[Federal Register Volume 63, Number 104 (Monday, June 1, 1998)]
[Notices]
[Pages 29767-29769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14404]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23205; International Series Rel No. 1137; 812-10810]
Old Mutual South Africa Equity Trust, et al.; Notice of
Application
May 26, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application under section 17(b) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from section 17(a)
of the Act.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: Order requested to permit Old Mutual South
Africa Equity Trust (the ``Trust'') to purchase certain securities of
DataTec Limited (``DataTec'') from Old Mutual Global Assets Fund
Limited (the ``Global Fund''), an affiliated person of the Trust.
APPLICANTS: The Trust, the Global Fund, and Old Mutual Asset Managers
(Bermuda) Limited (the ``Adviser'').
FILING DATES: The application was filed on October 6, 1997. Applicants
have
[[Page 29768]]
agreed to file an amendment during the notice period, the substance of
which is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 22, 1998,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW, Washington, DC 20549.
Applicants, 61 Front Street, Hamilton, Bermuda, Attention: Melanie
Saunders.
FOR FURTHER INFORMATION CONTACT:
Lawrence W. Pisto, Senior Counsel, at (202) 942-0527, or Nadya B.
Roytblat, Assistant Director, at (202) 942-0564 (Office of Investment
Company Regulation, Division of Investment Management).
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, 450 Fifth Street, NW., Washington, DC
20549 (tel. (202) 942-8090).
Applicants' Representations
1. The Trust is an open-end management investment company organized
as a trust under Massachusetts law and registered under the Act. The
investment objective of the Trust is long-term total return in excess
of that of the Johannesburg Stock Exchange (the ``JSE''), Actuaries All
Share Index through investment in equity securities of South African
issuers. Beneficial interests in the Trust are sold solely in private
placement transactions to investment companies, common or commingled
trust funds, or similar entities that are ``accredited investors''
within the meaning of Regulation D under the Securities Act of 1993, as
well as to certain investment funds organized outside the United
States. Old Mutual Fund Holdings (Bermuda) Limited (``Old Mutual Fund
Holdings''), a wholly-owned subsidiary of the South African Mutual Life
Assurance Society (``Old Mutual''), owns approximately 88.24% of the
voting securities of the Trust.\1\
---------------------------------------------------------------------------
\1\ Based on holdings as of April 24, 1998.
---------------------------------------------------------------------------
2. The Global Fund is organized under the laws of Bermuda Old
Mutual Fund Holdings is the sole shareholder of the Global Fund.
3. The Trust and the Global Fund are advised by the Adviser, a
wholly-owned subsidiary of Old Mutual. The Adviser is registered under
the Investment Advisers Act of 1940.
4. The Adviser's sole place of business is Hamilton, Bermuda. All
purchase and sale decisions with respect to securities to be purchased
or sold by the Trust are made by Bermuda-based personnel of the
Adviser, who do not have any portfolio management responsibilities for
any other accounts managed by Old Mutual or any of its affiliates or in
which Old Mutual or any of its affiliates has any direct or indirect
beneficial interest, other than the Trust, the Global Fund, and certain
other accounts holding primarily securities of non-South African
issuers. Old Mutual's principal place of business is Cape Town, South
Africa.
5. Data Tec is a South African corporation. It is an Internet
centric information technology group incorporating the leading Internet
service provider in South Africa. DataTec's ordinary shares are listed
on the JSE. Applicants state that, for the period beginning January 19,
1998 and ending April 24, 1998, the unweighted average weekly volume of
ordinary shares of DataTec traded on the JSE, as a percentage of the
total number of ordinary shares of DataTec outstanding and calculated
on an annualized basis, was 52.75%.
6. Old Mutual, its wholly-owned subsidiaries and investment
vehicles managed by Old Mutual and its wholly-owned subsidiaries, but
excluding the Trust and the Global Fund (collectively, the ``Old Mutual
Group''), own approximately 28.34% of the total outstanding ordinary
shares of DataTec.\2\
---------------------------------------------------------------------------
\2\ Based on holdings as of April 24, 1998.
---------------------------------------------------------------------------
7. Applicants state that it is common practice in the South African
equity markets for placements to be offered to large institutional
investors at a discount to the market price. Applicants also state that
the Old Mutual Group is a major participant in the South African equity
markets.
8. In June 1997, DataTec privately placed 1,774,318 of its ordinary
shares in order to fund the acquisition of Logical Networks Plc, a UK
based company (``Logical Networks''). On August 11, 1997, the Global
Fund purchased 1,619,555 of these DataTec shares, representing
approximately 2.78% of DataTec's total outstanding ordinary shares, at
an average weighted price of SA R24.94 per share, and at a 19.02%
discount from the market price.
9. In March, 1998, DataTec privately placed 2,367,984 of its
ordinary shares in order to fund the acquisition of Blue Sky (UK) Plc
(``Blue Sky'') and to complete the funding of Logical Networks. On
March 20, 1998, the Global Fund purchased 1,677,894 of these DataTec
shares, representing approximately 2.88% of DataTec's total outstanding
ordinary shares, at an average weighted price of SA R28.35 per share,
and at a 60.07% discount from the market price. The DataTec shares
purchased by the Global Fund on August 11, 1997 and March 20, 1998 (the
``Settlement Dates'') are referred to as the ``DataTec Shares.''
