[Federal Register Volume 61, Number 223 (Monday, November 18, 1996)]
[Notices]
[Pages 58716-58718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29442]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22326; 811-3787; 811-7526]


Bando McGlocklin Capital Corporation and Bando McGlocklin Small 
Business Investment Corporation; Notice of Applications

November 12, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of applications for orders under the Investment Company 
Act of 1940 (the ``Act'').

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APPLICANTS: Bando McGlocklin Capital Corporation, file no. 811-3787 
(``BMCC'') and Bando McGlocklin Small Business Investment Corporation, 
file no. 811-7526 (``BMSBIC'').

RELEVANT ACT SECTIONS: Section 8(f).

SUMMARY OF APPLICATIONS: Applicants seek an order declaring that each 
has ceased to be an investment company.

FILING DATES: The applications were filed on August 7, 1996 and amended 
on October 17, 1996 and November 8, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the applications 
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 December 16, 
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 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, 13555 Bishops Court, Brookfield, Wisconsin 53005.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Senior Staff Attorney, at (202) 942-0572, or Alison E. 
Baur, 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 SEC's Public Reference Branch.

Applicants' Representations

    1. Applicants are closed-end management investment companies that 
are organized as corporations under the laws of Wisconsin. BMCC 
registered under the Act on Form N-5 on June 29, 1983 and filed an 
initial registration statement under the Securities Act of 1933 on 
March 27, 1987, which became effective on May 13, 1987. BMSBIC 
registered under the Act on Form N-5 on February 27, 1993. BMCC, 
directly and through its wholly-owned subsidiaries, BMSBIC and Bando 
McGlocklin Small Business Lending Corporation (``BMSBLC''), provides 
long-term secured loans (primarily first mortgage) to finance the 
growth, expansion, and modernization of small businesses.
    2. Prior to March 26, 1993, BMCC operated as a small business 
investment company (``SBIC'') licensed under the Small Business 
Investment Act of 1958 (``SBIA''). On March 26, 1993, BMCC completed 
the formation of a holding company by transferring substantially all of 
its assets (including its license to operate as an SBIC) and 
liabilities to BMSBIC. On May 5, 1993, BMCC formed Bando McGlocklin 
Investment Company as a wholly-owned subsidiary and transferred a 
partially developed real estate parcel to it at fair value. On March 3, 
1994, BMCC formed BMSBLC. On June 13, 1994, BMSBLC registered as a 
closed-end management investment company under the Act. BMSBLC makes 
loans to small business concerns qualifying under the SBA section 7(a) 
loan guarantee program. In connection with establishing BMCC's holding 
company structure, applicants received several orders from the SEC (the 
``Orders'').\1\
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    \1\ Investment Company Act Release Nos. 20261 (Apr. 29, 1994) 
(notice) and 20317 (May 25, 1994) (order) (order amending prior 
orders permitting BMCC to establish BMSBLC as a wholly-owned 
subsidiary); 19584 (July 21, 1993) (notice) and 19636 (Aug. 17, 
1993) (order) (order amending initial order to permit BMCC to issue 
one class of senior security which is a stock); and 19030 (Oct. 15, 
1992) (notice) and 19092 (Nov. 10, 1992) (order) (initial order 
permitting BMCC to establish and operate BMSBIC as a wholly-owned 
subsidiary).

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[[Page 58717]]

    3. Applicants' fundamental investment policies state that, among 
other things, each is permitted to operate as a closed-end management 
investment company and to engage in the business of purchasing or 
selling real estate and real estate mortgage loans. BMCC conducts most 
of its business through BMSBIC which, as an SBIC registered under the 
SBIA, is subject to the supervision and regulation of the United States 
Small Business Administration (``SBA'').
    4. Due to changes in SBA regulations, BMSBIC has decided that it is 
impracticable for it to borrow from the SBA. Therefore, BMSBIC intends 
to surrender its license as an SBIC and applicants have filed to 
deregister under the Act. After deregistration, BMCC and BMSBIC intend 
to rely on the exemptions provided by sections 3(c)(6) and 3(c)(5)(C) 
of the Act, respectively, and operate as real estate investment trusts 
(``REITs'') pursuant to section 856 of the Internal Revenue Code of 
1986, as amended. In addition, BMCC intends to liquidate BMSBLC and 
deregister it under the Act.
    5. After it receives the requested order, BMCC intends to acquire 
90.9% of the non-voting stock of a new Wisconsin chartered bank which 
will be located in Pewaukee, Wisconsin (the ``Bank''). BMCC intends to 
purchase only non-voting stock of the Bank so that it will qualify as a 
REIT under the Internal Revenue Code.

