The staff of the SEC’s Division of Investment Management (the “Staff”) issued a letter providing no-action relief to a number of financial industry participants (the “Participants”) from provisions of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and the Investment Company Act of 1940, as amended (the “1940 Act”), that could apply to, and as a result of transactions resulting from, the acceptance of offers made by the Participants to purchases auction rate securities (the “Securities”) issued by registered closed end funds (each, a “Fund”) from certain of the Participants’ current and former customers, generally individuals, charitable organizations and certain small businesses.  The impetus for the relief was that certain Participants had entered into agreements with the SEC, state authorities and/or self regulatory organizations to settle various kinds of enforcement proceedings pursuant to which the Participants agreed to make offers of the type contemplated by the relief  (the “Settlements”).  Relief was also sought to permit Participants that have not entered into Settlements to voluntarily offer to repurchase Securities from their customers and former customers (these offers along with offers pursuant to Settlements, the “Offers”).  The current no action relief supplements relief previously granted to the Participants with respect to various provisions of the Securities Exchange Act of 1934 addressing primarily tender offer and security ownership reporting issues raised by the Offers.  The current relief is contingent on the Offers being made in accordance with the protocol established in the prior relief. [Read more →]

The SEC staff recently granted affiliated broker-dealers (collectively, the “Broker-Dealer”) and related entities no-action relief from certain provisions of the Investment Company Act of 1940, as amended (the “1940 Act”), and the Securities Exchange of 1934, as amended (the “1934 Act”), with respect to a series of transactions contemplated in connection with settlements (the “Settlements”) previously reached by the Broker-Dealer with the SEC and certain state regulatory authorities.  Pursuant to the Settlements, the Broker-Dealer is required to purchase auction preferred stock (“APS”), issued by certain registered investment companies and held by its current clients, at par value plus accrued and unpaid interest or dividends.  (For additional background on APS, please see the July 1, 2008 Alert).  The Broker-Dealer proposes to refinance its purchase of the APS by selling the APS it purchases to certain unregistered trusts (the “Trusts”) to be formed with the Broker Dealer’s involvement.  In turn, the Trusts will sell (i) instruments similar to floating rate notes that are designed to be eligible for purchase by money market funds (the “Floaters”), and (ii) other residual securities, which will be purchased by an affiliate of the Broker-Dealer.  The Floaters will include a liquidity facility under which a liquidity provider is contractually obligated to purchase Floaters from their holders in the event one of the periodic remarketings, which are a feature of the Floaters, fails. [Read more →]