10. Applicants propose that the Trust purchase the DataTec Shares
from the Global Fund. The purchase price to be paid by the Trust will
be the price paid by the Global Fund on the respective Settlement Data
plus carrying costs (the ``Purchase Price''). The carrying costs will
reimburse the Global Fund for its estimated cost of funds (the
Eurodollar overnight deposit rate plus 0.5%) from the respective
Settlement Date through the date on which the Trust purchases the
DataTec Shares (the ``Trust Purchase Date'').
11. Applicants state that the proposed transaction is of
substantial value to the Trust. Since October 1997, the price of
DataTec ordinary shares has increased by 206% from SA R30.70 per share
to SA R94.00 per share on April 24, 1998. If the Trust completed the
proposed purchase of the DataTec Shares on April 24, 1998, the Trust
would have realized an immediate benefit of SA R220 million (U.S. $44
million), based on a purchase price that represented a 71% discount
from the market value of the DataTec shares on that date.
12. Applicants represent that the DataTec Shares have all the
attributes of the DataTec ordinary shares listed on the JSE, and that
the DataTec Shares are freely transferable under South African law.
Applicants also state that the Trust has not entered into, and will not
be subject to, any agreement or understanding, express or implied, that
the Trust may not sell the DataTec Shares on the open market at any
time after its proposed purchase.
Applicants' Legal Analysis
1. Section 17(a) of the Act makes it unlawful for any affiliated
person of a registered investment company, or any affiliated person of
such person, acting
[[Page 29769]]
as principal, knowingly to sell any security to the company. Section
2(a)(3) of the Act defines ``affiliated person'' of another person to
include: (a) Any person directly or indirectly owning, controlling, or
holding with power to vote 5% or more of the outstanding voting
securities of the other person, (b) any person directly or indirectly
controlling, controlled by, or under common control with the other
person, or (c) if the other person is an investment company, any
investment adviser of that person.
2. The Trust and the Global Fund are controlled by Old Mutual and
share a common investment adviser. Thus, the Trust and the Global Fund
are affiliated persons within the meaning of section 2(a)(3) of the
Act, and the sale of the DataTec Shares by the Global Fund to the Trust
is prohibited by section 17(a) of the Act.
3. Section 17(b) of the Act provides that the SEC may exempt a
transaction from the prohibitions of section 17(a) if the terms of the
proposed transaction, including the consideration to be paid, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, and that the proposed transaction is consistent with
the policy of the registered investment company concerned and with the
general purposes of the Act.
4. Applicants submit that the requested relief meets the standards
set forth in section 17(b). Applicants state that, while the Adviser
utilizes analysts employed by Old Mutual, the decision to purchase the
DataTec Shares was an independent decision made by the Adviser solely
in the interests of the Trust and was not improperly influenced by Old
Mutual or its personnel. Applicants further state that the board of
trustees of the Trust, including a majority of the trustees who are not
interested persons of the Trust (the ``Board''), approved the Trust's
purchase of the DataTec Shares. In evaluating the terms of the proposed
transaction, the Board considered the fact that the Trust Purchase
Price will include reimbursement of the carrying costs.
5. Applicants state that the transaction will comply with the
requirements of rule 17a-7 under the Act, except that (i) the Trust
Purchase Price will be below the current market price, and (ii) the
Trust and the Global Fund are affiliated persons by reason other than
having a common investment adviser, common directors, and/or officers.
Applicants further represent that the Trust will not purchase the
DataTec Shares if on the Trust Purchase Date the market price of the
DataTec Shares falls below the Trust Purchase Price. Thus, applicants
believe that the terms of the proposed transaction, including the
consideration to be paid, are fair and reasonable.
6. Applicants believe that the transaction does not involve
overreaching on the part of any person concerned. Applicants state
that, although under section 2(a)(9) of the Act, the Old Mutual Group
presumptively controls DataTec through ownership of 28.34% of DataTec's
voting securities, the Old Mutual Group does not exercise any control
over the management or day-to-day operations of DataTec. Applicants
state that Old Mutual Group's holdings in DataTec include approximately
6.0% of the total outstanding shares of DataTec held by accounts
managed by Old Mutual for external clients, such as pension funds for
charitable organizations and publicly traded companies. Old Mutual
seeks instructions from these external clients regarding the voting of
DataTec shares on non-routine matters, including the election of
directors other than the nominees of DataTec management.
7. Applicants represent that the Old Mutual Group holds DataTec
shares for investment purposes as a passive investor. None of the
officers or directors of DataTec are officers or directors of any
entity within the Old Mutual Group; the Old Mutual Group has never
sought to elect its nominees to the board of directors of DataTec and
has always either abstained from voting or voted for the nominees of
DataTec management. Applicants state that, according to independent
research reports, the directors of DataTec own approximately 24.70% of
DataTec's ordinary shares and are the controlling shareholders of
DataTec.
8. Applicants further represent that, other than the ownership of
the DataTec ordinary shares, the Old Mutual Group does not have any
ownership, investment or lending relationship with DataTec. Finally,
applicants represent that the Old Mutual Group has no ownership,
investment or lending relationship with Logical Networks or Blue Sky.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14404 Filed 5-29-98; 8:45 am]
BILLING CODE 8010-01-M