Stone Harbor Emerging Markets Income Fund, et al.; Notice of Application, 59458-59462 [2011-24587]
Download as PDF
<![CDATA[
59458
Federal Register / Vol. 76, No. 186 / Monday, September 26, 2011 / Notices
jlentini on DSK4TPTVN1PROD with NOTICES
the CDSC, each Fund will comply with
rule 22d–1 under the Act as if the Fund
were an open-end investment company.
Applicants’ Legal Analysis:
Multiple Classes of Shares
1. Section 18(c) of the Act provides,
in relevant part, that a closed-end
investment company may not issue or
sell any senior security if, immediately
thereafter, the company has outstanding
more than one class of senior security.
Applicants state that the creation of
multiple classes of Shares of the Funds
may be prohibited by section 18(c).
2. Section 18(i) of the Act provides
that each share of stock issued by a
registered management investment
company will be a voting stock and
have equal voting rights with every
other outstanding voting stock.
Applicants state that permitting
multiple classes of Shares of the Funds
may violate section 18(i) of the Act
because each class would be entitled to
exclusive voting rights with respect to
matters solely related to that class.
3. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction or any
class or classes of persons, securities or
transactions from any provision of the
Act, or from any rule under the Act, if
and to the extent such exemption is
necessary or appropriate in the public
interest and consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act. Applicants
request an exemption under section 6(c)
from sections 18(c) and 18(i) to permit
the Funds to issue multiple classes of
shares.
4. Applicants submit that the
proposed allocation of expenses and
voting rights among multiple classes is
equitable and will not discriminate
against any group or class of
shareholders. Applicants submit that
the proposed arrangements would
permit a Fund to facilitate the
distribution of its Shares and provide
investors with a broader choice of
shareholder services. Applicants assert
that the proposed closed-end
investment company multiple class
structure does not raise the concerns
underlying section 18 of the Act to any
greater degree than open-end
investment companies’ multiple class
structures that are permitted by rule
18f–3 under the Act.
CDSCs
1. Applicants believe that the
requested relief meets the standards of
section 6(c) of the Act. Rule 6c–10
under the Act permits open-end
investment companies to impose
VerDate Mar<15>2010
17:37 Sep 23, 2011
Jkt 223001
CDSCs, subject to certain conditions.
Applicants state that the CDSCs may be
necessary for the Placement Agent to
recover distribution costs. Applicants
state that any CDSC imposed by the
Funds will comply with rule 6c–10
under the Act as if the rule were
applicable to closed-end investment
companies. The Funds also will disclose
CDSCs in accordance with the
requirements of Form N–1A concerning
CDSCs as if the Funds were open-end
investment companies. Applicants
further state that the Funds will apply
the CDSC (and any waivers or
scheduled variations of the CDSC)
uniformly to all shareholders in a given
class and consistently with the
requirements of rule 22d–1 under the
Act.
Asset-Based Service and/or Distribution
Fees
1. Section 17(d) of the Act and rule
17d–1 under the Act prohibit an
affiliated person of a registered
investment company or an affiliated
person of such person, acting as
principal, from participating in or
effecting any transaction in connection
with any joint enterprise or joint
arrangement in which the investment
company participates unless the
Commission issues an order permitting
the transaction. In reviewing
applications submitted under section
17(d) and rule 17d–1, the Commission
considers whether the participation of
the investment company in a joint
enterprise or joint arrangement is
consistent with the provisions, policies
and purposes of the Act, and the extent
to which the participation is on a basis
different from or less advantageous than
that of other participants.
2. Rule 17d–3 under the Act provides
an exemption from section 17(d) and
rule 17d–1 to permit open-end
investment companies to enter into
distribution arrangements pursuant to
rule 12b–1 under the Act. Applicants
request an order under section 17(d) and
rule 17d–1 under the Act to permit the
Funds to impose asset-based service
and/or distribution fees. Applicants
have agreed to comply with rules 12b–
1 and 17d–3 as if those rules applied to
closed-end investment companies.
