[Federal Register Volume 61, Number 97 (Friday, May 17, 1996)]
[Notices]
[Pages 24968-24970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12386]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC--21952; 812-10064]
Emerging Markets Growth Fund, Inc. et al.; Notice of Application
May 10, 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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APPLICANTS: Emerging Markets Growth Fund, Inc. (``EMGF''), New World
Investment Fund (``NWIF''), IBM Retirement Plan Trust (``Trust I''),
and General Motors Employees Global Group pension Trust (``Trust II'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act
granting an exemption from section 17(a).
SUMMARY OF APPLICATION: Applicants request an order to permit EMGF to
acquire all of the assets of NWIF. Because of certain affiliations, the
two funds may not rely on rule 17a-8 under the Act.
FILING DATES: The application was filed on March 28, 1996 and amended
on May 9, 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
[[Page 24969]]
mail. Hearing requests should be received by the SEC by 5:30 p.m. on
June 4, 1996, and should be accompanied by proof of service on the
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, N.W., Washington, D.C.
20549. Applicants: EMGF and NWIF c/o The Capital Group Companies, Inc.
11100 Santa Monica Boulevard, Los Angeles, California 90025; and Trust
I and Trust II c/o Chase Manhattan Bank, N.A., Chase Metro Tech Center,
Brooklyn, New York 11245.
FOR FURTHER INFORMATION CONTACT:
Marianne H. Khawly, Staff Attorney, at (202) 942-0562, or Alison E.
Baur, Branch Chief, 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.
Applicants' Representations
1. EMGF is a closed-end management investment company organized as
a Maryland corporation and registered under the Act. NWIF is a closed-
end management investment company organized as a Massachusetts business
trust and registered under the Act. Capital International, Inc. (the
``Adviser'') serves as investment adviser to EMGF and NWIF. The Adviser
is an indirect, wholly-owned subsidiary of The Capital Group Companies,
Inc.
2. The International Business Machines Corporation established
Trust I to provide monthly income to eligible retired employees.
General Motors Corporation (``GM'') created Trust II for the benefit of
certain employee benefit plans of GM and its subsidiaries. Trust I and
Trust II each owns greater than 5% of the outstanding shares of each of
EMGF and NWIF.
3. Applicants propose that NWIF (the ``Acquired Fund'') be combined
with and into EMGF (the ``Acquiring Fund'' and together with the
Acquiring Fund, the ``Funds'') in a tax-free reorganization (the
Reorganization''). In the Reorganization, the Acquiring Fund will
acquire all of the assets and liabilities, of the Acquired Fund in
exchange for shares of the Acquiring Fund, which then will be
distributed pro rata to former shareholders of the Acquired Fund. The
transfer of the assets of the Acquired Fund to the Acquiring Fund, and
in exchange the issuance of the Acquired Fund's shares, will be based
on the relative net asset values of each of the Funds as of the close
of the New York Exchange on the last business day immediately preceding
the effective date of the Reorganization. Each Fund will bear its own
expenses in connection with the Reorganization.
4. Shares of the Acquired Fund are offered to the public on a
continuous basis to investors meeting the Acquired Fund's investor
suitability and minimum purchase requirements. The Acquiring Fund's
investor suitability requirement provides that each prospective
investor that is a ``company'', as defined in the Act, must have total
assets in excess of $5 million. Each prospective investor that is a
natural person must be an ``accredited investor'' within the meaning of
Regulation D under the Securities Act of 1933. Shares of the Acquired
Fund are offered to the public on a continuous basis under the same
conditions and subject to the same suitability limitations.
5. At a meeting on January 26, 1996, the board of directors of the
Acquiring Fund, including the disinterested directors, approved the
Reorganization. Also on January 26, 1996, the board of trustees of the
Acquired Fund, including the disinterested trustees, approved the
Reorganization. Each board made the findings required under rule 17a-8
and determined that participation in the Reorganization is in the best
interests of its registered investment company and that the interests
of existing shareholders of its registered investment company will not
be diluted as a result of its effecting the Reorganization. Such
findings, and the basis upon which such findings were made, are
recorded fully in the minute books of each registered investment
company. In addition, the board of trustees of the Acquired Fund
considered (a) the potential benefits of the Reorganization to the
shareholders of the Acquired Fund, (b) the investment objectives,
policies, restrictions, and investment holdings of the Funds, (c) the
terms and conditions of the Reorganization that might affect the price
of the outstanding shares of the Acquired Fund, and (b) the direct or
indirect costs to be incurred by the Acquired Fund or shareholders
thereof.
