Evergreen Income Advantage Fund, et al.; Notice of Application, 51344-51348 [E9-24005]
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51344
Federal Register / Vol. 74, No. 192 / Tuesday, October 6, 2009 / Notices
Dated: September 30, 2009.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–23995 Filed 10–5–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28938; File No. 812–13030]
Evergreen Income Advantage Fund, et
al.; Notice of Application
September 30, 2009.
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AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application under
section 6(c) of the Investment Company
Act of 1940 (‘‘Act’’) for an exemption
from section 19(b) of the Act and rule
19b–1 under the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit a registered
closed-end investment company to
make periodic distributions of long-term
capital gains with respect to its common
shares as often as monthly in any one
taxable year, and as frequently as
distributions are specified by or in
accordance with the terms of its
preferred shares.
APPLICANTS: Evergreen Income
Advantage Fund (‘‘EIAF’’), Evergreen
Multi-Sector Income Fund (‘‘EMSIF’’),
Evergreen Utilities and High Income
Fund (‘‘EUHIF’’), Evergreen
International Balanced Income Fund
(‘‘EIBIF’’), and Evergreen Global
Dividend Opportunity Fund (‘‘EGDOF’’)
(each a ‘‘Fund’’ and collectively, the
‘‘Funds’’); and Evergreen Investment
Management Company, LLC (the
‘‘Investment Adviser’’).
FILING DATES: The application was filed
on October 14, 2003, and amended on
October 28, 2008, June 29, 2009, and
September 29, 2009.
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
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 October 26, 2009, and
should be accompanied by proof of
service on 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
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notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street,
NE., Washington, DC 20549–1090;
Applicants: Evergreen Income
Advantage Fund, 200 Berkeley Street,
Boston, MA 02116.
FOR FURTHER INFORMATION CONTACT:
Christine Y. Greenlees, Senior Counsel,
at (202) 551–6879, or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(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 via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm, or by
calling (202) 551–8090.
Applicants’ Representations
1. Each of the Funds is a closed-end
management investment company
registered under the Act and organized
as a Delaware statutory trust.1 EIAF’s
primary investment objective is to seek
a high level of income. EIAF’s common
shares are listed on the NYSE Amex.
EIAF currently has six series of
preferred shares outstanding, which are
not listed on a national securities
exchange. EMSIF’s investment objective
is to seek a high level of current income.
EMSIF’s common shares are listed on
the NYSE Amex. EIAF currently has five
series of preferred shares outstanding,
which are not listed on a national
securities exchange. EUHIF’s
investment objective is to seek a high
level of current income and moderate
capital growth. EUHIF’s common shares
are listed on the NYSE Amex. EIBIF’s
investment objective is to seek to
provide a high level of income. EIBIF’s
common shares are listed on the New
York Stock Exchange (‘‘NYSE’’).
EGDOF’s primary investment objective
is to seek a high level of current income.
EGDOF’s common shares are listed on
the NYSE. Applicants believe that the
1 All registered closed-end investment companies
that currently intend to rely on the order are named
as applicants. Applicants request that the order also
apply to each registered closed-end investment
company that in the future: (a) Is advised by the
Investment Adviser (including any successor in
interest) or by an entity controlling, controlled by,
or under common control (within the meaning of
section 2(a)(9) of the Act) with the Investment
Adviser; and (b) complies with the terms and
conditions of the application (included in the term
‘‘Funds’’). 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.
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shareholders of each Fund are generally
conservative, dividend-sensitive
investors who desire current income
periodically and may favor a fixed
distribution policy.
2. The Investment Adviser, a
subsidiary of Wells Fargo, a bank
holding company, is registered under
the Investment Advisers Act of 1940
(‘‘Advisers Act’’). The Investment
Adviser has provided investment
advisory services to each Fund since its
inception. Each Fund will be advised by
investment advisers that are registered
under the Advisers Act.
3. Applicants state that prior to
relying on the order, the board of
trustees (the ‘‘Board’’) of each Fund,
including a majority of the members of
the Board who are not ‘‘interested
persons’’ of the Fund as defined in
section 2(a)(19) of the Act (the
‘‘Independent Trustees’’), will review
information regarding the purpose and
terms of a proposed distribution policy,
the likely effects of such policy on such
Fund’s long-term total return (in
relation to market price and net asset
value (‘‘NAV’’) per common share) and
the relationship between such Fund’s
distribution rate on its common shares
under the policy and such Fund’s total
return (in relation to NAV per share).
Applicants state that prior to relying on
the requested order the Independent
Trustees also will consider what
conflicts of interest the Investment
Adviser and the affiliated persons of the
Investment Adviser and each such Fund
might have with respect to the adoption
or implementation of such policy.
Applicants further state that prior to
relying on the requested order, and after
considering such information, the
Board, including the Independent
Trustees, of each Fund will approve a
distribution policy with respect to its
Fund’s common shares (the ‘‘Plan’’) and
will determine that such Plan is
consistent with such Fund’s investment
objective(s) and in the best interests of
such Fund’s common shareholders.
4. Applicants state that the purpose of
each Fund’s Plan is to permit such Fund
to distribute over the course of each
year, through periodic distributions as
nearly equal as practicable and any
required special distributions, an
amount closely approximating the total
taxable income of such Fund during
such year. Applicants note that under
the Plan, each Fund would distribute to
its respective common shareholders a
fixed monthly percentage of the market
price of such Fund’s common shares at
a particular point in time or a fixed
monthly percentage of NAV at a
particular time or a fixed monthly
amount, any of which may be adjusted
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from time to time. Applicants further
state that the minimum annual
distribution rate would be independent
of each Fund’s performance during any
particular period, but would be
expected to correlate with such Fund’s
performance over time. Applicants
explain that except for extraordinary
distributions and potential increases or
decreases in the final dividend periods
in light of the Fund’s performance for
the entire calendar year and to enable
the Fund to comply with the
distribution requirements of subchapter
M of the Internal Revenue Code of 1986
(‘‘Code’’) for the calendar year, each
distribution on the common shares
would be at the stated rate then in
effect.
