[Federal Register Volume 62, Number 30 (Thursday, February 13, 1997)]
[Notices]
[Pages 6814-6816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3541]
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SECURITIES AND EXCHANGE COMMISSION
[Rel No. IC-22500; International Series Release No. 1050/812-7531].
The Emerging Germany Fund Inc.; Notice of Application
February 7, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: The Emerging Germany Fund Inc. (the ``Fund'') and each
other registered investment company for which RCM Capital Management,
L.L.C. (``RCM''), Dresdner Bank AG (``Dresdner Bank'') or any of
Dresdner Bank's other subsidiaries or affiliates may in the future
serve as investment adviser or manager (the ``Prospective Funds'').
RELEVANT ACT SECTIONS: Order requested under section 10(f) for an
exemption from that section.
SUMMARY OF APPLICATION: Applicants seek an order to permit them to
purchase securities in underwritten pubic offerings in the Federal
Republic of Germany (``Germany'') in which Dresdner Bank or one of its
affiliates acts as a principal underwriter.
FILING DATES: The application was filed on June 1, 1990, and amended on
January 25, 1991 and November 13, 1996.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on March 4, 1997,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service.
[[Page 6815]]
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. Applicants, Four Embarcadero Center, Suite 3000, San Francisco,
California 94111.
FOR FURTHER INFORMATION CONTACT: Joseph B. McDonald, Jr., Senior
Counsel, at (202) 942-0533, or Mary Kay Frech, 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' Representation
1. The Fund, organized as a Maryland Corporation, is a non-
diversified, closed-end management investment company registered under
the Act. The investment objective of the Fund is to seek long-term
capital appreciation through investment in equity and equity-linked
securities of German companies. Under normal market conditions, the
Fund will invest at least 65% of its total assets in such securities.
The Fund also may invest up to 35% of its total assets in equity and
equity-linked securities of companies other than German companies.
2. The Fund's investment adviser and manager is RCM, a limited
liability company organized under the laws of the state of Delaware.
Dresdner Bank, a corporation organized under the laws of Germany, owns
100% of the outstanding voting equity securities of RCM. Dresdner Bank
is a member of all eight of the German stock exchanges and frequently
acts as lead manager or co-manager for underwritten public offerings of
both debt and equity securities.
3. The Fund and the Prospective Funds wish to participate in
underwritten public offerings of securities in Germany in which
Dresdner Bank or an affiliate acts as a principal underwriter. RCM is
an ``affiliated person'' of Dresdner Bank, and the investment adviser
or manager of each Prospective Fund will be an ``affiliated person'' of
Dresdner Bank, in each case as the term ``affiliated person'' is
defined in section 2(a)(3) of the Act.
Applicants' Legal Analysis
1. Section 10(f) of the Act provides, in part, that no registered
investment company shall knowingly purchase or otherwise acquire,
during the existence of any underwriting or selling syndicate, any
security a principal underwriter of which is an investment adviser of
such registered company, or is a person of which any such investment
adviser is an affiliated person. Because applicants' investment
advisers and managers are affiliated with Dresdner Bank, applicants are
prohibited from purchasing securities from an underwriting syndicate in
which Dresdner Bank or any of its affiliates participates as a
principal underwriter.
2. 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.
3. 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. 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''). Applicants intend to invest in equity
and equity-linked securities of German companies that are not required
to be registered under the Securities Act. Accordingly, applicants
cannot meet the above condition. Applicants, however, represent that
they will satisfy all other conditions of rule 10f-3 with regard to
purchases from public offerings in Germany. In addition, applicants
submit that all securities purchased in Germany under circumstances
subject to section 10(f) will be purchased in public offerings
conducted in accordance with the laws of Germany and the rules and
regulations of the German stock exchanges, and all subject German
issuers will have available to prospective purchasers financial
statements, audited in accordance with the standards of Germany, for
the two years prior to purchase.
4. Public offerings in Germany take the form of public
subscription, in which the underwriters invite the public or their
customers to make offers to subscribe to the new securities, or of
outright sale, where the underwriters acquire and resell the securities
allotted to and subscribed to by them.\1\ With respect to subsequent
issuances of equity or equity-linked securities of German stock
corporations, existing shareholders generally have statutory preemptive
rights to these securities. Subscription rights that are not exercised
by the existing shareholders are sold on the open market.
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\1\ Beginning in 1994, many public offerings, particularly those
with a foreign tranche, have been conducted in accordance with the
Anglo-American system of ``book-building,'' in which the shares are
allocated among underwriters according to an order book established
on the basis of a share price range announced at the commencement of
the offering. The book building process may be used for both firm
commitment underwritings and underwritings conducted on a ``best
efforts'' basis.
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5. The public offering price of a security is fixed at the time of
initial issuance and is published in the offering prospectus. However,
applicants represent that, theoretically, securities may be offered to
and purchased by affiliates of issuers and underwriters as part of a
public offering on terms more favorable than those available to
unaffiliated offerees and subscribers in the offering. Applicants
contend that this is unlikely to happen in practice because it makes
the new stock less attractive to potential investors. Applicants
represent that the German Stock Exchange Admission Regulation
(promulgated under the German Exchange Act) and the Securities Sales
Prospectuses Act require such a variance between the offering terms to
affiliates and non-affiliates to be disclosed in the offering
prospectus. Consequently, applicants will not purchase securities in
any offering in which the offering prospectus discloses that any
portion of the securities being sold in the offering may be sold to any
other investor at a price more favorable than the price available to
applicants.
