Document ID: SEC-2013-1267-0001
Agency: sec
Document Type: Notice
Title: Applications: Citadel LLC (Formerly Citadel Investment Group, LLC) and CEIF LLC
Posted Date: 2013-07-10T04:00Z

[Federal Register Volume 78, Number 132 (Wednesday, July 10, 2013)]
[Notices]
[Pages 41438-41443]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16537]

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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30589; File No. 813-00383]

Citadel LLC (Formerly Citadel Investment Group, L.L.C.) and CEIF 
LLC; Notice of Application

July 3, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under sections 6(b) and 6(e) 
of the Investment Company Act of 1940 (the ``Act'') granting an 
exemption from all provisions of the Act, except section 9 and sections 
36 through 53 and the rules and regulations under those sections. With 
respect to sections 17 and 30 of the Act, and the rules and regulations 
thereunder, and rule 38a-1 under the Act, the exemption is limited as 
set forth in the application.

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

Summary of Application: Applicants request an order to amend and 
supersede a prior order (``Prior Order'') \1\ to exempt certain limited 
liability companies, limited partnerships, companies and other 
investment vehicles formed for the benefit of eligible employees of 
Citadel LLC and its affiliates (``ESC Funds'') from certain provisions 
of the Act. Each ESC Fund will be an ``employees' securities company'' 
within the meaning of section 2(a)(13) of the Act. The requested order 
would reflect the amendment of certain mandatory redemption terms of 
the ESC Funds to allow voluntary deferral of redemption of Vested 
Membership Interests beyond the relevant Determination Date (as these 
terms are defined below). The terms and conditions of the application 
are otherwise identical to the terms and conditions of the Prior Order.
---------------------------------------------------------------------------

    \1\ Citadel LLC and CEIF LLC, Investment Company Release Nos. 
IC-29851 (Oct. 27, 2011) (notice) and IC-29869 (Nov. 22, 2011) 
(order).

---------------------------------------------------------------------------
Applicants: Citadel LLC and CEIF LLC (``CEIF'').

DATES: Filing Dates: The application was filed on January 31, 2013, and 
amended on April 30, 2013.

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 July 29, 2013, 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, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants, Citadel LLC and 
CEIF, 131 South Dearborn Street, Chicago, Illinois 60603.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Senior Counsel, at 
(202) 551-6868, or Daniele Marchesani, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Exemptive Applications Office).

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's name box, at http://www.sec.gov/search/search.htm 
or by calling (202) 551-8090.

Applicants' Representations

    1. Citadel is a global financial institution with a diverse 
business platform which includes alternative asset management, 
strategic advisory services and capital markets businesses and 
services. Citadel LLC, a Delaware limited liability company, and its 
``Affiliates,'' as defined in rule 12b-2 under the Securities Exchange 
Act of 1934 (``Exchange Act'') other than an ESC Fund are referred to 
collectively as ``Citadel'' or ``Citadel Entities.''
    2. Citadel has established CEIF, a Delaware limited liability 
company and will in the future establish any other ESC Funds 
(collectively with CEIF, the ``ESC Funds'' and each, an ``ESC Fund'') 
for the benefit of Eligible Employees (defined below) as part of a 
program to create capital building opportunities that are competitive 
with those at other financial services firms and to facilitate the 
recruitment and retention of high caliber professionals. Each of the 
ESC Funds will be structured as a limited liability company, limited 
partnership, corporation, business trust or other entity organized 
under the laws of the state of Delaware or another U.S. jurisdiction. 
Each ESC Fund will be identical in all material respects (other than 
investment objectives and strategies, vesting terms, form of 
organization and related structural and operative provisions contained 
in the constitutive documents of such funds). Each ESC Fund will be an 
``employees' security company'' within the meaning of section 2(a)(13) 
of the Act and will operate as a diversified or non-diversified 
management investment company. Citadel will control the ESC Funds 
within the meaning of section 2(a)(9) of the Act.
    3. Each managing member of an ESC Fund or person acting in a 
similar capacity will be an Affiliate of Citadel LLC (a ``Managing 
Member''). Any member or partner of, or otherwise investor in, an ESC 
Fund is a ``Member.'' The Managing Member of each ESC Fund will manage, 
operate and control such ESC Fund and will have the authority to 
delegate investment management responsibility with respect to the 
acquisition, management and disposition of Portfolio Investments, as 
defined below, to a Citadel Entity. Any Citadel Entity that is 
delegated the responsibility of making investment decisions for an ESC 
Fund will be registered as an investment adviser under the Investment 
Advisers Act of 1940 (the ``Advisers Act''), if required under 
applicable law.
    4. The Managing Member, a Member, Citadel, Citadel Entity or any 
employees of the Managing Member or Citadel may be entitled to receive 
a performance-based fee or profits allocation (a ``carried 
interest'').\2\ All ESC Fund

