[Federal Register Volume 68, Number 11 (Thursday, January 16, 2003)]
[Notices]
[Pages 2371-2376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-911]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25886; 813-296]


Evergreen Ventures LLC, et al.; Notice of Application

January 10, 2003.
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: Applicants request an order to exempt certain investment funds 
formed for the benefit of eligible current and former employees of 
Pillsbury Winthrop 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: Evergreen Ventures LLC (the ``Investment Fund'') and 
Pillsbury Winthrop LLP (together with any entity that results from a 
reorganization of Pillsbury Winthrop LLP into a different type of 
business organization or into an entity organized under the laws of 
another jurisdiction, the ``Firm'').

DATES: The application was filed on September 1, 2000, and amended on 
January 22, 2001, and January 9, 2003.

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 February 4, 2003, and should be accompanied by proof of service 
on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 5th 
Street, NW., Washington, DC 20549-0609. Applicants, 50 Fremont Street, 
San Francisco, CA 94105.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0582, 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 5th Street, NW., Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Firm is a law firm organized as a Delaware limited liability 
partnership. The Firm 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 ``Pillsbury Group'' and individually as 
a ``Pillsbury Entity.'' The Firm's equity owners are partners 
(``Partners'').
    2. The Investment Fund is a Delaware limited liability company 
established pursuant to a limited liability company agreement. The 
applicants may in the future offer additional pooled investment 
vehicles identical in all material respects to the Investment Fund, 
other than investment objectives and strategies (the ``Subsequent 
Funds,'' and together with the Investment Fund, the ``Funds''). The 
applicants anticipate

[[Page 2372]]

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 Pillsbury Group to participate in certain 
investment opportunities that come to the attention of Pillsbury 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. The Firm will serve as the sole manager (the ``Manager'') of the 
Funds. The Funds will have one or more investment committees 
(``Investment Committees''), each member of which shall be a current 
Partner. The Manager will appoint the members of each Investment 
Committee. The Manager 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 Pillsbury Entities. The term 
``Fund Investors'' refers to Eligible Investors who invest in the 
Funds. Prior to receiving a subscription agreement from an individual, 
the Manager 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 Pillsbury 
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 Partners or employees of 
Pillsbury Group who meets certain salary and other requirements 
(``Category 2 investors''), or (c) is a lawyer employed by the Firm 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 a Partner or employee of 
Pillsbury Group 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 and/or 
professional 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 Firm) 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 Firm 
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 Firm) 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 Firm 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, spouse 
of a child, spouse, brother or sister, and includes any step and 
adoptive relationships. A Qualified Investment Vehicle must be either 
(a) an accredited investor as defined in rule 501(a) of Regulation D or 
(b) an entity for which an Eligible Employee is a settlor and principal 
investment 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 Firm or the Manager may, 
however, in their discretion and in compliance with rule 701, permit 
an Eligible Employee who purchases Interests in the Fund in a rule 
701 offering to transfer some or all of those Interests to a 
Qualified Investment Vehicle.
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    8. Each Fund may issue its Interests in series (each, a ``Series'' 
and collectively, the ``Series'') with new Series of Interests being 
offered from time to time. Each Series may be further divided into two 
or more separate classes (each, a ``Class''), having such terms and 
conditions as the Manager may establish. Each Series will represent an 
interest in some or all of those Fund investments made by the Fund 
during a specified period of time (the ``Investment Period''). 
Following the end of a Series' Investment Period, no new investment 
commitments 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%

[[Page 2373]]

