
[Federal Register: July 15, 2008 (Volume 73, Number 136)]
[Notices]               
[Page 40639-40643]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jy08-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28329; 812-13074]

 
ING Clarion Real Estate Income Fund, et al.; Notice of 
Application

 July 8, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 19(b) of 
the Act and rule 19b-1 under the Act.

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Summary of Application:  Applicants request an order to permit certain 
closed-end investment companies to make periodic distributions of long-
term capital gains with respect to their outstanding common stock as 
frequently as twelve times each year, and as frequently as 
distributions are specified by or in accordance with the terms of any 
outstanding preferred stock that such investment companies may issue.

Applicants: ING Clarion Real Estate Income Fund (``IIA''), ING Clarion 
Global Real Estate Income Fund (``IGR''), and ING Clarion Real Estate 
Securities, L.P. (the ``Adviser'').

Filing Dates: March 26, 2004, February 1, 2007, June 12, 2008, and July 
8, 2008.

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 August 4, 2008, 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, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090; Applicants, 201 King of Prussia Road, 
Suite 600, Radnor, PA 19087, Attention: T. Ritson Ferguson.

FOR FURTHER INFORMATION CONTACT: Wendy Friedlander, Senior Counsel, at 
(202) 551-6837, or James M. Curtis, Branch Chief, at (202) 551-6825 
(Division of Investment Management, Office of Chief Counsel).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Room, 100 F Street, NE., Washington 
20549-1520 (telephone (202) 551-5850).
    Applicants' Representations:
    1. Each of IIA and IGR is a registered closed-end management 
investment company organized as a Delaware statutory trust, and each 
has high current income as its primary objective and capital 
appreciation as its

[[Page 40640]]

