H&Q Healthcare Investors, et al.; Notice of Application, 46881-46886 [2014-18882]
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46881
Federal Register / Vol. 79, No. 154 / Monday, August 11, 2014 / Notices
By the Commission.
Ruth Ann Abrams,
Acting Secretary.
[FR Doc. 2014–18912 Filed 8–8–14; 8:45 am]
BILLING CODE 7710–FW–P
RAILROAD RETIREMENT BOARD
Agency Forms Submitted for OMB
Review, Request for Comments
In accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. Chapter 35), the Railroad
Retirement Board (RRB) is forwarding
an Information Collection Request (ICR)
to the Office of Information and
Regulatory Affairs (OIRA), Office of
Management and Budget (OMB). Our
ICR describes the information we seek
to collect from the public. Review and
approval by OIRA ensures that we
impose appropriate paperwork burdens.
The RRB invites comments on the
proposed collection of information to
determine (1) The practical utility of the
collection; (2) the accuracy of the
estimated burden of the collection; (3)
ways to enhance the quality, utility, and
clarity of the information that is the
subject of collection; and (4) ways to
minimize the burden of collections on
respondents, including the use of
automated collection techniques or
other forms of information technology.
SUMMARY:
Comments to the RRB or OIRA must
contain the OMB control number of the
ICR. For proper consideration of your
comments, it is best if the RRB and
OIRA receive them within 30 days of
the publication date.
Title and Purpose of Information
Collection: Certification of Termination
of Service and Relinquishment of
Rights; OMB 3220–0016.
Under Section 2(e)(2) of the Railroad
Retirement Act (RRA), an age and
service annuity, spouse annuity, or
divorced spouse annuity cannot be paid
unless the RRB has evidence that the
applicant has ceased railroad
employment and relinquished rights to
return to the service of a railroad
employer. The procedure pertaining to
the relinquishment of rights by an
annuity applicant is prescribed in 20
CFR 216.24. Under Section 2(f)(6) of the
RRA, earnings deductions are required
each month an annuitant works in
certain nonrailroad employment termed
Last Pre-Retirement Non-Railroad
Employment.
Normally, the employee, spouse, or
divorced spouse relinquishes rights and
certifies that employment has ended as
part of the annuity application process.
However, this is not always the case. In
limited circumstances, the RRB utilizes
Form G–88, Certification of Termination
of Service and Relinquishment of
Rights, to obtain an applicant’s report of
termination of employment and
relinquishment of rights. One response
is required of each respondent.
Completion is required to obtain or
retain benefits.
Previous Requests for Comments: The
RRB has already published the initial
60-day notice (79 FR 29821 on May 23,
2014) required by 44 U.S.C. 3506(c)(2).
That request elicited no comments.
Information Collection Request (ICR)
Title: Certification of Termination of
Service and Relinquishment of Rights.
OMB Control Number: 3220–0016.
Form(s) submitted: G–88.
Type of request: Extension without
change of a currently approved
collection.
Affected public: Individuals or
households.
Abstract: Under Section 2(e)(2) of the
Railroad Retirement Act, the Railroad
Retirement Board must have evidence
that an annuitant for an age and service,
spouse, or divorced spouse annuity has
ceased railroad employment and
relinquished their rights to return to the
service of a railroad employer. The
collection provides the means for
obtaining this evidence.
Changes proposed: The RRB proposes
no revisions to Form G–88.
The burden estimate for the ICR is as
follows:
Annual
responses
Form No.
Time
minutes)
Burden
(hours)
G–88 ............................................................................................................................................
3,600
6
360
Total ......................................................................................................................................
3,600
........................
360
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Additional Information or Comments:
Copies of the forms and supporting
documents can be obtained from Dana
Hickman at (312) 751–4981 or
Dana.Hickman@RRB.GOV.
Comments regarding the information
collection should be addressed to
Charles Mierzwa, Railroad Retirement
Board, 844 North Rush Street, Chicago,
Illinois, 60611–2092 or
Charles.Mierzwa@RRB.GOV and to the
OMB Desk Officer for the RRB, Fax:
202–395–6974, Email address: OIRA_
Submission@omb.eop.gov.
