[Federal Register Volume 79, Number 110 (Monday, June 9, 2014)]
[Notices]
[Pages 33006-33012]
From the Federal Register Online via the Government Publishing 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.

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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 http://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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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