Client Alert

SEC Modifies Conditions Relating to Section 19(b) Exemptive Order Applications

May 09, 2007

The Investment Management Practice Group

In October 2006 the Division of Investment Management (the “Staff”) of the Securities and Exchange Commission (the “Commission”) announced that the Commission would once again begin accepting applications from closed-end investment companies for orders under section 19(b) (“19(b) Orders”) of the Investment Company Act of 1940, as amended (the “Act”), after an approximately two year hiatus. In doing so, the Staff set forth a number of conditions and representations (the “Conditions”) that applicants were required to satisfy and make in connection with these 19(b) Orders . The Commission also announced that it would entertain comments and suggestions relating to the Conditions. In December 2006, the Commission announced that it had modified certain of the Conditions (the “Amended Conditions”) in connection with these 19(b) Orders.

Generally, section 19(b) of the Act and rule 19b-1  thereunder, permit a registered investment company to make only one distribution of long-term capital gains in any one taxable year.  Closed-end funds that have implemented managed distribution plans (“Plans”) pay periodic (typically, quarterly) fixed distributions, the source of which may come from net investment income, capital gains or paid-in capital. Because long-term capital gains may be a source of such periodic distributions, such funds must obtain an exemption from the limitations of section 19(b) and rule 19b-1 in order to operate their managed distribution policy in the manner intended.

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Investment Management

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