[[Page 41439]]

investments are referred to as ``Portfolio Investments.''
---------------------------------------------------------------------------

    \2\ A ``carried interest'' is a fee paid or an allocation made 
to the Managing Member, a Member or the Citadel Entity acting as the 
investment adviser to an ESC Fund based on net gains in addition to 
the amount allocable to such entity in proportion to its invested 
capital. A Managing Member, Member or Citadel Entity that is 
registered as an investment adviser under the Advisers Act may be 
paid or allocated carried interest only if permitted by rule 205-3 
under the Advisers Act.
---------------------------------------------------------------------------

    5. Interests in an ESC Fund will be issued without registration in 
reliance on section 4(2) of the Securities Act of 1933 (the 
``Securities Act''), Regulation D and/or Regulation S under the 
Securities Act and may be acquired only by ``Eligible Employees'' and 
``Qualified Participants'' in each case defined below. Prior to issuing 
Interests to an Eligible Employee either directly or through a related 
Qualified Participant, a Managing Member must reasonably believe that 
the Eligible Employee will be a sophisticated investor capable of 
understanding and evaluating the risks of participation in an ESC Fund 
without the benefit of regulatory safeguards.
    6. An ``Eligible Employee'' is an individual who is a current or 
former employee, officer or partner of Citadel or a director of Citadel 
that is an ``interested person'' as defined under the Act, and that is 
an ``accredited investor'' under rule 501(a)(5) or rule 501(a)(6) of 
Regulation D (``Accredited Investor''). A ``Qualified Participant'' is 
an entity that is a Qualified Investment Vehicle (as defined below) 
and, if purchasing an Interest (as defined below) directly from an ESC, 
comes within one of the categories of an ``accredited investor'' under 
501(a) of Regulation D. A ``Qualified Investment Vehicle'' is (a) a 
trust of which the trustee, grantor and/or beneficiary is an Eligible 
Employee or (b) a partnership, corporation or other entity controlled 
by an Eligible Employee. A Qualified Investment Vehicle that is not an 
Accredited Investor will not be permitted to invest in an ESC Fund.
    7. The terms of an ESC Fund will be fully disclosed to each 
Eligible Employee and, if applicable, to a Qualified Participant, prior 
to admission to the ESC Fund. Each Eligible Employee and Qualified 
Participant will be furnished with access to the offering documents, 
including a copy of the operating agreement or other organizational 
documents of the relevant ESC Fund (``Operating Agreement''). The 
Managing Member will send each person who was a Member at any time 
during the fiscal year then ended (except for the first year of 
operations of an ESC Fund if no investment activities took place in 
such fiscal year), audited financial statements within 180 days after 
the end of the fiscal year. For purposes of this requirement ``audit'' 
shall have the meaning defined in rule 1-02(d) of Regulation S-X. In 
addition, as soon as practicable after the end of the ESC Fund's tax 
year, a report will be transmitted to each Member showing such Member's 
share of income, gains, losses, credits, deductions, and other tax 
items for U.S. federal income tax purposes, resulting from such ESC 
Fund's operations during that year.
    8. Interests in the ESC Funds will be non-transferable except (i) 
to the extent cancelled or (ii) with the prior written consent of the 
Managing Member and, in any event, no person or entity will be admitted 
into an ESC Fund as a Member unless such person or entity is an 
Eligible Employee, a Qualified Participant of an Eligible Employee, or 
a Citadel Entity. Interests in the ESC Funds will be issued without a 
sales load or similar fee.
    9. Ownership interests (``Interests'') in an ESC Fund may be 
