PIMCO Municipal Income Fund, et al.; Notice of Application, 51867-51869 [E8-20615]
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Federal Register / Vol. 73, No. 173 / Friday, September 5, 2008 / Notices
(1) Whether the Plan is accomplishing
its purpose(s);
(2) the reasonably foreseeable effects
of the Plan on the Fund’s long-term total
return in relation to the market price
and NAV of the Fund’s common stock;
and
(3) the Fund’s current distribution
rate, as described in condition V.B
above, compared to the Fund’s average
annual total return over the 2-year
period, as described in condition V.B, or
such longer period as the Board deems
appropriate; and
(c) based upon that determination,
will approve or disapprove the
continuation, or continuation after
amendment, of the Plan; and
2. The Board will record the
information considered by it and the
basis for its approval or disapproval of
the continuation, or continuation after
amendment, of the Plan in its meeting
minutes, which must be made and
preserved for a period of not less than
six years from the date of such meeting,
the first two years in an easily accessible
place.
VI. Public Offerings: The Fund will
not make a public offering of the Fund’s
common stock other than:
A. A rights offering below net asset
value to holders of the Fund’s common
stock;
B. an offering in connection with a
dividend reinvestment plan, merger,
consolidation, acquisition, spin-off or
reorganization of the Fund; or
C. an offering other than an offering
described in conditions VI.A and VI.B
above, unless, with respect to such other
offering:
1. the Fund’s average annual
distribution rate for the six months
ending on the last day of the month
ended immediately prior to the most
recent distribution declaration date,4
expressed as a percentage of NAV per
share as of such date, is no more than
1 percentage point greater than the
Fund’s average annual total return for
the 5-year period ending on such date; 5
and
2. the transmittal letter accompanying
any registration statement filed with the
Commission in connection with such
offering discloses that the Fund has
received an order under section 19(b) to
permit it to make periodic distributions
of long-term capital gains with respect
to its common stock as frequently as
twelve times each year, and as
frequently as distributions are specified
4 If the fund has been in operation fewer than two
years, the measured period will be immediately
following the fund’s first public offering.
5 If the fund has been in operation fewer than five
years, the measured period will be immediately
following the fund’s first public offering.
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in accordance with the terms of any
outstanding preferred stock that such
Fund may issue.
VII. Amendments to Rule 19b–1: The
requested relief will expire on the
effective date of any amendment to rule
19b–1 that provides relief permitting
certain closed-end investment
companies to make periodic
distributions of long-term capital gains
with respect to their outstanding
common stock as frequently as twelve
times each year.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–20614 Filed 9–4–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28370; 812–13381]
PIMCO Municipal Income Fund, et al.;
Notice of Application
August 29, 2008.
Securities and Exchange
Commission (‘‘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.
AGENCY:
SUMMARY OF THE APPLICATION:
Applicants request an order to permit
certain registered closed-end
management investment companies to
make a greater number of capital gains
distributions to holders of shares of
their auction market preferred stock
than is permitted by section 19(b) of the
Act and rule 19b–1 under the Act to the
extent necessary to comply with
Internal Revenue Ruling 89–81, 1989–1
C.B. 226 (‘‘Revenue Ruling 89–81’’)
under the Internal Revenue Code of
1986 (the ‘‘Code’’).
APPLICANTS: PIMCO Municipal Income
Fund, PIMCO Municipal Income Fund
II, PIMCO Municipal Income Fund III,
PIMCO California Municipal Income
Fund, PIMCO California Municipal
Income Fund II, PIMCO California
Municipal Income Fund III, PIMCO
New York Municipal Income Fund,
PIMCO New York Municipal Income
Fund II, PIMCO New York Municipal
Income Fund III, PIMCO Municipal
Advantage Fund Inc., PIMCO Corporate
Income Fund, PIMCO Corporate
Opportunity Fund, PIMCO High Income
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51867
Fund, Nicholas-Applegate Convertible &
Income Fund, Nicholas-Applegate
Convertible & Income Fund II, PIMCO
Floating Rate Income Fund, PIMCO
Floating Rate Strategy Fund
(collectively, the ‘‘Current Funds’’), and
Allianz Global Investors Fund
Management LLC (‘‘AGIFM’’).