Applicants’ Condition:
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
Each Fund will comply with the
provisions of rules 6c–10, 12b–1, 17d–
3, 18f–3 and 22d–1 under the Act, as
amended from time to time or replaced,
as if those rules applied to closed-end
management investment companies,
and will comply with the NASD
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
Conduct Rule 2830, as amended from
time to time, as if that rule applied to
all closed-end management investment
companies.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–24589 Filed 9–23–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
29791; File No. 812–13867]
Stone Harbor Emerging Markets
Income Fund, et al.; Notice of
Application
September 16, 2011.
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.
AGENCY:
Summary of Application: Applicants
request an order to permit certain
registered closed-end investment
companies to make periodic
distributions of long-term capital gains
with respect to their outstanding
common stock as frequently as monthly
in any one taxable year, and as
frequently as distributions are specified
by or in accordance with the terms of
any outstanding preferred stock that
such investment companies may issue.
Applicants: Stone Harbor Emerging
Markets Income Fund (the ‘‘Current
Fund’’) and Stone Harbor Investment
Partners LP (‘‘Stone Harbor’’ or the
‘‘Adviser’’).
Filing Dates: The application was filed
on February 9, 2011 and amended on
May 27, 2011 and September 13, 2011.
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 11, 2011, 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
E:\FR\FM\26SEN1.SGM
26SEN1
Federal Register / Vol. 76, No. 186 / Monday, September 26, 2011 / Notices
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, 31 West 52nd Street, 16th
Floor, New York, New York 10019,
Contact: Adam J. Shapiro, Esq.
FOR FURTHER INFORMATION CONTACT:
Keith A. Gregory, Senior Counsel, at
(202) 551–6815, or Mary Kay Frech,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
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. The Current Fund is a closed-end
management investment company
registered under the Act and is
organized as a Massachusetts business
trust.1 The Current Fund’s investment
objective is total return, consisting of
income and capital appreciation. The
common shares of the Current Fund are
listed on the New York Stock Exchange.
The Current Fund currently does not
intend to issue any shares of preferred
stock, but may do so in the future.
Applicants believe that investors in the
common shares of the Current Fund
may prefer an investment vehicle that
provides regular/monthly distributions
and a steady cash flow.
2. Stone Harbor, a registered
investment adviser under the
Investment Advisers Act of 1940, as
amended (‘‘Advisers Act’’), acts as the
Current Fund’s investment adviser.
Each future Investment Adviser to a
jlentini on DSK4TPTVN1PROD with NOTICES
SUPPLEMENTARY INFORMATION:
1 Applicants request that any order issued
granting the relief requested in the application also
apply to any registered closed-end investment
company currently advised or to be advised in the
future by Stone Harbor (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 Stone Harbor (such
entities, together with Stone Harbor, the
‘‘Investment Advisers’’) that decides in the future
to rely on the requested relief. Any closed-end
investment company that relies on the order in the
future will comply with the terms and conditions
of the application (such investment companies
together with the Current Fund, the ‘‘Funds,’’ and
with the Investment Advisers, the ‘‘Applicants’’).
All existing Funds currently intending to rely on
the order have been named as Applicants. 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.
VerDate Mar<15>2010
17:37 Sep 23, 2011
Jkt 223001
Fund will be registered under the
Advisers Act.
3. Applicants state that, prior to a
Fund’s implementing a distribution
plan in reliance on the order, the board
of trustees (the ‘‘Board’’) of the Fund,
including a majority of the trustees who
are not ‘‘interested persons,’’ of such
Fund as defined in section 2(a)(19) of
the Act (the ‘‘Independent Trustees’’),
shall have requested, and the Adviser
shall have provided, such information
as is reasonably necessary to make an
informed determination of whether the
Board should adopt a proposed
distribution policy. In particular, the
Board and the Independent Trustees
shall have reviewed 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 its net asset value per
common share (‘‘NAV’’)) 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); whether the
rate of distribution would exceed such
Fund’s expected total return in relation
to its NAV; and any foreseeable material
effects of such policy on such Fund’s
long-term total return (in relation to
market price and NAV). The
Independent Trustees shall also have
considered what conflicts of interest the
Adviser and the affiliated persons of the
Adviser and each such Fund might have
with respect to the adoption or
implementation of such policy.
