[Federal Register Volume 85, Number 78 (Wednesday, April 22, 2020)]
[Notices]
[Pages 22475-22478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08476]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 33840; File No. 812-15067]


KKR Credit Opportunities Portfolio and KKR Credit Advisors (US) 
LLC

April 16, 2020.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice.

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    Notice of an application for an order pursuant to section 6(c) of 
the Investment Company Act of 1940 (the ``1940 Act'') for an exemption 
from sections 18(a)(2), 18(c), and 18(i) of the 1940 Act, pursuant to 
section 6(c) and 23(c) of the 1940 Act for an exemption from rule 23c-3 
under the 1940 Act, and for an order pursuant to section 17(d) of, and 
rule 17d-1 under, the 1940 Act.
    Summary of Application: Applicants request an order to permit 
certain registered closed-end management investment companies to issue 
multiple classes of shares of beneficial interest (``Shares'') and to 
impose asset-based service and/or distribution fees and early 
withdrawal charges.
    Applicants: KKR Credit Opportunities Portfolio (the ``Initial 
Fund'') and KKR Credit Advisors (US) LLC (the ``Adviser'').
    Filing Dates: The application was filed on September 11, 2019, and 
amended and restated on December 16, 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 emailing the Commission's 
Secretary at [email protected] and serving applicants with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on May 11, 2020, and should be accompanied 
by proof of service on the applicants, in the form of an affidavit or, 
for lawyers, a certificate of service.
    Pursuant to rule 0-5 under the 1940 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 emailing the Commission's Secretary at 
[email protected].

ADDRESSES: The Commission: [email protected]. Applicants: c/o 
Mike Nguyen, by email to [email protected].

FOR FURTHER INFORMATION CONTACT: Jay M. Williamson, Senior Counsel, at 
(202) 551-3393, or David Nicolardi, 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 by searching the 
Commission's website, at http://www.sec.gov/search/search.htm, using 
the application's file number or the applicant's name, or by calling 
the Commission at (202) 551-8090.

Applicants' Representations

    1. The Initial Fund is a newly organized Delaware statutory trust 
that is registered under the 1940 Act as a closed-end management 
investment company and classified as a non- diversified investment 
company. The Initial Fund's investment objective is to seek to provide 
attractive risk-adjusted returns and high current income.
    2. The Adviser, a Delaware organized limited liability company, is 
registered as an investment adviser under the Investment Advisers Act 
of 1940. The Adviser serves as investment adviser to the Initial Fund.
    3. The applicants seek an order to permit the Initial Fund to offer 
investors multiple classes of Shares with varying sales loads and 
asset-based service and/or distribution fees and to impose early 
withdrawal charges.
    4. Applicants request that the order also apply to any other 
registered closed-end management investment company that conducts a 
continuous offering of its shares, existing now or in the future, for 
which the Adviser, its successors,\1\ or any entity controlling, 
controlled by, or under common control with the Adviser, or its 
successors, acts as investment adviser, and which provides periodic 
liquidity with respect to its Shares through tender offers conducted in 
compliance with either rule 23c-3 under the 1940 Act or rule 13e-4 
under the Securities Exchange Act of 1934 (the ``1934 Act'') (each such 
closed-end management investment company a ``Future Fund'' and, 
together with the Initial Fund, each a ``Fund,'' and collectively 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\ The Initial Fund and any Future Fund relying on the 
requested relief will do so in compliance with the terms and 
conditions of the application. Applicants represent that any person 
presently intending to rely on the requested relief is listed as an 
applicant.
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    5. The Initial Fund currently issues a single class of Shares (the 
``Initial Class Shares''). The Initial Class Shares are currently being 
offered on a continuous basis pursuant to a registration statement 
under the Securities Act of 1933 at their net asset value per share. 
The Initial Fund, as a closed-end management investment company, does 
not continuously redeem Shares as does an open-end management 
investment company. Shares of the Initial Fund are not listed on any 
securities exchange and do not trade on an over-the-counter system. 
Applicants do not expect that any secondary market will ever develop 
for the Shares.
    6. If the requested relief is granted, the Initial Fund intends to 
offer multiple classes of Shares, such as the Initial Class Shares and 
a new Share class (the ``New Class Shares''), or any other classes. 
Because of the different distribution fees, shareholder services fees, 
and any other class expenses that may be attributable to the different 
classes, the net income attributable to, and any dividends payable on, 
each class of Shares may differ from each other from time to time.
    7. Applicants state that, from time to time, the Board of a Fund 
may create and offer additional classes of Shares, or may vary the 
characteristics described of the Initial Class and New Class Shares, 
including without limitation, in the following respects: (1) The amount 
of fees permitted by a distribution and service plan as to such class; 
(2) voting rights with respect to a distribution and service plan as to 
such class; (3) different class designations; (4) the impact of any 
class expenses directly attributable to a particular class of Shares 
allocated on a class basis as

