[Federal Register Volume 61, Number 133 (Wednesday, July 10, 1996)]
[Notices]
[Pages 36399-36410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17502]
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[[Page 36400]]
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22051; International Series Release No. 1000/812-9898]
The T. Rowe Price International Funds, Inc., et al.; Notice of
Application
July 2, 1996.
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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APPLICANTS: T. Rowe Price International Funds, Inc., T. Rowe Price
International Series, Inc., Institutional International Fund, Inc., and
Rowe Price-Fleming International, Inc. (``Price-Fleming'').
RELEVANT ACT SECTIONS: Order requested under section 10(f) granting an
exemption from that section.
SUMMARY OF APPLICATION: Applicants request an order to permit T. Rowe
Price International Funds, Inc., T. Rowe Price International Series,
Inc., and Institutional International Fund, Inc. to purchase securities
that are not registered under the Securities Act of 1933 (the
``Securities Act'') from an underwriting syndicate when the funds'
investment adviser is an affiliated person of a principal underwriter
in the syndicate.
FILING DATE: The application was filed on December 15, 1995 and amended
on May 3, 1996. Applicants have agreed to file an amendment, the
substance of which is incorporated herein, during the notice period.
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 July 29, 1996,
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, N.W., Washington, D.C.
20549. Applicants, 100 East Pratt Street, Baltimore, Maryland 21202.
FOR FURTHER INFORMATION CONTACT: David W. Grim, Staff Attorney, at
(202) 942-0571, or Robert A. Robertson, 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.
Applicants' Representations
I. Background
1. T. Rowe Price International Funds, Inc., T. Rowe Price
International Series, Inc., and Institutional International Fund, Inc.
are open-end management investment companies registered under the Act.
Each fund was organized as a Maryland corporation, and each fund
invests primarily in foreign equity and fixed income securities.
2. Applicants request that any exemptive order issued pursuant to
the application also apply to any other registered investment company,
or separate investment series thereof, which in the future is advised
or managed by Price-Fleming, or an entity controlling, controlled by or
under common control with Price-Fleming, and which is a member of the
T. Rowe Price ``group of investment companies,'' as defined in rule
11a-3(a)(5) under the Act (each, a ``Future International Fund''). In
addition, applicants request that any exemptive order issued pursuant
to the application also apply to any other registered investment
company, or separate investment series thereof, to which Price-Fleming
currently or in the future acts as sub-adviser (each, a ``Sub-Advised
Fund'') (together, with T. Rowe Price International Funds, Inc., T.
Rowe Price International Series, Inc., Institutional International
Fund, Inc., and the Future International Funds, the ``International
Funds'').
3. Price-Fleming is a registered investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act''). Price-Fleming
is adviser or sub-adviser, as the case may be, to each of the
International Funds. Price-Fleming is one of America's largest
international mutual fund managers with approximately $20 billion under
management in its offices in Baltimore, London, Tokyo and Hong Kong.
Price-Fleming was incorporated in Maryland in 1979 as a joint venture
between T. Rowe Price and Robert Fleming Holdings Limited (``Fleming
Holdings''). The common stock of Price-Fleming is 50% owned by a
wholly-owned subsidiary of T. Rowe Price Associates, Inc. (``T. Rowe
Price''), 25% owned by a subsidiary of Fleming Holdings and 25% owned
by Jardine Fleming Group Limited (``Jardine Fleming''). Half of Jardine
Fleming is owned by Fleming Holdings and half is owned by Jardine
Matheson Holdings Limited. T. Rowe Price has the right to elect a
majority of the board of directors of Price-Fleming, and Fleming
Holdings has the right to elect the remaining directors, one of whom
will be nominated by Jardine Fleming.
4. Fleming Holdings is a diversified investment organization which
participates in a global network of regional investment offices.
Currently, the following direct or indirect subsidiaries of Fleming
Holdings may participate as principal underwriters in international
securities offerings in which the International Funds may invest (the
location of each such underwriter's principal office(s) is set forth in
parenthesis following its name): Robert Fleming Securities Limited
(London), Jardine Fleming Securities Limited (Hong Kong, Tokyo, Seoul),
Jardine Fleming Taiwan Limited (Taipei), PT Jardine Fleming Nusantara
(Jakarta), Jardine Fleming Thanakom Securities Limited (Thailand), Ord
Minnett Securities Ltd. (Melbourne, Wellington), Fleming Martin Ltd.
(London), Jardine Fleming Australia Securities Ltd. (Sydney), Jardine
Fleming Australia Management Ltd. (Melbourne), Jardine Fleming New
Zealand Limited (Wellington), Jardine Fleming India Limited (Bombay)
and Pesaka Jardine Fleming SDN, BHD (Kuala Lumpur) (together with any
additional entities existing or created in the future which are direct
or indirect subsidiaries of Flemings Holdings and which may participate
as principal underwriters in international underwritings in which the
International Funds participate, the ``Affiliated Syndicate''). The
entities in the Affiliated Syndicate and Price-Fleming are or may be
deemed to be ``affiliated persons'' of each other within the meaning of
section 2(a)(3) of the Act.
5. To the extent any of the entities in the Affiliated Syndicate
participates as principal underwriter in an international securities
offering, the International Funds would be prohibited from purchasing
securities in such offering, absent the relief requested herein.
Applicants request that the International Funds be permitted to
purchase, through the Affiliated Syndicate, foreign securities which
are not registered under the Securities Act. Foreign securities
purchased pursuant to the exemptive relief being sought will be issued
in public offerings conducted in accordance with the applicable laws of
Australia, Brazil, France, India,
[[Page 36401]]
Indonesia, Ireland, Japan, Mexico, the Philippines, South Africa,
Sweden, Taiwan, and Thailand (the ``Countries''), and the applicable
rules and regulations of the stock exchanges and regulated unlisted
market(s), if any, in such Countries.
II. Information About the Countries
A. Australia
1. Securities regulation throughout Australia derives its authority
from the Corporations Law 1991 (the ``Australia Corporations Law'').
The legislation covers a wide range of issues, including raising
capital, preparation of prospectuses, and personal liability for false
or misleading statements and omissions. The Australian Stock Exchange
Limited (the ``ASX'') operates in the capital cities of each of the six
states in Australia. The Australia Corporations Law is administered by
the Australian Securities Commission (the ``ASC''), which is
accountable and responsible to the Commonwealth Attorney General and
the Commonwealth Parliament. All securities purchased in offerings in
Australia by the International Funds pursuant to the requested relief
will be listed or approved for listing on the ASX.
2. The Listing Rules of the ASX impose various reporting and other
obligations on listed companies, in addition to the obligations imposed
by the Australia Corporations Law. Companies wishing to list their
securities with the ASX must be of a sufficient size and their
prospectuses, articles of association, share certificates, annual
accounts, and other published documents must conform to the
requirements of the Australia Corporations Law and the ASX. Among other
things, the ASX Listing Rules require listed companies to promptly
announce the declaration of dividends and new issues of capital, to
provide semi-annual financial reports and to disclose other information
which may have an important bearing on market value. The ASX Listing
Rules also require disclosure of all material information on an ongoing
basis. The other requirements of the ASX to obtain a listing relate to
minimum capitalization, shareholder distributions, and size of
operation or net tangible assets. In order to list, a company must have
an initial minimum capitalization of $AUD 1,000,000 (approximately US
$787,402 at current exchange rates). Further, the company must have at
least 500 shareholders, each of whom holds shares with a market value
of at least $AUD 2,000 (approximately US $1,575 at current exchange
rates).
3. Under the Australia Corporations Law, issuers that intend to
make public offerings of securities are required to file with the ASC a
prospectus or a sale notice which complies with statutory requirements
intended to ensure full and fair disclosure. In almost all cases where
an initial public offering is involved, the practical effect of the
provisions will be that similar information and disclosure will be
required to be made, irrespective of the form of document legally
required.
