[Federal Register Volume 79, Number 27 (Monday, February 10, 2014)]
[Notices]
[Pages 7719-7722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-02766]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30905; File No. 812-14124]


KKR Series Trust and Prisma Capital Partners LP; Notice of 
Application

AGENCY: Securities and Exchange Commission.

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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 Summary of Application: Applicants request an order that would permit 
them to enter into and materially amend sub-advisory agreements with 
Wholly-Owned Sub-Advisers (as defined below) and non-affiliated sub-
advisers without shareholder approval and would grant relief from 
certain disclosure requirements.

 Applicants: KKR Series Trust (the ``Trust''), and Prisma Capital 
Partners LP (``Prisma'').

 Filing Dates: The application was filed on February 15, 2013, and 
amended on June 25, 2013, and November 6, 2013.

 Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on March 3, 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: Elizabeth M. Murphy, Secretary, U.S. Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-1090. The Trust, c/
o Nicole J. Macarchuk, Esq., KKR Asset Management LLC, 555 California 
Street, 50th Floor, San Francisco, California 94104; and Prisma, c/o 
Francis J. Conroy and Vince Cuticello, Esq., Prisma Capital Partners 
LP, One Penn Plaza, Suite 3515, New York, New York 10119.

FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at 
(202) 551-6826, 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 http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust is organized as a Delaware statutory trust and is 
registered with the Commission as an open-end management investment 
company under the Act. The Trust may offer one or more series of shares 
(each a ``Series'' and collectively, ``Series'') with its own distinct 
investment objectives, policies and restrictions. Prisma is the 
investment adviser to KKR Alternative Strategies Fund, a series of the 
Trust (the ``Multi-Manager Fund''). Prisma is a Delaware limited 
partnership and is a subsidiary of KKR & Co. L.P.\1\
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    \1\ The Trust and Prisma, together, the ``Applicants.'' Prisma 
or another investment adviser controlling, controlled by or under 
common control with Prisma or its successors, each, an ``Adviser.'' 
For purposes of the requested order, ``successor'' is limited to an 
entity that results from reorganization into another jurisdiction or 
a change in the type of business organization. Prisma is, and any 
other Adviser will be, registered with the Commission as an 
investment adviser under the Investment Advisers Act of 1940, as 
amended (``Advisers Act'').
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    2. Applicants request an order to permit the Adviser, subject to 
the approval of the board of trustees of the Trust (the ``Board''), 
including a majority of the trustees who are not ``interested 
persons,'' as defined in section 2(a)(19) of the Act, of the Series or 
the Adviser (``Independent Trustees''), to, without obtaining 
shareholder approval: (i) Select Sub-Advisers to manage all or a 
portion of the assets of a Sub-Advised Series and enter into Sub-
Advisory Agreements (as defined below) with the Sub-Advisers, and (ii) 
materially amend Sub-Advisory Agreements with the Sub-Advisers.\2\ 
Applicants request that the relief apply to the Applicants, as well as 
to any future Series and any other existing or future registered open-
end management investment company or series thereof that is advised by 
an Adviser, uses the multi-manager structure described in the 
application (``Multi-Manager Structure''), and complies with the terms 
and conditions of the application (``Sub-Advised Series'').\3\
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    \2\ Shareholder approval will continue to be required for any 
other sub-adviser change (not otherwise permitted by rule and 
material amendments to an existing sub-advisory agreement with any 
sub-adviser other than a Non-Affiliated Sub-Adviser or a Wholly-
Owned Sub-Adviser (all such changes referred to as ``Ineligible 
Affiliated Sub-Adviser Changes'').
    \3\ The Trust is the only registered open-end investment company 
that currently intend to rely on the requested order. The Multi-
Manager Fund is the only Series that currently intends to be a Sub-
Advised Series. Any entity that relies on the requested order will 
do so only in accordance with the terms and conditions contained in 
the application. The requested relief will not extend to any sub-
adviser, other than a Wholly-Owned Sub-Adviser, who is an affiliated 
person, as defined in Section 2(a)(3) of the Act, of the Trust, a 
Sub-Advised Series, or an Adviser, other than by reason of serving 
as a sub-adviser to one or more of the Sub-Advised Series 
(``Affiliated Sub-Adviser'').
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    3. Prisma will serve as the investment adviser to the Multi-Manager 
Fund pursuant to an investment advisory agreement with the Trust (the 
``Investment Management Agreement''). The Investment Management 
Agreement was approved by the Board, including a majority of the 
Independent Trustees, and prior to the commencement date, will be 
approved by the initial shareholder of the Multi-Manager Fund as 
required by sections 15(a) and 15(c) of the Act and rule 18f-2 
thereunder. The terms of the Investment

