[Federal Register Volume 84, Number 46 (Friday, March 8, 2019)]
[Notices]
[Pages 8550-8553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04265]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33388; 812-14956]
BlackRock Credit Strategies Fund, et al.
March 5, 2019.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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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) and 18(i) of the Act, under sections 6(c) and 23(c) of
the Act for an exemption from rule 23c-3 under the Act, and for an
order pursuant to section 17(d) of the Act and rule 17d-1 under the
Act.
Summary of Application: Applicants request an order to permit certain
registered closed-end management investment companies to issue multiple
classes of shares and to impose asset-based distribution and/or service
fees and early withdrawal charges (``EWCs'').
Applicants: BlackRock Credit Strategies Fund (the ``Fund''), BlackRock
Advisors, LLC (the ``Advisor'') and
[[Page 8551]]
BlackRock Investments, LLC (the ``Distributor'').
Filing Dates: The application was filed on September 24, 2018 and
amended on January 15, 2019.
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 April 1, 2019, 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: Janey Ahn, Esq.,
BlackRock Advisors, LLC, 55 East 52nd Street, New York, NY 10055, and
Thomas A. DeCapo, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, 500
Boylston Street, Boston, MA 02116.
FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel or
Kaitlin C. Bottock, Branch Chief, at (202) 551-6825 (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 or by calling (202) 551-8090.
Applicants' Representations
1. The Fund is a Delaware statutory trust that is registered under
the Act as a non-diversified, closed-end management investment company.
The Fund seeks to provide high income and attractive risk adjusted
return. The Fund seeks to achieve its investment objectives by
investing, under normal circumstances, at least 80% of its managed
assets in fixed income securities, with an emphasis on public and
private corporate credit.
2. The Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The Advisor will serve as
investment adviser to the Fund.
3. The applicants seek an order to permit the Fund to issue
multiple classes of shares and to impose asset-based distribution and/
or service fees and EWCs.
4. Applicants request that the order also apply to any continuously
offered registered closed-end management investment company that has
been previously organized or that may be organized in the future for
which the Advisor or Distributor, or any entity controlling, controlled
by, or under common control with the Advisor or Distributor, or any
successor in interest to any such entity,\1\ acts as investment
manager, adviser or principal underwriter and which operates as an
interval fund pursuant to rule 23c-3 under the Act or provides periodic
liquidity with respect to its shares pursuant to rule 13e-4 under the
Securities Exchange Act of 1934 (``Exchange Act'') (each, a ``Periodic
Repurchase Fund'' and together with the Fund, the ``Periodic Repurchase
Funds'').\2\
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\1\ A successor in interest is limited to an entity that results
from a reorganization into another jurisdiction or a change in the
type of business organization.
\2\ Any Periodic Repurchase Fund relying on this relief in the
future will do so in a manner consistent 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. The Fund will continuously offer common shares to the public.
Applicants state that additional offerings by any Periodic Repurchase
Fund relying on the order may be on a private placement or public
offering basis. Shares of the Fund will not be listed on any securities
exchange nor quoted on any quotation medium. The Fund does not expect
there to be a secondary trading market for its shares.
6. The Fund will initially offer only one share class at net asset
value (the ``Initial Class''). If the requested relief is granted, the
Fund intends to commence offering a second class of shares (the
``Second Class''). The Initial Class will not be subject to a front-end
sales load, a distribution fee or a service fee. The Second Class will
be subject to a front-end sales load, a distribution fee and/or a
service fee. The Fund and other Periodic Repurchase Funds may in the
future offer additional classes of shares and/or another sales charges
structure. Because of the different distribution fees, services and any
other class expenses that may be attributable to the each class of
shares, the net income attributable to, and the dividends payable on,
each class of shares may differ from each other.
7. Applicants state that, from time to time, the Periodic
Repurchase Funds may create additional classes of shares, the terms of
which may differ from the initial class in the following respects: (i)
The amount of fees permitted by different distribution plans or
different service fee arrangements; (ii) voting rights with respect to
a distribution plan of a class; (iii) different class designations;
(iv) any differences in dividends and net asset value resulting from
differences in fees under a distribution or service fee arrangement or
in class expenses; (v) any EWC or other sales load structure; and (vi)
exchange or conversion privileges of the classes as permitted under the
Act.
8. Applicants state that the Fund has adopted a fundamental policy
to repurchase a specified percentage of its shares (no less than 5%) at
net asset value on a quarterly basis. Such repurchase offers will be
conducted pursuant to rule 23c-3 under the Act. Each of the Periodic
Repurchase Funds will likewise adopt fundamental investment policies
and make periodic repurchase offers to its shareholders in compliance
with rule 23c-3 or will provide periodic liquidity with respect to its
shares pursuant to rule 13e-4 under the Exchange Act.\3\ Any repurchase
offers made by a Periodic Repurchase Fund will be made to all holders
of shares of each such Fund.
