[Federal Register Volume 64, Number 215 (Monday, November 8, 1999)]
[Notices]
[Pages 60859-60862]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29155]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24121; 812-11420]


Elk Associates Funding Corporation, et al.; Notice of Application

November 2, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application: (i) under sections 6(c), 12(d)(1)(J), 
and 57(c) of the Investment Company Act of 1940 (``Act'') for 
exemptions from sections 12(d)(1)(A) and (C), 18(a), 21(b), 57(a)(1) 
through (a)(3), and 61(a) of the Act; (ii) under section 57(i) of the 
Act and rule 17d-1 under the Act to permit certain joint transactions 
otherwise prohibited by section 57(a)(4) of the Act; and (iii) under 
section 12(h) of the Securities Exchange Act of 1934 (``Exchange Act'') 
for an exemption from section 13(a) of the Exchange Act.

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SUMMARY OF THE APPLICATION: The requested order would permit a business 
development company (``BDC'') to implement a reorganization plan under 
which it would become a wholly-owned subsidiary of a newly-formed BDC. 
The order would permit the two companies, and any additional wholly-
owned BDC subsidiaries of the parent established in the future, to 
engage in certain transactions that would otherwise be permitted if the 
parent and its BDC subsidiaries were one company, adhere to modified 
asset coverage requirements, and file certain reports on a consolidated 
basis.
    Applicants: Elk Associates Funding Corporation (``Elk''), 
Ameritrans Capital Corporation (``Ameritrans''), and Gary C. Granoff 
(``Granoff'').
    Filing Dates: The application was filed on November 27, 1998. 
Applicants have agreed to file an amendment, the substance of which is 
reflected in this notice, during the notice period.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on November 29, 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 may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, N.W., Washington, DC 20549-0609. Applicants, c/o Stursberg & 
Veith, Attn: C. Walter Stursberg, Jr., 405 Lexington Avenue, Suite 
4949, New York, NY 10174-4902.

FOR FURTHER INFORMATION CONTACT:
Rachel H. Graham, Senior Counsel, at (202) 942-0583, or Christine Y. 
Greenlees, 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 Commission's Public Reference Branch, 450 Fifth Street, N.W., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Elk, a New York corporation, is a closed-end management 
investment company registered under the Act that has elected to be 
regulated as a BDC, as defined in section 2(a)(48) of the Act.\1\ Elk 
also is licensed as a small business investment company (``SBIC'') 
under the Small Business Investment Act of 1958 (``1958 Act''). Granoff 
is Elk's president and the chairman of its board of directors 
(``Board'').
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    \1\ Section 2(a)(48) generally defines a BDC to be any closed-
end management investment company that operates for the purpose of 
making investments in securities described in sections 55(a) (1) 
through (3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. Ameritrans, a Delaware corporation, is a closed-end management 
investment company registered under the Act that has elected to be 
regulated as a BDC. Granoff, who also is a Ameritrans' president and 
the chairman of its Board, has purchased for $10 the sole outstanding 
share of Ameritrans' common stock.

[[Page 60860]]

    3. Applicants have proposed a reorganization in which Elk would 
become a wholly-owned subsidiary of Ameritrans. Ameritrans would 
acquire all of the outstanding voting capital stock of Elk by means of 
a share-for-share exchange with Elk's public shareholders (``Share 
Exchange''). Following the Share Exchange, Ameritrans will repurchase 
for $10 the share of its stock owned by Granoff. Ameritrans will engage 
in lending and investment activities not subject to the restrictions of 
the 1958 Act. Elk will continue to operate as a BDC and an SBIC, making 
loans to or investments in small business concerns as permitted by the 
1958 Act.
    4. On September 22, 1998, Elk's Board approve the Share Exchange 
and voted to recommend that the proposal be submitted to Elk's 
shareholders for approval. On October 20, 1999, Ameritrans filed a 
proxy statement with the Commission. Applicants anticipate that Elk 
will distribute proxy materials to its shareholders on or about 
November 10, 1999, and hold the shareholder meeting on or about 
December 10, 1999.
    5. Ameritrans may in the future establish additional wholly-owned 
subsidiaries (collectively, ``Future Subsidiaries''), some of which may 
be regulated as BDCs (``Future BDC Subsidiaries''). Any Future 
Subsidiary that is not a BDC will not be an investment company. Elk and 
the Future Subsidiaries collectively are referred to in this notice as 
the ``Subsidiaries.'' Any Future Subsidiary that relies on the 
requested order will do so only in accordance with the terms and 
conditions of the application.
    6. Applicants request an order to permit the Share Exchange. The 
requested order also would permit Ameritrans, Elk, and any Future BDC 
Subsidiaries to engage in certain transactions that otherwise would be 
permitted if Ameritrans, Elk, and the Future BDC Subsidiaries were a 
single company, adhere to modified asset coverage requirements, and 
file certain reports on a consolidated basis.