secondary objective.\1\ The common shares issued by IIA and IGR are 
listed on the New York Stock Exchange, and the preferred shares issued 
by each are not listed on any exchange. Applicants believe that the 
shareholders of IIA and IGR are generally conservative, dividend-
sensitive investors who desire current income periodically and may 
favor a fixed distribution policy.
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    \1\ Applicants request that any order issued granting the relief 
requested in the application also apply to any closed-end investment 
company (``fund'') that in the future: (a) Is advised by the Adviser 
(including any successor in interest) or by any entity controlling, 
controlled by, or under common control (within the meaning of 
section 2(a)(9) of the Act) with the Adviser; and (b) complies with 
the terms and conditions of the requested order. A successor in 
interest is limited to entities that result from a reorganization 
into another jurisdiction or a change in the type of business 
organization.
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    2. The Adviser is registered under the Investment Advisers Act of 
1940 and is responsible for the overall management of IIA and IGR. The 
Adviser is a subsidiary of ING Group, N.V., a financial services 
organization based in The Netherlands.
    3. Applicants represent that on November 16, 2006, the Boards of 
Trustees (the ``Boards'') of each of IIA and IGR, including a majority 
of the members of each of the Boards who are not ``interested persons'' 
of each fund (the ``Independent Trustees'') as defined in section 
2(a)(19) of the Act, reviewed information regarding the purpose and 
terms of a proposed distribution policy, the likely effects of such 
policy on the respective fund's long-term total return (in relation to 
market price and net asset value (``NAV'') per common share) and the 
relationship between the fund's distribution rate on its common shares 
under the policy and the fund's total return on NAV per share. 
Applicants state that the Independent Trustees of each of IIA and IGR 
also considered what conflicts of interest the Adviser and the 
affiliated persons of the Adviser and each fund might have with respect 
to the adoption or implementation of such policy. Applicants further 
state that after considering such information the Board, including the 
Independent Trustees, of each of IIA and IGR approved a distribution 
policy and related plan with respect to each of the respective fund's 
common shares (a ``Plan'') and determined that such policy and Plan are 
consistent with the relevant fund's investment objectives and in the 
best interests of such fund's common shareholders.
    4. Applicants state that the purpose of each of the proposed Plans 
would be to permit each fund to distribute over the course of each 
year, through periodic distributions as nearly equal as practicable and 
any required special distributions, an amount closely approximating the 
total taxable income of the fund during such year and, if so determined 
by its Board, all or a portion of the returns of capital paid by 
portfolio companies to the fund during such year. Applicants represent 
that each of the funds would distribute to its respective common 
shareholders a fixed monthly percentage or amount under its proposed 
Plan, which percentage or amount may be adjusted from time to time. 
Applicants state that the minimum annual distribution rate with respect 
to a fund's common shares under each Plan would be independent of the 
fund's performance during any particular period but would be expected 
to correlate with the fund's performance over time. Applicants explain 
that each distribution on the common shares would be at the stated rate 
then in effect, except for extraordinary distributions and potential 
