Oaktree Fund Advisors, LLC and Oaktree Diversified Income Fund Inc.

CourtSecurities And Exchange Commission
Citation86 FR 71301
Record Number2021-27158
Publication Date15 December 2021
Federal Register, Volume 86 Issue 238 (Wednesday, December 15, 2021)
[Federal Register Volume 86, Number 238 (Wednesday, December 15, 2021)]
                [Notices]
                [Pages 71301-71304]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-27158]
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                SECURITIES AND EXCHANGE COMMISSION
                [Investment Company Act Release No. 34436; 812-15246]
                Oaktree Fund Advisors, LLC and Oaktree Diversified Income Fund
                Inc.
                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: Oaktree Diversified Income Fund Inc. (the ``Initial
                Fund'') and Oaktree Fund Advisors, LLC (the ``Adviser'' and together
                with the Initial Fund the ``Applicants'').
                 Filing Dates: The application was filed on July 9, 2021, and
                amended on September 24, 2021 and December 3, 2021.
                 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, personally or by mail. Hearing requests should be
                received by the Commission by 5:30 p.m. on January 4, 2022 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 emailing the Commission's Secretary at [email protected].
                ADDRESSES: The Commission: [email protected]. Applicants:
                Michael R. Rosella, Esq., Vadim Avdeychik, Esq., Paul Hastings LLP, 200
                Park Avenue, New York, New York 10166; Brian Hurley, Esq., Oaktree
                Diversified Income Fund Inc., Brookfield Place, 250 Vesey Street, 15th
                Floor, New York, New York 10281-1023.
                FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at
                (202) 551-6876 or Trace W. Rakestraw, 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 http://www.sec.gov/search/search.htm or by calling (202) 551-8090.
                 Applicants' Representations:
                 1. The Initial Fund is a newly organized Maryland corporation that
                is registered under the Act as a closed-end management investment
                company. The Initial Fund is classified as a diversified investment
                company as defined under section 5(b)(1) of the Act. The Initial Fund
                operates as an ``interval fund'' pursuant to rule 23c-3 under the Act
                and continuously offers its shares.
                 2. The Adviser is a Delaware limited liability company registered
                as an investment adviser under the Investment Advisers Act of 1940, as
                amended. The Adviser serves as investment adviser to the Initial Fund.
                 3. Applicants seek an order to permit the Initial Fund to issue
                multiple classes
                [[Page 71302]]
                of shares, each having its own fee and expense structure, and to impose
                asset-based distribution and 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 Adviser or any entity controlling, controlled by, or under
                common control with the Adviser, or any successor in interest to any
                such entity,\1\ acts as investment adviser, 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 (the ``Exchange Act'') (each, a
                ``Future Fund'' and together with the Initial Fund, 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
                compliance 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 Initial Fund makes a continuous public offering of its
                shares. Applicants state that additional offerings by any Fund relying
                on the order may be on a private placement or public offering basis.
                Shares of the Funds will not be listed on any securities exchange, nor
                quoted on any quotation medium. The Funds do not expect there to be a
                secondary trading market for their shares.
                 6. If the requested relief is granted, the Initial Fund may offer
                classes of shares in addition to its initial share class, with each
                class having its own fee and expense structure. The terms of any
                additional classes may differ from the initial class pursuant to and in
                compliance with rule 18f-3 under the Act.
                 7. Applicants state that shares of a Fund may be subject to a
                repurchase fee at a rate of no greater than 2% 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. Any repurchase fee will apply equally to
                all classes of shares of a Fund, consistent with section 18 of the Act
                and rule 18f-3 thereunder. Further, applicants represent that to the
                extent a Fund determines to waive, impose scheduled variations of, or
                eliminate any repurchase fee, it will do so consistently with the
                requirements of rule 22d-1 under the Act as if the repurchase fee were
                a CDSL (defined below) and as if the Fund were an open-end investment
                company and the Fund's waiver of, scheduled variation in, or
                elimination of, any such repurchase fee will apply uniformly to all
                shareholders of the Fund regardless of class.
