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I have three layers, and want to use the top layer to knockout the shape from the underline layers so that it is transparent. Don't I use the shape builder tool or is there another way to do it?

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Put the layers inside a 4th layer, select the layers appearance with the sphere next to the appaearnce name. Make that layer a transparency knockout group. Select the topmost sublayers appearance and make it transparent. The downside is that all the other transparencies now also knockout.

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