[Federal Register Volume 63, Number 198 (Wednesday, October 14, 1998)]
[Notices]
[Pages 55158-55160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27416]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23478; 812-11148]


MACC Private Equities Inc., et al.; Notice of Application

October 6, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under sections 6(c0 and 
57(i) of the Investment Company Act of 1940 (the ``Act''), and under 
rule 17d-1 under the Act permitting certain joint transactions 
otherwise prohibited by section 57(a)(4) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
business development companies to co-invest with certain affiliates in 
portfolio companies.

APPLICANTS: MACC Private Equities, Inc. (``Private equities''), 
MorAmerica Capital Corporation (``MorAmerica Capital''), and 
InvestAmerica Investment Advisors, Inc. (``InvestAmerica'').

FILING DATES: The application was filed on May 21, 1998, and amended on

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September 21, 1998. 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 November 2, 1998, 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 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549. Applicants, Suite 310, 101 Second 
Street SE, Cedar Rapids, Iowa 52401.

FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, or George J. 
Zornada, 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, NW, Washington, 
DC 20549. (tel. 202-942-8090).

Applicants' Representations

    1. Private Equities and MorAmerica, incorporated under the laws of 
the States of Delaware and Iowa, respectively, are closed-end 
investment companies that each have elected to be regulated as a 
business development company (a ``BDC'') under the Act. MorAmerica, a 
wholly-owned subsidiary of Private Equities, is licensed to operate as 
a small business investment company under the Small Business Investment 
Act of 1958. Both Private Equities and MorAmerica have the investment 
objective of long-term capital appreciation through venture capital 
investments in small, lesser-known companies (``Portfolio 
Companies'').\1\
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    \1\ Private Equities and MorAmerica received an order to operate 
essentially as one company. See MACC Private Equities Inc., 
Investment Company Act Release Nos. 20831 (Jan. 12, 1995) (notice) 
and 20887 (Feb. 7, 1995) (order).
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    2. InvestAmerica is an investment adviser registered under the 
Investment Advisers Act of 1940. InvestAmerica serves as investment 
adviser to both Private Equities and MorAmerica Capital.
    3. As of January 15, 1998, Zions Bancorporation (``Zions''), a 
bank-holding company, and Zions First National Bank (``Bank''), a 
wholly-owned subsidiary of Zions, owned approximately 21.44% of the 
issued and outstanding shares of Private Equities. On February 24, 
1998, a majority of the board of directors (``Board'') of Private 
Equities, including a majority of the Board who are not ``interested 
persons'' of Private Equities, agreed to permit Zions and/or the Bank 
to increase their collective ownership of Private Equities common stock 
up to 35% of Private Equities' issued and outstanding shares.
    4. Applicants request an order under section 57(i) of the Act and 
under rule 17d-1 under the Act to permit Private Equities and/or 
MorAmerica (the ``Investing Company''), Zions, and/or direct or 
indirect wholly-owned subsidiaries of Zions (``Zions Subsidiaries,'' 
and together with Zions, ``Zions Affiliates'') to co-invest in 
Portfolio Companies.

