82 FR 27734 - CION Ares Diversified Credit Fund, et al.; Notice of Application

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 115 (June 16, 2017)

[Federal Register Volume 82, Number 115 (Friday, June 16, 2017)]
[Notices]
[Pages 27734-27736]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-12548]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32678; 812-14711]


CION Ares Diversified Credit Fund, et al.; Notice of Application

June 13, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from sections 
18(a)(2), 18(c), and 18(i) of 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 of beneficial interest (``Shares'') and to 
impose asset-based service and/or distribution fees, and contingent 
deferred sales loads (``CDSCs'').
    Applicants: CION Ares Diversified Credit Fund (the ``Fund'') and 
CION Ares Management, LLC (the ``Adviser'').
    Filing Dates: The application was filed on October 24, 2016, and 
amended on February 13, 2017, March 13, 2017, May 11, 2017, and June 6, 
2017.
    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 July 8, 2017, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, 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, 3 Park Avenue, 36th 
Floor, New York, NY 10016.

FOR FURTHER INFORMATION CONTACT: Jessica Shin, Attorney-Adviser, at 
(202) 551-5921 or Robert H. Shapiro, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's 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 name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicants' Representations

    1. The Fund is a Delaware statutory trust that is registered under 
the Act as a diversified, closed-end management investment company. The 
Fund's objective is to provide superior risk-adjusted returns across 
various market cycles by investing in a diversified portfolio of liquid 
and illiquid asset classes.
    2. The Adviser, a Delaware limited liability company, is registered 
as an investment adviser under the Investment Advisers Act of 1940. The 
Adviser serves as investment adviser to the Fund.
    3. The applicants seek an order to permit the Fund to issue 
multiple classes of Shares, each having its own fee and expense 
structure, and to impose asset-based distribution and/or service fees, 
and CDSCs.
    4. Applicants request that the order also apply to any other 
continuously offered registered closed-end management investment 
company existing now or in the future for which the Adviser or any 
entity controlling, controlled by, or under common control

[[Page 27735]]

with the Adviser, or its successors,\1\ acts as investment adviser, and 
which provides periodic liquidity with respect to its Shares through 
tender offers conducted in compliance with either rule 23c-3 under the 
Act or rule 13e-4 under the Securities Exchange Act of 1934 (the ``1934 
Act'').\2\
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    \1\ A 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.
    \2\ The Fund and any other investment company relying on the 
requested relief will do so in a manner consistent with the terms 
and conditions of the application. Applicants represent that any 
person presently intending to rely on the requested relief is listed 
as an applicant.
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    5. The Fund currently issues a single class of Shares (the 
``Initial Class Shares''). Shares are currently being offered on a 
continuous basis pursuant to a registration statement under the 
Securities Act of 1933 at their net asset value per share plus the 
applicable sales load. The Fund, as a closed-end investment company, 
does not continuously redeem Shares as does an open-end management 
investment company. Shares of the Fund are not listed on any securities 
exchange and do not trade on an over-the-counter system such as NASDAQ. 
Applicants do not expect that any secondary market will ever develop 
for the Shares.
    6. If the requested relief is granted, the Fund intends to offer 
multiple classes of Shares, such as the Initial Class Shares and a new 
Share class (the ``New Class Shares''), or any other classes. Because 
of the different distribution fees, shareholder services fees, and any 
other class expenses that may be attributable to the different classes, 
the net income attributable to, and any dividends payable on, each 
class of Shares may differ from each other from time to time.
    7. Applicants state that, from time to time, the Board of the Fund 
may create additional classes of Shares, or may vary the 
characteristics described of the Initial Class and New Class Shares, 
including without limitation, in the following respects: (1) The amount 
of fees permitted by different distribution plans or different service 
fee arrangements; (2) voting rights with respect to a distribution plan 
of a class; (3) different class designations; (4) the impact of any 
class expenses directly attributable to a particular class of Shares 
allocated on a class basis as described in the Application; (5) 
differences in any dividends and net asset values per Share resulting 
from differences in fees under a distribution plan or in class 
expenses; (6) any sales load structure; and (7) any conversion 
features, as permitted under the Act.
    8. The Fund will not impose an ``early withdrawal charge'' or 
``repurchase fee'' on investors who purchase and tender their Shares.
    9. Applicants state that, in order to provide some liquidity to 
shareholders, the Fund is structured as an ``interval fund'' and makes 
quarterly offers to repurchase between 5% and 25% of its outstanding 
Shares at net asset value, pursuant to rule 23c-3 under the Act, unless 
such offer is suspended or postponed in accordance with regulatory 
requirements. Any other investment company that intends to rely on the 
requested relief will provide periodic liquidity to shareholders in 
accordance with either rule 23c-3 under the Act or rule 13e-4 under the 
1934 Act.
    10. Applicants represent that any asset-based service and/or 
distribution fees will comply with the provisions of Rule 2341 of the 
Rules of the Financial Industry Regulatory Authority (``FINRA Rule 
2341'') as if that rule applied to the Fund.\3\ Applicants also 
represent that the 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, the Fund will 
disclose its expenses in shareholder reports, and describe any 
arrangements that result in breakpoints in sales loads in its 
prospectus.\4\ In addition, applicants will comply with applicable 
enhanced fee disclosure requirements for fund of funds, including 
registered funds of hedge funds.\5\
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    \3\ Any references to FINRA Rule 2341 include any successor or 
replacement rule that may be adopted by the Financial Industry 
Regulatory Authority (``FINRA'').
    \4\ See 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).
    \5\ Fund of Funds Investments, Investment Company Act Rel. Nos. 
26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20, 2006) 
(adopting release). See also Rules 12d1-1, et seq. of the Act.
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    11. The Fund and the Distributor will also comply with any 
requirements that may be adopted by the Commission or FINRA 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 the Distributor. The Fund or the 
Distributor will contractually require that any other distributor of 
the Fund's Shares comply with such requirements in connection with the 
distribution of Shares of the Fund.
    12. The 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 
the Fund will comply with the provisions of rule 18f-3 under the Act as 
if it were an open-end investment company.
    13. The Fund does not intend to offer any exchange privilege or 
conversion feature, but any such privilege or feature introduced in the 
future will comply with rule 11a-1, rule 11a-3, and rule 18f-3 as if 
the Fund were an open-end investment company.