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\3\ Applicants submit that rule 23c-3 and Regulation M under the
Exchange Act permit an interval fund to make repurchase offers to
repurchase its shares while engaging in a continuous offering of its
shares pursuant to Rule 415 under the Securities Act of 1933, as
amended.
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9. Applicants represent that any asset-based service and/or
distribution fees for each class of shares of the Periodic Repurchase
Funds will comply with the provisions of FINRA Rule 2341(d) (``FINRA
Sales Charge Rule'').\4\ Applicants also represent that each Periodic
Repurchase 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 is required for open-end funds, each Periodic Repurchase Fund
will disclose its expenses in shareholder reports, and describe any
arrangements that result in breakpoints in or elimination of sales
loads in its prospectus.\5\ In addition,
[[Page 8552]]
applicants will comply with applicable enhanced fee disclosure
requirements for fund of funds, including registered funds of hedge
funds.\6\
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\4\ Any reference to the FINRA Sales Charge Rule includes any
successor or replacement to the FINRA Sales Charge Rule.
\5\ See Shareholder Reports and Quarterly Portfolio Disclosure
of Registered Management Investment Companies, Investment Company
Act Release No. 26372 (Feb. 27, 2004) (adopting release) (requiring
open-end investment companies to disclose fund expenses in
shareholder reports); and Disclosure of Breakpoint Discounts by
Mutual Funds, Investment Company Act Release No. 26464 (June 7,
2004) (adopting release) (requiring open-end investment companies to
provide prospectus disclosure of certain sales load information).
\6\ Fund of Funds Investments, Investment Company Act Rel. Nos.
26198 (Oct. 1, 2003) (proposing release) and 27399 (Jun. 20, 2006)
(adopting release). See also Rules 12d1-1, et seq. of the Act.
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10. Each Periodic Repurchase Fund will comply with any requirements
that 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
investment company shares, and regarding prospectus disclosure of sales
loads and revenue sharing arrangements, as if those requirements
applied to each Periodic Repurchase Fund. In addition, each Periodic
Repurchase Fund will contractually require that any distributor of the
Periodic Repurchase Fund's shares comply with such requirements in
connection with the distribution of such Periodic Repurchase Fund's
shares.
11. Each Periodic Repurchase Fund will allocate all expenses
incurred by it among the various classes of shares based on the net
assets of that Periodic Repurchase Fund attributable to each class,
except that the net asset value and expenses of each class will reflect
the expenses associated with the distribution plan of that class,
service fees attributable to that class (if any), including transfer
agency fees, and any other incremental expenses of that class. Expenses
of a Periodic Repurchase Fund allocated to a particular class of shares
will be borne on a pro rata basis by each outstanding share of that
class. Applicants state that each Periodic Repurchase Fund will comply
with the provisions of rule 18f-3 under the Act as if it were an open-
end investment company.
12. Applicants state that each Periodic Repurchase Fund may impose
an EWC on shares submitted for repurchase that have been held less than
a specified period and may waive the EWC for certain categories of
shareholders or transactions to be established from time to time.
Applicants state that each Periodic Repurchase Fund will apply the EWC
(and any waivers or scheduled variations, or elimination of the EWC)
uniformly to all shareholders in a given class and consistently with
the requirements of rule 22d-1 under the Act as if the Periodic
Repurchase Funds were open-end investment companies.
13. Each Periodic Repurchase Fund operating as an interval fund
pursuant to rule 23c-3 under the Act may offer its shareholders an
exchange feature under which the shareholders of the Periodic
Repurchase Fund may, in connection with such Periodic Repurchase Fund's
periodic repurchase offers, exchange their shares of the Periodic
Repurchase Fund for shares of the same class of (i) registered open-end
investment companies or (ii) other registered closed-end investment
companies that comply with rule 23c-3 under the Act or rule 13e-4 under
the Exchange Act and continuously offer their shares at net asset
value, that are in the Periodic Repurchase Fund's group of investment
companies (collectively, ``Other Funds''). Shares of a Periodic
Repurchase Fund operating pursuant to rule 23c-3 that are exchanged for
shares of Other Funds will be included as part of the amount of the
repurchase offer amount for such Periodic Repurchase Fund as specified
in rule 23c-3 under the Act. Any exchange option will comply with rule
11a-3 under the Act, as if the Periodic Repurchase Fund were an open-
end investment company subject to rule 11a-3. In complying with rule
11a-3, each Periodic Repurchase Fund will treat an EWC as if it were a
contingent deferred sales load (``CDSL'').
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 Periodic Repurchase Funds
may violate section 18(a)(2) because the Periodic Repurchase 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 Periodic Repurchase Funds may be
prohibited by section 18(c), 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 Periodic
Repurchase Funds may violate section 18(i) 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) to permit the
Periodic Repurchase 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 Periodic Repurchase Fund to facilitate the distribution of its
securities and provide investors with a broader choice of shareholder
services. Applicants assert that the proposed closed-end investment
company multiple class structure does not raise the concerns underlying
section 18 of the Act to any greater degree than open-end investment
companies' multiple class structures that are permitted by rule 18f-3
under the Act. Applicants state that each Periodic Repurchase Fund will
comply with the provisions of rule 18f-3 as if it were an open-end
investment company.