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. Fund Investors will be permitted to transfer their Interests 
only with the express consent of the Manager. Any such transfer must be 
to another Eligible Investor. No fee of any kind will be charged in 
connection with the sale of Interests.
    12. If any Fund Investor leaves the Firm during the Investment 
Period for a Series, the Manager may, in its sole discretion, 
repurchase his or her Interests in that Series as follows:
    a. If a Fund Investor leaves the Firm less than one year following 
the date that Fund Investor's investment is accepted, the Manager will 
have 90 days to repurchase such Fund Investor's Interests (or cancel 
indebtedness) at the paid-in investment amount (less distributions) and 
without interest.
    b. If a Fund Investor leaves the Firm one year or more following 
the date that Fund Investor's investment is accepted, the Manager will 
repurchase the Fund Investor's Interests (or cancel indebtedness) at 
fair value determined either (1) as of the Fund Investor's last date of 
association or employment with the Firm, or (2) as of the next date of 
valuation of the Series. Payment will be made within 90 days of the 
date on which the fair value of the Fund Investor's Interests is 
determined.
    13. The Manager 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 Manager, in its sole discretion, deems such 
withdrawal in the best interest of the Fund. These withdrawal policies 
apply (a) during the Investment Period, with respect to Fund Investors 
who have not left the Firm, and (b) after the Investment Period, with 
respect to any Fund Investor.
    14. The Firm 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 Firm). During the Investment Period, vested and unvested 
Interests will be subject to the provisions discussed above governing 
Fund Investors who leave the Firm during the Investment Period. 
Thereafter, a Fund Investor's Interests that are or become vested will 
not be subject to repurchase except to the extent that the Manager 
determines to require the withdrawal of that Fund Investor as discussed 
above. It is anticipated that the Manager rarely will require such 
withdrawal. Following the Investment Period, any portion of a Fund 
Investor's Interests that are unvested at the time of termination of a 
Fund Investor's employment with the Firm (or at the time of that Fund 
Investor's failure to achieve the relevant performance milestone) are 
subject to repurchase or cancellation. The decision to repurchase a 
Fund Investor's Interests will be made on a case-by-case basis by the 
Manager.
    15. Upon any repurchase or cancellation of all or a portion of a 
Fund Investor's Interests, a Fund will at a minimum pay to the Fund 
Investor the lesser of (a) the amount actually paid by the Fund 
Investor to acquire the Interests less the amount of any distributions 
received by that Fund Investor from the Fund (plus interest at or above 
the prime rate, as determined by the Manager) and (b) the fair value of 
the Interests determined at the time of repurchase or cancellation, as 
determined in good faith by the Manager. Any interest owed to a Fund 
Investor pursuant to (a) above will begin to accrue at the end of the 
Investment Period.
    16. The Firm 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 Firm's operating 
expenses to a Fund. In addition, the Firm may allocate to a Series any 
out-of-pocket expenses specifically attributable to the organization 
and operation of that Series. No separate management fee will be 
charged to a Fund by the Manager, and no compensation will be paid by a 
Fund or by Fund Investors currently employed by Pillsbury Group to the 
Manager for its services. The Manager may impose a fixed fee or a 
management fee, in either case not to exceed one percent of the value 
of the Interests held by any Fund Investor. Such a fee will be charged 
only to a person who becomes a former employee or Partner of Pillsbury 
Group and any Qualified Investment Vehicle associated with that Fund 
Investor.
    17. The Funds may borrow from Pillsbury 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 Pillsbury Group. If a Pillsbury 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.
    18. No Fund will acquire any security issued by a registered 
investment company if immediately after the acquisition the Fund would 
own more than 3% of the outstanding voting stock of the registered 
investment company.

Applicants' Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the Commission 
will exempt employees' securities companies from the provisions of the 
Act to the extent that the exemption is consistent with the protection 
of investors. Section 6(b) provides that the Commission will consider, 
in determining the provisions of the Act from which the company should 
be exempt, the company's form of organization and capital structure, 
the persons owning and controlling its securities, the price of the 
company's securities and the amount of any sales load, how the 
company's funds are invested, and the relationship between the company 
and the issuers of the securities in which it invests. Section 2(a)(13) 
defines an employees' securities company as any investment company all 
of whose securities (other than short-term paper) are beneficially 
owned (a)

[[Page 2374]]