5. Applicants state that prior to
relying on the requested order, the
Board will adopt policies and
procedures under rule 38a-1 under the
Act that are reasonably designed to
ensure that all notices required to be
sent to the Fund’s shareholders
pursuant to section 19(a) of the Act, rule
19a-1 under the Act, and condition 4
below (‘‘19(a) Notices’’) comply with
condition 2.a. below, and that all other
written communications by the Fund or
its agents regarding distributions under
the Plan include the disclosure required
by condition 3.a. below. Applicants
state that prior to relying on the
requested order, the Board will adopt
policies and procedures that require
each of the Funds to keep records that
demonstrate its compliance with all of
the conditions of the requested order
and that are necessary for such Fund to
form the basis for, or demonstrate the
calculation of, the amounts disclosed in
its 19(a) Notices.
Applicants’ Legal Analysis
1. Section 19(b) of the Act generally
makes it unlawful for any registered
investment company to make long-term
capital gains distributions more than
once every twelve months. Rule 19b–1
under the Act limits the number of
capital gains dividends, as defined in
section 852(b)(3)(C) of the Code
(‘‘distributions’’), that a fund 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. Section 6(c) provides that the
Commission may, by order upon
application, conditionally or
unconditionally exempt any person,
security, or transaction, or any class or
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classes of 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.
3. Applicants state that one of the
concerns underlying section 19(b) and
rule 19b–1 is that shareholders might be
unable to differentiate between frequent
distributions of capital gains and
dividends from investment income.
Applicants state, however, that rule
19a–1 effectively addresses this concern
by requiring that a separate statement
showing the sources of a distribution
(e.g., net investment income, net shortterm capital gains, net long-term capital
gains and/or return of capital)
accompany any distributions (or the
confirmation of the reinvestment of
distributions) estimated to be sourced in
part from capital gains or capital.
Applicants also state that the same
information is included in each Fund’s
annual reports to shareholders and
similar information is included on its
IRS Form 1099–DIV, which is sent to
each common and, if applicable,
preferred shareholder who received
distributions during a particular year
(including shareholders who have sold
shares during the year).
4. Applicants further state that each
Fund will make the additional
disclosures required by the conditions
set forth below, and each of them will
adopt, prior to reliance on the requested
order, compliance policies and
procedures in accordance with rule
38a–1 under the Act to ensure that all
required 19(a) Notices and disclosures
are sent to shareholders. Applicants
argue that by providing the information
required by section 19(a) and rule 19a–
1, and by complying with the
procedures adopted under the Plan and
the conditions listed below, each Fund’s
shareholders would be provided
sufficient information to understand
that their periodic distributions are not
tied to the Fund’s net investment
income (which for this purpose is each
Fund’s taxable income other than from
capital gains) and realized capital gains
to date, and may not represent yield or
investment return. Applicants also state
that compliance with the Fund’s
compliance procedures and condition 3
set forth below will ensure that
prospective shareholders and third
parties are provided with the same
information. Accordingly, applicants
assert that continuing to subject the
Funds to section 19(b) and rule 19b–1
would afford shareholders no extra
protection.
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5. Applicants note that section 19(b)
and rule 19b–1 also were intended to
prevent certain improper sales practices,
including, in particular, the practice of
urging an investor to purchase shares of
a fund on the basis of an upcoming
capital gains dividend (‘‘selling the
dividend’’), where the dividend would
result in an immediate corresponding
reduction in NAV and would be in
effect a taxable return of the investor’s
capital. Applicants submit that the
‘‘selling the dividend’’ concern should
not apply to closed-end investment
companies, such as the Funds, that do
not continuously distribute shares.
According to applicants, if the
underlying concern extends to
secondary market purchases of shares of
closed-end funds that are subject to a
large upcoming capital gains dividend,
adoption of a periodic distribution plan
actually helps minimize the concern by
avoiding, through periodic
distributions, any buildup of large endof-the-year distributions.
6. Applicants also note that common
shares of closed-end funds often trade in
the marketplace at a discount to the
funds’ NAV. Applicants believe that this
discount may be reduced if the Funds
are permitted to pay relatively frequent
dividends on their common shares at a
consistent rate, whether or not those
dividends contain an element of longterm capital gain.
7. Applicants assert that the
application of rule 19b–1 to a Plan
actually could have an undesirable
influence on portfolio management
decisions. Applicants state that, in the
absence of an exemption from rule 19b–
1, the implementation of a periodic
distribution plan imposes pressure on
management (a) not to realize any net
long-term capital gains until the point in
the year that the fund can pay all of its
remaining distributions in accordance
with rule 19b–1, and (b) not to realize
any long-term capital gains during any
particular year in excess of the amount
of the aggregate pay-out for the year
(since as a practical matter excess gains
must be distributed and accordingly
would not be available to satisfy pay-out
requirements in following years),
notwithstanding that purely investment
considerations might favor realization of
long-term gains at different times or in
different amounts. Applicants thus
assert that by limiting the number of
capital gain distributions that a fund
may make with respect to any one year,
rule 19b–1 may prevent the efficient
operation of a periodic distribution plan
whenever that fund’s net realized longterm capital gains in any year exceed
the total of the periodic distributions
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Federal Register / Vol. 74, No. 192 / Tuesday, October 6, 2009 / Notices
that may include such capital gains
under the rule.
8. Applicants also assert that rule
19b–1 may cause fixed regular periodic
distributions under a periodic
distribution plan to be funded with
returns of capital 2 (to the extent net
investment income and realized shortterm capital gains are insufficient to
fund the distribution), even though net
realized long-term capital gains
otherwise could be available. To
distribute all of a fund’s long-term
capital gains within the limits in rule
19b–1, a fund may be required to make
total distributions in excess of the
annual amount called for by its periodic
distribution plan, or to retain and pay
taxes on the excess amount. Applicants
thus assert that the requested order
would minimize these effects of rule
19b–1 by enabling the Funds to realize
long-term capital gains as often as
investment considerations dictate
without fear of violating rule 19b–1.
9. Applicants state that Revenue
Ruling 89–81 under the Code requires
that a fund that has both common stock
and preferred stock outstanding
designate the types of income, e.g.,
investment income and capital gains, in
the same proportion as the total
distributions distributed to each class
for the tax year. To satisfy the
proportionate designation requirements
of Revenue Ruling 89–81, whenever a
fund has realized a long-term capital
gain with respect to a given tax year, the
fund must designate the required
proportionate share of such capital gain
to be included in common and preferred
stock dividends. Applicants state that
although rule 19b–1 allows a fund some
flexibility with respect to the frequency
of capital gains distributions, a fund
might use all of the exceptions available
under the rule for a tax year and still
need to distribute additional capital
gains allocated to the preferred stock to
comply with Revenue Ruling 89–81.
