[Federal Register Volume 64, Number 59 (Monday, March 29, 1999)]
[Notices]
[Pages 14952-14953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7611]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23749; 812-11290]


Chartwell Dividend and Income Fund, Inc.; Notice of Application

March 23, 1999.
ACTION: Notice of application for exemption under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') granting an exemption from 
section 19(b) of the Act and rule 19b-1 under the Act.

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SUMMARY OF APPLICATION: Applicant requests an order to permit it to 
make monthly distributions of long-term capital gains pursuant to a 
distribution policy with respect to its common stock.

FILING DATES: The application was filed on August 31, 1998 and amended 
on February 12, 1999.

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 April 19, 1999, 
and should be accompanied by proof of service on applicant, in the form 
of an affidavit or, for lawyers, a certificate of service. Hearing 
request should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street N.W., Washington, D.C. 20549-
0609. Applicant, c/o Henry S. Hilles, Jr., Drinker Biddle & Reath LLP, 
Philadelphia National Bank Building, 1345 Chestnut Street, 
Philadelphia, Pennsylvania 19107.

FOR FURTHER INFORMATION CONTACT:
Timothy R. Kane, Senior Counsel, at (202) 942-0615, or Mary Kay French, 
Branch Chief, at (202) 942-0564 (Division of Investment Management, 
Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 5th Street N.W., Washington, D.C. 
20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. The Chartwell Dividend and Income Fund, Inc. (``Fund'') is a 
closed-end management investment company registered under the Act and 
organized as a Maryland corporation. The Fund's primary investment 
objective is high current income; its secondary objective is capital 
appreciation. The Fund invests at least half of its total assets in 
dividend-paying equity securities and the remainder in debt securities. 
The Fund began operations on June 29, 1998, and its common shares are 
listed on the New York Stock Exchange.

[[Page 14953]]

Currently the Fund's common shares trade at a discount from net asset 
value (``NAV'').
    2. The Fund wishes to institute a fixed distributions policy under 
which the Fund would distribute to shareholders each month either a 
fixed dollar amount or a fixed percentage of its NAV at the time of 
declaration (``Distribution Policy''). Any amount paid under the 
Distribution Policy which exceeds the sum of the Fund's investment 
income and net realized capital gains will be treated as a return of 
capital. If the sum of the Fund's annual net investment income, net 
short-term realized capital gains, and net long-term capital gains 
exceeds the amount required to be paid under the Distribution Policy, 
the Fund intends to pay such excess to shareholders once a year but 
may, in its discretion, retain and not distribute net long-term capital 
gains to the extent of the excess. Applicant believes that the 
Distribution Policy will help avoid or reduce the discount from NAV at 
which its shares may trade.
    3. The Fund's board of directors, including a majority of 
disinterested directors, approved the fixed monthly distributions 
policy at a meeting held on June 16, 1998. The board considered, among 
other factors, that the policy was believed to have a positive effect 
on the price of shares of funds with similar investment objectives and 
strategies to that of the Fund and was therefore in the best interests 
of the Fund's shareholders. The board also considered that the 
Distribution Policy would probably enable shareholders to better 
achieve their investment goals and would avoid burdening them with 
complicated tax returns.
    4. The Fund requests an order to permit it, so long as it maintains 
in effect the Distribution Policy, to make up to twelve capital gains 
distributions (as defined in section 852(b)(3)(C) of the Internal 
Revenue Code of 1986, as amended (the ``Code'')) in any one taxable 
year.

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(a) permits a registered 
investment company, with respect to any one taxable year, to make one 
capital gains distribution, as defined in section 852(b)(3)(C) of the 
Code. Rule 19b-1(a) also permits a supplemental distribution to be made 
pursuant to section 855 of the Code not exceeding 10% of the total 
amount distributed for the year. Rule 19b-1(f) permits one additional 
long-term capital gains distribution to be made to avoid the excise tax 
under section 4982 of the Code.
    2. The Fund asserts that the limitation on the number of net long-
term capital gains distributions in rule 19b-1 under the Act prohibits 
the Fund from including available net long-term capital gains in 
certain of its fixed distributions. The Fund further asserts that, in 
order to distribute all of its long-term capital gains within the 
limits on the number of long-term capital gains distributions in rule 
19b-1, the Fund may be required to make certain of its fixed 
distributions in excess of the fixed percentage called for by its 
Distribution Policy.
    3. The Fund believes that the concerns underlying section 19(b) and 
rule 19b-1 are not present in the Fund's situation. The Fund notes that 
one of these concerns is that shareholders might not be able to 
distinguish frequent distributions of capital pains an dividends from 
investment income. The Fund states that its prospectus has disclosed 
that the Fund intended to implement the Distribution Policy and 
described its provisions. In addition, the Distribution Policy will be 
described in the Fund's communications to its shareholders, including 
the Fund's quarterly reports and annual reports. The Fund also states 
that it will send to shareholders, with each distribution, information 
statements that comply with rule 19a-1 under the Act. The Fund also 
states that a statement showing the amount and source of distributions 
received during the year is included with the Fund's IRS Form 1099-DIV 
reports of distributions for that year sent to the Fund's shareholders 
who received distributions during the year (including shareholders who 
sold shares during the year).
    4. The Fund notes that another concern underlying section 19(b) and 
rule 19b-1 is that frequent capital gains distributions could 
facilitate improper sales practices, including in particular, the 
practice of urging an investor to purchase fund shares on the basis of 
an upcoming distribution (``selling the dividend''), when the 
distribution would result in an immediate, corresponding reduction in a 
fund's NAV and would be, in effect, a return of the investor's capital. 
The Fund submits that this concern does not apply to closed-end 
investment companies, such as the Fund, that do not continuously 
distribute shares. The Fund states that the condition to the requested 
relief would further assure that the concern about selling the dividend 
would not arise in connection with a rights offering by the Fund.
    5. The Fund states that increased administrative costs also are a 
concern underlying section 19(b) and rule 19b-1. The Fund asserts that 
this concern is not present because it will continue to make fixed 
distributions regardless of whether capital gains are included in any 
particular distribution.
    6. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction, or any class or classes of persons, 
securities, or transactions, from any provisions of the Act, if and to 
the extent such exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. For 
the reasons stated above, the Fund believes that the requested 
exemption meets the standards set forth in section 6(c) of the Act.

Applicant's Condition

    The Fund agrees that the order granting the requested relief shall 
terminate upon the effective date of a registration statement under the 
Securities Act of 1933 for any future public offering by the Fund of 
its common stock other than: (1) a non-transferable rights offering to 
shareholders of the Fund, provided that such offering does not include 
solicitation by brokers or the payment of any commissions or 
underwriting fees; or (2) an offering in connection with a merger, 
consolidation, acquisition, or reorganization.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-7611 Filed 3-26-99; 8:45 am]
BILLING CODE 8010-01-M