[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]


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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'').

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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