[Federal Register Volume 59, Number 177 (Wednesday, September 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22733]
[[Page Unknown]]
[Federal Register: September 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20542; 812-8634]
Iowa Business Development Finance Corporation; Notice of
Application
September 8, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANT: Iowa Business Development Finance Corporation.
RELEVANT ACT SECTIONS: Order requested under section 6(c) for an
exemption from all provisions of the Act.
SUMMARY OF APPLICATION: Applicant is a business and industrial
development corporation organized under Iowa law. Applicant was
organized to foster economic development in the State of Iowa by making
loans to and investments in small developing companies. Applicant seeks
an exemption from all provisions of the Act.
FILING DATES: The application was filed on October 18, 1993 and amended
on August 3, 1994.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on October 3, 1994,
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 Fifth Street NW., Washington, DC 20549.
Applicant, 200 East Grand Avenue, Des Moines, Iowa 50309.
FOR FURTHER INFORMATION CONTACT: Marc Duffy, Senior Attorney, at (202)
942-0565, or C. David Messman, 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.
Applicant's Representations
1. Applicant was incorporated under the laws of Iowa on April 3,
1989 for the purpose of promoting the business prosperity of the State
of Iowa and its citizens. Applicant provides financial and management
assistance to businesses that may not otherwise qualify for
conventional financial assistance from the commercial banking industry.
In rendering financial assistance to businesses, applicant may purchase
debt and equity securities from such businesses.
2. Applicant is authorized by and regulated under the Iowa Business
Development Finance Act of 1988 (the ``Iowa Act''). As required by the
Iowa Act, applicant's board of directors consists of twelve directors,
seven of whom are public officials. Among applicant's public directors
are the Superintendent of Banking and the Commissioner of Insurance.
Applicant's president is appointed by the Director of the Iowa
Department of Economic Development (the ``Department'') from the
division within the Department that administers business financial
assistance programs. The Iowa Act mandates operational control of
applicant by the Department.
3. The Iowa Act requires applicant to submit annual reports of its
operations and condition to the Iowa Governor and the Iowa Legislature.
The Iowa Act also gives the Department authority to request the Iowa
Superintendent of Banking to examine applicant and submit a report to
the Department, with copies to the Governor and Iowa Legislature.
4. Currently, two employees of the Department are the only officers
of applicant. MABSCO Capital, Inc. (``MABSCO''), applicant's investment
adviser, assists applicant's officers in selecting investments in Iowa
businesses. MABSCO is registered as an investment adviser under the
Investment Advisers Act of 1940. MABSCO recommends investments to a
five-member Investment Committee composed of members of applicant's
board of directors. The Investment Committee and applicant's president
must approve each investment.
5. The Iowa Legislature appropriated $4,650,000 to applicant as a
grant to encourage private investment in applicant. In 1989, applicant
undertook a private offering of its securities under Rule 506 of
Regulation D under the Securities Act of 1933. Applicant's securities
were offered only to ``accredited investors'' (as defined in rule
501(a) of Regulation D) in the State of Iowa. At the conclusion of the
private offering, 174 shareholders had invested $6,660,500 in
applicant. Every investor is a financial institution, except for three
insurance companies and one public utility.
6. Applicant does not have any present intention to make a public
offering of its common stock or other securities. Any subsequent
offering of its common stock or other securities will be made in
compliance with the provisions of the Securities Act of 1933 or
applicable exemptions therefrom. In any public offering registered
under the Securities Act of 1933, applicant will implement reasonable
procedures designed to limit purchasers in such offering, and
purchasers in any secondary trading market which might develop, to
those persons who would be deemed to be sophisticated investors capable
of understanding and assuming the risks involved in an investment in
applicant's securities.
7. Applicant has made investments in 18 Iowa companies since 1989.
The nature of the investments ranges from debt obligations, in essence
commercial loans, to common and preferred stock. There is no public
market for any of these investments.
8. It had been contemplated by applicant's organizers that
applicant might be an investment company subject to the Act if its
shares were sold to more than 100 shareholders. The organizers were
advised that if applicant qualified as an investment company, it could
take advantage of certain tax benefits under Subchapter M of the
Internal Revenue Code. In light of the potential advantage of
Subchapter M, applicant registered under the Act in August 1989, rather
than seek an exemption from the provisions of the Act. In its almost
four years of operations, however, applicant has not earned a profit
and has been taxed as a ``C'' corporation, not under Subchapter M.
Applicant's Legal Analysis
1. Section 3(a)(3) of the Act defines the term ``investment
company'' to include any issuer that ``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.'' Applicant concedes that its holdings of
investment securities may exceed the 40% test set forth in section
3(a)(3).
2. Section 6(c) of the Act provides that the SEC may exempt any
person or transaction from any and all provisions of the Act if such
exemption is necessary or appropriate in the public interest and
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act.
3. Applicant believes that because of the state regulation to which
it is subject, and the public purposes for which it is organized, it is
not necessary or appropriate for it to be subject to the provisions of
the Act or the rules thereunder. In addition, applicant asserts that it
is organized under a state statute designed to produced economic
development initiatives on a local basis, and is supervised and
examined by the relevant state authority. Thus, applicant believes that
it is not the type of investment company that the Act was designed to
regulate. Accordingly, applicant asserts that it meets the section 6(c)
standards for an exemption.
4. Applicant is subject to regulation under the Act and the Iowa
Act. Both regulatory measures provide safeguards for applicant's
investors. The two regulatory schemes impose disparate requirements,
however, the sum total of which is an onerous burden upon applicant.
For example, section 16(a) of the Act requires that directors of a
registered investment company be elected by shareholders. Applicant
cannot meet this requirement, however, because many of its directors
are specified by the Iowa Act.
5. While it is not possible to know the reasons each investors
purchased stock in applicant, in light of the purpose of the Iowa Act
and the financial stake every investor has in the development of Iowa's
economy, it is reasonable to conclude that economic development, not
profit, was the reason those accredited investors purchased stock in
applicant.
6. Upon the SEC's granting of an order on this application,
applicant will file an application for an order under section 8(f) of
the Act declaring that it has ceased to be an investment company.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22733 Filed 9-13-94; 8:45 am]
BILLING CODE 8010-01-M
