SEC Division of Investment Management staff letter: France Growth Fund, Inc.; Strome Hedgecap Fund

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The France Growth Fund, Inc. - Strome Hedgecap Fund

April 6, 2001 RESPONSE OF THE DIVISION OF INVESTMENT MANAGEMENT Ernest V. Klein Charles F. McCain II Hale & Dorr LLP 60 State Street Boston, MA 02109 James J. Hanks Jr. Teresa B. Carnell Ballard Spahr Andrews & Ingersoll LLP 300 East Lombard Street, 19 th Floor Baltimore, MD 21202-3268 Re: France Growth Fund Inc. File No. 811-5994 Shareholder Proposal of Strome Hedgecap Fund, L.P. Dear Messrs. Klein, McCain, Hanks, and Ms. Carnell: In a letter dated January 15, 2001, you notified the staff of the Securities and Exchange Commission that the France Growth Fund, Inc. ("Fund") proposes to omit from its proxy materials for its 2001 annual meeting a shareholder proposal (the "Proposal") submitted by Strome Hedgecap, L.P. ("Proponent"). The Proposal provides: RESOLVED, Section 3 of the By-Laws shall be amended to reflect that stockholders entitled to cast not less than 5% of all the votes entitled to be cast at such a meeting may request a Special Meeting of stockholders, and that hereafter, this amendment of the By-Laws may not be further amended, altered or repealed except by the vote of stockholders.

You request our assurance that we would not recommend enforcement action if the Fund omits the Proposal in reliance on subparagraphs (i)(1), (i)(3), and/or (i)(6) of Rule 14a-8 under the Securities Exchange Act of 1934. 1

Omission of Proposal Pursuant to Rule 14a-8(i)(1)

You assert that the Proposal may be omitted under Rule 14a-8(i)(1), which allows a company to exclude a shareholder proposal from its proxy materials if the proposal "is not a proper subject for action under the laws of the jurisdiction of the company's organization." You argue that the Proposal would require the improper repeal of Article II, Section 3 of the Fund's bylaws, which was adopted to incorporate various anti-takeover measures allowed under Maryland law into the Fund's by-laws. 2 You argue that the repeal of these measures by a shareholder proposal is not a "proper subject for action" under the laws of Maryland. In support of this argument you cite Section 3-802(b)(3) of the Maryland General Corporate Laws ("MGCL"), which provides that, once a company elects to be covered by the anti-takeover measures, an election can only be revoked if the company does so "in the same manner in which it elected to become subject" to the provisions in the first place. There appears to be some basis for your position that the Fund may exclude the Proposal and its supporting statement pursuant to this rule. You state that the Fund's election to be covered by the anti-takeover measures was authorized by board vote without shareholder approval, as permitted by section 3-802(d) of the MGCL. You argue that, because the Fund elected to be subject to the anti-takeover measures solely by board action, the only way the Fund can elect not to be covered by these provisions is exclusively through another board action. Because it appears that the Fund may only be able to revoke this election by board action, it is questionable whether a shareholder proposal to revoke the bylaws is proper under Maryland law. While the Fund may be able to omit the Proposal from its proxy materials under Rule 14a-8(i), we have stated in the past that shareholder proposals that might otherwise be excludable under Rule 14a-8(i)(1) may be cured if mandatory language is changed to a recommendation or a request addressed to a fund's board of directors. Consequently, we would not recommend enforcement action to the Commission if the Fund omits the Proposal, provided the Proponent has not resubmitted such a revised proposal to the Fund within seven days of the receipt of this letter. Omission of Proposal Based on Rule 14a-8(i)(1) Due to a Failure to Meet Advanced Notice Requirements

You state that the Proponent failed to comply with the Fund's advance notice provisions contained in Article II, Section 13(a)(2) of the Fund's bylaws. You argue that, because the Proposal was not properly submitted under the requirements of the Fund's bylaws, it is not a proper subject for action by shareholders. Accordingly, you argue that it may be omitted under Rule 14a-8(i)(1). We disagree. We believe that Rule 14a-8(i)(1) allows a fund to omit a proposal if the subject matter of the proposal is not proper for shareholder action under state law. In arguing that it may omit the Proposal under 14a-8(i)(1) based upon an alleged failure to comply with its advanced notice provisions, the Fund is not arguing that the substance of the Proposal is improper under state law, but rather that the Proponent has not complied with procedure. As a result, we believe the Fund fails to establish the grounds under which it may omit the Proposal under Rule 14a-8(i)(1). Moreover, it appears that the Proponent complied with the deadline for making submissions under 14a-8. The deadline for submitting a proposal pursuant to Rule 14a-8 is 120 days before the one-year anniversary of the release of the company's proxy materials for the previous year's annual meeting. 3 The rule states that the Fund must publish the deadline in its previous year's proxy statement. The Fund's definitive proxy statement for its 2000 annual meeting stated that the deadline for filing shareholder proposals for the Fund's next annual meeting was November 17, 2000. 4 You do not allege that the Proponent's letter dated November 16, 2000 was received after the November 17 deadline. 5

