Kohlberg Kravis Roberts & Co. L.P., et al.; Notice of Application, 33006-33012 [2014-13314]
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Federal Register / Vol. 79, No. 110 / Monday, June 9, 2014 / Notices
Director’s Decision will constitute the
final action of the Commission 25 days
after the date of the Decision, unless the
Commission, on its own motion,
institutes a review of the Director’s
Decision in that time.
Regulations’’). With respect to sections
17(a), (d), (f), (g) and (j) and 30(a), (b),
(e), and (h) of the Act, and the Rules and
Regulations, and rule 38a-1 under the
Act, the exemption is limited as set
forth in the application.
Dated at Rockville, Maryland, this 27th day
of May 2014.
For the Nuclear Regulatory Commission.
Brian E. Holian,
Acting Director, Office of Federal and State
Materials and Environmental Management
Programs.
SUMMARY:
[FR Doc. 2014–13360 Filed 6–6–14; 8:45 am]
BILLING CODE 7590–01–P
OVERSEAS PRIVATE INVESTMENT
CORPORATION
Sunshine Act Cancellation Notice—
OPIC June 5, 2014 Public Hearing
OPIC’s Sunshine Act notice of its
Public Hearing in Conjunction with
each Board meeting was published in
the Federal Register (Volume 79,
Number 105, Page 31350) on June 2,
2014. No requests were received to
provide testimony or submit written
statements for the record; therefore,
OPIC’s public hearing scheduled for 2
p.m., June 4, 2014 in conjunction with
OPIC’s June 12, 2014 Board of Directors
meeting has been cancelled.
CONTACT PERSON FOR INFORMATION:
Information on the hearing cancellation
may be obtained from Connie M. Downs
at (202) 336–8438, or via email at
Connie.Downs@opic.gov.
Dated: June 4, 2014.
Connie M. Downs,
OPIC Corporate Secretary.
[FR Doc. 2014–13485 Filed 6–5–14; 4:15 pm]
BILLING CODE 3210–01–M
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31070; 813–382]
Kohlberg Kravis Roberts & Co. L.P., et
al.; Notice of Application
June 3, 2014.
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 and the rules and
regulations thereunder, except sections
9, 17, 30, and 36 through 53 of the Act,
and the rules and regulations
thereunder (the ‘‘Rules and
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Summary of Application:
Applicants request an order to exempt
certain limited partnerships and other
entities (‘‘Partnerships’’) formed for the
benefit of eligible employees of
Kohlberg Kravis Roberts & Co. L.P.
(‘‘KKR LP’’) and its affiliates from
certain provisions of the Act. Each
Partnership will be an ‘‘employees’
securities company’’ within the
meaning of section 2(a)(13) of the Act.
Applicants: KKR LP; KKR North
America Fund XI ESC L.P. (‘‘NAXI
ESC’’), KKR Asian Fund II ESC L.P.
(‘‘Asia II ESC’’), KKR Energy Income
and Growth Fund I ESC L.P. (‘‘EIGF I
ESC’’), KKR Real Estate Partners
Americas ESC L.P. (‘‘REPA ESC,’’ and
with NAXI ESC, Asia II ESC, and EIGF
I ESC, collectively, the ‘‘Initial
Partnerships’’); and KKR North America
XI Limited (‘‘NAXI ESC GP’’), the
General Partner (defined below) of
NAXI ESC, KKR Asia II Limited (‘‘Asia
II ESC GP’’), the General Partner of Asia
II ESC, KKR EIGF LLC (‘‘EIGF I ESC
GP’’), the General Partner of EIGF I ESC,
and KKR REPA GP LLC (‘‘REPA ESC
GP,’’ and with NAXI ESC GP, Asia II
ESC GP, and EIGF I ESC GP,
collectively, the ‘‘Initial General
Partners’’), the General Partner of REPA
ESC.
DATES: Filing Dates: The application was
filed on September 20, 2012 and
amended on May 6, 2013, December 31,
2013 and May 29, 2014.
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 June 30, 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: 9 West 57th Street,
Suite 4200, New York, New York 10019.
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FOR FURTHER INFORMATION CONTACT:
David J. Marcinkus, Senior Counsel, at
(202) 551–6882, or David P. Bartels,
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 for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. KKR LP is a Delaware limited
partnership, and together with its
‘‘affiliates,’’ as defined in rule 12b-2
under the Securities Exchange Act of
1934 (the ‘‘Exchange Act’’) (collectively,
‘‘KKR,’’ and each, a ‘‘KKR entity’’), it
has organized, and will in the future
organize, limited partnerships, limited
liability companies, business trusts or
other entities (each a ‘‘Partnership’’ and,
collectively, the ‘‘Partnerships’’) as
‘‘employees’ securities companies,’’ as
defined in section 2(a)(13) of the Act.
2. A Partnership may be organized
under the laws of the state of Delaware,
another state, or of a jurisdiction outside
the United States. KKR may also form
parallel Partnerships organized under
the laws of various jurisdictions in order
to create the same investment
opportunities for Eligible Employees (as
defined below) in other jurisdictions.
Interests in a Partnership (‘‘Interests’’)
may be issued in one or more series,
each of which corresponds to particular
Partnership investments (each, a
‘‘Series’’). Each Series will be an
‘‘employees’ securities company’’
within the meaning of section 2(a)(13) of
the Act. Each Partnership will operate
as a closed-end management investment
company, and a particular Partnership
may operate as a diversified or nondiversified vehicle within the meaning
of the Act. The Partnerships are
intended to provide investment
opportunities for Eligible Employees
that are competitive with those at other
investment management and financial
services firms and to facilitate the
recruitment and retention of high
caliber professionals. KKR will control
each Partnership within the meaning of
section 2(a)(9) of the Act.
3. KKR formed NAXI ESC in June
2012 under the laws of the Cayman
Islands. NAXI ESC invests concurrently
with KKR North America Fund XI L.P.
(‘‘NAXI’’) and other investors organized
or managed by KKR or its designees that
generally co-invest with NAXI in
various investment opportunities, as
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described in the application. KKR
formed Asia II ESC in September 2012
under the laws of the Cayman Islands.
Asia II ESC invests concurrently with
KKR Asian Fund II L.P. (‘‘Asia II’’) and
other investors organized or managed by
KKR or its designees that generally coinvest with Asia II in various
investment opportunities, as described
in the application. KKR formed REPA
ESC in June 2013 under the laws of
Delaware. REPA ESC invests
concurrently with KKR Real Estate
Partners Americas L.P. (‘‘REPA’’) and
other investors organized or managed by
KKR or its designees that generally coinvest with REPA in various investment
opportunities, as described in the
application. KKR formed EIGF I ESC in
July 2013 under the laws of Delaware.
EIGF I ESC invests concurrently with
KKR Energy Income and Growth Fund
I L.P. (‘‘EIGF I’’) and other investors
organized or managed by KKR or its
designees that generally co-invest with
EIGF I in various investment
opportunities, as described in the
application. Each of the Initial
Partnerships is organized as a limited
partnership.
4. Each Partnership will have a
general partner, managing member or
other such similar entity (a ‘‘General
Partner’’). All investors in a Partnership
will be ‘‘Limited Partners.’’ The General
Partner will be responsible for the
overall management of each Partnership
and will have the authority to make all
decisions regarding the acquisition,
management and disposition of
Partnership investments. A KKR entity
will be a General Partner of each
Partnership. The General Partner may be
permitted to delegate certain of its
responsibilities regarding the
acquisition, management and
disposition of Partnership investments
to an Investment Adviser (as defined
below), provided that the ultimate
responsibility for, and control of, each
Partnership, remain with the General
Partner.
5. The General Partner or another
KKR entity will serve as investment
adviser to a Partnership (the
‘‘Investment Adviser’’). The Investment
Adviser will be registered as an
investment adviser under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’), if required under
applicable law. Each Investment
Adviser shall comply with the standards
prescribed in Sections 9, 36 and 37 of
the Act. The Applicants represent and
concede that each General Partner and
Investment Adviser managing a
Partnership is an ‘‘investment adviser’’
within the meaning of Sections 9 and 36
of the Act and is subject to those
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sections. An Investment Adviser may be
paid a management fee, which will
generally be determined as a percentage
of the capital commitments of the
Limited Partners. A General Partner or
Investment Adviser may receive a
performance-based fee (a ‘‘Carried
Interest’’) based on the net gains of the
Partnership’s investments in addition to
any amount allocable to the General
Partner’s or Investment Adviser’s capital
contribution.1
6. If the General Partner determines
that a Partnership enter into any sideby-side investment with an unaffiliated
entity, the General Partner will be
permitted to engage as sub-investment
adviser the unaffiliated entity (an
‘‘Unaffiliated Subadviser’’), which will
be responsible for the management of
such side-by-side investment.
7. Interests in a Partnership will be
offered without registration in reliance
on section 4(2) of the Securities Act of
1933 (the ‘‘Securities Act’’), or
Regulation D or Regulation S under the
Securities Act, and will be sold only to
‘‘Qualified Participants’’ (as defined
below). Prior to offering Interests to an
Eligible Individual (as defined below), a
General Partner must reasonably believe
that the Eligible Employee or Eligible
Family Member will be capable of
understanding and evaluating the merits
and risks of participation in a
Partnership and that each such
individual is able to bear the economic
risk of such participation and afford a
complete loss of his or her investments
in Partnerships.
