[Federal Register Volume 61, Number 79 (Tuesday, April 23, 1996)]
[Notices]
[Pages 17926-17929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9940]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 21900; International Series Release 
No. 970; 812-9868]


Emerging Markets Growth Fund, Inc., et al.; Notice of Application

April 17, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``Act'').

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APPLICANTS: Emerging Markets Growth Fund, Inc. (the ``Fund''), New Asia 
East Investment Fund Ltd. (the ``New Asia Fund''), Capital 
International Emerging Markets Fund (``CIEMF''), Capital International, 
Inc. (the ``Manager'') and The Capital Group Companies, Inc. (the 
``Capital Group'').

RELEVANT ACT SECTIONS: Order of exemption requested pursuant to section 
6(c) of the Act from section 12(d)(1) of the Act, pursuant to sections 
6(c) and 17(b) of the Act from section 17(a) of the Act, and pursuant 
to rule 17d-1 under the Act permitting certain joint transactions in 
accordance with section 17(d) of the Act and rule 17d-1 thereunder.

SUMMARY OF APPLICATION: The requested order would permit the Fund to 
invest up to 1% of its assets in the New Asia Fund, an affiliated 
closed-end Singapore investment company that invests in securities of 
companies in East and Southeast Asia.

FILING DATES: The application was filed on November 30, 1995 and 
amended on February 14, 1996 and on March 25, 1996.

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 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 May 13, 1996 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 
may request notification of a hearing by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, c/o Capital International, Inc., 11100 Santa Monica 
Boulevard, Los Angeles, California 90025, Attn.: Roberta A. Conroy, 
Esq.

FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or Alison E. 
Baur, 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.

Applicants' Representations

    1. The Fund, a Maryland corporation, registered under the Act as a 
closed-end diversified management investment company on June 2, 1986. 
The Fund's investment objective is to seek long-term capital growth 
through investment in equity securities of issuers in developing 
countries.\1\ The Fund invests primarily in securities that are listed 
on a securities exchange or are actively traded in an over-the-counter 
market in developing countries. Under a fundamental investment policy, 
the Fund may not acquire any security if the acquisition would result 
in the Fund owning more than 10% of the outstanding voting securities 
of any one issuer.
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    \1\ The Commission also granted exemptive relief to permit the 
Fund to invest in the New Europe East Investment Fund, an affiliated 
closed-end Luxembourg investment company that invests in equity 
securities in Eastern Europe and the former Soviet republics. See 
Investment Company Act Release Nos. 20236 (Apr. 20, 1994) (notice) 
and 20305 (May 17, 1994) (order).
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    2. Of the Fund's fifteen directors, eleven are not ``interested 
persons'' of the Fund (``Independent Directors''). Seven of the 
Independent Directors represent institutional shareholders of the Fund 
and three Independent Directors represent former shareholders of the 
Fund. All but one of the Independent Directors are full-time investment 
professionals who act in that capacity for their respective employers.
    3. The Fund's suitability standards require each institutional 
investor in the Fund that is a ``company,'' as defined in the Act, to 
have total assets in excess of $5 million. An investor who is a natural 
person must be an ``accredited investor'' as defined in Regulation D 
under the Securities Act of 1933 (``Securities Act''). The minimum 
initial investment in the Fund is $100,000, and $25,000 for subsequent 
investments.
    4. The Fund proposes to invest up to 1% of its assets in the New 
Asia Fund. The New Asia Fund is a closed-end investment company 
incorporated in Singapore. The New Asia Fund's investment objective is 
to seek long-term capital appreciation through investment in companies 
doing the majority of their business in the countries of East and 
Southeast Asia that are member countries of the Asian Development Bank.
    5. The New Asia Fund is privately offering two classes of 
securities in several tranches: (i) Voting preferred shares (``A 
Shares'') and (ii) non-voting preferred shares (``B Shares'') 
(collectively, the ``Shares''). The par value per Share and 
subscription price per Share are $0.01 and $10.00, respectively. All 
subscriptions must be for A Shares, unless legal, tax or contractual 
restrictions limit a subscriber's ownership of voting securities. In 
that case, an investor must subscribe for the maximum number of A 
Shares it is able to hold and thereafter subscribe for B Shares.
    6. The New Asia Fund offers and sells Shares only to a limited 
number of investors. The Shares are not listed on any stock exchange 
and they may not be offered or sold in the United States or to any 
United States person, unless the person is an ``accredited investor'' 
as defined in Regulation D under Securities Act. The Shares are not 
redeemable, and the New Asia Fund presently does not intend to 
repurchase the Shares.
    7. Applicants represent that the New Asia Fund is currently not 
subject to registration under section 7(d) of the Act. Section 7(d) 
prohibits an investment company organized outside the United States 
from using the mails or any means or instrumentality of interstate 
commerce to offer, sell, or deliver after sale, in connection with a 
public offering, any security of which the company is the issuer.
    8. The Fund proposes to invest $43 million, approximately 1% of its 
assets, to acquire the New Asia Fund's securities. To comply with its 
fundamental investment policy, the Fund would invest in a combination 
of A Shares and B Shares so that it would hold between 3% and 10% of 
the total voting power, but approximately 30.71% of the economic power, 
of the New Asia Fund (``Proposed Investment'').
    9. CIEMF, an investment company organized and operated outside the 
United States, has invested $5 million to acquire approximately 3.57% 
of the New Asia Fund's securities and approximately 3% of its voting 
stock. CIEMF anticipates acquiring both A and B Shares.
    10. The Capital Group, the indirect parent company of the Manager, 
has invested approximately $3 million to