[[Page 7720]]

Management Agreements comply with section 15(a) of the Act. Each other 
Investment Management Agreement will comply with section 15(a) of the 
Act and will be similarly approved.
    4. Under the terms of the Investment Management Agreement, Prisma, 
subject to the supervision of the Board, will provide continuous 
oversight of the investment management of the assets of the Multi-
Manager Fund. For its services to the Multi-Manager Fund under the 
Investment Management Agreement, Prisma will receive an investment 
management fee from the Multi-Manager Fund based on the average daily 
net assets of the Multi-Manager Fund. Consistent with the contemplated 
Multi-Manager Structure, Prisma may, subject to the approval of the 
Board, including a majority of the Independent Trustees, delegate 
portfolio management responsibilities of all or a portion of the assets 
of the Multi-Manager Fund to one or more Sub-Advisers.\4\
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    \4\ As used herein, a ``Sub-Adviser'' for a Series may be: (1) 
An indirect or direct ``wholly-owned subsidiary'' (as such term is 
defined in the Act) of the Adviser for that Series, or (2) a sister 
company of the Adviser for that Series that is an indirect or direct 
``wholly-owned subsidiary'' (as such term is defined in the Act) of 
the same company that, indirectly or directly, wholly owns the 
Adviser (each of (1) and (2) a ``Wholly-Owned Sub-Adviser'' and 
collectively, the ``Wholly-Owned Sub-Advisers''), or (3) not an 
``affiliated person'' (as such term is defined in section 2(a)(3) of 
the Act) of the Series, the Trust, or an Adviser, except to the 
extent that an affiliation arises solely because the sub-adviser 
serves as a Sub-Adviser to a Series (each a ``Non-Affiliated Sub-
Adviser'').
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    5. Pursuant to the Investment Management Agreement, Prisma has 
overall responsibility for the management of the Multi-Manager Fund; 
these responsibilities include recommending the removal or replacement 
of Sub-Advisers, determining the portion of the Multi-Manager Fund's 
assets to be managed by any given Sub-Adviser and reallocating those 
assets as necessary from time to time.
    6. Pursuant to the authority under the Investment Management 
Agreement, Prisma will be permitted to enter into investment sub-
advisory agreements with Sub-Advisers (``Sub-Advisory Agreements'') on 
behalf of the Multi-Manager Fund.\5\ The terms of each Sub-Advisory 
Agreement will comply fully with the requirements of section 15(a) of 
the Act. The Sub-Advisory Agreements will be approved by the Board, 
including a majority of the Independent Trustees, in accordance with 
sections 15(a) and 15(c) of the Act. The Sub-Advisers, subject to the 
supervision of Prisma and oversight of the Board, will determine the 
securities and other instruments to be purchased, sold or entered into 
by the Multi-Manager Fund's portfolio or a portion thereof, and will 
place orders with brokers or dealers that they select. Prisma will 
compensate each Sub-Adviser out of the fee paid to Prisma under the 
Investment Management Agreement.
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    \5\ If the name of any Series contains the name of a Sub-
Adviser, that name will be preceded by the name of the Adviser.
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    7. Sub-Advised Series will inform shareholders of the hiring of a 
new Sub-Adviser pursuant to the following procedures (``Modified Notice 
and Access Procedures''): (a) within 90 days after a new Sub-Adviser is 
hired for any Sub-Advised Series, that Sub-Advised Series will send its 
shareholders either a Multi-Manager Notice or a Multi-Manager Notice 
and Multi-Manager Information Statement; \6\ and (b) the Sub-Advised 
Series will make the Multi-Manager Information Statement available on 
the Web site identified in the Multi-Manager Notice no later than when 
the Multi-Manager Notice (or Multi-Manager Notice and Multi-Manager 
Information Statement) is first sent to shareholders, and will maintain 
it on that Web site for at least 90 days. Applicants state that, in the 
circumstances described in the application, a proxy solicitation to 
approve the appointment of new Sub-Advisers provides no more meaningful 
information to shareholders than the proposed Multi-Manager Information 
Statement. Applicants state that the Board would comply with the 
requirements of sections 15(a) and 15(c) of the Act before entering 
into or amending Sub-Advisory Agreements.
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    \6\ A ``Multi-Manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) summarize the relevant information regarding 
the new Sub-Adviser; (b) inform shareholders that the Multi-Manager 
Information Statement is available on a Web site; (c) provide the 
Web site address; (d) state the time period during which the Multi-
Manager Information Statement will remain available on that Web 
site; (e) provide instructions for accessing and printing the Multi-
Manager Information Statement; and (f) instruct the shareholder that 
a paper or email copy of the Multi-Manager Information Statement may 
be obtained, without charge, by contacting the Sub-Advised Series. A 
``Multi-Manager Information Statement'' will meet the requirements 
of Regulation 14C, Schedule 14C and Item 22 of Schedule 14A under 
the Exchange Act for an information statement, except as modified by 
the order to permit Aggregate Fee Disclosure, as defined below. 
Multi-Manager Information Statements will be filed with the 
Commission via the EDGAR system.
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    8. Applicants also request an order exempting the Sub-Advised 
Series from certain disclosure obligations that may require the 
Applicants to disclose fees paid by the Adviser to each Sub-Adviser. 
Applicants seek relief to permit each Sub-Advised Series to disclose 
(as a dollar amount and a percentage of the Sub-Advised Series' net 
assets): (a) the aggregate fees paid to the Adviser and any Wholly-
Owned Sub-Advisers; and (b) the aggregate fees paid to Non-Affiliated 
Sub-Advisers (the ``Aggregate Fee Disclosure''). If a sub-adviser, 
other than a Non-Affiliated Sub-Adviser or a Wholly-Owned Sub-Adviser, 
is employed to provide management services to a Sub-Advised Series, 
that Sub-Advised Series will provide separate disclosure of any fees 
paid to such sub-adviser.

