
[Federal Register Volume 77, Number 244 (Wednesday, December 19, 2012)]
[Notices]
[Pages 75207-75211]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30548]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30304; File No. 812-14064]


The Adams Express Company and Petroleum & Resources Corporation; 
Notice of Application

December 13, 2012.
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: Summary of Application: Applicants request an order to permit 
certain registered closed-end investment companies to make periodic 
distributions of long-term capital gains with respect to their 
outstanding common shares as frequently as monthly in any one taxable 
year, and as frequently as distributions are specified by or in 
accordance with the terms of any outstanding preferred shares that such 
investment companies may issue.

Applicants: The Adams Express Company and Petroleum & Resources 
Corporation (the ``Funds'').

DATES: Filing Dates: The application was filed on July 27, 2012 and 
amended on November 20, 2012.

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 January 7, 2013, 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: Elizabeth M. Murphy, Secretary, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090; Applicants, 
Seven Saint Paul Street, Suite 1140, Baltimore, MD 21202.

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Special Counsel, at 
(202) 551-6813, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(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 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. The Funds are internally-managed closed-end management 
investment companies registered under the Act and are organized as 
Maryland corporations.\1\ The common shares of the Funds are currently 
listed on the New York Stock Exchange and in the future will be listed 
on the New York Stock Exchange or another national securities exchange 
as defined in section 2(a)(26) of the Act (each, an ``Exchange''). The 
Funds currently do not intend to issue any preferred shares, but may do 
so in the future. The Funds

[[Page 75208]]

are non-control (within the meaning of section 2(a)(9) of the Act) 
affiliates that are internally-managed by shared personnel, including a 
common board of directors, and common executive officers and portfolio 
managers. As of June 30, 2012, The Adams Express Company held 
approximately 8.5% of the outstanding shares of Petroleum & Resources 
Corporation. Both Funds' investment objectives are preservation of 
capital, the attainment of reasonable income from investments, and an 
opportunity for capital appreciation. Applicants believe that investors 
in the common shares of the Funds may prefer an investment vehicle that 
provides regular distributions and a consistent cash flow.
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    \1\ Applicants request that the order also apply to any 
successor in interest to the Funds. 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. Applicants represent that, before a Fund implements a proposed 
distribution policy with respect to its common shares in reliance on 
the order, the Fund's board of directors (the ``Board''), including a 
majority of the members of the Board who are not ``interested persons'' 
of the respective Fund, as defined in section 2(a)(19) of the Act (the 
``Independent Directors''), will approve the Fund's adoption of the 
proposed distribution policy. Applicants represent that the Board will 
request and evaluate, and the Fund will furnish, such information as 
may be reasonably necessary to make an informed determination of 
whether the Board should adopt and implement the proposed distribution 
policy. Applicants state that, in particular, the Board, including the 
Independent Directors, will review information regarding the purpose 
and terms of the proposed distribution policy, any reasonably 
foreseeable material effect of such policy on the Fund's long-term 
total return (in relation to market price and net asset value per 
common share (``NAV'')), the relationship between such Fund's 
distribution rate on its common shares under the policy and such Fund's 
total return (in relation to NAV), and whether the rate of distribution 
will exceed such Fund's expected total return (in relation to NAV). 
Applicants represent that the Independent Directors also will consider 
what conflicts of interest the affiliated persons of the Fund might 
have with respect to the adoption or implementation of such policy. 
Applicants state that, after considering such information, the Board of 
the relevant Fund, including the Independent Directors, will only 
approve a distribution policy with respect to the Fund's common shares 
(the ``Plan''), if the Board, including the Independent Directors, 
determines that the Plan is consistent with the Fund's investment 
objective(s) and in the best interests of the Fund's common 
shareholders.
    3. Applicants state that the purpose of any Plan will be to permit 
a Fund to provide its common shareholders with periodic distributions 
as nearly equal as practicable and any required special distributions 
over the course of each year. Applicants represent that, under the Plan 
of a Fund, such Fund will distribute to its respective common 
shareholders a fixed percentage of the market price of such Fund's 
common shares at a particular point in time, or a fixed percentage of 
NAV at a particular time or a fixed amount per common share, any of 
which may be adjusted from time to time. Applicants state that the 
minimum annual distribution rate with respect to such Fund's common 
shares would be independent of the Fund's performance during any 
particular period but would be expected to correlate with the Fund's 
performance over time. Except for extraordinary distributions and 
potential increases or decreases in the final dividend periods in light 
of the Fund's performance for the entire calendar or taxable year and 
to enable the Fund to comply with the distribution requirements of 
Subchapter M and section 4982 of the Internal Revenue Code of 1986, as 
amended (the ``Code'') for the calendar or taxable year, each 
distribution on the common shares would be at the stated rate then in 
effect.
    4. Applicants state that, in conjunction with approving a Plan, the 
Board of each Fund will also approve the Fund's adoption of compliance 
policies and procedures under rule 38a-1 under the Act that: (i) Are 
reasonably designed to ensure that all notices required to be sent to 
each Fund's shareholders pursuant to section 19(a) of the Act, rule 
19a-1 thereunder and condition 4 below (each a ``19(a) Notice'') 
include the disclosure required by rule 19a-1 and by condition 2(a) 
below, and that all other written communications by the Fund or its 
agents described in condition 3(a) below about the distributions under 
the Plan include the disclosure required by condition 3(a) below, and 
(ii) require each such Fund to keep records that demonstrate its 
compliance with all of the conditions of the order and that are 
necessary for the Fund to form the basis for, or demonstrate the 
calculation of, the amounts disclosed in its 19(a) Notices.