4. The Australia Corporations Law provides only in general terms
the kind of information required to appear in a prospectus; it does not
provide a statutory checklist of information required. A prospectus is
required to contain ``all such information as investors and their
professional advisers would reasonably require, and reasonably expect
to find in a prospectus, for the purpose of making an informed
assessment of: (i) the assets and liabilities, financial position,
profits and losses, and prospects of the corporation; and (ii) the
rights attaching to the securities.'' There is no legal requirement
that financial statements be included in the prospectus. However, as a
matter of practice, where a company which issues a prospectus has a
track record, it is usual for a summary of historical financial
information to be included. In many cases, this period extends to the
last three financial years. In other prospectuses, however, only a
summary of financial information for the most recent year is included
together with a summary of pro forma financial information assuming the
securities offered under the prospectus are actually issued. It is
unusual for the actual financial statements themselves to be included
in the prospectus. In addition, a prospectus usually includes
directors' forecasts of future profits for the forthcoming year or two,
and an independent accountant's report reviewing both historical and
forecast financial information.
5. An underwriting commitment in Australia typically proceeds by
way of bookbuilding with soft underwriting. The underwriter only takes
up that portion of the public offering which is not subscribed for
within a specified time (public offerings generally stay open for one
month). This process has partly arisen due to market practice, and also
because of tax (stamp duty) savings. Generally, no stamp duty is
payable on the issue of shares. Stamp duty is usually payable on the
transfer of shares listed on the ASX at the rate of 3% of the value of
the shares and the rate of 6% of the value of the shares where the
shares are not listed on the ASX. An underwriter will often engage sub-
underwriters, or seek to place shares with institutional investors.
B. Brazil
1. All securities purchased by the International Funds in offerings
in Brazil pursaunt to the requested relief will be admitted for trading
or listed or approved for listing on one or more of the following
exchanges or markets: Bolsa de Valores de Sao Paulo, Bolsa de Valores
do Rio de Janeiro, Bolsa de Valores do Parana, Bolsa de Valores de
Santos, Bolsa de Valores de Pernambuco e Paraiba, Bolsa de Valores do
Extremo Sul, Bolsa de Valores de Minas Gerais, Brasilia e Espirito
Santo, Bolsa de Valores da Bahia, Sergipe e Alagoas, and Bolsa de
Valores Regional.
2. Companies wishing to become public companies must register as
such with the Brazilian securities commission, the Commissoa de Valores
Mobiliarios (the ``CVM''), and must apply with the CVM for registration
of particular securities before issuing and selling them to the public.
Among other items, the application for registering an issue of
securities must contain information concerning the company, a copy of
the agreement concerning the distribution of the securities, a draft of
the subscription documents and the prospectus, and, in some cases, a
study of the economic and financial feasibility of the issue. The CVM
reviews the foregoing materials and has authority to deny the
registration on the grounds that the proposed issuance is unfeasible or
otherwise not advisable. The CVM may also suspend a registration and
the public offering after the registration has been granted if it
uncovers fraud or determines that the offering is not being conducted
in compliance with the materials approved or the Brazilian securities
laws and regulations.
3. The public offering may commence only after the registration has
been granted, the lead distributor has made the public announcement
required by the CVM regulations, and the final prospectus has been made
available to the public. The public offering of equity securities
requires the prior approval of the company shareholders, or, if the
company has authorized capital and the amount of securities to be
offered are within its limit, of the company's board of directors. The
issue price to the public and a justification therefor must be set in
accordance with the applicable law by the company's shareholders at a
shareholders' meeting even if the company has adequate authorized
capital, although the shareholders may
[[Page 36402]]
delegate this authority to the company's board of directors.
4. Under Brazilian law, shareholders have preemptive rights to
subscribe for equity securities to be issued in connection with any
capital increase of the company in proportion to their current equity
participation. Such preemptive rights may be eliminated only if the
company has authorized capital, the securities will be issued though a
public offering, and the company's by-laws expressly waive the
preemptive rights. If there are no preemptive rights, a company may
first offer the securities to existing shareholders, giving them a
priority to subscribe for them rather than a preemptive right. In such
a case, the period to exercise the priority is usually two to five
days. At the end of the period for the exercise of the preemptive
rights or priority, if any, the unsubscribed securities are offered to
the public for subscription.
5. The offering and distribution of the securities must be made
through the intermediation of distributors, which may be investment
banks, brokerage firms, and securities dealers, all of whom must be
registered with the CVM. The distributor may either work as an
intermediary, or agent, between the issuing company and the purchasers
on a best efforts basis, or acquire, partially or wholly, the
securities issued for resale through a firm commitment, or standby firm
commitment, underwriting. The CVM has prescribed certain terms and
provisions that all distribution and underwriting contracts must
contain as a minimum. In a firm commitment underwriting, any securities
that are not subscribed for by the public or existing shareholders by
the end of the subscription period will be subscribed for by members of
the underwriting consortium in the proportion established by the
consortium agreement. Applicants are seeking relief with respect to
participation in underwritings in Brazil only to the extent necessary
to purchase securities that are the subject of firm commitment
underwritings.
C. France
1. The seven securities exchanges in France--Paris, Lyon, Nancy,
Marseille, Lille, Nantes, and Bordeaux (together, the ``French Stock
Exchanges'')--are all governed by the same stock exchange authorities
and are subject to uniform rules and regulations. All securities
purchased by the International Funds in offerings in France pursuant to
the requested relief will be admitted for trading or listed, or
approved for listing, on one or more of the French Stock Exchanges.
Three regulatory agencies supervise the operations of the French Stock
Exchanges: (i) the Counseil des Bourses de Valeurs, or Stock Exchange
Council, which has general regulatory and supervisory authority over
the French Stock Exchanges; (ii) the Societe des Bourses Francaises, or
French Securities Exchange Company (``SBF''), which implements the
rules, regulations and policies established by the Stock Exchange
Council; and (iii) the Commission des Operations de Bourse, or
Commission on Securities Exchange Operations (``COB''), an autonomous
administrative body that performs market regulator functions. Each of
the French Stock Exchanges is comprised of three markets--the Cote
Officielle or ``Official Market,'' the Second Marche or ``Second
Market,'' and the Marche Hors-Cote or over-the-counter market.
2. French law requires any company making a public offering of
securities, prior to such offering, to ``publish a public information
document describing the structure, financial condition and development
of the activities of such company.'' Varying levels of detail are
required for the information contained in such a prospectus, depending
on whether the issuer is seeking to list its securities on the Official
or Second Market and on the extent of information about the issuer that
is already available to the investing public. In general, COB
regulations require that the prospectus must contain information
necessary to inform investors as to the assets, financial condition,
results of operations, and prospects of the issuer, as well as the
terms of the securities being offered.
3. In addition to SBF and Stock Exchange Council oversight, an
issuer seeking to list its securities on the Official Market must
obtain the advance written approval for its prospectus from the COB. A
Second Market prospectus does not require such COB approval, but must
be filed with the COB at least three months prior to the expected
admission date. The regulatory authorities' review of the listing file
and prospectus typically involves a comment procedure pursuant to which
the authorities seek to ensure that appropriate disclosure is being
made by the issuer. The prospectus in final form must be delivered or
addressed to all offerees.
4. Initial public offerings in France are made in conjunction with
an initial listing of the issuer's shares on the French Stock
Exchanges. In both initial and subsequent public offerings, all shares
of the same class included in the offering are offered to all potential
investors at a single offering price and, except for the preferential
or priority subscription rights granted to existing shareholders, on
the same other terms and conditions.
