
[Federal Register: May 14, 2009 (Volume 74, Number 92)]
[Notices]               
[Page 22769-22772]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my09-75]                         

-----------------------------------------------------------------------

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 
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 http://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'').
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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(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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \5\ See supra note 2.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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
