Cohen & Steers Advantage Income Realty Fund, et al.; Notice of Application, 22769-22772 [E9-11233]
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will do so only if such Fund’s Board,
including a majority of the directors
who are not ‘‘interested persons’’ (as
defined in section 2(a)(19) of the Act)
(‘‘Independent Directors’’), shall have
determined that such borrowing is in
the best interests of such Fund, its
common shareholders, and its APS
Shares shareholders. Each Fund shall
make and preserve for a period of not
less than six years from the date of such
determination, the first two years in an
easily accessible place, minutes
specifically describing the deliberations
by the Board and the information and
documents supporting those
deliberations, the factors considered by
the Board in connection with such
determination, and the basis of such
determination.
2. Upon expiration of the Exemption
Period, each Fund will have asset
coverage of at least 300% for each class
of senior security representing
indebtedness.
3. The Board of any Fund that has
borrowed in reliance on the order shall
receive and review, no less frequently
than quarterly during the Exemption
Period, detailed progress reports
prepared by management (or other
parties selected by the Independent
Directors) regarding and assessing the
efforts that the Fund has undertaken,
and the progress that the Fund has
made, towards achieving compliance
with the appropriate asset coverage
requirements under section 18 by the
expiration of the Exemption Period. The
Board, including a majority of the
Independent Directors, will make such
adjustments as it deems necessary or
appropriate to ensure that the applicant
comes into compliance with section 18
of the Act within a reasonable period of
time, not to exceed the expiration of the
Exemption Period. Each Fund will make
and preserve minutes describing these
reports and the Board’s review,
including copies of such reports and all
other information provided to or relied
upon by the Board, for a period of not
less than six years, the first two years in
an easily accessible place.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–11234 Filed 5–13–09; 8:45 am]
BILLING CODE 8010–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–28721; File No. 812–13594]
Cohen & Steers Advantage Income
Realty Fund, et al.; Notice of
Application
May 8, 2009.
AGENCY: Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order under section 6(c) of the
Investment Company Act of 1940
(‘‘Act’’) for an exemption from sections
18(a)(1)(A) and (B) of the Act.
Applicants: Cohen & Steers
Advantage Income Realty Fund, Inc.,
Cohen & Steers Global Income Builder,
Inc., Cohen & Steers Premium Income
Realty Fund, Cohen & Steers Quality
Income Realty Fund, Inc., Cohen &
Steers REIT and Preferred Income Fund,
Inc., Cohen & Steers REIT and Utility
Income Fund, Inc., Cohen & Steers
Select Utility Fund, Inc. and Cohen &
Steers Worldwide Realty Income Fund,
Inc. (each, a ‘‘Fund’’ and collectively,
‘‘Funds’’).
SUMMARY: Summary of Application:
Applicants request an order (‘‘Order’’)
granting an exemption from sections
18(a)(1)(A) and (B) of the Act for a
period from the date of the Order until
October 31, 2010. The Order would
permit each Fund to issue or incur debt
subject to asset coverage of 200% that
would be used to refinance the Fund’s
auction preferred shares (‘‘APS Shares’’)
issued prior to February 1, 2008 that are
outstanding at the time such post-Order
debt is issued or incurred. The Order
also would permit each Fund to declare
dividends or any other distributions on,
or purchase, capital stock during the
term of the Order, provided that any
such debt has asset coverage of at least
200% after deducting the amount of
such transaction.
DATES: Filing Dates: The application was
filed on October 27, 2008, and amended
on March 26, 2009 and May 7, 2009.
Applicants have agreed to file an
amendment during the notice period,
the substance of which is reflected in
this notice.
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 May 29, 2009, and
should be accompanied by proof of
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22769
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: c/o Francis C. Poli, Esq.,
Cohen & Steers Capital Management,
280 Park Avenue, New York, NY 10017.
FOR FURTHER INFORMATION CONTACT: Jean
E. Minarick, Senior Counsel, at (202)
551–6811, or Julia Kim Gilmer, 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 an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. Each of the Funds is organized as
a Maryland corporation and is a nondiversified, closed-end management
investment company registered under
the Act. Each Fund is advised by Cohen
& Steers Capital Management, Inc. and
has issued and outstanding a class of
common shares and a class of one or
more series of APS Shares.
2. Applicants state that the Funds
issued their outstanding APS Shares for
purposes of investment leverage to
augment the amount of investment
capital available for use in the pursuit
of their investment objectives.
Applicants state that, through the use of
leverage, the Funds seek to enhance the
investment return available to the
holders of their common shares by
earning a rate of return from securities
that are purchased from the proceeds of
APS Share offerings that exceeds the
dividend rate that the applicants pay to
holders of the APS Shares. Applicants
represent that APS shareholders are
entitled to receive a stated liquidation
preference amount of $25,000 per share
(plus any accumulated but unpaid
dividends) in any liquidation,
dissolution, or winding up of the
relevant Fund before any distribution or
payment to holders of the Fund’s
common shares. Applicants also state
that dividends declared and payable on
APS Shares have a similar priority over
dividends declared and payable on the
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Funds’ common shares. In addition,
applicants state that APS Shares are
‘‘perpetual’’ securities and are not
subject to mandatory redemption by a
Fund so long as the Fund meets certain
asset coverage tests. Further, applicants
state that APS Shares are redeemable at
each Fund’s option.
