[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
