[Federal Register Volume 61, Number 241 (Friday, December 13, 1996)]
[Notices]
[Pages 65621-65623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31614]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22378; 812-10354]
Renaissance Capital Growth & Income Fund III, Inc. and
Renaissance Capital Group, Inc.; Notice of Application
December 6, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Renaissance Capital Growth & Income Fund III, Inc. (the
``Company'') and Renaissance Capital Group, Inc. (the ``Adviser'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 57(i) of
the Act and rule 17d-1 thereunder permitting certain joint transactions
prohibited by section 57(a)(4) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit the
Company to co-invest with certain affiliated entities of the Adviser.
FILING DATES: The application was filed on September 19, 1996, and
amended on November 8, 1996, and December 6, 1996. By letter dated
December 6, 1996, applicants' counsel stated that an amendment, the
substance of which is incorporated herein, will be filed during the
notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
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 December 30,
1996, and should be accompanied by proof of service on the 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 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 8080 North Central Expressway, Suite 210, Dallas,
Texas 75206.
FOR FURTHER INFORMATION CONTACT:
Brian T. Hourihan, Senior Counsel, at (202) 942-0526, or Mary Kay
Frech, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation.)
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Company, a Texas corporation, is a non-diversified closed-
end investment company that has elected to operate as a business
development company (``BDC'') under the Act. The Company's primary
investment objective is to seek long-term capital appreciation through
investments in ``eligible portfolio securities'' (as defined in the
Act). In addition, the Company seeks to structure its investments to
provide an element of current income through interest, dividends, and
fees whenever feasible in light of market conditions and the cash flow
characteristics of portfolio companies. The investments strategy of the
Company is to invest in a diversified portfolio of companies that have
the potential for rapid growth in sales, earnings, and enterprise
value. The Company expects, after the completion of the initial
investment phase, to maintain a portfolio of investments in 10 to 20
companies in diverse industries.
2. The Adviser is a registered investment adviser under the
Investment Advisers Act of 1940 and provides investment advisory
services to the Company.\1\ The Adviser is responsible, subject to the
supervision of the Company's board of directors, for administering the
Company's business affairs. The adviser also serves as the investment
adviser to Renaissance U.S. Growth & Income Trust PLC (``Renaissance
PLC''), a public limited company organized under the laws of England
and Wales. Applicants state that Renaissance PLC is not registered as
an investment company in reliance on the exclusion from the definition
of investment company in section 3(c)(1) of the Act. The adviser seeks
to find investment opportunities for Renaissance PLC in smaller
capitalized United States public companies with the potential for
significant capital appreciation.
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\1\ The Adviser also serves as the investment adviser to two
other registered BDCs (Renaissance Capital Partners I, Ltd., and
Renaissance Capital Partners II, Ltd.) which were fully invested and
not actively pursuing investment opportunities.
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3. The principals of the Adviser will select investments for the
Company and Renaissance PLC separately considering in each case the
investment of objectives, investment position, available funds, and
other pertinent factors of the particular investment fund, including
applicable investment restrictions and regulatory requirements.
Applicants state that the Company and Renaissance PLC frequently may
invest in the same portfolio companies in proportion to their
respective amounts of capital available for investment.
4. Applicants state that they would like the flexibility to co-
invest with additional private and public investment funds that may or
may not be located in the United States and that share a common
investment adviser with the Company. Therefore, applicants request an
order pursuant to sections 6(c) and 57(i) of the Act and rule 17d-1
thereunder to the extent necessary to permit the Company to co-invest
with companies that are affiliated with the Adviser, including
Renaissance PLC (each an ``Adviser Affiliate'').
[[Page 65622]]
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
from participating in a joint transaction with a BDC in contravention
of rules as prescribed by the SEC. Section 57(b)(2) provides that any
investment adviser, any person directly or indirectly under common
control with a BDC, or any person who is, within the meaning of section
2(a)(3) (C) or (D), an affiliated person of any such person shall be
subject to section 57(a)(4). Under section 2(a)(3)(C), an affiliated
person of another person includes any person directly or indirectly
controlled by such person.
2. Section 57(i) of the Act provides that, until the SEC adopts
rules and regulations under subsections (a) and (d) of section 57, the
rules and regulations under sections 17(a) and 17(d) of the Act
applicable to registered closed-end investment companies shall be
deemed to apply to sections 57(a) and 57(d). Because the SEC has not
adopted any rules under section 57(a)(4), rule 17d-1 applies.
3. Rule 17d-1, promulgated under section 17(d) of the Act,
prohibits affiliated persons of an investment company from
participating in joint transactions with the company unless the SEC has
granted an order permitting such transactions. In passing on
applications under rule 17d-1, the SEC considers whether the company's
participation in the joint transactions is consistent with the
provisions, policies, and purposes of the Act and the extent to which
such participation is on a basis different from or less advantageous
than that of other participants.
4. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of the Act if and
to the extent that such 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.
