[Federal Register Volume 79, Number 78 (Wednesday, April 23, 2014)]
[Notices]
[Pages 22715-22720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09235]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31020; 812-14058]


Matthews A Share Selections Fund, LLC, et al.; Notice of 
Application

April 17, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to section 6(c) of 
the Investment Company Act of 1940 (``Act'') granting exemptions from 
section 8(b)(1)(E) and section 22(e) of the Act, and rule 22c-1 under 
the Act, and pursuant to section 12(d)(1)(J) of the Act granting 
exemptions from sections 12(d)(1)(A) and (B) of the Act, and pursuant 
to sections 6(c) and 17(b) of the Act, granting an exemption from 
section 17(a) of the Act. Applicants: Matthews A Share Selections Fund, 
LLC (the ``Fund''), on behalf of its series (the ``Series''), Matthews 
International Funds (d/b/a Matthews Asia Funds), on behalf of its 
series (the ``Matthews Funds''), Matthews Asia Funds SICAV, on behalf 
of its series (the ``UCITS Funds''), Matthews Asian Selections Funds 
Plc (the ``Irish Fund''), and Matthews International Capital 
Management, LLC (the ``Adviser'').

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SUMMARY:  Summary of Application: Applicants request an order to permit 
the Fund to operate as an extended payment fund established to invest 
in China A shares, to exempt the Fund from the requirement that funds 
must disclose a concentration policy regarding investments in any 
industry or group of industries, and to permit the Fund and its Series 
to sell their limited liability company interests (``Interests'') to, 
and redeem their Interests from, certain pooled investment vehicles 
that are managed or subadvised by the Adviser, including the UCITS 
Funds, the Irish Fund and other entities that may be organized outside 
the United States (the UCITS Funds, the Irish Fund and such other 
entities are, collectively, the ``Other Funds'').

DATES:  Filing Dates: The Application was filed on July 17, 2012, and 
amended on December 28, 2012, and August 28, 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 May 12, 2014, 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: the Fund, the 
Matthews Funds, and the Adviser, Four Embarcadero Center, Suite 550, 
San Francisco, CA 94111; the UCITS Funds, 6, route de Treves, L-2633 
Senningerberg, Grand Duchy of Luxembourg; and the Irish Fund, Brooklawn 
House, Crampton Avenue/Shelbourne Road, Ballsbridge, Dublin 4, Ireland.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at 
(202) 551-6826, or Janet M. Grossnickle, Assistant Director, 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, a Delaware limited liability company registered as an 
open-end management investment company under Act, is organized as a 
series investment company, and will be operated as an extended payment 
fund, as discussed below. The Fund is designed to be a viable and 
economical means to permit the Matthews Funds, Other Funds and separate 
accounts managed by the Adviser to invest in China A Shares. Each 
investing Matthews Fund, Other Fund, or separate account will own all 
of the Interests offered by a particular Series, and investors in the 
Fund's Series will be exclusively entities advised or managed by the 
Adviser. Interests will not be registered under the Securities Act of 
1933 (the ``Securities Act''); they will be offered only in private 
placement transactions to ``accredited investors,'' as defined in 
Regulation D under the Securities Act, that are also ``qualified 
purchasers,'' as defined in section 2(a)(51) of the Act and the rules 
thereunder (``Qualified Purchasers'').\1\ The Fund, through its Series, 
will be the entity that invests in and holds China A Shares.\2\
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    \1\ The Fund will adopt a policy to permit the transfer of 
Interests only to other Qualified Purchasers.
    \2\ Each entity that currently intends to rely on the requested 
order has been named as an Applicant. Applicants request that the 
relief from section 8(b)(1)(E), section 22(e), and rule 22c-1 of the 
Act apply also to any existing or future Series of the Fund, and 
that the relief from sections 12(d)(1)(A) and (B) of the Act, and 
from section 17(a) of the Act, apply to any existing or future 
Series of the Fund, and any investment company, or series thereof, 
advised by the Adviser or any entity controlling, controlled by or 
under common control with the Adviser that wishes to invest in the 
Fund or a Series thereof. Any Series or investment company that 
relies on the order in the future will do so only in accordance with 
the terms and conditions contained in the Application.

