RealNetworks, Inc.; Notice of Application, 36740-36742 [E7-12943]
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36740
Federal Register / Vol. 72, No. 128 / Thursday, July 5, 2007 / Notices
Jefferson National Life Annuity
Account N [File No. 811–21514]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. Applicant
requests deregistration based on
abandonment of registration. Applicant
did not commence operations and is not
now engaged, or intending to engage, in
any business activities other than those
necessary for winding up its affairs.
Filing Date: The application was filed
on May 25, 2007.
Applicant’s Address: 9920 Corporate
Campus Drive, Suite 1000, Louisville,
KY 40223.
Jefferson National Life Annuity
Account O [File No. 811–21512]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. Applicant
requests deregistration based on
abandonment of registration. Applicant
did not commence operations and is not
now engaged, or intending to engage, in
any business activities other than those
necessary for winding up its affairs.
Filing Date: The application was filed
on May 25, 2007.
Applicant’s Address: 9920 Corporate
Campus Drive, Suite 1000, Louisville,
KY 40223.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–12944 Filed 7–3–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
27877; 812–13399]
RealNetworks, Inc.; Notice of
Application
June 28, 2007.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application under
section 3(b)(2) of the Investment
Company Act of 1940 (the ‘‘Act’’).
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AGENCY:
Summary of Application:
RealNetworks, Inc. (‘‘RealNetworks’’)
seeks an order under section 3(b)(2) of
the Act declaring it to be primarily
engaged in a business other than that of
investing, reinvesting, owning, holding
or trading in securities. RealNetworks,
directly and through its wholly-owned
subsidiaries, creates digital media
services and software.
Filing Date: The application was filed
on June 22, 2007.
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Hearing or Notification of Hearing: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on July 23, 2007, 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 who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–9303.
Applicant, 2601 Elliott Avenue, Suite
1000, Seattle, Washington 98121.
FOR FURTHER INFORMATION CONTACT: Jaea
F. Hahn, Senior Counsel, at (202) 551–
6870, or Nadya B. Roytblat, Assistant
Director, at (202) 551–6821 (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
Commission’s Public Reference Desk,
100 F Street, NE., Washington, DC
20549–0102 (tel. 202–551–5850).
Applicant’s Representations
1. RealNetworks, a Washington
corporation, is in the business of
creating digital media services and
software. Consumers use RealNetworks’
services and software to discover, play,
purchase and manage digital content,
including music, games and video.
Broadcasters, cable and wireless
communications companies, media
companies and enterprises use
RealNetworks’ products and services to
create, secure and deliver digital media
to personal computers, MP3 players,
mobile phones and other consumer
electronic devices and to provide
entertainment services to their
subscribers.
2. RealNetworks states that the market
for software and services for media
delivery over the Internet is relatively
new, constantly changing and intensely
competitive. RealNetworks states that it
requires substantial liquid capital to
fund operations, fund research and
development, license content and
technology for its subscription service
and software products, and fund
acquisitions. Because of the pace of
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technological change in the industry
sectors in which RealNetworks
competes, RealNetworks needs to use
cash to develop new products and fund
capital expenditures, enhance its
existing products and technology, and
make strategic acquisitions. In addition,
from time to time, RealNetworks also
makes non-controlling investments in
entities that complement or enhance
RealNetworks’ media delivery and
digital distribution business (‘‘Strategic
Investments’’). RealNetworks seeks to
preserve its capital and maintain
liquidity, pending the use of such
capital for its current and future
operations, by investing in short-term
investment grade and liquid fixed
income and money market investments
that earn competitive market returns
and provide a low level of credit risk
(‘‘Capital Preservation Investments’’).
RealNetworks’ board of directors
(‘‘Board’’) has approved a corporate
investment policy establishing limits
and guidelines governing its cash
management investments, consistent
with the goal of capital preservation
(‘‘Policy’’). RealNetworks states that it
does not invest in securities for shortterm speculative purposes.
