[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