SEC Division of Investment Management staff letter: Lehman Brothers Daily Income Fund

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
DIVISION OF

INVESTMENT MANAGEMENT
J C A 1- ( c¡ C/O ,
ACT July 7, 1995

SE"'TION Ii(a)~
RULE
PUBLIC
Ms. Sarah E. Cogan AVAIILIT 7 - 7- 9S
Simpson Thacher & Barlett
425 Lexigton Avenue

New York, NY 10017-3954

• Re: Lehman Brothers Daily Income Fund
  Dear Ms. Cogan:

Your letter of July 7, 1995 requests our assurace that we would not recommend that the Commission tae any enforcement action under sections 17(a), 17(d) and 12(d)(3) of the Investment Company Act of 1940 (" 1940 Act") and the rules thereunder if Lehman Brothers Daily Income Fund, a portfolio of Lehman Brothers Funds, Inc. ("Fund"), and Lehman Brothers Holdings Inc. ("LBH") effect the trasaction summaried below and more fully descnbed in the letter. The Fund is a money market fund that seeks to mainta a stable net asset value per share of $1.00, and uses the amortized cost method of valuation in valuing its portfolio securities as permitted by rule 2a-7 under the 1940 Act. The Fund holds taable notes issued by Orange County, Caliornia in the pricipal amount of $40 milon (approximately The Securities pay interest 5.8% of net assets) that mature on July 10, 1995 ("Securities").

at a rate equal to one-month LIOR, and the maxum interest rate is "capped" at 12 %. As a result of the Orage County bankptcy fi1g on Decmber 6, 1994, the Fund was unable to obtain reliable market quotes for these Securities, and it determined the fair values of the Securities to be less than their amortized cost values.

In December 1994, LBH entered into an agreement with the Fund in order to avoid potential loss by shareholders of the Fund ("Argement").! Under the Argement, the Fund has the abilty each day to require LBH to purchase at par plus accrued interest such portion of the Securities as may be necessary to result in the mark-to-market caculation of the Fund's price per share being not less than $0.997; Under the Argement, LBH is obligated to purchase the same portion of the pricipal amount of the Securities from the Fund on July 10, 1995 (the fmal maturity date of the Securities). The Fund continues to hold the Securities, and carres a ponion of the Securities in an amount that reflects their amortized cost values (their par values plus accrued interest) based on the Argement. The Arrngement was entered into after the staff of the Division of Investment Management informed LBH and the Fund that it would not recommend to the Commission enforcement action against the parties if the Arrngement was effected. You represented in your letter of December 9, 1994 that LBH had the highest ratings on its short-term debt obligations from the "Requisite NRSROs" (as defined in paragraph (a)(l3) of rule 2a-7 under the 1940 Act).

Ms. Sarah E. Cogan

The Fund has been informed that Orange County, in all likelihood, wil not make the scheduled principal payment due on the Securities on July 10, 1995. Rather, Orange County has proposed, and the Banptcy Court has approved, an amendment, substitution or extension of the Securities ("Amendment") that would, among other things, extend the maturity date of the Securities to June 30, 1996 and contain certin other terms ("Amended Securities"). The interest rate on the Amended Securities would be equal to one-month

LIOR, plus 0.95 % subject to a 12 % "cap." A portion of the interest on the Amended Securities would be payable monthly, and a portion of the interest would be accrued and paid to the Fund at a later date. As a result of these developments, you state that LBH wil obta a letter of credit from Chemical Bank ("Chemical Ban")2 which is summaried below and more fully describeCl. in your l.etter.of July 7.-1995 ("LOC"). The LOÇ wil provide for the payment of $43 millon to the Fund ($40 milon attributable to pricipal and $3 milion attributable to interest), and the Fund wil have the unconditional right to draw on the LOC if scheduled interest and principal are not paid when due under any circumstaces, including a repudiation by Orage County of its obligations under the Amended Securities. LBH wil agre to reimburse Chemical Bank for any payments made to the Fund under the LOC.