Applicant’s Legal Analysis
1. RealNetworks seeks an order under
section 3(b)(2) of the Act declaring that
it is primarily engaged in a business
other than that of investing, reinvesting,
owning, holding or trading in securities,
and therefore not an investment
company as defined in the Act.
2. 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 in excess of 40 percent of the
value of the 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 (a) are not
investment companies, and (b) are not
relying on the exclusions from the
definition of investment company in
section 3(c)(1) or 3(c)(7) of the Act.
RealNetworks states that as of December
31, 2006, approximately 18% of its total
assets (exclusive of Government
securities and cash items), on an
unconsolidated basis, consisted of
investment securities as defined in
section 3(a)(2) of the Act.
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Federal Register / Vol. 72, No. 128 / Thursday, July 5, 2007 / Notices
3. Rule 3a–1 provides an exemption
from the definition of investment
company if no more than 45% of a
company’s total assets consist of, and
not more than 45% of its net income
over the last four quarters is derived
from, securities other than Government
securities, securities of majority-owned
subsidiaries and primarily controlled
companies. RealNetworks states that it
cannot rely upon rule 3a–1 under the
Act because the percentage of its total
assets invested in securities fluctuates
and may, from time to time, exceed 45%
of its total assets.
4. Rule 3a–8 under the Act provides
an exemption from the definition of
investment company if, among other
factors, a company’s research and
development expenses are a substantial
percentage of its total expenses for the
last four fiscal quarters combined. While
Real Networks believes it could satisfy
the other factors in the rule,
RealNetworks’ research and
development expenses, as a percentage
of its total expenses, fluctuate and may
not account for a substantial percentage
of its total expenses. For the last four
fiscal quarters ended on December 31,
2006, RealNetworks’ research and
development expenses represented
approximately 18% of its total expenses,
including cost of goods sold.
RealNetworks also states that as its
revenues increase its research and
development expenses as a percentage
of its total expenses are expected to
decline even if research and
development expenses increase on an
absolute basis because sales and
marketing expense and cost of goods
sold, which are closely related to
revenues, are likely to increase faster
than research and development
expenses.
5. Section 3(b)(2) of the Act provides
that, notwithstanding section 3(a)(1)(C)
of the Act, the Commission 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 or through
majority-owned subsidiaries or through
controlled companies conducting
similar types of businesses.
RealNetworks requests an order under
section 3(b)(2) of the Act declaring that
it is primarily engaged in a business
other than that of investing, reinvesting,
owning, holding or trading in securities,
and therefore not an investment
company as defined in the Act.
6. In determining whether a company
is primarily engaged in a noninvestment company business under
section 3(b)(2), the Commission
considers: (a) The issuer’s historical
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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
a. Historical Development.
RealNetworks states that since its
inception in 1994 it has been
developing and providing media
delivery and digital distribution
products and services for the Internet.
Since its initial public offering in 1997,
RealNetworks has used its revenue and
raised cash to expand its operations into
foreign countries, to expand its product
and service lines, to license content and
to acquire companies with
complementary products or services.
b. Public Representations of Policy.
RealNetworks states that it has never
represented that it is involved in any
business other than developing and
providing branded software products
and services that enable the creation,
delivery and consumption of streaming
media content. RealNetworks asserts
that it has consistently stated in its
annual reports to stockholders, press
releases, filings with the Commission,
marketing materials and website that it
is a digital media technology and digital
media distribution company.
RealNetworks states that it generally
does not make public representations
regarding its investment securities
except as required by its obligation to
file periodic reports to comply with
federal securities laws. RealNetworks
further states that it has never
emphasized either its investment
income or the possibility of significant
appreciation from its cash management
investment strategies as a material factor
in its business or future growth.
c. Activities of Officers and Directors.