5. Initial public offerings and subsequent public offerings of
equity securities, equity-related debt securities, and straight debt
securities in France are generally underwritten by banks and certain
other financial institutions authorized to underwrite securities and
regulated by the Bank of France. Underwriting practices are identical
for initial and subsequent public offerings. Generally, stock offerings
are underwritten pursuant to a practice known as the garantie de bonne
fin (literally, ``guarantee of successful result'') and equity-related
debt securities and straight debt securities are underwritten ``prise
ferme'' (literally, ``firm taking'').
6. All public offerings in France involving the issuance of shares
that result in a capital increase are underwritten pursuant to an
agreement between the issuer and an underwriting syndicate providing
for a garantie de bonne fin. The agreement allots to each underwriter a
specified number of the shares being offered, and each underwriter
severally commits to subscribe to, of procure subscribers for, its pro
rata portion (based on such respective underwriting allotments) of the
number of offered shares that are not subscribed for by existing
shareholders or the public pursuant to subscription rights or otherwise
during a stated subscription period. The garantie de bonne fin
constitutes a binding contractual obligation by the underwriters to
purchase all shares in the offering that are not otherwise sold to the
public and, therefore, constitutes bookbuilding with soft underwriting
or standby firm commitment underwriting. The price payable by the
underwriters pursuant to their standby firm commitment under the
garantie de bonne fin is the same as the subscription price at which
the shares are offered to the public.
7. French public offerings of equity-related debt securities, such
as convertible bonds or debentures with warrants, as well as straight
debt securities, are underwritten pursuant to the prise ferme method.
Pursuant to the agreement between the underwriters and the issuer, each
underwriter severally commits to purchase from the issuer a specific
number of the newly issued securities before they are listed for
trading on an exchange. In practice, the prise ferme method operates
similarly to the garantie de bonne fin. Securities that have not been
placed with the public or with existing security holders are purchased
by the
[[Page 36403]]
underwriters pro rata on the basis of their respective commitments, and
then are resold on the markets by the underwriters for their own
accounts.
D. India
1. India's stock exchanges, while mainly self-regulating, are
subject to the supervision of the Securities Exchange Board of India
(``SEBI'') under the Securities Contract (Regulation) Act of 1956 (the
``SCRA'') and Rules, 1957 (the ``SCRA'') and Rules, 1957 (the ``SCRA
Rules''). Currently, 24 stock exchanges in India are recognized under
the SCRA Rules. All securities purchased by the International Funds in
offerings in India pursuant to the requested relief will be admitted
for trading or listed, or approved for listing, on one or more of the
following exchanges or markets: The Stock Exchange, The Bombay Stock
Exchange, The Calcutta Stock Exchange Association Ltd., Madras Stock
Exchange Ltd., The Delhi Stock Exchange Association Ltd., The Hyderabad
Stock Exchange Ltd., Madhya Pradesh Stock Exchange Ltd., Bangalore
Stock Exchange Ltd., Cochin Stock Exchange Ltd., The Uttar Pradesh
Stock Exchange Association Ltd., Pune Stock Exchange Ltd., The Ludhiana
Stock Exchange Association Ltd., The Guahati Stock Exchange Ltd.,
Mangalore Stock Exchange Ltd., The Magadh Stock Exchange Ltd., Jaipur
Stock Exchange Ltd., Bhubaneshwar Stock Exchange Association Ltd.,
Saurashtra Kutch Stock Exchange Ltd., The Vadodara Stock Exchange Ltd.,
The Coimbatore Stock Exchange Ltd., OTC Exchange of India (the
``OTCEI''), and National Stock Exchange of India Ltd.
2. SCRA Rules provide that only companies whose issued share
capital par value is more than Rs 50 million (approximately US
$1,464,987 at current exchange rates) and whose shares are widely held
may list their shares on existing recognized stock exchanges. OTCEI was
incorporated in 1990 to enable trading in securities of companies which
do not meet such minimum capital requirements. Recently, OTCEI
announced that certain ``main board'' securities will be eligible to
trade on OTCEI. Although listing of a company's shares is generally
optional, the Government may compel public companies to list their
securities on the stock exchanges if such a listing is deemed to be in
the public interest or in the interest of the securities market. A
minimum of 25% of the ordinary shares of a company seeking a listing
are required to be offered to the public.
3. A public offering of securities is generally required to be made
by means of a prospectus, which must contain the information specified
in the Companies Act, 1956 (the ``India Companies Act'') including, but
not limited to, a description of the entire history of the company, its
main objectives, the number and classes of its shares, information
regarding the directors and their remuneration, and statements
regarding the purpose of the raising of funds. The International Funds
will not purchase securities in public offerings in India unless a
prospectus relating to such securities is available.
4. The prospectus must be accompanied by an auditors report for the
previous five years of the company and its subsidiaries and an expert
consent. A company's directors and promoter are subject to civil and
criminal liability for misstatements in a prospectus and SEBI has been
delegated with the power and the authority for this purpose.
5. A public offering also requires that the company enter into a
listing agreement with the relevant stock exchange. The listing
agreement is statutorily prescribed and requires disclosure of
information about the company prior to listing as well as, among other
things, reporting of unaudited results at six month intervals with
explanations of differences with audited results, providing information
about material changes, changes in management and auditors once trading
has commenced.
6. Underwriting is no longer mandatory. It is left to the issuer
whether to have the issue partially or totally underwritten. In an
underwritten offering, an underwriter enters into an underwriting
agreement with the issuer and is required to commit to purchase a
certain number of shares. Applications for shares received directly by
the underwriter from its clients, as well as applications received by
the issuer from the public independently, may serve to reduce an
underwriter's obligation under the underwriting agreement based on the
allocation methodology set forth in the agreement. To the extent such
applications are insufficient to meet the underwriter's full obligation
under the underwriting agreement, the underwriter is required to
purchase the remainder of the shares. There are only two circumstances
in which an underwriter may be relieved of its obligations under the
underwriting agreement: (i) the issue fails to keep the subscription
list for public issuer open for the maximum 10 day period (unless the
issue is oversubscribed, in which case the subscription list may be
kept open for less than 10 days), and (ii) the issuer fails to receive
subscriptions for 90% of the issue (in which case all amounts paid in
satisfaction of underwriting obligations are refunded).
7. If there is no underwriting, since all issues are conditional
upon a minimum subscription requirement of 90% of the securities being
issued, any deficit will result in the entire amount raised being
refunded. Promoters are required to retain specified minimum holdings
of equity capital, and, as a consequence, promoters can be required to
purchase a portion of public issues. Shares purchased by promoters to
maintain their minimum required holdings are subject to a lockup of
five years, and the full subscription amount must be paid in advance
before the public issue is made. Bonus issues to security holders are
prohibited for 12 months following any public offering or rights issue.
E. Indonesia
1. There are currently two stock exchanges in Indonesia, the Bursa
Efek Indonesia, comprised of the Jakarta Stock Exchange (``JSE'') and
the Surabaya Stock Exchange (``SSE'') (together, the ``Bursa Efek'').
All securities purchased by the International Funds in offerings in
Indonesia pursuant to the requested relief will be admitted for trading
or listed, or approved for listing, on the JSE and/or the SSE.
2. In 1976, the government established Badan Pelaksana Pasar Modal
(``BAPEPAM''), the Capital Market Executive Agency. Initially, BAPEPAM
was created to, among other things, establish and regulate the stock
market, and evaluate and approve listings of new companies. In 1990,
however, BAPEPAM's responsibilities were modified to include monitoring
and regulating a market in which securities can be issued and traded
regularly, fairly, and efficiently, and protecting the interests of
investors and the public. Consistent with its new responsibilities, the
BAPEPAM's official name was changed to the ``Capital Market Supervisory
Agency.''
