Nuveen Tax-Advantaged Total Return Strategy Fund, et al.; Notice of Application, 27851-27854 [E9-13723]
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Federal Register / Vol. 74, No. 111 / Thursday, June 11, 2009 / Notices
27851
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[FR Doc. E9–13641 Filed 6–10–09; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–28758; 812–13619]
Nuveen Tax-Advantaged Total Return
Strategy Fund, et al.; Notice of
Application
June 4, 2009.
jlentini on PROD1PC65 with NOTICES
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: Nuveen Tax-Advantaged
Total Return Strategy Fund, Nuveen
Real Estate Income Fund, Nuveen
Diversified Dividend and Income Fund,
Nuveen Multi-Strategy Income and
Growth Fund, Nuveen Multi-Strategy
Income and Growth Fund 2, Nuveen
Quality Preferred Income Fund, Nuveen
Quality Preferred Income Fund 2,
Nuveen Quality Preferred Income Fund
3, Nuveen Senior Income Fund, Nuveen
Floating Rate Income Fund and Nuveen
Floating Rate Income Opportunity Fund
(each, a ‘‘Fund’’ and collectively,
‘‘Funds’’).
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
all of the Fund’s issued and outstanding
auction rate preferred shares (‘‘ARPS’’)
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
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term of the Order, provided that such
post-Order debt has asset coverage of at
least 200% after deducting the amount
of such transaction.
FILING DATES: The application was filed
on December 29, 2008, and amended on
March 27, 2009, and June 2, 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 June 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 Gifford R. Zimmerman,
Managing Director, Assistant Secretary
and Associate General Counsel, Nuveen
Asset Management, 333 West Wacker
Drive, Chicago, IL 60606.
FOR FURTHER INFORMATION CONTACT:
Bruce R. MacNeil, Senior Counsel, at
(202) 551–6817, or Julia Kim Gilmer,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Office of Investment Company
Regulation).
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:
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Applicants’ Representations
1. Each of the Funds is organized as
a Massachusetts business trust and is a
closed-end management investment
company registered under the Act. Each
Fund is advised by Nuveen Asset
Management (‘‘Nuveen’’) and has issued
and outstanding a class of common
shares and a class of one or more series
of ARPS.
2. Applicants state that the Funds
issued their outstanding ARPS 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 portfolio return (which
includes the return obtained from
securities purchased from the proceeds
of ARPS offerings) that exceeds the
dividend rate that the Funds pay to
holders of the ARPS. Applicants
represent that ARPS 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
ARPS have a similar priority over
dividends declared and payable on the
Funds’ common shares. In addition,
applicants state that ARPS are
‘‘perpetual’’ securities and are not
subject to mandatory redemption by a
Fund (provided certain asset coverage
tests are met). Further, applicants state
that ARPS are redeemable at each
Fund’s option.
3. Applicants state that prior to
February 2008, dividend rates on the
ARPS for each dividend period were set
at the market clearing rate determined
through an auction process that brought
together bidders, who sought to buy
ARPS, and holders of ARPS, who sought
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Federal Register / Vol. 74, No. 111 / Thursday, June 11, 2009 / Notices
to sell their ARPS. 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 is 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 ARPS but at
the specified Maximum Rate rather than
a market clearing rate. Applicants state
that they had experienced no
unsuccessful auctions prior to February
2008.
4. Applicants state that the lead
underwriter of the initial placement of
a particular series of ARPS (each a
‘‘Lead Manager’’) would regularly place
bid orders with its own capital in an
auction to help ensure that there would
be a sufficient number of bid orders
relative to sell orders to permit an
auction to clear. Applicants represent
that the auction mechanism generally
provided readily available liquidity to
holders of ARPS for almost twenty
years. Applicants believe that many
holders of ARPS relied on them as part
of a cash management vehicle, based in
part on their expectation of ready
liquidity.