10. Applicants assert that the
potential abuses addressed by section
19(b) and rule 19b–1 do not arise with
respect to preferred stock issued by a
closed-end fund. Applicants assert that
such distributions are fixed or
determined in periodic auctions by
reference to short-term interest rates
rather than by reference to performance
of the issuer, and Revenue Ruling 89–
81 determines the proportion of such
distributions that are comprised of the
long-term capital gains.
11. Applicants also submit that the
‘‘selling the dividend’’ concern is not
2 Returns
of capital as used in the application
means return of capital for financial accounting
purposes and not for tax accounting purposes.
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applicable to preferred stock, which
entitles a holder to no more than a
periodic dividend at a fixed rate or the
rate determined by the market, and, like
a debt security, is priced based upon its
liquidation value, dividend rate, credit
quality, and frequency of payment.
Applicants state that investors buy
preferred shares for the purpose of
receiving payments at the frequency
bargained for, and do not expect the
liquidation value of their shares to
change.
12. Applicants request an order under
section 6(c) granting an exemption from
section 19(b) and rule 19b–1 to permit
each Fund to distribute periodic capital
gains dividends (as defined in section
852(b)(3)(C) of the Code) as often as
monthly in any one taxable year with
respect to its common shares and, with
respect to each Fund with outstanding
preferred shares, to allocate to its
preferred shares capital gain dividends
as often as necessary in any one taxable
year to comply with IRS Revenue Ruling
89–81.3
Applicants’ Conditions
Applicants agree that any order of the
Commission granting the requested
relief will be subject to the following
conditions:
1. Compliance Review and Reporting.
Each Fund’s chief compliance officer
will: (a) Report to the Fund’s Board, no
less frequently than once every three
months or at the next regularly
scheduled quarterly Board meeting,
whether (i) the Fund and its Investment
Adviser have complied with the
conditions of the order, and (ii) a
material compliance matter, as defined
in rule 38a–1(e)(2) under the Act, has
occurred with respect to such
conditions; and (b) review the adequacy
of the policies and procedures adopted
by the Board no less frequently than
annually.
2. Disclosures to Fund Shareholders.
a. Each 19(a) Notice disseminated to
the holders of the Fund’s common
shares, in addition to the information
required by section 19(a) and rule 19a–
1:
i. Will provide, in a tabular or
graphical format:
(1) The amount of the distribution, on
a per share basis, together with the
amounts of such distribution amount,
on a per share basis and as a percentage
of such distribution amount, from
estimated: (A) Net investment income;
3 Applicants state that a future Fund that relies on
the requested order will satisfy each of the
representations in the application except that such
representations will be made in respect of actions
by the board of directors of such future Fund and
will be made at a future time.
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(B) net realized short-term capital gains;
(C) net realized long-term capital gains;
and (D) return of capital or other capital
source;
(2) The fiscal year-to-date cumulative
amount of distributions, on a per share
basis, together with the amounts of such
cumulative amount, on a per share basis
and as a percentage of such cumulative
amount of distributions, from estimated:
(A) Net investment income; (B) net
realized short-term capital gains; (C) net
realized long-term capital gains; and (D)
return of capital or other capital source;
(3) The average annual total return in
relation to the change in NAV for the 5year period (or, if the Fund’s history of
operations is less than five years, the
time period commencing immediately
following the Fund’s first public
offering) ending on the last day of the
month prior to the most recent
distribution record date compared to the
current fiscal period’s annualized
distribution rate expressed as a
percentage of NAV as of the last day of
the month prior to the most recent
distribution record date; and
(4) The cumulative total return in
relation to the change in NAV from the
last completed fiscal year to the last day
of the month prior to the most recent
distribution record date compared to the
fiscal year-to-date cumulative
distribution rate expressed as a
percentage of NAV as of the last day of
the month prior to the most recent
distribution record date.
Such disclosure shall be made in a
type size at least as large and as
prominent as the estimate of the sources
of the current distribution; and
ii. Will include the following
disclosure:
(1) ‘‘You should not draw any
conclusions about the Fund’s
investment performance from the
amount of this distribution or from the
terms of the Fund’s Plan’’;
(2) ‘‘The Fund estimates that it has
distributed more than its income and
net realized capital gains; therefore, a
portion of your distribution may be a
return of capital. A return of capital may
occur, for example, when some or all of
the money that you invested in the
Fund is paid back to you. A return of
capital distribution does not necessarily
reflect the Fund’s investment
performance and should not be
confused with ‘yield’ or ‘income’ ’’; 4
and
(3) ‘‘The amounts and sources of
distributions reported in this 19(a)
4 The disclosure in this condition 2.a.ii.(2) will be
included only if the current distribution or the
fiscal year-to-date cumulative distributions are
estimated to include a return of capital.
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Notice are only estimates and are not
being provided for tax reporting
purposes. The actual amounts and
sources of the amounts for tax reporting
purposes will depend upon the Fund’s
investment experience during the
remainder of its fiscal year and may be
subject to changes based on tax
regulations. The Fund will send you a
Form 1099–DIV for the calendar year
that will tell you how to report these
distributions for federal income tax
purposes.’’
Such disclosure shall be made in a
type size at least as large as and as
prominent as any other information in
the 19(a) Notice and placed on the same
page in close proximity to the amount
and the sources of the distribution.
b. On the inside front cover of each
report to shareholders under rule 30e–
1 under the Act, the Fund will:
i. Describe the terms of the Plan
(including the fixed amount or fixed
percentage of the distributions and the
frequency of the distributions);
ii. Include the disclosure required by
condition 2.a.ii.(1) above;
iii. State, if applicable, that the Plan
provides that the Board may amend or
terminate the Plan at any time without
prior notice to Fund shareholders; and
iv. Describe any reasonably
foreseeable circumstances that might
cause the Fund to terminate the Plan
and any reasonably foreseeable
consequences of such termination.
c. Each report provided to
shareholders under rule 30e–1 under
the Act and in each prospectus filed
with the Commission on Form N–2
under the Act, will provide the Fund’s
total return in relation to changes in
NAV in the financial highlights table
and in any discussion about the Fund’s
total return.