Applicants' Legal Analysis

A. The Share Exchange

    1. Sections 57(a) (1) and (2) of the Act generally prohibit, with 
certain exceptions, sales or purchases of securities or other property 
between BDCs and certain of their affiliates as described in section 
57(b) of the Act. Section 57(b) includes any director of officer of a 
BDC and any person who directly or indirectly controls a BDC. 
Applicants state that Ameritrans could be deemed to be an affiliate of 
Elk under section 57(b)(1) because Ameritrans is controlled by Granoff, 
an officer and director of Elk. Applicants state that the transfer of 
Ameritrans' shares to the shareholders of Elk may be deemed to be a 
prohibited sale of securities to Elk within the meaning of section 
57(a)(1). Applicants accordingly request relief under section 57(c) of 
the Act from section 57(a)(1) to permit such transfer as part of the 
Share Exchange.
    2. Section 57(c) provides, in relevant part, that the Commission 
will exempt a proposed transaction from the prohibitions in section 
57(a)(1) if the terms of the proposed transaction are reasonable and 
fair and do not involve overreaching of the BDC or its shareholders on 
the part of any person concerned, and the proposed transaction is 
consistent with the policy of the BDC and the general purposes of the 
Act. Applicants submit that the requested relief meets this standard.
    3. Applicants state that the Share Exchange will benefit Elk's 
shareholders because Ameritrans will be able to take advantage of 
business opportunities not otherwise available to Elk as an SBIC. 
Applicants also state that there will be no threat of overreaching 
because Granoff is the nominal owner of a single Ameritrans share, 
which share will be repurchased for its original purchase price of $10 
following the Share Exchange.

B. Operation as One Company

Section 12(d)(1)
    1. Section 12(d)(1)(A) of the Act, made applicable to BDCs by 
section 60 of the Act, limits the amount of securities that a BDC, or a 
company controlled by the BDC, may hold of other investment companies. 
Section 12(d)(1)(C) of the Act, which also applies to BDCs by reason of 
section 60, limits the amount of securities of a registered closed-end 
investment company that a BDC, or a company controlled by the BDC, may 
require.
    2. Applicants state that any acquisition of the debt or equity 
securities of, or any contribution to capital of, a Future BDC 
Subsidiary by Ameritrans may violate sections 12(d)(1)(A) and (C).\2\ 
Applicants state that these provisions also may preclude each 
Subsidiary from: (i) acquiring debt securities issued by Ameritrans or 
any other Subsidiary, and (ii) making loans or advances to Ameritrans 
or any other Subsidiary. Applicants request relief from sections 
12(d)(1)(A) and (C) in order to permit these types of transactions, but 
only to the extent that the transactions would not be prohibited if 
each Subsidiary were deemed to be part of Ameritrans and not a separate 
company.
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    \2\ Rule 60a-1 under the Act exempts from sections 12(d)(1)(A) 
and (C) the acquisition by a BDC of the securities of an SBIC 
licensed under the 1958 Act that is operated as a wholly-owned 
subsidiary of the BDC. The rule exempts Ameritrans' acquisition of 
Elk's securities, and any loans or advances from Ameritrans to Elk, 
from the limits in sections 12(d)(1)(A) and (C).
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    3. Section 12(d)(1)(J) of the Act, in relevant part, provided that 
the Commission may exempt transactions from any provisions of section 
12(d)(1) if, and to the extent that, the exemption is consistent with 
the public interest and the protection of investors. Applicants submit 
that the requested relief meets this standard.
    4. Applicants state that the proposed transactions among Ameritrans 
and the Subsidiaries will not entail the types of abuses that the 
provisions of sections 12(d)(1)(A) and (C) were designed to prevent. 
Applicants further state that Ameritrans, as the sole shareholder of 
the Subsidiaries, will have no incentive to act contrary to the 
interests of any Subsidiary.
Sections 57(a)(1) and (2)
    1. As discussed above, sections 57(a)(1) and (2) of the Act 
generally prohibit, with certain exceptions, sales or purchases of 
securities or other property between BDCs and certain of their 
affiliates as described in section 57(b) of the Act. Section 57(b) 
includes a person under common control with a BDC. Each Subsidiary 
could be deemed to be an affiliate of each other Subsidiary under 
section 57(b) because they will be under the common control of 
Ameritrans.
    2. Applicants request relief from sections 57(a)(1) and (2) under 
section 57(c) to exempt any transaction between Ameritrans and Elk or a 
Future BDC Subsidiary, and any transaction between Elk or a Future BDC 
Subsidiary, on the one hand, and any other Subsidiary on the other 
hand, with respect to the purchase or sale of securities or other 
property. Applicants also request relief from sections 57(a)(1) and (2) 
to exempt any purchase or sale transaction between Ameritrans and a 
controlled portfolio affiliate of Elk or a Future BDC Subsidiary, and 
any purchase or sale transaction between Elk or a Future BDC Subsidiary 
and a controlled portfolio affiliate of Ameritrans or of another Future 
BDC Subsidiary or Elk, but only to the extent that any such transaction 
would not be prohibited if Elk and the Future BDC Subsidiaries were 
deemed to be part of Ameritrans and not separate companies. Applicants 
submit that the requested relief meets the