3. Applicants state that prior to
February 2008, dividend rates on the
APS Shares for each dividend period
were set at the market clearing rate
determined through an auction process
that brought together bidders, who
sought to buy APS Shares, and holders
of APS Shares, who sought to sell their
APS Shares. Applicants explain that if
an auction fails to clear (because of an
imbalance of sell orders over bids), the
dividend payment rate over the next
dividend period was set at a specified
maximum applicable rate (the
‘‘Maximum Rate’’) determined by
reference to a short-term market interest
rate. Applicants state that an
unsuccessful auction is not a default;
the relevant Fund continues to pay
dividends to all holders of APS Shares,
but at the specified Maximum Rate
rather than a market clearing rate. Prior
to February 2008, the Maximum Rate
had never been triggered due to failed
auctions for any of the Funds.
4. Applicants state that if investors
did not purchase all of the APS Shares
tendered for sale at an auction prior to
the failure of the auction market, dealers
would enter into the auction and
purchase any excess shares to prevent
the auction from failing. Applicants
represent that APS Shares traded
successfully in the auction market with,
so far as the applicants are aware, very
few exceptions for approximately
twenty years. Applicants believe that
investors invested short-term cash
balances in APS Shares believing they
were safe, short-term, liquid
investments and, in many situations, the
equivalent of cash.
5. Applicants state that in February
2008, the financial institutions that
historically provided ‘‘back stop’’
liquidity for the APS Share auction
markets stopped participating in APS
Share auctions and the auctions began
to fail. Applicants state that, beginning
in February 2008, all of the Funds have
experienced unsuccessful auctions due
to an imbalance between buy and sell
orders. Applicants believe that there is
no established secondary market that
would provide holders of APS Shares
with the liquidation preference of
$25,000 per share. Applicants state that
three of the eight Funds to date have
redeemed, or have publicly announced
the redemption of, approximately 80%,
83% and 52%, respectively, of their
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APS Shares with borrowings from a
secured credit facility with the Funds’
custodian and/or with cash proceeds
from the sale of portfolio securities. The
other five Funds have redeemed, or
publicly announced the redemption of
approximately 85%, 83%, 78%, 71%
and 56% of their APS Shares,
respectively, with borrowings from a
secured credit facility with a third party
and with cash proceeds from the sale of
portfolio securities. The Funds were,
and are, prohibited from redeeming all
of their APS Shares because they would
not have the 300% asset coverage
required by section 18(a)(1) of the Act
after a full redemption of the APS
Shares. Applicants state that there is
currently no reliable mechanism for
holders of APS Shares to obtain
liquidity, and believe that, industrywide, the current lack of liquidity is
causing distress for a substantial
number of APS shareholders and
creating severe hardship for many
investors.
6. Applicants seek relief for the period
from the date of any Order until October
31, 2010 (‘‘Exemption Period’’) to
facilitate temporary borrowings by the
Funds that would enhance their ability
to provide a liquidity solution to the
holders of their APS Shares in the near
term while also seeking a more
permanent form of replacement leverage
that complies in full with the asset
coverage requirements of Section 18 of
the Act.1 Because of the limited
availability of debt financing in the
current, severely constrained capital
markets, the applicants believe that the
negotiation, execution and closing of
borrowing transactions to replace all or
a portion of the leverage currently
represented by the Funds’ outstanding
APS Shares, might take, at a minimum,
several months following the issuance
of the Order. Applicants further state
that it is uncertain when, or if, the
Funds will be able to issue a new type
of preferred stock to replace borrowings,
or how quickly the securities and
capital markets will return to conditions
that would enable the Funds to achieve
compliance with the asset coverage
requirements that would apply in the
absence of the Order. Given the
uncertainty and the current and
continuing unsettled state of the
securities and capital markets, the
applicants believe that the Exemption
Period is reasonable and appropriate.
1 Applicants state that the requested relief would
be beneficial to the Funds’ common shareholders
because in each case in which a Fund will redeem
APS Shares, the cost of replacement leverage, over
time, is expected to be lower than or equal to the
total cost of APS Shares if they remained
outstanding.
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Any refinancing of APS Shares would
be subject to the Funds’ negotiation of
agreements with acceptable
counterparties, any necessary approval
of changes to each Fund’s fundamental
investment policies and approval of
such arrangements by the Fund’s board
of directors (‘‘Board’’).