6. In considering the compatibility of the two Funds, the boards
noted that the investment objectives of the Funds are similar, in that
both Funds seek capital appreciation and income. The principal
difference in objectives is that the Acquired Fund concentrates its
investments in Latin American countries, and is permitted to invest a
greater percentage of its assets in debt securities, while the
Acquiring Fund invests in a broader range of emerging market countries,
with a greater percent of its assets in equity securities.
Nevertheless, the Acquiring Fund's investment policies permit it to
invest in substantially all of the securities in which the Acquired
Fund may invest.
7. The expected advantages of the Reorganization include: the
benefit to shareholders of the Acquired Fund of the Acquiring Fund's
lower expense ratio; the elimination of certain duplicative expenses of
separate funds, such as separate audit and legal fees; a larger asset
base; and enhanced liquidity and portfolio diversification. In
addition, shareholders of the Acquiring Fund should benefit from the
Reorganization in that it will permit the Acquiring Fund to acquire
portfolios securities in the amount of the assets of the Acquired Fund
without incurring the expenses that would normally be associated with
purchasing such securities in the open market. The Adviser estimates
the potential cost savings to the Acquiring Fund to be $344,000.
8. The consummation of the Reorganization is subject to certain
conditions, including that the parties shall have received from the SEC
the order requested herein, and the receipt of an opinion of tax
counsel that the Reorganization will qualify as a tax-free
reorganization under the Internal Revenue Code of 1986 and will not
result in the recognition of any taxable gain or loss to the Acquiring
Fund or the Acquired Fund, or to any shareholders thereof. In addition,
applicants agree not to make any material changes to the reorganization
agreement that affect the application without the prior approval of the
SEC. Applicants also agree not to waive, amend, or modify any provision
of the reorganization agreement that is required by state or federal
law in order to effect the Reorganization.
9. A registration statement on Form N-14 with respect to the
Reorganization will be filed with the SEC. A special meeting of
shareholders of the Acquired Fund will be held to consider and act upon
the Reorganization.
Applicants' Legal Analysis
1. Section 17(a), in pertinent part, prohibits an affiliated person
of a registered investment company, or any affiliated person of such a
person, acting as principal, from selling to or purchasing from such
registered company, or any company controlled by
[[Page 24970]]
such registered company, any security or other property.
2. Section 2(a)(3)(A) of the Act provides that any person directly
or indirectly owning, controlling, or holding with power to vote 5% or
more of the outstanding voting securities of any other person is an
affiliated person of that person. Section 2(a)(3)(B) provides that any
person 5% or more of whose outstanding voting securities are directly
or indirectly owned, controlled, or held with power to vote by another
person is an affiliated person of that person.
3. Rule 17a-8 exempts from the prohibitions of section 17(a)
mergers, consolidations, or purchases or sales of substantially all of
the assets of registered investment companies that are affiliated
persons solely by reason of having a common investment adviser, common
directors, and/or common officers, provided that certain conditions set
forth in the rule are satisfied.
4. As noted above, the Funds have a common investment adviser.
Thus, the Reorganization would be exempt from the provisions of section
17(a) by virtue of rule 17a-8, but for the fact that the Funds may be
affiliated for reasons other than those set forth in the rule. As
previously stated, Trust I and Trust II each owns more than 5% of the
outstanding voting securities of each of the Funds. Because of this
greater than 5% holding, Trust I and Trust II each is an affiliated
person of each of the Funds under section 2(a)(3)(A) and each of the
Funds is an affiliated person of each of Trust I and Trust II under
section 2(a)(3)(B). Therefore, the Acquiring Fund is an affiliated
person of an affiliated person of the Acquired Fund and vice versa.
5. Section 17(b) provides that the SEC may exempt a transaction
from the provisions of section 17(a) if evidence establishes that 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.
6. Applicants submit that the Reorganization meets the standards
for relief under section 17(b), in that the terms of the
Reorganization, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned; the Reorganization is consistent with the investment
policy of the Funds; and the Reorganization is consistent with the
general purposes of the Act. In addition, applicants submit that each
board made the determinations under rule 17a-8 that the Reorganization
is in the best interests of its registered investment company and that
the interests of existing shareholders of its registered investment
company will not be diluted as a result of its effecting the
Reorganization.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12386 Filed 5-16-95; 8:45 am]
BILLING CODE 8010-01-M
