Securities and Exchange Commission (“SEC” or the “Commission”).
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.
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”). 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.” 
Applicants: The Company and the Adviser.
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.
Secretary, SEC, 450 5th Street, N.W., Washington, DC 20549-0609. Applicants: 345 California Street, San Francisco, California 94104.Start Further Info
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).End Further Info End Preamble Start Supplemental 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).
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. 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.
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 Start Printed Page 20496consistent 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 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 Start Printed Page 20497investment 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.Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland,
1. Van Wagoner Funds, Inc., Investment Company act Release Nos. 23954 (Aug. 19, 1999 (notice) and 24012 (Sept. 14, 1999) (order).Back to Citation
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.Back to Citation
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.Back to Citation
[FR Doc. 00-9449 Filed 4-14-00; 8:45 am]
BILLING CODE 8010-01-M