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

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\ ---------------------------------------------------------------------------

\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). ---------------------------------------------------------------------------

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. ---------------------------------------------------------------------------

\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. ---------------------------------------------------------------------------

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,

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