[Federal Register Volume 63, Number 182 (Monday, September 21, 1998)]
[Notices]
[Pages 50264-50265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25131]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23437; 812-10744]
Z-Seven Fund, Inc.; Notice of Application
September 15, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 23(c)(3) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 23(c)
of the Act.
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SUMMARY OF THE APPLICATION: The requested order would permit the Z-
Seven Fund, Inc. (the ``Company'') to repurchase 698,210 of its common
shares from Agape Co., S.A. (``Agape'') in exchange for cash.
FILING DATES: The application was filed on August 7, 1997, and amended
on September 14, 1998.
HEARING OF 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 applicant with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on October 8, 1998, 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 who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. Applicant, 1819 South Dobson
Road, Suite 109, Mesa, Arizona 85202-5656.
FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, or Mary Kay
Frech, 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 at the
Commission's Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549 (tel. 202-942-8090).
Applicant's Representations
1. The Company, a Maryland corporation, is registered under the Act
as a closed-end management investment company. The Company has one
class of common shares which are traded on The NASDAQ Stock Market and
the Pacific Exchange.
2. Agape, a Panamanian corporation, owns approximately 27% or
698,210 of the Company's issued and outstanding shares (``Shares'').
Agape purchased the Shares in December 1992 pursuant to a purchase
agreement (``Purchase Agreement'') between Agape and the Company. The
Purchase Agreement gave Agape the right, after the first anniversary of
Agape's purchase, to require the Company to register, at the Company's
expense, the Shares for resale to the public (``Registration Rights'').
On November 27, 1996, Agape informed the Company of its desire to
liquidate its interest in the Company and requested that the Company
consider a repurchase of the Shares at their net asset value (``NAV'')
in exchange for Agape waiving its Registration Rights.
3. At special meetings of the board of directors of the Company
(``Board'') on January 8, 1997, June 5, 1997, and July 29, 1998, the
Board discussed the advantages and disadvantages associated with: (a)
the sale of the Shares with a help of a broker/dealer; (b) the
repurchase by the Company of the Shares at a negotiated price
(``Repurchase''); and (c) the registration of the Shares for sale in
brokerage or other open market transactions. The Board considered,
among other things, the likely effect of each alternative on: (a) the
market price of the Company's common shares; (b) Company's expense
ratio; (c) the trading market for the Company's common shares; (d) the
Company's total assets; and (e) the Company's expenses. The Board also
considered the amount of time it would take to sell the Shares.
4. The Board approved the Repurchase on the following terms: (a)
the Repurchase would be effected in four different transactions over a
period of eighteen months; (b) the purchase price for the Shares would
be one-half of one percent below the NAV of the Shares as determined at
the time of each Repurchase transaction, provided that no Repurchase
transaction would occur unless the Company's shares are trading at or
above NAV; and (c) Agape and the Company would issue joint press
releases announcing each Repurchase transaction.
5. The first Repurchase transaction will be for 200,000 shares and
will occur two months after the order requested in the application is
granted. The three subsequent Repurchase transaction will be for
150,000 shares, 150,000 shares, and 198,210 shares, respectively, and
will occur at six-month intervals thereafter. The specific timing of
each Repurchase transaction will be determined by the Company, provided
the shares are trading at or above NAV. If a Repurchase transaction
cannot be completed because the shares are trading at a discount from
NAV, the Repurchase period will be extended and the Repurchase will be
completed as soon as the discount disappears.\1\
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\1\ The Company has disclosed to shareholders, in its most
recent annual report, that it was seeking an order from the
Commission to repurchase the Shares from Agape over an 18-month
period following receipt of the order, at a price of one-half of one
percent below NAV at the time of each Repurchase transaction.
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6. The Company intends to raise cash for the Repurchase through the
orderly liquidation of its portfolio securities as is necessary as of
the time of each Repurchase transaction. The Company
[[Page 50265]]
does not believe that the liquidation would disrupt the Company's
portfolio for the remaining shareholders and states that the planned
and longer term nature of the Repurchase would allow the Company
appropriate time to plan for the necessary sale of portfolio
securities.
Applicant's Legal Analysis
1. Section 23(c) of the Act prohibits a registered closed-end
investment company from purchasing its own securities other than on a
securities exchange or pursuant to a tender offer. Section 23(c)(3)
also allows purchases to be made under such other circumstances as the
Commission may permit by order for ``the protection of investors to
insure that such purchases are made in a manner or on a basis which
does not unfairly discriminate against any holders of the class or
classes of securities to be purchased.''
2. Applicant states that the Repurchase permits the Company to
satisfy its contractual obligation to Agape and will have less of an
effect on the market value of the common shares than registering the
Shares for resale on the open market. Applicant also asserts that their
terms of the Repurchase were developed in response to Agape's
Registration Rights under the Purchase Agreement and were not
influenced by Agape's status as an affiliated person of the Company.\2\
Applicant also states that the Repurchase price will be one-half of one
percent lower than NAV; thus there will be no dilution of the other
shareholders' net interest in the Company. Applicant also states that
because there will be no Repurchase transaction if the NAV per share
exceeds market value per share, the price received by Agape will be no
higher than the market price (the price that may be obtained by other
shareholders that wish to sell their shares.) Applicant thus asserts
that the Repurchase does not unfairly discriminate against the
shareholders of the Company. Applicant also asserts that for the
reasons discussed above, the Repurchase is in the best interests of the
Company and its shareholders.
\2\ Agape is an affiliated person of the Company because it owns
more than 5% of the Company's voting securities. See section 2(a)(3)
of the Act. Agape is presumed to control the Company by virtue of
owning 25% or more of the Company's voting securities. See section
2(a)(9) of the Act. The Company states that Agape represented in the
Purchase Agreement that it was not investing in the Company for the
purpose of exercising or obtaining control of the Company and that
it was not the intention of Agape to directly or indirectly exercise
a controlling influence over the management or policies of the
Company. Agape does not have a representative on the Company's
Board.
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For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-25131 Filed 9-18-98; 8:45 am]
BILLING CODE 8010-01-M