Applicants’ Legal Analysis
1. Section 18(a)(1)(A) of the Act
provides that it is unlawful for any
registered closed-end investment
company to issue any class of senior
security representing indebtedness, or to
sell such security of which it is the
issuer, unless the class of senior security
will have an asset coverage of at least
300% immediately after issuance or
sale. Section 18(a)(2)(A) of the Act
provides that it is unlawful for any
registered closed-end investment
company to issue any class of senior
security that is a stock, or to sell any
such security of which it is the issuer,
unless the class of senior security will
have an asset coverage of at least 200%
immediately after such issuance or
sale.2
2. Section 18(a)(1)(B) prohibits a
closed-end fund from declaring a
dividend or other distribution on, or
purchasing, its own capital stock unless
its outstanding indebtedness will have
an asset coverage of at least 300%
immediately after deducting the amount
of such dividend, distribution or
purchase price.3 Section 18(a)(2)(B)
prohibits a closed-end fund from
declaring a dividend or other
distribution on, or purchasing, its own
common stock unless its outstanding
preferred stock will have an asset
coverage of at least 200% immediately
2 Section 18(h) of the Act defines asset coverage
of a class of senior security representing
indebtedness of an issuer as the ratio which the
value of the total assets of the issuer, less all
liabilities and indebtedness not represented by
senior securities, bears to the aggregate amount of
senior securities representing indebtedness of the
issuer. The section defines asset coverage of a class
of senior security of an issuer as the ratio which the
value of the total assets of the issuer, less all
liabilities and indebtedness not represented by
senior securities, bears to the aggregate amount of
senior securities representing indebtedness of the
issuer plus the amount the class of senior security
would be entitled to on involuntary liquidation.
3 An exception is made for the declaration of a
dividend on a class of preferred stock if the senior
security representing indebtedness has an asset
coverage of at least 200% at the time of declaration
after deduction of the amount of such dividend. See
section 18(a)(1)(B) of the Act. Further, section 18(g)
of the Act provides, among other things, that
‘‘senior security,’’ for purposes of section
18(a)(1)(B), does not include any promissory note
or other evidence of indebtedness issued in
consideration of any loan, extension or renewal
thereof, made by a bank or other person and
privately arranged, and not intended to be publicly
distributed.
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after deducting the amount of such
dividend, distribution or purchase
price.
3. Section 6(c) of the Act provides, in
relevant part, that the Commission, by
order upon application, may
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 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.
4. Applicants request that the
Commission issue an Order under
section 6(c) of the Act to exempt each
Fund from the 300% asset coverage
requirements set forth in sections
18(a)(1)(A) and (B) of the Act.
Specifically, the Funds seek relief from
the section 18 asset coverage
requirements for senior securities
representing indebtedness for the
Exemption Period to permit the Funds
to refinance any APS Shares 4 issued
prior to February 1, 2008 that are
outstanding at the time of the Order
with debt subject, on a temporary basis,
to the 200% asset coverage requirement
for stock, rather than the 300% asset
coverage that would ordinarily apply
under section 18 to senior securities
representing indebtedness, (a) when
they incur that debt, and (b) when they
declare dividends or any other
distributions on, or purchase, their
capital stock, after deduction of the
amount of such dividend, distribution
or purchase price. Applicants state that,
except as permitted under the requested
Order, if issued, the Funds would meet
all of the asset coverage requirements of
section 18(a) of the Act. In addition,
applicants state that within the
Exemption Period each Fund that
borrows in reliance on the Order will
either pay down or refinance the debt so
that the Fund would, then and
thereafter, comply with the applicable
asset coverage requirements (200% for
4 For purposes of the Order, the Applicants’
refinancings of APS Shares also include any
refinancings of post-Order debt entered into for the
purpose of redeeming APS Shares outstanding at
the time the Funds entered into such post-Order
debt (and not any other debt). In connection with
the reorganization of one or more Funds with
another Fund, the Funds also would be permitted
to refinance their post-Order debt to the extent
necessary to permit the surviving Fund to assume
or incur borrowings equal to the post-Order debt
incurred by the acquired Fund(s). Applicants also
request that the Order permit each Fund to
refinance any APS Shares issued solely in
connection with the reorganization of the Fund
(and not for the purpose of incurring additional
leverage) with another Fund after the issuance of
the Order.
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equity or 300% for debt) under section
18 of the Act.
5. Applicants state that section 18
reflects congressional concerns
regarding preferential treatment for
certain classes of shareholders, complex
capital structures, and the use of
excessive leverage. Applicants submit
that another concern was that senior
securities gave the misleading
impression of safety from risk.
Applicants believe that the request for
temporary relief is necessary,
appropriate and in the public interest
and that such relief is consistent with
the protection of investors and the
purposes intended by the policy and
provisions of the Act.
6. Applicants note that the illiquidity
of APS Shares is a unique, exigent
situation that is posing urgent, and in
some cases devastating, hardships on
APS shareholders. Applicants represent
that the proposed replacement of the
APS Shares with debt would provide
additional liquidity for the applicants’
APS shareholders while the applicants
continue their efforts to obtain a more
permanent form of financing that fully
complies with the asset coverage
requirements of section 18.5
7. Applicants represent that the Order
would help avoid the potential harm to
common shareholders that could result
if the Funds were to deleverage their
portfolios in the current difficult market
environment or that could result if a
reduction in investment return reduced
the market price of common shares.