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acquire the New Aisa Fund's A Shares, which will represent 
approximately 2.14% of the New Asia Fund's securities and 2.76% of its 
voting securities.
    11. The Manager, an investment adviser registered under the 
Investment Advisers Act of 1940 (``Advisers Act''), advises the Fund, 
the New Asia Fund and CIEMF. Under an investment advisory and service 
agreement currently in force between the Fund and the Manager, the Fund 
pays the Manager a fee. To avoid the possibility that the Manager would 
receive duplicate fees from the Fund and the New Asia Fund, the Manager 
will waive its management fee, including administrative fees, with 
respect to the Fund's net assets represented by the Proposed 
Investment. Specifically, the Fund's aggregate net assets will be 
adjusted downward by the amount invested in the New Asia Fund prior to 
determining the Manager's fee. While the Fund does not have an expense 
cap arrangement with the Manager, the Fund is subject to mandatory 
expense cap limitations imposed by state regulatory authorities. Any 
applicable expense cap limitation or fee waiver will not limit the 
Manager's fee waiver with respect to the Fund's investment in the New 
Asia Fund.
    12. As investment adviser to the New Asia Fund, the Manager will 
receive an advisory fee at the rate of 2% per annum of net asset value, 
as determined on the last business day of each quarter. However, until 
the Manager invests 90% of the proceeds raised by all tranches of the 
offering, the advisory fee for the uninvested portion shall be .90% per 
annum. The New Asia Fund will not pay an advisory fee on the value of 
securities held in any investment vehicle that pays management and 
advisory fees to an affiliate of the Capital Group.
    13. The New Asia Fund will also pay the Manager an inventive fee 
equal to 20% of any amount available for distribution to the New Asia 
Fund shareholders, to be calculated and accrued immediately prior to 
any distribution. However, no incentive fee will be charged unless and 
until the New Asia Fund shareholders have recovered through 
distributions the entire amount of their original subscriptions for 
Shares, plus a return at the rate of 9% per annum (compounded) on the 
original subscription. Applicants represent that the incentive fee 
arrangement complies with the safe harbor of rule 205-3 under the 
Advisers Act.
    14. Section 18(i) of the Act provides that each share of stock 
issued by a registered management investment company shall be voting 
stock and shall have equal voting rights, except as provided in section 
18(a) of the Act. Although the New Asia Fund is not subject to section 
18(i), applicants represent that the New Asia Fund's capital structure 
does not present any of the potential harms that section 18(i) was 
intended to address. The New Asia Fund tailored the voting rights of 
the Shares to satisfy the needs of certain prospective investors, all 
of whom are sophisticated, institutional investors. Applicants 
represent that such investors will understand a capital structure that 
was created to suit their needs.

