FS Energy and Power Fund and FS/EIG Advisor, LLC, 6242-6244 [2020-02032]
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Federal Register / Vol. 85, No. 23 / Tuesday, February 4, 2020 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
33794; 812–14383]
FS Energy and Power Fund and FS/EIG
Advisor, LLC
January 29, 2020.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
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AGENCY:
Notice of an application under
Section 6(c) of the Investment Company
Act of 1940 (the ‘‘Act’’) for an
exemption from Sections 18(a)(2), 18(c),
18(i) and Section 61(a) of the Act.
SUMMARY OF APPLICATION: Applicants
request an order to permit certain
closed-end management investment
companies that have elected to be
regulated as business development
companies (‘‘BDCs’’) to issue multiple
classes of shares with varying sales
loads and asset-based service and/or
distribution fees.
APPLICANTS: FS Energy and Power Fund
(the ‘‘Current Fund’’) and FS/EIG
Advisor, LLC (the ‘‘Investment
Adviser’’).
FILING DATES: The application was filed
on October 24, 2014 and amended on
August 17, 2018, February 1, 2019, June
28, 2019, and January 29, 2020.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail.
Hearing requests should be received
by the Commission by 5:30 p.m. on
February 24, 2020, and should be
accompanied by proof of service on the
applicants, in the form of an affidavit,
or, for lawyers, a certificate of service.
Pursuant to Rule 0–5 under the Act,
hearing requests should state the nature
of the writer’s interest, any facts bearing
upon the desirability of a hearing on the
matter, the reason for the request, and
the issues contested. Persons who wish
to be notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090;
Applicants: c/o Michael C. Forman,
CEO, Stephen S. Sypherd, General
Counsel and Secretary, FS Energy and
Power Fund, 201 Rouse Boulevard,
Philadelphia, PA 19112.
FOR FURTHER INFORMATION CONTACT:
Asen Parachkevov, Senior Counsel, or
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David Joire, Senior Special Counsel, 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
website 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. The Current Fund is an externally
managed, non-diversified, closed-end
management investment company that
has elected to be regulated as a BDC
under the Act.1 The Current Fund’s
investment objective is to generate
current income and long-term capital
appreciation.
2. The Investment Adviser is
registered as an investment adviser
under the Investment Advisers Act of
1940 and serves as investment adviser
to the Current Fund.
3. Applicants seek an order to permit
the Funds (defined below) to offer
investors multiple classes of shares of
beneficial interest (‘‘Shares’’) with
varying sales loads and asset-based
service and/or distribution fees.
4. Applicants request that the order
also apply to any continuously offered
registered closed-end management
investment company that elects to be
regulated as a BDC that has been
previously organized or that may be
organized in the future for which the
Investment Adviser or any entity
controlling, controlled by, or under
common control with the Investment
Adviser, or any successor in interest to
any such entity,2 acts as investment
adviser which periodically offers to
repurchase its Shares pursuant to Rule
13e–4 under the Securities Exchange
Act of 1934 (‘‘Exchange Act’’) and
Section 23(c)(2) of the Act (each, a
‘‘Future Fund’’ and together with the
Current Fund, the ‘‘Funds’’).3
5. As a BDC, the Current Fund is
organized as a closed-end investment
1 Section 2(a)(48) of the Act defines a BDC to be
any closed-end investment company that operates
for the purpose of making investments in securities
described in Sections 55(a)(1) through 55(a)(3) of
the Act and makes available significant managerial
assistance with respect to the issuers of such
securities.
2 For purposes of the requested order, ‘‘successor’’
is limited to any entity that results from a
reorganization into another jurisdiction or a change
in the type of a business organization.
3 Any Fund relying on this relief in the future will
do so in compliance with the terms and conditions
of the application. Applicants represent that each
entity presently intending to rely on the requested
relief is listed as an applicant.