Applicants state that, only after
considering such information shall the
Board, including the Independent
Trustees, of a Fund approve a
distribution policy with respect to such
Fund’s common shares (the ‘‘Plan’’) and
in connection with such approval shall
have determined that such Plan is
consistent with a Fund’s investment
objectives and in the best interests of a
Fund’s common shareholders.
4. Applicants state that the purpose of
a Plan would be to permit a 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 and, if
so determined by its Board, all or a
portion of the return of capital paid by
portfolio companies to such Fund
during such year. It is anticipated that
under the Plan of a Fund, such 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
PO 00000
Frm 00081
Fmt 4703
Sfmt 4703
59459
percentage of NAV at a particular time
or a fixed monthly amount, any of
which may be adjusted from time to
time. It is anticipated that under a Plan,
the minimum annual distribution rate
with respect to such Fund’s common
shares would be independent of a
Fund’s performance during any
particular period but would be expected
to correlate with a Fund’s performance
over time. Except for extraordinary
distributions and potential increases or
decreases in the final dividend periods
in light of a Fund’s performance for an
entire calendar year and to enable a
Fund to comply with the distribution
requirements of Subchapter M of the
Internal Revenue Code (‘‘Code’’) for the
fiscal year, it is anticipated that each
distribution on the common shares
would be at the stated rate then in
effect.
5. Applicants state that prior to the
implementation of a Plan for a Fund, the
Board shall have adopted policies and
procedures under rule 38a–1 under the
Act that: (i) 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 thereunder and condition 4 below
(each a ‘‘19(a) Notice’’) include the
disclosure required by rule 19a–1 under
the Act and by 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; and (ii) require the
Fund to keep records that demonstrate
its compliance with all of the conditions
of the 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) 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 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, in relevant
part, that the Commission may exempt
any person or transaction from any
provision of the Act to the extent that
such exemption is necessary or
appropriate in the public interest and
E:\FR\FM\26SEN1.SGM
26SEN1
jlentini on DSK4TPTVN1PROD with NOTICES
59460
Federal Register / Vol. 76, No. 186 / Monday, September 26, 2011 / Notices
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 leading to the enactment of
section 19(b) and adoption of rule 19b–
1 was that shareholders might be unable
to distinguish 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 distributions (or the
confirmation of the reinvestment
thereof) estimated to be sourced in part
from capital gains or capital be
accompanied by a separate statement
showing the sources of the distribution
(e.g., estimated net income, net shortterm capital gains, net long-term capital
gains and/or return of capital).
Applicants state that similar
information is included in the Funds’
annual reports to shareholders and on
the Internal Revenue Service Form 1099
DIV, which is sent to each common and
preferred shareholder who received
distributions during a particular year.
4. Applicants further state that each of
the Funds will make the additional
disclosures required by the conditions
set forth below, and each of them has
adopted or will adopt 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 a Fund’s net investment income
and realized capital gains to date, and
may not represent yield or investment
return. 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, which do
not continuously distribute shares.
VerDate Mar<15>2010
17:37 Sep 23, 2011
Jkt 223001
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 the
common stock of closed-end funds
generally tends to trade in the
marketplace at a discount to their NAVs.
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 capital
gain.
7. Applicants assert that the
application of rule 19b–1 to a Plan
actually could have an inappropriate
influence on portfolio management
decisions. Applicants state that, in the
absence of an exemption from rule 19b–
1, the adoption of a periodic
distribution plan imposes pressure on
management (i) 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 (ii) 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 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 normal and 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
that may include such capital gains
under the rule.
