[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