Applicants' Legal Analysis

    1. Section 57(a)(4) of the Act prohibits certain affiliated persons 
from participating in a joint transaction with a BDC in contravention 
of rules as prescribed by the Commission. Under section 57(b)(2), any 
person directly or indirectly controlling, controlled by, or under 
common control with, a BDC is subject to section 57(a)(4) of the Act. 
Under section 2(a)(9) of the Act, a control relationship is presumed to 
exist if a person, either directly or through one or more controlled 
companies, is the beneficial owner of more than 25% of a company's 
outstanding voting securities.
    2. Section 57(i) of the Act provides that, until the Commission 
prescribes rules under section 57(a)(4), the Commission's rules under 
sections 17(a) and (17)(d) of the Act applicable to closed-end 
investment companies shall be deemed to apply to sections 57(a) and 
57(d) of the Act. Because the Commission has not adopted any rules 
under section 57(a)(4), rule 17d-1 applies.
    3. rule 17d-1 under the Act generally prohibits affiliated persons 
of an investment company from entering into joint transactions with the 
company without prior Commission authorization. In passing upon 
applications under rule 17d-1(b), the Commission will consider whether 
the participation by the BDC in such joint transaction in 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.
    4. Applicants state that when Zions and the Bank increase their 
collective ownership of Private Equities above 25% of the issued and 
outstanding shares, they will be presumed to control Private Equities. 
Applicants also state that because Zions directly or indirectly owns 
all, or substantially all, of the issued and outstanding shares of each 
of the Zions Subsidiaries, Private Equities and the Zions Subsidiaries 
may be deemed to be under common control. As a result, the Zions 
Affiliates may be prohibited from entering into joint transactions with 
applicants absent an exemptive order.
    5. Applicants anticipate that the Zions Affiliates may have access 
to a broad range of attractive co-investment opportunities which are 
consistent with applicants' investment objectives and which may allow 
investment in a broader geographic area.\2\ Applicants state that 
Private Equities and MorAmerica both have investment committees (each 
an ``Investment Committee'') which will review the proposed co-
investments with the Zions Affiliates. None of the voting members of 
the Investment Committees are interested persons or applicants, nor 
will they have any direct or indirect financial interest in any matter 
than before the Investment Committees. The voting members consist of 
five outside directors of MorAmerica and Private Equities. The non-
voting members are two directors who are affiliates of InvestAmerica 
and a nominee of Zions. Applicants submit that granting the requested 
relief is consistent with the provisions, policies, and purposes of the 
Act and that the co-investments will be on a basis no different from or 
less advantageous than that of the other participants.
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    \2\ To the extent permitted by rule 17d-1(d)(3) under the Act, a 
Zions Affiliate may make loans or extend credit to companies in 
which Private Equities or MorAmerica Capital invest. Under no 
circumstances will an investment by Private Equities or MorAmerica 
Capital in a Portfolio Company be used to repay a loan to a Zions 
Affiliate.
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Applicants' Conditions.

    Applicants agree that the requested order shall be subject to the 
following conditions:
    1. (a) To the extends that Private Equities and MorAmerica Capital 
are considering new investments,

