[Federal Register Volume 62, Number 183 (Monday, September 22, 1997)]
[Notices]
[Pages 49542-49543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25029]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22822; 812-10736]


Liberty All-Star Growth Fund, Inc.; Notice of Application

September 15, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under the Investment 
Company Act of 1940 (the ``Act'').

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicant requests an order under section 6(c) 
of the Act granting an exemption from section 19(b) and under rule 19b-
1 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 calling for quarterly distributions of a 
fixed percentage of its net asset value.

FILING DATE: The application was filed on July 23, 1997.

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 request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on October 9, 1997, 
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 SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street N.W., Washington, DC 20549. 
Applicant, 600 Atlantic Ave., Federal Reserve Plaza, Boston, MA 02210.

FOR FURTHER INFORMATION CONTACT: Lisa McCrea, Attorney Adviser, at 
(202) 942-0562, or Mary Kay Frech, 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 N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicant's Representations

    1. Applicant is a closed-end management investment company 
organized as a Maryland corporation. Applicant's investment objective 
is to invest primarily in a diversified portfolio of equity securities.
    2. On February 20, 1997, applicant adopted a distribution policy 
(the ``Distribution Policy'') that calls for quarterly distributions of 
2.5% of applicant's net asset value at the time of declaration, for a 
total of approximately 10% of net asset value per year. If the total 
distributions required by the Distribution Policy exceed applicant's 
investment income and net realized capital gains, the excess will be 
treated as a return of capital. If applicant's net investment income, 
net short-term realized gains and net long-term realized gains for any 
year exceed the amount required to be distributed under its 
Distribution Policy, applicant at its discretion may retain, and not 
distribute, net realized long-term capital gains to the extent of such 
excess.
    3. Applicant states that the distributions will provide a steady 
cash flow to shareholders, and, during periods when their 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.
    4. Applicant requests relief to permit applicant 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 calling for 
quarterly distributions of a fixed percentage of its 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. Applicant asserts that the limitation on the number of net long-
term capital gains distributions in rule 19b-1 prohibits applicant from 
including available net long-term capital gains in certain of its fixed 
quarterly distributions. 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, 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, applicant may be required to make certain 
of its quarterly distributions in excess of the total annual amount 
called for by the Distribution Policy. Alternatively, applicant states 
that it may be forced to retain long-term capital gains and pay the 
applicable taxes. 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 based on 
considerations unrelated to investment goals.
    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 between 
frequent distributions of capital gains and dividends from investment 
income. Applicant states that the Distribution Policy has been 
disclosed in applicant's communications to its shareholders, including 
its 1996 annual report, and applicant will disclose the Distribution 
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 confirmation 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 included with applicant's IRS Form 1099-DIV 
report sent to each shareholder who received distributions during the 
year (including shareholders who sold shares during the year). 
Applicant believes that its shareholders fully understand that their 
distributions

[[Page 49543]]

are not tied to applicant's net investment income and realized capital 
gains and do not represent yield or investment return.
    4. 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 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 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 SEC may exempt any person, 
security, or transaction 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 the order granting the requested relief shall 
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 SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25029 Filed 9-19-97; 8:45 am]
BILLING CODE 8010-01-M