[Federal Register Volume 61, Number 79 (Tuesday, April 23, 1996)]
[Notices]
[Pages 17926-17929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9940]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21900; International Series Release
No. 970; 812-9868]
Emerging Markets Growth Fund, Inc., et al.; Notice of Application
April 17, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for an Order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: Emerging Markets Growth Fund, Inc. (the ``Fund''), New Asia
East Investment Fund Ltd. (the ``New Asia Fund''), Capital
International Emerging Markets Fund (``CIEMF''), Capital International,
Inc. (the ``Manager'') and The Capital Group Companies, Inc. (the
``Capital Group'').
RELEVANT ACT SECTIONS: Order of exemption requested pursuant to section
6(c) of the Act from section 12(d)(1) of the Act, pursuant to sections
6(c) and 17(b) of the Act from section 17(a) of the Act, and pursuant
to rule 17d-1 under the Act permitting certain joint transactions in
accordance with section 17(d) of the Act and rule 17d-1 thereunder.
SUMMARY OF APPLICATION: The requested order would permit the Fund to
invest up to 1% of its assets in the New Asia Fund, an affiliated
closed-end Singapore investment company that invests in securities of
companies in East and Southeast Asia.
FILING DATES: The application was filed on November 30, 1995 and
amended on February 14, 1996 and on March 25, 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 May 13, 1996 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
may request notification of a hearing by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Capital International, Inc., 11100 Santa Monica
Boulevard, Los Angeles, California 90025, Attn.: Roberta A. Conroy,
Esq.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or Alison E.
Baur, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Fund, a Maryland corporation, registered under the Act as a
closed-end diversified management investment company on June 2, 1986.
The Fund's investment objective is to seek long-term capital growth
through investment in equity securities of issuers in developing
countries.\1\ The Fund invests primarily in securities that are listed
on a securities exchange or are actively traded in an over-the-counter
market in developing countries. Under a fundamental investment policy,
the Fund may not acquire any security if the acquisition would result
in the Fund owning more than 10% of the outstanding voting securities
of any one issuer.
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\1\ The Commission also granted exemptive relief to permit the
Fund to invest in the New Europe East Investment Fund, an affiliated
closed-end Luxembourg investment company that invests in equity
securities in Eastern Europe and the former Soviet republics. See
Investment Company Act Release Nos. 20236 (Apr. 20, 1994) (notice)
and 20305 (May 17, 1994) (order).
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2. Of the Fund's fifteen directors, eleven are not ``interested
persons'' of the Fund (``Independent Directors''). Seven of the
Independent Directors represent institutional shareholders of the Fund
and three Independent Directors represent former shareholders of the
Fund. All but one of the Independent Directors are full-time investment
professionals who act in that capacity for their respective employers.
3. The Fund's suitability standards require each institutional
investor in the Fund that is a ``company,'' as defined in the Act, to
have total assets in excess of $5 million. An investor who is a natural
person must be an ``accredited investor'' as defined in Regulation D
under the Securities Act of 1933 (``Securities Act''). The minimum
initial investment in the Fund is $100,000, and $25,000 for subsequent
investments.
4. The Fund proposes to invest up to 1% of its assets in the New
Asia Fund. The New Asia Fund is a closed-end investment company
incorporated in Singapore. The New Asia Fund's investment objective is
to seek long-term capital appreciation through investment in companies
doing the majority of their business in the countries of East and
Southeast Asia that are member countries of the Asian Development Bank.
5. The New Asia Fund is privately offering two classes of
securities in several tranches: (i) Voting preferred shares (``A
Shares'') and (ii) non-voting preferred shares (``B Shares'')
(collectively, the ``Shares''). The par value per Share and
subscription price per Share are $0.01 and $10.00, respectively. All
subscriptions must be for A Shares, unless legal, tax or contractual
restrictions limit a subscriber's ownership of voting securities. In
that case, an investor must subscribe for the maximum number of A
Shares it is able to hold and thereafter subscribe for B Shares.
6. The New Asia Fund offers and sells Shares only to a limited
number of investors. The Shares are not listed on any stock exchange
and they may not be offered or sold in the United States or to any
United States person, unless the person is an ``accredited investor''
as defined in Regulation D under Securities Act. The Shares are not
redeemable, and the New Asia Fund presently does not intend to
repurchase the Shares.
7. Applicants represent that the New Asia Fund is currently not
subject to registration under section 7(d) of the Act. Section 7(d)
prohibits an investment company organized outside the United States
from using the mails or any means or instrumentality of interstate
commerce to offer, sell, or deliver after sale, in connection with a
public offering, any security of which the company is the issuer.
8. The Fund proposes to invest $43 million, approximately 1% of its
assets, to acquire the New Asia Fund's securities. To comply with its
fundamental investment policy, the Fund would invest in a combination
of A Shares and B Shares so that it would hold between 3% and 10% of
the total voting power, but approximately 30.71% of the economic power,
of the New Asia Fund (``Proposed Investment'').