FILING DATES: The application was filed
on May 2, 2007 and amended on
January 10, 2008 and August 29, 2008.
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 the
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on September 26, 2008 and
should be accompanied by proof of
service on the 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 who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090; Applicants, c/o AGIFM, 49th
Floor, 1345 Avenue of the Americas,
New York, NY 10105.
FOR FURTHER INFORMATION CONTACT:
Laura J. Riegel, Senior Counsel, at (202)
551–6873 (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 from the
Commission’s Public Reference Room,
100 F Street, NE., Washington, DC
20549–1520 (telephone (202) 551–5850).
Applicants’ Representations
1. Each of the Current Funds is
organized as a Massachusetts business
trust or Maryland corporation. Each of
the Current Funds is registered under
the Act as a closed-end management
investment company. AGIFM, an
investment adviser registered under the
Investment Advisers Act of 1940, serves
as the investment adviser to each
Current Fund. Each Current Fund has
outstanding one class of common stock
that trades on the New York Stock
Exchange. Each Current Fund also has
outstanding one or more series of
preferred stock that pays out
distributions at a rate generally set at
periodic auctions (‘‘Auction Market
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Preferred Stock’’). Applicants request
that the order apply to any registered
closed-end management investment
company currently advised or to be
advised in the future by AGIFM
(including any successor in interest) 1 or
by an entity controlling, controlled by,
or under common control (within the
meaning of section 2(a)(9) of the Act)
with AGIFM that determines to rely on
the requested relief in the future (such
investment companies, the ‘‘Future
Funds’’ and together with the Current
Funds, the ‘‘Funds’’).2
2. The board of directors or trustees of
each Fund (a ‘‘Board’’) has set or will set
the initial dividend rate for each series
of Auction Market Preferred Stock.
Subsequently, each Fund pays or will
pay dividends generally at seven day
intervals (or at such other interval or
intervals as the Fund’s organizational
documents permit) on its Auction
Market Preferred Stock at a rate
determined by auction or, under certain
circumstances, at the maximum rate.3
3. Each Fund will make annual
distributions of realized long-term
capital gains, if any, to both the holders
of its common stock and Auction
Market Preferred Stock. Distributions of
long-term capital gains are designed to
comply with Revenue Ruling 89–81.
Depending upon the amount of longterm capital gains realized in a fiscal
year, the period of time between
auctions, and the amount of the
dividend as set by auction, each Fund
may be required to make a greater
number of long-term capital gains
distributions to the holders of its
Auction Market Preferred Stock than is
permitted by section 19(b) and rule 19b–
1 to comply with Revenue Ruling 89–
81. Each Fund will make distributions
of long-term capital gains to common
stockholders in compliance with section
19(b) and rule 19b–1.
4. Applicants apply for an order
pursuant to section 6(c) of the Act to
exempt distributions of long-term
capital gains that are made by the Funds
1 A successor in interest is limited to entities that
result from a reorganization into another
jurisdiction or a change in the type of business
organization.
2 All existing registered closed-end management
investment companies that currently intend to rely
on the requested order are named as applicants.
Any Future Fund that relies on the order will
comply with the terms of the application.
3 The maximum rate for a series of Auction
Market Preferred Stock has been established or will
be established in the organizational documents
creating the applicable series of Auction Market
Preferred Stock, by reference to independent
lending rates. The dividend rate will be the
maximum rate when sufficient clearing bids have
not been made in an auction or an auction is unable
to be held for any reason on the date the auction
is scheduled to occur.