Under the LOC or pursuant to an agreement with LBH ("Agreement"), the Fund wil recive the higher of (i) interest accrued at an anualed rate, reset monthly, of LIOR plus 0.50% with no "cap" or (ü) interest accrued at the rate provided under the Amended Securities (interest accrued at an annualied rate, reset monthly, of LIOR plus 0.95 % subject to a 12 % "cap"). Finally,LBH reserves the right under the Agreement to purchase

the Amended Securities from the Fund at a piice equal to the greater of their amortized cost values (par values plus accrued interest) or their market values. You represent that the board of directors of the Fund, including a majority of the diretors who are not "interested persons" of the Fund as defmed under section 2(a)(19) of

the i 940 Act, has determined that it is in the best interests of the Fund and its shareholders not to require LBH to purchase the Securities on July 10, 1995 pursuant to the Argement, but, rather, to accept the Amended Securities subject to the LOC and the Agreement. This determination was based, in part, on an evaluation of the credit qualty of Chemical Bank and the interest rate provided by the LOC or the Agrement. You also represent that the board of directors of the Fund has determined that the Amended Securities, together with the Agreement and the LOC, are "Eligible Securities" as defined in paragraph (a)(5) of rule 2a-7 under the 1940 Act, and present minimal credit risks as required by paragraph (c)(3) of that rule.3 Finally, you state that the amount of the LOC :: You represent in your letter of July 7, 1995 that Chemical Bank currently has the highest

ratings on its short-term debt obligations from the "Requisite NRSROs" (as defined in paragraph (a)(13) of rule 2a-7 under the 1940 Act). We note that the Fund wil hold more than five percent of its total assets in the Amended Securities. Rule 2a-7 under the 1940 Act generally prohibits a taable money market fund from investing more than five percent of its total assets in securities issued by a single issuer, determined at the time the securities are acquired. See paragraph (c) (4) (i) of rule 2a-7. In your letter of July 7, you assert, and we agree, that the Fund is not required to treat its acceptance of the Amended Securities, subject to the LOC and the Agreement, as the acquisition of a new security for purposes of determining its compliance with the diversification standards of rule 2a-7.

3

Ms. Sar E. Cogan

attributable to interest is based on the interest rate projections of the Fund's investment adviser, Lehman Brothers Global Asset Management Inc., thrugh the fmal maturity date of the Amended Securities. On the basis of the facts and representations in your letter, we wil not reommend enforcement action under sections 17(a), 17(d) and 12(d)(3) of the 1940 Act and the rules thereunder. You should note that any different facts or reresentations might reuir a different conclusion. Moreover, this response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. Sincerely, Pa2~ Robert E. Plaz Assistat Director

SIMPSON TBACHB.l a BARTLETT
A 1',\1IHI wm II PI l'*''OA'r1

402~ LBxiHOT(Ul AVENUE
NZ' YOlU, N. Y. ioot?'-~i9G4 l..il:l 4~l'~2000 LOl'IXN HOlm KONO

Tai.cuJ:UUl' ..tll.a1502 TOKYO WRI"itB Dumcr DIA NvlUllR TiLI1129U:l8 CO¡:I¡JUU1B (212) 455-2000 July 7, 1995 Mr. Robert E.Plaz Assistant Direct

Offce of Di sclosur and

Investment Advi~er Regulation

Division of Investment Management
Securties and Exchange Commssion

450 Finh Street N.W.

Mail Stop 1 0~6

Washingtn, D.C. 20549

Deur Mr. Plaz:

We arc wrtin.g on behalf of Lehan Brothers Holdigs Inc. ("LBB"), an affliated person of an affliatcd peron of Lehman Broer Daily Income Fund (the "Fund"), a portfolio of Lehan Brothers Funds, Inc. (the "Compay"), We seek assurce fr the statT (the iiSta') of the Division of Investment Mageent that it wil not recmmen enforement acton to the Secties and Exchange Comission (the "Commssion") under Sections i 7(a), 17(d) or 12(dX3) of the Investmt Company Act of 1940, as amended (the" 1940 Act"), or the rules thernder, if the Fun und LBH enter into the trsactions described below in place of cer existig argements. 9 IG # ~ SSCGtOSGOG ~t-~ ~VH NOdNIS Lt:tl SS-L -L t-~ W.S:AH OOS

i
SUìPSO!l TJi(;iu:~ &. BARTLETT
.2- July 7, 1995 Mr. Rober E. Plaze
The Fund is a diversified portfolio of the Compay. which is rest with the Commission under the 1940 Act as an opn-e management invesent copany. The Fund, a money ma.rket fund, ~eks to maintain a stable net asset value per share of $1.00, and uses the amorize cost method of valuation in valuing its pofolio secuties

38 provided for in Rule 2a-7 under the 1940 Act ("Rule 2a-7"). The Fund's investment adviser is Lehman Brothers Global Asset Management Inc. ('ILBGAM"), a wholly-owned subsidiary or LBH. The Fund holds in its portfolio taable commerial paper (the "Notes") issued by Orange ('..uunty on July 8, 1994, which matucs on July 10, 1995. The Fund currntly holds $40,00,000 in principal amount of the Notes, whieh reresented apprximately 5.8% of the Fund's pofolio as of the date heref. On Decmbe 6, i 994, Ornge County filed for relief under Chaptcr 9 of the United State Bankruptcy Coe. Because of Orange County's bankIpty and the reulting disrtion of the municipal

marets, LBH, on December 8t 1994, off to enter into an arngement with the Fund with respect to the Notcis providing the Fund with the abilty to cause LBH to purhase a poion of the Notes frm thc Fund at par plus acced intereir (amortze cost) for a nincty..y perod. By leter date Deembe 9 and Deember 12, 199, LßH reucste that thc Staff grt no-action relief with respect to thc arangement puruat to Secons i 7 and 12 under thc 1940 Act. The Staff grted orl no-action relief. On Marh i,

1995t the Staff grte additional oral no-action relicf reng the cxensÎO of the argement to the maturity of the Notes. n ,n ~'non?~nn?n? ~~_~ ~~WUI ~~Jall~ "~'~T 'C~-'-J fJ-)( su~: U:I H.r:~

SIH.PScm TSi\CIIBn & BAlrLl!TT
Mr. Robert H. llaze -3- July 7, 1995
Pursuant to the arrngement between the Fund and LBH, the amount of the Notes subject to the arangement adjusts each day based on whether the Funds mark-to maret calculation of the Notes (withou giving effect to the arngement) on a paricular day together with the oter securties in the Fund's portfolio would be less than 99.7%.

The Fund has the abilty eah day to reuire LBH to purchase, at pa plus 1ll."TUOO

interst, such portion or the Notes as is neccssary to result in the mar-tomarct the Fund's poolio being not less than 99.7%. If LBH's short-ten debt securties arc dOWßbTfed such that they are no longer raed "First Tier" (as defined in calculation of

Rule 2a-1) by the "Requisite NRSROs" (as defined in Rule 2a-7), LBH is reuire to

purchase that portion of the Notes necessar to maintain the mark-romaket calculation at not less than 99.7%. In addition, LaH is obligated to purchase a simi1aT' prncipal

amount of the Notes fro the Fund at maturity.
As stated above, principal with respect to the Note is curently due on July 10, 1995. Intcr!l with fClipCL1. to the Notes is payable monthly at an anual ratc equal to

UBQR, subject to a monthly rCRct and a maximum interest rate level or "cap" of 12%. While the County ha~ made all intest payments with respe to the Notes to dat.e, the County iii not expected to pay the principal due on the Notes on July 10. On June 2, 1995, the County tiled with the Bankr Co a prllcd stpuation and agreement (the "Extension Agreeent") rearding an amendment, substituton or extension of the Notes (the "Amended Notes"). On June 27, the Banknptcy Cour apved the stipulation, as amended and the Extension Agreeent. Under the Extension Agrent, 9 It #~gSCGtOg606 ~t-~ ~VH NOdNIS 9t:tl gS-L -L ~ t-~ ais: Áa iN3S