increases or decreases in the final dividend periods in light of the 
fund's performance for the entire calendar year and to enable the fund 
to comply with the distribution requirements of subchapter M of the 
Internal Revenue Code of 1986 (the ``Code'') for the calendar year. 
Applicants expect that over time the NAV distribution rate with respect 
to a fund's common shares will approximately equal that fund's total 
return on NAV.
    5. Applicants state that at the November 16, 2006 meeting, the 
Boards of IIA and IGR each also adopted policies and procedures under 
rule 38a-1 under the Act that are reasonably designed to ensure that 
all notices sent to IIA or IGR shareholders with distributions under 
the Plan (``Notices'') comply with condition II below, and that all 
other written communications by IIA or IGR or its agents regarding 
distributions under the Plan include the disclosure required by 
condition III below. Applicants state that the Boards of IIA and IGR 
each also adopted policies and procedures at that meeting that require 
IIA and IGR to keep records that demonstrate each fund's compliance 
with all of the conditions of the requested order and that are 
necessary for each fund to form the basis for, or demonstrate the 
calculation of, the amounts disclosed in its Notices.
    Applicants' Legal Analysis:
    1. Section 19(b) generally makes it unlawful for any registered 
investment company to make long-term capital gains distributions more 
than once each year. Rule 19b-1 limits the number of capital gains 
dividends, as defined in section 852(b)(3)(C) of the Code 
(``distributions''), that a fund may make with respect to any one 
taxable year to one, plus a supplemental ``clean up'' distribution made 
pursuant to section 855 of the Code not exceeding 10% of the total 
amount distributed for the year, plus one additional capital gain 
dividend made in whole or in part to avoid the excise tax under section 
4982 of the Code.
    2. Section 6(c) provides that the Commission may, by order upon 
application, conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    3. Applicants state that one of the concerns underlying section 
19(b) and rule 19b-1 is that shareholders might be unable to 
differentiate between regular distributions of capital gains and 
distributions of investment income. Applicants state, however, that 
rule 19a-1 effectively addresses this concern by requiring that a 
separate statement showing the sources of a distribution (e.g., 
estimated net income, net short-term capital gains, net long-term 
capital gains and/or return of capital) accompany any distributions (or 
the confirmation of the reinvestment of distributions) estimated to be 
sourced in part from capital gains or capital. Applicants state that 
the same information also is included in IIA's and IGR's annual reports 
to shareholders and on its IRS Form 1099-DIV, which is sent to each 
common and preferred shareholder who received distributions during the 
year.
    4. Applicants further state that each of IIA and IGR will make the 
additional disclosures required by the conditions set forth below, and 
each of them has adopted compliance policies and procedures in 
accordance with rule 38a-1 to ensure that all required Notices and 
disclosures are sent to shareholders. Applicants argue that by 
providing the information required by section 19(a) and rule 19a-1, and 
by complying with the procedures adopted under each Plan and the 
conditions listed below, the funds would ensure that each fund's 
shareholders are provided sufficient information to understand that 
their periodic distributions are not tied to the fund's net investment 
income (which for this purpose is the fund's taxable income other than 
from capital gains) and realized capital gains to date, and may not 
represent yield or investment