Applicants' Legal Analysis

Section 12(d)(1)

    1. Section 12(d)(1)(A)(i) provides that no registered investment 
company may acquire securities of another investment company if such 
securities represent more than 3% of the acquired company's outstanding 
voting stock. The New Asia Fund may be considered an investment company 
for purposes of section 12(d)(1), and therefore, the Proposed 
Investment may be subject to section 12(d)(1).
    2. Section 6(c) provides that the SEC may exempt persons or 
transactions 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. Applicants request an order under section 6(c) 
exempting them from section 12(d)(1)(A)(i) to permit the Fund to 
purchase more than 3% but less than 10% of the outstanding voting 
securities of the New Asia Fund.
    3. Section 12(d)(1) was intended to mitigate or eliminate actual or 
potential abuses that might arise when one investment company acquires 
shares or another investment company. These abuses include the 
acquiring fund imposing undue influence over the management of the 
acquired fund through the threat of large scale redemptions, the 
acquisition by the acquiring company of voting control of the acquiring 
company, the layer of sales charges, expenses, and fees, and the 
creation of a complex structure that may prevent shareholders from 
ascertaining the true value of their investments.
    4. Applicants believe that the Proposed Investments creates none of 
the perceived abuses addressed by section 12(d)(1). The Fund would not 
exercise any influence over the management of the New Asia Fund by the 
threat of redemptions. Because the New Asia Fund is a closed-end fund, 
its Shares are not redeemable and it does not need to have cash on hand 
to cover redemptions by shareholders. In addition, because the Fund is 
also a closed-end fund, its liquidity needs are not significant.
    5. To minimize the risk that the Fund would exercise voting control 
over the New Asia Fund to the detriment of the New Asia Fund or its 
shareholders, the Fund will have its A Shares voted by an independent 
director designated to act in such capacity.
    6. The Proposed Investment would contain no improper layering of 
sales charges or advisory fees. Shareholders of the Fund and the New 
Asia Fund do not pay any sales charge, redemption fee or distribution 
fee. In addition, the Manager will exclude the assets with respect to 
the Proposed Investment in calculating the Fund's management fees.
    7. Applicants believe that the Proposed Investment will not result 
in a complex structure that could not be understood by the Fund or its 
shareholders. The New Asia Fund's offering of A and B Shares is 
designed to accommodate the needs of its sophisticated, institutional 
shareholders. In addition, the New Asia Fund has created procedures to 
accurately determine the net assets value of its Shares, which will 
allow the value of the Fund's investment in the New Asia Fund to be 
easily and accurately determinable.

Section 17(a)

    8. Section 17(a) makes it unlawful for an affiliated person of a 
registered investment company to sell securities to, or purchase 
securities from, the company. Section 2(a)(3)(C) of the Act defines an 
``affiliated person'' to include ``any person directly or indirectly 
controlling, controlled by, or under common control with, such other 
person.'' In addition, under section 2(a)(3)(E), an investment adviser 
to an investment company is an ``affiliated person'' of such company. 
The Fund, the New Asia Fund, and CIEMF may be deemed to be under common 
control because the Manager is the investment adviser to each of them. 
Therefore, the New Asia Fund may be affiliated with the Fund, and 
section 17(a) may prohibit the New Asia Fund from selling its Shares to 
the Fund.
    9. Section 17(b) provides that the SEC shall exempt a proposed 
transaction from section 17(a) if evidence establishes that: (a) the 
terms of the proposed transaction are reasonable and fair and do not 
involve overreaching; (b) the proposed transaction is consistent with 
the policies of the registered