9. CIEMF, an investment company organized and operated outside the
United States, has invested $5 million to acquire approximately 3.57%
of the New Asia Fund's securities and approximately 3% of its voting
stock. CIEMF anticipates acquiring both A and B Shares.
10. The Capital Group, the indirect parent company of the Manager,
has invested approximately $3 million to
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acquire the New Aisa Fund's A Shares, which will represent
approximately 2.14% of the New Asia Fund's securities and 2.76% of its
voting securities.
11. The Manager, an investment adviser registered under the
Investment Advisers Act of 1940 (``Advisers Act''), advises the Fund,
the New Asia Fund and CIEMF. Under an investment advisory and service
agreement currently in force between the Fund and the Manager, the Fund
pays the Manager a fee. To avoid the possibility that the Manager would
receive duplicate fees from the Fund and the New Asia Fund, the Manager
will waive its management fee, including administrative fees, with
respect to the Fund's net assets represented by the Proposed
Investment. Specifically, the Fund's aggregate net assets will be
adjusted downward by the amount invested in the New Asia Fund prior to
determining the Manager's fee. While the Fund does not have an expense
cap arrangement with the Manager, the Fund is subject to mandatory
expense cap limitations imposed by state regulatory authorities. Any
applicable expense cap limitation or fee waiver will not limit the
Manager's fee waiver with respect to the Fund's investment in the New
Asia Fund.
12. As investment adviser to the New Asia Fund, the Manager will
receive an advisory fee at the rate of 2% per annum of net asset value,
as determined on the last business day of each quarter. However, until
the Manager invests 90% of the proceeds raised by all tranches of the
offering, the advisory fee for the uninvested portion shall be .90% per
annum. The New Asia Fund will not pay an advisory fee on the value of
securities held in any investment vehicle that pays management and
advisory fees to an affiliate of the Capital Group.
13. The New Asia Fund will also pay the Manager an inventive fee
equal to 20% of any amount available for distribution to the New Asia
Fund shareholders, to be calculated and accrued immediately prior to
any distribution. However, no incentive fee will be charged unless and
until the New Asia Fund shareholders have recovered through
distributions the entire amount of their original subscriptions for
Shares, plus a return at the rate of 9% per annum (compounded) on the
original subscription. Applicants represent that the incentive fee
arrangement complies with the safe harbor of rule 205-3 under the
Advisers Act.
14. Section 18(i) of the Act provides that each share of stock
issued by a registered management investment company shall be voting
stock and shall have equal voting rights, except as provided in section
18(a) of the Act. Although the New Asia Fund is not subject to section
18(i), applicants represent that the New Asia Fund's capital structure
does not present any of the potential harms that section 18(i) was
intended to address. The New Asia Fund tailored the voting rights of
the Shares to satisfy the needs of certain prospective investors, all
of whom are sophisticated, institutional investors. Applicants
represent that such investors will understand a capital structure that
was created to suit their needs.
Applicants' Legal Analysis
Section 12(d)(1)
1. Section 12(d)(1)(A)(i) provides that no registered investment
company may acquire securities of another investment company if such
securities represent more than 3% of the acquired company's outstanding
voting stock. The New Asia Fund may be considered an investment company
for purposes of section 12(d)(1), and therefore, the Proposed
Investment may be subject to section 12(d)(1).
2. Section 6(c) provides that the SEC may exempt persons or
transactions if, and to the extent that, such exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act. Applicants request an order under section 6(c)
exempting them from section 12(d)(1)(A)(i) to permit the Fund to
purchase more than 3% but less than 10% of the outstanding voting
securities of the New Asia Fund.
3. Section 12(d)(1) was intended to mitigate or eliminate actual or
potential abuses that might arise when one investment company acquires
shares or another investment company. These abuses include the
acquiring fund imposing undue influence over the management of the
acquired fund through the threat of large scale redemptions, the
acquisition by the acquiring company of voting control of the acquiring
company, the layer of sales charges, expenses, and fees, and the
creation of a complex structure that may prevent shareholders from
ascertaining the true value of their investments.
4. Applicants believe that the Proposed Investments creates none of
the perceived abuses addressed by section 12(d)(1). The Fund would not
exercise any influence over the management of the New Asia Fund by the
threat of redemptions. Because the New Asia Fund is a closed-end fund,
its Shares are not redeemable and it does not need to have cash on hand
to cover redemptions by shareholders. In addition, because the Fund is
also a closed-end fund, its liquidity needs are not significant.
5. To minimize the risk that the Fund would exercise voting control
over the New Asia Fund to the detriment of the New Asia Fund or its
shareholders, the Fund will have its A Shares voted by an independent
director designated to act in such capacity.
6. The Proposed Investment would contain no improper layering of
sales charges or advisory fees. Shareholders of the Fund and the New
Asia Fund do not pay any sales charge, redemption fee or distribution
fee. In addition, the Manager will exclude the assets with respect to
the Proposed Investment in calculating the Fund's management fees.
