[Federal Register Volume 86, Number 212 (Friday, November 5, 2021)]
[Notices]
[Pages 61337-61339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24295]



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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34414; 812-15200]


AFA Multi-Manager Credit Fund and Alternative Fund Advisors, LLC

November 2, 2021.
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 with varying sales loads and asset-based service and/
or distribution fees and to impose early withdrawal charges (``EWCs'').

Applicants:  AFA Multi-Manager Credit Fund (the ``Initial Fund'') and 
Alternative Fund Advisors, LLC (the ``Adviser'' and together with the 
Initial Fund, the ``Applicants'').

Filing Dates:  The application was filed on February 5, 2021, and 
amended on April 30, 2021 and July 20, 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 by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on November 29, 2021 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 to the Commission's Secretary at [email protected].

ADDRESSES: The Commission: [email protected]. Applicants: 
Joshua B. Deringer, by email to [email protected].

FOR FURTHER INFORMATION CONTACT: Steven B. Levine, Senior Counsel, or 
Nadya Roytblat, Assistant Chief Counsel, 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 Delaware statutory trust that is 
registered under the Act as a closed-end management investment company 
and operated as an interval fund pursuant to rule 23c-3 under the Act. 
The primary investment objective of the Initial Fund is to provide a 
high level of current income, with capital appreciation as a secondary 
objective. The Initial Fund pursues its investment objective primarily 
by investing, either directly or indirectly, in a range of private and 
public credit securities and other credit-related investments.
    2. The Adviser is a Delaware limited liability company and is an 
investment adviser registered with the Commission under the Investment 
Advisers Act of 1940. The Adviser serves as investment adviser to the 
Initial Fund.
    3. Applicants seek an order to permit the Funds (as defined below) 
to issue multiple classes of interests (``Shares'') \1\ with varying 
sales loads and asset-based service and/or distribution fees and to 
impose EWCs.
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    \1\ As used in the application, ``Shares'' includes any other 
equivalent designation of a proportionate ownership interest of the 
Initial Fund (or any other registered closed-end management 
investment company relying on the requested order).
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    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,\2\ acts as investment adviser and that 
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, as amended (the 
``Exchange Act'') (each, a ``Future Fund'' and together with the 
Initial Fund, the ``Funds'').\3\
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    \2\ 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.
    \3\ Applicants represent that any of the Funds relying on this 
relief in the future will do so in a compliance with the terms and 
conditions of the application. Applicants further 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 is currently offering its common shares of 
beneficial interest (``Initial Class Shares'') on a continuous basis. 
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, and 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 intends to 
continuously offer at least one additional class of Shares (``New Class 
Shares''). Each of the Initial Class Shares and the New Class Shares 
will have its own fee and expense structure. Because of the different 
distribution and/or service 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.
    7. Applicants state that, from time to time, the Initial Fund may 
create additional classes of Shares, the terms of which may differ from 
its Initial Class Shares and New Class Shares pursuant to and in 
compliance with rule 18f-3 under the Act.
    8. Applicants state that Shares of a Fund may be subject to a 
repurchase fee at a rate not to exceed 2% of the aggregate net asset 
value of a shareholder's Shares repurchased by a Fund (an ``Early 
Repurchase Fee'') 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 Early Repurchase Fee imposed by a 
Fund will apply to all classes of Shares of the 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 Early Repurchase Fee, it will 
do so consistently with the requirements of rule 22d-1 under the Act as 
if the Early 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 Early Repurchase 
Fee will apply uniformly to all shareholders of the Fund regardless of 
class.

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    9. Applicants state that the Initial Fund has adopted a fundamental 
policy to repurchase a specified percentage of its Shares (no less than 
5% and no more than 25%) at net asset value on a quarterly basis. Such 
repurchase offers will be conducted pursuant to rule 23c-3 under the 
Act. Each of the other 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.\4\ 
Any repurchase offers made by the Funds will be made to all holders of 
Shares of each such Fund.
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    \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.
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    10. Applicants represent that any asset-based service and/or 
distribution fees for each class of Shares of the Funds will comply 
with the provisions of FINRA Rule 2341(d) (formerly NASD rule 2380(d)) 
(the ``FINRA Sales Charge Rule'').\5\ Applicants also represent that 
each Fund will include in its prospectus disclosure of the fees, 
expenses and other characteristics of each class of Shares offered for 
sale by the prospectus, as is required for open-end multi-class funds 
under Form N-1A.\6\ 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 its prospectus any 
arrangements that result in breakpoints in, or elimination of, sales 
loads.\7\ In addition, applicants will comply with applicable enhanced 
fee disclosure requirements for fund of funds including registered 
funds of hedge funds.\8\
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    \5\ All references in the application to the FINRA Sales Charge 
Rule includes any successor or replacement 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.
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    11. 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.
    12. 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 established 
from time to time. Applicants state that each Fund will apply the EWC 
(and any waivers, scheduled variations or eliminations 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.
    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 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, 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 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 
registered 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 
multi-class system proposed in the Application 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 would pay different distribution and/
or service fees, different administrative fees and any other 
incremental expenses that should be properly allocated to a particular 
class. 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/or service arrangements 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

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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 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 funds. Applicants further represent that 
each Fund 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 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 the Funds to impose asset-
based distribution and/or service fees. Applicants represent that the 
Funds will 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 and/or 
service fees.
    3. For the reasons stated above, Applicants submit that the 
exemptions requested under section 6(c) of the Act 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) of the Act 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 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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24295 Filed 11-4-21; 8:45 am]
BILLING CODE 8011-01-P


