[Federal Register Volume 63, Number 231 (Wednesday, December 2, 1998)]
[Notices]
[Pages 66615-66617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32042]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23573; 812-11006]


Technology Funding Venture Capital Fund VI, LLC, et al.; Notice 
of Application

November 25, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 57(i) of the 
Investment Company Act of 1940 (the ``Act''), and under rule 17d-1 
under the Act permitting certain joint transactions otherwise 
prohibited by section 57(a)(4) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit a 
business development company (``BDC'') to co-invest with certain 
affiliates in portfolio companies. The order would supersede several 
prior orders.\1\

    \1\ Technology Funding Partners III, L.P., et al., Investment 
Company Act Release Nos. 17523 (June 6, 1990) (notice) and 17571 
(July 5, 1990) (order); Technology Funding Partners III, L.P., et 
al., Investment Company Act Release Nos. 17581 (July 11, 1990) 
(notice) and 17654 (Aug. 7, 1990) (order); Technology Funding 
Partners III, L.P., et al., Investment Company Act Release Nos. 
17600 (July 18, 1990) (notice) and 17685 (Aug. 17, 1990) (order); 
and Technology Funding Medical Partners I, L.P., et al., Investment 
Company Act Release Nos. 19615 (Aug. 6, 1993) (notice) and 19672 
(Sept. 1, 1993).
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APPLICANTS: Technology Funding Venture Capital Fund VI, LLC (the 
``Company''), Technology Funding Medical Partners I, L.P. (``TFMP I''), 
Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P. 
(``TFP V''), Technology Funding Venture Partners IV, An Aggressive 
Growth Fund, L.P. (``TFP IV''), Technology Funding Partners III, L.P. 
(``TFP III''); Technology Funding Inc. (``TFI'') and Technology Funding 
Ltd. (``TFL'') (TFI and TFL together are the ``Investment Managers''). 
Applicants also request that the relief apply to any BDCs currently or 
in the future advised by the Investment Managers or by entities 
controlling, controlled by, or under common control with the Investment 
Managers (``Future Funds'').\2\

    \2\ All existing BDCs that currently intend to rely on the order 
have been named as applicants, and any other existing or future 
entities that subsequently rely on the order will comply with the 
terms and conditions in the application.
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FILING DATES: The application was filed on February 13, 1998, and 
amended on October 13, 1998 and on November 23, 1998.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on December 
17, 1998 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC 
20549. Applicants, 2000 Alameda de las Pulgas, San Mateo, CA 94403.

For Further Information Contact: Lisa McCrea, Attorney Adviser, at 
(202) 942-0562, or Mary Kay Frech, Branch Chief, at (202) 942-0564 
(Office of Investment Company Regulation, Division of Investment 
Management).

Supplementary Information: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 5th Street N.W., Washington, DC 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. Each of the Company, TFMP I, TFP V, TFP IV, and TFP III 
(collectively, the ``Funds'') is organized as either a limited 
liability company or a limited partnership and has elected to be 
regulated as a BDC under the Act. TFI and TFL are both registered as 
investment advisers under the Investment Advisers Act of 1940, and 
serve as investment advisers to the Funds. TFI and TFL also serve as 
managing general partners (``Managing General Partners'') of the Funds. 
TFI is a wholly-owned subsidiary of TFL. Each Fund's investment 
objectives are long-term capital appreciation from venture capital 
investment in emerging growth companies, and preservation of investor 
capital through risk management and active involvement with such 
companies.
    2. Each Fund is governed by a board of directors or general 
partners (``Directors'' or ``General Partners''). At least a majority 
of the Directors or General Partners of each Fund are natural persons 
who are not interested persons of the Fund within the meaning of 
section 2(a)(19) of the Act (``Independent Directors'' and 
``Independent General Partners''). No Independent Director or 
Independent General Partner of a Fund will serve as an Independent 
Director or Independent General Partner of any other Fund at the same 
time.
    3. Applicants request relief to permit the Funds and any Future 
Funds (collectively, the ``Co-Investing Funds'') to co-invest in 
portfolio companies. Applicants state that the Co-Investing Funds will 
have substantially similar investment objectives.