acquired on a voluntary basis or be offered through a long-term 
incentive program to qualified Eligible Employees (the ``Long-Term 
Points Program''). Interests in a ``Participation Points ESC Fund'' may 
only be acquired through the Long-Term Points Program. Pursuant to the 
Long-Term Points Program, Eligible Employees may be issued 
Participation Points on the basis of, among other things, personal 
performance and/or firm-wide or relevant team performance results. An 
Eligible Employee may also voluntarily acquire an Interest in a ``non-
Participation Points ESC Fund.'' An Eligible Employee and/or its 
Qualified Participant may not make additional capital contributions to 
the ESC Fund in which it is invested after such Eligible Employee's 
employment with Citadel has terminated.
    10. Both Participation Points ESC Funds and non-Participation 
Points ESC Funds may be offered as part of an investment program that 
includes vesting and cancellation provisions. In such circumstances, 
some or all of an Eligible Employee's Interest at the commencement of 
the program will be treated as being ``unvested,'' and ``vesting'' will 
occur only as certain conditions are satisfied under the terms of the 
investment program. The portion of an Eligible Employee's Interest that 
is ``unvested'' at the time of termination of such Eligible Employee's 
employment by Citadel may be subject to (a) cancellation and/or (b) the 
imposition of different terms and conditions, which would be described 
in the Operating Agreement and/or offering documents of the relevant 
ESC Fund and/or in other written correspondence issued to such Eligible 
Employee.
    11. With respect to Participation Points ESC Funds, a Member will 
become vested in his/her Interest (``Vested Membership Interests'') if 
(a) he/she remains employed by Citadel through a specified date (the 
``Determination Date'') and he/she has satisfied, among other things, 
all of the certain applicable employment and post-employment 
obligations (including non-competition, non-solicitation, non-
disclosure and notice obligations). Non-Participation Points ESC Funds 
may or may not provide for vesting provisions. An Eligible Employee 
that purchases an Interest in a non-Participation Points ESC Fund will 
be immediately vested in such Interest to the extent of such purchase.
    12. With respect to a non-Participation Points ESC Fund that does 
not provide for vesting provisions, an Eligible Employee's entire 
Interest may be subject to repurchase by the Managing Member and/or the 
imposition of different terms and conditions upon termination of such 
Eligible Employee's employment by Citadel, as described in the 
Operating Agreement and/or offering documents of the relevant ESC Fund 
and/or in other written correspondence issued to such Eligible 
Employee. Upon any repurchase of an Eligible Employee's Vested 
Membership Interests, the Managing Member will at a minimum pay to the 
Eligible Employee the lesser of (a) the amount actually paid by the 
Eligible Employee to acquire the Interest plus interest, less prior 
distributions and (b) the fair market value of the Interests determined 
at the time of repurchase by the Managing Member. The terms of any 
repurchase or cancellation of Interests will apply equally to an 
Eligible Employee and any Qualified Participant of such Eligible 
Employee.
    13. The requested order would supersede the Prior Order to reflect 
the amendment of certain mandatory redemption terms of the 
Participation Points ESC Funds. A Member who remains employed by 
Citadel may make a request to defer redemption from the relevant 
Participation Points ESC Fund beyond the relevant Determination Date, 
subject to approval by Citadel. If a Member does not make such a 
request, or Citadel does not approve such request, that Member's 
Interest will be mandatorily redeemed as soon as reasonably practicable 
following the relevant Determination Date.\3\ Citadel