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Sfmt 4703
company, but offers its Shares
continuously, similar to an open-end
management investment company. On
November 17, 2016, the Current Fund
ceased the public offering of Shares to
new investors. The Current Fund has
only issued one class of Shares, but
anticipates, if it recommences the public
offering, that it will offer additional
classes of Shares. Shares of the Funds
will not be offered or traded in a
secondary market and will not be listed
on any securities exchange and do not
trade on an over-the–counter system.4
6. Each Fund is seeking the ability to
offer multiple classes of Shares that may
charge differing front-end sales loads,
contingent deferred sales charges
(‘‘CDSCs’’), an early withdrawal charge
(‘‘Repurchase Fee’’), and/or annual
asset-based service and/or distribution
fees. Each class of Shares will comply
with the provisions of Rule 2310 of the
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) Manual
(‘‘FINRA Rule 2310’’).5
7. Any Share of a Fund that is subject
to asset-based service or distribution
fees shall convert to a class with no
asset based service or distribution fees
upon such Share reaching the
applicable sales charge cap determined
in accordance with FINRA Rule 2310.
Further, if a class of Shares were to be
listed on an exchange in the future, all
other then-existing classes of Shares of
the listing Fund will be converted into
the listed class, without the imposition
of any sales load, fee or other charge.
8. In order to provide a limited degree
of liquidity to shareholders, Applicants
state that each Fund may from time to
time offer to repurchase Shares in
accordance with Rule 13e–4 under the
Exchange Act and Section 23(c)(2) of the
Act. Applicants state further that
repurchases of each Fund’s Shares will
be made at such times, in such amounts
and on such terms as may be
determined by the applicable Fund’s
board of trustees in its sole discretion.
9. Each Fund will disclose in its
prospectus the fees, expenses and other
characteristics of each class of Shares
offered for sale by the prospectus, as is
required for open-end, multiple-class
funds under Form N–1A. As if it were
an open-end management investment
company, each Fund will disclose fund
expenses in shareholder reports,6 and
4 Applicants are not requesting relief with respect
to any Fund listed on a securities exchange. Any
Fund which relies on the relief requested herein
will cease relying on such relief upon the listing of
any class of its Shares on a securities exchange.
5 Any reference to FINRA Rule 2310 includes any
successor or replacement rule that may be adopted
by FINRA.
6 See Shareholder Reports and Quarterly Portfolio
Disclosure of Registered Management Investment
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Federal Register / Vol. 85, No. 23 / Tuesday, February 4, 2020 / Notices
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disclose in its prospectus any
arrangements that result in breakpoints
in, or elimination of, sales loads.7 Each
Fund will also comply with any
requirements the Commission or FINRA
may adopt regarding disclosure at the
point of sale and in transaction
confirmations about the costs and
conflicts of interest arising out of the
distribution of open-end management
investment company shares, and
regarding prospectus disclosure of sales
loads and revenue sharing arrangements
as if those requirements applied to the
Fund.8 Each Fund will contractually
require that any distributor of a Fund’s
Shares comply with such requirements
in connection with the distribution of
such Fund’s shares.
10. Distribution fees will be paid
pursuant to a plan of distribution
adopted by each Fund in compliance
with Rules 12b–1 and 17d–3 under the
Act, as if those rules applied to closed–
end funds electing to be regulated as
BDCs, with respect to a class (a
‘‘Distribution Plan’’).
11. Each Fund will allocate all
expenses incurred by it among the
various classes of Shares based on the
respective net assets of the Fund
attributable to each such class, except
that the net asset value and expenses of
each class will reflect the expenses
associated with the Distribution Plan of
that class (if any), shareholder servicing
fees attributable to a particular class
(including transfer agency fees, if any)
and any other incremental expenses of
that class. Expenses of the Fund
allocated to a particular class of the
Fund’s Shares will be borne on a pro
rata basis by each outstanding Share of
that class. Applicants state that each
Fund will comply with the provisions of
Rule 18f–3 under the Act as if it were
an open-end management investment
company.
12. Any Fund that imposes a CDSC
will comply with the provisions of Rule
6c–10 (except to the extent a Fund will
comply with FINRA Rule 2310 rather
than FINRA Rule 2341, as such rule may
be amended (‘‘FINRA Rule 2341’’)), as if
that rule applied to BDCs. With respect
to any waiver of, scheduled variation in,
or elimination of the CDSC, a Fund will
comply with the requirements of Rule
Companies, Investment Co. Act Rel. No. 26372 (Feb.