Applicants' Legal Analysis

Multiple Classes of Shares

    1. Section 18(a)(2)(A) and (B) makes it unlawful for a registered 
closed-end investment company to issue a senior security that is a 
stock unless (a) immediately after such issuance it will have an asset 
coverage of at least 200% and (b) provision is made to prohibit the 
declaration of any distribution, upon its common stock, or the purchase 
of any such common stock, unless in every such case such senior 
security has at the time of the declaration of any such distribution, 
or at the time of any such purchase, an asset coverage of at least 200% 
after deducting the amount of such distribution or purchase price, as 
the case may be. Applicants state that the creation of multiple classes 
of shares of the Funds may violate section 18(a)(2) because the Funds 
may not meet such requirements with respect to a class of shares that 
may be a senior security.
    2. Section 18(c) of the Act provides, in relevant part, that a 
registered 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 Fund may be prohibited by 
section 18(c), as a class may have priority over another class as to 
payment of

[[Page 27736]]

dividends because shareholders of different classes would pay different 
fees and expenses.
    3. 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. Applicants state that permitting multiple classes of Shares of 
the Fund 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.
    4. 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 or regulation under the Act, 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(a)(2), 18(c) and 18(i) to permit the Fund 
to issue multiple classes of Shares.
    5. Applicants submit that the proposed allocation of expenses 
relating to distribution 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 the Fund to facilitate the distribution of its Shares and 
provide investors with a broader choice of shareholder options. 
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 the Fund will comply with the provisions of 
rule 18f-3 as if it were an open-end investment company.

Asset-Based Service and/or 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 service and/or 
distribution fees. Applicants have agreed to comply with rules 12b-1 
and 17d-3 as if those rules applied to closed-end investment companies, 
which they believe will resolve any concerns that might arise in 
connection with a Fund financing the distribution of its shares through 
asset-based service and/or distribution fees.
    3. For the reasons stated above, applicants submit that the 
exemptions requested under section 6(c) are necessary and appropriate 
in the public interest and are consistent with the protection of 
investors and the purposes fairly intended by the policy and provisions 
of the Act. Applicants further submit that the Funds' imposition of 
asset-based service and/or distribution fees is consistent with the 
provisions, policies and purposes of the Act and does not involve 
participation on a basis different from or less advantageous than that 
of other participants.

Applicants' Condition

    The Fund agrees that any order granting the requested relief will 
be subject to the following condition:
Applicants 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 or replaced, as if those rules applied to closed-end 
management investment companies, and will comply with FINRA Rule 2341, 
as amended from time to time, as if that rule applied to all closed-end 
management investment companies.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12548 Filed 6-15-17; 8:45 am]
BILLING CODE 8011-01-P