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[[Page 22716]]

    2. The Matthews Funds are organized as series of a Delaware 
statutory trust, which is registered under the Act as an open-end 
management investment company. The UCITS Funds are organized as the 
separate series of Matthews Asia Funds SICAV under the laws of 
Luxembourg. The Irish Fund is organized as a private limited company, 
and regulated as an open-ended umbrella investment company with 
variable capital that may be offered and sold only to qualifying 
investors under the laws of the Republic of Ireland. Both the UCITS 
Funds and the Irish Fund are not sold to United States residents, are 
not registered under the Act, and the offering of their interests have 
not been registered under the Securities Act.
    3. The Adviser is registered as an investment adviser under the 
Investment Advisers Act of 1940 (``Advisers Act''). The Adviser will 
serve as investment adviser to the Fund and its Series, and serves as 
investment adviser to the Matthews Funds, Other Funds and separate 
accounts. Matthews Global Investors (U.S.), LLC (``MGI''), a Delaware 
LLC and an affiliate of the Adviser, acts as managing member of the 
Fund.\3\
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    \3\ The Adviser is the sole member of MGI. In the future, the 
Adviser or a different affiliate controlling, controlled by or under 
common control with the Adviser may act as managing member of the 
Fund or a Series thereof.
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    4. Applicants state that a significant majority of publicly traded 
Chinese companies list their shares on one or more of three stock 
exchanges--the Shanghai, Shenzhen and Hong Kong Stock Exchanges. The 
Shanghai and Shenzhen exchanges are located in mainland China and there 
are two categories of stock that are listed on these exchanges: China 
``A Shares'' which trade in the currency of China, the renminbi, and 
``B Shares'' which trade in foreign currencies. ``H Shares'' and ``red 
chip'' shares are listed and traded on the Hong Kong Stock Exchange.\4\ 
Applicants state that far fewer Chinese companies have listed their 
shares as H Shares or red chips.
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    \4\ H Shares are shares of companies incorporated in mainland 
China, listed on the Hong Kong Stock Exchange and traded in Hong 
Kong dollars. ``Red chip'' shares are listed and traded on the Hong 
Kong Stock Exchange, issued by companies based in mainland China but 
incorporated outside of mainland China.
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    5. The Matthews Funds and Other Funds currently invest in China 
through ``H Shares'' or ``red chip'' stocks. Applicants state that for 
a variety of reasons, China A Shares are a more attractive means to 
invest in Chinese companies than H Shares, red chip stocks, or China B 
Shares. Applicants state that, while it is not practical or feasible 
for a Matthews Fund, Other Fund, or separate account to individually 
invest in China A Shares, a pooled investment vehicle, the Fund, would 
allow them to obtain exposure to China A Shares.\5\ The Fund will be 
named as the investing vehicle in the Adviser's application to obtain a 
license to invest in China.
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    \5\ Applicants state that until 2002, the Chinese government 
restricted investment in China A Shares to domestic (i.e., Chinese) 
investors. Since 2002, the Chinese Government has permitted certain 
non-Chinese investors to invest in China A Shares, but to do so, a 
foreign investor must apply for, and receive a license as a 
Qualified Foreign Institutional Investor or ``QFII'' and be allotted 
a quota, representing the amount in renminbi of China A Shares that 
the investor may purchase. The Adviser has received a QFII license 
and is in the process of applying for a quota so that it can invest 
in China A Shares on behalf of the Matthews Funds, Other Funds and 
separate accounts. Applicants are requesting a quota in the amount 
of USD 350 million, although the amount of quota received will not 
be known until it is granted.