3. Disclosure to Shareholders,
Prospective Shareholders and Third
Parties.
a. Each Fund will include the
information contained in the relevant
19(a) Notice, including the disclosure
required by condition 2.a.ii. above, in
any written communication (other than
a communication on Form 1099) about
the Plan or distributions under the Plan
by the Fund, or agents that the Fund has
authorized to make such
communication on the Fund’s behalf, to
any Fund common shareholder,
prospective common shareholder or
third-party information provider;
b. Each Fund will issue,
contemporaneously with the issuance of
any 19(a) Notice, a press release
containing the information in the 19(a)
Notice and will file with the
Commission the information contained
in such 19(a) Notice, including the
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disclosure required by condition 2.a.ii.
above, as an exhibit to its next filed
Form N–CSR; and
c. Each Fund will post prominently a
statement on its (or the Investment
Adviser’s) web site containing the
information in each 19(a) Notice,
including the disclosure required by
condition 2.a.ii. above, and will
maintain such information on such web
site for at least 24 months.
4. Delivery of 19(a) Notices to
Beneficial Owners. If a broker, dealer,
bank or other person (‘‘financial
intermediary’’) holds common stock
issued by a Fund in nominee name, or
otherwise, on behalf of a beneficial
owner, the Fund: (a) Will request that
the financial intermediary, or its agent,
forward the 19(a) Notice to all beneficial
owners of the Fund’s shares held
through such financial intermediary; (b)
will provide, in a timely manner, to the
financial intermediary, or its agent,
enough copies of the 19(a) Notice
assembled in the form and at the place
that the financial intermediary, or its
agent, reasonably requests to facilitate
the financial intermediary’s sending of
the 19(a) Notice to each beneficial
owner of the Fund’s shares; and (c)
upon the request of any financial
intermediary, or its agent, that receives
copies of the 19(a) Notice, will pay the
financial intermediary, or its agent, the
reasonable expenses of sending the 19(a)
Notice to such beneficial owners.
5. Additional Board Determinations
for Funds Whose Shares Trade at a
Premium.
If:
a. A Fund’s common shares have
traded on the stock exchange that they
primarily trade on at the time in
question at an average premium to NAV
equal to or greater than 10%, as
determined on the basis of the average
of the discount or premium to NAV of
the Fund’s common shares as of the
close of each trading day over a 12-week
rolling period (each such 12-week
rolling period ending on the last trading
day of each week); and
b. The Fund’s annualized distribution
rate for such 12-week rolling period,
expressed as a percentage of NAV as of
the ending date of such 12-week rolling
period, is greater than the Fund’s
average annual total return in relation to
the change in NAV over the 2-year
period ending on the last day of such
12-week rolling period; then:
i. At the earlier of the next regularly
scheduled meeting or within four
months of the last day of such 12-week
rolling period, the Board including a
majority of the Independent Trustees:
(1) Will request and evaluate, and the
Investment Adviser will furnish, such
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51347
information as may be reasonably
necessary to make an informed
determination of whether the Plan
should be continued or continued after
amendment;
(2) Will determine whether
continuation, or continuation after
amendment, of the Plan is consistent
with the Fund’s investment objective(s)
and policies and is in the best interests
of the Fund and its shareholders, after
considering the information in
condition 5.b.i.(1) above; including,
without limitation:
(A) Whether the Plan is
accomplishing its purpose(s);
(B) The reasonably foreseeable
material 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 shares; and
(C) The Fund’s current distribution
rate, as described in condition 5.b.
above, compared with the Fund’s
average annual taxable income or total
return over the 2-year period, as
described in condition 5.b., or such
longer period as the Board deems
appropriate; and
(3) Based upon that determination,
will approve or disapprove the
continuation, or continuation after
amendment, of the Plan; and
ii. The Board will record the
information considered by it, including
its consideration of the factors listed in
condition 5.b.i.(2) above, 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.
6. Public Offerings. A Fund will not
make a public offering of the Fund’s
common shares other than:
a. A rights offering below NAV to
holders of the Fund’s common shares;
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 6.a. and 6.b.
above, provided that, with respect to
such other offering:
i. The Fund’s annualized distribution
rate for the six months ending on the
last day of the month ended
immediately prior to the most recent
distribution record date,5 expressed as a
percentage of NAV per share as of such
5 If the Fund has been in operation fewer than six
months, the measured period will being
immediately following the Fund’s first public
offering.
E:\FR\FM\06OCN1.SGM
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51348
Federal Register / Vol. 74, No. 192 / Tuesday, October 6, 2009 / Notices
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; 6 and
ii. 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 by or determined in
accordance with the terms of any
outstanding preferred stock as such
Fund may issue.
7. Amendments to Rule 19b–1. The
requested order 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,
Deputy Secretary.
[FR Doc. E9–24005 Filed 10–5–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60743; File No. SR–OCC–
2009–15]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change to
Revise the Minimum Eligibility Criteria
for Common Stock Loaned Through
Stock Loan Programs and Deposited
as Margin Collateral
jlentini on DSKJ8SOYB1PROD with NOTICES
September 29, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder 2
notice is hereby given that on August
28, 2009, The Options Clearing
Corporation (‘‘OCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared primarily by OCC. The
Commission is publishing this notice to
6 If the Fund has been in operation fewer than five
years, the measured period will being immediately
following the Fund’s first public offering.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate Nov<24>2008
16:15 Oct 05, 2009
Jkt 220001
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The proposed rule change would
revise minimum eligibility criteria
applicable to common stock loaned
through OCC’s Stock Loan Programs and
deposited as margin collateral.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
OCC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.3
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The purpose of this rule change is to
revise OCC’s minimum eligibility
requirements for stock borrows and
loans accepted in the OCC’s Stock Loan
Programs and common stock accepted
as margin collateral.4
Stock Loan Programs
OCC’s clearing services involve
common stock 5 in several ways. Stocks
3 The Commission has modified the text of the
summaries prepared by OCC.
4 This proposal furthers OCC’s continuing efforts
to utilize its System for Theoretical Analysis and
Numerical Simulations (‘‘STANS’’) to its fullest
risk-management potential resulting in lower risk to
OCC while also increasing margin offset
opportunities for OCC clearing members. Recent
OCC rule filings with a similar objective include (i)
a rule change eliminating the practice of allowing
clearing members to carry stock loan and borrow
positions without collecting risk margin and
requiring instead that all such positions be included
in the STANS margin calculation [Securities
Exchange Act Release No. 59036 (December 12,
2006), 73 FR 74554 (December 8, 2008)] and (ii) a
rule change (‘‘Collateral in Margins’’) providing that
common stock deposited as collateral be included
in the STANS calculation rather than valuing the
collateral at a current market price less an arbitrary
30% haircut [Securities Exchange Act Release No.
