[Federal Register Volume 65, Number 74 (Monday, April 17, 2000)]
[Notices]
[Pages 20495-20497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9449]



[[Page 20495]]

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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24386; 812-11936]


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

April 10, 2000.
AGENCY: Securities and Exchange Commission (``SEC'' or the 
``Commission'').

ACTION: Notice of an application to amend an existing order 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: Applicants seek to amend a prior order that 
permits existing and future series (``Portfolios'') of the Van Wagoner 
Funds, Inc. (the ``Company'') and Van Wagoner Capital Management, Inc. 
(``Van Wagoner Capital Management'') to co-invest in the same issuers 
of securities with each other and certain affiliates (``Prior 
Order'').\1\ The amended order (``Amended Order'') would permit certain 
additional registered management investment companies advised by Van 
Wagoner Capital Management, or an entity controlling, controlled by or 
under common control with Van Wagoner Capital Management (collectively 
referred to as the ``Adviser'') (such companies, the ``New Funds''), to 
rely on the Prior Order. The New Funds, together with the Portfolios, 
are referred to as ``Funds.'' \2\
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    \1\ Van Wagoner Funds, Inc., Investment Company act Release Nos. 
23954 (Aug. 19, 1999 (notice) and 24012 (Sept. 14, 1999) (order).
    \2\ The Portfolios are the only funds that currently intend to 
rely on the Amended Order. Any Fund that relies on Amended Order in 
the future will comply with the terms and conditions of the 
application.
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    Applicants: The Company and the Adviser.

FILING DATES: The application was filed on January 18, 2000. 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 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 May 5, 
2000, 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, N.W., 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, N.W., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. The Company is registered under the Act as an open-end 
management investment company and currently offers seven Portfolios. 
Each Portfolio's investment objective is capital appreciation, and each 
Portfolio may invest up to 15% of its net assets in illiquid 
securities. Applicants state that substantially all of the illiquid 
securities held by the Portfolios are venture capital investments. The 
Adviser serves as investment adviser to each Portfolio 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''). A New Fund may be either an open-end or closed-end 
management investment company registered under the Act.
    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 Affiliates 
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. On September 14, 1999, the SEC issued the Prior Order to the 
applicants under section 6(c) and 17(d) of the Act and under rule 17d-1 
under the Act permitting the applicants to co-invest in the same 
issuers of securities with each other and Company Affiliates. 
Applicants seek to amend the Prior Order to extend it to the New Funds. 
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 
open-end Funds' investment in illiquid securities.\3\ Applicants also 
represent that the New Funds will comply with the conditions set forth 
below and will be bound by the terms and provisions of the Prior Order 
to the same extent as the applicants.
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    \3\ 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 
any 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 provides 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 less advantageous 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

[[Page 20496]]

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. 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 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 Funds or such shareholders on 
the part of any person concerned;
    (ii) the transaction is consistent with the interests 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 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 affiliated 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 
entity 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 transactions 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 the 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 in 
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 Funds 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

[[Page 20497]]

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 Funds will 
participate in a co-investment with the Funds 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.
    10. Each of the Funds will maintain and preserve 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 Funds 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 Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9449 Filed 4-14-00; 8:45 am]
BILLING CODE 8010-01-M