45496 Federal Register / Vol. 74, No. 169 / Wednesday, September 2, 2009 / Notices 

and ‘‘Inverse Funds’’ are Funds that 

seek a specified multiple, up to 300%, 

of the inverse performance of an 

Underlying Index. 

3. Applicants also seek to amend the 

terms and conditions of the Prior 

Application to provide that all 

representations and conditions 

contained in the Prior Application that 

require a Fund to disclose particular 

information in the Fund’s prospectus 

(‘‘Prospectus’’) and/or annual report 

shall be effective with respect to the 

Fund until the time that the Fund 

complies with the disclosure 

requirements adopted by the 

Commission in Investment Company 

Act Release No. 28584 (Jan. 13, 2009) 

(‘‘Summary Prospectus Rule’’). 

Applicants state that such amendment 

is warranted because the Commission’s 

amendments to Form N–1A with regard 

to exchange-traded funds as part of the 

Summary Prospectus Rule reflect the 

Commission’s view with respect to the 

appropriate types of prospectus and 

annual report disclosures for an 

exchange-traded fund. 

4. Applicants also seek relief to 

introduce Conventional Funds that will 

be 130/30 Funds. Applicants state that 

in general, ‘‘130/30’’ strategies: (a) 

establish long positions in securities 

such that total long exposure amounts to 

approximately 130% of net assets; and 

(b) simultaneously establish short 

positions in other securities such that 

total short exposure amounts to 

approximately 30% of net assets. Each 

130/30 Fund will hold at least 80% of 

its total assets (exclusive of collateral 

held for purposes of securities lending) 

in the Component Securities that are 

specified for the long positions and 

could invest up to 20% in such 

Component Securities, cash equivalents 

or other securities. The 130/30 Funds 

would also enter into financial 

instruments to obtain any remaining 

50% long and 30% short positions 

dictated by its Underlying Index. The 

130/30 Funds will provide full portfolio 

disclosure so that the intraday value of 

a 130/30 Fund can accurately be 

calculated, market participants will be 

able to understand the principal 

investment strategies of the 130/30 

Funds, and informed trading of 130/30 

Funds’ ETS may occur. The creation 

and redemption process for the 130/30 

Funds will be the same as for the 

existing Leveraged Funds in that 

Creation Units of 130/30 Funds will 

generally be purchased and redeemed 

for a basket of in-kind securities and 

cash, or solely cash. 

5. Applicants believe that the 

requested relief continues to meet the 

necessary exemptive standards. 

Applicants’ Legal Analysis: 

1. Section 6(c) of the Act provides that 

the Commission may exempt any 

person, security or transaction, or any 

class of persons, securities or 

transactions, from any provision of the 

Act, if and to the extent that 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. 

2. Applicants seek to amend the Prior 

Order to delete the relief granted from 

section 24(d) of the Act. Applicants 

state that the deletion of the exemption 

from section 24(d) that was granted in 

the Prior Order is warranted because the 

adoption of the Summary Prospectus 

Rule should supplant any need by a 

Fund to use a product description 

(‘‘Product Description’’). The deletion of 

the relief granted with respect to section 

24(d) of the Act from the Prior Order 

will also result in the deletion of related 

discussions in the Prior Application, 

revision of the Prior Application to 

delete references to Product Description 

including in the conditions, and the 

deletion of condition 4 of the Prior 

Order. 

Applicants’ Conditions: 

Applicants agree that any amended 

order granting the requested relief will 

be subject to the same conditions as 

those imposed by the Prior Order except 

for condition 4 which will be deleted. 

All representations and conditions 

contained in the application and the 

Prior Application that require a Fund to 

disclose particular information in the 

Fund’s Prospectus and/or annual report 

shall remain effective with respect to 

the Fund until the time that the Fund 

complies with the disclosure 

requirements adopted by the 

Commission in Investment Company 

Act Release No. 28584 (Jan. 13, 2009). 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–21139 Filed 9–1–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Investment Company Act Release No. 