[[Page 40641]]

return. Applicants also state that compliance with each fund's 
compliance procedures and condition III set forth below will ensure 
that prospective shareholders and third parties are provided with the 
same information. Accordingly, applicants assert that continuing to 
subject the funds to section 19(b) and rule 19b-1 would afford 
shareholders no extra protection.
    5. Applicants note that section 19(b) and rule 19b-1 also were 
intended to prevent certain improper sales practices, including, in 
particular, the practice of urging an investor to purchase shares of a 
fund on the basis of an upcoming capital gains dividend (``selling the 
dividend''), where the dividend would result in an immediate 
corresponding reduction in NAV and would be in effect a taxable return 
of the investor's capital. Applicants assert that the ``selling the 
dividend'' concern should not apply to closed-end investment companies, 
such as IIA and IGR, which do not continuously distribute shares. 
According to Applicants, if the underlying concern extends to secondary 
market purchases of shares of closed-end funds that are subject to a 
large upcoming capital gains dividend, adoption of a Plan actually 
helps minimize the concern by avoiding, through periodic distributions, 
any buildup of large end-of-the-year distributions.
    6. Applicants also note that common shares of closed-end funds that 
invest primarily in equity securities often trade in the marketplace at 
a discount to their NAV. Applicants believe that this discount may be 
reduced for closed-end funds that pay relatively frequent dividends on 
their common shares at a consistent rate, whether or not those 
dividends contain an element of long-term capital gain.
    7. Applicants assert that the application of rule 19b-1 to a Plan 
actually could have an undesirable influence on portfolio management 
decisions. Applicants state that, in the absence of an exemption from 
rule 19b-1, the implementation of a Plan imposes pressure on management 
(i) not to realize any net long-term capital gains until the point in 
the year that the fund can pay all of its remaining distributions in 
accordance with rule 19b-1, and (ii) not to realize any long-term 
capital gains during any particular year in excess of the amount of the 
aggregate pay-out for the year (since as a practical matter excess 
gains must be distributed and accordingly would not be available to 
satisfy pay-out requirements in following years), notwithstanding that 
purely investment considerations might favor realization of long-term 
gains at different times or in different amounts. Applicants thus 
assert that the limitation on the number of capital gain distributions 
that a fund may make with respect to any one year imposed by rule 19b-
1, may prevent the efficient operation of a Plan whenever that fund's 
realized net long-term capital gains in any year exceed the total of 
the periodic distributions that may include such capital gains under 
the rule.
    8. In addition, Applicants assert that rule 19b-1 may cause fixed 
regular periodic distributions under a Plan to be funded with returns 
of capital \2\ (to the extent net investment income and realized short-
term capital gains are insufficient to fund the distribution), even 
though realized net long-term capital gains otherwise could be 
available. To distribute all of a fund's long-term capital gains within 
the limits in rule 19b-1, a fund may be required to make total 
distributions in excess of the annual amount called for by its Plan, or 
to retain and pay taxes on the excess amount. Applicants thus assert 
that the requested order would minimize these effects of rule 19b-1 by 
enabling the funds to realize long-term capital gains as often as 
investment considerations dictate without fear of violating rule 19b-1.
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    \2\ Returns of capital as used in the application means return 
of capital for financial accounting purposes and not for tax 
accounting purposes.
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    9. Applicants state that Revenue Ruling 89-81 under the Code 
requires that a fund that has both common stock and preferred stock 
outstanding designate the types of income, e.g., investment income and 
capital gains, in the same proportion as the total distributions 
distributed to each class for the tax year. To satisfy the 
proportionate designation requirements of Revenue Ruling 89-81, 
whenever a fund has realized a long-term capital gain with respect to a 
given tax year, the fund must designate the required proportionate 
share of such capital gain to be included in common and preferred stock 
dividends. Applicants state that although rule 19b-1 allows a fund some 
flexibility with respect to the frequency of capital gains 
distributions, a fund might use all of the exceptions available under 
the rule for a tax year and still need to distribute additional capital 
gains allocated to the preferred stock to comply with Revenue Ruling 
89-81.
    10. Applicants assert that the potential abuses addressed by 
section 19(b) and rule 19b-1 do not arise with respect to preferred 
stock issued by a closed-end fund. Applicants assert that such 
distributions are fixed or determined in periodic auctions by reference 
to short-term interest rates rather than by reference to performance of 
the issuer and Revenue Ruling 89-81 determines the proportion of such 
distributions that are comprised of the long-term capital gains.
    11. Applicants also submit that the ``selling the dividend'' 
concern is not applicable to preferred stock, which entitles a holder 
to no more than a periodic dividend at a fixed rate or the rate 
determined by the market, and, like a debt security, is priced based 
upon its liquidation value, credit quality, and frequency of payment. 
Applicants state that investors buy preferred shares for the purpose of 
receiving payments at the frequency bargained for, and do not expect 
the liquidation value of their shares to change.
    12. Applicants request an order under section 6(c) granting an 
exemption from the provisions of section 19(b) and rule 19b-1 to permit 
each fund's common stock to distribute periodic capital gains dividends 
(as defined in section 852(b)(3)(C) of the Code) as often as monthly in 
any one taxable year in respect of its common shares and as often as 
specified by or determined in accordance with the terms thereof in 
respect of its preferred shares.\3\
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    \3\ Applicants state that a future fund that relies on the 
requested order will satisfy each of the representations in the 
application except that such representations will be made in respect 
of actions by the board of directors of such future fund and will be 
made at a future time.
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    Applicants' Conditions:
    Applicants agree that, with respect to each fund seeking to rely on 
the order, the order will be subject to the following conditions:

I. Compliance Review and Reporting

    The fund's chief compliance officer will: (a) Report to the fund 
Board, no less frequently than once every three months or at the next 
regularly scheduled quarterly board meeting, whether (i) the fund and 
the fund adviser have complied with the conditions to the requested 
order, and (ii) a Material Compliance Matter, as defined in rule 38a-
1(e)(2), has occurred with respect to compliance with such conditions; 
and (b) review the adequacy of the policies and procedures adopted by 
the fund no less frequently than annually.

II. Disclosures to Fund Shareholders

    A. Each Notice to the holders of the fund's common shares, in 
addition to the information required by section 19(a) and rule 19a-1:
    1. Will provide, in a tabular or graphical format:

[[Page 40642]]

    (a) The amount of the distribution, on a per common share basis, 
together with the amounts of such distribution amount, on a per common 
share basis and as a percentage of such distribution amount, from 
estimated: (A) Net investment income; (B) net realized short-term 
capital gains; (C) net realized long-term capital gains; and (D) return 
of capital or other capital source;
    (b) The fiscal year-to-date cumulative amount of distributions, on 
a per common share basis, together with the amounts of such cumulative 
amount, on a per common share basis and as a percentage of such 
cumulative amount of distributions, from estimated: (A) Net investment 
income; (B) net realized short-term capital gains; (C) net realized 
long-term capital gains; and (D) return of capital or other capital 
source;
    (c) The average annual total return in relation to the change in 
NAV for the 5-year period (or, if the fund's history of operations is 
less than five years, the time period commencing immediately following 
the fund's first public offering) ending on the last day of the month 
prior to the most recent distribution declaration date compared to the 
current fiscal period's annualized distribution rate expressed as a 
percentage of NAV as of the last day of the month prior to the most 
recent distribution declaration date; and
    (d) The cumulative total return in relation to the change in NAV 
from the last completed fiscal year to the last day of the month prior 
to the most recent distribution declaration date compared to the fiscal 
year-to-date cumulative distribution rate expressed as a percentage of 
NAV as of the last day of the month prior to the most recent 
distribution declaration date.
    Such disclosure shall be made in a type size at least as large and 
as prominent as the estimate of the sources of the current 
distribution; and
    2. Will include the following disclosure:
    (a) ``You should not draw any conclusions about the fund's 
investment performance from the amount of this distribution or from the 
terms of the fund's Plan'';
    (b) ``The fund estimates that it has distributed more than its 
income and net realized capital gains; therefore, a portion of your 
distribution may be a return of capital. A return of capital may occur, 
for example, when some or all of the money that you invested in the 
fund is paid back to you. A return of capital distribution does not 
necessarily reflect the fund's investment performance and should not be 
confused with `yield' or `income'''; and
    (c) ``The amounts and sources of distributions reported in this 
Notice are only estimates and are not being provided for tax reporting 
purposes. The actual amounts and sources of the amounts for [accounting 
and] tax reporting purposes will depend upon the fund's investment 
experience during the remainder of its fiscal year and may be subject 
to changes based on tax regulations. The fund will send you a Form 
1099-DIV for the calendar year that will tell you how to report these 
distributions for federal income tax purposes.''
    Such disclosure shall be made in a type size at least as large as 
and as prominent as any other information in the Notice and placed on 
the same page in close proximity to the amount and the sources of the 
distribution.
    B. On the inside front cover of each report to shareholders under 
rule 30e-1 under the Act, the fund will:
    1. Describe the terms of the Plan (including the fixed amount or 
fixed percentage of the distributions and the frequency of the 
distributions);
    2. Include the disclosure required by condition II.A.2.a above;
    3. State, if applicable, that the Plan provides that the Board may 
amend or terminate the Plan at any time without prior notice to fund 
shareholders; and
    4. Describe any reasonably foreseeable circumstances that might 
cause the fund to terminate the Plan and any reasonably foreseeable 
consequences of such termination.
    C. Each report provided to shareholders under rule 30e-1 and in 
each prospectus filed with the Commission on Form N-2 under the Act 
will provide the fund's total return in relation to changes in NAV in 
the financial highlights table and in any discussion about the fund's 
total return.

III. Disclosure to Shareholders, Prospective Shareholders and Third 
Parties

    A. The fund will include the information contained in the relevant 
Notice, including the disclosure required by condition II.A.2 above, in 
any written communication (other than a Form 1099) about the Plan or 
distributions under the Plan by the fund, or agents that the fund has 
authorized to make such communication on the fund's behalf, to any fund 
common shareholder, prospective common shareholder or third-party 
information provider;
    B. The fund will issue, contemporaneously with the issuance of any 
Notice, a press release containing the information in the Notice and 
will file with the Commission the information contained in such Notice, 
including the disclosure required by condition II.A.2 above, as an 
exhibit to its next filed Form N-CSR; and
    C. The fund will post prominently a statement on its (or its 
adviser's) Web site containing the information in each Notice, 
including the disclosure required by condition II.A.2 above, and will 
maintain such information on such Web site for at least 24 months.

IV. Delivery of 19(a) Notices to Beneficial Owners

    If a broker, dealer, bank or other person (``financial 
intermediary'') holds common stock issued by the fund in nominee name, 
or otherwise, on behalf of a beneficial owner, the fund: (a) Will 
request that the financial intermediary, or its agent, forward the 
Notice to all beneficial owners of the fund's shares held through such 
financial intermediary; (b) will provide, in a timely manner, to the 
financial intermediary, or its agent, enough copies of the Notice 
assembled in the form and at the place that the financial intermediary, 
or its agent, reasonably requests to facilitate the financial 
intermediary's sending of the Notice to each beneficial owner of the 
fund's shares; and (c) upon the request of any financial intermediary, 
or its agent, that receives copies of the Notice, will pay the 
financial intermediary, or its agent, the reasonable expenses of 
sending the Notice to such beneficial owners.