Accordingly, we cannot give any assurance that we would not recommend enforcement action to the Commission if the Fund omits the Proposal under 14a-8(i)(1), based upon the Proponent's alleged failure to meet an advance notice deadline outside of the requirements of Rule 14a-8(e). Ineligibility To Submit a Proposal Under Rule 14a-8(b)

Your letter raises an important procedural issue under Rule 14a-8(b). You state that the Proponent does not appear on the stock records of the Fund as an owner of record. Furthermore, you state that the Proponent has not submitted documentary evidence of its beneficial ownership in the Fund as required by Rule 14a-8(b). Rule 14a-8(f) allows a fund to exclude a proposal if a proponent fails to comply with the eligibility requirements of 14a-8(b). The rule requires a fund to provide a proponent with written notice of any eligibility or procedural deficiencies. If a proponent fails to respond in fourteen days, a company may exclude a proposal. Although there may be some merit in your belief that the Proponent may be ineligible to submit the Proposal, the Fund has not sent the written notice required by Rule 14a-8(f), and the Proponent has not had the opportunity to respond and cure the defect. If the Fund provides the Proponent with the written notice of deficiency required by Rule 14a-8(f) within a reasonable time after the receipt of this letter, and the Proponent is unable to provide the Fund with the proof of beneficial ownership required by 14a-8(b) within 14 days of the receipt of the written notice, the staff would not recommend enforcement action if the Fund omitted the shareholder proposal from its proxy materials. Omission of Proposal Pursuant to 14a-8(i)(3)

You assert that the Proposal may be omitted under Rule 14a-8(i)(3), which allows a company to omit a shareholder proposal from its proxy materials if "the proposal or supporting statement is contrary to any of the Commission's proxy rules, including Rule 14a-9, which prohibits materially false or misleading statements in proxy solicitation materials." The Proposal's supporting statement states "[t]he Fund has failed to implement numerous proposals passed by its stockholders at the last two annual meetings in 1999 and 2000." You state your belief that this is materially false or misleading because one of two proposals at the 2000 annual meeting recommended that the board "promptly conduct a tender offer for at least 5% of its outstanding shares at or close to net asset value." You believe that the Proponent's supporting statement is misleading because the Fund's board has authorized a tender offer of up to 20% of the Fund's outstanding stock at a price up to 98% of the Fund's net asset value. The staff does not express any views at this time as to whether it believes the Proposal may omitted pursuant to Rule 14a-8(i)(3). As discussed above, the Proponent may revise the Proposal and its supporting statement. Because this revision may include the deletion, or rewording, of the language to which the Fund objects, we believe that a discussion of whether this language may, or may not, be false or misleading would not be ripe at this time. See Templeton Global Income Fund, Inc. (pub. avail. Dec. 19, 1996). Please note that in reaching our positions we have not found it necessary to address the Fund's alternative bases for arguing for omission that you raised in your letter. Attached is a description of the informal procedures the Division follows in responding to shareholder proposals. If you have any questions or comments regarding this matter, please contact the undersigned at (202) 942-0573. Sincerely, Eric S. Purple Senior Counsel ATTACHMENT cc: Strome Investment Mangement, LP c/o Jeffrey S. Lambert 100 Wilshire Boulevard, Suite 1500 Santa Monica, CA 90401

Footnotes

1 In connection with this request, we also considered letters from the Proponent dated January 22, 2001, and February 20, 2001, as well as an additional letter from the Fund dated February 13, 2001. 2 The anti-takeover measures are codified in sections 3-802 through 3-805 of the MGCL. 3

See Rule 14a-8(e)(2). If, however, the date of the next annual meeting is changed by more than 30 days from the date of the previous meeting, or if there was no annual meeting the previous year, the deadline is a reasonable time prior to the company's printing and mailing its proxy materials. 4

See Definitive Proxy Statement of the France Growth Fund Inc. filed with the Commission on March 17, 2000 5 To the contrary, the Fund states that the Proposal was delivered on the "120 th day before the date the Company's proxy statement was released to the stockholders for the previous year's annual meeting."

