[Federal Register Volume 63, Number 184 (Wednesday, September 23, 1998)]
[Notices]
[Pages 50948-50950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25369]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23439; 812-10976]
The Austria Fund, Inc., The Spain Fund, Inc., and Alliance
Capital Management L.P.; Notice of Application
September 17, 1998.
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: Applicants request an order under section 6(c)
of the Act granting an exemption from section 19(b) of the Act and rule
19b-1 under the Act to permit certain registered closed-end investment
companies to make periodic distributions of long-term capital gains in
any one taxable year pursuant to a distribution policy with respect to
common stock.
APPLICANTS: The Austria Fund, Inc. (``Austria Fund''), The Spain Fund,
Inc. (``Spain Fund''), and Alliance Capital Management L.P.
(``Alliance'') on behalf of each other existing and each future closed-
end management investment company that is advised by Alliance or by an
entity controlling, controlled by or under common control with Alliance
(collectively, the ``Funds'').
FILING DATE: The application was filed on January 20, 1998 and amended
on September 16, 1998.
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 October 13,
1998, 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.
[[Page 50949]]
ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549.
Applicants, 1345 Avenue of the Americas, New York, New York 10105.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Attorney-Adviser, at
(202) 942-0574, or Edward P. Macdonald, 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, NW., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. Austria Fund and Spain Fund (the ``Foreign Funds'') are closed-
end investment companies registered under the Act and organized as
Maryland corporations. Alliance, a Delaware limited partnership and an
investment adviser registered under the Investment Advisers Act of
1940, is the investment adviser to the Foreign Funds. Austria Fund's
and Spain Fund's investment objectives are to seek long-term capital
appreciation by investing primarily in equity securities of Austrian
companies and Spanish companies, respectively. Common shares of the
Foreign Funds are listed on the New York Stock Exchange, and currently
trade at a discount from net asset value.
2. Each of the Foreign Funds has adopted a distribution policy with
respect to its common stock under which the Fund will make quarterly
distributions to its shareholders in an amount equal to 2.5% of the
Fund's net asset value, determined as of the beginning of the quarter,
for each of the first three calendar quarters of each year
(``Distribution Policy''). Each Foreign Fund's fourth calendar quarter
distribution for each year will be equal to 2.5% of each Foreign Fund's
net asset value determined as of the beginning of that quarter. Each
Fund's Distribution Policy may in the future provide for as many as
twelve monthly distributions per year equal to a fixed percentage of
the Fund's net asset value.
3. If, with respect to any fixed distribution by any Fund under its
Distribution Policy, the Fund's net investment income and net realized
short-term capital gains are less than the amount of the distribution,
the difference would be treated as having been distributed from net
realized long-term capital gains, and if the amount of net realized
long-term capital gains is not sufficient, from other Fund assets as a
return of capital. Each Fund's final distribution for each calendar
year will include any remaining net investment income and net realized
short-term capital gains deemed, for federal income tax purposes,
undistributed during the year, as well as any net long-term capital
gains realized during the year.
4. Applicants request an order to permit each Fund to make periodic
distributions of long-term capital gains in any one taxable year, so
long as each Fund maintains in effect a distribution policy with
respect to its common stock calling for a fixed number of distributions
of a fixed percentage of each Fund's 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. Applicants assert that the limitation on the number of net long-
term capital gains distributions in rule 19b-1 under the Act prohibits
applicants from including available net long-term capital gains in
certain of its fixed distributions. As a result, applicants must fund
these fixed distributions with returns of capital (to the extent net
investment income and realized short-term capital gains are
insufficient to cover a fixed distribution). Applicants further assert
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, applicants may be required to make certain of its fixed
distributions in excess of the fixed percentage called for by their
Distribution Policy.
3. Applicants believe that the concerns underlying section 19(b)
and rule 19b-1 are not present in applicants' situation. Applicants
note that one of these concerns is that shareholders might not be able
to distinguish frequent distributions of capital gains and dividends
from investment income. Applicants state that each Fund's Distribution
Policy will be described in each Fund's communications to its
shareholders, including each Fund's annual reports. In addition,
applicants state that the Funds will send information statements that
comply with rule 19a-1 under the Act to their shareholders. Applicants
also state that a statement showing the amount and source of
distributions received during the year is included with each Fund's IRS
Form 1099-DIVA reports of distributions for that year sent to each
Fund's shareholders who received distributions during the year
(including shareholders who sold shares during the year).
4. Applicants note that 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 a
Fund's net asset value and would be, in effect, a return of the
investor's capital. Applicants believe that this concern does not apply
to closed-end investment companies, such as the Funds, that do not
continuously distribute shares. Applicants state that the condition to
the requested relief would further assure that the concern about
selling the dividend would not arise in connection with a rights
offering by a Fund.
5. Applicants further state that any transferable rights offering
by a Fund will comply with all relevant SEC and staff guidelines. In
making the findings required by these guidelines, a Fund's board of
directors will consider, among other things, the brokerage commissions
and compensation to be paid to underwriters and dealers in connection
with the offering. Applicants also state that any Fund conducting a
rights offering will include a representation in the underwriting
agreement requiring the underwriter to comply with the provisions of
the National Association of Securities Dealers, Inc. rules governing
the fairness of compensation and that an underwriter will take steps to
ensure that any dealers participating in the offering comply with the
provisions of those rules.
6. Applicants state that increased administrative costs also are a
concern underlying section 19(b) and rule 19b-1. Applicants assert that
this concern is not present because it will continue to make fixed
distributions regardless of whether capital gains are included in any
particular distribution.
[[Page 50950]]
7. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction, or any class or classes of persons,
securities, or transactions, from any provisions of the Act, if and to
the extent 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, applicants believe that the requested
exemption meets the standards set forth in section 6(c) of the Act and
would be in the best interests of the Funds and their shareholders.
Applicants' Condition
Applicants agree that the order granting the requested relief shall
terminate with respect to a Fund upon the effective date of a
registration statement under the Securities Act of 1933 for any future
public offering by a Fund of its shares other than: (1) a rights
offering to shareholders of the Fund, provided that (a) if the rights
are exercisable between the date a dividend to the Fund's shareholders
is declared and the record date of the dividend, each offeree is
provided prominent disclosure of the tax effect if the offeree
exercises the rights and a portion of the dividend consists of long-
term capital gains, and (b) the Fund has not engaged in more than one
rights offering during any given calendar year; and (2) an offering in
connection with a merger, consolidation, acquisition, or reorganization
of a Fund; unless applicants have received from the staff of the
Commission written assurance that the order will remain in effect.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 98-25369 Filed 9-22-98; 8:45 am]
BILLING CODE 8010-01-M