8. ‘‘Qualified Participants’’ are (a)
current and former employees, officers,
directors and current Consultants 2 of
KKR (collectively, ‘‘Eligible
Employees’’ 3), (b) spouses, parents,
children, spouses of children, brothers,
sisters and grandchildren of Eligible
Employees, including step and adoptive
relationships (‘‘Eligible Family
Members’’ and, together with Eligible
Employees who are natural persons,
‘‘Eligible Individuals’’), (c) any ‘‘Eligible
Investment Vehicle,’’ which is defined
as (i) a trust of which the trustee, grantor
and/or beneficiary is an Eligible
Employee, (ii) a partnership,
corporation or other entity controlled by
an Eligible Employee,4 or (iii) a trust or
other entity established solely for the
benefit of Eligible Family Members, and
(d) KKR. Each Eligible Individual will
be an ‘‘accredited investor’’ under rule
501(a)(5) or rule 501(a)(6) of Regulation
D (‘‘Accredited Investor’’), except that a
maximum of 35 Eligible Employees who
are sophisticated investors but who are
not Accredited Investors may become
Limited Partners if each of them falls
into one of the following two categories:
(A) Eligible Employees who (i) have a
graduate degree in business, law or
accounting, (ii) have a minimum of five
years of consulting, investment
management, investment banking, legal
or similar business experience, and (iii)
had reportable income from all sources
(including any profit shares or bonus) of
$100,000 in each of the two most recent
years immediately preceding the
Eligible Employee’s admission as a
Limited Partner and have a reasonable
expectation of income from all sources
of at least $140,000 in each year in
which the Eligible Employee will be
committed to make investments in a
Partnership; or (B) Eligible Employees
1 If a General Partner or Investment Adviser is
registered under the Advisers Act, the Carried
Interest payable to it by a Partnership will be
pursuant to an arrangement that complies with rule
205–3 under the Advisers Act. If the General
Partner or Investment Adviser is not required to
register under the Advisers Act, the Carried Interest
payable to it will comply with section 205(b)(3) of
the Advisers Act (with such Partnership treated as
though it were a business development company
solely for the purpose of that section).
2 A ‘‘Consultant’’ is a person or entity whom KKR
has engaged on retainer to provide services and
professional expertise on an ongoing basis as a
regular consultant or as a business or legal adviser
and who shares a community of interest with KKR
and its employees. In order to participate in a
Partnership, Consultants will be required to be
sophisticated investors who qualify as Accredited
Investors (defined below) (if a Consultant is an
individual) or, if not an individual, meet the
standards of an ‘‘accredited investor’’ under Rule
501(a) of Regulation D. A Qualified Participant of
a Consultant may invest in a Partnership. If a
Consultant is an entity (such as, for example, a law
firm or consulting firm), and the Consultant
proposes to invest in the Partnership through a
partnership, corporation or other entity that is
controlled by the Consultant, the individual
participants in such partnership, corporation or
other entity will be limited to senior level
employees, members or partners of the Consultant
who are responsible for the activities of the
Consultant and will be required to qualify as
Accredited Investors. In addition, such entities will
be limited to businesses controlled by individuals
who have levels of expertise and sophistication in
the area of investments in securities that are
comparable to other Eligible Employees who are
employees, officers or directors of KKR and who
have an interest in maintaining an ongoing
relationship with KKR. Most importantly, the
individuals participating through such entities will
belong to that class of persons who will have access
to the directors and officers of the General Partner
and/or the officers of KKR responsible for making
investments for the Partnerships similar to the
access afforded other Eligible Employees who are
employees, officers or directors of KKR.
Accordingly, there will be a close nexus between
KKR and such entities.
3 To qualify as an Eligible Employee, any current
or former officer or director of KKR must be an
employee or former employee of KKR.
4 The inclusion of partnerships, corporations, or
other entities controlled by an Eligible Employee in
the definition of ‘‘Eligible Investment Vehicle’’ is
intended to enable Eligible Employees to make
investments in the Partnerships through personal
investment vehicles for the purpose of personal and
family investment and estate planning objectives.
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who are ‘‘knowledgeable employees,’’ as
defined in rule 3c–5 of the Act, of the
Partnership (with the Partnership
treated as though it were a ‘‘covered
company’’ for purposes of the rule). An
Eligible Employee who is described in
category (A) above will not be permitted
to invest in any year more than 10% of
his or her income from all sources for
the immediately preceding year, in the
aggregate, in a Partnership and in all
other Partnerships in which that
investor has previously invested.
9. An Eligible Individual may
purchase an Interest through an Eligible
Investment Vehicle only if either (i) the
investment vehicle is an Accredited
Investor, as defined in rule 501(a) of
Regulation D or (ii) the Eligible
Individual is a settlor 5 and principal
investment decision-maker with respect
to the investment vehicle. Eligible
Investment Vehicles that are not
Accredited Investors will be included in
the 35 non-Accredited Investor limit
discussed above.
10. The terms of a Partnership will be
disclosed to the Eligible Employees at
the time they are offered the right to
subscribe for Interests, and they will be
furnished with a copy of the partnership
agreement. A Partnership will send its
Limited Partners an annual financial
statement with respect to those Series in
which the Limited Partner had an
Interest within 120 days, or as soon as
practicable, after the end of the
Partnership’s fiscal year. The financial
statement will be audited 6 by
independent certified public
accountants. In addition, as soon as
practicable after the end of each fiscal
year of a Partnership, a report will be
sent to each Limited Partner setting
forth the information with respect such
Limited Partner’s share of income,
gains, losses, credits, and other items for
federal and state income tax purposes.
11. Interests in the Partnerships will
not be transferable except with the
express consent of the General Partner,
and then only to a Qualified Participant.
All of the Partnerships will have only
Qualified Participants as Limited
Partners. No sales load or similar fee of
any kind will be charged in connection
with the sale of Interests.
12. Applicants state that a General
Partner may have the right to repurchase
or cancel the Interest of (i) an Eligible
Employee who ceases to be an
employee, officer, director or current
5 If such investment vehicle is an entity other
than a trust, the term ‘‘settlor’’ will be read to mean
a person who created such vehicle, alone or
together with other Eligible Individuals, and
contributed funds to such vehicle.
6 ‘‘Audit’’ will have the meaning defined in rule
1–02(d) of Regulation S–X.
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Consultant of any KKR entity for any
reason or (ii) any Eligible Family
Member of any person described in
clause (i). Once a Consultant’s ongoing
relationship with KKR is terminated: (i)
Such Consultant and its Qualified
Participants, if any, will not be
permitted to contribute any additional
capital to a Partnership and (ii) the
existing Interests of such Consultant and
its Qualified Participants, if any, as of
the date of such termination will (A) to
the extent the governing documents of
a Partnership provide for periodic
redemptions in the ordinary course, be
redeemed as of the next regularly
scheduled redemption date and (B) to
the extent the governing documents of
a Partnership do not provide for such
periodic redemptions (e.g. as a result of
the vehicle primarily investing in
illiquid investments), be retained. The
Partnership Agreement or private
placement memorandum for each
Partnership will describe, if applicable,
the amount that a Limited Partner
would receive upon repurchase or
cancellation of its Interest. A Limited
Partner would receive upon repurchase
or cancellation of its Interest, at a
minimum, the lesser of (i) the amount
actually paid by or (subject to any
vesting requirements) on behalf of the
Limited Partner to acquire the Interest,
plus interest, less any distributions, and
(ii) the fair market value of the Interest
determined at the time of the repurchase
or cancellation as determined in good
faith by the General Partner.
13. Applicants state that the
Partnerships may invest either directly
or through investments in limited
partnerships and other investment pools
(including pools that are exempt from
registration in reliance on section 3(c)(1)
or 3(c)(7) of the Act) and investments in
registered investment companies.7
Investments may be made side by side
with KKR entities and through
investment pools (including
Aggregation Vehicles) 8 sponsored or
7 Applicants are not requesting any exemption
from any provision of the Act or any rule
thereunder that may govern the eligibility of a
Partnership 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.
8 An ‘‘Aggregation Vehicle’’ is an investment pool
sponsored or managed by a KKR entity that is
formed solely for the purpose of permitting a
Partnership and other KKR entities or Third Party
Funds to collectively invest in other entities.
Applicants state that it may be more efficient for a
Partnership and other KKR entities and Third Party
Funds to invest in an entity together through an
Aggregation Vehicle rather than having each
investor separately acquire a direct interest in such
entity. An Aggregation Vehicle will not be used to
issue interests that discriminate against a
Partnership or provide preferential treatment to a
KKR entity or other KKR-related investors with
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managed by a KKR entity or an
unaffiliated entity.
14. Applicants state that a Partnership
may also co-invest in a portfolio
company with KKR or an investment
fund or separate account organized
primarily for the benefit of investors
who are not affiliated with KKR over
which a KKR entity or an Unaffiliated
Subadviser exercises investment
discretion (‘‘Third Party Funds’’). The
General Partner will not delegate
management and investment discretion
for the Partnership to an Unaffiliated
Subadviser or a sponsor of a Third Party
Fund. Side-by-side investments held by
a Third Party Fund, or by a KKR entity
in a transaction in which the KKR
investment was made pursuant to a
contractual obligation to a Third Party
Fund, will not be subject to the
restrictions contained in Condition 3
below. All other side-by-side
investments held by KKR entities will
be subject to the restrictions contained
in Condition 3.
