[Federal Register Volume 61, Number 60 (Wednesday, March 27, 1996)]
[Notices]
[Pages 13541-13544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7345]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21836; 812-9786]
Access Capital Strategies Community Investment Fund, Inc., et
al.; Notice of Application
March 20, 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: Access Capital Strategies Community Investment Fund, Inc.
(``Strategies'') and Access Capital Strategies Corp. (``Access''), on
behalf of themselves and any future business development companies that
are advised by Access or entities controlling, controlled by, or under
common control (as defined in section 2(a)(9) of the Act) with Access
(``Future Funds'').
Relevant Act Sections: Order requested under section 6(c) and rule 17d-
1 authorizing certain transactions otherwise prohibited under section
57(a)(4).
Summary of Application: Applicants seek an order that would permit two
existing portfolios of Strategies and any Future Fund to enter into
certain co-investment transactions.
Filing Dates: The application was filed on September 28, 1995, and
amended on December 27, 1995 and March 15, 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
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 April 15, 1996,
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 such notification by writing to the
SEC's Secretary.
Addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C
20549. Applicants, c/o Access Capital Strategies Corp., 124 Mt. Auburn
Street, Suite 200N, Cambridge, Massachusetts 02138.
For Further Information Contact: Courtney S. Thornton, Senior Counsel,
at (202) 942-0583, or Alison E. Baur, Branch Chief, at (202) 942-0564
(Divi-
sion of Investment Management,
[[Page 13542]]
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. Applicants seek an order under section (6(c) and rule 17d-1
authorizing two portfolios of Strategies, the Bank Portfolio and the
Institutional Investor Portfolio (the ``Portfolios''), and the Future
Funds (collectively with the Portfolios, the ``Funds'') to purchase
securities or otherwise effect transactions jointly with another Fund
in transactions that are otherwise prohibited by section 57(a)(4). Each
Portfolio is a Maryland corporation that has elected to be regulated as
a business development company (``BDC'') under the Act.\1\ The
investment objective of each Portfolio is to invest in geographically
specific private placement debt securities and to earn a total return
over the life of the Portfolio greater than that of the Access
Benchmark, a blend of selected fixed-income indices designed by Mellon
Bond Associates, a wholly-owned subsidiary of Mellon Bank Corporation.
\1\ Each Future Fund will elect to be regulated as a BDC under
the Act.
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2. Access, a newly formed corporation that has registered as an
investment adviser under the Investment Advisers Act of 1940, is an
indirect, wholly-owned subsidiary of Mellon Bank, N.A. Access serves as
investment adviser to each Portfolio. As compensation for its services,
Access will receive an annual management fee based upon a percentage of
the assets of each Portfolio.
3. Each Portfolio has an eight-member board of directors (``Board
of Directors''), five of whom are not affiliated persons of Access or
interested persons of any Fund (the ``Independent Directors''). The
Board of Directors of each Portfolio will provide overall guidance and
supervision with respect to the operations of the Portfolio, and will
perform all duties the Act imposes on the boards of directors of BDCs
organized in corporate form. The Independent Directors will assume the
responsibilities and obligations imposed by the Act and the regulations
thereunder on the disinterested directors of a BDC organized in
corporate form. None of the Independent Directors of the Bank Portfolio
will serve as an Independent Director of the Institutional Investor
Portfolio, although one or more of the Independent Directors of the
Portfolios may serve as Independent Directors of one or more Future
Funds.
4. Applicants propose to allow each Fund to purchase securities
jointly with one or more other Funds in transactions that are otherwise
prohibited by section 57(a)(4) or rule 17d-1 under the Act (``Co-
Investment Transactions''). Before undertaking a Co-Investment
Transaction, Access will make a written investment presentation
respecting the proposed transaction to the Board of Directors of each
Fund based on such considerations and circumstances as Access deems
appropriate, including the consistency of the proposed transaction with
the investment objectives and policies of each Fund. The presentation
will include the name of each Fund that has funds available for
investment and the amount of the proposed investment. There will be no
consideration paid to Access (or its controlling persons) directly or
indirectly, including any type of brokerage commission, in connection
with a Co-Investment Transaction, although Access will continue to
receive its normal advisory compensation with respect to each Fund.