Applicants also state that the requested
Order would permit the Funds to
continue to provide their common
shareholders with the enhanced returns
that leverage may provide.
8. Applicants believe that the interests
of both classes of the Funds’ current
investors would be well served by the
requested order—the APS shareholders
because they may achieve the liquidity
that the market currently cannot provide
(as well as full recovery of the
liquidation value of their shares), and
the common shareholders because the
cost of the new form of leverage would,
over time, be lower than that of the total
cost of the APS Shares based on their
Maximum Rates and the adverse
consequences of deleveraging would be
avoided.
9. Applicants represent that the
proposed borrowing would be obtained
from banks, insurance companies or
qualified institutional buyers (as
defined in Rule 144(a)(1) under the
Securities Act of 1933) who would be
capable of assessing the risk associated
with the transaction. Applicants also
5 See
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state that, to the extent the Act’s asset
coverage requirements were aimed at
limiting leverage because of its potential
to magnify losses as well as gains, they
believe that the proposal would not
unduly increase the speculative nature
of the Funds’ common shares because
the relief is temporary and the Funds
would be no more highly leveraged if
they replace the existing APS Shares
with borrowing.6 Applicants also state
that the proposed liquidity solution
would not make the Funds’ capital
structure more complex, opaque, or
hard to understand or result in
pyramiding or inequitable distribution
of control.
10. Applicants state that the current
state of the credit markets, which has
affected the APS Shares, is an historic
event of unusual severity, which
requires a creative and flexible response
on the part of both the public and
private sectors. Applicants believe that
these issues have created an urgent need
for limited, quick, thoughtful and
responsive solutions. Applicants believe
that the request meets the standards for
exemption under section 6(c) of the Act.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief shall be
subject to the following conditions:
1. Each Fund that borrows subject to
200% asset coverage under the order
will do so only if such Fund’s Board,
including a majority of the directors
who are not ‘‘interested persons’’ (as
defined in section 2(a)(19) of the Act)
(‘‘Independent Directors’’), shall have
determined that such borrowings are in
the best interests of such Fund, its
common shareholders, and the holders
of its APS Shares. Each Fund shall make
and preserve for a period of not less
than six years from the date of such
determination, the first two years in an
easily accessible place, minutes
specifically describing the deliberations
by the Board and the information and
documents supporting those
deliberations, the factors considered by
the Board in connection with such
determination, and the basis of such
determination.
6 Applicants acknowledge that managing any
portfolio that relies on borrowing for leverage
entails the risk that, when the borrowing matures
and must be repaid or refinanced, an economically
attractive form of replacement leverage may not be
available in the capital markets. For that reason, any
portfolio that relies on borrowing for leverage is
subject to the risk that it may have to deleverage,
which could be disadvantageous to the portfolio’s
common shareholders. Applicants therefore state
that they regard leveraging through borrowing as
potentially a temporary, interim step, with the
issuance of new preferred stock as a possible
longer-term replacement source of portfolio
leverage.
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2. Upon expiration of the Exemption
Period, each Fund will have asset
coverage of at least 300% for each class
of senior security representing
indebtedness.
3. The Board of any Fund that has
borrowed in reliance on the Order shall
receive and review, no less frequently
than quarterly during the Exemption
Period, detailed progress reports
prepared by management (or other
parties selected by the Independent
Directors) regarding and assessing the
efforts that the Fund has undertaken,
and the progress that the Fund has
made, towards achieving compliance
with the appropriate asset coverage
requirements under section 18 of the
Act by the expiration of the Exemption
Period. The Board, including a majority
of the Independent Directors, will make
such adjustments as it deems necessary
or appropriate to ensure that the Fund
comes into compliance with section 18
of the Act within a reasonable period of
time, not to exceed the expiration of the
Exemption Period. Each Fund will make
and preserve minutes describing these
reports and the Board’s review,
including copies of such reports and all
other information provided to or relied
upon by the Board, for a period of not
less than six years from the date of such
determination, the first two years in an
easily accessible place.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–11233 Filed 5–13–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
28723; File No. 812–13555]
Pacific Investment Management
Company LLC and PIMCO ETF Trust;
Notice of Application
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May 11, 2009.
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 sections
2(a)(32), 5(a)(1), 22(d), and 22(e) of the
Act and rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act.
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SUMMARY: Summary of Application:
Applicants request an order that would
permit (a) series of certain open-end
management investment companies
whose portfolios will consist of the
component securities of certain
domestic, global or international fixed
income securities indexes to issue
shares (‘‘Shares’’) redeemable in large
aggregations only (‘‘Creation Unit
Aggregations’’); (b) secondary market
transactions in Shares to occur at
negotiated market prices; (c) certain
series to pay redemption proceeds,
under certain circumstances, more than
seven days after the tender of Shares for
redemption; (d) certain affiliated
persons of the series to deposit
securities into, and receive securities
from, the series in connection with the
purchase and redemption of Creation
Unit Aggregations; and (e) certain
registered management investment
companies and unit investment trusts
outside of the same group of investment
companies as the series to acquire
Shares.
