H&Q Healthcare Investors, et al.; Notice of Application, 46881-46886 [2014-18882]

Download as PDF 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 mstockstill on DSK4VPTVN1PROD with NOTICES 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 VerDate Mar<15>2010 17:35 Aug 08, 2014 Jkt 232001 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: PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 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). E:\FR\FM\11AUN1.SGM 11AUN1 46882 Federal Register / Vol. 79, No. 154 / Monday, August 11, 2014 / Notices 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 http:// www.sec.gov/search/search.htm, or by calling (202) 551–8090. mstockstill on DSK4VPTVN1PROD with NOTICES 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. VerDate Mar<15>2010 17:35 Aug 08, 2014 Jkt 232001 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 PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 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 E:\FR\FM\11AUN1.SGM 11AUN1 Federal Register / Vol. 79, No. 154 / Monday, August 11, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES 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– VerDate Mar<15>2010 17:35 Aug 08, 2014 Jkt 232001 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 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 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. E:\FR\FM\11AUN1.SGM 11AUN1 mstockstill on DSK4VPTVN1PROD with NOTICES 46884 Federal Register / Vol. 79, No. 154 / Monday, August 11, 2014 / Notices 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– VerDate Mar<15>2010 17:35 Aug 08, 2014 Jkt 232001 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 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 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. E:\FR\FM\11AUN1.SGM 11AUN1 mstockstill on DSK4VPTVN1PROD with NOTICES 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 VerDate Mar<15>2010 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. E:\FR\FM\11AUN1.SGM 11AUN1 46886 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. VerDate Mar<15>2010 17:35 Aug 08, 2014 Jkt 232001 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 http://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 PO 00000 Frm 00118 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]


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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.
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.

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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\
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    \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 http://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).
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    \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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    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.
---------------------------------------------------------------------------

    \3\ 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 
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
---------------------------------------------------------------------------

    \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