Securities and Exchange Commission (“Commission”).
Notice of an application under section 17(b) of the Investment Company Act of 1940 (the “Act”) for an exemption from section 17(a) of the Act.
Summary of Application: Applicants request an order to permit a limited liability company to transfer its assets to a registered closed-end investment company in exchange for interests in the closed-end investment company.
Applicants: Stratigos Fund, L.L.C. (“Stratigos”), Balius Fund, L.L.C. (“Balius”) and CIBC Oppenheimer Advisers, L.L.C. (“Adviser”).
Filing Dates: The application was filed on August 27, 2002. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice.
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 December 27, 2002, 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 Commission's Secretary.
Secretary, Commission, 450 Fifth Street, NW., Washington, DC 20549-0609; Applicants, c/o CIBC World Market Corp., 622 Third Avenue, 8th Floor, New York, NY 10017.Start Further Info
FOR FURTHER INFORMATION CONTACT:
John L. Sullivan, Senior Counsel, at (202) 942-0681, or Annette Capretta, Branch Chief, at (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation).End Further Info End Preamble Start Supplemental Information
The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102 (telephone (202) 942-8090).
1. Stratigos, a Delaware limited liability company, is registered under the Act as a closed-end management investment company. Balius, a Delaware limited liability company, is not registered under the Act in reliance on section 3(c)(7) of the Act. Limited liability company interests (“Interests”) in Stratigos and Balius are not registered under the Securities Act of 1933, as amended (the “1933 Act”), and are sold to investors (“Members”) in a private placement in reliance upon section 4(2) of the 1933 Act and Regulation D under the 1933 Act.
2. The Adviser, a Delaware corporation, serves as (a) Stratigos' investment adviser and (b) the managing member of Balius and, in that capacity, has overall responsibility for the management, operation and administration of Balius, including Balius' investment activities. The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940. As of July 31, 2002, the Adviser owned an Interest in Stratigos with a net asset value of $52,452.31 (which represented 0.74% of the value of the outstanding Interests in Stratigos as of such date). As of July 31, 2002, Canadian Imperial Holdings, Inc. (“CIHI”), an affiliated person of the Adviser, owned an Interest in Balius with a net asset value of $67,459.64 (which represented 0.81% of the value of the outstanding Interests in Balius as of such date).
3. Applicants propose that, pursuant to an agreement and plan of acquisition (“Acquisition Agreement”), Balius will transfer to Stratigos substantially all of its assets, which will consist of cash and the portfolio securities of Balius that (a) are permissible investments under the investment policies and restrictions of Stratigos, as set forth in its offering memorandum (“Offering Memorandum”) and its limited liability company agreement (“Company Agreement”), and (b) have readily available market quotations (the “Assets”), in exchange for Interests of Stratigos (the “Exchange”). All of Start Printed Page 72710Balius' known liabilities (excluding short positions in securities and options) will be paid by Balius prior to the Exchange, and no liabilities of Balius (excluding short positions and options) will be transferred to Stratigos. Under the Acquisition Agreement, Interests of Stratigos delivered to Balius will have an aggregate net asset value equal to the net asset value of the Assets transferred by Balius to Stratigos. The Assets will be valued in accordance with the valuation policies of Stratigos as set forth in its Offering Memorandum and Company Agreement (“Valuation Procedures”). Interests in Stratigos received by Balius in the Exchange will be distributed to the Members of Balius and will be allocated to each Member of Balius in proportion to that Member's closing capital account in Balius, as determined immediately before the Exchange, in complete liquidation of Balius. The Exchange is scheduled to occur on or about December 31, 2002. No brokerage commissions, fees (except for customary transfer fees, if any) or other remuneration will be paid by Stratigos or Balius in connection with the Exchange. Stratigos and Balius each will pay its pro rata share, based on their relative net assets on the date of the Exchange, of the expenses incurred in connection with the Exchange. Applicants agree not to make any material changes to the Acquisition Agreement without prior approval of the Commission or its staff.
4. On August 1, 2002, the board of managers of Stratigos (the “Board”), including a majority of the members who are not “interested persons,” as defined in section 2(a)(19) of the Act (“Independent Managers”), approved the Acquisition Agreement. In approving the Acquisition Agreement, the Board concluded that: (a) The Exchange is consistent with the policies of Stratigos, as recited in its registration statement, (b) the terms of the Exchange, including the consideration to be received by Stratigos, are reasonable and fair and do not involve overreaching on the part of any concerned, (c) participation by Stratigos in the Exchange is in the best interests of Stratigos and its Members and the Interests of existing Members of Stratigos will not be diluted as a result of the Exchange, and (d) the Exchange is consistent with the general purposes of the Act. These findings, and the basis upon which they were made, are recorded in the minute books of Stratigos.