5. Each Fund will make its own decision on whether or not to
participate in a Co-Investment Transaction, and no Fund will be able to
impose an investment decision on the other Funds. Prior to engaging in
a Co-Investment Transaction, a required majority (as defined in section
57(o) of the Act) (``Required Majority'') of the directors of each Fund
shall conclude that the terms of the proposed transaction, as presented
to them by Access, are reasonable and fair to the shareholders of their
respective Fund and do not involve overreaching of the Fund or its
shareholders on the part of any person concerned.
6. Where the aggregate amount recommended for a Fund and that
sought by other Funds is greater than the amount available for
investment, the amount available for purchase by a Fund shall be
determined on a pro rata basis determined by dividing the net assets of
the fund by the sum of the net assets of the fund and each other Fund
seeking to make the investment. Each Fund may determine not to take its
full allocation or decline to participate when a Required Majority of
the directors of the Fund determines that to do so would not be in the
best interests of the Fund. Any such excess investment opportunity will
be made available to other Funds that have determined to participate in
the Co-Investment transaction in the same proportions as their
participation in the transaction. All follow-on investments (additional
investments in the same entity) will be treated in the same manner as
the initial Co-Investment Transaction, except that the denominator in
the fraction will consist solely of the net assets for those Funds that
chose to participate in the initial transaction.
7. A Co-Investment Transaction will be effected for each
participating Fund on the same terms and conditions. For such co-
investment assets, each Fund will be offered the opportunity to sell,
exchange, or otherwise dispose of such investments in the same manner
and at the same time. A Required Majority of the directors of a Fund
may either accept all or part or none of such offer, depending on their
determination of the best interests of each Fund. A decision by a Fund
not to participate in a Co-Investment Transaction, to take less or more
than its full allocation, or not to sell, exchange of otherwise dispose
of a co-investment asset in the same manner and at the same time as the
other Funds electing to participate, shall include a finding by a
Required Majority of its directors that such decision is fair and
reasonable to the fund and its shareholder's and not the result of
overreaching on the part of any party concerned.
8. Applicants believe that the ability to participate in Co-
Investment Transactions would be advantageous for each Fund because it
would enlarge the scope of each Fund's co-investment opportunities and
permit such transactions to be effected at better prices and on more
favorable terms than if only one Fund has Been able to participate in
any given transaction. If the requested order were not granted, the
Funds would have to seek the participation of other community investing
entities or forego the opportunity. Applicants also anticipate that the
availability of one or more of the Funds as an investing partner in a
Co-Investment Transaction would significantly alleviate the cost of
searching for such an alternative investing partner, as well as the
risk that the alternative community investing entity would appropriate
for itself the entire investment opportunity.
Applicants' Legal Analysis
1. Section 57(a)(4) prohibits certain affiliated persons of a BDC
specified in section 57(b) from participating in joint transactions
with the BDC or a company controlled by the BDC. Section 57(b)(2)
extends the prohibitions of section 57(a) to persons under common
control with a BDC. Applicants believe that the Funds may be prohibited
from engaging
[[Page 13543]]
in joint transactions because they share a common investment adviser.
2. Section 57(i) provides that the rules and regulations of the SEC
under sections 17(a) and (d) applicable to registered closed-end
investment companies shall apply to transactions subject to sections
57(a) and (d) in the absence of rules under these sections. No rules
with respect to joint transactions have been adopted under sections
57(a) and (d). Rule 17d-1 prohibits affiliated persons of a registered
investment company from entering into joint transactions with the
investment company unless the SEC has granted an order permitting the
transaction after considering whether the participation of the
investment company is consistent with the provision, 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.
3. Applicants state that all Funds will participate in the proposed
Co-Investment Transactions on the same terms. In addition, applicants
state that the procedure for allocating investment opportunities will
ensure that the Funds will be treated fairly. Moreover, applicants
assert that the approval of these transactions by a Required majority
of the directors will ensure that no overreaching will occur.
Applicants therefore believe that the requested exemption for Co-
Investment Transactions meets the standards for granting exemptive
relief under rule 17d-1.
4. Section 6(c) of the Act permits the SEC to exempt any person or
transaction from any provision of the Act if the exemption is necessary
or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policy
of the Act. Applicants submit that it would be impractical to attempt
to obtain separate exemptive relief under section 57(a)(4) and rule
17d-1 for each Co-Investment Transaction as it arises. Applicants
therefore represent that failure to obtain prospective, generic
exemptive relief would severely hamper the Funds' ability to
participate meaningfully in community investing and, thus, to achieve
their investment objectives. Accordingly, applicants believe that the
terms of the relief requested with respect to the proposed Co-
Investment Transactions are consistent with the standards of section
6(c).