Applicants: Pacific Investment
Management LLC (the ‘‘Adviser’’) and
PIMCO ETF Trust (the ‘‘Trust’’).
DATES: Filing Dates: The application was
filed on July 29, 2008 and amended on
April 29, 2009. Applicants have agreed
to file an amendment during the notice
period, the substance of which is
reflected in this notice.
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 May 29, 2009 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, 840 Newport Center Drive,
Newport Beach, California 92600.
FOR FURTHER INFORMATION CONTACT:
Laura J. Riegel, Senior Counsel at (202)
551–6873, or Marilyn Mann, Branch
Chief, at (202) 551–6820 (Division of
Investment Management, Office of
Investment Company Regulation).
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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 an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicants’ Representations
1. The Trust is registered as an openend management investment company
and is organized as a Delaware statutory
trust that will offer an unlimited
number of series. The Trust will
initially offer one series (‘‘Initial Fund’’)
whose performance will correspond
generally to the total return of a
specified fixed income securities index
(‘‘Underlying Index’’).1
2. Applicants request that the order
apply to the Initial Fund and any
additional series of the Trust and any
other open-end management investment
companies or series thereof, that may be
created in the future and that track a
specified fixed income securities
Underlying Index (‘‘Future Funds’’).2
Any Future Fund will be (a) advised by
the Adviser or an entity controlling,
controlled by, or under common control
with the Adviser, and (b) comply with
the terms and conditions of the
application. Future Funds may be based
on Underlying Indexes comprised of
domestic fixed income securities
(‘‘Domestic Funds’’) or Underlying
Indexes comprised on global or
international fixed income securities
(‘‘Global Funds’’). The Initial Fund and
Future Funds, together, are the
‘‘Funds.’’
3. The Adviser is registered as an
investment adviser under the
Investment Advisers Act of 1940, as
amended (the ‘‘Advisers Act’’) and will
be the investment adviser to the Funds.
The Adviser may enter into subadvisory agreements with one or more
investment advisers each of which will
serve as a sub-adviser to a Fund (each,
a ‘‘Subadviser’’). Each Subadviser will
be registered under the Advisers Act.
Allianz Global Investors Distributors
LLC (‘‘Distributor’’) is a broker-dealer
registered under the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’) and will act as the principal
1 The Index for the Initial Fund is Merrill Lynch
1–3 Year U.S. Treasury IndexSM.
2 All entities that currently intend to rely on the
order have been named as Applicants. Any other
existing or future entity that subsequently relies on
the order will comply with the terms and
conditions of the application. An Acquiring Fund
(as defined below) may rely on the order only to
invest in Funds and not in any other registered
investment company.
E:\FR\FM\14MYN1.SGM
14MYN1
]]>Agencies
[Federal Register Volume 74, Number 92 (Thursday, May 14, 2009)]
[Notices]
[Pages 22769-22772]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-11233]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-28721; File No. 812-13594]
Cohen & Steers Advantage Income Realty Fund, et al.; Notice of
Application
May 8, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under section 6(c) of the
Investment Company Act of 1940 (``Act'') for an exemption from sections
18(a)(1)(A) and (B) of the Act.
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Applicants: Cohen & Steers Advantage Income Realty Fund, Inc.,
Cohen & Steers Global Income Builder, Inc., Cohen & Steers Premium
Income Realty Fund, Cohen & Steers Quality Income Realty Fund, Inc.,
Cohen & Steers REIT and Preferred Income Fund, Inc., Cohen & Steers
REIT and Utility Income Fund, Inc., Cohen & Steers Select Utility Fund,
Inc. and Cohen & Steers Worldwide Realty Income Fund, Inc. (each, a
``Fund'' and collectively, ``Funds'').
SUMMARY: Summary of Application: Applicants request an order
(``Order'') granting an exemption from sections 18(a)(1)(A) and (B) of
the Act for a period from the date of the Order until October 31, 2010.
The Order would permit each Fund to issue or incur debt subject to
asset coverage of 200% that would be used to refinance the Fund's
auction preferred shares (``APS Shares'') issued prior to February 1,
2008 that are outstanding at the time such post-Order debt is issued or
incurred. The Order also would permit each Fund to declare dividends or
any other distributions on, or purchase, capital stock during the term
of the Order, provided that any such debt has asset coverage of at
least 200% after deducting the amount of such transaction.
DATES: Filing Dates: The application was filed on October 27, 2008, and
amended on March 26, 2009 and May 7, 2009. Applicants have agreed to
file an amendment during the notice period, the substance of which is
reflected in this notice.
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 May 29, 2009, 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: c/o Francis C. Poli, Esq.,
Cohen & Steers Capital Management, 280 Park Avenue, New York, NY 10017.
FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at
(202) 551-6811, or Julia Kim Gilmer, 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 an applicant
using the Company name box, at https://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. Each of the Funds is organized as a Maryland corporation and is
a non-diversified, closed-end management investment company registered
under the Act. Each Fund is advised by Cohen & Steers Capital
Management, Inc. and has issued and outstanding a class of common
shares and a class of one or more series of APS Shares.
2. Applicants state that the Funds issued their outstanding APS
Shares for purposes of investment leverage to augment the amount of
investment capital available for use in the pursuit of their investment
objectives. Applicants state that, through the use of leverage, the
Funds seek to enhance the investment return available to the holders of
their common shares by earning a rate of return from securities that
are purchased from the proceeds of APS Share offerings that exceeds the
dividend rate that the applicants pay to holders of the APS Shares.
Applicants represent that APS shareholders are entitled to receive a
stated liquidation preference amount of $25,000 per share (plus any
accumulated but unpaid dividends) in any liquidation, dissolution, or
winding up of the relevant Fund before any distribution or payment to
holders of the Fund's common shares. Applicants also state that
dividends declared and payable on APS Shares have a similar priority
over dividends declared and payable on the
[[Page 22770]]
Funds' common shares. In addition, applicants state that APS Shares are
``perpetual'' securities and are not subject to mandatory redemption by
a Fund so long as the Fund meets certain asset coverage tests. Further,
applicants state that APS Shares are redeemable at each Fund's option.
3. Applicants state that prior to February 2008, dividend rates on
the APS Shares for each dividend period were set at the market clearing
rate determined through an auction process that brought together
bidders, who sought to buy APS Shares, and holders of APS Shares, who
sought to sell their APS Shares. Applicants explain that if an auction
fails to clear (because of an imbalance of sell orders over bids), the
dividend payment rate over the next dividend period was set at a
specified maximum applicable rate (the ``Maximum Rate'') determined by
reference to a short-term market interest rate. Applicants state that
an unsuccessful auction is not a default; the relevant Fund continues
to pay dividends to all holders of APS Shares, but at the specified
Maximum Rate rather than a market clearing rate. Prior to February
2008, the Maximum Rate had never been triggered due to failed auctions
for any of the Funds.
4. Applicants state that if investors did not purchase all of the
APS Shares tendered for sale at an auction prior to the failure of the
auction market, dealers would enter into the auction and purchase any
excess shares to prevent the auction from failing. Applicants represent
that APS Shares traded successfully in the auction market with, so far
as the applicants are aware, very few exceptions for approximately
twenty years. Applicants believe that investors invested short-term
cash balances in APS Shares believing they were safe, short-term,
liquid investments and, in many situations, the equivalent of cash.
5. Applicants state that in February 2008, the financial
institutions that historically provided ``back stop'' liquidity for the
APS Share auction markets stopped participating in APS Share auctions
and the auctions began to fail. Applicants state that, beginning in
February 2008, all of the Funds have experienced unsuccessful auctions
due to an imbalance between buy and sell orders. Applicants believe
that there is no established secondary market that would provide
holders of APS Shares with the liquidation preference of $25,000 per
share. Applicants state that three of the eight Funds to date have
redeemed, or have publicly announced the redemption of, approximately
80%, 83% and 52%, respectively, of their APS Shares with borrowings
from a secured credit facility with the Funds' custodian and/or with
cash proceeds from the sale of portfolio securities. The other five
Funds have redeemed, or publicly announced the redemption of
approximately 85%, 83%, 78%, 71% and 56% of their APS Shares,
respectively, with borrowings from a secured credit facility with a
third party and with cash proceeds from the sale of portfolio
securities. The Funds were, and are, prohibited from redeeming all of
their APS Shares because they would not have the 300% asset coverage
required by section 18(a)(1) of the Act after a full redemption of the
APS Shares. Applicants state that there is currently no reliable
mechanism for holders of APS Shares to obtain liquidity, and believe
that, industry-wide, the current lack of liquidity is causing distress
for a substantial number of APS shareholders and creating severe
hardship for many investors.
6. Applicants seek relief for the period from the date of any Order
until October 31, 2010 (``Exemption Period'') to facilitate temporary
borrowings by the Funds that would enhance their ability to provide a
liquidity solution to the holders of their APS Shares in the near term
while also seeking a more permanent form of replacement leverage that
complies in full with the asset coverage requirements of Section 18 of
the Act.\1\ Because of the limited availability of debt financing in
the current, severely constrained capital markets, the applicants
believe that the negotiation, execution and closing of borrowing
transactions to replace all or a portion of the leverage currently
represented by the Funds' outstanding APS Shares, might take, at a
minimum, several months following the issuance of the Order. Applicants
further state that it is uncertain when, or if, the Funds will be able
to issue a new type of preferred stock to replace borrowings, or how
quickly the securities and capital markets will return to conditions
that would enable the Funds to achieve compliance with the asset
coverage requirements that would apply in the absence of the Order.