Charles Mierzwa,
Chief of Information Resources Management.
[FR Doc. 2014–18919 Filed 8–8–14; 8:45 am]
BILLING CODE 7905–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31197; File No. 812–14306]
H&Q Healthcare Investors, et al.;
Notice of Application
August 5, 2014.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an 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:
H&Q Healthcare Investors
(‘‘HQH’’), H&Q Life Sciences Investors
(‘‘HQL’’), Tekla Healthcare
Opportunities Fund (the ‘‘New Fund’’)
and Tekla Capital Management, LLC
(‘‘TCM’’).
APPLICANTS:
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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 twelve
times 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.
The requested order would supersede a
prior order (‘‘Prior Order’’).1
DATES: Filing Dates: The application
was filed on May 9, 2014 and amended
on July 18, 2014.
HEARING OR NOTIFICATION OF HEARING:
An order granting the application will
be issued unless the Commission orders
SUMMARY:
1 H&Q Healthcare Investors, et al., Investment
Company Act Release Nos. 24232 (Jan. 3, 2000)
(Notice) and 24273 (Jan. 31, 2000).
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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 August 26, 2014 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, U.S. Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090;
Applicants, Joseph R. Fleming, Esq.,
Dechert LLP, One International Place,
40th Floor, 100 Oliver Street, Boston,
MA 02110–2605.
FOR FURTHER INFORMATION CONTACT:
David Joire, Senior Counsel, at (202)
551–6866, or James M. Curtis, Branch
Chief, at (202) 551–6712 (Division of
Investment Management, Chief
Counsel’s Office).
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.
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Applicants’ Representations
1. HQH, HQL, and the New Fund (the
‘‘Current Funds’’) are organized as
Massachusetts business trusts registered
under the Act as closed-end
management investment companies.2
HQH and HQL are diversified closedend management investment companies
and have been in operation since April
22, 1987 and May 8, 1992, respectively.
HQH’s investment objective is long-term
capital appreciation through investment
2 All exiting registered closed-end investment
companies that currently intend to rely on the order
have been named as applicants. Applicants request
that the order also apply to each other registered
closed-end investment company advised or to be
advised in the future by TCM or by an entity
controlling, controlled by, or under common
control (within the meaning of section 2(a)(9) of the
Act) with TCM (including any successor in interest)
(each such entity, including TCM, the ‘‘Adviser’’)
that in the future seeks to rely on the order (such
investment companies, together with the Current
Funds, are collectively, the ‘‘Funds’’ and
individually, a ‘‘Fund’’). Any Fund that may rely
on the order in the future will comply with the
terms and conditions of the application. 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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in companies in the healthcare industry.
Shares of the common stock of HQH are
listed and traded on the New York Stock
Exchange (‘‘NYSE’’). HQL’s investment
objective is long-term capital
appreciation through investment in
companies in the life sciences industry
(including biotechnology,
pharmaceutical, diagnostics, managed
healthcare and medical equipment,
hospitals, healthcare information
technology and services, devices and
supplies), agriculture and
environmental management. Shares of
HQL’s common stock are listed and
traded on the NYSE. The New Fund is
a newly organized, non-diversified
closed-end management investment
company with no operating history. The
New Fund’s investment objective is to
seek current income and long-term
capital appreciation through investment
in equity and debt securities related to
the healthcare industry. The New Fund
has applied for listing on the NYSE.
Each Current Fund currently has no
outstanding preferred stock and does
not intend to issue any, but may do so
in the future. Applicants believe that
investors in closed-end funds may
prefer an investment vehicle that
provides regular current income through
fixed distribution policies that would be
available through a Distribution Policy
(as defined below).
2. TCM, a Delaware limited liability
company, is registered under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’) as an investment
adviser. TCM provides investment
advisory services to the Current Funds.
Each Adviser to a Fund will be
registered as an investment adviser
under the Advisers Act.