5. Applicants state that leading up to
February 2008, the Lead Managers
began to experience financial pressures
that led them to be unwilling to hold
ARPS on their balance sheets and to
cease entering supporting bids at ARPS
auctions. Applicants state that
beginning on February 12, 2008, all
closed-end funds advised by Nuveen
that had outstanding ARPS (including
the Funds) experienced auction failures
due to an imbalance between buy and
sell orders. Applicants also state that
they believe there is no established
secondary market that would provide
holders of ARPS with the liquidation
preference of $25,000 per share.
Applicants state that to date the Funds
have redeemed approximately 81% of
their outstanding ARPS with, in part,
borrowings from (a) a commercial paper
conduit facility, (b) a prime brokerage
facility, and (c) a bank line of credit, but
have been prohibited from replacing all
of their outstanding ARPS because they
would not have the 300% asset coverage
required by section 18(a)(1) of the Act
after a full redemption of the ARPS. As
a result, applicants state that there is
currently no reliable mechanism for
holders of ARPS to obtain liquidity, and
believe that, industry-wide, the current
lack of liquidity is causing distress for
a substantial number of ARPS
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shareholders and creating severe
hardship for many investors.
6. Applicants seek relief for a 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 ARPS in the near term1
while they either pay down or seek a
more permanent form of replacement
leverage, such as a new type of preferred
stock.2 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 a
borrowing transaction to replace the
leverage currently represented by the
Funds’ outstanding ARPS, if it can be
effected, might take several months
following the issuance of the Order.
Applicants further state that once the
debt incurred in replacement of a
Fund’s outstanding ARPS is in place, it
is uncertain whether and when the
applicants will be able to issue VRDP
Shares to replace the debt, or how
quickly the securities and capital
markets will return to conditions that
would enable the applicants to achieve
compliance with the asset coverage
requirements that would apply in the
absence of the Order. Given the
continuing unsettled state of the
securities and capital markets, the
applicants believe that the Exemption
Period is reasonable and appropriate.
Each Fund’s refinancing of ARPS would
be subject to the Fund obtaining any
necessary approval of changes to the
Fund’s fundamental investment policies
and approval of the refinancing
arrangements by the Fund’s board of
trustees (‘‘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 such class of senior
security will have an asset coverage of
at least 300% immediately after
issuance or sale. Section 18(a)(2)(A) of
1 Each Fund notes that the cost of the replacement
leverage is expected, over time, to be lower than the
total cost of ARPS based on the Maximum Rates
applicable to the ARPS of those Funds.
2 Applicants state that certain closed-end
municipal bond funds in the same group of
investment companies as the applicants (but none
of the applicants) have issued Variable Rate
Demand Preferred Shares (‘‘VRDP Shares’’), a new
type of preferred stock that supplements or replaces
existing ARPS. Applicants further state that it is not
certain that the Funds will be able to redeem all of
their ARPS through the issuance of VRDP shares.
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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 such class of senior security will
have an asset coverage of at least 200%
immediately after such issuance or
sale.3
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.4 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
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 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
3 Section 18(h) of the Act defines asset coverage
of a 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 the preferred stock 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.
4 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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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 ARPS issued prior to
February 1, 2008 that are outstanding at
the time of the Order with debt subject
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.5 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 each
Fund that borrows in reliance on the
Order will either pay down or refinance
the debt within the Exemption Period so
that the Fund would, at the expiration
of the Exemption Period, comply with
the applicable asset coverage
requirements (200% for stock 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 ARPS is a unique, exigent situation
that is posing urgent, and in some cases,
severe hardships on ARPS shareholders.
Applicants represent that the proposed
replacement of the ARPS with debt
would provide liquidity for the Funds’
ARPS shareholders while the Funds
continue their efforts to obtain a more
permanent form of financing (such as
through the issuance of VRDP Shares)
that fully complies with the asset
coverage requirements of section 18.6
5 For purposes of the Order, ARPS refinancings
refer to such post-Order borrowings and any
refinancings of such post-Order borrowings until
the expiration of the Order.
6 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 ARPS
shareholders because they would
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 ARPS
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 ARPS with
borrowing.7 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 ARPS, is an historic event
of unusual severity, which requires a
7 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 such as VRDP
Shares as a possible longer-term replacement source
of portfolio leverage.
