[Federal Register Volume 82, Number 207 (Friday, October 27, 2017)]
[Notices]
[Pages 49900-49903]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23367]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32865; 812-14795]


Blackstone/GSO Floating Rate Enhanced Income Fund, et al.

October 23, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

[[Page 49901]]


ACTION:  Notice.

-----------------------------------------------------------------------

    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)(3) 
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 
shareholder service fees and early withdrawal charges.

Applicants:  Blackstone/GSO Floating Rate Enhanced Income Fund 
(``BGFREI''), GSO/Blackstone Debt Funds Management LLC (the 
``Adviser''), and Blackstone Advisory Partners L.P. (the 
``Distributor'').

Filing Dates:  The application was filed on July 3, 2017 and amended on 
October 17, 2017.

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 November 17, 2017, 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: 345 Park Avenue, 
31st Floor, New York, NY 10154.

FOR FURTHER INFORMATION CONTACT:  Asen Parachkevov, Senior Counsel, or 
David Marcinkus, Branch Chief, at (202) 551-6821 (Division of 
Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION:  The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. BGFREI is a Delaware statutory trust that is registered under 
the Act as a continuously offered, non-diversified, closed-end 
management investment company that will be operated as an interval 
fund. BGFREI's investment objective is to provide attractive income 
with low sensitivity to rising interest rates.
    2. The Adviser is a Delaware limited liability company and is 
registered as an investment adviser under the Investment Advisers Act 
of 1940. The Adviser serves as investment adviser to BGFREI.
    3. The applicants seek an order to permit the Funds (as defined 
below) to issue multiple classes of shares, each having its own fee and 
expense structure and to impose repurchase fees, early withdrawal 
charges, and asset-based distribution and shareholder service fees with 
respect to certain classes.
    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 and/
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 ``Future Fund'' and together with BGFREI, the ``Funds'').\2\
---------------------------------------------------------------------------

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

    5. BGFREI intends to engage in a continuous offering of its shares 
of beneficial interest. 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 publicly traded. There is currently no 
secondary market for the Funds' shares and the Funds expect that no 
secondary market will develop.
    6. If the requested relief is granted, BGFREI will offer Class T, 
Class D and Class I shares, with each class having its own fee and 
expense structure, and may also offer additional classes of shares in 
the future. Because of the different distribution and/or shareholder 
services fees, services and any other class expenses that may be 
attributable to each of BGFREI's Class T, Class D and Class I 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 Funds may create 
additional classes of shares, the terms of which may differ from Class 
T, Class D and Class I shares in the following respects: (i) The amount 
of fees permitted by different distribution plans or different 
shareholder services fee arrangements; (ii) voting rights with respect 
to a distribution and/or shareholder services plan of a class; (iii) 
different class designations; (iv) the impact of any class expenses 
directly attributable to a particular class of shares allocated on a 
class basis as described in the application; (v) any differences in 
dividends and net asset value resulting from differences in fees under 
a distribution and/or shareholder services plan or in class expenses; 
(vi) any early withdrawal charge or other sales load structure; and 
(vii) exchange or conversion privileges of the classes as permitted 
under the Act.
    8. Applicants state that BGFREI is also seeking exemptive relief 
from the Commission to permit it to adopt a fundamental policy to 
repurchase 5% of its shares at net asset value on a monthly basis.\3\ 
If such relief is not granted, BGFREI intends to adopt a fundamental 
policy to conduct repurchase offers on a quarterly basis. Such 
repurchase offers will be conducted pursuant to rule 23c-3 under the 
Act. Each of the other Funds will likewise adopt fundamental investment 
policies in compliance with rule 23c-3 and make repurchase offers to 
its shareholders at periodic intervals and/or provide periodic 
liquidity with respect to its shares pursuant to rule 13e-4 under the 
Exchange Act.\4\ Any repurchase offers made by the Funds will be made 
to all holders of shares of each Fund.
---------------------------------------------------------------------------

    \3\ See In the Matter of Blackstone/GSO Floating Rate Enhanced 
Income Fund, et al., File Number 812-14796.
    \4\ 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.
---------------------------------------------------------------------------

    9. Applicants represent that any asset-based shareholder services 
and

[[Page 49902]]

distribution fees for each class of shares will comply with the 
provisions of FINRA Rule 2341(d) (``FINRA Sales Charge Rule'').\5\ 
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.\6\ 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.\7\ In addition, 
applicants will comply with applicable enhanced fee disclosure 
requirements for fund of funds, including registered funds of hedge 
funds.\8\
---------------------------------------------------------------------------

    \5\ All references in the application to the FINRA Sales Charge 
Rule include any Financial Industry Regulatory Authority successor 
or replacement rule to the FINRA Sales Charge Rule.
    \6\ In all respects other than class-by-class disclosure, each 
Fund will comply with the requirements of Form N-2.
    \7\ 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).
    \8\ 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.
---------------------------------------------------------------------------

    10. Each of the Funds 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 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. Each Fund will allocate all expenses incurred by it among the 
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 distribution fees, shareholder 
service fees, and any other incremental expenses of that class. 
Expenses of the 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 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 Fund may impose an early withdrawal 
charge on shares submitted for repurchase that have been held less than 
a specified period and may waive the early withdrawal charge for 
certain categories of shareholders or transactions to be established 
from time to time. Applicants state that each of the Funds 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 
Act as if the Funds were open-end investment companies.
    13. Applicants state that BGFREI will (and any Future Fund, as 
applicable, may) charge a repurchase fee of up to 2% on the common 
shares accepted for repurchase (including those that have been held by 
the investor for less than one year), in addition to any early 
withdrawal charge. Shares of any Future Fund, to the extent such Future 
Fund does not comply with the requirements of rule 23c-3 under the Act, 
will be subject to a repurchase fee at a rate no greater than 2% of a 
shareholder's repurchase proceeds if the date as of which the shares 
are to be valued for purposes of repurchase is less than one year 
following the investor's initial investment in such Future Fund. 
Repurchase fees will equally apply to new class shares and to all 
classes of shares of BGFREI (and any Future Fund, as applicable), 
consistent with section 18 of the Act and rule 18f-3 thereunder. To the 
extent BGFREI (and any Future Fund, as applicable) 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 Act 
and as if such fund were an open-end investment company and such Fund's 
waiver of, scheduled variation in, or elimination of, the repurchase 
fee will apply uniformly to all shareholders of such fund regardless of 
class.
    14. 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, ``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 early withdrawal charge as if it 
were a contingent deferred sales load.

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)

[[Page 49903]]

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 shares 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 a registered closed-end 
investment company (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 early withdrawal charges on shares of the Funds 
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 contingent deferred sales loads 
imposed by open-end investment companies under rule 6c-10 under the 
Act. Rule 6c-10 permits open-end investment companies to impose 
contingent deferred sales loads, subject to certain conditions. 
Applicants note that rule 6c-10 is grounded in policy considerations 
supporting the employment of contingent deferred sales loads where 
there are adequate safeguards for the investor and state that the same 
policy considerations support imposition of early withdrawal charges in 
the interval fund context. In addition, applicants state that early 
withdrawal charges may be necessary for the distributor to recover 
distribution costs. Applicants represent that any early withdrawal 
charge 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 early withdrawal charges in accordance with the 
requirements of Form N-1A concerning contingent deferred sales loads.

Asset-Based Distribution and Shareholder 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 the Fund to impose asset-
based distribution and shareholder 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.
    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 shareholder 
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 
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,
Assistant Secretary.
[FR Doc. 2017-23367 Filed 10-26-17; 8:45 am]
 BILLING CODE 8011-01-P