27, 2004) (adopting release).
7 See Disclosure of Breakpoint Discounts by
Mutual Funds, Investment Co. Act Rel. No. 26464
(June 7, 2004) (adopting release).
8 See Confirmation Requirements and Point of
Sale Disclosure Requirements for Transactions in
Certain Mutual Funds and Other Securities, and
Other Confirmation Requirement Amendments, and
Amendments to the Registration Form for Mutual
Funds, Investment Co. Act Rel. No. 26341 (Jan. 29,
2004) (proposing release).
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22d–1 under the Act as if the Fund were
an open-end management investment
company. Each Fund also will disclose
CDSCs in accordance with the
requirements of Form N–1A concerning
CDSCs as if the Fund were an open-end
management investment company.
13. Funds may impose a Repurchase
Fee at a rate no greater than 2% of the
shareholder’s repurchase proceeds if the
interval between the date of purchase of
the Shares and the valuation date with
respect to the repurchase of such Shares
is less than a specified period. Any
Repurchase Fee will apply equally to all
shareholders of the applicable Fund,
regardless of class, consistent with
Section 18 of the Act and Rule 18f–3
under the Act. To the extent a Fund
determines to waive, impose scheduled
variations of, or eliminate any
Repurchase Fees, it will do so
consistently with the requirements of
Rule 22d–1 under the Act as if the
Repurchase Fee were a CDSC and as if
the Fund were an open-end investment
company and the Fund’s waiver of,
scheduled variation in, or elimination
of, the Repurchase Fee will apply
uniformly to all shareholders of the
Fund.
Applicants’ Legal Analysis
Multiple Classes of Shares
1. Section 18(a)(2) of the Act provides
that a closed-end investment company
may not issue or sell a senior security
that is a stock unless certain
requirements are met. Applicants state
that the creation of multiple classes of
shares of the Funds may violate Section
18(a)(2), which is made applicable to
BDCs through Section 61(a) of the Act,
because the Funds may not meet such
requirements with respect to a class of
shares that may be a senior security.
2. Section 18(c) of the Act provides,
in relevant part, that a closed-end
investment company may not issue or
sell any senior security if, immediately
thereafter, the company has outstanding
more than one class of senior security.
Applicants state that the creation of
multiple classes of Shares of the Funds
may be prohibited by Section 18(c),
which is made applicable to BDCs
through Section 61(a) of the Act, as a
class may have priority over another
class as to payment of dividends
because shareholders of different classes
would pay different fees and expenses.
3. Section 18(i) of the Act provides
that each share of stock issued by a
registered management investment
company will be a voting stock and
have equal voting rights with every
other outstanding voting stock.
Applicants state that multiple classes of
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6243
shares of the Funds may violate Section
18(i) of the Act, which is made
applicable to BDCs through Section
61(a) of the Act, because each class
would be entitled to exclusive voting
rights with respect to matters solely
related to that class.
4. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction or any
class or classes of persons, securities or
transactions from any provision of the
Act, or from any rule or regulation
under the Act, if and to the extent such
exemption is necessary or appropriate
in the public interest and consistent
with the protection of investors and the
purposes fairly intended by the policy
and provisions of the Act. Applicants
request an exemption under Section 6(c)
from Sections 18(a)(2), 18(c) and 18(i)
(which are made applicable to BDCs by
Section 61(a) of the Act) to permit the
Funds to issue multiple classes of
Shares.
5. Applicants submit that the
proposed allocation of expenses relating
to distribution and voting rights among
multiple classes is equitable and will
not discriminate against any group or
class of shareholders. Applicants submit
that the proposed arrangements would
permit a Fund to facilitate the
distribution of its Shares and provide
investors with a broader choice of fee
options. Applicants assert that the
proposed BDC multiple class structure
does not raise the concerns underlying
Section 18 of the Act to any greater
degree than open-end management
investment companies’ multiple class
structures that are permitted by Rule
18f–3 under the Act.