3. Pursuant to the Prior Order, HQH
and HQL each have established
distribution policies with respect to
their common stock. To maintain
certainty for the distribution policies of
HQH and HQL and the distribution
policies that other Funds may adopt in
the future (each, a ‘‘Distribution
Policy’’), applicants request an order
that would supersede the Prior Order.
When the requested order is issued, it
will supersede the Prior Order and
applicants may rely solely on the order.
4. Applicants state that prior to a
Fund’s implementing a Distribution
Policy in reliance on the order, the
board of trustees (the ‘‘Board’’) of each
Fund, including a majority of the
trustees who are not ‘‘interested
persons’’ of the Fund, as defined in
section 2(a)(19) of the Act (the
‘‘Independent Trustees’’), will request,
and the Adviser will provide, such
information as is reasonably necessary
to make an informed determination of
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whether the Board should adopt a
proposed Distribution Policy, or, in the
case of HQH and HQL, re-approve an
existing Distribution Policy. In
particular, the Board and the
Independent Trustees will review
information regarding the purpose and
terms of the Distribution Policy; the
likely effects of the policy on the Fund’s
long-term total return (in relation to
market price and its net asset value per
share of common stock (‘‘NAV’’)); the
expected relationship between the
Fund’s distribution rate on its common
stock under the policy and the 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 the policy
on the Fund’s long-term total return (in
relation to market price and NAV). The
Independent Trustees also will consider
what conflicts of interest the Adviser
and the affiliated persons of the Adviser
and the Fund might have with respect
to the adoption or implementation of
the Distribution Policy. Applicants state
that, only after considering such
information will the Board, including
the Independent Trustees, of each Fund
approve a Distribution Policy and in
connection with such approval will
determine that the Distribution Policy is
consistent with a Fund’s investment
objectives and in the best interests of the
holders of the Fund’s common stock.
5. Applicants state that the purpose of
a Distribution Policy, generally, would
be to permit a Fund to distribute over
the course of each year, through
periodic distributions in relatively equal
amounts (plus any required special
distributions), an amount closely
approximating the total taxable income
of such Fund during such year and, if
determined by its Board, all or a portion
of returns of capital paid by portfolio
companies to such Fund during the
year. Under the Distribution Policy of a
Fund, such Fund would distribute
periodically (as frequently as twelve
times in any taxable year) to its
respective common stockholders a fixed
percentage of the market price of such
Fund’s common stock at a particular
point in time or a fixed percentage of
NAV at a particular time or a fixed
amount per share of common stock, any
of which may be adjusted from time to
time. It is anticipated that under a
Distribution Policy, the minimum
annual distribution rate with respect to
such Fund’s common stock would be
independent of the Fund’s performance
during any particular period but would
be expected to correlate with the Fund’s
performance over time. Except for
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extraordinary distributions and
potential increases or decreases in the
final dividend periods in light of a
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 (‘‘Code’’) for the
calendar year, each distribution on the
Fund’s common stock would be at the
stated rate then in effect.
6. Applicants state that prior to the
implementation of a Distribution Policy
for any Fund in reliance on the order,
the Board of such Fund will 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
stockholders 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 Distribution Policy 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) 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
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 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) of the Act 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
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–
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1 was that stockholders 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 the same
information will be included in the
Funds’ annual reports to stockholders
and on the Internal Revenue Service
Form 1099 DIV, which will be sent to
each common and preferred stockholder
who received distributions during a
particular year.
4. Applicants further state that each
Fund will make the additional
disclosures required by the conditions
set forth below, and each Fund 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 stockholders. Applicants
state that the information required by
section 19(a), rule 19a–1, the
Distribution Policy, the policies and
procedures under rule 38a–1 noted
above, and the conditions listed below
will help ensure that each Fund’s
stockholders are provided sufficient
information to understand that their
periodic distributions are not tied to a
Fund’s net investment income (which
for this purpose is the Fund’s taxable
income other than from capital gains)
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 stockholders 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
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46883
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 often
trades in the marketplace at a discount
to its NAV. Applicants believe that this
discount may be reduced if the Funds
are permitted to pay relatively frequent
dividends on their common stock at a
consistent rate, whether or not those
dividends contain an element of longterm capital gains.