SIMPSON TIlACIJEU Be BAlTLETT
-4- July 7, 1995 Mr. Robert E. Plaz the matunty of the Notes wil be extended to June 30. 1996. Interest on the Note will continue to accrue base on the curt formula rate. A poion of the monly int.st

will be paid in cac¡h based on a formula tied to the eags on the reyment reseres for the Notes, with the remaining accring portion payable at matty. In adition, under

the Extnsion Agreeent the County wil pay to the holder of the Notes at maturity an additional amount equal to .95% or the principal amunt of the Note held by eah such holder. as compensation for the costs assoia.ted with the banptc of the County. Under the Extension Abrreement and the stipulation, the Coty has waived cein grunds for challenging the validity of the Notes while rctaining cein other grunds. principally the allegation that the Notes wer issued for an improper pursc and that the securty interest in the reserves set aside to pay the Notes was not perfecte. In 1 i ght of the Extension Agrement and the expection that the matuty of Lhe Notes wil be extended, it is prposed that a th-par leter of credit (the "LOC")

be obtained for the Fund frm Chemical Bank ("Chemical Bank") to tae the plae of the Fund's currt arngemen with LBH. The LOC would be in the amout of $43 milion ($40 milion attbutable to prncipal and $3 milion atbuble to int) an would guarante the payment of all principal and interest due on the Notes up to the maum amount of the LOC. Chemical Bank curtly is rate Fir Tier by the Requisite NRSROs. The Fund would have the unconditional right to drw on the LOC if scheduled principal an inteest payments were not made when due under any circumstaces, including if Orge Coty reudated ib obligations under the Amended

S /£ # ~ £G~GtO£GOG ~t-ä ä3VH NOJN I S ~ St: t 1 gg-L -L t-ä QlS:Ag .LNdS

SIll.P50.f TN Acril!n & BARTLETT
Mr. Rober E. Plaz -5- July 1, 1995

Notes. Puruant to an agreement between LBH and Chemical Bank, LBH would reimburse Chemical Bank for any payen to thc Fund under the LOC. Since the Notes are varable rate securtics, th amt of the LOC atbutable to interest bas been based on LBGAM's intercst rate forecast through the maturity of the Amended NotcH. Puuant to an agrement with the Fun (the ll Agreement"), LBH wil agr to pay any additional amouts in the event that the amount of the LOC is insuffcient to pay all prncipal and interst on the Amended Notes when due. Further,LBH has ágrcd thafthe Fund-wil reeive either puruat to the Amended N()tes or the Agrment the higher of (i) interst accrued at an annualized rate, reset monthly, of LilOR plus .50%. with no "cap" on the rate or (ii) inteest accrued at the rate proposed under the Amended Not. which is an annualiz rate, ret monthly,

of LIBOR plus .95% with a "cap'. of 12%. Pursuant to the Agrement, LBH would have the right to require the Fund, at any time prior to the June 30, 1996 matuty date of the to the greater of Amended Notes, to sell some or all of the Notes to LBH at a price equa

par plu.~ accrued interest or market.
The LOC and the Agreeent have bee approved by the Boa of Dictors

of the Fund, including a majonty of the Direor who ar not "inerted pens" of the Fund as defined under Section 2(a)(19) of the 1940 Act, subject to the receipt of the Fund has approate relief frm the Staff In adition, the Bord of Dire of

dircted that the Fund fr time to time exercise its rights under the LOC an the

Agrment upon the occurence of an event or events entitling it to paymt thereunder. 9 /9 #: S8S~tOS~O~ ~t-M M3VH NOdNIS : 8t:tl S8-L -L t-M S!S: AS !N3S