Applicants' Legal Analysis

    1. Section 15(a) of the Act states, in part, that it is unlawful 
for any person to act as an investment adviser to a registered 
investment company ``except pursuant to a written contract, which 
contract, whether with such registered company or with an investment 
adviser of such registered company, has been approved by the vote of a 
majority of the outstanding voting securities of such registered 
company.'' Rule 18f-2 under the Act states that any ``matter required 
to be submitted . . . to the holders of the outstanding voting 
securities of a series company shall not be deemed to have been 
effectively acted upon unless approved by the holders of a majority of 
the outstanding voting securities of each class or series of stock 
affected by such matter.'' Further, rule 18(f)-2(c)(1) under the Act 
provides that a vote to approve an investment advisory contract 
required by section 15(a) of the Act ``shall be deemed to be 
effectively acted upon with respect to any class or series of 
securities of such registered investment company if a majority of the 
outstanding voting securities of such class or series vote for the 
approval of such matter.''
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires a registered 
investment company to disclose in its statement of additional 
information the method of computing the ``advisory fee payable'' by the 
investment company, including the total dollar amounts that the 
investment company ``paid to the adviser (aggregated with amounts paid 
to affiliated advisers, if any), and any advisers who are not 
affiliated persons of the adviser, under the investment advisory 
contract for the last three fiscal years.''
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to a registered investment company to comply with Schedule 14A under 
the Exchange Act. Items 22(c)(1)(ii),

[[Page 7721]]