Applicants' Legal Analysis

    1. Section 8(f) of the Act provides that whenever the SEC finds 
that a registered investment company has ceased to be an investment 
company it shall declare by order that the registration of such company 
will cease to be in effect. Section 3(c)(6) of the Act excludes from 
the definition of investment company any company engaged, directly or 
through majority-owned subsidiaries, in one or more of the businesses 
described in subparagraphs (A), (B), or (C) of section 3(c)(5), or in 
one or more of such businesses (from which not less than 25% of such 
company's gross income during its last fiscal year was derived) 
together with an additional business or businesses other than 
investing, reinvesting, owning, holding, or trading in securities. 
Section 3(c)(5)(C) excludes from the definition of investment company 
any person who is not engaged in the business of issuing redeemable 
securities, face-amount certificates of the installment type, or 
periodic payment plan certificates and who is primarily engaged in the 
business of ``purchasing or otherwise acquiring mortgages or other 
liens on and interests in real estate.''
    2. Once it is no longer an SBIC, BMSBIC will no longer be able to 
rely on the exemption provided by section 18(k) of the Act, which 
exempts SBICs from the leverage restrictions of sections 18(a)(1) (A) 
and (B) of the Act. Without the exemption provided by section 18(k), 
BMSBIC would be in immediate violation of section 18(a)(1) (A) and (B) 
and would not be able to meet such leverage restrictions in the future. 
Therefore, BMSBIC has decided to deregister under the Act.
    3. BMSBIC states that it is not an investment company pursuant to 
section 3(c)(5)(C) because it is primarily engaged in the business of 
purchasing or otherwise acquiring mortgages or other liens on and 
interests in real estate. Applicants represent that as long as BMSBIC 
relies on section 3(c)(5)(C), BMSBIC will meet criteria established by 
the SEC or its staff by rule, release, letter, or otherwise with regard 
to section 3(c)(5)(C).
    4. Once BMSBIC is deregistered, BMCC states that it believes that 
it will be excepted from the definition of ``investment company'' by 
virtue of section 3(c)(6) because it will be primarily engaged, 
directly and through wholly-owned subsidiaries, in the business of 
purchasing or otherwise acquiring mortgages and other liens on 
interests in real estate within the meaning of section 3(c)(5)(C). 
Further, BMCC submits that its planned acquisition of the Bank will not 
affect its status under section 3(c)(6).\2\ Therefore, BMCC seeks an 
order declaring that it no longer is an investment company under the 
Act.
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    \2\ Applicants have not requested the Commission to concur with 
their analysis with respect to sections 3(c)(5) and/or 3(c)(6).
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    5. Applicants' boards of directors have determined that it is in 
the best interests of applicants and their shareholders for applicants 
to deregister as investment companies. Applicants' boards of directors 
met six times during 1996 to consider the proposal to deregister 
applicants. In their deliberations, the boards considered the advantage 
of forming the Bank as a source of funds and the disadvantages of 
applicants being registered under the Act, in particular the difficulty 
of managing operating companies (rather than pooled investment 
entities) in compliance with the Act.
    6. Applicants believe that deregistering from the Act will afford 
them significant benefits and flexibility. In addition, BMCC states 
that after it is deregistered under the Act, BMCC will continue to be a 
publicly-held company and subject to the reporting and other 
requirements of the Securities Exchange Act of 1934 (the ``1934 Act''). 
BMCC believes that compliance with the requirements of the 1934 Act 
will provide sufficient protection to its stockholders to make 
continued registration under the Act unnecessary.

BMCC's Conditions

    As a condition to the granting of the requested order, BMCC 
represents that it will comply with the following conditions:
    1. As required by the Orders, before BMCC and BMSBIC change their 
fundamental investment policies and deregister as investment companies, 
BMCC will obtain shareholder approval of a resolution authorizing it 
and BMSBIC to change their fundamental investment policies and to 
deregister as investment companies under the Act at the 1996 annual 
meeting of applicant.\3\ BMCC will also obtain shareholder approval of 
a resolution authorizing BMCC to amend its articles of incorporation to 
remove all restrictions relating to the Act.
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    \3\ The meeting is scheduled for December 16, 1996. Proxy 
materials will be filed with the Commission in connection with the 
annual meeting.
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    2. BMCC will not operate its business so as to be an investment 
company required to be registered under the Act.

BMSBIC's Conditions

    As a condition to the granting of the requested order, BMSBIC 
represents that it will comply with the following conditions:
    1. As required by the Orders, before BMCC and BMSBIC rescind their 
fundamental investment policies and deregister as investment companies, 
BMCC will obtain shareholder approval of a resolution authorizing it 
and BMSBIC to rescind their fundamental investment policies and to 
deregister as investment companies under the Act at the 1996 annual 
meeting of BMCC.
    2. BMSBIC will not operate its business so as to be an investment 
company required to be registered under the Act.


[[Page 58718]]


    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29442 Filed 11-15-96; 8:45 am]
BILLING CODE 8010-01-M