[Federal Register Volume 84, Number 49 (Wednesday, March 13, 2019)]
[Notices]
[Pages 9172-9175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-04640]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33393; 812-14959]
American Beacon Sound Point Enhanced Income Fund, et al.
March 8, 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: American Beacon Sound Point Enhanced Income Fund (the
``Sound Point Fund'') and American Beacon Apollo Total Return Fund (the
``Apollo Total Return Fund,'' and together, the ``Applicant Funds''),
American Beacon Advisors, Inc. (the ``Manager''), and Resolute
Investment Distributors, Inc. (the ``Distributor'').
FILING DATES: The application was filed on October 1, 2018, and
amended on March 7, 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 2, 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
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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: Kathy K. Ingber,
Esq., K&L Gates LLP, 1601 K Street NW, Washington, DC 20006, and
Rosemary Behan, Esq., American Beacon Advisers, Inc., 220 East Las
Colinas Blvd., Suite 1200, Irving, TX 75039.
FOR FURTHER INFORMATION CONTACT: Matthew Archer-Beck, Senior Counsel,
at (202) 551-5044, 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, or by calling (202) 551-8090.
Applicants' Representations
1. The Applicant Funds are Delaware statutory trusts that are
registered under the Act as non-diversified, closed-end management
investment companies. The Sound Point Fund's investment objectives are
to provide a high level of current income and, secondarily, capital
appreciation. The Apollo Total Return Fund's investment objective is to
generate attractive risk-adjusted returns using a multi-sector approach
to fixed income value investing.
2. The Manager, a Delaware corporation, is registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended. The Manager acts as investment manager and administrator of
the Applicant Funds.
3. The Distributor, a Delaware corporation, is a registered broker-
dealer under the Securities Exchange Act of 1934 (``Exchange Act'') and
acts as the principal underwriter of the Applicant Funds.
4. The applicants seek an order to permit the Applicant Funds to
issue multiple classes of shares and to impose asset-based distribution
and/or service fees and EWCs.
5. 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 Manager, Distributor, or any entity controlling, controlled
by, or under common control with the Manager or Distributor, or any
successor in interest to any such entity,\1\ acts as investment adviser
or principal underwriter, and which operates as an interval fund
pursuant to rule 23c-3 under the Act and/or provides periodic liquidity
with respect to its shares pursuant to rule 13e-4 under the Exchange
Act (each, a ``New Fund'' and together with the Applicant Funds, the
``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 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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6. Each Applicant Fund currently offers Y Class shares on a
continuous basis at a public offering price equal to their net asset
value (NAV) per share. Applicant Funds' Y Class shares are not listed
on any securities exchange or trade over-the-counter. Applicants do not
expect that any secondary market will develop for the Applicant Funds'
Y Class shares.
7. If the requested relief is granted, the Applicant Funds propose
to issue multiple classes of shares which would be offered on a
continuous basis at public offering prices equal to their NAVs per
share and may be subject to different minimum purchase amounts and
different combinations and varying rates of upfront sales loads, asset-
based shareholder service and/or distribution fees, repurchase fees
and/or withdrawal charges.
8. Applicants state that such classes of shares may also vary in
other respects, such as (i) voting rights with respect to a
distribution and servicing plan of a class; (ii) different class
designations; (iii) the impact of any class expense directly
attributable to a particular class of shares allocated on a class
basis; (iv) differences in any dividends and net asset value resulting
from differences in fees under a distribution or service fee
arrangement or in class expenses; and (v) any exchange or conversion
features as permitted under the Act.
9. Because of the different distribution fees, services and any
other class expenses that may be attributable to each class of shares,
the net income attributable to, and the dividends payable on, each
class of shares may differ from each other. Applicants state that each
Fund would comply with rule 18f-3 under the Act, as it were an open-end
fund.
10. Applicants state that the Applicant Funds have adopted a
fundamental policy to repurchase a specified percentage (no less than
5%) of its shares at net asset value on a regular basis. Such
repurchase offers will be conducted pursuant to rule 23c-3 under the
Act. Any New 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. Any repurchase
offers made by the Funds will be made to all holders of shares of each
such Fund.
11. Applicants represent that any asset-based distribution and/or
service fees for each class of shares of the Funds will comply with the
provisions of FINRA Rule 2341(d) (``FINRA Sales Charge Rule'').\3\
Applicants also represent that each Fund will disclose in its
prospectus the fees, expenses and other characteristics of each class
of shares offered for sale by the prospectus, as is required for open-
end multiple class funds under Form N-1A. As is required for open-end
funds, each 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.\4\ In addition, applicants will
comply with applicable enhanced fee disclosure requirements for fund of
funds, including registered funds of hedge funds.\5\
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\3\ Any reference to the FINRA Sales Charge Rule includes any
successor or replacement to the FINRA Sales Charge Rule.
\4\ 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).
\5\ 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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12. Each Applicant Fund and the Distributor 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 the Applicant Funds and the Distributor. In
addition, each Applicant Fund or the Distributor will contractually
require that any other distributor of the Applicant Fund's shares
comply with
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such requirements in connection with the distribution of shares of the
Fund.
13. Each Fund will allocate all expenses incurred by it among the
various classes of shares based on the net assets of that 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 (if any), service fees attributable to
that class (if any), including transfer agency fees, and any other
incremental expenses of that class. Expenses of a Fund allocated to a
particular class of shares will be borne on a pro rata basis by each
outstanding share of that class.
14. Applicants state that each 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 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 Funds were open-end investment companies.
15. Each 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 Fund may, in connection with such Fund's
periodic repurchase offers, exchange their shares of the 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 and continuously offer their
shares at net asset value, that are in the Fund's group of investment
companies (collectively, ``Family Funds''). Shares of a Fund operating
pursuant to rule 23c-3 that are exchanged for shares of Family Funds
will be included as part of the amount of the repurchase offer amount
for such 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 Fund were
an open-end investment company subject to rule 11a-3. In complying with
rule 11a-3, each 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 Funds may violate section
18(a)(2) because the Funds may not meet such requirements with respect
to a class of shares that may be a senior security.
2. Section 18(c) of the Act provides, in relevant part, that a
closed-end investment company may not issue or sell any senior security
if, immediately thereafter, the company has outstanding more than one
class of senior security. Applicants state that the creation of
multiple classes of shares of the Funds may be prohibited by section
18(c), as a class may have priority over another class as to payment of
dividends because shareholders of different classes would pay different
fees and expenses.
3. Section 18(i) of the Act provides that each share of stock
issued by a registered management investment company will be a voting
stock and have equal voting rights with every other outstanding voting
stock. Applicants state that multiple classes of shares of the Funds
may violate section 18(i) of the Act 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
Funds to issue multiple classes of shares.
5. Applicants submit that the proposed allocation of expenses
relating to distribution and voting rights among multiple classes is
equitable and will not discriminate against any group or class of
shareholders. Applicants submit that the proposed arrangements would
permit a Fund to facilitate the distribution of its 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 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 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
Funds to impose EWCs on shares of the 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 Funds will comply with rule 6c-10 under the Act as if the rule
were applicable to closed-end
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investment companies. The 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 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 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 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 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 funds, and will comply with the FINRA Sales Charge Rule,
as amended from time to time, as if that rule applied to all closed-end
funds.
For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-04640 Filed 3-12-19; 8:45 am]
BILLING CODE 8011-01-P