15. If KKR makes loans to a
Partnership, the lender will be entitled
to receive interest, provided that the
interest rate will be no less favorable to
the borrower than the rate obtainable on
an arm’s length basis. The possibility of
any such borrowings, as well as the
terms thereof, would be disclosed to
Qualified Participants prior to their
investment in a Partnership.9 A
Partnership 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 securities of
the Partnership (other than short-term
paper). A Partnership will not lend any
funds to a KKR entity.10 Any
indebtedness of a Partnership will be
the debt of the Partnership and without
recourse to the Limited Partners.
16. In compliance with section
12(d)(1)(A)(i) of the Act, a Partnership
will not purchase or otherwise acquire
respect to a portfolio company investment.
Applicants submit that because no investment
decisions are made at the Aggregation Vehicle level,
the fact that a person who participates in the
Partnership’s decision to acquire an interest in an
Aggregation Vehicle also serves as an officer,
director, general partner or investment adviser of
the Aggregation Vehicle would not create a conflict
of interest on the part of such person.
9 Applicants note that the Initial Partnerships
disclosed the possibility of such borrowings but not
the terms thereof prior to Qualified Participants
investing in the Initial Partnership. As of May 29,
2014, the Initial Partnerships have also disclosed
the terms of such potential borrowings to the
Limited Partners.
10 A Partnership may, subject to the terms and
conditions set out herein, make investments in
issuers that are portfolio companies of funds
managed by KKR, and such investments may take
the form of loans. However, a Partnership will not
make any loans to KKR LP, its subsidiaries or any
entity that controls KKR LP.
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any security issued by a registered
investment company if, immediately
after the acquisition, the Partnership
will own, in the aggregate, more than
3% of the outstanding voting stock of
the registered investment company.
Applicants’ Legal Analysis
1. Section 6(b) of the Act provides
that, upon application, 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 company 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 company and other
persons dealing with the company as
though the company were registered
under the Act. Applicants request an
order under sections 6(b) and 6(e) of the
Act exempting the Partnerships from all
provisions of the Act, except sections 9,
17, 30, and 36 through 53 of the Act,
and the Rules and Regulations. With
respect to sections 17(a), (d), (f), (g), and
(j) and 30(a), (b), (e), and (h) of the Act,
and the Rules and Regulations, 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 company.
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Applicants request an exemption from
section 17(a) to the extent necessary to
permit a KKR entity or a Third Party
Fund (or any affiliated person of any
such KKR entity or Third Party Fund),
acting as principal, to purchase or sell
securities or other property to or from
any Partnership or any company
controlled by such Partnership. Any
such transaction to which any
Partnership is a party will be effected
only after a determination by the
General Partner that the requirements of
condition 1 below have been satisfied.
In addition, the Applicants, on behalf of
the Partnerships, represent that any
transactions otherwise subject to section
17(a) of the Act, for which exemptive
relief has not been requested, would
require approval of the Commission.
4. Applicants submit that an
exemption from section 17(a) is
consistent with the purposes of the
Partnerships and the protection of
investors. Applicants state that the
Limited Partners will be informed of the
possible extent of the Partnership’s
dealings with KKR and of the potential
conflicts of interest that may exist.
Applicants also state that, as
professionals engaged in financial
services businesses, the Limited
Partners will be able to evaluate the
risks associated with those dealings.
Applicants assert that the community of
interest among the Limited Partners and
KKR will serve to reduce the risk of
abuse. Applicants acknowledge that the
requested relief will not extend to any
transactions between a Partnership and
an Unaffiliated Subadviser or an
affiliated person of an Unaffiliated
Subadviser, or between a Partnership
and any person who is not an employee,
officer or director of the KKR or is an
entity outside of the KKR and is an
affiliated person of the Partnership as
defined in section 2(a)(3)(E) of the Act
(‘‘Advisory Person’’) or any affiliated
person of such a person.
5. Section 17(d) of the Act and rule
17d–1 under the Act prohibit any
affiliated person or principal
underwriter of a registered investment
company, or any affiliated person of
such person or principal underwriter,
acting as principal, from participating in
any joint arrangement with the company
unless authorized by the Commission.
Applicants request relief to permit
affiliated persons of the Partnerships, or
affiliated persons of any of such
persons, to participate in, or effect any
transaction in connection with, any
joint enterprise or other joint
arrangement or profit-sharing plan in
which a Partnership or a company
controlled by a Partnership is a
participant. Applicants acknowledge
PO 00000
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33009
that the requested relief will not extend
to any transaction in which an
Unaffiliated Subadviser or an Advisory
Person, or an affiliated person of either
such person, has an interest, except in
connection with a Third Party Fund
sponsored by an Unaffiliated
Subadviser.
6. Applicants assert that compliance
with section 17(d) would cause the
Partnership to forego investment
opportunities simply because a Limited
Partner, the General Partner or any other
affiliated person of the Partnership (or
any affiliate of the affiliated person)
made a similar investment. Applicants
submit that the types of investment
opportunities considered by a
Partnership often require each investor
to make funds available in an amount
that may be substantially greater than
what a Partnership may be able to make
available on its own. Applicants
contend that, as a result, the only way
in which a Partnership may be able to
participate in these opportunities may
be to co-invest with other persons,
including its affiliates. Applicants assert
that the flexibility to structure coinvestments and joint investments will
not involve abuses of the type section
17(d) and rule 17d–1 were designed to
prevent. In addition, Applicants
represent that any transactions
otherwise subject to section 17(d) of the
Act and rule 17d–1 thereunder, for
which exemptive relief has not been
requested, would require approval by
the Commission.
7. Co-investments with Third Party
Funds, or by a KKR entity pursuant to
a contractual obligation to a Third Party
Fund, will not be subject to condition 3
below. Applicants note that it is
common for a Third Party Fund to
require that KKR invest its own capital
in Third Party Fund investments, and
that KKR investments be subject to
substantially the same terms as those
applicable to the Third Party Fund.
Applicants believe it is important that
the interests of the Third Party Fund
take priority over the interests of the
Partnerships, and that the Third Party
Fund not be burdened or otherwise
affected by activities of the Partnerships.
In addition, applicants assert that the
relationship of a Partnership to a Third
Party Fund is fundamentally different
from a Partnership’s relationship to
KKR. Applicants contend that the focus
of, and the rationale for, the protections
contained in the requested relief are to
protect the Partnerships from any
overreaching by KKR in the employer/
employee context, whereas the same
concerns are not present with respect to
the Partnerships vis-a-vis a Third Party
Fund.
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8. Section 17(e) of the Act and rule
17e–1 under the Act limit the
compensation an affiliated person may
receive when acting as agent or broker
for a registered investment company.
Applicants request an exemption from
section 17(e) to permit a KKR entity
(including the General Partner) that acts
as an agent or broker to receive
placement fees, advisory fees, or other
compensation from a Partnership in
connection with the purchase or sale by
the Partnership of securities, provided
that the fees or other compensation are
deemed ‘‘usual and customary.’’
Applicants state that for purposes of the
application, fees or other compensation
that are charged or received by a KKR
entity will be deemed ‘‘usual and
customary’’ only if (a) the Partnership is
purchasing or selling securities with
other unaffiliated third parties,
including Third Party Funds, (b) the
fees or compensation being charged to
the Partnership are also being charged to
the unaffiliated third parties, including
Third Party Funds, and (c) the amount
of securities being purchased or sold by
the Partnership does not exceed 50% of
the total amount of securities being
purchased or sold by the Partnership
and the unaffiliated third parties,
including Third Party Funds.
Applicants assert that, because KKR
does not wish to appear to be favoring
the Partnerships, compliance with
section 17(e) would prevent a
Partnership from participating in
transactions where the Partnership is
being charged lower fees than
unaffiliated third parties. Applicants
assert that the fees or other
compensation paid by a Partnership to
a KKR entity will be the same as those
negotiated at arm’s length with
unaffiliated third parties.
9. Rule 17e–1(b) under the Act
requires that a majority of directors who
are not ‘‘interested persons’’ (as defined
in section 2(a)(19) of the Act) take
actions and make approvals regarding
commissions, fees, or other
remuneration. Rule 17e–1(c) under the
Act requires each investment company
relying on the rule to satisfy the fund
governance standards defined in rule 0–
1(a)(7) under the Act (the ‘‘Fund
Governance Standards’’). Applicants
request an exemption from rule 17e–1 to
the extent necessary to permit each
Partnership to comply with the rule
without having a majority of the
directors of the General Partner who are
not interested persons take actions and
make determinations as set forth in
paragraph (b) of the rule, and without
having to satisfy the standards set forth
in paragraph (c) of the rule. Applicants
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state that because all the directors of the
General Partner will be affiliated
persons, without the relief requested, a
Partnership could not comply with rule
17e–1. Applicants state that each
Partnership will comply with rule 17e–
1 by having a majority of the directors
of the General Partner take actions and
make approvals as set forth in the rule.
Applicants state that each Partnership
will otherwise comply with rule 17e–1.
10. 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
subsections (a), (b) (to the extent such
subsection refers to contractual
requirements), (c), and (d) of rule 17f–
1 to permit a KKR entity to act as
custodian of Partnership assets 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, because of the community of
interest between KKR and the
Partnerships and the existing
requirement for an independent audit,
compliance with this requirement
would be unnecessary. Applicants will
comply with all other requirements of
rule 17f–1.