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to the holders of their Auction Market
Preferred Stock in any one taxable year
from the provisions of section 19(b) and
rule 19b–1 to the extent necessary to
comply with Revenue Ruling 89–81;
provided that each Fund maintains in
effect a distribution policy calling for
periodic distributions to the holders of
its Auction Market Preferred Stock (i.e.,
at seven day intervals or such other
interval as specified in the
organizational document creating such
Auction Market Preferred Stock) at the
rates determined by the Board at the
time a series of Auction Market
Preferred Stock is issued initially, and,
thereafter pursuant to auction or at the
maximum rate.
Applicants’ Legal Analysis
1. Section 19(b) of the Act generally
makes it unlawful for any registered
company to make long-term capital
gains distributions more than once each
year. Rule 19b–1 under the Act limits
the number of capital gains dividends,
as defined in the Code (‘‘distributions’’),
that a registered investment company
may make with respect to any one
taxable year to one, plus a supplemental
‘‘clean up’’ distribution made pursuant
to section 855 of the Code not exceeding
10% of the total amount distributed for
the year, plus one additional capital
gain dividend made in whole or in part
to avoid the excise tax under section
4982 of the Code.
2. Revenue Ruling 89–81 requires a
regulated investment company that has
two or more classes of stock to make
designations of various types of income
in the same proportion as the total
dividends distributed to each class for
the tax year. To satisfy the proportionate
designation requirements of Revenue
Ruling 89–81, whenever a Fund realizes
a long-term capital gain with respect to
a given tax year, the Fund designates the
required proportionate share of such
capital gain to be included in the
dividends on its Auction Market
Preferred Stock and common stock.
Each Fund calculates the ratio by
dividing the total dividends paid to
holders of each series of its Auction
Market Preferred Stock during a taxable
year by the total dividends paid to all
classes during that year. Each Fund then
declares and distributes designated
long-term capital gains dividends to the
holders of its common stock and
Auction Market Preferred Stock in
proportion to this ratio.
3. Applicants state that under certain
circumstances, a Fund will be able to
comply with both Revenue Ruling 89–
81 and rule 19b–1. For example, if the
entire dividend payment set at auction
distributes in a single dividend the full
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amount of long-term capital gains
required to be distributed by Revenue
Ruling 89–81, the Fund will comply
with both Revenue Ruling 89–81 and
rule 19b–1. Applicants assert, however,
that depending upon the amount of a
Fund’s realized long-term capital gains
in a taxable year, the period of time
between auctions, the number of series
of its Auction Market Preferred Stock
outstanding, and the amount of the
dividend set pursuant to an auction, a
Fund may be required to make a greater
number of long-term capital gains
distributions to the holders of its
Auction Market Preferred Stock under
Revenue Ruling 89–81 than is permitted
under section 19(b) and rule 19b–1.
Applicants explain that while rule 19b–
1 does give regulated investment
companies some flexibility with respect
to long-term capital gains distributions,
a Fund could have used all of the
exceptions provided by rule 19b–1 and,
because it would need to make
additional distributions to the holders of
series of its Auction Market Preferred
Stock, be unable to comply with
Revenue Ruling 89–81, section 19(b)
and rule 19b–1 with respect to its
Auction Market Preferred Stock.
4. Applicants submit that one of the
concerns leading to the enactment of
section 19(b) and the adoption of rule
19b–1 was that investors might be
unable to distinguish between regular
distributions of capital gains and
distributions of investment income. In
the case of Auction Market Preferred
Stock, applicants state there is little
chance for investor confusion since
investors expect to receive only the cash
amount representing the specified
dividend distribution for any particular
dividend period and the dividend rate
is set through an auction process. With
respect to each distribution to the
holders of Auction Market Preferred
Stock, applicants state that the Current
Funds have adopted, and any Future
Fund will adopt, procedures designed to
comply with the disclosure
requirements set forth in section 19(a) of
the Act and rule 19a–1 under the Act.