Early Withdrawal Charges
1. Section 23(c) of the Act provides, in relevant part, that no
registered closed-end investment company shall purchase securities of
which it is the issuer, except: (a) On a securities exchange or other
open market; (b) pursuant to tenders, after reasonable opportunity to
submit tenders given to all holders of securities of the class to be
purchased; or (c) under other circumstances as the Commission may
permit by rules and regulations or orders for the protection of
investors.
2. Rule 23c-3 under the Act permits an ``interval fund'' to make
repurchase offers of between five and twenty-five percent of its
outstanding shares at net asset value at periodic intervals
[[Page 8553]]
pursuant to a fundamental policy of the interval fund. Rule 23c-3(b)(1)
under the Act permits an interval fund to deduct from repurchase
proceeds only a repurchase fee, not to exceed two percent of the
proceeds, that is paid to the interval fund and is reasonably intended
to compensate the fund for expenses directly related to the repurchase.
3. Section 23(c)(3) provides that the Commission may issue an order
that would permit a closed-end investment company to repurchase its
shares in circumstances in which the repurchase is made in a manner or
on a basis that does not unfairly discriminate against any holders of
the class or classes of securities to be purchased.
4. Applicants request relief under section 6(c), discussed above,
and section 23(c)(3) from rule 23c-3 to the extent necessary for the
Periodic Repurchase Funds to impose EWCs on shares of the Periodic
Repurchase Funds submitted for repurchase that have been held for less
than a specified period.
5. Applicants state that the EWCs they intend to impose are
functionally similar to CDSLs imposed by open-end investment companies
under rule 6c-10 under the Act. Rule 6c-10 permits open-end investment
companies to impose CDSLs, subject to certain conditions. Applicants
note that rule 6c-10 is grounded in policy considerations supporting
the employment of CDSLs where there are adequate safeguards for the
investor and state that the same policy considerations support
imposition of EWCs in the interval fund context. In addition,
applicants state that EWCs may be necessary for the distributor to
recover distribution costs. Applicants represent that any EWC imposed
by the Periodic Repurchase Funds will comply with rule 6c-10 under the
Act as if the rule were applicable to closed-end investment companies.
The Periodic Repurchase Funds will disclose EWCs in accordance with the
requirements of Form N-1A concerning CDSLs.
Asset-Based Distribution and/or Service Fees
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
an affiliated person of a registered investment company, or an
affiliated person of such person, acting as principal, from
participating in or effecting any transaction in connection with any
joint enterprise or joint arrangement in which the investment company
participates unless the Commission issues an order permitting the
transaction. In reviewing applications submitted under section 17(d)
and rule 17d-1, the Commission considers whether the participation of
the investment company in a joint enterprise or joint arrangement is
consistent with the provisions, policies and purposes of the Act, and
the extent to which the participation is on a basis different from or
less advantageous than that of other participants.
2. Rule 17d-3 under the Act provides an exemption from section
17(d) and rule 17d-1 to permit open-end investment companies to enter
into distribution arrangements pursuant to rule 12b-1 under the Act.
Applicants request an order under section 17(d) and rule 17d-1 under
the Act to the extent necessary to permit a Periodic Repurchase Fund to
impose asset-based distribution and/or service fees. Applicants have
agreed to comply with rules 12b-1 and 17d-3 as if those rules applied
to closed-end investment companies, which they believe will resolve any
concerns that might arise in connection with a Periodic Repurchase Fund
financing the distribution of its shares through asset-based
distribution fees.
3. For the reasons stated above, applicants submit that the
exemptions requested under section 6(c) are necessary and appropriate
in the public interest and are consistent with the protection of
investors and the purposes fairly intended by the policy and provisions
of the Act. Applicants further submit that the relief requested
pursuant to section 23(c)(3) will be consistent with the protection of
investors and will insure that applicants do not unfairly discriminate
against any holders of the class of securities to be purchased.
Finally, applicants state that the Periodic Repurchase Funds'
imposition of asset-based distribution and/or service fees is
consistent with the provisions, policies and purposes of the Act and
does not involve participation on a basis different from or less
advantageous than that of other participants.
Applicants' Condition
Applicants agree that any order granting the requested relief will
be subject to the following condition:
Each Periodic Repurchase Fund relying on the order will comply with
the provisions of rules 6c-10, 12b-1, 17d-3, 18f-3, 22d-1, and, where
applicable, 11a-3 under the Act, as amended from time to time, as if
those rules applied to closed-end management investment companies, and
will comply with the FINRA Sales Charge Rule, as amended from time to
time, as if that rule applied to all closed-end management investment
companies.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04265 Filed 3-7-19; 8:45 am]
BILLING CODE 8011-01-P