Securities Exchange Act of 1934
Bank of America Corporation and Affiliates ("BAC")
Your letter dated April 27, 2011 requests the views of the Divisions of Corporation Finance and Investment Management as to the application of Section 30(h) of the Investment Company Act of 1940 (“Investment Company Act”) to the extent that it would apply the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 (“Exchange Act”) to BAC, while a beneficial owner of more than ten percent of a class of preferred stock of a Fund (a “Ten Percent Owner”), in respect of purchases and sales by BAC of VRDPS in BAC’s capacity as Liquidity Provider. Capitalized terms have the same meaning set forth in your letter.
You represent that the applicable dividend rate for the initial rate period for VRDPS to be issued by a Fund will be specified in the offering memorandum for the VRDPS. For each subsequent rate period, the applicable rate will be determined by the Remarketing Agent on each rate determination date as the lowest rate under then-existing market conditions that, in the Remarketing Agent’s sole judgment, would result in the VRDPS on the first day of the next rate period having a market value equal to the liquidation preference of the VRDPS plus accumulated and unpaid dividends. Generally, the dividend rate will be reset weekly by the Remarketing Agent, and dividends on the VRDPS will be declared daily and paid monthly on the first business day of each month to VRDPS holders at the close of business on the day immediately preceding the dividend payment date.
The VRDP Purchase Agreement will provide that, during its term, BAC as Liquidity Provider will have an unconditional and irrevocable obligation (the “Purchase Obligation”) to purchase outstanding VRDPS tendered to it following an Optional Tender or Mandatory Tender, or in the event of a Mandatory Purchase, at a price equal to the liquidation preference plus any accumulated and unpaid dividends (the “Purchase Price”).
The VRDP Fee Agreement will provide that BAC as Liquidity Provider will make available to the Remarketing Agent those VRDPS held by it pursuant to the VRDP Purchase Agreement for sale at the Purchase Price through participation in each subsequent remarketing, and BAC is expected to do so to the extent it holds VRDPS from time to time.
The VRDP Fee Agreement will require a Fund to redeem at the Purchase Price VRDPS held continuously by BAC as Liquidity Provider pursuant to the Purchase Obligation for a Specified Period of at least six months, during which such purchased VRDPS cannot be successfully remarketed.
Section 30(h) of the Investment Company Act provides that:
Every person who is directly or indirectly the beneficial owner of more than 10 per centum of any class of outstanding securities (other than short-term paper) of which a registered closed-end company is the issuer or who is an officer, director, member of an advisory board, investment adviser, or affiliated person of an investment adviser of such a company shall in respect of his transactions in any securities of such company (other than short-term paper) be subject to the same duties and liabilities as those imposed by section 16 of the Securities Exchange Act of 1934 upon certain beneficial owners, directors, and officers in respect of their transactions in certain equity securities.
Section 16 of the Exchange Act was designed to prevent the unfair use of inside information by corporate insiders for their own investment purposes. Section 16(a) requires each officer, director and beneficial owner of greater than ten percent of any class of equity security registered pursuant to Section 12 of the Exchange Act to file a statement with the Commission disclosing the number of shares of all equity securities beneficially owned, as well as reports regarding changes in that ownership.
You represent that because BAC as a Liquidity Provider will engage in the specified transactions as contractually provided, at times that are established in advance by the VRDP Purchase Agreement and the VRDP Fee Agreement, these transactions will not provide BAC while a Ten Percent Owner the opportunity to engage in the speculative abuse that Section 16 and Section 30(h) were designed to deter. You further represent that the liquidity to be provided by BAC as a Liquidity Provider serves the same policy goal to promote liquidity for an otherwise illiquid market that was recognized by Congress in enacting Section 16(d) of the Exchange Act. Consequently, you represent that requiring Section 16(a) reporting would impose an unnecessary burden on BAC in respect of purchases and sales of VRDPS in BAC’s capacity as Liquidity Provider.
Based on the facts and representations in your letter, the Division of Corporation Finance and the Division of Investment Management will not recommend enforcement action to the Commission against BAC with respect to Section 30(h) of the Investment Company Act to the extent that it would apply Exchange Act Section 16(a) reporting requirements to BAC in respect of the following transactions at the Purchase Price in BAC’s capacity as Liquidity Provider:
This position is based on the facts described and the representations made in your letter. Any different facts or circumstances may require a different conclusion. This response expresses the Divisions’ position on enforcement action only and does not express any legal conclusion on the question presented.
Senior Special Counsel
Office of Chief Counsel
Division of Corporation Finance
|James M. Curtis
Office of Chief Counsel
Division of Investment Management
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