[[Page 60861]]

section 57(c) standard because it would permit Ameritrans, Elk, and the 
Future BDC Subsidiaries to do what the Act would otherwise permit if 
Elk and the Future BDC Subsidiaries were part of Ameritrans and not 
separate companies.
Sections 21(b) and 57(a)(3)
    1. Section 57(a)(3) of the Act generally prohibits the borrowing of 
money or other property from a BDC by a person related to the BDC 
within the meaning of section 57(b), except as permitted under section 
21(b) of the Act. Section 21(b) (made applicable to BDCs by section 62 
of the Act, with certain exceptions) generally prohibits loans from a 
BDC to a person who controls or is under common control with the BDC, 
except for loans to a company that owns all of the outstanding 
securities of the BDC. As described above, each Subsidiary will be 
under the common control of Ameritrans and, therefore, will be 
affiliated with each other Subsidiary within the meaning of section 
57(b).
    2. Applicants request relief from section 57(a)(3) under section 
57(c) to exempt any borrowing of money or other property from Elk or a 
Future BDC Subsidiary by Ameritrans or any other Subsidiary. Applicants 
also request relief from section 21(b) under section 6(c) of the Act to 
exempt any lending of money or other property by Elk or a Future BDC 
Subsidiary to Ameritrans or another Subsidiary. Applicants state that 
the proposed transactions will have no substantive economic effect 
because they will be among Ameritrans and its wholly-owned 
subsidiaries.
    3. Applicants state that it may be in the interests of Ameritrans' 
shareholders for Ameritrans, Elk, or any Future BDC Subsidiary to loan 
money or other property to portfolio companies controlled by any other 
of Ameritrans, Elk, and the Future BDC Subsidiaries. Accordingly, 
applicants also request relief from sections 21(b) and 57(a)(3) to 
exempt any lending of money or other property from Elk or a Future BDC 
Subsidiary to a controlled portfolio affiliate of Ameritrans or of 
another Future BDC Subsidiary or Elk, but only to the extent that any 
such transaction would not be prohibited if Elk and the Future BDC 
Subsidiaries were deemed to be part of Ameritrans and not separate 
companies.
    4. Section 6(c) of the Act, in relevant part, permits the 
Commission to exempt any transaction or class of transactions 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. Applicants state that the proposed lending 
transactions discussed above will satisfy the standards for relief in 
sections 6(c) and 57(c). Applicants note that the requested relief 
would permit Ameritrans, Elk, and the Future BDC Subsidiaries to do 
what the Act would permit if they were one company.
Section 57(a)(4) and Rule 17d-1
    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, or an 
affiliated person of such a person, acting as principal, from 
participating in any joint enterprise or arrangement in which the 
registered company or a company it controls is a participant, unless 
the Commission has issued an order authorizing the arrangement. Section 
57(a)(4) of the Act imposes substantially the same prohibitions on 
joint arrangements involving BDCs and certain of their affiliates as 
described in section 57(b). Section 57(i) of the Act provides that the 
rules and regulations under section 17(d) will apply to transactions 
subject to section 57(a)(4) in the absence of rules under that section. 
The Commission has not adopted rules under section 57(a)(4) with 
respect to joint transactions and, accordingly, the standard set forth 