[[Page 22476]]

described in the application; (5) differences in any dividends and net 
asset values per Share resulting from differences in fees under a 
distribution and service plan or in class expenses; (6) any early 
withdrawal charge or other sales load structure; and (7) any exchange 
or conversion features, as permitted under the 1940 Act.
    8. Applicants state that, in order to provide some liquidity to 
shareholders, the Initial Fund is structured as an ``interval fund'' 
and makes quarterly offers to repurchase between five percent and 
twenty-five percent of its outstanding Shares at net asset value, 
pursuant to rule 23c-3 under the 1940 Act, unless such offer is 
suspended or postponed in accordance with regulatory requirements. Any 
other investment company that intends to rely on the requested relief 
will provide periodic liquidity to shareholders in accordance with 
either rule 23c-3 under the 1940 Act or rule 13e-4 under the 1934 Act.
    9. Applicants represent that any asset-based distribution and 
servicing fee of a Fund will comply with the provisions of Rule 2341 of 
the Rules of the Financial Industry Regulatory Authority (``FINRA Rule 
2341'').\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 if it were an open-
end management investment company, each Fund will disclose fund 
expenses borne by shareholders during the reporting period in 
shareholder reports \4\ and describe in its prospectus any arrangements 
that result in breakpoints in, or elimination of, sales loads.\5\ In 
addition, applicants will comply with applicable enhanced fee 
disclosure requirements for fund of funds, including registered funds 
of hedge and private equity funds.\6\
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    \3\ Any references to FINRA Rule 2341include any successor or 
replacement rule that may be adopted by FINRA.
    \4\ Shareholder Reports and Quarterly Portfolio Disclosure of 
Registered Management Investment Companies, Investment Company Act 
Release No. 26372 (Feb. 27, 2004) (adopting release).
    \5\ Disclosure of Breakpoint Discounts by Mutual Funds, 
Investment Company Act Release No. 26464 (June 7, 2004) (adopting 
release).
    \6\ Fund of Funds Investments, Investment Company Act Release 
Nos. 26198 (Oct. 1, 2003) (proposing release) and 27399 (June 20, 
2006) (adopting release). See also rules 12d1-1, et seq. under the 
1940 Act.
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    10. Each Fund and its distributor (the ``Distributor'') will also 
comply with any requirements that may be adopted by the Commission or 
FINRA regarding disclosure at the point of sale and in transaction 
confirmations about the costs and conflicts of interest arising out of 
the distribution of open-end management investment company shares, and 
regarding prospectus disclosure of sales loads and revenue sharing 
arrangements as if those requirements apply to the Fund and the 
Distributor. Each Fund or the Distributor will contractually require 
that any other distributor of the Fund's Shares comply with such 
requirements in connection with the distribution of Shares of the Fund.
    11. All expenses incurred by a Fund will be allocated among its 
various classes of Shares based on the net assets of the Fund 
attributable to each class, except that the net asset value and 
expenses of each class will reflect the expenses associated with the 
distribution and service plan of that class (if any), shareholder 
services fees attributable to a particular class (including transfer 
agency fees, if any), and any other incremental expenses of that class. 
Expenses of a Fund allocated to a particular class of the Fund's Shares 
will be borne on a pro rata basis by each outstanding Share of that 
class. Applicants state that each Fund will comply with the provisions 
of rule 18f-3 under the 1940 Act as if it were an open-end management 
investment company.
    12. Applicants state that the Initial Fund does not intend to offer 
any exchange privilege or conversion feature, but any such privilege or 
feature introduced in the future by a Fund will comply with rule 11a-1, 
