[Federal Register Volume 64, Number 115 (Wednesday, June 16, 1999)]
[Notices]
[Pages 32296-32297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15190]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23865; 812-11268]
Global TeleSystems Group, Inc.; Notice of Application
June 9, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under section 3(b)(2) of
the Investment Company Act of 1940 (the ``Act'').
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SUMMARY OF APPLICATION: Global TeleSystems Group, Inc. (``GTS'')
requests an order under section 3(b)(2) of the Act declaring that it is
engaged primarily in a business other than that of investing,
reinvesting, owning, holding, or trading in securities.
Filing Dates: The application was filed on August 24, 1998.
Applicant has 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 requested
relief 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 July 6,
1999, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, NW, Washington, DC 20549-
0609. Global TeleSystems Group, Inc., 1751 Pinnacle Drive, North Tower
12th Floor McLean, Virginia 22102.
FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel,
(202) 942-7120, or Nadya B. Roytblat, Assistant Director, (202) 942-
0564 (Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 5th Street, NW, Washington, DC
20549-0102 (tel. 202-942-8090).
Applicant's Representations
1. GTS, a Delaware corporation, provides telecommunications
services to businesses, other telecommunications service providers, and
consumers. Through its wholly- and majority-owned subsidiaries
(together with GTS, the ``GTS Group''), GTS operates voice and data
networks, international gateways, local access and cellular networks,
and various value-added services in Western Europe, Central Europe, and
the Commonwealth of Independent States, primarily Russia.
2. GTS's management has extensive experience in the development and
operation of telecommunications businesses outside the United States.
GTS actively participates in the operations and management of its
subsidiaries by providing most of the funding for the subsidiaries'
operations, selecting key members of the local management team,
developing business
[[Page 32297]]
plans and marketing strategies together with local management,
monitoring operating functions, and integrating its networks and
businesses in a manner which is consistent with GTSs overall strategic
objectives.
3. GTS intends to continue to expand its business. GTS maintains
that the telecommunications business is capital intensive and, in order
to compete, that it requires substantial capital to continue to develop
its networks and meet the funding requirements of its operations,
including losses, as well as to provide capital for acquisition and
business development initiatives. In the past three years, GTS states
that it raised over $600 million through a combination of public and
private offerings of equity and debt securities. In addition, GTS
states that it raised approximately $1.6 billion over the past two
years through the issuance of debt.
4. GTS currently holds its cash in short-term investments pending
deployment of the cash in building out its telecommunications projects.
In addition, GTS states that it may need to raise additional capital to
execute its current business plan, fund expected operating losses,
consummate future acquisitions and exploit opportunities to expand and
develop its businesses. GTS states that its need to raise and maintain
large amounts of capital to meet its anticipated capital expenditures
may create uncertainty as to its status as an investment company under
section 3(a) of the Act.
Applicant's Legal Analysis
1. Under section 3(a)(1)(C) of the Act, an issuer is an investment
company if it ``is engaged or proposes to engage in the business of
investing, reinvesting, owning, holding, or trading in securities, and
owns or proposes to acquire investment securities having a value
exceeding 40 per centum of the value of such issuer's total assets
(exclusive of government securities and cash items) on an
unconsolidated basis.'' Section 3(a)(2) of the Act defines ``investment
securities'' to include all securities except Government securities,
securities issued by employees' securities companies, and securities
issued by majority-owned subsidiaries of the owner which are not
investment companies and which are not excepted from the definition of
investment company by section 3(c)(1) or section 3(c)(7) of the Act.
2. GTS states that it meets the definition of an investment company
under section 3(a)(1)(C) of the Act because it owns investment
securities with a value in excess of 62% of its total assets (excluding
cash items) on an unconsolidated basis. In addition, GTS states that
because it anticipates raising additional capital to finance its
capital expenditures and operations, it is unable to estimate when its
holdings of investment securities, within the meaning of section
3(a)(2) of the Act, will represent less than 40% of GTS's total assets.
3. Section 3(b)(2) provides that, notwithstanding section
3(a)(1)(C) of the Act, the SEC may issue an order declaring an issuer
to be primarily engaged in a business or businesses other than that of
investing, reinvesting, owning, holding, or trading in securities
either directly, through majority-owned subsidiaries, or controlled
companies conducting similar types of businesses. GTS requests an order
under section 3(b)(2) declaring that GTS is primarily engaged through
its wholly- and majority-owned subsidiaries in a business other than
that of investing, reinvesting, owning, holding, or trading in
securities.
4. In determining whether a company is primarily engaged in a non-
investment company business under section 3(b)(2), the SEC considers:
(a) the applicant's historical development; (b) its public
representations of policy; (c) the activities of its officers and
directors; (d) the nature of its present assets; and (e) the sources of
its present income.\1\
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\1\ See Tonopah Mining Company of Nevada, 26 S.E.C. 426, 427
(1947).
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(a) Historical Development: GTS states that it was formed in 1983
to provide telecommunications services in foreign markets and to
establish a high speed transmission network across Western Europe.
Since its inception, GTS states that it also has developed into a
leading independent provider of telecommunications services to
businesses, other high usage customers, and telecommunications carriers
in Europe.
(b) Public Representations of Policy: GTS states that it does not
now, and has never, held itself out as an investment company. GTS
asserts that, in its annual reports, shareholder letters, prospectuses,
SEC filings, and on its Internet web site, it consistently represents
itself to shareholders and the public as a company providing
telecommunications services.
(c) Activities of Officers and Directors: GTS states that its
officers and directors are actively engaged in the management and
development of its telecommunications businesses. GTS further states
that of its ten principal officers, only one spends any time
(approximately 5%) monitoring the Group's cash reserves and short-term
securities.
(d) Nature of Assets: GTS states that, as of December 31, 1998, its
total assets, on a consolidated basis, were $2,614 million. Of these,
$986 million, or approximately 37%, represented investment securities
as that term is defined in section 3(a)(2) of the Act. GTS states that
these investment securities consist of short-term, liquid instruments
that are held by GTS not for investment purposes but to preserve its
assets pending using these monies for business operations or for
purchase of operating assets.
(e) Source of Income: GTS states that in 1998, it had total net
losses of $255.8 million. Of these, 91% were attributable to GTS's
operations and 9% to GTS's investment activities. GTS's investment
expenses exceeded its investment income because GTS paid $83 million of
interest on its short- and long-term debt and earned $60 million of
interest income from its investment securities.
5. GTS thus states that it meets the factors that the SEC considers
in determining whether an issuer is primarily engaged in a business
other than that of investing, reinvesting, owning, holding, or trading
in securities.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-15190 Filed 6-15-99; 8:45 am]
BILLING CODE 8010-01-M
