[Federal Register Volume 64, Number 157 (Monday, August 16, 1999)]
[Notices]
[Pages 44565-44567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21089]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23936, 812-11738]


The First Commonwealth Fund, Inc.; Notice of Application

August 9, 1999.
AGENCY: Securities and Exchange 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: The First Commonwealth Fund, Inc., requests an 
order to permit it to make up to twelve distributions of net long-term 
capital gains in any one taxable year, so long as it maintains in 
effect a distribution plan with respect to its common stock calling for 
monthly distributions of a fixed percentage of its net asset value.

FILING DATES: The application was filed on August 5, 1999.

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 
applicant with a copy of the requests, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on September 2, 
1999, 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 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609. Applicant, 800 Scudders Mill Road, Plainsboro, New Jersey 08536.

FOR FURTHER INFORMATION CONTACT: Nadya Roytblat, Assistant Director 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 Fifth Street, NW., Washington, DC 
20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. The applicant is organized as a Maryland corporation and 
registered under the Act as a closed-end, non-

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diversified management investment company. The applicant's primary 
investment objective is to provide high current income, primarily 
through investment in fixed-income securities of issuers in, or 
denominated in the currency of Australia, Canada, New Zealand, and the 
United Kingdom. The applicant's common shares are listed on the New 
York Stock Exchange and have consistently traded at a discount to net 
asset value. EquitiLink International Management Limited is the 
investment manager to the applicant and is registered as an investment 
adviser under the Investment Advisers Act of 1940.
    2. On June 10, 1999, the applicant's board of directors (the 
``Board''), including a majority of the directors who are not 
``interested persons'' as defined in section 2(a)(19) of the Act, 
adopted a distribution plan (``Monthly Distribution Plan'') that calls 
for regular monthly distributions at a monthly cash distribution rate 
(``Monthly Cash Distribution Rate'') set once a year by the Board. 
Among other things, the Board considered empirical evidence that, in 
some cases, market discounts to net asset value have narrowed upon 
adoption of similar distribution policies by other closed-end funds. 
The Board has set the annualized Monthly Cash Distribution Rate for the 
period March 1999, through February 2000, at 7.75 cents per share. If, 
for any taxable year, the total distributions required by its Monthly 
Distribution Plan exceed the applicant's annual net investment income 
and net realized capital gains, the excess will generally be treated as 
a return of capital (up to the amount of the stockholders's adjusted 
tax basis in his share).
    3. The applicant requests relief to permit it, so long as it 
maintains in effect the Monthly Distribution Plan, to make up to twelve 
distributions of long-term capital gains in any one taxable year.

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) 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. The applicant asserts that rule 19b-1, by limiting the number of 
net long-term capital gains distributions the applicant may make with 
respect to any one year, would prohibit the applicant from including 
available net long-term capital gains in certain of its fixed monthly 
distributions. As a result, the applicant states that it could be 
required to fund these monthly distributions with returns of capital 
(to the extent net investment income and net realized short-term 
capital gains are insufficient to cover a monthly distribution). The 
applicant further asserts that, in order to distribute all of its long-
term capital gains within the limits in rule 19b-1, the applicant may 
be required to make total distributions in excess of the annual amount 
called for by the Monthly Distribution Plan or retain and pay taxes on 
the excess amount. The applicant asserts that the application of rule 
19b-1 to the applicant's Monthly Distribution Plan may create pressure 
to limit the realization of long-term capital gains based on 
considerations unrelated to investment goals.
    3. The applicant submits that the concerns underlying section 19(b) 
and rule 19b-1 are not present in the applicant's situation. One of the 
concerns leading to the adoption of section 19(b) and rule 19b-1 was 
that shareholders might be unable to distinguish between frequent 
distributions of capital gains and dividends from investment income. 
The applicant states that its Monthly Distribution Plan has been 
described in the applicant's periodic communications to its 
shareholders. The applicant states that, in accordance with rule 19a-1 
under the Act, a separate statement showing the source of the 
distribution will accompany each distribution (or the confirmation of 
the reinvestment thereof under the applicant's dividend reinvestment 
plan). In addition, a statement showing the amount and source of each 
monthly distribution during the year will be included with the 
applicant's IRS Form 1099-DIV report sent to each shareholder who 
received 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 improperly influence 
distribution practices including, in particular, the practice of urging 
an investor to purchase shares of a fund on the basis of an upcoming 
dividend (``selling the dividend''), when the dividend results in an 
immediate corresponding reduction in net asset value and is, in effect, 
a return of the investor's capital. The applicant submits that this 
concern does not arise with regard to closed-end management investment 
companies, such as the applicant, that do not continuously distribute 
their shares. The applicant also states 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 
the applicant.
    5. The applicant further states that any offering of transferable 
rights will comply with all relevant Commission and staff guidelines. 
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 compensation.
    6. The applicant states that increased administrative costs are a 
concern underlying section 19(b) and rule 19b+1. The applicant asserts 
that this concern is not present because the applicant will continue to 
make monthly distributions regardless of whether long-term capital 
gains are included in any particular distribution.
    7. Section 6(c) of the Act provides that the Commission may exempt 
any person or transaction from any provision of the Act or any rule 
under the Act to the extent that 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, the applicant 
believes that the requested relief satisfies this standard.

Applicant's Condition

    The applicant agrees that the 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 the 
applicant of its common shares other than:
    (i) a rights offering with respect to holders of the applicant's 
common stock, in which (a) shares are issued only within the 15-day 
period immediately following the record date of a monthly dividend, (b) 
the prospectus for such rights offering makes it clear that 
shareholders exercising rights will not be entitled to receive such 
dividend, and (c) the

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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 the applicant; unless the 
applicant has 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, 
under delegated authority.
[FR Doc. 99-21089 Filed 8-13-99; 8:45 am]
BILLING CODE 8010-01-M