SniPSOl TSACKßil 8; BA.B"Ln1"r
July 7, 1995
Mr. Robert l: Plaz -6
In conection with its appval, thc Boar of Dirct1o~ of thc Fund, upo the

representaions and recomendations of LBGAM, detincd th, if this wer a new

investment decision, the Amended Notes, the LOC an the Agrent, combined, would result in an investment by the Fund in an "Eligible Seeurity" (as defied uner Rule 2a-7) preseti.ng minimal credit risk; and deterined that it was in the best interst of the Fund and its shareholder nol to require LBM to purhase the Noles under the curt

arangement, but, rather, to accept the Extension Agrement, the Amened Notes, the

• LOe and the Agrement. With respect to the diversification reuirents under Rule 2a￾7(c)(4)(i), thc Fund wil not treat the extension of the maturity of
  the Note a., an acquisition of a new security. It is ou understanding that the Staff is in accordancc with this view. As indicated above. LBH is obligate to pay the amount of any shorall in

the amount of the LOC covering interst payments. In view of the ters of the LQC,

including the amount of the LOC attbutble to interest. reliance upon the crcditwortiness of LBH is an insignificant aspet of this trsation.

As indicated above, LBH is an "affliated pern" of an "affliated pe" or

the Fund under Section 2(a)(3) of the 1940 Act since, as descrbed above, LBGAM is the investment adviser of tbe fiund. The prosed trsaction may fan wiin Section 17(a)( 1) of the 1940 Aet, which makes it unlawfl for any afliate peon of a

registere investment copany or any affliate peon of such pc acting as principal to knowingly sell any secity or oter pr to the invesent coany. In adtion. o J J ~ ~ C~Q7.~nc7. n 7. ~~-~ ~vu.,. ~~,~ Rt:tT QR-i' -L t-)I S:U.~: J.s: .It~

SXMPSQN 'lUACUBR & BAJ1.ST1'

Mr. Rober E. Plaz -7- July 7~ 1995 the trnsaction may fan within Scction 17(a)(2) of the i 940 Act. whch maes it unlawfl for any affliated perso of a registere invcscnt copay or any affliated pe of such perso acting as principal to knowingly puhae any seurty or oter prpe frm the investment company. The prsed trsacion may also fall within Section 17(d) of the 1940 Act, which generally prohibits investment copanies and their affliates. or affliates of affliados, rrom engaging in "joint 1rsactions." The Fund and LBH believe that the LOC and the Agrent arc in the best

interest of thc Fund and its sharholder. LBH and the Fund hereby requc!;t that the Staff give its assurance that it will not recommend that the Commission tae enforcement action against LBH or the Fund under Sections 17(a) or 17(d) if LBH and the Fund enter into the Agreement and the Fund obtins thc LOC, and if the paies engage in the trasactions contemplated therby. To the extent that the foregoing arrangements may

rclise issues under Section 12(d)(3) of the 1940 AL1, we also request assurce that the Staff will not recommend that the Comission lae enforement acon agaist LBH or the Fund under such provision of the 1940 Act. If you have any questions or oter communications cocering this matter. plea.c;e can Sar E. Cogan at 212-455-3575 or James J. Burns at 212-455w7083. ..1LJ. t-\1o-lJ

SIMPSON THACHE & BARTLETl o 10 ~'~D~7~n07n7 _~ Y3~til ~JWIC nCT Ci:-J -I. ti-)1 S:U.~: J.Sl .it~

TO PAGE. øØS : DEC 12 '94 21: 41 FROM SIMPSON THATCHER T2

SJ:'M:PS()~ TøACH'ER . BAR1'Li:n:
.f ",.ii..ørJl -..'''. ¡ .. ~ A,VEl'tlP.