Incoming Letter:

File Number 882767 January 15, 2001 VIA FEDERAL EXPRESS

Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Office of Chief Counsel Division of Corporation Finance Re: Shareholder Proposal Submitted to The France Growth Fund, Inc. by Strome Hedgecap Fund, L.P.

Dear Ladies and Gentlemen: This letter is submitted on behalf of our client, The France Growth Fund, Inc., a Maryland corporation (the "Company"), pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company hereby gives notice of its intention to omit from its proxy statement and form of proxy (the "Proxy Materials") the proposal and statement of support (the "Proposal") submitted by Strome Hedgecap Fund, L.P. (the "Proponent") by letter dated November 16, 2000. The Company has advised us that the Proxy Materials are tentatively scheduled to be filed pursuant to Rule 14a-6 on or about April 5, 2001. Pursuant to the provisions of Rule 14a-8(j) under the Exchange Act, enclosed for filing are six copies of each of this letter and the Proposal. For a copy of the Proposal, please see Exhibit A. Also, pursuant to the provisions of Rule 14a-8(j), we are sending a copy of this letter and the Exhibits to the Proponent. The Company respectfully requests the concurrence of the Staff of the Division of Corporate Finance (the "Staff") that no enforcement action will be recommended to the Commission if the Company omits the proposal from the Proxy Materials. For ease of reference, the text of the Proposal, exactly as received, is set forth below. Stockholder Proposal

RESOLVED, Section 3 of the By-Laws shall be amended to reflect that stockholders entitled to cast not less than 5% of all the votes entitled to be cast at such meeting may request a Special Meeting of stockholders and that hereafter, this amendment of the By-Laws may not be further amended, altered or repealed except by a vote of the stockholders. It is our opinion that this Proposal may be omitted from the Proxy Materials based on Rule 14a-8(i)(1), (6) and (3). Rule 14a-8(i)(1) (Improper Under State Law)

The Proposal seeks to amend certain provisions of Article II, Section 3 ("Section 3") of the Amended and Restated Bylaws of the Company (the "Bylaws"). The Proposal is excludable from the Proxy Materials under Rule 14a-8(i)(1) because the amendment of Article II is not a proper subject for action by stockholders under Maryland law for the following reasons: (1) the Proposal, if approved by the stockholders, would be effective at the 2001 Annual Meeting of Stockholders (the "2001 Annual Meeting") while Section 3 is not subject to amendment by the stockholders until the 2002 Annual Meeting of Stockholders (the "2002 Annual Meeting"), and (2) the Proponent failed to satisfy the advance notice requirements of Article II, Section 13 of the Bylaws. A Proposal to Amend Section 3 by the Stockholders Would Not Be Effective Until the 2002 Annual Meeting of Stockholders.