Given the uncertainty and the current and continuing unsettled state of
the securities and capital markets, the applicants believe that the
Exemption Period is reasonable and appropriate. Any refinancing of APS
Shares would be subject to the Funds' negotiation of agreements with
acceptable counterparties, any necessary approval of changes to each
Fund's fundamental investment policies and approval of such
arrangements by the Fund's board of directors (``Board'').
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\1\ Applicants state that the requested relief would be
beneficial to the Funds' common shareholders because in each case in
which a Fund will redeem APS Shares, the cost of replacement
leverage, over time, is expected to be lower than or equal to the
total cost of APS Shares if they remained outstanding.
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Applicants' Legal Analysis
1. Section 18(a)(1)(A) of the Act provides that it is unlawful for
any registered closed-end investment company to issue any class of
senior security representing indebtedness, or to sell such security of
which it is the issuer, unless the class of senior security will have
an asset coverage of at least 300% immediately after issuance or sale.
Section 18(a)(2)(A) of the Act provides that it is unlawful for any
registered closed-end investment company to issue any class of senior
security that is a stock, or to sell any such security of which it is
the issuer, unless the class of senior security will have an asset
coverage of at least 200% immediately after such issuance or sale.\2\
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\2\ Section 18(h) of the Act defines asset coverage of a class
of senior security representing indebtedness of an issuer as the
ratio which the value of the total assets of the issuer, less all
liabilities and indebtedness not represented by senior securities,
bears to the aggregate amount of senior securities representing
indebtedness of the issuer. The section defines asset coverage of a
class of senior security of an issuer as the ratio which the value
of the total assets of the issuer, less all liabilities and
indebtedness not represented by senior securities, bears to the
aggregate amount of senior securities representing indebtedness of
the issuer plus the amount the class of senior security would be
entitled to on involuntary liquidation.
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2. Section 18(a)(1)(B) prohibits a closed-end fund from declaring a
dividend or other distribution on, or purchasing, its own capital stock
unless its outstanding indebtedness will have an asset coverage of at
least 300% immediately after deducting the amount of such dividend,
distribution or purchase price.\3\ Section 18(a)(2)(B) prohibits a
closed-end fund from declaring a dividend or other distribution on, or
purchasing, its own common stock unless its outstanding preferred stock
will have an asset coverage of at least 200% immediately
[[Page 22771]]
after deducting the amount of such dividend, distribution or purchase
price.
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\3\ An exception is made for the declaration of a dividend on a
class of preferred stock if the senior security representing
indebtedness has an asset coverage of at least 200% at the time of
declaration after deduction of the amount of such dividend. See
section 18(a)(1)(B) of the Act. Further, section 18(g) of the Act
provides, among other things, that ``senior security,'' for purposes
of section 18(a)(1)(B), does not include any promissory note or
other evidence of indebtedness issued in consideration of any loan,
extension or renewal thereof, made by a bank or other person and
privately arranged, and not intended to be publicly distributed.
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3. Section 6(c) of the Act provides, in relevant part, that the
Commission, by order upon application, may 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 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.
4. Applicants request that the Commission issue an Order under
section 6(c) of the Act to exempt each Fund from the 300% asset
coverage requirements set forth in sections 18(a)(1)(A) and (B) of the
Act. Specifically, the Funds seek relief from the section 18 asset
coverage requirements for senior securities representing indebtedness
for the Exemption Period to permit the Funds to refinance any APS
Shares \4\ issued prior to February 1, 2008 that are outstanding at the
time of the Order with debt subject, on a temporary basis, to the 200%
asset coverage requirement for stock, rather than the 300% asset
coverage that would ordinarily apply under section 18 to senior
securities representing indebtedness, (a) when they incur that debt,
and (b) when they declare dividends or any other distributions on, or
purchase, their capital stock, after deduction of the amount of such
dividend, distribution or purchase price. Applicants state that, except
as permitted under the requested Order, if issued, the Funds would meet
all of the asset coverage requirements of section 18(a) of the Act. In
addition, applicants state that within the Exemption Period each Fund
that borrows in reliance on the Order will either pay down or refinance
the debt so that the Fund would, then and thereafter, comply with the
applicable asset coverage requirements (200% for equity or 300% for
debt) under section 18 of the Act.
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\4\ For purposes of the Order, the Applicants' refinancings of
APS Shares also include any refinancings of post-Order debt entered
into for the purpose of redeeming APS Shares outstanding at the time
the Funds entered into such post-Order debt (and not any other
debt). In connection with the reorganization of one or more Funds
with another Fund, the Funds also would be permitted to refinance
their post-Order debt to the extent necessary to permit the
surviving Fund to assume or incur borrowings equal to the post-Order
debt incurred by the acquired Fund(s). Applicants also request that
the Order permit each Fund to refinance any APS Shares issued solely
in connection with the reorganization of the Fund (and not for the
purpose of incurring additional leverage) with another Fund after
the issuance of the Order.
