
[Federal Register: March 29, 2010 (Volume 75, Number 59)]
[Notices]               
[Page 15465-15468]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29mr10-99]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29178; 812-13058-06]

 
RMR Real Estate Income Fund, et al.; Notice of Application

March 23, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of 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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SUMMARY OF APPLICATION: Applicants request an order to permit 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, 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.

APPLICANTS: RMR Real Estate Income Fund and RMR Advisors, Inc.

FILING DATES: December 31, 2003, September 23, 2008, February 13, 2009, 
and September 30, 2009.

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 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 April 19, 2010, 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, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; applicants, 400 Centre Street, Newton, 
MA 02458.

FOR FURTHER INFORMATION CONTACT: Wendy Friedlander, Senior Counsel, at 
(202) 551-6837, or James M. Curtis, Branch Chief, at (202) 551-6712 
(Division of Investment Management, Office of Chief Counsel).

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. RMR Real Estate Income Fund (``RIF'') is a closed-end management 
investment company registered under the Act and organized as a Delaware 
statutory trust.\1\ RIF's primary investment objective is to earn and 
pay to its common shareholders a high level of income by investing in 
real estate companies, including real estate investment trusts. RIF's 
secondary investment objective is capital appreciation. RIF has common 
stock that is listed and traded on the NYSE Amex and preferred stock 
that does not trade on any exchange. Applicants believe that the 
investors in the common stock of RIF may prefer an investment vehicle 
that provides regular periodic distributions and a steady cash flow.
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    \1\ Applicants request that any order issued granting the relief 
requested in the application also apply to any closed-end investment 
company that in the future: (a) Is advised by the Adviser (including 
any successor in interest) or by any entity controlling, controlled 
by, or under common control (within the meaning of section 2(a)(9) 
of the Act) with the Adviser; and (b) complies with the terms and 
conditions of the requested order. 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. RMR Advisors, Inc. (the ``Adviser'') is registered under the 
Investment Advisers Act of 1940 and has provided investment advisory 
services to RIF since its inception. The Adviser is wholly-owned by 
Barry M. Portnoy and Adam D. Portnoy.
    3. Applicants represent that RIF's Board of Trustees (the 
``Board''), including a majority of the members of the Board who are 
not ``interested persons'' of RIF as defined in section 2(a)(19) of the 
Act (the ``Independent Trustees''), approved RIF's adoption of a 
distribution plan with respect to RIF's common stock (``Plan''). The 
Plan would permit RIF to distribute as often as monthly to its common 
stockholders a fixed percentage of the market price per common share, a 
fixed percentage of net asset value (``NAV'') per common share, or a 
fixed amount per common share, any of which may be adjusted from time 
to time.
    4. Applicants represent that, in adopting the Plan, RIF's Board, 
including a majority of RIF's Independent Trustees: (a) Requested and 
considered, and the Adviser provided, information regarding the purpose 
and terms of the Plan; the reasonably foreseeable material effect of 
the Plan on RIF's long-term total return (in relation to market price 
and NAV per common share); and what conflicts of interest the Adviser 
and the affiliated persons of the Adviser and RIF might have with 
respect to the adoption or implementation of the Plan; (b) approved 
RIF's adoption of compliance policies and procedures in accordance with 
rule 38a-1 under the Act that (i) are reasonably designed to ensure 
that all notices required to be sent to RIF's shareholders pursuant to 
section 19(b) of the Act, rule 19b-1 under the Act and the conditions 
set forth below (``Notices'') include the disclosure required by rule 
19b-1 and the condition II. A. below, and that all other written 
communications by RIF or its agents include the disclosure required by 
condition III .A. below; and (ii) require RIF to keep records that 
demonstrate its compliance with all of the conditions of the requested 
Order and that are necessary to form the basis for, or demonstrate the 
calculation of, the amounts disclosed in the Notice. Applicants further 
state that after considering such information the Board, including a 
majority of the Independent Trustees, approved the Plan and determined 
that the Plan is consistent with RIF's investment objectives and is in 
the best interests of RIF's common stockholders. Applicants represent 
that the Board has recorded the basis for its approval of the Plan, 
including its considerations of the factors listed in this paragraph, 
in its minutes, which will be preserved for a period of not less that 
six years from the date of the meeting, the first two years in an 
easily accessible place, or such longer period as may otherwise be 
required by law.

