[Federal Register Volume 63, Number 213 (Wednesday, November 4, 1998)]
[Notices]
[Pages 59604-59605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29511]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23511; 812-11252]


FPA Capital Fund, Inc.; Notice of Application

October 29, 1998.
AGENCY: Notice of application under section 17(b) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 17(a) of 
the Act.

SUMMARY OF APPLICATION: Applicant, FPA Capital Fund, Inc. (``Fund''), 
seeks an order to permit an in-kind redemption of shares of the Fund by 
an affiliated person of the Fund.

FILING DATES: The application was filed on August 6, 1998 and amended 
on October 20, 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 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 November 23, 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 Fifth Street, NW., Washington, DC 
20549. Applicants, 11400 West Olympic Boulevard, Los Angeles, 
California 90064.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Attorney-Adviser, (202) 942-0574 or Edward P. Macdonald, 
Branch Chief, at (202) 942-0564 (Division of Investment Management,

[[Page 59605]]

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 
Commission's Public Reference Branch, 450 5th Street, NW., Washington, 
DC 20549 (tel. no. 202-942-8090).

Applicant's Representation

    1. The Fund, organized as a Maryland corporation, is registered 
under the Act as an open-end management investment company. First 
Pacific Advisors, Inc. (``Adviser''), registered under the Investment 
Advisers Act of 1940 (``Advisers Act''), is the Fund's investment 
adviser.
    2. ICMA Retirement Trust (``Affiliated Shareholder'') is a 
retirement trust for deferred compensation plans and qualified 
retirement plans established by state and local governments and their 
agencies and instrumentalities for their employees. The Affiliated 
Shareholder is not registered under the Act in reliance upon section 
2(b) of the Act. The ICMA Retirement Corporation (``Retirement 
Corporation''), registered under the Advisers Act, serves as the 
investment adviser to the Affiliated Shareholder. The Affiliated 
Shareholder owns approximately 13.33% of the outstanding shares of the 
Fund.
    3. The Retirement Corporation, acting in its fiduciary capacity 
with respect to the Affiliated Shareholder, has concluded that the 
assets of the Affiliated Shareholder invested in the Fund should be 
managed directly by the Adviser. Consequently, the Affiliated 
Shareholder has notified the Fund that it expects to redeem all of its 
shares of the Fund and place the proceeds in a separate account managed 
by the Retirement Corporation and subadvised by the Adviser. On August 
3, 1998, the Fund's board of directors, including all of the 
independent directors, determined that it would be in the best 
interests of the Fund and its shareholders to redeem the shares of the 
Affiliated Shareholder in-kind.

Applicant's Legal Analysis

    1. Section 17(a)(2) of the Act generally prohibits an affiliated 
person of a registered investment company, acting as principal, from 
knowingly purchasing any security from the company. Section 2(a)(3)(A) 
of the Act defines ``affiliated person'' of another person to include 
any person owning 5% or more of the outstanding voting securities of 
the other person.
    2. Section 17(b) of the Act provides that, notwithstanding section 
17(a) of the Act, the Commission shall exempt a proposed transaction 
from section 17(a) of the Act if evidence establishes that: (a) the 
terms of the proposed transaction are reasonable and fair and do not 
involve overreaching; (b) the proposed transaction is consistent with 
the policy of each registered investment company involved; and (c) the 
proposed transaction is consistent with the general purposes of the 
Act.
    3. Applicant states that the Affiliated Shareholder is an 
affiliated person of the Fund under section 2(a)(3)(A) of the Act 
because it owns beneficially in excess of 5% of the Fund's shares. To 
the extent that the proposed in-kind redemption would be considered to 
involve the ``purchase'' of the Fund's portfolio securities by the 
Affiliated Shareholder, applicant states that the proposed in-kind 
redemption would be prohibited by section 17(a)(2) of the Act.
    4. Applicant submits that the terms of the proposed in-kind 
redemption meet the standards set forth in section 17(b) of the Act. 
Applicant asserts that neither the Adviser nor the Affiliated 
Shareholder will have any opportunity to select the specific portfolio 
securities to be distributed. Applicant further states that the 
portfolio securities to be distributed to the Affiliated Shareholder 
will be valued according to an objective, verifiable standard and that 
the in-kind redemption is consistent with the investment policies of 
the Fund. Applicant also states that the proposed in-kind redemption is 
consistent with the general purposes of the Act.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    1. The portfolio securities of the Fund distributed to the 
Affiliated Shareholder pursuant to the in-kind redemption (the ``In-
Kind Securities'') will be limited to securities that are traded on a 
public securities market or for which quoted bid prices are available.
    2. The In-Kind Securities will be distributed by the Fund on a pro 
rata basis after excluding: (a) securities which, if distributed, would 
be required to be registered under the Securities Act of 1933; and (b) 
certain portfolio assets (such as futures and options contracts and 
repurchase agreements) that, although they may be liquid and 
marketable, must be traded through the marketplace or with the 
counterparty to the transaction in order to effect a change in 
beneficial ownership. Cash will be paid for that portion of the Fund's 
assets represented by cash equivalents (such as certificates of 
deposit, commercial paper, and repurchase agreements) and other assets 
which are not readily distributable (including receivables and prepaid 
expenses), net of all liabilities (including accounts payable). In 
addition, the Fund will distribute cash in lieu of securities held in 
its portfolio not amounting to round lots (or which would not amount to 
round lots if included in the in-kind distribution), fractional shares, 
and accruals on such securities.
    3. The In-Kind distributed to the Affiliated Shareholders will be 
valued in the same manner as they would be valued for purposes of 
computing the Fund's net asset value which, in the case of securities 
traded on a public securities market for which quotations are 
available, is their last reported sales price on the exchange on which 
the securities are primarily traded or at the last sales price on the 
national securities market, or, if the securities are not listed on an 
exchange or the national securities market or if there is no such 
reported price, the most recent bid price.
    4. The Fund will maintain and preserve for a period of not less 
that six years from the end of the fiscal year in which the proposed 
in-kind redemption occurs, the first two years in as easily accessible 
place, a written record of the redemption setting forth a description 
of each security distributed, the terms of the distribution, and the 
information or materials upon which the valuation was made.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Security.
[FR Doc. 98-29511 Filed 11-3-98; 8:45 am]
BILLING CODE 8010-01-M