Federal Register / Vol. 63, No. 99 / Friday, May 22, 1998 / Notices 28431

Trustees and appropriate certifications

that the New Agreements have been

approved by the Funds’ shareholders.

Applicants’ Conditions

Applicants agree as conditions to the

issuance of the exemptive order

requested by the application that:

1. The New Agreements will have the

same terms and conditions as the Prior

Agreements, except for their effective

and termination dates and escrow

provisions.

2. Fees earned by the Adviser in

respect of the New Agreements during

the Interim Period will be maintained in

an interest-bearing escrow account, and

amounts in the account (including

interest earned on such paid fees) will

be paid: (a) To the Adviser in

accordance with the New Agreements,

after the requisite shareholder approval

is obtained; or (b) to the Fund portfolio

which paid the fees, in the absence of

shareholder approval with respect to the

Fund portfolio.

3. The Fund will hold a meeting of

shareholders to vote on approval of the

New Agreements on or before the 120th

day following the termination of the

Prior Agreements (but in no event later

than July 6 1998).

4. The Adviser will bear the costs of

preparing and filing the application and

the costs relating to the solicitation of

shareholder approval of the New

Agreement necessitated by the

Transaction.

5. The Adviser will take all

appropriate steps so that the scope and

quality of advisory and other services

provided to the Fund during the Interim

Period will be at least equivalent, in the

judgment of the Board, including a

majority of the Independent Trustees, to

the scope and quality of services

previously provided. In the event of any

material change in the personnel

providing services pursuant to the New

Agreements, the Adviser will apprise

and consult with the Board to assure

that the Trustees, including a majority

of the Independent Trustees, are

satisfied that the services provided will

not be diminished in scope or quality.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–13647 Filed 5–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

23189; 812–10972]

General American Investors Company,

Inc.; Notice of Application

May 15, 1998.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for an

exemption under section 6(c) of the

Investment Company Act of 1940 (the

‘‘Act’’) from section 19(b) of the Act and

rule 19b–1 under the Act.

SUMMARY OF APPLICATION: Applicant,

General American Investors Company,

Inc., requests an order to permit it to

make periodic distributions of net longterm capital gains in any one taxable

year, so long as applicant maintains in

effect a distribution policy with respect

to its preferred stock calling for periodic

dividends in an amount equal to a

specified percentage of the liquidation

preference of the preferred stock.

FILING DATES: The application was filed

on January 16, 1998 and amended on

April 29, 1998.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

June 9, 1998, and should be

accompanied by proof of service on

applicant 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 SEC’s Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth

Street, NW., Washington, DC 20549.

Applicant: General American Investors

Company, Inc., 450 Lexington Avenue,

New York, New York 10017.

FOR FURTHER INFORMATION CONTACT:

Edward P. Macdonald, Branch Chief, at

(202) 942–0564 (Office of Investment

Company Regulation, Division of

Investment Management).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee at the SEC’s

Public Reference Branch, 450 Fifth

Street, NW., Washington, DC 20549 (tel.

202–942–8090).

Applicant’s Representations

1. Applicant is registered under the

Act as an internally-managed closedend management investment company

organized as a Delaware corporation.

Applicant’s board of directors has

authorized it to issue and sell

cumulative preferred stock. Applicant’s

investment objective is long term capital

appreciation.

2. Applicant wishes to institute a

dividend payment policy with respect

to its cumulative preferred stock, and

any future preferred stock, to be issued

by applicant calling for periodic

dividends in an amount equal to a

specified percentage of the liquidation

preference of applicant’s preferred stock

(‘‘Distribution Policy’’). The specified

percentage may be determined at the

time the preferred stock is initially

issued, pursuant to periodic

remarketings or auctions, or otherwise.

Under the requested relief, the periodic

payments may include long-term capital

gains so long as applicant maintains in

effect the Distribution Policy.

Applicant’s Legal Analysis

1. Section 19(b) of the Act provides

that a registered investment company

may not in contravention of such rules,

regulations, or orders as the SEC may

prescribe, distribute long-term capital

gains more often than once every twelve

months. Rule 19b–1 under the Act

limits the number of capital gains

distributions, as defined in section

851(b)(3)(C) of the Internal Revenue

Code of 1986, as amended (the ‘‘Code’’),

that applicant 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 net long-term capital gains

distribution made in whole or in part to

avoid the excise tax under section 4982

of the Code.

2. Applicant argues that rule 19b–1

may prevent the normal operation of the

Distribution Policy whenever

applicant’s realized net long-term

capital gains in any year exceed the total

of the periodic distributions that under

rule 19b–1 may include capital gains. In

that situation, applicant asserts that rule

19b–1 effectively forces the

distributions that under rule 19b–1 may

not include these capital gains to be

treated as a return of capital to

stockholders, even though net long-term

capital gains would otherwise be

available. Applicant further states that

federal tax rules require that current

earnings and profits be allocated

proportionately among all distributions
28432 Federal Register / Vol. 63, No. 99 / Friday, May 22, 1998 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4 (1991).