3. Listing requirements differ for the JSE and the SSE. Companies
desiring to list shares on any exchange must be organized with limited
liability. The JSE requires as conditions to listing that issuers have
paid-up capital of at least Rp 2 billion (approximately US $856,714 at
current exchange rates), have an operating profit and positive net
income for the prior two fiscal years, and have audited financial
statements for the prior year accompanied by an unqualified auditor's
report. The SSE requires issuers desiring a listing to have at least Rp
1 billion (approximately US $428,357 at current exchange rates) in
paid-up capital, a par value of at least
[[Page 36404]]
Rp 1,000 (approximately US $0.43 at current exchange rates) per share,
positive net income in its most recent fiscal year, and audited
financial statements accompanied by an unqualified auditor's report,
provided, however, that a qualification in the auditor's report
respecting financial statements for the most recent year will be
acceptable.
4. Public offerings of securities in Indonesia are subject to
BAPEPAM regulation and supervision. In order to conduct a public
offering in Indonesia, BAPEPAM requires that issuers have been in
existence for three years and have three years of profitable
operations. An offering must be made by a prospectus which includes
information regarding the company's history, business, operations,
management, share ownership, and financial condition. The prospectus
must include three years of audited financial statements, including
three years of income statements, balance sheets, statements of cash
flow (or equivalent), and statements of changes in stockholders'
equity. Companies may have only one class of capital stock unless
special permission is received from the BAPEPAM. Shareholders have
preemptive rights.
5. The offering prospectus forms part of a registration statement
which, together with related documents (e.g., an underwriting agreement
and articles of association), must be submitted to the Chairman of the
BAPEPAM for possible review. Prior to effectiveness of the registration
statement, the underwriters meet with the issuer to fix the public
offering price, the underwriters' compensation, and the size of the
offering. Once agreed, a firm commitment underwriting agreement is
entered into, and thereafter the offering period which must last at
least three days begins. During this period, the prospectus must be
publicly distributed. Given the possibility of a short offering period
and in order to ensure knowledge of the impending offering, a
prospectus summary must be published in an Indonesian newspaper at
least three business days before the beginning of the offering period.
Pursuant to the terms of the underwriting agreement, the underwriters
are required to purchase all of the securities in the offering,
notwithstanding the fact that they may not have been able to resell all
of them.
F. Ireland
1. Irish securities laws, comprised principally of the Companies
Acts 1963-1990 (together, the ``Irish Companies Act''), generally
provide for self-regulation, and there is no central agency other than
the Irish Stock Exchange having authority over listed companies. The
Irish Stock Exchange supervises listed companies in accordance with its
rules. In particular, a provision of the Irish Companies Act allows a
listed company to issue an invitation to the public to subscribe for
shares without following many of the provisions of the Irish Companies
Act provided that the invitation is accompanied by a document which has
been approved by the Irish Stock Exchange. Typically such a document
issued by a listed company will have been scrutinized several times by
the Irish Stock Exchange before it is publicly disseminated.
2. If a company is not seeking any form of stock exchange listing
or trading facility, the securities laws are entirely self-regulating.
However, all issuers also are subject to civil claims and criminal
prosecutions, including criminal prosecutions by the Director of Public
Prosecutions (akin to the U.S. Attorney General). In addition, issuers
whose securities are officially listed on the Irish Stock Exchange are
subject to regulation by the exchange and may be the subject of
sanctions, such as suspension of trading or de-listing.
3. All securities purchased in Ireland by the International Funds
pursuant to the requested order will be purchased in public offerings
which are (i) subject to Irish law and listed (or seeking listing) on
the Official List of the Irish Stock Exchange,\1\ and/or (ii) listed
approved for listing on the London Stock Exchange Limited. Securities
of Irish issuers listed on the London Stock Exchange Limited are
subject to the regulations of such Exchange, which may be in addition
to and more stringent than those of the Irish Stock Exchange and the
Irish Companies Act.
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\1\ The Irish Stock Exchange is comprised of four markets--the
main market or the ``First Market'' or, more commonly, the
``Official List,'' the Unlisted Securities Market, the Exploration
Securities Market, and the Small Companies Market.
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4. To be listed on the Official List on the Irish Stock Exchange, a
company must have capitalization of 700,000 Irish Pounds (approximately
US $1,092,555 based on current exchange rates), must have published
three years of financial results, and must have at least 25 percent of
its shares in public hands, i.e., held by others who are not affiliates
of such company. In addition to the above requirements, companies
seeking to list on the Irish Stock Exchange must provide the exchange
with a formal statement (known as ``listing particulars'') describing
the company's business, management, and financial condition.
5. Irish law also requires, with certain exceptions, any invitation
to subscribe or purchase shares in a public offering be accompanied by
a prospectus meeting the disclosure requirements set forth in the Third
Schedule to the Irish Companies Act. Among other things, the Irish
Companies Act requires any company conducting a public offering to
disclose its dividend record, profits, and losses for the preceding
three years. Under the Irish Companies Act, the listing particulars for
companies on the Official List are deemed to be a ``prospectus'' and,
therefore, the requirement to make a separate Third Schedule disclosure
does not apply. The disclosure required under the Irish Stock Exchange
rules for a company on the Official List, however, is generally more
onerous than that required under the Irish Companies Act.
6. The public offering price is fixed at the time of initial
issuance and published in the offering prospectus, and the securities
offered to and purchased by affiliates of underwriters as part of a
public offering are offered and sold under the same terms as to the
general public. With respect to a rights issue, the subscription price
is generally fixed and is at a discount to the prevailing market price
or at the market price. Applicants are aware of at least one instance
when the price was fixed at a premium to the market price. The
International Funds, however, will not purchase securities in
underwritten offerings at a public offering price that is set at a
premium to the current market price.
7. A public offering in Ireland is often underwritten pursuant to
an underwriting agreement in which the primary underwriters (as opposed
to the sub-underwriters) commit to purchase any of the offered
securities that are not taken up by existing shareholders (after a
stated subscription period) or by the market generally. Typically, sub-
underwriters irrevocably contract with the underwriter to subscribe for
a minimum portion of the issue at a fixed price.
8. The number of subscribers participating in a public offering
will vary depending on the nature of the existing trading market for an
issuer's securities and other circumstances, either related to the
status of the issuer or to general economic conditions. The
International Funds will only participate in underwritten offerings in
which it is likely that the securities will be widely disseminated.
[[Page 36405]]
G. Japan
1. There are eight securities exchanges in Japan and one over-the-
counter market. The securities exchanges and the over-the-counter
market are regulated by the Minister of Finance (the ``MOF''), and
there is strong emphasis on self-regulation. All securities purchased
by the International Funds in offerings in Japan pursuant to the
requested relief will be admitted for trading or listed, or approved
for listing, on one or more of the eight Japanese securities exchanges:
the Tokyo Stock Exchange, the Osaka Securities Exchange, the Nagoya
Stock Exchange, the Sapporo Stock Exchange, the Ni'igata Stock
Exchange, the Kyoto Stock Exchange, the Hiroshima Stock Exchange, and
the Fukuoka Stock Exchange.
2. The basic listing requirements are governed by the Securities
and Exchange Law of 1948 (the ``Japan Securities and Exchange Law''),
while detailed matters such as listing eligibility criteria and
reporting procedures are dealt with in the listing regulations of each
exchange. A company wishing to list its equity securities on the Tokyo
Stock Exchange (the ``TSE'') is required to file an application for
listing with the TSE, which is examined by the exchange, placing
emphasis on the public interest and investor protection. If the TSE
considers a listing of the relevant instrument to be appropriate, it
may authorizing listing subject to approval of the MOF. Assuming
approval of the MOF is then obtained, the company is required to enter
into a listing agreement with the TSE whereby the company agrees that
it will abide by the Japan Securities and Exchange Law and the TSE's
rules and regulations, including Business Regulations, Listing
Regulations, and Regulations for Supervision of Listed Securities.