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27853
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
tailored, rapid, 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 trustees who
are not ‘‘interested persons’’ (as defined
in section 2(a)(19) of the Act)
(‘‘Independent Trustees’’), shall have
determined that such borrowing is in
the best interests of such Fund, its
common shareholders, and its ARPS
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
Trustees) 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 Trustees, 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, the first two years in
an easily accessible place.
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27854
Federal Register / Vol. 74, No. 111 / Thursday, June 11, 2009 / Notices
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–13723 Filed 6–10–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60045; File No. SR–NYSE–
2009–55]
Self-Regulatory Organizations; New
York Stock Exchange LLC, Notice of
Filing of a Proposed Rule Change
Amending Rule 70.25 To Permit All
Available Contra-side Liquidity To
Trigger the Execution of a d-Quote
June 4, 2009.
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Joint Hearing
with the Department of Labor to
examine target date funds and similar
investment options on Thursday, June
18, 2009 beginning at 9 a.m.
The Joint Hearing will take place in
the Auditorium of the Department of
Labor’s headquarters at 200 Constitution
Avenue, NW., Washington, DC. The
Joint Hearing will be open to the public
with seating on a first-come, first-served
basis. Visitors will be subject to security
checks.
Discussion topics at the Joint Hearing
will include issues related to how target
date fund managers determine asset
allocations and changes to asset
allocations (including glide paths) over
the course of a fund’s operation; how
they select and monitor underlying
investments; how the foregoing and
related risks are disclosed to investors;
and the approaches or factors for
comparing and evaluating target date
funds. Joint Hearing participants will
include representatives of plan
participants and beneficiaries, plan
sponsors, investor organizations,
academia and the financial services
industry.
For further information, please
contact: The Office of the Secretary at
(202) 551–5400.
Dated: June 5, 2009.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9–13683 Filed 6–10–09; 8:45 am]
BILLING CODE 8010–01–P
jlentini on PROD1PC65 with NOTICES
SECURITIES AND EXCHANGE
COMMISSION
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 2,
2009, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by NYSE. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 70.25 to permit all available
contra-side liquidity to trigger the
execution of a d-Quote. The text of the
proposed rule change is available at the
Exchange, the Commission’s Public
Reference Room, and https://
www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
NYSE Rule 70.25(c)(iii) to provide that
all available contra-side liquidity within
the possible execution range of a d1 15
2 17
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CFR 240.19b–4.
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Quote will be considered when
determining whether to activate a dQuote.3
Background
Rule 70.25 governs the entry,
validation, and execution of bids and
offers represented by a Floor broker on
the Floor of the Exchange via agency
interest files (‘‘e-Quotes’’) that include
discretionary instructions as to size and/
or price (‘‘d-Quotes’’). The discretionary
instructions that a Floor broker may
include with an e-Quote can relate to
the price at which the d-Quote may
trade and the number of shares to which
the discretionary price instruction
applies.
Rule 70.25(c) provides that a Floor
broker may designate the amount of his
or her e-Quote to which discretionary
pricing instructions apply. Floor brokers
may also designate a minimum or
maximum size of contra-side volume
with which the Floor broker is willing
to trade using discretionary pricing
instructions. However, under current
Rule 70.25(c)(iii), Exchange systems
currently look only at the contra-side
displayed interest on the Display
Book® 4 (‘‘Book’’) to determine whether
the contra-side volume is within the dQuote’s discretionary size range.
Therefore, the displayed bid or offer
must meet the minimum volume of the
d-Quote before a d-Quote can be
activated.
For example, assuming the Exchange
Best Bid and Offer (‘‘BBO’’) is .05 bid for
1,000 shares and offering 1,000 shares at
.08, a d-Quote bidding for .05 with four
cents of price discretion and a minimum
share volume subject to such
discretionary pricing instructions of
4,000 shares would not be activated
because the displayed offer of 1,000
shares is not sufficient to fill the
discretionary size instructions.
Accordingly, that d-Quote would not
trade.
Similarly, the d-Quote would not be
activated even if the Book has contraside undisplayed interest that could
meet both the discretionary pricing and
volume instructions of the d-Quote.