28888; File No. 812–13221] 

Highland Capital Management, L.P., et 

al.; Notice of Application 

August 27, 2009. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Notice of an application under 

section 6(c) of the Investment Company 

Act of 1940 (the ‘‘Act’’) for an 

exemption from sections 18(c) and 18(i) 

of the Act, under sections 6(c) and 

23(c)(3) of the Act for an exemption 

from rule 23c–3 under the Act, and for 

an order pursuant to section 17(d) of the 

Act and rule 17d–1 under the Act. 

Summary of Application: Applicants 

request an order to permit certain 

registered closed-end management 

investment companies to issue multiple 

classes of shares and to impose assetbased distribution fees and early 

withdrawal charges. 

Applicants: Highland Capital 

Management, L.P. (‘‘Highland Capital’’), 

Highland Funds Asset Management, 

L.P. (‘‘Highland,’’ and together with 

Highland Capital, the ‘‘Adviser’’) and 

Highland Special Situations Fund II (the 

‘‘Special Situations Fund’’). 

Filing Dates: The application was 

filed on August 3, 2005, and amended 

on July 12, 2007, November 29, 2007, 

June 20, 2008 and August 7, 2009. 

Hearing or Notification of Hearing: An 

order granting the application 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 21, 2009 and 

should be accompanied by proof of 

service on the 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, U.S. Securities 

and Exchange Commission, 100 F 

Street, NE., Washington, DC 20549– 

1090; Applicants, c/o Michael Colvin, 

Highland Capital Management, L.P., 

NexBank Tower, 13455 Noel Road, 

Suite 800, Dallas, TX 75240. 

FOR FURTHER INFORMATION CONTACT: John 

Yoder, Senior Counsel, at (202) 551– 

6878 or Julia Kim Gilmer, Branch Chief, 

at (202) 551–6821 (Division of 

Investment Management, Office of 

Investment Company Regulation). 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained via the Commission’s 

Web site by searching for the file 

number, or an applicant using the 

Company name box, at http:// 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 169 / Wednesday, September 2, 2009 / Notices 45497 

1A successor in interest is limited to an entity 

that results from a reorganization into another 

jurisdiction or a change in the type of business 

organization. 

2Any Fund relying on this relief in the future will 

do so in a manner consistent with the terms and 

conditions of the application. Applicants represent 

that each entity presently intending to rely on the 

requested relief is listed as an applicant. 

3All references to the NASD Sales Charge Rule 

include any successor or replacement rule that may 

be adopted by the Financial Industry Regulatory 

Authority. 4See Shareholder Reports and Quarterly Portfolio 

Disclosure of Registered Management Investment 

Companies, Investment Company Act Release No. 

26372 (Feb. 27, 2004) (adopting release) (requiring 

open-end investment companies to disclose fund 

expenses in shareholder reports); and Disclosure of 

Breakpoint Discounts by Mutual Funds, Investment 

Company Act Release No. 26464 (June 7, 2004) 

(adopting release) (requiring open-end investment 

companies to provide prospectus disclosure of 

certain sales load information). 5Confirmation Requirements and Point of Sale 

Disclosure Requirements for Transactions in Certain 

Mutual Funds and Other Securities, and Other 

Confirmation Requirement Amendments, and 

Amendments to the Registration Form for Mutual 

Funds, Investment Company Act Release Nos. 

26341 (Jan. 29, 2004) (proposing release) and 26778 

(Feb. 28, 2005) (re-opening the comment period for 

the proposed rules and requesting additional 

comments). 

www.sec.gov/search/search.htm or by 

calling (202) 551–8090. 