11. Applicants also request an
exemption from section 17 and rule 17f–
2 to permit the following exceptions
from the requirements of rule 17f–2: (a)
A Partnership’s investments may be
kept in the locked files of the KKR LP,
the General Partner or the KKR entity
that serves as investment adviser to the
Partnership; (b) for purposes of
paragraph (d) of the rule, (i) employees
of the General Partner (or KKR) will be
deemed to be employees of the
Partnerships, (ii) officers or managers of
the General Partner of a Partnership (or
KKR) will be deemed to be officers of
the Partnership and (iii) the General
Partner of a Partnership or its board of
directors will be deemed to be the board
of directors of a Partnership and (c) in
place of the verification procedure
under paragraph (f) of the rule,
verification will be effected quarterly by
two employees, each of whom will have
sufficient knowledge, sophistication and
experience in business matters to
perform such examination. Applicants
expect that, with respect to certain
Partnerships, some of their investments
may be evidenced only by partnership
agreements, participation agreements or
similar documents, rather than by
negotiable certificates that could be
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Fmt 4703
Sfmt 4703
misappropriated. Applicants assert that
for such a Partnership, these
instruments are most suitably kept in
the files of KKR LP, the General Partner,
or the KKR entity that serves as
investment adviser to the Partnership,
where they can be referred to as
necessary. Applicants will comply with
all other provisions of rule 17f–2.
12. 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
of a registered investment company take
certain actions and give certain
approvals relating to fidelity bonding.
The rule also requires that the board of
directors of an investment company
relying on the rule satisfy the Fund
Governance Standards. Applicants
request relief to permit the General
Partner’s board of directors, who may be
deemed interested persons, to take
actions and make determinations as set
forth in the rule. Applicants state that,
because all directors of the General
Partner will be affiliated persons, a
Partnership could not comply with rule
17g–1 without the requested relief.
Specifically, each Partnership will
comply with rule 17g–1 by having a
majority of the General Partner’s
directors take actions and make
determinations as set forth in rule 17g–
1. Applicants also request an exemption
from the requirements of: (i) Paragraph
(g) of the rule relating to the filing of
copies of fidelity bonds and related
information with the Commission and
the provision of notices to the board of
directors; (ii) paragraph (h) of the rule
relating to the appointment of a person
to make the filings and provide the
notices required by paragraph (g); and
(iii) paragraph (j)(3) of the rule relating
to compliance with the Fund
Governance Standards. Applicants state
that the fidelity bond of each
Partnership will cover KKR employees
who have access to the securities and
funds of the Partnership. Applicants
state that the Partnerships will comply
with all other requirements of rule
17g–1.
13. 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
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company report personal securities
transactions. Applicants request an
exemption from section 17(j) and the
provisions of rule 17j–1, except for the
anti-fraud provisions of paragraph (b),
because they assert that these
requirements are unnecessarily
burdensome as applied to the
Partnerships. The relief requested will
only extend to KKR entities and is not
requested with respect to any
Unaffiliated Subadviser or Advisory
Person.
14. 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 the Partnerships and
would entail administrative and legal
costs that outweigh any benefit to the
Limited Partners. Applicants request
exemptive relief to the extent necessary
to permit each Partnership to report
annually to its Limited Partners, as
described in the application. Applicants
also request an exemption from section
30(h) of the Act to the extent necessary
to exempt the General Partner of each
Partnership, members of the General
Partner or any board of managers or
directors or committee of KKR
employees to whom the General Partner
may delegate its functions, and any
other persons who may be deemed to be
members of an advisory board of a
Partnership, from filing Forms 3, 4, and
5 under section 16(a) of the Exchange
Act with respect to their ownership of
Interests in the Partnership. Applicants
assert that, because there will be no
trading market and the transfers of
Interests will be severely restricted,
these filings are unnecessary for the
protection of investors and burdensome
to those required to make them.
15. Rule 38a–1 requires registered
investment companies to adopt,
implement and periodically review
written policies reasonable designed to
prevent violation of the federal
securities law and to appoint a chief
compliance officer. Each Partnership
will comply will rule 38a–1(a), (c) and
(d), except that (i) since the Partnership
does not have a board of directors, the
board of directors of the General Partner
will fulfill the responsibilities assigned
to the Partnership’s board of directors
under the rule, and (ii) since the board
of directors of the General Partner does
not have any disinterested members, (a)
approval by a majority of the
disinterested board members required
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15:08 Jun 06, 2014
Jkt 232001
by rule 38a–1 will not be obtained, and
(b) the Partnerships 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 board of directors of the
General Partner as constituted.
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. Each proposed transaction
involving a Partnership otherwise
prohibited by section 17(a) or section
17(d) of the Act and rule 17d–1 under
the Act to which a Partnership is a party
(the ‘‘Section 17 Transactions’’) will be
effected only if the General Partner
determines that (i) the terms of the
Section 17 Transaction, including the
consideration to be paid or received, are
fair and reasonable to the Limited
Partners of the Partnership and do not
involve overreaching of the Partnership
or its Limited Partners on the part of any
person concerned, and (ii) the Section
17 Transaction is consistent with the
interests of the Limited Partners, the
Partnership’s organizational documents
and the Partnership’s reports to its
Limited Partners.11
In addition, the General Partner of a
Partnership will record and preserve a
description of all Section 17
Transactions, the General Partner’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 Partnership and at least six years
thereafter and will be subject to
examination by the Commission and its
staff.12
2. The General Partner of each
Partnership 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
the Partnership or any affiliated person
of such person, promoter or principal
underwriter.
3. The General Partner of each
Partnership will not invest the funds of
the Partnership in any investment in
11 If a Partnership invests through an Aggregation
Vehicle and such investment is a Section 17
Transaction, this condition will apply with respect
to both the investment in the Aggregation Vehicle
and any investment by the Aggregation Vehicle of
Partnership funds.
12 Each Partnership will preserve the accounts,
books and other documents required to be
maintained in an easily accessible place for the first
two years.
PO 00000
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33011
which an ‘‘Affiliated Co-Investor’’ (as
defined below) has acquired or proposes
to acquire the same class of securities of
the same issuer and where the
investment transaction involves a joint
enterprise or other joint arrangement
within the meaning of rule 17d–1 in
which the Partnership and an Affiliated
Co-Investor are participants (each such
investment, a ‘‘Rule 17d–1
Investment’’), unless any such Affiliated
Co-Investor, prior to disposing of all or
part of its investment, (i) gives the
General Partner sufficient, but not less
than one day’s, notice of its intent to
dispose of its investment; and (ii)
refrains from disposing of its investment
unless the Partnership has the
opportunity to dispose of the
Partnership’s investment prior to or
concurrently with, on the same terms as,
and pro rata with the Affiliated CoInvestor.13 The term ‘‘Affiliated CoInvestor’’ with respect to any
Partnership means any person who is:
(i) An ‘‘affiliated person’’ (as such term
is defined in section 2(a)(3) of the Act)
of the Partnership (other than a Third
Party Fund); (ii) KKR; (iii) an officer or
director of KKR; (iv) an Eligible
Employee; or (v) an entity (other than a
Third Party Fund) in which a KKR
entity acts as a general partner or has a
similar capacity to control the sale or
other disposition of the entity’s
securities. The restrictions contained in
this condition, however, shall not be
deemed to limit or prevent the
disposition of an investment by an
Affiliated Co-Investor (i) to its direct or
indirect wholly-owned subsidiary, to
any company (a ‘‘Parent’’) of which the
Affiliated Co-Investor is a direct or
indirect wholly-owned subsidiary or to
a direct or indirect wholly-owned
subsidiary of its Parent, (ii) to
immediate family members of the
Affiliated Co-Investor or a trust or other
investment vehicle established for any
Affiliated Co-Investor or any such
immediate family member, or (iii) when
the investment is comprised of
securities that are (a) listed on a national
securities exchange registered under
section 6 of the Exchange Act, (b) NMS
stocks pursuant to section 11A(a)(2) of
the Exchange Act and rule 600(a) of
Regulation NMS thereunder, (c)
government securities as defined in
section 2(a)(16) of the Act or other
13 If a Partnership invests in a Rule 17d–1
Investment through an Aggregation Vehicle, the
requirements of clauses (i) and (ii) of this sentence
shall apply to both the Affiliated Co-Investor’s
disposition of such Rule 17d–1 Investment and, if
the Affiliated Co-Investor also holds a Rule 17d–1
Investment through such Aggregation Vehicle, its
disposition of all or part of its investment in the
Aggregation Vehicle.
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securities that meet the definition of
‘‘Eligible Security’’ in rule 2a–7 under
the Act, or (d) 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 Partnership and its General
Partner will maintain and preserve, for
the life of each Series of the Partnership
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 Limited
Partners in the Partnership, and each
annual report of the Partnership
required to be sent to the Limited
Partners, and agree that all such records
will be subject to examination by the
Commission and its staff.14
5. Within 120 days after the end of
each fiscal year of each Partnership, or
as soon as practicable thereafter, the
General Partner of each Partnership will
send to each Limited Partner having an
Interest in the Partnership at any time
during the fiscal year then ended,
Partnership financial statements audited
by the Partnership’s independent
accountants with respect to those Series
in which the Limited Partner had an
Interest. At the end of each fiscal year,
the General Partner will make or cause
to be made a valuation of all of the
assets of the Partnership 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 Partnership. In addition, within
120 days after the end of each fiscal year
of each Partnership (or as soon as
practicable thereafter), the General
Partner will send a report to each person
who was a Limited Partner at any time
during the fiscal year then ended,
setting forth such tax information as
shall be necessary for the preparation by
the Limited Partner of that partner’s
federal and state income tax returns and
a report of the investment activities of
the Partnership during that fiscal year.