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 Firm or any affiliated person thereof, securities or 
interests in properties previously acquired for the account of the Firm 
or any affiliated person thereof; (b) sell, to the Firm 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 Firm 
or any affiliated person thereof; and (d) purchase interests in any 
company or other investment vehicle (i) in which the Firm 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 Firm.
    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 Firm 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 Firm 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 Firm or its 
affiliated person, or another Fund, is a participant, or with respect 
to which the Firm or an affiliated person of the Firm 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 Firm; 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 Firm 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 Firm's 
purpose of establishing the Funds so as to reward Eligible Investors 
and to attract highly qualified personnel to the Firm, 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 Firm or 
of a Partner; (b) for purposes of paragraph (d) of the rule, (i) 
employees of the Firm will be deemed employees of the Funds, (ii) 
officers of the Manager and the Manager will be deemed to be officers 
of the Fund, and (iii) the Manager 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 Firm. Applicants assert that the 
securities held by the Funds are most suitably kept in the Firm's 
files, where they can be referred to as necessary.
    8. Section 17(g) and rule 17g-1 generally require the bonding of 
officers and employees of a registered investment company who have 
access to its securities or funds. Rule 17g-1 requires that a majority 
of directors who are not interested persons (``disinterested 
directors'') take certain actions and give certain approvals relating 
to fidelity bonding. Paragraph (g) of rule 17g-1 sets forth certain 
materials relating to the fidelity bond that must be filed with the 
Commission and certain notices relating to the fidelity bond that must 
be given to each member of the investment company's board of directors. 
Paragraph (h) of rule 17g-1 provides that an investment company must 
designate one of its officers to make the filings and give the notices 
required by paragraph (g). Paragraph (j) of rule 17g-1 exempts a joint 
insured bond provided and maintained by an investment company and one 
or more other parties from section 17(d) of the Act and the rules 
thereunder. Rule 17g-1(j)(3) requires that investment companies relying 
on this exemption have a majority of disinterested directors, that 
those disinterested directors select and nominate any other 
disinterested directors, and that any legal counsel for those 
disinterested directors be independent.
    9. Applicants request an exemption from section 17(g) and rule 17g-
1 to the

[[Page 2375]]

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 
Manager take such actions and make such approvals as are set forth in 
rule 17g-1. Applicants state that, because the Manager will be an 
interested person of the Fund, a Fund could not comply with rule 17g-1 
without the requested relief. Applicants also request an exemption from 
the requirements of rule 17g-1(g) and (h) relating to the filing of 
copies of fidelity bonds and related information with the Commission 
and the provision of notices to the board of directors and from the 
requirements of rule 17g-1(j)(3). Applicants believe the filing 
requirements are burdensome and unnecessary as applied to the Funds. 
The Manager will maintain the materials otherwise required to be filed 
with the Commission by rule 17g-1(g) and agrees that all such material 
will be subject to examination by the Commission and its staff. The 
Manager will designate a person to maintain the records otherwise 
required to be filed with the Commission under paragraph (g) of the 
rule. Applicants also state that the notices otherwise required to be 
given to the board of directors would be unnecessary as the Funds will 
not have boards of directors. The Funds will comply with all other 
requirements of rule 17g-1.
    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 Manager of each Fund and any other 
persons who may be deemed members of an advisory board of a Fund from 
filing Forms 3, 4 and 5 under section 16 of the Exchange Act with 
respect to their ownership of Interests in the Fund. Applicants assert 
that, because there will be no trading market 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 Manager 
determines 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 Manager will record and preserve a description of 
such section 17 Transactions, its findings, the information or 
materials upon which its findings are based and the basis 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 
Pillsbury Group (a) serving as an officer, director, general partner or 
investment adviser of the entity, or (b) having a 5% or more investment 
in the entity, such individual will not participate in the Fund's 
determination of whether or not to effect the purchase or sale.
    3. The Manager will adopt, and periodically review and update, 
procedures designed to ensure that reasonable inquiry is made, prior to 
the consummation of any section 17 Transaction, with respect to the 
possible involvement in the transaction of any affiliated person or 
promoter of or principal underwriter for the Funds, or any affiliated 
person of such a person, promoter, or principal underwriter.
    4. The Manager will not make on behalf of a Fund any investment in 
which a Co-Investor, as defined below, has or proposes to acquire the 
same class of securities of the same issuer, where the investment 
involves a joint enterprise or other joint arrangement within the 
meaning of rule 17d-1 in which the Fund and the Co-Investor are 
participants, unless any such Co-Investor, prior to disposing of all or 
part of its investment: (a) gives the Manager sufficient, but not less 
than one day's, notice of its intent to dispose of its investment, and 
(b) refrains from disposing of its investment unless the participating 
Fund holding such investment has the opportunity to dispose of its 
investment prior to or concurrently with, on the same terms as, 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 Pillsbury Group; (c) a Partner, lawyer, or employee of the 
Pillsbury Group; (d) an investment vehicle offered, sponsored, or 
managed by the Firm or an affiliated person of the Firm; or (e) an 
entity in which a Pillsbury Entity acts as a general partner, or has a 
similar capacity to control the sale or other disposition of the 
entity's securities.
    The restrictions contained in this condition, however, shall not be 
deemed to limit or prevent the disposition of an investment by a Co-
Investor: (a) To its direct or indirect wholly owned subsidiary, to any 
company (a ``Parent'') of which the Co-Investor is a direct or indirect 
wholly owned subsidiary, or to a direct or indirect wholly owned 
subsidiary of its Parent; (b) to Immediate Family Members of the Co-
Investor or a trust established for any such Immediate Family Member; 
(c) when the investment is comprised of securities that are listed on a 
national securities exchange registered under section 6 of the Exchange 
Act; (d) when the investment is comprised of securities that are 
national market system securities pursuant to section 11A(a)(2) of the 
Exchange Act and rule 11Aa2-1 thereunder; or (e) when the investment