Applicants’ Representations 

1. The Special Situations Fund is a 

Delaware statutory trust that is 

registered as a non-diversified closedend management investment company 

under the Act. The Special Situations 

Fund’s investment strategy focuses on 

distressed securities, principally in the 

senior loan market. Highland Capital 

and Highland are each a Delaware 

limited partnership and registered as an 

investment adviser under the 

Investment Advisers Act of 1940. 

Highland Capital will serve as 

investment adviser to the Special 

Situations Fund. It is expected that 

Highland will become the investment 

adviser to the Special Situations Fund 

after an internal reorganization. 

2. Applicants request that the order 

also apply to any continuously-offered 

registered closed-end management 

investment company that has been 

previously organized or that may be 

organized in the future for which the 

Adviser or any entity controlling, 

controlled by, or under common control 

with the Adviser, or any successor in 

interest to any such entity,1 acts as 

investment adviser and which operates 

as an interval fund pursuant to rule 

23c–3 under the Act or provides 

periodic liquidity with respect to its 

shares pursuant to rule 13e–4 under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) (each, a ‘‘Fund,’’ and 

together with the Special Situations 

Fund, the ‘‘Funds’’).2

3. The Special Situations Fund will 

continuously offer its shares to the 

public at net asset value. Shares of the 

Funds will not be listed on any 

securities exchange and will not be 

quoted on any quotation medium. The 

Funds do not expect there to be any 

secondary trading market for their 

shares. The Special Situations Fund has 

adopted a fundamental policy to 

repurchase a specified percentage of its 

shares (between 5% and 25%) at net 

asset value on a quarterly basis. Such 

repurchase offers will be conducted 

pursuant to rule 23c–3 under the Act. 

4. The Funds seek the flexibility to be 

structured as multiple class funds. If the 

requested relief is granted, the Special 

Situations Fund intends to offer three 

classes of shares. The Special Situations 

Fund will offer Class A shares with a 

front-end sales charge of up to 4.5% and 

an annual servicing and/or distribution 

fee of up to .35% of average daily net 

assets. Class C shares will be offered 

without a front-end sales load, with 

annual distribution fees of .75%, annual 

servicing fees of .25% and early 

withdrawal charges (‘‘EWCs’’) of 1% for 

shares repurchased within one year of 

purchase. Class Z shares would not be 

subject to sales charges, distribution or 

servicing fees, or EWCs. The Funds may 

in the future offer additional classes of 

shares and/or another sales charge 

structure. 

5. Applicants represent that any assetbased service and distribution fees will 

comply with the provisions of NASD 

Rule 2830(d) (‘‘NASD Sales Charge 

Rule’’).3 Applicants also represent that 

each Fund will disclose in its 

prospectus, the fees, expenses and other 

characteristics of each class of shares 

offered for sale by the prospectus, as is 

required for open-end multiple class 

funds under Form N–1A. As is required 

for open-end funds, each Fund will 

disclose its expenses in shareholder 

reports, and disclose any arrangements 

that result in breakpoints in or 

elimination of sales loads in its 

prospectus.4 Each Fund and its 

distributor will also comply with any 

requirements that may be adopted by 

the Commission regarding disclosure at 

the point of sale and in transaction 

confirmations about the costs and 

conflicts of interest arising out of the 

distribution of open-end investment 

company shares, and regarding 

prospectus disclosure of sales loads and 

revenue sharing arrangements as if those 

requirements applied to the Fund and 

its distributor.5

6. Each Fund will allocate all 

expenses incurred by it among the 

various classes of shares based on the 

net assets of the Fund attributable to 

each class, except that the net asset 

value and expenses of each class will 

reflect distribution fees, service fees, 

and any other incremental expenses of 

that class. Expenses of the Fund 

allocated to a particular class of shares 

will be borne on a pro rata basis by each 

outstanding share of that class. 

Applicants state that each Fund will 

comply with the provisions of rule 18f– 

3 under the Act as if it were an openend investment company. 