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InvestAmerica will review investment opportunities on their behalf, 
including investments which are being considered by the Zions 
Affiliates. InvestAmerica will determine whether an investment being 
considered by one or more of the Zions affiliates and which is offered 
to Private Equities and MorAmerica Capital for investment (a ``Zions 
Affiliates Investment'') is eligible for investment by Private Equities 
and MorAmerica Capital.
    (b) If InvestAmerica deems a Zions Affiliates Investment eligible 
for investment by the Investing Company (a ``co-investment 
opportunity''), InvestAmerica will determine what it considers to be an 
appropriate amount that the Investing Company should invest. Where the 
aggregate amount recommended for the Investing Company and that sought 
by the Zions Affiliates exceeds the amount of the co-investment 
opportunity, the amount invested by the investing Company shall be 
based on the ratio of the net assets of the Investing Company to the 
aggregate net assets of the Investing Company and the Zions Affiliate 
seeking to make the investment.
    (c) Following the making of the determinations referred to in (a) 
and (b) above, InvestAmerica will distribute written information 
concerning all co-investment opportunities to the Investing Company's 
Investment Committee. The information will include the amount the Zions 
Affiliate proposes to invest.
    (d) Information regarding InvestAmerica's preliminary 
determinations will be reviewed by the Investing Company's Investment 
Committee. The Investing Company will co-invest with a Zions Affiliate 
only if a required majority (as defined in section 57(o) of the Act) 
(``Required Majority'') of the Investing Company's Investment Committee 
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 Private Equities 
and do not involve overreaching of the Investing Company or it 
shareholders on the part of any persons concerned;
    (ii) The transaction is consistent with the interests of the 
shareholders of Private Equities and is consistent with the Investing 
Company's investment objectives and policies as recited in filings made 
by the Investing Company under the Securities Act of 1933, as amended, 
its registration statement and reports filed under the Securities 
Exchange Act of 1934, as amended, and its reports to shareholders;
    (ii) The investment by the Zions Affiliates would not disadvantage 
the Investing Company, and that participation by the Investing Company 
would not be on a basis different from or less advantageous than that 
of the Zions Affiliates; and
    (iv) The proposed investment by the Investing Company will not 
benefit the Zions Affiliates or any affiliated entity thereof, other 
than the Zions Affiliates making the co-investment, except to the 
extent permitted pursuant to sections 17(e) and 57(k) of the Act.
    (e) The Investing Company has the right to decline to participate 
in the co-investment opportunity or purchase less than its full 
allocation.
    2. The Investing Company will not make an investment for its 
portfolio if any Zions Affiliate, or a person controlling, controlled 
by, or under common control with the Zions Affiliates: (a) is an 
existing investor in such issuer, with the exception of a follow-on 
investment that complies with condition 5 below; or (b) has made a loan 
or extended credit to the issuer, except as permitted by rule 17d-
1(d)(3) under the Act.
    3. For any purchase of securities by the Investing Company and 
Zions Affiliate is a joint participant, the terms, conditions, price, 
class of securities, settlement date, and registration rights shall be 
the same of or the Investing Company and the Zions Affiliate.
    4. If a Zions Affiliate elects to sell, exchange, or otherwise 
dispose of an interest in a security that is also held by the Investing 
Company, such Zions Affiliate will notify the Investing Company of the 
proposed disposition at the earliest practical time and the Investing 
Company will be given the opportunity to participate in the disposition 
on a proportionate basis, at the same price and on the same terms and 
conditions as those applicable to the Zions Affiliates. InvestAmerica 
will formulate a recommendation as to participation by the Investing 
Company in a follow-on co-investment, and provide the recommendation to 
the Investing Company in such a disposition, and provide a written 
recommendation to the Investing Company's Investment Committee. The 
Investing Company will participate in the disposition to the extent 
that a Required Majority of its Investment Committee determines that it 
is in the Investing Company's best interest. Each of the Investing 
Company and Zions Affiliate will bear its own expenses associated with 
any such disposition of a portfolio security.
    5. If a Zions Affiliate desires to make a ``follow-on'' co-
investment (i.e., an additional investment in the same entity) in a 
portfolio company whose securities are held by the Investing Company or 
to exercise warrants or other rights to purchase securities of the 
issuer, such Zions Affiliate will notify the Investing Company of the 
proposed transaction at the earliest practical time. InvestAmerica will 
formulate a recommendation as to the proposed participation by the 
Investing Company's Investment Committee along with notice of the total 
amount of the follow-on co-investment. The Investing Company's 
Investment Committee will make its own determination with respect to 
follow-on co-investment. The relative amount of investment in a follow-
on co-investment opportunity by the Investing Company and each Zions 
Affiliate will be based upon the amount of the Investing Company's and 
the Zions Affiliate's initial investments. The Investing Company will 
participate in the follow-on co-investment to the extent that a 
Required Majority of its Investment Committee determines that it is in 
the Investing Company's best interest. The acquisition of follow-on co-
investments as permitted by this condition will be subject to the other 
conditions in the application.
    6. The voting member of the Investing Company's Investment 
Committee will review quarterly all information concerning co-
investment opportunities during the preceding quarter to determine 
whether the conditions in the application were complied with.
    7. The Investing Company will maintain the records required by 
section 57(f)(3) of the Act as if each of the investments under these 
conditions were approved by the Investing Company's Investment 
Committee under section 57(f).
    8. No voting member of the Investing Companies' Investment 
Committees will be a director or general partner of a Zions Affiliate 
with which the Investing Company co-invests.

    For the Commission, by Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27416 Filed 10-13-98; 8:45 am]
BILLING CODE 8010-01-M