[Federal Register Volume 64, Number 164 (Wednesday, August 25, 1999)]
[Notices]
[Pages 46462-46465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22021]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23954; 812-11588]


Van Wagoner Funds, Inc., et al.; Notice of Application

August 19, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application under sections 6(c) and 17(d) of the 
Investment Company Act of 1940 (the ``Act'') and rule 17d-1 under the 
Act permitting certain joint transactions.

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    SUMMARY OF APPLICATION: The order would permit applicants to co-
invest in the same issuers of securities with each other and certain 
affiliates.
    APPLICANTS: Van Wagoner Funds, Inc. (the ``Company'') and Van 
Wagoner Capital Management, Inc. (the ``Adviser'').
    FILING DATES: The application was filed on April 20, 1999, and 
amended on July 7, 1999. Applicants have agreed to file an amendment 
during the notice period, the substance of which is reflected in this 
notice.
    HEARING OR NOTIFICATION OF HEARING: An order granting the

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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 September 13, 1999, 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 5th Street, NW., Washington, DC 20549-
0609. Applicants: 345 California Street, San Francisco, California 
94104.

FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, 
(202) 942-7120, or Nadya B. Roytblat, Assistant Director (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, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Company, organized as a Maryland corporation, is registered 
under the Act as an open-end management investment company. The Company 
currently offers seven series (together with any new series of the 
Company to be offered in the future, the ``Funds'').\1\ Each Fund's 
investment objective is capital appreciation, and each Fund may invest 
up to 15% of its net assets in illiquid securities. Applicants state 
that substantially all of the illiquid securities held by the Funds are 
venture capital investments. The Adviser serves as investment adviser 
to each Fund and is registered under the Investment Advisers Act of 
1940. A majority of the board of directors of the Company (``Board'') 
are not ``interested persons,'' as defined in section 2(a)(19) of the 
Act (``Independent Directors'').
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    \1\ All existing Funds that currently intend to rely on the 
requested order are named as applicants, and any entity that relies 
on the order in the future will comply with the terms and conditions 
of the application.
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    2. The Adviser or its affiliates (``Adviser Affiliates'') also may 
serve as investment adviser to other private accounts on a 
discretionary basis and as general partner and/or investment adviser to 
other investment vehicles that are exempt from the Act under section 
3(c)(1) or 3(c)(7) of the Act. These private accounts and vehicles, 
along with any similar entity created, advised, sponsored or otherwise 
organized by the Adviser or Adviser Affiliates, are referred to as 
``Company Affiliates.'' When acting as the general partner of a Company 
Affiliate, the Adviser or Adviser Affiliates may make a capital 
contribution in connection with the organization of the Company 
Affiliate and maintain an interest in the gains, losses, income, and 
expenses of the Company Affiliate. The Adviser or Adviser Affiliate 
also may be required to make a commitment to co-invest on a principal 
basis with a Company Affiliate in an amount up to 1% of the Company 
Affiliate's investment.
    3. Applicants state that it may be beneficial for the Funds to be 
able to co-invest in certain venture capital investments with Company 
affiliates. Applicants assert that co-investment in portfolio companies 
by the Funds and Company Affiliates would increase favorable investment 
opportunities for the Funds, consistent with the Funds' investment 
objectives, policies, and restrictions. Applicants state that these 
investment opportunities will not include investments in registered 
investment companies or entities relying on section 3(c)(1) or 3(c)(7) 
of the Act. Applicants also state that the co-investments will be 
treated as illiquid securities for purposes of the 15% limit on the 
Funds' investment in illiquid securities.\2\
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    \2\ Applicants note that if a portfolio company subsequently 
becomes a publicly traded company, its shares held by the Funds may 
no longer be illiquid securities.
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Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit any affiliated person of a registered investment company, or 
affiliated person of an affiliated person, when acting as principal, 
from effecting any joint transaction in which the company participates 
unless the transaction is approved by the SEC. Rule 17d-1 under the Act 
povides that in passing upon applications under section 17(d), the SEC 
will consider whether the participation of a registered investment 
company in a joint enterprise on the basis proposed is consistent with 
the provisions, policies, and purposes of the Act and the extent to 
which the company's participation is on a basis different from or les 
dvantageous than that of other participants.
    2. Section 6(c) of the Act provides that an exemptive order may be 
granted where an exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Applicants request an order under sections 6(c) and 17(d) of the Act 
and rule 17d-1 to permit the Funds to co-invest with other Funds, 
Company Affiliates, and the Adviser or Adviser Affiliates. Applicants 
state that the Adviser and Adviser Affiliates will co-invest with the 
Funds only if and to the extent required to do so by a Company 
Affiliate. Applicants state that the conditions to the requested order 
that will govern the co-investments will assure that the investments 
will be in the best interests of the participating Funds and consistent 
with the Funds' investment policies, and that the Funds will be 
participating in the co-investment on a basis that is no less 
advantageous than that of the other participants.