RealNetworks states that its directors
and officers spend substantially all of
their time managing RealNetworks core
digital media technology and digital
media distribution business. Other than
establishing the Policy and receiving
periodic reports on its implementation,
the Board’s involvement with
RealNetworks’ cash management
investments is minimal. Applicant
states that the Board is more actively
involved in RealNetworks’ Strategic
Investments, but the amount of time
dedicated to such matters is small
relative to the amount of time dedicated
to RealNetworks’ direct ongoing
business activities. Only three of
RealNetworks’ employees oversee the
cash management process:
RealNetworks’ Treasurer is the only
employee involved in the day-to-day
1 Tonopah Mining Company of Nevada, 26 SEC
426, 427 (1947).
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36741
management of cash management
investments, and spends from 25–75%
of his time doing so; one other member
of the Treasurer’s staff is involved in
trade settlement and portfolio
accounting, representing 15–20% of this
person’s time; and one member of the
Treasurer’s staff spends approximately
5% of his time on cash management in
Korea. RealNetworks has approximately
1,500 employees worldwide.
d. Nature of Assets. RealNetworks
states that as of December 31, 2006, its
investment securities (as defined in
Section 3(a)(2) of the Act) constituted
approximately 18% of its total assets
(excluding Government securities and
cash items) on an unconsolidated basis.
On a consolidated basis, that figure was
27%. RealNetworks states that in the
future, the percentage of its total assets
(other than Government securities and
cash items) that will consist of
investment securities other than Capital
Preservation Investments will not
exceed ten percent. RealNetworks
further states that a significant portion
of its assets consist of intangible assets,
such as intellectual property and
goodwill, which, with limited
exceptions, do not appear on its balance
sheet and are not included in the value
of RealNetworks total assets for
purposes of determining its status under
the Act. RealNetworks states that the
asset tests used in connection with
sections 3(a)(1)(C) and 3(b) of the Act
therefore significantly understate the
relative value of RealNetworks’ noninvestment security assets.
e. Sources of Income and Revenue.
RealNetworks states that for the year
ended December 31, 2005, it had net
income of $312.3 million, of which net
investment income was $33.9 million or
approximately 11%. RealNetworks
states that for the year ended December
31, 2006, it had net income of $145.2
million, of which net investment
income was $37.4 million, or
approximately 26%. RealNetworks
states that its net investment income
was 9% of its total revenue for each of
its last two fiscal years. In the future,
RealNetworks expects substantially all
of its revenues to come from operations
and less than 10% from investment
securities. RealNetworks states that
since substantially all of its revenue is
attributable to its operations, rather than
investments, RealNetworks’ revenue
supports a determination that
RealNetworks is primarily engaged in a
business other than that of investing,
reinvesting, owning, holding or trading
in securities.
7. RealNetworks thus asserts that it
satisfies the standards for an order
under section 3(b)(2) of the Act.
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Federal Register / Vol. 72, No. 128 / Thursday, July 5, 2007 / Notices
Applicant’s Conditions
RealNetworks agrees that any order
granted pursuant to the application will
be subject to the following conditions:
1. RealNetworks will continue to
allocate and utilize its accumulated cash
and investment securities for bona fide
business purposes.
2. RealNetworks will refrain from
investing or trading in securities for
short-term speculative purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–12943 Filed 7–3–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–55991/File No. S7–12–01]
Order Extending Temporary Exemption
of Banks From the Definition of
‘‘Broker’’ Under Section 3(a)(4) of the
Securities Exchange Act of 1934
June 29, 2007.
I. Background
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The Gramm-Leach-Bliley Act
(‘‘GLBA’’) repealed the blanket
exception of banks from the definitions
of ‘‘broker’’ and ‘‘dealer’’ under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and replaced it with
functional exceptions incorporated in
amended definitions of ‘‘broker’’ and
‘‘dealer.’’ Under the GLBA, banks that
engage in securities activities either
must conduct those activities through a
registered broker-dealer or ensure that
their securities activities fit within the
terms of a functional exception to the
amended definition of ‘‘broker.’’
The GLBA provided that the amended
definitions of ‘‘broker’’ and ‘‘dealer’’
were to become effective May 12, 2001.