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    6. The Fund has a board of directors (``Board''), a majority of 
which will be comprised of persons who are not ``interested persons'' 
(as defined by section 2(a)(19) of the Act). Each Series will have a 
portfolio manager or team of portfolio managers. The portfolio 
manager(s) for a Series are expected to be the same individual(s) as 
the portfolio manager(s) of the Matthews Fund, Other Fund or separate 
account investing in that Series. Accordingly, the portfolio manager(s) 
will be able to select China A Shares most suited for the investor's 
investment style and strategy, consistent with the remainder of the 
investor's portfolio. As portfolio manager(s) of a Series, the 
portfolio manager(s) will have responsibilities to the Series and be 
overseen by the Board. The portfolio manager(s) also will have 
responsibilities, in their capacity as Matthews Fund, Other Fund or 
separate account portfolio manager(s), to the applicable investor for 
investing the non-Series portion of the portfolio.
    7. The Adviser may charge advisory fees to the Series; however, if 
advisory fees are charged to a Series used by a Matthews Fund, any 
assets of a Matthews Fund invested in that Series will not be counted 
for purposes of calculating the Matthews Fund's advisory fee payable to 
the Adviser so that the Adviser will not receive separate fees for 
managing the same assets, except that any such assets will be applied 
and counted as a Matthews Fund's assets for purposes of applying 
breakpoints. Fees paid by an Other Fund or separate account would be 
negotiated with the Other Fund or separate account and structured in an 
appropriate manner such that, unless additional services are provided, 
the Adviser would not receive separate fees for managing the same 
assets. Fee arrangements for the Series will be subject to review and 
approval by the Fund's Board, including its independent members, in 
accordance with section 15(c) of the Act, and their impact on overall 
fees for the Adviser's client will be fully disclosed to the Applicant 
client, including the Matthews Funds.
    8. Expenses of each Series, which would include basic fees and 
expenses of service providers, such as the Adviser, administrator, 
accountant, local custodian and legal counsel, will be charged to the 
Series receiving the services generating the expense and accrued on a 
daily basis. Applicants state that because the Fund's limited liability 
company agreement does not provide to the contrary, the Delaware 
Limited Liability Company Act provides that each Series (holding 
distinct China A Shares) will have its own debts, liabilities, 
obligations and expenses, and such items will not be enforceable 
against any other Series. The Fund's books and those of the Series will 
be accounted for under standard accounting principles and in accordance 
with U.S. Generally Accepted Accounting Principles (GAAP), and they 
will be audited annually by a nationally recognized and PCAOB-
registered audit firm in accordance with U.S. Generally Accepted 
Auditing Standards.
    9. The Fund's custodial arrangements will be overseen by the Fund's 
Board in accordance with rule 17f-5 under the Act. The Series used by 
Matthews Funds will not lever themselves through borrowing, but Series 
used by Other Funds or separate accounts may, or in the future may be 
permitted to, use leverage. Applicants state that the Fund will value 
its holdings daily in accordance with section 2(a)(41) of the Act, and 
the value will take into account all relevant facts and circumstances, 
including (if relevant) the length of time before proceeds can be 
repatriated (as discussed below), and will be applied under the 
oversight of the Fund's valuation committee in accordance with 
delegated authority and procedures approved by the Fund's Board. The 
Fund also has a chief compliance officer and will implement and 
maintain a compliance program in accordance with rule 38a-1 under the 
Act.
    10. Applicants state that access by the Adviser's clients to the 
quota (i.e., to China A Shares) will be a limited opportunity and will 
be allocated in accordance with the Adviser's Access to Research and 
Allocation of Portfolio