Applicants' Legal Analysis

    1. Section 19(b) generally makes it unlawful for any registered 
investment company to make long-term capital gains distributions more 
than once each year. Rule 19b-1 limits the number of capital gains 
dividends, as defined in section 852(b)(3)(C) of the Code

[[Page 15466]]

(``distributions''), that a fund may make with respect to any one 
taxable year to one, plus a supplemental ``clean up'' 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) provides that the Commission may, by order upon 
application, conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that the 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 underlying section 
19(b) and rule 19b-1 is that stockholders might be unable to 
differentiate between regular distributions of capital gains and 
distributions of investment income. Applicants state, however, that 
rule 19a-1 effectively addresses this concern by requiring that a 
separate statement showing the sources of a distribution (e.g., 
estimated net income, net short-term capital gains, net long-term 
capital gains and/or return of capital) accompany any distributions (or 
the confirmation of the reinvestment of distributions) estimated to be 
sourced in part from capital gains or capital. Applicants state that 
the same information also is included annual reports to stockholders 
and on its IRS Form 1099-DIV, which is sent to each common and 
preferred stockholder who received distributions during the year.
    4. Applicants further state that RIF will make the additional 
disclosures required by the conditions set forth below, and has adopted 
compliance policies and procedures in accordance with rule 38a-1 to 
ensure that all required Notices and disclosures are sent to its 
stockholders. Applicants argue that by providing the information 
required by section 19(a) and rule 19a-1, and by complying with the 
procedures adopted under the Plan and the conditions listed below, RIF 
will ensure that its stockholders are provided sufficient information 
to understand that their periodic distributions are not tied to RIF's 
net investment income (which for this purpose is RIF's taxable income 
other than from capital gains) and realized capital gains to date, and 
may not represent yield or investment return. Applicants also state 
that compliance with the Plan's compliance procedures and condition III 
set forth below will ensure that prospective stockholders and third 
parties are provided with the same information. Accordingly, applicants 
assert that continuing to subject RIF to section 19(b) and rule 19b-1 
would afford its 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 stock 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 assert that the ``selling the 
dividend'' concern should not apply to closed-end investment companies 
which do not continuously distribute shares. According to applicants, 
if the underlying concern extends to secondary market purchases of 
stock of closed-end funds that are subject to a large upcoming capital 
gains distribution, adoption of a 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 common stock of closed-end funds that 
invest primarily in equity securities often trades in the marketplace 
at a discount to the fund's NAV. Applicants believe that this discount 
may be reduced for closed-end funds that pay relatively frequent 
dividends on their common stock at a consistent rate, whether or not 
those dividends contain an element of long-term capital gain.
    7. Applicants assert that the application of rule 19b-1 to a Plan 
actually could have an undesirable influence on portfolio management 
decisions. Applicants state that, in the absence of an exemption from 
rule 19b-1, the implementation of a Plan imposes pressure on fund 
management to realize short-term gains rather than long-term gains to 
ensure that capital gains distributions fit within the framework of 
rule 19b-1, notwithstanding that purely investment considerations might 
favor realization of long-term gains at different times or in different 
amounts.
    8. In addition, Applicants assert that rule 19b-1 may cause fixed 
regular periodic distributions under a Plan to be funded with returns 
of capital \2\ (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 could 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 total 
distributions in excess of the annual amount called for by its Plan, or 
to retain and pay taxes on the excess amount. Applicants thus assert 
that the requested order would minimize these 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.
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    \2\ Returns of capital as used in the application means return 
of capital for financial accounting purposes and not for tax 
accounting purposes.
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    9. Applicants state that Revenue Ruling 89-81 under the Code 
requires that a fund 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 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 the 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 periodic dividend at a fixed rate or the rate 
determined by the market, and, like a debt security, is priced based 
upon its liquidation value, credit quality, and frequency of payment. 
Applicants state that investors buy preferred shares for the purpose of 
receiving payments at the frequency bargained for, and do not expect 
the liquidation value of their shares to change.

[[Page 15467]]

    12. Applicants request an order under section 6(c) granting an 
exemption from the provisions of section 19(b) and rule 19b-1 to permit 
each Fund's common stock to distribute periodic capital gains dividends 
(as defined in section 852(b)(3)(C) of the Code) as often as monthly in 
any one taxable year in respect of its common stock and as often as 
specified by or determined in accordance with the terms thereof in 
respect of its preferred stock.\3\
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    \3\ Applicants state that a future fund that relies on the 
requested order will satisfy each of the representations in the 
application except that such representations will be made in respect 
of actions by the board of directors of such future fund and will be 
made at a future time.
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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:

I. 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 
the Adviser have complied with the conditions to the requested order, 
and (ii) a Material Compliance Matter, as defined in rule 38a-1(e)(2), 
has occurred with respect to compliance with such conditions; and (b) 
review the adequacy of the policies and procedures adopted by the fund 
no less frequently than annually.