3. Issuers that intend to make public offerings of securities are
required to file with the MOF a registration statement for the
securities accompanied by supplemental materials that adequately
disclose pertinent information concerning the offering and the issuer.
Issuers are required to include financial statements for their last
five business periods (ten business periods if the business period is
half a year) in their registration statements.
4. A preliminary prospectus corresponding to a ``red herring'' in
the United States can be circulated for the purpose of soliciting
offers during the period between the initial filing and effective dates
so that the public can learn the essential facts relating to a proposed
issue. The use of prospectuses that do not meet the statutory
requirements is prohibited and a prospectus must be delivered at the
time of sale.
5. The nature of the underwriting commitment is determined by
contract and may differ from transaction to transaction. In general,
however, one of two types of commitments is made, roughly equivalent to
firm commitment underwriting and bookbuilding with soft underwriting.
Under the first method, the underwriting syndicate buys as principal
all of the securities of the issuer and assigns them to its members. If
any underwriter or any assignee is unable to place any of the
securities which it has purchased, those securities remain in that
underwriter's or assignee's inventory. Under the second method, an
underwriting syndicate seeks to market the securities, and members of
the syndicate must purchase for their own accounts any securities of
the issuer which they are unable to place. In either of the two
methods, the syndicate is responsible for placing all the securities of
the issuer, but it is rare that any securities are not placed because
the conditions of issuance are determined in accordance with market
conditions.
6. Only licensed securities companies may act as underwriters. A
company that intends to issue securities generally enters into an
underwriting agreement with a primary managing underwriter which will
form a syndicate for the floatation of the securities. The terms and
conditions on which the primary managing underwriter is required to
purchase any shortfall are a matter for contract between the issuer of
the securities and the primary managing underwriter. The relationship
between an underwriter and its parent or its subsidiary is regulated by
rules known as ``fire-walls.'' In the sphere of underwriting, an
underwriter must not (within 6 months of becoming an underwriter) sell
underwritten securities to a customer which the underwriter knows has
received financing for the purchase from the parent or a subsidiary of
the underwriter. In addition, an underwriter is prohibited from selling
underwritten securities to its parent or subsidiary within 6 months of
becoming an underwriter for such securities.
H. Mexico
1. Securities legislation, Ley del Mercado de Valores (``Securities
Market Law''), passed in 1975, contains the regulatory framework for
the Mexican securities industry and strengthened the regulatory powers
of the Mexican Banking and Securities Commission, or Comision Nacional
Bancaria y de Valores (``CNBV''). The CNBV is responsible in general
for monitoring the Mexican securities market and, among other things,
regulates the registration and subsequent trading of all new issues of
shares, bonds and commercial paper, and other securities, and regulates
the activities of brokers and of securities depositories and Mexico's
only stock exchange, the Bolsa Mexicana de Valores, S.A. de C.V. (the
``Mexican Stock Exchange''), a private corporation, the shares of which
are owned solely by authorized brokers. All securities purchased by the
International Funds in offerings in Mexico pursuant to the requested
relief will be admitted for trading or listed, or approved for listing,
on the Mexican Stock Exchange.
2. In order to offer securities to the public in Mexico, an issuer
must meet certain requirements set forth in the Securities Market Law
and by the CNBV as to assets, operating history, management, and other
matters, and only securities approved by the CNBV may be listed on the
Mexican Stock Exchange. In order to obtain and maintain registration to
offer securities in the Mexican Stock Exchange, an issuer must file an
application for registration with the securities section of the
Registro Nacional de Valores e Intermediarios, the National Registry of
Securities and Securities Brokers, which is part of the CNBV. The
issuer seeking approval must comply, to the satisfaction of the CNBV,
among others, with the following requirements: (i) The characteristics
of the securities and the terms of the offering are such that the
securities will have significant circulation and will cause no
dislocation of the market, (ii) the securities possess, or have the
potential for, broad circulation in relation to the size of the market
or the issuer; and (iii) the issuer is solvent and has liquidity.
Although the Securities Market Law does not set any specific
quantitative standards regarding the size of the offering, it does
require that every public offering be large enough, in the opinion of
the CNBV, to assure investors of secondary market liquidity. As a
result, securities must be issued in sufficient quantity to be
available to a wide group of offerees.
3. Once the offering price for a security is set, it is disclosed
in the prospectus and CNBV circulars require the underwriters to offer
the securities to the public at that set price. As a result, publicly
offered securities are offered to and purchased by the public investors
on the same terms. Although
[[Page 36406]]
Mexican law does permit, under certain circumstances, securities to be
publicly offered at a premium to market price, the situation rarely
occurs. The International Funds will not purchase securities in
underwritten offerings at a public offering price that is set at a
premium to the current market price.
4. In firm commitment public offerings in Mexico, the obligations
of the various underwriters are in practice several and not joint, and
each underwriter is obligated to purchase shares from the issuer at a
fixed price regardless of the marketing results of the underwriting
group. The CNBV, however, can object to the price set by the issuer and
underwriters.
I. The Philippines
1. Public offerings of securities in the Philippines are conducted
in accordance with regulations promulgated by the Securities and
Exchange Commission of the Philippines (the ``Philippine SEC'') and
rules promulgated by the Philippine Stock Exchange. These rules and
regulations are intended to ensure that a wide group of offerees will
take part in each offering, that the price offered to each of the
offerees is the same, and that the securities will be offered to and
purchased by unaffiliated persons on the same terms as the other
participants in the offering. In particular, the Philippine Stock
Exchange requires an issuer to have at least 500 shareholders (subject
to certain modifications), have 400 million pesos (about US $15.3
million at current exchange rates) in authorized capital stock, and 100
million pesos (about US $3.8 million at current exchange rates) in
subscribed capital stock, all of which subscribed capital stock must be
fully paid-up, before its securities may be listed on the Philippine
Stock Exchange. No single stockholder should own or control more than
75% of the subscribed capital stock of the issuer. All securities
purchased by the International Funds in offerings in the Philippines
pursuant to the requested relief will be admitted for trading or
listed, or approved for listing, on the Philippine Stock Exchange--
Ayala and/or the Philippine Stock Exchange--Pektite.
2. A company wishing to issue securities to the public is required
to file a registration statement with the Philippine SEC setting forth
information about the company, its business, and its management.
Registration statements must be prepared in accordance with principles
of full and fair disclosure. The registration statement (which includes
the offering prospectus) is required to contain a provision stating the
price at which the security is to be sold. A registration statement
becomes effective upon the issuance by the Philippine SEC of an order
to that effect. Once such an order is issued, the issuer and the
underwriter cannot modify the offering price set forth in the
registration statement and prospectus and the securities may only be
offered pursuant to the stated terms of the prospectus. Accordingly,
any securities issued in connection with a public offering in the
Philippines will be offered to unaffiliated persons on the same terms
as any other participant in the offering.
3. Public offerings are underwritten by investment houses and
commercial banks with expanded commercial banking authority. If the
securities to be publicly offered are to be listed on the Philippine
Stock Exchange, approximately 50% of the company's subscribed shares
(or shares offered to be subscribed through an underwriter) are offered
to the public through the Philippine Stock Exchange for distribution to
the public. This ensures that each Philippine offering to be listed on
the Philippine Stock Exchange is made available publicly to a wide
group of offerees.
4. Although underwriting commitments differ from issue to issue in
the Philippines, generally all of Philippine public offerings are
conducted on a bookbuilding with soft underwriting basis. Under this
type of commitment, the issuer is responsible for selling the shares
(through the underwriting syndicate), but the lead underwriter or
underwriters commit to purchase any unsold shares at the completion of
the initial offering period. The Philippine Stock Exchange requires
such a commitment by the underwriter as a condition to listing on the
Philippine Stock Exchange.