In 1999, Title 3, Subtitle 8 of the Maryland General Corporation Law (the "MGCL") was enacted to permit a Maryland corporation with at least three independent directors and a class of securities registered under the Exchange Act, by resolution of the board of directors and without stockholder approval , to, among other things, (1) provide for a classified board, (2) increase the vote requirement for director removal and (3) vest in the board of directors the exclusive power to set the number of directorships and to fill board vacancies. Such a corporation may elect to be subject to any or all of the provisions of Subtitle 8. The stockholders of the corporation are also permitted to elect for the corporation to become subject to any or all of the provisions of Subtitle 8. If the Subtitle 8 election is accomplished by board resolution, articles supplementary, describing the provisions of Subtitle 8 to which the corporation has elected to be subject, must be filed with the State Department of Assessments and Taxation of Maryland (the "SDAT"). The filing of articles supplementary does not require stockholder or board approval. Subtitle 8 specifically provides that a corporation may elect to be subject to a provision notwithstanding a contrary provision in its charter or bylaws. Pursuant to Sections 3-802 through 3-805 of Subtitle 8, on June 13, 2000, the Board of Directors of the Company (the "Board") elected on behalf of the Company to be subject to various provisions of Subtitle 8. Articles Supplementary, describing the Subtitle 8 provisions to which the Company became subject, were filed by the Company and accepted for record by the SDAT, thus making those provisions a part of the charter of the Company (the "Charter"). See Exhibit B. The Bylaws were then amended to reflect the various provisions of Subtitle 8 now governing the Company. These Amendments covered (a) special stockholders meetings (Article II, Section 3), (b) the election, tenure and removal of directors (Article III, Sections 2, 3 and 4) and (c) board vacancies (Article III, Section 6). Pursuant to Section 3-802(b)(3) of Subtitle 8, a corporation may opt out of any provision of Subtitle 8 to which it has previously elected to become subject if the corporation opts out of the provision in the same manner in which it elected to become subject to the provision. Because the Company became subject to the provisions of Subtitle 8 by Board action, only the Board may approve the Company's withdrawal from those provisions. Reflective of the Board's responsiveness to stockholder concerns, the Board has resolved to opt out of one of the Subtitle 8 provisions, Section 3-805, at the 2002 Annual Meeting. The Board has also resolved to amend Section 3 to reduce the threshold required to call a stockholder requested special meeting from a majority to not less than 40% of all the votes entitled to be cast at such meeting. This amendment will not become effective until the Company opts out of Section
3-805 as of the 2002 Annual Meeting. The Proponent's letter states that the Proposal is submitted for presentation at the "next scheduled annual or special meeting of stockholders." The Proposal itself states that "Section 3 be amended . . . ." Insofar as the Proponent seeks to present the Proposal and amend Section 3 at the 2001 Annual Meeting, the Proposal would be effective upon the vote of the stockholders. Because Section 3 is not subject to amendment until the 2002 Annual Meeting and the Proposal, if approved by the stockholders, would be effective upon such approval at the 2001 Annual Meeting, the Proposal would not be a proper matter for the stockholders to consider at the 2001 Annual Meeting. Thus, the Proposal would not be a proper matter for the stockholders to consider at the 2001 Annual Meeting. The limitation on stockholder power to amend these Bylaws exists notwithstanding Article XII of the Bylaws, which permits either the Board or the stockholders to amend the Bylaws, because Subtitle 8 provides that the election is effective notwithstanding contrary charter and bylaw provisions. (In any event, it should be noted that on Thursday, January 4, 2001, undersigned Charles F. McCain contacted Jeffrey S. Lambert, Chief Operating Officer of SSCO, Inc., the general partner of Strome Investment Management, L.P., which is the general partner of the Proponent, to suggest that the Proponent redraft the Proposal as a recommendation to the Board to opt out of Section 3-805 of Subtitle 8 before the 2002 Annual Meeting and amend Section 3 accordingly. On Tuesday, January 9, 2001, Mr. Lambert responded that the Proponent was unwilling to redraft the Proposal as a recommendation to the Board.) The Stockholder's Notice to the Company of the Proposal Fails to Comply with the Company's Advance Notice Bylaws.

Section 2-504(e) of the MGCL expressly authorizes a Maryland corporation to adopt bylaws that require any stockholder proposing a matter for consideration at a meeting of the stockholders to provide minimum advance notice of the proposal to the corporation, inter alia , of not more than 90 days before the first anniversary of the mailing date of the notice of the preceding year's annual meeting. Pursuant to Section 2-504, the Company adopted Article II, Section 13 of the Bylaws, which requires, in the case of an annual meeting, a stockholder to give notice of a proposal to the Company not later than the 90th day nor earlier than the 120th day prior to the first anniversary of the date of mailing of the notice of the preceding year's annual meeting. Article II, Section 13(a)(2) of the Bylaws requires that a stockholder's notice, to be proper, must set forth (1) a description of the business desired to be brought before the meeting, (2) the reasons for conducting such business at the meeting and (3) any material interest in such business of such stockholder (including any anticipated benefit therefrom) and of each beneficial owner, if any, on whose behalf the proposal is made. The notice must be submitted by a record holder although the record holder may submit a notice on behalf of a beneficial owner. The name and address of the record holder must be provided as they appear on the Company's stock ledger. If the proposal is being submitted on behalf of a beneficial owner, the name and address of the beneficial owner must also be included in the notice. Additionally, the class and number of shares of the record holder and, if applicable, beneficial owner must be included in the notice. The Proponent has failed to comply with Article II, Section 13 of the Bylaws. According to the transfer agent of the Company, PNC Bank, the Proponent does not appear on the stock records of the Company. Therefore, the Proponent is not a record holder. As stated above, Article II, Section 13 of the Bylaws requires a record holder to submit the notice to the Company. In addition, the notice, even if submitted on behalf of the Proponent by a record holder, fails to state the class and number of shares held by the Proponent. Because the notice of the Proposal fails to comply with Article II, Section 13 of the Bylaws, the Proposal should be excluded from the Proxy Materials pursuant to Rule 14a-8(i)(1). The Proponent did include a statement in the notice of the Proposal that it "has owned shares of company stock with a market value of at least $2,000 continuously for the preceding year and intends to maintain such required ownership through the date of the next shareholders' meeting." Because the Proponent is not a record holder, Rule 14a-8(b) requires the Proponent to submit documentary evidence of beneficial ownership. The Proponent has failed to provide such documentary support. The Company did not notify the Proponent of the Rule 14a-8(b) deficiencies in eligibility
because the Proponent did not deliver its Proposal until the 120 th day before the date the Company's proxy statement was released to the stockholders for the previous year's annual meeting. Even if the Company had notified the Proponent of the eligibility defect, the Proponent could not possibly have provided the required documentary support for eligibility by the Rule 14a-8(e) deadline. In addition, even if the Company had notified the Proponent of its failure to certify eligibility, the Proponent's notice still fails to comply with Article II, Section 13 of the Bylaws. There is no requirement under Maryland law or the Company's Bylaws that the Company contact a person who has submitted a proposal that fails to comply with Article II, Section 13 of the Bylaws. Rule 14a-8(i)(6) (Absence of Power/Authority)