6. If a Partnership makes purchases or
sales from or to an entity affiliated with
the Partnership by reason of an officer,
director or employee of a KKR entity (i)
serving as an officer, director, general
partner, manager or investment adviser
of the entity (other than an entity that
is an Aggregation Vehicle), or (ii) having
14 Each Partnership will preserve the accounts,
books and other documents required to be
maintained in an easily accessible place for the first
two years.
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a 5% or more investment in the entity,
such individual will not participate in
the Partnership’s determination of
whether or not to effect the purchase or
sale.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–13314 Filed 6–6–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72300; File No. SR–MIAX–
2014–16]
Self-Regulatory Organizations; Miami
International Securities Exchange LLC;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Amend MIAX Exchange
Rules To Harmonize the Language
With Certain Rules of the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) and Other Exchanges
June 3, 2014.
Pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on June 2, 2014, Miami International
Securities Exchange LLC (‘‘MIAX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) a proposed rule change
as described in Items I, II, and III below,
which Items have been prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange is filing a proposal to
amend its Rules to harmonize the
language with certain rules of the
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) and other
exchanges.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.miaxoptions.com/filter/
wotitle/rule_filing, at MIAX’s principal
office, and at the Commission’s Public
Reference Room.
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Fmt 4703
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
certain Rules to harmonize the language
with the rules of FINRA and other
exchanges, and to make other
conforming and technical changes.
Specifically, the Exchange proposes: (i)
To amend Rule 303, Prevention of the
Misuse of Nonpublic Information, to
adopt the language of the corresponding
rule of another exchange; (ii) to amend
Rule 315, Anti-Money Laundering
Compliance Program, by adding text to
paragraphs (c) and (d) which is identical
to text found in FINRA Rule 3310; (iii)
to amend Rule 319, to adopt the
language of the corresponding rule of
another exchange; (iv) to add a new
Rule 320, Trading Ahead of Research
Reports; (v) to amend Rule 610,
Limitation on Dealings, to adopt the
language of the corresponding rule of
another exchange; (vi) to amend
paragraphs (b) and (d) of Rule 800,
Maintenance, Retention and Furnishing
of Books, Records and Other
Information; (vii) to amend Rule 1321,
Transfer of Accounts, to incorporate by
reference FINRA Rule 11870, Customer
Account Transfer Contracts; (viii) to
amend Rule 1322, Options
Communications, to better align with
FINRA Rule 2220; and (ix) to replace the
rule text of Rule 1325, Telephone
Solicitation, with the rule text from
FINRA Rule 3230. The Exchange
anticipates entering into a 17d–2
Agreement with FINRA and possibly a
Regulatory Service Agreement within
the near future. The Exchange believes
the proposed changes to harmonize the
Exchange rules with FINRA and other
exchanges (which also have such 17d–
2 Agreements and Regulatory Service
Agreement with FINRA) should
expedite the process.
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]]>Agencies
[Federal Register Volume 79, Number 110 (Monday, June 9, 2014)]
[Notices]
[Pages 33006-33012]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13314]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31070; 813-382]
Kohlberg Kravis Roberts & Co. L.P., et al.; Notice of Application
June 3, 2014.
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 and the rules and regulations
thereunder, except sections 9, 17, 30, and 36 through 53 of the Act,
and the rules and regulations thereunder (the ``Rules and
Regulations''). With respect to sections 17(a), (d), (f), (g) and (j)
and 30(a), (b), (e), and (h) of the Act, and the Rules and Regulations,
and rule 38a-1 under the Act, the exemption is limited as set forth in
the application.
-----------------------------------------------------------------------
SUMMARY: Summary of Application: Applicants request an order to exempt
certain limited partnerships and other entities (``Partnerships'')
formed for the benefit of eligible employees of Kohlberg Kravis Roberts
& Co. L.P. (``KKR LP'') and its affiliates from certain provisions of
the Act. Each Partnership will be an ``employees' securities company''
within the meaning of section 2(a)(13) of the Act.
Applicants: KKR LP; KKR North America Fund XI ESC L.P. (``NAXI
ESC''), KKR Asian Fund II ESC L.P. (``Asia II ESC''), KKR Energy Income
and Growth Fund I ESC L.P. (``EIGF I ESC''), KKR Real Estate Partners
Americas ESC L.P. (``REPA ESC,'' and with NAXI ESC, Asia II ESC, and
EIGF I ESC, collectively, the ``Initial Partnerships''); and KKR North
America XI Limited (``NAXI ESC GP''), the General Partner (defined
below) of NAXI ESC, KKR Asia II Limited (``Asia II ESC GP''), the
General Partner of Asia II ESC, KKR EIGF LLC (``EIGF I ESC GP''), the
General Partner of EIGF I ESC, and KKR REPA GP LLC (``REPA ESC GP,''
and with NAXI ESC GP, Asia II ESC GP, and EIGF I ESC GP, collectively,
the ``Initial General Partners''), the General Partner of REPA ESC.
DATES: Filing Dates: The application was filed on September 20, 2012
and amended on May 6, 2013, December 31, 2013 and May 29, 2014.
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 June 30, 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: 9 West 57th Street,
Suite 4200, New York, New York 10019.
FOR FURTHER INFORMATION CONTACT: David J. Marcinkus, Senior Counsel, at
(202) 551-6882, or David P. Bartels, 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 for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. KKR LP is a Delaware limited partnership, and together with its
``affiliates,'' as defined in rule 12b-2 under the Securities Exchange
Act of 1934 (the ``Exchange Act'') (collectively, ``KKR,'' and each, a
``KKR entity''), it has organized, and will in the future organize,
limited partnerships, limited liability companies, business trusts or
other entities (each a ``Partnership'' and, collectively, the
``Partnerships'') as ``employees' securities companies,'' as defined in
section 2(a)(13) of the Act.
2. A Partnership may be organized under the laws of the state of
Delaware, another state, or of a jurisdiction outside the United
States. KKR may also form parallel Partnerships organized under the
laws of various jurisdictions in order to create the same investment
opportunities for Eligible Employees (as defined below) in other
jurisdictions. Interests in a Partnership (``Interests'') may be issued
in one or more series, each of which corresponds to particular
Partnership investments (each, a ``Series''). Each Series will be an
``employees' securities company'' within the meaning of section
2(a)(13) of the Act. Each Partnership will operate as a closed-end
management investment company, and a particular Partnership may operate
as a diversified or non-diversified vehicle within the meaning of the
Act. The Partnerships are intended to provide investment opportunities
for Eligible Employees that are competitive with those at other
investment management and financial services firms and to facilitate
the recruitment and retention of high caliber professionals. KKR will
control each Partnership within the meaning of section 2(a)(9) of the
Act.
3. KKR formed NAXI ESC in June 2012 under the laws of the Cayman
Islands. NAXI ESC invests concurrently with KKR North America Fund XI
L.P. (``NAXI'') and other investors organized or managed by KKR or its
designees that generally co-invest with NAXI in various investment
opportunities, as
[[Page 33007]]
described in the application. KKR formed Asia II ESC in September 2012
under the laws of the Cayman Islands. Asia II ESC invests concurrently
with KKR Asian Fund II L.P. (``Asia II'') and other investors organized
or managed by KKR or its designees that generally co-invest with Asia
II in various investment opportunities, as described in the
application. KKR formed REPA ESC in June 2013 under the laws of
Delaware. REPA ESC invests concurrently with KKR Real Estate Partners
Americas L.P. (``REPA'') and other investors organized or managed by
KKR or its designees that generally co-invest with REPA in various
investment opportunities, as described in the application. KKR formed
EIGF I ESC in July 2013 under the laws of Delaware. EIGF I ESC invests
concurrently with KKR Energy Income and Growth Fund I L.P. (``EIGF I'')
and other investors organized or managed by KKR or its designees that
generally co-invest with EIGF I in various investment opportunities, as
described in the application. Each of the Initial Partnerships is
organized as a limited partnership.
4. Each Partnership will have a general partner, managing member or
other such similar entity (a ``General Partner''). All investors in a
Partnership will be ``Limited Partners.'' The General Partner will be
responsible for the overall management of each Partnership and will
have the authority to make all decisions regarding the acquisition,
management and disposition of Partnership investments. A KKR entity
will be a General Partner of each Partnership. The General Partner may
be permitted to delegate certain of its responsibilities regarding the
acquisition, management and disposition of Partnership investments to
an Investment Adviser (as defined below), provided that the ultimate
responsibility for, and control of, each Partnership, remain with the
General Partner.
5. The General Partner or another KKR entity will serve as
investment adviser to a Partnership (the ``Investment Adviser''). The
Investment Adviser will be registered as an investment adviser under
the Investment Advisers Act of 1940 (the ``Advisers Act''), if required
under applicable law. Each Investment Adviser shall comply with the
standards prescribed in Sections 9, 36 and 37 of the Act. The
Applicants represent and concede that each General Partner and
Investment Adviser managing a Partnership is an ``investment adviser''
within the meaning of Sections 9 and 36 of the Act and is subject to
those sections. An Investment Adviser may be paid a management fee,
which will generally be determined as a percentage of the capital
commitments of the Limited Partners. A General Partner or Investment
Adviser may receive a performance-based fee (a ``Carried Interest'')
based on the net gains of the Partnership's investments in addition to
any amount allocable to the General Partner's or Investment Adviser's
capital contribution.\1\
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\1\ If a General Partner or Investment Adviser is registered
under the Advisers Act, the Carried Interest payable to it by a
Partnership will be pursuant to an arrangement that complies with
rule 205-3 under the Advisers Act. If the General Partner or
Investment Adviser is not required to register under the Advisers
Act, the Carried Interest payable to it will comply with section
205(b)(3) of the Advisers Act (with such Partnership treated as
though it were a business development company solely for the purpose
of that section).