J. South Africa
1. There are three exchanges in South Africa, namely, the Bond
Market Exchanges (``BME''), the South African Futures Exchange
(``Safex'') and the Johannesburg Stock Exchange (``JSE''). Each is
self-regulating within the parameters of the relevant acts. Securities
purchased by the International Funds in securities offerings in South
Africa pursuant to the requested relief will be admitted for trading or
listed, or approved for listing, on the BME or the JSE.
2. There are three possible listings on the JSE: the Main Board,
the Development Capital Market (``DCM'') or the Venture Capital Market
(``VCM''). The DCM was created in 1984 and designed to encourage the
growth of small businesses. Companies listed on the DCM, and
particularly the VCM, are subject to less stringent requirements for
listing, and accordingly, a higher degree of risk is normally
associated with such companies. Once DCM and VCM companies achieve the
requirements for a Main Board listing, they may apply for a transfer.
Both the DCM and the VCM require a shorter or no profit history, a
smaller and narrower distribution of shares to the public, and a lower
minimum initial price of shares. The requirements for listing equity
securities on the Main Board of the JSE include (i) a minimum
subscribed capital, excluding revaluations of assets, of at least R2
million (approximately US $459,242 at current exchange rates) in the
form of not less than one million shares in issue; (ii) a satisfactory
profit history for the preceding three years, with a current audited
level of earnings of at least R1 million (approximately US $229,621 at
current exchange rates), before taxation; (iii) 30% of the first
million shares (and an agreed percentage of the balance) to be held by
the public; (iv) the number of public shareholders to be at least 300;
and (v) the minimum initial price of shares to be no less than 100
cents per share. Despite the requirement for a three-year history of
trading for a Main Board listing, mining ventures generally go directly
to the Main Board upon delivery to the JSE of a satisfactory geological
report, evidence of proven reserves, and appropriate undertakings
relating to minimum capital structure.
3. The JSE introduced a new rule in July 1995 to promote broader
public ownership of shares. It is now a continuing obligation that at
least 10% of a company's shares be held by the public (other than
institutions) at the time of listing.
4. New equity shares are generally underwritten in South Africa by
insurance companies, large pension funds, or merchant banks. Typically,
underwriters in public offerings of securities will commit to subscribe
for any shares not purchased in the offering. When a public issue is
underwritten, the structure and mechanics thereof usually take the
following form. The potential issuer will first approach a financial
institution such as a merchant bank which will act as agent on behalf
of the issuer (the ``Agent''). The Agent itself may arrange for the
underwriting of the issue in total or in part. Pursuant to an
underwriting agreement, the primary underwriters will be obligated to
purchase at a fixed price all of the securities being offered and which
are not taken up by others under the offering. A broker is usually
engaged to arrange for the sub-
[[Page 36407]]
underwriting of the primary underwriting. Typically, the sub-
underwriters will irrevocably subscribe for a minimum portion of the
issue at a fixed price. The primary underwriters and sub-underwriters
commitments will be subject to certain conditions precedent typically
related to the delivery by the issuer of appropriate offering
documents, the admission of the securities to listing on the JSE (if
the issuer is a listed company), and the compliance by the issuer with
The South Africa Companies Act, 1973 provisions relating to offering
prospectuses. The primary underwriters fully assume risk of the Agent
of finding sufficient sub-underwriters for the securities underwritten.
As compensation, the primary underwriters and sub-underwriters receive
a fee which is defined as a percentage of the offering price to the
public of the securities purchased thereby. The Agent will also receive
a fee directly from the issuer. Such ``firm commitment'' underwriting
is the most common structure used by companies listed on the JSE.
K. Sweden
1. To qualify for a listing on the Swedish Stock Exchange's
(``SSE's'') ``A'' list (comprising the officially listed companies), a
company must (i) have at least 3 years of audited financial statements;
(ii) meet the SSE's requirements concerning financial stability,
organization and dissemination of information; (iii) must publish an
SSE listing prospectus; and (iv) at least 25% of the share capital and
no less than 10% of the voting power must be distributed in the market
among no fewer than 1,000 investors, each with a holding the market
value of which is half a base amount (equivalent to approximately SEK
17,850 or US $2,644 at current exchange rates).
2. The SSE also provides an over-the-counter quotation facility for
unlisted securities known as the ``OTC'' or ``O'' list. To qualify for
quotation on O lists, a company must (i) publish a listing prospectus;
(ii) have a share capital of at least SEK 2 million (approximately US
$296,222 at current exchange rates) and total equity of at least SEK 4
million (approximately US $592,443 at current exchange rates); and
(iii) at least 10% of the share capital must be distributed to the
market among no less than 300 investors, each with a holding of at
least one quarter of a base amount in market value but not exceeding
10% of the total equity.
3. The Swedish Companies Act (1975:1385) (the ``Swedish Companies
Act'') requires that companies which publicly offer or otherwise invite
a substantial number of persons to acquire shares of subscription
rights in the company must prepare a prospectus, if the sum total of
the amounts payable under the offer amounts to SEK 300,000
(approximately US $44,443 at current exchange rates) or more. In
addition, the contents of prospectuses are subject to recommendations
of the Swedish Industry and Commerce Stock Exchange Committee and to
detailed regulations issued by the Financial Supervisory Authority.
4. Under the Swedish Companies Act, a prospectus must contain,
among other things, the balance sheets, the income statements, and a
summary of the management reports for the last three financial years
for which annual reports and auditor's reports have been rendered; a
description of the company's and any group's operations, supply or raw
materials, products, and places of business as well as its position in
the industry; and a description of the distribution of ownership of
shares and voting power in the company.
5. In general, securities of Swedish companies have historically
traded immediately after their public offering at substantial premiums
over the initial offering price. One consequence of this pattern is
that offerings for such securities are typically oversubscribed during
a ``red herring'' offering phase. As a result, the practice in Sweden
is that underwriting commitments are not firm since all of the
securities offered will have been already placed. Applicants have no
reason to believe that securities of companies in Sweden will not in
the future trade at a premium over the initial offering price. In
addition, offerings in Sweden that are not oversubscribed are rare, and
applicants have no reason to believe that oversubscribed securities
offerings will not continue in the future.
L. Taiwan
1. All securities purchased by the International Funds in offerings
in Taiwan pursuant to the requested relief will be admitted for trading
or listed, or approved for listing, on the Taiwan Stock Exchange (the
``TSE'') and/or the Republic of China OTC Securities Exchange.
2. Securities traded on the TSE are divided into three categories:
``A'', ``B'' and ``C'', depending on years of establishment of the
issuer, capital, profitability and the extent of share distribution. To
meet Category A listing criteria, a company must, among other things,
have minimum paid-up share capital of at least TWD 600 million
(approximately US $22,081,555 at current exchange rates) for the two
most recent fiscal years, and have at least 2,000 registered
shareholders of which more than 1,000 hold 1,000 to 50,000 shares and
the total holdings of such shareholders is more than 20% of the total
issued and outstanding shares of 10,000,000 shares. To meet Category B
listing criteria, a company must, among other things, have minimum
paid-up share capital of at least TWD 300 million (approximately US
$11,040,777 at current exchange rates) for the two most recent fiscal
years, and have at least 1,000 registered shareholders of which more
than 500 hold 1,000 to 50,000 shares and the total holdings of such
shareholders is more than 20% of the total issued and outstanding
shares or 10,000,000 shares. To meet Category C listing criteria, a
company must, among other things, obtain classification from the
relevant central competent authority as a ``qualified science
technology company,'' and have paid-up share capital of at least TWD
200 million (approximately US $7,360,518 at current exchange rates).
