Federal Register / Vol. 65, No. 74 / Monday, April 17, 2000 / Notices 20495

1 Van Wagoner Funds, Inc., Investment Company

act Release Nos. 23954 (Aug. 19, 1999 (notice) and

24012 (Sept. 14, 1999) (order).

2The 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.

3Applicants note that if a portfolio company

subsequently becomes a publicly traded company,

its shares held by the Funds may no longer be

illiquid securities.

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.

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

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 closedend 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 coinvest 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.

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

20496 Federal Register / Vol. 65, No. 74 / Monday, April 17, 2000 / Notices

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 coinvest 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 coinvestment 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 coinvestment 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 coinvest 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 coinvest 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 coinvestment 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

Federal Register / Vol. 65, No. 74 / Monday, April 17, 2000 / Notices 20497

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 42450

(Feb. 23, 2000), 65 FR 10577 (Feb. 28, 2000) (File

No. SR–NYSE–99–48). The Commission notes that

similar proposals have been filed by the American

Stock Exchange, Securities Exchange Act Release

No. 42460 (February 25, 2000), 65 FR 11618 (March

3, 2000) (File No. SR–Amex+00–05); the Chicago

Stock Exchange, Securities Exchange Act Release

No. 42459 (Feb. 25, 2000), 65 FR 11619 (March 3,

2000) (File No. SR–CHX–99–28); the Philadelphia

Stock Exchange, Securities Exchange Act Release

No. 42458 (Feb. 25, 2000), 65 FR 11628 (March 3,

2000) (File No. SR–Phlx–00–12); and the Pacific

Exchange, SR–PCX–00–11.

4The Commission notes that the NYSE Notice is

available on the Commission’s website at: <http://

www.sec.gov/rules/sros/ny9948n.htm>.

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 coinvestment 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 coinvestment 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

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42661: File No. SR–BSE–

00–02]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Boston Stock Exchange, Inc.

Rescinding Chapter II, Section 23,

Dealings on Other Exchanges, or

Publicly Outside the Exchange

April 10, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 9,

2000, the Boston Stock Exchange, Inc.

(‘‘Exchange’’ or ‘‘BSE’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II,

and III below, which Items have been

prepared by the Exchange. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

The Exchange’s proposed rule change

raises issues similar to those raised by

the New York Exchange’s (‘‘NYSE’’)

proposal to repeal NYSE Rule 390,

which rule generally prohibits NYSE

members and their affiliates from

effecting transactions in certain NYSElisted securities away from a national

securities exchange. The Commission

recently issued the notice of filing for

the NYSE’s proposal (‘‘NYSE Notice’’)

and solicited comment on a number of

important issues that have broad

implications for the structure of the U.S.

securities markets.3 Specifically, the

Commission requested comment on

market fragmentation—the trading of

orders in multiple locations without

interaction among those orders—and on

several options for addressing market

fragmentation. To promote a

comprehensive discussion of offboarding trading restrictions and related

market fragmentation issues, the

Commission requests that persons

interested in the Exchange’s proposal

refer to the NYSE Notice and submit

comments that respond to the questions

presented in the NYSE Notice.4

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to rescind

Chapter II, Section 23, ‘‘Dealings on

Other Exchanges or Publicly Outside the

Exchange,’’ which will remove the

Exchange’s off-board trading

restrictions. The text of the proposed

rule change is available at the Exchange

and at the Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange has prepared summaries, set

forth in sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Exchange proposes to rescind its

restrictions on off-board trading under