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6. If the General Partner determines that a Partnership enter into
any side-by-side investment with an unaffiliated entity, the General
Partner will be permitted to engage as sub-investment adviser the
unaffiliated entity (an ``Unaffiliated Subadviser''), which will be
responsible for the management of such side-by-side investment.
7. Interests in a Partnership will be offered without registration
in reliance on section 4(2) of the Securities Act of 1933 (the
``Securities Act''), or Regulation D or Regulation S under the
Securities Act, and will be sold only to ``Qualified Participants'' (as
defined below). Prior to offering Interests to an Eligible Individual
(as defined below), a General Partner must reasonably believe that the
Eligible Employee or Eligible Family Member will be capable of
understanding and evaluating the merits and risks of participation in a
Partnership and that each such individual is able to bear the economic
risk of such participation and afford a complete loss of his or her
investments in Partnerships.
8. ``Qualified Participants'' are (a) current and former employees,
officers, directors and current Consultants \2\ of KKR (collectively,
``Eligible Employees'' \3\), (b) spouses, parents, children, spouses of
children, brothers, sisters and grandchildren of Eligible Employees,
including step and adoptive relationships (``Eligible Family Members''
and, together with Eligible Employees who are natural persons,
``Eligible Individuals''), (c) any ``Eligible Investment Vehicle,''
which is defined as (i) a trust of which the trustee, grantor and/or
beneficiary is an Eligible Employee, (ii) a partnership, corporation or
other entity controlled by an Eligible Employee,\4\ or (iii) a trust or
other entity established solely for the benefit of Eligible Family
Members, and (d) KKR. Each Eligible Individual will be an ``accredited
investor'' under rule 501(a)(5) or rule 501(a)(6) of Regulation D
(``Accredited Investor''), except that a maximum of 35 Eligible
Employees who are sophisticated investors but who are not Accredited
Investors may become Limited Partners if each of them falls into one of
the following two categories: (A) Eligible Employees who (i) have a
graduate degree in business, law or accounting, (ii) have a minimum of
five years of consulting, investment management, investment banking,
legal or similar business experience, and (iii) had reportable income
from all sources (including any profit shares or bonus) of $100,000 in
each of the two most recent years immediately preceding the Eligible
Employee's admission as a Limited Partner and have a reasonable
expectation of income from all sources of at least $140,000 in each
year in which the Eligible Employee will be committed to make
investments in a Partnership; or (B) Eligible Employees
[[Page 33008]]
who are ``knowledgeable employees,'' as defined in rule 3c-5 of the
Act, of the Partnership (with the Partnership treated as though it were
a ``covered company'' for purposes of the rule). An Eligible Employee
who is described in category (A) above will not be permitted to invest
in any year more than 10% of his or her income from all sources for the
immediately preceding year, in the aggregate, in a Partnership and in
all other Partnerships in which that investor has previously invested.
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\2\ A ``Consultant'' is a person or entity whom KKR has engaged
on retainer to provide services and professional expertise on an
ongoing basis as a regular consultant or as a business or legal
adviser and who shares a community of interest with KKR and its
employees. In order to participate in a Partnership, Consultants
will be required to be sophisticated investors who qualify as
Accredited Investors (defined below) (if a Consultant is an
individual) or, if not an individual, meet the standards of an
``accredited investor'' under Rule 501(a) of Regulation D. A
Qualified Participant of a Consultant may invest in a Partnership.
If a Consultant is an entity (such as, for example, a law firm or
consulting firm), and the Consultant proposes to invest in the
Partnership through a partnership, corporation or other entity that
is controlled by the Consultant, the individual participants in such
partnership, corporation or other entity will be limited to senior
level employees, members or partners of the Consultant who are
responsible for the activities of the Consultant and will be
required to qualify as Accredited Investors. In addition, such
entities will be limited to businesses controlled by individuals who
have levels of expertise and sophistication in the area of
investments in securities that are comparable to other Eligible
Employees who are employees, officers or directors of KKR and who
have an interest in maintaining an ongoing relationship with KKR.
Most importantly, the individuals participating through such
entities will belong to that class of persons who will have access
to the directors and officers of the General Partner and/or the
officers of KKR responsible for making investments for the
Partnerships similar to the access afforded other Eligible Employees
who are employees, officers or directors of KKR. Accordingly, there
will be a close nexus between KKR and such entities.
\3\ To qualify as an Eligible Employee, any current or former
officer or director of KKR must be an employee or former employee of
KKR.
\4\ The inclusion of partnerships, corporations, or other
entities controlled by an Eligible Employee in the definition of
``Eligible Investment Vehicle'' is intended to enable Eligible
Employees to make investments in the Partnerships through personal
investment vehicles for the purpose of personal and family
investment and estate planning objectives.
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9. An Eligible Individual may purchase an Interest through an
Eligible Investment Vehicle only if either (i) the investment vehicle
is an Accredited Investor, as defined in rule 501(a) of Regulation D or
(ii) the Eligible Individual is a settlor \5\ and principal investment
decision-maker with respect to the investment vehicle. Eligible
Investment Vehicles that are not Accredited Investors will be included
in the 35 non-Accredited Investor limit discussed above.
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\5\ If such investment vehicle is an entity other than a trust,
the term ``settlor'' will be read to mean a person who created such
vehicle, alone or together with other Eligible Individuals, and
contributed funds to such vehicle.
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10. The terms of a Partnership will be disclosed to the Eligible
Employees at the time they are offered the right to subscribe for
Interests, and they will be furnished with a copy of the partnership
agreement. A Partnership will send its Limited Partners an annual
financial statement with respect to those Series in which the Limited
Partner had an Interest within 120 days, or as soon as practicable,
after the end of the Partnership's fiscal year. The financial statement
will be audited \6\ by independent certified public accountants. In
addition, as soon as practicable after the end of each fiscal year of a
Partnership, a report will be sent to each Limited Partner setting
forth the information with respect such Limited Partner's share of
income, gains, losses, credits, and other items for federal and state
income tax purposes.
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\6\ ``Audit'' will have the meaning defined in rule 1-02(d) of
Regulation S-X.
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11. Interests in the Partnerships will not be transferable except
with the express consent of the General Partner, and then only to a
Qualified Participant. All of the Partnerships will have only Qualified
Participants as Limited Partners. No sales load or similar fee of any
kind will be charged in connection with the sale of Interests.
12. Applicants state that a General Partner may have the right to
repurchase or cancel the Interest of (i) an Eligible Employee who
ceases to be an employee, officer, director or current Consultant of
any KKR entity for any reason or (ii) any Eligible Family Member of any
person described in clause (i). Once a Consultant's ongoing
relationship with KKR is terminated: (i) Such Consultant and its
Qualified Participants, if any, will not be permitted to contribute any
additional capital to a Partnership and (ii) the existing Interests of
such Consultant and its Qualified Participants, if any, as of the date
of such termination will (A) to the extent the governing documents of a
Partnership provide for periodic redemptions in the ordinary course, be
redeemed as of the next regularly scheduled redemption date and (B) to
the extent the governing documents of a Partnership do not provide for
such periodic redemptions (e.g. as a result of the vehicle primarily
investing in illiquid investments), be retained. The Partnership
Agreement or private placement memorandum for each Partnership will
describe, if applicable, the amount that a Limited Partner would
receive upon repurchase or cancellation of its Interest. A Limited
Partner would receive upon repurchase or cancellation of its Interest,
at a minimum, the lesser of (i) the amount actually paid by or (subject
to any vesting requirements) on behalf of the Limited Partner to
acquire the Interest, plus interest, less any distributions, and (ii)
the fair market value of the Interest determined at the time of the
repurchase or cancellation as determined in good faith by the General
Partner.
13. Applicants state that the Partnerships may invest either
directly or through investments in limited partnerships and other
investment pools (including pools that are exempt from registration in
reliance on section 3(c)(1) or 3(c)(7) of the Act) and investments in
registered investment companies.\7\ Investments may be made side by
side with KKR entities and through investment pools (including
Aggregation Vehicles) \8\ sponsored or managed by a KKR entity or an
unaffiliated entity.
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\7\ Applicants are not requesting any exemption from any
provision of the Act or any rule thereunder that may govern the
eligibility of a Partnership 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.
\8\ An ``Aggregation Vehicle'' is an investment pool sponsored
or managed by a KKR entity that is formed solely for the purpose of
permitting a Partnership and other KKR entities or Third Party Funds
to collectively invest in other entities. Applicants state that it
may be more efficient for a Partnership and other KKR entities and
Third Party Funds to invest in an entity together through an
Aggregation Vehicle rather than having each investor separately
acquire a direct interest in such entity. An Aggregation Vehicle
will not be used to issue interests that discriminate against a
Partnership or provide preferential treatment to a KKR entity or
other KKR-related investors with respect to a portfolio company
investment. Applicants submit that because no investment decisions
are made at the Aggregation Vehicle level, the fact that a person
who participates in the Partnership's decision to acquire an
interest in an Aggregation Vehicle also serves as an officer,
director, general partner or investment adviser of the Aggregation
Vehicle would not create a conflict of interest on the part of such
person.
