[Federal Register Volume 62, Number 53 (Wednesday, March 19, 1997)]
[Notices]
[Pages 13200-13201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6837]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22557; International Series Rel. No. 1063; 812-10338]


Old Mutual South Africa Equity Trust, et al.; Notice of 
Application

March 12, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the 
``Commission'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

-----------------------------------------------------------------------

APPLICANTS: Old Mutual South Africa Equity Trust (the ``Trust'') and 
Old Mutual Global Assets Fund Limited (``Old Global'').

RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act 
to exempt applicants from the provisions of section 17(a).

SUMMARY OF APPLICATION: Applicants seek an order to permit Old Global 
to sell certain shares of Investec Bank Ltd. (``Investec'') to the 
Trust.

FILING DATES: The application was filed on September 11, 1996, and 
amended on December 18, 1996, and March 7, 1997.

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 April 7, 1997, 
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 5th Street, N.W., Washington, D.C. 
20549. Applicants, Clarendon House, 2 Church Street, Hamilton, Bermuda.

FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at 
(202) 942-0572, or Elizabeth G. Osterman, Assistant Director, 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' Representations

    1. The Trust is a registered open-end management investment company 
organized as a trust under Massachusetts law. 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 that 
are listed on a securities exchange. Beneficial interests in the Trust 
are issued solely in private placement transactions to investment 
companies, common or commingled trust funds, or similar entities which 
are ``accredited investors'' within the meaning of Regulation D under 
the Securities Act of 19332, as well as to certain investment funds 
organized outside the United States. As of December 4, 1996, 91.21% of 
the voting securities of the Trust was owned by a wholly-owned 
subsidiary of the south African Mutual Life Assurance Society (``Old 
Mutual'').
    2. The Global Fund is a mutual fund organized under the laws of 
Bermuda that invests in a portfolio of South African and international 
securities. A wholly-owned subsidiary of Old Mutual is the sole 
shareholder of the Global Fund. The Global Fund is not required to be 
registered under the Act because its securities are not owned by United 
States residents. The Trust and the Global Fund are managed by Old 
Mutual Asset Managers (Bermuda) Limited (the ``Adviser''), a wholly-
owned subsidiary of Old Mutual.
    3. Investec is a South African registered bank. Its ordinary shares 
and convertible debentures are listed on the JSE. In July of 1996 
Investec conducted a private placement of its ordinary shares for the 
purpose of funding two acquisitions. Old Mutual received an offer from 
Investec to purchase 1.6 million Investec ordinary shares at 
U.S.$19.52. Consistent with practice in South Africa,\1\ the price was 
a 9.46% discount to the shares' closing market price on the trade date. 
Old Mutual allocated the 1.6 million shares among various portfolios 
and funds managed by Old Mutual and its affiliates. The Adviser 
originally wanted the Trust to participate in the Investec placement 
and informed Old Mutual that it wished to purchase 685,000 shares of 
Investec for the Trust. However, the Trust was not allocated shares 
because such an allocation might have violated section 17(a) of the Act 
and instead the shares were allocated to the Global Trust (the 
``Investec Shares'').
---------------------------------------------------------------------------

    \1\ It is common practice in the South African equity markets 
for placing my issuers to be offered to large institutional holders 
of their shares at a discount to the market price.
---------------------------------------------------------------------------

    4. The purchase of the Investec Shares by the Global Fund was 
originally scheduled to close on July 23, 1996 at a purchase price of 
U.S.$19.52 per share (the ``July Price''). Investec agreed to defer the 
settlement date to December 2, 1996 (the ``Initial Purchase Settlement 
Date''). In consideration of Investec's agreement to defer the 
settlement date, the Global Fund agreed to purchase the Investec Shares 
from Investec on the Initial Purchase Settlement Date at the July 
Price, which represented a 16.20% discount from the market price per 
share, plus carrying costs of $.40 per share. The carrying costs were 
calculated at a rate of overnight dollar LIBOR from July 23, 1996 
through September 30, 1996, and thereafter at a

[[Page 13201]]

rate of overnight dollar LIBOR plus 0.5%.
    5. Applicants propose that the Global Fund sell the Investec Shares 
to the Trust. The purchase price to be paid by the Trust will be the 
July Price plus carrying costs relating to such investment. These 
carrying costs will consist of (a) reimbursement of the carrying costs 
actually paid by the Global Fund to Investec in consideration of the 
deferral of the Global Fund's purchase of the Investec Shares and (b) 
reimbursement of the Global Fund of its cost of funds (the overnight 
LIBOR plus 0.5%) from the Initial Purchase Settlement Date through the 
date on which the Trust purchases the Investec Shares (the ``Trust 
Purchase Date'').

