[Federal Register Volume 61, Number 140 (Friday, July 19, 1996)]
[Notices]
[Pages 37780-37782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18301]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22069; International Series Release No. 1004; File No.
812-10054]
The New South Africa Fund Inc.
July 12, 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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APPLICANT: The New South Africa Fund Inc.
RELEVANT ACT SECTION: Section 10(f).
SUMMARY OF APPLICATION: Applicant requests an order to permit it to
purchase South African securities from an underwriting syndicate when
applicant's investment adviser is an affiliated person of a principal
underwriter in the syndicate.
FILING DATE: The application was filed on March 22, 1996 and amended on
July 1, 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
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 August 6, 1996
and should be accompanied by proof of service on the 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicant, c/o Bear Stearns Funds Management Inc. 245 Park
Avenue, New York, N.Y. 10167.
FOR FURTHER INFORMATION CONTRACT: Mary T. Geffroy, Staff Attorney, at
(202) 942-0553, or Robert A. Robertson, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENT 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.
Applicant's Representations
1. Applicant is a non-diversified, closed-end management investment
company organized as a Maryland corporation. Applicant's investment
objective is long-term appreciation
[[Page 37781]]
through investments principally in securities of issuers of South
Africa, and, to a lesser extent, in other countries in the South
African region. Under normal market conditions, at least 80% of
applicant's assets will be invested in South African securities,
including at least 65% of its assets in equity securities of South
African issuers as well as up to 35% of its assets in certain fixed
income securities which, in the investment adviser's judgment, have the
potential for long-term capital appreciation.
2. Applicant's investment adviser is Fleming International Asset
Management Limited (``FIAM''), a company organized under the laws of
Great Britain. Robert Fleming Holding Limited (``RFHL'') is the
ultimate corporate parent of FIAM.
3. Martin & Co. Inc., a South African brokerage firm, provides FIAM
with research material containing factual, statistical and other
information, including economic trends, concerning South Africa and
other countries in the South African region, and their respective
securities markets. Effective November 24, 1995, RFHL and Martin & Co.
Inc formed a joint venture called Fleming Martin Holdings Lts.
(``FMHL''). FMHL, together with FIAM, is deemed to be under the common
control of RFHL, and, as such, is an affiliated person of FIAM within
the meaning of section 2(a)A(3) of the Act.
4. Section 10(f) of the Act prohibits a registered investment
company from purchasing, during the existence of any underwriting or
selling syndicate, any security where a principal underwriter of such
security is an officer, director, member of an advisory board,
investment adviser, or employee of such investment company, or is a
person with which any such listed person is affiliated. Because
applicant's investment adviser is affiliated with FMHL, applicant is
prohibited from purchasing securities in underwritten public offerings
in South Africa in which FIAM, FMHL, RFHL, or any person of which these
entities are affiliated, participate as principal underwriter.
5. Rule 10f-3 exempts a transaction from the provisions of section
10(f) if certain conditions are met. Subparagraph (a)(1) of rule 10f-3
requires that the securities purchased be part of an issue registered
under the Securities Act of 1933 (the ``Securities Act''). Unless the
South African securities are being offered publicly in the United
States, they are not required to be registered under the Securities
Act. Accordingly, most transactions in South African securities cannot
meet the condition set forth in subparagraph (a)(1).
Applicant's Legal Analysis
1. In order to participate in underwritten public offerings in
South Africa for which Fleming Martin Holdings Ltd., RFHL, or any of
their respective affiliates acts as a principal underwriter, applicant
requests an order exempting it from section 10(f) provided that (a) the
securities purchased be listed or approved for listing on the Main
Board of the Johannesburg Stock Exchange (``JSE''); \1\ (b) with the
exception of paragraph (a)(1) of rule 10f-3, all other conditions set
forth in rule 10f-3 be satisfied; (c) the foreign securities subject to
section 10(f) will be purchased in a public offering conducted in
accordance with South African law and the rules and regulations of the
JSE; and (d) all subject South African issuers will have available for
prospective purchasers financial statements, audited in accordance with
the accounting standards of South Africa, for the two years prior to
the purchase.
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\1\ The JSE is comprised of three separate markets: the Main
Board, the Development Capital Market (``DCM''), and the Venture
Capital Market (``VCM''). Applicant is not seeking relief with
respect to any securities listed on either the DCM or VCM.
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2. An offering in South Africa is considered a public offering
under South African law, and subject to various requirements in
Schedule 3 of The South Africa Companies Act, 1973, if a prospectus is
issued to a wide pool of persons. A prospectus also must be registered
with the Registrar of Companies. The Registrar of Companies is the
central registry for companies in South Africa. Its responsibilities
include filing and maintaining public records relating to companies,
including the Articles of Association, annual returns, information on
directors and officers, and the existence of security interests over
the assets of companies. The Registrar of Companies also reviews
prospectuses filed with it to ensure that requirements as to form are
satisfied.