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investment company involved; and (c) the proposed transaction is 
consistent with the general provisions of the Act. Applicants request 
an exemption under sections 6(c) and 17(b) to permit the New Asia Fund 
to sell its Shares to the Fund.\2\
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    \2\ Section 17(b) applies to specific proposed transactions and 
not to an ongoing series of future transactions. See Keystone 
Custodian Funds, 21 S.E.C. 295, 298-299 (1945). Section 6(c) can be 
used to grant relief from section 17(a) for an ongoing series of 
future transactions.
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    10. Applicants believe that the Proposed Investment satisfies the 
standards of sections 6(c) and 17(b). The Fund will purchase Shares of 
the New Asia Fund at the same purchase price and on the same basis as 
all other purchasers of Shares. In addition, the Proposed Investment is 
consistent with the Fund's investment objectives and policies as set 
forth in the Fund's registration statement. Applicants also believe 
that the Proposed Investment is consistent with the general purposes of 
the Act.

Section 17(d) and Rule 17d-1

    11. Section 17(d) prohibits an affiliated person of a registered 
investment company, or an affiliated person of such person, acting as 
principal, from effecting any transaction in which such investment 
company is a joint, or joint and several, participant with such person 
in contravention of SEC rules and regulations. Rule 17d-1 provides that 
an affiliated person of a registered investment company or an 
affiliated person of such person, acting as principal, shall not 
participate in, or effect any transaction in connection with, any joint 
enterprise or other joint arrangement in which the registered 
investment company is a participant unless the SEC has issued an order 
approving the arrangement. The Proposed Investment may constitute a 
joint enterprise or other joint arrangement within the meaning of rule 
17d-1.
    12. Applicants believe that the Proposed Investment satisfies the 
rule 17d-1 standards. Applicants represent that the Fund's board 
approved the investment by the Fund after carefully considering all 
relevant factors. All purchasers of the New Asia Fund Shares will 
receive equal treatment, and no one participant will be favored over 
any other in any respect.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. The Manager will waive its management fee (which includes 
administrative fees) with respect to the Fund's net assets represented 
by the Fund's Proposed Investment in the New Asia Fund. To effectuate 
this waiver, Fund assets represented by the Shares purchased by the 
Fund under the Proposed Investment will be excluded from the net assets 
of the Fund in the calculation of the Manager's fee. As such waiver 
relates to the Manager's fee schedule, any Fund assets invested in the 
New Asia Fund will be excluded from the Fund's assets before any fee 
calculation is made; thus, the Fund's aggregate net assets will be 
adjusted by the amount invested in the New Asia Fund prior to 
determining the fee based on the Manager's fee schedule (the amount 
waived pursuant to this procedure shall be defined as the ``Reduction 
Amount'' for purposes of condition 4 below).
    2. Any fees payable by the Fund to the Manager so excluded in 
connection with the Proposed Investment, as described herein, will be 
excluded for all time, and will not be subject to recoupment by the 
Manager or by any other investment adviser at any other time.
    3. The Fund's Proposed Investment in the Shares will be limited to 
1% of the Fund's total assets, taken at the time of the Fund's 
subscription.
    4. If the Manager waives any portion of its fees or bears any 
portion of its expenses in respect of the Fund (an ``Expense Waiver''), 
the adjusted fees for the Fund (gross fees minus Expense Waiver) will 
be calculated without reference to the Reduction Amount. Adjusted fees 
then will be reduced by the Reduction Amount. If the Reduction Amount 
exceeds adjusted fees, the Manager will reimburse the Fund in an amount 
equal to such excess.
    5. The Shares owned by the Fund will be voted by an independent 
director designated to act in such capacity.
    6. Capital Group, CIEMF, and any other Capital Group affiliates 
that may purchase Shares of the New Asia Fund in the future will vote 
their Shares in proportion to the vote of all other shareholders of the 
New Asia Fund.
    7. Shares of the New Asia Fund will not be subject to a sales load, 
redemption fee, or a distribution fee.
    8. Investment in Shares will be in accordance with the Fund's 
investment restrictions and will be consistent with its policies as 
recited in its registration statement and prospectus.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretarys.
[FR Doc. 96-9940 Filed 4-22-96; 8:45 am]
BILLING CODE 8010-01-M