[[Page 41440]]

will endeavor to treat Members consistently in making the determination 
to approve such requests. Such Vested Membership Interest may be 
redeemed as of any calendar quarter-end upon not less than seventy 
days' prior written notice or according to such other terms as may be 
described in such Participation Points ESC Fund's Operating Agreement 
and/or Offering Documents or election form, subject to the availability 
of liquidity (including suspensions on withdrawals) in respect of the 
Citadel Third Party Funds in which the relevant Participation Points 
ESC Fund is invested.
---------------------------------------------------------------------------

    \3\ In the event of such a mandatory redemption, subject to the 
availability of liquidity (including suspensions on withdrawals) in 
respect of the Citadel Third Party Funds in which the relevant 
Participation Points ESC Fund is invested, the balance of such 
Member's capital account in such Participation Points ESC Fund 
relating to such redeemed Interest, as adjusted through the date of 
such redemption, will be distributed to such Member.
---------------------------------------------------------------------------

    14. Subject to the terms of the applicable Fund Operating Agreement 
and/or offering documents, an ESC Fund will be permitted to enter into 
transactions involving (i) a Citadel Entity, (ii) any Member or person 
or entity affiliated with a Member or (iii) an investment fund or 
separate account, organized in part for the benefit of investors who 
are not Affiliates of Citadel and over which a Citadel Affiliate 
exercises investment discretion (a ``Citadel Third Party Fund''). Prior 
to entering into any of these transactions, the Managing Member will 
make the findings required in Condition 1 below. A Citadel Entity 
(including the Managing Member) also may be compensated for providing 
services or financing from entities in which an ESC Fund (directly or 
indirectly) makes an investment, from competitors of such entities or 
from other unaffiliated persons or entities.
    15. The investment objective of each ESC Fund will be set forth in 
the ESC Fund's offering documents. Each ESC Fund (directly or 
indirectly through its investments in Citadel Third Party Funds) may 
engage in various investment strategies implemented by Citadel in 
markets around the world.\4\ An ESC Fund may invest directly in 
securities and similar investments (including, without limitation, 
exchange-traded funds, mutual funds and index funds) and/or may invest 
all or substantially all of its assets in Citadel Third Party Funds. An 
ESC Fund will not acquire any security issued by a registered 
investment company if, immediately after the acquisition, such ESC Fund 
will own more than 3% of the outstanding voting stock of the registered 
investment company.
---------------------------------------------------------------------------

    \4\ Applicants are not requesting any exemption from any 
provision of the Act or any rule thereunder that may govern the 
eligibility of an ESC Fund to invest in an entity relying on section 
3(c)(1) or 3(c)(7) of the Act or any such entity's status under the 
Act.
---------------------------------------------------------------------------

    16. If the Managing Manager or a Citadel Entity makes a loan to an 
ESC Fund, the loan would bear interest at a rate no less favorable to 
the ESC Fund than the rate that could be obtainable in an arm's-length 
transaction. An Eligible Employee will not borrow from any person if 
the borrowing would cause any person not named in section 2(a)(13) of 
the Act to own outstanding securities of the ESC Fund (other than 
short-term paper). Any borrowing by an ESC Fund will be non-recourse to 
the Members.