Starting on May 11, 2001, in connection
with various rulemaking proposals,2 the
1 As defined in Exchange Act Sections 3(a)(4) and
3(a)(5) [15 U.S.C. 78c(a)(4) and 78c(a)(5)].
2 See Definition of Terms in and Specific
Exemptions for Banks, Savings Associations, and
Savings Banks Under Sections 3(a)(4) and 3(a)(5) of
the Securities Exchange Act of 1934, Exchange Act
Release No. 44291 (May 11, 2001), 66 FR 27760
(May 18, 2001) (the ‘‘Interim Rules’’). See also
Exchange Act Release No. 49879 (June 17, 2004), 69
FR 39682 (June 30, 2004) (‘‘Regulation B’’). In the
Interim Rules, the Commission adopted Exchange
Act Rule 15a–7, 17 CFR 240.15a–7, which, as
proposed to be amended, would provide banks and
other financial institutions until January 1, 2006, to
begin complying with the GLBA. In proposing
Regulation B, the Commission proposed Rule 781
as a re-designation of Rule 15a–7. See 17 CFR
242.781.
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18:43 Jul 03, 2007
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Securities and Exchange Commission
(‘‘Commission’’) extended, most
recently until July 2, 2007, a temporary
exemption that gave banks time to come
into full compliance with the more
narrowly-tailored exceptions from
broker-dealer registration under the
GLBA.3
On October 13, 2006, President Bush
signed into law the Financial Services
Regulatory Relief Act of 2006
(‘‘Regulatory Relief Act’’).4 Among other
things, the Regulatory Relief Act
requires the Commission and the Board
of Governors of the Federal Reserve
(‘‘Board’’) jointly to adopt final rules
implementing the bank broker
exceptions in Section 3(a)(4) of the
Exchange Act.5 It also requires the
Commission and the Board jointly to
issue proposed rules within 180 days of
passage of the Regulatory Relief Act.6
Consistent with the Regulatory Relief
Act, on December 18, 2006, the
Commission and the Board jointly
proposed implementing rules, which
were designated as Regulation R.7 At
that time, the Commission also granted
3 See Exchange Act Release No. 44570 (July 18,
2001); Exchange Act Release No. 45897 (May 8,
2002); Exchange Act Release No. 46751 (Oct. 30,
2002); Exchange Act Release No. 47649 (April 8,
2003); Exchange Act Release No. 50618 (Nov. 1,
2004); Exchange Act Release No. 51328 (March 8,
2005); Exchange Act Release No. 52405 (Sept. 9,
2005); Exchange Act Release No. 54544 (September
29, 2006), 71 FR 58891 (October 5, 2006) (extending
the exemption from the definition of ‘‘broker’’ until
January 15, 2007); and Exchange Act Release No.
34–54948 (Dec. 18, 2006), 71 FR 247 (Dec. 18, 2006)
(extending the exemption from the definition of
‘‘broker’’ until July 2, 2007); During this time, the
Commission also extended the temporary
exemption from the definition of ‘‘dealer’’ to
September 30, 2003. See Exchange Act Release No.
47366 (Feb. 13, 2003). On February 13, 2003, the
Commission adopted amendments to certain parts
of the Interim Rules that define terms used in the
dealer exceptions, as well as certain dealer
exemptions (‘‘Dealer Release’’), see Exchange Act
Release No. 47364 (Feb. 13, 2003), 68 FR 8686 (Feb.
24, 2003). Therefore, this order is limited to an
extension of the temporary exemption from the
definition of ‘‘broker.’’
4 Pub. L. 109–351, 120 Stat. 1966 (2006).
5 The Regulatory Relief Act also directs the
Commission and the Board to consult with and seek
the concurrence of the other Federal banking
agencies on the content of the rulemaking. Section
101(c) of the Exchange Act defines the term
‘‘Federal banking agencies’’ as ‘‘the Office of the
Comptroller of the Currency, the Office of Thrift
Supervision, and the Federal Deposit Insurance
Corporation.’’ In another provision of the
Regulatory Relief Act, Congress extended the bank
exceptions and exemptions to thrifts by amending
the definition of ‘‘bank’’ in Exchange Act Section
3(a)(6).