Applicants' Legal Analysis

    1. Section 17(a) of the Act provides, in pertinent part, that it is 
unlawful for any affiliated person of a registered investment company, 
or any affiliated person of such an affiliated person, acting as 
principal, knowingly to sell or purchase securities to or from such 
registered company.
    2. Section 2(a)(3) of the Act defines the term ``affiliated 
person'' of another person to include, in pertinent part (a) any person 
directly or indirectly owning, controlling, or holding with power to 
vote 5% or more of the outstanding voting securities of such other 
person, (b) any person directly or indirectly controlling, controlled 
by, or under common control with such other person or (c) if such other 
person is an investment company, any investment adviser thereof.
    3. The Trust and the Global Fund are both subject to control, as 
defined in section 2(a)(9) of the Act,\2\ by Old Mutual. Also, the 
Trust and the Global Fund share a common investment adviser. Thus, the 
Trust and the Global Fund are ``affiliated persons'' within the meaning 
of section 2(a)(3). As a result, sales of securities on a principal 
basis by the Global Fund to the Trust are prohibited by section 17(a) 
of the Act.
---------------------------------------------------------------------------

    \2\ Section 2(a)(9) defines ``control'' as the power to exercise 
a controlling influence over the management or policies of a 
company. The section creates a presumption that owners of 25% or 
more of a company's voting securities control such company.
---------------------------------------------------------------------------

    4. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the prohibitions 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.
    5. Applicants believe that the requested relief meets the standards 
set forth in section 17(b). Applicants believe that the proposed 
transaction is consistent with the objective and policies of the Trust 
and that the proposed transaction is consistent with the general 
purposes of the Act. In addition, the terms of the transaction were 
presented to the board of trustees of the Trust and at a meeting on 
February 14, 1997, the board of trustees of the Trust, including a 
majority of the independent trustees, approved the purchase of the 
Investec Shares. In evaluating the terms of the transaction, the 
trustees of the Trust considered the fact that the proposed purchase 
price to be paid by the Trust will include reimbursement of Global Fund 
for its payment of Investec's carrying costs and for its own carrying 
costs.
    6. Applicants state that the proposal does not involve dumping. 
Further, applicants state that the transaction is consistent with the 
requirements of rule 17a-7,\3\ except that the purchase price will be 
below market price and the Trust and the Global Fund are not affiliated 
persons solely by reason of having a common investment adviser or 
investment advisers which are affiliated persons of each other, common 
directors, and/or common officers.
---------------------------------------------------------------------------

    \3\ Rule 17a-7 permits certain purchase and sale transactions 
between an investment company and certain of its affiliated persons 
provided that certain conditions are met, including that the 
transaction be effected at the current market price of the security.
---------------------------------------------------------------------------

    7. Applicants state that if the Trust were not able to purchase the 
Investec Shares from the Global Fund on the basis proposed, it would be 
disadvantaged relative to other portfolios and funds managed by Old 
Mutual and its affiliates because, unlike those other portfolios and 
funds that have been allocated shares of the placing, the Trust would, 
in order to increase its investment in Investec, have to purchase 
shares on the open market without the benefit of the discount 
negotiated by Old Mutual. Applicants state that the Trust is not 
obligated to purchase the Investec Shares if the market price of the 
shares falls below the proposed purchase price. Thus, the Global Fund 
bears the investment risk of holding the Investec Shares. Applicants 
state that the Global Fund has in effect granted an option to the Trust 
and the Trust has not paid, and is not required to pay, any fee to the 
Global Fund or any other party for this option.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-6837 Filed 3-18-97; 8:45 am]
BILLING CODE 8010-01-M