Taking the same example as above, if
3 The Exchange notes that parallel changes are
proposed to be made to the rules of NYSE Amex
LLC. See SR-NYSEAmex-2009-24.
4 The Display Book system is an order
management and execution facility. The Display
Book system receives and displays orders to the
DMMs, contains the Book, and provides a
mechanism to execute and report transactions and
publish results to the Consolidated Tape. The
Display Book system is connected to a number of
other Exchange systems for the purposes of
comparison, surveillance, and reporting
information to customers and other market data and
national market systems.
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]]>Agencies
[Federal Register Volume 74, Number 111 (Thursday, June 11, 2009)]
[Notices]
[Pages 27851-27854]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-13723]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-28758; 812-13619]
Nuveen Tax-Advantaged Total Return Strategy Fund, et al.; Notice
of Application
June 4, 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: Nuveen Tax-Advantaged Total Return Strategy Fund, Nuveen
Real Estate Income Fund, Nuveen Diversified Dividend and Income Fund,
Nuveen Multi-Strategy Income and Growth Fund, Nuveen Multi-Strategy
Income and Growth Fund 2, Nuveen Quality Preferred Income Fund, Nuveen
Quality Preferred Income Fund 2, Nuveen Quality Preferred Income Fund
3, Nuveen Senior Income Fund, Nuveen Floating Rate Income Fund and
Nuveen Floating Rate Income Opportunity Fund (each, a ``Fund'' and
collectively, ``Funds'').
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 all of the Fund's issued and
outstanding auction rate preferred shares (``ARPS'') 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 such post-Order debt has
asset coverage of at least 200% after deducting the amount of such
transaction.
Filing Dates: The application was filed on December 29, 2008, and
amended on March 27, 2009, and June 2, 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 June 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 Gifford R. Zimmerman,
Managing Director, Assistant Secretary and Associate General Counsel,
Nuveen Asset Management, 333 West Wacker Drive, Chicago, IL 60606.
FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at
(202) 551-6817, 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 Massachusetts business trust
and is a closed-end management investment company registered under the
Act. Each Fund is advised by Nuveen Asset Management (``Nuveen'') and
has issued and outstanding a class of common shares and a class of one
or more series of ARPS.
2. Applicants state that the Funds issued their outstanding ARPS
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 portfolio return (which
includes the return obtained from securities purchased from the
proceeds of ARPS offerings) that exceeds the dividend rate that the
Funds pay to holders of the ARPS. Applicants represent that ARPS
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
ARPS have a similar priority over dividends declared and payable on the
Funds' common shares. In addition, applicants state that ARPS are
``perpetual'' securities and are not subject to mandatory redemption by
a Fund (provided certain asset coverage tests are met). Further,
applicants state that ARPS are redeemable at each Fund's option.
3. Applicants state that prior to February 2008, dividend rates on
the ARPS for each dividend period were set at the market clearing rate
determined through an auction process that brought together bidders,
who sought to buy ARPS, and holders of ARPS, who sought
[[Page 27852]]
to sell their ARPS. 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 is 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 ARPS but at the specified Maximum Rate
rather than a market clearing rate. Applicants state that they had
experienced no unsuccessful auctions prior to February 2008.
4. Applicants state that the lead underwriter of the initial
placement of a particular series of ARPS (each a ``Lead Manager'')
would regularly place bid orders with its own capital in an auction to
help ensure that there would be a sufficient number of bid orders
relative to sell orders to permit an auction to clear. Applicants
represent that the auction mechanism generally provided readily
available liquidity to holders of ARPS for almost twenty years.
Applicants believe that many holders of ARPS relied on them as part of
a cash management vehicle, based in part on their expectation of ready
liquidity.