7. Applicants assert that the
application of rule 19b–1 to a
Distribution Policy 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 long-term capital gain
dividends 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 realized net 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 3 (to the extent net
investment income and realized shortterm capital gains are insufficient to
fund the distribution), even though
realized net 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
3 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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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
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 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
specified periodic dividend at a fixed
rate or the rate determined by the
market, and, like a debt security, is
priced based upon its liquidation
preference, dividend rate, credit quality,
and frequency of payment. Applicants
state that investors buy preferred stock
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) of the Act granting an
exemption from the provisions of
section 19(b) of the Act and rule 19b–
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1 thereunder to permit each Fund to
distribute periodic capital gain
dividends (as defined in section
852(b)(3)(C) of the Code) as frequently
as twelve times in any one taxable year
in respect of its common stock and as
often as specified by, or determined in
accordance with the terms of, any
preferred stock issued by the Fund.
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 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 Stockholders.
(a) Each 19(a) Notice disseminated to
the holders of the Fund’s common
stock, 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 of common stock basis,
together with the amounts of such
distribution amount, on a per share of
common stock 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
of common stock basis, together with
the amounts of such cumulative
amount, on a per share of common stock
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 ended immediately prior to the
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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 Distribution
Policy’’;
(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)
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 stockholders under rule 30e–
1 under the Act, the Fund will:
4 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.
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Federal Register / Vol. 79, No. 154 / Monday, August 11, 2014 / Notices
(i) Describe the terms of the
Distribution Policy (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
Distribution Policy provides that the
Board may amend or terminate the
Distribution Policy at any time without
prior notice to Fund stockholders; and
(iv) describe any reasonably
foreseeable circumstances that might
cause the Fund to terminate the
Distribution Policy and any reasonably
foreseeable consequences of such
termination.
(c) Each report provided to
stockholders 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 Stockholders,
Prospective Stockholders 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 Distribution Policy or distributions
under the Distribution Policy by the
Fund, or agents that the Fund has
authorized to make such
communication on the Fund’s behalf, to
any Fund stockholder, prospective
stockholder 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 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 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
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17:35 Aug 08, 2014
Jkt 232001
owners of the Fund’s stock 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 stock; 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 Common Stock Trades
at a Premium.
If:
(a) The Fund’s common stock has
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 shares of common stock as
of the close of each trading day over a
12-week rolling period (each such 12week 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 Adviser will furnish, such
information as may be reasonably
necessary to make an informed
determination of whether the
Distribution Policy should be continued
or continued after amendment;
(2) will determine whether
continuation, or continuation after
amendment, of the Distribution Policy is
consistent with the Fund’s investment
objective(s) and policies and is in the
best interests of the Fund and its
stockholders, after considering the
information in condition 5(b)(i)(1)
above; including, without limitation:
(A) Whether the Distribution Policy is
accomplishing its purpose(s);
(B) the reasonably foreseeable
material effects of the Distribution
Policy on the Fund’s long-term total
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
46885
return in relation to the market price
and NAV of the Fund’s common stock;
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 Distribution Policy;
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 Distribution Policy
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 stock other than:
(a) A rights offering below NAV to
holders of the Fund’s common stock;
(b) an offering in connection with a
dividend reinvestment plan, merger,
consolidation, acquisition, spin-off or
reorganization of the Fund; or
(c) an offering other than an offering
described in conditions 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 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;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 shares
of common stock as frequently as twelve
times each year, and as frequently as
distributions are specified by or
5 If the Fund has been in operation fewer than six
months, the measured period will begin
immediately following the Fund’s first public
offering.
6 If the Fund has been in operation fewer than five
years, the measured period will begin immediately
following the Fund’s first public offering.
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Federal Register / Vol. 79, No. 154 / Monday, August 11, 2014 / Notices
determined in accordance with the
terms of any outstanding shares of
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.
Kevin M. O’Neill,
Deputy Secretary.
