[Federal Register Volume 67, Number 182 (Thursday, September 19, 2002)]
[Notices]
[Pages 59082-59084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-23815]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25730; 812-12298]


TCW Convertible Securities Fund, Inc.; Notice of Application

September 13, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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Summary of the Application: TCW Convertible Securities Fund, Inc. 
(``Applicant'') requests an order to permit it to make up to four long-
term capital gains distributions in any one taxable year, so long as it 
maintains in effect a distribution policy calling for quarterly 
distributions of a fixed dollar amount or a fixed percentage of net 
asset value.

Filing Dates: The application was filed on October 12, 2000 and amended 
on August 29, 2002.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving the Applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 7, 2002, and should be accompanied by proof of service 
on the 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

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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, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicant, c/o Philip K. Holl, TCW Investment Management 
Corporation, 865 South Figueroa Street, Suite 1800, Los Angeles, CA 
90017.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Janet M. Grossnickle, 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 from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicant's Representations

    1. Applicant is organized as a Maryland corporation and is 
registered under the Act as a closed-end diversified management 
investment company. Applicant's investment objective is to seek total 
investment return, composed of current income and capital appreciation, 
through investment principally in convertible securities. TCW 
Investment Management Company (``Investment Adviser''), an investment 
adviser registered under the Investment Advisers Act of 1940, serves as 
investment adviser to Applicant. Applicant's shares are listed and 
traded on the New York Stock Exchange.
    2. On June 15, 1988, Applicant's board of directors (``Board''), 
including a majority of the members who are not ``interested persons,'' 
as defined in section 2(a)(19) of the Act (``Independent Directors''), 
adopted a managed distribution policy with respect to Applicant's 
common stock (``Distribution Policy'') that calls for distributions, on 
a quarterly basis, of $0.21 per share. In adopting the Distribution 
Policy, the Board, including a majority of the Independent Directors, 
concluded that a policy to provide steady, predictable cash 
distributions to shareholders would be in the best interest of the 
shareholders. Applicant states that in continuing the Distribution 
Policy, the Board has considered empirical evidence that, in some 
cases, discounts to net asset value of other closed-end funds have 
narrowed or have been eliminated with managed distribution policies.
    3. Applicant requests relief to permit it, so long as it maintains 
in effect the Distribution Policy calling for quarterly distributions 
at a fixed dollar amount or fixed percentage of net asset value, to 
make up to four long-term capital gains distributions 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 Commission may prescribe, distribute long-term capital gains 
more often than once every twelve months. Rule 19b-1(a) under the Act 
permits a registered investment company, with respect to any one 
taxable year, to make one capital gain dividend, as defined in section 
852(b)(3)(C) of the Internal Revenue Code of 1986, as amended (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. Applicant submits that rule 19b-1, by limiting the number of net 
long-term capital gains distributions that Applicant may make in any 
one year, prevents the routine inclusion over the course of Applicant's 
taxable year of realized long-term capital gains in quarterly 
distributions made under the Distribution Policy. Applicant states that 
rule 19b-1 thus may force the fixed quarterly distributions to be 
funded with returns of capital to the extent net investment income and 
realized net short-term capital gains are insufficient to fund the 
distribution, even though realized net long-term capital gains would 
otherwise be available. Applicant also submits that the tax rules 
require the total annual return of capital to be distributed so that 
the amounts constitute the same proportion of each of the four 
distributions. This results in having long-term capital gains in excess 
of the fixed quarterly distribution either added to one of the 
permitted capital gains distributions, thus exceeding the total annual 
amount called for by the Distribution Policy, or retained by Applicant 
(with Applicant paying taxes thereon). Applicant believes that the 
application of rule 19b-1 to its Distribution Policy may create 
pressure to limit the realization of long-term capital gains to the 
total amount of the fixed quarterly distributions that under the rule 
may include long-term capital gains.
    3. Applicant also submits that one of the concerns leading to the 
adoption of rule 19b-1 was that shareholders might be unable to 
distinguish between frequent distributions of capital gains and 
dividends from investment income. Applicant states that its 
Distribution Policy, including the fact that the distributions called 
for by the Distribution Policy may include returns of capital to the 
extent that Applicant's net investment income and net long-term 
realized capital gains are insufficient to satisfy its distribution 
obligation, is and will continue to be described in periodic 
communications. Applicant further states that in accordance with rule 
19a-1 under the Act a separate statement showing the source of the 
distribution (i.e., net investment income, net realized capital gains 
or return of capital) will continue to accompany each distribution that 
Applicant makes to its shareholders (or the confirmation of the 
reinvestment thereof under Applicant's dividend reinvestment plan) that 
is not from Applicant's net investment income. In addition, a statement 
showing the amount and source of each distribution during each calendar 
year will be included with the Applicant's IRS Form 1099-DIV reports of 
distributions for that year and sent to shareholders of record who 
received distributions during the year (including shareholders who have 
sold shares during the year).
    4. Applicant states that another concern that led to the adoption 
of Section 19(b) of the Act and rule 19b-1 was that frequent capital 
gains distributions could facilitate improper fund distribution 
practices, including, in particular, the practice of urging an investor 
to purchase fund 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 states that this concern does not 
apply to closed-end investment companies, such as Applicant, which do 
not continuously distribute shares. Applicant also 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 Applicant. Applicant further states that any 
transferable rights offering by Applicant will comply with all 
Commission and staff guidelines. Applicant states that in determining 
compliance with these guidelines, the Board will consider, among other 
things, the brokerage commissions that would be paid in connection with 
the offering. Applicant

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states that any such offering by Applicant of transferable rights will 
also comply with any applicable rules of the National Association of 
Securities Dealers, Inc. regarding the fairness of compensation.
    5. Applicant states that increased administrative costs also is a 
concern underlying section 19(b) and rule 19b-1. Applicant asserts that 
the anticipated benefits to its shareholders are such that Applicant 
will continue to make quarterly distributions regardless of what 
portion thereof is composed of long-term capital gains.
    6. Section 6(c) of the Act provides that the Commission may exempt 
any person or transaction from any provision of the Act or from any 
rule under 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. For the reasons stated above, Applicant believes 
that the requested relief satisfies this standard and would be in the 
best interests of Applicant and its shareholders.

Applicant's Condition

    Applicant agrees that any 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 Applicant of 
its shares other than:
    (i) A rights offering to holders of Applicant's common stock, in 
which (a) shares are issued only within the six-week period immediately 
following the record date of a quarterly dividend, (b) the prospectus 
for the rights offering makes it clear that shareholders exercising 
rights will not be entitled to receive such dividend, and (c) Applicant 
has not engaged in more than one rights offering during any given 
calendar year; or
    (ii) An offering in connection with a merger, consolidation, 
acquisition, spin-off or reorganization of Applicant; unless Applicant 
has received from the staff of the Commission written assurance that 
the order will remain in effect.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-23815 Filed 9-18-02; 8:45 am]
BILLING CODE 8010-01-P