Applicants' Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the Commission 
will exempt employees' securities companies from the provisions of the 
Act to the extent that the exemption is consistent with the protection 
of investors. Section 6(b) provides that the Commission will consider, 
in determining the provisions of the Act from which the employees' 
securities companies should be exempt, the company's form of 
organization and capital structure, the persons owning and controlling 
its securities, the price of the company's securities and the amount of 
any sales load, how the company's funds are invested, and the 
relationship between the company and the issuers of the securities in 
which it invests. Section 2(a)(13) defines an employees' securities 
company, in relevant part, as any investment company all of whose 
securities (other than short-term paper) are beneficially owned (a) By 
current or former employees, or persons on retainer, of one or more 
affiliated employers, (b) by immediate family members of such persons, 
or (c) by such employer or employers together with any of the persons 
in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies 
that are not registered under section 8 of the Act from selling or 
redeeming their securities. Section 6(e) of the Act provides that, in 
connection with any order exempting an investment company from any 
provision of section 7, certain provisions of the Act, as specified by 
the Commission, will be applicable to the investment company and other 
persons dealing with the investment company as though the investment 
company were registered under the Act. Applicants request an order 
under sections 6(b) and 6(e) of the Act exempting the Applicants and 
any ESC Funds from all provisions of the Act, except section 9 and 
sections 36 through 53 and the rules and regulations under those 
sections. With respect to sections 17 and 30 of the Act, and the rules 
and regulations thereunder, and rule 38a-1 under the Act, the exemption 
is limited as set forth in the application.
    3. Section 17(a) generally prohibits any affiliated person of a 
registered investment company, or any affiliated person of an 
affiliated person, acting as principal, from knowingly selling or 
purchasing any security or other property to or from the investment 
company. Applicants request an exemption from section 17(a) to permit: 
(a) A Citadel Entity or a Citadel Third Party Fund (or any affiliated 
person of such Third Party Fund), acting as principal, to engage in any 
transaction directly or indirectly with any ESC Fund or any company 
controlled by such ESC Fund; (b) any ESC Fund to invest in or engage in 
any transaction with any Citadel Entity, or Citadel Third Party Fund, 
acting as principal, (i) in which such ESC Fund, any company controlled 
by such ESC Fund or any Citadel Entity or Citadel Third Party Fund has 
invested or will invest; or (ii) with which such ESC Fund, any company 
controlled by such ESC Fund or any Citadel Entity or Citadel Third 
Party Fund is or will otherwise become affiliated.
    4. Applicants submit that an exemption from section 17(a) is 
consistent with the purposes of each ESC Fund and the protection of 
investors and is necessary to promote the basic purpose of such ESC 
Fund. Applicants state that the Members of each ESC Fund will be fully 
informed of the possible extent of such ESC Fund's dealings with 
Citadel and, as professionals with experience in financial services 
businesses, Members will be able to understand and evaluate the 
attendant risks. Applicants assert that the community of interest among 
the Members in each ESC Fund and Citadel is the best insurance against 
any risk of abuse.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person of a registered investment company, or any 
affiliated person of such person, acting as principal, from 
participating in any joint enterprise or joint arrangement with the 
company unless authorized by the Commission. Applicants request relief 
to permit affiliated persons of each ESC Fund or affiliated persons of 
such persons to participate in, or effect any transaction in connection 
with, any joint enterprise or joint arrangement or profit-sharing plan 
in which an ESC Fund or a company controlled by such ESC Fund is a 
participant.

[[Page 41441]]