8. Applicants also assert that rule
19b–1 may force 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 would be available. To
2 Returns of capital as used in the application
means return of capital for financial accounting
purposes and not for tax accounting purposes.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
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
assert that the requested order would
minimize these anomalous 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 seeks to qualify as a
regulated investment company under
the Code and 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
dividends 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 either 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 longterm 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.
E:\FR\FM\26SEN1.SGM
26SEN1
jlentini on DSK4TPTVN1PROD with NOTICES
Federal Register / Vol. 76, No. 186 / Monday, September 26, 2011 / Notices
12. Applicants request an order under
section 6(c) of the Act granting an
exemption from the provisions of
section 19(b) of the Act and rule 19b–
1 thereunder to permit each Fund to
distribute periodic capital gain
dividends (as defined in section
852(b)(3)(C) of the Code) as often as
monthly in any one taxable year in
respect of its common shares and as
often as specified by or determined in
accordance with the terms thereof in
respect of its preferred shares.
Applicants’ Conditions:
Applicants agree that, with respect to
each Fund seeking to rely on the order,
the order will be subject to the following
conditions:
1. Compliance Review and Reporting:
The 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 section19(a) and rule 19a–
1:
(i) Will provide, in a tabular or
graphical format:
(1) The amount of the distribution, on
a per common share basis, together with
the amounts of such distribution
amount, on a per common 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
common share basis, together with the
amounts of such cumulative amount, on
a per common 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
VerDate Mar<15>2010
17:37 Sep 23, 2011
Jkt 223001
offering) ending on the last day of the
month ended immediately 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’ ’’ 3;
and
(3) ‘‘The amounts and sources of
distributions reported in this 19(a)
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.
3 The disclosure in 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.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
59461
(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 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) The 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) The 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) The Fund will post prominently a
statement on its (or the Investment
Adviser’s) website 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
website 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 shares
issued by the 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
E:\FR\FM\26SEN1.SGM
26SEN1
jlentini on DSK4TPTVN1PROD with NOTICES
59462
Federal Register / Vol. 76, No. 186 / Monday, September 26, 2011 / Notices
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) The 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 12week 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
Fund’s 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 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
VerDate Mar<15>2010
17:37 Sep 23, 2011
Jkt 223001
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: The 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,4 expressed as a
percentage of NAV 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
(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
shares as frequently as twelve times
each year, and as frequently as
distributions are specified by or
determined in accordance with the
4 If the Fund has been in operation fewer than six
months, the measured period will begin
immediately following the Fund’s first public
offering.
5 If the Fund has been in operation fewer than five
years, the measured period will begin immediately
following the Fund’s first public offering.
PO 00000
Frm 00084
Fmt 4703
Sfmt 4703
terms of any outstanding preferred
shares 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 shares as frequently as twelve
times each year.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–24587 Filed 9–23–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65352; File No. SR–BYX–
2011–022]
Self-Regulatory Organizations; BATS
Y–Exchange, Inc.; Notice of Filing of
Proposed Rule Change To Amend and
Restate the Amended and Restated
Bylaws of BATS Global Markets, Inc.
September 19, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 7, 2011, BATS Y–Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is filing with the
Commission a proposal to amend the
bylaws of the Exchange’s sole
stockholder, BATS Global Markets, Inc.
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
1 15
2 17
E:\FR\FM\26SEN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
26SEN1
]]>Agencies
[Federal Register Volume 76, Number 186 (Monday, September 26, 2011)]
[Notices]
[Pages 59458-59462]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24587]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29791; File No. 812-13867]
Stone Harbor Emerging Markets Income Fund, et al.; Notice of
Application
September 16, 2011.
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 certain
registered closed-end investment companies to make periodic
distributions of long-term capital gains with respect to their
outstanding common stock as frequently as monthly in any one taxable
year, and as frequently as distributions are specified by or in
accordance with the terms of any outstanding preferred stock that such
investment companies may issue.