Applicants’ Condition
Applicants agree that any order
granting the requested relief will be
subject to the following condition:
1. Each Fund will comply with the
provisions of Rules 6c–10 (except to the
extent a Fund will comply with FINRA
Rule 2310 rather than FINRA Rule
2341), 12b–1, 17d–3, 18f–3, 22d–1, and,
where applicable, 11a–3 under the 1940
Act, as amended from time to time, or
any successor rules thereto, as if those
rules applied to BDCs. In addition, each
Fund will comply with FINRA Rule
2310, as amended from time to time, or
any successor rule thereto, and will
make available to any distributor of a
Fund’s shares all of the information
necessary to permit the distributor to
prepare client account statements in
compliance with FINRA Rule 2231.
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6244
Federal Register / Vol. 85, No. 23 / Tuesday, February 4, 2020 / Notices
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–02032 Filed 2–3–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–88078; File No. SR–
NASDAQ–2019–060]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing of Amendment No. 2 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment No. 2, To Amend Rules
4120 and 4753
January 29, 2020.
I. Introduction
On July 18, 2019, The Nasdaq Stock
Market LLC (‘‘Exchange’’ or ‘‘Nasdaq’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend Rules 4120 and 4753
to permit the Exchange to declare a
regulatory halt in a security that traded
in the over-the-counter (‘‘OTC’’) market
prior to its initial pricing on the
Exchange, allow for the initial pricing of
such a security through the IPO Cross,
and establish a new tie-breaker for
determining the Current Reference Price
and the Cross price for such a security.
The proposed rule change was
published for comment in the Federal
Register on August 6, 2019.3 On
September 19, 2019, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 On September 19, 2019,
the Exchange also filed Amendment No.
1 to the proposed rule change, which
amended and superseded the proposed
rule change as originally filed.6 On
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 86537
(July 31, 2019), 84 FR 38321.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 87012,
84 FR 50490 (September 25, 2019). The
Commission designated November 4, 2019 as the
date by which the Commission shall approve or
disapprove, or institute proceedings to determine
whether to disapprove, the proposed rule change.
6 In Amendment No. 1, the Exchange revised the
proposal to: (1) clarify that when a security
previously traded in the OTC market is initially
priced using the IPO Cross, the fourth tie-breaker
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2 17
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November 1, 2019, the Commission
published notice of Amendment No. 1
and instituted proceedings under
Section 19(b)(2)(B) of the Act 7 to
determine whether to approve or
disapprove the proposed rule change, as
modified by Amendment No. 1.8 The
Commission received no comment
letters on the proposal. On January 10,
2020, the Exchange filed Amendment
No. 2 to the proposed rule change,
which amended and superseded the
proposed rule change, as modified by
Amendment No. 1.9 The Commission is
publishing this notice to solicit
comments on Amendment No. 2 from
interested persons, and is approving the
proposed rule change, as modified by
Amendment No. 2, on an accelerated
basis.
II. Description of the Proposal
Currently, a security that traded in the
OTC market immediately prior to listing
on the Exchange is released for initial
trading on the Exchange by utilizing the
Opening Cross pursuant to Rule
4752(d).10 The Exchange proposes to
amend Rule 4120 to permit the
Exchange to declare a regulatory halt 11
in a security that traded in the OTC
market prior to its initial pricing on the
Exchange.12 The Exchange also
for each of the Current Reference Price
disseminated in the Nasdaq Order Imbalance
Indicator and the price at which the Cross will
occur will be the price that is closest to the most
recent transaction price in the OTC market; (2)
specify that, for purposes of this proposed rule
change, the use of the term ‘‘regulatory halt’’ refers
to Nasdaq’s authority to halt trading in a security
under Rule 4120(a)(7); (3) clarify that, currently, a
security that traded in the OTC market immediately
prior to listing on Nasdaq is released for initial
trading on Nasdaq through the Opening Cross under
Rule 4752(d) and, pursuant to the proposal, if such
an issuer does not retain a financial advisor, the
initial pricing will continue to be effected through
the Opening Cross; (4) include additional
justification in support of the proposed rule change;
and (5) make technical and conforming changes.