                 8. Applicants state that the Initial Fund adopted a fundamental
                policy to repurchase a specified percentage of its shares (no less than
                5% and not more than 25%) at net asset value on a periodic basis. Such
                repurchase offers will be conducted pursuant to rule 23c-3 under the
                Act.\3\ Each Future Fund will likewise adopt a fundamental investment
                policy in compliance with rule 23c-3 and make periodic repurchase
                offers to its shareholders, or 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.
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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 distribution and/or
                service fees for each class of shares of the Funds will comply with the
                provisions of FINRA Rule 2341 (``Sales Charge Rule'').\4\ 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.\5\ As is required for open-end funds, each Fund
                will disclose fund expenses borne by shareholders during the reporting
                period in shareholder reports, and describe in their prospectuses any
                arrangements that result in breakpoints in or elimination of sales
                loads in its prospectus.\6\ In addition, applicants will comply with
                applicable enhanced fee disclosure requirements for fund of funds,
                including registered funds of hedge funds.\7\
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                 \4\ Any reference to the Sales Charge Rule includes any
                successor or replacement Sales Charge Rule that may be adopted by
                the Financial Industry Regulatory Authority (``FINRA'').
                 \5\ In all respects other than class-by-class disclosure, each
                Fund will comply with the requirements of Form N-2.
                 \6\ 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).
                 \7\ 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 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 Fund. In
                addition, each Fund will contractually require that any distributor of
                the Fund's shares comply with such requirements in connection with the
                distribution of such Fund's shares.
                 11. 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 grant waivers of the EWCs on repurchases in connection
                with 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 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 Fund were an
                open-end investment company.
                 13. 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 the 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, 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 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
                [[Page 71303]]
                if it were a contingent deferred sales load (``CDSL'').\8\
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                 \8\ A CDSL, which may be assessed by an open-end fund pursuant
                to rule 6c-10 of the Act, is a distribution related charge payable
                to the distributor. Pursuant to the requested order, any EWC will
                likewise be a distribution-related charge payable to the distributor
                as distinguished from a repurchase fee, which is payable to a Fund
                to reimburse the Fund for costs incurred in liquidating securities
                in the Fund's portfolio.
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                 Applicants' Legal Analysis:
                 Multiple Classes of Shares
                 1. Section 18(a)(2) of the Act makes it unlawful for a closed-end
                investment company to issue 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
                registered closed-end investment company may not issue or sell any
                senior security that is stock if, immediately thereafter, the company
                has outstanding more than one class of senior security that is stock.
                Section 18(g) of the Act defines ``senior security'' that is stock as
                ``any stock of a class having priority over any other class as to
                distribution of assets or payment of dividends''. Applicants state that
                the creation of multiple classes of Shares of a Fund proposed herein
                may result in Shares of a class having ``priority over another class as
                to payment of dividends,'' and being deemed a ``senior security,''
                because shareholders of different classes may pay different
                distribution fees, different shareholder services fees, and any other
                expense (as described elsewhere in this notice). Accordingly,
                applicants state that the creation of multiple classes of Shares of a
                Fund with different fees and expenses may be prohibited by section
                18(c).
                 3. Section 18(i) of the Act provides, in relevant part, 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. 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 investment companies. The Funds will
                disclose EWCs in accordance with the requirements of Form N-1A
                concerning CDSLs as if the Fund were an open-end investment company.
                Asset-Based Service and Distribution Fees
                 1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
                an affiliated person of (or principal underwriter for) 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 the Funds to impose asset-
                based distribution and/or service fees. Applicants have agreed to
                comply
                [[Page 71304]]
                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 service and 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 ensure 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 management investment companies, and will comply with the
                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.
                 Dated: December 10, 2021.
                J. Matthew DeLesDernier,
                Assistant Secretary.
                [FR Doc. 2021-27158 Filed 12-14-21; 8:45 am]
                BILLING CODE 8011-01-P
                

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