II. Disclosures To Fund Stockholders

    A. Each Notice to the holders of a fund's common stock, in addition 
to the information required by section 19(a) and rule 19a-1:
    1. Will provide, in a tabular or graphical format:
    (a) The amount of the distribution, on a per common share basis, 
together with the amounts of such distribution amount, on a per common 
share 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;
    (b) The fiscal year-to-date cumulative amount of distributions, on 
a per common share basis, together with the amounts of such cumulative 
amount, on a per common share 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;
    (c) 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 
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 declaration date; and
    (d) The cumulative total return in relation to the change in NAV 
per common share 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 per common share 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
    2. Will include the following disclosure:
    (a) ``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 Plan'';
    (b) ``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
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    \4\ This disclosure 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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    (c) ``The amounts and sources of distributions reported in this 
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 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:
    1. Describe the terms of the Plan (including the fixed amount or 
fixed percentage of the distributions and the frequency of the 
distributions);
    2. Include the disclosure required by condition II.A.2.a above;
    3. State, if applicable, that the Plan provides that the Board may 
amend or terminate the Plan at any time without prior notice to fund 
stockholders; and
    4. Describe any reasonably foreseeable circumstances that might 
cause the fund to terminate the Plan and any reasonably foreseeable 
consequences of such termination.
    C. Each report provided to stockholders under rule 30e-1 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.

III. Disclosure to Stockholders, Prospective Stockholders and Third 
Parties

    A. Each fund will include the information contained in the relevant 
Notice, including the disclosure required by condition II.A.2 above, in 
any written communication (other than a Form 1099) about the Plan or 
distributions under the Plan 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. Each fund will issue, contemporaneously with the issuance of any 
Notice, a press release containing the information in the Notice and 
will file with the Commission the information contained in such Notice, 
including the disclosure required by condition II.A.2 above, as an 
exhibit to its next filed Form N-CSR; and
    C. Each fund will post prominently a statement on its (or its 
adviser's) Web site containing the information in each Notice, 
including the disclosure required by condition II.A.2 above, and will 
maintain such information on such Web site for at least 24 months.

IV. Delivery of 19(a) Notices to Beneficial Owners

    If a broker, dealer, bank or other person (``financial 
intermediary'') holds common stock issued by a fund in

[[Page 15468]]

nominee name, or otherwise, on behalf of a beneficial owner, the fund: 
(a) Will request that the financial intermediary, or its agent, forward 
the 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 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 Notice to each beneficial owner of the 
fund's common stock; and (c) upon the request of any financial 
intermediary, or its agent, that receives copies of the Notice, will 
pay the financial intermediary, or its agent, the reasonable expenses 
of sending the Notice to such beneficial owners.

V. Additional Board Determinations for Funds Whose Stock Trades at a 
Premium

    If:
    A. A fund's common stock has traded on the exchange that it 
primarily trades 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 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:
    1. 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:
    (a) Will request and evaluate, and the Adviser will furnish, such 
information as may be reasonably necessary to make an informed 
determination of whether the Plan should be continued or continued 
after amendment;
    (b) Will determine whether continuation, or continuation after 
amendment, of the Plan is consistent with the fund's investment 
objective(s) and policies and in the best interests of the fund and its 
stockholders, after considering the information in condition V.B.1.a 
above; including, without limitation:
    (1) Whether the Plan is accomplishing its purpose(s);
    (2) The reasonably foreseeable effects of the Plan on the fund's 
long-term total return in relation to the market price and NAV of the 
fund's common stock; and
    (3) The fund's current distribution rate, as described in condition 
V.B above, compared to the fund's average annual total return over the 
2-year period, as described in condition V.B, or such longer period as 
the Board deems appropriate; and
    (c) Based upon that determination, will approve or disapprove the 
continuation, or continuation after amendment, of the Plan; and
    2. The Board will record the information considered by it and the 
basis for its approval or disapproval of the continuation, or 
continuation after amendment, of the Plan 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.

VI. Public Offerings

    The fund will not make a public offering of the fund's common stock 
other than:
    A. A rights offering below net asset value 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 VI.A 
and VI.B above, unless, with respect to such other offering:
    1. 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 declaration date,\5\ expressed as a percentage of 
NAV per share 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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    2. 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 common stock as frequently as twelve times each year, and as 
frequently as distributions are specified in accordance with the terms 
of any outstanding preferred stock that such fund may issue.

VII. Amendments to Rule 19b-1

    The requested relief 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.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6779 Filed 3-26-10; 8:45 am]
BILLING CODE 8011-01-P