Nsw "ioi, N.Y. 10017.0915
11W: 455..00 LOll:01/
Ro)."( Jt(/Cl
TOK'n w..1I iiT 1)...1. N..-" fiucCla: 4&$-11$0 Tir.lt.12015& COL\lK"i:S (212) 455-200 FREEDOM OF INFORMTION ACT CONFiD~TIAL TREATMNT REOUE$I'D Deceber 9, 1994 Via Facsimle J(eth J. Ber Dety Offce Chef

Offce of Disclos an Iuvcsmt
Adviser Reation
Division of Jnvçstmt Management
U.S. Secunûes and Exchange Çoi5siori

450 Fift Street, N.W,

Mail Sto 10..
Washi P.C. 20549
Re: Lehman Brothers Daily Incoe Fund
Dear Mr. Berman:
We ar wrtig on ~ba1 of Leluan Brother 'Holdings Inc. (the H Afliate"), an affliated pewn of an affliated pen of Leh Broten Daily lnCQe Fu (the:
"Fun"), a poolio of Lean Broter Funs. In. (th "Coipany"). We seck

a.ouurCC friu the staf (the "Staff') of the Division of luvcstt Managet (the not recoend enorceeut acon to the Secuties and Excbange "Division") th it wil

eoission (the "Commission") uner Secn 11(a) of the lovcstc:t Copan Act of

1940, as amde (the: "194 Act"), or the rues th. if th F\1 an the Afflite

enter iDtO the t:on5 descnDe below.
The Fund is a diverifed polio of tbe Coy, which is rest with the eomission uner the 1940 Act as an op-e manageent invesen coy. The Fund's i.vesent adviser is Lean 8rotlicr Glob -\ct Mangement Inc. (the If Adviser"), a whlly owed subai of the Afflia The Fund, a mf)ey niet fud. CONFIDENTIAL TREATMENT WAIVED

BY COUNSEL.

NOTATION BY THE DIVISION OF

INVESTMENT MANAGEMENT 7/25/95.

TO PAGE.007
~ DEC, 12 ' 94 21: 41 FROM 5 I MPSON THATCHER T2

SUCP50N T-l..c:RER Be B.."TLZT'
J)ber 9. 199 f Division of Invesent Mangeen -2 seks to maiDin a stable net asse value pe shar of $1.00. and use the amrt cost method of vauaon in valuing its portlio seties as proed for in Rule 2a-7 under the date as as of

the 1940 Act ("Rule 2&-7"). APPlOxie1y 6% ofth Fon's net

herccf cosist of certn debt securities (the "Securities") 1& mor fuy descbe below. As a reslt of the Orge County, Calif bmktc, th Fun has exence diffoulties in obtaining reliable mat qoote for the Seurties. The Securities coist of $40,000,00 in prncipal amount of tale eoml pap issued by Ore Couty and purbas by the fund on July 24, 199. The Sei.es mat on July 10.
1995. The CUSIP number of the Securties is 68201 EL6.
Becus of the Orge Conty bapt an the resug disti of the

muncipa maet the Affliae, on Deceibc S. 199, off to ente iuto an agent with the Fun wi reec to the Seures prdig the Fun with th abiity to put a poon of th seurties to th Affli at par plus ac iit (aiored oo) fu a

ninet-dy period. The amunt of the Seties sujec to th put ad ea day based the Seures (witbou givig effec on wheter the Fun's mak.-toD1atct cacution of

to the put) on a paricuar day toether wi the ot secties in the Fun's poolio less thn 99.7%. The Fun will have the ibilty eah day to reire the Affliate to pUlclas at par plus aceni iier5t su poon of the Secuties as may be would be

necessa to reult in the marlc-tornct calculation of the Fund's poolio being not the FUld's less thn 99.7%. ror exple. assume tht the agrtc amor co of

poolio wct S6S milion (whch includes the Secties at thei am cost value of $40 D1ilian). If th Seties were inked-toarct at 9Q1o of amze cot, thei.r maet vawe wod be $36 millon. Assuc tht ther we no detion fr amze