3. The Taiwan Securities and Exchange Commission (the ``Taiwan
SEC'') supervises and controls all aspects of securities market
operations. In general, listed companies are required to submit to the
Taiwan SEC a prospectus in a standard format prescribed by the Taiwan
SEC on commencement of an initial public offering and upon an increase
of capital stock. The International Funds will not purchase securities
in public offerings in Taiwan unless a prospectus relating to such
securities is available. A prospectus must include, among other
information, company history, organization, business scope and
facilities available, capital structure and share-distribution, records
of corporate bond issues, plans and business prospects, and audited
financial statements for the five most recent years.
4. All listed companies on the TSE must enter into a listing
agreement with the TSE, which is a standard form agreement adopted by
the TSE and approved by the Taiwan SEC. Listed companies are required
to report promptly any material events which may affect the business or
affairs of the company, such as a corporate reorganization. In
addition,the Taiwan SEC may require issuers to make financial and
business reports at any time after the public issuance of securities,
and the Taiwan SEC may, if deemed necessary, conduct direct
investigations on the issuers' financial or business conditions.
[[Page 36408]]
5. Underwriting can be done by securities companies, banks, and
trust and investment companies that have obtained an underwriter
license from the Taiwan SEC. Because of the recently implemented rules,
underwriting can be conducted only on firm commitment basis.\2\ The
underwriter and issuer must enter into an underwriting agreement which
sets forth, among other things, the underwriting period, the number of
securities to be underwritten and their price, and the underwriting
fees and disbursements. The underwriter must ensure that the prospectus
prepared in accordance with the regulations of the Taiwan SEC be
delivered to each subscriber. The subscription price may not be changed
during the underwriting period, and the subscription price must be paid
in full in one lump sum payment. Upon expiration of the underwriting
period, the underwriter must report to the Taiwan SEC the status of the
underwriting, including the number of securities which have been sold
in the underwriting period and the number of securities which have been
acquired by the underwriter, if any.
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\2\ Article 76 of the Securities and Exchange Law of Taiwan (the
``SEL'') provides that underwriters may choose to conduct
underwritings on either a firm commitment or best efforts basis.
Pursuant to its rulemaking authority, the Taiwan SEC has promulgated
a rule which provides that underwriters can only offer securities to
the public through firm commitment underwritings. The inconsistency
between the SEL and the recently adopted rules will be resolved when
the Taiwan legislature amends the SEL to limit public underwritings
to firm commitment underwritings. The amendment is expected to be
passed in the near future. In practice, the result has already been
obtained since underwritings are conducted only on a firm commitment
basis.
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M. Thailand
1. The Stock Exchange of Thailand (``SET'') is the only official
stock exchange in Thailand. Shares which are not listed on the SET are
sometimes traded on the informal over-the-counter (``OTC'') market (the
``Bangkok Stock Dealing Centre''). Currently, the Bangkok Stock Dealing
Center is principally used for the trading of unlisted shares which are
expected to be quoted on the SET in the near future. All securities
purchased by the International Funds in offerings in Thailand pursuant
to the requested relief will be admitted for trading or listed, or
approved for listing, on the SET and/or the Bangkok Stock Dealing
Center.
2. The Thailand SEC is charged with formulating policies to promote
and develop, as well as to supervise, matters concerning securities,
securities businesses, the securities exchange, OTC centers and related
businesses, organizations related to the securities business, the issue
or offer of securities for sale to the public, acquisition of
securities for business takeovers, and prevention of unfair securities
trading practices. Under The Securities and Exchange Act B.E. 2535
(A.D. 1992) (the ``SEC Act''), a public offering of newly issued
securities is permitted only when the issuer has received approval from
the Thailand SEC to make the offering and a registration statement in
the prescribed form, together with a draft prospectus, has become
effective. Upon effectiveness, sales activities and distribution of the
prospectus may begin. Sales activities must be completed within six
months. In addition, the issuer must meet qualitative standards under
Thailand SEC regulations.
3. While primary responsibility for the regulation of new
securities issues has shifted to the Thailand SEC, the SET continues to
operate the stock exchange as an exchange authorized under the SEC Act
and is responsible for listing approvals, once the SEC public offering
approval, prospectus, and related requirements have been met and the
paid-up capital reflecting the shares offered in the relevant offering
has been registered with the Ministry of Commerce. The SET is
responsible, among other things, for processing all listing
applications, for ensuring that disclosure requirements for listed
companies are met and for monitoring all trading activities in respect
of listed securities.
4. The SEC Act provides for only one category of securities to be
listed and traded on the SET (``listed securities''). Under the
regulations promulgated by the SET, existing publicly traded securities
must be converted into listed securities and listed companies must
comply with the listing requirements within three to five years,
depending on the nature and locality of such company. Under the current
SET listing regulations, the applicant must have a main business which
is economically and socially beneficial to the country. Approval for
listing of shares is granted after the public offering thereof is
approved by the Thailand SEC and the shares are distributed to a
specified number of small shareholders. The applicant must also be able
to show that its business operations are sound and consistent with the
nature and type of business, and that it is in a stable and healthy
financial condition with sufficient working capital. The business of
the applicant must have operated continuously under substantially the
same management for not less than three years prior to the submission
of the listing application. The applicant must also have the net profit
after tax of Baht 50,000,000 (approximately US $1,981,493 at current
exchange rates) is aggregate for the last three years prior to the
submission of the listing application.
5. Underwriting of securities may be conducted either on a firm
commitment or best efforts basis. In practice, however, substantially
all underwritings are done on a firm commitment basis. Under the
Thailand SEC notification, issuers of shares shall arrange for the
securities underwriter to underwrite all shares of the issue.
Generally, one or more securities underwriters will enter into an
underwriting agreement with an issuer to underwrite the securities
issue on a several basis. In rare cases, securities may be underwritten
on a non-several (or joint) basis. Applicants submit that a firm
commitment underwriting conducted on such a basis is still a firm
commitment underwriting for purposes of rule 10f-3(a)(3), the only
difference being that an underwriter may be liable for the entire
amount of the offering, not just its own share.
Applicants' Legal Analysis
1. Section 10(f) of the Act prohibits a registered investment
company from purchasing securities from an underwriting syndicate if,
as relevant here, the investment company's investment adviser is an
affiliated person of a principal underwriter in the syndicate.
2. Section 2(a)(3) of the Act defines the term ``affiliated
person'' to include, among other things, any entity directly or
indirectly controlling, controlled by, or under common control with
another entity. Section 2(a)(9) of the Act generally defines the term
``control'' to mean the power to exercise a controlling influence over
the management or policies of a company. Section 2(a)(9) further
provides that any person who owns beneficially, either directly or
through one or more controlled companies, more than 25 percent of the
voting securities of a company shall be presumed to control the
company. Based on the complex ownership structure of the various direct
and indirect subsidiaries of Fleming Holdings which may participate as
principal underwriters in international underwritings, each such
subsidiary is or may be deemed to be controlled by or under common
control with Fleming Holdings for purposes of section 2(a)(3). Price-
Fleming also may be deemed to be controlled by Fleming Holdings for
purposes of section 2(a)(3) of the Act. As a result, the entities that
make up the Affiliated Syndicate and Price-Fleming
[[Page 36409]]
may be deemed to be under the common control of Fleming Holdings,
making the Affiliated Syndicate entities and Price-Fleming affiliated
persons of each other. Thus, the International Funds, which are advised
or sub-advised by Price-Fleming, are prohibited from purchasing
securities from any underwriting syndicate in which one or more of the
entities in the Affiliated Syndicate participates as principal
underwriter.\3\
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\3\ T. Rowe Price, rather than by Price-Fleming, advises certain
funds in the T. Rowe Price group of funds (the ``Domestic Funds'').
T. Rowe Price is an affiliated person of Price-Fleming and, in turn,
is or may be deemed to be an affiliated person of an affiliated
person of each of the Affiliated Syndicate entities (a ``second-tier
affiliate''). Accordingly, purchases of securities by the Domestic
Funds during the existence of an underwriting syndicate in which one
or more of the Affiliated Syndicate entities serves as principal
underwriter are not prohibited by section 10(f), and, therefore,
relief is not requested herein in connection with such transactions.