[[Page 22717]]

Opportunities Procedures (``Access Allocation Procedures''), which are 
designed to ensure that allocations are fair and equitable over time to 
all of the Adviser's accounts. The Adviser will amend the Access 
Allocation Procedures to specifically address issues arising from the 
quota. Similarly, if more than one Matthews Fund, Other Fund or 
separate account seeks to repatriate proceeds at the same time, and 
Chinese regulations limit the aggregate amount of proceeds that may be 
repatriated at any given time to a level below the aggregate amount 
sought to be repatriated, the requests by the applicable portfolio 
manager(s) will be aggregated, if received at or about the same time, 
and proceeds available for repatriation will be allocated pro rata 
among requesting investors.\6\ The Adviser will not, however, when 
making investment decisions for the Fund or its Series, take into 
consideration whether selling China A Shares and repatriating proceeds 
could impact the continued availability of the quota. The Adviser will 
also not take into consideration whether buying China A Shares could 
affect the continued availability of the quota.\7\
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    \6\ Applicants are not seeking comfort and acknowledge that the 
Commission is providing no opinion on whether the Access Allocation 
Procedures meet the standards applicable under the Act or the 
Advisers Act.
    \7\ Applicants state that the Chinese authorities may reduce or 
revoke a QFII's quota if the QFII does not invest the full amount of 
its quota over a phase-in period, or, in certain cases, if it 
repatriates its investments below the quota amount.
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    11. Applicants note that the significant majority (at least 85%) of 
the China A Shares to be held by the Fund would be able to be disposed 
of in the ordinary course of business since the China A Share market is 
liquid, and thus holdings would meet the liquidity requirements in the 
context of a fund's ability to dispose of an asset. However, while the 
China A Shares could be sold in a timely manner in exchange for 
renminbi, the investing Matthews Fund, Other Fund or separate account 
would only be able to repatriate the proceeds weekly,\8\ which in some 
circumstances might not be within seven days of receipt of the 
redemption request. Each Matthews Fund will deem China A Shares to be 
illiquid investments and limit its holdings in the Fund to no more than 
15% of its net assets, unless Chinese repatriation restrictions permit 
repatriation, and the relevant Series permits redemption, within seven 
days such that the Matthews Fund, or the Adviser in accordance with a 
Matthews Fund's policies, could deem the Interests to be liquid under 
applicable Commission and staff guidance.
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    \8\ Under Chinese regulations, repatriation will be available 
after an initial three-month lock-up period, during which the Fund 
will not be able to repatriate proceeds, but would be able to buy 
and sell different China A Shares without restrictions. After the 
lock-up period, repatriation may occur once a week, with the total 
amount repatriated by the Fund in any month limited to no more than 
20% of the Fund's net asset value (``NAV'') as of the end of the 
prior year. The regulations do not currently require the 
repatriation to take place on the same day each week.
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    12. Applicants state that the repatriation restrictions may prevent 
the Fund from being able to redeem its Interests within the time period 
otherwise required by the Act. As an extended payment fund, the Fund 
would pay redemption proceeds no less frequently than on one day each 
month (any such date, a ``Redemption Payment Date''). Redemption 
payments would be based on the Fund's NAV on the Redemption Payment 
Date, and redemption payments would only be made for redemptions 
requested on or before the Redemption Payment Date and time for that 
particular month (or shorter period). The Fund will adopt a fundamental 
policy specifying its redemption procedures, and this policy will be 
disclosed in the Fund's registration statement.
    13. The Fund will establish, and the Board will approve, written 
procedures reasonably designed to ensure that the Fund's portfolio 
assets are sufficiently liquid so that the Fund can comply with its 
fundamental policy on redemptions, taking into account current market 
conditions and regulatory requirements and the Fund's investment 
objectives. The Board will review the procedures and the overall 
composition of the portfolio at least annually and on such other 
occasions as may be necessary in light of changes in the markets for 
the Fund's portfolio assets and applicable regulatory requirements 
concerning, among other matters, repatriation restrictions.

Applicants' Legal Analysis

    Applicants request an order to exempt the Fund from section 22(e) 
of the Act and rule 22c-1 thereunder to the extent necessary to permit 
the Fund to operate as an extended payment fund. Applicants also 
request that the order exempt the Fund from section 8(b)(1)(E) of the 
Act and the requirement that the Fund disclose a concentration policy 
regarding investments in any industry or group of industries. Instead, 
the order would require that the Fund disclose that it does not have a 
concentration policy and require that any registered investment company 
that invests in a Series will aggregate the Series' holdings with its 
own holdings for purposes of evaluating its concentration policy. 
Applicants further request that the order grant an exemption from 
sections 12(d)(1)(A) and (B) of the Act, and an exemption from section 
17(a) of the Act, to the extent necessary to permit the Fund and its 
Series to sell their Interests to, and redeem their Interests from, the 
Other Funds.