in rule 17d-1 governs applicants' request for relief.
    2. Applicants state that a joint transaction in which Elk or a 
Future BDC Subsidiary and Ameritrans or another Subsidiary participates 
may be prohibited under section 57(a)(4). Applicants request relief 
under section 57(i) and rule 17d-1 to permit any joint transaction in 
which Elk or a Future BDC Subsidiary and Ameritrans or another 
Subsidiary participate, but only to the extent that the transaction 
would not be prohibited if Elk and the Future BDC Subsidiaries were 
deemed to be part of Ameritrans and not separate companies.
    3. In determining whether to grant an order under section 57(i) and 
rule 17d-1, the Commission may consider whether the participation of 
the BDC in the joint transaction 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 in the transaction. Applicants state that 
this standard is satisfied because the requested relief would simply 
permit Ameritrans and the Subsidiaries to conduct their operations as 
if they were one company.
Section 18(a)
    1. Section 18(a) of the Act prohibits a registered closed-end 
investment company from issuing any class of senior security unless the 
company complies with the asset coverage requirements set forth in that 
section. Section 18(k) exempts an investment company operating as an 
SBIC from the asset coverage requirements for senior securities 
representing indebtedness that are contained in sections 18(a)(1)(A) 
and (B). Section 61(a) of the Act makes section 18 applicable to BDCs, 
with certain modifications.
    2. Applicants state that Ameritrans, Elk, and the Future BDC 
Subsidiaries may be required to comply with the asset coverage 
requirements of section 18(a), as modified by section 61(a) for BDCs, 
on a consolidated basis if Ameritrans were deemed to be an indirect 
issuer of any class of senior security issued by the Subsidiaries. 
Applicants request relief under section 6(c) from sections 18(a) and 
61(a) to permit Ameritrans to exclude from its consolidated asset 
coverage ratio any senior security representing indebtedness that is 
issued by Elk.
    3. Applicants state that the requested relief satisfies the section 
6(c) standard. Applicants contend that, to the extent that any 
Subsidiary is entitled to rely on section 18(k) for an exemption from 
the asset coverage requirements of sections 18(a) and 61(a), there is 
no policy reason to deny Ameritrans the benefit of that exemption when 
Ameritrans consolidates its assets with those of the Subsidiaries for 
the purpose of compliance with those requirements.

C. Consolidated Reporting

    1. Section 54 of the Act provides that a closed-end investment 
company may elect BDC treatment under the Act if the company has 
registered or filed a registration statement under section 12 of the 
Exchange Act for a class of its equity securities. Section 13(a) of the 
Exchange Act requires that issuers of securities registered under the 
Exchange Act file certain information and reports with the Commission. 
Applicants request an order under section 12(h) of the Exchange Act to 
exempt Elk and each Future BDC Subsidiary from the reporting 
requirements of section 13(a) of the Exchange Act so that Ameritrans, 
Elk, and the Future BDC Subsidiaries may file consolidated reports. 
Absent the requested relief, Elk and each Future BDC Subsidiary, on an 
unconsolidated basis, would have to make periodic filings with the 
Commission, even though Ameritrans will be the sole equity holder of 
each such Subsidiary.