Amendment No. 1 is available at https://
www.sec.gov/comments/sr-nasdaq-2019-060/
srnasdaq2019060-6163792-192369.pdf.
7 15 U.S.C. 78s(b)(2)(B).
8 See Securities Exchange Act Release No. 87445,
84 FR 60130 (November 7, 2019).
9 In Amendment No. 2, the Exchange further
revised the proposal to: (1) clarify that the proposal
will not allow a company transferring from the OTC
market to concurrently raise capital in the IPO
Cross; (2) clarify that the proposal can be beneficial
because Rule 4120(c)(8) will provide for extended
quoting activity prior to the launch of a security;
and (3) make technical and conforming changes.
Amendment No. 2 is available at https://
www.sec.gov/comments/sr-nasdaq-2019-060/
srnasdaq2019060-6637710-203487.pdf.
10 See Amendment 2, supra note 9, at 4 n.4.
11 For purposes of this proposed rule change, the
term ‘‘regulatory halt’’ refers to Nasdaq’s authority
to halt trading in a security under Rule 4120(a)(7).
See id. at 4 n.3.
12 The Exchange states that its proposal will
facilitate a more orderly start to trading by
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Fmt 4703
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proposes to amend Rules 4120 and 4753
to allow for the initial pricing on the
Exchange of such a security through the
IPO Cross (described in Rules 4120(c)(8)
and 4753) if a broker-dealer serving in
the role of financial advisor to the issuer
is willing to perform the functions
under Rule 4120(c)(8) that are
performed by an underwriter in an
initial public offering.13 If the issuer
does not retain a financial advisor, the
initial pricing on the Exchange of such
a security will continue to be effected
through the Opening Cross.14 Moreover,
the Exchange proposes to adopt Rules
4753(a)(3)(A)(iv)(e) and 4753(b)(2)(D)(v)
to provide that, in the case of the initial
pricing of a security that traded in the
OTC market pursuant to FINRA Form
211 immediately prior to its initial
pricing, the fourth tie-breaker used in
calculating each of the Current
Reference Price disseminated in the
Nasdaq Order Imbalance Indicator for
purposes of the IPO Cross and the price
at which the IPO Cross will occur will
be the price that is closest to the most
recent transaction price in the OTC
market.15
permitting the Exchange to declare a regulatory halt
in a security that traded in the OTC market prior
to its initial pricing on the Exchange, before trading
on the Exchange begins, which the Exchange
believes will avoid potential price disparities or
anomalies that may occur during any unlisted
trading privileges (‘‘UTP’’) trading before the first
transaction on the primary listing exchange. See id.
at 7.
13 Rule 4120(c)(9) currently provides that the IPO
Cross process is available for the initial pricing of
a security that has not been listed on a national
securities exchange or traded in the OTC market
pursuant to FINRA Form 211 immediately prior to
the initial pricing where a broker-dealer serving in
the role of financial advisor to the issuer is willing
to perform the functions under Rule 4120(c)(8) that
are performed by an underwriter with respect to an
initial public offering. The Exchange states that the
IPO Cross will be a better mechanism to open
trading in securities that traded in the OTC market
given that these companies may attract significant
interest upon listing on the Exchange from investors
who previously could not invest in such securities.
See id. at 8. The Exchange states that the initial
interest in such securities upon listing on the
Exchange makes it beneficial to provide the issuer’s
financial advisor with additional time by extending
quoting activity prior to launch and to allow
significant financial advisor involvement in
determining when to launch trading. See id. at 8–
9. The Exchange also represents that its proposal
will not allow a company transferring from the OTC
market to concurrently raise capital in the IPO
Cross. See id. at 8 n.12.
14 See id. at 4 n.4.
15 The Exchange states that the most recent
transaction price in the OTC market is predictive
of the price that will develop upon the listing of the
security on the Exchange. See id. at 8. This
proposed change to the fourth tie-breaker will not
affect the pricing of a security if the issuer does not
retain a financial advisor. See id. at 4 n.5.