Applicants state that in accordance with
such procedures, when the Current
Funds or their service providers
determine or reasonably estimate that a
distribution will be comprised of a
source other than the sources described
in sections 19(a)(1) and 19(a)(2) of the
Act, the Current Funds or their service
providers include the source
information required by rule 19a–1 on
the wire confirmation that accompanies
the electronic transfer of funds, which
represents payment of the distribution.
The Current Funds or their service
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providers include a request that the
recipient send the source information to
the beneficial shareholder if the
recipient is other than the beneficial
shareholder of the stock to which the
notice relates.
5. Another concern underlying
section 19(b) and rule 19b–1 is that
frequent long-term capital gains
distributions could facilitate improper
distribution practices, including, in
particular, the practice of urging an
investor to purchase fund shares on the
basis of an upcoming dividend (‘‘selling
the dividend’’) where the dividend
results in an immediate corresponding
reduction in net asset value and would
be, in effect, a return of the investor’s
capital. Applicants state that the
‘‘selling the dividend’’ concern is not
applicable to Auction Market Preferred
Stock, which entitles a holder to a
specified periodic dividend and no
more, and like a debt security, is
initially sold at a price based on its
liquidation preference, credit quality,
dividend rate and frequency of
payment.
6. Applicants state that another
concern leading to the adoption of
section 19 and rule 19b–1, an increase
in administrative costs, is not present
because the Funds will make the same
number of distributions with respect to
their Auction Market Preferred Stock
regardless of whether the
characterization of such distributions is
income or long-term capital gains.
7. Section 6(c) of the Act provides that
the Commission may exempt any
person, security, or transaction or class
or classes of any persons, securities, or
transactions from any provision of the
Act, if and to the extent that the
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 relief satisfies this
standard.
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For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–20615 Filed 9–4–08; 8:45 am]
BILLING CODE 8010–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–28371]
Notice of Applications for
Deregistration Under Section 8(f) of the
Investment Company Act of 1940
August 29, 2008.
The following is a notice of
applications for deregistration under
section 8(f) of the Investment Company
Act of 1940 for the month of August,
2008. A copy of each application may be
obtained for a fee at the Commission’s
Public Reference Room, 100 F Street,
NE., Washington, DC 20549–1520 (tel.
202–551–5850). An order granting each
application will be issued unless the
SEC orders a hearing. Interested persons
may request a hearing on any
application by writing to the SEC’s
Secretary at the address below and
serving the relevant 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
September 23, 2008, 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 Secretary, U.S. Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
1090.
For Further Information Contact:
Diane L. Titus at (202) 551–6810, SEC,
Division of Investment Management,
Office of Investment Company
Regulation, 100 F Street, NE.,
Washington, DC 20549–4041.
Credit Suisse Japan Equity Fund, Inc.
[File No. 811–7371]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On April 22,
2008, applicant made a liquidating
distribution to its shareholders, based
on net asset value. Expenses of $48,327
incurred in connection with the
liquidation were paid by Credit Suisse
Asset Management, LLC, applicant’s
investment adviser. Applicant has
retained $41,722 in cash for the
payment of outstanding expenses.
Filing Date: The application was filed
on July 24, 2008.
Applicant’s Address: c/o Credit
Suisse Asset Management, LLC, Eleven
Madison Ave., New York, NY 10010.
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51869
AIM Select Real Estate Income Fund
[File No. 811–21048]
Summary: Applicant, a closed-end
investment company, seeks an order
declaring that it has ceased to be an
investment company. On March 12,
2007, applicant transferred its assets to
a corresponding series of AIM
Counselor Series Trust, based on net
asset value. Expenses of $502,800
incurred in connection with the
reorganization were paid by applicant.
Filing Date: The application was filed
on August 8, 2008.
Applicant’s Address: 11 Greenway
Plaza, Suite 100, Houston, TX 77046–
1173.