3. 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 will be offered and sold under the same terms as to the
general public. Applicant is not aware of any instances where the price
of securities offered in a public offering was fixed at a premium to
the market price. Applicant will not purchase securities that are
offered in a public offering at a premium to the market price.
4. Applicant is not aware of any instance where a public offering
was not addressed to the entire investment community of South Africa.
In any event, applicant will not participate in any public offering
unless the relevant offer is made to every class of investor who has
the right to participate in the issue.
5. A public offering in South Africa usually is underwritten
pursuant to an underwriting agreement in which the primary underwriters
are obligated to purchase at a fixed price all of the securities being
offered and which are not taken up by others under the offering.
Applicant believes this underwriting arrangement effectively satisfies
the ``firm commitment'' requirements of subparagraph (a)(3) of rule
10f-3.\2\ Although other methods of underwriting exist, applicant will
only purchase securities underwritten by such firm commitment method,
or such other method that complies with the provisions of rule 10f-
3(a)(3).
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\2\ Rule 10f-3(a)(3) provides that the securities to be
purchased must be offered pursuant to an underwriting agreement
under which the underwriters are committed to purchase all of the
registered securities being offered, except those purchased by
others pursuant to a rights offering, if the underwriters purchase
any thereof.
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6. Securities purchased pursuant to the requested relief will be
listed or approved for listing on the Main Board of the JSE. To be
listed on the Main Board, a company must have: (a) a minimum subscribed
capital, excluding revaluations of assets, of at least R2 million
(approximately $461,800 under the current conversation rate) \3\ in the
form of not less than one million shares in issue; (b) a satisfactory
profit history for the preceding three years, with a current audited
level of earnings of at least R1 million (approximately $230,900),
before taxation; (c) 10% of the total issued shares held by the public;
(d) at least 300 public shareholders; and (e) a minimum initial price
of shares not less than 100 cents per share (approximately, $.23).\4\
In addition, listed companies are obliged to inform shareholders and
the public of transactions by way of an announcement in the annual
report, press announcement, or a circular to shareholders.
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\3\ On July 12, 1996, applicants submitted a letter to the SEC
(``July 12 letter'') indicating that as of July 11, 1996, the Wall
Street Journal reported a conversion rate of .2309 U.S. dollars per
Rand.
\4\ In the July 12 letter, applicants indicated that the
reference to 100 cents was to South African cents and that there are
100 South African cents per Rand.
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7. The only condition of rule 10f-3 that applicant cannot satisfy
is the requirement that the securities to be
[[Page 37782]]
purchased be registered under the Securities Act. Applicant believes
that purchasing the securities at issue pursuant to a public offering
conducted in accordance with South African law and the rules and
regulations of the JSE, together with the requirement that audited
financial statements for the previous two years be available to all
prospective purchasers, provide an adequate substitute for the
registration requirement. The availability of such financial
statements, as well as the other information regarding the issuer
required under The South Africa Companies Act, 1973 and the rules and
regulations of the JSE, provides FIAM with sufficient information to
make informed investment decisions. Applicant also believes that the
underwriters' and issuers' liability protect applicant's shareholders
from a loss resulting from reliance by FIAM on a misleading prospectus.
Taken together with the requirement that securities subject to section
10(f) be purchased in public offerings conducted in accordance with
South African law and the rules and regulations of the JSE, investors
can be assured that the securities are issued in the ``ordinary course
of business,'' and in compliance with regulatory requirements similar
to those imposed by the U.S. securities laws.
8. Applicant further believes that the widespread distribution of
securities in a public offering in South Africa; the applicable
prospectus delivery requirements; and the fixed offering price at which
securities are offered to, and purchased by, unaffiliated purchasers on
the same terms as any securities purchased by applicant, provide for
the protection of investors in effectively preventing discriminatory
and predatory practices in the underwriting of new issues that would be
detrimental to applicant's shareholders.
9. In light of the foregoing, as well as the protection afforded by
subparagraphs (a)(2) through (i) of rule 10f-3, applicant believes that
purchases of securities in the manner described above will not raise
any of the concerns addressed by section 10(f), and that the granting
of the requested exemptive order is consistent with the protection of
investors and with the purposes intended by rule 10f-3.
Applicant's Conditions
Applicant agrees that the order granting the requested relief shall
be subject to the following conditions:
1. The securities purchased be listed or be approved for listing on
the Main Board of the JSE.
2. With the exception of paragraph (a)(1) of rule 10f-3, all other
conditions set forth in rule 10f-3 be satisfied.
3. The foreign securities subject to section 10(f) will be
purchased in a public offering conducted in accordance with South
African law and the rules and regulations of the JSE.
4. All subject South African issuers will have available for
prospective purchasers financial statements, audited in accordance with
the accounting standards of South Africa, for the two years prior to
the purchase.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-18301 Filed 7-18-96; 8:45 am]
BILLING CODE 8010-01-M