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]]>Agencies
[Federal Register Volume 85, Number 23 (Tuesday, February 4, 2020)]
[Notices]
[Pages 6242-6244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02032]
[[Page 6242]]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33794; 812-14383]
FS Energy and Power Fund and FS/EIG Advisor, LLC
January 29, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of an application under Section 6(c) of the Investment
Company Act of 1940 (the ``Act'') for an exemption from Sections
18(a)(2), 18(c), 18(i) and Section 61(a) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit certain
closed-end management investment companies that have elected to be
regulated as business development companies (``BDCs'') to issue
multiple classes of shares with varying sales loads and asset-based
service and/or distribution fees.
APPLICANTS: FS Energy and Power Fund (the ``Current Fund'') and FS/EIG
Advisor, LLC (the ``Investment Adviser'').
FILING DATES: The application was filed on October 24, 2014 and amended
on August 17, 2018, February 1, 2019, June 28, 2019, and January 29,
2020.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail.
Hearing requests should be received by the Commission by 5:30 p.m.
on February 24, 2020, and should be accompanied by proof of service on
the applicants, in the form of an affidavit, or, for lawyers, a
certificate of service. Pursuant to Rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549-1090; Applicants: c/o Michael C.
Forman, CEO, Stephen S. Sypherd, General Counsel and Secretary, FS
Energy and Power Fund, 201 Rouse Boulevard, Philadelphia, PA 19112.
FOR FURTHER INFORMATION CONTACT: Asen Parachkevov, Senior Counsel, or
David Joire, Senior Special Counsel, 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 website 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. The Current Fund is an externally managed, non-diversified,
closed-end management investment company that has elected to be
regulated as a BDC under the Act.\1\ The Current Fund's investment
objective is to generate current income and long-term capital
appreciation.
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\1\ Section 2(a)(48) of the Act defines a BDC to be any closed-
end investment company that operates for the purpose of making
investments in securities described in Sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
---------------------------------------------------------------------------
2. The Investment Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940 and serves as investment
adviser to the Current Fund.
3. Applicants seek an order to permit the Funds (defined below) to
offer investors multiple classes of shares of beneficial interest
(``Shares'') with varying sales loads and asset-based service and/or
distribution fees.
4. Applicants request that the order also apply to any continuously
offered registered closed-end management investment company that elects
to be regulated as a BDC that has been previously organized or that may
be organized in the future for which the Investment Adviser or any
entity controlling, controlled by, or under common control with the
Investment Adviser, or any successor in interest to any such entity,\2\
acts as investment adviser which periodically offers to repurchase its
Shares pursuant to Rule 13e-4 under the Securities Exchange Act of 1934
(``Exchange Act'') and Section 23(c)(2) of the Act (each, a ``Future
Fund'' and together with the Current Fund, the ``Funds'').\3\
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\2\ For purposes of the requested order, ``successor'' is
limited to any entity that results from a reorganization into
another jurisdiction or a change in the type of a business
organization.
\3\ Any Fund relying on this relief in the future will do so in
compliance with the terms and conditions of the application.
Applicants represent that each entity presently intending to rely on
the requested relief is listed as an applicant.
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5. As a BDC, the Current Fund is organized as a closed-end
investment company, but offers its Shares continuously, similar to an
open-end management investment company. On November 17, 2016, the
Current Fund ceased the public offering of Shares to new investors. The
Current Fund has only issued one class of Shares, but anticipates, if
it recommences the public offering, that it will offer additional
classes of Shares. Shares of the Funds will not be offered or traded in
a secondary market and will not be listed on any securities exchange
and do not trade on an over-the-counter system.\4\
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\4\ Applicants are not requesting relief with respect to any
Fund listed on a securities exchange. Any Fund which relies on the
relief requested herein will cease relying on such relief upon the
listing of any class of its Shares on a securities exchange.