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14. Applicants state that a Partnership may also co-invest in a
portfolio company with KKR or an investment fund or separate account
organized primarily for the benefit of investors who are not affiliated
with KKR over which a KKR entity or an Unaffiliated Subadviser
exercises investment discretion (``Third Party Funds''). The General
Partner will not delegate management and investment discretion for the
Partnership to an Unaffiliated Subadviser or a sponsor of a Third Party
Fund. Side-by-side investments held by a Third Party Fund, or by a KKR
entity in a transaction in which the KKR investment was made pursuant
to a contractual obligation to a Third Party Fund, will not be subject
to the restrictions contained in Condition 3 below. All other side-by-
side investments held by KKR entities will be subject to the
restrictions contained in Condition 3.
15. If KKR makes loans to a Partnership, the lender will be
entitled to receive interest, provided that the interest rate will be
no less favorable to the borrower than the rate obtainable on an arm's
length basis. The possibility of any such borrowings, as well as the
terms thereof, would be disclosed to Qualified Participants prior to
their investment in a Partnership.\9\ A Partnership 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 securities of the Partnership (other
than short-term paper). A Partnership will not lend any funds to a KKR
entity.\10\ Any indebtedness of a Partnership will be the debt of the
Partnership and without recourse to the Limited Partners.
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\9\ Applicants note that the Initial Partnerships disclosed the
possibility of such borrowings but not the terms thereof prior to
Qualified Participants investing in the Initial Partnership. As of
May 29, 2014, the Initial Partnerships have also disclosed the terms
of such potential borrowings to the Limited Partners.
\10\ A Partnership may, subject to the terms and conditions set
out herein, make investments in issuers that are portfolio companies
of funds managed by KKR, and such investments may take the form of
loans. However, a Partnership will not make any loans to KKR LP, its
subsidiaries or any entity that controls KKR LP.
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16. In compliance with section 12(d)(1)(A)(i) of the Act, a
Partnership will not purchase or otherwise acquire
[[Page 33009]]
any security issued by a registered investment company if, immediately
after the acquisition, the Partnership will own, in the aggregate, more
than 3% of the outstanding voting stock of the registered investment
company.
Applicants' Legal Analysis
1. Section 6(b) of the Act provides that, upon application, 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 company 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 company and other persons
dealing with the company as though the company were registered under
the Act. Applicants request an order under sections 6(b) and 6(e) of
the Act exempting the Partnerships from all provisions of the Act,
except sections 9, 17, 30, and 36 through 53 of the Act, and the Rules
and Regulations. With respect to sections 17(a), (d), (f), (g), and (j)
and 30(a), (b), (e), and (h) of the Act, and the Rules and Regulations,
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 company.
Applicants request an exemption from section 17(a) to the extent
necessary to permit a KKR entity or a Third Party Fund (or any
affiliated person of any such KKR entity or Third Party Fund), acting
as principal, to purchase or sell securities or other property to or
from any Partnership or any company controlled by such Partnership. Any
such transaction to which any Partnership is a party will be effected
only after a determination by the General Partner that the requirements
of condition 1 below have been satisfied. In addition, the Applicants,
on behalf of the Partnerships, represent that any transactions
otherwise subject to section 17(a) of the Act, for which exemptive
relief has not been requested, would require approval of the
Commission.
4. Applicants submit that an exemption from section 17(a) is
consistent with the purposes of the Partnerships and the protection of
investors. Applicants state that the Limited Partners will be informed
of the possible extent of the Partnership's dealings with KKR and of
the potential conflicts of interest that may exist. Applicants also
state that, as professionals engaged in financial services businesses,
the Limited Partners will be able to evaluate the risks associated with
those dealings. Applicants assert that the community of interest among
the Limited Partners and KKR will serve to reduce the risk of abuse.
Applicants acknowledge that the requested relief will not extend to any
transactions between a Partnership and an Unaffiliated Subadviser or an
affiliated person of an Unaffiliated Subadviser, or between a
Partnership and any person who is not an employee, officer or director
of the KKR or is an entity outside of the KKR and is an affiliated
person of the Partnership as defined in section 2(a)(3)(E) of the Act
(``Advisory Person'') or any affiliated person of such a person.
5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person or principal underwriter of a registered
investment company, or any affiliated person of such person or
principal underwriter, acting as principal, from participating in any
joint arrangement with the company unless authorized by the Commission.
Applicants request relief to permit affiliated persons of the
Partnerships, or affiliated persons of any of such persons, to
participate in, or effect any transaction in connection with, any joint
enterprise or other joint arrangement or profit-sharing plan in which a
Partnership or a company controlled by a Partnership is a participant.
Applicants acknowledge that the requested relief will not extend to any
transaction in which an Unaffiliated Subadviser or an Advisory Person,
or an affiliated person of either such person, has an interest, except
in connection with a Third Party Fund sponsored by an Unaffiliated
Subadviser.
6. Applicants assert that compliance with section 17(d) would cause
the Partnership to forego investment opportunities simply because a
Limited Partner, the General Partner or any other affiliated person of
the Partnership (or any affiliate of the affiliated person) made a
similar investment. Applicants submit that the types of investment
opportunities considered by a Partnership often require each investor
to make funds available in an amount that may be substantially greater
than what a Partnership may be able to make available on its own.
Applicants contend that, as a result, the only way in which a
Partnership may be able to participate in these opportunities may be to
co-invest with other persons, including its affiliates. 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. In addition, Applicants represent that
any transactions otherwise subject to section 17(d) of the Act and rule
17d-1 thereunder, for which exemptive relief has not been requested,
would require approval by the Commission.
7. Co-investments with Third Party Funds, or by a KKR entity
pursuant to a contractual obligation to a Third Party Fund, will not be
subject to condition 3 below. Applicants note that it is common for a
Third Party Fund to require that KKR invest its own capital in Third
Party Fund investments, and that KKR investments be subject to
substantially the same terms as those applicable to the Third Party
Fund. Applicants believe it is important that the interests of the
Third Party Fund take priority over the interests of the Partnerships,
and that the Third Party Fund not be burdened or otherwise affected by
activities of the Partnerships. In addition, applicants assert that the
relationship of a Partnership to a Third Party Fund is fundamentally
different from a Partnership's relationship to KKR. Applicants contend
that the focus of, and the rationale for, the protections contained in
the requested relief are to protect the Partnerships from any
overreaching by KKR in the employer/employee context, whereas the same
concerns are not present with respect to the Partnerships vis-a-vis a
Third Party Fund.
[[Page 33010]]
8. Section 17(e) of the Act and rule 17e-1 under the Act limit the
compensation an affiliated person may receive when acting as agent or
broker for a registered investment company. Applicants request an
exemption from section 17(e) to permit a KKR entity (including the
General Partner) that acts as an agent or broker to receive placement
fees, advisory fees, or other compensation from a Partnership in
connection with the purchase or sale by the Partnership of securities,
provided that the fees or other compensation are deemed ``usual and
customary.'' Applicants state that for purposes of the application,
fees or other compensation that are charged or received by a KKR entity
will be deemed ``usual and customary'' only if (a) the Partnership is
purchasing or selling securities with other unaffiliated third parties,
including Third Party Funds, (b) the fees or compensation being charged
to the Partnership are also being charged to the unaffiliated third
parties, including Third Party Funds, and (c) the amount of securities
being purchased or sold by the Partnership does not exceed 50% of the
total amount of securities being purchased or sold by the Partnership
and the unaffiliated third parties, including Third Party Funds.
Applicants assert that, because KKR does not wish to appear to be
favoring the Partnerships, compliance with section 17(e) would prevent
a Partnership from participating in transactions where the Partnership
is being charged lower fees than unaffiliated third parties. Applicants
assert that the fees or other compensation paid by a Partnership to a
KKR entity will be the same as those negotiated at arm's length with
unaffiliated third parties.
9. Rule 17e-1(b) under the Act requires that a majority of
directors who are not ``interested persons'' (as defined in section
2(a)(19) of the Act) take actions and make approvals regarding
commissions, fees, or other remuneration. Rule 17e-1(c) under the Act
requires each investment company relying on the rule to satisfy the
fund governance standards defined in rule 0-1(a)(7) under the Act (the
``Fund Governance Standards''). Applicants request an exemption from
rule 17e-1 to the extent necessary to permit each Partnership to comply
with the rule without having a majority of the directors of the General
Partner who are not interested persons take actions and make
determinations as set forth in paragraph (b) of the rule, and without
having to satisfy the standards set forth in paragraph (c) of the rule.
Applicants state that because all the directors of the General Partner
will be affiliated persons, without the relief requested, a Partnership
could not comply with rule 17e-1. Applicants state that each
Partnership will comply with rule 17e-1 by having a majority of the
directors of the General Partner take actions and make approvals as set
forth in the rule. Applicants state that each Partnership will
otherwise comply with rule 17e-1.
10. 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 subsections (a), (b) (to the extent such subsection refers to
contractual requirements), (c), and (d) of rule 17f-1 to permit a KKR
entity to act as custodian of Partnership assets 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, because of the
community of interest between KKR and the Partnerships and the existing
requirement for an independent audit, compliance with this requirement
would be unnecessary. Applicants will comply with all other
requirements of rule 17f-1.