    6. Applicants assert that compliance with section 17(d) would cause 
an ESC Fund to forego investment opportunities simply because a Member 
or any other affiliated person of the ESC Fund (or any affiliate of 
such a person) also had, or contemplated making, a similar investment. 
Applicants also submit that co-investment opportunities with Citadel 
are advantageous to Eligible Employees because (a) the resources of 
Citadel enable it to analyze investment opportunities to an extent that 
Eligible Employees would have neither the time nor resources to 
duplicate, (b) investments made by Citadel will not be generally 
available to investors even if the financial status of the Eligible 
Employees would enable them to otherwise participate in such 
opportunities and (c) Eligible Employees will be able to pool their 
resources in co-investments, thus achieving greater diversification of 
their individual portfolios. Applicants note that each ESC Fund will be 
primarily organized for the benefit of Eligible Employees as an 
incentive for them to remain with Citadel and for the generation and 
maintenance of goodwill through an investment in Citadel Third Party 
Funds. Applicants assert that the flexibility to structure co-
investments and joint investments will not involve abuses of the type 
section 17(d) and rule 17d-1 were designed to prevent.
    7. Side-by-side investments held by a Citadel Third Party Fund, or 
by a Citadel Entity in a transaction in which the Citadel investment 
was made pursuant to a contractual obligation to a Citadel Third Party 
Fund will not be subject to condition 3 below. Applicants note that 
Citadel is likely to invest its own capital in Citadel Third Party Fund 
investments and that such investments will be subject to substantially 
the same terms as those applicable to such Citadel Third Party Fund, 
except as otherwise disclosed in the offering documents and/or 
Operating Agreement of the relevant ESC Fund. In addition, applicants 
assert that the relationship of an ESC Fund to a Citadel Third Party 
Fund is fundamentally different from such ESC Fund's relationship to 
Citadel. Applicants contend that the focus of, and the rationale for, 
the protections contained in the requested relief are to protect the 
ESC Funds from any overreaching by Citadel in the employer/employee 
context, whereas the same concerns are not present with respect to the 
ESC Funds vis-[agrave]-vis the investors in a Citadel Third Party Fund.
    8. Section 17(f) of the Act designates the entities that may act as 
investment company custodians, and rule 17f-1 under the Act imposes 
certain requirements when the custodian is a member of a national 
securities exchange. Applicants request an exemption from section 17(f) 
and rule 17f-1 to permit a Citadel Entity to act as custodian without a 
written contract. Applicants also request an exemption from the rule 
17f-1(b)(4) requirement that an independent accountant periodically 
verify the assets held by the custodian. Applicants state that, given 
the community of interest of all the parties involved and the existing 
requirement for an independent audit, compliance with the rule's 
requirement would be unnecessary. Each ESC Fund will otherwise comply 
with all the provisions of rule 17f-1.
    9. Applicants also request an exemption from rule 17f-2 to permit 
the following exceptions from the requirements of rule 17f-2: (a) An 
ESC Fund's investments may be kept in the locked files of the Managing 
Member (or a Citadel Entity) for purposes of paragraph (b) of the rule; 
(b) for purposes of paragraph (d) of the rule, (i) employees of the 
Managing Member (or a Citadel Entity) will be deemed to be employees of 
the ESC Funds, (ii) officers or managers of the Managing Member of an 
ESC Fund (or a Citadel Entity) will be deemed to be officers of the ESC 
