[Federal Register Volume 68, Number 164 (Monday, August 25, 2003)]
[Notices]
[Pages 51043-51045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-21658]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-26154; 812-12836]


Nuveen Real Estate Income Fund, et al.; Notice of Application

August 20, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 19(b) of the Act and rule 19b-1 under the Act.

-----------------------------------------------------------------------

    Summary of Application: Applicants request an order to permit 
certain registered closed-end management investment companies to make 
periodic distributions of long-term capital gains, as often as monthly, 
on their outstanding common stock and as often as distributions are 
specified in the terms of any series of preferred stock.
    Applicants: Nuveen Real Estate Income Fund (``NREIF''), Nuveen Real 
Estate Income Fund 2 (``NREIF2''), Nuveen Real Estate Growth & Income 
Fund (``NREGIF''), Nuveen Preferred and Convertible Income Fund 
(``NPCIF''), Nuveen Preferred and Convertible Income Fund 2 
(``NPCIF2''), Nuveen Diversified Dividend and Income Fund (``NDDIF'') 
(together, the ``Current Funds''), Nuveen Institutional Advisory Corp. 
(``NIAC''), and each registered closed-end management investment 
company currently advised or to be advised in the future by NIAC 
(including any successor in interest)\1\, or by an entity controlling, 
controlled by, or under common control (within the meaning of section 
2(a)(9) of the Act) with NIAC (together with NIAC, the ``Investment 
Advisers'') that decides in the future to rely on the requested relief 
(the ``Future Funds'' and together with the Current Funds, the 
``Funds'').\2\
---------------------------------------------------------------------------

    \1\ A successor in interest is limited to entities that result 
from a reorganization into another jurisdiction or a change in the 
type of business organization.
    \2\ All existing Funds currently intending to rely on the 
requested order are named as applicants, and any Fund that may rely 
on the order in the future will comply with the terms and conditions 
of the application.
---------------------------------------------------------------------------

    Filing Dates: The application was filed on June 16, 2002 and 
amended on August 15, 2003.
    Hearing or Notification of Hearing: An order granting the requested 
relief 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 September 10, 2003 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, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609. Applicants, Gifford R. Zimmerman, Nuveen Investments, 333 
West Wacker Drive, Chicago, Illinois 60606.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Office of 
Investment Company Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street NW., Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each of the Current Funds is organized as a Massachusetts 
business

[[Page 51044]]

trust and is registered under the Act as a closed-end management 
investment company. The primary investment objective of NREIF and 
NREIF2 is to seek high current income through investment in real estate 
investment trust (``REIT'') securities. The primary investment 
objective of NREGIF is total return, and NREGIF has a policy of 
concentrating its investments in REIT securities. The primary 
investment objective of both NPCIF and NPCIF2 is high current income 
through investment in preferred and convertible securities. The primary 
investment objective of NDDIF is high current income and total return, 
through investment in income producing and dividend-paying securities. 
Common shares of NREIF are currently listed and traded on the American 
Stock Exchange (``AMEX'') and common shares of NPCIF and NPCIF2 are 
currently listed and traded on the New York Stock Exchange (``NYSE''). 
It is anticipated that the common shares of NREIF2, NREGIF and NDDIF 
will also be listed and traded on the AMEX or NYSE. The preferred 
shares of NREIF (known as taxable auctioned preferred shares or 
``TAPS'') and NPCIF and NPCIF2 (known as ``FundPreferred shares'') are 
not listed on an exchange, but may be purchased and sold by investors 
at an auction (normally held weekly) with or through a broker-dealer 
that has entered into an agreement with the auction agent and the 
respective Current Fund. Applicants state that it is also contemplated 
that the preferred shares of NREIF2, NREGIF and NDDIF will not be 
listed on an exchange either, but will trade periodically at auction in 
the same manner as the TAPS and FundPreferred shares.
    2. NIAC, an investment adviser registered under the Investment 
Advisers Act of 1940 (``Advisers Act''), serves as investment adviser 
to the Current Funds. Security Capital Research and Management 
Incorporated (``Security Capital''), an investment adviser registered 
under the Advisers Act, is or will be the subadviser to NREIF, NREIF2 
and NREGIF. Spectrum Asset Management, Inc. and Froley, Revy Investment 
Co., Inc., investment advisers registered under the Advisers Act, will 
serve as subadvisers to NPCIF and NPCIF2. Security Capital, NWQ 
Investment Management Company, LLC, Wellington Management Company, LLP 
and Symphony Asset Management, LLC, each an investment adviser 
registered under the Advisers Act, will serve as subadvisers to a 
portion of the assets of NDDIF.
    3. The board of directors of each Current Fund (``Board''), 
including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act (``Independent 
Trustees''), of such Fund, each concluded that the proposed 
distribution policy of such Fund (``Distribution Policy'') with respect 
to its common stock would be in the best interests of the Fund's common 
shareholders.\3\ The Distribution Policy would permit each Fund to make 
periodic long-term capital gains distributions as often as monthly with 
respect to its common stock, so long as it maintains in effect a 
Distribution Policy with regard to its common stock of at least a 
minimum fixed percentage per year of the net asset value (``NAV'') or 
market price per share of its common stock or at least a minimum fixed 
dollar amount per year. Although applicants do not currently 
contemplate implementing a Distribution Policy for the preferred shares 
of the Current Funds, applicants request relief to permit each Fund to 
make periodic long term capital gains distributions with regard to any 
series of its preferred stock as often as distributions are specified 
in the terms of its preferred stock, so long as it maintains in effect 
a Distribution Policy with respect to such series of its preferred 
stock of a specified percentage of liquidation preference of such 
series of preferred stock, whether such specified percentage is 
determined at the time the preferred stock is initially issued, 
pursuant to periodic remarketing or auctions. Applicants believe that 
the discount at which each Fund's common stock may trade may be reduced 
if the Funds are permitted to pay capital gains dividends more 
frequently than permitted under rule 19b-1 under the Act. In addition, 
applicants state that to the extent that any of the Fund's preferred 
stock pays dividends less frequently than investors in that type of 
preferred stock would expect, such Fund is at a competitive 
disadvantage and, consequently, is likely to be required to pay a 
higher dividend rate on its preferred stock than issuers who pay at the 
desired frequency.
---------------------------------------------------------------------------

