Investment Company Act of 1940 — Sections 2(a)(3)(A) and 2(a)(3)(C)
Investment Advisers Act of 1940 — Section 206(3)

Auction Rate Securities – Investment Management Supplement to Global Relief Request

January 6, 2009

RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT

IM Ref. No. 20089161119 Davis Polk & Wardwell File No. 132-3

On September 22, 2008, a number of financial industry participants requested and received from the Divisions of Corporation Finance, Investment Management, and Trading and Markets no-action and exemptive relief addressing certain purchases of auction rate securities (the requesting letter, "Global Relief Request").¹ We refer to the facts in the Global Relief Request to avoid having to repeat them in this letter. Unless otherwise noted, capitalized terms in this letter have the same meanings as in the Global Relief Request.

Your letter dated December 30, 2008² requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (“Commission”) against the Participating Firms and certain registered closed-end investment companies ("Funds") with respect to the Participating Firms, under provisions of the Investment Company Act of 1940 (the “Investment Company Act”) and the rules thereunder applicable to the Funds, affiliated persons of the Funds or affiliated persons of affiliated persons of the Funds ("Affiliate Restrictions”) that would be triggered solely by the circumstances described in your letter. Your letter also requests our assurance that we would not recommend enforcement action to the Commission under section 206(3) of the Investment Advisers Act of 1940 (the “Advisers Act”) against a Participating Firm if a Participating Firm tenders or causes the sale of Subject Securities to the Participating Firm on behalf of an advisory account of an Eligible Customer for which the Participating Firm has discretionary authority ("Discretionary Client") without first obtaining the Discretionary Client’s affirmative consent, as more fully described in your letter.

Discussion

You state that, under the Settlements and the voluntary offers by the Non-Settling Firms, the Participating Firms’ purchases of Subject Securities issued by the Funds will be made as described in the Global Relief Request. You state that such purchases will be made for the purpose of providing liquidity to the Participating Firms' Eligible Customers. You further state that, as a result, a Participating Firm may become the owner of a significant percentage of a Fund's outstanding preferred stock. You state that, solely for this reason, the Participating Firm may become subject to the Affiliate Restrictions.³ You request assurance that we would not recommend enforcement action to the Commission against the Participating Firms or the Funds with respect to the Participating Firms under the Affiliate Restrictions if the Participating Firm or a Fund does not comply with the Affiliate Restrictions triggered solely by such ownership of the Fund's preferred stock, provided that the Participating Firm implements the “Voting Protocol,” as described in your letter.

You also state that the Subject Securities may be held in advisory accounts of Discretionary Clients of a Participating Firm. You state that, in certain circumstances, a Participating Firm may wish to exercise its investment discretion to tender Subject Securities on behalf of a Discretionary Client. You request assurance that we would not recommend enforcement action to the Commission under section 206(3) of the Advisers Act if a Participating Firm tenders or causes the sale of Subject Securities to the Participating Firm on behalf of a Discretionary Client without first obtaining the Discretionary Client’s affirmative consent, provided that the Participating Firm follows the “Discretionary Client Protocol,” as described in your letter.

Conclusion

Based on the facts and representations set forth in your letter, and in particular the circumstances underlying the Participating Firms' purchases of the Subject Securities, the public interest underlying the Settlements, and the Voting Protocol, we would not recommend that the Commission take enforcement action against the Participating Firms or the Funds with respect to the Participating Firms, under the Affiliate Restrictions that would be triggered solely by the circumstances described in your letter. Similarly, based on the facts and representations set forth in your letter, and in particular the circumstances underlying the Participating Firms' purchases of the Subject Securities, the public interest underlying the Settlements, and the Discretionary Client Protocol, we would not recommend that the Commission take enforcement action under section 206(3) of the Advisers Act against a Participating Firm if the Participating Firm tenders or causes the sale of Subject Securities to the Participating Firm on behalf of a Discretionary Client without first obtaining the Discretionary Client’s affirmative consent, provided that the Participating Firm follows the Discretionary Client Protocol.

This response expresses our views on enforcement action only and does not express any legal or interpretive conclusion on the issues presented. ⁴ Because our positions are based upon the facts and representations in your letter, any different facts or representations may require a different conclusion.

¹ The Global Relief Request is attached to Auction Rate Securities – Global Exemptive Relief, SEC Staff No-Action Letter (Sept. 22, 2008), http://www.sec.gov/divisions/corpfin/
cf-noaction/2008/arsger092208.htm.

² Your letter requests no-action relief not included in the Global Relief Request.

³ The Participating Firms’ purchases of Subject Securities issued by the Funds may result in an affiliation between a Participating Firm and the Fund within the meaning of Section 2(a)(3)(A) or, in certain circumstances, Section 2(a)(3)(C) of the Investment Company Act.

⁴ This letter confirms no-action relief provided orally by James M. Curtis of this office to Greg Rowland of Davis Polk & Wardwell on September 22, 2008.

Incoming Letter

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The Incoming Letter is in Acrobat format.