Applicants' Legal Analysis

    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
of a BDC from participating in a joint transaction with the BDC in 
contravention of such rules as the SEC may prescribe. Section 57(i) of 
the act provides, in part, that, until the SEC prescribes rules under 
section 57(a)(4), the SEC's rules under section 17(d) of the Act 
applicable to closed-end investment companies shall be deemed to apply 
to transactions subject to section 57(d). Because the SEC has not 
adopted any rules under section 57(a)(4), rule 17d-1 applies.
    2. Rule 17d-1 under the Act generally prohibits affiliated persons 
of a registered investment company from entering into a joint 
transaction with the company unless the SEC has issued an order 
permitting the transaction. In passing upon applications under rule 
17d-1, the SEC will consider whether the participation by the BDC in 
such joint transaction is consistent with the provisions, policies, and 
purposes of the Act and the extent to which such participation is on a 
basis different from or less advantageous than that of other 
participants.
    3. Applicants state that, because the Co-Investing Funds may be 
deemed to be under the common control of the Investment Managers, the 
Co-Investing Funds may be prohibited by section 57(a)(4) of the Act and 
rule 17d-1 from participating in the proposed co-investments without 
exemptive relief.
    4. Applicants state that each Co-Investing Fund will participate in 
the proposed transactions on the same terms as any other Co-Investing 
Fund. Applicants further state that the proposed conditions would 
assure, among other things, oversight of the proposed transactions by 
each Co-Investing Fund's Independent General Partners of Independent 
Directors.

[[Page 66616]]

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. The Co-Investing Funds will not have common Independent General 
Partners or Independent Directors. The Directors or General Partners of 
each Co-Investing Fund will approve co-investment transactions in 
advance. The Directors or General Partners of each Co-Investing Fund 
will be provided with periodic information, compiled by the Investment 
Mangers, listing all venture capital investments made by the other Co-
Investing Funds.
    2(a) Before a co-investment transaction will be effected, the 
Investment Managers will make an initial determination on behalf of 
each Co-Investing Fund regarding investment suitability. Following this 
determination, a written investment presentation respecting the 
proposed co-investment transaction will be made to the Directors or 
General Partners of each Co-Investing Fund, except that such 
information need not be distributed to the Directors or General 
Partners of any Co-Investing Fund that, at that time, does not have 
funds available for investment. Such information will include the name 
of each Co-Investing Fund that proposes to make the investment and the 
amount of each proposed investment. The Investment Managers will 
maintain at each Co-Investing Fund's office a copy of the written 
records detailing the factors considered in any such preliminary 
determination.
    2(b) The information regarding the Investment Manager's preliminary 
determinations will be reviewed by the Independent Directors or 
Independent General Partners of each Co-Investing Fund. The Directors 
or General Partners of each Co-Investing Fund, including a majority of 
the Independent Directors or Independent General Partners, will make an 
independent decision as to whether and how much to participate in an 
investment based on what is appropriate under the circumstances. If a 
majority of Independent Directors or Independent General Partners of 
any Co-Investing Fund determine that the amount proposed to be invested 
by the Co-Investing Fund is not sufficient to obtain an investment 
position they consider appropriate under the circumstances, that Co-
Investing Fund will not participate in the joint investment. Similarly, 
a Co-Investing Fund will not participate in a co-investment transaction 
if a majority of its Independent Directors or Independent General 
Partners determine that the amount proposed to be invested is an amount 
in excess of that which is determined to be appropriate under the 
circumstances. A Co-Investing Fund will only make a joint investment 
with another Co-Investing Fund if a majority of the Independent 
Directors or Independent General Partners of that Co-Investing Fund 
conclude, after consideration of all information deemed relevant that:
    (i) The terms of the transaction, including the consideration to be 
paid, are reasonable and fair to the investors in the Co-Investing Fund 
(the ``Investors'') and do not involve overreaching of the Co-Investing 
Fund on the part of any person concerned;
    (ii) The transaction is consistent with the interests of the 
Investors of the Co-Investing Fund and is consistent with the Co-
Investing Fund's investment objectives and policies as recited in 
filings made by the Co-Investing Fund under the Securities Act of 1933, 
its registration statement and reports filed under the Securities 
Exchange Act of 1934 and its reports to Investors; and
    (iii) The investment by one or more of the other Co-Investing Funds 
would not disadvantage the Co-Investing Fund in the making of such 
investment, maintaining its investment position or disposing of such 
investment, and that participation by the Co-Investing Funds would not 
be on a basis different from or less advantageous than that of another 
Co-Investing Fund.
    2(c) The Independent Directors or Independent General Partners 
will, for purposes of reviewing each such recommendation of the 
Investment Managers, request such additional information from the 
Investment Managers as they deem necessary to the exercise of their 
reasonable business judgment, and they will also employ such experts, 
including lawyers and accounts, as they deem appropriate to the 
reasonable exercise of this oversight function.
    3. The Directors or General Partners of each Co-Investing Fund, 
including a majority of the Independent Directors or Independent 
General Partners, will make their own decision and have the right to 
decide not to share a particular investment with another Co-Investing 
Fund. There will be no consideration paid to the Investment Manager (or 
affiliated persons of the Investment Managers) directly or indirectly, 
including without limitation any type of brokerage commission, in 
connection with a co-investment transaction. The Investment Managers 
will continue, however, to receive their compensation and expense 
reimbursement arrangements with respect to each Co-Investing Fund and 
will participate indirectly in a co-investment transaction only through 
their existing interests as an Investor in each Co-Investing Fund.
    4. Each Co-Investing Fund will be entitled to consider purchasing a 
portion of each co-investment transaction equal to the ratio of that 
Co-Investing Fund's net assets to the total net assets of all Co-
Investing Funds that have determined to participate in the co-
investment transaction, provided that each Co-Investing Fund can 
determine not to take its full allocation where a majority of the 
Independent Directors or Independent General Partners and a majority of 
the Directors or General Partners of the Co-Investing Fund determine 
that to do so would not be in the best interests of the Co-Investing 
Fund. When the aggregate amount sought by the Co-Investing Funds 
exceeds the amount of the co-investment opportunity, the amount 
invested by each Co-Investing Fund shall be based on the ratio of the 
net assets of each Co-Investing Fund to the aggregate net assets of all 
Co-Investing Funds seeking to make an investment. ``Follow-on'' 
investments, including the exercise of warrants or other rights to 
purchase securities of the issuer, will be treated in the same manner 
as the initial co-investment transaction.
    5. All co-investment transactions will consist of the same class of 
securities, including the same registration rights (if any), and other 
rights related thereto, at the same unit consideration, on the same 
terms and conditions, and the approvals will be made in the same 
period. If one Co-Investing Fund elects to sell, exchange or otherwise 
dispose of an interest in a security that is also held by another Co-
Investing Fund, notice will be given to each other Co-Investing Fund at 
the earliest practical time and each other Co-Investing Fund will be 
given the opportunity to participate in such disposition at the same 
time for the same unit consideration and in amounts proportional to its 
respective holdings of such securities. The Investment Managers will 
formulate a recommendation as to participation by such Co-Investing 
Fund in such a disposition, and provide the recommendation to the 
Independent Directors or Independent General Partners of such Co-
Investing Fund. Each Co-Investing Fund will participate in such 
disposition if a majority of its Independent Directors or Independent 
General Partners determine that such action is fair and reasonable to 
the Co-Investing Fund, is in the best interests of the Co-Investing 
Fund and does not involve overreaching of the Co-Investing Fund or its 
Investors by any person