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3. Notwithstanding the section 10(f) prohibition, the section
provides that the SEC may exempt conditionally or unconditionally any
transaction or classes of transactions from any of the provisions of
section 10(f) if and to the extent that the exemption is consistent
with the protection of investors. Applicants believe that the granting
of the requested exemption is consistent with the protection of
investors.
4. Rule 10f-3 under the Act provides that purchases of securities
by a registered investment company otherwise prohibited by section
10(f) are exempt from such section if certain specified conditions are
met. Applicants represent that purchases of foreign securities which
would not be permitted but for the requested relief will be made in
accordance with all the terms of rule 10f-3, except paragraph (a)(1) of
the rule.
5. Applicants state that the Securities Act registration
requirement set forth in rule 10f-3 was imposed to ensure that
investment companies purchased marketable securities, at the public
offering price (which ordinarily would not exist absent registration),
that the securities were issued more or less in the ordinary course of
business, and that adequate disclosure is made with respect to the
securities to be purchased. Applicants believe that the effect of the
exemption sought is to substitute for the Securities Act registration
requirement (i) a condition requiring that the securities at issue be
purchased in public offerings conducted in accordance with the laws of
the Countries, (ii) a condition requiring that the securities at issue
will be either (a) admitted for trading on one or more of the official
stock exchange(s) or regulated unlisted market(s) in the relevant
Country, or (b) approved for admission to one or more of the relevant
Country's official exchange(s) or regulated unlisted market(s), but not
yet admitted or listed, and (iii) a condition requiring that an
issuer's audited financial statements for two years prior to the
offering will be available to prospective purchasers. Applicants
believe that the availability of such financial statements, as well as
other disclosure provided by issuers in accordance with the various
securities laws of each Country (including listing or admission
requirements), would provide Price-Fleming with sufficient information
to make informed decisions on behalf of the International Funds. The
audited financial statements, together with the public offering and
listing (or admission) requirements, also would provide some assurance
that the securities being purchased are issued more or less in the
``ordinary course'' of business. Similarly, the financial statements
and public offering and listing (or admission) requirements assure
investors that the securities being purchased are issued in compliance
with regulatory requirements substantially similar to those imposed by
United States securities laws.
6. Applicants represent that the International Funds will only
participate in underwritings in Countries in which (i) it is likely
that a wide group of offerees will participate; (ii) the price offered
to such offerees will consist of a single price (except for any
discounted price offered to certain specified groups within a
particular locality or jurisdiction (i.e., employees of the issuer or
the government, citizens of the issuer's home country)); and (iii) the
securities will be offered to and purchased by unaffiliated persons on
the same terms as other participants in the offerings. Moreover,
applicants represent that the International Funds will not purchase
securities in underwritten offerings in which the public offering price
is set at a premium to the current market price.\4\ Applicants believe
that the foregoing limitations will further address the SEC's concern
that securities purchased by the International Funds will be purchased
at the public offering price and more or less in the ordinary course of
business.
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\4\ As noted above, securities in foreign underwritings may be
offered at a discount to certain specified groups within a
particular locality or jurisdiction. The International Funds
typically would not be eligible to purchase securities at the
discounted price. As a result, the Funds would purchase securities
in the offering at a separate fixed public offering price which is
higher than the discounted price but which does not constitute a
premium.
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7. Applicants represent that they will comply with the firm
commitment underwriting requirement of paragraph (a)(3) of rule 10f-3.
Accordingly, the types of underwritings in which the International
Funds will be permitted to invest will be firm commitment underwritings
and certain other types of underwriting arrangements specific to a
particular Country, the practical realities of which effectively
satisfy the firm commitment underwriting requirement.
8. The typical underwriting arrangements involved in securities
underwritings in India, Indonesia, Mexico, South Africa, and Taiwan, as
well as all underwriting commitments in Japan other than bookbuilding
with soft underwriting, are firm commitment. Underwriting arrangements
in Brazil and Thailand may be either firm commitment or a variation of
best efforts underwritings; however, applicants are seeking relief with
respect to participation in underwritings in Brazil and Thailand only
to the extent necessary to purchase securities that are the subject of
firm commitment underwritings.
9. The public offerings in Australia, France, Ireland and the
Philippines, as well as certain public offerings in Japan, are
underwritten using ``bookbuilding with soft underwriting'' or ``standby
firm commitment underwriting,'' which is a form of underwriting in
which the underwriter makes a firm commitment to purchase or procure
purchasers for any portion of the offered securities that remains
unsold to the public after a stated subscription period. Applicants
believe that the practical realities of bookbuilding with soft
underwriting as conducted in the securities markets of Australia,
France, Ireland, the Philippines, and Japan effectively satisfy the
firm commitment underwriting requirement of paragraph (a)(3) of rule
10f-3 since the primary underwriters are contractually committed, on a
firm basis, to purchase all the securities being offered, and this
obligation is reduced only to the extent that the securities which the
primary underwriters are required to purchase pursuant to the
underwriting agreement are actually sold to others.
10. In Sweden, there is no mechanism by which underwriters bind
themselves to purchase all of the securities offered as in a firm
commitment underwriting in the United States. In practice, however,
underwritings in Sweden are not undertaken unless all of the offered
securities are placed. Typically, offerings of securities of companies
[[Page 36410]]
based in Sweden are oversubscribed. Applicants state that with respect
to oversold offerings, a reasonable inference may be drawn that the
underwriter is unlikely to have any improper incentive to cause an
affiliated company to purchase the securities that are the subject of
such offerings.\5\ Applicants submit that the practical realities of
oversold offerings in Sweden effectively satisfy the firm commitment
requirement of paragraph (a)(3) of rule 10f-3.
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\5\ See Investment Company Acquisition of Securities
Underwritten by an Affiliate of that Company, Investment Company Act
Release No. 14924 (Jan. 29, 1986).
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11. Applicants represent that the board of each International Fund
will adopt internal procedures which are reasonably designed to provide
that the conditions of the requested order are complied with with
respect to the purchase of securities subject to section 10(f). In
addition, the boards will determine, at least quarterly, that all
purchases made during the preceding quarter were made in compliance
with such procedures and will approve such changes to the procedures as
such boards deem necessary.
12. Applicants believe that the representations and conditions of
the requested order are at least as protective of the interests of
investors in the International Funds as are the provisions of paragraph
(a)(1) of Rule 10f-3 which require Securities Act registration.
Furthermore, applicants believe that the representations and conditions
will act to ensure that purchases of foreign securities by the
International Funds through the Affiliated Syndicate are made in a
manner consistent with the underlying policies of section 10(f) and
rule 10f-3.
Applicants' Conditions
Applicants agree that any order granting the requested exemptive
relief will be subject to the following conditions:
1. Applicants will comply with rule 10f-3, except for paragraph
(a)(1).
2. All foreign securities purchased under circumstances otherwise
subject to section 10(f) will be purchased in public offerings
conducted in accordance with the applicable laws of the relevant
Country and with the rules and regulations of the stock exchanges and
regulated unlisted market(s), if any, in such Country, as applicable.
3. All foreign securities purchased under circumstances otherwise
subject to section 10(f) will be either (i) admitted for trading on one
or more of the official stock exchange(s) or regulated unlisted
market(s) in the relevant Country, or (ii) approved for admission to
one or more of the relevant Country's official exchange(s) or regulated
unlisted market(s) but not yet admitted or listed.
4. All subject foreign issuers will make available to prospective
purchasers financial statements, audited in accordance with the
accounting standards of the relevant Country, for at least the two
years prior to purchase.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-17502 Filed 7-9-96; 8:45 am]
BILLING CODE 8010-01-M