Rule 14a-8(i)(6) provides that a stockholder proposal may be excluded from a company's proxy materials if the company would lack the power or authority to implement the proposals. Section 2-103(17) of the MGCL, which sets forth the powers of a Maryland corporation, provides that a Maryland corporation may do an act "not inconsistent with law." The obvious negative implication of this provision is that a corporation lacks the power to perform an act that is inconsistent with law. Because amending Section 3 before the 2002 Annual Meeting would cause the Company to violate Section 3-802(b)(3) of the MGCL, the Company does not have the power to take such action under Section 2-103(17) of the MGCL. Also, because the presentation of the Proposal would violate Article II, Section 13 of the Bylaws, the Company does not have the power to take such action under Section 2-103(17) of the MGCL. Thus, the Proposal should be excluded from the Proxy Materials under Rule 14a-8(i)(6). Rule 14a-8(i)(3) (Violation of Proxy Rules)

Rule 14a-8(i)(3) provides that a stockholder proposal is excludable from a company's proxy materials if the proposal or supporting statement is contrary to any of the Commission's proxy rules, including Rule 14a-9, which prohibits materially false or misleading statements in proxy soliciting materials. The Proposal states that "The Fund has failed to implement numerous proposals passed by its stockholders at the last two annual meetings in 1999 and 2000." It is not true that "The Fund has failed to implement numerous proposals passed by its stockholders at the last two annual meetings in 1999 and 2000." The proposals of the 2000 Annual Meeting included a recommendation to the Board that it: (a) expedite the process to ensure Fund shares can trade at net asset value (NAV) daily. Suggested alternatives include (1) conversion to an open-end investment company; or (2) merger with another open-end fund; and (b) promptly conduct a tender offer for at least 5% of its outstanding shares at or close to net asset value ("NAV"). In fact, on December 18, 2000, the Company announced that the Board has authorized the Company to conduct a tender offer during the first quarter of 2001 for up to 20% of the Company's outstanding shares of stock at a price equal to 98% of the net asset value per share as of the close of regular trading on the New York Stock Exchange on the business day following the expiration of the offer. Because the Company has taken action to substantially respond to the proposals presented by the stockholders at the last two annual meetings, portions of the Supporting Statements are false and misleading and the Proposal should be excluded pursuant to Rule 14a-8(i)(3). Based on the foregoing, the Company intends to exclude the Proposal from the 2001 Proxy Materials. Please direct any correspondence regarding this matter to the undersigned. Very truly yours,

HALE and DORR LLP By: ______________ Ernest V. Klein By: ______________ Charles F. McCain II

BALLARD SPAHR ANDREWS & INGERSOLL, LLP By: _____________ James J. Hanks, Jr. By: _____________ Teresa B. Carnell

Enclosures cc: Steven M. Cancro, Esquire Frederick J. Schmidt (The France Growth Fund, Inc.)

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Modified: 12/10/2001