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6. Each Fund is seeking the ability to offer multiple classes of
Shares that may charge differing front-end sales loads, contingent
deferred sales charges (``CDSCs''), an early withdrawal charge
(``Repurchase Fee''), and/or annual asset-based service and/or
distribution fees. Each class of Shares will comply with the provisions
of Rule 2310 of the Financial Industry Regulatory Authority, Inc.
(``FINRA'') Manual (``FINRA Rule 2310'').\5\
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\5\ Any reference to FINRA Rule 2310 includes any successor or
replacement rule that may be adopted by FINRA.
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7. Any Share of a Fund that is subject to asset-based service or
distribution fees shall convert to a class with no asset based service
or distribution fees upon such Share reaching the applicable sales
charge cap determined in accordance with FINRA Rule 2310. Further, if a
class of Shares were to be listed on an exchange in the future, all
other then-existing classes of Shares of the listing Fund will be
converted into the listed class, without the imposition of any sales
load, fee or other charge.
8. In order to provide a limited degree of liquidity to
shareholders, Applicants state that each Fund may from time to time
offer to repurchase Shares in accordance with Rule 13e-4 under the
Exchange Act and Section 23(c)(2) of the Act. Applicants state further
that repurchases of each Fund's Shares will be made at such times, in
such amounts and on such terms as may be determined by the applicable
Fund's board of trustees in its sole discretion.
9. Each Fund will disclose in its prospectus the fees, expenses and
other characteristics of each class of Shares offered for sale by the
prospectus, as is required for open-end, multiple-class funds under
Form N-1A. As if it were an open-end management investment company,
each Fund will disclose fund expenses in shareholder reports,\6\ and
[[Page 6243]]
disclose in its prospectus any arrangements that result in breakpoints
in, or elimination of, sales loads.\7\ Each Fund will also comply with
any requirements the Commission or FINRA may adopt regarding disclosure
at the point of sale and in transaction confirmations about the costs
and conflicts of interest arising out of the distribution of open-end
management investment company shares, and regarding prospectus
disclosure of sales loads and revenue sharing arrangements as if those
requirements applied to the Fund.\8\ Each Fund will contractually
require that any distributor of a Fund's Shares comply with such
requirements in connection with the distribution of such Fund's shares.
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\6\ See Shareholder Reports and Quarterly Portfolio Disclosure
of Registered Management Investment Companies, Investment Co. Act
Rel. No. 26372 (Feb. 27, 2004) (adopting release).
\7\ See Disclosure of Breakpoint Discounts by Mutual Funds,
Investment Co. Act Rel. No. 26464 (June 7, 2004) (adopting release).
\8\ See Confirmation Requirements and Point of Sale Disclosure
Requirements for Transactions in Certain Mutual Funds and Other
Securities, and Other Confirmation Requirement Amendments, and
Amendments to the Registration Form for Mutual Funds, Investment Co.
Act Rel. No. 26341 (Jan. 29, 2004) (proposing release).
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10. Distribution fees will be paid pursuant to a plan of
distribution adopted by each Fund in compliance with Rules 12b-1 and
17d-3 under the Act, as if those rules applied to closed-end funds
electing to be regulated as BDCs, with respect to a class (a
``Distribution Plan'').
11. Each Fund will allocate all expenses incurred by it among the
various classes of Shares based on the respective net assets of the
Fund attributable to each such class, except that the net asset value
and expenses of each class will reflect the expenses associated with
the Distribution Plan of that class (if any), shareholder servicing
fees attributable to a particular class (including transfer agency
fees, if any) and any other incremental expenses of that class.
Expenses of the Fund allocated to a particular class of the Fund's
Shares will be borne on a pro rata basis by each outstanding Share of
that class. Applicants state that each Fund will comply with the
provisions of Rule 18f-3 under the Act as if it were an open-end
management investment company.