    \3\ The Boards of the Current Funds made the above determination 
at meetings held on the following respective dates: NREIF `` October 
3, 2001, NREIF2 and NREGIF--January 9, 2002, NPCIF--February 20, 
2003, NPCIF2--May 11-15, 2003, and NDDIF--July 28-30, 2003. 
Applicants state that if, in the future, the Board of each Current 
Fund decides to implement a Distribution Policy with respect to its 
preferred shares, such Board, including a majority of Independent 
Trustees, will make a similar finding prior to implementing such 
Distribution Policy in reliance on the order. Applicants state that 
the Board of each Future Fund intending to rely on the requested 
order, including a majority of its Independent Trustees, will make a 
similar finding prior to implementing a Distribution Policy with 
respect to the common or preferred stock of the respective Fund in 
reliance on the order.
---------------------------------------------------------------------------

    4. Applicants state that the Distribution Policy with respect to 
common stock of the Funds and any Distribution Policy with respect to 
preferred stock of the Funds will not be related to one another in any 
way. Applicants state that the Distribution Policy with respect to each 
Fund's common stock will be initially established and reviewed at least 
annually in light of the Fund's performance by the Board of the Fund.
    5. Applicants request relief to permit each Fund, so long as it 
maintains in effect a Distribution Policy, to make periodic long-term 
capital gains distributions, as often as monthly, on its outstanding 
common stock and as specified by the terms of any preferred stock 
outstanding.

Applicants' Legal Analysis

    1. Section 19(b) of the Act provides that a registered investment 
company may not, in contravention of such rules, regulations, or orders 
as the Commission may prescribe, distribute long-term capital gains 
more often than once every twelve months. Rule 19b-1(a) under the Act 
permits a registered investment company, with respect to any one 
taxable year, to make one capital gains distribution, as defined in 
section 852(b)(3)(c) of the Internal Revenue Code of 1986, as amended 
(the ``Code''). Rule 19b-1(a) also permits a supplemental distribution 
to be made pursuant to section 855 of the Code not exceeding 10% of the 
total amount distributed for the year. Rule 19b-1(f) permits one 
additional long-term capital gains distribution to be made to avoid the 
excise tax under section 4982 of the Code.
    2. Applicants assert that rule 19b-1 under the Act, by limiting the 
number of net long-term capital gains distributions that the Funds may 
make with respect to any one year, would prevent implementation of the 
Funds' proposed Distribution Policy. Applicants state that because each 
Fund expects to realize net long-term capital gains as often as every 
month, the combination of Revenue Ruling 89-81 and the accounting 
interpretation relating to rule 19b-1 would cause each Fund to treat a 
portion of such net long-term capital gains as being distributed each 
time it has incremental or undistributed long-term capital gains for 
the current distribution period. Applicants state that Revenue Ruling 
89-81 takes the position that if a regulated investment company has two 
classes of shares, it may not designate distributions made to either 
class in any