Dated: August 7, 2014.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–19047 Filed 8–7–14; 4:15 pm]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72763; File No. SR–DTC–
2014–08]
Self-Regulatory Organizations; The
Depository Trust Company; Order
Approving Proposed Rule Change To
Transfer NIIDS to a Non-Clearing
Agency Affiliate
[FR Doc. 2014–18882 Filed 8–8–14; 8:45 am]
August 5, 2014.
BILLING CODE 8011–01–P
I. Introduction
SECURITIES AND EXCHANGE
COMMISSION
mstockstill on DSK4VPTVN1PROD with NOTICES
Sunshine Act Meetings
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, August 14, 2014 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matter at the Closed Meeting.
Commissioner Piwowar, as duty
officer, voted to consider the items
listed for the Closed Meeting in closed
session.
The subject matter of the Closed
Meeting will be:
Institution and settlement of
injunctive actions;
Institution settlement of
administrative proceedings;
adjudicatory matters; and other matters
relating to enforcement proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact the Office of the Secretary at
(202) 551–5400.
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On June 5, 2014, The Depository Trust
Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) proposed rule change
SR–DTC–2014–08 (‘‘Proposed Rule
Change’’) pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 1
(‘‘Act’’) and Rule 19b–4 thereunder.2
The Proposed Rule Change was
published for comment in the Federal
Register on June 25, 2014.3 The
Commission did not receive any
comments on the Proposed Rule
Change. This order approves the
Proposed Rule Change.
II. Description
DTC filed the Proposed Rule Change
to amend its Operational
Arrangements 4 to transfer its New Issue
Information Dissemination Service
(‘‘NIIDS’’) to a non-clearing agency
affiliate (‘‘NIIDS Disseminator’’).
The Commission approved DTC’s
establishment of NIIDS in 2008.5 NIIDS
collects information (‘‘NIIDS Data
Elements’’) regarding the reporting,
comparison, confirmation, and
settlement of new issues in municipal
securities (‘‘New Issue’’) from the lead
underwriter or other authorized
representative of a New Issue
(‘‘Dissemination Agent’’) and then
makes that information available to
information vendors and other users
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Securities Exchange Act Release No. 72432
(June 19, 2014); 79 FR 36116 (June 25, 2014) (SR–
DTC–2014–08).
4 DTC Operational Arrangements, available at
https://www.dtcc.com/∼/media/Files/Downloads/
Settlement-Asset-Services/Underwriting/
operational-arrangements.pdf.
5 Securities Exchange Act Release No. 57768 (May
2, 2008); 73 FR 26181 (May 8, 2008) (SR–DTC–
2007–10).
2 17
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Fmt 4703
Sfmt 4703
(‘‘Subscribers’’) upon authorization by
the Dissemination Agent.
Currently, when a Dissemination
Agent provides authorization, DTC
disseminates the applicable NIIDS Data
Elements directly to Subscribers. Under
the Proposed Rule Change, the
Dissemination Agents will continue to
electronically input NIIDS Data
Elements into DTC’s underwriting
system for New Issue Processing but
DTC will make NIIDS Data Elements
available to the NIIDS Disseminator,
which will then deal directly with
Subscribers.
Additionally, because DTC will be a
conduit of the NIIDS Data Elements and
related information, and because DTC
does not confirm the validity of the
NIIDS Data Elements, the inputting of
NIIDS Data Elements and the
subsequent use thereof by any party will
constitute a waiver of any and all claims
(whether direct or indirect) against DTC
and its affiliates and an agreement that
DTC and its affiliates shall not be liable
for any loss or damages in relation to the
collection and any subsequent
dissemination of NIIDS Data Elements
and related information. In addition,
any party that inputs NIIDS Data
Elements or thereafter uses such data
and related information agrees to
indemnify and hold DTC and its
affiliates harmless from and against any
and all losses, damages, liabilities, costs,
judgments, charges, and expenses
incurred by such party arising out of or
relating to the collection and subsequent
dissemination of the NIIDS Data
Elements.