rule 11a-3, and rule 18f-3 as if the Fund were an open-end management 
investment company.
    13. Applicants state that the Initial Fund does not currently 
impose, nor does it currently intend to impose, an early withdrawal 
charge. In the future, however, a Fund may impose an early withdrawal 
charge on shares submitted for repurchase that have been held less than 
a specified period. Each Fund may waive the early withdrawal charges on 
repurchases for certain categories of shareholders or transactions to 
be established from time to time. Applicants state that each Fund will 
apply the early withdrawal charge (and any waivers or scheduled 
variations of the early withdrawal charge) uniformly to all 
shareholders in a given class and consistently with the requirements of 
rule 22d-1 under the 1940 Act as if the Fund were an open-end 
management investment company.
    14. The Initial Fund, operating as an interval fund pursuant to 
rule 23c-3 under the 1940 Act, does not presently intend to, but a Fund 
(including the Initial Fund in the future) may, offer its shareholders 
an exchange feature under which the shareholders of the Fund may, in 
connection with the Fund's periodic repurchase offers, exchange their 
Shares of the Fund for shares of the same class of (i) Registered open-
end management investment companies or (ii) other registered closed-end 
investment companies that comply with rule 23c-3 under the 1940 Act and 
continuously offer their shares at net asset value, that are in the 
Fund's group of investment companies (collectively, the ``Other 
Funds''). Shares of a Fund operating pursuant to rule 23c-3 that are 
exchanged for shares of Other Funds will be included as part of the 
repurchase offer amount for such Fund as specified in rule 23c-3 under 
the 1940 Act. Any exchange option will comply with rule 11a-3 under the 
1940 Act, as if the Fund were an open-end management investment company 
subject to rule 11a-3. In complying with rule 11a-3 under the 1940 Act, 
each Fund will treat an early withdrawal charge as if it were a 
contingent deferred sales load (a ``CDSL'').\7\
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    \7\ A CDSL, assessed by an open-end fund pursuant to Rule 6c-10 
under the 1940 Act, is a distribution-related charge payable to the 
distributor. Pursuant to the requested order, the early withdrawal 
charge will likewise be a distribution-related charge payable to the 
distributor as distinguished from a repurchase fee which is payable 
to a Fund.
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    15. Applicants state that the Initial Fund does not currently, nor 
does it currently intend to, impose a repurchase fee, but may do so in 
the future.\8\ If a Fund charges a repurchase fee, Shares of the Fund 
will be subject to a repurchase fee at a rate of no greater than two 
percent of the shareholder's repurchase proceeds if the interval 
between the date of purchase of the Shares and the valuation date with 
respect to the repurchase of those Shares is less than one year. 
Repurchase fees, if charged, will equally apply to all classes of 
Shares of the Fund, consistent with section 18 of the 1940 Act and rule 
18f-3 thereunder. To the extent a Fund determines to waive, impose 
scheduled variations of, or eliminate a repurchase fee, it will do so 
consistently with the requirements of rule 22d-1 under the 1940 Act as 
if the repurchase fee were a CDSL and as if the Fund were a registered 
open-end management investment company. In addition, the Fund's waiver 
of, scheduled variation in, or elimination of the repurchase fee

[[Page 22477]]

will apply uniformly to all shareholders of the Fund regardless of 
class.
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    \8\ Unlike a distribution-related charge, the repurchase fee is 
payable to the Fund to compensate long-term shareholders for the 
expenses related to shorter-term investors, in light of the Fund's 
generally longer-term investment horizons and investment operations.
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Applicants' Legal Analysis