58158 (July 15, 2008), 73 FR 42646 (July 22, 2008)].
In addition, largely in response to market
conditions, OCC recently reduced the minimum
price for common stocks held as collateral from $10
to $3 and eliminated the 10% concentration test for
certain ETFs held as collateral. Securities Exchange
Act Release No. 59845 (April 29, 2009), 74 FR
21039 (May 6, 2009).
5 The term ‘‘common stock’’ or ‘‘stock’’ is broadly
used in this rule change to refer to different types
of equity securities including ETFs but not
preferred stock.
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
are: (i) Underlying securities for
exchange-traded equity option
contracts, (ii) constituent securities of
stock indexes that underlie stock index
options or of indexes on which
underlying ETFs are based, (iii)
constituent securities of ETFs that
although are not underlying securities
are based on indexes that underlie index
options (‘‘Index Option Related ETFs’’),
(iv) the subject of stock loan or borrow
transactions cleared pursuant to OCC’s
Stock Loan Programs, and (v) deposited
with OCC as margin collateral.
Rationalizing the interrelationship
among the criteria applied to stocks for
these various purposes will maximize
the potential for offsets and reduce risk
in the clearing system.
Under OCC’s Stock Loan Programs,
only loans of stocks that are either
underlying securities for options or
futures or ETFs based on a stock index
underlying an index option contract are
eligible for clearance through OCC
(collectively, ‘‘Options-Related Stocks’’).
OCC restricted stock loan activity to
limit its risk to loans supporting short
sales that might be serving as hedges for
options transactions or helping to add
liquidity to the options markets. At the
time this criterion was implemented in
2002, OCC managed the risk of stock
loan transactions for most clearing
members on a credit basis—that is OCC
did not collect margin on such
transactions. As noted above, OCC now
requires margin on all stock loan
transactions thus reducing the risk
associated with this activity.
Accordingly, OCC believes that it is no
longer necessary or appropriate to limit
stock loan transactions to OptionsRelated Stocks.
In connection with the foregoing
change, OCC is proposing to
supplement its existing criteria for stock
eligible for the Stock Loan Programs by
requiring that in order to qualify as an
‘‘Eligible Stock’’ for purposes of the
Stock Loan Programs a stock must be a
‘‘covered security’’ as defined in Section
18(b)(1) of the Securities Act of 1933.6
By agreement with the options
exchanges, OCC already requires that all
underlying stocks meet this criterion,
and OCC believes that it is an
appropriate minimum assurance of
quality. In addition, OCC is imposing a
$3 minimum share price requirement
6 ‘‘Covered securities’’ are securities that are
authorized for listing on the New York Stock
Exchange, the American Stock Exchange, the
National Market System of the Nasdaq Stock Market
(collectively, ‘‘Exchanges’’), or any other national
securities exchange, or tiers thereof, that the
Commission determines are substantially similar to
the listing standards applicable to securities on the
Exchanges. 15 U.S.C. 77r(b)(1).
E:\FR\FM\06OCN1.SGM
06OCN1
]]>Agencies
[Federal Register Volume 74, Number 192 (Tuesday, October 6, 2009)]
[Notices]
[Pages 51344-51348]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-24005]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 28938; File No. 812-13030]
Evergreen Income Advantage Fund, et al.; Notice of Application
September 30, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 19(b) of
the Act and rule 19b-1 under the Act.
-----------------------------------------------------------------------
Summary of Application: Applicants request an order to permit a
registered closed-end investment company to make periodic distributions
of long-term capital gains with respect to its common shares as often
as monthly in any one taxable year, and as frequently as distributions
are specified by or in accordance with the terms of its preferred
shares.
Applicants: Evergreen Income Advantage Fund (``EIAF''), Evergreen
Multi-Sector Income Fund (``EMSIF''), Evergreen Utilities and High
Income Fund (``EUHIF''), Evergreen International Balanced Income Fund
(``EIBIF''), and Evergreen Global Dividend Opportunity Fund (``EGDOF'')
(each a ``Fund'' and collectively, the ``Funds''); and Evergreen
Investment Management Company, LLC (the ``Investment Adviser'').
Filing Dates: The application was filed on October 14, 2003, and
amended on October 28, 2008, June 29, 2009, and September 29, 2009.
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 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 October 26, 2009, and should be accompanied by proof of service
on 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, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090; Applicants: Evergreen Income Advantage
Fund, 200 Berkeley Street, Boston, MA 02116.
FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior
Counsel, at (202) 551-6879, or Mary Kay Frech, Branch Chief, at (202)
551-6821 (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 via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicants' Representations
1. Each of the Funds is a closed-end management investment company
registered under the Act and organized as a Delaware statutory
trust.\1\ EIAF's primary investment objective is to seek a high level
of income. EIAF's common shares are listed on the NYSE Amex. EIAF
currently has six series of preferred shares outstanding, which are not
listed on a national securities exchange. EMSIF's investment objective
is to seek a high level of current income. EMSIF's common shares are
listed on the NYSE Amex. EIAF currently has five series of preferred
shares outstanding, which are not listed on a national securities
exchange. EUHIF's investment objective is to seek a high level of
current income and moderate capital growth. EUHIF's common shares are
listed on the NYSE Amex. EIBIF's investment objective is to seek to
provide a high level of income. EIBIF's common shares are listed on the
New York Stock Exchange (``NYSE''). EGDOF's primary investment
objective is to seek a high level of current income. EGDOF's common
shares are listed on the NYSE. Applicants believe that the shareholders
of each Fund are generally conservative, dividend-sensitive investors
who desire current income periodically and may favor a fixed
distribution policy.
---------------------------------------------------------------------------
\1\ All registered closed-end investment companies that
currently intend to rely on the order are named as applicants.
Applicants request that the order also apply to each registered
closed-end investment company that in the future: (a) Is advised by
the Investment Adviser (including any successor in interest) or by
an entity controlling, controlled by, or under common control
(within the meaning of section 2(a)(9) of the Act) with the
Investment Adviser; and (b) complies with the terms and conditions
of the application (included in the term ``Funds''). 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. The Investment Adviser, a subsidiary of Wells Fargo, a bank
holding company, is registered under the Investment Advisers Act of
1940 (``Advisers Act''). The Investment Adviser has provided investment
advisory services to each Fund since its inception. Each Fund will be
advised by investment advisers that are registered under the Advisers
Act.