SEI Opportunity Master Fund, L.P. [File
No. 811–21352]
Summary: Applicant, a closed-end
investment company and a master fund
in a master-feeder structure, seeks an
order declaring that it has ceased to be
an investment company. On July 23,
2008, applicant made a final liquidating
distribution to its three feeder funds,
based on net asset value. Expenses of
$3,250 incurred in connection with the
liquidation were paid by applicant.
Filing Date: The application was filed
on August 8, 2008.
Applicant’s Address: One Freedom
Valley Dr., Oaks, PA 19456.
CGM Capital Development Fund [File
No. 811–933]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On June 27, 2008,
applicant transferred its assets to CGM
Focus Fund, a series of CGM Trust,
based on net asset value. Expenses of
$335,000 incurred in connection with
the reorganization were paid by Capital
Growth Management Limited
Partnership, applicant’s investment
adviser.
Filing Date: The application was filed
on August 11, 2008.
Applicant’s Address: One
International Place, Boston, MA 02110.
AllianceBernstein International
Research Growth Fund, Inc. [File No.
811–8527]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On July 25, 2008,
applicant transferred its assets to
AllianceBernstein International Growth
Fund, Inc., based on net asset value.
Expenses of $269,000 incurred in
connection with the reorganization were
paid by applicant.
Filing Date: The application was filed
on August 11, 2008.
Applicant’s Address: 1345 Avenue of
the Americas, New York, NY 10105.
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]]>Agencies
[Federal Register Volume 73, Number 173 (Friday, September 5, 2008)]
[Notices]
[Pages 51867-51869]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-20615]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28370; 812-13381]
PIMCO Municipal Income Fund, et al.; Notice of Application
August 29, 2008.
AGENCY: Securities and Exchange Commission (``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.
-----------------------------------------------------------------------
Summary of the Application: Applicants request an order to permit
certain registered closed-end management investment companies to make a
greater number of capital gains distributions to holders of shares of
their auction market preferred stock than is permitted by section 19(b)
of the Act and rule 19b-1 under the Act to the extent necessary to
comply with Internal Revenue Ruling 89-81, 1989-1 C.B. 226 (``Revenue
Ruling 89-81'') under the Internal Revenue Code of 1986 (the ``Code'').
Applicants: PIMCO Municipal Income Fund, PIMCO Municipal Income Fund
II, PIMCO Municipal Income Fund III, PIMCO California Municipal Income
Fund, PIMCO California Municipal Income Fund II, PIMCO California
Municipal Income Fund III, PIMCO New York Municipal Income Fund, PIMCO
New York Municipal Income Fund II, PIMCO New York Municipal Income Fund
III, PIMCO Municipal Advantage Fund Inc., PIMCO Corporate Income Fund,
PIMCO Corporate Opportunity Fund, PIMCO High Income Fund, Nicholas-
Applegate Convertible & Income Fund, Nicholas-Applegate Convertible &
Income Fund II, PIMCO Floating Rate Income Fund, PIMCO Floating Rate
Strategy Fund (collectively, the ``Current Funds''), and Allianz Global
Investors Fund Management LLC (``AGIFM'').
Filing Dates: The application was filed on May 2, 2007 and amended on
January 10, 2008 and August 29, 2008.
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 the applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on September 26, 2008 and should be accompanied by proof of
service on the 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 who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090; Applicants, c/o AGIFM, 49th
Floor, 1345 Avenue of the Americas, New York, NY 10105.
FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at
(202) 551-6873 (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 from
the Commission's Public Reference Room, 100 F Street, NE., Washington,
DC 20549-1520 (telephone (202) 551-5850).
Applicants' Representations
1. Each of the Current Funds is organized as a Massachusetts
business trust or Maryland corporation. Each of the Current Funds is
registered under the Act as a closed-end management investment company.
AGIFM, an investment adviser registered under the Investment Advisers
Act of 1940, serves as the investment adviser to each Current Fund.