The date on which DTC will transfer
NIIDS to the NIIDS Disseminator will be
set forth in a subsequent Important
Notice to DTC Participants.
III. Discussion
Section 19(b)(2)(C) of the Act 6 directs
the Commission to approve a proposed
rule change of a self-regulatory
organization if it finds that such
proposed rule change is consistent with
the requirements of the Act and rules
and regulations thereunder applicable to
such organization. Section 17A(b)(3)(F)
of the Act 7 requires, among other
things, that the rules of a clearing
agency be designed to promote the
prompt and accurate clearance and
settlement of securities transactions.
The Commission finds that the
Proposed Rule Change is consistent
with the requirements of the Act
because transferring NIIDS from DTC to
the NIIDS Disseminator will promote
the prompt and accurate clearance and
6 15
7 15
E:\FR\FM\11AUN1.SGM
U.S.C. 78s(b)(2)(C).
U.S.C. 78q–1(b)(3)(F).
11AUN1
]]>Agencies
[Federal Register Volume 79, Number 154 (Monday, August 11, 2014)]
[Notices]
[Pages 46881-46886]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18882]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31197; File No. 812-14306]
H&Q Healthcare Investors, et al.; Notice of Application
August 5, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an 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.
-----------------------------------------------------------------------
Applicants: H&Q Healthcare Investors (``HQH''), H&Q Life Sciences
Investors (``HQL''), Tekla Healthcare Opportunities Fund (the ``New
Fund'') and Tekla Capital Management, LLC (``TCM'').
SUMMARY: 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 twelve times 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. The requested order would supersede a
prior order (``Prior Order'').\1\
---------------------------------------------------------------------------
\1\ H&Q Healthcare Investors, et al., Investment Company Act
Release Nos. 24232 (Jan. 3, 2000) (Notice) and 24273 (Jan. 31,
2000).
DATES: Filing Dates: The application was filed on May 9, 2014 and
---------------------------------------------------------------------------
amended on July 18, 2014.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders
[[Page 46882]]
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 August 26, 2014 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, U.S. Securities and Exchange Commission, 100 F
Street NE., Washington, DC 20549-1090; Applicants, Joseph R. Fleming,
Esq., Dechert LLP, One International Place, 40th Floor, 100 Oliver
Street, Boston, MA 02110-2605.
FOR FURTHER INFORMATION CONTACT: David Joire, Senior Counsel, at (202)
551-6866, or James M. Curtis, Branch Chief, at (202) 551-6712 (Division
of Investment Management, Chief Counsel's Office).
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. HQH, HQL, and the New Fund (the ``Current Funds'') are organized
as Massachusetts business trusts registered under the Act as closed-end
management investment companies.\2\ HQH and HQL are diversified closed-
end management investment companies and have been in operation since
April 22, 1987 and May 8, 1992, respectively. HQH's investment
objective is long-term capital appreciation through investment in
companies in the healthcare industry. Shares of the common stock of HQH
are listed and traded on the New York Stock Exchange (``NYSE''). HQL's
investment objective is long-term capital appreciation through
investment in companies in the life sciences industry (including
biotechnology, pharmaceutical, diagnostics, managed healthcare and
medical equipment, hospitals, healthcare information technology and
services, devices and supplies), agriculture and environmental
management. Shares of HQL's common stock are listed and traded on the
NYSE. The New Fund is a newly organized, non-diversified closed-end
management investment company with no operating history. The New Fund's
investment objective is to seek current income and long-term capital
appreciation through investment in equity and debt securities related
to the healthcare industry. The New Fund has applied for listing on the
NYSE. Each Current Fund currently has no outstanding preferred stock
and does not intend to issue any, but may do so in the future.
Applicants believe that investors in closed-end funds may prefer an
investment vehicle that provides regular current income through fixed
distribution policies that would be available through a Distribution
Policy (as defined below).
---------------------------------------------------------------------------
\2\ All exiting registered closed-end investment companies that
currently intend to rely on the order have been named as applicants.
