[Federal Register Volume 62, Number 168 (Friday, August 29, 1997)]
[Notices]
[Pages 45888-45890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23004]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22797; International Series Release No. 1098; File No. 
812-10376]


Tele-Communications International, Inc.; Notice of Application

August 22, 1997.
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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SUMMARY OF APPLICATION: Applicant Tele-Communications International, 
Inc. requests an order under section 6(c) of the Act that would permit 
applicant and its controlled companies to participate in certain 
foreign tele-media ventures without being subject to the provisions of 
the Act.

FILING DATES: The application was filed on October 2, 1996, and amended 
on June 30, 1997 and August 18, 1997.

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 September 16, 
1997 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, N.W., Washington, D.C. 
20549. General Counsel, Applicant, 5619 DTC Parkway, Englewood, CO 
80111.

FOR FURTHER INFORMATION CONTACT: David W. Grim, Staff Attorney, at 
(202) 942-0571, or Mary Kay Frech, 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 
SEC's Public Reference Branch [450 Fifth Street, N.W., Washington, D.C. 
20549; (202) 942-8090].

Applicant's Representations

    1. Applicant, a Delaware corporation, was incorporated in 1994 as a 
wholly-owned subsidiary of Tele-Communications, Inc. (``TCI''), a 
Delaware corporation. TCI, through its subsidiaries and affiliates 
(other than applicant), is principally engaged in the construction, 
acquisition, ownership, and operation of cable television systems in 
the United States and the provision of cable and satellite-delivered 
video entertainment, information, and home shopping programming 
services to various distribution media.
    2. Applicant was formed by TCI as a holding company for the purpose 
of consolidating TCI's international cable and telecommunications and 
certain of its international programming businesses under one 
corporation, pending an initial public offering of stock by applicant 
in mid-1995. Applicant was formed with its own management team, which 
largely consisted of those executive officers of TCI who had been 
responsible for the operations of TCI's international divisions. During 
the fourth quarter of 1994 and the first quarter of 1995, TCI 
contributed its ownership interests in substantially all of its 
international cable and telephony assets and certain of its 
international programming assets to applicant (the ``TCI 
Contributions''). TCI currently owns approximately 85% of the 
outstanding shares of all series of common stock of applicant and 
approximately 92% of the combined voting power of all series of 
outstanding shares of common stock of applicant.
    3. Applicant has expanded and built upon the assets it received 
through the TCI Contributions and has established ventures in new 
markets. Today applicant, directly and through joint ventures and 
controlled companies, is engaged in the business of acquiring, 
developing, operating, and managing broadband distribution, 
telecommunications, and programming businesses in selected markets 
outside the United States.
    4. Applicant's assets are not held as passive or portfolio 
investments and are not traded for short-term profit. Applicant has 
never been a registered investment company (or subject to any analogous 
regulatory scheme in another jurisdiction) and has never been engaged 
in the business of investing, reinvesting, or trading in securities.
    5. Applicant requests relief to permit applicant and each entity 
that is now or in the future controlled by, or under common control 
with, applicant (each, including applicant, a ``Covered Entity'') to 
engage, either directly or indirectly through subsidiaries, in certain 
foreign tele-media ventures without being subject to the provisions of 
the Act. For purposes of the application, applicant represents that 
``foreign tele-media venture'' means any and all activities outside the 
United States involving: communications; media; the creation, storage 
and transmission of voice, video, or data; programming, including 
entertainment, news, information, and home shopping services; print 
media; broadband and satellite distribution; over the air broadcast; 
telecommunications; wireline or wireless distribution and telephony;

[[Page 45889]]

