[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Notices]
[Pages 35624-35625]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17385]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23268; 812-11064]


The Emerging Germany Fund Inc.; Notice of Application

June 24, 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.

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    Summary of Application: Applicant, The Emerging Germany 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 its net asset 
value.
    Filing Date: The application was filed on March 13, 1998 and 
amended on May 28, 1998. Applicant has agreed to file an amendment 
during the notice period, the substance of which is reflected in this 
notice.
    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 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 July 20, 1998 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 Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW., Washington, DC 
20549. Applicant, Four Embarcadero Center, San Francisco, CA 94111-
4189, Attention: Robert J. Goldstein.

FOR FURTHER INFORMATION CONTACT:
Lawrence W. Pisto, Senior Counsel, at (202) 942-0527, or George J. 
Zornada, Branch Chief at (202) 942-0564, Office of Investment Company 
Regulation, Division of Investment Management.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 5th Street NW., Washington, 
DC 20549 (tel. 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, 
which applicant seeks to obtain by investing primarily in equity and 
equity-linked securities of German companies. Applicant's investment 
adviser is Dresdner RCM Global Investors LLC, an investment adviser 
registered under the Investment Advisers Act of 1940.
    2. On February 12, 1998, applicant's board of directors adopted a 
distribution policy with respect to applicant's common stock that calls 
for quarterly distributions of approximately 2.5% of applicant's 
average weekly net asset value, for an annual total of at least 10% of 
its average weekly net asset value (the ``Distribution Policy'').
    3. Applicant states that the Distribution Policy will provide a 
steady cash flow to its shareholders, and, during periods when its 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.

[[Page 35625]]

    4. 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 Policy.

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 Policy 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 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 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 annual amount called for by the 
Distribution Policy, or retained by applicant (with applicant paying 
taxes on the retained amounts). 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 
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 these 
concerns is that shareholders might not be able to distinguish frequent 
distributions of capital gains and dividends from investment income. 
Applicant states that the Distribution Policy has been disclosed in a 
special letter to its shareholders, and applicant will disclose the 
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 conformation 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 disclosed to each shareholder of applicant who 
received distributions during the year (including shareholders who 
shares during the year). Applicant expects to include disclosure 
describing the amount and source of distributions under the 
Distribution Policy on a cumulative basis for the full fiscal year 
either in (i) the statement showing the amount and source of the 
quarterly distribution paid in the last quarter of each fiscal year, or 
(ii) in a separate statement mailed to shareholders shortly after year-
end.
    4. Another concern underlying section 19(b) and rule 19b-1 is that 
frequent capital gains distributions could facilitate improper fund 
distribution practices, including, in particular, the practice of 
urging an investor to purchase fund shares on the basis of an upcoming 
distribution (``selling the dividend'') where 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, 
however, 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 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 granted 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 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 Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-17385 Filed 6-29-98; 8:45 am]
BILLING CODE 8010-01-M