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Name Not Public 10/29/99

October 29, 1999

This letter responds to your April 27, 1999 letter in which you request an exemption from the application of NASD Conduct Rule 2710 ("Corporate Financing Rule" or "Rule") on behalf of members that participate in offerings of common shares of [certain closed-end investment management companies] established by [issuing entities]. NASD member affiliates of the [issuing entities] include[related broker/dealers].

Open-end investment management companies ("open-end funds") that continuously offer redeemable securities are exempt from filing with the NASD under the Rule and their sales charges are regulated under NASD Conduct Rule 2830.1 In contrast, closed-end investment management companies ("closed-end funds") are subject to the filing requirements, filing fees, and regulations of the Corporate Financing Rule. In addition, closed-end funds are subject to the core provisions of the Investment Company Act of 1940 ("1940 Act") that also apply to open-end funds, including prohibitions on affiliated transactions, obligations requiring shareholder approval of advisory contracts, anti-pyramiding restrictions, and board composition requirements. However, such funds are not subject to other 1940 Act restrictions applicable to open-end funds, including limitations on leverage and obligations pertaining to the liquidity of investments.

[The issuer] has requested an exemption from the filing requirements of Rule 2710 for certain closed-end funds established by [the issuing entities] that are structured to continuously offer their shares under Rule 415 under the Securities Act of 1933 and use periodic tender offers in compliance with Rule 13e-4 and Schedule 13E-4 under the Securities Exchange Act of 1934 ("1934 Act") to repurchase their shares ("tender offer funds"). Such tender offer funds are not required to establish as a fundamental policy that they will make periodic repurchases, as required by Rule 23c-3 under the 1940 Act ("interval funds"). However, you state in your letter of April 27, 1999 that the two [issuer] funds referenced above have made tender offers, at net asset value, for all or a portion of their outstanding common shares every quarter since commencing investment operations in order to replicate in some degree the redemption features offered by an open-end investment company. You further state that [the issuer] pays a three percent commission to broker/dealers that sell the common shares of the two referenced funds from its own assets. In addition, [the issuer] compensates such broker/dealers quarterly based on a percentage of the value of the common shares that remain outstanding. The total amount of the commission and the quarterly fee is in compliance with the limitations of NASD Conduct Rule 2830. Finally, you state that such funds are not listed for trading on any market nor trade in the secondary market.

The Corporate Financing Rule, and its predecessor rule, has long been applied to members’ sales of the securities of closed-end funds on the basis that closed-end fund offerings are structured and marketed in a manner that is more similar to and competitive with corporate securities offerings than to open-end funds. At the time the Rule was adopted, closed-end funds conducted offerings of a fixed number of common shares at specified times; priced their shares periodically; limited sales compensation of broker/dealers to a discount from a fixed offering price; did not redeem their securities; and generally listed their securities on a securities market.

You state in your letter that tender offer funds should be exempt from the application of Rule 2710 because, in comparison to traditional closed-end funds, they function more like open-end funds in that they continuously offer common shares under SEC Rule 415; price their shares daily; pay broker/dealers initial and continuing compensation that meets the sales charge limitations of Rule 2830; redeem their securities through periodic tender offers; and do not list their securities on a securities market. We note, however, that unlike interval funds, tender offer funds are not required to establish as a fundamental policy that they will make periodic repurchases in compliance with the conditions of Rule 23c-3 under the 1940 Act. Instead, tender offer funds use periodic tender offers to repurchase their securities under Rule 13e-4 and Schedule 13E-4 under the Securities Exchange Act of 1934.

The Department agrees to grant an exemption pursuant to the Rule 9600 Series to participating NASD members from compliance with Rule 2710 for sales of common shares of current and future tender offer funds established by [the issuing entities], so long as the tender offer fund makes continuous offerings of common shares under SEC Rule 415; prices its shares daily; limits the total amount of compensation paid to broker/dealers to the amount permitted by Paragraph (d) of Rule 2830; conducts at least four tender offers per calendar year for the fund’s securities under Rule 13e-4 and Schedule 13E-4 under the 1934 Act; and does not list its securities on any securities market. In addition, as a condition of the exemption, any member that participates in sales of common shares of a tender offer fund established by [the issuing entities] that relies on this exemption is required to comply with the provisions of Rule 2830, as if the offering were of securities of an open-end fund.

NASD Regulation, Inc. has its own Web site. When we believe that others may benefit from seeing particular exemption requests, we publish our decision (but not the request letter) in a section of our Web site designed for exemption requests. You have advised that you would not have any objection if we decided to follow this procedure with respect to this decision, so long as identifying information is removed.

Very truly yours,

Joseph E. Price, Director
Corporate Financing Department

1 Section 5(a)(1) of the Investment Company Act of 1940 ("1940 Act") defines "open-end company" as "a management company which is offering for sale or has outstanding any redeemable security for which it is the issuer." Section 5(a)(2) of the 1940 Act defines "closed-end company" as "any management company other than an open-end company."