network construction; design, operation, and ownership of related 
transport construction; and any and all related or similar activities, 
services, and assets.
    6. Applicant is a holding company and, directly and through other 
Covered Entities, is engaged in the business of acquiring proprietary 
interests in, and developing, operating, and managing, foreign tele-
media ventures. Applicant's management team has significant experience 
and expertise in pioneering the development of, acquiring interests in, 
and managing distribution, telecommunications, and programming 
companies both domestically and in markets outside the United States. 
The officers and employees of applicant spend the vast majority of 
their time on the business and affairs of applicant's foreign tele-
media ventures. Contributions by these individuals include working to 
implement the construction of distribution networks, hiring staff, 
developing and implementing business plans and budgets, creating, 
acquiring, developing, and scheduling programming services, overseeing 
lobbying and other regulatory efforts, and providing technical, 
operational, marketing, and engineering direction. Management's time is 
also spent performing market analyses, developing new business 
opportunities for applicant, determining possible partner candidates, 
serving on boards of directors and management committees of foreign 
tele-media ventures, and maintaining relationships with strategic 
investors and partners. Applicant becomes involved in most of its 
foreign tele-media ventures in the start-up or development stage. In 
other cases, its involvement comes after the development stage, but 
applicant's participation enables the venture to advance more rapidly 
or effectively its business plan.
    7. Applicant participates in foreign tele-media ventures in either 
of two ways. One way is for applicant, directly or through one or more 
other Covered Entities, to invest in a foreign tele-media company. A 
``foreign tele-media company,'' as used herein, is any corporation, 
partnership, joint venture, association, joint stock company, limited 
liability company, or other form of organization (i) substantially all 
of whose operations are conducted outside of the United States, (ii) 
that owns the assets of the foreign tele-media ventures (which may 
consist of capital assets or stock of operating subsidiaries), and 
(iii) whose business primarily relates to, or whose operations consist 
primarily of, the ownership, development, and operation of, or the 
provision of management or operational services relating to, foreign 
tele-media ventures. Applicant, directly or through one or more other 
Covered Entities, acquires a substantial interest in the foreign tele-
media company, and provides active developmental assistance to the 
company. For purposes of the application, applicant represents that 
``substantial interest'' means any ownership interest that represents 
at least a 10% economic or voting interest. Applicant further 
represents that ``active developmental assistance'' means material 
involvement in the creation, development, or operation of, the 
provision of material managerial, advisory, or operational services 
relating to, or significant input on material decisions affecting the 
development or operations of, a foreign tele-media venture.
    8. The second way applicant participates in foreign tele-media 
ventures is by investing, either directly or through one or more other 
Covered Entities, in a tele-media partnership. For purposes of the 
application, applicant represents that a ``tele-media partnership'' 
means any partnership, joint venture, limited liability company, or 
other unincorporated association (i) substantially all of whose 
operations are conducted outside of the United States, and (ii) whose 
purpose is to acquire interests in, and to develop, operate, or provide 
management services to, one or more foreign tele-media companies. 
Representatives of applicant or another Covered Entity participate on 
the management committee or similar governing body of the tele-media 
partnership. Applicant, directly or through one or more other Covered 
Entities, acquires a substantial interest in the tele-media partnership 
which, in turn, directly or through one or more subsidiaries, acquires 
a substantial interest in one or more foreign tele-media companies. 
Applicant or another Covered Entity, either directly or through the 
tele-media partnership, provides active developmental assistance to the 
foreign tele-media ventures of the tele-media partnership.
    9. Applicant represents that providing ``active developmental 
assistance'' requires applicant or another Covered Entity to be or have 
been materially involved in providing such assistance. Thus, if 
applicant or another Covered Entity was materially involved in the 
development of a foreign tele-media venture, such entity may thereafter 
cease to provide active developmental assistance to such venture after 
the venture has moved past the development stage, provided it continues 
to have a substantial interest in the venture. Similarly, if applicant 
or another Covered Entity acquires a substantial interest in a foreign 
tele-media venture after the development stage and provides active 
developmental assistance to that venture, then applicant or such 
Covered Entity may continue to rely on the requested exemptive order, 
notwithstanding that it ceases to provide such developmental assistance 
to the venture, if applicant or such Covered Entity maintains its 
substantial interest in the venture, and (i) the business of the 
foreign tele-media venture was significantly enhanced by the 
participation of applicant or such Covered Entity, or (ii) such foreign 
tele-media venture (a) is merged or combined with, or acquired by, a 
company in the same or a related business, or (b) effects an initial 
public offering of voting stock. Material involvement in a foreign 
tele-media venture will not be present, however, in arrangements that 
are immaterial to the overall development or successful operation of 
the foreign tele-media venture.
    10. The degree of applicant's participation in foreign tele-media 
ventures with local and strategic partners is a result of both 
restrictions on foreign investment under the laws of many countries in 
which applicant does business, as well as benefits, both tangible and 
intangible, that applicant obtains from joining with strategic partners 
to create, develop, and operate such ventures. Applicant's structure 
was not established for the purpose of creating an investment company 
within the contemplation of the Act. While applicant believes that 
today it is not required to register under the Act, it is seeking the 
requested exemptive order as it and its foreign tele-media ventures are 
increasingly constrained by the requirements of the Act.

Applicant's Legal Analysis

    1. Section 3(a)(1)(C) of the Act defines an ``investment company'' 
as including any issuer that is engaged in the business of investing, 
reinvesting, owning, holding, or trading in securities, and owns 
investment securities having a value exceeding 40% of the value of such 
issuer's total assets (exclusive of Government securities and cash 
items). Section 3(a)(2) defines ``investment securities'' to include 
all securities except, in pertinent part, 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). Section 2(a)(24) defines 
a ``majority-owned subsidiary'' of a person as a company 50% or more