7. Applicants believe that the Proposed Investment will not result
in a complex structure that could not be understood by the Fund or its
shareholders. The New Asia Fund's offering of A and B Shares is
designed to accommodate the needs of its sophisticated, institutional
shareholders. In addition, the New Asia Fund has created procedures to
accurately determine the net assets value of its Shares, which will
allow the value of the Fund's investment in the New Asia Fund to be
easily and accurately determinable.
Section 17(a)
8. Section 17(a) makes it unlawful for an affiliated person of a
registered investment company to sell securities to, or purchase
securities from, the company. Section 2(a)(3)(C) of the Act defines an
``affiliated person'' to include ``any person directly or indirectly
controlling, controlled by, or under common control with, such other
person.'' In addition, under section 2(a)(3)(E), an investment adviser
to an investment company is an ``affiliated person'' of such company.
The Fund, the New Asia Fund, and CIEMF may be deemed to be under common
control because the Manager is the investment adviser to each of them.
Therefore, the New Asia Fund may be affiliated with the Fund, and
section 17(a) may prohibit the New Asia Fund from selling its Shares to
the Fund.
9. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) the
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of the registered
[[Page 17929]]
investment company involved; and (c) the proposed transaction is
consistent with the general provisions of the Act. Applicants request
an exemption under sections 6(c) and 17(b) to permit the New Asia Fund
to sell its Shares to the Fund.\2\
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\2\ Section 17(b) applies to specific proposed transactions and
not to an ongoing series of future transactions. See Keystone
Custodian Funds, 21 S.E.C. 295, 298-299 (1945). Section 6(c) can be
used to grant relief from section 17(a) for an ongoing series of
future transactions.
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10. Applicants believe that the Proposed Investment satisfies the
standards of sections 6(c) and 17(b). The Fund will purchase Shares of
the New Asia Fund at the same purchase price and on the same basis as
all other purchasers of Shares. In addition, the Proposed Investment is
consistent with the Fund's investment objectives and policies as set
forth in the Fund's registration statement. Applicants also believe
that the Proposed Investment is consistent with the general purposes of
the Act.
Section 17(d) and Rule 17d-1
11. Section 17(d) prohibits an affiliated person of a registered
investment company, or an affiliated person of such person, acting as
principal, from effecting any transaction in which such investment
company is a joint, or joint and several, participant with such person
in contravention of SEC rules and regulations. Rule 17d-1 provides that
an affiliated person of a registered investment company or an
affiliated person of such person, acting as principal, shall not
participate in, or effect any transaction in connection with, any joint
enterprise or other joint arrangement in which the registered
investment company is a participant unless the SEC has issued an order
approving the arrangement. The Proposed Investment may constitute a
joint enterprise or other joint arrangement within the meaning of rule
17d-1.
12. Applicants believe that the Proposed Investment satisfies the
rule 17d-1 standards. Applicants represent that the Fund's board
approved the investment by the Fund after carefully considering all
relevant factors. All purchasers of the New Asia Fund Shares will
receive equal treatment, and no one participant will be favored over
any other in any respect.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. The Manager will waive its management fee (which includes
administrative fees) with respect to the Fund's net assets represented
by the Fund's Proposed Investment in the New Asia Fund. To effectuate
this waiver, Fund assets represented by the Shares purchased by the
Fund under the Proposed Investment will be excluded from the net assets
of the Fund in the calculation of the Manager's fee. As such waiver
relates to the Manager's fee schedule, any Fund assets invested in the
New Asia Fund will be excluded from the Fund's assets before any fee
calculation is made; thus, the Fund's aggregate net assets will be
adjusted by the amount invested in the New Asia Fund prior to
determining the fee based on the Manager's fee schedule (the amount
waived pursuant to this procedure shall be defined as the ``Reduction
Amount'' for purposes of condition 4 below).
2. Any fees payable by the Fund to the Manager so excluded in
connection with the Proposed Investment, as described herein, will be
excluded for all time, and will not be subject to recoupment by the
Manager or by any other investment adviser at any other time.
3. The Fund's Proposed Investment in the Shares will be limited to
1% of the Fund's total assets, taken at the time of the Fund's
subscription.
4. If the Manager waives any portion of its fees or bears any
portion of its expenses in respect of the Fund (an ``Expense Waiver''),
the adjusted fees for the Fund (gross fees minus Expense Waiver) will
be calculated without reference to the Reduction Amount. Adjusted fees
then will be reduced by the Reduction Amount. If the Reduction Amount
exceeds adjusted fees, the Manager will reimburse the Fund in an amount
equal to such excess.
5. The Shares owned by the Fund will be voted by an independent
director designated to act in such capacity.
6. Capital Group, CIEMF, and any other Capital Group affiliates
that may purchase Shares of the New Asia Fund in the future will vote
their Shares in proportion to the vote of all other shareholders of the
New Asia Fund.
7. Shares of the New Asia Fund will not be subject to a sales load,
redemption fee, or a distribution fee.
8. Investment in Shares will be in accordance with the Fund's
investment restrictions and will be consistent with its policies as
recited in its registration statement and prospectus.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretarys.
[FR Doc. 96-9940 Filed 4-22-96; 8:45 am]
BILLING CODE 8010-01-M