Applicants request that the order also apply to each other
registered closed-end investment company advised or to be advised in
the future by TCM or by an entity controlling, controlled by, or
under common control (within the meaning of section 2(a)(9) of the
Act) with TCM (including any successor in interest) (each such
entity, including TCM, the ``Adviser'') that in the future seeks to
rely on the order (such investment companies, together with the
Current Funds, are collectively, the ``Funds'' and individually, a
``Fund''). Any Fund that may rely on the order in the future will
comply with the terms and conditions of the application. 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. TCM, a Delaware limited liability company, is registered under
the Investment Advisers Act of 1940 (the ``Advisers Act'') as an
investment adviser. TCM provides investment advisory services to the
Current Funds. Each Adviser to a Fund will be registered as an
investment adviser under the Advisers Act.
3. Pursuant to the Prior Order, HQH and HQL each have established
distribution policies with respect to their common stock. To maintain
certainty for the distribution policies of HQH and HQL and the
distribution policies that other Funds may adopt in the future (each, a
``Distribution Policy''), applicants request an order that would
supersede the Prior Order. When the requested order is issued, it will
supersede the Prior Order and applicants may rely solely on the order.
4. Applicants state that prior to a Fund's implementing a
Distribution Policy in reliance on the order, the board of trustees
(the ``Board'') of each Fund, including a majority of the trustees who
are not ``interested persons'' of the Fund, as defined in section
2(a)(19) of the Act (the ``Independent Trustees''), will request, and
the Adviser will provide, such information as is reasonably necessary
to make an informed determination of whether the Board should adopt a
proposed Distribution Policy, or, in the case of HQH and HQL, re-
approve an existing Distribution Policy. In particular, the Board and
the Independent Trustees will review information regarding the purpose
and terms of the Distribution Policy; the likely effects of the policy
on the Fund's long-term total return (in relation to market price and
its net asset value per share of common stock (``NAV'')); the expected
relationship between the Fund's distribution rate on its common stock
under the policy and the 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 the policy on the Fund's long-term total return (in relation
to market price and NAV). The Independent Trustees also will consider
what conflicts of interest the Adviser and the affiliated persons of
the Adviser and the Fund might have with respect to the adoption or
implementation of the Distribution Policy. Applicants state that, only
after considering such information will the Board, including the
Independent Trustees, of each Fund approve a Distribution Policy and in
connection with such approval will determine that the Distribution
Policy is consistent with a Fund's investment objectives and in the
best interests of the holders of the Fund's common stock.
5. Applicants state that the purpose of a Distribution Policy,
generally, would be to permit a Fund to distribute over the course of
each year, through periodic distributions in relatively equal amounts
(plus any required special distributions), an amount closely
approximating the total taxable income of such Fund during such year
and, if determined by its Board, all or a portion of returns of capital
paid by portfolio companies to such Fund during the year. Under the
Distribution Policy of a Fund, such Fund would distribute periodically
(as frequently as twelve times in any taxable year) to its respective
common stockholders a fixed percentage of the market price of such
Fund's common stock at a particular point in time or a fixed percentage
of NAV at a particular time or a fixed amount per share of common
stock, any of which may be adjusted from time to time. It is
anticipated that under a Distribution Policy, the minimum annual
distribution rate with respect to such Fund's common stock would be
independent of the Fund's performance during any particular period but
would be expected to correlate with the Fund's performance over time.
Except for
[[Page 46883]]
extraordinary distributions and potential increases or decreases in the
final dividend periods in light of a 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 (``Code'')
for the calendar year, each distribution on the Fund's common stock
would be at the stated rate then in effect.
6. Applicants state that prior to the implementation of a
Distribution Policy for any Fund in reliance on the order, the Board of
such Fund will 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 stockholders 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 Distribution Policy 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) 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 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 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) of the Act 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 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
stockholders 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 the same information will be included in the
Funds' annual reports to stockholders and on the Internal Revenue
Service Form 1099 DIV, which will be sent to each common and preferred
stockholder who received distributions during a particular year.