Applicants' Conditions

    Applicants agree that the order granting the requested relief will 
be subject to the following conditions:
    1. (a) To the extent that a Fund is considering new investments, 
the Adviser will review investment opportunities on behalf of the other 
Funds and investments being considered on behalf of any Company 
Affiliate, and, when required by a Company Affiliate, the Adviser or 
Adviser Affiliate. The Adviser will determine whether an investment 
being considered on behalf of a Company Affiliate (``Company Affiliate 
Investment'') meets a Fund's investment objectives, policies, and 
restrictions and is otherwise eligible for investment by any of the 
Funds.
    (b) If the Adviser deems a Company Affiliate Investment eligible 
for one or more Funds (a ``co-investment opportunity''), the Adviser 
will determine what it considers to be an appropriate amount that each 
eligible Fund should invest. When the aggregate amount recommended for 
any Fund and that to be bought by other Funds, a Company Affiliate and, 
when required by a Company Affiliate, the Adviser or Adviser Affiliate, 
exceeds the amount of the co-investment opportunity, the amount 
invested by such Fund shall be based on the ratio of the net assets 
available for investment of that Fund to the aggregate net assets 
available for investment by any other Fund and the Company Affiliate 
(including the interest of the Adviser or Adviser

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Affiliate, if applicable) seeking to make the investment.
    (c) Following the making of the determinations referred to in (a) 
and (b), the Adviser will distribute written information concerning all 
co-investment opportunities to the Independent Directors. Such 
information will include the amount any other Fund, the Company 
Affiliate and, when required by a Company Affiliate, the Adviser or 
Adviser Affiliate, proposes to invest.
    (d) Information regarding the Adviser's preliminary determinations 
will be reviewed by the Independent Directors. One or more Funds will 
co-invest with each other and/or with a Company Affiliate and, when 
required by a Company Affiliate, with the Adviser or Adviser Affiliate, 
only if a majority of the Independent Directors who have no direct or 
indirect financial interest in the transaction (``Required Majority'') 
concludes prior to the acquisition of the investment that:
    (i) the terms of the transaction, including the consideration to be 
paid, are reasonable and fair to the shareholders of applicable Funds 
and do not involve overreaching of the Company or such shareholders on 
the part of any person concerned;
    (ii) the transaction is consistent with the interest of the 
shareholders of the applicable Funds and is consistent with the Fund's 
investment objectives and policies as recited in its registration 
statement and reports filed under the Act, and its reports to 
shareholders;
    (iii) the investment by the Company Affiliates and, when required 
by a Company Affiliate, the Adviser or Adviser Affiliate, would not 
disadvantage a Fund, and that participation by such Fund or Funds would 
not be on a basis different from or less advantageous than that of the 
Company Affiliate and, when required by a Company Affiliate, the 
Adviser or Adviser Affiliate; and
    (iv) the proposed investment by applicable Funds will not benefit 
the Adviser or any affiliate entity thereof, other than the Company 
Affiliate making the co-investment, provided, however that the Adviser 
(1) may continue to receive advisory and other fees from the Funds and 
the Company Affiliates and (2) may participate in any co-investment 
wherein the Adviser or Adviser Affiliate is required by a Company 
Affiliate to commit to co-invest in all direct investments with such 
equity in the amount of up to 1% of the investment of each such entity.
    (e) Each of the Funds has the right to decline to participate in 
the co-investment opportunity or purchase less than its full 
allocation.
    2. No Fund will make an investment for its portfolio if any Company 
Affiliate or the Adviser or Adviser Affiliate is an existing investor 
in such issuer, with the exception of a follow-on investment that 
complies with condition 5 below.
    3. For any purchase of securities by one or more Funds in which a 
Company Affiliate and, when required by a Company Affiliate, the 
Adviser or Adviser Affiliate, is a joint participant, the terms, 
conditions, price, class of securities, settlement date, and 
registration rights shall be the same for each of the Funds and the 
Company Affiliate and the Adviser or Adviser Affiliate, if applicable, 
and the approval of such transactions, including the determination of 
the terms of the transaction by the Required Majority, will be made in 
the same time period.
    4. If a Company Affiliate and/or the Adviser or Adviser Affiliate 
elects to sell, exchange, or otherwise dispose of an interest in a 
security that is also held by one or more Funds, the Adviser will 
notify the applicable Funds of the proposed disposition at the earliest 