Fund, and (iii) the Managing Member will be deemed to be the board of 
directors of the ESC Fund; and (c) in place of the verification 
procedure under paragraph (f) of the rule, verification will be 
effected quarterly by two high level employees of the Managing Member 
(or another Citadel Entity). Applicants expect that most of their 
investments may be evidenced only by partnership agreements, 
participation agreements or similar documents, rather than by 
negotiable certificates that could be misappropriated. Applicants 
believe that these instruments are most suitably kept in the files of 
the Managing Member (or a Citadel Entity), where they can be referred 
to as necessary.
    10. Section 17(g) of the Act and rule 17g-1 under the Act generally 
require the bonding of officers and employees of a registered 
investment company who have access to its securities or funds. Rule 
17g-1 requires that a majority of directors who are not interested 
persons take certain actions and give certain approvals relating to 
fidelity bonding. Applicants request exemptive relief to permit the 
Managing Member, regardless of whether it is deemed an interested 
person of the ESC Funds, to take actions and make determinations set 
forth in the rule. Applicants state that the ESC Funds are unable to 
comply with Rule 17g-1 because the ESC Funds will not have a board of 
directors and the Managing Member of the ESC Fund will be an interested 
person of the ESC Funds. Applicants also state that the ESC Funds will 
comply with all other requirements of rule 17g-1, except that the 
Applicants request an exemption from the requirements of paragraphs (g) 
and (h) of rule 17g-1 (relating to the filing of copies of fidelity 
bonds and related information with the Commission and relating to the 
provision of notices to the board of directors), and an exemption from 
the requirements of paragraph (j)(3) of rule 17g-1 that the ESCs comply 
with the fund governance standards defined in rule 0-1(a)(7).
    11. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under 
the Act make it unlawful for certain enumerated persons to engage in 
fraudulent or deceptive practices in connection with the purchase or 
sale of a security held or to be acquired by a registered investment 
company. Rule 17j-1 also requires that every registered investment 
company adopt a written code of ethics and that every access person of 
a registered investment company report personal securities 
transactions. Applicants request an exemption from the provisions of 
rule 17j-1, except for the anti-fraud provisions of paragraph (b), 
because they are unnecessary and burdensome as applied to the ESC 
Funds.
    12. Applicants request an exemption from the requirements in 
sections 30(a), 30(b), and 30(e) of the Act, and the rules under those 
sections, that registered investment companies prepare and file with 
the Commission and mail to their shareholders certain periodic reports 
and financial statements. Applicants contend that the forms prescribed 
by the Commission for periodic reports have little relevance to an ESC 
Fund and would entail administrative and legal costs that outweigh any 
benefit to the Members of such ESC Fund. Applicants request exemptive 
relief to the extent necessary to permit each ESC Fund to report 
annually to its Members. Applicants also request an exemption from 
section 30(h) of the Act to the extent necessary to exempt the Managing 
Member of each ESC Fund, directors and officers of the Managing Member 
and any other persons who may be deemed to be members of an advisory 
board or an investment adviser (and affiliated persons thereof) of such 
ESC Fund from filing Forms 3, 4, and 5 under section 16 of the Exchange 
Act with respect to such ESC Fund. Applicants assert that, because 
there will be no trading market and the transfers of Interests will be 
severely