3. Applicants state that prior to relying on the order, the board
of trustees (the ``Board'') of each Fund, including a majority of the
members of the Board who are not ``interested persons'' of the Fund as
defined in section 2(a)(19) of the Act (the ``Independent Trustees''),
will review information regarding the purpose and terms of a proposed
distribution policy, the likely effects of such policy on such Fund's
long-term total return (in relation to market price and net asset value
(``NAV'') per common share) and the relationship between such Fund's
distribution rate on its common shares under the policy and such Fund's
total return (in relation to NAV per share). Applicants state that
prior to relying on the requested order the Independent Trustees also
will consider what conflicts of interest the Investment Adviser and the
affiliated persons of the Investment Adviser and each such Fund might
have with respect to the adoption or implementation of such policy.
Applicants further state that prior to relying on the requested order,
and after considering such information, the Board, including the
Independent Trustees, of each Fund will approve a distribution policy
with respect to its Fund's common shares (the ``Plan'') and will
determine that such Plan is consistent with such Fund's investment
objective(s) and in the best interests of such Fund's common
shareholders.
4. Applicants state that the purpose of each Fund's Plan is to
permit such Fund to distribute over the course of each year, through
periodic distributions as nearly equal as practicable and any required
special distributions, an amount closely approximating the total
taxable income of such Fund during such year. Applicants note that
under the Plan, each Fund would distribute to its respective common
shareholders a fixed monthly percentage of the market price of such
Fund's common shares at a particular point in time or a fixed monthly
percentage of NAV at a particular time or a fixed monthly amount, any
of which may be adjusted
[[Page 51345]]
from time to time. Applicants further state that the minimum annual
distribution rate would be independent of each Fund's performance
during any particular period, but would be expected to correlate with
such Fund's performance over time. Applicants explain that except for
extraordinary distributions and potential increases or decreases in the
final dividend periods in light of the Fund's performance for the
entire calendar year and to enable the Fund to comply with the
distribution requirements of subchapter M of the Internal Revenue Code
of 1986 (``Code'') for the calendar year, each distribution on the
common shares would be at the stated rate then in effect.
5. Applicants state that prior to relying on the requested order,
the Board will adopt policies and procedures under rule 38a-1 under the
Act that are reasonably designed to ensure that all notices required to
be sent to the Fund's shareholders pursuant to section 19(a) of the
Act, rule 19a-1 under the Act, and condition 4 below (``19(a)
Notices'') comply with condition 2.a. below, and that all other written
communications by the Fund or its agents regarding distributions under
the Plan include the disclosure required by condition 3.a. below.
Applicants state that prior to relying on the requested order, the
Board will adopt policies and procedures that require each of the Funds
to keep records that demonstrate its compliance with all of the
conditions of the requested order and that are necessary for such Fund
to form the basis for, or demonstrate the calculation of, the amounts
disclosed in its 19(a) Notices.
Applicants' Legal Analysis
1. Section 19(b) of the Act generally makes it unlawful for any
registered investment company to make long-term capital gains
distributions more than once every twelve months. Rule 19b-1 under the
Act limits the number of capital gains dividends, as defined in section
852(b)(3)(C) of the Code (``distributions''), that a fund 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. Section 6(c) provides that the Commission may, by order upon
application, conditionally or unconditionally exempt any person,
security, or transaction, or any class or classes of 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.
3. Applicants state that one of the concerns underlying section
19(b) and rule 19b-1 is that shareholders might be unable to
differentiate between frequent distributions of capital gains and
dividends from investment income. Applicants state, however, that rule
19a-1 effectively addresses this concern by requiring that a separate
statement showing the sources of a distribution (e.g., net investment
income, net short-term capital gains, net long-term capital gains and/
or return of capital) accompany any distributions (or the confirmation
of the reinvestment of distributions) estimated to be sourced in part
from capital gains or capital. Applicants also state that the same
information is included in each Fund's annual reports to shareholders
and similar information is included on its IRS Form 1099-DIV, which is
sent to each common and, if applicable, preferred shareholder who
received distributions during a particular year (including shareholders
who have sold shares during the year).
4. Applicants further state that each Fund will make the additional
disclosures required by the conditions set forth below, and each of
them will adopt, prior to reliance on the requested order, compliance
policies and procedures in accordance with rule 38a-1 under the Act to
ensure that all required 19(a) Notices and disclosures are sent to
shareholders. Applicants argue that by providing the information
required by section 19(a) and rule 19a-1, and by complying with the
procedures adopted under the Plan and the conditions listed below, each
Fund's shareholders would be provided sufficient information to
understand that their periodic distributions are not tied to the Fund's
net investment income (which for this purpose is each Fund's taxable
income other than from capital gains) and realized capital gains to
date, and may not represent yield or investment return. Applicants also
state that compliance with the Fund's compliance procedures and
condition 3 set forth below will ensure that prospective shareholders
and third parties are provided with the same information. Accordingly,
applicants assert that continuing to subject the Funds to section 19(b)
and rule 19b-1 would afford shareholders no extra protection.
5. Applicants note that section 19(b) and rule 19b-1 also were
intended to prevent certain improper sales practices, including, in
particular, the practice of urging an investor to purchase shares of a
fund on the basis of an upcoming capital gains dividend (``selling the
dividend''), where the dividend would result in an immediate
corresponding reduction in NAV and would be in effect a taxable return
of the investor's capital. Applicants submit that the ``selling the
dividend'' concern should not apply to closed-end investment companies,
such as the Funds, that do not continuously distribute shares.
According to applicants, if the underlying concern extends to secondary
market purchases of shares of closed-end funds that are subject to a
large upcoming capital gains dividend, adoption of a periodic
distribution plan actually helps minimize the concern by avoiding,
through periodic distributions, any buildup of large end-of-the-year
distributions.
6. Applicants also note that common shares of closed-end funds
often trade in the marketplace at a discount to the funds' NAV.
Applicants believe that this discount may be reduced if the Funds are
permitted to pay relatively frequent dividends on their common shares
at a consistent rate, whether or not those dividends contain an element
of long-term capital gain.