Applicants: Stone Harbor Emerging Markets Income Fund (the ``Current
Fund'') and Stone Harbor Investment Partners LP (``Stone Harbor'' or
the ``Adviser'').
Filing Dates: The application was filed on February 9, 2011 and amended
on May 27, 2011 and September 13, 2011.
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 11, 2011, 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
[[Page 59459]]
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, 31 West 52nd Street, 16th
Floor, New York, New York 10019, Contact: Adam J. Shapiro, Esq.
FOR FURTHER INFORMATION CONTACT: Keith A. Gregory, Senior Counsel, at
(202) 551-6815, 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. The Current Fund is a closed-end management investment company
registered under the Act and is organized as a Massachusetts business
trust.\1\ The Current Fund's investment objective is total return,
consisting of income and capital appreciation. The common shares of the
Current Fund are listed on the New York Stock Exchange. The Current
Fund currently does not intend to issue any shares of preferred stock,
but may do so in the future. Applicants believe that investors in the
common shares of the Current Fund may prefer an investment vehicle that
provides regular/monthly distributions and a steady cash flow.
---------------------------------------------------------------------------
\1\ Applicants request that any order issued granting the relief
requested in the application also apply to any registered closed-end
investment company currently advised or to be advised in the future
by Stone Harbor (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 Stone Harbor (such
entities, together with Stone Harbor, the ``Investment Advisers'')
that decides in the future to rely on the requested relief. Any
closed-end investment company that relies on the order in the future
will comply with the terms and conditions of the application (such
investment companies together with the Current Fund, the ``Funds,''
and with the Investment Advisers, the ``Applicants''). All existing
Funds currently intending to rely on the order have been named as
Applicants. 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. Stone Harbor, a registered investment adviser under the
Investment Advisers Act of 1940, as amended (``Advisers Act''), acts as
the Current Fund's investment adviser. Each future Investment Adviser
to a Fund will be registered under the Advisers Act.
3. Applicants state that, prior to a Fund's implementing a
distribution plan in reliance on the order, the board of trustees (the
``Board'') of the Fund, including a majority of the trustees who are
not ``interested persons,'' of such Fund as defined in section 2(a)(19)
of the Act (the ``Independent Trustees''), shall have requested, and
the Adviser shall have provided, such information as is reasonably
necessary to make an informed determination of whether the Board should
adopt a proposed distribution policy. In particular, the Board and the
Independent Trustees shall have reviewed 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 its net asset value per common share (``NAV'')) 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); whether the rate of distribution would exceed such Fund's
expected total return in relation to its NAV; and any foreseeable
material effects of such policy on such Fund's long-term total return
(in relation to market price and NAV). The Independent Trustees shall
also have considered what conflicts of interest the Adviser and the
affiliated persons of the Adviser and each such Fund might have with
respect to the adoption or implementation of such policy. Applicants
state that, only after considering such information shall the Board,
including the Independent Trustees, of a Fund approve a distribution
policy with respect to such Fund's common shares (the ``Plan'') and in
connection with such approval shall have determined that such Plan is
consistent with a Fund's investment objectives and in the best
interests of a Fund's common shareholders.
4. Applicants state that the purpose of a Plan would be to permit a
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 and, if so determined by its Board, all
or a portion of the return of capital paid by portfolio companies to
such Fund during such year. It is anticipated that under the Plan of a
Fund, such 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 from time to time. It is anticipated that under a Plan, the
minimum annual distribution rate with respect to such Fund's common
shares would be independent of a Fund's performance during any
particular period but would be expected to correlate with a Fund's
performance over time. Except for extraordinary distributions and
potential increases or decreases in the final dividend periods in light
of a Fund's performance for an entire calendar year and to enable a
Fund to comply with the distribution requirements of Subchapter M of
the Internal Revenue Code (``Code'') for the fiscal year, it is
anticipated that each distribution on the common shares would be at the
stated rate then in effect.