6 Under the Regulatory Relief Act, a final single
set of rules or regulations jointly adopted in
accordance with that Act shall supersede any other
proposed or final rule issued by the Commission on
or after the date of enactment of Section 201 of the
GLBA with regard to the definition of ‘‘broker’’
under Exchange Act Section 3(a)(4).
7 See Exchange Act Release No. 54946 (Dec. 18,
2006), 71 FR 77522 (Dec. 26, 2006).
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banks 8 an exemption from compliance
with the definition of broker until July
2, 2007 in order to permit the
Commission and the Board time to
receive and evaluate comments and to
take final action on the implementing
rules.
To date, the Commission and the
Board have received over 70 comments
on proposed Regulation R. The
Commission and the Board are carefully
considering the comments, in
consultation with the other Federal
banking agencies, and expect to take
final action on proposed Regulation R
shortly.
II. Extension of Temporary Exemption
From Definition of ‘‘Broker’’
In light of the need to carefully
consider, together with the Board and
the other Federal banking agencies, the
comments on proposed Regulation R,
the Commission finds that extending the
temporary exemption for banks from the
definition of ‘‘broker’’ until September
28, 2007 is necessary and appropriate in
the public interest, and is consistent
with the protection of investors. The
extension of this temporary exemption
will prevent banks from incurring
interim business disruption, as well as
interim implementation and compliance
costs before the Commission and the
Board jointly adopt final implementing
rules. It will also provide the
Commission and the Board time fully to
consider the comments, consult with
and seek the concurrence of the other
Federal banking regulators, and take
final action on the proposal.
III. Conclusion
Accordingly, pursuant to Section 36
of the Exchange Act,9 it is hereby
ordered that banks are exempt from the
definition of the term ‘‘broker’’ under
the Exchange Act until September 28,
2007.
By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–13058 Filed 7–3–07; 8:45 am]
BILLING CODE 8010–01–P
8 Section 401 of the Regulatory Relief Act also
amended the definition of ‘‘bank’’ in Section 3(a)(6)
of the Exchange Act to include any Federal savings
association or other savings association the deposits
of which are insured by the FDIC. Accordingly, as
used in this order, the term ‘‘bank’’ includes any
savings association that qualifies as a ‘‘bank’’ under
Section 3(a)(6) of the Exchange Act, as amended.
9 15 U.S.C. 78mm.
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]]>Agencies
[Federal Register Volume 72, Number 128 (Thursday, July 5, 2007)]
[Notices]
[Pages 36740-36742]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-12]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27877; 812-13399]
RealNetworks, Inc.; Notice of Application
June 28, 2007.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 3(b)(2) of the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
Summary of Application: RealNetworks, Inc. (``RealNetworks'') seeks
an order under section 3(b)(2) of the Act declaring it to be primarily
engaged in a business other than that of investing, reinvesting,
owning, holding or trading in securities. RealNetworks, directly and
through its wholly-owned subsidiaries, creates digital media services
and software.
Filing Date: The application was filed on June 22, 2007.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on July 23, 2007, 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 who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-9303. Applicant, 2601 Elliott Avenue, Suite
1000, Seattle, Washington 98121.
FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202)
551-6870, or Nadya B. Roytblat, Assistant Director, at (202) 551-6821
(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
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC
20549-0102 (tel. 202-551-5850).
Applicant's Representations
1. RealNetworks, a Washington corporation, is in the business of
creating digital media services and software. Consumers use
RealNetworks' services and software to discover, play, purchase and
manage digital content, including music, games and video. Broadcasters,
cable and wireless communications companies, media companies and
enterprises use RealNetworks' products and services to create, secure
and deliver digital media to personal computers, MP3 players, mobile
phones and other consumer electronic devices and to provide
entertainment services to their subscribers.