A. Section 22(e) of the Act and Rule 22c-1 Under the Act

    1. Rule 22c-1 under the Act generally requires a registered open-
end investment company to sell, redeem, or repurchase its securities at 
the price based on the current NAV of such security next computed after 
receipt of a tender of such security for redemption. Applicants state 
that rule 22c-1 was designed primarily to address the practice of 
``backward pricing'' of fund shares. That practice involved pricing 
fund shares for purchase or redemption based on the NAV determined 
prior to the purchase or redemption request. This pricing mechanism 
enabled a fund's insiders to engage in ``riskless trading'' by buying 
shares at an NAV that they knew was likely to increase because of 
market action after the shares were priced. Applicants assert that, in 
effect, backward pricing created the possibility that some investors 
could trade fund shares at the expense of non-redeeming shareholders. 
Rule 22c-1 eliminates this problem by requiring ``forward pricing,'' or 
pricing fund shares at the close of the market after a purchase or 
redemption request is received. Under rule 22c-1, an open-end equity 
fund typically computes the value of shares tendered for redemption on 
any given day at 4:00 p.m. on that day.
    2. Applicants propose that the Fund will price Interests tendered 
for redemption at the close of business on the Redemption Payment Date, 
which will be no less frequently than one day each month. The Fund will 
redeem Interests on a given Redemption Payment Date only for 
redemptions requested on or before the close of business (generally 
4:00 p.m. Eastern time) on the redemption pricing date (which will be 
the Redemption Payment Date). Applicants assert that their proposal 
does not raise the concern of ``backward pricing'' because shares will 
be priced only after a tender for redemption is received. Applicants 
state that the Fund's pricing timeline will be clearly disclosed and is 
consistent with the Act because it will treat all investors equally and 
not dilute non-redeeming shareholders' interests. In addition, all 
investors in the Fund will be Qualified Purchasers, who are capable of

[[Page 22718]]

understanding the risks presented by the Fund's redemption policy.
    3. Section 22(e) of the Act provides that a registered investment 
company may not suspend the right of redemption or postpone the date of 
payment or satisfaction upon redemption of any redeemable security in 
accordance with its terms for more than seven days after the tender of 
the security to the company. Applicants state that the Redemption 
Payment Date, which will be no less frequent than one day each month, 
may be more than seven days from the time that a shareholder of a 
Series tenders Interests to the Series. Thus, Applicants are requesting 
relief from section 22(e) to permit the Fund and its Series to pay 
redemption proceeds more than seven days from the tender of such 
Interests.
    4. Applicants state that the primary purpose of section 22(e) is to 
address the abusive practices of early open-end companies that claimed 
that their securities were redeemable, only to then institute barriers 
to redemption. Applicants represent that the Fund's policies will not 
raise the possibility of such abuses. The Fund's redemption policy will 
be a fundamental policy changeable only by a majority vote of its 
shareholders and the approval of the Commission or its staff. 
Applicants undertake to disclose the Fund's redemption policy on the 
cover page of its offering memorandum and in any marketing materials, 
and to refrain from holding itself out as a ``mutual fund.'' Most 
importantly, the Fund will limit its investors to Qualified Purchasers, 
who are highly sophisticated investors capable of understanding the 
Fund's redemption policy and its associated risks.
    5. In 1992, the Commission proposed rule 22e-3 under the Act that 
set forth an ``extended payment fund'' structure similar to that 
proposed for the Fund. The Commission's proposal was designed to permit 
a registered investment company that could both offer redeemable 
securities and invest in assets, including less liquid foreign 
securities, that did not meet the seven-day liquidity standard for 
traditional open-end funds. Under proposed rule 22e-3, an open-end fund 
could make payment upon redemption of its securities up to 31 days 
after tender of the securities to the fund at NAV determined on the 
next redemption pricing date following the tender, provided that: (a) 
The fund did so pursuant to a fundamental policy, setting forth the 
number of days between a tender and the next redemption pricing and 
payment dates, changeable only with approval of a majority of the 
fund's outstanding voting securities; (b) at least 85% of the fund's 
assets consisted of assets that either (i) may be sold in the ordinary 
course of business at approximately the price used to compute the 
fund's NAV, within the period between the tender and the next 
redemption payment date, or (ii) mature by the next redemption payment 
date; and (c) the fund does not hold itself out to investors as a 
mutual fund. Applicants assert that the Fund will comply with 
requirements that are designed to achieve the same goals, but which 
account for the repatriation restrictions discussed above.
    6. Section 6(c) of the Act permits the Commission to exempt any 
person or transaction from any provision of the Act if the exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the 
policies of the Act. Applicants believe that the relief is appropriate 
because the Fund can provide a convenient and cost-effective means of 
obtaining tailored exposure to China A Shares for investing Matthews 
Funds, Other Funds and separate accounts. Applicants also believe that 
the requested relief is consistent with the protection of investors 
because shares of the Fund will be available only to Qualified 
Purchasers. Finally, Applicants state that the relief is consistent 
with the purposes intended by the policies of the Act because, as 
discussed above, it does not raise the concerns addressed by section 
22(e) of the Act and rule 22c-1 under the Act.

