Section 17 Transactions, their findings, the information or 
materials upon which their findings are based and the basis therefor. 
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 Partner or employee of the 
Cooley Godward 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 Managers 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 Managers 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 Managers 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, and 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 Cooley Godward Group; (c) a Partner, lawyer, or employee of the 
Cooley Godward Group; (d) an investment vehicle offered, sponsored, or 
managed by the Company or an affiliated person of the Company; or (e) 
an entity in which a Cooley Godward 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

[[Page 69266]]

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 Managers 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 Managers 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 Managers 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 Managers 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, the 
Company 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 during the meeting 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. The Company 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. The Managers will at all times control each Fund, within the 
meaning of rule 405 under the Securities Act. In this regard, the 
Managers will be the sole managers of the Fund and make all investment 
and other operational decisions for the Fund.
    9. The Company or a wholly-owned subsidiary will own not less than 
5% of the economic Interests issued each year by the Fund, and at least 
95% of the voting Interests of the Fund. In addition, the Company and 
its Partners (directly or through Qualified Investment Vehicles) 
together will own at least 80% of the economic Interests of each 
Series.
    10. The Company prepares its financial statements on a modified 
cash basis, and does not consolidate the Fund's financial statements 
with its own. If, however, the Company prepared its financial 
statements in accordance with GAAP, it would consolidate the Fund's 
financial statements with its own.
    11. The Company, when offering Interests pursuant to rule 701 under 
the Securities Act, will issue Interests in each Series in compliance 
with rule 701(d)(2),\3\ and will comply with all applicable 
requirements of rule 701(e).\4\
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    \3\ If the Company 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 price of those Interests exceeds 
15% of the total assets of the Fund.
    \4\ 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.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-29041 Filed 11-14-02; 8:45 am]
BILLING CODE 8010-01-P