5. Because Renaissance PLC and other Adviser Affiliates may be
deemed to be subject to section 57(a)(4) of the Act, investments by the
Company in a portfolio company in which an Adviser Affiliate, including
Renaissance PLC, also invests may be subject to section 57(a)(4) and
prohibited absent an order under rule 17d-1 under the Act.
6. Applicants state that the obligations imposed on the Company's
independent directors who are not ``interested persons'' as defined
under section 2(a)(19) of the Act (``Independent Directors'') provide
significant protection to investors against possible conflicts of
interest in co-investments between the Company and Adviser Affiliates,
including Renaissance PLC. Applicants believe that the conditions
relating to the terms on which co-investments may be made as set forth
in the application are consistent with the policies underlying the Act.
Applicants also believe that the requested relief is consistent with
the standards enumerated in section 6(c).
Applicants' Conditions
Applicants agree that the requested order shall be subject to the
following conditions:
1. (a) To the extent that the Company is considering new
investments, the Adviser will review investment opportunities on behalf
of the Company, including investments being considered on behalf of any
Adviser Affiliate. The Adviser will determine whether an investment
being considered on behalf of an Adviser Affiliate (``Adviser Affiliate
Investment'') is eligible for investment by the Company.
(b) If the Adviser deems an Adviser Affiliate Investment eligible
for the Company (a ``co-investment opportunity''), the Adviser will
determine what it considers to be an appropriate amount that the
Company should invest. When the aggregate amount recommended for the
Company and that sought by an Adviser Affiliate exceeds the amount of
the co-investment opportunity, the amount invested by the Company shall
be based on the ratio of the net assets of the company to the aggregate
net assets of the Company and the Adviser Affiliate 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 Company's Independent Directors.
Such information will include the amount the Adviser Affiliate proposes
to invest.
(d) Information regarding the Adviser's preliminary determinations
will be reviewed by the Company's Independent Directors. The Company
will co-invest with an Adviser Affiliate, only if a required majority
(as defined in section 57(o) of the Act) (``Required Majority'') of the
Company's Independent Directors conclude, 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 the Company 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 interests of the
shareholders of the Company and is consistent with the Company's
investment objectives and policies as recited in filings made by the
Company under the Securities Act of 1933, as amended, its registration
statement and reports filed under the Securities Exchange Act of 1934,
as amended, and its reports to shareholders;
(iii) the investment by the Adviser Affiliate would not
disadvantage the Company, and that participation by the Company would
not be on a basis different from or less advantageous than that of the
Adviser Affiliate; and
(iv) the proposed investment by the Company will not benefit the
Adviser or any affiliate entity thereof, other than the Adviser
Affiliate making the co-investment, except to the extent permitted
pursuant to sections 17(e) and 57(k) of the Act.
(e) The Company has the right to decline to participate in the co-
investment opportunity or purchase less than its full allocation.
2. The Company will not make an investment for its portfolio if any
Adviser Affiliate, the Adviser, or a person controlling, controlled by,
or under common control with the Adviser is an existing investor in
such issuer, with the exception of a follow-on investment that complies
with condition number 5.
3. For any purchase of securities by the Company in which an
Adviser Affiliate is a joint participant, the terms, conditions, price,
class of securities, settlement date, and registration rights shall be
the same for the company and the Adviser Affiliate.
4. If an Adviser Affiliate elects to sell, exchange, or otherwise
dispose of an interest in a security that is also held by the company,
the Adviser will notify the company 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 applicable to
the Adviser Affiliate. The Adviser will formulate a recommendation as
to participation by the Company in such a disposition, and provide a
written recommendation to the Company's Independent Directors. The
Company will participate in such disposition to the extent that a
Required Majority of its Independent Directors determine that it is in
the Company's best interest. Each of the Company and the Adviser
Affiliate will bear its own
[[Page 65623]]
expenses associated with any such disposition of a portfolio security.
5. If an Adviser Affiliate desires to make a ``follow-on''
investment (i.e., an additional investment in the same entity) in a
portfolio company whose securities are held by the Company 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 Company in a
follow-on investment and provide the recommendation to the Company's
Independent Directors along with notice of the total amount of the
follow-on investment. The Company's Independent Directors will make
their 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 company's and the Adviser Affiliate's
initial investments, the relative amount of investment by the Adviser
Affiliate and the Company will be based on the ratio of the company's
remaining funds available for investment to the aggregate of the
Company's and the Adviser Affiliate's remaining funds available for
investment. The company will participate in such investment to the
extent that a Required Majority of its Independent Directors determine
that it is in the company'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 Company's Independent Directors will review quarterly all
information concerning co-investment opportunities during the preceding
quarter to determine whether the conditions set forth in the
application were complied with.
7. The Company will maintain the records required by section
57(f)(3) of the Act as if each of the investments permitted under these
conditions were approved by the Company's Independent Directors under
section 57(f).
8. No Independent Director of the Company will be a director or
general partner of any Adviser Affiliate with which the Company co-
invests.
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-31614 Filed 12-12-96; 8:45 am]
BILLING CODE 8010-01-M
