
[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 http://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