[[Page 60862]]

    2. Section 12(h) of the Exchange Act provides that the Commission 
may exempt an issuer from section 13 of the Exchange Act if the 
Commission finds that the exemption is not inconsistent with the public 
interest and the protection of investors. Applicants state that the 
requested exemption meets this standard because applicants will be 
providing the same information required by the Exchange Act's reporting 
requirements on a consolidated basis.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Ameritrans will at all times own and hold beneficially and of 
record all of the outstanding voting capital stock of Elk and the 
Future Subsidiaries.
    2. Elk and any Future BDC Subsidiaries will have the same 
fundamental investment policies as Ameritrans, as set forth in 
Ameritrans' registration statement, and will not engage in any other 
activities described in section 13(a) of the Act, except in each case 
as authorized by the vote of a majority of the outstanding voting 
securities of Ameritrans.
    3. No person will serve or act as investment adviser or principal 
underwriter to Elk or any Future BDC Subsidiary unless the directors 
and shareholders of Ameritrans will have taken the action with respect 
thereto also required to be taken by the directors and sole shareholder 
of such Subsidiary.
    4. Ameritrans will not itself issue or sell any senior security and 
Ameritrans will not cause or permit Elk or any Future BDC Subsidiary to 
issue or sell any senior security of which Ameritrans, Elk, or any 
Future BDC Subsidiary is the issuer, except to the extent permitted by 
section 18 (as modified for BDCs by section 61) of the Act; provided 
that, immediately after the issuance or sale by any of Ameritrans, Elk, 
or any Future BDC Subsidiary of any such notes or evidences of 
indebtedness, Ameritrans and its Subsidiaries on a consolidated basis, 
and Ameritrans individually, will have the asset coverage required by 
section 18(a) of the Act (as modified by section 61(a) for Ameritrans), 
except that, in determining whether Ameritrans and its Subsidiaries on 
a consolidated basis have the asset coverage required by section 18(a) 
of the Act, as modified by section 61(a), any Small Business 
Administration (``SBA'') preferred stock interest in Elk and the Future 
BDC Subsidiaries and any borrowings by Elk and any Future BDC 
Subsidiaries will not be considered senior securities and, for purposes 
of the definition of ``asset coverage'' in section 18(h), will be 
treated as indebtedness not represented by senior securities.
    5. No person shall serve as a director of Elk or of a Future 
Subsidiary unless elected as a director of Ameritrans at its most 
recent annual meeting, as contemplated by section 16(a) of the Act. 
Vacancies on Ameritrans' Board will be filled in the manner provided 
for in section 16(a). Notwithstanding the foregoing, the Board of Elk 
and of any Future Subsidiary will be elected by Ameritrans as the sole 
shareholder of such Subsidiary, and such Board will be composed of the 
same persons that serve as directors of Ameritrans.
    6. Ameritrans and any Subsidiary will acquire securities 
representing indebtedness of Elk or of any Future BDC Subsidiary 
operating as a SBIC only if, in each case, the prior approval of the 
SBA has been obtained. In addition. Elk or any Future BDC Subsidiary 
operating as a SBIC, on the one hand, and Ameritrans or any other 
Subsidiary on the other hand, will purchase and sell portfolio 
securities between themselves only if, in each case, the prior approval 
of the SBA has been obtained.
    7. Ameritrans will: (i) File with the Commission, on behalf of 
itself, Elk, and any Future BDC Subsidiaries, all information and 
reports required to be filed with the Commission under the Exchange Act 
and other federal securities laws, including information and financial 
statements prepared solely on a consolidated basis as to Ameritrans, 
Elk, and any Future BDC Subsidiaries, such information and reports to 
be in satisfaction of any separate reporting obligations of Elk and any 
Future BDC Subsidiaries; and (ii) provide to its shareholders such 
information and reports required to be disseminated to Ameritrans' 
shareholders, including information and financial statements prepared 
solely on a consolidated basis as to Ameritrans, Elk, and any Future 
BDC Subsidiaries, such information and reports to be in satisfaction of 
any separate reporting obligations of Elk and any Future BDC 
Subsidiaries. Notwithstanding anything in this condition, Ameritrans 
will not be relieved of any of its reporting obligations including, but 
not limited to, any consolidating statement setting forth the 
individual statements of Elk and any Future BDC Subsidiaries required 
by rule 6-03(c) of Regulation S-X.
    8. Ameritrans, Elk, and any Future BDC Subsidiaries may file on a 
consolidated basis under condition 7 above only so long as the amount 
of Ameritrans' total consolidated assets invested in assets other than 
securities issued by Elk and any Future BDC Subsidiaries, or securities 
similar to those in which Elk and any Future BDC Subsidiaries invest, 
does not exceed ten percent.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-29155 Filed 11-5-99; 8:45 am]
BILLING CODE 8010-01-M