practical time and the Company will be given an opportunity to 
participate in such disposition on a proportionate basis, at the same 
price and on the same terms and conditions as those available to the 
Company Affiliate and/or the Adviser or Adviser Affiliate. The Adviser 
will formulate a recommendation as to participation by such Funds as 
such a disposition, to the extent that the Required Majority determines 
that it is in the Fund's best interest. Each of the Funds, the Adviser 
or Adviser Affiliate and the Company Affiliate will bear its own 
expenses associated with any such disposition of the portfolio 
security.
    5. If a Company Affiliate desires to make a ``follow-on'' 
investment (i.e., additional investment in the same entity) in a 
portfolio company whose securities are held by any of the Funds or to 
exercise warrants or other rights to purchase securities of such an 
issuer, the Adviser will notify the company of the proposed transaction 
at the earliest practical time. The Adviser will formulate a 
recommendation as to the proposed participation by the applicable Fund 
in a follow-on investment and provide the recommendation to the 
Required Majority along with notice of the total amount of the follow-
on investment. The Required Majority will make its own determination 
with respect to follow-on investments. To the extent that the amount of 
a follow-on investment opportunity is not based on the amount of the 
applicable Fund's, the Company Affiliate's and, if applicable, the 
Adviser's or Adviser Affiliate's initial investments, the relative 
amount of investment by the Company Affiliate and, if applicable, the 
Adviser or Adviser Affiliate and the Company will be based on the ratio 
of the applicable Fund's remaining funds available for investment to 
the aggregate of such Fund's and the Company Affiliate's (including the 
interest of the Adviser or Adviser Affiliate) remaining funds available 
for investment. The applicable Fund will participate in such investment 
to the extent that the Required Majority determines that it is in such 
Fund's best interest. The acquisition of follow-on investments as 
permitted by this condition will be subject to the other conditions set 
forth in the application.
    6. The Required Majority will be provided quarterly for its review 
all information concerning co-investment transactions, including 
investments made by the Adviser, Adviser Affiliate and Company 
Affiliates in which a Fund declined to participate, so that the 
Required Majority may determine whether all investments made during the 
preceding quarter, including those investments in which the Fund 
declined to participate, comply with the conditions of the order. In 
addition, the Required Majority will consider at least annually the 
continued appropriateness of the standards established for co-
investment by a Fund, including whether the use of the standards 
continues to be in the best interest of the Funds and its shareholders 
and does not involve overreaching on the part of any person concerned.
    7. Other than as provided in condition 1(d)(iv), neither the 
Adviser nor any Adviser Affiliate nor any director of the Company will 
participate in a co-investment with the Company unless a separate 
exemptive order with respect to such co-investment is obtained.
    8. None of the Adviser, Adviser Affiliates, Company Affiliates or 
the Funds will be involved in the sponsorship of any portfolio company.
    9. None of the Adviser, Adviser Affiliates, Company Affiliates or 
the Funds will be involved in the structuring of any portfolio company 
or of any security issued by any portfolio company, except that the 
Adviser may take part in the negotiation of the terms (such as coupon, 
final maturity, average life, sinking funds, conversion price, 
registration, put rights and call protection) and appropriate 
restrictive covenants governing the securities purchased in a co-
investment transaction.

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    10. Each of the Funds will maintain and perserve all records that 
are required by section 31 of the Act and any other provisions of the 
Act and the rules and regulations under the Act applicable to the 
Funds. The Fund also will maintain the records required by section 
57(f)(3) of the Act as if each of the Funds were a business development 
company and the co-investments and any follow-on investments were 
approved under section 57(f).
    11. None of the Adviser, Adviser Affiliates, Company Affiliates or 
the Funds will ``make available significant managerial assistance,'' 
within the meaning of section 2(a)(47) of the Act, to any portfolio 
company whose securities were acquired pursuant to the requested order.
    12. None of the Adviser, Adviser Affiliates, or Company Affiliates 
will receive any transaction fees (including, without limitation, 
monitoring, ``topping,'' breakup, and termination fees) in connection 
with any investment made pursuant to the requested order.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-22021 Filed 8-24-99; 8:45 am]
BILLING CODE 8010-01-M