7. Applicants assert that the application of rule 19b-1 to a Plan
actually could have an undesirable influence on portfolio management
decisions. Applicants state that, in the absence of an exemption from
rule 19b-1, the implementation of a periodic distribution plan imposes
pressure on management (a) not to realize any net long-term capital
gains until the point in the year that the fund can pay all of its
remaining distributions in accordance with rule 19b-1, and (b) not to
realize any long-term capital gains during any particular year in
excess of the amount of the aggregate pay-out for the year (since as a
practical matter excess gains must be distributed and accordingly would
not be available to satisfy pay-out requirements in following years),
notwithstanding that purely investment considerations might favor
realization of long-term gains at different times or in different
amounts. Applicants thus assert that by limiting the number of capital
gain distributions that a fund may make with respect to any one year,
rule 19b-1 may prevent the efficient operation of a periodic
distribution plan whenever that fund's net realized long-term capital
gains in any year exceed the total of the periodic distributions
[[Page 51346]]
that may include such capital gains under the rule.
8. Applicants also assert that rule 19b-1 may cause fixed regular
periodic distributions under a periodic distribution plan to be funded
with returns of capital \2\ (to the extent net investment income and
realized short-term capital gains are insufficient to fund the
distribution), even though net realized long-term capital gains
otherwise could be available. To distribute all of a fund's long-term
capital gains within the limits in rule 19b-1, a fund may be required
to make total distributions in excess of the annual amount called for
by its periodic distribution plan, or to retain and pay taxes on the
excess amount. Applicants thus assert that the requested order would
minimize these effects of rule 19b-1 by enabling the Funds to realize
long-term capital gains as often as investment considerations dictate
without fear of violating rule 19b-1.
---------------------------------------------------------------------------
\2\ Returns of capital as used in the application means return
of capital for financial accounting purposes and not for tax
accounting purposes.
---------------------------------------------------------------------------
9. Applicants state that Revenue Ruling 89-81 under the Code
requires that a fund that has both common stock and preferred stock
outstanding designate the types of income, e.g., investment income and
capital gains, in the same proportion as the total distributions
distributed to each class for the tax year. To satisfy the
proportionate designation requirements of Revenue Ruling 89-81,
whenever a fund has realized a long-term capital gain with respect to a
given tax year, the fund must designate the required proportionate
share of such capital gain to be included in common and preferred stock
dividends. Applicants state that although rule 19b-1 allows a fund some
flexibility with respect to the frequency of capital gains
distributions, a fund might use all of the exceptions available under
the rule for a tax year and still need to distribute additional capital
gains allocated to the preferred stock to comply with Revenue Ruling
89-81.
10. Applicants assert that the potential abuses addressed by
section 19(b) and rule 19b-1 do not arise with respect to preferred
stock issued by a closed-end fund. Applicants assert that such
distributions are fixed or determined in periodic auctions by reference
to short-term interest rates rather than by reference to performance of
the issuer, and Revenue Ruling 89-81 determines the proportion of such
distributions that are comprised of the long-term capital gains.
11. Applicants also submit that the ``selling the dividend''
concern is not applicable to preferred stock, which entitles a holder
to no more than a periodic dividend at a fixed rate or the rate
determined by the market, and, like a debt security, is priced based
upon its liquidation value, dividend rate, credit quality, and
frequency of payment. Applicants state that investors buy preferred
shares for the purpose of receiving payments at the frequency bargained
for, and do not expect the liquidation value of their shares to change.
12. Applicants request an order under section 6(c) granting an
exemption from section 19(b) and rule 19b-1 to permit each Fund to
distribute periodic capital gains dividends (as defined in section
852(b)(3)(C) of the Code) as often as monthly in any one taxable year
with respect to its common shares and, with respect to each Fund with
outstanding preferred shares, to allocate to its preferred shares
capital gain dividends as often as necessary in any one taxable year to
comply with IRS Revenue Ruling 89-81.\3\
---------------------------------------------------------------------------
\3\ Applicants state that a future Fund that relies on the
requested order will satisfy each of the representations in the
application except that such representations will be made in respect
of actions by the board of directors of such future Fund and will be
made at a future time.
---------------------------------------------------------------------------
Applicants' Conditions
Applicants agree that any order of the Commission granting the
requested relief will be subject to the following conditions:
1. Compliance Review and Reporting. Each Fund's chief compliance
officer will: (a) Report to the Fund's Board, no less frequently than
once every three months or at the next regularly scheduled quarterly
Board meeting, whether (i) the Fund and its Investment Adviser have
complied with the conditions of the order, and (ii) a material
compliance matter, as defined in rule 38a-1(e)(2) under the Act, has
occurred with respect to such conditions; and (b) review the adequacy
of the policies and procedures adopted by the Board no less frequently
than annually.
2. Disclosures to Fund Shareholders.
a. Each 19(a) Notice disseminated to the holders of the Fund's
common shares, in addition to the information required by section 19(a)
and rule 19a-1:
i. Will provide, in a tabular or graphical format:
(1) The amount of the distribution, on a per share basis, together
with the amounts of such distribution amount, on a per share basis and
as a percentage of such distribution amount, from estimated: (A) Net
investment income; (B) net realized short-term capital gains; (C) net
realized long-term capital gains; and (D) return of capital or other
capital source;
(2) The fiscal year-to-date cumulative amount of distributions, on
a per share basis, together with the amounts of such cumulative amount,
on a per share basis and as a percentage of such cumulative amount of
distributions, from estimated: (A) Net investment income; (B) net
realized short-term capital gains; (C) net realized long-term capital
gains; and (D) return of capital or other capital source;
(3) The average annual total return in relation to the change in
NAV for the 5-year period (or, if the Fund's history of operations is
less than five years, the time period commencing immediately following
the Fund's first public offering) ending on the last day of the month
prior to the most recent distribution record date compared to the
current fiscal period's annualized distribution rate expressed as a
percentage of NAV as of the last day of the month prior to the most
recent distribution record date; and
(4) The cumulative total return in relation to the change in NAV
from the last completed fiscal year to the last day of the month prior
to the most recent distribution record date compared to the fiscal
year-to-date cumulative distribution rate expressed as a percentage of
NAV as of the last day of the month prior to the most recent
distribution record date.
Such disclosure shall be made in a type size at least as large and
as prominent as the estimate of the sources of the current
distribution; and
ii. Will include the following disclosure:
(1) ``You should not draw any conclusions about the Fund's
investment performance from the amount of this distribution or from the
terms of the Fund's Plan'';
(2) ``The Fund estimates that it has distributed more than its
income and net realized capital gains; therefore, a portion of your
distribution may be a return of capital. A return of capital may occur,
for example, when some or all of the money that you invested in the
Fund is paid back to you. A return of capital distribution does not
necessarily reflect the Fund's investment performance and should not be
confused with `yield' or `income' ''; \4\ and
---------------------------------------------------------------------------
\4\ The disclosure in this condition 2.a.ii.(2) will be included
only if the current distribution or the fiscal year-to-date
cumulative distributions are estimated to include a return of
capital.