12. Any Fund that imposes a CDSC will comply with the provisions of
Rule 6c-10 (except to the extent a Fund will comply with FINRA Rule
2310 rather than FINRA Rule 2341, as such rule may be amended (``FINRA
Rule 2341'')), as if that rule applied to BDCs. With respect to any
waiver of, scheduled variation in, or elimination of the CDSC, a Fund
will comply with the requirements of Rule 22d-1 under the Act as if the
Fund were an open-end management investment company. Each Fund also
will disclose CDSCs in accordance with the requirements of Form N-1A
concerning CDSCs as if the Fund were an open-end management investment
company.
13. Funds may impose a Repurchase Fee at a rate no greater than 2%
of the shareholder's repurchase proceeds if the interval between the
date of purchase of the Shares and the valuation date with respect to
the repurchase of such Shares is less than a specified period. Any
Repurchase Fee will apply equally to all shareholders of the applicable
Fund, regardless of class, consistent with Section 18 of the Act and
Rule 18f-3 under the Act. To the extent a Fund determines to waive,
impose scheduled variations of, or eliminate any Repurchase Fees, it
will do so consistently with the requirements of Rule 22d-1 under the
Act as if the Repurchase Fee were a CDSC and as if the Fund were an
open-end investment company and the Fund's waiver of, scheduled
variation in, or elimination of, the Repurchase Fee will apply
uniformly to all shareholders of the Fund.
Applicants' Legal Analysis
Multiple Classes of Shares
1. Section 18(a)(2) of the Act provides that a closed-end
investment company may not issue or sell a senior security that is a
stock unless certain requirements are met. Applicants state that the
creation of multiple classes of shares of the Funds may violate Section
18(a)(2), which is made applicable to BDCs through Section 61(a) of the
Act, because the Funds may not meet such requirements with respect to a
class of shares that may be a senior security.
2. Section 18(c) of the Act provides, in relevant part, that a
closed-end investment company may not issue or sell any senior security
if, immediately thereafter, the company has outstanding more than one
class of senior security. Applicants state that the creation of
multiple classes of Shares of the Funds may be prohibited by Section
18(c), which is made applicable to BDCs through Section 61(a) of the
Act, as a class may have priority over another class as to payment of
dividends because shareholders of different classes would pay different
fees and expenses.
3. Section 18(i) of the Act provides that each share of stock
issued by a registered management investment company will be a voting
stock and have equal voting rights with every other outstanding voting
stock. Applicants state that multiple classes of shares of the Funds
may violate Section 18(i) of the Act, which is made applicable to BDCs
through Section 61(a) of the Act, because each class would be entitled
to exclusive voting rights with respect to matters solely related to
that class.
4. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction or any class or classes of persons,
securities or transactions from any provision of the Act, or from any
rule or regulation under the Act, if and to the extent such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act. Applicants request an exemption under
Section 6(c) from Sections 18(a)(2), 18(c) and 18(i) (which are made
applicable to BDCs by Section 61(a) of the Act) to permit the Funds to
issue multiple classes of Shares.
5. Applicants submit that the proposed allocation of expenses
relating to distribution and voting rights among multiple classes is
equitable and will not discriminate against any group or class of
shareholders. Applicants submit that the proposed arrangements would
permit a Fund to facilitate the distribution of its Shares and provide
investors with a broader choice of fee options. Applicants assert that
the proposed BDC multiple class structure does not raise the concerns
underlying Section 18 of the Act to any greater degree than open-end
management investment companies' multiple class structures that are
permitted by Rule 18f-3 under the Act.
Applicants' Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
1. Each Fund will comply with the provisions of Rules 6c-10 (except
to the extent a Fund will comply with FINRA Rule 2310 rather than FINRA
Rule 2341), 12b-1, 17d-3, 18f-3, 22d-1, and, where applicable, 11a-3
under the 1940 Act, as amended from time to time, or any successor
rules thereto, as if those rules applied to BDCs. In addition, each
Fund will comply with FINRA Rule 2310, as amended from time to time, or
any successor rule thereto, and will make available to any distributor
of a Fund's shares all of the information necessary to permit the
distributor to prepare client account statements in compliance with
FINRA Rule 2231.
[[Page 6244]]
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-02032 Filed 2-3-20; 8:45 am]
BILLING CODE 8011-01-P