7. Each Fund may waive the EWC for 

certain categories of shareholders or 

transactions to be established from time 

to time. With respect to any waiver of, 

scheduled variation in, or elimination of 

the EWC, each Fund will comply with 

rule 22d–1 under the Act as if the Fund 

were an open-end investment company. 

8. Each Fund operating as an interval 

fund pursuant to rule 23c–3 under the 

Act may offer its shareholders an 

exchange feature under which the 

shareholders of the Fund may, in 

connection with the Fund’s periodic 

repurchase offers, exchange their shares 

of the Fund for shares of the same class 

of (i) registered open-end investment 

companies or (ii) other registered 

closed-end investment companies that 

comply with rule 23c–3 under the Act 

and continuously offer their shares at 

net asset value, that are in the Fund’s 

group of investment companies 

(collectively, ‘‘Other Funds’’). Shares of 

a Fund operating pursuant to rule 23c– 

3 that are exchanged for shares of Other 

Funds will be included as part of the 

amount of the repurchase offer amount 

for such Fund as specified in rule 23c– 

3 under the Act. Any exchange option 

will comply with rule 11a–3 under the 

Act, as if the Fund were an open-end 

investment company subject to rule 

11a–3. In complying with rule 11a–3, 

each Fund will treat an EWC as if it 

were a contingent deferred sales load. 

Applicants’ Legal Analysis 

Multiple Classes of Shares 

1. Section 18(c) of the Act provides, 

in relevant part, that a closed-end 

investment company may not issue or 

sell any senior security if, immediately 

thereafter, the company has outstanding 

more than one class of senior security. 

Applicants state that the creation of 

multiple classes of shares of the Funds 

may be prohibited by section 18(c). 

2. Section 18(i) of the Act provides 

that each share of stock issued by a 

registered management investment 

company will be a voting stock and 

have equal voting rights with every 

other outstanding voting stock. 


jlentini on DSKJ8SOYB1PROD with NOTICES
45498 Federal Register / Vol. 74, No. 169 / Wednesday, September 2, 2009 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

Applicants state that multiple classes of 

shares of the Funds may violate section 

18(i) of the Act because each class 

would be entitled to exclusive voting 

rights with respect to matters solely 

related to that class. 

3. Section 6(c) of the Act provides that 

the Commission may exempt any 

person, security or transaction or any 

class or classes of persons, securities or 

transactions from any provision of the 

Act, or from any rule thereunder, if and 

to the extent 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. Applicants 

request an exemption under section 6(c) 

from sections 18(c) and 18(i) to permit 

the Funds to issue multiple classes of 

shares. 

4. Applicants submit that the 

proposed allocation of expenses and 

voting rights among multiple classes is 

equitable and will not discriminate 

against any group or class of 

shareholders. Applicants submit that 

the proposed arrangements would 

permit a Fund to facilitate the 

distribution of its shares and provide 

investors with a broader choice of 

shareholder services. Applicants assert 

that the proposed closed-end 

investment company multiple class 

structure does not raise the concerns 

underlying section 18 of the Act to any 

greater degree than open-end 

investment companies’ multiple class 

structures that are permitted by rule 

18f–3 under the Act. Applicants state 

that each Fund will comply with the 

provisions of rule 18f–3 as if it were an 

open-end investment company. 

Early Withdrawal Charges 

1. Section 23(c) of the Act provides, 

in relevant part, that no registered 

closed-end investment company will 

purchase securities of which it is the 

issuer, except: (a) On a securities 

exchange or other open market; (b) 

pursuant to tenders, after reasonable 

opportunity to submit tenders given to 

all holders of securities of the class to 

be purchased; or (c) under other 

circumstances as the Commission may 

permit by rules and regulations or 

orders for the protection of investors. 