[[Page 66617]]

concerned. Each Co-Investing Fund will bear its own expenses associated 
with the disposition of a portfolio security. The Independent Directors 
or Independent General Partners of each Co-Investing Fund will record 
in their records the Investment Managers' recommendation and their 
decision as to whether to participate in such disposition, as well as 
the basis for their decision that such action is fair and reasonable 
to, and is in the best interest of, the Co-Investing Fund.
    6. A decision by a Co-Investing Fund (i) not to participate in a 
co-investment transaction, (ii) to take less or more than its full 
allocation, or (iii) not to sell, exchange, or otherwise dispose of a 
co-investing Funds electing to participate shall include a finding that 
such decision is fair and reasonable to the Co-Investing Fund and not 
the result of overreaching of the Co-Investing Fund or its Investors by 
any person concerned. The Independent Directors or Independent General 
Partners of a Co-Investing Fund will be provided quarterly for review 
all information concerning co-investment transactions made by the Co-
Investing Funds, including co-investment transactions in which a Co-
Investing Fund has declined to participate, so that they may determine 
whether all co-investment transactions made during the preceding 
quarter, including those co-investment transactions that were declined, 
complied with the conditions set forth above. In addition, the 
Independent Directors or Independent General Partners of a Co-Investing 
Fund will consider at least annually the continuing appropriateness of 
the standards established for co-investment transactions by a Co-
Investing Fund, including whether use of the standards continues to be 
in the best interests of the Co-Investing Fund and its Investors and 
does not involve overreaching of the Co-Investing Fund or its Investors 
on the part of any party concerned.
    7. The Independent Directors or Independent General Partners of 
each Co-Investing Fund will maintain the records required by section 
57(f)(3) of the Act, and will comply with section 57(h) of the Act, and 
each Co-Investing Fund will otherwise maintain all records required by 
the Act. All records referred to or required under these conditions 
will be available for inspection by the SEC, and will be preserved 
permanently, the first two years in an easily-accessible place.
    8. No Director of affiliated person of any Director or General 
Partner (other than a BDC sponsored and managed by the Investment 
Managers) will participate in a transaction with a Co-Investing Fund 
unless a separate exemptive order with respect to such transaction has 
been obtained. For this purpose, the term ``participate'' shall not 
include either the Investment Managers' existing General Partner 
interests in, or their normal compensation and expense reimbursement 
arrangements with, each Co-Investing Fund.
    9. No co-investment transactions will be made pursuant to the 
requested order respecting portfolio companies in which any applicant 
or affiliated person of any applicant has previously acquired an 
interest, provided that this prohibition shall not be applicable to any 
previously acquired interest, provided that this prohibition shall not 
apply to any previous investment specifically permitted by an order of 
the SEC.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32042 Filed 12-1-98; 8:45 am]
BILLING CODE 8010-01-M