Applicants' Conditions
Applicants agree that the following conditions will govern
transactions under the requested order:
1. (a) To the extent that a Fund is considering new investments,
Access will review investment opportunities on behalf of the Fund,
including investments being considered on behalf of other Funds. Access
will determine whether a particular investment is eligible for
investment by any Fund.
(b) If access deems an investment eligible for investment by any
Fund, Access will determine what it considers to be an appropriate
amount that the Fund should invest in the particular investment. Where
the aggregate amount recommended for the Fund and that sought by other
Funds is greater than the amount available for investment, the amount
available for purchase by the Fund shall be determined on a pro rata
basis calculated by dividing the net assets of the Fund by the sum of
the net assets of each Fund seeking to make the investment.
(c) Following the making of the determinations referred to in (a)
and (b), Access will distribute information concerning the proposed Co-
Investment Transaction to the Board of Directors of each participating
Fund. Such information will include the name of each Fund that proposes
to make the investment and the amount of each proposed investment.
(d) The Board of Directors of each participating Fund will review
the information regarding Access's preliminary determination. A fund
will only engage in a Co-Investment Transaction if a Required Majority
of the directors of the Fund 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 its registration statement and
reports filed under the Securities Exchange Act of 1934, and its report
to shareholders;
(iii) the investments by one or more of the other Funds 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 the other
Funds; and
(iv) the proposed Co-Investment Transaction will not benefit Access
or any affiliated person thereof (other than the Funds) except to the
extent permitted pursuant to sections 17(e) and 57(k) of the Act.
(e) A Fund has the right to decline to participate in a particular
Co-Investment Transaction or may purchase less than its full
allocation.
2. No Fund will make an investment for its portfolio if a Fund,
Access, or a person controlling, controlled by, or under common control
with Access is an existing investor in such issuer.
3. All Co-Investment Transactions will consist of the same class of
securities, including the same registration rights (if any) and other
rights related thereto, at the same unit consideration, and on the same
terms and conditions, and the settlement date will be the same.
4. If one or more Funds elect to sell, exchange, or otherwise
dispose of an interest in a particular security that is also held by
another Fund, notice of the proposed disposition will be given to the
other Funds at the earliest practical time, and such Funds 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. Access will formulate a recommendation as to participation
by such Fund in such a disposition, and provide a written
recommendation to the Board of Directors of such Fund. A Fund will
participate in any such disposition if a Required Majority of its
directors determines that it is in the best interest of the investing
Fund. Each Fund will bear its own expenses associated with any such
disposition of a portfolio security.
5. If a Fund desires to make a follow-on investment in a particular
issuer whose securities are held by any other Fund, or to exercise
rights to purchase securities of such an issuer, Access will notify the
other Fund of the proposed transaction at the earliest practical time.
Access will formulate a recommendation as to the proposed participation
by the other Fund in a follow-on investment, and provide the
recommendation to the other Fund's Board of Directors along with notice
of the total amount of the follow-on investment. The other Fund's
directors will make their own determination with respect to follow-on
investments. To the extent that the amount of a follow-on investment
available to a Fund is not based on the amount of its initial
investment, the relative amount of investment by each Fund
participating in a follow-on investment will be based on a ratio
derived by comparing the remaining funds available for investment by
each such Fund with the
[[Page 13544]]
total amount of the follow-on investment. A Fund will participate in
such investment to the extent that a Required Majority of its 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 herein.
6. The Board of Directors of the Funds will be provided quarterly
for review all information concerning Co-Investment Transactions made
by the Funds, including Co-Investment Transactions in which one or more
Funds declined to participate, so that they may determine whether all
Co-Investment Transactions made during the preceding quarter, including
those Co-Investment Transactions they declined, compiled with the
conditions set forth above.
7. Each Fund will maintain the records required by section 57(f)(3)
of the Act as if each of the Co-Investment Transactions permitted under
these conditions had been approved by Required Majority of its
directors under section 57(f).
8. No Fund will engage in a Co-Investment Transactions with another
Fund that has a common Independent Director.
9. No person other than a Fund shall participate in a Co-Investment
Transaction unless a separate exemptive order with respect to such
transaction has been obtained.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-7345 Filed 3-26-96; 8:45 am]
BILLING CODE 8010-01-M