4. Applicants further state that each Fund will make the additional
disclosures required by the conditions set forth below, and each Fund
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 stockholders. Applicants state that the
information required by section 19(a), rule 19a-1, the Distribution
Policy, the policies and procedures under rule 38a-1 noted above, and
the conditions listed below will help ensure that each Fund's
stockholders are provided sufficient information to understand that
their periodic distributions are not tied to a Fund's net investment
income (which for this purpose is the Fund's taxable income other than
from capital gains) 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 stockholders 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
often trades in the marketplace at a discount to its NAV. Applicants
believe that this discount may be reduced if the Funds are permitted to
pay relatively frequent dividends on their common stock at a consistent
rate, whether or not those dividends contain an element of long-term
capital gains.
7. Applicants assert that the application of rule 19b-1 to a
Distribution Policy 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 long-term capital gain dividends 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 realized net 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 \3\ (to the extent net investment income and
realized short-term capital gains are insufficient to fund the
distribution), even though realized net 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
[[Page 46884]]
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.
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\3\ 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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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
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 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 specified periodic dividend at a fixed rate or the
rate determined by the market, and, like a debt security, is priced
based upon its liquidation preference, dividend rate, credit quality,
and frequency of payment. Applicants state that investors buy preferred
stock 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) 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 frequently as twelve times in any one taxable year in respect of its
common stock and as often as specified by, or determined in accordance
with the terms of, any preferred stock issued by the Fund.
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 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 Stockholders.
(a) Each 19(a) Notice disseminated to the holders of the Fund's
common stock, 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 of common stock
basis, together with the amounts of such distribution amount, on a per
share of common stock 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 of common stock basis, together with the amounts of such
cumulative amount, on a per share of common stock 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 Distribution Policy'';
(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
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\4\ 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.
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(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 stockholders under
rule 30e-1 under the Act, the Fund will:
[[Page 46885]]
(i) Describe the terms of the Distribution Policy (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 Distribution Policy provides
that the Board may amend or terminate the Distribution Policy at any
time without prior notice to Fund stockholders; and
(iv) describe any reasonably foreseeable circumstances that might
cause the Fund to terminate the Distribution Policy and any reasonably
foreseeable consequences of such termination.
(c) Each report provided to stockholders 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 Stockholders, Prospective Stockholders 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 Distribution Policy or distributions under the
Distribution Policy by the Fund, or agents that the Fund has authorized
to make such communication on the Fund's behalf, to any Fund
stockholder, prospective stockholder 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
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 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
owners of the Fund's stock 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 stock; 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 Common Stock
Trades at a Premium.
If:
(a) The Fund's common stock has 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 shares of
common stock 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 Adviser will furnish,
such information as may be reasonably necessary to make an informed
determination of whether the Distribution Policy should be continued or
continued after amendment;
(2) will determine whether continuation, or continuation after
amendment, of the Distribution Policy is consistent with the Fund's
investment objective(s) and policies and is in the best interests of
the Fund and its stockholders, after considering the information in
condition 5(b)(i)(1) above; including, without limitation:
(A) Whether the Distribution Policy is accomplishing its
purpose(s);
(B) the reasonably foreseeable material effects of the Distribution
Policy on the Fund's long-term total return in relation to the market
price and NAV of the Fund's common stock; 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 Distribution
Policy; 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 Distribution
Policy 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 stock other than:
(a) A rights offering below NAV to holders of the Fund's common
stock;
(b) an offering in connection with a dividend reinvestment plan,
merger, consolidation, acquisition, spin-off or reorganization of the
Fund; or
(c) an offering other than an offering described in conditions 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 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;\6\ and
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\5\ If the Fund has been in operation fewer than six months, the
measured period will begin immediately following the Fund's first
public offering.
\6\ If the Fund has been in operation fewer than five years, the
measured period will begin 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 shares of common stock as frequently as twelve times each year, and
as frequently as distributions are specified by or
[[Page 46886]]
determined in accordance with the terms of any outstanding shares of
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.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18882 Filed 8-8-14; 8:45 am]
BILLING CODE 8011-01-P