[[Page 2376]]

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. Each Fund will send to each person who was a Fund Investor in 
such Fund at any time during the fiscal year then ended audited 
financial statements with respect to those Series in which the Fund 
Investor held Interests. At the end of each fiscal year, the Manager 
will make a valuation or have a valuation made of all the assets of the 
Fund as of the fiscal year end in a manner consistent with customary 
practice with respect to the valuation of assets of the kind held by 
the Fund. In addition, as soon as practicable after the end of each 
fiscal year of each Fund, the Manager of the Fund shall send a report 
to each person who was a Fund Investor at any time during the fiscal 
year then ended, setting forth such tax information as shall be 
necessary for the preparation by the Fund Investor of his or her 
federal and state income tax returns and a report of the investment 
activities of such Fund during such year.
    6. The Manager of each Fund 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 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 Firm 
will make available at no charge to potential Fund Investors the 
services of a Financial Consultant qualified to provide advice 
concerning the appropriateness of investing in a Fund. Specifically, 
the Financial Consultant will hold one or more group meetings with 
potential Fund Investors at which the Financial Consultant will discuss 
the risks and other considerations relevant to determining whether to 
invest in a Fund. The Financial Consultant also will be available to 
the group of potential Fund Investors to answer general questions 
regarding an investment in the Fund. In addition, potential Fund 
Investors will be given the opportunity to submit relevant questions 
and issues to the Financial Consultant in advance of the group 
meetings, so that the Financial Consultant can address those questions 
and issues at the meetings. The Firm, however, 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 Firm will at all times control each Fund, within the meaning 
of rule 405 under the Securities Act. In this regard, the Firm will be 
the sole manager of the Fund, own at least 95% of the voting Interests 
of the Fund, and make all investment and other operational decisions 
for the Fund.
    9. The Firm will own not less than 5% of the economic Interests 
issued by each Series of the Fund, and (as discussed above) at least 
95% of the voting Interests of the Fund. In addition, the Firm and its 
Partners (directly or through Qualified Investment Vehicles) together 
will own at least 80% of the economic Interests of each Series.
    10. The Firm prepares its financial statements on a modified cash 
basis, and does not consolidate the Fund's financial statements with 
its own. If, however, the Firm prepared its financial statements in 
accordance with GAAP, it would consolidate the Fund's financial 
statements with its own.
    11. The Firm, 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 Firm 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.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-911 Filed 1-15-03; 8:45 am]
BILLING CODE 8010-01-P