Each Current Fund has outstanding one class of common stock that trades
on the New York Stock Exchange. Each Current Fund also has outstanding
one or more series of preferred stock that pays out distributions at a
rate generally set at periodic auctions (``Auction Market
[[Page 51868]]
Preferred Stock''). Applicants request that the order apply to any
registered closed-end management investment company currently advised
or to be advised in the future by AGIFM (including any successor in
interest) \1\ or by an entity controlling, controlled by, or under
common control (within the meaning of section 2(a)(9) of the Act) with
AGIFM that determines to rely on the requested relief in the future
(such investment companies, the ``Future Funds'' and together with the
Current Funds, the ``Funds'').\2\
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\1\ A successor in interest is limited to entities that result
from a reorganization into another jurisdiction or a change in the
type of business organization.
\2\ All existing registered closed-end management investment
companies that currently intend to rely on the requested order are
named as applicants. Any Future Fund that relies on the order will
comply with the terms of the application.
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2. The board of directors or trustees of each Fund (a ``Board'')
has set or will set the initial dividend rate for each series of
Auction Market Preferred Stock. Subsequently, each Fund pays or will
pay dividends generally at seven day intervals (or at such other
interval or intervals as the Fund's organizational documents permit) on
its Auction Market Preferred Stock at a rate determined by auction or,
under certain circumstances, at the maximum rate.\3\
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\3\ The maximum rate for a series of Auction Market Preferred
Stock has been established or will be established in the
organizational documents creating the applicable series of Auction
Market Preferred Stock, by reference to independent lending rates.
The dividend rate will be the maximum rate when sufficient clearing
bids have not been made in an auction or an auction is unable to be
held for any reason on the date the auction is scheduled to occur.
---------------------------------------------------------------------------
3. Each Fund will make annual distributions of realized long-term
capital gains, if any, to both the holders of its common stock and
Auction Market Preferred Stock. Distributions of long-term capital
gains are designed to comply with Revenue Ruling 89-81. Depending upon
the amount of long-term capital gains realized in a fiscal year, the
period of time between auctions, and the amount of the dividend as set
by auction, each Fund may be required to make a greater number of long-
term capital gains distributions to the holders of its Auction Market
Preferred Stock than is permitted by section 19(b) and rule 19b-1 to
comply with Revenue Ruling 89-81. Each Fund will make distributions of
long-term capital gains to common stockholders in compliance with
section 19(b) and rule 19b-1.
4. Applicants apply for an order pursuant to section 6(c) of the
Act to exempt distributions of long-term capital gains that are made by
the Funds to the holders of their Auction Market Preferred Stock in any
one taxable year from the provisions of section 19(b) and rule 19b-1 to
the extent necessary to comply with Revenue Ruling 89-81; provided that
each Fund maintains in effect a distribution policy calling for
periodic distributions to the holders of its Auction Market Preferred
Stock (i.e., at seven day intervals or such other interval as specified
in the organizational document creating such Auction Market Preferred
Stock) at the rates determined by the Board at the time a series of
Auction Market Preferred Stock is issued initially, and, thereafter
pursuant to auction or at the maximum rate.
Applicants' Legal Analysis
1. Section 19(b) of the Act generally makes it unlawful for any
registered company to make long-term capital gains distributions more
than once each year. Rule 19b-1 under the Act limits the number of
capital gains dividends, as defined in the Code (``distributions''),
that a registered investment company may make with respect to any one
taxable year to one, plus a supplemental ``clean up'' distribution made
pursuant to section 855 of the Code not exceeding 10% of the total
amount distributed for the year, plus one additional capital gain
dividend made in whole or in part to avoid the excise tax under section
4982 of the Code.
2. Revenue Ruling 89-81 requires a regulated investment company
that has two or more classes of stock to make designations of various
types of income in the same proportion as the total dividends
distributed to each class for the tax year. To satisfy the
proportionate designation requirements of Revenue Ruling 89-81,
whenever a Fund realizes a long-term capital gain with respect to a
given tax year, the Fund designates the required proportionate share of
such capital gain to be included in the dividends on its Auction Market
Preferred Stock and common stock. Each Fund calculates the ratio by
dividing the total dividends paid to holders of each series of its
Auction Market Preferred Stock during a taxable year by the total
dividends paid to all classes during that year. Each Fund then declares
and distributes designated long-term capital gains dividends to the
holders of its common stock and Auction Market Preferred Stock in
proportion to this ratio.