B. Section 8(b)(1)(E) of the Act

    1. Section 8(b)(1)(E) of the Act provides that every registered 
investment company shall file with the Commission a recital of its 
policy in respect of concentrating investments in a particular industry 
or group of industries. Form N-1A implements the section 8(b) 
requirement to disclose a fund's concentration policy: Instruction 4 to 
Item 9 of Form N-1A requires a fund to ``[d]isclose any policy to 
concentrate in securities of issuers in a particular industry or group 
of industries (i.e., investing more than 25% of a fund's net assets in 
a particular industry or group of industries).'' Applicants state that 
the Commission's staff has taken the position that statements of 
concentration policy pursuant to which registrants reserve the right to 
concentrate in particular industries without limitation if deemed 
advisable and in the best interests of the shareholders do not comply 
with section 8(b)(1). Applicants assert that the primary purposes of 
the industry concentration test include preventing a fund's investment 
adviser from inappropriately concentrating a fund's investments 
contrary to investor expectations and from reserving freedom of action 
to concentrate the fund's investments, which may not provide investors 
with sufficient clarity to form expectations about concentration.
    2. Applicants state that the application of section 8(b)(1)(E) at 
the Series level imposes a barrier to the efficient operation of the 
Series when conducting otherwise routine portfolio changes, contrary to 
the expectations of Matthews Fund or Other Fund shareholders. For a 
Series with a limited number of holdings, routine portfolio changes 
could frequently result in a Series ``concentrating'' its investments 
in different industries or groups of industries, using the Commission's 
25% threshold for determining concentration, even though such Series' 
``concentration'' would have little or no meaningful impact on the 
industry concentration of the investing Matthews Fund's or Other 
Fund's'overall portfolio. Applicants state that absent relief and 
assuming a policy to concentrate in the particular industry has not 
been disclosed in the Series' registration statement, any routine 
portfolio change that results in a Series ``concentrating'' its 
investments (measured solely at the Series' level) would need the 
approval of a majority of the outstanding voting securities of the 
Series in accordance with section 13 of the Act. Applicants submit that 
while a Series could obtain a shareholder vote every time it crossed 
the 25% ``concentration'' threshold since each Series will be owned by 
a client of the Adviser, this result would be unnecessary, cumbersome, 
and serve no policy objective.
    3. Applicants propose that, due to the structure, nature and 
purpose of the Fund, each Series be exempt from section 8(b)(1)(E) and 
the requirement to disclose a policy of concentrating in a particular 
industry or group of industries. Applicants have proposed conditions 
that would require each Series to disclose that it does not have a 
concentration policy and that any registered investment company that 
invests in a Series will aggregate the Series' holdings with its own 
holdings for purposes of evaluating its concentration policy. 
Applicants state that an investor in a Matthews Fund should have 
expectations regarding the industry concentration of the portfolio 
taken as a whole of the Matthews Fund in which s/he has invested, and 
s/he is protected by the requirement that the

[[Page 22719]]

Matthews Fund disclose and adhere to its own concentration policy. 
Applicants submit that imposing an additional layer of concentration 
requirements on a Series would not serve an investor protection 
purpose. Accordingly, Applicants assert that granting the requested 
relief is warranted under the standards set forth in section 6(c) of 
the Act.

C. Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) provides that no registered investment 
company may acquire securities of another investment company if such 
securities represent more than 3% of the acquired company's outstanding 
voting stock, more than 5% of the acquiring company's total assets, or 
if such securities, together with the securities of other investment 
companies, represent more than 10% of the acquiring company's total 
assets. Section 12(d)(1)(B) provides that no registered open-end 
investment company, its principal underwriter or any broker or dealer 
may sell the company's securities to another investment company if the 
sale will cause the acquiring company to own more than 3% of the 
acquired company's voting stock or cause more than 10% of the acquired 
company's voting stock to be owned by investment companies.
    2. Section 12(d)(1)(G) of the Act provides, in relevant part, that 
section 12(d)(1) will not apply to the securities of a registered open-
end investment company purchased by another registered open-end 
investment company, if: (a) The acquiring company and the acquired 
company are part of the same group of investment companies; (b) the 
acquiring company holds only securities of acquired companies that are 
part of the same group of investment companies, government securities 
and short-term paper; (c) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not 
excessive under rules adopted pursuant to section 22(b) or section 
22(c) of the Act by a securities association registered under section 
15A of the Securities Exchange Act of 1934 or by the Commission; and 
(d) the acquired company has a policy that prohibits it from acquiring 
securities of registered open-end management investment companies or 
registered unit investment trusts in reliance on section 12(d)(1)(F) or 
(G) of the Act. Applicants state that section 12(d)(1)(G) is 
unavailable largely due to the Other Funds not being ``registered'' 
under the Act; its unavailability is not due to any difference that 
relates to the policies supporting section 12(d)(1). Applicants further 
state that if the Other Funds were registered in the United States as 
open-end funds, they, like the Matthews Funds, would be entitled to 
rely on section 12(d)(1)(G) and the rules thereunder to invest in the 
Series, if they were part of the same ``group of investment 
companies,'' as defined in Section 12(d)(1)(G)(ii).
    3. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1), if the exemption is consistent with the public 
interest and the protection of investors. Applicants seek an exemption 
under section 12(d)(1)(J) to permit the Other Funds to purchase 
Interests of Series which, as discussed herein, would result in an 
Other Fund owning 100% of the Interests of a particular Series.
    4. Applicants state that the proposed arrangement will not raise 
the policy concerns underlying sections 12(d)(1)(A) and (B), including 
undue influence by a fund of funds over underlying funds, excessive 
layering of fees and overly complex fund structures. Accordingly, 
Applicants believe that the requested exemption is consistent with the 
public interest and the protection of investors.
    5. Applicants contend that the proposed arrangement will not result 
in undue influence by an Other Fund over the Fund because, as manager 
of the Other Funds, the Adviser will act to prevent undue influence.
    6. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. Applicants state that, among other 
protections described above, fee arrangements for the Series will be 
subject to review and approval by the Fund's Board, including its 
independent members, in accordance with Section 15(c) of the Act, and 
their impact on overall fees for the Adviser's client will be fully 
disclosed to the client. With respect to Other Funds that invest in the 
Fund, no sales load will be charged by the Fund. Other sales charges 
and service fees, as defined in NASD Conduct Rule 2830,\9\ if any, will 
only be charged at the Fund level or at the Other Fund level, not both. 
With respect to other investments in the Fund, any sales charges and/or 
service fees charged with respect to shares of the Fund will not exceed 
the limits applicable to a fund of funds set forth in such Rule 2830.
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    \9\ References to NASD Conduct Rule 2830 include any successor 
or replacement rule that may be adopted by the Financial Industry 
Regulatory Authority.
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    7. Applicants contend that the proposed arrangement will not create 
an overly complex fund structure. Condition 10 provides that no Series 
of the Fund will acquire securities of any investment company or 
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of 
the limits of section 12(d)(1)(A), except to the extent that such 
Series of the Fund acquires, or is deemed to have acquired, the 
securities pursuant to exemptive relief from the Commission permitting 
such Series of the Fund to (a) acquire securities of one or more 
affiliated investment companies or companies relying on section 3(c)(1) 
or 3(c)(7) for short-term cash management purposes, or (b) engage in 
interfund borrowing and lending transactions.

D. Section 17(a) of the Act

    1. Section 17(a) of the Act generally prohibits purchases and sales 
of securities, on a principal basis, between a registered investment 
company and any affiliated person of the company, and affiliated 
persons of such persons. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include, among other things, 
any person directly or indirectly owning, controlling or holding with 
power to vote 5% or more of the other's outstanding voting securities; 
any person 5% or more of whose outstanding voting securities are 
directly or indirectly owned, controlled or held with power to vote by 
the other person; any person directly or indirectly controlling, 
controlled by or under common control with the other person; and any 
investment adviser to an investment company. Applicants describe 
several bases of potential affiliation in the Application, and state 
that if the Other Funds and the Fund are deemed affiliates of each 
other, or even second-tier affiliates, the sale of Interests of the 
Fund to the Other Funds, and the redemption of such Interests by the 
Other Funds, could be prohibited under section 17(a) of the Act.
    2. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (a) the terms of the proposed transaction, including the 
consideration to be paid or received, are fair and reasonable and do 
not involve overreaching on the part of any person concerned, (b) the 
proposed transaction is consistent with the policies of each registered 
investment company involved, and (c) the proposed

