[Federal Register Volume 62, Number 183 (Monday, September 22, 1997)]
[Notices]
[Pages 49542-49543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25029]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22822; 812-10736]
Liberty All-Star Growth Fund, Inc.; Notice of Application
September 15, 1997.
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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SUMMARY OF APPLICATION: Applicant requests an order under section 6(c)
of the Act granting an exemption from section 19(b) and under rule 19b-
1 to permit it to make up to four distributions of net long-term
capital gains in any one taxable year, so long as it maintains in
effect a distribution policy calling for quarterly distributions of a
fixed percentage of its net asset value.
FILING DATE: The application was filed on July 23, 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
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on October 9, 1997,
and should be accompanied by proof of service on applicant, 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, DC 20549.
Applicant, 600 Atlantic Ave., Federal Reserve Plaza, Boston, MA 02210.
FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser, at
(202) 942-0562, 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, 450 5th Street N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicant's Representations
1. Applicant is a closed-end management investment company
organized as a Maryland corporation. Applicant's investment objective
is to invest primarily in a diversified portfolio of equity securities.
2. On February 20, 1997, applicant adopted a distribution policy
(the ``Distribution Policy'') that calls for quarterly distributions of
2.5% of applicant's net asset value at the time of declaration, for a
total of approximately 10% of net asset value per year. If the total
distributions required by the Distribution Policy exceed applicant's
investment income and net realized capital gains, the excess will be
treated as a return of capital. If applicant's net investment income,
net short-term realized gains and net long-term realized gains for any
year exceed the amount required to be distributed under its
Distribution Policy, applicant at its discretion may retain, and not
distribute, net realized long-term capital gains to the extent of such
excess.
3. Applicant states that the distributions will provide a steady
cash flow to shareholders, and, during periods when their per share net
asset value is increasing, a means for shareholders to receive on a
regular basis some of the appreciation in value of their shares.
Applicant also believes that the Distribution Policy plays a role in
reducing the discount from net asset value at which applicant's shares
typically trade.
4. Applicant requests relief to permit applicant to make up to four
distributions of net long-term capital gains in any one taxable year,
so long as it maintains in effect a distribution policy calling for
quarterly distributions of a fixed percentage of its net asset value.
Applicant's Legal Analysis
1. Section 19(b) of the Act provides that a registered investment
company may not, in contravention of such rules, regulations, or orders
as the SEC may prescribe, distribute long-term capital gains more often
than once every twelve months. Rule 19b-1(a) permits a registered
investment company, with respect to any one taxable year, to make one
capital gains distribution, as defined in section 852(b)(3)(C) of the
Internal Revenue Code of 1986, as amended (the ``Code''). Rule 19b-1(a)
also permits a supplemental distribution to be made pursuant to section
855 of the Code not exceeding 10% of the total amount distributed for
the year. Rule 19b-1(f) permits one additional long-term capital gains
distribution to be made to avoid the excise tax under section 4982 of
the Code.
2. Applicant asserts that the limitation on the number of net long-
term capital gains distributions in rule 19b-1 prohibits applicant from
including available net long-term capital gains in certain of its fixed
quarterly distributions. As a result, applicant states that it must
fund these quarterly distributions with returns on capital (to the
extent net investment income and realized short-term capital gains are
insufficient to cover a quarterly distribution). Applicant further
asserts that, in order to distribute all of its long-term capital gains
within the limits on the number of long-term capital gains
distributions in rule 19b-1, applicant may be required to make certain
of its quarterly distributions in excess of the total annual amount
called for by the Distribution Policy. Alternatively, applicant states
that it may be forced to retain long-term capital gains and pay the
applicable taxes. Applicant asserts that the application of rule 19b-1
to its Distribution Policy may cause anomalous results and create
pressure to limit the realization of long-term capital gains based on
considerations unrelated to investment goals.
3. Applicant believes that the concerns underlying section 19(b)
and rule 19b-1 are not present in applicant's situation. One of these
concerns is that shareholders might not be able to distinguish between
frequent distributions of capital gains and dividends from investment
income. Applicant states that the Distribution Policy has been
disclosed in applicant's communications to its shareholders, including
its 1996 annual report, and applicant will disclose the Distribution
Policy in future quarterly and annual reports to shareholders.
Applicant further states that, in accordance with rule 19a-1 under the
Act, a separate statement showing the source of the distribution (net
investment income, net realized capital gain or return of capital) will
accompany each distribution (or the confirmation of the reinvestment
under applicant's dividend reinvestment plan). In addition, a statement
showing the amount and source of each quarterly distribution received
during the year will be included with applicant's IRS Form 1099-DIV
report sent to each shareholder who received distributions during the
year (including shareholders who sold shares during the year).
Applicant believes that its shareholders fully understand that their
distributions
[[Page 49543]]
are not tied to applicant's net investment income and realized capital
gains and do not represent yield or investment return.
4. Another concern underlying section 19(b) and rule 19b-1 is that
frequent capital gains distributions could facilitate improper sales
practices, including in particular, the practice of urging an investor
to purchase fund shares on the basis of an upcoming distribution
(``selling the dividend''), when the distribution would result in an
immediate corresponding reduction in net asset value and would be, in
effect, a return of the investor's capital. Applicant submits that this
concern does not apply to closed-end investment companies, such as
applicant, which do not continuously distribute shares.
5. Applicant states that increased administrative costs also are a
concern underlying section 19(b) and rule 19b-1. Applicant asserts that
it will continue to make quarterly distributions regardless of whether
capital gains are included in any particular distribution.
6. Section 6(c) provides that the SEC may exempt any person,
security, or transaction from any provision of the Act, or from any
rule thereunder, if 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. For
the reasons stated above, applicant believes that the requested relief
satisfies this standard.
Applicant's Condition
Applicant agrees that the order granting the requested relief shall
terminate upon the effective date of a registration statement under the
Securities Act of 1933 for any future public offering by applicant of
its shares other than: (i) a non-transferable rights offering to
shareholders of applicant, provided that such offering does not include
solicitation by brokers or the payment of any commissions or
underwriting fee; and (ii) an offering in connection with a merger,
consolidation, acquisition, or reorganization.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25029 Filed 9-19-97; 8:45 am]
BILLING CODE 8010-01-M
