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December 19, 1989
TO: SEC RULES MEMBERS NO. 73-89
STATE SECURITIES MEMBERS NO. 43-89
CLOSED-END FUND MEMBERS NO. 69-89
UNIT INVESTMENT TRUST MEMBERS NO. 71-89
RE: CALIFORNIA ISSUES ANTI-APARTHEID DISCLOSURE REGULATIONS,
EFFECTIVE JANUARY 1, 1990
__________________________________________________________
The office of the California Secretary of State has issued
emergency regulations relating to Proposition 105, which requires
each corporation issuing securities in California to include
disclosure in its prospectus of "whether or not" it (or any
affiliated corporation) does business in South Africa, or with
any person or group located there. A copy of the regulations is
attached.
The regulations include a copy of the notice form required
to be filed under Proposition 105. All corporate issuers must
file the notice no later than January 1, 1990. However, the
regulations delay the effectiveness of the required prospectus
disclosure in the case of prospectuses printed and distributed
prior to January 1, 1990. Such prospectuses do not need to
contain the required disclosure until the earlier of (1) the
reprinting of the prospectus and (2) July 1, 1990.
In many respects, the final regulations are the same as the
proposed regulations previously sent to you. (See Memorandum to
SEC Rules Members No. 59-89, State Securities Members No. 35-89,
Closed-End Fund Members No. 57-89 and Unit Investment Trust
Members No. 56-89, dated October 18, 1989). However, the final
regulations differ from or expand upon the proposed regulations
in several important respects.
Location of Disclosure. The regulations specify that the
prospectus disclosure must be printed "conspicuously" on one of
the first five pages of the prospectus, or printed as a sticker
attached to one of the first five pages. It is not sufficient to
include the disclosure in a document not delivered with the
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prospectus. Thus, it appears that the disclosure cannot be set
out in the Statement of Additional Information.
Special Rules for Investment Companies. The regulations
specify that a mutual fund need not consider whether its sponsor
nor whether corporations in which it invests are doing business
in South Africa in order to determine whether it is doing
business in South Africa. Mutual funds are also not considered
to be subsidiaries of their sponsors. The foregoing also applies
to closed-end funds. (The Institute had requested this
clarification. See Memorandum to State Securities Members No.
42-89 and Closed-End Fund Members No. 65-89, dated December 5,
1989).
Specified Disclosure. The regulations specify the exact
disclosure that should appear in prospectuses of corporations
selling shares in California. For those that do not do business
in, or with anyone located in, South Africa, the prospectus
should state: "This corporation does not do business in, or with
any person or group located in, South Africa." "Company" may be
substituted for "corporation". In addition, the disclosure must
state (1) that the information is only accurate when the
prospectus was written (2) that the buyer may contact the
Secretary of State for updated information and (3) the address
and phone number of the Secretary of State.
Business Trusts. The final regulations, unlike the
proposed regulations, do not expressly exclude business trusts.
However they expressly apply only to "business corporations or
stock corporations or nonprofit corporations".
Determination of Doing Business with Persons Located in
South Africa. The final regulations clarify that a corporation
is doing business "with a person or group located in South
Africa" if its sales and purchases of goods and services between
it and such persons or groups totals $10,000 or more for either
the current or prior fiscal year. In the case of multinational
organizations, the corporation need only consider transactions
with the South African locations of such organizations.
Further Information. The California Secretary of State
will establish a special telephone line for questions about
Proposition 105. The number is 916/327-6427. Until the line is
in effect, questions should be directed to Margery Knapp, Staff
Counsel, at 916/445-0620.
Craig S. Tyle
Associate General Counsel
Attachment