[[Page 41442]]

restricted, these filings are unnecessary for the protection of 
investors and burdensome to those required to make them.
    13. Rule 38a-1 requires investment companies to adopt, implement 
and periodically review written policies and procedures reasonably 
designed to prevent violation of the federal securities laws and to 
appoint a chief compliance officer. Each ESC Fund will comply will rule 
38a-1(a), (c) and (d), except that (a) because the ESC Funds do not 
have a board of directors, the Managing Member will fulfill the 
responsibilities assigned to a board of directors under the rule, (b) 
because the Managing Member does not have any disinterested members, 
approval by a majority of the disinterested board members required by 
rule 38a-1 will not be obtained, and (c) because the ESC Funds do not 
have any independent directors, the ESC Funds will comply with the 
requirement in rule 38a-1(a)(4)(iv) that the chief compliance officer 
meet with the independent directors by having the chief compliance 
officer meet with the Managing Member.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each proposed transaction to which an ESC Fund is a party 
otherwise prohibited by section 17(a) or section 17(d) of the Act and 
rule 17d-1 under the Act (the ``Section 17 Transactions'') will be 
effected only if the Managing Member determines that: (a) The terms of 
the Section 17 Transaction, including the consideration to be paid or 
received, are fair and reasonable to the Members of the ESC Fund and do 
not involve overreaching of the ESC Fund or its Members on the part of 
any person concerned and (b) the Section 17 Transaction is consistent 
with the interests of the Members of the ESC Fund, the ESC Fund's 
organizational documents and the ESC Fund's reports to its Members.
    In addition, the Managing Member will record and will preserve a 
description of all Section 17 Transactions, the Managing Member's 
findings, the information or materials upon which the findings are 
based and the basis for the findings. All such records will be 
maintained for the life of the ESC Fund and at least six years 
thereafter, and will be subject to examination by the Commission and 
its staff. Each ESC Fund will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place for 
at least the first two years.
    2. The Managing Member will adopt, and periodically review and 
update, procedures designed to ensure that reasonable inquiry is made, 
prior to the consummation of any Section 17 Transaction, with respect 
to the possible involvement in the transaction of any affiliated person 
or promoter of or principal underwriter for any ESC Fund, or any 
affiliated person of such affiliated person, promoter or principal 
underwriter.
    3. The Managing Member of each ESC Fund will not invest the funds 
of the ESC Fund in any investment in which a ``Co-Investor'' (as 
defined below) has acquired or proposes to acquire the same class of 
securities of the same issuer and where the investment involves a joint 
enterprise or other joint arrangement within the meaning of rule 17d-1 
in which the ESC Fund and the Co-Investor are participants, unless any 
such Co-Investor, prior to disposing of all or part of its investment: 
Agrees to (a) give the Managing Member sufficient, but not less than 
one day's notice of its intent to dispose of its investment; and (b) 
refrain from disposing of its investment unless the ESC Fund has the 
opportunity to dispose of its investment prior to or concurrently with, 
and on the same terms as, and pro rata with, the Co-Investor. The term 
``Co-Investor'' with respect to any ESC Fund means any person who is: 
(a) An ``affiliated person'' (as defined in section 2(a)(3) of the Act) 
of the ESC Fund (other than a Citadel Third Party Fund); (b) a Citadel 
Entity; (c) an officer, director or employee of a Citadel Entity; or 
(d) an entity (other than a Citadel Third Party Fund) in which a 
Managing Member or an Affiliate of Citadel acts as a managing member or 
in a similar capacity so as to control the sale or other disposition of 
the entity's investments. The restrictions contained in this condition, 
however, shall not be deemed to limit or prevent the disposition of an 
investment by a Co-Investor: (a) To its direct or indirect wholly-owned 
subsidiary, to any company (a ``Parent'') of which the Co-Investor is a 
direct or indirect wholly-owned subsidiary or to a direct or indirect 
wholly-owned subsidiary of such Parent; (b) to immediate family members 
of the Co-Investor or a trust or other investment vehicle established 
for any such family member; or (c) when the investment is comprised of 
securities that are (i) listed on any exchange registered as a national 
exchange under section 6 of the Exchange Act; (ii) NMS stocks, pursuant 
to section 11A(a)(2) of the Exchange Act and rule 600(a) of Regulation 
NMS thereunder; (iii) government securities as defined in section 
2(a)(16) of the Act, or (iv) listed or traded on any foreign securities 
exchange or board of trade that satisfies regulatory requirements under 
the law of the jurisdiction in which such foreign securities exchange 
or board of trade is organized similar to those that apply to a 
national securities exchange or a national market system for 
securities.
    4. Each ESC Fund and its Managing Member will maintain and 
preserve, for the life of such ESC Fund and at least six years 
thereafter, such accounts, books, and other documents constituting the 
record forming the basis for the audited financial statements that are 
to be provided to the Members of such ESC Fund, and each annual report 
of such ESC Fund required to be sent to such Members, and agree that 
all such records will be subject to examination by the Commission and 
its staff. Each ESC Fund will preserve the accounts, books and other 
documents required to be maintained in an easily accessible place for 
the first two years after the life of such ESC Fund.
    5. The Managing Member of each ESC Fund will send to each person 
who was a Member having an Interest in the ESC Fund at any time during 
the fiscal year then ended (except for the first fiscal year of 
operations of an ESC Fund if no investment activities took place in 
such fiscal year), audited financial statements with respect to those 
ESC Funds in which the Member held Interests. At the end of each fiscal 
year, the Managing Member will make a valuation or have a valuation 
made of all of the assets of the ESC Fund as of such fiscal year end in 
a manner consistent with customary practice with respect to the 
valuation of assets of the kind held by the ESC Fund. In addition, 
within 180 days after the end of each fiscal year of each ESC Fund or 
as soon as practicable thereafter, the Managing Member will send a 
report to each person who was a Member at any time during the fiscal 
year then ended, setting forth such tax information as shall be 
necessary for the preparation by the Member of his, her or its U.S. 
federal and state income tax returns and a report of the investment 
activities of the ESC Fund during that fiscal year.
    6. If an ESC Fund makes purchases from, or sales to, an entity 
affiliated with the ESC Fund by reason of an officer, director or 
employee of Citadel (a) serving as an officer, director, managing 
member, general partner or investment adviser of the entity, or (b) 
having a 5% or more investment in the entity, such individual will not 
participate in the ESC Fund's

[[Page 41443]]

determination of whether or not to effect the purchase or sale.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16537 Filed 7-9-13; 8:45 am]
BILLING CODE 8011-01-P