[[Page 51045]]

year as consisting of more than such class's proportionate share of 
particular types of income, such as capital gains. Consequently, 
applicants state that any payments of long-term capital gains to 
holders of common stock require proportionate allocations of such long-
term capital gains to the preferred stock, which can be extremely 
difficult to do.
    3. Applicants submit that one of the concerns leading to the 
enactment of section 19(b) and the adoption of the rule was that 
shareholders might be unable to distinguish between frequent 
distributions of capital gains and dividends from net investment 
income. Applicants state that the proposed Distribution Policies, 
including the fact that the distributions called for by the policies 
may include returns of capital to the extent that a Fund's net 
investment income and net capital gains are insufficient to meet the 
fixed dividend, will be fully described in the Funds' periodic 
communications to their shareholders, including the periodic report to 
shareholders following the institution of any such policy. Applicants 
state that, in accordance with rule 19a-1 under the Act, a statement 
showing the source or sources of the distribution would accompany each 
distribution (or the confirmation of the reinvestment thereof under a 
Fund's common stock distribution reinvestment plan). Applicants state 
that, for both the common stock and the preferred stock, the amount and 
sources of distributions received during the calendar year will be 
included on each Fund's IRS Form 1099-DIV reports of distributions 
during the year, which will be sent to each shareholder who received 
distributions (including shareholders who have sold shares during the 
year). Applicants state that this information, on an aggregate basis, 
also will be included in each Fund's annual report to shareholders.
    4. Another concern underlying section 19(b) and rule 19b-1 is that 
frequent capital gains distributions could facilitate improper 
distribution practices, including, in particular, the practice of 
urging an investor to purchase fund shares on the basis of an upcoming 
distribution (``selling the dividend'') where the dividend results in 
an immediate corresponding reduction in NAV and would be, in effect, a 
return of the investor's capital. Applicants submit that this concern 
does not apply to closed-end investment companies, such as the Funds, 
which do not continuously distribute their shares. Applicants also 
assert that by paying out periodically any capital gains that have 
occurred, at least up to the fixed periodic payout amount, the Funds' 
Distribution Policies help avoid the buildup of end-of-the-year 
distributions and accordingly help avoid the scenario in which an 
investor acquires shares in the open market that are subject to a large 
upcoming capital gains dividend. Applicants also state that the 
``selling the dividend'' concern is not applicable to preferred stock, 
which entitles a holder to a specific periodic dividend and, like a 
debt security, is initially sold at a price based on its liquidation 
preference, credit quality, dividend rate and frequency of payment. In 
addition, applicants state that any rights offering will be timed so 
that shares issuable upon exercise of the rights will be issued only in 
the 15-day period immediately following the record date for the 
declaration of a monthly dividend, or in the six-week period 
immediately following the record date of a quarterly dividend. Thus, 
applicants state that, in a rights offering, the abuse of selling the 
dividend could not occur as a matter of timing. Any rights offering 
also will comply with all relevant Commission and staff guidelines. In 
determining compliance with these guidelines, a Fund's Board will 
consider, among other things, the brokerage commissions that would be 
paid in connection with the offering. Any offering by a Fund of 
transferable rights will comply with any applicable National 
Association of Securities Dealers, Inc. rules regarding the fairness of 
compensation.
    5. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or class or classes of any persons, 
securities or transactions from any provision of the Act, or from any 
rule thereunder, if such exemption is 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. For 
the reasons stated above, applicants believe that the requested relief 
satisfies this standard.

Applicants' Conditions

    Applicants agree that the order granting the requested relief with 
respect to the Funds' common stock shall terminate with respect to a 
Fund upon the effective date of a registration statement under the 
Securities Act of 1933, as amended, for any future public offering of 
common stock of the Fund after the date of the requested order and 
after the Fund's initial public offering other than:
    (i) A rights offering to shareholders of such Fund, provided that 
(a) shares are issued only within the 15-day period immediately 
following the record date of a monthly dividend, or within the six-week 
period following the record date of a quarterly dividend; (b) the 
prospectus for such rights offering makes it clear that common 
shareholders exercising rights will not be entitled to receive such 
dividend with respect to shares issued pursuant to such rights 
offering; and (c) such Fund has not engaged in more than one rights 
offering during any given calendar year; or
    (ii) An offering in connection with a merger, consolidation, 
acquisition, spin-off or reorganization; unless the Fund has received 
from the staff of the Commission written assurance that the order will 
remain in effect.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-21658 Filed 8-22-03; 8:45 am]
BILLING CODE 8010-01-P