[Federal Register Volume 61, Number 137 (Tuesday, July 16, 1996)]
[Notices]
[Pages 37102-37104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18052]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22060; 812-10082]
Sherry Lane Growth Fund, Inc., et al.; Notice of Application
July 10, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
-----------------------------------------------------------------------
APPLICANTS: Sherry Lane Growth Fund, Inc. (``Fund'') and Sherry Lane
Capital Advisors, Inc. (``Adviser'').
RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 57(i)
and rule 17d-1 thereunder permitting certain joint transactions
otherwise prohibited by section 57(a)(4).
SUMMARY OF APPLICATION: Applicants request an order to permit the Fund
and Davis Venture Partners II, L.P. (``DVP II'') to co-invest in the
same portfolio securities.
FILING DATES: The application was filed on April 10, 1996, and amended
on June 27, 1996.
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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on August 5, 1996,
and should be accompanied by proof of service on applicant, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: Fund and Adviser, 320 South Boston, Suite 1000,
Tulsa, Oklahoma 74103-3703.
FOR FURTHER INFORMATION CONTACT:
Mercer E. Bullard, Staff Attorney, (202) 942-0565, or Elizabeth G.
Osterman, Assistant Director, (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 at the
SEC's Public Reference Branch.
Applicants' Representations
1. The Fund, a Delaware corporation, is a non-diversified closed-
end investment company that has elected to be regulated as a business
development company (``BDC'') under the Act. The Fund filed a
registration statement on Form N-2 that became effective May 29, 1996.
2. The Adviser is a registered investment adviser under the
Investment Advisers Act of 1940 and is the investment adviser to the
Fund. The Adviser is also responsible, subject to the oversight of the
Fund's board of directors, for administering the Fund's business
affairs. The chief executive officer and president of the Adviser also
serve as directors and chief executive officer and president of the
Fund, and as general partners of the general partner of DVP II, a
venture capital partnership. Applicants state that DVP II 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.
3. The Fund's investment objective will be to achieve long-term
capital appreciation. The Fund also will 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 the portfolio companies. The Fund intends to invest
in between 10 and 20 private investment opportunities that typically
will require a substantial financial commitment.
4. The principals of the Adviser intend to select investments for
the Fund and DVP II separately considering in each case only the
investment objectives, investment position, available funds, and other
pertinent factors of the particular fund, including applicable
investment restrictions and regulatory requirements. Applicants state
that the Fund and DVP II have similar investment objectives and expect
that they frequently may invest in the same portfolio securities.
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. Under section 57(b)(1) of the Act,
persons who are affiliated persons of the directors or officers of a
BDC within the meaning of section 2(a)(3)(C) of the Act are 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 other person. DVP II may be deemed to be controlled by certain
directors and officers of the Fund because they are also general
partners of the general partner of DVP II. DVP II therefore may be
deemed to be subject to section 57(a)(4) with respect to co-investments
with the Fund.
2. Section 57(i) of the Act provides that, until the SEC prescribes
rules under section 57(a)(4), the SEC's rules under sections 17(a) and
17(d) of the Act applicable to 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
[[Page 37103]]
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 DVP II may be deemed to be subject to section 57(a)(4),
investments in a portfolio company by the Fund in which DVP II also
invests may be subject to section 57(a)(4).
6. Applicants believe that co-investing will enable the Fund to
compete more effectively with entities and individuals who have greater
resources, and that co-investing will increase the Fund's ability to
achieve greater diversification and accordingly qualify for treatment
as a regulated investment company for federal income tax purposes.
7. Applicants contend that the obligations imposed on the Fund's
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 by the Fund and DVP II. Applicants also 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 therefore believe that requested relief
is consistent with the standards enumerated in section 6(c).
Applicants' Conditions
Applicants agree that the order shall be subject to the following
conditions:
1. (a) To the extent that the Fund is considering new investments,
the Adviser will review investment opportunities on behalf of the Fund,
including investments being considered on behalf of DVP II. The Adviser
will determine whether an investment being considered on behalf of DVP
II (``DVP II Investment'') is eligible for investment by the Fund.
(b) If the Adviser deems a DVP II Investment eligible for the Fund
(``co-investment opportunity''), the Adviser will determine what it
considers to be an appropriate amount that the Fund should invest. When
the aggregate amount recommended for the Fund and that sought by DVP II
exceeds the amount of the co-investment opportunity, the amount
invested by the Fund shall be based on the ratio of the net assets of
the Fund to the aggregate net assets of the Fund and DVP II.
(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 Fund's Independent Directors. Such
information will include the amount DVP II proposes to invest.
(d) Information regarding the Adviser's preliminary determinations
will be reviewed by the Fund's Independent Directors. The Fund will co-
invest with DVP II only if a required majority (as defined in section
57(o) of the Act) (``Required Majority'') of the Fund'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 Fund and do
not involve overreaching of the Fund or such shareholders on the part
of any person concerned:
(ii) The transaction is consistent with the interests of the
shareholders of the Fund and is consistent with the Fund's investment
objectives and policies as recited in filings made by the Fund 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 DVP II would not disadvantage the Fund, and
that participation by the Fund would not be on a basis different from
or less advantageous than that of DVP II; and
(iv) The proposed investment by the Fund will not benefit the
Adviser or any affiliated entity thereof, other than DVP II, except to
the extent permitted pursuant to sections 17(e) and 57(k) of the Act.
(e) The Fund has the right to decline to participate in the co-
investment opportunity or purchase less than its full allocation.
2. The Fund will not make an investment for its portfolio if DVP
II, 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 Fund in which DVP II is a
joint participant, the terms, conditions, price, class of securities,
settlement date, and registration rights shall be the same for the Fund
and DVP II.
4. If DVP II elects to sell, exchange, or otherwise dispose of an
interest in a security that is also held by the Fund, the Adviser will
notify the Fund of the proposed disposition at the earliest practical
time and the Fund 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 DVP II. The Adviser will
formulate a recommendation as to participation by the Fund in such a
disposition, and provide a written recommendation to the Fund's
Independent Directors. The Fund will participate in such disposition to
the extent that a Required Majority of its Independent Directors
determines that it is in the Fund's best interest. Each of the Fund and
DVP II will bear its own expenses associated with any disposition of a
portfolio security.
5. If DVP II 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 Fund or to exercise warrants or other rights
to purchase securities of such an issuer, the Adviser will notify the
Fund of the proposed transaction at the earliest practical time. The
Adviser will formulate a recommendation as to the proposed
participation by the Fund in a follow-on investment and provide the
recommendation to the Fund's Independent Directors along with notice of
the total amount of the follow-on investment. The Fund'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 Fund's and DVP II's
initial investments, the relative amount of investment by DVP II and
the Fund will be based on the ratio of the Fund's remaining funds
available for investment to the aggregate of the Fund's and DVP II's
remaining funds available for investment. The Fund will participate in
such investment to the extent that a Required Majority of its
Independent Directors determine that it is in the 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.
[[Page 37104]]
6. The Fund'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 compiled with.
7. The Fund 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 Fund's Independent Directors under
section 57(f).
8. No Independent Director of the Fund will be a director or
general partner of DVP II.
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-18052 Filed 7-15-96; 8:45 am]
BILLING CODE 8010-01-M