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 every twelve months. Rule 19b-1 under the Act limits the 
number of capital gains dividends, as defined in section 852(b)(3)(C) 
of the Code (``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) of the Act 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 or any rule 
under 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 the one of the concerns leading to the 
enactment of section 19(b) and adoption of rule 19b-1 was that 
shareholders might be unable to distinguish between frequent 
distributions of capital gains and dividends from investment income. 
Applicants state, however, that rule 19a-1 effectively addresses this 
concern by requiring that distributions (or the confirmation of the 
reinvestment thereof) estimated to be sourced in part from capital 
gains or capital be accompanied by a separate statement showing the 
sources of the distribution (e.g., estimated net income, net short-term 
capital gains, net long-term capital gains and/or return of capital). 
Applicants state that similar information is included in the Funds' 
annual reports to shareholders and IRS Form 1099-DIV, which is sent to 
each shareholder who received distributions during a particular year 
(including shareholders who have sold shares during the year).
    4. Applicants further state that each of the Funds will make the 
additional disclosures required by the conditions set forth below, and 
each of them will adopt compliance policies and procedures in 
accordance with rule 38a-1 under the Act to ensure that all required 
19(a) Notices and disclosures are sent to shareholders. Applicants

[[Page 75209]]

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, each Fund's shareholders would be 
provided sufficient information to understand that their periodic 
distributions are not tied to the Fund's net investment income (which 
for this purpose is the Fund's taxable income other than from capital 
gains) and realized capital gains to date, and may not represent yield 
or investment return. Accordingly, applicants assert that continuing to 
subject the Funds to section 19(b) and rule 19b-1 would afford 
shareholders no extra protection.
    5. Applicants note that section 19(b) of the Act and rule 19b-1 
were intended to prevent certain improper sales practices, including, 
in particular, the practice of urging an investor to purchase shares 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 submit that the ``selling the 
dividend'' concern should not apply to closed-end investment companies, 
such as the Funds, which do not continuously distribute shares. 
According to applicants, if the underlying concern extends to secondary 
market purchases of shares of closed-end funds that are subject to a 
large upcoming capital gains dividend, adoption of a periodic 
distribution 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 shares of closed-end funds 
often trade in the marketplace at a discount to the funds' NAV. 
Applicants believe that this discount may be reduced if the Funds are 
permitted to pay relatively frequent dividends on their common shares 
at a consistent rate, whether or not those dividends contain an element 
of capital gain.
    7. Applicants assert that the application of rule 19b-1 to a Plan 
actually could have an inappropriate influence on portfolio management 
decisions. Applicants state that, in the absence of an exemption from 
rule 19b-1, the adoption of a periodic distribution plan imposes 
pressure on management (i) not to realize any net long-term capital 
gains until the point in the year that the fund can pay all of its 
remaining distributions in accordance with rule 19b-1 and (ii) not to 
realize any long-term capital gains during any particular year in 
excess of the amount of the aggregate pay-out for the year (since as a 
practical matter excess gains must be distributed and, accordingly, 
would not be available to satisfy pay-out requirements in following 
years), notwithstanding that purely investment considerations might 
favor realization of long-term gains at different times or in different 
amounts. Applicants assert that by limiting the number of capital gain 
distributions that a fund may make with respect to any one year, rule 
19b-1 may prevent the normal and efficient operation of a periodic 
distribution plan whenever that fund's realized net long-term capital 
gains in any year exceed the total of the periodic distributions that 
may include such capital gains under the rule.
    8. Applicants also assert that rule 19b-1 may force the fixed 
regular periodic distributions under a periodic distribution 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 periodic distribution plan or to retain and pay taxes on the 
excess amount. Applicants assert that the requested order would 
minimize these anomalous 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 seeks to qualify as a regulated investment 
company under the Code and that has both common shares and preferred 
shares 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 share 
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 shares 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 
shares issued by a closed-end fund. Applicants assert that such 
distributions are either fixed or are determined in periodic auctions 
or remarketings 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 shares, which entitle 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, are priced based 
upon their liquidation value, dividend rate, 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.
    12. Applicants request an order pursuant to section 6(c) of the Act 
granting an exemption from section 19(b) of the Act and rule 19b-1 
thereunder to permit each Fund to distribute periodic capital gain 
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 shares and as 
often as specified by or determined in accordance with the terms 
thereof in respect of its preferred shares (if any).