5. With respect to Balius, the Adviser (as Balius' managing member) believes that the Exchange is in the best interests of Balius and the Members of Balius. The Exchange is required to be approved by Members of Balius that represent more than 50% of the aggregate value of the outstanding Interests of Balius.
6. The Exchange will not be effected until: (a) The Commission has issued the requested order; and (b) Stratigos and Balius have received an opinion of counsel substantially to the effect that the Exchange will not result in taxable income to Balius, Stratigos or their respective Members.
Applicants' Legal Analysis
1. Section 17(a)(1) of the Act prohibits any affiliated person of a registered investment company, or any affiliated person of that person, acting as principal, from selling to the registered investment company any security or other property. Section 2(a)(3) of the Act defines an “affiliated person” as, among other things, any person controlling, controlled by, or under common control with, the other person; and, if the other person is an investment company, its investment adviser. Section 2(a)(9) of the Act, in relevant part, defines “control” as “the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official positions with such company.”
2. Applicants state that Balius could be deemed to be an affiliated person of Stratigos because Balius and Stratigos might be deemed to be under the common control of the Adviser. Thus, applicants state that the proposed Exchange may be prohibited under section 17(a) of the Act.
3. Rule 17a-7 exempts certain purchase and sale transactions otherwise prohibited by section 17(a) of the Act if an affiliation exists solely by reason of having a common investment adviser, common directors, and/or common officers, provided, among other requirements, that the transaction is for no consideration other than cash. Applicants state that the relief provided by rule 17a-7 may not be available for the Exchange because the Exchange will involve consideration other than cash (i.e., Interests of Stratigos) and certain of the assets transferred will be valued in accordance with the Valuation Procedures, rather than the methodology set forth in paragraph (b) of rule 17a-7. Applicants also state that Balius may be deemed to be affiliated with Stratigos for reasons other than those set forth in the rule 17a-7. There is a possibility that, as a result of withdrawals of capital by Members of Balius and Stratigos prior to the Exchange, the Adviser or CIHI may, at the time of the Exchange, own five percent or more of the outstanding Interests in Stratigos or Balius, or both.
4. Rule 17a-8 exempts certain transactions (including mergers, consolidations or purchases or sales of substantially all of the assets of a company (collectively, “Asset Acquisitions”)) otherwise prohibited by section 17(a) of the Act, provided, among other requirements, that the Asset Acquisition is between registered investment companies or between a registered investment company and an eligible investment fund (as defined in the rule) (“Eligible Unregistered Fund”). Applicants state that the relief provided by rule 17a-8 may not be available for the Exchange because the Exchange will involve Balius, which is not a registered investment company nor an Eligible Unregistered Fund.
5. Section 17(b) of the Act authorizes the Commission to exempt a transaction from the provisions of section 17(a) of the Act if the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned and the proposed transaction is consistent with the policy of each registered investment company concerned and the general purposes of the Act.
6. Applicants submit that the terms of the Exchange meet the criteria contained in section 17(b) of the Act. Applicants state that the Interests issued by Stratigos will have an aggregate net asset value equal to the aggregate net asset value of the assets acquired from Balius. Because the Valuation Procedures will be those used by Stratigos to value its portfolio securities, the Interests of existing Members of Stratigos will not be diluted as a result of the Exchange. Applicants also state that the investment objective and policies of Balius are substantially similar to those of Stratigos. Applicants further state that the Board, including a majority of the Independent Managers, has approved the Acquisition Start Printed Page 72711Agreement and that the Exchange will comply with the terms of paragraph (b) of rule 17a-7, except as described in the application, paragraphs (c), (d), (e), (f) and (g) of rule 17a-7 and the provisions of rule 17a-8 (as those provisions apply to a merger of an Eligible Unregistered Fund with a registered investment company).
Applicants agree that any order granting the requested relief will be subject to the following condition: The Exchange will comply with the terms of paragraph (b) of Rule 17a-7, except as described in the application, paragraphs (c), (d), (e), (f) and (g) of Rule 17a-7 and the provisions of Rule 17a-8 (as these provisions apply to a merger of an Eligible Unregistered Fund with a registered investment company).Start Signature
For the Commission, by the Division of Investment Management, under delegated authority.
Margaret H. McFarland,
1. Under the Valuation Procedures, domestic exchange traded or NASDAQ listed equity securities are valued at their last composite sales price as reported on the exchanges where those securities are traded. If no sales of such securities are reported on a particular day, the securities are valued based upon their composite bid prices for securities held long, or their composite ask prices for securities held short, as reported by such exchanges. The rationale for this approach is that in the absence of an actual sale price, the bid would best reflect the price at which Stratigos could expect to sell securities held long and the ask would best reflect the price at which Stratigos could expect to purchase the securities held short if it were required to do so.Back to Citation
[FR Doc. 02-30914 Filed 12-5-02; 8:45 am]
BILLING CODE 8010-01-P