3. Applicants state that under certain circumstances, a Fund will
be able to comply with both Revenue Ruling 89-81 and rule 19b-1. For
example, if the entire dividend payment set at auction distributes in a
single dividend the full amount of long-term capital gains required to
be distributed by Revenue Ruling 89-81, the Fund will comply with both
Revenue Ruling 89-81 and rule 19b-1. Applicants assert, however, that
depending upon the amount of a Fund's realized long-term capital gains
in a taxable year, the period of time between auctions, the number of
series of its Auction Market Preferred Stock outstanding, and the
amount of the dividend set pursuant to an auction, a Fund may be
required to make a greater number of long-term capital gains
distributions to the holders of its Auction Market Preferred Stock
under Revenue Ruling 89-81 than is permitted under section 19(b) and
rule 19b-1. Applicants explain that while rule 19b-1 does give
regulated investment companies some flexibility with respect to long-
term capital gains distributions, a Fund could have used all of the
exceptions provided by rule 19b-1 and, because it would need to make
additional distributions to the holders of series of its Auction Market
Preferred Stock, be unable to comply with Revenue Ruling 89-81, section
19(b) and rule 19b-1 with respect to its Auction Market Preferred
Stock.
4. Applicants submit that one of the concerns leading to the
enactment of section 19(b) and the adoption of rule 19b-1 was that
investors might be unable to distinguish between regular distributions
of capital gains and distributions of investment income. In the case of
Auction Market Preferred Stock, applicants state there is little chance
for investor confusion since investors expect to receive only the cash
amount representing the specified dividend distribution for any
particular dividend period and the dividend rate is set through an
auction process. With respect to each distribution to the holders of
Auction Market Preferred Stock, applicants state that the Current Funds
have adopted, and any Future Fund will adopt, procedures designed to
comply with the disclosure requirements set forth in section 19(a) of
the Act and rule 19a-1 under the Act. Applicants state that in
accordance with such procedures, when the Current Funds or their
service providers determine or reasonably estimate that a distribution
will be comprised of a source other than the sources described in
sections 19(a)(1) and 19(a)(2) of the Act, the Current Funds or their
service providers include the source information required by rule 19a-1
on the wire confirmation that accompanies the electronic transfer of
funds, which represents payment of the distribution. The Current Funds
or their service
[[Page 51869]]
providers include a request that the recipient send the source
information to the beneficial shareholder if the recipient is other
than the beneficial shareholder of the stock to which the notice
relates.
5. Another concern underlying section 19(b) and rule 19b-1 is that
frequent long-term capital gains distributions could facilitate
improper distribution practices, including, in particular, the practice
of urging an investor to purchase fund shares on the basis of an
upcoming dividend (``selling the dividend'') where the dividend results
in an immediate corresponding reduction in net asset value and would
be, in effect, a return of the investor's capital. Applicants state
that the ``selling the dividend'' concern is not applicable to Auction
Market Preferred Stock, which entitles a holder to a specified periodic
dividend and no more, and like a debt security, is initially sold at a
price based on its liquidation preference, credit quality, dividend
rate and frequency of payment.
6. Applicants state that another concern leading to the adoption of
section 19 and rule 19b-1, an increase in administrative costs, is not
present because the Funds will make the same number of distributions
with respect to their Auction Market Preferred Stock regardless of
whether the characterization of such distributions is income or long-
term capital gains.
7. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or class or classes of any
persons, securities, or transactions from any provision of the Act, if
and to the extent that the 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 relief
satisfies this standard.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-20615 Filed 9-4-08; 8:45 am]
BILLING CODE 8010-01-P