6. Applicants state that the number of subscribers participating in
a public offering in Germany will vary significantly depending on the
means of distribution selected in a particular offering and the nature
of the existing trading market for an issuer's securities. Accordingly,
securities that are admitted for trading on the official market of a
German stock exchange may have a greater number of subscribers than
securities admitted for trading on the regulated unlisted market due to
the comparatively greater size of the official market. Applicants
assert that regardless of whether the securities are admitted for
trading on the official market or the regulated unlisted market, and
regardless of whether the securities are purchased by public
subscription or outright sale, a public offering is not
[[Page 6816]]
limited to a few participants. Applicants will not participate in
offerings in which the securities are not widely disseminated.
Applicants state that securities purchased pursuant to the relief
granted will be admitted for trading on the official market or the
regulated unlisted market on one or more of the German stock exchanges,
or have been approved for admission to the official or the regulated
unlisted market but are not yet admitted or listed.
7. For a security to be officially listed on the German stock
exchanges, the German Exchange Act requires publication of a prospectus
which contains all information considered material to an evaluation of
the securities to be listed. Applicants applying for official listing
on the exchanges must provide complete details of the issue, including
the latest audited financial statements, and have available audited
financial statements for the last three consecutive years. Applications
for admission to trading in the regulated unlisted market must contain
essentially similar information as that required for official listing,
but in a condensed form.
8. Applicants represent that German public offerings may be
conducted under three principal forms: the purchase contract, the
commission agreement, and the agency contract. With respect to initial
public offerings conducted on a ``purchase contract'' basis, the
underwriting banks commit to purchase all of the securities at a fixed
price and hold them either individually or as joint owners. With
respect to subsequent issuances of securities of existing corporations,
such offerings conducted on a purchase contract basis also will commit
the underwriting bank to purchase all the securities issued, including
those subject to preemptive rights, at a fixed price. Accordingly, the
underwriting banks fully assume the risk of not finding sufficient
third party purchasers for the securities subscribed under a purchase
agreement. Under a ``commission agreement,'' the banks are commission
agents and sell the issue to investors in their name, but for the
account of the issuer, whereas with an ``agency contract,'' the banks
sell the securities as representatives of the issuer in the name and
for the account of the issuer. In either a ``commission agreement'' or
an ``agency contract,'' the marketing risk generally remains with the
issuer. Because clause (3) of paragraph (a) of rule 10f-3 requires the
underwriters to purchase all the securities being offered (except those
purchased by others pursuant to a rights offering), applicants
undertake not to purchase securities in any offering in which the
offering prospectus discloses that the securities are subject to a
``commission agreement'' or ``agency contract'' rather than a
``purchase contract.''
9. The only condition of rule 10f-3 that applicants cannot satisfy
is that the securities will be registered under the Securities Act.
Applicants assert that this registration requirement is largely a by-
product of the requirement that the investment company purchase the
securities at the public offering price (which ordinarily would not
exist absent registration). In addition, registration tends to indicate
that the securities were issued more or less in the ``ordinary course''
of business. Applicants note that the registration requirement appears
in the same subparagraph as the requirements that a registered
investment company purchase the securities in a firm commitment
underwriting, on the first day of the public offering, and for no more
than the public offering price, indicating that registration is closely
related to these requirements. Applicants believe that purchasing the
securities at issue pursuant to a public offering conducted in
accordance with German law, together with a requirement that audited
financial statements for the previous two years be available to all
prospective purchasers, provides an adequate substitute for the
registration requirement. The availability of such financial
statements, as well as other disclosure required of issuers under
German law, provide RCM with sufficient information to make informed
investment decisions. Taken together with the requirement that
securities subject to section 10(f) be purchased in public offerings
conducted in accordance with German law, investors can be assured that
the securities are issued in the ``ordinary course'' of business. In
light of these requirements, as well as the protection afforded by the
other provisions of rule 10f-3, applicants believe that such purchases
will not raise any of the concerns addressed by section 10(f) and that
applicants' shareholders will be adequately protected.
10. In light of the foregoing, applicants request that an order be
entered, pursuant to section 10(f), exempting applicants on the
conditions set forth below to permit purchases of securities in public
offerings in Germany in which Dresdner Bank or any of its affiliates
participates as a principal underwriter.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. With the exception of paragraph (a)(1) of rule 10f-3, all other
conditions set forth in rule 10f-3 will be satisfied.
2. The foreign securities subject to section 10(f) will be
purchased in a public offering conducted in accordance with the laws of
Germany and the rules and regulations of the German stock exchanges.
3. All subject German issuers will have available to prospective
purchasers financial statements, audited in accordance with the
standards of Germany, for the two years prior to the purchase.
4. The securities purchased are admitted for trading on the
official market or the regulated unlisted market on one or more of the
German stock exchanges, or have been approved for admission to the
official or the regulated unlisted market but are not yet admitted or
listed.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3541 Filed 2-12-97; 8:45 am]
BILLING CODE 8010-01-M