22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, 
require a proxy statement for a shareholder meeting at which the 
advisory contract will be voted upon to include the ``rate of 
compensation of the investment adviser,'' the ``aggregate amount of the 
investment adviser's fee,'' a description of the ``terms of the 
contract to be acted upon,'' and, if a change in the advisory fee is 
proposed, the existing and proposed fees and the difference between the 
two fees.
    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about the investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission by order 
upon application may conditionally or unconditionally exempt any 
person, security, or transaction or any class or classes of persons, 
securities, or transactions from any provisions of the Act, or from any 
rule thereunder, if 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 state that their requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Adviser, 
subject to review and approval of the Board, to select Sub-Advisers who 
the Adviser believes can achieve the Sub-Advised Series' investment 
objectives. Applicants assert that, from the perspective of the 
shareholder, the role of the Sub-Advisers is substantially equivalent 
to the role of the individual portfolio managers employed by an 
investment adviser to a traditional investment company. Applicants 
believe that permitting the Adviser to perform the duties for which the 
shareholders of the Sub-Advised Series are paying the Adviser--the 
selection, supervision and evaluation of the Sub-Advisers, including 
Wholly-Owned Sub-Advisers--without incurring unnecessary delays or 
expenses is appropriate in the interest of the Sub-Advised Series' 
shareholders and will allow such Sub-Advised Series to operate more 
efficiently. Applicants state that each Investment Management Agreement 
will continue to be fully subject to section 15(a) of the Act and rule 
18f-2 under the Act, and was approved by the Board, including a 
majority of the Independent Trustees, in the manner required by 
sections 15(a) and 15(c) of the Act. Applicants are not seeking an 
exemption with respect to the Investment Management Agreements.
    7. Applicants assert that disclosure of the individual fees that 
the Adviser would pay to the Sub-Advisers would not serve any 
meaningful purpose. Applicants contend that the primary reasons for 
requiring disclosure of individual fees paid to Sub-Advisers are to 
inform shareholders of expenses to be charged by a particular Sub-
Advised Series and to enable shareholders to compare the fees to those 
of other comparable investment companies. Applicants believe that the 
requested relief satisfies these objectives because the advisory fee 
paid to the Adviser will be fully disclosed and, therefore, 
shareholders will know what the Sub-Advised Series' fees and expenses 
are and will be able to compare the advisory fees a Sub-Advised Series 
is charged to those of other investment companies. Applicants assert 
that the requested relief would benefit shareholders of the Sub-Advised 
Series because it would improve the Adviser's ability to negotiate the 
fees paid to Sub-Advisers. Applicants assert that the Adviser's ability 
to negotiate with the various Sub-Advisers would be adversely affected 
by public disclosure of fees paid to each Sub-Adviser. Applicants state 
that if the Adviser is not required to disclose the Sub-Advisers' fees 
to the public, the Adviser may be able to negotiate rates that are 
below a Sub-Adviser's ``posted'' amounts. Applicants submit that the 
relief will also encourage Sub-Advisers to negotiate lower sub-advisory 
fees with the Adviser if the lower fees are not required to be made 
public.
    8. For the reasons discussed above, Applicants submit that the 
requested relief meets the standards for relief under section 6(c) of 
the Act. Applicants state that the operation of the Sub-Advised Series 
in the manner described in the application must be approved by 
shareholders of a Sub-Advised Series before that Sub-Advised Series may 
rely on the requested relief. In addition, Applicants state that the 
proposed conditions to the requested relief are designed to ensure that 
shareholder interests are adequately protected through Board oversight. 
Applicants assert that conditions 6, 7, 10 and 11 are designed to 
provide the Board with sufficient independence and the resources and 
information it needs to monitor and address any conflicts of interest. 
Applicants state that, accordingly, they believe the requested relief 
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' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:\7\
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    \7\ Applicants will only comply with conditions 8 and 12 if they 
rely on the relief that would allow them to provide Aggregate Fee 
Disclosure.
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    1. Before a Sub-Advised Series may rely on the order requested in 
the application, the operation of the Sub-Advised Series pursuant to 
the Multi-Manager Structure, including the hiring of Wholly-Owned Sub-
Advisers, will be approved by a majority of the Sub-Advised Series' 
outstanding voting securities, as defined in the Act, which in the case 
of a Sub-Advised Series whose public shareholders purchase shares on 
the basis of a prospectus containing the disclosure contemplated by 
condition 2 below, will be by the sole initial shareholder before 
offering the Sub-Advised Series' shares to the public.
    2. The prospectus for each Sub-Advised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Sub-Advised Series will hold itself out to the public 
as employing the Multi-Manager Structure described in the application. 
A Sub-Advised Series' prospectus will prominently disclose that the 
Adviser has the ultimate responsibility, subject to oversight by the 
Board, to oversee the Sub-Advisers and recommend their hiring, 
termination and replacement.
    3. The Adviser will provide general management services to a Sub-
Advised Series, including overall supervisory responsibility for the 
general management and investment of the Sub-Advised Series' assets. 
Subject to review and approval of the Board, the Adviser will (a) set a 
Sub-Advised Series' overall investment strategies, (b) evaluate, 
select, and recommend Sub-Advisers to manage all or a portion of a Sub-
Advised Series' assets, and (c) implement procedures reasonably 
designed to ensure that Sub-Advisers comply with a Sub-Advised Series' 
investment objective, policies and restrictions. Subject to review by 
the Board, the Adviser will (a) when appropriate, allocate and 
reallocate a Sub-Advised Series' assets among multiple Sub-Advisers; 
and (b) monitor and evaluate the performance of Sub-Advisers.