3The Exchange had initially submitted the filing

prior to April 16, 1998, but that submission did not

include a signature page. By letter dated April 14,

1998, the Exchange filed Amendment No. 1 to the

filing, which contained signatures for the filing. See

Letter from Michael D. Pierson, Senior Attorney,

Regulatory Policy, PCX, to Marie D’Aguanno Ito,

Special Counsel, Division of Market Regulation,

Commission, dated April 14, 1998.

4On May 1, 1998, PCX submitted Amendment

No. 2 to the filing, seeking to withdraw the portion

of the filing that proposed removing the limit on the

number of option issues that may be included in the

LMM program. The PCX represented in the

Amendment that such proposal would be submitted

in a separate filing. See Letter from Michael D.

Pierson, Senior Attorney, Regulatory Policy, to

Marie D’Aguanno Ito, Special Counsel, Division of

Market Regulation, Commission, dated April 30,

1998.

5See Exchange Act Release No. 37810 (October

11, 1996), 61 FR 54481 (October 18, 1997)

(approving File No. SR–PSE–96–09).

6See Exchange Act Release No. 39106 (September

22, 1997), 62 FR 31172 (September 30, 1997).

7See Exchange Act Release No. 37874 (October

28, 1996), 61 FR 56597 (November 1, 1996)

(approving SR–PSE–96–38, establishing a staffing

charge for LMMs who participate in the pilot

program); see also File No. SR–PCX–98–03

(proposal to modify the LMM Book Pilot staffing

charge).

made for that year. The net long-term

capital gains in excess of the periodic

distributions permitted by rule 19b–1

then must either be added to one of the

permitted capital gains distributions

resulting in the total distributions for

the year in excess of the amount

required to be paid, added to a

permitted distribution of long-term

capital gains on the common stock, or

retained by applicant (with applicant

paying taxes on those amounts).

Accordingly, applicant states that the

requested relief would permit it to

operate the Distribution Policy with

respect to the preferred stock without

these unintended adverse consequences.

3. Applicant asserts that its requested

relief does not give rise to the concerns

underlying section 19(b) of the Act and

rule 19b–1. One of these concerns was

that stockholders might not be able to

distinguish between frequent

distributions of capital gains and

dividends from investment income.

Applicant states that in the case of

preferred stock there is little chance for

investor confusion since all an investor

expects to receive is the specified

distribution for any particular dividend

period, and no more. Moreover, in

accordance with rule 19a–1 under the

Act, a separate statement showing the

sources of the distribution will

accompany each periodic dividend,

with a statement provided near the end

of the last dividend period in a year

indicating the sources (i.e., net

investment income and short-term

capital gains, net long-term capital gains

and return of capital) of each

distribution that was made during the

year. In addition, applicant notes that

the amount and sources of distributions

received during the year will be

included on applicant’s IRS Form 1099–

DIV report sent to stockholders who

received distributions during the year.

This information will also be included

in applicant’s annual report to

stockholders.

4. Applicant submits that another

concern underlying section 19(b) and

rule 19b–1, was that frequent capital

gains distributions could facilitate

improper fund distribution practices,

including the practice of urging an

investor to purchase shares on the basis

of an upcoming dividend (‘‘selling the

dividend’’), where the dividend results

in an immediate corresponding

reduction in net asset value and is in

effect a return of the investor’s capital.

Applicant believes that this concern

does not apply to preferred stock which

entitles a holder to a specified periodic

dividend and no more and, like a debt

security, is initially sold at a price based

on its liquidation preference plus an

amount equal to any accumulated

dividends. Applicant also states that

this concern does not arise with regard

to closed-end investment companies

which do not continuously distribute

their shares.

5. Section 6(c) of the Act provides that

the SEC may exempt any person,

security, or transaction from any

provision of the Act, or from any rule

thereunder, if 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. For the reasons

stated above, applicant believes that the

requested exemption from section 19(b)

of the Act and rule 19b–1, meets the

standards set forth in section 6(c) of the

Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–13646 Filed 5–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39995; File No. SR–PCX–

98–17]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Exchange, Inc. Relating to

Expansion of the LMM Book Pilot

Program

May 15, 1998.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on April 16,

1998, the Pacific Exchange, Inc. (‘‘PCX’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II

and III below, which Items have been

prepared by the self-regulatory

organization.3 The Commission is

published this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PCX is proposing to remove the

current cap on the number of LMMs

who may participate in the program.4

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change

and discussed any comments it received

on the proposed rule change. The text

of these statements may be examined at

the places specified in Item IV below.

The self-regulatory organization has

prepared summaries, set forth in

sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

Purpose

On October 11, 1997, the Commission

approved an Exchange proposal to

adopt a one-year pilot program under

which a limited number of LMMs

would be able to assume operational

responsibility for the options public

limit order book (‘‘Book’’) in certain

option issues.5 On September 22, 1997,

the Commission approved an Exchange

proposal to extend the program for one

year, so that it is currently set to expire

on October 12, 1998.6

Under the pilot program, approved

LMMs manage the Book function, take

responsibility for trading disputes and

errors, set rates for Book execution, and

pay the Exchange a fee for systems and

services.7 Currently, both multiplylisted and non-multiply-listed option