cost with resp to the reaing po of me portoli. Th tot maret vahie of'he portolio would thus be $641 millon, and the mark-tmaet value of the poolio '.-ersu amorted cost woul~ be 99.37984S%. In orer to maiutai a mak-to:m calculation not less than 99.7% of ai.ozc 'cost. an addition $2.065,00 in value would nee to be aded to the portolio thugh the put. by brngg a poio of the S~..tics to a vaue of 100. Given th the Secuntes wer pnced at 90. $20,650,000

wort of Seurties would be subjec to the put.
Cerin Í\atues disusse with the Sta have be inclued in the pu The Affliate's shrt-tcm secures cuently ar rated "Firt Tier" by the Requisite NRROs (as defined in Rule 28-7). The pu is rcuind to be ex in the event tht th

Affiate's shor-tei seurties ar DO longe rated fir Tier by th lleqsite NRROs. In aditiai th po of th put. if any, that rcs ou on th 90 da (assumg the pu ba not be exerse ex or tced) is reui to be

cx.ercised at tbid point. The Fund unerds th the Sta may be wiliug to tosider a fu exon of the put beond tbe 90 day. bllt th any S\h extsion would reuire fuer reew by the Staff. ~ i-.' ¿... '..::t:J J ~ 'c' Ot.~r.rT:.:~' tTJA'"7

TO PAGE.00S . DEe .1~ '94 21 :42 FROM 5 I MPSON THATCHER T2 SilIPSoii THilCBBR & &RTLZT Debe 9. 1994 -3- Diyision of Jnvtment Manageen The Boad of Dirto of the Fund has reew the te of th

trnsaction. includin the proviions of the put th reuite it madato exercis iii

c:ertin circumtances. The indpenent di wer advise by searte cosel. As

was indicated in out telephoe covertion yete, det of th value of

seurties for whch maret quo ar no æadiy avable, includ the Secuties, wilt be made by a prdl1g coitt apponted by the Bo of Di. which çuy includes anyone of the Fund's indeent dire and im ont of cen dcstc

offcers of th fund or the Adviser. Valuation dcteinaions by the comi will requir unimity. valuaon dettioa by th c;tt wil be reviewed by the

full Bo at the n~t regular meeng of th Bo

The Afiliatc is an "ariliat pm" of an "lffliaie pe" under Section

2(aX3) of the 1940 Act since the AftUiate is the pa çompy oftb Adviøe. The the 1940 Act which ma it unlawfù for trsacton may fall within Secton 17(1)(1) of

any affliated pe of a reist iDvceJ copiiy or my affiaed pen of such persn acting as principal to kiwigl)' se 11 any. sety or oter prope to th invesent c:any. In adition, th tron £àlls wiin Secon 17(aX2) of the

1940 Act. which makes it unlawfl fo an affli pe of a rester inveent

ooany or any affliated persn of suh per acg as principal to purhae any

seunty or oter propert froJI the investent copay.
The Fun and the Afiate believe that th acuisiti of the: pu frm the

Affiate as well as any sub$uent acqisition of th Securties by' the Aff.1at puiuat the Fud's shalde. the put by the Fund is in tbe be inter of to exercise of

.4J1Y of the Secuûes th are actally put to the Affliat wod be acqird at par plus

accrued intirc. On behalf of the Fun an the Afliate we herby request th the Staff give its asurce that it will not reend that the CoissioD ta enforceent the 1940 Act in connecon action iigaist the Fun or the Affiat unde Secon 17(a) of

with the acquisition of tbe put by the Fund and any sub$nt puha by the Afate of the Scrities puruant to the tcm& of the put as desbe abve. If you have any quesiODs or other councas coing this matt,

plea call Georg R. KrU5e. Jr. at (212) 455-2730, Sarb E. COn at (212) 455-3575

or James J. Bur at (212) 455-7083.

Ver trly yo. ~ ~J- ,~tt sIMPSON THCllER & BAR1LETT

tONFIDENTIAL
TOTAL PAGE. 00S