5. Applicants state that leading up to February 2008, the Lead
Managers began to experience financial pressures that led them to be
unwilling to hold ARPS on their balance sheets and to cease entering
supporting bids at ARPS auctions. Applicants state that beginning on
February 12, 2008, all closed-end funds advised by Nuveen that had
outstanding ARPS (including the Funds) experienced auction failures due
to an imbalance between buy and sell orders. Applicants also state that
they believe there is no established secondary market that would
provide holders of ARPS with the liquidation preference of $25,000 per
share. Applicants state that to date the Funds have redeemed
approximately 81% of their outstanding ARPS with, in part, borrowings
from (a) a commercial paper conduit facility, (b) a prime brokerage
facility, and (c) a bank line of credit, but have been prohibited from
replacing all of their outstanding ARPS because they would not have the
300% asset coverage required by section 18(a)(1) of the Act after a
full redemption of the ARPS. As a result, applicants state that there
is currently no reliable mechanism for holders of ARPS to obtain
liquidity, and believe that, industry-wide, the current lack of
liquidity is causing distress for a substantial number of ARPS
shareholders and creating severe hardship for many investors.
6. Applicants seek relief for a 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 ARPS in the near term\1\
while they either pay down or seek a more permanent form of replacement
leverage, such as a new type of preferred stock.\2\ 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 a borrowing transaction to
replace the leverage currently represented by the Funds' outstanding
ARPS, if it can be effected, might take several months following the
issuance of the Order. Applicants further state that once the debt
incurred in replacement of a Fund's outstanding ARPS is in place, it is
uncertain whether and when the applicants will be able to issue VRDP
Shares to replace the debt, or how quickly the securities and capital
markets will return to conditions that would enable the applicants to
achieve compliance with the asset coverage requirements that would
apply in the absence of the Order. Given the continuing unsettled state
of the securities and capital markets, the applicants believe that the
Exemption Period is reasonable and appropriate. Each Fund's refinancing
of ARPS would be subject to the Fund obtaining any necessary approval
of changes to the Fund's fundamental investment policies and approval
of the refinancing arrangements by the Fund's board of trustees
(``Board'').
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\1\ Each Fund notes that the cost of the replacement leverage is
expected, over time, to be lower than the total cost of ARPS based
on the Maximum Rates applicable to the ARPS of those Funds.
\2\ Applicants state that certain closed-end municipal bond
funds in the same group of investment companies as the applicants
(but none of the applicants) have issued Variable Rate Demand
Preferred Shares (``VRDP Shares''), a new type of preferred stock
that supplements or replaces existing ARPS. Applicants further state
that it is not certain that the Funds will be able to redeem all of
their ARPS through the issuance of VRDP shares.
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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 such 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 such class of senior security will have an asset
coverage of at least 200% immediately after such issuance or sale.\3\
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\3\ Section 18(h) of the Act defines asset coverage of a 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 the preferred
stock 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.\4\ 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 after
deducting the amount of such dividend, distribution or purchase price.
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\4\ 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 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
[[Page 27853]]
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 ARPS issued prior to February 1, 2008 that are
outstanding at the time of the Order with debt subject 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.\5\ 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 each Fund that borrows in
reliance on the Order will either pay down or refinance the debt within
the Exemption Period so that the Fund would, at the expiration of the
Exemption Period, comply with the applicable asset coverage
requirements (200% for stock or 300% for debt) under section 18 of the
Act.
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\5\ For purposes of the Order, ARPS refinancings refer to such
post-Order borrowings and any refinancings of such post-Order
borrowings until the expiration 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 ARPS is a unique,
exigent situation that is posing urgent, and in some cases, severe
hardships on ARPS shareholders. Applicants represent that the proposed
replacement of the ARPS with debt would provide liquidity for the
Funds' ARPS shareholders while the Funds continue their efforts to
obtain a more permanent form of financing (such as through the issuance
of VRDP Shares) that fully complies with the asset coverage
requirements of section 18.\6\
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\6\ 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 ARPS shareholders because they would 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 ARPS 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 ARPS with
borrowing.\7\ 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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\7\ 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 such as VRDP Shares 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 ARPS, 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 tailored, rapid, 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
trustees who are not ``interested persons'' (as defined in section
2(a)(19) of the Act) (``Independent Trustees''), shall have determined
that such borrowing is in the best interests of such Fund, its common
shareholders, and its ARPS 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 Trustees) 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 Trustees, 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,
the first two years in an easily accessible place.
[[Page 27854]]
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13723 Filed 6-10-09; 8:45 am]
BILLING CODE 8010-01-P