[[Page 7722]]

    4. A Sub-Advised Series will not make any Ineligible Affiliated 
Sub-Adviser Changes without the approval of the shareholders of the 
applicable Sub-Advised Series.
    5. A Sub-Advised Series will inform shareholders of the hiring of a 
new Sub-Adviser within 90 days after the hiring of the new Sub-Adviser 
pursuant to the Modified Notice and Access Procedures.
    6. At all times, at least a majority of the Board will be 
Independent Trustees, and the selection and nomination of new or 
additional Independent Trustees will be placed within the discretion of 
the then-existing Independent Trustees.
    7. Independent Legal Counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Trustees. The 
selection of such counsel will be within the discretion of the then-
existing Independent Trustees.
    8. The Adviser will provide the Board, no less frequently than 
quarterly, with information about the profitability of the Adviser on a 
per Sub-Advised Series basis. The information will reflect the impact 
on profitability of the hiring or termination of any sub-adviser during 
the applicable quarter.
    9. Whenever a sub-adviser is hired or terminated, the Adviser will 
provide the Board with information showing the expected impact on the 
profitability of the Adviser.
    10. Whenever a sub-adviser change is proposed for a Sub-Advised 
Series with an Affiliated Sub-Adviser or Wholly-Owned Sub-Adviser, the 
Board, including a majority of the Independent Trustees, will make a 
separate finding, reflected in the Board minutes, that such change is 
in the best interests of the Sub-Advised Series and its shareholders, 
and does not involve a conflict of interest from which the Adviser or 
the Affiliated Sub-Adviser or Wholly-Owned Sub-Adviser derives an 
inappropriate advantage.
    11. No Board member or officer of a Sub-Advised Series or any 
partner, director, manager, or officer of the Adviser, will own 
directly or indirectly (other than through a pooled investment vehicle 
that is not controlled by such person), any interest in a Sub-Adviser, 
except for (i) ownership of interests in the Adviser or any entity, 
other than a Wholly-Owned Sub-Adviser, that controls, is controlled by, 
or is under common control with the Adviser; or (ii) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
a publicly traded company that is either a Sub-Adviser or an entity 
that controls, is controlled by, or is under common control with a Sub-
Adviser.
    12. Each Sub-Advised Series will disclose the Aggregate Fee 
Disclosure in its registration statement.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that requested in the 
application, the requested order will expire on the effective date of 
that rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02766 Filed 2-7-14; 8:45 am]
BILLING CODE 8011-01-P