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5. Applicants state that section 18 reflects congressional concerns
regarding preferential treatment for certain classes of shareholders,
complex capital structures, and the use of excessive leverage.
Applicants submit that another concern was that senior securities gave
the misleading impression of safety from risk. Applicants believe that
the request for temporary relief is necessary, appropriate and in the
public interest and that such relief is consistent with the protection
of investors and the purposes intended by the policy and provisions of
the Act.
6. Applicants note that the illiquidity of APS Shares is a unique,
exigent situation that is posing urgent, and in some cases devastating,
hardships on APS shareholders. Applicants represent that the proposed
replacement of the APS Shares with debt would provide additional
liquidity for the applicants' APS shareholders while the applicants
continue their efforts to obtain a more permanent form of financing
that fully complies with the asset coverage requirements of section
18.\5\
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\5\ See supra note 2.
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7. Applicants represent that the Order would help avoid the
potential harm to common shareholders that could result if the Funds
were to deleverage their portfolios in the current difficult market
environment or that could result if a reduction in investment return
reduced the market price of common shares. Applicants also state that
the requested Order would permit the Funds to continue to provide their
common shareholders with the enhanced returns that leverage may
provide.
8. Applicants believe that the interests of both classes of the
Funds' current investors would be well served by the requested order--
the APS shareholders because they may achieve the liquidity that the
market currently cannot provide (as well as full recovery of the
liquidation value of their shares), and the common shareholders because
the cost of the new form of leverage would, over time, be lower than
that of the total cost of the APS Shares based on their Maximum Rates
and the adverse consequences of deleveraging would be avoided.
9. Applicants represent that the proposed borrowing would be
obtained from banks, insurance companies or qualified institutional
buyers (as defined in Rule 144(a)(1) under the Securities Act of 1933)
who would be capable of assessing the risk associated with the
transaction. Applicants also state that, to the extent the Act's asset
coverage requirements were aimed at limiting leverage because of its
potential to magnify losses as well as gains, they believe that the
proposal would not unduly increase the speculative nature of the Funds'
common shares because the relief is temporary and the Funds would be no
more highly leveraged if they replace the existing APS Shares with
borrowing.\6\ Applicants also state that the proposed liquidity
solution would not make the Funds' capital structure more complex,
opaque, or hard to understand or result in pyramiding or inequitable
distribution of control.
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\6\ Applicants acknowledge that managing any portfolio that
relies on borrowing for leverage entails the risk that, when the
borrowing matures and must be repaid or refinanced, an economically
attractive form of replacement leverage may not be available in the
capital markets. For that reason, any portfolio that relies on
borrowing for leverage is subject to the risk that it may have to
deleverage, which could be disadvantageous to the portfolio's common
shareholders. Applicants therefore state that they regard leveraging
through borrowing as potentially a temporary, interim step, with the
issuance of new preferred stock as a possible longer-term
replacement source of portfolio leverage.
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10. Applicants state that the current state of the credit markets,
which has affected the APS Shares, is an historic event of unusual
severity, which requires a creative and flexible response on the part
of both the public and private sectors. Applicants believe that these
issues have created an urgent need for limited, quick, thoughtful and
responsive solutions. Applicants believe that the request meets the
standards for exemption under section 6(c) of the Act.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Each Fund that borrows subject to 200% asset coverage under the
order will do so only if such Fund's Board, including a majority of the
directors who are not ``interested persons'' (as defined in section
2(a)(19) of the Act) (``Independent Directors''), shall have determined
that such borrowings are in the best interests of such Fund, its common
shareholders, and the holders of its APS Shares. Each Fund shall make
and preserve for a period of not less than six years from the date of
such determination, the first two years in an easily accessible place,
minutes specifically describing the deliberations by the Board and the
information and documents supporting those deliberations, the factors
considered by the Board in connection with such determination, and the
basis of such determination.
[[Page 22772]]
2. Upon expiration of the Exemption Period, each Fund will have
asset coverage of at least 300% for each class of senior security
representing indebtedness.
3. The Board of any Fund that has borrowed in reliance on the Order
shall receive and review, no less frequently than quarterly during the
Exemption Period, detailed progress reports prepared by management (or
other parties selected by the Independent Directors) regarding and
assessing the efforts that the Fund has undertaken, and the progress
that the Fund has made, towards achieving compliance with the
appropriate asset coverage requirements under section 18 of the Act by
the expiration of the Exemption Period. The Board, including a majority
of the Independent Directors, will make such adjustments as it deems
necessary or appropriate to ensure that the Fund comes into compliance
with section 18 of the Act within a reasonable period of time, not to
exceed the expiration of the Exemption Period. Each Fund will make and
preserve minutes describing these reports and the Board's review,
including copies of such reports and all other information provided to
or relied upon by the Board, for a period of not less than six years
from the date of such determination, the first two years in an easily
accessible place.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11233 Filed 5-13-09; 8:45 am]
BILLING CODE 8010-01-P