2. Rule 23c–3 under the Act permits 

a registered closed-end investment 

company (an ‘‘interval fund’’) to make 

repurchase offers of between five and 

twenty-five percent of its outstanding 

shares at net asset value at periodic 

intervals pursuant to a fundamental 

policy of the interval fund. Rule 23c– 

3(b)(1) under the Act provides that an 

interval fund may deduct from 

repurchase proceeds only a repurchase 

fee, not to exceed two percent of the 

proceeds, that is reasonably intended to 

compensate the fund for expenses 

directly related to the repurchase. 

3. Section 23(c)(3) provides that the 

Commission may issue an order that 

would permit a closed-end investment 

company to repurchase its shares in 

circumstances in which the repurchase 

is made in a manner or on a basis that 

does not unfairly discriminate against 

any holders of the class or classes of 

securities to be purchased. As noted 

above, section 6(c) provides that the 

Commission may exempt any person, 

security or transaction from any 

provision of the Act, if and to the extent 

that the 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. Applicants request relief under 

sections 6(c) and 23(c) from rule 23c–3 

to the extent necessary for the Funds to 

impose EWCs on shares of the Funds 

submitted for repurchase that have been 

held for less than a specified period. 

4. Applicants believe that the 

requested relief meets the standards of 

sections 6(c) and 23(c)(3). Rule 6c–10 

under the Act permits open-end 

investment companies to impose 

contingent deferred sales loads 

(‘‘CDSLs’’), subject to certain conditions. 

Applicants state that EWCs are 

functionally similar to CDSLs imposed 

by open-end investment companies 

under rule 6c–10. Applicants state that 

EWCs may be necessary for the 

distributor to recover distribution costs. 

Applicants state that any EWC imposed 

by the Funds will comply with rule 6c– 

10 under the Act as if the rule were 

applicable to closed-end investment 

companies. The Funds also will disclose 

EWCs in accordance with the 

requirements of Form N–1A concerning 

CDSLs. Applicants further state that the 

Funds will apply the EWC (and any 

waivers or scheduled variations of the 

EWC) uniformly to all shareholders in a 

given class and consistently with the 

requirements of rule 22d–1 under the 

Act. 

Asset-based Distribution Fees 

1. Section 17(d) of the Act and rule 

17d–1 under the Act prohibit an 

affiliated person of a registered 

investment company or an affiliated 

person of such person, acting as 

principal, from participating in or 

effecting any transaction in connection 

with any joint enterprise or joint 

arrangement in which the investment 

company participates unless the 

Commission issues an order permitting 

the transaction. In reviewing 

applications submitted under section 

17(d) and rule 17d–1, the Commission 

considers whether the participation of 

the investment company in a joint 

enterprise or joint arrangement is 

consistent with the provisions, policies 

and purposes of the Act, and the extent 

to which the participation is on a basis 

different from or less advantageous than 

that of other participants. 

2. Rule 17d–3 under the Act provides 

an exemption from section 17(d) and 

rule 17d–1 to permit open-end 

investment companies to enter into 

distribution arrangements pursuant to 

rule 12b–1 under the Act. Applicants 

request an order under section 17(d) and 

rule 17d–1 under the Act to permit the 

Fund to impose asset-based distribution 

fees. Applicants have agreed to comply 

with rules 12b–1 and 17d–3 as if those 

rules applied to closed-end investment 

companies. 

Applicants’ Condition 

Applicants agree that any order 

granting the requested relief will be 

subject to the following condition: 

Each Fund relying on the order will 

comply with the provisions of rules 6c– 

10, 12b–1, 17d–3, 18f–3, 22d–1, and, 

where applicable, 11a–3 under the Act, 

as amended from time to time, as if 

those rules applied to closed-end 

management investment companies, 

and will comply with the NASD Sales 

Charge Rule, as amended from time to 

time, as if that rule applied to all closedend management investment 

companies. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–21138 Filed 9–1–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60572; File No. SR–CBOE– 

2009–060] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Related to Hybrid Quote 

Locks 

August 26, 2009. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2


jlentini on DSKJ8SOYB1PROD with NOTICES