[[Page 22720]]

transaction is consistent with the general purposes of the Act.
    3. Applicants seek an exemption under sections 6(c) and 17(b) to 
allow the proposed transactions. Applicants state that the transactions 
satisfy the standards for relief under sections 6(c) and 17(b). 
Specifically, Applicants state that the terms of the transactions are 
fair and reasonable and do not involve overreaching. Applicants note 
that the consideration paid and received for the sale and redemption of 
Interests of the Fund will be based on the NAV of the Fund and, no 
sales load will be charged by the Fund, and other sales charges and 
service fees, if any, will only be charged at the Fund level or the 
Other Fund level, but not both. In addition, Applicants represent that 
the proposed transactions will be consistent with the policies of each 
registered investment company involved, and the general purposes of the 
Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Fund's outstanding securities will be owned exclusively by 
persons who are Qualified Purchasers, as defined in section 2(a)(51) of 
the Act and the rules thereunder.
    2. The Fund will adopt a fundamental policy, which may be changed 
only by a majority vote of the outstanding voting securities of the 
Fund and only upon approval by the Commission or its staff, that will 
specify the circumstances in which the Fund will redeem its Interests, 
such that the Fund (a) will pay redemptions no less frequently than on 
one day each month (each such day, a Redemption Payment Date), (b) will 
calculate its NAV applicable to a redemption request received in good 
order in accordance with procedures set forth in the Fund's prospectus 
as of the close of business on the next redemption pricing date and 
time following such redemption request, which will be on the same day 
as the Redemption Payment Date, and (c) will redeem Interests in a 
given month only for redemptions requested on or before the redemption 
pricing date and time for that Redemption Payment Date.
    3. At least 85% of the assets of the Fund will consist of assets:
    (a) That the Fund reasonably believes may be sold or disposed of in 
local currency in the ordinary course of business, at approximately the 
price used in computing the Fund's NAV, within seven days, or
    (b) that mature by the next Redemption Payment Date.
    4. The Board of the Fund, including a majority of the disinterested 
trustees, will adopt written procedures designed to ensure that the 
Fund will comply with the terms and conditions of the requested order. 
The Board will review these procedures at least annually and approve 
such changes as it deems necessary.
    5. The Fund will not hold itself out as a ``mutual fund.'' The Fund 
will disclose its redemption policy on the cover page of its offering 
memorandum and in any marketing materials.
    6. Each Series will disclose in its registration statement that it 
does not have a concentration policy regarding investments in any 
industry or group of industries.
    7. Any registered investment company that invests in a Series will 
aggregate the Series' holdings with its own holdings for purposes of 
evaluating its concentration policy regarding investments in any 
industry or group of industries.
    8. With respect to Other Funds that invest in the Fund, no sales 
load will be charged by the Fund. Other sales charges and service fees, 
as defined in NASD Conduct Rule 2830, if any, will only be charged at 
the Fund level or at the Other Fund level, not both. With respect to 
other investments in the Fund, any sales charges and/or service fees 
charged with respect to Interests of the Fund or its Series will not 
exceed the limits applicable to a fund of funds set forth in such Rule 
2830.
    9. The Adviser will be an investment adviser or manager to each 
series of the Matthews Funds, Other Fund, or separate account that 
invests in the Fund.
    10. No Series of the Fund will acquire securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A) of the Act, 
except to the extent that such Series of the Fund acquires, or is 
deemed to have acquired, the securities pursuant to exemptive relief 
from the Commission permitting such Series of the Fund to (a) acquire 
securities of one or more affiliated investment companies or companies 
relying on section 3(c)(1) or 3(c)(7) of the Act for short-term cash 
management purposes, or (b) engage in interfund borrowing and lending 
transactions.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09235 Filed 4-22-14; 8:45 am]
BILLING CODE 8011-01-P