V. Additional Board Determinations for Funds Whose Shares Trade at a 
Premium If

    A. The fund's common shares have traded on the exchange that they 
primarily trade on at the time in question at an average premium to NAV 
equal to or greater than 10%, as determined on the basis of the average 
of the discount or premium to NAV of the fund's common shares as of the 
close of each trading day over a 12-week rolling period (each such 12-
week rolling period ending on the last trading day of each week); and
    B. The fund's annualized distribution rate for such 12-week rolling 
period, expressed as a percentage of NAV as of the ending date of such 
12-week rolling period, is greater than the fund's average annual total 
return in relation to the change in NAV over the 2-year period ending 
on the last day of such 12-week rolling period; then:
    1. At the earlier of the next regularly scheduled meeting or within 
four months of the last day of such 12-week rolling period, the Board 
including a majority of the Independent Trustees:

[[Page 40643]]

    (a) Will request and evaluate, and the fund's adviser will furnish, 
such information as may be reasonably necessary to make an informed 
determination of whether the Plan should be continued or continued 
after amendment;
    (b) Will determine whether continuation, or continuation after 
amendment, of the Plan is consistent with the fund's investment 
objective(s) and policies and in the best interests of the fund and its 
shareholders, after considering the information in condition V.B.1.a 
above; including, without limitation:
    (1) Whether the Plan is accomplishing its purpose(s);
    (2) The reasonably foreseeable effects of the Plan on the fund's 
long-term total return in relation to the market price and NAV of the 
fund's common shares; and
    (3) The fund's current distribution rate, as described in condition 
V.B above, compared with the fund's average annual total return over 
the 2-year period, as described in condition V.B, or such longer period 
as the board deems appropriate; and
    (c) Based upon that determination, will approve or disapprove the 
continuation, or continuation after amendment, of the Plan; and
    2. The Board will record the information considered by it and the 
basis for its approval or disapproval of the continuation, or 
continuation after amendment, of the Plan in its meeting minutes, which 
must be made and preserved for a period of not less than six years from 
the date of such meeting, the first two years in an easily accessible 
place.

VI. Public Offerings

    The fund will not make a public offering of the fund's common 
shares other than:
    A. A rights offering below net asset value to holders of the fund's 
common stock;
    B. An offering in connection with a dividend reinvestment plan, 
merger, consolidation, acquisition, spin-off or reorganization of the 
fund; or
    C. An offering other than an offering described in conditions VI.A 
and VI.B above, unless, with respect to such other offering:
    1. The fund's average annual distribution rate for the six months 
ending on the last day of the month ended immediately prior to the most 
recent distribution declaration date,\4\ expressed as a percentage of 
NAV per share as of such date, is no more than 1 percentage point 
greater than the fund's average annual total return for the 5-year 
period ending on such date; \5\ and
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    \4\ If the fund has been in operation fewer than two years, the 
measured period will begin immediately following the fund's first 
public offering.
    \5\ If the fund has been in operation fewer than five years, the 
measured period will begin immediately following the fund's first 
public offering.
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    2. The transmittal letter accompanying any registration statement 
filed with the Commission in connection with such offering discloses 
that the fund has received an order under section 19(b) to permit it to 
make periodic distributions of long-term capital gains with respect to 
its common stock as frequently as twelve times each year, and as 
frequently as distributions are specified in accordance with the terms 
of any outstanding preferred stock that such fund may issue.

VII. Amendments to Rule 19b-1

    The requested relief will expire on the effective date of any 
amendment to rule 19b-1 that provides relief permitting certain closed-
end investment companies to make periodic distributions of long-term 
capital gains with respect to their outstanding common stock as 
frequently as twelve times each year.

    By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15988 Filed 7-14-08; 8:45 am]

BILLING CODE 8010-01-P