11. Applicants also request an exemption from section 17 and rule
17f-2 to permit the following exceptions from the requirements of rule
17f-2: (a) A Partnership's investments may be kept in the locked files
of the KKR LP, the General Partner or the KKR entity that serves as
investment adviser to the Partnership; (b) for purposes of paragraph
(d) of the rule, (i) employees of the General Partner (or KKR) will be
deemed to be employees of the Partnerships, (ii) officers or managers
of the General Partner of a Partnership (or KKR) will be deemed to be
officers of the Partnership and (iii) the General Partner of a
Partnership or its board of directors will be deemed to be the board of
directors of a Partnership and (c) in place of the verification
procedure under paragraph (f) of the rule, verification will be
effected quarterly by two employees, each of whom will have sufficient
knowledge, sophistication and experience in business matters to perform
such examination. Applicants expect that, with respect to certain
Partnerships, some 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 assert that for such a Partnership, these instruments are
most suitably kept in the files of KKR LP, the General Partner, or the
KKR entity that serves as investment adviser to the Partnership, where
they can be referred to as necessary. Applicants will comply with all
other provisions of rule 17f-2.
12. 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 of a registered investment company take certain actions and
give certain approvals relating to fidelity bonding. The rule also
requires that the board of directors of an investment company relying
on the rule satisfy the Fund Governance Standards. Applicants request
relief to permit the General Partner's board of directors, who may be
deemed interested persons, to take actions and make determinations as
set forth in the rule. Applicants state that, because all directors of
the General Partner will be affiliated persons, a Partnership could not
comply with rule 17g-1 without the requested relief. Specifically, each
Partnership will comply with rule 17g-1 by having a majority of the
General Partner's directors take actions and make determinations as set
forth in rule 17g-1. Applicants also request an exemption from the
requirements of: (i) Paragraph (g) of the rule relating to the filing
of copies of fidelity bonds and related information with the Commission
and the provision of notices to the board of directors; (ii) paragraph
(h) of the rule relating to the appointment of a person to make the
filings and provide the notices required by paragraph (g); and (iii)
paragraph (j)(3) of the rule relating to compliance with the Fund
Governance Standards. Applicants state that the fidelity bond of each
Partnership will cover KKR employees who have access to the securities
and funds of the Partnership. Applicants state that the Partnerships
will comply with all other requirements of rule 17g-1.
13. 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
[[Page 33011]]
company report personal securities transactions. Applicants request an
exemption from section 17(j) and the provisions of rule 17j-1, except
for the anti-fraud provisions of paragraph (b), because they assert
that these requirements are unnecessarily burdensome as applied to the
Partnerships. The relief requested will only extend to KKR entities and
is not requested with respect to any Unaffiliated Subadviser or
Advisory Person.
14. 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 the
Partnerships and would entail administrative and legal costs that
outweigh any benefit to the Limited Partners. Applicants request
exemptive relief to the extent necessary to permit each Partnership to
report annually to its Limited Partners, as described in the
application. Applicants also request an exemption from section 30(h) of
the Act to the extent necessary to exempt the General Partner of each
Partnership, members of the General Partner or any board of managers or
directors or committee of KKR employees to whom the General Partner may
delegate its functions, and any other persons who may be deemed to be
members of an advisory board of a Partnership, from filing Forms 3, 4,
and 5 under section 16(a) of the Exchange Act with respect to their
ownership of Interests in the Partnership. Applicants assert that,
because there will be no trading market and the transfers of Interests
will be severely restricted, these filings are unnecessary for the
protection of investors and burdensome to those required to make them.
15. Rule 38a-1 requires registered investment companies to adopt,
implement and periodically review written policies reasonable designed
to prevent violation of the federal securities law and to appoint a
chief compliance officer. Each Partnership will comply will rule 38a-
1(a), (c) and (d), except that (i) since the Partnership does not have
a board of directors, the board of directors of the General Partner
will fulfill the responsibilities assigned to the Partnership's board
of directors under the rule, and (ii) since the board of directors of
the General Partner does not have any disinterested members, (a)
approval by a majority of the disinterested board members required by
rule 38a-1 will not be obtained, and (b) the Partnerships 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 board of directors of the General
Partner as constituted.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each proposed transaction involving a Partnership otherwise
prohibited by section 17(a) or section 17(d) of the Act and rule 17d-1
under the Act to which a Partnership is a party (the ``Section 17
Transactions'') will be effected only if the General Partner determines
that (i) the terms of the Section 17 Transaction, including the
consideration to be paid or received, are fair and reasonable to the
Limited Partners of the Partnership and do not involve overreaching of
the Partnership or its Limited Partners on the part of any person
concerned, and (ii) the Section 17 Transaction is consistent with the
interests of the Limited Partners, the Partnership's organizational
documents and the Partnership's reports to its Limited Partners.\11\
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\11\ If a Partnership invests through an Aggregation Vehicle and
such investment is a Section 17 Transaction, this condition will
apply with respect to both the investment in the Aggregation Vehicle
and any investment by the Aggregation Vehicle of Partnership funds.
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In addition, the General Partner of a Partnership will record and
preserve a description of all Section 17 Transactions, the General
Partner'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 Partnership and at least six
years thereafter and will be subject to examination by the Commission
and its staff.\12\
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\12\ Each Partnership will preserve the accounts, books and
other documents required to be maintained in an easily accessible
place for the first two years.
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2. The General Partner of each Partnership 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 the Partnership or any affiliated person of such
person, promoter or principal underwriter.
3. The General Partner of each Partnership will not invest the
funds of the Partnership in any investment in which an ``Affiliated Co-
Investor'' (as defined below) has acquired or proposes to acquire the
same class of securities of the same issuer and where the investment
transaction involves a joint enterprise or other joint arrangement
within the meaning of rule 17d-1 in which the Partnership and an
Affiliated Co-Investor are participants (each such investment, a ``Rule
17d-1 Investment''), unless any such Affiliated Co-Investor, prior to
disposing of all or part of its investment, (i) gives the General
Partner sufficient, but not less than one day's, notice of its intent
to dispose of its investment; and (ii) refrains from disposing of its
investment unless the Partnership has the opportunity to dispose of the
Partnership's investment prior to or concurrently with, on the same
terms as, and pro rata with the Affiliated Co-Investor.\13\ The term
``Affiliated Co-Investor'' with respect to any Partnership means any
person who is: (i) An ``affiliated person'' (as such term is defined in
section 2(a)(3) of the Act) of the Partnership (other than a Third
Party Fund); (ii) KKR; (iii) an officer or director of KKR; (iv) an
Eligible Employee; or (v) an entity (other than a Third Party Fund) in
which a KKR entity acts as a general partner or has a similar capacity
to control the sale or other disposition of the entity's securities.
The restrictions contained in this condition, however, shall not be
deemed to limit or prevent the disposition of an investment by an
Affiliated Co-Investor (i) to its direct or indirect wholly-owned
subsidiary, to any company (a ``Parent'') of which the Affiliated Co-
Investor is a direct or indirect wholly-owned subsidiary or to a direct
or indirect wholly-owned subsidiary of its Parent, (ii) to immediate
family members of the Affiliated Co-Investor or a trust or other
investment vehicle established for any Affiliated Co-Investor or any
such immediate family member, or (iii) when the investment is comprised
of securities that are (a) listed on a national securities exchange
registered under section 6 of the Exchange Act, (b) NMS stocks pursuant
to section 11A(a)(2) of the Exchange Act and rule 600(a) of Regulation
NMS thereunder, (c) government securities as defined in section
2(a)(16) of the Act or other
[[Page 33012]]
securities that meet the definition of ``Eligible Security'' in rule
2a-7 under the Act, or (d) 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.
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\13\ If a Partnership invests in a Rule 17d-1 Investment through
an Aggregation Vehicle, the requirements of clauses (i) and (ii) of
this sentence shall apply to both the Affiliated Co-Investor's
disposition of such Rule 17d-1 Investment and, if the Affiliated Co-
Investor also holds a Rule 17d-1 Investment through such Aggregation
Vehicle, its disposition of all or part of its investment in the
Aggregation Vehicle.
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4. Each Partnership and its General Partner will maintain and
preserve, for the life of each Series of the Partnership 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 Limited Partners in the
Partnership, and each annual report of the Partnership required to be
sent to the Limited Partners, and agree that all such records will be
subject to examination by the Commission and its staff.\14\
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\14\ Each Partnership will preserve the accounts, books and
other documents required to be maintained in an easily accessible
place for the first two years.
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5. Within 120 days after the end of each fiscal year of each
Partnership, or as soon as practicable thereafter, the General Partner
of each Partnership will send to each Limited Partner having an
Interest in the Partnership at any time during the fiscal year then
ended, Partnership financial statements audited by the Partnership's
independent accountants with respect to those Series in which the
Limited Partner had an Interest. At the end of each fiscal year, the
General Partner will make or cause to be made a valuation of all of the
assets of the Partnership 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 Partnership. In addition, within 120
days after the end of each fiscal year of each Partnership (or as soon
as practicable thereafter), the General Partner will send a report to
each person who was a Limited Partner at any time during the fiscal
year then ended, setting forth such tax information as shall be
necessary for the preparation by the Limited Partner of that partner's
federal and state income tax returns and a report of the investment
activities of the Partnership during that fiscal year.
6. If a Partnership makes purchases or sales from or to an entity
affiliated with the Partnership by reason of an officer, director or
employee of a KKR entity (i) serving as an officer, director, general
partner, manager or investment adviser of the entity (other than an
entity that is an Aggregation Vehicle), or (ii) having a 5% or more
investment in the entity, such individual will not participate in the
Partnership's determination of whether or not to effect the purchase or
sale.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13314 Filed 6-6-14; 8:45 am]
BILLING CODE 8011-01-P
