[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