Multiple Classes of Shares

    1. Section 18(a)(2)(A) and (B) makes it unlawful for a registered 
closed-end management investment company to issue a senior security 
that is a stock unless (a) immediately after such issuance it will have 
an asset coverage of at least 200% and (b) provision is made to 
prohibit the declaration of any distribution upon its common stock, or 
the purchase of any such common stock, unless in every such case such 
senior security has at the time of the declaration of any such 
distribution, or at the time of any such purchase, an asset coverage of 
at least 200% after deducting the amount of such distribution or 
purchase price, as the case may be. 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 section 18(a)(2)'s requirements with 
respect to a class of Shares that may be a senior security.
    2. Section 18(c) of the 1940 Act provides, in relevant part, that a 
registered closed-end management investment company may not issue or 
sell any senior security which is a stock if immediately thereafter the 
company will have outstanding more than one class of senior security 
that is a stock. Applicants state that the creation of multiple classes 
of Shares of a Fund 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 1940 Act generally 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 permitting multiple classes of 
Shares of a Fund may violate section 18(i) of the 1940 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 1940 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 1940 
Act, or from any rule or regulation under the 1940 Act, if and to the 
extent that 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 1940 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 is equitable and will not 
discriminate against any group or class of shareholders. Applicants 
submit that the proposed arrangements would permit each Fund to 
facilitate the distribution of its Shares and provide investors with a 
broader choice of shareholder options. Applicants assert that the 
proposed closed-end management investment company multiple class 
structure does not raise the concerns underlying section 18 of the 1940 
Act to any greater degree than open-end management investment 
companies' multiple class structures that are permitted by rule 18f-3 
under the 1940 Act. Applicants state that each Fund will comply with 
the provisions of rule 18f-3 as if it were an open-end management 
investment company.

Early Withdrawal Charges

    1. Section 23(c) of the 1940 Act provides, in relevant part, that 
no registered closed-end management 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 1940 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 
1940 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) of the 1940 Act provides that the Commission 
may issue an order that would permit a closed-end management 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 each 
Fund to impose early withdrawal charges on shares of the Fund submitted 
for repurchase that have been held for less than a specified period.
    5. Applicants state that the early withdrawal charges they intend 
to impose are functionally similar to CDSLs imposed by open-end 
management investment companies under rule 6c-10 under the 1940 Act. 
Rule 6c-10 permits open-end management 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. Applicants state 
that these same policy considerations support imposition of early 
withdrawal charges in the interval fund context, and are a solid basis 
for the Commission to grant exemptive relief to permit interval funds 
to impose early withdrawal charges. In addition, applicants state that 
early withdrawal charges may be necessary for the Fund's Distributor to 
recover distribution costs from shareholders who exit their investments 
early. Applicants represent that any early withdrawal charge imposed by 
a Fund will comply with rule 6c-10 under the 1940 Act as if the rule 
were applicable to closed-end management investment companies.
    Each Fund will disclose early withdrawal charges in accordance with 
the requirements of Form N-1A concerning CDSLs.

Asset-Based Service and/or Distribution Fees

    1. Section 17(d) of, and rule 17d-1 under, the 1940 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 
other 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 1940 Act, and the extent 
to which the participation is on a basis different from or less 
advantageous than that of other participants.

[[Page 22478]]

    2. Rule 17d-3 under the 1940 Act provides an exemption from section 
17(d) and rule 17d-1 to permit open-end management investment companies 
to enter into distribution arrangements pursuant to rule 12b-1 under 
the 1940 Act. Applicants request an order under section 17(d) of, and 
rule 17d-1 under, the 1940 Act, to the extent necessary, to permit each 
Fund to impose asset-based service and/or distribution fees (in a 
manner similar to rule 12b-1 fees for an open-end management investment 
company). Applicants have agreed to comply with rules 12b-1 and 17d-3 
as if those rules apply to closed-end management 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 service and/or distribution fees.
    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 1940 
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 service and/
or distribution fees is consistent with the provisions, policies, and 
purposes of the 1940 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 requested 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 1940 Act, as amended from time to time 
or replaced, as if those rules applied to closed-end management 
investment companies, and will comply with FINRA Rule 2341, as 
amended from time to time, as if that rule applies to all closed-end 
management investment companies.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08476 Filed 4-21-20; 8:45 am]
BILLING CODE 8011-01-P