2. RealNetworks states that the market for software and services
for media delivery over the Internet is relatively new, constantly
changing and intensely competitive. RealNetworks states that it
requires substantial liquid capital to fund operations, fund research
and development, license content and technology for its subscription
service and software products, and fund acquisitions. Because of the
pace of technological change in the industry sectors in which
RealNetworks competes, RealNetworks needs to use cash to develop new
products and fund capital expenditures, enhance its existing products
and technology, and make strategic acquisitions. In addition, from time
to time, RealNetworks also makes non-controlling investments in
entities that complement or enhance RealNetworks' media delivery and
digital distribution business (``Strategic Investments''). RealNetworks
seeks to preserve its capital and maintain liquidity, pending the use
of such capital for its current and future operations, by investing in
short-term investment grade and liquid fixed income and money market
investments that earn competitive market returns and provide a low
level of credit risk (``Capital Preservation Investments'').
RealNetworks' board of directors (``Board'') has approved a corporate
investment policy establishing limits and guidelines governing its cash
management investments, consistent with the goal of capital
preservation (``Policy''). RealNetworks states that it does not invest
in securities for short-term speculative purposes.
Applicant's Legal Analysis
1. RealNetworks seeks an order under section 3(b)(2) of the Act
declaring that it is primarily engaged in a business other than that of
investing, reinvesting, owning, holding or trading in securities, and
therefore not an investment company as defined in the Act.
2. 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 in
excess of 40 percent of the value of the 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 (a) are not
investment companies, and (b) are not relying on the exclusions from
the definition of investment company in section 3(c)(1) or 3(c)(7) of
the Act. RealNetworks states that as of December 31, 2006,
approximately 18% of its total assets (exclusive of Government
securities and cash items), on an unconsolidated basis, consisted of
investment securities as defined in section 3(a)(2) of the Act.
[[Page 36741]]
3. Rule 3a-1 provides an exemption from the definition of
investment company if no more than 45% of a company's total assets
consist of, and not more than 45% of its net income over the last four
quarters is derived from, securities other than Government securities,
securities of majority-owned subsidiaries and primarily controlled
companies. RealNetworks states that it cannot rely upon rule 3a-1 under
the Act because the percentage of its total assets invested in
securities fluctuates and may, from time to time, exceed 45% of its
total assets.
4. Rule 3a-8 under the Act provides an exemption from the
definition of investment company if, among other factors, a company's
research and development expenses are a substantial percentage of its
total expenses for the last four fiscal quarters combined. While Real
Networks believes it could satisfy the other factors in the rule,
RealNetworks' research and development expenses, as a percentage of its
total expenses, fluctuate and may not account for a substantial
percentage of its total expenses. For the last four fiscal quarters
ended on December 31, 2006, RealNetworks' research and development
expenses represented approximately 18% of its total expenses, including
cost of goods sold. RealNetworks also states that as its revenues
increase its research and development expenses as a percentage of its
total expenses are expected to decline even if research and development
expenses increase on an absolute basis because sales and marketing
expense and cost of goods sold, which are closely related to revenues,
are likely to increase faster than research and development expenses.
5. Section 3(b)(2) of the Act provides that, notwithstanding
section 3(a)(1)(C) of the Act, the Commission 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 or through majority-owned subsidiaries or
through controlled companies conducting similar types of businesses.
RealNetworks requests an order under section 3(b)(2) of the Act
declaring that it is primarily engaged in a business other than that of
investing, reinvesting, owning, holding or trading in securities, and
therefore not an investment company as defined in the Act.
