[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Pages 51975-51976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26020]

[[Page 51975]]



[Investment Company Act Release No. 23464; 812-11212]

France Growth Fund, Inc.; Notice of Application

September 23, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 19(b) of the Act and rule 19b-1 under the Act.


SUMMARY OF THE APPLICATION: Applicant, The France Growth Fund, Inc., a 
registered closed-end management investment company, requests an order 
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 with respect to its common stock calling for 
quarterly distributions of a fixed percentage of the applicant's net 
asset value (``NAV'').

FILING DATE: The application was filed on July 2, 1998 and amended on 
September 3, 1998.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving the applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 19, 1998, and should be accompanied by proof of service 
on the 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW, Washington, DC 
20549. Applicant, c/o Ernest V. Klein, Esq., Hale and Dorr LLP, 60 
State Street, Boston, MA 02109.

Emerson S. Davis, Senior Counsel, at (202) 942-0714, or George J. 
Zornada, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, NW, 
Washington, DC 20549 (telephone (202) 942-8090).

Applicant's Representations

    1. Applicant is registered under the Act as a closed-end management 
investment company and is organized as a Maryland corporation. 
Applicant's investment objective is long-term capital appreciation 
through investments primarily in French equity securities. Applicant's 
shares are listed and traded on the New York Stock Exchange. 
Applicant's investment adviser is Indocam International Investment 
services (``Adviser''), an investment adviser registered under the 
Investment Advisers Act of 1940.
    2. On June 9, 1998, applicant's board of directors (``Board'') 
adopted a distribution plan with respect to applicant's common stock 
that calls for distributions, on a quarterly basis, of at least 3% of 
applicant's NAV determined as of the end of the prior calendar year, 
for a total distribution of at least 12% annually (the ``Distribution 
Plan''). Applicant states that the Distribution Plan will provide a 
steady cash flow to its shareholders and, during periods when its per 
share NAV is increasing, a means for shareholders to receive, on a 
periodic basis, some of the appreciation in the value of their shares. 
Applicant also believes that the Distribution Plan will help reduce the 
discount from NAV at which applicant's shares trade. Applicant's Board 
has provided for the Distribution Plan to remain in effect for a 
minimum of three years, to allow the Board to evaluate the Distribution 
Plan's effect on applicant's discount.
    3. Applicant requests relief 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 the Distribution Plan.

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 Commission may prescribe, distribute long-term capital gains 
more often than once every twelve months. Rule 19b-1(a) under the Act 
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 rule 19b-1, by limiting the number of net 
long-term capital gains distributions that Applicant may make with 
respect to any one year, would prevent the normal operation of its 
Distribution Plan whenever applicant's realized net long-term gains in 
any year exceed the total of the fixed quarterly distributions that 
under rule 19b-1 may include such capital gains. As a result, applicant 
states that it must fund these quarterly distributions with returns of 
capital (to the extent net investment income and realized short-term 
capital gains are insufficient to cover quarterly distributions). 
Applicant further asserts that the long-term capital gains in excess of 
the fixed quarterly distributions permitted by rule 19b-1 then must 
either be added as an ``extra'' to one of the permitted capital gains 
distributions, thus exceeding the total minimum amount called for by 
the Distribution Plan, or be retained by the applicant, with the 
applicant paying taxes on the amount retained. Applicant believes that 
the application of rule 19b-1 to its Distribution Plan may create 
pressure to limit the realization of long-term capital gains to the 
total amount of the fixed quarterly distributions that under the rule 
may include such gains.
    3. Applicant believes that the concerns underlying section 19(b) 
and rule 19b-1 are not present in applicant's situation. One of the 
concerns leading to the adoption of the rule was that shareholders 
might not be able to distinguish between frequent distributions of 
capital gains and dividends from net investment income. Applicant 
states that it will fully describe the Distribution Plan, including 
that quarterly distributions called for by the Distribution Plan will 
include returns of capital to the extent that applicant's net 
investment income and net realized capital gains are insufficient to 
meet the fixed dividends, in each of applicant's periodic reports to 
shareholders. Shareholders will receive the first such periodic report 
prior to the implementation of the Distribution Plan. 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 turn of capital) will accompany each distribution (or the 
confirmation of the reinvestment thereof under applicant's dividends 
reinvestment plan). In addition, a statement showing the amount and 
source of each

[[Page 51976]]

distribution during the year will be included with the applicant's 
annual tax information reporting distributions for that year and sent 
to each shareholders who receive distributions during the year, 
including shareholders who have sold shares during the year.
    4. Another concern underlying section 19(b) and rule 19b-1 is that 
frequent capital gains distributions could facilitate improper 
distribution practices, including, in particular, the practice of 
urging an investor to purchase fund shares on the basis of an upcoming 
distribution (``selling the dividends'') where the distribution would 
result in an immediate corresponding reduction in NAV and would be, in 
effect, a return of the investor's capital. Applicant submits that this 
concern does not apply to closed-end management investment companies, 
such as applicant, which do not continuously distribute their shares. 
Applicant further asserts that if it makes a rights offering to its 
shareholders, the rights offering will be timed so that share issueable 
upon exercise of the rights will be issued only in the six week period 
immediately following the record date for the declaration of a 
dividend. Thus, the abuse of selling the dividend could not occur as a 
matter of timing. Applicant further states that any offering by 
applicant of transferable rights will comply with all Commission and 
staff guidelines concerning such offering. In determining compliance 
with these guidelines, the Board will consider, among other things, the 
brokerage commissions that would be paid in connection with the 
offering. Any such offering by applicant of transferable rights will 
also comply with any applicable NASD rules regarding the fairness of 
    5. Section 6(c) of the Act provides that the Commission may exempt 
any person, security, or transaction or any class or classes of 
persons, securities, or transactions 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 any Commission order granting the requested 
relief will 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 rights offering with respect to applicant's common stock in 
which (a) shares are issued only within the six-week period immediately 
following the record date of a quarterly dividend, (b) the prospectors 
for the rights offering makes it clear that the shareholders exercising 
the rights will not be entitled to receive such dividend, and (c) the 
applicant has not engaged in more than one rights offering during any 
given calendar year; or
    (ii) An offering in connection with a merger, consolidation, 
acquisition, spin-off or reorganization of applicant; unless applicant 
has received from the staff of the Commission assurance that the order 
will remain in effect.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
[FR Doc. 98-26020 Filed 9-20-98; 8:45 am]