[[Page 45890]]

of the outstanding voting securities of which are owned by such person, 
or by a company which, within the meaning of section 2(a)(24), is a 
majority-owned subsidiary of such person.
    2. Rule 3a-1 under the Act deems certain issuers that meet the 
statutory definition of investment company in section 3(a)(1)(C) of the 
Act not to be investment companies, provided such issuers meet certain 
criteria. An issuer can qualify for this exemption only if no more than 
45% of its assets consist of, and no more than 45% of its net income is 
derived from, securities other than, among others, securities of 
certain companies controlled primarily by the issuer.\1\
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    \1\ ``Primary control'' under rule 3a-1 means a degree of 
control that is greater than that of any other person. See Health 
Communications Services, Inc. (pub. avail. Apr. 26, 1985).
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    3. Applicant represents that it seeks to acquire a majority voting 
interest in its foreign tele-media ventures or, where such an interest 
is not permitted under applicable foreign investment laws or is 
inadvisable for business reasons, seeks to acquire interests that grant 
it primary control. Applicant asserts that these ownership thresholds 
are prohibitively large, as applicant often seeks to join with two or 
three strategic partners in a foreign tele-media venture. Applicant 
represents that each partner typically desires an interest in, and 
rights over, the venture that is equal to that of the other partners. 
Hence, applicant states that its acquisition of a majority interest, or 
the largest interest, in a foreign tele-media venture is often 
impossible.
    4. Applicant states that it also may participate in a foreign tele-
media venture through a ``joint venture,'' in which applicant's 
interest may not be a ``security'' for purposes of the Act. However, 
applicant states that whether an arrangement is a joint venture is 
sometimes difficult to determine.
    5. Applicant asserts that the need to structure its participation 
in foreign tele-media ventures in a manner that complies with the Act 
has resulted in severe constraints on its ability to operate 
effectively and efficiently and grow its business. Applicant states 
that if it is unable to obtain either a majority interest or primary 
control for purposes of section 3(a)(1)(C) or rule 3a-1, or a degree of 
control that will allow it to obtain an opinion of counsel that it can 
classify its participation as a joint venture interest, then applicant 
most likely will abstain from participating in that foreign tele-media 
venture.
    6. Applicant also states that as ventures grow out of the 
development stage, they will often seek to expand their businesses 
through acquisitions, or will seek public financing. Applicant notes 
that these goals are often in direct conflict with the need of 
applicant to maintain its ownership interest at a level that permits 
such interest to be classified as a non-investment security. Applicant 
submits that this has resulted in serious delays in the development of 
certain of applicant's foreign tele-media ventures, as applicant seeks 
to structure transactions around the requirements of the Act. Applicant 
states that at times, especially when applicant's interest would fall 
below the level of presumptive control set forth in section 2(a)(9) of 
the Act, applicant has denied a foreign tele-media venture permission 
to undertake a transaction that would have been in the best interests 
of applicant and that venture.
    7. Section 6(c) provides that the SEC may exempt any person, 
security, or transaction from any provision of the Act or any rule or 
regulation thereunder, if and to the extent that 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. Applicant requests an order under section 
6(c) to permit applicant and the other Covered Entities to engage, 
directly or through subsidiaries, in foreign tele-media ventures 
without being subject to the provisions of the Act.
    8. Applicant believes that the requested relief is necessary and 
appropriate in the public interest. Applicant states that its business 
does not entail the types of risk to public investors that the Act was 
designed to eliminate or mitigate. Applicant asserts that its assets 
cannot be characterized as liquid, mobile, and readily negotiable, or 
as large liquid pools of funds. Applicant represents that it does not 
acquire securities for the purpose of disposing of them from time to 
time at a profit. Applicant also states that it is not a so-called 
``special situation'' investment company; that is, a company that takes 
a controlling position in other issuers primarily for the purpose of 
making a profit in the sale of the controlled company's securities. 
Applicant states that rather, it is a holding company that participates 
in foreign tele-media ventures as a strategic investor. Applicant 
states that in doing so, it acquires a substantial interest and 
participates in the development of its foreign tele-media ventures by 
providing active developmental assistance.
    9. Applicant believes that the requested relief is consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act. Applicant believes that the 
requirements of its business, its strategy of directly or indirectly 
acquiring substantial interests in foreign tele-media companies and 
tele-media partnerships, and its representation that each Covered 
Entity will provide active developmental assistance to its foreign 
tele-media ventures demonstrate that applicant is not the type of 
entity and does not engage in the type of activities that the Act was 
designed to regulate.

Applicant's Conditions

    Applicant agrees that the order granting the requested relief shall 
be subject to the following conditions:
    1. No Covered Entity that seeks to rely on the exemptive order will 
hold itself out as being engaged in the business of investing, 
reinvesting, or trading in securities.
    2. Each Covered Entity may rely on the exemptive order only if the 
manner in which it is involved in foreign tele-media ventures is, in 
all material respects, consistent with that described in the 
application.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-23004 Filed 8-28-97; 8:45 am]
BILLING CODE 8010-01-M