6. In determining whether a company is primarily engaged in a non-
investment company business under section 3(b)(2), the Commission
considers: (a) The issuer'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\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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a. Historical Development. RealNetworks states that since its
inception in 1994 it has been developing and providing media delivery
and digital distribution products and services for the Internet. Since
its initial public offering in 1997, RealNetworks has used its revenue
and raised cash to expand its operations into foreign countries, to
expand its product and service lines, to license content and to acquire
companies with complementary products or services.
b. Public Representations of Policy. RealNetworks states that it
has never represented that it is involved in any business other than
developing and providing branded software products and services that
enable the creation, delivery and consumption of streaming media
content. RealNetworks asserts that it has consistently stated in its
annual reports to stockholders, press releases, filings with the
Commission, marketing materials and website that it is a digital media
technology and digital media distribution company. RealNetworks states
that it generally does not make public representations regarding its
investment securities except as required by its obligation to file
periodic reports to comply with federal securities laws. RealNetworks
further states that it has never emphasized either its investment
income or the possibility of significant appreciation from its cash
management investment strategies as a material factor in its business
or future growth.
c. Activities of Officers and Directors. RealNetworks states that
its directors and officers spend substantially all of their time
managing RealNetworks core digital media technology and digital media
distribution business. Other than establishing the Policy and receiving
periodic reports on its implementation, the Board's involvement with
RealNetworks' cash management investments is minimal. Applicant states
that the Board is more actively involved in RealNetworks' Strategic
Investments, but the amount of time dedicated to such matters is small
relative to the amount of time dedicated to RealNetworks' direct
ongoing business activities. Only three of RealNetworks' employees
oversee the cash management process: RealNetworks' Treasurer is the
only employee involved in the day-to-day management of cash management
investments, and spends from 25-75% of his time doing so; one other
member of the Treasurer's staff is involved in trade settlement and
portfolio accounting, representing 15-20% of this person's time; and
one member of the Treasurer's staff spends approximately 5% of his time
on cash management in Korea. RealNetworks has approximately 1,500
employees worldwide.
d. Nature of Assets. RealNetworks states that as of December 31,
2006, its investment securities (as defined in Section 3(a)(2) of the
Act) constituted approximately 18% of its total assets (excluding
Government securities and cash items) on an unconsolidated basis. On a
consolidated basis, that figure was 27%. RealNetworks states that in
the future, the percentage of its total assets (other than Government
securities and cash items) that will consist of investment securities
other than Capital Preservation Investments will not exceed ten
percent. RealNetworks further states that a significant portion of its
assets consist of intangible assets, such as intellectual property and
goodwill, which, with limited exceptions, do not appear on its balance
sheet and are not included in the value of RealNetworks total assets
for purposes of determining its status under the Act. RealNetworks
states that the asset tests used in connection with sections 3(a)(1)(C)
and 3(b) of the Act therefore significantly understate the relative
value of RealNetworks' non-investment security assets.
e. Sources of Income and Revenue. RealNetworks states that for the
year ended December 31, 2005, it had net income of $312.3 million, of
which net investment income was $33.9 million or approximately 11%.
RealNetworks states that for the year ended December 31, 2006, it had
net income of $145.2 million, of which net investment income was $37.4
million, or approximately 26%. RealNetworks states that its net
investment income was 9% of its total revenue for each of its last two
fiscal years. In the future, RealNetworks expects substantially all of
its revenues to come from operations and less than 10% from investment
securities. RealNetworks states that since substantially all of its
revenue is attributable to its operations, rather than investments,
RealNetworks' revenue supports a determination that RealNetworks is
primarily engaged in a business other than that of investing,
reinvesting, owning, holding or trading in securities.
7. RealNetworks thus asserts that it satisfies the standards for an
order under section 3(b)(2) of the Act.
[[Page 36742]]
Applicant's Conditions
RealNetworks agrees that any order granted pursuant to the
application will be subject to the following conditions:
1. RealNetworks will continue to allocate and utilize its
accumulated cash and investment securities for bona fide business
purposes.
2. RealNetworks will refrain from investing or trading in
securities for short-term speculative purposes.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-12943 Filed 7-3-07; 8:45 am]
BILLING CODE 8010-01-P