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:
    1. 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 has complied with the conditions of 
the order and (ii) a material compliance matter (as defined in rule 
38a-1(e)(2) under the Act) has occurred with respect to such 
conditions; and (b) review the adequacy of the policies and procedures 
adopted by the Board no less frequently than annually.
    2. Disclosures To Fund Shareholders.

[[Page 75210]]

    (a) Each 19(a) Notice disseminated to the holders of the Fund's 
common shares, in addition to the information required by section 19(a) 
and rule 19a-1:
    (i) will provide, in a tabular or graphical format:
    (1) 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;
    (2) 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;
    (3) the average annual total return in relation to the change in 
NAV for the 5-year period ending on the last day of the month ended 
immediately 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 record date; and
    (4) the cumulative total return in relation to the change in NAV 
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 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
    (ii) will include the following disclosure:
    (1) ``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'';
    (2) ``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' ''; \3\ and
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    \3\ The disclosure in this condition 2(a)(ii)(2) 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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    (3) ``The amounts and sources of distributions reported in this 
19(a) 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 19(a) 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 shareholders under 
rule 30e-1 under the Act, the Fund will:
    (i) Describe the terms of the Plan (including the fixed amount or 
fixed percentage of the distributions and the frequency of the 
distributions);
    (ii) include the disclosure required by condition 2(a)(ii)(1) 
above;
    (iii) state, if applicable, that the Plan provides that the Board 
may amend or terminate the Plan at any time without prior notice to 
Fund shareholders; and
    (iv) 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 shareholders under rule 30e-1 under the 
Act, 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.
    3. Disclosure to Common Shareholders, Prospective Common 
Shareholders and Third Parties.
    (a) The Fund will include the information contained in the relevant 
19(a) Notice, including the disclosure required by condition 2(a)(ii) 
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 common shareholder, prospective common shareholder or third-
party information provider;
    (b) The Fund will issue, contemporaneously with the issuance of any 
19(a) Notice, a press release containing the information in the 19(a) 
Notice and file with the Commission the information contained in such 
19(a) Notice, including the disclosure required by condition 2(a)(ii) 
above, as an exhibit to its next filed Form N-CSR; and
    (c) The Fund will post prominently a statement on its Web site 
containing the information in each 19(a) Notice, including the 
disclosure required by condition 2(a)(ii) above, and will maintain such 
information on such Web site for at least 24 months.
    4. Delivery of 19(a) Notices to Beneficial Owners. If a broker, 
dealer, bank or other person (``financial intermediary'') holds common 
shares issued by a Fund in nominee name, or otherwise, on behalf of a 
beneficial owner, the Fund: (a) will request that the financial 
intermediary, or its agent, forward the 19(a) Notice to all beneficial 
owners of the Fund's shares held through such financial intermediary; 
(b) will provide, in a timely manner, to the financial intermediary, or 
its agent, enough copies of the 19(a) 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 
19(a) Notice to each beneficial owner of the Fund's shares; and (c) 
upon the request of any financial intermediary, or its agent, that 
receives copies of the 19(a) Notice, will pay the financial 
intermediary, or its agent, the reasonable expenses of sending the 
19(a) Notice to such beneficial owners.
    5. Additional Board Determinations for Funds Whose Common Shares 
Trade at a Premium.
    If:
    (a) The Fund's common shares have traded on the Exchange that they 
primarily trade 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 shares 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

[[Page 75211]]

2-year period ending on the last day of such 12-week rolling period; 
then:
    (i) 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 Directors:
    (1) Will request and evaluate, and the Fund 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;
    (2) 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 
shareholders, after considering the information in condition 5(b)(i)(1) 
above; including, without limitation:
    (A) Whether the Plan is accomplishing its purpose(s);
    (B) the reasonably foreseeable material 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 shares; and
    (C) the Fund's current distribution rate, as described in condition 
5(b) above, compared with the Fund's average annual taxable income or 
total return over the 2-year period, as described in condition 5(b), or 
such longer period as the Board deems appropriate; and
    (3) based upon that determination, will approve or disapprove the 
continuation, or continuation after amendment, of the Plan; and
    (ii) The Board will record the information considered by it 
including its consideration of the factors listed in condition 
5(b)(i)(2) above 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.
    6. Public Offerings. The Fund will not make a public offering of 
the Fund's common shares other than:
    (a) A rights offering below NAV to holders of the Fund's common 
shares;
    (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 6(a) 
and 6(b) above, provided that, with respect to such other offering:
    (i) 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 record date, expressed as a percentage of NAV 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; 
and
    (ii) 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 shares as frequently as twelve times each year, and as 
frequently as distributions are specified by or determined in 
accordance with the terms of any outstanding preferred shares that such 
Fund may issue.
    7. Amendments to Rule 19b-1. The requested order 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 shares as frequently as twelve times each year.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30548 Filed 12-18-12; 8:45 am]
BILLING CODE 8011-01-P