---------------------------------------------------------------------------
(3) ``The amounts and sources of distributions reported in this
19(a)
[[Page 51347]]
Notice are only estimates and are not being provided for tax reporting
purposes. The actual amounts and sources of the amounts for tax
reporting purposes will depend upon the Fund's investment experience
during the remainder of its fiscal year and may be subject to changes
based on tax regulations. The Fund will send you a Form 1099-DIV for
the calendar year that will tell you how to report these distributions
for federal income tax purposes.''
Such disclosure shall be made in a type size at least as large as
and as prominent as any other information in the 19(a) Notice and
placed on the same page in close proximity to the amount and the
sources of the distribution.
b. On the inside front cover of each report to shareholders under
rule 30e-1 under the Act, the Fund will:
i. Describe the terms of the Plan (including the fixed amount or
fixed percentage of the distributions and the frequency of the
distributions);
ii. Include the disclosure required by condition 2.a.ii.(1) above;
iii. State, if applicable, that the Plan provides that the Board
may amend or terminate the Plan at any time without prior notice to
Fund shareholders; and
iv. Describe any reasonably foreseeable circumstances that might
cause the Fund to terminate the Plan and any reasonably foreseeable
consequences of such termination.
c. Each report provided to shareholders under rule 30e-1 under the
Act and in each prospectus filed with the Commission on Form N-2 under
the Act, will provide the Fund's total return in relation to changes in
NAV in the financial highlights table and in any discussion about the
Fund's total return.
3. Disclosure to Shareholders, Prospective Shareholders and Third
Parties.
a. Each Fund will include the information contained in the relevant
19(a) Notice, including the disclosure required by condition 2.a.ii.
above, in any written communication (other than a communication on Form
1099) about the Plan or distributions under the Plan by the Fund, or
agents that the Fund has authorized to make such communication on the
Fund's behalf, to any Fund common shareholder, prospective common
shareholder or third-party information provider;
b. Each Fund will issue, contemporaneously with the issuance of any
19(a) Notice, a press release containing the information in the 19(a)
Notice and will file with the Commission the information contained in
such 19(a) Notice, including the disclosure required by condition
2.a.ii. above, as an exhibit to its next filed Form N-CSR; and
c. Each Fund will post prominently a statement on its (or the
Investment Adviser's) web site containing the information in each 19(a)
Notice, including the disclosure required by condition 2.a.ii. above,
and will maintain such information on such web site for at least 24
months.
4. Delivery of 19(a) Notices to Beneficial Owners. If a broker,
dealer, bank or other person (``financial intermediary'') holds common
stock issued by a Fund in nominee name, or otherwise, on behalf of a
beneficial owner, the Fund: (a) Will request that the financial
intermediary, or its agent, forward the 19(a) Notice to all beneficial
owners of the Fund's shares held through such financial intermediary;
(b) will provide, in a timely manner, to the financial intermediary, or
its agent, enough copies of the 19(a) Notice assembled in the form and
at the place that the financial intermediary, or its agent, reasonably
requests to facilitate the financial intermediary's sending of the
19(a) Notice to each beneficial owner of the Fund's shares; and (c)
upon the request of any financial intermediary, or its agent, that
receives copies of the 19(a) Notice, will pay the financial
intermediary, or its agent, the reasonable expenses of sending the
19(a) Notice to such beneficial owners.
5. Additional Board Determinations for Funds Whose Shares Trade at
a Premium.
If:
a. A Fund's common shares have traded on the stock exchange that
they primarily trade on at the time in question at an average premium
to NAV equal to or greater than 10%, as determined on the basis of the
average of the discount or premium to NAV of the Fund's common shares
as of the close of each trading day over a 12-week rolling period (each
such 12-week rolling period ending on the last trading day of each
week); and
b. The Fund's annualized distribution rate for such 12-week rolling
period, expressed as a percentage of NAV as of the ending date of such
12-week rolling period, is greater than the Fund's average annual total
return in relation to the change in NAV over the 2-year period ending
on the last day of such 12-week rolling period; then:
i. At the earlier of the next regularly scheduled meeting or within
four months of the last day of such 12-week rolling period, the Board
including a majority of the Independent Trustees:
(1) Will request and evaluate, and the Investment Adviser will
furnish, such information as may be reasonably necessary to make an
informed determination of whether the Plan should be continued or
continued after amendment;
(2) Will determine whether continuation, or continuation after
amendment, of the Plan is consistent with the Fund's investment
objective(s) and policies and is in the best interests of the Fund and
its shareholders, after considering the information in condition
5.b.i.(1) above; including, without limitation:
(A) Whether the Plan is accomplishing its purpose(s);
(B) The reasonably foreseeable material 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 shares; and
(C) The Fund's current distribution rate, as described in condition
5.b. above, compared with the Fund's average annual taxable income or
total return over the 2-year period, as described in condition 5.b., or
such longer period as the Board deems appropriate; and
(3) Based upon that determination, will approve or disapprove the
continuation, or continuation after amendment, of the Plan; and
ii. The Board will record the information considered by it,
including its consideration of the factors listed in condition
5.b.i.(2) above, 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.
6. Public Offerings. A Fund will not make a public offering of the
Fund's common shares other than:
a. A rights offering below NAV to holders of the Fund's common
shares;
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 6.a.
and 6.b. above, provided that, with respect to such other offering:
i. The Fund's annualized distribution rate for the six months
ending on the last day of the month ended immediately prior to the most
recent distribution record date,\5\ expressed as a percentage of NAV
per share as of such
[[Page 51348]]
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;
\6\ and
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\5\ If the Fund has been in operation fewer than six months, the
measured period will being immediately following the Fund's first
public offering.
\6\ If the Fund has been in operation fewer than five years, the
measured period will being immediately following the Fund's first
public offering.
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ii. 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 by or determined in
accordance with the terms of any outstanding preferred stock as such
Fund may issue.
7. Amendments to Rule 19b-1. The requested order 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,
Deputy Secretary.
[FR Doc. E9-24005 Filed 10-5-09; 8:45 am]
BILLING CODE 8011-01-P