5. Applicants state that prior to the implementation of a Plan for
a Fund, the Board shall have adopted policies and procedures under rule
38a-1 under the Act that: (i) 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 thereunder and condition 4 below
(each a ``19(a) Notice'') include the disclosure required by rule 19a-1
under the Act and by 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; and
(ii) require the Fund to keep records that demonstrate its compliance
with all of the conditions of the 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) 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 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, in relevant part, that the Commission may
exempt any person or transaction from any provision of the Act to the
extent that such exemption is necessary or appropriate in the public
interest and
[[Page 59460]]
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 leading to the
enactment of section 19(b) and adoption of rule 19b-1 was that
shareholders might be unable to distinguish 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 distributions (or the confirmation of the
reinvestment thereof) estimated to be sourced in part from capital
gains or capital be accompanied by a separate statement showing the
sources of the distribution (e.g., estimated net income, net short-term
capital gains, net long-term capital gains and/or return of capital).
Applicants state that similar information is included in the Funds'
annual reports to shareholders and on the Internal Revenue Service Form
1099 DIV, which is sent to each common and preferred shareholder who
received distributions during a particular year.
4. Applicants further state that each of the Funds will make the
additional disclosures required by the conditions set forth below, and
each of them has adopted or will adopt 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 a Fund's net
investment income and realized capital gains to date, and may not
represent yield or investment return. 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, which 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 the common stock of closed-end funds
generally tends to trade in the marketplace at a discount to their
NAVs. 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 capital gain.
7. Applicants assert that the application of rule 19b-1 to a Plan
actually could have an inappropriate influence on portfolio management
decisions. Applicants state that, in the absence of an exemption from
rule 19b-1, the adoption of a periodic distribution plan imposes
pressure on management (i) 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 (ii) 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 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 normal and 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 that
may include such capital gains under the rule.
8. Applicants also assert that rule 19b-1 may force 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 would 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 assert that the requested order would
minimize these anomalous 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 seeks to qualify as a regulated investment
company under the Code and 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 dividends
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 either 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 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.
[[Page 59461]]
12. Applicants request an order under section 6(c) of the Act
granting an exemption from the provisions of section 19(b) of the Act
and rule 19b-1 thereunder to permit each Fund to distribute periodic
capital gain dividends (as defined in section 852(b)(3)(C) of the Code)
as often as monthly in any one taxable year in respect of its common
shares and as often as specified by or determined in accordance with
the terms thereof in respect of its preferred shares.
Applicants' Conditions:
Applicants agree that, with respect to each Fund seeking to rely on
the order, the order will be subject to the following conditions:
1. Compliance Review and Reporting: The 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 section19(a)
and rule 19a-1:
(i) Will provide, in a tabular or graphical format:
(1) The amount of the distribution, on a per common share basis,
together with the amounts of such distribution amount, on a per common
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 common share basis, together with the amounts of such cumulative
amount, on a per common 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
ended immediately 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' '' \3\; and
---------------------------------------------------------------------------
\3\ The disclosure in 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) 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 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) The 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) The 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) The Fund will post prominently a statement on its (or the
Investment Adviser's) website 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 website 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
shares issued by the 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
[[Page 59462]]
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) The 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 Fund's 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 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: The 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,\4\ expressed as a percentage of NAV 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
---------------------------------------------------------------------------
\4\ If the Fund has been in operation fewer than six months, the
measured period will begin immediately following the Fund's first
public offering.
\5\ If the Fund has been in operation fewer than five years, the
measured period will begin immediately following the Fund's first
public offering.
---------------------------------------------------------------------------
(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 shares 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 shares 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 shares as
frequently as twelve times each year.
For the Commission, by the Division of Investment Management,
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-24587 Filed 9-23-11; 8:45 am]
BILLING CODE 8011-01-P
